Five years ago, the GST regime implemented a unified tax system in India. Yet the experience of the industry players is a shade different. Businesses witnessed roadblocks in cohesive implementation of the provisions and faced issues typically arising from a dis-jointed regulatory system. While concerns during the implementation of a unified law are natural irrespective of jurisdiction, its continued prevalence indicates a need for increased emphasis on the smooth execution of appropriate regulations.

Recently, the Honourable Supreme Court (“the Court”) was once again faced with a double taxation case; this time, relating to the levy of GST on ocean freight charged on imported goods. In the case of Union of India vs Mohit Minerals Pvt Ltd (“Mohit Minerals”)[1], the primary issue dealt with by the Court was whether the government can charge Integrated GST (“IGST”) on ocean freight paid by the foreign seller to a foreign shipping line on a reverse charge mechanism in India.

The Court held the tax levy on ocean freight based on Reverse Charge Mechanism (“RCM”) violative of the principle of composite supply.[2] A supply of goods and services is considered to be composite when it involves two or more goods and services. However, only a natural bundling of goods and services in the course of business can be deemed to be a composite supply. In the instant case, the supply of sea transportation service and the imported goods on board can be classified as a composite supply since the said services are naturally bundled in the due course of business involving a CIF contract.

Background of the Dispute

The matter was initially brought before a Division Bench of the Gujarat High Court in which the counsel for Mohit Minerals highlighted the erroneous IGST levy on ocean freight under Notification No. 01/2017-ST[3] although it had already paid the 5% tax on the reverse charge mechanism on ocean freight service as per Notification No. 8/2017[4].

After due appreciation of arguments advanced and evidence filed by the parties, the bench set aside the added IGST liability imposed on Mohit Minerals and also held the said notifications ultra vires the provisions of the IGST Act, 2017.[5]

Aggrieved by this decision, the Union of India filed a Special Leave Petition before the Supreme Court, under Article 136 of the Constitution of India, challenging the constitutionality of certain notifications of the Central Government. The Court deliberated upon the same and addressed larger issues of composite supply and cooperative federalism.

Double Taxation and Composite Supply

The transaction involved three parties; the seller and the shipping line located in a non-taxable jurisdiction, and an Indian importer. It was carried out in two main phases:

Phase 1: Between foreign exporter and Mohit Minerals (Indian importer)

The Indian importer is liable to pay IGST on the transaction value of goods (inclusive of freight and insurance) under S. 5(1) of IGST Act read with S. 3(7) & 3(8) of the Customs Tariff Act.

Phase 2: Between the foreign exporter and the shipping line

Based on the principle of composite supply under S. 2(30) of the CGST Act[6], the tax liability on the same under S. 8 of the said Act[7] will be applicable only on the ‘principal supply’. Therefore, in the instant case, the tax can be levied on the service of supply of goods (transportation service will be considered a part of the same in a CIF contract).

Union of India: It claimed that the two phases of the transaction i.e., the contract between the foreign shipping line and the foreign exporter are distinct and independent of the contract between the foreign exporter and the Indian importer. Further, it argued that the levy of IGST on ocean freight while also charging tax on a CIF value basis cannot be construed as double taxation as they are from independent transactions.

Mohit Minerals: It argued that the two phases cannot be deemed as separate transactions and that Notification No. 10/2017 cannot be sustained under Section 5(4) of the IGST Act[8] which provides that integrated tax on supplies made by an unregistered supplier to a registered person shall be paid by such person on an RCM basis as a recipient of the supply.

Supreme Court’s ruling: The concept of composite supply was introduced to prevent dissection of various elements of transactions and double taxation. In the instant case, the shipping service forms a part of the supply of goods since the contract between the parties was on a CIF basis. It upheld Gujarat High Court’s order and held that levying IGST on ocean freight will be violative of the concept of composite supply. Where an Indian importer is liable to pay IGST on composite supply in a CIF contract, a separate levy for the ‘supply of services’ by shipping line would be a violation of Section 8 of the CGST Act.

Validity of Notifications

The subject-matter transaction is a CIF contract which constitutes an inter-state supply which can be subject to IGST where the importer would be the recipient of the shipping service under Notification No. 10/2017. The said notification read with Notification No. 8/2017[9] prescribes 5% IGST on ocean freight which is calculated as 10% of the CIF value.

Union of India: It claimed that the said notifications do not refer to Section 5 of the IGST Act, however, it is settled law that once a power is available to grant or identify the taxable person, taxable event, rate and measure, non-reference of the source of power will not vitiate its exercise and application in the instant case.

Mohit Minerals: It contended that the said notification is ultra vires the IGST Act. It claimed that since the power to issue the said notification flows from Section 5(3), IGST Act, the Government can only specify the categories of goods and services on which it intends to levy tax on an RCM basis.

Supreme Court’s ruling: Upholding the Gujarat High Court judgement, the Court explained that along with the power to specify goods and services, the Government also has the power to specify a class of registered persons as a recipient of the supply. Therefore, the said notifications cannot be invalidated due to alleged failure to identify a taxable person and on a charge of excessive delegation while prescribing 10% of CIF value as taxable value.

Nature of GST Council Recommendations

The Government has, in the spirit of cooperative federalism, replaced multiple central and state tax laws with GST laws to promote ease of doing business in India. With the same objective under the 101st Constitutional Amendment Act, 2016, the GST Council is formulated with central and state representation.

The Supreme Court held that the Government, while exercising its rule-making powers under the law, is bound by the GST Council recommendations. Nevertheless, the said recommendations made under Article 279A (4) cannot be said to be binding on the legislature’s power to enact primary legislation.

Final Takeaways & Insights

The Court finally upheld the Gujarat High Court’s judgement stating that the impugned notifications are liable to be struck down since IGST is already paid on the ocean freight that makes a part of the value of imported goods. It explained that the Government cannot seek payment of additional taxes from an importer beyond the contract between the foreign shipping line and foreign exporter. A separate levy on the Indian importer for the ‘supply of services’ by the shipping line would violate Section 8 of the CGST Act.

The issue of double taxation on ocean freight for importing goods on a CIF basis is problematic in terms of liquidity. However, because of the Court’s ruling, importers can now claim a refund of IGST paid towards ocean freight from the exchequer provided they have not claimed any input tax credit. This judgement is a gesture welcomed by importers and affected taxpayers considering the decrease of cash burden in the backdrop of an economic market predicted to experience a slowdown in the upcoming years.[10] Affected entities are likely to make judicious use of this window of opportunity to review, audit and amend their tax filings to claim benefits.

[1] Union of India vs Mohit Minerals Pvt Ltd, AIR 2018 SC 5318.

[2] Section 2(30) read with Section 8 of the Central Goods and Services Tax Act, 2017.

[3] Notification No. 01/2017-ST, dated 12 January 2017.

[4]  Notification No.8/2017- Integrated Tax (Rate) dated 28 June 2017.

[5] Mohit Minerals Pvt LTd v. Union of India & Anr, C/SCA/726/2018.

[6] Section 2(30), Central Goods and Services Tax Act, 2017, “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

[7] Section 8, CGST Act, Tax liability on composite and mixed supplies, The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:—

  1. a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and
  2. a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.

[8] Section 5(4), IGST Act, Levy and collection of tax, The integrated tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

[9] Notification No.8/2017- Integrated Tax (Rate) dated 28 June 2017.

[10] “Prospects of an economic rebound in India are firming up as GDT is set to expand by 9.4% in FY 2021-22 and reverting to 8.1% in FY 2022-23, before moderating to 5.5% in FY 2023-24.”, OECD Economic Outook, Volume 2021 Issue 2.

Our Tax & Customs Associate Partner, Prateek Bansal was quoted in today's edition of BusinessLine 
Click on the article to read on: 
#tax #residentialproperty #lawfirm

The Customs, Excise and Service Tax Appellate Tribunal (“CESTAT”)’s Kolkata Bench vide order dated August 27, 2021, in the matter of M/s. RNB Carbides & Ferro Alloys Private Limited  has decisively upheld refund entitlements to the assessees against the claim of recovery by the revenue department of “erroneous refunds” and has provided useful clarifications regarding the point of sale of goods and inclusion of freight charges in the assessable value of goods for the purposes of excise duty calculation.

Table of Contents

Brief Facts of the Case:

The assessees were engaged in the manufacture and sale of Ferro Alloys, Ferro Silicon and Ferro Slag and its factory units were located within the State of Meghalaya which enjoyed the benefit of Central Excise duty exemptions under Notification No. 32/99-CE dated 08.07.1999 (“Original Notification”), which was later amended by certain Subsequent Notification. The Original Notification operated by way of refund, where under the assessee first paid the central excise duty leviable and thereafter received refund. In this case, the assesee had self-assessed the duty on clearances, paid the applicable excise duty and then filed the refund claims. The said refund claims were processed and granted but subsequently, the assessee’s books of accounts were scrutinized upon which the revenue department objected to the inclusion of freight charges in the assessable value of goods.

It was the revenue department’s case that the assessee had overvalued its products by including freight charges which ought not to have been included under Section 4(1) of the Central Excise Act, 1944 read with Rule 5 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (“Rules”). Several Show Cause Notices were issued against the assessees for recovering the alleged excess refunds. Further, numerous rounds of cross-litigation followed whereby the revenue department claimed that the assessee had suppressed the fact that outward freight was included in the assessable value and that it had also “mis-declared the Place of Removal leading to over valuation of assessable value for claiming excess refund.” The revenue department relied on the CESTAT’s earlier judgment in Montage Enterprises Pvt. Ltd.4 and Aditya Birla Chemicals India Ltd 5.

The assesee in turn, inter alia, contended that the relevant contracts/purchase orders for sale of finished products stipulated FOR destination prices and that the act of sale occurred at the buyers’ premises and therefore, duty had been paid correctly considering the value of goods inclusive of transportation charges up to the buyers’ premises. The assessee relied on the Supreme Court judgement passed in Roofit Industries Limited  and Ispat Industries Limited .

Reliance was also placed on Circular No. 1065/4/2018-CX dated 08.06.2018, which stated that in case of a contract providing FOR sale, assessable value had to be determined by including all costs up to the point of sale, which in this case was the buyers’ premises. The assessee also contended that even if the transportation charges were not includible for the purpose of Central Excise valuation, the Department was bound to refund the duty paid thereon.


The central issues that came before CESTAT was:

  1. Whether the assessee had correctly availed the benefit of Original Notification and was righteous in considering freight charges for calculating assessable value of excise goods when the sale was supposed to be completed on delivery and acceptance by buyer and if not, then whether the revenue department was entitled to recover the refunds already granted claiming it to be a case of “erroneous refund”?

Findings and Judgement:

The CESTAT acknowledged that the contracts/ purchase orders in the instant case were ‘door delivery’ at all-inclusive prices and noted that the purchasers reserved the right to inspection and to not accept the goods if found to be sub-par and that the assessee thereby bore the intermittent risk of loss and/or damages. The CESTAT further examined the definition of “sale” under Section 2(h) of the Central Excise Act, 1944 (“Act”) and noted that under the Act, sale takes place only upon transfer of the possession of the goods by the manufacturer to the buyer which occurred at the buyers’ premises in the present case and therefore rejected the revenue department’s claim that place of removal / point of sale cannot be buyer’s place.

Hence, it was concluded that the invocation of Rule 5 by the revenue department was misplaced because the said Rule applied to cases only where goods were sold at the place of removal but were to be delivered elsewhere, which was inapplicable in this case. Further, CESTAT observed that the assessee’s case fell within the purview of the exception to the aforesaid Rule 5 and that in light of Rule 7 read with Rule 11, the assessable value of the goods was the price charged by the assessee at the place of sale indicating that all charges up to the place of sale are includible, including freight.

The CESTAT upheld the precedential value of Roofit Industries Limited and dismissed the revenue department’s claim regarding the recovery of amount already refunded by considering it as an “erroneous refund” under Section 11A of the Act and stated that  the refund already sanctioned by relying on the judicial legal precedents as well as the clarifications issued by the Central Excise Board cannot be termed as “erroneous” as further confirmed in Gauhati High Court’s Judgement in the case of Topcem India vs. Union of India 2021 (376) ELT 573.

Further, the CESTAT confirmed the assessee’s contentions that even if the assessee had paid higher Central Excise duty than was leviable, the Department was not at liberty to retain any part of such excess amount collected as duty because it can retain only those sums which represent the actual duty leviable under a statute and therefore, any excess amount collected as duty ought to be refunded. Reiterating its own observations in Aditya Birla Chemicals, CESTAT highlighted that “..the duty amount paid legally as well as the amount legally not payable but paid, both were entitled for refund if the refund claim was filed as per law.” In light of the above contentions, the appeals filed by the revenue department were dismissed and since the issue was decided on merits, the limitation aspect was also not considered.

W&B Take:

This judgement has far-reaching effects on the refund rights of the concerned assessees who were hitherto affected by ultra vires show cause notices issued by the revenue department. Stakeholders can consider undertaking normal litigation route (adjudication and appellate) or, the writ route to challenge these arbitrary demand notices seeking to recover allegedly granted “erroneous” refund under Section 11A.

For any queries, please contact:

Head – Taxation

Associate Partner

The Gauhati High Court (“HC”) vide its judgement dated August 12, 2021, in the matter of M/s Jyothy Labs Ltd. has decisively answered question regarding eligibility of concerned taxpayers to requisition fixation of special rate of refund in respect of manufactured goods in the aftermath of the Supreme Court’s VVF judgement.

Table of Contents

Brief Facts of the Case:

The petitioner M/s Jyothy Labs Ltd. had established a manufacturing unit within the Northeastern Region. As per the Northeastern Industrial Policy, the petitioner was earlier entitled to an exemption to excise duty vide the Original Notification (Notification No.32/99-CE dated 18.07.1999) which was later curtailed by the Subsequent Notification (notification No. 31/2008-CE dated 10.06.2008) thereby diminishing the refund entitlement while allowing the assesses to have a special rate fixed depending on value addition in each case. The Subsequent Notification was thereafter challenged by the petitioner, resulting into a High Court order in its favor.

To denote finality, the Hon’ble Supreme Court (“SC”) vide its common order dated 22.04.2020 in VVF Ltd  (“VVF”) upheld the constitutional validity of the Subsequent Notifications based on public interest and revenue interest. The SC inter alia held that pending refund applications for related cases are to be decided as per the Subsequent Notifications.

In the aforesaid background, the petitioner in the current case had to finetune its refund entitlements in line with the Subsequent Notification. It is the petitioner’s case that under the Subsequent Notifications, the manufacturer is given the option to apply to the jurisdictional Commissioner of Central Excise for fixation of a special rate representing the actual value addition in respect of eligible goods manufactured. Also, the time provided for filing such application for fixing of the special rate is provided thereunder as 30th September of that given financial year, but the petitioners argued that due to the unsettled legal position, they were unable to request for a special rate of refund and hence should presently not be barred considering inadvertent circumstances.

Therefore, post the VVF Judgement, the petitioner submitted an application on 18.05.2020 before the Commissioner of Central Excise and GST, Guwahati making a request for fixation of a special rate. As the applications of the petitioner were not entertained and the department invoked the attachment of some properties of the petitioner, the petitioner approached the Gauhati HC by way of a Writ Petition. The petitioner contended that the requirement of requesting for fixation of a special rate in respect of the value addition to the manufactured goods had arisen only after the VVF judgment of the Supreme Court and that the dominant purpose of the Subsequent Notification was intended to bestow a legal right on the assessee to opt for special rate.


The central issues that came before the Gauhati HC were:

1.     Whether under the Subsequent Notification, the manufacturers have an option to not avail the rates contained in the notifications and whether they have a legal right to request the authorities for fixation of a special rate as per the actual value additions to the manufactured goods?

2.     Whether such applications requesting for fixation of a special rate are to be made within 30th September of the given financial year as prescribed under the Subsequent Notification, and hence are now time barred?

Findings and Judgement:

The HC took note that once the occasion had again arisen for the petitioner to seek for fixation of a special rate, the application for such request was made immediately. It was therefore held that the petitioner cannot be prevented from claiming its legal right for fixation of a special rate as the timeline provisions were merely incorporated to streamline the process.

The HC also observed that even if there would have been an earlier determination of such special rate, the same would have remained ineffective and un-implementable till SC had finally decided the issue and further the relevance of such determination would again be dependent on the outcome of the appeal that was pending before SC.

Further, the HC noted that the respondent GST Department did not raise any apprehensions on the ground that such applications had to be submitted prior to 30th September of the given financial year. Thus, the HC stated that on the principle of constructive res-judicata, the ground for rejecting such application because it was not submitted within prescribed timeline was not available to the respondent authorities. The HC thus directed the Principal Commissioner, GST, Guwahati to consider the application of the petitioner seeking for fixation of a special rate of refund based on the actual value addition to the manufactured goods during the given financial year and decide the same as per law and on merits.

W&B Take:

While the VVF judgment directed the revenue department to dispose pending refund applications as per the Subsequent Notifications, it is critical to note that the applications seeking fixation of special rate for many affected assessees were not pending in cases where the assessees had not filed the said applications.

In this situation, the Gauhati HC judgement is a welcome step reinforcing the right of the assessees to claim special rate of excise refund based on actual value addition. It shall be highly beneficial for not just North-Eastern assessees but affected stakeholders in other regions as well (Kutch and Jammu) where the applications for fixation of special rate of refund may be preferred. It is imperative that the impacted assessees move swiftly to file application with the jurisdictional authorities within a reasonable time to avail the legally upheld benefit of special rate of refund for their manufactured goods.

For any queries, please contact:

Head – Taxation

Associate Partner

In her budget speech dated February 1, 2021, the Hon’ble Finance Minister Ms. Nirmala Sitharaman, had announced the Government’s intent to review the existing customs exemption notifications issued over the years after conducting extensive industry consultations. Accordingly, certain Customs’ exemptions have been identified for the purpose of reassessment.

Certain goods (largely falling under Notification no. 50/2017-Customs dated 30.06.2017) have been specified for review, and the list illustratively includes crude glycerine for manufacturing of soaps, specified lifesaving drugs, prescribed fabrics, sports related equipment, machinery/equipment for treatment of leather, magnetron for microwave manufacturing, specified parts for Printed Circuit Boards, parts of set-top box, routers and broadband modem, artificial kidney, contraceptives, magnetic tapes, photographic, filming, sound recording and radio equipment, parts/raw material for manufacture of goods supplied for off-shore oil exploration, specified machinery/parts covered in textile industry amongst others.

Importers, exporters, domestic industry, trade associations, all stakeholders, especially in international trade, and the public at large are invited to give pertinent views on the subject for consideration by the Government, in the format prescribed, latest by August 10, 2021. Click here to visit the web page for viewing the list of exemptions under review and for submitting your suggestions.

We encourage you to peruse the list and the associated line items and examine its impact on your business. It will be imperative to strategize over business / sector specific concerns to put forward an adequate representation before the Government in order to avoid any increase in overall tax cost.


With a 7.1 percent (approx.) contribution to India’s GDP and the creator of 35 million job opportunities in the country, it is estimated to become the world’s third-largest automotive market in terms of volume by 2026.

Keeping in mind the strategic and economic potential of the sector, the Central Government announced a separate PLI Scheme to boost investments and create global automotive manufacturing champions in India.

The PLI scheme for Automobiles & Auto Components (‘Auto Scheme’) was announced with planned financial outlay of ₹ 57,042 crores (the largest outlay amongst all PLI schemes). It sets an ambitious target of additional investment of over ₹ 1 lakh crore over a five-year period with potential for additional employment generation of 58.84 lakh jobs.

While the Auto Scheme is yet to be notified and is pending Cabinet approval, the broad contours of the Scheme (as available in public domain) is discussed hereunder.

Proposed Benefits

Category Turnover Export


OEMs  10,000  1,000  3,500
CMs  1,000 200  350

(₹ in Crores)

Sub-scheme Outlay Objective
Sourcing Incentive 7,210 Benefits for incentivizing ‘increase in purchase value’. For OEMs and CMs.
Champion OEM


18.075 Sales     value    linked incentives.
For OEMs only.
Logistics Cost Incentive 23,628 Sales based incentives to offset logistics costs. For OEMs and CMs.
Component Champion Incentive 8,129 Incentives based on additional auto

component       sales.
For CMs only.

(₹ in Crores)

Clarity awaited

[1] Industry representations have been made to change the Base Year to FY 2019-20

[2] As per article dated December 17, 2020, and can be accessed at offers-benefit-to-big-auto-manufacturers-only-here-is-why/79751658

[3] As per news report dated March 16, 2021. Same can be accessed at may-upgrade-eligibility-criteria-for-automakers-under-pli-scheme/story/433950.html

[4] Article can be accessed at

The 43rd GST Council Meeting held on May 28, 2021, led to a series of important fiscal and GST related decisions. With an aim to provide a level playing field to the domestic vis-a-vis foreign service providers qua the maintenance, repair, and overhaul (MRO) services in the shipping sector, the following recommendations were made by the Council (which have now been notified):

  1. GST on MRO services in respect of ships/vessels reduced to 5% from erstwhile 18%
    W&B Comment: It is important to note that the position regarding input tax credit is unchanged and hence the industry shall enjoy dual benefit of tax reduction and input tax credit.
  2. Place of Supply (“PoS”) for B2B supply of MRO Services in respect of ships/ vessels notified to be location of recipient of service [while the said services were earlier taxable basis the place of performance]W&B Comment: By this amendment, the Government has stipulated that for MRO services procured by foreign ships during transit in India i.e. the intervening period between arrival and departure, the PoS shall be the location of the recipient i.e. overseas location. Accordingly, such services shall be categorized as an “export of service”, and it shall be a “zero rated transaction” inviting no tax implications. Conversely, the MRO services which the Indian shipping companies would avail outside India, shall be considered as “import of service” and will now be exigible to IGST under reverse charge mechanism. In other words, IGST liability has been casted upon the Indian shipping lines in respect of services availed outside India i.e. non-taxable territory.It appears this recommendation has been made and effectuated without considering the below aspects:
    • Pertinently, under the erstwhile Service tax regime, the MRO services were always taxed basis the place of performance of such services. Now, the change in PoS of the said services under GST regime is de hors the erstwhile position and tax implications qua Indian shipping lines.
    • In terms of Section 13(3)(a) of the IGST Act, the PoS of services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, is the place of performance of the said service. It is beyond doubt that repair and maintenance services qua goods can be provided only upon making such goods physically available. It is settled position that vessel qualifies as “goods” (both under GST and Customs law, separate rate of tax has been prescribed for vessel) and repair and maintenance services are rendered in respect of the vessel and not to the company owning such vessel. Therefore, in relation to MRO services where the goods i.e. “vessel” are made physically available, the PoS should be the place of performance of the said service.
    • The repair and maintenance services provided in respect of any other category of goods eg: plant and machinery, are continued to be classifiable under performance-based services. Hence, the differential treatment now afforded to the MRO services qua “vessels” is irrational and unconstitutional.
    • In the context of erstwhile Service Tax regime, the Hon’ble Gujarat High Court in Sal Steel Ltd. [2020-TIOL-163-HC-AHM-ST] inter alia held that “there is no power conferred upon the Central Government to make any Rules or Notifications for extraterritorial events; or in other words, for services rendered and consumed beyond the “taxable territory” i.e. beyond India.” Therefore, in relation to MRO services availed outside India, the Indian shipping companies cannot be legally mandated to discharge IGST as it will amount to taxing an extraterritorial event.
    • The Indian shipping industry effectuating maritime transports accounts for 70% of India’s trading in value terms and entails larger significance than the budding MRO sector. This puts the domestic shipping companies to a disadvantageous position as compared to the foreign shipping lines, besides being made accountable to a potentially huge tax outgo.

    In view of the above infirmities, this issue deserves to be adequately represented before the GST Council for its reconsideration so as to avoid imminent tax uncertainties and litigations.

Governments bring in policy initiatives with an inherent strong developmental agenda aimed at transforming underdeveloped regions thereby accelerating the pace of growth to foster employment, community progress and financial participation.

In the year 2002, as a subset of the New Industrial Policy of the Union Government, certain Notifications (which can be designated as “Original Notifications1) were issued under Section 5A of the Central Excise Act, 1944 (“CEA”) qua Jammu and Kashmir, North-East and Kutch (Gujarat) regions. By virtue of these Original Notifications, a manufacturing unit (new units and/or existing units which undertook substantial expansion) located in the specified areas producing prescribed goods was entitled to claim refund of the 100% Central Excise Duty paid through cash after utilizing the eligible CENVAT Credit.

In 2008, the Central Government amended the Original Notifications, and the “Subsequent Notifications2, provided that the exemption by way of refund would be the amount equivalent to the duty payable on value addition carried out by the unit, which value addition is computed as a prescribed percentage of the total duty payable on the enlisted goods manufactured in such unit. The Subsequent Notifications further provided that a special rate for value addition may be fixed where the actual value addition is more than that prescribed in the Original Notification.

Aggrieved by the changing policy infrastructure regarding excise levy coupled with convoluted refund mechanisms which raised apprehensions regarding stark reduction in the entitlement of refunds, the assessees across India moved to several judicial forums to bring an end to the regulatory confusion. The various affected assessees filed Writ Petitions before the High Courts of Gujarat, Sikkim and Guwahati under Article 226 of the Constitution of India, challenging the constitutionality and validity of the Subsequent Notifications, primarily on the basis of the doctrine of promissory estoppel. The respective High Courts (“HC”) allowed the Writs and quashed the Subsequent Notifications to the effect of invalidating the reduction in the quantum of refund and reinstating the Original Notifications. However, in the Department’s Special Leave Petitions against these HC orders, the Hon’ble Supreme Court (“SC”) vide its common order dated 22.04.2020 in VVF Ltd. [2020 SCC OnLine SC 378] (“VVF”)upheld the constitutional validityof theSubsequent Notifications as against the promissory estoppel of the Original Notification in consideration of public interest and the revenue interest; designating such Subsequent Notifications as “clarificatory” in nature and as a valid extension of the Original Notifications.

Certain other assessees adopted the appellate route and preferred appeals before the Customs Excise and Service Tax Appellate Tribunal (“CESTAT”) against the rejection of 100% refund by the jurisdictional adjudicating authorities. The CESTAT decided some of the matters in favour of the aggrieved assessees thereby granting 100% refund of Basic Excise Duty (“BED”) along with Education Cess (“ED Cess”) and the Secondary & Higher Education Cess (“SHE Cess”) in line with the prevalent legal position at the time i.e. the judgement of the SC in SRD Nutrients Pvt. Ltd. [(2018) 1 SCC 105] (“SRD”). This SRD judgment was held per incuriam in Unicorn Industries [(2020) 3 SCC 492] (“Unicorn”) thereby re-opening the gamut of questions pertaining to the refund entitlement of the assessees.

The issuance and legality of SCNs
As an aftereffect of this newly established judicial perspective attained from VVF and Unicorn, the tax department proactively began issuing self-serving Show Cause Notices (“SCNs”) to demand so called “erroneously granted refunds” from the assesses under Section 11A of the CEA in cases where: (i) any refund amount was granted in excess of the prescribed value addition norm as per the Subsequent Notifications, and (ii) refund of ED Cess and SHE Cess was granted pursuant to the SRD judgement. These SCNs appear to be without jurisdiction, unconstitutional and bad in law on many counts, few of which are mentioned below:

  1. In order to issue SCN under Section 11A, refund should be considered as “erroneously refunded”. In various cases, the CESTAT Orders wherever passed, which remain unmodified and unvaried absent any reversal by higher judicial forum, are enforceable in its entirety and have attained finality. Consequent to the orders of the CESTAT / any other judicial forum (SC or HC), the refund claims sanctioned (whether fully or partly) have also attained finality absent any challenge before the appellate authority. Given this, the refunds sought to be recovered by the SCNs cannot be said to be “erroneous” for the purpose of invoking Section 11A of the CEA, and to this extent, the SCNs can be said to have been issued without jurisdiction.
  2. The Department exercising power under Section 11A of the CEA is required to arrive at finding that the earlier orders granting refund (whether fully or partly) were contrary to the law and therefore, “erroneous” and thus the same are required to be reopened or recovered by invoking the powers under Section 11A.3 Curiously, most of the SCNs have no whisper on this aspect, rather the recovery is sought merely on the basis of VVF and Unicorn.
  3. In cases where the refund orders have been passed and the Department has not challenged such orders, these SCNs now essentially seek to initiate a parallel proceeding and reopen an issue without first seeking appellate remedy from appropriate judicial forums.4 Thus, these SCNs are issued without following due process of law and contrary to Articles 14, 19(1)(g), 265 and 300A of the Constitution of India.
  4. Qua refund of ED Cess and SHE Cess, a change of law subsequently by the SC in Unicorn would not make an action taken earlier by quasi-judicial authority in terms of law as it stood then, to be held to be erroneous so as to enable the Departmental Officer to invoke powers under Section 11A of the CEA.5

  5. The SC decision in VVF was rendered in relation to peculiar circumstances in the Kutch and North-East region and the pronouncement was issued in public interest as many assesses were indulging in unscrupulous activities and availing unwarranted refund. However, in respect of the Jammu region, no study showcasing wrongful activities by the assesses has been conducted nor has any case visibly been reported in the public domain signalling any illegal activity so far. It must not be lost sight that the validity and constitutionality of the Subsequent Notifications qua Jammu region is still sub-judice before the SC in certain appeals6 filed by the tax authorities, and any recovery of refund from the Jammu based assesses is pre-mature.

Basis the above aspects, the SCNs having been issued in arbitrary supersession of earlier refund orders and basis the one-sided application of the VVF and Unicorn judgments may be challenged by filing Writ Petitions before the jurisdictional High Courts under Article 226 of the Constitution of India. It is needless to mention that the issue of alternate remedy will have to be addressed appropriately, on the basis that Writ Petitions are maintainable where the order or proceedings are purported to be wholly without jurisdiction and/or wrongful usurpation of power is alleged.7

Fixation of special rates for the eligible assesses
The Department has made no efforts to cater to the unresolved issue of special rate fixation pursuant to the Subsequent Notifications. The VVF judgment has been selectively appreciated by the SCNs in ignorance of the fact that the Subsequent Notifications (which have been upheld in totality by the SC in VVF) allowed the assessees to apply for a special rate of refund where the actual value addition made was more than the deemed value addition. Aggrieved assessees are still awaiting a well-founded fixation of special rate by the tax department corresponding to the actual value addition made by them and hence are unfairly subjected to disproportionate refund reversal orders. The partial application of the VVF judgment by the department is illegitimate and, the eligible assesses should be allowed to have the special rates fixed subject to the conditions prescribed in the Subsequent Notifications.

Date from which interest is to be computed
The next unsettling question is: since when does the interest meter start ticking in the event of recovery to be made by the SCNs? As per Section 11AA read with Section 11A of the CEA, interest is calculated from the date on which the duty becomes due up to the date of actual payment. However, the aggrieved stakeholders are unclear as to whether the interest on repayment of earlier granted refunds will be computed from:

  1. the date of grant of the said full or partial refund to the assessees? or,
  2. the date of reversal of the appellate orders wherever passed by CESTAT? or,
  3. the date of decision of the SC in case of VVF and Unicorn?

While the manufacturers have no certain answer regarding the duration from which the interest demanded in the SCNs shall be calculated, the businesses may explore the option of repaying the demand amount (i.e. BED, ED Cess and SHE Cess) under protest without extinguishing their legal remedies against the claim in order to arrest the rising interest liability.

Central Excise Conundrum in the times of GST
It has been four years since the ambitious launch of Goods and Services Tax in 2017, however the erstwhile unresolved Central Excise implications in the area based exemption debacle as discussed above has caused complete dismay and disarray for the involved stakeholders throwing their financial stability off-guard. While the industries are striving with the ongoing COVID-19 pandemic and compliances under the GST laws, the hasty and legally unsound actions of the taxmen in seeking recovery of earlier granted refunds along with interest have further adversely impacted the aggrieved industry members. On a pan-India level, a broad-based timely resolution is urgently needed to save precious judicial time and resources of business communities who are already distressed due to the pandemic.

Since the present issue involves different jurisdictions and authorities at various levels, a circular / direction by the Central Board of Indirect Taxes and Customs (CBIC) clarifying the stance of the Revenue Department and actions to be adopted by the field formations qua different set of assesses basis their previous proceedings, will be instrumental in alleviating the uncertainty faced.

DISCLAIMER: The views and opinions expressed in this article are those of the author alone. This article is for general informational purposes only and should not be construed as legal advice or be a substitute for legal counsel on any subject matter. No reader should act or rely on any information contained in this article, without first seeking appropriate legal or other professional advice.

  1. Notification No. 56/2002-CE dated 14.11.2002 was issued for Jammu Region. Similar notifications were issued for North-East and Kutch regions.
  2. Notification Nos. 19/2008-CE dated 27.03.2008 and 34/2008-CE dated 10.06.2008 were issued for Jammu Region. Similar notifications were issued for North-East and Kutch regions.
  3. Tripura Ispat [2021-TIOL-146-HC-TRIPURA-CX], Topcem India [2021-VIL-217-GAU-CE]
  4. Design Auto Systems Ltd. vs. Commissioner of C.Ex. & Cus., Indore [2004 (170) ELT 269 (MP)] and TVS Motor Company Ltd. vs. Commissioner of C.Ex. & S.T. Mysore [2017 (5) GSTL 85 (Tri. Bang.)]
  5. State of Haryana vs. Free Wheels (India) Limited [1997 SCC Online P&H 1849]
  6. Diary No. 7076/2020 in case of Sun Pharma Ltd. along with Diary No. 12047/2020 in case of Nitin Enterprise and Diary No. 6428 of 2020 in case of J&K Cement Corporation
  7. Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai & Ors. [(1998) 8 SCC 1]

Union finance minister Nirmala Sitharaman will chair the first Goods and Services Tax (GST) Council meet of this financial year on Friday. From compensation to states to tax waivers on various medicines, medical devices, and health services amid the second wave of the coronavirus pandemic — a host of issues will be discussed at the 43rd GST Council meet, according to reports. This will be the first GST meet after a gap of seven months.

Here are the key things to expect from 43rd GST meet on Friday

1) GST Compensation to the states

The GST Council is expected to discuss the compensation shortfall to the states amid the coronavirus pandemic. The shortfall in GST compensation payable to states in the current fiscal has been estimated at Rs 2.69 lakh crore. Several states want an extension of the GST compensation beyond July 2022 as economic uncertainty continues, according to ANI reports.

“This comes in the backdrop of a lot of states raising the issue of non-convening of the meeting for almost two quarters. With the revenue expected to decline due to the lockdown and second wave of the ongoing pandemic, the mode of compensation for states for the shortfall is expected to take centre stage. Even last time, there was a lot of confrontation between the States and the Centre on this subject and it finally got resolved. This time as well it is expected to be no different," Divakar Vijayasarathy, founder and managing partner, DVS Advisors LLP

2) GST on medical devices and health services

The second wave of COVID-19 pandemic severely hit the country. Amid this, several states asked the reduction of GST rates on essential COVID-19 supplies. Rajasthan, Punjab, Chhattisgarh, Tamil Nadu, Maharashtra, Jharkhand, Kerala and West Bengal devised a joint strategy to press for a zero tax rate on COVID essentials, PTI reported.

Earlier this month, finance minister explained that how exempting COVID vaccines, medicines and oxygen concentrators from GST ambit will negatively impact the prices.

“Earlier, finance minister has highlighted that if full GST exemption is given qua COVID related items, the domestic manufacturers would not be able to offset their input taxes and would pass them on to the end consumers by increasing the sale prices. Given this situation, the GST Council may deliberate on keeping COVID-related medicines and equipment under the ‘zero-rated supply’ so as to allow seamless flow of input tax credits. The aforesaid will require amendment in IGST Act to the extent of expanding the definition of zero rated supply," said Prateek Bansal, Associate Partner, White & Brief Advocates and Solicitors.

“Further, the Council can be expected to either exempt or allow input tax credit qua COVID-related expenditures (viz. medical equipment and vaccination drives) incurred by the businesses for the welfare of employees or their families," Bansal added.

3) Multiple GST rate-slabs

The rationalization of multiple GST rate slabs has been a long-standing demand of the industry. Some experts believe that the GST Council may look at ways to rationalize the GST rates and reduce the number of slabs in Friday’s meet.

4) Extension of GST filing deadlines

Earlier in May, the finance ministry had extended timelines of various GST compliance for March and April considering the ongoing coronavirus pandemic. As several states announced local lockdowns till the end of this month, the GST Council is likely to announce another set of extension for May and June. “As a measure of temporary relief, the GST Council is expected to reduce the interest rate applicable on delay in payment of tax; undo or reduce the penalty imposed in case of default in the furnishing of returns, and extend the limitation period for filing of the refund claims with retrospective effect," said Gunjan Mishra, Partner, L&L Partners.

In a bid to boost the sales affected by the COVID-19 pandemic, the GST council might also consider lowering of present rate of 28 per cent on two-wheelers. Further, the Council might also provide an option of availing input tax credit to certain sectors (such as hospitality, real estate, etc.) which have been worst hit by the ongoing pandemic.

In the wake of severe Covid-19 pandemic, the Central Board of Direct Taxes (CBDT) has decided to extend timelines of various tax compliance dates on Saturday. “In view of the adverse circumstances arising due to the severe Covid-19 pandemic and also in view of the several requests received from taxpayers, tax consultants & other stakeholders from across the country, requesting that various compliance dates may be relaxed, the Government has extended certain timelines today," the ministry of finance said in a statement.

The move is aimed at mitigating “the difficulties being faced by various stakeholders," it further added. The “relaxations are the latest among the recent initiatives taken by the government to ease compliances to be made by the taxpayers with the aim to grant respite during these difficult times," it mentioned in a notification.

“It’s a welcome move to extend the timeline of various tax compliances as the country is struggling with severe second wave of coronavirus," said Sumit Mangal, Partner, L&L Partners.

Under section 119 of the Income-tax Act, 1961, CBDT has provided the following relaxations: 

1) The filing of belated return under sub-section (4) and revised return under sub-section (5) of Section 139 of the Income Tax Act, for Assessment Year 2020-21, which was required to be filed on or before March 31, 2021, may be filed on or before May 31, 2021, CBDT said in a statement.

2) Individuals can file Appeal to Commissioner (Appeals) under Chapter XX of the Income Tax Act within “the time provided under that Section or by May 31, 2021, whichever is later," CBDT said. The last date of filing under that Section was set at April 1, 2021.

3) “Objections to Dispute Resolution Panel (DRP) under Section 144C of the Act, for which the last date of filing under that Section is April 1, 2021 or thereafter, may be filed within the time provided under that Section or by May 31, 2021, whichever is later," the ministry added.

4) Income-tax return in response to notice under Section 148 of the Act may be filed within the time allowed under that notice or by May 31, 2021, it said.

5) “Payment of tax deducted under Section 194-IA, Section 194-IB and Section 194M of the Act, and filing of challan-cum-statement for such tax deducted, which are required to be paid and furnished by April 30, 2021(respectively) under Rule 30 of the Income-tax Rules, 1962, may be paid and furnished on or before May 31, 2021," the notification stated.

6) “Statement in Form No. 61, containing particulars of declarations received in Form No.60, which is due to be furnished on or before April 30, 2021, may be furnished on or before May 31, 2021," it also said.

“While time limit to file appeal to Commissioner (Appeals) has been extended to May 31, the time to pay tax demand pursuant to final assessment order has not been specifically extended," Sumit Mangal added.

The finance ministry earlier relaxed the timeline for payments under the Direct Tax Vivad se Vishwas Act, 2020 (without an additional amount) till June 30, 2021. Launched in 2020, the Direct Tax ‘Vivad se Vishwas’ Act aims to reduce pending income tax litigation, generate timely revenue for the government.

“The extension of deadlines under the Income Tax Act appears to be in line with the Supreme Court Order dated 27.04.2021. Similar extension of timelines for compliance under the GST law is also the need of the hour as the businesses are striving every month to make tax payments and file returns," said Prateek Bansal, Associate Partner, White & Brief Advocates & Solicitors.

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