Tax Vista Your weekly tax recap Edn. 261 - 10th November 2025 Kasi Viswanathan V

 

 

Advance ruling applications and jurisdictional 'hide and seek':

The applicant's advance ruling application was rejected by the Authority invoking the proviso to Section 98(2) of CGST Act, on the ground that the questions raised in the application were already under investigation by the DGGI. Aggrieved, the applicant challenged the order dated 21.06.2024 before Hon'ble Kerala High Court under Writ jurisdiction contending that (a) the tax liability arising from DGGI investigation had already been discharged without dispute, and the proceedings were consequently closed; and (b) the issues raised in advance ruling application (dated 21.09.2023) were different from those raised in the investigation, which got closed vide order dated 05.04.2023. The Hon'ble High Court held that reasons cited by the advance ruling authority that issue is pending before DGGI authorities is not valid as the DGGI proceeding has been closed based on payment of tax without adjudication on merits and further, the petitioner claims that issues in ruling were distinct from those involved in investigation, the Court directed to consider the application and pass orders dehors the DGGI order.

 

As the issue involved a question of jurisdiction, the applicant approached the High Court directly without availing the appellate remedy. From the list of issues and extracts reproduced in the Court's order, it was evident that the matters before the DGGI and those for which advance ruling were sought, were prima-facie distinct. The important takeaway from this decision, though implied, is that where proceedings are closed under Section 73(6) of the CGST Act without adjudication on merits, there is no 'decision' rendered in respect of questions raised, accordingly proviso to section 98(2) cannot be invoked.

 

While the question did not directly arise in this case, the vital aspect in respect of matters involving proviso to Section 98(2) is the interpretation of the term 'proceedings'. Question whether investigation [or inquiry or audit] amounts to a proceeding for purpose of section 98(2) did not become material here, as the investigation in present case was not pending. Normally, expansive views are taken on the interpretation of the term 'proceedings' in context of section 98(2). However, divergent views exist on this point [illustratively, in 2022-VIL-588-TEL observed that inquiry or investigation would not come within the ambit of proceedings, but the clinching point in the said case was the DGGI actions were two years after the application].

 

The more significant interpretational contest may emerge when the meaning of "proceedings" as discussed under Section 6(2)(b) in the Armour case is juxtaposed with its use in Section 98(2), especially when the contexts are different [2025-VIL-1142-KER].

 

2. ITC unaffected by subsequent cancellation of supplier's registration

Reversal of input tax credit (RITC) was demanded under Section 74 of the CGST Act along with equivalent penalty, on the ground that the supplier's registration was cancelled. The department alleged that the supplier was non-existent and had not undertaken any business activity, and therefore the recipient was required to reverse the ITC. The demand was confirmed by the adjudicating authority and upheld in appeal.

 

The Petitioner challenged the order before Hon'ble Allahabad High Court, contending that the supplier has filed GSTR-1 and GSTR-3B for the disputed period (August 2018) within time on the GST portal and that GSTR-3B cannot be filed without payment of tax. The goods were moved under valid e-way bill and consideration was paid through banking channels. The Court accepted the petitioner's contention and held that it was the duty of the authorities to verify whether supplier existed at the time of transaction and that proceedings ought not to have been initiated solely based on borrowed information. Accordingly, High Court set aside the order and allowed the Writ petition.

 

While the Court concurred with taxpayer's contention that without making payment of taxes, GSTR-3B cannot be generated. The real issue was whether the said liability was included in GSTR-3B, as in the facts of the case, the supplier was filing GSTR-3B on monthly basis, which had been filed prior to the quarterly GSTR-1. However, in the absence of verification there is no reason to presume that supplier would not have included the liability. Moreover, the registration was cancelled with effect from 31.01.2019 based on application made by the supplier unlike other matters where there is suo moto cancellation with retrospective effect. Therefore, action taken merely on the basis of information received from another authority, without independent verification, was rightly held to be unsustainable.

 

The crucial aspect in all cases of denial of ITC on account of cancellation of the supplier's registration (including matters of retrospective cancellation) is whether on the date of transaction, the supplier held a valid registration. Further it has been consistently held by Courts [Illustratively, please see para 7 & 8 of 2022-VIL-1165-CAL] that borrowed satisfaction is not sufficient. [2025-VIL-1124-ALH]

 

3. No pre-deposit for appeals before 01.10.25 for penalty-only orders

The appeal filed by the Petitioner before first appellate authority under Section 107 was rejected on two counts (a) delay in filing of appeal and (b)non-payment of pre-deposit. The demand order under section 74 only involved interest and penalty, as the tax applicable was already paid, hence tax demand was 'Nil'. The Petitioner filed Writ before Hon'ble Calcutta High Court contending that there is no pre-deposit required during the relevant period as the demand only involved interest and penalty. In respect of the delay, the Petitioner submitted that it was only 20 days and falls within condonable period of one month and application for condonation was already filed, contrary to the order.

 

The Court observed that condition of payment of pre-deposit for appeals against order involving only penalty was introduced on 01.10.2025 and was not present either at the time of filing appeal (26.04.2025) or at the time of passing order rejecting the appeal (15.05.2025) and accordingly, it was held that pre-deposit is not applicable in the facts of the case. The Court directed the appellate authority to consider the application filed for condonation to determine whether sufficient cause is shown, and if so, to hear the appeal on merits without insisting for pre-deposit.

The Finance Act 2025 has amended the proviso to section 107(6), effective from 01.10.2025. Being a substantive condition, the amendment will apply to all appeals filed on or after 01.10.2025.

 

Earlier, following the Finance Act, 2021, which amended section 129 to impose only penalty (as against tax, interest, and penalty), a requirement for pre-deposit of 25% of the penalty for orders under Section 129(3) was introduced. The Finance Act 2025 has amended the proviso introducing pre-deposit at 10% for all orders involving penalty-only demands. A similar provision has been incorporated for appeals before the second appellate authority (GSTAT) under section 112(8).

 

While there was a slight ambiguity during the interim period between the Press Release dated 21.12.2024 and the Finance Bill, 2025 introduced on 01.02.2025, regarding the GST Council's recommendation of "pre-deposit of 10% instead of 25%", whether it is meant for penalty under section 129(3) or to all penalty-only orders. The introduction of the specific amendment clauses in the Finance Bill, 2025 made it clear that the change was intended to cover all penalty-only related appeals [2025-VIL-1125-CAL].

 

4. Higher assessment - not equivalent to mis-declaration

The transaction value declared by the importer in respect of one Bill of Entry was doubted by the proper officer, as identical goods imported around the same time from the same supplier by another importer were valued about 17% higher. The transaction value was therefore rejected, and under Rule 4, the value was re-determined as per transaction value of identical goods.

 

In respect of the importer's past 44 consignments, the officer re-determined the value under Rule 9 (residual method) at a higher rate. In addition, the goods were held liable to confiscation under section 111(m) of Customs Act and penalties imposed under sections 114A and 114AA.

 

The importers' contract with the foreign supplier contained a clause that the prices were subject to a minimum annual purchase of one Million USD. It was found that the importer has not met this annual requirement.

 

The importer challenged the order before CESTAT, Delhi. The Hon'ble Tribunal held that for one bill of entry, re-determination under Rule 4 was valid as the importer had failed to give satisfactory explanation for a lower transaction value. However, in respect of past imports, the Tribunal observed that there were no separate reasons and there are no identical imports as evident from rule 9 invoked. Merely because the transaction value in one case was doubted could not, by itself, be a basis to reject the values declared in earlier imports. Accordingly, the demand for differential duty and interest in respect of the past imports was set aside.

 

The Tribunal further held that mere fact that the officer rejected the transaction value and re-determined the value following some other method does not mean that the importer had mis-declared and rendered the imported goods liable to confiscation under section 111(m). Even if the importer was aware that another importer was importing the goods at different prices, importer does not and cannot declare such values in it's Bill of Entry. The importer had to file the Bill of Entry declaring its transaction value which it did. In view of the same, Tribunal set aside the confiscation of goods and penalties.

 

The key take away from the decision is that there is no mis-declaration when the importer declares the actual transaction value at which it transacted. Re-determination of value by the proper officer under other rules does not, by itself, imply mis-declaration, even if the importer was aware of different prices charged to others. Had the order-in-original, in addition to finding that the annual purchase requirement was not met, also contained information on any revision in price or payment arising from non-fulfilment of the annual purchase commitment, the issue would have been more comprehensively examined, and the Tribunal could have expressed its view on the implication of such contractual condition [2025-VIL-1843-CESTAT-DEL-CU].

 

 

(The views expressed are personal. The author can be reached for feedback or queries on v.k.vishwa@gmail.com)