Case BriefsHigh Courts

Madhya Pradesh High Court: The Division Bench of Prakash Shrivastava and Vandana Kasrekar, JJ., dismissed a petition which was filed challenging a notice whereby the premises of the petitioner had been sealed under the provisions of The Central Goods and Services Tax Act, 2017 (for short “GST Act”).

The petitioner was the manufacturer of sweet betel nut and which has all the necessary licenses and permissions for this purpose and is regularly paying the GST case of the petitioner is that the Plot No.15-A/B-1, Sector-B, Industrial Area, Sanwer

Road, Indore belonged to Shri Kishore Wadhwani and he had taken this plot on lease from Shri Kishore Wadhwani and was running the manufacturing unit on this plot. The further case of the petitioner was that apart from the above, it had no connection with Shri Kishore Wadhwani. Earlier in the year 2011 Excise Department had taken certain action against the petitioner but nothing incriminating was found. On 20-06-2020, by the impugned notice the factory premises of the petitioner had been sealed. Counsel for the petitioner, Mr Sunil Jain and Mr Kushagra Jain submitted that though the action relating to search and seizure u/S.67 of the GST Act has been taken, but the requisite procedure had not been followed. They further submitted that the petitioner apprehended that the search and seizure may not be carried out in a fair manner and the confession of the petitioner may be recorded under pressure, therefore, a direction be issued for carrying out the search in the present of an Advocate. Counsel for the respondent, Mr Prasanna Prasad submitted that the officials of the respondents had approached the factory premises of the petitioner on 20-06-2020 for the purpose of search and seizure by following the due procedure in accordance with Sec.67 of the Act, but since the premises was found locked, therefore, the option was either to break open the lock and carry out the search or to seal the premises and thereafter carry out the search of the premises in the presence of the petitioner. He also submitted that the two independent witnesses will be kept as required by law and procedure prescribed in law will be duly followed in true letter and spirit.

The Court perused the Section 67 of GST Act and held that the search is yet to take place in the present case and the counsel for respondents had duly assured this court that the aforesaid provision will be complied with therefore no direction in this regard at this stage is required. The Court relied on the judgment of Poolpandi v. Superintendent, Central Excise, (1992) 3 SCC 259 wherein during the investigation and interrogation under the provisions of Foreign Exchange Regulations Act 1973 and Customs Act, a prayer was made for assistance of the lawyer and the Supreme Court had held that,

            “11- We do not find any force in the arguments of Mr. Salve and Mr. Lalit that if a person is called away from his own house and questioned in the atmosphere of the customs office without the assistance of his lawyer or his friends his constitutional right under Article 21 is violated. The argument proceeds thus: if the person who is used to certain comforts and convenience is asked to come by himself to the Department for answering question it amounts to mental torture. We are unable to agree. It is true that large majority of persons connected with illegal trade and evasion of taxes and

duties are in a position to afford luxuries on lavish scale of which an honest ordinary citizen of this country cannot dream of and they are surrounded by persons similarly involved either directly or indirectly in such pursuits. But that cannot be a ground for holding that he has a constitutional right to claim similar luxuries and company of his choice. Mr. Salve was fair enough not to pursue his argument with reference to the comfort part, but continued to maintain that the appellant is entitled to the company of his choice during the questioning. The purpose of the enquiry under the Customs Act and the other similar statutes will be completely frustrated if the whims of the persons in possession of useful information for the departments are allowed to prevail. For achieving the object of such an enquiry if the appropriate authorities be of the view that such persons should be dissociated from the atmosphere and the company of persons who provide encouragement to them in adopting a non cooperative attitude to the machineries of law, there cannot be any legitimate objection in depriving them of such company. The relevant provisions of the Constitution in this regard have to be construed in the spirit they were made and the benefits thereunder should not be “expanded” to favour exploiters engaged in tax evasion at the cost of public exchequer. Applying the ‘just, fair and reasonable test’ we hold that there is no merit in the stand of appellant before us.”

The Court dismissed the petition holding that there was no need for interference.[Subhash Joshi v. Director General of GST Intelligence, WP No.9184 of 2020, decided on 03-07-2020]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Delhi High Court: The Division Bench of Manmohan and Sanjeev Narula, JJ., upheld the validity of Sections 132 and 69 of the Central Goods and Services Tax Act, 2017, and refused any interim relief to the petitioner.

Petitioners submitted that Sections 69 and 132 of the Central Goods and Services Tax Act, 2017 are unconstitutional as being provisions of criminal nature, they could have been enacted under Article 246A of the Constitution of India, 1950.

Further, the petitioners emphasized that the power to arrest and prosecute are not ancillary and/or incidental to the power to levy and collect goods and services tax.

Adding to the above submissions, it was further stated that since the power to levy Goods and Services Tax is provided under Article 246A, power in relation thereto could not be traced to Article 246 or any of entries in 7th Schedule.

In the alternative, they submitted that Entry 93 of List 1 confers jurisdiction upon the Parliament to make criminal laws only with respect to matters in List I and CGST. Therefore, according to them, Sections 69 and 132 are beyond the legislative competence of the Parliament.

In the past, many cases occurred wherein an assessee had been arrested at the initial stage of the investigation but the department had subsequently failed to establish its case in adjudication proceedings and in the process, the assessee suffered an irreparable loss on account of the arrest.

In the present cases, no Show Cause Notice had been issued to the Petitioners either under Section 73 or Section 74 of the CGST Act by the Respondents for any unpaid tax, short paid tax, or erroneous refunds or where input tax credit had been wrongly availed or utilized.

Court’s Reasoning

  • There is always a presumption in favour of the constitutionality of an enactment or any part thereof and the burden to show that there has been a clear transgression of constitutional principles is upon the person who impugns such an enactment. Further, Laws are not to be declared unconstitutional on the fanciful theory that power would be exercised in an unrealistic fashion or in a vacuum or on the ground that there is a remote possibility of abuse of power.

Bench while analyzing several aspects of the matter stated that whenever constitutionality of a provision is challenged on the ground that it infringes a fundamental right, the direct and inevitable effect/consequence of the legislation has to be taken into account.

Court referred to the decision of Supreme Court in Namit Sharma v. Union of India, (2013) 1 SCC 745.

In the decision of the Court in Maganlal Chhanganlal (P) Ltd. v. Municipal Corporation of Great Bombay, (1974) 2 SCC 402, it was held that :

“Administrative officers, no less than the courts, do not function in a vacuum. It would be extremely unreal to hold that an administrative officer would in taking proceedings for eviction of unauthorised occupants of Government property or Municipal property resort to the procedure prescribed by the two Acts in one case and to the ordinary civil court in the other. The provisions of these two Acts cannot be struck down on the fanciful theory that power would be exercised in such an unrealistic fashion. In considering whether the officers would be discriminating between one set of persons and another, one has got to take into account normal human behaviour and not behaviour which is abnormal. It is not every fancied possibility of discrimination but the real risk of discrimination that we must take into account. This is not one of those cases where discrimination is writ large on the face of the statute. Discrimination may be possible but is very improbable.”

  • Goods and Service Tax is a Unique Tax, inasmuch as the power as well as field of legislation are to be found in a Single Article, i.e. Article 246-A. Scope of Article 246-A is significantly wide as it grants the power to make all laws ‘with respect to’ Goods and Service Tax.

Unless the Constitution itself expressly prohibits legislation on the subject either absolutely or conditionally, the power of a Legislature to enact legislation within its legislative competence is plenary.

Further, Court added that there is also no conflict between the operation of Article 246A and Article 246 as a non-obstante clause has been added to Article 246A to clarify that both Parliament and the State Legislatures have simultaneous powers in relation to Goods and Services Tax.

  • This Court is of the Prima facie opinion that the ‘Pith and Substance’ of the CGST Act is on a topic, upon which the parliament has power to legislate as the power to arrest and prosecute are ancillary and/or incidental to the power to levy collect goods and service tax.

When a law is challenged on the ground of being ultra vires to the powers of the legislature, the true character of the legislation as a whole has to be ascertained.

Bench opined that when a law dealing with a subject in one list is also touching on a subject in another list, what has to be ascertained. If on examination of the statute, it is found that the legislation is in substance on a matter assigned to the legislature enacting that statute, then it must be held valid, in its entirety even though it may trench upon matters beyond its competence. Incidental encroachment is not prohibited.

In light of the discussion of the above point, Court prima facie opined that the pith and substance of the CGST Act is on a topic, upon which the Parliament has power to legislate as the power to arrest and prosecute are ancillary and/or incidental to the power to levy and collect GST. 

  • Even if it is assumed that power to make offence in relation to evasion of GST is not to be found under Article 246A, then the same can be traced to Entry I of List III. The term ‘Criminal Law’ used in the aforesaid entry is significantly wide and includes all criminal laws except the exclusions.

Supreme Court’s decision in Kartar Singh v. State of Punjab, (1994) 3 SCC 569, has emphasized that the language used in the aforesaid entry is couched in very wide terms and the scope of the term ‘criminal law’ has been enlarged to include any matter that could be criminal in nature.

In view of the above, High Court prima facie opined that even if Sections 69 and 132 of the Act could not have been enacted in pursuance to power under Article 246A, they could have been enacted under Entry 1 of List III, as laying down of a crime and providing for its punishment is ‘criminal law’.

  • This Court, at the interim stage, cannot ignore the view taken by the Gujarat High Court with regard to application of Chapter XII CrPC to the CGST Act.

In Gujarat High Court’s decision in Vimal Yashwantgiri Goswami v. State of Gujarat, R/Special Civil Application No. 13679 of 2019, it was held as under:

♦ When any person is arrested by the authorised officer, in exercise of his powers under Section 69 of the CGST Act, the authorised officer effecting the arrest is not obliged in law to comply with the provisions of Sections 154 to 157 of the Code of Criminal Procedure, 1973. The authorised officer, after arresting such person, has to inform that person of the grounds for such arrest, and the person arrested will have to be taken to a Magistrate without unnecessary delay, if the offences are cognizable and non-bailable.

However, the provisions of Sections 154 to 157 of the Code will have no application at that point of time. Otherwise, Section 69 (3) provides for granting bail as the provision does not confer upon the GST officers, the powers of the officer in charge of a police station in respect of the investigation and report. Instead of defining the power to grant bail in detail, saying as to what they should do or what they should not do, the short and expedient way of referring to the powers of another officer when placed in somewhat similar circumstances, has been adopted. By its language, the sub-section (3) does not equate the officers of the GST with an officer in charge of a police station, nor does it make him one by implication. It only, therefore, means that he has got the powers as defined in the Code of Criminal Procedure for the purpose of releasing such person on bail or otherwise. This does not necessarily mean that a person alleged to have committed a non-cognizable and bailable offence cannot be arrested without a warrant issued by the Magistrate.

♦ The authorised officer exercising power to arrest under section 69 of the CGST Act, is not a Police Officer and, therefore, is not obliged in law to register FIR against the person arrested in respect of an offence under Sections 132 of the CGST Act.

♦ An authorised Officer is a ‘proper officer’ for the purposes of the CGST Act. As the authorised Officers are not Police Officers, the statements made before them in the course of inquiry are not inadmissible under Section 25 of the Evidence Act.

♦ Power to arrest a person by an authorized officer is statutory in character and should not be interfered with Section 69 of the CGST Act does not contemplate any magisterial intervention.

  • In view of the Supreme Court Judgment in Directorate of Enforcement v. Deepak Mahajan and the aforesaid Gujarat High Court Judgment, the arguments that prejudice is caused to the petitioners as they are not able to avail protection under Article 20(3) of the Constitution and/or the provisions of CrPC do not apply even when CGST Act is silent, are untenable in law.

Judicial Scrutiny

 When any person is arrested under Section 132(5) of the CGST Act, the said person has to be informed of the grounds of arrest and must necessarily be produced before a Magistrate under Section 69 (2) within a period of 24 hours.

 The above-stated would ensure judicial scrutiny over the acts of executive and it cannot be termed as unreasonable and/or excessive.

 Adding to its analysis, the Court stated that just because the CGST Act provides for both adjudications of civil liability and criminal prosecution doesn’t mean that the said Act is unfair or unreasonable.

  • Court prima facie finds force in the submission of the ASG that the Central Tax Officers are empowered to conduct intelligence-based enforcement action against taxpayers assigned to State Tax Administration under Section 6 of the CGST Act.
  • What emerges at the prima facie stage is that it is the case of the respondents that a tax collection mechanism has been converted into a disbursement mechanism as if it were a subsidy scheme.

To conclude the Court held that what emerges at the prima facie stage is that it is the case of the respondents that a tax collection mechanism has been converted into a disbursement mechanism as if it were a subsidy scheme.

Hence, in view of the serious allegations, the Court expressed that it is not inclined to interfere with the investigation at the present stage and that too in writ proceedings. At the same time, innocent persons cannot be arrested or harassed. Consequently, the applications for interim protection are dismissed with liberty to the parties to avail the statutory remedies.

It is settled law that though the powers of constitutional courts are wide and discretionary, yet there exist certain fetters in the exercise of such powers.

 In the Supreme Court decision of Hema Mishra v. State of U.P., (2014) 4 SCC 453, it was held that despite the fact that provision regarding pre-arrest bail, had been specifically omitted in Uttar Pradesh, the power under writ jurisdiction is to be exercised extremely sparingly.

Court’s view in the instant case is that the allegation that a tax collection mechanism has been converted into a disbursement mechanism most certainly requires investigation.

Bench stated that it has no doubt that the trial court, while considering the bail or remand or cancellation of bail application, ‘will separate the wheat from the chaff’ and will ensure that no innocent person against whom baseless allegations have been made is remanded to police/judicial custody.

Hence, the observations made herein are prima facie and shall not prejudice either of the parties at the stage of final arguments of the present writ petitions or in the proceedings for interim protection. [Dhruv Krishan Maggu v. Union of India, 2021 SCC OnLine Del 241, decided on 08-01-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Tamil Nadu Authority for Advance Ruling (TN AAR): The Coram of Manasa Gangotri Kata, Additional Commissioner and Thiru Kurinji Selvaan V.S., Joint Commissioner, held that DVD/CDs do not contain electronic versions of the journals but an executable software application and therefore do not fall under the explanation of “e-book”.

Applicant in the instant matter supplied printed law journals and DVD’s of the law journal.

Questions that arose for Advance Ruling:

  • Whether the assessee/dealer which publishes law journals in print and sells the same content that is in books in an electronic form in DVD’s/CD’s with a software to search and read it in computers and hand held devices come under the category of ‘E-book’, so that it can avail the benefit of notification dated 26-07-2018 in respect of E-book?
  • Whether the liability on the sale of DVD/pen drive which contains printed version of law citations can be adjusted against the ITC?
  • Whether the liability on the sale of e-book of printed versions of law citation can be adjusted against the available ITC?
  • Whether the balance of ITC after adjustment accrued on the purchase of paper and other material can be reversed while filing GSTR 9?

Applicant in its submissions mentioned that the Law Weekly were registered dealer under the erstwhile Tamil Nadu General Sales Tax Act and Tamil Nadu Value Added Tax Act.

Due to development in technology applicant supplies e-books of the printed version to their customers at their request.

On supply of printed books/journals, they have not collected any GST as it is exempt. However for the supply of DVDs/CDs and pen drives they paid GST at the tax rate of 18%  and subsequent to the issue of Notification 13/2018 Central Tax (rate) dated 26-07-2018 the applicant sought Advance Ruling on the applicability of the above said notification for the supply of the electronic form of DVDs/CDs supplied by them.

Analysis and Ruling

Bench found that DVD/CD & Dongle loaded with the ‘The Law Weekly’ desktop software is an optical media loaded with software and the licence to use the software during the subscription period is a supply of service made along with the principal supply of goods in the said ‘Composite Supply’.

The DVD/CD & Dongle being storage devices containing the software is the principal supply.

AAR expressed that ‘e-books’ are electronic version of a printed book falling under the tariff item 4901 and supplied online which can be read on a computer or a hand held device, while in the case at hand, the contents supplied in the form of DVD/CD is a software which is used to access content containing the judgments of various fora, case laws Act, etc. which provides for searching using a particular case number/period/act/court or a combination of the above.

DVD/CDs do not contain electronic versions of the journals but an executable software application and therefore do not fall under the explanation of ‘e-book’.

Initial supply of DVD/CD is the supply of goods and hence the Notification won’t be applicable.

Ruling

Hence, the supply of DVDs/CDs with ‘The Law Weekly Desktop’ software along with end user license and the supply of access to the on-line database on the applicant’s website are not eligible to avail the benefit of entry at SI. No. 22 of Notification No. 13/2018-C.T. (Rate) dated 26-07-2018.[Venbakkam Commandur Janardhanan Proprietor, Law Weekly Journal; Order No. 13/AAR/2020, decided on 27-02-2020]

Cabinet DecisionsLegislation Updates

The Cabinet Committee on Economic Affairs considered and approved the proposal of Department for Promotion of Industry and Internal Trade for Central Sector Scheme for Industrial Development of Jammu & Kashmir. The scheme is approved with a total outlay of Rs. 28,400 crore upto the year 2037.

Government of India has formulated the New Industrial Development Scheme for Jammu & Kashmir (J&K IDS, 2021) as a Central Sector Scheme for the development of Industries in the UT of Jammu & Kashmir. The main purpose of the scheme is to generate employment which directly leads to the socio-economic development of the area. Considering the historic development of reorganization of Jammu & Kashmir with effect from 31.10.2019 into UT of Jammu & Kashmir under the J&K Reorganisation Act, 2019, the present scheme is being implemented with the vision that industry and service-led development of J&K needs to be given a fresh thrust with emphasis on job creation, skill development and sustainable development by attracting new investment and nurturing the existing ones.

The following incentives would be available under the scheme:

  1. Capital Investment Incentive at the rate of 30% in Zone A and 50% in Zone B on investment made in Plant & Machinery (in manufacturing) or construction of the building and other durable physical assets(in service sector) is available. Units with investment upto Rs. 50 crore will be eligible to avail this incentive. Maximum limit of incentive is Rs 5 crore and Rs 7.5 crore in Zone A & Zone B respectively
  2. Capital Interest subvention: At the annual rate of 6% for maximum 7 years on loan amount up to Rs. 500 crore for investment in plant and machinery (in manufacturing) or construction of building and all other durable physical assets(in service sector).
  3. GST Linked Incentive: 300% of the eligible value of actual investment made in plant and machinery (in manufacturing) or construction in building and all other durable physical assets(in service sector) for 10 years. The amount of incentive in a financial year will not exceed one-tenth of the total eligible amount of incentive.
  4. Working Capital Interest Incentive: All existing units at the annual rate of 5% for maximum 5 years. Maximum limit of incentive is Rs 1 crore.

Key Features of the Scheme:

  1. Scheme is made attractive for both smaller and larger units. Smaller units with an investment in plant & machinery upto Rs. 50 crore will get a capital incentive upto Rs. 7.5 crore and get capital interest subvention at the rate of  6% for maximum 7 years
  2. The scheme aims to take industrial development to the block level in UT of J&K, which is first time in any Industrial Incentive Scheme of the Government of India and attempts for a more sustained and balanced industrial growth in the entire UT
  3. Scheme has been simplified on the lines of ease of doing business by bringing one major incentive- GST Linked Incentive- that will ensure less compliance burden without compromising on transparency.
  4. Scheme envisages greater role of the UT of J&K in registration and implementation of the scheme while having proper checks and balances by having an independent audit agency before the claims are approved
  5. It is not a reimbursement or refund of GST but gross GST is used to measure eligibility for industrial incentive to offset the disadvantages that the UT of J&K face
  6. Earlier schemes though offered a plethora of incentives. However, the overall financial outflow was much lesser than the new scheme.

Major Impact and employment generation potential:

  1. Scheme is to bring about radical transformation in the existing industrial ecosystem of J&K with emphasis on job creation, skill development and sustainable development by attracting new investment and nurturing the existing ones, thereby enabling J&K to compete nationally with other leading industrially developed States/UTs of the country.
  2. It is anticipated that the proposed scheme is likely to attract unprecedented investment and give direct and indirect employment to about 4.5 lakh persons. Additionally, because of the working capital interest subvention the scheme is likely to give indirect support to about 35,000 persons.

Expenditure involved:

The financial outlay of the proposed scheme is Rs.28,400 crore for the scheme period 2020-21 to 2036-37. So far, the amount disbursed under various special package schemes is Rs. 1,123.84 crore.


Cabinet Committee on Economic Affairs (CCEA)

[Press Release dt. 07-01-2020]

[Source: PIB]

Advance RulingsCase Briefs

Authority for Advance Ruling, GST: A Division Bench of Dr Ravi Prasad M.P. (Additional Commissioner of Commercial Taxes) and MashhoodUr Rehman Farooqui (Joint Commissioner of Central Tax) addressed whether the input tax credit can be availed on the distribution of promotional products to distributors/dealer’s showrooms for the purpose of marketing the products and promoting the brand.

In the instant application, it has been stated that the applicant was engaged in the manufacture, distribution and marketing of Knitted and Woven Garments under the brand name of “Jockey”, swimwears and swimming equipment’s under the brand name “SPEEDO”.

Applicant sought advance ruling on the classification of goods and services as under:

“Whether in the facts and circumstances of the case, the promotional products/materials and Marketing Items used by the applicant in promoting their brand and marketing their products can be considered as “inputs” as defined under Section 2(59) of the CGST Act, 2017 and GST paid on the same can be availed as input tax credit in terms of Section 16 of the CGST Act, 2017?”

Applicant submitted that as per Section 16 of the CGST Act, every registered person subject to terms and conditions specified in Section 49 of CGST Act is entitled to avail the same as “Input Tax Credit” the GST paid by him on the supply of goods or service to him, which are used or intended to be used in the cause or in furtherance of his business and same will be transferred to his electronic credit ledger.

Adding to the above submissions, the applicant stated that promotional/marketing items using by them at point of purchase i.e. showrooms or to their distributor/dealer’s showrooms is to promote their brands and made known the range of products manufactured by them.

The said promotional/marketing items are distributed for free by the applicant to promote their brand, hence the same cannot be construed as “gift” and made applicable Section 17(5)(h) of CGST Act.

Applicant add that in respect of the promotional/marketing items to their own showrooms there was neither “supply” nor there was “gift” and hence applying the provisions of Section 17(5)(h) of CGST Act, 2017 and apportioning the input tax credit should not arise.

Analysis and Decision

Promotional/marketing items sent to showrooms and to distributor/dealer’s showrooms to use in promoting their brands and market their products will amount to use of said goods in business or furtherance of the applicant’s busniess. Therefore, the same would qualify as “input” in terms of Section 2(59) of CGST Act, 2017 and GST paid on the same is entitle to avail as “input tax credit” in terms of Section 16 of CGST Act, 2017.

Bench noted that the goods were not transferred out of the accounts of the applicant and remained in the accounts of the applicant as assets, which were returnable items but the applicant did not show any proof of the said being returned to the applicant and disposed at the end of the period of usage.

In light of the above-stated scenarios, the applicant uses the goods till the goods are usable for the promotion of his business and claims depreciation on the same.

In the applicant’s opinion, the above-stated goods are covered under “input”.

AAR expressed that,

Since the ownership of the material is being retained by the applicant, they could be treated as capital goods hence needs to be capitalized in his books of accounts. The said cannot be treated as “input” since the said term excludes capital goods.

Whether input tax credit can be availed on the capital goods?

Section 16 of the GST Act provides for the eligibility for taking/availing input tax credit.

Since the applicant used or intended to use the goods and services procured in the course or furtherance of business, the applicant was entitled to take the input tax credit, subject to other provisions of the Act and hence there was no blockage attributable to Section 17(1) as the applicant used the goods in the course or furtherance of business.

Ruling

  • ITC on GST paid on procurement of the “distributable” products which are distributed to the distributors, franchisees is allowed as the said distribution amount to supply to related parties. The said distribution to the retailers for their use cannot be claimed as gifts to the retailers or to their customers free of cost and hence ITC of GST paid on such procurement is not allowed as per Section 17(5) of the GST Acts.
  • GST paid on the procurement of “non-distributable” products qualify as capital goods and not as “inputs” and the applicant is eligible to claim input tax credit on their procurement, but in case if they are disposed of by writing off or destroyed or lost, then the same needs to be reversed under Section 16 of CGST Act, 2017 read with Rule 43 of the CGST Rules, 2017.

[Page Industries Ltd., In Re., 2020 SCC OnLine Kar AAR-GST 7, decided on 15-12-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

West Bengal Authority for Advance Ruling, Goods and Services Tax: The Bench of Susmita Bhattacharya (Joint Commissioner, CGST & CX) and Parthasarathi Dey (Senior Joint Commissioner, SGST), held that no GST will be applicable on composite supply of crushing the food grains belonging to the State Government and delivery of the crushed grains will be exempted as provided the proportion of the packing materials in the composite supply in value terms does not exceed 25%.

The applicant intends to supply to the State Government the service of crushing food grains. The processed food grain will be used for distribution through the Public Distribution System. 

Applicant sought a ruling whether the above-stated activity would be exempted under Sl No. 3 or 3A of Notification No 1212017 CT (Rate) dated 28-06-2017 (corresponding State Notification No. 1136 – FT dated 28-O6-2017), as amended (hereinafter collectively called the Exemption Notification).

Applicant was unregistered under the GST Act.

Observations & Findings 

ln Circular No. 5112512018-GST dated 31-07-2018 the Central Government clarified that the service tax exemption under Sl No. 25(a) of Notification No. 2512012 dated 20-06-2012 has been substantially, although not in the same form, continued under GST vide Sl No. 3 and 34 of the Exemption Notification. Sl No. 25(a) of the ST notification under the Service Tax exempts “services provided to the Government, a local authority or a governmental authority by way of water supply, public health, sanitation, conservancy, solid waste management or slum improvement and up-gradation.”

“…under the GST the ambit has been broadened to include any such functions that are performed by a Panchayat or a Municipality under specific provisions of the Constitution. These functions are in the nature of public welfare service that the governments on their own, and sometimes through governmental authorities/entities, do provide to the citizens. When the activity is in relation to any such function, the supply to the governments or governmental authorities/entities or local authorities is exempt from paying GST.”

Hence, in view of the above, applicant’s eligibility under the above-stated SI No. 3 or 3A will have to be examined under three aspects:

  • whether the supply being made is pure service or a composite supply, where supply of goods does not exceed more than 25% of the value of the supply
  • whether the recipient is government, local authority, governmental authority or a government entity, and
  • whether the supply is being made in relation to any function entrusted to a Panchayat or a Municipality, as clarified in the above paragraphs.

Bench observed that the applicant is making the supply of a bundle consisting of the service of crushing the grains and supply of materials required to pack the crushed grains, where the former is the predominant supply. They are supplied in conjunction with each other in the ordinary course of business as food grain cannot be transported without proper packing.

Therefore, the above activity is a composite supply of goods and services where service of crushing food grains is the principal supply and providing packing materials is ancillary to it.

Ruling

In view of the above discussion, it was held that if the applicant’s agreement with the State Government binds both the supplier and the recipient in such a way that neither can divert the food grains to any use other than distribution through PDS, the Applicant’s composite supply of crushing the food grains belonging to the State Government and delivery of the crushed grains will be exempt under Sl No. 3A of Notification No 1212017 CT (Rate) dated 28-06-2017 (corresponding State Notification No. 1136 – FT dated 28-06-2017), as amended, provided the proportion of the packing materials in the composite supply in value terms does not exceed 25%.[Sakshi Jhajharia, In re., 2020 SCC OnLine WB AAR-GST 9, decided on 10-02-2020]

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Ashok Bhushan*, R. Subhash Reddy and MR Shah, JJ has held that while determining the taxable value of lottery the prize money is not to be excluded for the purpose of levy of GST.

The Court explained that for determining the value of the lottery, there is statutory provision contained in Section 15 read with Rule 31A. Section 15 of the Central Goods and Services Tax Act, 2017 by sub-section (2) provides what shall be included in the value of supply. What can be included in the value is enumerated in sub-clause (a) to (e) of sub-section (2) of Section 15. Further, subsection (3) of Section 15 provides that what shall not be included in the value of the supply.

“What is the value of taxable supply is subject to the statutory provision which clearly regulates, which provision has to be given its full effect and something which is not required to be excluded in the value of taxable supply cannot be added by judicial interpretation.”

Further, Rule 31A as noted above, sub-rule (2) as amended clearly provides that value of supply shall be deemed to be 100/128 of the face value of ticket or of the prize as notified in the Official Gazette by the Organising State, whichever is higher.

The Court said that the value of taxable supply is a matter of statutory regulation and when the value is to be transaction value which is to be determined as per Section 15 it is not permissible to compute the value of taxable supply by excluding prize which has been contemplated in the statutory scheme. It was hence, held that

“When prize paid by the distributor/agent is not contemplated to be excluded from the value of taxable supply, we are not persuaded to accept the submission of the petitioner that prize money should be excluded for computing the taxable value of supply.”

[Skill Lotto Solutions v. Union of India, 2020 SCC OnLine SC 990, decided on 03.12.2020]


*Justice Ashok Bhushan has penned this judgment

For petitioner: Senior Advocate Ravindra Shrivastava,

For Union of India: Additional Solicitor General Vikramjit Banerjee

For Intervenor: Senior Advocate C.A. Sundaram

Also read: Supreme Court upholds constitutionality of imposition of GST on lotteries, betting and gambling 

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Ashok Bhushan, R. Subhash Reddy and MR Shah, JJ has upheld the constitutionality of imposition of GST on lotteries, betting and gambling.

Here are the key takeaways from the judgment: 

Whether the inclusion of actionable claim in the definition of goods as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is contrary to the legal meaning of goods and unconstitutional?

The inclusion of actionable claim in definition “goods” as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is not contrary to the legal meaning of goods nor it is in conflict with the definition of goods given under Article 366(12).

“The Constitution framers were well aware of the definition of goods as occurring in the Sale of Goods Act, 1930 when the Constitution was enforced. By providing an inclusive definition of goods in Article 366(12), the Constitution framers never intended to give any restrictive meaning of goods.”

Parliament by the  Constitution (One Hundred and First Amendment) Act, 2016 inserted Article 246A, a special provision with respect to goods and services tax in which special power has to be liberally construed empowering the Parliament to make laws with respect to goods and services tax. Article 246A begins with non obstante clause that is “Notwithstanding anything contained in Articles 246 and 254”, which confers very wide power to make laws. When the Parliament has been conferred power to make law with respect to goods and services, the legislative power of the Parliament is plenary.

“The power to make laws as conferred by Article 246A fully empowers the Parliament to make laws with respect to goods and services tax and expansive definition of goods given in Section 2(52) cannot be said to be not in accord with the constitutional provisions.”

Whether the Constitution Bench’s observation ‘lottery is an actionable claim’ in Sunrise Associates v. Govt. of NCT of Delhi, (2006) 5 SCC 603 a law or obiter dicta?

The definition of goods in Section 2(j) as noticed by the Constitution Bench states that ‘goods’ means all kinds of movable property (other than newspaper, actionable claims, stocks, shares and securities). The exclusion of the actionable claims from the goods as enumerated in the definition is also a part of the definition.

“If a particular item is covered by exclusion it is obvious that it does not fall in the definition of the goods. When the Constitution Bench came to the conclusion that the lottery is an actionable claim it was considering the definition of 2(j) itself and what has been held by the Constitution Bench cannot be held to be obiter dicta.”

The Constitution Bench in Sunrise Associates has categorically held that lottery is actionable claim after due consideration which is ratio of the judgment. The expansion of definition of goods under Section 2(52) of Act, 2017 by including actionable claim is in the line with the Constitution Bench pronouncement in Sunrise Associates and no exception can be taken to the definition of the goods as occurring in Section 2(52).

Whether exclusion of lottery, betting and gambling from Item No.6 Schedule III of Central Goods and Services Tax Act, 2017 is hostile discrimination and violative of Article 14 of the Constitution of India?

The Constitution Bench in State of Bombay Vs. R.M.D. Chamarbaugwala, AIR 1957 SC 699 has clearly stated that Constitution makers who set up an ideal welfare State have never intended to elevate betting and gambling on the level of country’s trade or business or commerce.

Lottery, betting and gambling are well known concepts and have been in practice in this country since before independence and were regulated and taxed by different legislations. When Act, 2017 defined the goods to include actionable claims and included only three categories of actionable claims, i.e., lottery, betting and gambling for purposes of levy of GST, it cannot be said that there was no rationale for including these three actionable claims for tax purposes.

“It is a duty of the State to strive to promote the welfare of the people by securing and protecting, as effectively as it may, a social order in which justice, social, economic and political, shall inform all the institutions of the national life.”

Hence, there is no violation of Article 14 in Item No. 6 of Schedule III of the Act, 2017.

Whether while determining the face value of the lottery tickets for levy of GST, prize money is to be excluded? 

Read here 

[Skill Lotto Solutions v. Union of India, 2020 SCC OnLine SC 990, decided on 03.12.2020]


*Justice Ashok Bhushan has penned this judgment

For petitioner: Senior Advocate Ravindra Shrivastava,

For Union of India: Additional Solicitor General Vikramjit Banerjee

For Intervenor: Senior Advocate C.A. Sundaram

 

Also read: GST on lotteries| Prize money not to be excluded for computing the taxable value of supply, holds SC

Advance RulingsCase Briefs

Himachal Pradesh, Authority for Advance Rulings: The Division Bench of Rakesh Sharma, Additional Commissioner of State Taxes and Excise, Member (State Tax) and Abhay Gupta, Joint Commissioner of Central Tax, Member (Central Tax) held that input tax credit cannot be claimed for GST paid on hiring commercially licensed vehicles for transportation of employees if the service of providing the facility of transportation of employees is not obligatory under any law.

In the instant application, the applicant is a public service broadcaster, taxpayer availed services of hiring taxis for different purposes, such as:

  • To pick up/drop shift duty-staff in odd hours.
  • This facility is being provided in odd hours to lady-employees, handicapped & general employees.
  • Taxis are hired for tour/OB recordings, etc. within the State of Himachal Pradesh on different occasions.
  • Taxis are also hired to drop shift staff at High Power Transmitter during morning/evening & for office work during day time.

Question raised by the applicant was:

Whether input tax credit was available to the applicant on the services availed for the aforementioned items through contractors and what rate of GST will be applicable on the same?

Findings of the Authority

Bench noted that the applicant was a registered taxpayer and entered into an agreement for hiring commercially licensed vehicles for transportation of his employees.

As per Section 16 of the CGST/HPGST Act, 2017, every registered person shall 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.

Availability of ITC as per the provision of the second proviso to Section 17(5)b is available only on the condition that such goods or service or both is obligatory for an employer to provide to its employees under any law for the time being in force.

Bench stated that since the applicant had not been able to cite any law under which the service of providing the facility of transportation to his employees was obligatory, hence ITC will not be available to him.

Conclusion

  • As per Notification No. 20/2017 dated 22-08-2017, the applicable tax rate on renting of Cabs is 5% with limited ITC and 12% with full ITC.
  • If the facility provided by a taxpayer for transportation of employees is not obligatory under any law, for the time being in force then no ITC will be available to such a taxpayer. The applicant will, however, be eligible to claim ITC for the service supplied at 12% GST Rate if the conditions laid down in the second proviso to Section 17(5) b are satisfied. [Prasar Bharti Broadcasting Corpn. of India (All India Radio), In Re., decided on 24-02-2020]
Legislation UpdatesNotifications

The Government has been receiving a number of representations regarding the need to extend due date for filing Annual Return (FORM GSTR-9) and Reconciliation Statement (FORM GSTR-9C) for 2018-19 on the grounds that on account of the COVID-19 pandemic related lockdown and restrictions, normal operation of businesses have still not been possible in several parts of the country. It has been requested that the due dates for the same be extended beyond 31st October 2020 to enable the businesses and auditors to comply in this regard.

In view of the same, on the recommendations of the GST Council, it has been decided to extend the due date for filing Annual Return (FORM GSTR-9/GSTR-9A) and Reconciliation Statement (FORM GSTR-9C) for Financial Year 2018-19 from 31st October 2020 to 31st December, 2020. Notifications to give effect to this decision would follow.

It may be noted that filing of Annual Return (FORM GSTR-9/ GSTR-9A) for 2018-19 is optional for taxpayers who had aggregate turnover below Rs. 2 crore. The filing of reconciliation Statement in FORM 9C for 2018-19 is also optional for the taxpayers having aggregate turnover upto Rs. 5 crore.


Ministry of Finance

[Press Release dt. 24-10-2020]

Case BriefsHigh Courts

Madras High Court: G.R. Swaminathan, J., directed the confiscated goods to be released on a provisional basis noting the delay on the part of Authorities in the adjudication of the matter.

Petitioner a dealer registered under the Goods and Services Tax Act who imports toys from China. It also purchases goods from Delhi-based dealers.

Dealer’s Stand

Dealer’s state that the returns till March 2020 have been filed and there are no arrears. Due to the lockdown restrictions amidst the pandemic, the business was shut down since April, 2020.

Following the partial lifting of restrictions, the petitioner reopened the business. Superintendent, CGST conducted a search at the petitioner’s place of business.

After the search operation, mahazar was drawn which was followed by a seizure order.

The said orders of seizure and prohibition issued by respondent 3 have been put to a challenge.

Analysis & Decision

Bench while addressing and analysing the issue, stated that,

Lord Atkin in his celebrated dissent in Liversidge v. Anderson, (1942) AC 206, proclaimed that laws speak the same language in war as in peace and that the words have only one meaning.

Likewise, laws speak the same language during normal as well as in pandemic times.

“…contemporary imperatives demand that courts, whenever possible, ought to adopt that approach which will kick- start the economy.”

Court also referred to Section 67 (1) and (2) of the Central Goods and Services Tax Act, 2017 which talks about the Power of inspection, search and seizure.

Supreme Court in ITO v. Lakhmani Mewal Das, (1976) 3 SCC 757, held that 

“…the existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief. The expression “reason to believe” does not mean a purely subjective satisfaction on the part of the officer. It must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section.”

Evading GST

In the present matter, the impugned proceedings were initiated based on the intelligence developed by CGST (HPU), Madurai that the petitioner is evading GST by mis-declaring the goods while importing.

It has been shown that the stock register was not maintained at the petitioner’s place of business, hence the Court doesn’t want to quash the seizure order, through the order of prohibition has to be necessarily interfered with.

No show-cause notice to date after the lapse of 40 days was issued.

In view of the above, Court stated that the respondent may not be in a hurry, they can afford to wait. Officials who get their salaries in the first week of every month may not be conscious of the cost of delays in such cases.

Further, the Court added that Adjudication proceedings may go on for months. That is why the statute provides for the provisional release of the detained goods.

Therefore, the Court directed the respondents to release the goods on a provisional basis and on taking a personal bond with a payment of Rs 2 lakhs.

While parting with its decision, Bench stated in regard to the Chinese products that,

“…general market is flooded with Chinese goods. The public must make a conscious choice to encourage swadeshi products.”

“The Indian entrepreneur must rise to the occasion. He must ask himself as to why the chinese products are preferred and he must come out with alternatives. There must be no compromise in quality. At the same time, the price factor should also be borne in mind.”

Petition was partly allowed in the above terms. [Tvl.Rising International Co. v. Commr. of Central GST and Central Excise,  2020 SCC OnLine Mad 2951, decided on 06-10-2020]

Advance RulingsCase Briefs

Punjab Authority for Advance Ruling: Navdeep Bhinder (Member, SGST) and Parul Garg (Member, CGST) addressed the following issue:

Whether the parking lot services provided by the Contractor appointed by the Market Committee, which is a Government Authority is exempt under Notification 12 of 2017 as the parking lot activity is covered under Article 243 of the Constitution of India?

Applicant was appointed as a contractor for providing parking lot services at the place of the market committee at Jalandhar.

Further, the applicant stated that,

“Market Committee” is a Government Authority as per the definition of Government Authority provided in the clause (zf) of the notes appended to Notification No. 12/2017 as it is established by the State Government and the services provided by the Governmental Authority by way of any activity in relation to any function entrusted to a municipality under Article 243W of the Constitution is NIL rated service under Notification No. 12/2017-Central Tax (Rate).

Adding to the above, the applicant stated that whenever the market committee provides parking lot services directly the same is exempt and whenever it provides through an agent the same is taxable.

Analysis

Bench at first examined whether the Market Committee is a Government Authority or not and it was observed that the Market Committee (Mandi Board) does not fall under the definition of the local authority.

A definition has to be read in its fulfillment and not in parts or out of context to suit a particular purpose.

Market Committees are service rendering agencies and their main source of income is the market fee. Mandi board is not established by the State Government for providing Parking Lot services to the people.

On perusal of the agreement between the applicant and the Mandi Board, it was established that the applicant had been appointed as a Contractor for providing parking lot services and the applicant would have recovered the said amount by charging the vehicles entering the market committee.

Hence the Market Committee was to earn revenue from the persons entering the parking area.

It has been consistently held that any statutory authority which works on business principles, the fees collected by it cannot be considered as statutory fee.

Only in case where the fee is collected towards sovereign functions and deposited with Government revenue qualify to be outside the levy of any tax.

Parking fees collected by the applicant are not in the nature of statutory fees.

Therefore, the Authority held that the parking lot services provided by the contractor appointed by the Market Committee, are not exempt under Notification No. 12/2017 as the Market Committee is not a Government Authority as per the definition in clause 2(zf) of the notes appended to Notification 12/2017.

The said activity/services of parking provided by the applicant fall under Heading 9967 and attract GST @18% (CGST 95 + SGST 9%).[Pushpa Rani Pabbi, In Re., AAR/GST/PB/011, decided on 06-09-2019]

Advance RulingsCase Briefs

Authority for Advance Ruling, Madhya Pradesh (AAR): A Division Bench of Virendra Kumar Jain Choubey and Manoj Kumar, Members, examined the classification of Fried Fryums of different shapes, sizes and varieties which are ready to eat and in regard to the HSN Code and GST rate applicable on such goods manufactured.

Applicant through the present application sought correct classification of ‘Papad’ and ‘Papad Fryums’ of different shapes, sizes and varieties (commonly known as Fried Fryums). The applicant is involved in the activity of manufacturing and selling of the said ready-to-eat product.

Further, at the time of the hearing, the applicant reframed the question as follows:

What is the correct classification of Fried fryums of different shapes, sizes and varieties which are ready to eat and What is the HSN Code and GST rate applicable on such goods manufactured?

The officer concerned stated that the Fried Fryums will be classified under Tariff 2016 90.

Decision & Analysis

Bench noted that the main issue is with regard to the classification of Fried Fryums and the GST rate applicable to it.

As the applicant tried to equate Fried Fryums with Papad, it is important to know what ‘Papad’ is:

Papad as such has not been defined under Customs Tariff Act, 1975, GST Act or the Notification issued under the CGST Act, 2017/MGGST Act, 2017.

As per the settled principle of interpretation of statute, word not defined in the statute must be construed in its popular sense, the sense which people conversant with the subject matter with which the statute is dealing would attribute to it.

Observation

Fried Fryums are eatable and used as food articles or eatables and such fried, salted Fryums are found to be commonly known and used as ‘Namkin’ ‘papad’ even after roasting or frying are known and used as ‘Papad’ only.

Whereas, in commercial or trade parlance also, the ‘Fried Fryums’ cannot be said to be known as ‘Papad’.

Hence, Fried Fryums cannot be equated with ‘Papad’.

Authority ruled that Fried Fryums will be classified under Tariff Item No. 2106 90 99 and GST Rate of 18% (CGST 9% or IGST 18%) will be applicable to the said product. [Alisha Foods, In Re., 2019 SCC OnLine MP AAR-GST 91, decided on 28-11-2019]

Advance RulingsCase Briefs

West Bengal Authority for Advance Ruling, GST (WB AAR): A Division Bench of Susmita Bhattacharya and Parthasarathi Dey (Members) while addressing the present application with regard to the applicability of GST on “assignment of leasehold right” held that,

The activity of assignment is in the nature of agreeing to transfer one’s leasehold rights. It does not amount to further sub-leasing, as the applicant’s rights as per the Deed of sub-lease stands extinguished after assignment. Neither does it create fresh benefit from the land. It is in the nature of compensation for agreeing to do the transfer of the applicant’s rights in favour of the assignee. It is a service classifiable under “Other miscellaneous service‟ (SAC 999792) and taxable @ 18%.

National Company Law Tribunal, Kolkata Bench admitted the applicant as the corporate debtor and passed an order under Section 33 of the Insolvency and Bankruptcy Code, 2016 to start the process of liquidating the corporate debtor.

One of the assets under liquidation is the leasehold property unit along with care parking space (Demised Premises). West Bengal Industrial Development Corporation Ltd. granted the applicant possession of the Demised Premised for 99 years under a registered deed.

Applicant submitted that according to clause 12.28 of the deed, applicant, after the expiry of at least five years from the date of the Deed coming into force, is entitled to assign to another person the unexpired residual period of the sub-lease after taking written approval of the sub-lessor and on payment of transfer fee, being 10% of the prevailing market value of the property as assessed by the Registering Authority of the State Government.

Question for consideration:

Liquidator raised the question as to whether GST is payable on the consideration receivable on such assignment. If so, what should be the SAC and the rate applicable? He also seeks clarity on whether he can claim input tax credit for the GST paid on the transfer fee.

Officer Concerned from the Revenue submitted that the assigning of the sub-lease is a service classifiable under the heading “Other Miscellaneous Services‟ (SAC 99979) and taxed accordingly.

Observations of the Authority

Scope of supply under Section 7 (1) of the GST Act includes all forms of supply of goods and services, including a sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made.

Bench noted that the benefits arising from land in the forms specified in paragraph 2 of Schedule II are not to be treated as transactions in immovable property but as the supply of service for the purpose of the GST Act.

Deed | Service Contract of Lease

Authority stated that the Deed confers upon the applicant no better title to the Demised Premises other than a service contract of lease.

Applicant can only transfer to the assignee his right to receive the service of the lease for the unexpired period after obtaining prior approval of the Sub-lessor on payment of the transfer fee.

Conditional Possession

Hence, it is clear that the applicant, apart from the conditional possession of the Demised Premises, enjoys no title or ownership, which is central to the sale of any immovable property within the meaning of Section 54 of the Transfer of Property Act, 1882.

Therefore, the assignment does not amount to transfer of any benefit other than leasehold rights in terms of the Deed for the unexpired period of the lease and is no transfer of any immovable property in the context of the GST Act.

Thus, the activity of assignment of leasehold right is a service classifiable under ‘Other miscellaneous service‟ (SAC 999792) and taxable @ 18% under Sl No. 35 of Notification No. 11/2017 – CT (Rate) dated 28/06/2017 (State Notification No. 1135- FT dated 28/06/2017), as amended from time to time.

Further, the transfer fee charged by the Sub-lessor is in the nature of a consideration for tolerating an act that the applicant is otherwise refrained from doing in terms of clause 12.28 of the Deed. It is also a service classifiable under “Other miscellaneous service‟ (SAC 999794) and taxable @ 18% under Sl No. 35 of the Rate Notification.[Enfield Apparels Ltd. In Re., 2020 SCC OnLine WB AAR-GST 7, decided on 10-08-2020]

Advance RulingsCase Briefs

West Bengal Authority for Advance Ruling, GST (WB AAR): A Division Bench of Susmita Bhattacharya, Joint Commissioner, CGST & CX and Parthasarathi Dey, Additional Commissioner, SGST, addressed the question with regard to classification of a three-wheeler battery operated vehicle.

In the present application, the applicant is a manufacturer of “three-wheeled motor vehicles”  commonly known as “Toto”.

Question raised in the present application

Whether the stated three-wheeled vehicle is classifiable as an ‘electronically operated motor vehicle’ under HSN 8703 when supplied with a battery pack?

Another question raised by the applicant is the classification of the stated vehicle if supplied without the battery pack.

Observations of the Advance Authority Ruling:

The goods supplied by the applicant have been described as electronically operated three-wheeled vehicles. It is an e-rickshaw as defined in the Section 2A (2) of the Motor Vehicles Act, 1988.

The Authority notes that, a combined reading of the provisions of Section 2A (2) of the MV Act and Entry No. 242A of Schedule I of the Rate Notification establishes that the battery pack is an essential character of an e-rickshaw.

If the battery pack is withdrawn, it will no longer be a three-wheeled electrically operated vehicle.

Heading 8703 of First Schedule of Customs Tariff Act, 1975

Further, Motor vehicles for carrying less than ten passengers are classified under Heading 8703 of the First Schedule of the Customs Tariff Act, 1975, which is adopted in the GST Act for classification.

Sub-heading 8703 10 covers the vehicles specially designed for travelling on snow, golf cars and similar vehicles.

Adding to the above, it has been stated by the AAR that all other sub-headings except the residual subheading 8703 90, refer to vehicles fitted with an internal combustion engine.

E- rickshaws or electrically operated three-wheeled vehicles are, therefore, classifiable under Tariff heading 8703 90 10 of the Tariff Act.

Hence, a three-wheeled motor vehicle is classifiable under HSN 8703 as an electrically operated vehicle, provided it is fitted with the battery pack. Otherwise, it will be classifiable under HSN 8706. [Hooghly Motors Pvt Ltd., In Re., 2020 SCC OnLine WB AAR-GST 8, decided on 10-08-2020]

Hot Off The PressNews

The Central Board of Indirect Taxes & Customs (CBIC) today clarified that the Notification No. 63/2020-Central Tax dated 25th August 2020 relating to interest on delayed payment of GST has been issued prospectively due to certain technical limitations.

However, it has assured that no recoveries shall be made for the past period as well by the Central and State tax administration in accordance with the decision taken in the 39th Meeting of GST Council.

This will ensure full relief to the taxpayers as decided by the GST Council.

CBIC explanation came in response to an assortment of comments in the social media with respect to Notification dated 25th August 2020 regarding charging of interest on delayed payment of GST on net liability (the tax liability discharged in cash) w.e.f. 1st September 2020.


Ministry of Finance

[Press Release dt. 26-08-2020]  

Case BriefsHigh Courts

Kerala High Court: A.K. Jayasankaran Nambiar, J. allowed the writ petition and quashed the series of detention notices issued against the petitioner.

The petitioner challenged a series of notices of detention, whereby a consignment of goods transported at the instance of the petitioner was detained by the respondent on the allegation that there was a discrepancy in the e-way bill that accompanied the transportation of the goods. The Court on reviewing the series of notices inferred that the reason for the detention was that, while the consignment was supported by an invoice which contained the details of the goods transported as also the tax paid in respect of the goods, there was no mention of the tax amounts separately in the e-way bill that accompanied the goods. The Court further inferred that the respondents, therefore, detained the goods on the ground that there was no valid e-way bill supporting the transportation in question.

Meera Menon and Harisankar Menon, counsel on behalf of the petitioner argued that the transportation was covered both by a tax invoice, as also an e-way bill in FORM GST EWB-01, and when both the documents are perused together, it was amply clear that the transportation was covered by documents that clearly indicated the fact of payment of tax on the goods that were being transported. Thus, the detention under Section 129 was unfounded and baseless.

Dr Tushara James, counsel appearing on behalf of the respondent contended that as per Section 33 of the GST Act, there is an obligation on every person, who makes supply for consideration and who is liable to pay tax for such supply, to prominently indicate in all documents relating to assessment, tax invoice and other like documents, the amount of tax which shall form part of the price at which such supply is made. Referring to the provisions of Section 129, the respondent further contended that the goods in question were being transported under cover of documents that had been raised in contravention of the provisions of Section 33. It was further argued that, the e-way bill being a document akin to a tax invoice, in relation to an assessment to tax, and not having carried the details regarding the tax amount, the transportation itself had to be viewed as in contravention of the Act and Rules for the purposes of Section 129.

As per the statutory provisions applicable to the instant case, a person transporting goods is obliged to carry only the documents enumerated in Rule 138(A) of GST Rules, during the course of transportation. The said documents are

  • the invoice or bill of supply or delivery challan, as the case may be and
  • the copy of e-way bill in physical form or e-way bill number in electronic form etc.

The Court pointed out that if a prescribed form under the GST Act does not contain a field for entering the details of the tax payable in the e-way bill, then the non-mentioning of the tax amount cannot be seen as an act in contravention of the GST Rules.

Nevertheless, the Court held that the e-way bill has to be in FORM GST EWB-01, and in that format, there is no field wherein the transporter is required to indicate the tax amount payable in respect of the goods transported and that the transpiration was covered by a valid tax invoice, which clearly showed the tax collected in respect of the goods and an e-way bill in the prescribed format.[M.S Steel and Pipes v. Asst. State Tax Officer, 2020 SCC OnLine Ker 3214, decided on 12-08-2020]

Case BriefsHigh Courts

Orissa High Court: S.K. Paigrahi, J., while addressing a matter, observed that,

One cannot lose sight of the fact that GST regime is relatively new and is still evolving.

“…attempts to dampen the spirit of GST proper implementation are already assuming huge proportions and need to be curbed with an iron fist so that the contours of fiscal compass will be extended to the advantage of the people.”

Petitioner filed the bail application under Section 439 of the Criminal Procedure Code, 1973 for being punishable under Section 132(1)(b)(c) and (1) of the OGST Act, 2017.

Business transactions were made using several fictitious firms including G.S Unitrade,  G.S. Steels and Alloys Co., B.B Associates, Om Shri Ganesh Traders. Petitioner, Ronak Beriwal, Subhash Chandra Swain and Basanta Kumar are the proprietors of GS Unitrade, G.S. Steels & Alloys Co, B.B. Associates and Omm Shree Ganesh Traders respectively.

Above persons, individually and in collusion with each other alleged to have created several dummy and non-existent entities to avail bogus Input Tax Credit (ITC), for the purpose of defrauding the Revenue.

Concern 

Creation of dummy and non-existent firms was the matter of concern.

Fake and fraudulent transactions have, among others, caused huge loss to the State exchequer at least to the tune of Rs 122.67 crores.

Fraud

After intensive analysis of data from GSTN/e-way bill portal and inputs from various sources, the Joint Commissioner of State Tax, CT & GST Enforcement Range, Sambalpur detected the fraud committed by the accused.

Several incriminating documents, containing business transactions of such business entities, were unearthed and seized.

Petitioner, in his capacity as the proprietor of G.S. Unitrade, had shown to have purchased goods from many bogus firms and has availed ITC on the strength of fake invoices, without actual transfer of goods.

“…manner in which the accused, in collusion with other accused, had been operating would suggest that there are certain inherent flaws in the GST system, which is prone to such abuse.”

“Fraudsters are taking advantage of the inadequacy of electronic trails of all transactions by employing ingenious methods.”

The search and inspection conducted by the State Authorities revealed that no business was actually being conducted by the declared place of business.

Fictitious firms were created in the name of many daily labourers, private tutors, housewives etc., with the help of their identity documents like PAN, Aadhaar Card, Mobile phone, Voter Card, etc.

Hence accused was alleged to have committed of offences under Section 132(1)(i) read with Section 132(5) of the OGST Act, 2017, which are a non-bailable and cognizable.

Decision

In the instant case, the alleged GST fraud committed by the petitioner is having humongous ramification on the revenue collection by the State.

Further the bench added that, the possibility of the accused tampering the evidence and/or influencing/intimidating the witnesses also cannot be ruled out.

Moreover, the Courts cannot lose sight of the adverse impact such activities would have in the economy.

Bench stated that a large number of cases emerged in different parts of the country where such persons, with vested interests, have created a host of unscrupulous and bogus entities.

Fake entities are then used for the purpose of indulging in issuances of false and fabricated invoices, without actual movement or supply of goods and services and without payment of any GST to the public exchequer, but for the purpose of claiming ITC, by defrauding the Revenue.

Enormity of such devious activities touch the raw nerve of the economic system and strike at the root of the proper and effective functioning of the GST regime, which has been set up with the laudable object of “One Nation, One Tax, One Market”.

High Court stated that a countrywide cartel specializing in defrauding the GST system is operating to bring the economy to its knees.

High Court declined the release of the accused petitioner on bail at this stage. Accordingly, the bail petition filed on behalf of the accused/petitioner was rejected. [Amit Beriwal v. State of Odisha, 2020 SCC OnLine Ori 546 , decided on 27-07-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

Authority for Advanced Ruling, Madhya Pradesh: The Bench comprising of Manoj Choubey (Joint Commissioner) and Virendra Jain (Joint Commissioner), ruled evenly in the matter brought by Atriwal Amusement Park under Section 98(4) of Central Good and Services Tax, 2017.

Atriwal Amusement Park was incorporated on 13th March, 2018. Applicant proposed activity of construction of water park for which various components and services would be used that are taxable under GST. Thus, applicant has approached the Tribunal for admissibility of input tax credit of tax paid or deemed to have been paid.

There were four major issues before the court, which dealt with instances of where input tax credit may be paid. First, whether applicant was eligible for credit on input tax of water slides. Second, whether steel and civil structure which is a support structure for slides, will be available for credit. Third, whether input tax be available on development and preparation land where slides are constructed. Fourth, whether applicant will get credit for construction of swimming pools as water slides directly run into pool.

Bench addressed each point individually, and initially dwelled specifically into the definition of ‘Plant & Machinery’. It included support structure and foundation as part of plant & machinery, and excluded buildings and civil structure from the definition. The bench found the applicant to be eligible for Input tax credit on water slides as they were included under the term ‘plant & machinery’ due to them being foundation and structural support.  For the second issue, bench found steel and civil structure to be a part of ‘plant & machinery’, therefore, they found it eligible for credit. For the third issue, bench found land to be excluded from the definition of ‘plant & machinery’ and hence, ousted the applicability for credit on land. For the final issue, bench decided swimming pool is a ‘civil structure’ and cannot be called a ‘support structure’, hence, credit was not available for swimming pool. [Atriwal Amusement Park, In re, Case No. 29 of 2019, decided on 09-06-2020]

Business NewsNewsTreaties/Conventions/International Agreements

A Memorandum of Understanding (MoU) was signed between the Central Board of Direct Taxes (CBDT) and the Central Board of Indirect Taxes and Customs (CBIC) for data exchange between the two organisations.

This MoU supersedes the MoU signed between CBDT and the erstwhile Central Board of Excise and Customs (CBEC) in the year 2015. Significant developments have taken place since the signing of earlier MoU in 2015 including introduction of GST, incorporation of GSTN and change in the nomenclature of Central Board of Excise and Customs (CBEC) to Central Board of Indirect Taxes and Customs (CBIC). Changed circumstances, including advancements in technology, are duly incorporated in the MoU signed today.

This MoU will facilitate the sharing of data and information between CBDT and CBIC on an automatic and regular basis. In addition to regular exchange of data, CBDT and CBIC will also exchange with each other, on request and spontaneous basis, any information available in their respective databases which may have utility for the other organisation.

The MoU comes into force from the date it was signed and is an ongoing initiative of CBDT and CBIC, who are already collaborating through various existing mechanisms. A Data Exchange Steering Group has also been constituted for the initiative, which will meet periodically to review the data exchange status and take steps to further improve the effectiveness of the data sharing mechanism.

The MoU marks the beginning of a new era of cooperation and synergy between the CBDT and CBIC.


Ministry of Finance

[Press Release dt. 21-07-2020]

[Source: PIB]