Newsletter

The erstwhile CBEC had issued a Circular No. 33/2016 dated 22.07.2016 stating that the AEO Programme Manager shall take into account the possible difficulties for MSMEs in meeting with eligibility conditions and criteria with a view to make the AEO certificates more available to MSMEs.

Now, in view of the above circular and the Prime Minister's Aatma Nirbhar Bharat Abhiyaan to support MSMEs against the challenges of the COVID-19 pandemic, the CBIC vide Circular No. 54/2020 - Customs dated 15 December 2020 has decided to relax the entire gamut of compliance and security requirements for MSMEs. The said relaxations have been extended to ensure that the MSMEs are facilitated through rationalized compliance requirements and minimum but effective security requirements. Following are the key relaxations provided to the MSMEs:

• The Applicants shall handle a minimum of 10 documents during the last F.Y., subject to handling at least 5 documents in each half-year period of the preceding F.Y.;
• The Applicants should have business activities for at least two F.Y.s preceding the date of application;
• The qualifying period for legal and financial compliance has been reduced from last three F.Y.s to last two F.Y.s;
• For AEO T1 and T2 accreditation, the present annexures have been supplanted with two MSME annexures;
• For AEO T2 certification, the present annexures i.e., Annexure for physical verification have been rationalized to a single annexure;
• The time limit for processing of MSME AEO T1 and AEO T2 applications have been reduced to fifteen working days and three months respectively after the submission of complete documents for priority processing by customs zones;
• The benefit of relaxation in furnishing of Bank Guarantee for AEOs has been further relaxed to 25% and 10%, of that required to be furnished by an importer/exporter who is not an AEO certificate holder, for MSME AEO T1 and MSME AEO T2 entities respectively.

It has been further provided that the relaxations shall apply only to applicants who have a valid MSME certificate. Furthermore, the approved MSME are required to ensure their continuous MSME status during the validity of its AEO certification, if granted.

All in all, the AEO accreditation for MSME now requires submission of only two annexures for AEO T1 and three annexures for AEO T2 applicants respectively.

In order to provide immediate relief to taxpayers, especially MSMEs during the lockdown period on account of the COVID-19 pandemic, the CBIC vide Instruction No. 03/2020 dated 09 April 2020 had implemented a Special Refund and Drawback Disposal Drive for immediate disposal of drawback claims.

Now, the CBIC vide Instruction No. 21/2020 – Customs dated 16 December 2020 has directed the State to reduce pendency and improve rate of disposal of claims. The CBIC informed that as per the decision of the National Committee on Trade Facilitation, at least 90% of drawback should be credited within a time period of 3 days. CBIC further instructs that the refund may be deposited into the customers’ account in T+2 days.

In respect of payment of duty drawback by banks to the exporters’ account, the CBIC reiterated that in terms of Circular dated 24.04.2018, the authorised banks shall credit / refund the drawback account to the exporters’ accounts either on the same day of receiving Computerized Customs Drawback Advice along with the supporting cheque or on the next working day.

The Government vide Notification No. 30/2015-20 dated 01 September 2020 had amended the Foreign Trade Policy 2015-20 to insert two new paras. The said amendment had capped the ceiling on total reward under MEIS to Rs. 2 crores for an IEC holder for the period ranging from 09 September 2020 to 12 December 2020. Aggrieved by the said amendment, a Writ Petition has been filed before the Gujarat HC challenging the above amendment inter alia on two grounds:

• The Notification seeks to artificially classify similarly placed exporters into two separate class and therefore, is in violation of Article 14 of the Constitution;
• The amended provision does not provide for an exception in respect of contracts already executed factoring in the MEIS benefits and thus is in breach of the principle of promissory estoppel and legitimate expectation.

The Gujarat HC has issued a notice to the Respondents, returnable on 19 January 2021.

Man Industries (India) Limited vs. Union of India [C/SCA/15716/2020] 

The Petitioner, a 100% EOU was engaged in exporting major portion of its manufactured products and clearing minor portion for sale in the Domestic Tariff Area (DTA). The Petitioner imported capital goods and input for manufacturing its products and availed exemption of BCD and IGST paid on such imports under the relevant notifications.

Invoking the extended period of limitation, the DRI initiated investigations against the Petitioner seeking to deny refund of IGST in light of restrictions envisaged u/r. 96(10) of the CGST Rules as amended by Notification No. 54/2018 dated 09 October 2018. The DRI sought details of refund received by the Petitioner and requested the Petitioner to voluntarily pay customs duty in the form of IGST and Compensation Cess.

Aggrieved, the Petitioner preferred a Writ before the Madras HC challenging the vires of Rule 96(10). The said Rule inter alia provides that the claimant shall not have availed the benefit of IGST exemption in terms of certain customs notifications. The Petitioner contended that the said Rule violates the provisions in the parent statute because the only prescription in Section 16 of IGST Act and Section 54 of CGST Act was to the extent of outlining the form and manner for claiming refund and not for restricting refund.

It was further argued by the Petitioner that the only intent was to block IGST refund for exporters who had imported inputs under Advance Authorisation Scheme. However, in the process, amended Rule 96(10) has disentitled exporters who do not import inputs under Advance Authorisation scheme which was never the intent.

The Writ has been admitted by the Madras HC.

Comstar Automotive Technologies Private Limited vs. Union of India

Earlier the CBIC had provided waiver from recording of UIN on the invoices issued by retailers / other suppliers till March 2020. Taking cognizance of the continued issue of non-recording of UIN, the CBIC vide Circular No. 144/14/2020 - GST dated 15 December 2020 has given waiver from recording of UIN on the invoices issued by the retailers / suppliers, pertaining to the refund claims from April 2020 to March 2021, subject to the condition that the copies of such invoices are attested by the authorized representative of the UIN entity and the same is submitted to the jurisdictional officer.

The Petitioner had contemplated to sell certain copper wire rods, etc. on high sea sale basis to the Original importer. Accordingly, two Bills of entry in respect of two consignments had been filed in the name of the Original importer. 

The said Importer subsequently declined to get purchase the imported goods on high seas, however agreed to co-operate in getting No Objection Certificate (NOC) and for substitution of the name of the Petitioner in the two BOE. A request was made for the amendment of the BOE, which was duly carried out. Subsequently, the DRI authorities seized the consignment of the Petitioner on the ground that certain provisions of Notification No.25/1999 – Customs 28.02.1999 had been contravened. Aggrieved, the Petitioner filed a Writ before the Bombay HC.

Referring to Section 110 of the Customs Act, the HC observed that if the proper officer has reason to believe that any goods are liable to confiscation under the Customs Act, he may seize such goods. Accordingly, the proper officer must have reason to believe that the goods in question are liable to confiscation under the Customs Act. Once the proper officer forms such a belief then he may seize such goods.

It was further observed that the expression 'reason to believe' is an expression of considerable import and in the context of the Customs Act, confers jurisdiction upon the proper officer to seize goods. The HC further observed that the belief has to be of the proper officer who had made the seizure. It cannot be that seizure is made by one officer and the reasons to believe are recorded by another officer. It was further observed that the proper officer who made the seizure must have reasons to believe that the seized goods are liable to confiscation. Seizure of goods is not an end in itself.

It was further noted by the HC that the Petitioner had not sought any concession or exemption or benefit under Notification No. 25/99 – Customs dated 28.02.1999. Accordingly, there could not have been any reason to believe that the said imported goods had contravened any of the provisions of section 111 dealing with confiscation and hence liable to seizure under section 110.

It was further remarked that the cancellation of amendment was not carried out by the authority which had allowed the amendment i.e., Customs authorities, Nhava Sheva, after due application of mind. It was carried out as per the direction of DRI, Zonal Unit, Ahmedabad. Such cancellation certainly resulted in adverse civil consequences upon the Petitioner who was the beneficiary of the amendment. It was further observed that without putting the Petitioner to notice and without giving an opportunity of hearing, the amendments could not have been unilaterally cancelled. Such cancellation of amendment would, therefore, be a nullity having no legal sanctity.

Basis the above observations, the HC set-aside the order for seizure of goods and directed for the release of the goods subject to the payment of the requisite duty and completion of necessary formalities.

Nikkom Copper and Conductors Private Limited vs. Union of India and Ors. [W.P. No. 3834 of 2020]

As we approach towards the end a rather nightmarish 2020, hopes are high for better days in the ensuing year, 2021. Amid all the difficult times faced this year, one must also take note of the collective global effort taken by everyone to fight the COVID-19 pandemic, especially the health workers and the State authorities, who kept the economies running.

Speaking of the initiatives taken by the State authorities, we have analyzed the PLI Scheme of the Atmanirbhar 3.0 package, in the Sparkle Zone of our newsletter. We have also penned down articles exploring the scope of ITC restriction provisions under GST and position of the MSME Sector in India. 

With other judicial and legislative developments in the fields of taxation along with our insightful analysis, we are glad to present to you the 4th edition of our Vision 360 Newsletter in association with TIOL.

We hope that reading of the newsletter would bring an enriching experience to you! Your valuable feedback is always welcome at consult@gstlegal.co.in  or updates@gstlegal.co.in.

The Petitioner has challenged the constitutional validity of Section 17(5)(d) of the CGST Act to the extent that it denies the benefit of ITC to the petitioner as well as it provides a time bar restriction for the availment of ITC. The Petitioner has submitted that it has not availed ITC during the pendency of the writ petition and prayed that in the event the writ Petitioner succeeds, then it may be allowed to avail the benefits.

The Calcutta HC has requested the Additional Solicitor General of India and the Additional Advocate General of State of West Bengal to file their affidavits in this matter. The HC has further listed the matter to be heard in January 2021.

Instakart Services Private Limited vs. Union of India [W.P.A. 8205 of 2020]

The Petitioner has challenged the constitutional validity of Section 16(2)(c) of the CGST Act before the Gujarat HC. The said provision inter alia denies ITC to a buyer of goods or services, if the tax charged has not been actually paid to the Government by the supplier of goods or services. The Petitioner challenged the said provision, inter alia on the following grounds:

• Denial of ITC to a buyer of goods or services for default of the supplier of goods or services tantamount to shifting the incidence of tax from the supplier to the buyer which is arbitrary and irrational. The said provision is therefore violative of the Article 14, Article 19(1)(g) and Article 300A of the Constitution of India;
• The said provision requires reversal of ITC which has already accrued to a buyer of goods or services, on account of a fraud committed against the Revenue by the supplier of goods or services. Therefore, it punishes both the perpetrator of the fraud and the victim and treat them on an equal footing which is totally in contradiction with the mandate contained under Article 14 of the constitution, which provides that the equals are to be treated equally, but also lays down that the unequals should not be treated equally;
• The principle mischief which was sought to be remedied by introduction of GST Law by subsuming all existing indirect tax legislation was removal of cascading effect of tax. Denial of ITC will lead to cascading effect of tax because GST will again have to be paid on the tax paid stock;
• As a principle of law, it is necessary to look into the mischief against which the statute is directed, other statutes in parimateria and the state of the law at the time;
• In the absence of any finding about Petitioners' mala fide intention, connivance or wrongful association with the suppliers, no liability can be imposed on it on the principle of vicarious liability on account of fraudulent conduct of the suppliers, who have obtained registration on the basis of fictitious documents.

Taking cognizance of the submissions made by the Petitioner, the Gujarat HC has issued a notice in this regard, returnable on 19 January 2021.

Surat Mercantile Association vs. Union of India [R/SPECIAL CIVIL APPLICATION NO. 15329 of 2020]

GLS Comments:

It would be pertinent to note that a similar Writ Petition has been filed before the Delhi HC in the case of Bharti Telemedia Limited vs. Union of India and Ors. [W.P.(C) 6293/2019], wherein a notice has been issued. As for the erstwhile law, the Madras HC in the case of Sri Ranganathar Valves (Private) Limited [W.P.No.38488 of 2015], had held that the buyer cannot be denied ITC on account of sellers not depositing tax.

• The GSTN facility vide news dated 28 November 2020 has updated that in terms of Rule 138E (a) and (b) of the CGST Rules, the E-Way Bill generation facility of a taxpayer is to be blocked, in case the taxpayer fails to file their returns in Form GSTR-3B or Statement in Form CMP-08, for two or more consecutive tax periods. In order to unblock the facility, taxpayer shall apply to jurisdictional Tax Official in Form GST EWB 05.
• Further, a facility has been provided on the GST Portal, from 28 November 2020 onwards, to file an online application for unblocking of their EWB generation facility in Form EWB-05, in case their EWB generation facility has been blocked on the EWB Portal.
• In order to file an online application for unblocking EWB generation facility on GST Portal, a taxpayer shall:
  • Login to the portal and navigate to Services> User services> My Applications
  • Select application type as ‘Application for unblocking of E-way bill’ and click New Application
  • Submit application in Form EWB-05, with upload of up to 04 documents
• The application so filed would be populated to dashboard of jurisdictional tax official. The tax official can issue a Notice for personal hearing to the taxpayer. Subsequently, the taxpayer can file their reply to the notice online, along with supporting documents.
• During the conclusion of the proceedings, the tax officer can issue an order in Form EWB-06 approving the taxpayer application for unblocking the EWB generation facility, after which their EWB generation facility will be restored for the duration specified in the order.
• If the tax officer rejects the taxpayer’s application vide order in Form EWB-06, the EWB generation facility will remain blocked and the taxpayer shall be required to file their pending returns in Form GSTR-3B / Statement in FORM CMP-08, so as to reduce the pendency to less than two tax periods, for restoration of the EWB generation facility.
• Further, the notices / orders issued by tax officer would be sent via SMS and mail to taxpayer and would be made available on the taxpayer dashboard (Services > User Services > View Additional Notices/Orders option).