Op EdsOP. ED.

Under the sphere of indirect taxes established across the globe including India, the rate of tax on numerous products for levy of tax are dependent on the classification of the products under different categories, which is an indispensable part of the whole taxation mechanism. It is vital from both the perspective of the taxpayer’s and the tax collectors to have a specific category under which a good or service falls. The objective is to determine whether or not the said product/item would be laden by the levy of taxes and if so, under which classification the tax liability would fall.  However, this is a superlative situation but in the real and practical sphere disputes pertinent to the classification of goods along with services have been in existence since its genesis. The erroneous arrangement of a product can have such serious repercussions like even closure of the industry due to variation of tax rates which is huge and the tax range is large. Thus, it becomes significant to have clear and conclusive classification of goods or services.

The classification of all kinds of “cosmetics and ayurvedic products” which have some therapeutic or prophylactic uses and can conceivably also be fall under “medicaments” which has always been a contentious concern in the taxation regime. This article would try to highlight and demystify the complex issue pertinent to this classification. As the definition of the term, “medicament” has not been explicitly provided anywhere in the Drugs and Cosmetics Act, 1940[1], the Delhi GST Act, 2017, the CGST Act, 2017[2], the IGST Act, 2017[3], the Customs Tariff Act, 1975[4], or Rules framed thereunder, the word must become true in its prevalent sense i.e. how the common man who uses it, comprehends it.

The term “medicament” as defined in the Oxford Dictionary as “a substance used for medical treatment”;[5] whereas, the Drugs and Cosmetics Act, 1940, defines cosmetic under clause (aaa) of Section 3 as “any article intended to be rubbed, poured, sprinkled or sprayed on, or introduced into, or otherwise applied to, the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance, and includes any article intended for use as a component of cosmetic”.[6]

On the bare perusal of the definitions of “medicaments” and “cosmetics”, one school of thought contends that cosmetic product are used to improve the appearance of a person i.e. they enhance beauty. Whereas a medicinal product or a medicament is used to treat some medical illness. There could be instances while treating a particular medical problem, the appearance of the person may improve. What is decisive is the primary use of the product. For example, a particular product may be used for treating baldness. In case, if a person can grow hair on his head, his condition of baldness is cured and the person’s appearance may enhance. The product used for the purpose cannot be fall under cosmetic merely because it has eventually led to an improvement in the appearance of the person.

Here some judicial pronouncement by the courts which would clarify the instance more judicious in nature and help further in determining or classifying hand sanitiser which is prominently used during Covid-19 pandemic. In Paras Pharmaceuticals Ltd. v.CTT,[7] the Trade Tax Tribunal tried to classify the product named “Boro Soft” either under cosmetic/ayurveda or medicaments. This trade tax revision is covered under Section 11 of the U.P. Trade Tax Act.[8] The assessing authority on remand found that “Boro Soft” was a cosmetic and will fall within the entry of “All kinds of cosmetics and preparation” under the Notification dated 7-9-1991. The Joint Commissioner (Appeals), however, found that “Boro Soft” was used as medicine and that the Joint Commissioner (Drugs), Food and Drugs Control Administration, Gujarat had certified that the “Boro Soft” cream is an ayurvedic drug. The Tribunal allowed the second appeal filed by the Department. The appellant contended that it should be seen that whether the products were likely to be in common use by normal customers and relied on common parlance. Also placed on record material from the texts or Pharmacopoeia in support of each product which was subject-matter of the present appeal to show that the ingredients were independently mentioned in the ayurvedic texts. The respondent relied on Puma Herbal (P) Ltd. v. CCE,[9] wherein the revision was dismissed since there was no material on record to show that product named “Boro Soft” was purchased and used as ayurvedic medicine. The certificates given by the Joint Commissioner (Drugs), Food and Drugs Control Administration were based on the ingredients of the cream as indicated on the wrapper and not of its use. The opinion of the Joint Commissioner of Drugs was not supported by any authoritative textbooks on ayurvedic medicines; however, the twin determination tests were reiterated which was laid down in CCE v. Richardson Hindustan Ltd.[10] to determine the classification of an item in question.

Richardson provides two tests for determining the classification under ayurvedic medicaments, firstly, whether the item is commonly understood as a medicament which is called the common parlance test. For the said test, it will have to be seen whether in common parlance the item is accepted as a medicament. If a product falls in the category of medicaments, it will not be an item of common use. A user will use it only for treating a particular ailment and will stop its use after the ailment is cured. The extent or the quantity of the medicaments used in a particular product is not a decisive factor for its classification. The extent of medicinal ingredients used in a product is sometimes very low because excess or large use of them may be harmful to human body and as such they are required to be mixed up with what is in trade parlance.

In order to be a medicinal preparation of a medicament, it is not mandated that the item must be sold under a doctor’s prescription. It makes no difference if it is available across the counter in shops. The essential difference lies in the user’s perception of a particular product. If the user consumes the product primarily for cure from or treatment or mitigation of or for prevention of a specific skin disease or disorder, it should be treated as a medicament classifiable under Heading 3004 (unless, of course, it has been specifically included under Heading 3304).

Afterward in Akansha Hair & Skin Care Herbal Unit (P) Ltd., In re,[11] where the applicant manufactures skincare preparations and wants an advance ruling on the classification of 33 of its products such as body wash, face wash, skin toner, talc, anti-pimple cream, anti-crack cream, etc. The applicant contended that its skincare preparations are ayurvedic medicaments. They are meant for therapeutic or prophylactic uses, put up in packaging for retail sale, and entirely correspond to the description of goods under HSN 3004. It relied on the authorities of Puma[12] and Richardson[13] judgments to substantiate its claims and the reliefs sought. However, it was found that as per the descriptions of the products printed on the labels of the products when packaged for retail sale and for information to the customer it is found that the products are used mostly for brightening the skin, controlling the excess oil secretion, keeping skin clean glossy and free of freckles and spots, beautifying the skin of sunburn and black patches, ensuring dazzling liveliness, enhancing glamour and beauty, preventing excessive perspiration, promoting feeling of freshness, increasing lustre of skin, keeping skin soft, fair, glowing, stop premature ageing and wrinkling of skin, preventing sunburn rashes, dryness, discolouration and burning sensation of skin, properly cleansing, exfoliating and moisturising the skin, helping for removal of make-ups and sunscreen which clogs pores, helping in the normal firming and toning of skin along with hydrating the skin to make it glow, fresh and smooth, helping to skin and tighten skin pores, makes skin soft and more elastic, reducing excess skin oil, protecting from sunburn injury.

It was held that “none of the above descriptions qualify for categorising the products as ‘medicaments’ or ‘medicines’ as they are not used in the diagnosis, treatment, mitigation, or prevention of disease or disorder in human beings; rather they are more in tandem with the definition of ‘cosmetics’ as we find in the Drugs and Cosmetics Act, 1940, because none of the problems that these products treat can be classified as ‘injury’ or ailment’. Thus, these products are not to be classified under Chapter 30 (Medicaments) but are to be classified under Chapter 33 (Cosmetics) or Chapter 34 (Soaps) and to be taxed accordingly.”

In the recent judgment by GST Appellate Authority for Advance Ruling (AAAR) Karnataka, in Ce-Chem Pharmaceuticals Private Limited, In re[14] where it dealt with the classification of hand sanitiser. The appellant manufactures two products at a large scale largely to combat the unprecedented condition set by pandemic Covid-19: firstly, isopropyl rubbing alcohol IP; and secondly, chlorhexidine gluconate and isopropyl alcohol solution. The primary reason for the appellant’s claim to classify the impugned products under Chapter Heading 3004 is on account of its characteristics and operating procedure and the fact that they have been granted a licence to manufacture the same in terms of the Drugs and Cosmetics Act, 1940. In addition, they have placed reliance on judgments rendered in classification matters wherein it has been held that common parlance test takes precedence over scientific and technical specifications as well as the DGFT Notification which refers to the product “hand sanitiser” under Heading 3004.

For a product to be classified as a medicament, it is important that the product has either of the two qualities i.e. therapeutic or prophylactic. Even if a product is manufactured using ingredients regulated under the Drugs and Cosmetics Act and according to the formula prescribed in the Pharmacopoeia, it cannot be classified as a medicament under Heading 3004 unless it is meant for therapeutic or prophylactic uses. Its curative or preventive value must be substantial, and the product must be manufactured primarily to control or cure a disease, and the consumers use it primarily for treatment, mitigation, cure or prevention of specific disease or disorder. The AAAR Karnataka found that the alcohol-based hand sanitiser does not have either therapeutic or prophylactic properties. It is at best a substance which has disinfectant properties as it prevents the spread and transmission of germs/bacteria/viruses. Prevention of transmission of disease causing micro-organisms is not the same as preventing the onset or progression of a disease. A drug which is used for the prevention of the onset or progression of a disease or ailment can be called a drug having prophylactic properties. However, an alcohol-based hand sanitiser containing the drug isopropyl alcohol and chlorhexidine gluconate, is used for preventing the transmission of disease-causing germs/bacteria/viruses and this does make it a prophylactic drug. As already mentioned, the use of an alcohol-based hand sanitiser neither controls the diseases caused by the viruses/bacteria nor does it develop preventive characteristics inside the human body to fight the disease caused by the viruses/bacteria. It is merely a product recommended for use in hand hygiene practices.

Concluding by saying that concerning the provisions of GST Laws, relevant notifications read with section and chapter notes of the Customs Tariff Act, 1975 and relying upon the erstwhile judgments in conjunction with the recent decision of Authority for Advance Ruling in Akanksha Hair & Skin Care Herbal Unit (P) Ltd.[15], it can be said that there is a very thin line of difference between the classification of “medicament” and “cosmetic” and one has to be very cautious while demarking the classification 0f these products. Whereas the rate of tax of products covered under the head of medicaments is 12%, the same product when seen with the eyes of cosmetics corresponds to 18% and even 28% in certain cases. What makes the difference is the perception with which one sees the product. Although the burden of proof that a product is classifiable under a particular tariff head is on the Department but the company must realise this fact that the gap of 6% to 16% may corroborate to be disastrous in case the litigation is decided in favour of the Revenue. Thus, classification of products should be done diligently keeping in view the abovementioned guiding principles and under professional guidance only.

*BA LLB (Hons.) (Batch of 2023), NALSAR University of Law, Hyderabad. Author can be reached at  yashvardhan.garu@nalsar.ac.in/ yashvardhangaru1@gmail.com.

[1]Drugs and Consmetics Act, 1940.

[2]Central Goods and Services Tax Act, 2017.

[3]Integrated Goods and Services Tax Act, 2017.

[4]Customs Tariff Act, 1975.

[5]Medicament – Oxford Reference.

[6]Drugs and Cosmetics Act, 1940, S. 3(aaa).

[7]2007 SCC OnLine All 2512.

[8]U.P. Trade Tax Act, 1948, S. 11.

[9](2006) 3 SCC 266.

[10](2004) 9 SCC 156.

[11]2018 SCC OnLine WB AAR-GST 7.

[12](2006) 3 SCC 266.

[13](2004) 9 SCC 156.

[14]In re Ce-Chem Pharamaceuticals (P.) Ltd., (2021) 86 GST 143 (AAR).

[15]2018 SCC OnLine WB AAR-GST 7

Experts CornerTarun Jain (Tax Practitioner)

A technical yet interesting controversy has arisen in the context of indirect tax laws, particularly customs laws. The issue relates to availability of refund despite failure to challenge assessment proceedings. This issue has witnessed multiple rounds of litigation in the context of customs law and is an interesting one.


Background: Understanding the Assessment Scheme

It is expedient to examine the scheme of the assessment in order to appreciate the issue in greater detail. Most of the indirect tax laws were earlier based on the “assessment” regime where a tax officer would pass an order of assessment determining the rights and liabilities of the taxpayers concerned. Subsequently this assessment scheme was replaced by “self-assessment” scheme. Under this scheme, the obligation to comply with the law concerned rests upon the taxpayers who must ensure compliance with the provisions tax law, including filing of tax return along with the attendant consequences. This scheme where the taxpayer is obliged to assess and determine the correct tax liability is commonly understood as the self-assessment scheme. In such scenario the role of the tax officer is limited to verifying the self-assessment of the taxpayer and initiate recovery proceeding, if required, in order to recovery short paid tax, besides ensuring that the other provisions of the tax law are complied with by the taxpayer.


The First Round of Litigation in Customs Law

The question as to the manner in which a taxpayer could apply for refund arose for the first time in the context of the assessment regime under the customs law. The Supreme Court in CCE v. Flock (India) (P) Ltd.[1] opined that it is obligatory on the part of the taxpayers to challenge the assessment orders, without which a refund is not maintainable. In this decision it was observed that “there is little scope for doubt that in a case where an adjudicating authority has passed an order which is appealable under the statute and the party aggrieved did not choose to exercise the statutory right of filing an appeal, it is not open to the party to question the correctness of the order of the adjudicating authority subsequently by filing a claim for refund on the ground that the adjudicating authority had committed an error in passing his order”.

Subsequent, in Priya Blue Industries Ltd. v. Commr. of Customs[2] the Supreme Court refused to change its opinion and reiterated that the assessment order being in appealable order and refund being a consequence of the assessment, in the absence of a challenge to an assessment order a refund claim could not be entertained much less considered on merits. Thus the issue rested conclusively in the context of the assessment regime under the customs law.


Change to Self-Assessment Scheme under Customs Law

In 2011 the Customs Act, 1962 was substantially amended. One of the major changes was the switchover from the assessment scheme to the self-assessment mechanism. Given that the self-assessment regime implied absence of an order of assessment, a view emerged that the earlier decisions of the Supreme Court were not applicable in the case of self-assessment as in such cases the assessment having been made by the taxpayer himself, it was not possible for the taxpayer to challenge the assessment order. Inter alia (a) on such legal interpretation; (b) grounds of practical exigencies; and (c) citing lack of a provision providing for appeal by the taxpayer against his own self-assessment, it was being contended on such account that there was no requirement to challenge the assessment order in order to claim refund. This view came to be rejected by the tax officers who refused to grant refund citing the self-assessment order but the view came to be vindicated by the Delhi High Court. In its decision in Micromax Informatics Ltd. v. Union of India[3], the Delhi High Court examined the new provisions of the customs law and the self-assessment scheme therein to opine that the process of self-assessment there was “no assessment order as such passed by the customs authorities” and thus there was no necessity to file an appeal any appeal in order to claim refund. This decision of the Delhi High Court was agreed by the Calcutta High Court[4] and Madras High Court[5] amongst others.


The issue subsequently thereafter came up for consideration of the Supreme Court. Unable to subscribe to the High Court reasoning, the Supreme Court in ITC case[6] reversed this view to the detriment of the taxpayers. In the opinion of the Supreme Court, notwithstanding the change in the customs law framework, there was no change in the legal position emerging from its earlier decisions. The Supreme Court explained that self-assessment also resulted in an “order” under the customs law which could not be wished away and its effect could be invalidated only by way of appropriate proceedings under the customs law. In conclusion, the Supreme Court noted the following:


  1. 47. When we consider the overall effect of the provisions prior to amendment and post amendment under the Finance Act, 2011, we are of the opinion that the claim for refund cannot be entertained unless the order of assessment or self-assessment is modified in accordance with law by taking recourse to the appropriate proceedings and it would not be within the ken of Section 27 to set aside the order of self-assessment and reassess the duty for making refund; and in case any person is aggrieved by any order which would include self-assessment, he has to get the order modified under Section 128 or under other relevant provisions of the Act.


A critical observation of the Supreme Court in ITC case[7] was in relation to the refund proceedings. It inter alia observed that refund “is more or less in the nature of execution proceedings. It is not open to the authority which processes the refund to make a fresh assessment on merits and to correct assessment on the basis of mistake or otherwise”.

The Third Round: Amendment/Rectification as an Alternative to Appeal

One would have assumed that with the decision in ITC case[8] the issue would no longer have been res integra and the controversy would have subsided. However, that the ingenuity of the lawyers knows no bounds is best reflected in the scenario that followed. Faced with the law emanating from the ITC case[9], an innovative approach was adopted in subsequent matters where the taxpayer had claimed refund without challenging the self-assessment order.


It began to be canvassed that the Supreme Court in ITC case[10] itself had opened the door for another remedy to the taxpayer when it observed that the refund provision “cannot be invoked in the absence of amendment or modification having been made in the bill of entry on the basis of which self-assessment has been made”. Stressing upon this observation, the taxpayer contended that a refund proceeding could be supplemented with a request for amendment, which once allowed would imply that the self-assessment order did not stand in the way of claim refund. This assertion came to be accepted by the Bombay High Court in Dimension Data India (P) Ltd. v. Commr. of Customs.[11]


In this decision, the Bombay High Court concluded that it was obligatory upon the tax officers to address a formal request for amendment of documents when accompanied by a refund claim, in view of the power of amendment (Section 149) and the power of rectification (Section 154) being statutorily vested on the tax officers. Declaring the legal position, the High Court inter alia observed as under:


“… in the judgment itself Supreme Court has clarified that in case any person is aggrieved by an order which would include an order of self-assessment, he has to get the order modified under Section 128 or under other relevant provisions of the Customs Act before he makes a claim for refund. This is because as long as the order is not modified the order remains on record holding the field and on that basis no refund can be claimed but the moot point is Supreme Court has not confined modification of the order through the mechanism of Section 128 only. Supreme Court has clarified that such modification can be done under other relevant provisions of the Customs Act also which would include Sections 149 and 154 of the Customs Act.

*                                              *                                              *

In the instant case, petitioner has not sought for any refund on the basis of the self-assessment. It has sought reassessment upon amendment of the Bills of Entry by correcting the customs tariff head of the goods which would then facilitate the petitioner to seek a claim for refund. This distinction though subtle is crucial to distinguish the case of the petitioner from the one which was adjudicated by the Supreme Court and by this Court.”


Thereafter the Telangana High Court followed suit, albeit independently, to opine in Sony India (P) Ltd. v. Union of India[12] to opine that it was obligatory on the part of the tax officer to ensure that the documents were amended so as to being conformity with law and also that refund was made the taxpayer wherever due. In this case the High Court inter alia observed as under:

  1. 48. Further, it is the duty and responsibility of the Assessing Officer/Assistant Commissioner to correctly determine the duty leviable in accordance with law before clearing the goods for home consumption. The assessing officer instead, having failed in correctly determining the duty payable, has caused serious prejudice to the importer/petitioner at the first instance. Thereafter, in refusing to amend the Bill of Entry under Section 149 of the Act, to enable the importer/petitioner to claim refund of the excess duty paid, the assessing authority/Assistant Commissioner caused further great injustice to petitioner.


These decisions of the Bombay and Telangana High Court has thereafter been followed to various ends. For illustration, in Kirloskar Ferrous Industries Ltd. v. Commr. of Customs,[13] the Customs Tribunal directed the tax officers to treat the taxpayer’s request for reassessment as a request for amendment of the documents and thereafter process the refund claim. Thereafter, as another illustration, the Customs Tribunal in Commr. of Customs v. Vivo Mobile India (P) Ltd.[14] agreed with the contention of the taxpayer to the effect “that even if the refund applications that were filed cannot be entertained, then too it is open to the respondent to invoke the provisions of Section 149 or Section 154 of the Customs Act for either seeking amendment in the bill of entries or seeking correction in the bills of entry and then refund applications can be filed”. In this case the Customs Tribunal disposed the appeal permitting the taxpayer to file an application for amendment even at the second appellate stage with a direction to the tax officer to consider such application.


The aforesaid discussion reveals that two rounds of litigation and decisions of the Supreme Court have failed to course correct the taxpayers into initiating the appropriate proceedings and approaching the correct forum for seeking refund in customs matters. The courts, nonetheless, have been benevolent to the cause of the taxpayers and have sustained claims to creative options albeit within the statutory framework. As the law stands today, to the benefit of the taxpayer, the absence of a formal challenge to self-assessment under customs by way of an appeal is not fatal to the refund claim. In such instances, the taxpayer who may choose to supplement the refund claim with request for amendment/rectification, even belatedly, in order to get the refund claim addressed on merits.

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

[1] (2000) 6 SCC 650 : (2000) 120 ELT 285.

[2] (2005) 10 SCC 433 : (2004) 172 ELT 145.

[3] 2016 SCC OnLine Del 1238 : (2016) 335 ELT 446.

[4] SGS Marketing v. Union of India, 2016 SCC OnLine Cal 4915 :  (2016) 341 ELT 47.

[5] Micromax Informatics Ltd. v. Commr. of Customs, 2017 SCC OnLine Mad 22043

[6] ITC Ltd. v. CCE, (2019) 17 SCC 46, 69.

[7] (2019) 17 SCC 46.

[8] (2019) 17 SCC 46.

[9] (2019) 17 SCC 46.

[10] (2019) 17 SCC 46.

[11] (2021) 376 ELT 192.

[12] 2021 SCC Online TS 982.

[13] 2021 SCC OnLine CESTAT 225.

[14] 2021 SCC Online CESTAT 2578.

Experts CornerTarun Jain (Tax Practitioner)


It was under the shadow of a war that India introduced two major fiscal legislations; the Income Tax Act, 1961 and the Customs Act, 1962, paving way for tax policy of independent India. Both legislations have witnessed umpteen amendments to accommodate the shifting priorities of the incumbent Governments and are now well past their sell-by date. In respect of customs, no fundamental alteration is required as the law is mostly aligned to the international framework[1] which ensures that it stays abreast with the changing times. However, the framework of the income tax law – notwithstanding the tide of significant policy changes and amendments to reverse the judicial pronouncements – continues to wheel the Indian economy like a patchy retreated tyre.


Earnest attempts to bring about holistic changes have not yielded fruit despite the Direct Taxes Code of 2009,[2] the Direct Taxes Code Bill, 2010,[3] followed with a 2013 Bill,[4] all of which lapsed. Thereafter, another fresh attempt in recent past by an Expert Committee in 2019[5] seems to have met the same fate. This is so despite the fact that substantial changes have been made in the income tax policy and law. To enumerate certain landmark changes, the 2016 black money legislation[6]; 15% corporate tax rate for new manufacturing entities announced in 2019;[7] India’s digital services tax i.e. the 2020 Equalisation Levy;[8] Taxpayers’ Charter;[9] scheme for faceless assessments, appeals, penalties;[10] the new scheme for reopening of assessments unveiled in 2021;[11] etc. are some of the path-defining measures. However, their fullest potential cannot be realised given the limitations inherited under the old framework. It is not a surprise, therefore, that the Supreme Court recently implored the Parliament, particularly the draftsmen, to frame simpler tax laws which do not scuttle the taxpayers’ ability to carry out their affairs.


Recent decision of Supreme Court

September 9 decision of the Supreme Court in South Indian Bank[12] is a quintessential illustration on why the founding premise of the tax law needs to be revisited. The decision has been rendered in the context of Section 14-A of the Income Tax Act which disallows claim for expenses which are incurred for earning tax free income.[13] This single provision, which was inserted in 2001, has seen more than its fair share of litigation. Notwithstanding the correctness of the underlying premise,[14] stretched interpretation of the law and an indiscriminate and patchy implementation has resulted into multiple and tiresome controversies. In its two decades of existence, it has engaged the Supreme Court more than 25 times and cluttered the dockets of the tax tribunals and High Courts.


This part of law illustrates that an over-empowered tax administration results into ad hoc stances. It is routinely invoked by tax officers who insist that a proportional disallowance to the ratio of average investments to average assets is mandatory.[15] The application of this provision and the accompanying subordinate legislation[16] warrants a closer look at the minutest of facts of a business enterprise during the assessment stage, which have to be subsequently revaluated at multiple appellate levels in the tax litigation system. In most cases, the disallowance is pressed upon to require businesses to justify whether the expenditure is not just directly related to exempt income but also to rule out its indirect linkage.[17]

The practice of ad hoc disallowance may appear to be trivial but it indicates a discomforting scenario. It not only obliges business to incur more compliance costs, but also disproportionately influences business choices, making them perennially sceptical of Tax Department’s outlook, and perpetuates a penny wise pound foolish quandary.


The Supreme Court decision, echoing Adam Smith’s canon of certainty in tax law, seeks to impress upon the Government that “it is the responsibility of the regime to design a tax system for which a subject can budget and plan”. The Supreme Court has unhesitatingly implored upon the Government to ensure a fair balance of taxpayers’ entitlements such that “unnecessary litigation can be avoided without compromising on generation of revenue”. The observations of the Court, therefore, could not have come at a more appropriate instance. The Government must, however, go beyond. It must reinstitute the tax system such that it scuttles the tax officials’ urge to assume the role of the corporate managers and review their decisions from a tax expediency perspective. In other words, the Department should not be permitted to put itself in the shoes of the taxpayer to assess how a prudent businessman should operate.[18]


Aspirational cravings

The ambitious outlines of the Government, to make India a 5 trillion dollar economy[19] and an economic powerhouse, cannot be achieved with an outdated tax system. The recent withdrawal of 2012 retrospective amendment[20] reveals that the Government is not shy of undertaking bold course correction measures. Having undone all legacy issues, it is time for reforming the administration and functioning of officials. All bets now rest on the faceless assessment scheme, which has had a rough start, given the clutch of writs issued by some High Courts on denial of natural justice and quashing of notices for fallacious reopening of past cases by application of old archaic provisions despite simplification brought into the statute.[21] One cannot over-emphasise the urgency for a new tax system which synergises (and not digests) the aspirations and energies of this reinventing nation, a tax system which facilitates business activity and does not scare away business or drive out investments with humongous compliances and energy sapping inspector-like approach of tax officers.


The Government of India must attempt a GST-like[22] rewriting of entire direct tax landscape which should be based on deep stakeholder consultations such that the progressive advancement of tax system is not replete with thorny issues. The basis premise of the law must be simple; business should focus on doing business without managing tax consequences and Tax Department should collect tax without sitting in judgment over how business should do business. The correct tax lawmaking process, which is usually centred around budget day, is too secretive and gives overwhelming powers to the tax bureaucracy and requires businesses to immediate react to the changes because, many of which are overnight. India can do well to take inspiration from advanced countries wherein lawmaking is a continuous process of stakeholder discussion and duly factors economic metrices and impact analysis before deploying the tax measure. Such system avoids a trial and error approach and obviates the need for frequent course correction measures which become inevitable when the measure has not been thought through. In short, the tax law must reduce avenues for friction.

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

[1]The Indian Customs policy and law is aligned to India’s participation and multilateral agreements inter alia under the aegis of (a) World Trade Organisation; (b) World Customs Organisation; and (c) Harmonised Commodity Description and Coding System (or Harmonised System).

[2] This was draft for public consultation. Available  HERE.

[3] Introduced in the Lok Sabha on 28-8-2010. Available HERE.

[4] Available at HERE.

[5] The Task Force on Direct Tax Code submitted its Report to FM Nirmala Sitharaman on 19-8-2019. For details, see HERE.

[6]The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

[7] For details, see, corporate tax rates slashed to 22% for domestic companies and 15% for new domestic manufacturing companies and other fiscal reliefs, (PIB 20-9-2019), available  HERE.

[8]Vide Chapter VI (Part VI) of the Finance Act, 2020 (amending provisions of Finance Act, 2016).

[9]Unveiled in year 2020. For details, see HERE.

[10]For details, see <HERE>.

[11]In terms of Ss. 40-45 of Finance Act, 2021 (amending Ss. 147-151 of Income Tax Act, 1961).

[12]South Indian Bank Ltd. v. CIT, 2021 SCC OnLine SC 692.

[13]“14-A. Expenditure incurred in relation to income not includible in total income.— (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.”

[14]In a detailed decision in Maxopp Investment Ltd. v. CIT, (2018) 15 SCC 523, the Supreme Court upheld the underlying premise of S. 14-A.

[15]For illustration, see CIT v. Jagson International Ltd., 2018 SCC OnLine Del 12874 opining that the mandatory conditionalities under the Income Tax Rules need to be satisfied before S. 14-A disallowance can be triggered and rejecting the stand of the tax authorities of automatically applying the provision.

[16]I.e. R. 8-D, Income Tax Rules, 1962.

[17]For illustration, see CIT v. Sociedade De Fomento Industrial (P) Ltd., 2020 SCC OnLine Bom 1896 : (2020) 429 ITR 207.

[18]For illustration, see recent decision of the Supreme Court in Shiv Raj Gupta v. CIT, 2020 SCC OnLine SC 589 where the “doctrine of commercial expediency” has been affirmed. In this case the Supreme Court inter alia observed that “a catena of judgments has held that commercial expediency has to be adjudged from the point of view of the assessee and that the Income Tax Department cannot enter into the thicket of reasonableness of amounts paid by the assessee”.

[19] For details, see Vision of a USD 5 Trillion Indian Economy, (PIB 11-10-2018), available HERE.

[20]Vide Taxation Laws (Amendment) Act, 2021 (Act 34 of 2021), assented by the President on 13-8-2021.

[21]For illustration, see Pooja Singla Builders and Engineers (P) Ltd. v. National Faceless Assessment Centre, 2021 SCC OnLine Del 4294, holding that even if principles of natural justice have been complied with, still the proceedings cannot be sustained if an order was passed without issuing a show-cause notice which is a mandatory statutory condition.

[22]See generally, Tarun Jain, One Year of “Goods and Services Tax” in India, available at HERE.

Experts CornerTarun Jain (Tax Practitioner)

  1. Introduction

Determination of proceedings for recovery of tax takes its own time, passing through the adjudication stage, appellate stages and ultimately judicial review of tax administration’s actions. It is vividly possible that, in the interim the taxpayer may engage in activities which frustrate the tax administration’s recovery proceedings. For illustration, the taxpayer may liquidate the business partly or in whole, dispose significant assets, etc. in order to avoid recovery. In order to address such challenges, the tax administration is entrusted with statutory powers to pre-empt such attempts of the taxpayers to forestall recovery. For illustration, Section 281 of the Income Tax Act, 1961 cloths the tax administration with the power to declare “certain transfers to be void”.[1] In the goods and services tax (GST) laws, the tax administration is entrusted with the power to effect “provisional attachment to protect revenue in certain cases” wherein “any property, including bank account” can be attached provisionally by the tax administration during the pendency of certain proceedings.


In a short span of four years since the enforcement of GST laws, this power of provisional attachment has been exercised in plenitude by the tax administration which has resulted into judicial challenges and detailed judgments of the High Court. Recently the Supreme Court was seized with a controversy regarding provisional attachment of the properties of a taxpayer by the Himachal Pradesh GST authorities. By way of a detailed judgment in Radha Krishan Industries v. State of H.P.[2], the Supreme Court has culled out the relevant facets of this power of GST authorities, its contours, limitations, etc. as also enunciated the role of the courts in monitoring the exercise of this power by the GST authorities. The decision is expected to streamline the exercise of such powers under the GST laws while also balancing the rights of the taxpayers. This case comment explores the decision in greater detail so as to demystify the legal position and envision its impact on GST laws.


  1. Factual Setting before the Supreme Court

The appellant before the Supreme Court was a manufacturer who was issued a notice under Section 78 of the Himachal Pradesh Goods and Services Tax Act, 2017 (H.P. GST). Post a series of hearings, the Joint Commissioner of State Taxes passed orders provisionally attaching the appellant’s receivables from its customers. The provisional attachment was ordered under Section 83 of the H.P. GST read with Rule 159 framed thereunder. This provisional attachment was challenged by the appellant by way of writ petition before the High Court. Instead of adverting to the merits of the challenge, however, the High Court dismissed the writ petition on the ground of maintainability, citing availability of alternate remedies. This refusal by the High Court to examine the correctness of the provisional attachment order was challenged before the Supreme Court.


  1. Enunciating the Contours and Limitations on the Power of Provisional Attachment

The relevant provision of the Central Goods and Services Tax Act, 2017 (which has been similarly incorporated under the State GST laws, such as the H.P. GST) states as under:


  1. Provisional attachment to protect revenue in certain cases.— (1) Where, after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, the Commissioner is of the opinion that for the purpose of protecting the interest of the government revenue it is necessary so to do, he may, by order in writing, attach provisionally, any property, including bank account, belonging to the taxable person or any person specified in sub-section (1-A) of Section 122, in such manner as may be prescribed.

(2) Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub-section (1).


The Supreme Court extensively dissected the statutory scheme under the GST laws whereupon the power of provisional attachment was pedestaled. Noting that in the aforesaid scheme the power was no unbridled and instead was circumscribed by various conditions inherent in the statutory scheme, the Supreme Court laid out the following six parts in which sub-section (1) of Section 83 could be divided, observing thus:


  1. 42. Sub-section (1) of Section 83 can be bifurcated into several parts. The first part provides an insight on when in point of time or at which stage the power can be exercised. The second part specifies the authority to whom the power to order a provisional attachment is entrusted. The third part defines the conditions which must be fulfilled to validate the power or ordering a provisional attachment. The fourth part indicates the manner in which an attachment is to be levelled. The final and the fifth part defines the nature of the property which can be attached. Each of these special divisions which have been explained above is for convenience of exposition. While they are not watertight compartments, ultimately and together they aid in validating an understanding of the statute. Each of the above five parts is now interpreted and explained below:

(i) The power to order a provisional attachment is entrusted during the pendency of proceedings under any one of six specified provisions: Sections 62, 63, 64, 67, 73 or Section 74. In other words, it is when a proceeding under any of these provisions is pending that a provisional attachment can be ordered.

(ii) The power to order a provisional attachment has been vested by the legislature in the Commissioner.

(iii) Before exercising the power, the Commissioner must be “of the opinion that for the purpose of protecting the interest of the government revenue, it is necessary so to do”.

(iv) The order for attachment must be in writing.

(v) The provisional attachment which is contemplated is of any property including a bank account belonging to the taxable person.

(vi) The manner in which a provisional attachment is levied must be specified in the rules made pursuant to the provisions of the statute.


Explaining the practical purport of this scheme, the Supreme Court opined that formation of “opinion” was sine qua non for exercise of this power and thus is its precondition. Enthralling the salient features of this conditionality, the Supreme Court observed the following:


  1. 49. Now in this backdrop, it becomes necessary to emphasise that before the Commissioner can levy a provisional attachment, there must be a formation of “the opinion” and that it is necessary “so to do” for the purpose of protecting the interest of the government revenue. The power to levy a provisional attachment is draconian in nature. By the exercise of the power, a property belonging to the taxable person may be attached, including a bank account. The attachment is provisional and the statute has contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment which is contemplated in Section 83 is, in other words, at a stage which is anterior to the finalisation of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components of the statute are integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory preconditions by the Commissioner. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that “for the purpose of protecting the interest of the government revenue, it is necessary so to do”, it is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue.
  2. 50. By utilising the expression “it is necessary so to do” the legislature has evinced an intent that an attachment is authorised not merely because it is expedient to do so (or profitable or practicable for the revenue to do so) but because it is necessary to do so in order to protect interest of the government revenue. Necessity postulates that the interest of the revenue can be protected only by a provisional attachment without which the interest of the revenue would stand defeated. Necessity in other words postulates a more stringent requirement than a mere expediency. A provisional attachment under Section 83 is contemplated during the pendency of certain proceedings, meaning thereby that a final demand or liability is yet to be crystallised. An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property of an assesses can be levied. The Commissioner must be alive to the fact that such provisions are not intended to authorise Commissioners to make pre-emptive strikes on the property of the assessee, merely because property is available for being attached. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue.
  3. 51. These expressions in regard to both the purpose and necessity of provisional attachment implicate the doctrine of proportionality. Proportionality mandates the existence of a proximate or live link between the need for the attachment and the purpose which it is intended to secure. It also postulates the maintenance of a proportion between the nature and extent of the attachment and the purpose which is sought to be served by ordering it. Moreover, the words embodied in sub-section (1) of Section 83, as interpreted above, would leave no manner of doubt that while ordering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion is based in regard to the existence of the statutory requirement.


The aforesaid aspect reveals that the Supreme Court has effectively rewritten the scheme regarding the power of the tax administration of provisional attachment whereby (a) heavy onus has been placed upon the tax administration to demonstrate the necessity for the exercise of such power objectively and judicially; and (b) also ensure its limited application, in view of the doctrine of proportionality.


In order to incorporate further safeguards towards protecting the taxpayers against indiscriminate exercise of this power, the Supreme Court culled out the principles prevailing under the income tax laws, namely, the “tangible material” test as the basis for inquiry and exercise of powers. On this point, the Supreme Court observed as under:

  1. 52. We adopt the test of the existence of “tangible material”. In this context, reference may be made to the decision of this Court in CIT Kelvinator of India Ltd.[3] Mr Justice S.H. Kapadia (as the learned Chief Justice then was) while considering the expression “reason to believe” in Section 147 of the Income Tax Act, 1961 that income chargeable to tax has escaped assessment inter alia by the omission or failure of the assessee to disclose fully and truly all material facts necessary for the assessment of that year, held that the power to reopen an assessment must be conditioned on the existence of “tangible material” and that “reasons must have a live link with the formation of the belief”. This principle was followed subsequently in a two-Judge Bench decision in ITO v. Techspan India (P) Ltd.[4] While adverting to these decisions we have noticed that Section 83 of the H.P. GST Act uses the expression “opinion” as distinguished from “reasons to believe”. However for the reasons that we have indicated earlier we are clearly of the view that the formation of the opinion must be based on tangible material which indicates a live link to the necessity to order a provisional attachment to protect the interest of the government revenue.


To conclude on the legal position, the Supreme Court decision summarises as under:

  1. 79. …

(iv) The power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled.

(v) The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary so to do for the purpose of protecting the interest of the government revenue. Before ordering a provisional attachment the Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand, if any, and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue.

(vi) The expression “necessary so to do for protecting the government revenue” implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment.

(vii) The formation of an opinion by the Commissioner under Section 83(1) must be based on tangible material bearing on the necessity of ordering a provisional attachment for the purpose of protecting the interest of the government revenue.


(ix) Under the provisions of Rule 159(5), the person whose property is attached is entitled to dual procedural safeguards:

(a) An entitlement to submit objections on the ground that the property was or is not liable to attachment; and

(b) An opportunity of being heard.

(x) The Commissioner is duty-bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached.


On the facts of the decision, the Supreme Court rejected the tax administration’s reasoning and declared the provisional attachment to be unlawful.


  1. Reflections on Role of High Courts in Provisional Attachment Cases

According to the Supreme Court, the Himachal Pradesh High Court[5] erred in refusing to examine on merits the correctness of provisional attachment by dismissing the writ petition as non-maintainable. In the process of addressing the correctness of the High Court decision, the Supreme Court opined that the power of provisional attachment made significant inroads into the property rights of the taxpayers and thus close supervision of the exercise of such powers was necessary. Being of the opinion that under the statutory scheme of GST there was no means to correct errors in the exercise of such powers by the statutory authorities, the Supreme Court declared that it was incumbent upon the High Courts to exercise their extraordinary writ jurisdiction to examine the propriety of the tax administration’s exercise of power of provisional attachment. For such reason, the Supreme Court categorically concluded as maintainable a writ petition challenging an order of provisional attachment. In doing so, the Supreme Court also affirmed the views of various High Courts which had exercise addressed this proposition.[6] Some of the key propositions emanating from the High Court decisions, which were approved by the Supreme Court in Radha Krishan Industries v. State of H.P.[7] are summarised below:

  • Decision of the Delhi High Court, in Proex Fashion[8] holding that there are five conditions for invocation of Section 83 of the CGST, which stand approved in para 41 of the Supreme Court decision.
  • Decision of the Gujarat High Court, in Valerius Industries[9] which laid down principles for construction of Section 83 of the SGST/CGST Act. The High Court held that provisional attachment on the basis of a subjective satisfaction, absent any cogent or credible material, constitutes malice in law; vague, indefinite, distant, remote or far-fetching material would not warrant provisional The High Court further went on to lay down the conditions which would permit provisional attachment: (a) where there exists “reasonable apprehension” that the assessee may default the collection of the demand; (b) where there is sufficient material on record to justify the satisfaction that the assessee is about to dispose of wholly or any part of his/her property with a view to thwarting the ultimate collection of demand and in order to achieve the said objective, the attachment should be of the properties and to that extent, it is required to achieve this objective; and (c) provisional attachment power is to be used only as a last resort measure. The power under Section 83 of the Act should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee.
  • In Jay Ambey Filament[10] the Gujarat High Court further expounded the above reasoning, holding that on his opinion being challenged, the competent officer must be able to show the material on the basis of which the belief is formed.
  • Decision in UFV India Global Education[11] of the Punjab and Haryana High Court which held that pendency of proceedings under the provisions mentioned in Section 83 (viz. Sections 62 or 63 or 64 or 67 or 73 or 74) is the sine qua nonfor an order of provisional attachment to be directed under Section 83.
  • Decision of the Bombay High Court in Kaish Impex[12] which considered a similar question regarding the application of Section 83. In this case the tax authorities traced money trail in tax fraud by an export firm and provisionally attached the bank accounts of the petitioner. The issue before the High Court was whether the petitioner’s assets could be attached considering the fact pattern that the proceedings were against another taxable entity. The High Court noted that the proceedings referred to under Section 83 of the Act must be pending against the taxable entity whose property is being attached. It inter alia observed:


  1. 18. … Section 83 does not provide for an automatic extension to any other taxable person from an inquiry specifically launched against a taxable person under these provisions. … The format of the order i.e. Form GST DRC-22 also specifies the particulars of a registered taxable person and which proceedings have been launched against the aforesaid taxable person indicating a nexus between the proceedings to be initiated against a taxable person and provisional attachment of bank account of such taxable person.


In short, contextualising the observations of the High Courts, the Supreme Court streamlined the legal position regarding the power of provisional attachment available to GST officers seeking to balance the tax recovery objective underlying the power while preserving the legitimate rights of the taxpayers.


  1. Conclusion

Any decision of the Supreme Court, given its constitutional authority under Article 141 as being binding on all courts and authorities in India, settled the controversy and lays down the law of the land. However, this decision is relevant on multiple counts not just in the context of the immediate facts but much beyond. Some of the salient aspects are enlisted below:

  • First, as discussed above, the Supreme Court has streamlined the legal position regarding the power of provisional attachment available to GST officers. This is crucial because GST is a relatively new tax and, more critically, cited as a reform. Thus, it is crucial that its provisions are interpreted uniformly across the country and that too in a humane manner such that their indiscriminate application does not derail the underlying objective of the new tax regime.
  • Second, the decision of the Supreme Court is not just based upon interpretation of the statutory provisions. Instead, it seeks to achieve a delicate balance protecting government revenue and allowing genuine businesses to operate, evidently in furtherance of underlying objective of making the GST law workable.
  • Third, the jurisprudential intercourse sought to be embedded in the scheme of provisional attachment related statutory provisions clearly dispels the long-standing tradition of the Supreme Court wherein the principle of natural justice and fair play are sought to be read in the fiscal laws, thereby ensuring that they remain within the constitutional precincts and do not trample upon the fundamental rights of the taxpayers, indulging the right for reasonable and balanced application of fiscal laws. To this effect, inter alia, the Supreme Court rightly dismissed the contention to grant higher sanctity to discretion of the GST Commissioner, thereby ensuring that the rights of the taxpayers are protected by a fair interpretation of the taxing statute.
  • Fourth, on a larger level, by confirming High Court’s supervision of tax officers’ actions under the extraordinary writ jurisdiction even though the statutory provisions do not provide any legal remedy to the aggrieved taxpayer, the Supreme Court has not just ensured that the taxpayer is not left remediless and instead introduced a mechanism to ensure tax officers’ accountability. No executive power can be exercised without effective supervision, much less a wide and potent power to attach assets which cannot only put fetters upon business operations of any entity but can also put strenuous effect on the very survival of business. In such circumstance, it is only appropriate that the exercise of such power is supervised by a constitutional court such that it can ensure balance between the law’s objective and the rights of the affected party.
  • Fifth, by reading into the law twin tests, the doctrine of proportionality and “tangible material”, the Supreme Court has adverted to the conditions necessary to make the law fair and reasonable which is a constitutional Absence of such tenets do not ipso facto make the law unconstitutional but by reading them into the law, the Supreme Court has ensured that arbitrariness and capricious conduct is not perpetrated in the garb of exercising statutory functions. Thereby the Supreme Court has protected genuine persons from unwarranted harassment and obviated the possibility of unguided discretion leading to peril of arbitrary power.


In short, this decision of the Supreme Court is a welcome addition to tax jurisprudence and incremental vindication of taxpayers’ rights.


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

The author would like to thank Vanaj Vidyan, Fourth Year Student at Ram Manohar Lohia National Law University for his able assistance.

[1] The provision states that “[w]here, during the pendency of any proceeding under this Act or after the completion thereof, but before the service of notice under R. 2 of the Second Schedule, any assessee creates a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of, any of his assets in favour of any other person, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of the said proceeding or otherwise”.

[2] 2021 SCC OnLine SC 334.

[3] (2010) 2 SCC 723.

[4] (2018) 6 SCC 685.

[5] Radha Krishan Industries v. State of H.P., 2021 SCC OnLine HP 4566 : (2021) 48 GSTL 3.

[6] Bindal Smelting (P) Ltd. v.  Directorate General of GST Intelligence, 2019 SCC OnLine P&H 6015 : (2020) 34 GSTL 592; Society for Integrated Development in Urban and Rural Areas v. CIT2001 SCC OnLine AP 1457 : (2001) 252 ITR 642; Vinodkumar Murlidhar Chechani v. State of Gujarat, 2020 SCC OnLine Guj 3010.

[7] 2021 SCC OnLine SC 334.

[8] Proex Fashion (P) Ltd.  v. Govt. of India,  2021 SCC OnLine Del 2082.

[9]Valerius Industries v. Union of India, 2019 SCC OnLine Guj 6866 : (2019) 30 GSTL 15.

[10] Jay Ambey Filament (P) Ltd. v. Union of India, 2020 SCC OnLine Guj 3009 : (2021) 44 GSTL 41.

[11]UFV India Global Education v. Union of India, 2020 SCC OnLine P&H 2796 : (2020) 43 GSTL 472.

[12]Kaish Impex (P) Ltd. v. Union of India, 2020 SCC OnLine Bom 125 : (2020) 6 AIR Bom R 122.

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.


  • 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]
Business NewsNews

The Central Board of Direct Taxes (CBDT) has clarified that the pension received by a taxpayer from his former employer is taxable under the head “Salaries”. The Finance Act, 2018 has amended Section 16 of the Income–tax Act, 1961(“the Act”) to provide that a taxpayer having income chargeable under the head “Salaries” shall be allowed a deduction of Rs 40,000 or the amount of salary, whichever is less, for computing his taxable income. Accordingly, any taxpayer who is in receipt of pension from his former employer shall be entitled to claim a deduction of Rs 40,000 or the amount of pension, whichever is less, under Section 16 of the Act.

Earlier pensioners were not able to enjoy any allowance on account of transport and medical expenses, but after this provision they will also get the benefit of this deduction. Consequently the present exemption in respect of these two allowances stands withdrawn from FY18-19. However, in case of differently-abled persons, the transport allowance at enhanced rate shall continue to be available.

Pension received by dependent family members (as legal heirs) of the retired individual is known as family pension and is considered as ‘income from other sources’. So, in case an employee passes away, then after his death the for the family pension, a standard deduction under Section 57 (iia) is available under which an amount of Rs 15,000 or 1/3rd of the uncommuted pension received, whichever is less, shall be exempt. Spouse, children below the age of 25 years, unmarried daughter and dependent parents in certain cases shall come under the definition of dependent family members.

[Press Release no. 1527822, dt. 05-04-2018]

Ministry of Finance