High Court
Expression 'as is where is' basis means that status of payment of GST1 adopted by the assessee will prevail
In J.K. Papad Industries and Anr vs. Union of India and Ors2, the company was engaged in manufacturing and sale of unfried fryums. Considering that fryums were nothing but papad of different shapes and sizes, the company classified unfried fryums under Tariff heading 1905, attracting nil rate of GST under Entry No. 96 of the exemption notification3. The company also obtained an advance ruling from AAAR4 which upheld the classification adopted by the company.
Subsequently, CBIC5vide circular dated January 13, 2023, clarified that snack pellets such as fryums will be classified under tariff Heading 19059030 and attract GST at 18%. Subsequently, CBIC issued another circular which clarified that the rate of GST on un-cooked/un-fried extruded snack pellets falling under Tariff Heading 1905 was reduced from 18% to 5% with effect from July 27, 2023. It was further clarified that issues pertaining to past period will be regularised on 'as is where is' basis.
The revenue authorities, however, interpreted 'as is where is' basis, to be read in the context of classification which ought to be ascribed to it under the law and accordingly issued an SCN6 to the company proposing to levy GST at 18% for the period before July 27, 2023.
The Hon'ble High Court of Gujarat ("Gujarat HC") held that the revenue authorities have misinterpreted the expression 'as is where is' basis. 'As is where is' basis means that whatever status of payment of GST had been adopted by the assessee for the past period will continue to prevail. If the assessee had claimed their product to be exempt from GST, they cannot be subjected to levy of GST in order to regularise their past returns. Basis this, Gujarat HC quashed the SCN issued to the company.
Common SCN issued for multiple tax periods 'fundamentally flawed' and contravenes CGST Act7
In the matter of Veremax Technologie Services Ltd vs. The Assistant Commissioner of Central Tax8, a common SCN was issued to the petitioner under Section 73 of the CGST Act for multiple tax periods 2017-18, 2018-19, 2019-20 and 2020-21. Aggrieved, the petitioner filed a writ petition before the Karnataka High Court ("Karnataka HC") contending that the adjudicating authority cannot issue a common SCN by grouping the tax periods. It further asserted that under Section 73 of the CGST Act, a specific action must be completed within the relevant year, and the limitation period of 3 (three) years applies separately to each assessment year. Consequently, clubbing multiple tax periods in a single notice is impermissible.
The Karnataka HC highlighted that Section 73(10) of the CGST Act mandates a specific time limit from the due date for furnishing the annual return for the financial year to which the tax dues relate. The law stipulates that particular actions must be completed within a designated year, and such actions should be executed in accordance with the provisions of the law. The ratio laid down by the Hon'ble Supreme Court in the matter of State of Jammu and Kashmir and Ors vs. Caltex (India) Ltd.9, - where an assessment encompasses different assessment years, each assessment order can be distinctly separated and must be treated independently, is squarely applicable in the present case.
Basis the above, the Karnataka HC held that the SCN issued by the adjudicating authority is fundamentally flawed. The practice of issuing a single, consolidated SCN for multiple assessment years contravenes the provisions of the CGST Act and thereby, quashed the SCN.
Notification extending time limit to issue orders for F.Y.10 2018-19 and 2019-20, quashed
The time limit to pass an order under Section 73(10) of CGST Act for F.Y. 2018-19 and 2019-20 was extended by way of Notification No. 56/2023 – CT dated December 28, 2023, ("Notification"). The said Notification was challenged in Barkataki Print and Media Services vs. Union of India11, wherein the petitioner challenged orders passed under Section 73(10) of the CGST Act, on the ground that the Notification is ultra vires the CGST Act. The petitioner contended that the condition precedent for issuance of Notification in exercise of the powers under Section 168A of the CGST Act were not fulfilled as there were neither recommendations of the GST Council nor any force majeure event.
Considering the petitioner's submissions, the Guahati High Court ("Guahati HC") held the Notification to be ultra vires Section 168A of the CGST Act. The Guahati HC observed that as mandated under Section 168A of the CGST Act, the Notification was issued without the recommendations of the GST Council ("GST Council"). The Notification had a false statement claiming that a recommendation was made where, in fact no such recommendation existed prior to issuance of the Notification. In such circumstances, there is a colourable exercise of power by the Government in issuing the Notification.
The Guahati HC further observed that there is a difference between 'no recommendation made' and 'effectiveness of the recommendation'. The fact that it is not binding does not mean the Government can act without a recommendation of the GST Council. Moreover, Section 168A of the CGST Act empowers the Government to extend time limit in case of force majeure. The Guahati HC observed that the GST Council had no occasion to consider existence of force majeure, therefore the Notification would also be seen as being issued without the force majeure condition. Hence, neither conditions prescribed under Section 168A of the CGST Act were fulfilled for issuance of the Notification, thereby holding the Notification to be invalid.
Authorities cannot prosecute GST offenses under IPC12 without invoking penal provisions of GST Act13
The Madhya Pradesh High Court ("Madhya Pradesh HC") has ruled on the power of the authorities to prosecute GST offenses under IPC without invoking penal provisions under CGST Act. In the matter of Deepak Singhal vs. Union of India and Ors14, the petitioner was a proprietor firm engaged in trading of soya bean seeds and soya de-oiled cakes. The petitioner was summoned under Section 70 of the CGST Act and statements of the petitioner was recorded. Subsequently, the GST authorities conducted search and seizure on the petitioner's premises under Section 67(2) of CGST Act. An inspection report was prepared wherein it was alleged that the firm was a bogus firm and fraudulently registered and issued invoices/bills without supply of goods/services, thereby leading to wrongful availment or utilisation of ITC/refund of tax. One office of the revenue authorities issued a complaint to another office, basis which an FIR under the provisions of IPC was registered against the proprietor of the said firm. The assessee had approached the Madhya Pradesh HC challenging the same.
The petitioner submitted that CGST Act is a complete code which provides procedure to be adopted by GST authorities, penalties in case of breach and punishment for offences committed under GST Act. In the present case, search and seizure operations conducted by GST authorities revealed commission of offence punishable under Section 132 of GST Act. GST being a special statute, for any offence which is squarely covered by the CGST Act, provisions of IPC could not have been invoked without first invoking the provisions of CGST Act. It was further submitted that Section 132(6) of the CGST Act requires previous sanction of the Commissioner before a person can be prosecuted for offences committed under Section 132 of GST Act, which has not been followed in the present case. Accordingly, registration of 'FIR' at the instance of GST authorities under provisions of IPC without invoking penal provisions under GST Act is bad in law and the 'FIR' and hence consequential proceedings are liable to be quashed.
Considering the petitioner's submissions, Madhya Pradesh HC held that for offences covered under Section 132 of the CGST Act, the GST authorities cannot be permitted to bypass procedure and penal provisions under GST Act for launching prosecution against the assessee by invoking IPC provisions. Letting GST authorities to adopt such course of action would amount to abuse of process of law which cannot be permitted.
Customs, Excise and Service Tax Appellate Tribunal
Excess reversal of CENVAT15 credit eligible for cash refund under GST regime
The Hon'ble CESTAT16 Mumbai analysed whether the appellant (a manufacturer and trader of motor vehicles) could claim refund of excess CENVAT credit reversed towards provision of exempt goods/services during April to June 2017 under Rule 6(3A) of CCR, 200417.
In Mercedes Benz India Pvt. Ltd. vs. Principal Commissioner of Central Tax18, the adjudicating authority and the Commissioner (Appeals) rejected the refund of the appellant on the ground that there exists no provision under Rule 5 and/or 7 of the CCR, 2004, for cash refund of excess CENVAT credit reversed and therefore no refund will be permissible under clause (c) of proviso to Section 11B(2) of the Excise Act19.
The CESTAT observed and highlighted the below:
given that GST was introduced with the intention of eliminating cascading on taxes and taxing only at the consumption stage, it would be least expected that the legislation intended that input credit which was validly available through erstwhile laws of Excise Act and Chapter V of the Finance Act20 would have to be foregone by not allowing the taxpayers such validly earned credit. Accordingly, the transitional provisions under Section 142 of the CGST Act, providing refund of CENVAT credit in accordance with provisions of existing law, cannot be interpreted narrowly to mean that cash refund of CENVAT credit is not permissible because CCR, 2004 provided only for refund in specified situations as stated in Rule 5 of CCR, 2004.
Section 142(3) of the CGST Act specifically provides that refund of any amount of CENVAT credit, duty, tax, interest or any other amount paid under the existing laws will be paid in cash. It is only such amount of CENVAT credit which is rejected, as ineligible, that alone will lapse.
Section 142(3) of the CGST Act is a transitional arrangement wherein it has been specifically provided that the said provision apply as a non-obstante clause and thus will have an overriding effect to the provisions of the Excise Act, except for Section 11B(2) of the CGST Act.
The phrase 'duty of excise' used in Section 11B(2)(d) of the Excise Act refers to duties of excise leviable and also includes CENVAT credit, which is nothing, but duty of excise paid on inputs, which has been allowed for taking credit in terms of Rules 3 of CCR, 2004.
In light of the above, the CESTAT granted cash refund of CENVAT credit excessively reversed during the erstwhile regime.
Courtroom updates
SCN levying GST on license-fees collected by 'State Electricity Regulatory Commission' stayed
In the matter of U.P. Electricity Regulatory Commission vs. Additional Commissioner of GST and Central Excise21, the revenue authorities have issued SCN to the petitioner under Section 74 of the CGST Act proposing to levy GST on the license fees collected by the petitioner for grant of licenses to various power corporations/companies for distribution, transmission and trading of electricity.
The petitioner has pleaded that it is a statutory body set up by the Government of Uttar Pradesh under the Uttar Pradesh Electricity Reforms Act, 1999 and performs functions as assigned under the Electricity Act, 2003. It is further submitted that the petitioner performs quasi-judicial proceedings while granting the said licence. For granting such licence, the petitioner collects licence fees from the licensees as prescribed under the Uttar Pradesh Electricity Regulatory Commission (Fees and Fines) Regulations, 2010. The activity of granting licence for licence fees cannot be subjected to GST in light of Entry 2 of Schedule III of the CGST Act, which states that 'services by any court or Tribunal established under any law for the time being in force' will be treated neither as a supply of goods nor a supply of services.
Considering the submissions by the petitioner, the Hon'ble High Court has stayed the SCN and directed the petitioner to file reply to the SCN. However, the revenue authorities have been refrained from taking final decision in the matter till next date of listing.
Supreme Court admits SLP22 challenging levy of interest in revenue neutral transaction
In the matter of Grapes Digital Private Limited v. Principal Commissioner, CGST23, the Hon'ble Supreme Court grants leave and admits SLP challenging judgement of Delhi High Court involving the main issue of whether the revenue authorities could have levied and adjusted interest on the tax amount paid by the Petitioner which had already been sanctioned for refund by the revenue authorities, in a revenue neutral situation. The Delhi High Court had earlier rejected the Petitioner's stance that transaction of imports and exports is revenue neutral and held that levy of GST is a statutory exaction. Interest on delayed payment of tax being a statutory levy cannot be avoided on the ground that the Petitioner at a subsequent stage is entitled to a refund of the ITC. Accordingly, the Delhi High Court passed an order upholding levy of interest on delayed payment of IGST under RCM as also delayed payment of IGST on output supply (export) for which ITC of IGST paid under RCM was utilised.
The Petitioner contends that although, the Petitioner was liable to pay IGST on import of services, it is entitled to refund of the same on export of services. It is also entitled to a refund of any IGST paid on output supplies, therefore, the delay in payment of IGST, input or on output supplies did not prejudice the revenue in any manner. The levy of interest is compensatory in nature, thus, if the Petitioner is entitled to refund on payment, the revenue cannot claim any interest on account of any delay as in any event it could not retain any amount of IGST so paid. Relying on the judgement of this Court in the matter of Pratibha Processors v. Union of India24, the Petition highlights that interest is a mere accessory to the principal amount of tax and if the tax itself is not recoverable, no interest can be charged. It is further submitted that the intent of the State exchequer is to make exports tax free and competitive. Levy of interest in a revenue neutral situation has the potential of making exports costly.
Footnotes
1. Goods and Service Tax
2. TS-568-HC(GUJ)-2024-GST
3. Notification No. 2/2017-CGST Rate dated June 28, 2017
4. Appellate Authority for Advance Ruling
5. Central Board of Indirect Taxes and Customs
6. Show Cause Notice
7. Central Goods and Services Tax Act, 2017
8. TS-602-HC(KAR)-2024-GST
9. AIR 1966 SC 1350
10. Financial Year
11. TS-588-HC(GAUH)-2024-GST
12. Indian Penal Code
13. Goods and Services Tax
14. 2024 (9) TMI 828
15. Central Value Added Tax
16. Customs, Excise & Service Tax Appellate Tribunal
17. CENVAT Credit Rules, 2004
18. TS-385-CESTAT-2024-EXC
19. Central Excise Act, 1944
20. Finance Act, 1994
21. Writ Tax No. 239 of 2024
22. Special Leave Petition
23. SLP (Civil) Diary No. 35601/2024
24. (1996) 11 SCC 101
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.
