IMPORTANT CASE LAWS

GOODS AND SERVICES TAX ("GST")

a. The Petitioner engaged in the business of electronics entered into a Secondment and Cost Reimbursement Agreement with its parent company in Japan, by virtue of which, certain employees were seconded for service in India. Based on the judgment rendered by the Supreme Court in the case of Northern Operating Systems1, the Department initiated an investigation against the Petitioner and subsequently, issued a Show Cause Notice ("SCN") under Section 73(8) of the Central Goods and Services Tax Act, 2017 ("the CGST Act") requiring the Petitioner to pay applicable tax along with interest on the Indian component in relation to the manpower supplying services received by it. Aggrieved, the Petitioner filed the instant Writ Petition ("WP").

The High Court while partly allowing the WP, observed that a similar issue has also come up for consideration before the High Court of Karnataka in Alstom Transport India Ltd.1, wherein an interim order has been passed basis the submissions of the Counsel that the decision in the case of Northern Operating Systems is in the peculiarities of that particular case and cannot be applied in the present case when it cannot be disputed that salary will not be a taxable supply of service. Accordingly, the Court stayed the proceedings in pursuance of the SCN.

Takeaway: SCN issued in pursuance of the decision of Northern Operating Systems Pvt. Ltd., stayed as salary is not a taxable supply of service

[M/s Mitsubishi Electric India Pvt. Ltd. Vs. Union of India, C.W.P. No. 25351 of 2023, Order dated November 09, 2023, (High Court, Calcutta)]

b. The Petitioner, a manufacturer/importer of desktop, laptop etc., is engaged in supply of goods to various Special Economic Zones units ("SEZ Unit"). The Petitioner applied for refund of IGST in relation to zero-rated supplies made by it under Section 16 of the Integrated Goods and Services Tax Act, 2017 ("the IGST Act") for the period December 2019 till February 2020. The Adjudicating Authority rejected the refund application on procedural grounds, citing reasons like delay in obtaining endorsements, mismatched details in statements, time-barred revised statements, and late submission of supporting documents, which order was confirmed by the Appellate Authority. Aggrieved, the Petitioner filed the instant WP.

The High Court while allowing the WP held that once the Petitioner had paid the tax, the goods have entered SEZ and endorsement has been obtained to that effect, which has been furnished for the purpose of refund, and so refund cannot be denied. The failure to obtain endorsement within 45 days is not due to the fault of the Petitioner, rather it is for the Officer to make endorsement in time, for which, the Petitioner cannot be held responsible.

The Court dismissed the notion of inappropriate endorsement and clarified that technical irregularities should not penalize the Petitioner. On the issue of limitation, the Court observed that the applications were filed within the prescribed limitation period, and that when the taxpayer filed for refund, the Officer was supposed to have intimated the deficiencies contained in the application and allowed the Petitioner to rectify the same, post which, he would proceed to consider as to whether the claim for refund is just and proper. The time limit fixed under Section 54 (1) of the CGST Act is directory and not mandatory in nature. Therefore, even if the application is filed beyond the period of two years, the legitimate claim of refund by the Petitioner cannot be denied in appropriate cases. The Court held that in the present case, when the Petitioner has filed application, which is within the prescribed period of limitation of two years, the delay in filing the supporting documents at the time of filing of reply/personal hearing would only extend the time limit to pass an order under Section 54 (7) of the CGST Act, non-submission of documents at the time of filing application for refund cannot be deemed to have been filed with a delay since the delay was owing to Covid. When the Petitioner produced supporting documents for December application at the time of personal hearing, which was accepted by the Department, a different stand cannot be adopted for a similar scenario in applications filed for subsequent tax periods. Accordingly, the Court directed the Department to process the refund applications and issue refunds in time bound manner of 30 days.

Takeaway: Limitation period for GST Refund is directory not mandatory in nature; filing supporting documents beyond limitation period is acceptable

[M/s. Lenovo (India) Pvt. Ltd. Vs. Union of India, W.P.Nos.23604/2023, Order dated November 06, 2023 (High Court, Delhi)]

c. The Petitioner, engaged in the courier services received some amount in cheques, as sale proceeds, from silver bars, which were earlier seized by the Income Tax Department, and later released on directions from this writ court. The Petitioner withdrew the amount from the bank and transferred the same to its branch office. During search proceedings conducted under Section 67(2) of the CGST Act, the proper officer was of the view that such "cash" was "things", and accordingly, issued a seizure order, seizing the cash. Aggrieved, the Petitioner filed the instant WP.

The Hon'ble High Court, while allowing the present WP, observed that seizure of cash from the premises of the Petitioner was wholly uncalled for and unwarranted, and once it is found that the cash did not form part of stock in trade, it could not have been seized. The Court has relied upon the decision of Arvind Goyal2, wherein it was held that cash does not fall within the definition of goods, and, prima facie, it is difficult to accept that cash could be termed as a 'thing' useful or relevant for proceedings under the CGST Act. It further held that even otherwise, the seizure memo was dated November 13, 2020, and as per Section 67(7) of the CGST Act, when no notice is given within six months of the seizure of the goods, the goods ought to be returned to the person from whose possession, they were seized. The Court held that accordingly, the Petitioner is entitled to receive the amount of cash seized by the Officer.

Takeaway: Cash not forming part of stock-in-trade cannot be seized by GST Department as ‘things’

[Bharatkumar Pravinkumar and Co. Vs. State of Gujarat, C.A. No. 26222 of 2022, Order dated November 06, 2023, (High Court, Gujarat)]

d. The Petitioner, engaged in the manufacture and sale of Carbon Black, received purchase order of consignment of Carbon Black from Arakonam in the State of Tamil Nadu. The buyer instructed the Petitioner to deliver the goods to its job worker Kannur in the State of Kerala. During transit, the goods were intercepted by the GST Officer and subsequently, detention order was issued under Section 129(3) of the CGST Act on the ground that since the place of delivery of goods was Kannur in Kerala, CGST and SGST should have been charged instead of IGST. Aggrieved, the Petitioner filed the instant WP.

The Hon’ble High Court while allowing the WP, observed that goods being directed to a job worker in Kannur, Kerala on buyer's instructions, was inter-state supply as per Section 10(1)(b) of the IGST Act wherein the place of supply of goods shall be the principal place of business of the buyer. The Court further referred to Section 143 of the CGST Act and Circular No.38/12/2018 dated March 26, 2018, and observed that the Petitioner complied with the procedure laid down for job work, by issuing an invoice with buyer as the customer and job worker as the consignee. Accordingly, the Court held that the proceedings initiated under Section 129 of the CGST Act lacked jurisdiction as the supply was inter-state, and the proceedings initiated were set aside.

Takeaway: Place of supply and not delivery of goods is the determinative factor for the nature of tax leviable

[Philips Carbon Black Limited Vs. State of Kerala, W.P. (C) No.19058/2028, Order dated November 06, 2023 (High Court, Kerala)]

e. The Applicant undertakes contracts/ sub-contracts of works for operation and maintenance of water supply/sewerage projects, basis a sub-contract awarded by a principal contractor in pursuance to contract received from the State of Telangana.

The Applicant sought an Advance Ruling on the availability of GST exemption as are available to the principal contractor.

The Authority of Advance Ruling (“AAR”) clarified that the exemption specified in Notification No. 12/2017 dated June 28, 2017, pertains to the supply of works contract services by the principal/main contractor to the government or local authority, and it does not explicitly cover the supply by a sub-contractor to the principal/main contractor. The exemption granted to a main contractor supplying works contract services to the government or local authority is not automatically applicable to a sub-contractor supplying services to the main contractor.

Takeaway: GST exemption available to a contractor is not available to the sub-contractors

[M/s Immense Construction Company, AAR/22/2023, Order dated November 13, 2023 (AAR, Telangana)]

f. The Petitioner, engaged in the business of Petroleum gases and Hydrocarbons, was promptly filing monthly returns. The Department, on scrutiny and verification of GSTR 3B, issued SCN to the Petitioner for belated and wrong claim of Input Tax Credit (“ITC"). The Petitioner contended that due to financial crises, the Petitioner filed GSTR 3B physically for availing ITC, and the same was already communicated to the Respondent by the Petitioner’s accountant. The Petitioner further contended that GSTR-3B filing is not intended for claiming ITC but for only availing ITC. The reversal of input tax for belated claim under Section 16(4) of the Tamil Nadu GST Act, 2017 is not applicable since GSTR 3B is not meant for claim of ITC. However, the Appellate Authority confirmed the order of the Department. Aggrieved, the Petitioner filed the instant WP.

The High Court while allowing the WP held that the Department’s initiation of proceedings is not sustainable as the GSTR-2 Form is not available due to which electronic filing is not possible, therefore, taxable person cannot be expected to file the Form electronically. The Court noted that the GSTN has not permitted to file GSTR 3B in online mode, where the dealers had not paid taxes on the outward supply / sales, if the option of filing the incomplete GSTR-3B are provided on the GSTN portal, the Petitioner would have filed the ITC claim online, within the prescribed time. The Court further relied on Adfert Technologies Private Limited3 wherein it was held that in the absence of any enabling mechanism, the assessee cannot be prejudiced by not granting ITC. Accordingly, the High Court directed the Department to allow manual returns filing and accept belated returns of the Petitioners in claiming ITC on the outward supply/sales without paying taxes.

Takeaway – Petitioner’s claim of ITC cannot be disallowed on the basis of technical hindrances on the GSTN portal.

[Tvl. Kavin HP Gas Gramin Vitrak Vs Commissioner of Commercial Taxes, WP No. 7173/7173 of 2023 Order dated November 24, 2023, (High Court, Madras)]

SERVICE TAX

a. The Petitioner filed for refund of unutilised Cenvat Credit on the ground that input services were utilized for export of services. However, the Department rejected the refund claim on the ground that the services rendered by the Petitioner qualified as ‘intermediary services’, and not export. Aggrieved, the Petitioner filed a WP before the High Court.

The Petitioner contended that the adjudicating authority, while considering an application for refund, can neither question the self-assessment made by the Petitioner nor delve into the issues touching upon the merits of the self-assessed returns. It argued that refund proceedings are execution proceedings and thus while dealing with the claims, the Department cannot seek to reopen or revise the self-assessment. The Petitioner also challenged the order on the grounds of violating the principles of natural justice. The Department contented that its power of determination is inherent in the adjudicating authority even at the stage where an application for refund is made. It is contented that assessment under Section 73 of the Finance Act, 1994 (“the Finance Act”) is applicable to a situation where service tax has not been paid, short paid, erroneously refunded and not in case of refund application. Further, the Department contended that a deficiency memo was issued, and personal hearing was granted during refund proceedings and accordingly, principles of natural justice were duly followed.

The Court, while allowing the Petition, observed that a self-assessed return also amounts to an ‘assessment’ and unless it is varied or modified in accordance with the procedure prescribed under law, it cannot be questioned in refund proceedings. It accordingly held that unless the selfassessed return is questioned, re-opened, reassessed, the refund claim cannot be denied. Further, it observed that the deficiency memo cannot be viewed as a substitute for a Show Cause Notice and is confined to fulfill shortcomings in the documentation.

Takeaway: Unless the self-assessed return is questioned, re-opened, reassessed, the refund claim cannot be denied.

[BT (India) Private Limited Vs. UOI, WP (C) 13968/2021, Order dated 6 November 2023 (Delhi High Court)]

b. The Adjudicating Authority had allowed Cenvat Credit on the payment of commission to a foreign agent. The Department filed an appeal before the CESTAT wherein the CESTAT reversed the said order without delving into the nature of the transaction.

Aggrieved, the Appellant filed an appeal before the High Court. The High Court held that the CESTAT did not delve into the nature of the transaction, however, it neither set aside CESTAT’s order nor the case was remanded for fresh adjudication. Further, the Court did not discuss whether the Cenvat Credit is in relation to the payment of commission to a foreign agent or is in relation to sale as such.

Aggrieved by the High Court’s order, Appellant filed instant appeal before the Supreme Court. It was argued by the Appellant that the payment was made for sales promotion, on which Cenvat Credit is duly available. Further, Appellant argued that sales promotion is an art, and an agent can be appointed for that purpose, the nature of agreement, invoices and payment made to the agent would all be relevant factors to be considered and the High Court should have remanded the matter to the CESTAT for fresh adjudication bearing in mind the actual nature of the transaction.

The Supreme Court, while allowing the appeal, held that the High Court should have remanded the matter to CESTAT for a fresh consideration by giving an opportunity to the Appellant to place on record the necessary documents including the agreement entered into by the Appellant with the concerned agents, the relevant invoices etc. The impugned judgement of High Court and CESTAT were set aside and the matter remanded to CESTAT for fresh consideration, with an opportunity to the Appellant to place on record, the relevant documents so as to assist CESTAT to arrive at a categorical finding on the nature of payment made by the Appellant to the foreign agent and as to whether the Appellant is entitled to claim input tax credit on the said payment.

Takeaway: Review of all documents, namely agreement, invoices and payment etc. are relevant factors to be considered while arriving at a finding regarding availability of Cenvat Credit

[Zydus Lifesciences Ltd Vs CCE, CA No. 2518-2519 of 2013, Order dated 22 November 2023 (SC)]

CUSTOMS

a. The Appellant imported raw material from its associated company and other unrelated entities to manufacture pantographs. The Appellant had entered into a license agreement with the associated company who has provided drawings and allowed to use technical know-how in the manufacture of pantographs. As per this Agreement, the Appellant had to use only its parent company’s carbon strips and the same had to be imported from their related supplier. For this, a royalty of fixed sum (of 10,000 Euro) was paid for drawing and a royalty of 5% of net sales of licensed products was to be paid. At the time of clearance of goods, the Authorities held that the Appellant and associated company is related, however the price of the goods has not been influenced by their relationship and hence, had accepted the transaction value in terms of Rule 3(3)(a) of the Customs Valuation Rules, 2007 (“the Valuation Rules”).

The Commissioner (Appeals) in the impugned order held that the Appellant had accepted the addition of 5% royalty on carbon brushes under Rule 10(1)(c) of the Valuation Rules, and therefore, the issue is related to only addition of royalty on all other imports other than carbon brushes. It further observed that Appellant has not provided any proof to show that goods have been imported from any unrelated party and since, the goods have only been imported from related suppliers, it is assumed that it is a condition for sale for buying only from related suppliers. Accordingly, royalty becomes part of the assessable value.

Aggrieved by the order of Commissioner (Appeals), the Appellant has filed the instant Appeal. The Appellant argued that once the arm’s length pricing was accepted, adding royalty is legally unsustainable. It further argued that the royalty for technical know-how for manufacture of pantographs is a post import activity and therefore, it cannot become a part of the transaction value of the imported goods.

The question before the CESTAT was whether royalty paid by the Appellant is to be added in the Transaction Value or not and when the authorities have once decided that the relationship has not influenced the price, whether royalty can be added in Transaction Value or not. The CESTAT while allowing the appeal, observed that the original authority after detailed verification has accepted that the Transaction Value was at Arm’s length price stating that the relationship has not influenced the price. Once the pricing pattern has been examined, adding royalty in the Transaction Value is unsustainable. Accordingly, it set aside the order of the Commissioner (Appeals).

Takeaway: Royalty not to be included in the transaction value once it is proved that the pricing is at arm’s length

[M/s. Schunk Metal and Carbon Private Limited Vs. Commissioner of Customs, C.A. No.21832 of 2016, Order dated. November 03, 2023 (CESTAT, Bangalore)]

b. The Appellants are engaged in the import of Steaming Non-Coking Coal. The goods were supplied by the supplier in Dubai, UAE and they were declared to be of Indonesian origin. The Appellant filed Bills of Entry (“BOE”) claiming concessional rates under Customs Notifications for 5% Basic Customs Duty (“BCD”) and 4% Special Additional Duty (“SAD”) and got the BOE provisionally assessed. Later, the Appellant claimed the benefit of 4% BCD under the Preferential Trade Agreement (“PTA”) with ASEAN countries by submitting a copy of the Country-of-Origin (“COO”) so as to establish that the goods have been imported from Indonesia. The Adjudicating Authority rejected the claim of the Appellant on the ground that the invoices were issued from Dubai, while the COO was from Indonesia. Further, the Adjudicating Authority observed numerical discrepancies between the invoice numbers mentioned on the COO and the Dubai supplier's invoices. On appeal, the Commissioner (Appeals) confirmed the order of the Adjudicating Authority. Aggrieved by the order of the Commissioner (Appeals), the Appellant filed the instant appeal.

The CESTAT while allowing the appeal observed that Para 22 in Annexure III under Rule 13 of Customs Tariff (Determination of Origin of Goods) Rules, 2009 of ASEAN Preferential Trade Agreement (“AIFTA”) explicitly states that the sales invoice can either be issued by a company located in a third country or by an AIFTA exporter. There are minor differences in invoice numbers, which is a result of splitting a single invoice into two invoices for convenience of quantity to be exported. Therefore, discrepancies do not have any bearing to the benefit under the PTA and accordingly, the order of the Commissioner (Appeals) was set aside.

Takeaway: Concessional rate of duty cannot be denied on account of invoice being issued from a third-party country.

[M/S. TCP Limited Versus Commissioner of Customs, C.A No. 41343 of 2014, Order dated November 09,2023 (CESTAT, Chennai)]

INDIA REGULATORY & TRADE HIGHLIGHTS

FOREIGN TRADE

a. To further improve trade facilitation for exporters, pilot system for an enhanced Electronic Bank Realization Certificate (eBRC) has been launched with effect from November 15, 2023 for selfcertification by Export. The system aims at a more streamlined process, based on electronic Inward Remittance Messages (IRMs) transmitted directly by banks to Directorate General of Foreign Trade (DGFT).

[Trade Notice 33/2023-24 dated November 10, 2023].

b. Effective from November 8, 2023, a centralized Video Conference facility has been made available at the DGFT headquarters every Wednesday between 10 am to 12 noon to address the matters which could not be resolved by various DGFT Regional Authorities (RAs).

[Trade Notice 32/2023-24 dated November 6, 2023].

INDIA GST HIGHLIGHTS

1. NOTIFICATIONS

a. The Central Board of Indirect Taxes and Customs (“CBIC”) vide the Notification No. 53/2023 dated November 2, 2023 (“the Notification”) has extended the time limit to file an appeal under Section 107 of the CGST Act till January 31, 2024.

Brief of the Notification is provided here below:

  • Relief is provided with respect to appeals against the order passed by the proper officer on or before the March 31, 2023 under Section 73 or 74 of the CGST Act.
  • Taxpayers who could not file appeal within the stipulated time period or persons whose appeal was rejected solely on the grounds of limitation period are covered.
  • Taxpayers who could not file appeal within the stipulated time period or persons whose appeal was rejected solely on the grounds of limitation period are covered.
  • Appellant shall pay a sum equal to twelve and a half percent (12.5%) of the remaining amount of tax in dispute arising from the said order, subject to a maximum of twenty-five crore rupees, in relation to which the appeal has been filed, out of which at least twenty percent should have been paid by debiting from the Electronic Cash Ledger.
  • No appeal shall be admissible in respect of a demand not involving tax.
  • No refund shall be granted till the disposal of the appeal, in respect of any amount paid by the Appellant in excess of the amount specified above.

2. PORTAL UPDATES

b. Advisory for Pilot Project of Biometric-Based Aadhaar Authentication and Document Verification for GST Registration Applicants of Gujarat and Puducherry

  • Rule 8 of the CGST Rules, 2017 has been amended to enable Biometric-based Aadhaar Authentication and document verification for GST registration applicants. Goods & Service Tax Network (“GSTN”) has developed a new functionality for this purpose, which was launched in Puducherry on August 30, 2023, and will be rolled out in Gujarat on November 7, 2023.
  • This functionality provides document verification and appointment booking process. After the submission of the application in Form GST REG-01, the applicant will receive either of the following links in the e-mail:
    1. A Link for OTP-based Aadhaar Authentication
    2. Appointment booking link Biometric based Aadhar authentication and document verification at a GST Suvidha Kendra (“GSK”).
  • The appointment booking feature is currently available for Gujarat applicants and will soon be extended to other notified States/UTs.
  • The operation hours of GSKs will follow the guidelines provided by the respective state administration.

[GST Portal Update, dated November 4, 2023]

c. ITC Reversal on Account of Rule 37(A) of CGST Rules, 2017

  • Rule 37A of the CGST Rules 2017 requires taxpayers to reverse the ITC availed on invoice or debit note, if details have been furnished by their supplier in Form GSTR -1/Invoice Furnishing Facility (“IFF”) but not in Form GSTR-3B till before September 30.
  • Taxpayers must reverse such ITC in Form GSTR- 3B before November 30 of the following financial year.
  • For the financial year 2022-23, the reversed ITC amount has been computed and communicated to recipients via email.

[GST Portal Update, dated November 14, 2023]

d. E-Invoice Portal: API Details of IRPs

  • GSTN has issued a comprehensive guide and instructions for direct Application Programming Interface (“API”) with any of the six Invoice Registration Portals (“IRPs”) for E-invoice reporting. The feature can be accessed, and the documents related to the E-invoicing can be downloaded from the link given on the GST portal.

[GST Portal Update, dated November 17, 2023]

3. CIRCULARS

a. Generating and quoting of Document Identification Number/Reference Number on any communication issued by the officers of the Delhi Goods and Services Tax Department to taxpayers and other persons concerned

The Department of Trade and Taxes under the Government of the National Capital Territory of Delhi (“GNCTD”) is implementing a Digital Document Identification Number (“DIN”)/Reference Number (“RFN”) system for electronic generation of communications to enhance transparency and accountability in tax administration. The DIN/RFN will be used for various purposes, such as search authorization, summons, arrest memos, inspection notices, and letters issued during inquiries.

The principal directive under the Delhi Goods and Services Tax Act, 2017 mandates the use of a computer-generated DIN/RFN in all communications, with exceptions granted only in specific exigent circumstances. Any communication without a DIN/RFN is deemed invalid, and officers are instructed to regularize such instances within 15 working days.

The initiative aims to provide recipients with a digital means of verifying the authenticity of communications by entering the DIN/RFN on the GST Portal. The instructions emphasize strict adherence to the DIN/RFN system for credibility and accountability in official communications.

[GNCTD Circular - No. F.6 (4)/GST/Policy/2022/1122-23, dated November 29,2023]

b. Serving of the summary notice in FORM GST DRC-01 and uploading of summary order in FORM GST DRC-07 electronically on the portal by the proper officer

The Central Board of Indirect Taxes and Customs (“CBIC”) has issued Instruction regarding issuance of the notices and stresses the electronic serving and uploading of summaries on the GST portal. Sections 52, 73, 74, 122, 123, 124, 125, 127, 129, and 130 of the CGST Act outline the obligation of proper officers to issue notices for taxes, interest, penalties, or fines. Further, Rule 142 of the CGST Rules also specifies the requirement of mandatory electronic service of a notice summary on the GST portal using FORM GST DRC-01.

The instruction underscores that any order issued under these provisions must be accompanied by an electronic summary uploaded on the portal in FORM GST DRC-07. This summary needs to clearly outline the amounts the individual owes, covering taxes, interest, and penalties.

[Instruction No. 04/2023-GST, dated November 23, 2023]

Footnotes

1. M/S Alstom Transport India Limited Vs. The State of Karnataka 2023 (11) TMI 210 dated 02.11.2023

2. Arvind Goyal Ca Vs. Union of India & Ors. 2021 (11) TMI 688 dated 16.11.2021

3. Adfert Technologies Private Limited Vs. Union of India and others - 2019-VIL-537-P&H

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.