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The petitioner approached the HC as he was aggrieved by the order of detention in form Mov-07 issued by proper officer in connection with the detention vehicle carrying goods. The reason for such detention was that the route described in the e-way bill did not match with the route by which the goods were actually being transported.

The Kerala HC upholds such detention of a consignment of goods. However, in response to the petitioner’s request, the HC allowed the clearance of the goods and vehicle upon furnishing of a bank guarantee for the amount of demand raised. Further, the HC directed the authority to pass the final order under section 129 of the CGST Act.

K.M. Oil Industries vs. Asst. State tax officer [WP (C) .No.28025 of 2020]

GLS Comments:

It would be pertinent to note that the department does not take a lenient view when it observes discrepancies in the documents which were carried at the time of transportation of goods. In the recent past we have seen a number of writ petitions being filed by the assessees with respect to action taken by the department by invoking proceedings under Section 129 and 130 of the CGST Act 2017.   Therefore, it is required for the assessees to take utmost care while preparing documents such as E-way bill and invoice which are mandatorily required at the time of transporting goods in order to avoid any adverse action to be taken by the department.

Disclaimer:

The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.

Pursuant to the enquiry initiated by the tax authorities, the department is of the prima facie view that the concerned suppliers of inputs, had issued only the tax invoices without supplying any tax paid inputs and the transactions of these input suppliers/registered dealers are only on paper and, therefore, the ITC availed by all the buyers including the Petitioner herein on such tax invoices of these input suppliers is inadmissible. Consequently, the Petitioner was required to deposit Rs. 25 lacs in cash. Further, ITC to the extent of appx. 84 lacs has been blocked by exercising the power u/r 86A. The request for refund of such tax paid and unblocking of ITC was rejected by the tax authorities. Aggrieved, the Petitioner filed a writ petition challenging such action of the department 

The Petitioner argued that the blocking of ITC ledger amounts to curtailing indefeasible right of the assessee to avail the benefit of the ITC. It was also argued that the action taken by the department was without giving any notice and finalisation of assessment and therefore such action is invalid  as that there was no valid material and facts basis which opinion was formed to block the ITC ledger of the applicant under Rule 86A. Furthermore, no such reason was communicated to Petitioner before taking action against them. 

The Hon’ble HC noted that Rule 86A undoubtedly could be said to have conferred drastic powers upon the proper officers if they have reason to believe that the activities or invoices are suspicious. The Rule 86A is based on “reason to believe”. “Reason to believe” must have a rational connection with or relevant bearing on the formation of the belief. It is a subjective term and can be interpreted differently by different individuals.

Hon’ble HC rejects assessee’s “vociferous” claim that credit of tax paid on inputs, is an indefeasible right of the assessee vis-a-vis Rule 86A and that Rule 86A of the Rules extinguishes a vested right which the assessee has for claiming credit of duty paid on inputs. The HC remarks that since the writ applicants have not been able to avail the ITC and, in such circumstances, it cannot be said that they have an indefeasible right. The HC also opined that the aspect of availing the credit and utilization of credit as two different stages and declared that the utilization of the accrued credit is a vested. Further, the HC relying on the judgment of TUNGABHADRA INDUS. LTD. 2000 (118) E.L.T. 545 (S.C.) opined that accumulated credit could be utilized only subject to the conditions of the Notification and thus even in the case of accumulated credit, no vested right accrued.

The Gujarat HC also observed that the inquiry, so far, has revealed a prima facie case for the respondents to exercise the power under Rule 86A of the Rules. The HC opines that although, no specific order has been passed and communicated to the Petitioner in this regard, yet in the facts of the present case, it cannot be said that exercise of power under Rule 86A for the purpose of blocking the ITC is mala fide or without any application of mind. 

The Hon’ble HC directs the revenue to complete the investigation within a period of four weeks from the date of the receipt of this order and to take appropriate actions regarding issue of show cause notice under section 74 or not.

The HC opines that power under Rule 86A should be used sparingly and only on subjective weighty grounds and reasons. The HC also remarks that the power under Rule 86A of the Rules 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. 

 Hon’ble court also urged the governments to apply its mind for the purpose of laying down some guidelines or procedure for the purpose of invoking Rule 86A of the Rules.

S.S. Industries vs. Union of India [C/SCA/8841/2020]

GLS Comments:

As the Constitutional validity of Rule 86A of the Rules was not challenged in the present case, the Hon’ble HC refrained from commenting on its validity in the absence of any specific challenge to the said provisions. The HC further observed that Rule 86A casts an obligation upon the authority concerned to form an opinion but is silent with regard to passing of any specific order assigning prima facie reasons for invoking Rule 86A. To this extent, the Government needs to look into the matter and issue appropriate guidelines and also lay down some procedure to be followed for the exercise of power under Rule 86A of the Rules, otherwise it is likely to result in harassment of the taxpayers

The Ministry of Finance vide Press Release dated 31 December 2020 has extended the Remission of Duties and Taxes on Exported Products (‘RoDTEP’) Scheme to all export goods w.e.f. 01 January 2021. It has been clarified that the RoDTEP scheme would refund to exporters’, the embedded Central, State and local duties / taxes that were so far not being rebated / refunded and were, therefore, placing our exports at a disadvantage. The refund would be credited in an exporters’ ledger account with Customs and used to pay Basic Customs duty on imported goods. The credits can also be transferred to other importers.

It has been further clarified that an exporter desirous of availing the benefit of the RoDTEP scheme shall be required to declare his intention for each export item in the shipping bill or bill of export. The Ministry further provided that the RoDTEP shall be allowed, subject to specified conditions and exclusions. Lastly, it has been clarified that the notified rates, irrespective of the date of notification, shall apply w.e.f. 01 January 2021 to all eligible exports of goods. 

GLS Comments:

The Government vide Trade Notice No. 03/2020-21 dated 15 April 2020 had provided clarifications upon the RoDTEP Scheme and its implementation stage. Now, the said Scheme has been extended to all export goods. As the rates under the Scheme are yet to be notified, it would be in the best interest of the exporters at this juncture, to file representations before the Government of India substantiating their desired rates for the new scheme.

Taking cognizance of the difficulties faced by the taxpayers on account of the COVID-19 pandemic, the Ministry of Finance vide Press Release dated 30 December 2020 has extended various due dates in the following manner:

• Due date for furnishing IT Returns for A.Y. 2020-21 for taxpayers (including their partners) who were required to get their audits accounts audited and companies, has been extended to 15 February 2021;
• Due date for furnishing IT Returns for A.Y. 2020-21 for taxpayers (including their partners) who were required to furnish report in respect of international / specified domestic transactions, has been extended to 15 February 2021;
• Due date for furnishing IT Returns for A.Y. 2020-21 for other taxpayers, has been extended to 10 January 2021;
• Due date for payment of self-assessment tax for the taxpayers whose self-assessment tax liability is upto Rs. 1 lakh, has been extended to 15 February 2021 for taxpayers mentioned in para 1 and 2 above and to 10 January 2021 for taxpayers mentioned in para 3 above.
• Due date for furnishing various audit reports under the Income Tax Act including tax audit report and report in respect of international / specified domestic transactions for A.Y. 2020-21, has been extended to 15 January 2021;
• Last date for making declarations and passing the order under the Vivad Se Vishwas Scheme, has been extended to 31 January 2021;
• The date for passing of orders or issuance of notice by Authorities under the Direct Taxes and Benami Acts, has been extended to 31 March 2021;and
• Due date for furnishing annual return in Form GSTR-9 for the F.Y. 2019-20 has been extended to 28 February 2021;

GLS Comments:

The Ministry of Finance has only marginally extended the due date of various Income Tax Returns and Audits acknowledging the challenges being faced due to outbreak of COVID-19 situation wherein travelling to offices / client places have been impacted. However, it remains to be seen whether such extensions have indeed provided any relief to the taxpayers as well professionals conducting audit, as the extended due date of completion of tax audit is 15 January 2021.

On a separate note, it should be noted that the due date for filing GST Annual Return and Reconciliation Statement for F.Y. 2018-19 has not been extended. It seems strange that the Government has failed to acknowledge similar pandemic induced challenges in completion of GST Audit for FY 18-19.

Further, the due date for filing annual return for F.Y. 2019-20 has been extended only till 28 February 2021, which seems rather unreasonable and harsh. In this regard, it would be interesting to see whether the Government provides any relaxation or clarification in this regard. Instead of giving multiple extensions, they should look to give one reasonable extension which would be sufficient to complete the GST Audit 

Kiran Enterprises, the Petitioner is a distributer of Bharati Hexacom Limited. While filling tax invoices, Bharati Hexacom Limited had mentioned the name of Kiran Enterprise, however, the GSTIN had been inadvertently mentioned of New Kiran Enterprise, which is another sole proprietorship firm of the Petitioner dealing in the same products with same PAN. 

The Petitioner wrongfully utilised the excess ITC against discharge of its GST liabilities. Thereafter, the Respondent sought to demand of tax and impose penalty for availing wrongful ITC. Aggrieved, the Petitioner had filed an application for rectification of error in the tax invoice. However, the Application came to be rejected as being time-barred.

The Tripura HC observed that in terms of Section 161 of the CGST Act, any error which is apparent on the face of the record in the decision or the order or the notice or the certificate or any other documents issued by any authority, the said authority can rectify such error, within a period of 3 months from the date of such decision, or order or notice or certificate or any other documents as the case may be.

It had been further observed that Section 161 of the CGST Act is a complete code within itself and it has impliedly excluded the Limitation Act. The Tripura HC further noted that the rectification as sought by the Petitioner is not covered by Section 161 of the CGST Act. Accordingly, the HC dismissed the Writ Petition.

Kiran Enterprises vs. The State of Tripura [WP(C)No.114 of 2020]

The Applicant, a Japan based had sought a ruling before the Odisha AAR to ascertain whether the Applicant is required to be registered under the CGST Act for the consultancy services provided to Odisha Power Transmission Corporation Limited (OPTCL’). The Applicant had argued that they were not liable to obtain registration under the CGST Act in any capacity as the supply is being made by the Foreign Company located in Japan. It had been further argued by the Applicant that in terms of Section 2(71) of the CGST Act, the location of supplier shall either be the place of business where registration is taken, or a place which is a fixed establishment or the usual place of residence of the supplier. As per the Applicant, the place of business in the instant case, would fall outside India as it has no fixed establishment in India and the usual place of residence is also not in India.

Upon perusal of the agreement between the Applicant It was observed by the Odisha AAR that the scope of the services is Technology transfer for the outdoor GIS O&M and GIS operation Manual preparation. The applicant would carry out the services through its expert belonging / sub-station Engineer. It was further observed that OPTCL had provided an office to the consultant and the office operation and maintenance charge etc. were to be borne by OPTCL.

It was further observed that the Applicant maintained suitable structures in terms of human and technical resources at the sites of OPTCL which are fixed establishments indicating sufficient degree of permanence and thus, the ‘location of supplier’ should be in India. Further, referring to Section 2(15) of the CGST Act, the Applicant observed that the 'location of the supplier of services' is usually where a supply is made from, a place mentioned as a principal place of business on the GST registration certificate. It was further observed that the expert maintains suitable structures in terms of human and technical resources at the sites of OPTCL. It ensures provision of supply of consulting services for the contract period, indicating sufficient degree of permanence to the human and technical resources employed at the sites. It was observed that the Applicant through its expert belonging, therefore, supplies the service at the sites from fixed establishments as defined under section 2 (7) of the IGST Act. The location of the supplier should, therefore, be in India in terms of section 2 (15) of the IGST Act.

Accordingly, it was held by the AAR that the consultancy services to OPTCL is not import of service and the experts belonging to the Applicant is to be treated as supplier located in India and made liable to pay GST, and obtain registration.

Tokyo Electric Power Company [Order No. 02/0DISHA-AAR/2020-21 dated 26 November 2020]

The Appellant had entered into various commercial agreements, whereby certain clauses were provided for penalty for non-observance / breach of terms of contract, in order to safeguard the interests of the Appellant.

The Respondent had demanded the payment of service tax on the amount charged by the Appellant as penalty / compensation for breach of terms of contract holding such penalty / compensation for breach of terms of contract was taxable as declared services under section 66(E)(e) of the Finance Act.

The Delhi CESTAT observed that service tax is chargeable on any taxable service with reference to its value, then such value shall be determined in the manner provided for in (i), (ii) or (iii) of subsection (1) of section 67. In relation thereto, it was observed that what needs to be noted is that each of these refer to where the provision of service is for a consideration, whether it be in the form of money, or not wholly or partly consisting of money, or where it is not ascertainable. In either of the cases, there has to be a consideration for the provision of such service. 

It was further observed that the Explanation to Section 67(1) clearly provides that only an amount that is payable for the taxable service will be considered as consideration. It was observed that apart from this, what is important to note is that the term consideration is couched in an inclusive definition. Basis the above observations, the CESTAT allowed the appeal and set aside the order passed by the Respondent.

South Eastern Coalfields Limited vs. Commissioner of Central Excise and Service Tax [2020-TIOL-1711-CESTAT-DEL]

GLS Comments:

Although various judicial forums have time and again held that penalty for breach of contract cannot be construed as a service u/s. 66E(e) of the Finance Act, it has been seen that the Revenue does not shy away from demanding such tax. In this regard, it would be pertinent to note the Allahabad CESTAT in the case of  K. N. Food Industries Private Limited [Service Tax Appeal No.70737 of 2018] had held that an agreement should have an express concurrence of toleration of an act / situation to attract levy of Service Tax. It had been further held that the amount paid should be in the nature of ‘consideration’ and not ‘compensation’. Going by the principle laid down in K.N. Foods (supra), it can be said that as the amount received by the assessee is in the form of compensation vis-a-vis consideration, the same cannot be bought under the purview of Service Tax. However, it would be pertinent to note that there are various contradictory judgements in this front and and therefore the matter is yet to be settled.

The CBIC vide Notification No. 92/2020 – Central Tax dated 22 December 2020 has appointed 01 January 2021 as the date on which the provisions of the Finance Act, 2020 giving effect to proposed amendments in the CGST Act, shall come into force.

Following is the summary of the amended laws:

The Allahabad HC has held that in cases of Tenders / Bids, if the GST value is to be added in the base price to arrive at the total price of offer for the procurement of products in a tender and is used to determine inter se ranking in the selection process, the relevant Department / Authority would be required to clarify the issue, if any, with the GST authorities relating to the applicability of correct HSN Code of the procurement product and mention the same in the tender notice, so as to ensure uniform bidding from all participants and to provide all tenderers/bidders a 'Level Playing Field'.

GLS Comments:

The HSN classification of railway products has been a perpetual issue right from the Excise days, which has found its place under the GST regime as well. Where there exists inconsistency in the HSN code in the same industry, different price bids are bound to arise. The Allahabad HC has rightly held in the instant case that the relevant authorities ought to clarify HSN Code related issues in Bids so as to ensure level playing field to all the bidders.

A departure from the doctrine of level playing field would defeat the entire purpose of the Make In India Policy. In the instant judgement, the Allahabad HC has rightly identified the root of the issue and issued a direction which would certainly reduce the HSN Code related issues in Biddings.

The CBIC vide Notification No. 94/2020 – Central Tax dated 22 December 2020 has notified the CGST (Fourteenth Amendment) Rules, 2020. Following are the key amendments of the notification:

Aadhar Based Verification

• Biometric-based Aadhaar authentication and taking photograph has been mandated for GST registration unless the said requirement has been exempted;
• The time-limit for approval of grant of GST registration has been extended from 3 to 7 working days of the date of application. It has been further provided that where the Applicant fails to undergo authentication of Aadhar, that the GST registration shall be granted within 30 days of the submission of application after physical verification;

GST Registration Cancellation

• GST Registration shall be cancelled if the taxpayer has availed ITC in violation of the prescribed provision of availing ITC i.e., Section 16 of the CGST Act;

GST Registration Suspension

• GST registration shall be suspended, where upon comparison of GSTR-3B and GSTR-1 indicate that there are significant differences or anomalies indicating contravention of the provisions of the Act or the Rules;

ITC Restriction

• The restriction of availment of ITC in respect of unreported invoices or debit notes have been limited to 5% of eligible ITC;

Return Filing Restriction

• The taxpayers shall not be allowed to file GSTR-1 unless the return in GSTR-3B has been filed for the preceding two months;
• Taxpayers required to furnish return for every quarter shall not be allowed to furnish GSTR-1 or using the invoice furnishing facility, if he has not furnished the return in GSTR-3B for preceding tax period;
• Taxpayers restricted from using the amount available in electronic credit ledger to discharge liability towards tax in excess of 99% of such tax liability under rule 86B, shall not be allowed to furnish GSTR-1 or using the invoice furnishing facility, if he has not furnished GSTR-3B for preceding tax period;

Newly inserted Rule 86B

• Rule 86B has been inserted which provides that taxpayers shall not use the amount available in electronic credit ledger to discharge liability towards output tax in excess of 99% of such tax liability, in cases where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees, unless:
  • The said person or the proprietor or karta or the managing director or any of its two partners, prescribed directors, as the case may be, has paid more than Rs. 1 lakh as income tax under the Income-tax Act, 1961, in each of the last two financial years; or
  • Such person has received a refund of more than Rs. 1 lakh in the preceding financial year on account of unutilised ITC in respect of zero rate supplies or inverted duty structure; or
  • Such person has discharged the liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, up to the relevant month in the current F.Y.;
  • The registered person is a Government Department, or a PSU, or a local authority or statutory body.

GLS Comments:

Recently, a number of cases have surfaced wherein the taxpayers had fraudulently availed ITC in contravention of Section 16 of the CGST Act. The new provisions would significantly limit such wrongful availment of ITC. However, whether such direct cancellation / suspension of registrations might also be considered as rather harsh for taxpayers who might have contravened the provisions of ITC availment in a bona fide manner.

As for the restriction of unmatched ITC u/r. 36(4) of the CGST Rules, it is seen that the Government had initially restricted the availment of unmatched ITC to 20%, which was later reduced to 10% and now being further reduced to 5%. Such a trend shows that the Government intends to gradually restrict the entire unreported ITC. In this regard, it would be pertinent to see whether such restriction would be made effective in entirety w.e.f. 01 April 2021 i.e., introduction of new return filing system. It would further be pertinent to see whether the Government introduced any new provision or provides any clarification in cases where the mis-match in ITC occurs on account of the vendor being quarterly taxpayer.

Lastly, and quite possibly, the most important amendment vide the instant notification is the introduction of Rule 86B. The said Rule inter alia provides that at least 1% of the output tax liability shall be discharged from the electronic cash ledger where the value of taxable supplies, other than zero rated and exempt supplies is more than Rs. 50 lakhs. In this regard, it would be pertinent to note that as a settled principle of law, the Rules always flow from the Principal Act. Any Rule which does not flow from the Principal Act is ultra vires and consequently void. Accordingly, it would be interesting to ascertain that whether such restriction of using electronic credit ledger for output tax liability is valid or not. This might ensue litigations in the future.