Customs, Excise and Services Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The coram of Sulekha Beevi C.S. (Judicial Member) and P. Anjani Kumar (Technical Member) allowed an appeal which was filed aggrieved by the order of the original authority confirming the demand interest and imposed penalty, including a separate penalty on the Former Chief Financial Officer of Indian Overseas Bank. 

 

Appellant-bank allegedly  had wrongly availed CENVAT Credit in respect of the Service Tax paid on deposit insurance service provided by Deposit Insurance and Credit Guarantee Corporation (hereinafter referred to as ‘DICGC’), investigation was initiated by the Kochi Regional Unit of the Directorate General of Central Excise Intelligence (DGCEI). Scrutiny of documents and statements recorded indicated that the credit availed on the Service Tax paid on deposit insurance service was ineligible. Show Cause Notice was issued proposing to disallow the wrongly availed credit and also to recover the same along with interest and also for imposing penalty.  

 

Counsel of the appellants submitted that the question involved was whether the appellant-bank can avail credit of the Service Tax on the deposit insurance service provided by DICGC. As per Section 15 of the DICGC Act, every insured bank has to pay premium at the rate notified by them. That the appellant has paid Service Tax on the basis of the premium / fees paid by them to DICGC to insure the deposits. That this is an input service for the appellant-bank and the appellant has correctly availed credit of the Service Tax paid to DICGC. 

 

The Tribunal followed the decision in South Indian Bank Ltd. v. CCE, 2020 SCC OnLine CESTAT 2395 wherein it was held that insurance service provided by DICGC to the banks is an input service and the credit of Service Tax is eligible. 

The Tribunal while allowing the appeal held that the credit of the Service Tax paid on the basis of premium paid to DICGC is eligible for Cenvat Credit. 

 

[Indian Overseas Bank v. Commr. of CE&ST, Service Tax Appeal No. 40702 of 2016, decided on June 10, 2022] 


Ms Shwetha Vasudevan, Advocate for the Appellant 

Ms K. Komathi, Authorized Representative for the Respondent 


*Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise & Service Tax Appellate Tribunal, New Delhi (CESTAT): The Coram of Dilip Gupta (President) and P.V. Subba Rao (Technical Member), expressed that, service tax can be levied on services rendered by the club to its members.

Factual Matrix


Rajasthan Cooperative Dairy Federation Limited – Appellant was registered under the Rajasthan Co-operative Societies Act, 2001 for implementation of ‘Operation Milk Flood’ in the State and the District Milk Cooperative Societies and milk unions were all members of the appellant.

The Appellant charged an amount @ 1.25% of the annual turnover of milk unions to manage their finances and other services and the said amount was called by the appellant as Rajasthan Cooperative Dairy Federation Cess.

As per the audit report, it was noted that the appellant had started paying service tax on RCDF Cess but had not paid service tax before and that it was liable to pay service tax on RCDF cess before June 2012 under the category of ‘business support services’ under Section 65(104c) of the Finance Act, 1994.

The appellant had paid service tax from July 2012 but had not paid service tax on the RCDF cess for the period prior to this date. Hence, a show-cause notice was issued to the appellant demanding service tax with interest and proposing to impose penalties upon the appellant. The Commissioner passed the impugned order confirming service tax demand of Rs 6,55,25,588 along with interest and penalties were imposed.

In view of the above, the present appeal was filed.

Question for Consideration


Whether the services provided by the appellant to its own members (who are also separate legal entities) can be considered as services provided by one entity to another?

Analysis, Law and Decision

Tribunal found that the Constitution Bench of the Supreme Court in State of W.B. v. Calcutta Club Ltd., (2017) 5 SCC 356, discussed at length the doctrine of mutuality under Article 366 (29A) (e) of the Constitution and held that doctrine of mutuality continues to be applicable to incorporated and unincorporated members’ clubs after the 46th Amendment to the Constitution and, therefore, no sales tax is payable to the State by the Calcutta Club.

Further, it was held that the above-stated logic would apply to service tax levied on members’ clubs.

The law laid down in the above-stated case was that a club and its members are one and the same, therefore any amount paid by the members to the club and the services rendered by the club to its members were self-service and cannot be taxed.

Coram stated that, the fact that the club was incorporated as a separate legal entity made no difference, further it was added that the same principle won’t be applied.

Further, it was expressed that,

“…the nature of the relationship between the appellant and the milk unions continues to that of club to its members.”

Hence, no service tax was payable on the services rendered by the appellant to the milk unions.

Lastly, the Tribunal held that the demand and penalties imposed needed to be set aside. [Rajasthan Co-operative Dairy Federation Ltd. v. Commr., Central Excise, Service Tax Appeal No. 53009 of 2016, decided on 9-5-2022]


Advocates before the Tribunal:

Shri Narendra Singhvi, Advocate for the Appellant

Shri Ravi Kapoor, Authorised Representative for the Respondent

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Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise & Service Tax Appellate Tribunal, Bangalore (CESTAT): The Coram of S.K. Mohanty (Judicial Member) and P. Anjani Kumar (Technical Member) reiterated that, any compensation paid by the employee to the employer for resigning from the service without giving the requisite notice, would not be termed as consideration for the contract of employment and as such, would not fall within the preview of taxable service.

Factual Background


Appellants in the present matter had collected a certain amount as ‘Notice Period Pay’ or ‘Bond Enforcement Amount; from their employees, who wanted to quit the job without notice or do not serve the organization for the prescribed period as per the terms of the employment contract.

Further, during the audit of records maintained by appellants, it was observed that the appellants did not pay service tax on the consideration received on account of ‘notice pay’ from the employees.

In view of the above, show cause proceedings were initiated against the appellants, which culminated into the adjudication order, wherein service tax demand of Rs 6,21,514 and Rs 3,43,561 along with interest was confirmed. Besides, the said order had imposed penalties of Rs 6,21,514 and Rs 34,256 under Sections 78 ibid and 76 ibid respectively.

On appeal against the above adjudication order, the Commissioner (Appeals) vide the impugned order upheld the adjudication orders.

On being aggrieved with the above order, appellants preferred the appeals before the Tribunal.

Analysis, Law and Decision


Tribunal expressed that the term ‘notice pay’ mentioned in the employment contract cannot be considered as a service, more specifically as a taxable service inasmuch as neither of the parties to the contract provided any service to each other.

Coram added that the amount received as compensation by the appellants cannot be equated with the term ‘consideration’ inasmuch as the latter is received for performance under the contract; whereas, the former is received, if the other part fails to perform as per the contractual norms.

Therefore, the impugned orders were set aside, and the appeal were allowed. [XL Health Corpn. India (P) Ltd. v. Commissioner of Central Tax, Final Order Nos. 20225 – 20226 / 2022, decided on 6-5-2022]


Advocates before the Tribunal:

Ravi Banthia & Madhuri Rau, CA: For the appellants

Rama Holla, Superintended (AR): For the respondent

Experts CornerTarun Jain (Tax Practitioner)

  1. Introduction

It is a well-known fact that there is an innate complexity in fiscal law and policy. It has been commented upon by many Judges, much less the experience of ordinary citizens, that it is not easy to decipher the fine text of the tax law. Such policy choices in fiscal laws, however, are there for specific reasons. Larger underlying objectives and competing priorities are often the reason for the crisscross in tax law and policy. A fairly recent debate upon the scope of appellate remedies under the anti-dumping duty (ADD) law is one such illustration which explains the reasons for controversies in the fiscal space. The issue at hand is an innocuous question regarding the jurisdiction of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) and whether there is a provision to file an appeal in ADD dispute in a particular situation. In order to appreciate the controversy some background is necessary. It relates to the peculiar scheme of how the circumstances warranting the levy (or non-levy) of ADD are appreciated under the administrative and legal framework in India which will also explain the reason for the controversy.

  1. Legal framework for levy of anti-dumping duty in India

ADD is administered under the overall customs law framework in India. The Customs Act, 1962 (1962 Act) provides for the legal framework governing import and export of goods in India. However, the 1962 Act does not carry the rate of tax leviable as customs duty. The classification and rate of tax is provided for under the Customs Tariff Act, 1975 (1975 Act). The 1975 Act is also a repository of a host of other taxes which are imposed at the time of import or export of goods. For illustration, safeguard duty, countervailing duty, etc. are certain other illustrations of taxes imposed under the overall customs law framework. However, conceptually ADD is not a customs duty, the latter being levied upon the act of importation of goods in a particular country. Instead ADD is understood as a trade protection measure which is deployed by the importing country in order to deal with the pernicious activity of dumping of goods by another country in the importing country.

The levy of ADD is now internationally aligned in terms of the legal framework mooted by the World Trade Organisation (WTO), as codified in terms of the “Agreement on Implementation of Article 6 of the General Agreement on Tariffs and Trade 1994[1].” This agreement sets out the international consensus and standards on the ingredients to be satisfied for levy of ADD besides the procedural steps and safeguards which are to be observed by the importing country for the levy of ADD. India as a member of the WTO has adopted this framework on ADD both in letter and spirit. In fact the Supreme Court of India has categorically declared that the levy of ADD under the Indian law must be in due compliance of India’s commitment to agree and abide by the WTO Agreement on ADD.[2]

The legal framework in India relating to ADD is set out in Section 9-A of the 1975 Act. This provision is a standalone code governing the levy of ADD and is supplemented by three other provisions in the 1975 Act; (a) Section 9-AA, which provides for refund of ADD in certain cases; (b) Section 9-B, which specifies certain situations in which ADD is not to be levied; and (c) Section 9-C, which provides for appeal to CESTAT in ADD cases. The present controversy relates to the interpretation of this Section 9-C. However, we shall come back to it after a brief appreciation of the administrative position in which ADD is levied in India.

  1. Administrative scheme for levy of anti-dumping duty in India

The Government of India had adopted a peculiar scheme for levy of ADD. Ordinarily the Ministry of Finance (MoF) is the sole repository for the levy of taxes enacted by the Union Parliament. For illustration, income tax, wealth tax, service tax, central excise duty, customs duty, etc. are the various union taxes which have been implemented and enforced by the MoF. The levy of ADD is also the responsibility of the MoF. However, unlike other taxes where the MoF is this sole Judge and authority on the executive and administrative framework of all union taxes, such is not the case in ADD. Instead, an inquiry as to whether ADD should be levied or not is undertaken by the Ministry of Commerce and Industry (MoC) of the Government of India.

The Directorate General of Trade Remedies (DGTR), as a department of the MoC, undertakes the investigation if there is dumping and whether ADD is required to be levied in a given situation. This investigation is undertaken in terms of the Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 (1995 Rules). These 1995 Rules supplement the legal framework for levy of ADD by laying out the detailed procedural framework to be followed by the DGTR during the investigation, including rights and obligations of the affected parties.

What is notable in the aforesaid scheme is that the principal agency empowered to carry out the investigation (i.e. MoC), however, does not have the authority to implement the levy of ADD. The MoC, in a situation in which it considers that levy of ADD is warranted after a technical evaluation of the prescribed variable, can only make a recommendation to the MoF to such effect. It is thereafter the MoF which is the final arbiter as regards the decision whether or not to levy ADD. This is not a mere procedural mechanism whereby the MoC would recommend and the MoF would routinely impose ADD. Instead, it is the MoF which independently evaluates, having regard to other factors which it finds relevant to adjudge the recommendations of the MoC and thereafter arrives at a conclusion whether or not the levy of ADD is warranted. In other words, the MoF can approve or reject the recommendations of MoC. There are multiple illustrations with many such frequent instances, where the MoF disagrees with the MoC and refuses to levy ADD despite a positive recommendation of the MOC to such effect.

  1. Contextualising the issue

It is in the aforesaid legal and administrative framework that the issue arises. Under law as also under the administrative framework, neither any parameter is set out as regards the obligation of MoF while considering the recommendations of MoC nor any enumeration of factors has been made which must be considered by the MoF in order to decide whether or not levy of ADD is warranted in a given fact pattern. Resultantly, the MoF only publishes its conclusion upon review of the recommendations of the MoC. In the event the MoF agrees with the recommendations of the MoC, it will issue a notification under the relevant legal provisions providing for levy of ADD. In such circumstances, the recommendations and the detailed findings of the MoC reflect the rational for the levy of ADD. The affected parties can rely upon such recommendations and findings in order to canvas appropriate legal action in case of prejudice being caused through such levy. In a reverse situation i.e. where the MoF disagrees with the recommendation of the MoC and chooses not to levy any ADD, in such a case the MoF publishes its conclusions regarding the disagreement. However, as a matter of convention, the MoF does not set out the reasons as to why it disagrees with the recommendations and findings of the MoC. It is at this stage that the issue arises because a decision not to levy ADD can also cause prejudice to certain persons.

The precise issue to be answered is whether there is a right of appeal in the event MoF rejects the recommendations of the MoC and decides not to levy ADD.

  1. Appreciating the appellate mechanism for anti-dumping duty

This takes us to legal framework relating to CESTAT as the Appellate Tribunal. Though CESTAT is constituted under the 1962 Act, it is also the Appellate Tribunal for the purposes of ADD. Section 129-B of the 1962 Act provides for the remedy of appeal before the CESTAT in respect of a matters arising in relation to customs law. There is, however, a distinct provision for appeal in relation to ADD. The difference between the scope of two provisions is stark and accordingly warrants a closer review.

Section 129-B of the 1962 Act provides for the appellate remedy against “any order” passed by the specified officer of customs.[3] This is, however, not the case with Section 9-C of the 1975 Act which provides for an appeal remedy before CESTAT in relation to the ADD. In this situation, the appeal provision permits an appeal only “against an order of determination or review” in relation to ADD.[4]

In the aforesaid background, a question has arisen as to whether an appeal can be filed before the CESTAT in a situation where the MoC recommends for levy of ADD but the MoF decides to the contrary and does not levy ADD. Before that, one may ask, why does the issue of filing of appeal even arises when no ADD is levied. This is an interesting question, the response to which lies in appreciating the scheme of ADD. There are multiple interested parties in an ADD contest. As noted above, ADD is a trade protection measure invoked by an importing country the situation of dumping is not conducive to its interests. This is because dumping hurts the domestic industry of the importing country engaged in the manufacture or trade of such goods which have been dumped from abroad. Thus, in a situation where the MoC has concluded and recommended upon the levy of ADD, it implies that there is indeed dumping of goods being carried out in India by the exporters of another country which is creating injury to the domestic industry of India. Thus, in a situation where the MoF disagrees with the recommendation made by the MoC to levy ADD, the view of MoF prejudices the interests of the domestic industry of India insofar as no ADD would be imposed despite the conclusion by the MoC that such ADD is warranted in order to protect the interests of the domestic industry. In such a circumstance, therefore, it is obvious to expect that the domestic industry would be aggrieved by the decision of MoF not to impose ADD and may like to claim legal remedies against the refusal of the MoF to impose ADD. This takes us to the conjoint questions, whether CESTAT has jurisdiction in such a situation and whether the domestic industry (being an aggrieved party) can successfully prosecute an appeal against the MoF’s refusal to levy ADD.

  1. Stock-taking the rival contentions and the current position

There are certain well-settled legal aspects regarding right to appeal; (a) an appeal is a creature of statute; (b) there is no inherent right to file an appeal; (c) a remedy by way of appeal must be specifically provided by law; and (d) no appeal is maintainable in the absence of a specific law providing for an appeal remedy.[5]

Applying this standard, a view has arisen that there is no right of appeal in a situation where the MoF refuses to levy ADD. The proponents of this view indicate two broad reasons to substantiate their position; (a) Section 9-C of the 1975 Act which provides the appellate remedy is limited to a situation where there is an “order of determination or review” in relation to ADD whereas no such order exists in wake of MoF’s refusal to accede to the views of the MoC; and (b) Section 9-C of the 1975 Act, which is specific to ADD, is at contrast with the appeal provision relating to customs duty under the 1962 Act. Under the latter, any person aggrieved has the right to file an appeal against any order passed by the specified customs officer. The contrast between the two provisions is crucial and determinative because this implies that a person being aggrieved is irrelevant under the 1975 Act, and also there is no right of appeal against every order of MoF. Accordingly it is argued that there is no legislative intent to provide for an appeal against MoF’s refusal to impose ADD.

Conversely, those carrying the opposite view contend that the refusal of the MoF to impose ADD despite a positive recommendation of the MoC warrants a judicial review and the appeal mechanism cannot be made defunct by the MoF’s refusal to provide reasons for its disagreement with the detailed findings of the MoC. The proponents of this view highlight that the constitutional scheme neither permits any wing of the Government to act unilaterally or arbitrarily so as to trample upon the legal rights of the citizens nor can the government’s decisions affect the citizens without being substantiated with valid rationale and adequate reasons to support its decision. On this account it is argued that irrespective of the correctness of the view of the MoF that ADD should not be imposed, the MoF does not have an unbridled discretion and it is obliged to give reasons for its decision not to impose ADD. Such reasons it is further contended, must be also subjected to judicial review as non-levy of ADD (particularly when one wing of the Government has concluded and recommended levy of ADD) has serious consequences and severely prejudices the affected domestic industry.

It is crucial to note that the aforesaid discussion and the rival positions are not a hypothetical or mere academic inquiry and in fact have received judicial advertence. In Jindal Poly Film Ltd. v. Designated Authority[6] the Delhi High Court by way of a detailed order rejected a writ petition (as non-maintainable) against refusal of the MoF to levy ADD being of the view that even in such a situation an appeal was maintainable before the CESTAT.[7] This order of the High Court was premised principally upon the conclusion that the refusal of the MoF to levy ADD also constitutes an “order of determination” and thus appeal is indeed maintainable. This order actually reversed the tide as prior to this delineation by the Delhi High Court, the CESTAT was taking a consistent view that no appeal is maintainable when no ADD is levied by the MoF.[8]

The High Court’s exposition of the statutory provisions, however, appears not to have extinguished the debate. For illustration, the Government continues to hold the view that an order of the MoF refusing to levy ADD cannot be subjected to appeal before the Appellate Tribunal. This view of the Government has been noted by the Appellate Tribunal but only to be rejected.[9] However, at this stage, it is not clear if the Government has accepted the position emanating from the legal exposition of the Delhi High Court or would seek the final view by way of appeal to Supreme Court. Thus, as of date, precarious tranquillity prevails on the lis and the aggrieved domestic industry.

  1. Factoring the policy considerations

It is critical to note that the determination whether or not an appeal lies against the MoF’s decision not to levy ADD does not depend only on the interpretation of Section 9-C of the 1975 Act. Instead, there are multiple policy considerations which are relevant in order to arrive at a balanced position. Some of these are enlisted below:

  • The 1995 Rules provide the statutory framework for the levy of ADD. Of these, Rule 18 is relevant for the purpose of our inquiry. It states that “[t]he Central Government may, within three months of the date of publication of final findings by the designated authority under Rule 17, impose by notification in the Official Gazette, … anti-dumping duty ….” Two aspects of this provision are relevant. First, there is no obligation upon the Central Government to impose ADD as Rule 18 states “may”. The contours of this expression are well settled, especially when contrasted from the expression “shall”, which is also frequently employed[10] in the 1995 Rules. Put differently, there is no obligation upon the Government to impose ADD and instead it is the discretion of the Government to impose a tax. Thus, the necessity for judicial review is doubtful. Second, Rule 18 clearly delineates the position of MoC vis-à-vis MoF. The MoC, acting through the DGTR is referred only as the “designated authority” in the 1995 Rules whereas it is the MoF which acts as the “Central Government” in the setting of Rule 18. Thus, the decision to levy or not to levy the ADD is of the MoF and no legal consequences should arise from the determination and recommendations of the MoC alone.
  • In addition to the aforesaid aspect a critical and noteworthy aspect is that ADD is a tax. Under the constitutional scheme, the judiciary is certainly competent to annul a tax liability or even quash the statutory provision levying a tax. However, it is doubtful if the judiciary can direct the Government to issue a particular notification[11] or levy the tax itself. Equally, levy of tax is policy matter where is generally beyond the judicial prowess, especially in the fiscal realm.[12] In fact, in the very context of ADD, there are decisions to support that levy of ADD is a legislative function.[13]
  • The decision of the Gujarat High Court in Alembic[14] provides an added perspective insofar as it highlights the limited role of MoC and the larger balancing rule of MoF in the context of ADD so as to approve the MoF’s exclusive role by enumerating a host of factors which require appreciation. One of these overwhelming reasons assigned by the High Court to approve independent role and overriding authority of the MoF relates to the finer distinction between the role of MoF and the MoC. According to the High Court, the role of MoC is limited and “specific, to ascertain existence, degree and effect of any alleged dumping and various factors connected therewith”. In comparison, the role of MoF is much wider as it needs to appreciate a “[n]umber of other questions of larger public interest such as possible impact of ADD on other industries, on consumption, on supply, etc. of such articles may not possibly be within the purview of designated authority while carrying out investigation envisaged under the rules”. Hence, the statutory provisions should not be interpreted in a manner which renders MoF to “be oblivious of all such factors and once through mathematical exercise, task of ascertaining extent of dumping and causal injury to the domestic industry is completed, necessarily to such extent, ADD must follow. Any such proposition would be putting the Central Government into too straitjacket a situation wherein on a mere ascertainment of dumping and its impact on domestic industry, the Government in all cases invariably be bound to impose duty irrespective of fact that such imposition may for valid reasons found to be not in public interest”.
  • The decision in Alembic[15] is also relevant from the perspective of the wide-ranging non-legal variables which form the MoF’s zone of consideration while evaluating MoC’s recommendations. In this case the MoF defended non-levy of ADD inter alia citing lack of domestic industry’s capacity to address the local demand, which defence was accepted by the High Court. Courts are clearly not the best forums for adjudication of such economic and financial variables.[16]
  • Also relevant is the perspective that there are inherent differences in scope and approach of judicial review between an appeal remedy before the CESTAT versus a writ petition before the High Court. This is because it is well settled that the appellate forum is obliged to examine validity of appeal and all antecedents to it, including review of all aspects relating to the order challenged before it.[17] This scope of appeal is at contrast with the scope of inquiry in a writ petition wherein the High Court generally has a limited scope to address violation of constitutional rights or legal errors without adverting to disputed questions of facts. Thus, pragmatically there is a significant distinction in the standard of judicial review by CESTAT in appeal vis-à-vis High Court in writ petition. Thus, there is added reason to determine the correct forum to address propriety of MoF’s refusal to levy ADD.
  • In any case, the scheme of appeal before the CESTAT in an ADD dispute is also peculiar. Unlike the provision under the 1962 Act which confers wide powers upon the CESTAT, limited powers are vested in the CESTAT under the 1975 Act in respect of ADD disputes. To elaborate, Section 9-C(4) of the 1975 Act states that “the provisions of sub-sections (1), (2), (5) and (6) of Section 129-C of the Customs Act, 1962 shall apply to the Appellate Tribunal in the discharge of its functions under this Act as they apply to it in the discharge of its functions under the Customs Act, 1962”. Section 129-C of the 1962 Act, however, has clauses (1) to (8). Thus, clauses (7) and (8) of Section 129-C of the 1962 Act do not apply to CESTAT while considering ADD appeals under Section 9-C of the 1975 Act. This has a crucial relevance because clause (7) vests the powers of a civil court in the CESTAT thereby authorising it to pass orders for “(a) discovery and inspection; (b) enforcing the attendance of any person and examining him on oath; (c) compelling the production of books of account and other documents; and (d) issuing commissions”. Clause (8) deems “any proceeding before the Appellate Tribunal … to be a judicial proceeding within the meaning of Sections 193 and 228 and for the purpose of Section 196 of the Penal Code”. By exclusion of these clauses (7) and (8), therefore, the 1975 Act has severely restricted the powers and scope of inquiry by the CESTAT. Does this aspect manifest the legislative intent of a limited scope of review by the CESTAT in ADD matters generally?

8. Conclusion

The aforesaid discussion, even though hinged upon the interpretation of statutory provisions governing appeal in ADD matters, reveals the complexities which are inherent in tax policy. Viewed from the judicial perspective, the observations of the Delhi High Court and the CESTAT’s current outlook appear to be a reasonable interpretation to subject MoF’s refusal to levy ADD within the appellate framework. However, examined from the larger policy perspective, many other variables require appreciation in order to arrive at a balanced conclusion which takes into consideration the innate limitations of a judicial review whether to impose a tax, such as the ADD. One would hope that the debate attains a quietude sooner than later, given the larger implications the conclusion has on the role of judiciary in rejudging the government’s decision not to levy a tax.

 


Tarun Jain, Advocate, Supreme Court of India; LLM (Taxation), London School of Economics

[1] Available HERE

[2] Commr. of Customs v. G.M. Exports, (2016) 1 SCC 91.

[3] S. 129-B of the Customs Act, 1962, providing for “appeals to the Appellate Tribunal” inter alia states that “any person aggrieved by any of the following orders may appeal to the Appellate Tribunal against such order ….”

[4] S. 9-C(1) of the Customs Tariff Act, 1975, providing for “appeals” states that “an appeal against the order of determination or review thereof shall lie to the Customs, Excise and Service Tax Appellate Tribunal constituted under S. 129 of the Customs Act, 1962 (hereinafter referred to as “the Appellate Tribunal”), in respect of the existence, degree and effect of – (i) any subsidy or dumping in relation to import of any article; or (ii) import of any article into India in such increased quantities and under such condition so as to cause or threatening to cause serious injury to domestic industry requiring imposition of safeguard duty in relation to import of that article”.

[5] See generally, Raj Kumar Shivhare v. Directorate of Enforcement, (2010) 4 SCC 772.

[6] 2018 SCC OnLine Del 11395 : (2018) 362 ELT 994.

[7] 2018 SCC Online Del 11395 : (2018) 362 ELT 994.

[8] For illustration, see SI Group India (P) Ltd. v. Designated Authority Anti-Dumping Appeal No. 50456 of 2017, decided by CESTAT, Delhi on 17-8-2017 vide Final Order No. 56445 of 2017, following Panasonic Energy India Co. Ltd. v. Union of India Anti-Dumping Appeal No. 50452 of 2017 decided by CESTAT, Delhi on 20-7-2017 vide Final Order No. 55305 of 2017.

[9] Jubilant Ingrevia Ltd. v. Union of India, Anti-Dumping Appeal No. 50461 of 021, decided by CESTAT, Delhi on 27-10-2021 vide Final Order No. 51988 of 2021. This final order has been followed subsequently by the CESTAT in Assn. of Chloromethanes Manufacturers REGUS v. Union of India, 2021 SCC OnLine CESTAT 2622 and SI Group India (P) Ltd. v. Union of India, 2021 SCC OnLine CESTAT 2623.

[10] For illustration, Rule 4 states that “[i]t shall be the duty of the designated authority, in accordance with these rules, ….” As another illustration, Rule 5 states, “the designated authority shall initiate an investigation to determine the existence, degree and effect of any alleged dumping only upon receipt of a written application by or on behalf of the domestic industry”.

[11] See generally Mangalam Organics Ltd. v. Union of India, (2017) 7 SCC 221.

[12] See generally, Federation of Railway Officers Assn. v. Union of India, (2003) 4 SCC 289 inter alia observing that “[i]n examining a question of this nature where a policy is evolved by the government judicial review thereof is limited. When policy according to which or the purpose for which discretion is to be exercised is clearly expressed in the statute, it cannot be said to be an unrestricted discretion. On matters affecting policy and requiring technical expertise court would leave the matter for decision of those who are qualified to address the issues. Unless the policy or action is inconsistent with the Constitution and the laws or arbitrary or irrational or abuse of the power, the court will not interfere with such matters”.

[13] This aspect, however, is a debatable proposition. For rival positions, see generally, Haridas Exports v. All India Float Glass Manufacturers’ Assn., (2002) 6 SCC 600 and Reliance Industries Ltd. v. Designated Authority, (2006) 10 SCC 368.

[14] Alembic Ltd. v. Union of India, 2011 SCC OnLine Guj 7686.

[15] 2011 SCC OnLine Guj 7686.

[16] See generally, Manohar Lal Sharma v. Narendra Damodardas Modi, (2019) 3 SCC 25.

[17] Kapurchand Shrimal v. CIT, (1981) 4 SCC 317.

Case BriefsSupreme Court

Supreme Court: The Division Bench of L. Nageswara Rao and Vineet Saran*, JJ., quashed the confiscation order of Customs and Central Excise Commission confiscating land, building, plant and machinery of Rathi Ispat Ltd. for lacking statutory backing. The Bench observed that the existing law only permit confiscation of goods and no land, building can be confiscated under the Central Excise Rules, 2017.

Chronology of Events

  • The Commissioner, Customs and Central Excise, Ghaziabad (Commissioner) had imposed a penalty of Rs.7,98,03,000 and confiscated the land, building, plant and machinery of Rathi Ispat Ltd. (RIL) under Rule 173Q(2) of the Central Excise Rules, 1944 on 25-11-1997.
  • However, the said order was set aside by the Customs, Excise & Gold (Control) Appellate Tribunal (now CESTAT) for being contrary to principles of natural justice, and the matter was remanded back for de novo proceedings.
  • Subsequently, subrule 2 of Rule 173Q of the Central Excise Rules, 1944, came to be omitted by a notification dated 12-05-2000.
  • In 2005, RIL availed credit from the consortium of banks with the Appellant/Punjab National Bank being the lead bank, and mortgaged all its movable and immovable properties for securing the loan.
  • By the order dated 26-03-2007, the Commissioner confirmed the demand of excise duty of Rs.7,98,02,226 and a penalty of Rs.7,98,03,000 on RIL. The Commissioner also ordered, under rule 173Q(2) of the 1944 Rules, for the confiscation of all the land, building, plant, machinery and materials used in connection with manufacture and storage.
  • Similarly, the Central Excise Commissioner, vide order dated 29-03-2007, confirmed a demand of central excise duty amounting to Rs.2,67,00,348 and Rs.74,24,332 from RIL and also imposed a penalty of Rs.3,41,24,68 and further, under rule 173Q(2) of the 1944 Rules, ordered confiscation of land, building, plant, machinery, material, conveyance etc.

RIL’s Default in Clearing the Loan

Since RIL defaulted in clearing the loan amount and had failed to liquidate outstanding dues, the Appellant bank issued notice to RIL under section 13(2) of the SARFAESI Act, 2002, however, Commissioner, Customs and Central Excise had already confiscated the property by virtue of Rule 173Q(2) of Rules, 1944. Aggrieved, the appellant bank approached the Allahabad High Court with its grievances, however dismissing the petition, the High Court held that if any property has been confiscated it vests in the state and no person can claim any right, title, or interest over it, further the High Court opined that the bank had no locus standi to challenge the order as RIL had already preferred an appeal against confiscation.

Question of Law

  1. Whether the Commissioner could have invoked the powers under Rule 173(Q)(2) of Central Excise Rules, 1944 on 26-03-2007 and 29-03-2007 when on such date, the rule 173Q(2) was not on the Statue Book having been omitted w.e.f. 17-05-2000?
  2. Whether in the absence of any provisions providing for First Charge in relation to Central Excise dues in the Central Excise Act, 1944, the dues of the Excise department would have priority over the dues of the Secured Creditors or not?

Validity of Confiscation Order

The Bench noted that in the impugned order, the High Court had not considered that on the date of the confiscation orders Rule 173Q(2) stood omitted from the statute books. Rejecting the contention of the respondent that notwithstanding the omission of Section 173Q(2) from the 1944 Rules the proceedings were entitled to continue on account of Section 38A(c) and Section 38A(e) of the Central Excise Act, 1944, read along with Section 6 of the General Clauses Act, 1897 as misplaced and lacking statutory backing, the Bench opined that the proceedings initiated under the erstwhile Rule 173Q(2) would come to an end on the repeal of the said Rule 173Q(2).

The Bench followed the decision of Kolhapur Canesugar Works Ltd. v. Union of India, (2000) 2 SCC 536, wherein it had been held that Section 6 of the General Clauses Act, 1897 is applicable where any Central Act or Regulation made after commencement of the General Clauses Act repeals any enactment. It is not applicable in the case of omission of a “Rule”. Secondly, Section 38A(c) and 38A(e) of the Central Excise Act, 1944, are attracted only when “unless a different intention appears”.

Noticeably, in the instant case the legislature had clarified its intent to not restore/revive the power of confiscation of any land, building, plant machinery etc., after omission of the provisions which could be inferred from the fact that power to confiscate any land, building, plant, machinery etc. after omission had not been introduced in the subsequent Central Excise Rules, 2001, Central Excise Rules, 2002 and Central Excise Rules, 2017.

Additionally, this intent was also fortified by the fact that the newly enacted Rule 28 of the Rules of 2001, Rule 28 of the Rules of 2002 and Rule 28 of the Rules of 2017, did not provide for confiscation of any land, building, plant, machinery etc. and their consequent vesting in the Central Government, as Rule 28 only provided for vesting in the Central Government of the “Goods” confiscated by the Central Excise Authorities under the Excise Act, 1944.

Whether the dues of the Excise department create a First Charge?

In UTI Bank Ltd. v. Commissioner Central Excise, 2006 SCC Online Madras 1182, it had been held that since there is no specific provision claiming “first charge” in the Central Excise Act and the Customs Act, the claim of the Central Excise Department cannot have precedence over the claim of secured creditor, viz., the petitioner Bank. Similarly, in Union of India v. SICOM Ltd., (2009) 2 SCC 121, it was observed that prior to insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08-04-2011, there was no provision in the Act inter alia, providing for First Charge on the property of the assessee or any person under the Act of 1944.

Further, section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act shall have overriding effect on all other laws. Therefore, the provisions of Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. Therefore, the Bench held that the Secured Creditor-Bank would have a First Charge on the Secured Assets.

Verdict

In the light of above, the Bench concluded that the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173Q(2) of the Central Excise Rules, 1944 on 26-03-2007 and 29-03-2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12-05-2000. Secondly, the dues of the secured creditor, i.e. the bank, would have priority over the dues of the Central Excise Department. Accordingly, the appeal was allowed and the confiscation orders were quashed.

[Punjab National Bank v. Union of India, 2022 SCC OnLine SC 227, decided on 24-02-2022]


*Judgment by: Justice Vineet Saran 


Appearance by:

For the Appellant: Dhruv Mehta, Senior Counsel

For Union of India: K.M. Nataraj, Additional Solicitor General


Kamini Sharma, Editorial Assistant has put this report together

Customs, Excise and Services Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Service Tax Appellate Tribunal, Chennai: While taking into consideration various of kinds of charges and whether they would qualify to be eligible for CENVAT Credit, P. Dinesha (Judicial Member) held that Membership Subscription charges are essential for business promotion and hence eligible for refund claim.

In the present matter, the assessee was aggrieved with the orders passed by the Commissioner of Central Tax (Appeals-II): C.G.S.T. and Central Excise, leading to filing of the present appeal and the common issue to be decided was the denial of a refund claim under Rule 5 of the CENVAT Credit Rules, 2004 of the unutilized credit on the inputs used for providing output services.

Appellant submitted that the Adjudicating Authority had granted a substantial refund, but however, rejected a part of it, which order came to be upheld by the Commissioner (Appeals).

Analysis, Discussion and Decision

Coram noted that the following were the services against which the CENVAT Credit was rejected:

  • Cleaning Service
  • Plant Rental Charges
  • Freight Charges
  • Installation Charges
  • Pest Control Charges
  • Car parking charges, terrace charges, terrace and car-bike charges
  • Auditorium Charges
  • Event Management Charges
  • Purchase of air conditioning – Civil Work
  • Membership subscription

On analyzing, the Tribunal in view of decisions of this Tribunal, cleaning services essential for providing output services and hence the same would qualify as input service and hence eligible for refund.

Therefore, the denial of CENVAT Credit on this service is bad.

On Plant Rental Charges, the appellant claimed that the said service was akin to Gardening Services, but however, it appeared that the appellant did not file any details as to the nature of service.

However, it is seen that since services of renting of equipment’s for organizing events are allowed as valid input service, the same logic should apply here and accordingly, in principle, the denial of CENVAT Credit is held bad.

With regard to Freight Charges, the appellant claimed that the said charges were incurred on a day-to-day basis for carrying the inputs used for providing output services and the said charges were paid to the vendor for inward transportation.

Tribunal added that the definition of “input service” under Rule 2 (l) of CENVAT Credit Rules, 2004 and hence the denial by the lower authorities was bad.

Moving on to the Installation charges, no details were furnished hence it required to be re-adjudicated.

On Pest Control Charges, the assessee claimed that the said issue was akin to Cleaning Services, which was very much essential to keep the business premises safe and clean and hence, the denial was clearly uncalled for.

With respect to the Car Parking Charges., terrace charges, car-bike charges, Coram found that the said charges were an essential service provided to all the employees and used by them during the course of employment, therefore it formed as an essential service, hence denial of CENVAT Credit on the said charges was held to be bad.

Talking about the Auditorium charges, Bench found the said service also essential and since the training were provided for the employees of the appellant or business meetings were held, hence CENVAT Credit denial was not justified for this.

Moving on to the Event Management Charges, it was the case of the appellant that the above services were used for promoting the brand name of the company and the expenses relating to advertisements or sales promotions were specifically covered within the scope of the definition of “input service” under Rule 2 (l). Thus, CENVAT Credit denial was held to be bad.

Denial of CENVAT Credit for the purchase of air condition was also held to be bad.

Lastly, the Tribunal noted that regarding Membership Subscription, assessee submitted that being part of a multi-national company, the appellant is required to subscribe to various business magazines and register as a member with various business associations for promoting the appellant’s business; membership subscription charges were paid towards obtaining corporate membership subscription of American Chamber of Commerce in India, which are purely incurred for the purpose of the appellant’s business.

Hence, Coram remarked that business promotion was an essential for the survival of every company and the said membership only expands the reach, hence it is a way of marketing the brand, which was an essential service.

Therefore, charges incurred were eligible for CENVAT Credit as per the definition of “input service” under Rule 2 (l) of the CENVAT Credit Rules, 2004.

In view of the above discussion, appeal were partly allowed and partly remanded. [Trimble Information Technologies India (P) Ltd. v. Commr. Of GST and Central Excise, 2021 SCC OnLine CESTAT 204, decided on 12-4-2021]


Advocates before the tribunal:

Shri Joseph Prabakar, Advocate for the Appellant

Shri L. Nandakumar, Authorized Representative (A.R.) for the Respondent

Op EdsOP. ED.

Introduction

India is the first country to implement corporate social responsibility (in short referred to as “CSR”) mandated under the Companies Act, 20131. As per Section 135 of the said Act,

“Every company having a net worth of rupees five hundred crores or more, or turnover ofrupees one thousand crore or more or a net profit of rupees five crores or more during the  immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director”.2

The basis will be an average net profit made during three immediately preceding financial years. CSR is a sense of responsibility of voluntary contribution by various companies towards a better society and a cleaner environment where a company operates in the form of projects or programmes aiming the same. The company qualifying the abovementioned requirement for CSR has to spend at least 2% of its average net profit earned during the immediately preceding three financial years on CSR activities; which could be carried out in different forms. For example, providing education, promoting gender equality, healthcare or sanitation activities, projects related to rural development, contribution towards the protection of environment or to PM Cares Fund, relief activities during some disaster, etc. A specific example could be a contribution by way of cash donations towards the corpus of a charitable trust or undertaking any project activity through its unit or group entity or may undertake such activity through non-governmental organisations (NGOs).3

The Companies (Corporate Social Responsibility Policy) Amendment Rules, 20214 w.e.f. 22-1-2021 has implemented provisions of the 2019 Amendment to the Companies Act, 20135, to study an interplay between the Companies Act, 2013 as amended Central Goods and Services (CGST) Act, 20176 7 which will show that CSR is mandatory and failure to which can attract the wrath of penalties. Mainly the changes include the mandatory requirement to disclose CSR projects and activities and CSR Committee’s composition on their website and if failed to spend 2% in CSR then it should be disclosed in the report with the appropriate reason and in a scenario where the unspent amount if not related to “ongoing project” then it should be transferred to government’s notified fund. The penal action against the company could be to pay twice the amount which has to be transferred by the company to the fund specified in Schedule 78 or the unspent CSR Account, as the case may be, or 1 crore rupees, whichever is less; and, every officer in default shall be liable to a penalty of ⅒ of the amount required to be transferred by the company to such fund specified in Schedule 7, or the unspent CSR account, as the case may be, or two lakh rupees, whichever is less.

The input tax credit (in short referred to as “ITC”) is available to the supplier for the inputs, input services, and capital goods used to supply goods or services or both as part of such offers. The provision for availing of ITC is provided under Section 16 of the CGST Act, 2017 which provides that one would be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used “in the course or furtherance of his business”.9 The eligibility is provided under various limbs of Section 16 of the Act, per se, however a concept of blocked credit is provided simultaneously in Section 17(5)(h) of the Act,10 that ITC shall not be available in respect of goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples. Further, Section 17(5)(g) forbids ITC on goods or services procured for personal consumption.

Applicability of CSR and ITC

Provision of GST law does not specifically provide any provision for the taxability of goods or services provided by the companies as part of CSR activity. Cash donations, for example, donations given by cash, cheque or through electronic transfer of money or even the donations in kind (giving away goods or services) made voluntarily or gratuitously, cannot be construed as supply under GST as it is an activity without any quid pro quo. The contributions so made without any benefit in return cannot be treated as a consideration against any supply (in case of cash donations) or supply for consideration (in case of donations in kind) since there is no consideration received for giving such in-kind donations. Further, money is excluded from the definition of goods and services and hence, cash donations are not subject to GST.

In the case of corporate social responsibility activities, a company is providing outputs/output services free of cost. Thus, by taking into consideration the definition of taxable supplies and provisions of Section 17(2), input credit cannot be availed on CSR activities. Additionally, even according to Section 37 of the Income Tax Act, 196111, any expenditure incurred by the assessee with regards to CSR activities cannot be deemed by the assessee for business or profession.12 Thus, it cannot be claimed as business expenditure. If this is not a business expenditure, then ITC cannot be claimed on such spending and thus resultant in tantamount to an additional cost on account of CSR.

About this, two schools of thought prevail, first advocates that since CSR is a responsibility that is mandatory under the Companies Act, and therefore, any non-compliance of such provisions would necessarily have implications in furtherance of business. Therefore, CSR expenses must be treated as expenses incurred for inward supply in course of or furtherance of businesses. While on the other hand, the second theory explicates that the principle of GST shall be made applicable only if outward supplies are taxable. Since, CSR is made free of cost, and not with the intention of profitability but to foster its commitments towards the society, environment, and other measures, and hence, expenses incurred shall not be treated in course of or furtherance of business.

In Polycab Wires (P.) Ltd., In re,13 where the applicant, who is a dealer in electrical goods, had supplied electrical items to Kerala State Electricity Board (KSEB) through its distributors spread across the State in connection with reinstating connectivity in the flood-ridden areas as part of the “mission reconnect” “free of cost”. In addition to this supply to KSEB, the applicant had distributed electrical items like switches, fans, cables, etc. to flood-affected people under CSR expenses on a free basis without collecting any money. In the invoice so issued, the distributor had valued the goods for tax and the value was shown as 100% discount. Advance ruling sought that “determination of GST liability for goods provided free of any cost by the distributors of the applicant to KSEB for reinstating connectivity in flood-ridden areas; and admissibility of input tax credit concerning such goods. Thus, according to the applicability of Section 17(5)(h) of the KSGST Act, and CGST Act on CSR expenses, ITC cannot be claimed as a matter of entitlement”.

As evident from the interpretation of GST provisions, the expenses incurred in place of CSR shall not be considered in “furtherance of business”. However, there is an ample number of research studies that advocate that CSR increases business profitability, and increase corporate financial performance. Thus, it can be implied that CSR expenses are “in furtherance of business”. However. As derived from the Government’s intentions, CSR expenses are still treated as a noble concept and not seen from, the lens of business profitability.

The second school of thought advocates that the ITC is available on CSR activities because they are incurred in the course or furtherance of business. CSR activities have a high impact on the image of the company and are also mandatory as per the provisions of the Companies Act, 2013. It enhances the reputation of the company and thus, forms the goodwill of the company. Therefore, it can be ascertained that corporate social responsibility activities are incurred in the course or furtherance of business. So, ITC can be claimed for such events

In Essel Propack Ltd. v. Commr. of CGST14, where Essel Propack Ltd. manufactures multilayer plastic laminates and is subjected to Central Value Added Tax (CENVAT). An audit was shown in the factory and it was found that the CENVAT credit of service tax is amounting to Rs 12,12,772 which was availed towards such company’s commitment to corporate social responsibility  and the audit stated the same to be inadmissible. The appellant had made payment to a charitable trust for imparting training to students of an underprivileged section of society in the discharge of corporate social responsibility. It treated this payment towards CSR under the definition of input services. According to Rule 2(l) of the Cenvat Credit Rules, 2004 which has defined input services and that is for the manufacture of an assessee final product. The appellant argued that the said expenditure was incurred by the company within the definition of the concerned rule. Because through this training program students learnt the nature of the job that made them eligible to become future workers in factories. The appellant contends that it had engaged youth from the lower strata of the society in its factory to provide them on the floor exposure to the production activities of the company and in so doing, it has engaged them in preparation of data sheet, updating production logbook, preventive maintenance of the machine and assistance in the production operation as well as the transfer of raw materials, etc. So the same is counted within the manufacturing activities besides the fact that the purpose was to discharge CSR obligations.

A representation has been received seeking clarification as to whether donations and grants-in-aid received from different sources by a charitable foundation imparting free livelihood training to the poor and marginalised youth, will be treated as “consideration” received for such training and subjected to service tax under “Commercial Training or Coaching Service”. The important point here is regarding the presence or absence of a link between “consideration” and taxable service. It is a settled legal position that unless the link or nexus between the amount and the taxable activity can be established, the amount cannot be subjected to service tax.15 Between the provider of donation/grant and the trainee, there is no relationship other than universal humanitarian interest. In such a situation, service tax is not leviable, since the donation or grant-in-aid is not linked to a specific trainee or training.

The appellant argued that the concept of business is not stagnant and “over the period”, the expression consists of complete care and concern for the society at large and the people of the locality in which business is located in particular for which the term activities relating to business is of wider ramification and corporate social responsibility is within its ambit that would cover Rule 2(1) of the Cenvat Credit Rules for which he prays for purposive interpretation to be imported to the rule governing Cenvat credit. Whereas the Department argued that there was no correlation of input services with the business activity of the appellant since CSR activities are welfare activities and not pertinent to business/production-related activities. That the service of imparting training has been provided by the trust to the students of the weaker section of society and not by the appellant company itself and therefore there was no service provided by the Trust against which Cenvat credit is claimed by the appellant.

It was held that:

6.4. … CSR is not a charity anymore since it has got a direct bearing on the manufacturing activity of the company which is largely dependent on the smooth supply of raw materials even from a remote location or tribal belts (that requires no resistance in the supply chain from the community) and the same also augments the credit rating of the company as well as its standing in the corporate world.16

Section 7 of the CGST Act17 defines the scope of “supply”, which contains the transactions undertaken without consideration. It should be argued that CSR is an activity that indulges the supply of goods and services without any consideration, and in furtherance of business as observed from the above, and thus, must not be made eligible under the GST regime and ITC shall be made available. Moreover, on the judicial frontier, the Tribunal has also supported this position and reiterated that CSR is eligible to GST, as it is furtherance of business, and therefore, ITC should be made available. In Indian Institute of Corporate Affairs, In re AAR-Delhi18, the Court reiterated that:

“the amount paid by the companies to external agencies for CSR activities to undertake specified projects, would be considered as “consideration”, and activities undertaken on company’s instruction or direction shall be deemed to supply within the GST Act.”

Further, the Court held that:

CSR cannot be treated as a gift, as the delivery of the gift is made voluntarily, and therefore, cannot assume the character of gifts. As may be noticed from the Gift Tax Act19, the definition of gift necessarily includes any transfer made voluntarily and without consideration. Since the activity is mandated on companies, and therefore, any CSR activities cannot be termed as a gift.”

Thus accordingly, CSR is not falling under the purview of Section 17(5) of the Act, thus ITC can be availed in CSR cases.

There is no empirical evidence that shows that expenses on CSR would necessarily increase the performance of a company. As the term “furtherance of businesses” is interpreted that an activity must be undertaken for business stability and profitability, however, it is not clear, whether CSR shall be treated in furtherance of business.

Applicability of ITC on Covid-19 supplies

Now, as the country is facing unprecedented circumstances set by Covid-19 Pandemic and in such time, we have encountered an end number of companies which have been providing Covid-19 related equipments like oximeters, PPE kits, sanitisers, medicines, oxygen canisters, etc. to the employees who are working at their home to ensure their well-being as they were workforce which was working from home. As these goods are not procured for use in office premises of taxpayers, it may be comprehended by the tax officers that taxpayers are not eligible to avail ITC on such procurements under Section 17(5)(g) as these are used for personal consumption of employees. Thus, an exemption from customs under Notification No. 32/2021-Customs dated 31-5-2021,20 or Ad hoc Exemption Order No. 4/2021-Customs dated 3-5-2021,21 for extending exemption from integrated goods and services tax (IGST) on import of Covid-19 related equipment on payment of considerations but based on a certain situation, certain taxpayers may not be able to fulfil the said procedural conditions and end up paying IGST on such procurements.

Afterwards reply was sought from key GST Officials and Group of Ministers through the representation made by National Association of Software and Service Companies (NASSCOM) to clarify the eligibility of ITC on Covid-19 related procurements. Thus in the further notification, the clarification was sought that “all amount spend by taxpayers on Covid 19-related gear like PPE kits, oximeters, medicines towards ensuring the well-being of employees/their family should not be construed as personal consumption under Section 17(5)(g) of the CGST Act, rather it would be eligible for credit in terms of Section 16 of the CGST Act, as the amount as CSR was spent for providing relief to people suffering from Covid-19 Pandemic or giveaways provided to employees to ensure their safety”.22

The mechanism of ITC and blocked credit concerning CSR can be understood from the standpoint of business. The expression business requires no discussion as it is already defined under Section 2(17)(b) of the CGST Act23 and it has to be seen from the framework of supply as defined under Section 7 of the Act. The three-way test for ITC on CSR can be summarised that firstly, the moment the test of business of rending taxable supply is passed, one needs to see the eligibility and compliances under Section 16 of the Act, per se. Secondly, on having crossed the first barrier, the second test would be passing the blocked credit under Section 17(5)(h) of the Act. Thirdly, to get rid of the clutches of blocked credit, one needs to see if any activity say CSR is mandated by law, if the answer is yes, then it will be said to have passed the third test to make the ITC as an accrued and vested right under the ecosystem of GST.

The outbreak of the deadly Covid-19 pandemic created an abnormal situation in the entire world. The need for medical and health resources increased exponentially and in such circumstances, even the Government witnessed shortages in supplying resources to normalise the health situations. In such crucial times, many corporate houses and companies entered into the realm and extended their support by providing medical resources and monetary contributions. By extending such support, many companies fulfilled their social responsibility of CSR. However, the legal position regarding the eligibility of companies to avail ITC for such activities is still ambiguous and the confusion lies between the fact that whether these companies have the option to avail ITC or bear the additional burden created thereof.

As per the current GST Rules, the key requirement to avail ITC on goods or services is that it should be utilised “in the course or furtherance of business”. Courts in some instances have interpreted this as “anything done towards assisting or promoting the interests of a business”. Thus, any activity done towards the purpose of earning profit shall be in the ambit of “in the course or furtherance of business”. Considering the voluntary and philanthropic activities of the companies, Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai allowed the companies to avail CENVAT credit of service tax paid for carrying out CSR. It opined that CSR being a mandatory social obligation for both public and private companies, must be deemed as a business activity. Thus, the view that companies may avail ITC on goods supplied as an act of fulfilling their CSR obligations and is in the course or furtherance of business can be considered valid. However, the GST Rules allow ITC on the supply of goods that are used in the course or furtherance of business and provide cases where such credit cannot be availed. One such case where the credit cannot be availed is on goods that are disposed of as “gift” or “free samples”.

Here the conundrum lies, the difficulty faced by companies in availing credit on goods supplies donated during the dire need of pandemic times. The question here arises that whether such donations should be ascertained as “voluntary” or “gift” when distributed under CSR obligations. Whether the companies can argue that this benefaction should not be barred from availing  ITC, considering its nature is “mandatory” as opposed to “voluntary”. The Haryana and Gujarat State Governments introduced certain policies to avoid this ambiguity from becoming a challenge for the companies disposing of their CSR duties. As per the notifications issued, the applicable State GST (SGST) and Integrated GST (IGST) will be reimbursed to the companies engaged in distributing essentials. However, despite such incentivisation by the State Government, the interplay between goods and services provided to fight the outbreak and their eligibility for ITC remains an ambiguous aspect on broader terms and needs an urgent if not a permanent address.


*4th year student, BA LLB (Hons.), National Academy of Legal Studies and Research, University of Law, Hyderabad.

**3rd year  student, BA LLB (Hons.), Maharashtra National Law University (MNLU), Nagpur.

1 Companies Act, 2013.

2Companies Act, 2013, S. 135.

3Nilesh Vasa and Anindita Sarkar, A taxing “Corporate Social Responsibility for Companies under GST?” dated 14-5-2018 published in LSI LawStreetIndia.

4 Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021.

5Companies (Amendment) Act, 2019.

6 Central Goods and Services Tax Act, 2017.

7Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 to the second proviso to S. 135.

8 Companies Act, 2013, Schedule 7.

9CGST Act, 2017, S. 16, as amended by Act 31 of 2018 and brought into force w.e.f. February 2019.

10CGST Act, 2017, S. 17(5), as amended by Act 31 of 2018 and brought into force w.e.f. February 2019.

11 Income Tax Act, 1961, S. 37.

12 Income Tax Act, 1961, S. 17(2).

13Polycab Wires (P.) Ltd., In re,2019 SCC OnLine Ker AAR-GST 1

142018 SCC OnLine CESTAT 7175.

15Circular No. 127/9/2010-ST, dated 16-8-2010.

16Essel Propack Ltd. v. Commr. of CGST, 2018 SCC OnLine CESTAT 7175.

17 CGST Act, S. 17.

18Indian Institute of Corporate Affairs, In re, (Advance Ruling No. 08/DAAR/2018 dated 28-06-2019), AAR-Delhi (2019) 107 Taxmann.com 413.

19Gift Tax Act, 1958.

20Notification of Customs, No. 32/2021-Customs, New Delhi dated 31-5-2021.

21Ad hoc Exemption from IGST, Order No. 4/2021-Customs dated 3-5-2021.

22GST: Representation to Address Concern of Input Tax Credit on Procurement of Covid-19 Related Goods, NASSCOM Community, The Official Community of Indian IT Industry.

23CGST Act, 2017, S.2(17)(b).

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Dilip Gupta (President) and C.J. Mathew (Technical Member) allowed an appeal which was filed against the order passed by Principal Commissioner of Central Excise, New Delhi, by which the demand of service tax had been confirmed with interest and penalty.

Appellant had been engaged in rendering air travel agent and other tour related services and during the period of dispute the appellant was rendering air travel agent services to the Embassy of the United States of America. The appellant claimed that it was the sole and exclusive service provider for the US Embassy and operated from a desk set up within the premises of the US Embassy. On such services, the appellant was availing exemption from payment of service tax in terms of Notification dated 23-05-2007 till 30-06-2012 and, thereafter, under Notification dated 20-06-2012. These Notifications exempted services rendered to diplomatic mission or consular posts in India from payment of service tax. In 2014, an investigation was initiated and audit of the records of the appellant was conducted in terms of rule 5A of the Service Tax Rules, 19944. During the audit, it was observed that the appellant was incorrectly availing exemption on services rendered to the US Embassy. The audit resulted into issuance of a show cause notice dated 16.04.2014 proposing to deny the exemption as a result of which a demand of service tax amounting to Rs. 81,11,575 was made. Principal Commissioner had passed the impugned order dated 30-09-2015 denying the exemption to the appellant and confirming the demand of service tax with penalty.

The four issues framed by the Principal Commissioner were:

(a) Whether the exemption contained in the Notification dated 23.05.2007 upto 30.06.2012 and Notification dated 20.06.2012 w.e.f. 01.07.2012 is available to the appellant for the services provided by it to the US Embassy despite the non-fulfillment of the conditions laid down in the said Notifications and whether, the service tax can be recovered and demanded from the appellant in the event it is not entitled to the exemption?

(b) Whether the appellant fulfilled its duty for amending the changed address in the Registration Certificate as per the provisions of Act and if not so, whether penalty is leviable?

(c) Whether the extended time period can be invoked?

(d) If yes, whether the appellant is liable for payment of interest & penalty under the provisions of Act/Rules, as alleged in the show cause notice?”

Bare perusal of the Notification in issue dated 23-05-2007 indicated that the following conditions have to be satisfied:

  1. Services must have been rendered to a diplomatic mission or consular post in India;
  2. The Protocol Division of the Ministry of External Affairs11 must issue a certificate to the specified diplomatic mission or consular post in India stating that it is entitled to claim exemption from payment of service tax;

iii. The diplomatic mission or consular office must provide the taxable service provider an authenticated copy of such certificate along with an original undertaking (signed and serially numbered) stating that the services have been received for official purpose; and

  1. The invoice raised by the service provider must carry the date and serial number of the undertaking.

In the present case the first condition was fulfilled second condition states that the Protocol Division must issue a certificate to the diplomatic/consular post in India. In this regard, the US Embassy was issued certificates from the Protocol Division and this has not been disputed by the Department and third condition relates to providing certificates and original undertakings by the diplomatic mission/ consular post in India to the service provider. Fourth condition to the Exemption Notification mentions that the invoices issued by the service provider must carry the serial number and date of the undertaking. The purpose of this condition is to ensure proper correlation between the services rendered and the exemption claimed by the service provider. The show cause notice has alleged that the invoices did not carry the serial number of the undertakings. The exemption was sought to be denied on this ground and the impugned order has also confirmed such denial.

Counsel for the appellant submitted that from the entire chain of the aforesaid documents there was no room to doubt that the services were rendered by the appellant to the US Embassy and such services were exempted by virtue of the undertaking and certificate provided by the US Embassy to the appellant.

The Tribunal explained that Notifications was issued by the Central Government of India in the public interest to exempt taxable services provided to a foreign diplomatic mission or consular post in India. As is evident from clause (i) of both the Notifications, the underlying purpose is to uphold the principle of reciprocity amongst the nations. It is only to ensure that there is no evasion of tax and that services have been rendered specifically to those diplomatic missions/ consular officers to whom a certificate has been issued by the Protocol Officer that the Notifications require a correlation to be established between the invoices and the undertakings. Once these two documents can be correlated, though not in a manner provided for, the substantive conditions to the Exemption Notifications stand fulfilled and the exemption cannot be denied and considered the judgments in Lakshmiratan Engineering Works Ltd. v. Assistant Commr. (Judicial) l Sales Tax, 1967 (9) TMI 116, J.K. Manufacturers Ltd. v. Sales Tax Officer, 1969 (5) TMI 54 and Chunni Lal Parshadi Lal v. Commr. of Sales Tax, 1986 (3) TMI 297.

The Tribunal further made it clear that even when an assessee has suppressed facts, the extended period of limitation can be invoked only when “suppression‟ or “collusion” is wilful with an intent to evade payment of duty. The invocation of the extended period of limitation, therefore, cannot be sustained.

The appeal was allowed by the Tribunal.[SOTC Travels Services (P) Ltd. v. Principal Commr. Of CE, 2021 SCC OnLine CESTAT 2574, decided on 20-09-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Ashok Jindal (Judicial Member) allowed an appeal which was filed against the impugned order wherein cenvat credit on event management service has been denied for the period June 2012 to June 2017 on the ground that the same does not cover under Rule 2(l) of the Cenvat Credit Rules, 2004 as input service.

The appellant was a manufacturer of motor vehicles and parts thereof and paying excise duty on all clearances. Appellant was availing various kinds of input services as well as event management service. In this case, the dispute was with regard to availment of cenvat credit on two types of event management services, namely Skill Competition between dealers and employees and other business events services like Vishwakaram Puja, inauguration of production line etc.

Ms Krati Singh, Advocate appearing on behalf of the appellant submitted that Skill Competition between dealers and employees was a big event with regard to sale promotion of the appellant’s product as by that competition, they award the best dealer who has done effective sale of the appellant and to the employees who achieved the sale targets by this event, the other dealers/employees would also be motivated to promote the sale of the product of the appellant. Therefore, the said event was directly/indirectly related to the sales promotion activity of the appellant; therefore, they were entitled to cenvat credit for the same.

The Tribunal noted that the facts of the case were not in dispute and that the cenvat credit was denied on two types of services – (a) Skill Competition between dealers and employees and (b) other business events services. The Tribunal further explained that,

  • Skill Competition between dealers and employees – The said competition is an event which shows the sale skill of the employees as well as the dealers. The skills of the employees shows that how they participate in bringing more production of the product and the skills of the dealers shows that how they increased the sale of the product. Therefore, the said service is an integral part of manufacturing as well as sale activity, which is conducted by the appellant. In these circumstances, the said service do qualify as input service in terms of Rule 2(l) of the Cenvat Credit Rules, 2004. Accordingly, the appellant is entitled to cenvat credit for the said service.
  • Other business events services – Vishwakarma Puja and inauguration of new pipe line are basically two others business events services for which cenvat credit was sought to be denied. In fact, Vishwakarma Puja is a big festival for the workers who work on machines and they pray to the God for good running of their machines by doing Vishwakarma Puja. Further, when a new pipe line starts, a puja is performed for good running of this pipe line. In these circumstances, these two pujas are also integral part of manufacturing activity. Therefore, for these services also, the appellant is entitled for cenvat credit.

The Tribunal while allowing the appeal held that appellant had rightly taken the cenvat credit for above discussed services.[Maruti Suzuki India Ltd. v. Commr. Of CE & ST, Excise Appeal No. 60189 of 2021, decided on 07-09-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Rachna Gupta (Judicial Member) allowed an appeal in relation to evasion of payment of duty.

Appellants were registered under the category of legal consultancy service, work contract service, manpower recruitment/ supply agency service, maintenance or repair service and security/ detective agency service. During the scrutiny of ST-3 Returns of the appellant by AG (Audit), the Department noticed that the appellant had received services of manpower recruitment or supply agency during the period of April, 2015 to March, 2016 and had paid Service Tax under manpower recruitment or supply agency service on 75% of gross service value under reverse charge mechanism as per the provisions of Notification No.30/2012-ST dated 20-06-2012. It was observed that the appellant was otherwise liable to pay Service Tax on 100% of gross service value in terms of the aforesaid Notification being amended vide Notification No. 07/2015-ST dated 01-03-2015 with effect from 01-04-2015.

Short payment of Service Tax of Rs 71,440/- was proposed by the department alongwith the interest and the penalty.

It was submitted on the behalf of the appellant that he was liable to pay Service tax on 75% of gross service value of the services received under reverse charge mechanism. It was submitted that the period in dispute was immediately after the said amended Notification i.e. w.e.f. April 2015 to March, 2016 and the amendment had also to take effect from 01-04-2015. In the given circumstances, intentional evasion may not be alleged against the appellant. The authorities below were alleged to have wrongly held suppression of facts on part of the appellant.

The Tribunal observed that appellant admitted his liability of paying Service Tax for receiving manpower recruitment and supply agency service to the extent of 75% on the gross value of service received under reverse charge mechanism and further opined that non-payment by the appellant for the said period is merely due to his bonafide belief of his liability to the extent of paying the service tax at 75% of the service value. Once there is no apparent malafide on part of the appellant and in view of the aforesaid bonafide belief of the appellant, fastening the allegations as that of concealment fraud and suppression are held to be highly unjustified.

The Tribunal relied on the judgments of the Supreme court in Pushpam Pharmaceuticals Co. v. Collector of Central Excise, 1995 (78) ELT 401 (S.C.) and Continental Foundation Jt. Venture v. CCE, 2007 (216) ELT 177 (SC) explaining the term “suppression of facts”.

When the Revenue invokes the extended period of limitation under Section 11A, the burden is cast upon it to prove the suppression of fact as far as fraud and collusion are concerned, it is evident that intent to evade duty is built into these very words so far as misstatement or suppression or facts are concerned, they are clearly qualified by the word “willful” preceding the words “mis-statement or suppression of facts” which means with intent to evade duty. The next set of words “contravention of any of the provisions of this Act or Rules” are again qualified by the immediately following words” with intent to evade payment of duty”. Therefore, there cannot be suppression or misstatement of fact which is not willful.

The Tribunal allowing the appeal held that alleged non-payment cannot be called as willful or intentional act of the appellant to evade the payment of duty. The findings of Commissioner (Appeals) that there was no documentary evidence to prove the payment of service tax twice in support of appellants contention was therefore held, not at all sustainable.[Mahatma Gandhi University of Medical Sciences and Technology v. CCE & CGST, Service Tax Appeal No. 50962 of 2020 [SM], decided on 08-09-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Raju (Technical Member) partly allowed an appeal which was field against the demand of service tax and imposition of penalties.

Counsel for the appellant pointed out that there were two issues involved. First issue related to the payment of service on the reverse charge basis on GTA services received by them and he pointed out that the demand pertains to the period April 2005- March 2006. The appellant had discharged the duty liability through their Cenvat credit on 1st December, 2006 along with interest. However, when the revenue pointed out that this amount should be paid in cash, the appellant discharged the duty in cash on 27-12-2006. It was again pointed out that they were not contesting for payment of duty and interest and were entitled for the benefit of Section 73(3) of the Finance Act, 1994. The revenue had denied the benefit of the said section because Section 73(3) was introduced in 2010 much after the disputed period.

Second issue related to the demand of service on reverse charge basis in respect of commission paid by the appellant to a foreign entity. Period of the second dispute was 16th June 2005 to March 2006. He pointed out that the said period was prior to the introduction of Section 66A and prior to the said period the levy itself was not leviable. He argued that during that period there was lot of confusion in the trade regarding leviability of the said duty on reverse charge basis. He also claimed that they were not demanding any refund of duty but only setting aside of penalties imposed under Sections 76 and 78. He also claimed that their specific claim under Section 80 was not considered.

AR argued that Section 73(3) introduced much after the disputed period and therefore, had no application in the instant case.

The Tribunal found that the first issue related to the payment of service on reverse charge basis in respect of GTA services received by appellant, and that the appellant had paid the service tax as soon as it was pointed by the auditor and again in cash when it was pointed out that it had to be paid in cash and thus, no malafide on the part of the appellant could be found.  It was held that the benefit of Section 80 should be extended for the appellant and penalty under Section 76 and 78 were set aside.

In reference to the second issue, it was established that the period was prior to introduction 66A when the duty was not leviable, thus the Tribunal partly allowing the appeal found that there is no justification in imposition of penalty under Sections 76, 77 and 78.[Sud Chemie (P) Ltd. v. C.C.E. & ST, Service Tax Appeal No.10021 of 2019, decided on 02-09-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of CJ Mathew (Technical Member) and Ajay Sharma (Judicial Member), allowed an appeal which was filed against the impugned order of the Commissioner of Central Excise & Service Tax (Appeals -IV) wherein he had upheld demand of Rs 29,57,199/-, for the period from 2003 to 2006, on discount allowed by the supplier of goods for sale to corporate customers, on commission from banks and financial companies and on payments received for insurance referral, the dispute that persists is limited to the demand for tax of  Rs. 3,70,994/- on the first of the issues and to the entirety of penalties imposed.

The appellant was an authorized dealer of M/s Skoda Auto India Pvt Ltd and, in accordance with their agreements, was allowed to offer discounts on sale of vehicles to their corporate customers to be reimbursed to them and had facilitated banks and financial companies, as well as insurance companies, to service loan and insurance requirements of customers from their premises. The demands were confirmed by the original authority under section 73 of Finance Act, 1994, along with interest thereon under section 75 of Finance Act, 1994, while imposing penalty of like amount under section 78 of Finance Act, 1994.

Chartered Accountant, appearing for the appellant, submitted that the dispute pertaining to discounts offered by car manufacturers to their dealers for onward transmission to corporate customers was not liable to tax as ‘promotion or marketing or sale of goods produced or belonging to clients’ within the enumeration of ‘business auxiliary service’ in section 65(19) of Finance Act, 1994.

Authorised Representative contended that the appellant had failed to discharge their tax liability at the appointed intervals on ‘commission’ earned by them and, therefore, the imposition of penalties was valid.

The Tribunal noted that the dispute pertaining to discount offered to corporate customers had attained finality relying on the decision of Toyota Lakozy Auto Pvt Ltd v. Commissioner Service Tax, Mumbai –II & V [2017 (52) STR 299 (Tri.-Mumbai)] and thus demand of Rs. 3,70,994/-, along with interest, and penalty under section 78 of Finance Act, 1994 failed to survive.

The Tribunal then noted the decision in Gemini Mobiles Pvt Ltd v. Commissioner of Central Excise & Service Tax, Lucknow [2015- TIOL-15670-CESTAT-ALL] for arriving at the conclusion of circumstances not being conducive to invoking of section 78 of Finance Act, 1994 is relevant.

The Tribunal finally found that the invoking of the extended period for the purpose of imposition of penalty was not sustainable.[Autobahn Enterprises Pvt Ltd v. Commr. Of ST, Service Tax Appeal No. 87226 of 2014, decided on 07-09-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

National Company Law Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal Allahabad (NCLT): Justice (Retd.) Rajesh Dayal Khare, Judicial Member, while ordering the Registrar of Companies to restore the original status of the Company as if the name has not been struck off from the Registrar of Companies directed the Appellant Company to fill all the statutory documents.

The present appeal was filed under Section 252(3) of the Companies Act, 2013 read with Rule 87A of the NCLT Rules, 2016 for restoration of the name of the Company, Neotech Engineers Pvt. Ltd. which was struck off by the Registrar of Companies, Uttar Pradesh for default in statutory compliances. The appellant had submitted that the company was doing its business and was suffering loss but due to strike off, was not able to attract the investors. Further, submitted that the Company was ready to file the financial statements and ITR along with the Bank statements. The Appellant to corroborate the submissions provided the audited balance sheets, a copy of ITR acknowledgment etc.

The Tribunal was of the opinion that,

“The appellant has been able to satisfy this bench that it has certain assets which necessitate and justify the restoration of its name in the Registrar of Companies. A step as stringent as which has been taken at least requires an opportunity to the appellant to take remedial measures. Merely disallow restoration on grounds of its failure to file annual returns would neither be just nor equitable”.

And further held that the dispute raised by the Income Tax Authorities be managed by imposing penalty in accordance with the provisions.[Neotech Engineers Pvt. Ltd. v. Registrar of Companies, Uttar Pradesh, 2021 SCC OnLine NCLT 399, decided on 26-07-2021]


Agatha Shukla, Editorial Assistant has reported this brief.


Counsel for the Parties:

For the Appellant-

Sh. Anand Bajpai, Adv alongwith Vikash Agarwal, Adv

For RoC-

Sh. Krishna Dev Vyas, Adv

For IT Department-

Sh. Krishna Agarwal, Sr S.C. for IT Department

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Ashok Jindal (Judicial Member) allowed an appeal which was filed against the impugned order rejecting the claim for interest on the refund from the date of deposit till its realization.

The appellant was manufacturer of zinc ingots, aluminum alloys ingots, lead ingots etc by using zinc scrap, aluminum scrap, ingots and lead scrap as their raw material. The Revenue was of the view that zinc skimming and zinc ash were final products and the appellant was liable to pay duty. The appellant paid an amount during the period 2008-09 and 2009-10 under protest to avoid interest liability. Later on, the matter was settled in favour of the appellant on the basis of CBEC’s circular in this regards wherein it was observed that no duty is payable on zinc skimming and zinc ash arising during the course of manufacturing of the final products. After which a refund claim was filed which was ultimately sanctioned, but no interest was given to the appellant from the date of deposit.

The Tribunal concluded that the facts of the case were not in dispute and that it was understanding of the appellant that they were liable to pay duty that’s why they paid the duty under protest. In these circumstances, the amount deposited under protest is not to take the benefit of time limit, but liability of duty as alleged.  The Tribunal was of the view that the AR failed to show that in case the amount deposited under protest was governed under Section 11AB of the Act for claims of interest.

The Tribunal finally relied on the judgment of the Allahabad High Court in EBIZ Com Pvt Ltd – 2017 (49) STR 389 (All.) where it was observed,

“23. It has been consistent view of various Courts that any amount, deposited during pendency of adjudication proceedings or investigation is in the nature of deposit made under protest or pre-deposit and, therefore, principles of unjust enrichment would not be attracted.

  1. The consensus of the authorities of various High Courts as well as Supreme Court is that any amount received by Revenue, as deposit or pre-deposit i.e. unauthorizedly or under mistaken notion, etc., cannot be retained by Revenue since it has no authority in law to retain such amount and it must be refunded with interest.”

The Tribunal allowed the appeal holding that the appellant was entitled to interest on delayed refund from the date of deposit till its realization @12% p.a.[Soorajmull Baijnath Industries (P) Ltd. v. Commr. Of CE &ST, 2021 SCC OnLine CESTAT 2545, decided on 27-08-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Dilip Gupta (President) and P. Anjani Kumar (Technical Member), partly allowed a petition in which the issue was as to whether the credit of Excise Duty/Additional Customs Duty (CVD) on inputs and capital goods and credit of Service Tax paid on input services which have been used for the construction of Mall, further used/usable for providing taxable output service was admissible to the appellants.

The appellant was engaged in the business of setting up and managing shopping centres, family entertainment centres, multiplexes, etc. popularly known as “Malls”. The appellant registered itself with the Service Tax Department for Renting of Immovable Property Service, Maintenance and Repair Services, Advertising Services, GTA Services, Management Consultancy Services, etc., intended to be provided by them. The appellant availed the credit on inputs like cement, steel, angles, channels etc., and input services like construction services, consultancy, architect and allied services etc., used by them in the construction of “Malls”. After an audit of appellants records the Department opined that the appellant was not eligible to avail such credit. Show Cause Notice was issued wherein recovery of CENVAT credit availed and utilized was confirmed under Rule 14 of CENVAT Credit Rules 2004 along with applicable interest and penalty.

Senior Counsel assisted by Shri Navin Khandelwal and Shir Piyush Parashar appearing on behalf of the appellant submitted that definition of “Input” and “Input Service” had undergone a change with effect from 01-04-2011 by Notification dated 01-03-2011 and it is evident that goods used in the construction of a building or a civil structure are excluded from 01-04-2011 but were included to be eligible for CENVAT credit prior to 01-04-2011; therefore, the credit availed by the appellant prior to 01-04-2011 has rightfully been availed.

Authorized Representative appearing for the Department submits that in terms of Rule 2 (1) of the Credit Rules, CENVAT credit is restricted to such services which are used by the provider of taxable services.

The Tribunal on the argument of Revenue regarding absence of nexus between input services and output services relied on the decision of DLF Promenande Ltd. v. Commr. ST, Service Tax Appeal No. 54213 of 2014 decided on 29-01-2020 and held that issue of nexus between input material/services and the output services has been settled by the Tribunal in favour of the appellant.

The Tribunal however noted that facts of the instant case were slightly different as in the present case the appellant could not complete the construction of the mall. However, this fact should not in any way affect the admissibility of credit to the appellant as the admissibility of the credit availed prior to 01-04-2011, has been settled in principle. It was held that the appellant had correctly availed the credit on inputs and input services, the duty and tax on which has been paid by the appellant.

In respect to the issues of time bar and availability of credit to the appellant it was submitted that the appellant had been regularly filing the ST-3 Returns and as such nothing was suppressed by it so as to invoke of the extended period. Authorized Representative submitted that there was no mention of CENVAT credit in the Returns filed till September 2009 and an opening balance has been shown in the Returns filed for the period October 2009 to March 2010. The Tribunal found that Credit Rules imposed certain conditions for allowing credit in terms of Rules 4 & 9 and cast certain obligations upon the assessee in terms of Rule 6. The quantum of admissibility of credit depends on satisfying the conditions imposed therein and the discharge of obligations. In such circumstances it is not possible to quantify the admissible credit at this juncture. For this limited purpose, the issue needs to be remanded to the Adjudicating Authority.

The Tribunal partly allowed the appeal remanding the issue to the adjudicating authority for quantifying the credit admissible.[Indore Treasure Market City (P) Ltd. v. Commr. CGST & CE, Service Tax Appeal No. 50248 of 2021, decided on 01-09-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

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Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Ashok Jindal (Judicial Member) and Sanjiv Srivastava (Technical Member) allowed an appeal which was directed against the order-in-appeal which was again upheld by the Commissioner (Appeals).

The appellants were during the financial year 2004-05 providing taxable services namely:

  • Consulting Engineer Service under Section 65 (105)(g) of the Finance Act, 1994.
  • Erection, Commissioning & Installation under Section 65(105)(zzd) of the Act.
  • Maintenance & Repair under Section 65 (105)(zzg) of the Act.

As appellants had defaulted on payment of service tax due on these services, Revenue had issued show cause notice dated 28-03-2007 demanding service tax under certain category. By the said show cause notice, appellant were asked to show cause as to why:-

  1. an amount of Rs.13,22,959/- (Rs. Thirteen lakhs twenty two thousand nine hundred and fifty nine only) being the service tax (incl. Education cess) (as per Annexure “B”) payable under Section 68 of the Finance Act, 1994 on the amount of Rs. 1,29,70,186/- recovered by the assessee during the FY 2004-05 towards the business conducted with M/s Malabar Cements Ltd., should not be demanded and recovered from them;
  2. an amount of Rs. 2,12,691/- (Rs. Two lakhs twelve thousand six hundred and ninety one only) ( as per Annexure “B” towards wrong availment / utilisation of cenvat credit should not be demanded and recovered from them in terms of Rule 14, read with Rule 16, of the Cenvat Credit Rules, 2004 and Section 73 of the Finance Act, 1994;
  3. the provisions of extended period under Section 73 of the Act ibid should not be invoked;
  4. interest at the appropriate rate for the period by which payment of tax delayed should not be demanded from them under Section 75 of the Act ibid;
  5. a penalty should not be imposed under Section 76, 77, 78 for the acts and omissions as stated above.
  6. the amount of Rs. 4,89,955/- (ST of Rs. 3,68,547/- and interest of Rs. 1,21,408/-) deposited vide TR-6 dated 7.6.2007 as part payment made against the abovesaid service tax liability should not be appropriated and confirmed.

The Tribunal after hearing the parties was convinced of the fact that the services provided by the appellant were contract services as the invoices are supply of material alongwith services. The Tribunal further agreed that the issue was covered in the case relied on by the Counsel of the Appellant in CCE & Cus. v. Larsen & Toubro Ltd., 2015 (39) STR 913 (SC) relevant paras of which were:

“43. We need only state that in view of our finding that the said Finance Act lays down no charge or machinery to levy and assess service tax on indivisible composite works contracts, such argument must fail. This is also for the simple reason that there is no subterfuge in entering into composite works contracts containing elements both of transfer of property in goods as well as labour and services.

  1. We have been informed by counsel for the revenue that several exemption notifications have been granted qua service tax “levied” by the 1994 Finance Act. We may only state that whichever judgments which are in appeal before us and have referred to and dealt with such notifications will have to be disregarded. Since the levy itself of service tax has been found to be non-existent, no question of any exemption would arise. With these observations, these appeals are disposed of.
  2. We, therefore, allow all the appeals of the assessees before us and dismiss all the appeals of the revenue.”

The Tribunal following the above decision allowed the appeal and held that appellant was entitled to consequential benefits.[Enexco Teknologies (India) Ltd. v. Commr. ST, 2021 SCC OnLine CESTAT 2541 , decided on 27-08-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

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Customs, Excise and Services Tax Appellate Tribunal (CESTAT): SS. Garg (Judicial Member) allowed appeals which were filed after the rejection of refund claims on various input services.

Appellant was a company registered under the Companies Act and was a wholly owned subsidiary of Microsoft Corporation, USA. They had entered into an agreement with M/s. Microsoft Corporation, USA as per which the appellant was required to undertake Information Technology related research and development activities. Appellant was engaged in providing Information Technology Services and Information Technology Enabled Services (ITES). Undisputedly, the said services qualified as export of service. Appellant was also registered under the Service Tax for taxable Information Technology Software Services and Business Auxiliary Services as service provider and also registered as service recipient for taxable Manpower Recruitment Service, Sponsorship Service, Commercial Training and Coaching Service, Legal Consultancy, etc. Appellant procured various input services which were utilised in provision of output service and tax paid thereon was claimed as CENVAT credit in terms of Rule 2(l) read with Rule 3 of the CENVAT Credit Rules. Since the services provided by the appellant qualified as an export of service, appellant had filed periodical refund claims under Rule 5 of CENVAT Credit Rules read with Notification No.5/2006-CE (NT) and Notification No.27/2012-CE(NT) dated 18-6-2012 as applicable for seeking refund of accumulated CENVAT credit.

Counsel for the appellant submitted that the impugned orders were not sustainable in law as the same had been passed without properly appreciating the facts and the law and the definition of ‘input service’ as provided under Rule 2(l) of CENVAT Credit Rules, 2004. He further submitted that all the disputed input services in respect of which the refund had been denied were covered by the definition of ‘input service’ as provided in Rule 2(l) of CENVAT Credit Rules and had nexus with the output service. He also submitted that even for the period post April 2011 i.e., post the amendment to the definition of the term ‘input service’, none of the services in respect of which refund is denied is covered under the exclusion clause as stated in the definition of ‘input service’.

Authorized Representative submitted that the impugned services availed by the appellant lack nexus with the output service and the refund has rightly been rejected.

The Tribunal was of the opinion that appellant had given detailed justification for each of the impugned services involved in these two appeals with judicial precedents and the impugned services had been used by the appellant for rendering the output services. The Tribunal further found that reasoning given by the Commissioner(A) in the impugned orders was not correct in law and the correct position in law was that to test for eligibility is whether input services was used by the provider of taxable service for providing output service and the input services should not be covered by the exclusion clause. The Tribunal also added that all these services on which refund had been rejected consistently held to be input services in various decision relied upon by the appellant.

The Tribunal finally relying on the decision of the Tribunal in Ranbaxy Laboratories Ltd. v. Union of India, 2012 (27) STR 193 (SC), Commr. of Central Tax, Bengaluru v. Netapp (India) (P) Ltd., 2020 (32) GSTL 176 (Kar.) and Scribetech India Healthcare (P) Ltd. v. Commr. of Central Tax, Bengaluru: 2020 (43) GSTL 245 (Tri. – Bang.) held that appellant was entitled to refund of CENVAT credit along with interest.[Microsoft Research Lab (India) (P) Ltd. v. Commr. Of Central Tax, 2021 SCC OnLine CESTAT 1001, decided on 17-08-021]


Suchita Shukla, Editorial Assistant has reported this brief.

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Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Anil Choudhary (Judicial Member) and P. Anjani Kumar (Technical Member) allowed an appeal which was filed with the main issue of as to whether the service tax have been rightly demanded on the appellant who had constructed houses for rehabilitation of poor people under JNNURM.

The appellant was engaged in providing works contract services and was registered with the Department, in the month of February, 2014 the Department received some financial data from third party source wherein the name of the appellant appeared thereafter he was asked to submit documents for verification of discharge of service tax liability which submitted timely. He also submitted contract wise detail of all the contract works done during the last five financial years on the request of the Range Superintend.

It appeared to the Revenue that appellant had wrongly availed exemption in respect of Jawaharlal Nehru Urban Renewal Mission (JNNURM) during the Financial year 2009-10 to 2010-11 as the construction services provided under JNNURM were exempted vide Notification No. 28/2010–ST which came into force on 01 July, 2010. It further, appeared that appellant had wrongly claimed exemption in respect of construction works done for Krishi Utpadan Mandi Parishad (for short Mandi Parishad) during the financial year 2013-14 as under Serial No.12(a) of Notification No.25/2012-ST exemption is available for construction services provided to a government authority which is meant predominantly for use other than commercial/industrial. It further appeared that appellant had not discharged service tax on construction services provided to M/s Uncle Builders during the financial year 2009-10 & 2010-11.

The issues framed by the commissioner were:

  1. Whether the exemption from payment of Service Tax in respect of services provided by the notice to Agra Development Authority (in short ‘ADA’) under Jawaharlal Nehru Renewal Mission (in short ‘JNNURM’) for construction of houses for weaker section of society would be available for the period from 2009-10 to 2010-11(up to 30.06.2010) before issuance of Notification No. 28/2010-ST dated 22.06.2010 (w.e.f. 01.07.2018).
  2. Whether the exemption from payment of Service Tax in respect of services provided by the noticee to Rajya Krishi Utpadan Mandi Parishad (in short ‘Mandi Parishad’) during 2013-14, for construction work under Works Contract would be available, under Sl. No. 12(a) of Notification No. 25/2012-ST dated 20.06.2012.
  3. Taxability of services provided to M/s Uncle Builders during 2009-10 & 2010-11.
  4. Issue relating to demand of interest and penal action against Noticee.

 Counsel for the appellant assailed the findings of the Commissioner stated that for the advance amount received before July, 2010 for construction of residential houses under JNNURM & ‘Rajiv Awaas Yojana’, the work was done after July, 2010 and exempted as per Notification No. 30/2010 dated 28 June, 2010. Further, for the work relating to JNNURM have been executed for the Uttar Pradesh Government, which is providing shelter and home to the poor people at nominal rental basis and thus falls under the definition of construction for personal use of the Government or government authority.

As regards the second issue relating tax liability for construction for Mandi Parishad, Commissioner had observed that these Mandi Parishad were formed under the Act of State Legislature ‘Uttar Pradesh Krishi Utpadan Mandi Adhiniyam 1964’, but not for carrying out any municipal function which are provided under Article 243W of the Constitution of India. Counsel for the appellant urged that admittedly appellant had constructed toilets, roads, drainage, outer sewage, underground water storage tank reservoir, drinking water supply, S.T.P. (Sewage Treatment Plant)Labour shed etc. for the Mandi Samiti and it was a statutory body created under the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964. Thus as per Entry No.12 & 13 of Mega Exemption Notification No.25/2012, the appellant had rightly claimed exemption for providing construction services to the Statutory Authority, and the same was not commercial in nature as has been clarified by the Board vide Circular dated 18 December, 2006.

The Tribunal was of the view that various constructions works carried out for Mandi Parishad was not liable to service tax and were exempted in view of the Education Guide dated 20 June, 2012 by the Board, read with Circular No.89/7/2006 dated 18 December, 2006, read with the Mega Exemption Notification No.25/2012-ST. The Tribunal further added that as regards the third issue i.e. tax liability for work done for Uncle Builders (from 2009-10 to 2010-11), admittedly the appellant had paid tax on 04 June, 2006 along with interest before the issuance of SCN (issued on 31 March, 2016).

The Tribunal held that extended period of limitation is not available to Revenue in these facts and circumstances. Further, appellant have maintained books of account and filed regular returns. It further found that Revenue have erred in adopting Form 26AS for calculating tax liability, which is patently wrong, as Form 26AS is not a prescribed document in the service tax rules for ascertaining the gross turnover of the assessee. The appeal was allowed with consequential benefits.[Ganpati Mega Builders (INDIA) (P) Ltd. v. Commr., Customs, CE & ST, 2021 SCC OnLine CESTAT 1679, decided on 05-08-2021]


Suchita Shukla, Editorial Assistant has reported this brief.


Advocates before the Tribunal:

Advocate for the Appellant: Ms Rinki Arora & Shri Aalok Arora

Authorized Representative for the Respondent: Shri Rajeev Ranjan

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): S.S. Garg (Judicial Member) partly allowed an appeal which was filed aggrieved by the order passed by the Commissioner(Appeals) whereby the Commissioner(Appeals) had rejected the appeal upholding the Order-in-Original.

The officers of Air Intelligence Unit, Cochin International Airport, Nedumbassery seized two gold biscuits total weighing 120 grams valued at Rs.3,55,680/- (international value) from the appellant on his arrival from Sharjah to Cochin on 20/09/2018. The gold biscuits were concealed inside the inner garment worn by the appellant. Since the seized gold biscuits were undeclared, the original authority confiscated the same absolutely under Section 111(d), (i), (l) and (m) of the Customs Act, 1962 and also imposed penalty of Rs.10,000/- under Section 112(a) and (b) of the Customs Act, 1962.

Counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law. He further submitted that the appellant was ignorant of the law that gold ornaments brought from abroad must be reported to the Customs authorities and he was also ignorant that he is required to pass through the red channel and without knowing these facts, the appellant passed through green channel. He further submitted that the quantity of gold brought was only 120 grams which was purchased by him from Malabar Gold and Diamonds, Bahrain with proper bill and the said purchase was purely for making ornaments for his family.

AR defended the impugned order and submitted that the appellant was not entitled to bring gold from outside India as the duration of his stay in abroad was only 35 days; therefore he was not eligible for import of gold. She further submitted that the appellant has been frequently travelling abroad in connection with his work and he is presumed to know the Customs rules and procedures. She further submitted that gold recovered was not declared to the Customs which amounts to violation of Section 77 of the Customs Act, 1962 read with Baggage Rules, 1998 and relevant policy provisions which renders the gold liable for confiscation.

The Tribunal finally found that the appellant was carrying two gold biscuits weighing 120 grams valued at Rs 3,55,680/- which was concealed inside the inner garments by the appellant and the same was not declared and the appellant passed through green channel so as to avoid payment of customs duty. The Tribunal perused the original copy of the invoice issued by Malabar Gold and Diamonds and the said bill showed that the appellant was the owner of the gold which was purchased by him only 2-3 days before the start of the journey from Bahrain but since he was not eligible to bring gold in terms of Notification No.12 of 2012 and the same was not declared, the impugned goods had rightly been confiscated.

The Tribunal while upholding the confiscation found that the penalty of Rs 10,000/- imposed on the appellant under Section 112(a) and (b) of the Customs Act, considering the facts and circumstances of the case specifically when the appellant has proved his ownership was not justified. Appeal was thud partly allowed by the Tribunal.[Muhammed Rafi Kuruthilakath Lafarkantavida v. C.C, 2021 SCC OnLine CESTAT 1058, decided on 06-08-2021]


Suchita Shukla, Editorial Assistant has reported this brief.