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The Petitioner's Electronic Credit Ledger had been blocked u/r. 86A of the CGST Rules on the allegation of wrong availment of credit. The exercise of the power of the said Rule to block the credit had been active as on 03 May 2020. Further, the same had been blocked as on 03 September 2021 as well. Aggrieved, the Petitioner preferred a Writ before the Karnataka HC seeking un-blocking of the credit ledger.

Referring to the Rule 86A(3) of the CGST Rules, the Karnataka HC observed that the period upto which the Credit Ledger can be blocked is one year and such restriction shall be ceased if continued beyond one year’s time. In the instant case, the Credit Ledger had been blocked beyond a period of one year. Therefore, the HC set-aside the blocking of the credit ledger of the Petitioner.

PSN Automotive Marketing Private Limited [Writ Petition No. 16727/2021]

GLS Comments:

Rule 86A had been inserted into the CGST Rules so as to empower the Revenue authorities to block credits for specified allegations, for a specific time period. However, the mis-use of the power had been apparent as the said Rule was being exercised beyond jurisdiction of specified conditions and beyond the time-period prescribed. Accordingly, in order to clarify the scope of Rule 86A and ensure judicious exercise of the Rule, the CBIC has recently issued a Guideline CBEC-20/16/05/2021-GST/1552 dated 02 November 2021. The said guideline categorically clarifies that restriction imposed u/r. 86A(1) shall cease to have effect after expiry of 1 year from the date of imposing such restriction. It is hoped that basis the said Guideline, the non-judicial exercise of Rule 86A can be kept in check.

The CBIC vide Circular No. 166/22/2021-GST dated 17 November 2021 has issued clarifications on various issues relating to refund. The key clarifications of the above-mentioned Circulars have been tabulated hereunder:

The Tamil Nadu Government vide Instruction No. Q1/17253/2019 dated 15 November 2021 had issued instructions on matters relating to E-way Bill system and acceptance of electronic copy of documents. However, given the nascent stage of GST during the issuance of the said circular, certain issues such as multiple places of delivery, multimodel shipment and over dimensional cargo etc. had not been addressed. Upon re-examination of the E-Way Bill issues, the Tamil Nadu Government has made the following amendments to the Circular:

• Where the person in charge of consignment of goods carries e-way bill, invoice or bill of supply or delivery challan, as the case may be, but the same involves minor defects not intended for evasion of tax but however if the documents otherwise clearly show sufferance of tax, then a penalty of up to Rs. 5000 per Act shall be levied;
• The person in-charge of a conveyance can carry the documents i.e. E-way bill and Invoice or bill of supply or delivery challan as the case may be in electronic form and the same shall be accepted. The Roving Squad officer cannot question the same.

GLS Comments:

It has been seen that the Revenue authorities often initiate proceedings against taxpayers for minor procedural lapses in E-Way Bills, even where the bona fide nature of the error is apparent on the face of the document. These proceedings unnecessarily add litigation burden on the already over-burdened judiciary. In order to resolve this issue, the CBIC vide Circular No. 64/38/2018-GST dated 14 September 2018 had prescribed a penalty of Rs. 1,000/- for minor clerical errors in E-Way Bills, such as spelling mistake, pin-code mistake, etc. However, the said Circular had not touched upon the errors committed without the intention to evade taxes.

The TN Government has commendably, issued the instant circular, bringing the errors committed in E-Way Bills, without intention to evade taxes, under a single umbrella of penalty amounting to Rs. 5,000/-. The CBIC shall also take note of the same and follow suit, which will ensure reduction of unnecessary litigation for minor lapses.

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]