Tax Vista Your weekly tax recap Edn. 282 - 7th April 2026 Kasi Viswanathan V

 

 

Is the Focus on fulfilling the Condition or on Denying the Benefit?

The issue in the present case is whether, where a concessional rate is denied for non-compliance with a condition relating to non-availment of input tax credit, the benefit can still be preserved by subsequently reversing the credit. In other words, does mere availment of credit irreversibly close the option of the concessional rate, or can the condition still be met at a later stage.

 

The dispute arose in the context of the concessional rate of 5 per cent under serial numbers 9(ii) and 10(ii) of Notification No.11/2017-CGST (Rate), which is subject to the condition of non-availment of input tax credit on goods. The authorities proceeded on the footing that the petitioner had availed such credit and had therefore failed to satisfy the condition in column (5), resulting in denial of the concessional rate and application of the standard rate of 18 per cent under serial numbers 9(v) and 10(iii).

 

The High Court examined the issue in light of the decision in Chandrapur Magnet Wires Pvt Ltd., Vs. CCE Nagpur [1995-VIL-01-SC-CE], where exemption was allowed when wrongly availed credit was reversed before removal. Applying the principle from that decision, the Court observed that the appropriate course would be to issue a show cause notice for disallowance of input tax credit wrongly availed in breach of the condition in column (5) of the notification, rather than to deny the concessional rate itself. The Court also relied on Unichem Laboratories [2002-VIL-31-SC-CE] to emphasise that the revenue cannot retain tax that is not lawfully due or deny a benefit that is otherwise legitimately available.

 

The matter was accordingly remanded for determination of the quantum of wrongly availed credit, along with applicable interest and penalty at 100 per cent.

 

The decision also brings into focus a structural aspect of GST. Unlike the earlier regime, GST does not have a separate tariff rate; the rate notification itself embeds both standard and concessional options.

 

In the present case, the concessional rate was not mandatory (unlike sr. no. 7 and 35), and the taxpayer had a choice between a higher rate with credit and a lower rate without credit. Non-compliance with the condition attached to one entry can lead to a shift to the alternative entry, that is the standard rate (unconditional).

 

The condition in column (5), that input tax credit on goods used in supplying the service has not been taken, indicates that compliance is required at the initial stage. At the same time, it is settled that reversal of credit is treated as equivalent to non-availment. The real issue, therefore, is one of timing and whether reversal, along with payment of interest, restores the position. The High Court, while not stating this in express terms, proceeds on the footing that such restoration is possible and substantive benefit need not be denied. This is evident from the fact that reversal took place after the impugned order and is not treated as decisive, even though, as recorded in the decision, the petitioner had until the stage of adjudication proceeded on the basis that the credit availed fell within the exception in column (5), with the reversal being undertaken subsequently.

 

The more relevant aspect is how the consequence of non-compliance is dealt with. The judgment does not proceed as if initial availment of credit permanently pushes the taxpayer into the higher rate. It recognises that the effect of such availment can be neutralised (restored) through reversal, even at a subsequent stage. The availment of credit is seen as an irregularity to be corrected through reversal, with interest and penalty following. The concessional rate is not denied if the condition is eventually met. In that sense, compliance at a later stage is accepted. The observation that Hello Minerals Water (P) Ltd. [2004-VIL-03-ALH-CE] is not in accordance with Chandrapur Magnet Wires (supra) may not have been necessary, particularly when, in effect, the same benefit stands extended. [Re: 2026-VIL-304-MAD]

 

Jurisdiction under GST: Assignment and Cross-Empowerment

A taxpayer assigned to the Centre finds itself subjected to inspection and proceedings by State authorities, which is a familiar issue, but here the disputes raised by State authorities also included levy of IGST on import of goods.

 

The proceedings commenced with inspection by State authorities, followed by an intimation and eventual show cause notice. Among the issues raised was the claim of exemption on import of goods, which was sought to be denied by placing reliance on Circular No.80/54/2018-GST, dated 31.12.2018 [which treated fish meal as raw material and not a finished product to deny exemption]. The challenge before the High Court was twofold, one on jurisdiction and the other on the validity of the circular relied upon.

 

The Court approached the question of jurisdiction in the context of import by referring to the proviso to Section 5(1) of the IGST Act and the scheme of the Customs Act (section 2(2) and section 28), as explained in Ajwa Dry Fruit Impex vs Union of India [2023-VIL-768-KER]. It noted that assessment in respect of imported goods is not confined to customs duty alone but extends to all duties leviable on such import, including IGST. On that basis, it held that the authority to assess IGST on imports rests with customs authorities and that the question of State authorities exercising cross-empowerment in this regard does not arise. The fact that proceedings had in fact been subsequently initiated by customs authorities was also noted, and the continuation of proceedings by State authorities was therefore found to be unwarranted.

 

On the issue of cross-empowerment more generally, the Court followed the batch decision [2026-VIL-318-AP] and held that State authorities could not assume jurisdiction over a taxpayer assigned to the Centre.

 

On the validity of the circular, the Court noted that it had already been struck down by the Madras High Court in Jenefa India vs. Union of India [2021-VIL-763-MAD] on the ground that circular cannot curtail the substantive benefit of exemption. In terms of decision of the Supreme Court in Kusum Ingots [2004-VIL-59-SC], a circular struck down by a High Court is deemed to be struck down for the entire country. Therefore, there was no need for this Court to strike down the circular again.

 

As regards issues other than import of goods, relief was accorded due to bunching of multiple years following S.J Constructions [2025-VIL-977-AP]. The writ petition was accordingly allowed.

 

There is no dispute on the first part of the decision, namely that State tax authorities and even proper officers of Central tax lack jurisdiction to assess IGST payable on import of goods.

 

The second part, however, following the batch decision in the context of section 129 and section 130, and holding that State tax authorities lack jurisdiction where the taxpayer is assigned to the Centre, is far from settled. The plain language of section 6 clearly empowers both authorities, and any restriction on such powers is to be introduced through notification [F. No. CBEC-20/10/07/2019-GST dated 22.06.2020]. In fact, para 20 of batch decision [2026-VIL-318-AP] appreciates this position. No doubt as on date, there is support from para 49 of the Supreme Court decision in Armour Security (India) Ltd [2025-VIL-63-SC], that actions such as 'scrutiny' or 'audit' are to be initiated by the tax administration to which the taxpayer is assigned.

 

In the present case, however, the proceedings relate to inspection and intelligence-based enforcement action, where the State would, in principle, have power in respect of other issues. [D.O. F.No. CBEC/20/43/01/2017-GST (Pt.) dated 05.10.2018]. Further, the additional reasoning that customs had already allowed the exemption and assessed the imports was not necessary. Regardless of that action, which was a subsequent development, there is no dispute that proper officer under GST lacks jurisdiction to assess and determine tax payable on import of goods [Re: 2026-VIL-319-AP]

 

[Read previous edition dated 30.03.2026]

 

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