In part I of the article we have discussed 16 Landmark Judgments on GST Law related to Scope of Supply & Levy, Input Tax Credit, Returns and Payment of tax.

In this part i.e. Part II of the article we will discuss 14 more Landmark Judgments on GST Law related to GST Refunds, Arrest under GST Law, Demand and Recovery, E-way bill, Transitional Credit and Repeal and Savings.

Also Read- 3 Years of GST- A recap on 30 relevant Landmark Judgments – Part I

GST wordings with coins in jar

A. Refunds

17. Excess claim of Duty Drawback (DBK) cannot be a reason to withheld refund of IGST paid on exported goods.

Amit Cotton Industries vs Principal Comm. of Customs (Gujarat High Court)

  • Rule 96(4) of the CGST Rules makes it abundantly clear that refund could be withheld only when request was received by the jurisdictional Commissioner regarding the same or when the goods were exported in violation of the Customs Act, 1962 as determined by proper officer of Customs.
  • There was neither any provision nor any circular or instruction under GST law which would restrict IGST refund for reason that higher rate of drawback was claimed. The High Court held that the applicant was entitled to claim IGST refund in respect of goods exported and directed revenue authorities to immediately sanction the refund amount along with 7 percent interest from the date of shipping bills till the date of actual refund.

Author comments: The judgment of the HC has clarified the legal position that the IGST refunds could be withheld only in circumstances permitted under law and shall not be withheld unreasonably. While the intention of the CBIC and GST authorities by applying the provisions of the Circular was to ensure that no exporter is doubly benefitted for the same transaction, the same does not have authority under the existing provisions of GST law. Where the government contemplates expanding the scope of the restrictions for grant of refund, the same may have to be brought only by way of an amendment to the existing provisions of GST law.

18. No Right to find a deficiency in refund application after 15 days

Jian International vs CCGST (Delhi High Court)

  • To allow the respondent to issue a deficiency memo today would amount to enabling the Respondent to process the refund application beyond the statutory timelines as provided under Rule 90. This could also be construed as a rejection of the petitioner’s initial application for refund as the petitioner would thereafter have to file a fresh refund application after rectifying the alleged deficiencies.
  • This would not only delay the petitioner’s right to seek refund, but also impair petitioner’s right to claim interest from the relevant date of filing of the original application for refund as provided under the Rules.
  • Consequently, High Court was of the view that the respondent had lost the right to point out any deficiency, in the petitioner’s refund application, at this belated stage

Author comments: This judgment gives relief to the taxpayers who are facing department delays for no explainable reasons. The categorically holding of time-limit of 15 days by the HC establish the rigor that the government needs to induce in the mind-set of the revenue officials.

19.Refund of input services is permissible under the inverted duty structure scheme

VKC Footsteps India Pvt Ltd. vs UOI (Gujarat High Court)

  • The incorporation of only “inputs” in the Net ITC formula in Rule 89 (5) of the CGST Rules results in violation of provisions of sub-section 3 of Section 54 of the CGST Act, 2017 which entitles any registered person to claim refund of “any” unutilized input tax credit.
  • Both “input” and “input service” are both part of the “input tax” and “input tax credit”, therefore the legislature has provided that registered person may claim refund of “any unutilised input tax”, therefore, by way of rule 89(5) of the Rules, such claim of the refund cannot be restricted only to “input” excluding the “input services” from the purview of “input tax credit” is ultra vires
  • Circular No. 79/53/2018-GST further reflects the incorrect position of the law and is liable to quashed on the ground of being usurping the plenary legislation.

Author Comments: The judgment gives relief to multiple industries [textile, railway tier-1, tractor parts suppliers etc.] who were incorrectly denied the benefit of input services, while in an inverted duty structure.

B. Arrest

20. GST Department should not proceed for the arrest of CAs or Advocates merely on the basis of assumption, without any corroborative evidence.

Akhil Krishan Maggu vs Deputy Director,DGGSTI(Punjab & Haryana High Court)

  • Power of arrest should not be exercised at whims and caprices of any officer or for sake of recovery or terrorizing any businessman or create an atmosphere of fear, whereas it should be exercised in exceptional circumstances during the investigation.
  • Persons against whom there is no documentary or otherwise concrete evidences to establish direct involvement in evasion of huge amounts of tax, should not be arrested prior to determination of liability and imposition of penalty.
  • Arrest of Chartered Accountant or Advocates who had filed returns or otherwise assisted in business but are not beneficiary or part of fraud merely on basis of statement without any corroborative evidence linking professional with an alleged offense should be avoided.
  • Arrest deprives any person from his right of liberty enshrined under Article 21 of the Constitution. Provisions of CrPC [Section 41 and 41A] would be applicable

Author comments: The GST department in many instances has been arresting the asessees without proper application of law however the courts are interfering and quashing such orders. It should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee.

21. No punishment under GST without assessment

Jayachandran Alloys vs Superintendent of GST (Madras High Court)

  • The term ‘commits’ clarifies that the act of committal of the offence is to be fixed first before punishment is imposed. When recovery is made subject to determination in an assessment, the Revenue’s argument that punishment for the offence alleged can be imposed even prior to such assessment, is clearly incorrect and amounts to putting the cart before the horse.
  • There must be determination that a person is “liable to a penalty“. Till that point of time, the entire case proceeds on the basis that there must be an apprehended evasion of tax by the assessee.
  • Reliance was placed on UOI Vs Makemytrip India Pvt Ltd 2019-TIOL-65-SC-ST where it was held that the Revenue cannot bypass Section 73A of the Finance Act, 1994 before going ahead with arrest u/s 90, 91 (arrest) of FA, 1994.
  • Similar view was taken in case of Vimal Yashwantgiri Goswami Vs State of Gujarat 2019-TIOL-1746-HC-AHM-GST

Author’s Comments: The controversy of assessment before an arrest is sub-judice before the Supreme Court after a number of High Courts taking divergent views. More likely than not, it appears that the Apex Court is likely to hold that arrest provisions can be invoked before adjudication, however with regular caveats of making arrests that are to be followed by the implementing agencies.

C. Demand and Recovery

22. Invoking Section 79 of CGST Act, for recovery of interest without following the adjudication proceedings of Section 73 or 74 of the CGST Act is not permissible

Mahadeo Construction Co. vs Union of India (Jharkhand High Court)

  • Though the liability of interest is automatic, but the same is required to be adjudicated in the event an assessee disputes the computation or very leviability of interest, by initiation of adjudication proceedings u/s 73 or 74 of the CGST Act.
  • Without initiation of adjudication proceedings, the amount of interest cannot be termed as an amount payable under the Act or the Rules. Thus, no recovery proceeding under Section 79 of the Act can be initiated for recovery of the interest amount.

Author Comments: This decision is in line with rulings pronounced by other courts in the cases of Union of India Vs LC Infra Projects (P) Ltd [2019-TIOL-1660-HC-KAR-GST] and M/s Godavari Commodities Ltd and Ors [2019 (12) TMI 275] which are based on similar facts. It is important to note that all Courts have emphasized the importance of issuance of SCN as a pre-requisite for authorities to proceed for recovery of interest liability.

23. Bank Account cannot be attached for simple reasons like non-filing or delay in filing GST Returns.

Pranit Hem Desai vs Additional Director General (Gujarat High Court)

  • The attachment of bank accounts and trading assets should be resorted to only as a last resort, when assessee may default the ultimate collection of the demand, not to
  • harass the assessee, only if assessee is about to dispose of wholly or any part of his/her property with a view to thwarting the ultimate collection of demand, the attachment of the bank accounts of the assessee would paralyse the functions and business of the assessee and this tool has to be used sparingly because no safeguards have been provided in Section 83.
  • The Authority, therefore, should exercise the power conferred upon him under Section 83 of the Act with circumspection and fairly and reasonably. No hard and fast rule can be laid down as to how and under what circumstances the power under Section 83 can be invoked by the Authority.
  • The discretion conferred on the Authority shall be brought to bear having regard to the facts and circumstances of each case. It is not permissible for the Authority to equate the provisional attachment envisaged under Section 83 of the Act with attachment in the course of the recovery proceedings.

Author comments: The problem with GST enactment is that it has given multitude of the power to the revenue officers. However, none of the government machinery has come out with any guidelines or strictures to ensure that these measures be carefully used has led to many officers misusing the provisions. It should be the endeavor of the government to implement the machinery but these coercive measures are likely to prove the demeanor of the government’s handling of the revenue officers.

24. Power to attach assets is a drastic step and is to be used sparingly

Valerius Industries Vs UOI (Gujarat High Court)

  • Power conferred upon authority u/s 83 for provisional attachment is very drastic and far-reaching power; such power to be used sparingly and only on substantive weighty grounds and reasons.
  • It would be a big mistake on the part of the respondents to understand that the reasons to believe necessary for the purpose of carrying out inspection, search and seizure under Section 67 of the Act, 2017 would be sufficient enough for the purpose of formation of the opinion that it is necessary to provisionally attach the goods or other articles for the purpose of protecting the interest of the government revenue
  • Power u/s 83 should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee.
  • The following factors must be taken into consideration: (i) whether it is a revenue neutral situation; (ii) The statement of “output liability or input credit“, having regard to the amount paid by reversing the input tax credit, if the interest of the revenue is sufficiently secured- then the authority may not be justified to invoke its power u/s 83.

Author comments: Provisional attachment u/s 83 can be done only if there are materials or information. It should be exercised only if there is reasonable apprehension that assessee may default in the ultimate collection of demand. It should, therefore, be exercised with extreme care and caution.

25. Property to be attached only after notice and assessment under GST

Cengres Tiles Ltd. vs State of Gujarat (Gujarat High Court)

  • The Gujarat High Court has held that only after the notice is served under Section 46 of the CGST Act and the assessment is done by the proper officer under Section 62, can the goods and the bank accounts of the taxable person be attached under Section 83.
  • The High Court observed that Section 46 indicates that if registered person fails to furnish return under Section 39 or 44 or 45, a notice is to be issued requiring him to furnish return and if he fails to furnish it, the proper officer may assess tax liability. Only in such pendency if the Commissioner intends to protect interest of revenue, can property be attached.

Author comments: GST department has been issuing several notices without any statutory backup which is creating unnecessary litigation. One of such instances includes the above. The other instance includes issue of notices for unmatched credits between GSTR3B and 2A though the matching concept under Section 42 and 43 is not being implemented till now.

D. E-way bill

26. Confiscation before seizure cannot be ordered on mere suspicion

Synergy Fertichem (P) Ltd vs State of Gujarat (Gujarat High Court)

  • The High Court observed that provisions of both Section 129 and Section 130 of CGST Act mutually exclusive and independent of each other.
  • Further, it was held that authorities can invoke confiscation u/s 130 of the Act only when a definite intent to evade payment of tax is established and not on mere suspicion.
  • Accordingly, it was held that even at the stage of detention and seizure itself or after the tax and penalty is paid by the owner of the goods in terms of Section 129, if there exists incriminating evidence of tax evasion, action under Section 130 of the CGST Act can also be initiated.

Author comments: The judgment one hand issues clear warning to the tax officers to invoke Section 130 for confiscation of goods only when there is cogent evidence is there that the goods are being moved with intent to evade taxes. On the other hand, it also holds that confiscation measure under Section 129 (5) for non-payment of tax and penalty is independent of Section 130 and can be invoked even when the intention to evade is not proven.

For reference to other important judicial pronouncements related to E-way bill, readers may refer to the author’s previous article – E-way bill – Common Issues and Solutions with Judicial decisions.

E. Transitional Credit

27. All taxpayers are permitted to file Tran-1 on or before 30.06.2020

Brand Equity Treaties Ltd. vs. UOI (Delhi High Court)

  • CENVAT credit which stood accrued and vested is the property of the assessee and is a constitutional right under Article 300A of the Constitution.
  • Restricting the benefit only to taxpayers whose cases are covered by “technical difficulties on common portal” subject to recommendations of the GST Council, is arbitrary, vague and unreasonable.
  • Rule 117 of the CGST Rules is arbitrary, unconstitutional, and violative of the right to equality enshrined under the Article 14 of the Constitution to the extent that it imposes a time limit to carry forward transitional credit.
  • Taxpayers cannot be robbed of their valuable rights on an unreasonable and unfounded basis of them not having filed TRAN-1 Form within 90 days, when civil rights can be enforced within a period of three years from the date of commencement of limitation under the Limitation Act, 1963.
  • Further, the benefit is not just qua the Petitioner, thereby extending the benefit to all taxpayers who missed the deadline due to non-technical difficulty.
  • Therefore, Respondents are directed to publicise this judgment widely including by way of publishing the same on their website so that others who may not have been able to file TRAN-1 till date are permitted to do so on or before 30.06.2020.

Author comments:

  • Section 140 of the CGST Act’2017 has been amended vide the Finance Act, 2020 with retrospective effect from 1st July 2017 to provide that credit shall be availed within such time and in such manner as may be prescribed. However, in the case of SKH Sheet Metals Components Vs Union of India & Ors. (Delhi High Court), it was held that Brand Equity judgment would continue to apply despite the amendment to Section 140.
  • It is very clear from the above judgment that transitional credit is a vested right of taxpayer. Rule 117 of CGST Rules’2017 is procedural rule and cannot take away substantive right of availing transitional Credit if it is not filed within the time prescribed therein. Therefore, the taxpayers who have missed claiming Transitional credits even now can claim the same.
  • Numerous Writs have been allowed by various High courts on the basis of aforesaid judgment on the similar issue; however, the Hon. Supreme Court in its Order dated 19.06.2020 has stayed the operation of the order in case of Brand Equity Treaties Ltd (supra).

28. Accumulated E-cess, SHE-cess and KK-cess can be carried forward under GST as Transitional credit.

Sutherland Global Services Pvt Ltd vs ACGST & CE (Madras High Court)

  • Such credit continues to be available till such time it is expressly stated to have lapsed. In the present case, there is no notification/circular/instruction that has expressly provided that the credit accumulated would lapse.
  • CBEC circular dated 07.12.2015 reveals a policy decision not to allow utilization of accumulated credit of E-Cess and SHE-Cess but nowhere states that the credit has lapsed.
  • Accumulated credit cannot be said to have been wiped out unless there is a specific order under which it lapses.
  • After 2018 amendment to CGST Act, only cenvat credit of “eligible duties” were allowed to be carried forward u/s 140(1). Whereas, “eligible duties” was defined in the explanation to Section 140. Even if E-Cess and SHE-Cess could not be carried forward u/s 140(1), it can still be carried forward u/s 140(8) which was untouched by the amendment.

Author comments: The Hon’ble HC has rightly observed that the retrospective amendment restricting cesses to be transferred as GST credit, has its applicability only for Section 140(1) of the CGST Act and the Explanation defining ‘eligible duties’ and it did not amend Section 140(8) dealing with transition of credit by a registered person having centralised registration in pre-GST era. The Madras High Court Division Bench has stayed the aforesaid order of single judge in order dated 24.01.2020. Thus, we shall need to wait for the final judgment of the court.

F. Repeal and Savings

29. State has the legislative competency to provide Section 174 in SGST Act

Sheen Golden Jewels India Pvt. Ltd vs State Tax Officer (Kerala High Court)

  • Section 174 enacted by Kerala State Legislature relating to repeal and saving of provisions of Kerala Value Added Tax Act, 2003 not unconstitutional in view of amended Entry 54 of List II of Seventh Schedule to Constitution of India w.e.f. 16-9-2016
  • On the basis of finding that Section 19 of Constitution (One Hundred and First Amendment) Act, 2016 is transitional and not a saving clause though it may have been a repealing clause simplicitor – Job of saving is done by Section 174 of Kerala Goods and Services Tax Act, 2017.

Author Comments: The judgment appears to be questionable on grounds of Section 19 being a transitional clause in as much as effect of inconsistency between GST and earlier enactment was only envisaged for 1 year. The interpretation by the Court that a 1-year time limit is therefore incorporation of Section 174 is also susceptible to more judicial scrutiny. The judgment has been challenged before the Hon’ble Supreme Court and if the taxpayer succeeds could have huge impact over the VAT assessment being carried over PAN India by the state legislature.

30. No Promissory Estoppel against the area-based exemptions

Hero Motocorp Ltd. vs UOI (Delhi High Court)

  • The plea of promissory estoppel cannot be enforced against an act done in accordance with the statutory provisions of law.
  • Under section 174(2)(c), express provision has been made by the Parliament to provide that any tax exemption granted as an incentive against investment through a Notification under, inter alia, the erstwhile Central Excise Act shall not continue as a privilege if the said Notification is rescinded.
  • In the absence of any challenge by the assessee to the rescission of the said Notification which granted exemption or to the vires of the proviso to section 174(2)(c), no plea of promissory estoppel is maintainable.
  • Reliance was placed on Shree Sidhbali Steels Ltd Vs State of UP [2011] 3 SCC 193 and ITC Bhadrachalam Paperboards Vs Mandal Revenue Officer, AP [1996] 6 SCC 634.

Author comments: The judgment of the Delhi High Court proceeds on a pre-set mind that GST is a change of such nature that it enables every Government to dis-own all the vested rights that were given to assessee in the earlier regime. The public interest exception of principle of promissory estoppel is very casually adopted by the Court. Further the Court also seem to have misconstrued the words ‘privileges’ in proviso to Section 174 (2) (c) with the word ‘rights’. The issue of principle of promissory estoppel has been raised by the Uttarakhand HC also recently and the development in this regard would be interesting.

Conclusion

Despite continuous efforts of the Govt. in the last three years in simplifying the GST laws and making it user-friendly; the tax litigations have drastically increased in India which surely goes against the ease of doing business policy. It seems that a pandora box of litigations has been widely opened with the evolution of GST. In consideration of the size of the Indian economy and the complex business models, disputes between the taxpayers and the tax authorities are inevitable. On one hand, there are everyday promises by the Govt. of making GST simple and on the other hand, its Revenue Department has been administering the law otherwise; the moot question remains that till when the taxpayers would need to suffer and how the judiciary will be able to address the challenges of taxpayers timely and effectively.

Read Part I for Judgment 1 to 16- 3 Years of GST- A recap on 30 relevant Landmark Judgments – Part I

(Article is co-authored by CA Mannu Kashliwal and CA Manish Sachdeva. The authors could be reached at mannu@hiregange.com and manishkumar@hiregange.com for any queries /feedback).

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2 Comments

  1. CECILY ARAVINDHAN says:

    Very useful compilation Sir. If SC takes up the Appeals related to GST matters on priority, uniformity in interpretation will emerge faster.

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