In the present case of M/S Trelleborg India Private Limited, a Writ Petition was filed before the Hon’ble Karnataka High Court challenging the notices/endorsement in Form GST DRC-01 issued for different tax periods to a non-existent entity i.e., M/s. Trelleborg Sealing Solutions (India) Private Limited.
The Hon’ble High Court observed that the aforementioned entity was amalgamated with the Transferee Company M/s. Trelleborg Industrial Products Private Limited resulting in the creation of a new entity M/s. Trelleborg India Private Limited. It was the contention of the respondents that the tax liability would stand transferred to the transferee company. It was also observed by the Hon’ble High Court that the scheme of amalgamation was approved by NCLT, Bengaluru vide the order dated 13.06.2017, subsequent to which an application for cancellation of registration was passed in Form GST REG-19 and the registration was cancelled on 29.11.2021.
The Hon’ble Karnataka High placed its reliance upon the Hon’ble Supreme Court’s decision in Principal Commissioner of Income Tax vs. Maruti Suzuki (India) Limited[1] wherein it was held that once an amalgamating entity ceases to exist upon an approved scheme of Amalgamation, the question of continuing the proceedings as regards the non-existent company cannot be permitted. A similar view was also taken by the Karnataka High Court in M/s. Rajdisle Private Limited v. The Income Tax Officer and Another[2]. Accordingly, the proceedings initiated by virtue of show cause notices/endorsement were set aside.
W&B Comments: Historically, under the Income Tax regime, initiating assessment proceedings against a non-existent entity has been deemed held to be jurisdictionally flawed and substantively illegal. However, under GST regime, it is the first case providing a precedent for taxpayers whose entities have ceased to exist due to amalgamation or other reasons. This judgment will be beneficial for addressing similar issues under GST.
[1] [TS-429-SC-2019]
[2] [W.P. No. 14156/2024]
The present Writ Petition was filed before Hon’ble Andhra Pradesh High Court challenging orders of the Deputy Commissioner, Special Circle, Visakhapatnam-II dated 10.05.2024 requesting the Executive Engineer, Operation Division, Vizianagaram to stall the payment if any payable to the petitioner.
It was contended that that Respondent No. 1 initiated the impugned proceedings without the electronically generated the Document Identification Number (DIN). Issuance of such proceedings without generating the DIN/unique identification number generated through BO portal was contrary, not only to Circular No. 122/41/2019-GST, dated 05.11.2019 issued by the Central Board of Indirect Taxes, but also to Circular No. 2 of 2022 dated 01.08.2022 issued by the Government of Andhra Pradesh. The Hon’ble High Court observed that the Respondents did not dispute the contentions of the petitioner that any such communication contrary to the aforementioned circulars is invalid and shall be deemed to have never been issued. Accordingly, the impugned proceedings were set aside with the at liberty to the department to proceed in accordance with law of completion of the Assessment proceedings.
W&B Comments: The failure to adhere to administrative requirements has been a recurring issue, as seen in this case. The CBIC Circular No. 122/41/2019-GST dated 05.11.2019, Circular No. 128/47/2019 dated 23.12.2019, and Instruction No. 03/2022-23 (GST Investigation) dated 17.08.2022 mandate the use of the DIN system to ensure transparency and accountability in communication with taxpayers. The Hon’ble Jharkhand High Court in ESL Stell Ltd.[1] has previously ruled that show cause notices and refund rejection orders lacking a DIN are invalid, rendering subsequent proceedings null and void. This case reinforces the necessity for the department to generate a DIN for all relevant communications as stipulated by the circulars.
[1] 2024(83) G.S.T.L.339(Jhar.)
The present case a Writ Petition was filed before the Hon’ble Kerala High Court praying for directions to expeditiously establish the GST Appellate Tribunal in the State of Kerala in accordance with the provisions of Section 112 of the CGST Act, 2017.
The Hon’ble Kerala High Court addressed two main issues raised by the petitioner. First, regarding the Appeal under Section 112 of CGST Act 2017, the Hon’ble Court observed that the process of establishing the GST appellate tribunal was already initiated and the selection process for the same is presently ongoing. As such the High Court was pleased to pass directions to complete the entire selection process within a period of four months.
Second, the petitioner raised their contention regarding service of notices under Section 169 of the Act, which provides for various methods by which any decision, order, summons, notice or other communication can be served to the taxpayer. The petitioner prayed that Section 169 of the CGST Act 2017 to be rectified by replacing the word “or” with “and”. This change would ensure that notices and orders are served through at least three alternative modes, thereby enhancing compliance with the principles of natural justice. The Hon’ble High Court rejected the second prayer on the basis that such relief is not appropriate for public interest litigation and should be addressed through individual grievance procedures.
W&B Comments: The government had notified the appoint the president of GST Appellate Tribunal and vide Finance bill 2024 it has been proposed that the period of 3 months for filing appeal will start from a date yet to be notified. However, there are innumerable orders pending for appeals before GST Appellate Tribunal but there is no clear timeline specified by the government as to when the GST Appellate Tribunal will become functional, thereby resulting in blockage of working capital of the taxpayers by way of pre-deposits. The present directions of the Hon’ble Kerala High Court directing the government for establishment of GSTAT within specified timeframe of 4 months is a welcome move, more so when the dockets of the High Courts across the country are flooded with the writ petitions in absence of GST Appellate Tribunal. In the event, GSTAT does not become functional within the specified time frame of 4 months, it will be interesting to see whether the Union Government will seek a review of the present order or challenge the same before the Hon’ble Supreme Court.
In the present case, two Wrtit Petitions were filed before the Hon’ble Madras High Court, (i) the petitioner claims that show cause notice dated 28.12.2023 was only uploaded on the GST portal but not actually communicated to him, as such he was unaware of the proceedings and couldn’t participate in the same in the course of which order dated 11.04.2024 was issued. (ii), the petitioner also claims he received a notice for discrepancies in sales and purchase turnover, the petitioner informed the respondent that the sales turnover was reported in the subsequent month despite which order dated 23.12.2023 was issued. The petitioner contended that proceedings were initiated based on return scrutiny under Section 61 of applicable GST acts, which require a notice in Form GST ASMT-10. As such by non-issuance of the notice the entire proceeding is vitiated and such absence prejudices the taxpayer. The respondent state contended that scrutiny, audit, or inspection are not prerequisites for adjudication under Sections 73 or 74 and that the procedures under Sections 61 and 73 operate independently. It was further contended that any procedural defects that do not cause prejudice to the assessee can be overlooked under Section 160 of applicable GST Acts.
It was held by the Hon’ble Madras High Court that issuing a notice in Form ASMT-10 is mandatory when discrepancies are found during return scrutiny. However, non-issuance of this notice vitiates only the scrutiny process, not the adjudication under Section 73, as the latter can be based on other credible information. In the instant case it was found that, the absence of notice under Section 61 did not invalidate the adjudication proceedings under Section 73.
Accordingly, order dated 11.04.2024 was conditionally set aside on payment of 10% of the disputed tax and is remanded to subsequent adjudication as it was passed ex parte & order dated 23.12.2023 was set aside it was passed without considering the petitioner’s reply.
W&B Comments: The Hon’ble Calcutta High Court in Amex Service[1] had emphasized that the proper officer must issue Form GST ASMT-10, outlining discrepancies noticed during return scrutiny, before passing any order under Rule 99 and Section 61. The present decision by the Hon’ble Madras High Court further explores the circumstances under which Section 61(1) can be invoked, clarifying that while procedural lapses like omission of Form GST ASMT-10 are critical, they do not necessarily invalidate the adjudication if the taxpayer has had a fair chance to address the issues.
[1] 2024(6) TMI 663
The 53rd GST Council meeting, held recently proposed retrospective amendment to Section 140(7) of the Central Goods and Services Tax (CGST) Act, 2017. This amendment, effective from July 1, 2017, seeks to address the issue of transitional credit for Input Service Distributors (ISD) concerning invoices for services provided before the appointed date and also received by ISD before the appointed date. There was a gap in the GST provisions as Section 140(7) only addressed case where the invoices were received by the ISD on or after the appointment date. This lead to the assessee covered in the first situation being unable to transition the credit due to them from the previous regime.
The GST law allowed Input Service Distributors (ISDs) to distribute pre-GST Input Tax Credit (ITC) for services received before July 1, 2017, even if invoices were received after. However, no mechanism existed for transitional credit on pre-GST services invoiced to ISDs post-implementation. The Bombay High Court in Siemens Healthcare Pvt. Ltd. in Writ Petition No. 986 of 2019 ruled that legitimate pre-GST ITC should not lapse due to procedural gaps. The matter was adjourned for a recommendation from the GST Council. The Gujarat High Court also adjourned a similar case in Samsung India Electronics (P.) Ltd. [2024] 162 taxmann.com 321 (Gujarat). To address confusion and the issue of multiple litigation, the GST Council has now recommended a retrospective amendment to Section 140(7) to allow transitional credit for invoices related to services provided before the appointed day (01.07.2017) and received by ISD before that date.
Section 140(7) deals with the transition of input tax credit for Input Service Distributors. An ISD is an office of the supplier of goods and/or services that receives tax invoices towards the receipt of input services and distributes the credit of central tax, integrated tax, state tax, or union territory tax paid on said services to a supplier of taxable goods and/or services having the same PAN. The original provision allowed ISDs to claim credit for services received under the pre-GST regime, provided the invoices were received before the appointed date and the corresponding credit was admissible under the existing law.
The proposed amendment to Section 140(7) is significant for several reasons:
The retrospective nature of the amendment, effective from July 1, 2017, has several implications:
The proposed amendment will ensure smoother compliance by providing a clear legal basis for claiming transitional credit for pre-GST services invoices received by ISDs. ISDs across various sectors that had received services before the appointed day but had not received the corresponding invoices by that date will benefit. The transitional credit can significantly improve their cash flow and reduce tax burdens. On one hand, where the burden of litigation will come down, Tax authorities will need to process additional claims for transitional credit. Moreover, Only Input Service Distributors (ISDs) are eligible to claim the transitional credit under this amendment. Entities that are not registered as ISDs cannot benefit from this provision. The notification specifically applies to invoices related to services provided before the appointed day but received by ISD before that date. Invoices received by ISD on or after 01.07.2017 are not covered.
Read Full Article:- https://www.republicworld.com/initiatives/amendment-in-section-1407-of-the-cgst-act-transitional-credit-for-input-service-distributors
The 53rd GST Council Meeting reiterated that the interest component on loans granted between related persons or group companies remains exempt from GST under Notification No. 12/2017 – Central Tax (Rate). This clarification is crucial for companies engaging in inter-company loans.
Under the Goods and Services Tax (GST) regime in India, transactions between related persons or between group companies can be deemed as supplies even if there is no consideration exchanged. This is established under Schedule I of the Central Goods and Services Tax (CGST) Act, 2017. In related-party loans, there is often no processing fee or service charge beyond interest due to existing familiarity and information sharing within the group. This differs from independent lenders, who typically charge processing fees to cover administrative costs and credit assessments. The exemption for the interest component was introduced to address confusion and demands for clarification during GST audits, which led to tax notices.
In order to ensure uniformity, it has been clarified vide the Circular No.218/12/2024-GST dated 26.06.2024 that supply of services of granting loans / credit / advances, in so far as the consideration is represented by way of interest or discount, is fully exempt under GST. Therefore, it cannot be said that any supply is being provided between the related parties in the form of processing / facilitating / administration of loan, by deeming the same as supply of service as per Section 7(1)(c) read along with entry 2 of Schedule I of the CGST Act, 2017. Consequently, no leavy of GST on the same will be liable.
Accordingly, in regards to the proportionate reversal of input tax credit pursuant to this exempt service is not applicable in terms of Explanation (b) to the Rule 43(5) of CGST Rules, 2017. Therefore, it will have no effect on the common credit as well.
Interest Deductibility:
Deemed Dividend:
Thin Capitalization Rules:
Advanced Pricing Agreements (APAs):
Withholding Tax:
Foreign Exchange Management Act (FEMA) Compliance:
Transfer Pricing and BEPS:
Read Complete Article :- https://www.outlookindia.com/hub4business/taxability-of-loans-between-related-persons-or-group-companies-impact-assessment-wrt-53rd-gst-council-meeting
The 53rd GST Council Meeting addressed several pivotal issues concerning the Goods and Services Tax (GST) regime, aiming to streamline processes and provide clearer guidelines. One significant clarification that emerged from the meeting pertains to the valuation of the supply of import of services by a related person when the recipient is eligible for a full input tax credit. This clarification is expected to simplify compliance and provide much-needed certainty to businesses engaged in cross-border transactions within related entities.
In the context of GST, the valuation of goods and services is crucial for determining the tax liability. However, complexities arise when dealing with related party transactions, especially in cross-border services, where the value declared on the invoice may not always reflect the true market value. The issue becomes more intricate when the recipient of such services is eligible for a full input tax credit (ITC). In such cases, the concern shifts from the actual payment of tax to the accurate declaration of the value of services.
GST authorities have been issuing notices under Section 150 of the CGST Act to companies for discrepancies in input tax credit claims, prompting scrutiny of annual returns against monthly filings. Although businesses clarified that some notices lack verification, imposing undue compliance burdens the officials maintained that mismatches cannot be overlooked.
Moreover, there have been concerns against some registered persons, seeking tax on a reverse charge basis for certain activities performed by their related persons based outside India. These activities are being considered as import of services despite no consideration being involved. There has been a long-standing demand that the same treatment that is given to domestic related parties or distinct persons, as clarified in Circular No. 199/11/2023-GST dated 17.07.2023, should also be given to a foreign entity providing services to its related party in India, particularly when the recipient in India is eligible for full ITC. Vide the Circular No. 199/11/2023-GST dated 17.07.2023, only the inter-state transactions between the distinct persons under Section 25 of the CGST Act. The Circular had clarified that the value of supply of services between the head office and brand office should be determined as per the open market value under Rule 28(1), and in cases where full input tax credit is available to the Branch officer, the value declared in the invoice by the head officer is deemed to be the open market value. However, there remained ambiguity regarding services provided to an Indian branch office from their foreign head office.
The Council recommended clarification that in cases where a foreign affiliate provides services to a related domestic entity, and the domestic entity is eligible for full input tax credit, the value of such services declared in the invoice by the related domestic entity may be deemed as the open market value. This recommendation aligns with the second proviso to rule 28(1) of the Central Goods and Services Tax (CGST) Rules, which deals with the valuation of transactions between related persons. for instance, a foreign affiliate provides IT services to its related domestic entity in India. The domestic entity declares the value of these services as ₹10,00,000 on the invoice. Hence, the declared value of ₹10,00,000 is deemed to be the open market value. The domestic entity pays GST on ₹10,00,000 and claims the same as input tax credit, resulting in no net tax liability.
Council further recommended that when the related domestic entity issues no invoice for services provided by the foreign affiliate these services' value may be declared as Nil. For instance, when a foreign affiliate provides consultancy services to its related domestic entity in India and no invoice is issued by the domestic entity for these services then the value of these services is deemed to be Nil. The domestic entity pays no GST on this transaction and no input tax credit is claimed.
In line with the GST Council recommendations, the CBIC vide the clarificatory Circular No.210/4/2024-GST dated 26.06.2024 clarified that earlier Circular No. 199/11/2023-GST dated 17.07.2023 regarding the supplies of services between distinct persons in cases where full ITC is available to the recipient, is equally applicable for the import of services between related persons.
This clarification has several important implications for businesses and tax authorities:
The clarification regarding the valuation of the supply of import of services by a related person where the recipient is eligible for full input tax credit marks a significant step towards simplifying GST compliance for related party transactions. By deeming the declared or Nil value as the open market value, the GST Council and the clarificatory Circular No.210/4/2024-GST dated 26.08.2024 has provided businesses with a clear and pragmatic approach to valuation. This reduces the administrative burden and aligns with international best practices, fostering a more business-friendly environment in India. Additionally, it will also be beneficial for the taxpayers who may have missed out on issuing invoices on service imports from foreign related parties. Going forward as well the companies may review the position on taxability and valuation towards import of services from foreign affiliates considering these clarifications.. As businesses adapt to these clarified rules, they can look forward to greater certainty, reduced disputes, and a more streamlined compliance process under the GST regime.
You can also read this article on:- https://outlookmoney.com/outlook-money-spotlight/gst-council-clarifies-valuation-rules-for-import-of-services-by-related-entities-with-full-input-tax-credit-9035
To acknowledge the long-standing demand of the stakeholders of the real estate industry, the Goods and Services Tax (GST) Council, in its 53rd meeting, exempted statutory collections made by the Real Estate Regulatory Authority (RERA) from GST, clarifying that they fall within the scope of entry 4 of No.12/2017-CTR dated 28.06.2017. This decision has far-reaching implications for the real estate industry, regulatory bodies, and homebuyers.
Entry 4 of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017, provides an exemption to services provided by the Central Government, State Government, Union territory, or local authority where the consideration for such services does not exceed Rs. 5,000. RERA, a regulatory authority established under the Real Estate (Regulation and Development) Act, 2016, collects fees and charges from real estate developers and agents. These collections are statutory in nature, meaning they are mandated by law and not in the form of commercial transactions.
The GST Council's decision to exempt these statutory collections acknowledges RERA's role as a regulatory body, rather than a commercial entity. This exemption aligns with the broader intent of the GST framework to exclude statutory payments from the purview of GST, thereby preventing additional tax burdens on regulated entities.
Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017, Entry 5, provides that where the services have been provided by the government bodies to a business entity, the recipient (business entity) is liable to pay GST under Reverse Charge Mechanism (RCM). Pursuant to this notification, the department initiated the recovery of GST on services like approvals and licenses provided to body corporates, including the license fees for availing benefit under government schemes like Advance Authorisation and Export Promotion for Capital Goods (EPCG). These demands also extend to the real estate industry where the developers are mandatorily required to obtain various approvals and permissions from local bodies in relation to construction of real estate projects and are required to pay the statutory fees for the same. Notices have been issued by the Directorate General of Goods and Services Tax Intelligence (DGGI) for recovery of GST under RCM on these charges paid by developer to the local government entities.
The nature of these fees is similar to the statutory collections by RERA. However, the exemption of GST on the statutory collections by RERA paid by the corporate bodies creates an unreasonable classification by creating a different class without any reasonable nexus. While this move by the GST Council is commendable, it highlights differential treatment of different statutory fees by government bodies. The creation of this unreasonable difference of category of class for other statutory fees collected by the government bodies from the business entities thus leads to violation of Article 14 of the Constitution of India.
This recent exemption of GST on statutory collections by RERA might set a precedent for other sectors and regulatory authorities to seek a similar exemption, as other statutory levies, such as license fees for telecom spectrum, mining activities, and operating casinos, remain subject to GST. It will be interesting here to see if the other taxpayers will take inspiration from the RERA exemption and dispute their demand on the similar grounds in their own cases. But, ultimately one may expect that the dockets of the Courts would be increased in case of GST demands on other statutory fees / charges.
The exemption of statutory collections made by RERA from GST, as announced in the 53rd GST Council Meeting, is a significant development for the real estate sector. It reduces the compliance burden on developers, encourages regulatory compliance, and promotes a more transparent and accountable industry. Homebuyers stand to benefit from potential cost savings and a more robust regulatory environment.
While the decision is a positive step, it requires careful implementation and monitoring to realise its intended benefits fully. The GST Council's move aligns with the broader goal of fostering a transparent and efficient real estate sector, ultimately contributing to the growth and development of the industry.
By exempting RERA collections from GST, the GST Council has demonstrated its commitment to supporting regulatory bodies and promoting fair practices in the real estate sector. This decision paves the way for a more streamlined and efficient regulatory framework, benefiting all stakeholders involved. In light of this exemption, future relaxation for municipal and other taxes is anticipated that will further ease the Real Estate sector.
The 53rd GST Council Meeting introduced a noteworthy recommendation: the insertion of Section 11A in the Central Goods and Services Tax (CGST) Act. This new section aims to grant the government the power to regularize instances of non-levy or short-levy of GST due to prevailing general trade practices. This development has significant implications for businesses, regulatory authorities, and the overall GST framework in India.
There were multiple instances where certain taxpayers, following prevalent trade practices, failed to pay or underpay GST on specific supplies, such as corporate guarantees, online gaming, and employee secondment. As a result, GST authorities have responded by issuing bulk notices to recover taxes in the past leading to widespread litigation. It was a pleading of various industries including the insurance and other industries that while a new valuation mechanism or changes in the levy rate resolves certain issues going forward, the “as-is, where-is” basis is necessary for the past periods as the new tax position ought to be applied prospectively given that the differential tax cannot now be recovered from the customers. As the GST is a destination-based tax, and non-passing of the tax burden to the ultimate consumer would be contrary to the fundamental principle of GST law.
While the GST Council has time and again recommended regularising demands for the past periods on “as-is, where-is” basis, there was no legal mechanism provided in the CGST Act for such approach. It was thus essential to provide legal sanctity to the “as-is, where-is” basis in the GST law, which is in line with the pari materia provisions such as Section 11C of the erstwhile Central Excise Act, 1944 and Section 151A of the Customs Act, 1962.
However, the exclusion of online gaming from the purview of this legislation, leaves room for the community to pursue legal actions on the ground of the arbitrary and discriminatory classification, arguing it violates the right to equality under Article 14 of the Constitution of India.
Section 11A is designed to provide a legal mechanism for addressing situations where GST was either not levied or short-levied due to established trade practices. Based on the GST Council's recommendations, the proposed section empowers the government to make decisions that regularize such instances.
The recommendation to insert Section 11A in the CGST Act marks a significant step towards a more pragmatic and business-friendly GST regime. The provision addresses a critical gap in the current framework by granting the government the power to regularize non-levy or short-levy of GST due to general trade practices. It offers relief to businesses, reduces litigation, and promotes voluntary compliance, all while ensuring that the government can still collect due revenue.
As the GST Council moves forward with this recommendation, it is essential to establish clear guidelines and procedures for implementing Section 11A. The government can ensure that the provision achieves its intended objectives and contributes to a more stable, transparent, and efficient GST ecosystem in India.
This new provision underscores the GST Council's commitment to continually refining and improving the GST framework, aligning it with the practical realities of the business environment. With careful implementation and monitoring, Section 11A has the potential to significantly enhance the overall effectiveness and fairness of the GST regime.
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The CGST Act mandates that after the issue of demand notice, recovery proceedings should be initiated by the proper officer if an assessee fails to pay the due amount within three months from the date of the order as it is so interpreted from the act. In exceptional cases, to protect revenue interests, the proper officer may recover the dues in less than three months, for reasons to be recorded in writing. If the assessee does not pay within this period or within three months, the proper officer may proceed with recovery under Section 79(1) of the CGST Act.
CBIC had observed instances where some field formations initiated recovery before the three-month period without the necessary written justification. To ensure uniform implementation of the law, the Board clarified that, according to Circular No. 3/3/2017-GST dated July 5, 2017, the jurisdictional Deputy or Assistant Commissioner of Central Tax is responsible for recovery under Section 79 of the Act. For early recovery, the Deputy or Assistant Commissioner must place the matter before the jurisdictional Principal Commissioner/Commissioner of Central Tax with reasons. The Principal Commissioner/Commissioner must then record written reasons for requiring early payment and issue directions accordingly, considering the taxable person’s financial health and business status. These directions should not be issued mechanically but only when necessary to safeguard revenue interests due to specific circumstances based on credible evidence. This is in line with the board’s intention to balance the interests of revenue with the ease of doing business
W&B Comments: There have been various cases where the GST authorities have initiated recovery even before the completion of the three month period for filing of statutory appeal. The amount confirmed vide the order only become due and payable after demand is crystallised. Therefore, this circular will be helpful for the cases where the department has arbitrarily initiated recovery proceedings in pursuance of the demand order before giving statutory period of three months.
The Constitutional validity of GST provisions Section 16(2)(c) and Section 16(4) was challenged by the petitioner before the Hon’ble High Court of Kerala in the present case.
The High Court observed that Input Tax Credit (ITC) is in the nature of a benefit or concession extended to the dealer under the statutory scheme. It is no absolute right, even if it is held to be an entitlement it is subject to the restrictions u/s 16(2) & 16(4). Keeping in mind the conditions to determine constitutionality of taxing provisions, it was held by the Hon’ble Kerala High Court that Section 16(2) & 16(4) of the CGST act are not unconstitutional. The interpretation of the provisions was elucidated with the help of various cases wherein it was held that Section 16(1) is an enabling provision to claim benefit under ITC, but such benefit is not an absolute right and is subject to fulfilment of conditions provided under Section 16(2) & 16(4). Section 16(2) provides a non-obstante clause preventing unregistered persons from claiming benefit of the scheme subject to conditions, it was held that this is a restrictive and not an enabling provision, as such a non-obstante clause preceding a restrictive provision doesn’t exclude application of other restrictive provisions on the matter as they are confirmatory and non-contradictory. As such the temporal limitation under Section 16(4) is applicable to Section 16(2) despite the non-obstante clause due to it being non-contradictory. Hon’ble High Court held that the conditions are necessary to impose on the scheme in the interest of revenue and budgetary management.
W&B Comments: Many taxpayers were issued notices demanding reversal of ITC claimed beyond the time limit prescribed under Section 16(4) of the CGST Act and various petitions were filed across the various High Courts[1] on the issue. The validity of Section 16(4) is pending before the Hon’ble Supreme Court and in the case of Shanti Motors vs. Union of India[2] the Court has issued notice to the Revenue. In regards to this, the 53rd GST Council Meeting also has recommended to extend the time limit for availing ITC pertaining to FY 2017-18 to FY 2020-21 to November 30, 2021 retrospectively w.e.f. July 1, 2017. Therefore the present judgment and GST council recommendation in regards to a retrospective amendment to allow ITC is a welcome step.
[1] Jain Brothers [2023 (12) TMI 829]; BBA Infrastructure [2023 (12) TMI 835]; Gobinda Construction [2023 (9) TMI 902]
[2] (2024) 19 Centax 214 (S.C.)
The appellant was served with a notice under Section 73(1) of CGST Act on 29.09.2023. The last date for reply was fixed at 30.10.2023 for which the appellant sought extension of time while the date of personal hearing was given as 12.10.2023, eventually after further extension reply was filed on 15.11.2023 but personal hearing was not given and order challenged before the Learned Single Bench were passed on 29.12.2023.
The Learned Division Bench of Hon’ble Chhattisgarh High Court held that the mandate of the law is that upon demand notice time must be provided for reply from the assessee after which he may be given an opportunity to be heard in a personal hearing before passing appropriate order. It is not the scheme of the act to give personal hearing first and then seek reply to the notice, the reply must be sought first and subsequently an opportunity to be heard must be given. As such the procedure adopted in this case was held to be wrong and violative of the principles of natural justice of the appellant.
The Hon’ble High Court held that where a statute contains a mandate of hearing the principles of natural justice automatically apply upon such a procedure and that administrative authorities must be mindful of them while exercising their statutory power. As such the order passed by the Joint Commissioner of State Tax was set aside as it amounted to defeat the rules of natural justice and the object of the legislation and the appellant provided the opportunity to appear for personal hearing before the authority.
W&B Comments: The judgement by Hon’ble Chhattisgarh High Court underscores fundamental principles of natural justice in administrative proceedings under them GST laws[1]. It emphasizes on procedural fairness by providing an opportunity for the appellant to respond to a notice under Section 73(1) before scheduling a personal hearing.
[1] Dharampal Satyapal Ltd. v. CCE, (2015) 8 SCC 519; Umanath Pandey v. State of UP [2009] 12 SCC 40-43; Ridge v. Baldwin, (1963) 2 All ER 66.
The Hon’ble Delhi High Court in present case dealt with the question that whether physical filing done post limitation period would bar the appeal on such grounds of the actual online filing was conducted within the limitation period.
The petitioner challenged the order by the Commissioner of Central Tax Appeals, dismissing the appeal against the original order on the grounds of being time-barred. The deadline for filing an appeal therefore under Section 107(1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “the Act”), was 03.08.2023. The appeal was recorded as filed on 25.09.2023, which was more than a month late. Commissioner Appeals held that only a delay of up to one month could be condoned by the power vested under him according to Section 107(4) of the Act if sufficient cause was shown. It was noted that the petitioner had initially filed the appeal online on the GST Portal on 02.09.2023, and the date recorded in the impugned order, is when the petitioner physically submitted the appeal following the online submission. It is undisputed that the appeal must be filed online first, followed by the submission of a physical copy to the department and the date of filing is considered the date of initial online submission, provided the appellant complies with other legal requirements.
Since the appeal was filed online 02.09.2023, the delay did not exceed one month, the Hon’ble Delhi High Court held that Commissioner Appeals had the authority to consider the application for condonation of delay. Consequently, the order was set aside, and the matter was remitted back to the Commissioner Appeals to be considered on merits.
W&B Comments: The Hon’ble High Court clarified that taxpayers must adhere strictly to prescribed time limit of 3 months while filing a statutory appeal under Section 107(1). However, it was also affirmed that the date of online filing of appeal on the GST Portal constitutes the official date of appeal initiation and not the date of physical submission. This interpretation of the section safeguards the taxpayers right to seek condonation of delay for reasons deemed sufficient under Section 107(4) of the Act.
When running a business, priorities typically revolve around market expansion, customer service, team strength, leadership, and legal protection. Facing investigative agencies like the Enforcement Directorate (ED), the Directorate General of GST Intelligence (DGGI), and the Income Tax Department (ITD) is unlikely to be on your radar. However, if such a scenario arises, questions about preparation, legal implications, and subsequent investigations become pertinent. Imagine one day, the ED showed up to investigate financial irregularities in your business under the Prevention of Money Laundering Act, 2002 (PMLA) and Foreign Exchange Management Act, 1999 (FEMA). After this, the DGGI shows up to investigate offences under the Goods and Services Tax (GST), followed by the Income Tax Department to investigate tax evasion. While this may seem distant, it's a reality for many businesses. This discussion aims to equip you with the knowledge and readiness to navigate these challenges confidently.
ED is a statutory body empowered under the Central Vigilance Commission Act, 2003 to investigate money laundering offences and violations of foreign exchange laws. The ED operates within the jurisdiction or limits of the PMLA, FEMA, Fugitive Economic Offenders Act, 2018 (FEOA), Foreign Exchange Regulation Act, 1973 (FERA) and Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA).
In recent times, raids conducted by ED as part of the investigation process or collection of evidence have shown a higher possibility of investigations by other agencies like DGGI and the ITD. There have been several instances in the news wherein once a business is raided by the ED, an investigation by the ITD and/or DGGI follows next. This shows that the ED raids do not always conclude with a final report, rather investigations are initiated by other departments based on the information discovered by ED. This leads to the expansion of the scope of the initial raid. This series of investigations is chiefly a result of the sharing of data between these agencies. Various investigation agencies are legally authorized to share the relevant data to facilitate the investigation into financial crimes through an inter-agency collaborative approach, which leads to their involvement in the dispute.
According to Section 66(1)(ii) of the PMLA read with relevant notifications, ED officers are authorized to provide information available to notified agencies when necessary for the fulfilment of their functions under the relevant statute. The Central Board of Direct Taxes (CBDT), which frames policy for the ITD, vide Order dated 21.07.2020 allowed the ITD to share PAN and bank account details of any entity with investigative and intelligence agencies, including the ED and DGGI, under the integrated counter-terrorism platform NATGRID. On a similar line, the Central Board of Indirect Taxes & Customs (CBIC) vide Notification dated 07.07.2023 expanded the scope of PMLA by including the Goods and Services Tax Network (GSTN) in the specified list of agencies that are required to share information with the ED. These law enforcement agencies/regulatory bodies collaborate to ensure compliance with laws and effective prosecution of offenders. It cannot be lost sight of that all these multiple raids and investigation proceedings by different agencies can be parallel or at different times.
It cannot be ruled out that if one of the agencies has given a clean chit, the others cannot charge on the same subject matter if their investigation leads to appropriate evidence. This leads to a situation where one particular act is considered as an offence when viewed from both ED’s as well as DGGI / ITD’s lens. Therefore, a person can be subjected to arrest and custody by different agencies at the same time.
As regards GST, there are certain actions which involve business transactions undertaken either to avoid paying the legitimate amount of tax or, to claim wrongful input tax credit (ITC), which can be investigated by DGGI. However, when these transactions are undertaken cross-border and/or involve siphoning off the money especially if the funds are circulated through shell companies or overseas entities, such offences then fall within the purview of ED. In this situation, such transactions may attract investigation by both agencies (i.e. ED and DGGI) due to their overlapping nature. An illustrative list of such transactions is hereunder:
Similarly, activities such as concealing income/assets abroad or engaging in fraudulent cross-border transactions, fall within the jurisdiction of both the ITD and the ED due to their implications for tax evasion, money laundering, or violation of foreign exchange regulations. During the investigation, when the ED identifies such violations, it shares data with the ITD resulting in simultaneous proceedings by these agencies thereby expanding the scope of the original scrutiny. Below are a few instances which may attract parallel actions by ED and the ITD:
In case of overlapping of offences falling within the jurisdiction of more than one investigative agency, a situation may arise when a person who is already arrested by one agency for a violation or allegation of an offence, can further be arrested by another agency for an offence falling under the jurisdiction of that other agency. Hence, it is possible in some instances that one person can be arrested by more than one investigative agency for violation of overlapping offences falling within the jurisdiction of these agencies. For instance, recently the Delhi High Court has remanded BRS leader K. Kavitha to the custody of CBI for her alleged involvement in a corruption case related to an alleged Delhi liquor policy scam. She was earlier arrested by ED for alleged money laundering in the excise policy scam and hence, was already in judicial custody when CBI arrested her.
There have been numerous instances wherein businesses were bombarded with different investigations after ED raids. In 2022, the ED conducted raids on various offices of the M/s DSL Dharampal Satyapal Group, owners of 'Rajnigandha' pan masala and 'Catch' spices, over allegations of money laundering and tax evasion. During the investigation, ED found alleged diversion of funds to offshore entities in tax havens (tax evasion), and bogus ITC under the GST laws. The ED's investigation led to the ITD and DGGI initiating parallel investigations into the group's financial irregularities.
In another instance, ED conducted raids on Xiaomi, Oppo, and Vivo offices in India qua alleged tax evasion, transfer pricing, and violation of FEMA regulations and subsequently, the ITD and DGGI also joined the bandwagon.
Global commodities trader ‘Trafigura’ came under ED scrutiny for a Transfer pricing violation. Trafigura is alleged to have companies in Tax havens and moving money to those companies helped it avoid taxes. Earlier, the company was investigated by the ITD.
Recently in 2023, troubled British news broadcaster BBC came under ED scrutiny for alleged foreign exchange violations. ED came into the picture after the ITD’s survey of the BBC Delhi office revealed several discrepancies and inconsistencies in transfer pricing documentation.
These trends of investigations reveal expanded jurisdiction of ED concerning certain offenses. For instance, above mentioned cases of Xiomi, Trafigura, and BBC highlight the instances of transfer pricing violations that were being investigated by ED. In a nutshell, due to the overlapping of certain offenses between PMLA, FEMA, Income Tax, and GST, the simultaneous proceedings by different agencies appear to be inevitable.
Standard Operating Procedures (SOPs) may be put in place defining the roles and responsibilities of different teams/verticals in case of sudden investigation, to ensure smooth coordination and submission of correct information to the investigating agencies. Training may be imparted to the employees in respect of maintaining confidentiality, protecting sensitive information, and safeguarding legal rights during questioning/investigations. Regular audits and health check-ups are another way to mitigate the risk of potential inquiry. Besides mitigating litigious positions, a business review would also assist in adopting tax-efficient structures.
The Petitioner, Sterlite Power Transmission Limited, has challenged the imposition of GST on the activity of providing a corporate guarantee to a subsidiary company by the holding company on the premise that it does not fall within the ambit of supply of services.
Under Service Tax regime, corporate guarantees faced no taxes if no consideration was involved. It was also a view that corporate guarantees were akin to actionable claims and fell under Schedule III of the CGST Act, 2017 therefore it neither constituted the supply of goods nor services and accordingly not liable to GST. There was a lack of clarity on specific valuation mechanism in cases when a holding company provided a corporate guarantee to a subsidiary without receiving any consideration.
Based on the recommendation of the 52nd GST Council meeting, by Notification No. 52/2023-Central Tax dated 26.10.2023, Rule 28 of the Central Goods & Service Tax Act, 2017 was amended providing new valuation provision for corporate guarantees provided on behalf of a related person. CBIC has also issued Circular No. 204/16/2023-GST, dated 27-10-2023 clarifying that the activity of providing corporate guarantee to the bank/financial institutions for providing credit facility to the other company, where both the companies are related, is to be treated as supply of service. In case where no consideration is involved then also it is to be treated as a taxable supply of service as per provisions of Schedule I of CGST Act.
The petitioner has challenged the Circular, arguing that corporate guarantee is in the nature of a contingent contract which is not enforceable till the guarantee is enforced by the entity to which the guarantee is provided. The value of enforcement is not dependent on the value of the guarantee, and it is only where the guarantee is enforced that the issue of service may arise, if at all and as such fixing a value at 1% of the corporate guarantee provided would put onerous burden on the entity providing the corporate guarantee.
The Hon’ble Delhi High Court has issued a notice in the matter and directed that no coercive action should be taken against the petition where a final assessment is passed, or demand is created.
W&B Comments: The decision by the Hon’ble Delhi High Court to entertain the writ petition offers hope for clarity on GST implications for corporate guarantees. This could offer much-needed guidance, particularly after the ambiguity following the Supreme Court's ruling on non- applicability of service tax on corporate guarantee in the Edelweiss Financial Services Limited case. Despite the recent circular's attempt to address these issues, uncertainties persist regarding the timing and valuation of supplies.
The Hon’ble Madras High Court in the case of Southern Engineering Services v. Deputy State Tax Officer allowed the writ petition and set aside the assessment order thereby holding that, the assessment order is liable to be quashed in case where Petitioner incorrectly reported turnover in GSTR-1 but correctly in GSTR-3B.
Southern Engineering Services supplied services to an SEZ unit without charging any GST as the said supply was zero rated supply. The Petitioner incorrectly reported the turnover under the column taxable value in Form GSTR-1 but corrected the mistake by reporting is as zero-rated supply in Form GSTR-3B. However, the Department passed the assessment order against the Petitioner.
The Hon’ble Madras High Court held that, as per the invoice placed on the record by the Petitioner, the supply was made to the SEZ unit and therefore, the said supply would fall within the purview of zero-rated supply and the error in return was at the time of introduction of GST.
The court quashed the assessment order while observing that the Petitioner is entitled to an opportunity for hearing as per the facts and circumstances of the case.
W&B Comments: Despite the availability of an alternative remedy of appeal to the Petitioner, the Hon'ble High Court chose to entertain the present case and remanded it for reconsideration and emphasized on the necessity of providing the taxpayer with a personal hearing opportunity. This ruling is relevant as it establishes a precedent wherein if the violation of principles of natural justice is raised, the alternative remedy may be bypassed, allowing the High Court to address the concerns of the aggrieved taxpayer.
The Madras High Court in Vardhan Infraastructure vs. Central Board of Indirect Taxes held that Centre Authority cannot initiate proceedings against taxpayers assigned to State Authority and vice versa in the absence of cross-empowerment notification.
The Petitioner had argued that Central authorities had initiated the proceedings even though petitioner was assigned to state authorities for all the administrative purposes. In few other cases, State authorities had initiated the investigation but taxpayer was assigned to center authorities. While challenging the jurisdiction of the authorities to conduct the proceedings, the petitioner had contended that there is no cross-empowerment enabled in the GST law in absence of the notification [except refund processing notification] To contend it, petitioner referred to GST Council meeting minutes [9th and 22nd GST Council meeting], circular for division of taxpayer in the manner in which it was decided to be distributed between the Centre and State. Support was also drawn from Section 3 and 4 of CGST and SGST Act to say that the powers assigned to Board or Commissioner are linear and not cross-empowered as was structured under the Model GST law.
Appreciating the arguments taken by the petitioner, the hon'ble Court held that there is no notification in place under Section 6 to cross-empower the authorities to initiate or pursue the proceedings against the Petitioner who is not assigned to it. The hon’ble High Court issued the directions to jurisdictional authorities to pursue the appropriate investigation in case of assigned taxpayers and the limitation period will exclude the period of writ proceedings.
W&B Comments: The Hon’ble Madras High Court has clearly stated that in the absence of a notification under Section 6(1), authorities lack the cross-empowerment to initiate proceedings against a taxpayer who hasn’t been assigned. However, in a previous judgment (Kuppan Gounder P.G. Natarajan vs. Directorate General of GST Intelligence, New Delhi [2022 (58) G.S.T.L. 292 (Mad.)]), the same court emphasized the distinction between "proceeding" and "inquiry," as Section 6(2) qualified by the words “subject-matter” indicates an adjudication process/proceeding on the same cause of action and for the same dispute, which may be proceedings relating to assessment, audit, demands and recovery and offences and penalties etc. Such proceedings are subsequent to inquiry. Therefore, the proper officer may proceed with a parallel proceeding under Section 70 in any inquiry even when any proceeding on the same subject-matter had already been initiated by a proper officer under the State Act.
The Bombay High Court in the case of Shantanu Sanjay Hundekari vs. Union of India ruled that penalties could not be imposed on the employee, as they were neither taxable nor registered.
The petitioner, acting as a taxation manager for a shipping company, was authorized via power of attorney for specific GST matters. Allegations arose during investigations regarding the company's improper utilization and distribution of input tax credit, resulting in a significant demand cum show cause notice. This notice also targeted the petitioner for potential penalties alleging the benefit retention or causing such offences. The petitioner argued that they did not fall under the taxable or registered category according to GST laws, and thus should not be implicated in benefiting from such actions.
Appreciating the petitioner's arguments, the court concluded that penalties under Section 122(1A) of CGST Act could not be applied to the employee, as they neither violated the provisions outlined in Section 122(1) nor retained any benefit. This provision applies exclusively to taxable or registered individuals, which the employee was not.
W&B Comments: Section 122(1) applies to taxable persons, and this extends to subsequent application of Section 122(1A) to taxable persons as well. The Hon’ble Bombay High reaffirmed that Section 122 is invoked particularly when the offence is committed by the individual for personal gain, not because of the position they hold. Invoking Section 137 pertaining to criminal proceedings, in a show cause notice under Section 74 for adjudication renders such proceedings out of jurisdiction.
The Madras High Court in Tokyo Zairyo (India) Pvt Ltd vs Assistant Commissioner set aside the order disregarding petitioner's reply as an unauthorised.
The Petitioner had challenged the assessment order which had disregarded the petitioner’s reply. After the completion of the audit, a show cause notice was issued, to which the petitioner responded well within time. However, the tax authorities passed an assessment order, prompting the petitioner to challenge it on the grounds of their disregarded reply. The petitioner had highlighted the disregard of the petitioner’s reply, labeling it as unauthorized solely because of the petitioner’s inability to attend the scheduled personal hearing. The department’s argument against it was that the petitioner had failed to produce certain essential documents, leading to the confirmation of the tax demand.
The Hon’ble High Court observed that the order specifically mentioned the rejection of the petitioner’s reply as unauthorized due to the absence of the petitioner during the personal hearing which raised question regarding the validity of such categorization and the subsequent disregard of the petitioner’s contentions. Consequently, the court set aside the order and remanded the matter for reconsideration, emphasizing the necessity of providing a reasonable opportunity to the petitioner, including a personal hearing.
W&B Comments: The Hon’ble Madras High Court observed that the assessment Order passed under Section 73/74 of CGST Act, had failed to comply with Sub-section 9 o of the provision. As the assessment order was passed without any consideration of representation (reply) made by the petitioner, it is not a well sounded order as it does not comply with the law well as the principles of natural justice.
In the case of M/s Samsung India Electronics Pvt Ltd v State of U.P and Others, the hon’ble Allahabad High Court addressed the petitioner's refund claim for unutilized Input Tax Credit (ITC) of CGST, SGST, and IGST paid on various inputs and input services.
The petitioner, M/s Samsung India Electronics Pvt Ltd, exported IT services to its overseas holding company, M/s Samsung Electronics Company Limited, Korea. They filed refund claims for unutilized ITC of CGST, SGST, and IGST paid on inputs and input services from April to June 2019, which was partially sanctioned. Subsequently, they applied for refunds for July to September 2019 and October to December 2019. The Department issued deficiency memos and show cause notices, alleging rejection of refunds for these periods. After replies and hearings, the Department partially allowed the refunds but rejected a portion, arguing certain goods were capital goods, not inputs. The petitioner appealed, leading to the present petitions before the Allahabad High Court.
The Hon’ble Allahabad High Court, while quashing the Order, held that while the principle of res judicata does not apply to taxation matters, tax authorities must maintain a consistent approach when faced with similar factual and legal circumstances. The court emphasized the importance of uniform treatment, as taxpayers have a legitimate expectation of fairness and equity from the tax authorities and deviations from this principle undermines the credibility of their actions.
The court also noted that withholding refund claims arbitrarily, despite past precedents and unchanged circumstances, is unfair. While drawing a distinction between capital goods and inputs, the hon’ble court affirmed that that the Petitioner’s case is not subject to capitalization.
The court stressed that show cause notices must clearly outline specific allegations, and the department cannot exceed their scope without violating natural justice. Any action beyond the show cause notice's confines was deemed void ab initio and unsustainable. The court found the impugned orders erroneous and allowed the writ petitions, with consequential reliefs to follow.
W&B Comments: It is a settled position of law that the Department cannot adopt a contradictory stance or inconsistent approach when dealing with the same facts and legal background. Altering their position would imply that their prior stance was incorrect. Therefore, tax authorities are required to adhere to uniform treatment when faced with similar factual and legal circumstances.