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CBIC vide Circular No. 1079/03/2021-CX dated 11 November 2021 has clarified that the requirement for issuance of pre-Show Cause Notice consultation is case specific rather than being formation specific. Earlier, vide a Board's instruction, a concept of pre-show cause notice consultation in Excise and Service Tax was introduced wherein it had been clarified that pre-show cause notice consultation with the Principal Commissioner and Commissioner will be mandatory prior to issue of Show Cause Notice ('SCN') in the case of demand of duty above Rs. 50 Lakhs. Further, vide Circular No.1076/02/2020-CX dated 19 November 2020, it was clarified that pre-SCN consultation with assessee, prior to issuance of SCN in case of demand of duty is above Rs.50 Lakhs shall be mandatory and would be required to be adhered by the authority issuing SCN.

In connection thereto, the DGGI had sought clarification of relevance of aforementioned Circulars and instructions for DGGI formations. In respect thereto, it has been clarified that pre-SCN consultation shall not be mandatory for those cases booked under the Central Excise Act or under Finance Act for recovery of duties or taxes not levied or paid or short levied or short paid or erroneously refunded by reason of fraud, collusion, wilful mis-statement, suppression of facts, contravention of any specified provision.

With the slew of festivals around, the spirits are high across the country!! Much like the atmosphere around the country, the economy has also moved towards a positive direction, recording handsome revenue collections. Commendably, the Government has constituted a committee for the determination of RoDTEP rates for exports against Advance Authorisation and from Special Economic Zones, etc. which had been earlier kept beyond the purview of the scheme. On the Regulatory front, the Apex Court has pronounced various notable judgements relating to Arbitrator's 'substantial discretion', limitation relating IBC-order, etc., having massive impact.

On the Direct Tax front, the CBDT has notified the rules to effectuate Taxation Laws (Amendment) Act, 2021. Compiling all such developments, we are glad to bring you the 15th Edition of our ‘Vision 360’ Newsletter in association with TIOL. We have covered the key judicial and legislative developments in Direct, Indirect Tax other regulatory areas. 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 CBIC vide Guideline bearing reference No. CBEC-2016/05/2021-GST/1552 dated 02 November 2021 clarified various issues pertaining to disallowing debit of ITC from ECL u/r 86A of CGST. The guidelines have been summarized hereunder:

• Grounds for disallowing debit of an amount from electronic credit ledger –
  • The Commissioner or any officer not below the rank of Assistant Commissioner, must have ‘reasons to believe’ that ITC available in ECL is either ineligible or has been fraudulently availed by registered person before disallowing the debit. The reasons for such belief shall be based on following grounds:
    • Credit is availed by a supplier, who is found to be non-existent or not conducting any business from the place declared in registration;
    • Credit is availed without actually receiving any goods or services or both;
    • Credit is availed in respect to the tax which has not been paid to the Government;
    • Credit is availed by the registered person without having any invoice or debit note or any other valid document for it.
  • The concerned officer must form an opinion for disallowing debit of an amount from ECL in respect of a registered person only after proper application of mind considering all the facts of the case.
  • The concerned officer has power of disallowing debit from ECL, must not be exercised in a mechanical manner and careful examination of all facts is important to determine cases fit for exercising power under Rule 86A.

• Proper authority for the purpose of Rule 86A
  • The Commissioner/Principal Commissioner or any officer not below the rank of Assistant Commissioner, shall have the powers for disallowing the debit of amount from ECL. Further, Commissioner/Principal Commissioner may authorize exercise of powers u/r 86A based on the following monetary limits as mentioned below:         

• Procedure for disallowing debit of ECL/blocking credit under Rule 86(A)
  • For disallowing debit of ECL, the amount fraudulently availed by ITC, shall be prima-facie ascertained based on material evidence available or gathered on record after the proper officer applies his mind to and has as to reasons to believe, and only after recording such reasons in writing on file, the officer concerned shall proceed to disallow the debit.

• Allowing debit of disallowed/restricted credit u/r Rule 86A(2)
  • The proper officer may either on his own or based on the submissions made by the taxpayer with material evidence thereof may allow the use of the credit on being satisfied that ITC, either partially or fully, is not availed wrongly;
  • Further, restriction imposed u/r. 86A(1) shall cease to have effect after expiry of 1 year from the date of imposing such restriction. Accordingly, the registered person would be able to debit input tax credit so disallowed;
  • Since, the restriction imposed u/r. 86A(1) is resorted to protect the interests of the revenue and also has bearing on the working capital of the registered person, endeavour must be that in all such cases the investigation and adjudication are completed at the earliest, well within the period of restriction.

The Appellant had been providing canteen facility to its employees as mandated under the Factories Act. The Appellant used to bear part of the canteen cost and recover the balance from its employees. In respect thereto, The Appellant had sought advance ruling before the Gujarat AAR to ascertain whether GST is chargeable on recovery of such expenses from employees.

The AAR had held that GST is applicable on amount recovered from employees on account of provision of canteen services. Aggrieved, the Appellant filed an appeal before the AAAR. The AAAR observed that the Appellant is providing food facility to employees without making any profit and is working as mediator between the employees and the service provider. In view of the above, the AAAR held that GST is not applicable on amount collected by the Appellant from employees as there is no supply of goods or service by the Appellant to its employees.

Amneal Pharmaceuticals Private Limited [GUJ/GAAAR/APPEAL/2021/07

GLS Comments:

It would be pertinent to note that GST is chargeable on all supplies in the course of furtherance of business. Further, the term ‘business’ includes activities which are not for pecuniary benefit as also any activity incidental to main business. Accordingly, one may argue that the contractor was providing services to the Appellant and the Appellant was in turn providing services to its employees at concessional cost. Thus, GST could have been said to be chargeable on the amount collected by the Appellant from employees.

The Applicant had executed a works contract, for which, the work had been completed in the pre-GST regime. Post the execution of the work, the Applicant had raised certain claims under Arbitration proceedings. The arbitration award was passed in 2019 for certain sum of money to be paid to the Applicant. In view of the above, the Applicant had sought an Advance Ruling before the Telangana AAR to ascertain whether GST is applicable on the proposed receipt of money in case of Arbitration claims awarded for works contract completed in the Pre-GST regime.

Referring to the provisions of Section 13(2) r/w. sec 31 of GST, the AAR observed that the time of supply of service is the earliest of the date on which the invoice was issued or date of provision of service or date of receipt of payment or date on which the recipient shows receipt of service in its books. In the instant case, the supply was prior to introduction of GST, thus it does not get covered under provision of sec 13(2). Accordingly, it had been held that GST is not applicable for the amount claimed under work contract executed prior to GST.

As for the liquidated damages claimed by the Applicant for the delays in making available possession of site, drawings and other schedules by the contractee beyond the milestones fixed, the AAR observed that such damages are consideration for tolerating an act or a situation arising out of the contractual obligation. It was observed that Entry No. 5(e) of Schedule II of the CGST Act, agreeing to tolerate an act, or a situation, is a supply.

It was observed that the time of supply of the service of tolerance is the time when such determination takes place, which happened only by the arbitration award post GST. Therefore, it was held that the time of supply of the service as per Section 13 of the CGST Act is the arbitration award i.e., post GST. Accordingly, the amount received through Arbitration shall be taxable under the GST regime.

Continental Engineering Corporation [TSAAR Order No. 13/2021]

The Petitioner is inter alia engaged in trading and manufacturing of textile fabrics, the sales of which were exempted under MVAT Act. The Petitioner had filed for the refund application during the period 2009-10 in the name of Mudra Lifestyle Limited which was at a later stage taken over by E-Land Apparel Limited. The Revenue passed an ex-parte order rejecting the refund application. Aggrieved, the Petitioner preferred a Writ before the Bombay HC, contending that the refund rejection order had never been served upon them.

Referring to provisions of sec 18 of MVAT Act, the HC observed that the registered dealer who transfer by sales/otherwise his business or there is effective any change in the business, shall within the prescribed time inform the authority about such change. In the instant case, the Petitioner had not complied with the said provision. Further, the Revenue had intimated about the rejection at the portal, duly complying with the applicable provisions. Thus, HC rejected Petitioner’s contention that since the copy of the refund rejection order was not served, the cause of action survived.

Further, the HC also observed that the Petitioner had been filing representations since 2018, even though the application pertained to 2011 as per Form 501. In this regard, it was observed by the HC that the Petitioner, by passage of time had allowed the remedy of claiming refund to be lost whereas the law is well settled that making of repeated representations does not have the effect of keeping the claim alive. In view of the above, the HC held that such repeated representations do not give a fresh cause of action to the Petitioner and mere making of representation cannot justify a belated approach. Accordingly, the HC dismissed the Writ Petition, being unreasonable.

E-LAND Apparels Limited [Writ Petition No. 1819 of 2019]

The Petitioner a SEZ unit, had filed refund applications for taxes paid under CGST/SGST and IGST. The said refund claims had been rejected on the ground that only a supplier of services would be entitled to refund and not the SEZ in terms of Section 54 of the CGST Act. Aggrieved, the petitioner preferred a writ before the Madras HC. 

The HC observed that the provisions of Section 54 of the CGST Act, providing for a refund, apply to ‘any person’ who claims such refund. Therefore, the same shall also apply to SEZ units. It was further observed that the statutory scheme for refund admits applications to be filed by any entity that believes that it is so entitled, including the Petitioner. The HC also noted that the language of Rule 89, also echoes that of section 54, and both the provision and the Rule commence with the phrase 'any person'. 

In view of the above, the HC observed that the restriction read by the Revenue in the provisions of section 54 and Rule 89 was misplaced. It was further held that as a settled position, there can be no insertion of a word or phrase in a statutory provision or in a Rule which must be read and applied, as framed. The Revenue cannot restrict or amplify the Rule by interpretation. Accordingly, the HC disposed off the Writ filed by the Petitioner.

Platinum Holdings Private Limited [W.P. No.13284, 13286, 13287, 13289, 13291 & 13292 of 2020]

The GST Registration Certificate of the Petitioner had been cancelled primarily on the ground that the monthly returns for six months had not been filed. Aggrieved, the Petitioner challenged the GST Registration Cancellation order before the Madras HC inter alia on the ground that the Show Cause Notice issued by the Revenue in Form REG-17 was not in proper format as prescribed u/r 22(1) of the CGST Rules, in as much as the details pertaining to grant personal hearing had not been mentioned, thus, violating the principles of natural justice.

Taking cognizance of the submissions put forth by the Petitioner, the HC set aside the GST registration cancellation on the ground that the Show Cause Notice preceding the Order was issued in violation of Rule 22 of the CGST Rules. The HC further directed the Respondent to issue a fresh Show Cause Notice in the prescribed format as per Rules.

Suresh Trading Corporation Vs The Asst. Commissioner (Circle) of SGST [W.P.No. 21109 of 2021]

GLS Comments:

The Madras HC has correctly set-aside the GST Registration cancellation order in as much as the principles of natural justice had been violated. Similarly, in a recent judgement by the Gujarat HC in RE: Mahadev Trading Company vs. Union of India [R/Special Civil Application No. 11262 of 2020 dated 28.09.2020] had quashed a Show Cause Notice and the order of cancellation wherein the Notice was not in proper format and opportunity of hearing was not provided.

The Applicant had incurred various expenses on CSR activities such as donations to Government organizations, civil works, distribution of stationary, medicine etc. Such expenses are mandatory under the Companies Act. In view of the above facts, the Applicant had sought an advance ruling before the Gujarat AAR to ascertain whether the ITC would be eligible on the said CSR activities.

Referring to Rule 2(d) of the Companies (CSR Policy) Rules, the AAR observed that it excludes activities undertaken in pursuance of normal course of business from the purview of CSR. The AAR further observed that Section 16 of the CGST Act allows ITC only on goods or services which are received in course or furtherance of business. In view of the above observations, the AAR held that expenses incurred on CSR activities cannot be said to be received in normal course of business and accordingly, ITC on such CSR expenses shall not be available.

Adama India Private Limited [Advance Ruling No. GUJ/GAAR/R/44/2021]

Authors’ Notes:

There are various contradictory rulings in respect of ITC eligibility on CSR expenses. Notably, the UP AAR in the case of Dwarikesh Sugar Industries Limited [2020-TIOL-305-AAR-GST] had held that ITC shall be available on expenses incurred to comply with the requirements of CSR under Companies Act. In the instant Ruling, the Gujarat AAR has narrowly interpreted the provisions of CSR Rules. Accordingly, it is likely that the Applicant would prefer an Appeal before the AAAR.

The Petitioner had filed a manual application for refund of IGST on export of services for the month of July 2019 which was duly passed by the Revenue. However, the Petitioner had not received the refund amount so sanctioned. The Revenue insisted the Petitioner to re-file online refund application on account of change in process on GSTN portal w.e.f. 26 September 26 2019 in terms of Circular No.125/44/2019-GST dated 18 November 2019. It was argued by the Revenue that due to this change in the system, the refund claimed by the Petitioner could not be processed. Aggrieved by the direction to file online refund application, the Petitioner preferred a Writ before the Allahabad HC seeking refund of IGST refund along with interest.

The HC observed that the provision for manual filing of the refund application, had been introduced vide Rule 97A of the CGST Rules. It was further observed that Circular dated 18 November 2019, which prescribed for online filing of refund application did not and could not override or negate the effect of law arising out of Rule 97A. In this regard, it was observed that as a settled principle in law, the delegated legislation would stand on a higher pedestal over a pure administrative instruction. It was further observed that since the application had been processed and order was passed which had already attained finality, the Revenue cannot escape the plain effect of the same. Similarly, the liability of interest also cannot be escaped from by the Revenue authorities.

In light of the above observations, the HC allowed the writ petition and directed the Respondent to refund the entire refund amount along with interest @ 6% from the date 27 November 2019 till the date of issuance of the demand draft.

Savita Global Solutions Private Limited [Writ Tax No. 113 of 2021]

GLS Comments:

The Allahabad HC has rightly allowed the refund along with the applicable interest in the instant case. The Circular which prescribed online filing of the refund applications is merely clarificatory in nature and cannot veil the substantive rights of the assesses. The Hon’ble Madras HC in the case of Precot Meridian Limited [2019 ACR 813], had held that Circular cannot be cited by Revenue Authorities to deny refund of IGST paid on export and such circular cannot override statutory provisions.

It would further be pertinent to note that in RE: Bolpur Ratan Melting and Wire Industries [2008(12) S.T.R. 416 (S.C.)], the Apex Court had held that so far as the clarifications/circulars issued by the Government authorities are concerned, they represent merely their understanding of the statutory provisions. They are not binding upon the court. It was further held that the Court must declare what the particular provision of statute says and it is not for the Executive. Thus, it can be said that the law is pretty clear in this regard.