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GST - Challenge to the Constitution validity of Section 16(2)(c) of the CGST Act, 2017 - Condition of actual payment of tax by supplier to Government - Petitioners contended that the provision is contrary to the maxim lex non cogit ad impossibilia, violates Articles 14, 19(1)(g), 21, 265 and 300A, and should be read down to cases of fraud, collusion or non-existent supplier - Whether Section 16(2)(c) is ultra vires or is to be read down - HELD - The condition that tax charged must actually be paid to the Government is not extraneous to the concept of ITC. ITC is a statutory concession available only upon fulfilment of the ... [Read more]

GST - Challenge to the Constitution validity of Section 16(2)(c) of the CGST Act, 2017 - Condition of actual payment of tax by supplier to Government - Petitioners contended that the provision is contrary to the maxim lex non cogit ad impossibilia, violates Articles 14, 19(1)(g), 21, 265 and 300A, and should be read down to cases of fraud, collusion or non-existent supplier - Whether Section 16(2)(c) is ultra vires or is to be read down - HELD - The condition that tax charged must actually be paid to the Government is not extraneous to the concept of ITC. ITC is a statutory concession available only upon fulfilment of the conditions subject to which it is conferred, and the competence of Parliament to prescribe such a condition is not in question - The challenge to vires is feeble, and the real grievance is directed against the manner in which the provision is invoked. The vice of an impossible act does not inhere in the text, as it arises when the provision is torn out of the statutory scheme and applied in a routine and mechanical manner. The possibility of improper or arbitrary application in individual cases is not a ground to invalidate the provision - The Gujarat High Court upheld validity in Maruti Enterprises, and the Special Leave Petition against it was dismissed in Bhandari Scrap Traders, so judicial discipline counsels against reading down the provision to cases of fraud, collusion or non-existent transactions - The challenge to the vires of Section 16(2)(c) read with Section 155 is repelled - Invocation of Section 16(2)(c) of GST Act, 2017 against purchasing dealer - Statutory scheme of matching and verification not implemented in entirety - Retrospective cancellation of supplier registration relied upon by Respondents - Whether Section 16(2)(c) can be invoked mechanically on default of the selling dealer - HELD - Section 16(2)(c) was part of a scheme containing provisions for matching and verification of returns, which enabled the purchasing dealer to know of the supplier's default. Sections 42 and 43 were never implemented and were later deleted, and provisional availment was done away with from 01.10.2022 - If treated as a standalone provision without any mechanism to ascertain deposit of tax, the maxim lex non cogit ad impossibilia would be attracted. Section 76 specifically deals with tax collected but not paid to Government and cannot be rendered otiose by indiscriminate invocation of Section 16(2)(c), which would spare the person liable to pay tax and impose the obligation on the purchasing dealer who has already paid tax - Prior to Rule 37A there was no provision for the purchasing dealer to re-avail the reversed ITC even if the supplier later deposited the tax. Rule 37A cannot be invoked as a general justification for retrospectively denying ITC merely because the registration of the selling dealer was cancelled - The incidence of tax ought not to be imposed on a person not liable to pay tax. The proper officer must examine, after hearing the purchasing dealer, the circumstances of the supplier's default, the genuineness of the transaction and the statutory mechanism for recovery against the supplier - Where there is collusion, fraud, a non-existent supplier or no actual receipt of goods or services, the consequences of Section 16(2)(c) follow in accordance with law - Section 16(2)(c) is to be read and invoked in consonance with the statutory scheme and the guidelines laid down. The writ petitions are disposed of with directions that the proper officer decide afresh by reasoned order after hearing, with liberty to file reply within eight weeks, no coercive recovery in the meantime - Starting point of inquiry against purchasing dealer - Cancellation of registration of supplier, nil or short tax liability in supplier's return and alerts - Section 16(2)(c) of GST Act, 2017 - Whether such circumstances are sufficient for denial or reversal of ITC - HELD - The subsequent cancellation, including retrospective cancellation, of the registration of the selling dealer, the reflection of nil or short tax liability in the return of the selling dealer, or the receipt of an alert, intimation or complaint may furnish a legitimate starting point for an inquiry. They shall not by themselves constitute the basis for denial or reversal of ITC. Before issuing a show cause notice founded on Section 16(2)(c), the proper officer shall apply his mind and record satisfaction as to the particulars of the selling dealer, invoices, tax periods and ITC involved, the precise nature of the default, the circumstances in which the selling dealer failed to deposit tax, and the proceedings against the selling dealer under Sections 73, 74, 75(12), 76 and 79 - Investigation should establish some direct link of the purchasing dealer with the suppliers. The notice shall disclose the material relied upon, including alert notices, inspection reports, panchnamas, statements, and e-way bill, vehicle, toll and banking data, which shall be supplied to the noticee. Where the denial is premised on retrospective cancellation of the supplier's registration, the officer shall examine the grounds and date of cancellation and whether they bear on the genuineness of the particular supply - The guidelines are held to govern all pending and future proceedings - Extended period under Section 74 of GST Act, 2017 against purchasing dealer - Foundational facts of fraud, wilful misstatement or suppression - Whether notice under Section 74 must itself disclose the facts leading to the inference of fraud and whether fraud of the selling dealer is attributable to the purchaser - HELD - Relying on G.R. Infra Projects and Tata Steel, where the Department invokes Section 74, the foundational facts leading to the inference of fraud, wilful misstatement or suppression must emanate from the notice itself, and the deficiency cannot be made good later by affidavit before the Court. Proceedings under Sections 73 and 74 can be initiated only on the satisfaction of the Assessing Officer, and mere mechanical recital of the words fraud, wilful misstatement or suppression does not indicate application of mind - The fraud of the selling dealer does not by itself become the fraud of the purchasing dealer, unless the notice discloses facts connecting the purchasing dealer with such fraud. The order shall record a specific finding as to the fraud, wilful misstatement or suppression attributable to the noticee. Deposit made by the purchasing dealer during investigation, whether through Form GST DRC-03 or otherwise, does not dispense with the requirement of the notice disclosing the foundational facts - Where a supplementary notice or corrigendum introduces a new ground, the noticee is at liberty to object and the objection shall be decided in the fresh order - A bald or mechanical recital of fraud or suppression does not suffice - Burden of proof under Section 155 of GST Act, 2017 - Purchasing dealer claiming ITC - Whether the burden of establishing eligibility lies on the purchasing dealer and how it may be discharged - HELD - Burden under Section 155 was placed on the person claiming ITC in view of the mechanism in the original scheme enabling the purchaser to know whether the supplier deposited the tax, and it lies upon the purchasing dealer to establish eligibility to ITC. The dealer may discharge the burden by producing the tax invoice and proof of receipt of goods or services, including e-way bills, transport receipts, weighbridge slips, and stock and consumption records. The proper officer shall consider such material and deal with it in the order, setting out relevant facts and the basis of decision under Section 75(6), dealing with the reply and documents, and recording a specific finding on each disputed condition of Section 16(2) - Where collusion or fraud is found, or goods or services were not actually received, or the purchasing dealer otherwise fails to establish entitlement, the conseque [Read less]

GST - Penalty under Section 129(3) for address discrepancy in tax invoices and e-way bills - Appellant dispatched goods in an inter-State supply accompanied by tax invoices, e-way bills and transporter's bilty, with IGST charged - Two tax invoices and the corresponding e-way bills showed the buyer's former VAT address instead of the updated GST-registered address. Proceedings under Section 129(3) were initiated and a penalty was imposed - Whether the use of the consignee's former address in two invoices and the corresponding e-way bills justifies penalty under Section 129 of the CGST Act, 2017 - HELD - Section 129 does not... [Read more]

GST - Penalty under Section 129(3) for address discrepancy in tax invoices and e-way bills - Appellant dispatched goods in an inter-State supply accompanied by tax invoices, e-way bills and transporter's bilty, with IGST charged - Two tax invoices and the corresponding e-way bills showed the buyer's former VAT address instead of the updated GST-registered address. Proceedings under Section 129(3) were initiated and a penalty was imposed - Whether the use of the consignee's former address in two invoices and the corresponding e-way bills justifies penalty under Section 129 of the CGST Act, 2017 - HELD - Section 129 does not expressly require fraudulent intent in every case. The statutory conditions for a penalty must still be proved, and a documentary defect cannot be presumed to establish tax evasion without examining the explanation and evidence - The First Appellate Authority confused the rule about intent with the need to prove a breach that attracts the particular penalty. Tax invoices, e-way bills and bilty documents accompanied the goods, and physical verification showed that the goods matched - The explanation connecting the disputed entry to the buyer's former VAT address and old customer details retained in the ERP system was supported by the record. The Department did not identify a different purchaser, a fictitious transaction, any actual diversion of the goods, clandestine unloading or suppression of taxable value. The address mismatch alone cannot take the place of such evidence - Repetition of the same error in both invoices and e-way bills can be explained by use of the same customer data - A deliberate change of destination, an unidentified consignee or a material gap in the supporting documents may justify a different result - The error was bona fide and without any intention to evade tax. The penalty under Section 129 therefore cannot be sustained - The Order-in-Appeal and the Order-in-Original are set aside to the extent of the penalty, and any amount deposited towards it is to be refunded with interest wherever legally payable - The appeal is allowed [Read less]

GST - Refund of accumulated ITC on inverted duty structure - Section 54(3)(ii) of CGST Act, 2017 - Respondent purchased loose goods in bulk attracting a lower rate and supplied them in customised packets, while packing materials attracted a higher rate - Appellant-Revenue contended that refund is not available where input and output supplies are the same and attract the same rate - Whether the Respondent is entitled to refund of accumulated ITC under Section 54(3)(ii) - HELD - Packing materials are goods used in the course or furtherance of business and qualify as inputs under Section 2(59). The Respondent purchased bulk g... [Read more]

GST - Refund of accumulated ITC on inverted duty structure - Section 54(3)(ii) of CGST Act, 2017 - Respondent purchased loose goods in bulk attracting a lower rate and supplied them in customised packets, while packing materials attracted a higher rate - Appellant-Revenue contended that refund is not available where input and output supplies are the same and attract the same rate - Whether the Respondent is entitled to refund of accumulated ITC under Section 54(3)(ii) - HELD - Packing materials are goods used in the course or furtherance of business and qualify as inputs under Section 2(59). The Respondent purchased bulk goods as inputs at the lower rate and made outward supplies in packets, with packing materials carrying the higher rate, so ITC accumulated because the rate of tax on inputs was higher than the rate of tax on output supplies. This squarely falls within clause (ii) of Section 54(3) - The issue is covered by the earlier decision of this Tribunal in Tea Linker, where packing materials indispensable for marketing the packaged goods were held to be inputs - The first appellate authority rightly upheld the refund. Revenue is directed to refund the sanctioned amount - The appeal is dismissed - Circulars restricting refund of accumulated ITC where input and output are the same - Section 168(1) of CGST Act, 2017 - Circular 135/05/2020-GST and Circular 173/05/2022-GST - Appellant-Revenue relied on para 3.2 of the circular that clause (ii) of Section 54(3) is not applicable where the input and output supplies are the same - Whether refund can be denied on the strength of the circulars - HELD - Section 168(1) empowers the Board to issue orders only for the purpose of uniformity in implementation of the Act. The Board can neither add to the provisions of the Act nor curtail the import of any part of the enactment, and if the claimant is entitled to refund under the Act it cannot be denied by a Circular - A Circular cannot supplant or implant any provision not available in the Act, and the Act does not restrict refund only to supplies that are different at the input and output stage. The reliance of the Revenue on the circulars is misplaced. [Read less]

GST - Non-payment of value of supply to supplier within 180 days - Second proviso to Section 16(2) of CGST Act, 2017 and Rule 37 of CGST Rules, 2017 - Appellant availed ITC on capital goods but did not pay a part of the value to the supplier, later written back as a liability no longer payable - Appellant contended that the discounted value was paid within 180 days - Whether the Appellant contravened the second proviso to Section 16(2) - HELD - Before 01.10.2023, a recipient failing to pay the supplier the value of supply along with tax within 180 days from the date of the invoice was liable to add an amount equal to the I... [Read more]

GST - Non-payment of value of supply to supplier within 180 days - Second proviso to Section 16(2) of CGST Act, 2017 and Rule 37 of CGST Rules, 2017 - Appellant availed ITC on capital goods but did not pay a part of the value to the supplier, later written back as a liability no longer payable - Appellant contended that the discounted value was paid within 180 days - Whether the Appellant contravened the second proviso to Section 16(2) - HELD - Before 01.10.2023, a recipient failing to pay the supplier the value of supply along with tax within 180 days from the date of the invoice was liable to add an amount equal to the ITC availed to the output tax liability along with interest - The Appellant was required to add the proportionate ITC attributable to the unpaid value to its output tax liability immediately after the 180th day, which it failed to do. The ledger showed the balance outstanding on several later dates. The balance was written back only in the accounts of a later year, and the credit note was issued much later. No letter or agreement recording the discount within 180 days was produced - The Appellant contravened the second proviso to Section 16(2) to the extent of the value not paid - Financial or commercial credit note issued by supplier - Second and third provisos to Section 16(2) of CGST Act, 2017 - Circular 92/11/2019-GST and Circular 251/08/2025-GST - Respondent contended that the Circular of 2019 was from the supplier's perspective and that the provisos speak only of payment against invoices - Whether ITC is deniable when a value discount is given by the supplier through a commercial or financial credit note - HELD - by issuing financial/commercial Credit notes by the supplier, there is no reduction in the original transaction value of the supply, the corresponding tax liability would also not get reduced and therefore the supplier could not reverse the GST paid earlier in respect of the original invoice. Such credit note will not be reported in Form GSTR 1 of the suppliers and consequently will not appear in the return in Form GSTR 2A of the receiver. Accordingly financial/commercial Credit notes issued by the supplier will not alter the ITC availed by the receiver based on the original invoice - Circular 251/08/2025-GST clarifies that the recipient is not required to reverse ITC attributable to the discount - The object of the second proviso is met where the supplier accepts the reduced amount in full settlement and has borne the tax on the undiscounted value. On the waiver, the recipient became entitled under the third proviso to hold the credit, and Rule 37(4) makes the time limit in Section 16(4) inapplicable to such re-availment - The appellant is eligible to retain the ITC on the original invoice, and the finding of the authorities below is not sustainable - Interest on ITC attributable to unpaid value - Section 50 of CGST Act, 2017 and Rule 37(3) - Whether interest survives after the supplier waived the unpaid balance - HELD - During the period between availment of ITC and receipt of the financial credit note, the balance was payable and unpaid while the Appellant continued to hold the full credit. The second proviso, as it then stood, required the proportionate credit to be added to the output tax liability along with interest. The later waiver entitles the Appellant to retain the credit but does not wipe out the interest that accrued while the amount remained unpaid - The Appellant shall pay interest under Section 50 on the proportionate credit attributable to the value not paid, from the date of availment till the date of receipt and accounting of the credit note - Invocation of Section 74 of CGST Act, 2017 - Issue unearthed in audit - Respondent contended that Section 74 was rightly invoked as the transaction was not disclosed - Whether Section 74 was rightly invoked and what liability survives - HELD - Section 74(1) applies where credit is wrongly availed by reason of fraud, wilful misstatement or suppression of facts to evade tax. Detection in audit does not by itself prove suppression. The Appellant recorded the unpaid balance in its ledger and wrote it back openly in its audited accounts, which the audit team itself relied upon. The Appellant's view that no reversal was needed was a bona fide view later accepted by the Board in its circular - Mere omission to give correct information is not suppression unless deliberate and meant to evade duty. Under Section 75(2), where the Tribunal concludes that the Section 74(1) notice is not sustainable because fraud or suppression is not established, the proper officer determines the tax as if the notice were under Section 73(1), and the notice was within the time allowed under Section 73 - Liability to interest survives, the penalty under Section 74 is set aside, and the appeal is partly allowed - The impugned order is modified and the appeal is partly allowed. [Read less]

GST - Refund of IGST paid on ocean freight under Reverse Charge Mechanism, Whether utilisation of IGST credit bars refund and amounts to unjust enrichment - Respondent paid IGST under RCM on ocean freight on import of goods under notifications later declared ultra vires. Respondent filed refund claims after the Supreme Court judgment - The adjudicating authority rejected the claims on the ground that the credit was availed and utilised. The Appellate Authority allowed the assessee appeal - Whether the Revenue can raise the ground of utilisation of IGST credit when it was not specified in the order of the Commissioner under... [Read more]

GST - Refund of IGST paid on ocean freight under Reverse Charge Mechanism, Whether utilisation of IGST credit bars refund and amounts to unjust enrichment - Respondent paid IGST under RCM on ocean freight on import of goods under notifications later declared ultra vires. Respondent filed refund claims after the Supreme Court judgment - The adjudicating authority rejected the claims on the ground that the credit was availed and utilised. The Appellate Authority allowed the assessee appeal - Whether the Revenue can raise the ground of utilisation of IGST credit when it was not specified in the order of the Commissioner under Section 112(3), and whether refund is barred because the IGST credit was availed and utilised - HELD - The authority of the officer to file an application before the Tribunal flows from the order of the Commissioner and is confined to the points specified by the Commissioner in his order. The Commissioner did not dispute the Appellate Authority's finding on utilisation of IGST, so there was no sanction of appeal on that point. A ground considered and dropped by the Commissioner cannot be raised by the Authorised Representative - In any case, the judgment relied upon by the Revenue did not hold that refund is disallowed if IGST has been utilised. In that case the IGST credit had been reversed by utilising the balance of State GST, and refund was allowed. Here also the IGST had been utilised and the balance remained in CGST and SGST. Holding a combined unutilised balance of CGST and SGST equal to the refund amount and debiting it from the credit ledger amounts to non-utilisation of the credit in substance. No double benefit arises, so the bar of unjust enrichment does not apply merely because the IGST equivalent to the refund amount is debited by utilising CGST or SGST or both - The contention of the Revenue is rejected - The appeals filed by the Department are dismissed, the order of the Appellate Authority is upheld and the department is directed to process the refund claims and pay the refund and interest under Section 56 for the period of delay beyond 60 days from the date of the original application – The Revenue appeal is dismissed - Refund of IGST paid on ocean freight under RCM - Retrospective effect of Supreme Court judgment declaring notifications ultra vires - Whether the judgment in Mohit Mineral declaring the notifications ultra vires and unconstitutional operates only prospectively so as to deny refund of tax paid before the date of the judgment - HELD - Unless otherwise specified, all laws are prospective and all judgments are retrospective. A legal provision or notification cannot be given retrospective effect unless specifically mentioned therein, but the converse is true for judgments, which apply with retrospective effect unless the Court expressly makes them prospective. Courts interpret and declare the law and do not legislate or amend it - When the levy is declared ultra vires and unconstitutional, it was always so, and the levy did not become ultra vires or unconstitutional due to the judgment. The doctrine of prospective overruling is an exception that applies only when the Court itself declares the judgment to be prospective. There was no such declaration in the Supreme Court judgment - The decision on prospective application of a Constitutional amendment also does not declare that judgments operate prospectively, and it reinforces that where the Court wants its judgment to be prospective, it directs so - Refund cannot be rejected on the ground that the judgment does not state that it has retrospective effect - Department contended that the Respondent was not a party to the Supreme Court judgment declaring the levy unconstitutional - Whether a taxpayer who was not a party to the judgment can claim refund of tax collected under a levy declared ultra vires and unconstitutional, and whether the judgment is the order contemplated by Rule 89(2) - HELD - Under Article 265, no tax shall be levied or collected except by authority of law. Where the levy itself is declared ultra vires and unconstitutional, the collection of tax is without authority of law from the inception. The levy stood equally and ab initio void against a taxpayer who was a party to the judgment and one who was not. Following the decision of the Supreme Court in Mafatlal case, where the levy is held unconstitutional, the claimant is not fettered by the provisions of the taxing statute except the bar of unjust enrichment. The limitation under the statute does not apply, and the period under Section 17(1)(c) of the Limitation Act, 1963 is available. The refund is not barred merely because the claimant was not a party to the judgment - The only exception is a person who himself unsuccessfully challenged the same provision and allowed the adverse decision to attain finality. The Respondent did not challenge the levy and lose, and it simply paid tax under a levy since declared void ab initio. The declaration by the court that the levy was ab initio void is itself the legal foundation for entitlement to refund. No further order in the name of the claimant is required, and the objection that the judgment is not an order contemplated by Rule 89(2) is rejected. [Read less]

GST - Input tax credit on construction of resort building - Section 17(5)(d) of CGST Act, 2017 – Effect of Substitution of ‘plant and machinery’ for ‘plant or machinery’ with effect from 01.07.2017 by Finance Act, 2025 - Appellant contended that the resort is a plant on the functionality test as laid down in Safari Retreats - Whether, for the period 2019-20, the resort, or any civil structure in it, can be plant and machinery, and whether it could have been a plant on the functionality test even under the unamended clause - HELD - A competent legislature may amend a law with retrospective effect, and the law so a... [Read more]

GST - Input tax credit on construction of resort building - Section 17(5)(d) of CGST Act, 2017 – Effect of Substitution of ‘plant and machinery’ for ‘plant or machinery’ with effect from 01.07.2017 by Finance Act, 2025 - Appellant contended that the resort is a plant on the functionality test as laid down in Safari Retreats - Whether, for the period 2019-20, the resort, or any civil structure in it, can be plant and machinery, and whether it could have been a plant on the functionality test even under the unamended clause - HELD - A competent legislature may amend a law with retrospective effect, and the law so amended governs the periods to which it is made to apply. Clause (d) of Section 17(5) must therefore be read, for every tax period from 01.07.2017, as containing the defined expression plant and machinery - The definition in Explanation 1 expressly excludes land, building or any other civil structures. A resort building is a building, and however essential it may be to the business, it cannot be plant and machinery as defined. The same is true of its halls, lawns, pathways and compound walls - Safari Retreats is followed, since it construed clause (d) in the words it then bore, while the Tribunal must apply the clause in the words it is now deemed always to have borne. Even under the unamended clause, the Supreme Court framed the functionality test for a mall, warehouse or any building other than a hotel or a cinema theatre. The Appellant supplies room accommodation and restaurant services, which is the business of a hotel, so the resort building is in substance a hotel building and the functionality test was not available - The argument that denial of credit breaks the chain is an argument against the policy of clause (d), whose validity was upheld in Safari Retreats, as input tax credit is a statutory concession and not a vested right - The resort building and its civil structures are excluded from plant and machinery, and credit on goods and services received for constructing them is blocked – The appeal is dismissed - Section 17(5)(d) of CGST Act, 2017 – Scope of Expression “on his own account” - Appellant contended that construction for a taxable business is never construction on one's own account, as parts of the resort are let out for weddings, events and photo shoots - Whether the resort was constructed on his own account, and whether hosting of events takes any part of it outside clause (d) - HELD - Clause (d) blocks credit on construction on one's own account including when the goods or services are ‘used in the course or furtherance of business’, if ‘use in business’ were enough the quoted words would have no work to do. Strict construction does not permit those words to be left out. As held in Safari Retreats, the line is not between business use and personal use, but between a building the taxpayer uses as the setting of its own business and a building it intends to sell, lease or license to someone else. The amendment of 2025 did not touch the words on his own account - The Appellant's own reply accepted that clause (d) denies credit to a person who constructs an immovable property for use in his own business - The resort was constructed on the Appellant's own account, and credit on goods and services received for constructing it is blocked by clause (d) - Balance input tax credit after exclusion of items identified by taxpayer - Section 17(5)(d) and Section 155 of CGST Act, 2017 - Appellant contended that there was no invoice-wise scrutiny and that the balance credit included items that never went into the building, subject to verification - Whether any part of the balance credit falls outside clause (d) - HELD - Clause (d) does not block every purchase made by the owner of a resort. It blocks only goods and services received for construction of an immovable property. Two questions arise for every item, namely whether it was received for construction of the building or another civil structure, and if so whether the resulting property is plant and machinery as defined. Neither the books of account nor the label given to an item is decisive. The words to the extent of capitalisation in the Explanation qualify the extended meaning of construction and do not make the fixed-asset register the test of what is construction. Capitalisation under a separate head is a relevant circumstance, but an item does not escape the clause merely because it was capitalised separately. Section 155 places the burden of proving eligibility on the person who claims the credit. The Adjudicating Authority allowed all the credit on the three heads the Appellant itself identified. The Appellant did not name any further invoice, supplier or category and sought credit subject to verification, which does not discharge the burden. The balance consists of items built into the structure, and the Appellant did not show that any such item forms apparatus, equipment or machinery fixed to earth and used for making outward supplies - The balance credit is blocked - Interest and penalty on wrongly availed input tax credit - Section 50(3) read with Rule 88B(3) of CGST Rules, 2017 and Section 73(9) of CGST Act, 2017 - Appellant contended that interest arises only on credit wrongly availed and utilised, that the ledger balances were sufficient, and that the penalty must fall with the tax - Whether the interest and penalty are sustainable - HELD - Under Rule 88B(3), credit wrongly availed is construed to have been utilised when the balance in the electronic credit ledger falls below the amount of credit wrongly availed, and interest runs from the date of such utilisation. The Adjudicating Authority applied this principle on the Appellant's own contention. No interest was levied under SGST, where the ledger balance never fell below the disputed credit - Under CGST, interest was levied only on the amounts and from the date on which the balance fell below the credit, and is correctly computed. The Appellant did not pay the tax and interest within thirty days of the show cause notice, so Section 73(8) did not relieve it of penalty. Section 73(9) then required a penalty of ten per cent of the tax or ten thousand rupees, whichever is higher. It is not a penalty for fraud or suppression, and none was alleged - The interest and penalty are sustained, and the appeal is dismissed with the demand confirmed - Omission by First Appellate Authority to discuss Supreme Court decision cited before it - Sections 75(6) and 107(12) of CGST Act, 2017 - Appellant contended that the orders below are unreasoned as Safari Retreats was not referred to - Whether the omission of the authorities below to discuss Safari Retreats affects their conclusion - HELD - A quasi-judicial authority must record reasons for its conclusions, which show that the mind of the authority was applied to the case the party actually made, and Sections 75(6) and 107(12) give statutory form to that principle - When the Order-in-Original was passed, Safari Retreats was pending before the Supreme Court, and the Adjudicating Authority decided the case on the statute as it stood. The First Appellate Authority ought to have referred to the judgment when it was cited and said, even briefly, why it does or does not apply. The matters have been argued fully before the Tribunal, the amended statute is before it, and its effect depends on no disputed fact. The facts bearing on the balance credit were placed on record by the Appellant itself. The Tribunal is the final fact-finding forum under Section 113(1) and decides every contention afresh - The conclusion reached by the authorities below is correct, and the Appellant has suffered no prejudice. [Read less]

GST - Demand beyond show cause notice - Section 75(7) of CGST Act, 2017 - Original disallowance of ITC based only on the time limit under Section 16(4) - First Appellate Authority introduced grounds of non-receipt of supplies and non-payment of tax by suppliers under Section 16(2)(b) and 16(2)(c) - Whether grounds not forming the original foundation of the demand can subsequently be introduced to sustain it - HELD - The show cause notice under Section 73 did not allege non-receipt of goods or services, non-payment of tax by suppliers or breach of Section 16(2)(b) or (c), and the Order-in-Original contains no independent fi... [Read more]

GST - Demand beyond show cause notice - Section 75(7) of CGST Act, 2017 - Original disallowance of ITC based only on the time limit under Section 16(4) - First Appellate Authority introduced grounds of non-receipt of supplies and non-payment of tax by suppliers under Section 16(2)(b) and 16(2)(c) - Whether grounds not forming the original foundation of the demand can subsequently be introduced to sustain it - HELD - The show cause notice under Section 73 did not allege non-receipt of goods or services, non-payment of tax by suppliers or breach of Section 16(2)(b) or (c), and the Order-in-Original contains no independent finding on them - Section 75(7) provides that no demand shall be confirmed on grounds other than those specified in the notice, and relying on SACI Allied Products, a demand cannot be sustained on a new and different basis. ITC is a statutory entitlement subject to conditions, but the Revenue cannot rely on that principle to enforce a time limit that Parliament has retrospectively displaced. This does not mean that Section 16(5) cures substantive ineligibility, since allegations of fake invoices, non-receipt of supplies or blocked credit may be raised, proved and adjudicated in accordance with law - Grounds under Section 16(2)(b) or 16(2)(c) not forming the original basis cannot be introduced to sustain the demand - ITC pertaining to 2018-19 taken in GSTR-3B - Section 16(5) of CGST Act, 2017 - Revenue contended that credit was claimed through GSTR-3B and not in a return under Section 39 - Whether GSTR-3B constitutes a return under Section 39 for purposes of Section 16(5) - HELD - In Union of India v. Bharti Airtel, the Supreme Court held that GSTR-3B, although introduced as a stopgap arrangement, is treated as a return within the meaning of Section 39. ITC taken by the Appellant in GSTR-3B between October 2019 and March 2020 therefore satisfies the expression any return under Section 39 in Section 16(5) - The submission of the Revenue is not legally sustainable - Availment and utilisation of ITC - Sections 16 and 49 of CGST Act, 2017 - Whether there is any legal distinction between availment of ITC and utilisation of ITC - HELD - Section 16 is concerned with entitlement to take ITC. Once eligible credit is claimed through the prescribed return, it is credited to the Electronic Credit Ledger, which is availment. Utilisation occurs later when the ledger is debited towards payment of output tax. Reconciliation is the subsequent reporting or comparison of ITC in the annual return, books and reconciliation statement. These are distinct events and are not interchangeable - Section 16(4) regulates the time for taking credit, and Section 16(5) retrospectively extends that period for specified financial years. Neither provision requires credit validly taken within the permitted period to be utilised within the same period. Relying on Bharti Airtel and Dai Ichi Karkaria, which distinguish earning credit from using it: Once the credit was taken within the period permitted by Section 16(5), its subsequent utilisation cannot be treated as delayed availment - Disclosure in GSTR-9 and GSTR-9C - Section 16(5) of CGST Act, 2017 - Revenue contended that ITC was not disclosed as carry-forward in the annual return and reconciliation statement - Whether non-carry-forward or incorrect disclosure in GSTR-9 or GSTR-9C can defeat ITC already taken through a Section 39 return - HELD - GSTR-9 is an annual return and GSTR-9C is a reconciliation statement, and neither is the return under Section 39 through which the credit was taken. Section 16(5) does not make entitlement conditional upon correct disclosure in a particular column of GSTR-9, correct carry-forward in GSTR-9C, or absence of an annual reconciliation discrepancy. The statutory condition is that the ITC be taken through a return under Section 39 filed by 30.11.2021. A subsequent error in annual reconciliation cannot convert credit already availed into credit not availed. An annual return may disclose a discrepancy and prompt verification, but it does not create, extinguish or recharacterise ITC already taken. A contrary interpretation would indirectly restore the restriction that Parliament expressly removed - The reasoning of the FAA cannot prevail over the plain language of Section 16(5) - Notification No. 22/2024-Central Tax - Rectification procedure - Section 16(5) of CGST Act, 2017 - Revenue contended that the notification relied upon by the Appellant does not apply - Whether the alleged non-applicability of the notification defeats the substantive entitlement created by Section 16(5) - HELD - The notification issued under Section 148 provides a special procedure for rectifying orders where ITC was denied under Section 16(4) but later became available under Section 16(5) or (6), and applies where no appeal against the order has been filed. It may be correct that the Appellant cannot use that procedure because an appeal was filed. That does not make Section 16(5) inapplicable. The notification does not create entitlement, which flows directly from Section 16(5) introduced retrospectively by Parliament. The Revenue conflates the procedural remedy with the substantive entitlement. Circular 237/31/2024-GST directs authorities to give effect to Section 16(5) and (6) in pending proceedings and appeals - The right accrued under Section 16(5) is not neutralised - ITC of 2018-19 taken through GSTR-3B during October 2019 to March 2020 - Retrospective Section 16(5) of CGST Act, 2017 overriding Section 16(4) - Demand under Section 73 on the ground that ITC was taken after the time limit - Whether such ITC is protected by retrospective Section 16(5) - HELD - The disputed credit was taken through GSTR-3B returns filed well before 30.11.2021 and falls within the language of Section 16(5), which permits ITC pertaining to 2018-19 to be taken in any return under Section 39 filed up to 30.11.2021. Denial under Section 16(4) cannot survive once Section 16(5) is inserted. Circular 238/32/2024-GST provides that the amount denied solely under Section 16(4) is no longer payable - The foundation for the demand under Section 73 disappears, the denial of ITC is set aside and the demand is quashed - Interest and penalty consequent to demand of ITC - Section 50(3), Rule 88B(3) and Section 73(9) of CGST Act, 2017 - Whether the tax demand and consequential interest and penalty can survive - HELD - Section 50(3) provides for interest where ITC has been wrongly availed and utilised. Due to the retrospective application of Section 16(5), the credit cannot be treated as wrongly availed, and once that basis disappears interest cannot survive - A penalty cannot survive when its sole statutory and factual foundation has disappeared. This does not mean that every independent penalty falls when a tax demand is set aside, since a penalty for fraud, false invoicing or suppression must be considered under the applicable provision, but no such penalty was in issue - The interest and the penalty under Section 73(9) are set aside, and the appeal is allowed - The assessee appeal is allowed. [Read less]

GST - Blocked credit under Section 17(5) of CGST Act, 2017 - Burden of proof under Section 155 - Show cause notice invoking Section 17(5) against various items of ITC - Appellant contended that the items are not covered by Section 17(5) and that general invocation without identifying the clause is vague - Whether the burden of proving the applicability or non-applicability of Section 17(5) lies upon the Appellant - HELD - Section 16(1) permits ITC on inward supplies used or intended to be used in the course or furtherance of business. In the present case, the test of whether an item is necessary for operating a brick kiln ... [Read more]

GST - Blocked credit under Section 17(5) of CGST Act, 2017 - Burden of proof under Section 155 - Show cause notice invoking Section 17(5) against various items of ITC - Appellant contended that the items are not covered by Section 17(5) and that general invocation without identifying the clause is vague - Whether the burden of proving the applicability or non-applicability of Section 17(5) lies upon the Appellant - HELD - Section 16(1) permits ITC on inward supplies used or intended to be used in the course or furtherance of business. In the present case, the test of whether an item is necessary for operating a brick kiln is too narrow - Section 17(5) begins with a non-obstante clause, so an expenditure may have a business nexus and yet remain blocked. Section 17(5) cannot be invoked as a generic residuary provision, and the particular clause must be identified, since motor vehicles, food and catering, works contracts, construction, personal consumption and gifts are governed by different clauses and tests - Clauses (a) and (b) were substituted with effect from 01.02.2019, so invoices must be tested against the law in force on their dates. Section 155 places the burden of proving eligibility on the person claiming ITC. Relying on precedents, once a supply prima facie falls within a blocked category, the claimant must prove by contemporaneous documents the factual conditions that take the case outside the block - The Appellant has failed to discharge the burden under Section 155. The appeal is dismissed - ITC on tractor, tyres and tubes - Section 17(5)(a) of CGST Act, 2017 - Appellant claimed that tyres and tubes were used on tractors, trolleys and earthmovers for moving bricks - Whether ITC on tyres and tubes is admissible - HELD - An assertion as to use cannot substitute for documentary proof of that use. The tractor was not registered in the name of the Appellant and is classified as a non-transport vehicle, and no registration documents show that it transported bricks or commercial goods - Before 01.02.2019, Section 17(5)(a) blocked motor vehicles except where used for transportation of goods, and that exception had to be established by the Appellant. Registration of the earthmover establishes only its existence. It does not prove that the disputed tyres and tubes were fitted to or consumed by it. No vehicle-wise tyre register, issue or consumption register, service or job card, or asset-wise maintenance ledger was produced to establish invoice-to-asset nexus. For transactions after 01.02.2019 the Appellant still had to prove business use and the nexus of each invoice under Section 16 read with Section 155 - ITC on tyres and tubes is not allowable - ITC on building materials for office renovation and chimney repairs - Section 17(5)(d) of CGST Act, 2017 - Substitution of plant and machinery for plant or machinery with effect from 01.07.2017 - Appellant contended that the brick kiln is a plant, relying on Safari Retreats - Whether ITC on goods received for renovation and chimney repairs is blocked - HELD - Office renovation squarely raises Section 17(5)(d), which blocks goods or services received for construction of immovable property on one's own account even where used in the course or furtherance of business - The Explanation includes renovation, additions, alterations and repairs to the extent of capitalisation. The fixed asset register, capitalisation schedule, balance sheet and depreciation schedule were within the Appellant's exclusive possession, but none was produced. For the chimney, technical drawings, asset records or an engineer's certificate were necessary to show that the goods were machinery, apparatus, foundation or structural support within the statutory definition. A bare assertion that the brick kiln is a plant is not sufficient - Section 124 of the Finance Act, 2025 retrospectively substituted plant and machinery for plant or machinery with effect from 01.07.2017, so Safari Retreats cannot be relied upon to contend broadly that the entire premises or every civil structure becomes a plant on the functionality test. Machinery fixed to earth and its qualifying foundation remains eligible, but land, buildings and other civil structures remain excluded - ITC on these materials is blocked - ITC on sarees, clothes, food, beverages and banquet expenses - Section 17(5)(h) and Section 17(5)(b) of CGST Act, 2017 - Appellant claimed that clothes were distributed as Holi and Diwali gifts to workers and that a banquet was organised for customers and employees as business promotion - Whether ITC on such expenditure is blocked - HELD - The Appellant itself described the sarees and clothes as gifts. Section 17(5)(h) specifically blocks goods disposed of by way of gift, and a business motive does not nullify the express statutory prohibition. Section 17(5)(b) specifically restricts food, beverages and outdoor catering subject to statutory exceptions. The Appellant manufactures and sells bricks and makes no outward taxable supply of food or catering, and no statutory obligation to provide the banquet was shown. Describing the banquet as business promotion does not bring it within any exception - ITC on gifts, food, beverages and banquet expenditure is inadmissible - ITC on travel, hotel, camera, photo-store and electronic items - Sections 16(1), 17(5)(g) and 155 of CGST Act, 2017 - Appellant contended that the proprietor travelled for prospective setup of an automatic plant and that the items were used for business - Whether ITC on such expenditure is admissible - HELD - Ordinary genuine business travel is not automatically blocked by Section 17(5)(b)(iii), but the Appellant must first prove under Sections 16 and 155 that the expenditure was incurred in the course or furtherance of business. No itinerary, correspondence with prospective suppliers, quotation, purchase order, meeting record or customer correspondence was produced, and an argument that a journey was undertaken for a purpose is not evidence of it. The expenditure is therefore held to be personal and falls within Section 17(5)(g) - A camera or photography service is not by itself included in Section 17(5), but eligibility does not arise merely because the invoice is in the business's name. No event record, advertisement, brochure or other contemporaneous evidence linked the items to an outward taxable activity, and the Tribunal cannot presume business use on the basis of counsel's submission - ITC on these items is not allowable on the present record - Inclusion of cess in value of supply - Royalty for soil extraction under reverse charge - Section 15(2)(a) of CGST Act, 2017 - Appellant contended that levy of GST on a value including cess amounts to tax on tax or cess and that interest and penalty on soil royalty should be set aside following Mineral Area Development Authority - Whether the amount of cess lawfully levied or recovered in connection with a taxable supply is includible in the value of supply under Section 15 - HELD - Section 15(2)(a) includes in value any taxes, duties, cesses, fees and charges levied under any law other than the GST enactments, if charged separately by the supplier. Parliament deliberately used the comprehensive expression and not only the word tax. GST is imposed on the underlying taxable supply, the value of which by statutory command includes the relevant cess, so describing the levy as GST on cess is only shorthand - UP Power Transmission Corporation concerns whether the cess itself is legally leviable, while Section 15(2)(a) answers whether a lawfully leviable cess forms part of value, and Section 15 cannot validate a cess never legally leviable. The Special Leave Petition in Udaipur Chambers of Commerce was dismissed, which shows that the High Court's finding on cess is in accordance with law - The findings of the authorities below on this point are upheld - Interest on inadmissible ITC - Section 50(3) of CGST Act, 2017 read with Rule 88B(3 [Read less]

Central Excise – Admissibility of electronic data and computer printouts in clandestine manufacture and removal case – Section 36B of Central Excise Act, 1944 read with Section 138C of Customs Act, 1962 – Demand of duty with interest and penalty under Section 11AC was confirmed on alleged unaccounted clearances of TMT bars based largely on production, purchase and sales figures in a CD and computer printouts seized from the Appellant's premises and from suppliers - Appellant contended that the requirements of Section 36B were not fulfilled, the CD was disowned, the mahazars did not record particulars of the computer ... [Read more]

Central Excise – Admissibility of electronic data and computer printouts in clandestine manufacture and removal case – Section 36B of Central Excise Act, 1944 read with Section 138C of Customs Act, 1962 – Demand of duty with interest and penalty under Section 11AC was confirmed on alleged unaccounted clearances of TMT bars based largely on production, purchase and sales figures in a CD and computer printouts seized from the Appellant's premises and from suppliers - Appellant contended that the requirements of Section 36B were not fulfilled, the CD was disowned, the mahazars did not record particulars of the computer from which the data was generated, and no steps were taken for years to establish compliance - Revenue relied on Suresh Kumar & Co. Impex - Whether the electronic data and printouts, without the requisite certificate, are admissible evidence for sustaining the demand - HELD - An electronic record cannot be relied upon merely because it exists, and the statutory requirements governing its admissibility must first be satisfied. Admissibility is distinct from probative value. Computer printouts can be admitted only upon fulfilment of the statutory requirements, including the certificate, as held in Anvar P.V. and Arjun Panditrao Khotkar. The ratio of Suresh Kumar & Co. Impex applies only where the department has shown that it did everything possible to obtain the certificate from a third party over whom the officials had no control. No such position was shown - In the absence of the requisite certificate, the electronic data is not admissible and is discarded. The impugned order is set aside to the extent it determines the demand by mechanically adopting figures from the electronic records, and the matter is remanded for re-quantification on other legally available evidence, with no reliance on the discarded data - Central Excise – Evidentiary value of statements recorded during investigation and denial of cross-examination – Section 9D of Central Excise Act, 1944 – Clandestine procurement, manufacture and removal of goods without payment of duty alleged against the Appellant-company, with penalty under Rule 26(1) of Central Excise Rules, 2002 on its Managing Director - Adjudicating authority relied on statements of persons connected with the supplier, transporters, a trader and purchasers, and the Managing Director's own statement admitting receipt of quantities not accounted for - Appellant contended that the statements could not be relied upon without following Section 9D and that cross-examination was rejected as a delaying tactic - Whether statements recorded during investigation can be relied upon when cross-examination was not permitted, and whether the demand can be quantified on that basis - HELD - A statement recorded during investigation is a distinct piece of admissible evidence, and its value must be examined independently of the electronic records. The relevant inquiry is whether the admissions were made voluntarily. Cross-examination is not an absolute right in every case, and its denial is tested on the touchstone of prejudice, as held in Dharampal Satyapal and by the jurisdictional High Court. A blanket request to cross-examine cannot be sustained - Clandestine activity is undertaken in secrecy and is ordinarily established through circumstantial evidence and statements of connected persons. The statements remained unretracted, nothing indicated that they were involuntary, and the Appellant did not demonstrate specific prejudice for each witness. The statements are therefore admissible. However, an admissible statement does not automatically establish the entire quantum of clandestine manufacture and clearance, and quantities appearing exclusively in the excluded electronic records cannot be adopted - The matter is remanded to the original authority to re-quantify the demand, if any, on admissible statements and independent documentary and circumstantial evidence, after a reasonable opportunity of hearing, within ninety days. Interest and penalties, including the penalty on the Managing Director, are to be redetermined accordingly [Read less]

GST - Interest under Section 50 of CGST Act, 2017 on cash component of tax - Belated GSTR-3B returns - Sufficient cash credited to Electronic Cash Ledger on or before due dates and continuously available until debit at the time of filing returns - Appellant contended that tax could no longer be regarded as unpaid once the amount reached the Government account - Whether credit of sufficient cash in the Electronic Cash Ledger constituted payment of the return liability under the pre-10.07.2024 law so as to stop the running of interest - HELD - Section 49(1) calls the incoming amount a deposit credited to an undifferentiated ... [Read more]

GST - Interest under Section 50 of CGST Act, 2017 on cash component of tax - Belated GSTR-3B returns - Sufficient cash credited to Electronic Cash Ledger on or before due dates and continuously available until debit at the time of filing returns - Appellant contended that tax could no longer be regarded as unpaid once the amount reached the Government account - Whether credit of sufficient cash in the Electronic Cash Ledger constituted payment of the return liability under the pre-10.07.2024 law so as to stop the running of interest - HELD - Section 49(1) calls the incoming amount a deposit credited to an undifferentiated Electronic Cash Ledger. Section 49(3) separately authorises the amount available to be used for making any payment. Rule 85(3) identifies debit of the ledger as the means of payment of a liability as per the return. The distinction between deposit or availability and payment or discharge is not accidental - A CIN proves receipt of funds by Government but does not, before appropriation through the ledger, identify the deposit as discharge of a particular self-assessed liability - The proviso to Section 50(1), retrospective from 01.07.2017, speaks of the portion of tax paid by debiting the Electronic Cash Ledger. Rule 88B(1), deemed inserted from 01.07.2017, couples that portion with the period of delay in filing the return - Interest is compensatory, but the statute identifies when the liability is legally paid. Money could be with Government as a general deposit while remaining unappropriated to the return liability. Section 75(12) does not deem an unappropriated balance to be payment - RSB Transmissions and Sincon Infrastructure are followed, while Eicher Motors and Arya Cotton, which are persuasive, are not followed in the absence of binding authority of the Supreme Court or the jurisdictional High Court - Under the pre-10.07.2024, the cash component remained subject to interest until discharge by debit on filing the belated return, subject to credit for amounts already paid or adjusted. The appeals are dismissed and the claim for refund fails - Applicability of Proviso inserted in Rule 88B(1) by Notification No. 12/2024-Central Tax dated 10.07.2024 - Exclusion from interest of amounts credited in Electronic Cash Ledger on or before the due date and remaining there until debit - Appellant contended that the amendment is clarificatory or curative and applies to earlier periods, relying on Allied Motors - Whether the 2024 proviso can be applied retrospectively or treated as merely declaratory of the earlier law - HELD - The notification provides that the amendments come into force on publication, and the proviso contains no provision giving it retrospective or deemed operation. In contrast, Notification No. 14/2022-Central Tax expressly provided that Rule 88B shall be deemed to have been inserted with effect from 01.07.2017. The rule-maker knew how to confer retrospective operation and did not do so - The materials of the 53rd GST Council meeting proceeded on the understanding that, under the existing provisions, a deposit in the Electronic Cash Ledger did not amount to discharge of the liability. They proposed the amendment as a relief because levy of interest in such circumstances did not appear fair. The proviso was thus a substantive relief and not a clarification of an earlier ambiguity - The proviso inserted in Rule 88B(1) by Notification No. 12/2024-Central Tax dated 10.07.2024 is not applied to the earlier tax periods in dispute and the appeals are dismissed, with direction to give demand-wise credit for amounts already paid, deposited, recovered or adjusted, without double recovery - Sufficiency of show cause notice in interest demand under Section 50 – Form DRC-01 and departmental communication of same date - Appellant contended that the departmental communication setting out the basis and computation of the demand did not form part of DRC-01 - Whether the proceedings are liable to fail for want of an adequate show-cause notice - HELD - The communication was admittedly received by the Appellant and was itself placed on record by the Appellant. No objection as to its annexure status was raised in the contemporaneous DRC-06 replies. Those replies demonstrate that the Appellant had received and understood the precise basis and computation of the proposed demand and specifically contested the proposition that interest continued notwithstanding the earlier availability of sufficient balance in the Electronic Cash Ledger - No new factual or legal foundation was adopted in adjudication, and no material defence was shown to have been prevented for want of particulars. The later dispute regarding the status of the communication as an annexure to DRC-01 does not establish any prejudice warranting interference with the notice proceedings - The challenge to the notice is rejected - Non-grant of personal hearing under Section 75(4) of CGST Act, 2017 - Remand under Section 113(1) - Appellant specifically requested a personal hearing in the replies, but the adjudication orders were passed without any hearing - Whether the admitted non-grant of personal hearing requires the matters to be remanded, or whether the Tribunal can finally determine the appeals on the complete and undisputed factual record - HELD - The adjudicating authority did not comply with Section 75(4), since a personal hearing was requested in writing and an adverse decision was contemplated and ultimately made. The consequence of such breach, however, has to be tested in the particular factual setting, and remand need not follow mechanically where no real prejudice survives - The basis and computation of the demand were demonstrably understood, the authenticity of challans and ledger material was not in issue, the Respondent admitted continuous head-wise sufficiency of the balances, and the calculations were disputed only on the legal premise - The Appellant did not suggest any additional fact, document or submission it would make on remand. Repetition of the exercise would add no material to a closed factual record and would be an empty formality. This conclusion does not dilute Section 75(4) and is not based on a theory of appellate cure - Remand is declined and the Tribunal decides the appeals under Section 113. [Read less]

Customs – Miscellaneous application for impleadment of Commissioner of Customs (Export) – Revenue filed miscellaneous applications seeking to implead the Commissioner of Customs (Export), ICD, Tughlakabad as respondent in appeals against the order disallowing drawback - Whether separate impleadment is required where the Commissionerate was subsequently bifurcated - HELD - Commissioner of Customs, Tughlakabad is already the respondent. If the Commissionerate has subsequently been bifurcated into Commissioner of Customs (Import) and Commissioner of Customs (Export) and the appeals pertain to exports, the concerned Commis... [Read more]

Customs – Miscellaneous application for impleadment of Commissioner of Customs (Export) – Revenue filed miscellaneous applications seeking to implead the Commissioner of Customs (Export), ICD, Tughlakabad as respondent in appeals against the order disallowing drawback - Whether separate impleadment is required where the Commissionerate was subsequently bifurcated - HELD - Commissioner of Customs, Tughlakabad is already the respondent. If the Commissionerate has subsequently been bifurcated into Commissioner of Customs (Import) and Commissioner of Customs (Export) and the appeals pertain to exports, the concerned Commissioner will have to take action. There is no need to separately implead the Commissioner of Customs (Export) - The miscellaneous applications are rejected - Customs – Recovery of drawback on exports to Russia under the Rupee payment scheme – Rules 16 and 16A of Customs and Central Excise Duties Drawback Rules, 1995 read with Section 75 of Customs Act, 1962 – Exporter exported readymade garments to Russia through ICDs and claimed drawback, which was paid - DRI investigation showed that the goods never reached Russia and the containers were de-stuffed at Kotka (Finland) or Bandar Abbas (Iran) - Commissioner held that the remittances received through the bank were not sale proceeds of the exports, disallowed the drawback, ordered its recovery with interest and held that the importers had not received the goods - Appellant contended that the export was complete once the goods left the territory of India, that the remittances were received and that the Drawback Rules do not prescribe destination as a condition for drawback - Whether drawback is recoverable because the goods did not reach the destination country and the remittances were not related to the exports - HELD - Under the special arrangement, the remittance in rupees comes to the exporter from the Reserve Bank of India through the exporter's bank, and the Reserve Bank does not make remittances except for Russian exports under the scheme. To accept that the remittances were not relatable to the exports would imply that the Reserve Bank had wrongly remitted the amount, had wrongly set it off against the State loan to Russia, and that the Russian bank had wrongly accepted the set-off. There was no evidence of this, and nothing showed that the Reserve Bank or the exporter's bank was informed or confirmed any wrongful remittance. If the goods were suspected not to have reached Russia, the matter ought to have been referred to the Reserve Bank, and neither the DRI nor the Commissioner can sit in judgment over the remittance - Drawback depends on the nature of the goods and not on the destination. Drawback is payable once export is complete, and as held by the Supreme Court in Sun Industries, export is complete when the goods leave the territorial waters of India and the title passes to the buyer. Even if the goods had not reached Russia but were landed at Bandar Abbas or Kotka, the exporter would still be entitled to drawback - The denial and recovery of drawback cannot be sustained - Customs – Confiscation of goods already exported and penalty under Section 114 – Sections 2(19), 113 and 114 of Customs Act, 1962 – Commissioner held the exported goods liable to confiscation under Section 113(d), (h), (i) and (ia) of the Act, imposed no redemption fine as the goods had already been exported, and imposed penalties under Section 114 on the exporter, its partners, its Vice President and an authorised signatory - Appellants contended that the penalties could not survive once the goods were exported - Whether goods already exported can be held liable to confiscation under Section 113 and whether penalty under Section 114 can be imposed - HELD - Export goods are defined in Section 2(19) as goods which are to be taken out of India to a place outside India. They are not goods which have already been exported. Section 113 provides for confiscation of certain types of export goods but not of exported goods. Once the goods are exported they are no longer under the control of Indian Customs, and during the relevant period the Customs Act did not have extra territorial jurisdiction. Exported goods therefore cannot be held liable to confiscation - Penalty under Section 114 can be imposed only for acts or omissions which render the goods liable to confiscation under Section 113. Since the exported goods cannot be held liable to confiscation, the consequential penalties on all the Appellants cannot be sustained - The confiscation and penalties are set aside, all the appeals are allowed and the impugned order is set aside with consequential relief [Read less]

Service Tax – Taxability of licence and facility charges received under a revenue sharing arrangement – Business Support Service under Section 65(104c) of Finance Act, 1994 – Appellant, registered for restaurant service, entered into an agreement with a caterer for running the kitchen of its bar and restaurant, under which food and non-alcoholic beverages were prepared, served and sold and invoiced by the caterer, while alcoholic beverages were sold and invoiced by the Appellant - Appellant realised licence and facility charges at a fixed percentage of the caterer's sales turnover - Whether the licence and facility c... [Read more]

Service Tax – Taxability of licence and facility charges received under a revenue sharing arrangement – Business Support Service under Section 65(104c) of Finance Act, 1994 – Appellant, registered for restaurant service, entered into an agreement with a caterer for running the kitchen of its bar and restaurant, under which food and non-alcoholic beverages were prepared, served and sold and invoiced by the caterer, while alcoholic beverages were sold and invoiced by the Appellant - Appellant realised licence and facility charges at a fixed percentage of the caterer's sales turnover - Whether the licence and facility charges received by the Appellant are liable to service tax as Business Support Service - HELD - The definition of Business Support Service covers services in relation to business or commerce, including infrastructural support services. The service can be considered Business Support Service only if the Appellant provides infrastructural support to the caterer. The agreement provides that the Appellant is entitled to a fixed percentage of the net turnover of the caterer as licence and facility charges. The Appellant and the caterer were jointly running the eatery on a revenue sharing basis, and the two parties act on a principal-to-principal basis - Applying Circular No. 109/3/2009-S.T. dated 23.02.2009, where the contract is on a revenue sharing basis with a fixed and pre-determined percentage of revenue going to one party, one does not provide service to the other. Business Support Service is a generic service of providing support to the business of the service receiver, where the principal activity is undertaken by the client and assistance is provided by the service provider. The same view was taken in Ambience Hospitality, where a joint venture on a principal-to-principal basis with revenue sharing was held not to attract service tax - There is no service element in the agreement, and the amount received is not liable to service tax as Business Support Service. The demand under this category is set aside - Service Tax – Taxability of payouts received from distributors of alcoholic beverages – Advertisement Service – Appellant received payouts in the form of stock and cash from distributors of a beverage group for display of its alcoholic beverages in the restaurant - Whether the payouts received are liable to service tax as Advertisement Service - HELD - The amounts received represent sales incentives in the form of stock and cash from distributors based on the volume of sales in terms of specific agreements. The Appellant did not carry out sale of space or time for advertisement, which it could not undertake since the advertisement of alcoholic beverages is banned in India. The agreement shows that the amount represents only incentives linked with the sale of goods. The payouts cannot be considered consideration for rendering Advertisement Service - The demand under Advertisement Service is set aside. As the demand is not sustained, the question of interest and penalties does not arise, the impugned order is set aside and the appeal is allowed with consequential relief [Read less]

Service Tax – Reverse charge on services received from providers outside India – Rules 3, 4, 9 and 10 of Place of Provision of Services Rules, 2012 read with Section 68(2) of Finance Act, 1994 and Notification No. 30/2012-ST – Show cause notice was issued on scrutiny of ST-3 returns and audit, demanding service tax under reverse charge for the period October 2012 to June 2017 on foreign currency payments for fifteen categories of services, by applying Rule 3 of the POPS Rules - Appellant-assessee, engaged in the shipping business, had claimed deduction in the returns under Rules 4, 9 and 10, and furnished invoices, a... [Read more]

Service Tax – Reverse charge on services received from providers outside India – Rules 3, 4, 9 and 10 of Place of Provision of Services Rules, 2012 read with Section 68(2) of Finance Act, 1994 and Notification No. 30/2012-ST – Show cause notice was issued on scrutiny of ST-3 returns and audit, demanding service tax under reverse charge for the period October 2012 to June 2017 on foreign currency payments for fifteen categories of services, by applying Rule 3 of the POPS Rules - Appellant-assessee, engaged in the shipping business, had claimed deduction in the returns under Rules 4, 9 and 10, and furnished invoices, agreements and remittance advices for each category in reply to the notice - Adjudicating authority examined each of the fifteen services separately and dropped the demand - Revenue contended that the order was non-speaking, that documents were not verified and that the place of performance was not examined - Assessee contended that the notice was vague, that extended period was not invocable and that a similar earlier notice under the positive list regime had been set aside by the Tribunal in its own case and accepted by the Department - Whether the demand under reverse charge by applying Rule 3 of the POPS Rules is sustainable, and whether the extended period of limitation can be invoked - HELD - The show cause notice alleged that Rule 3 was applicable without assigning any reason as to why Rules 4, 9 and 10, claimed by the assessee in its returns, were not applicable. The show cause notice is the foundation on which the Department has to build its case, and allegations which are vague and lack details are not sustainable, as held by the Supreme Court in Brindavan Beverages. Since the notice was vague and the assessee filed all the evidence with its reply, it cannot be said that the adjudicating authority passed the order without examining the documents - The adjudicating authority examined all fifteen services separately and rightly held that the assessee was entitled to the deductions under Rules 4, 9 and 10. Verification of the place of performance is relevant only for Rule 4 and not for Rules 9 and 10, and the assessee had in any case furnished documents showing that the activity was performed outside India. The burden to prove taxability of the service and non-availability of the claim under Rules 4, 9 and 10 lies on the Revenue, which it failed to discharge - The notice was based on the ST-3 returns and audit, and all relevant documents were with the Revenue. The extended period of limitation cannot be invoked. A similar notice had earlier been issued on the same issue, and a subsequent notice cannot invoke the extended period as held in Nizam Sugar Factory - The order dropping the demand is upheld and the Revenue's appeal is dismissed - Service Tax – Demurrage charges paid to foreign ship owners on reverse charge basis – Transportation of goods by coastal shipping – Appellant-assessee hired ships on spot charter basis from overseas vendors and paid demurrage for delay in loading or unloading of cargo - Adjudicating authority treated the payments as consideration for transportation of goods by coastal shipping, which ceased to be covered by the negative list from June 2016, and confirmed the demand under reverse charge for the period June 2016 to March 2017 - Assessee contended that demurrage is an independent penal charge and not consideration for any service - Whether service tax is payable under reverse charge on demurrage charges - HELD - The invoices show that the charges were paid as demurrage. Demurrage charges are in the nature of penal charges and cannot form part of the services received by the assessee. Such penal charges are not for any service received, as held by the Tribunal in the assessee's own case and in Tiger Logistics, and as clarified by Board Circular No. 121/2/2010-ST dated 26.04.2010 in respect of detention charges. A distinction exists between consideration under the contract and compensation under the contract, which takes the form of liquidated damages that are not the purpose of the contract - Service tax is not payable on demurrage charges. The demand is set aside, no penalty is imposable, and the assessee's appeal is allowed with consequential relief [Read less]

Customs – Exemption under Sl. No. 368 of Notification No. 12/2012-Cus. dated 17.03.2012 – Electronic paver finisher (with sensor device) for laying bituminous pavement 7 m size and above, List 16 – Appellant imported electronic sensor pavers and claimed nil duty - On investigation, physical verification showed that the machine had a basic paving width which could be extended only up to 5 m, and wider paving was possible only with bolt-on extensions - Commissioner denied the exemption and confirmed the demand with interest and penalties - Appellant contended that the purchase order was for pavers laying bituminous pav... [Read more]

Customs – Exemption under Sl. No. 368 of Notification No. 12/2012-Cus. dated 17.03.2012 – Electronic paver finisher (with sensor device) for laying bituminous pavement 7 m size and above, List 16 – Appellant imported electronic sensor pavers and claimed nil duty - On investigation, physical verification showed that the machine had a basic paving width which could be extended only up to 5 m, and wider paving was possible only with bolt-on extensions - Commissioner denied the exemption and confirmed the demand with interest and penalties - Appellant contended that the purchase order was for pavers laying bituminous pavement up to 9 m width, that the extensions were supplied along with the machine, and that it is the capability to pave that determines eligibility - Whether the imported pavers, which could lay pavement only up to 5 m without bolt-on extensions, qualify for the exemption - HELD - The proforma invoice did not describe any supply of accessories for extending the machine along with it, and the panchnama showed that the machine had a minimum paving width extendable only up to 5 m with no additional member connected. The Notification covers an electronic paver finisher for laying bituminous pavement of 7 m size and above, which is to be read without attachments that increase or extend its capacity. If the intention was to give the benefit wherever the minimum capacity is extended using extensions, the Notification would have said so, and words cannot be inserted into it - The burden is on the assessee to prove compliance with the conditions of an exemption notification, as held by the Supreme Court in Dilip Kumar & Company. For the purpose of duty, the item as presented at the time of importation is relevant, and any variance between the purchase order and the goods received has to be flagged at the first opportunity and is a matter between the parties. The Madras High Court decision in PNC Infratech remitted the matter without a specific prayer being made, and does not call for a contrary finding - What reached the Indian territory upon import is relevant, and the denial of the Notification benefit is in order - Customs – Extended period of limitation under Section 28 of Customs Act, 1962 – Misdeclaration in Bill of Entry – Show cause notice was issued invoking the extended period for denial of exemption on pavers - Appellant contended that there was no suppression or misdeclaration, that the documents were examined before clearance, and that the extended period cannot be invoked where conflicting decisions existed on the issue - Revenue contended that the description in the Bill of Entry did not indicate the built-in paving width of the machine or the need for external additions - Whether the extended period of limitation was correctly invoked - HELD - There is a serious lapse in the description in the Bill of Entry, which did not specifically mention the capability of the machine. Any dispute between the Appellant and its supplier is purely between the parties, and the Department is interested only in what was imported as reflected in the documents - There is clear misdeclaration, and the extended period of limitation has been correctly invoked. The order against the company is upheld and its appeal is dismissed - Customs – Personal penalty on Director under Section 112(a) of Customs Act, 1962 – Penalty was imposed on the Director of the importer-company for the alleged misdeclaration in respect of the imported pavers - Whether the penalty on the Director is sustainable in the absence of a specific allegation regarding his role - HELD - There is no specific allegation against the Director as to his role in the misdeclaration. The impugned order contains no specific discussion as to how any act or omission on the part of the Director resulted in the misdeclaration - The personal penalty on the Director is unsustainable and is deleted, and his appeal is partly allowed [Read less]

Customs Broker – Revocation of licence founded on an offence report – Customs Brokers Licensing Regulations, 2018 – Appellant, a Customs Broker, filed a shipping bill for an exporter, and prohibited red sanders logs concealed in the export consignment were detected on examination by the investigating branch - Penalty under Section 114(i) was imposed on the Appellant and its proprietor for aiding and abetting the attempted export, and that order was treated as the offence report for suspension, inquiry under Regulation 17 and revocation of licence with forfeiture of security deposit and penalty - The First Appellate A... [Read more]

Customs Broker – Revocation of licence founded on an offence report – Customs Brokers Licensing Regulations, 2018 – Appellant, a Customs Broker, filed a shipping bill for an exporter, and prohibited red sanders logs concealed in the export consignment were detected on examination by the investigating branch - Penalty under Section 114(i) was imposed on the Appellant and its proprietor for aiding and abetting the attempted export, and that order was treated as the offence report for suspension, inquiry under Regulation 17 and revocation of licence with forfeiture of security deposit and penalty - The First Appellate Authority later set aside the penalties, holding that no statement or evidence showed that the Appellant or its proprietor were knowingly involved in the attempted smuggling - Whether the action under the Regulations survives when the offence report on which it was based has been set aside - HELD - Since the action under the Regulations was based on the order treated as the offence report and that premise was set aside by the Appellate Authority, the order does not have any existence. The allegation of aiding and abetting has been held to be non-existent. The edifice for initiating action under the Regulations, including the impugned order, is not sustainable, particularly when there is no role for the Appellant in the activities of the exporter - Customs Broker – Obligation to obtain authorisation from the client – Regulation 10(a) of Customs Brokers Licensing Regulations, 2018 – Licensing authority held that the Appellant violated Regulation 10(a) because it did not meet the exporter personally, received the documents through an intermediary and the freight forwarder, and did not verify whether the exporter had issued the authorisation to the intermediary - Appellant contended that it received all export documents from the exporter's representative and nothing appeared suspicious - Whether the Appellant violated Regulation 10(a) - HELD - The exporter had addressed a letter of authority to the Customs authorities authorising the Appellant to act as its agent for clearance, and there was no document to prove that the necessary authorisation was not obtained. Accepting documents through an intermediary or logistics operator is not barred by the Regulations, and obtaining authorisation does not mean that it should be obtained directly, as held in K.S. Sawant & Co. - The finding of violation of Regulation 10(a) is not sustainable - Customs Broker – Obligation to advise the client to comply with the Act and to inform the Customs authorities – Regulation 10(d) of Customs Brokers Licensing Regulations, 2018 – Licensing authority held that the Appellant had no direct contact with the exporter to advise compliance and did not bring the misdeclaration to the notice of the Customs authorities - Whether the Appellant violated Regulation 10(d) - HELD - The attempted illegal export was found only on specific investigation and physical examination by the investigating branch. The Customs authorities themselves were not aware of the non-genuineness of the documents or the concealment till the physical examination detected it. There was therefore no possibility for the Appellant to be aware of the misdeclaration or to bring it to the notice of the Deputy Commissioner or Assistant Commissioner, and it cannot be faulted for not advising its client - The violation of Regulation 10(d) is not sustainable - Customs Broker – Verification of identity and functioning of the client – KYC obligation – Regulation 10(n) of Customs Brokers Licensing Regulations, 2018 – Licensing authority held that the Appellant never met the proprietor of the exporter and was not diligent in the KYC verification - Appellant had obtained the KYC form with enclosures, and verified the existence of the exporter through the GST registration certificate, the PAN card and Aadhaar card of the proprietor and a bank account verification letter - Whether the Appellant violated Regulation 10(n) and whether revocation of licence, forfeiture of security deposit and penalty are sustainable - HELD - Circular No. 9/2010-Customs dated 08.04.2010 prescribes that verification of any two of the specified documents is sufficient for fulfilling the obligation under Regulation 10(n). The Appellant obtained the KYC documents and submitted them to the Department. Following Perfect Cargo and Logistics, there is no legal basis for the alleged violation. A Customs Broker is not an officer of Customs with expertise to identify misdeclaration, and it would be far too onerous to expect it to verify the genuineness of the Importer Exporter Code for each transaction, as held in Kunal Travels - There is no violation of Regulations 10(a), 10(d) and 10(n). The revocation of licence, forfeiture of security deposit and penalty are set aside, and the appeal is allowed [Read less]

Central Excise – Applicability of Rule 6(3) of CENVAT Credit Rules, 2004 to electricity generated from bagasse and sold to the State electricity distribution company – Appellant, engaged in the manufacture of sugar, molasses and denatured ethyl alcohol, burnt bagasse generated as waste in its boiler to produce steam for generating electricity, which was captively consumed and the surplus sold to the State electricity distribution company - Department contended that the sale of electricity is a clearance of exempted goods, that the Appellant was required to follow the procedure under Rule 6(3), and that an amount equal ... [Read more]

Central Excise – Applicability of Rule 6(3) of CENVAT Credit Rules, 2004 to electricity generated from bagasse and sold to the State electricity distribution company – Appellant, engaged in the manufacture of sugar, molasses and denatured ethyl alcohol, burnt bagasse generated as waste in its boiler to produce steam for generating electricity, which was captively consumed and the surplus sold to the State electricity distribution company - Department contended that the sale of electricity is a clearance of exempted goods, that the Appellant was required to follow the procedure under Rule 6(3), and that an amount equal to 6% of the value of electricity sold was payable - Show cause notice demanded the amount under Rule 14 of the CENVAT Credit Rules read with Section 11A(1) of the Central Excise Act, 1944 with interest, and the Commissioner confirmed the demand and imposed penalty under Section 11AC and Rule 27 - Whether the Appellant is required to pay an amount equal to 6% of the value of electricity cleared outside the factory under Rule 6(3) - HELD - A consistent view has been taken by the Tribunal that electricity produced from bagasse and sold to the electricity authority of the State Government cannot be subjected to payment of an amount equal to 6% of the value of electricity sold under Rule 6(3). Following Olam Agro India and Indreshwar Sugar Mills, which involved identical facts, the issue is no more open for debate. In Olam Agro India, it was noted that an identical dispute had been decided in favour of the assessees by the Commissioner of GST, Aurangabad, that the order was accepted by the Committee of Chief Commissioners and not appealed, and that the matter had therefore attained finality - The Supreme Court in DSCL Sugar held that bagasse is only an agricultural waste and residue which is not the result of any process, and that in the absence of manufacture there cannot be any excise duty. Since it is not a manufacture, Rule 6 of the CENVAT Credit Rules has no application, and credit in respect of electricity was denied only on the erroneous premise that bagasse attracts excise duty - The issue is settled by the Supreme Court and is no more res integra. The impugned order confirming the demand, interest and penalties is set aside and the appeal is allowed [Read less]

GST - Monetary threshold limit for filing appeal before the GSTAT - Whether departmental appeal for penalty amount below the prescribed monetary limit of Rs. 20 lakh can be admitted without establishing an applicable exception - HELD - A departmental appeal is governed by the monetary-limit framework prescribed for Departmental litigation. The right of appeal is a creature of statute and its exercise remains subject to the statutory and regulatory framework governing departmental litigation. The existence of an exception cannot be presumed merely because the Department desires to pursue the appeal - An exception is an exce... [Read more]

GST - Monetary threshold limit for filing appeal before the GSTAT - Whether departmental appeal for penalty amount below the prescribed monetary limit of Rs. 20 lakh can be admitted without establishing an applicable exception - HELD - A departmental appeal is governed by the monetary-limit framework prescribed for Departmental litigation. The right of appeal is a creature of statute and its exercise remains subject to the statutory and regulatory framework governing departmental litigation. The existence of an exception cannot be presumed merely because the Department desires to pursue the appeal - An exception is an exception precisely because it takes a case outside the general rule. The burden lies upon the Revenue to disclose which exception is being invoked demonstrating that the statutory discretion was actually exercised in the particular case - Permission to institute an appeal is not the same as statutory compliance and a mere assertion that the appeal has been filed with the approval or authorisation of the Commissioner is insufficient - The monetary-limit principle is one of institutional discipline. The object of appellate adjudication is not to provide an unrestricted forum for Governmental disagreement with every adverse order - The Revenue has failed to establish that the present appeal falls within any recognised exception. No material has been produced demonstrating a specific, reasoned and legally cognisable exercise of the Commissioner's residual power in the present case - The appeal does not satisfy the conditions governing its admission and maintainability before this Tribunal - The appeal is dismissed at the threshold on the ground of the prescribed monetary limit [Read less]