Explore recent landmark judgements under the Goods and Services Tax (GST) law, covering key decisions on topics such as payment of tax in instalments, reverse charge, input tax credit, intermediary services, and more. Stay informed on significant legal developments in the GST regime.
The Goods and Services Tax Law is only around 6 years old, but we already have a number of judgements from the Honourable Courts. The much awaited GST Appellate Tribunal is yet to be constituted and as a result, the taxpayers have been forced to knock at the doors of the Courts to seek justice. The judiciary has played its role by pronouncing some significant judgements bringing much needed relief to the taxpayers. Some of the judgements have brought much needed clarity on contentious issues such as whether GSTR 3B is a return, reverse charge on ocean freight, refund of input tax credit under the inverted duty structure etc, with the Honourable Apex Court pronouncing its verdict on these matters. This article seeks to cover 10 recent judgements pronounced by the various High Courts, CESTAT and the Supreme Court under the GST regime as well as erstwhile regime the ratio of which are applicable under the GST regime.
1. Section 80 of the CGST Act 2017 – Payment of Tax and Other Amount in Instalments (M/S K. I. International(India) Ltd( W. P. No. 10379 of 2020) – High Court of Madras)
Section 80 of the CGST Act 2017, allows a taxpayer to file an application before the Commissioner to allow payment of any amount due under the Act in monthly instalments, not exceeding 24 months. However, this facility is not available, where the amount due is self-assessed in any return.
In this case, there was mismatch between the tax liability declared by the petitioner in his GSTR 1 and GSTR 3B filed for the period in question, with the tax liability declared in GSTR 3B being lesser than that declared in GSTR 1. The petitioner was served with a notice to pay the differential tax liability along with interest and penalty. The petitioner filed an application before the Commissioner to allow him to pay the differential tax in instalments under Section 80 of the CGST Act. The Commissioner rejected the application on the ground that, the differential tax payable by the petitioner was a self – assessed tax the same being declared in GSTR 1 filed by the petitioner and hence the facility to pay in instalments could not be granted.
The petitioner challenged the above rejection of his application, before the Honourable High Court of Madras. The petitioner’s contention was that GSTR 1 was not a return under the GST Law and hence the amount declared therein does not amount to self-assessed tax. The Honourable High Court noted that Section 37 onwards till Section 48 falling under Chapter IX and entitled ‘Returns’ proceeds on the basis that the various forms prescribed for filing by assessees, either setting out details of inward or outward supplies or tax credit, would all constitute returns. It also observed that inter alia Section 39 refers to a return of inward and outward supplies of goods or services or both and that the return of outward supplies is in Form GSTR 1. The Honourable High Court therefore concluded that the argument that GSTR 1 only deals with details and hence would not constitute a statutory return is unacceptable and contrary to the scheme of the Act.
The above judgement while reaffirming that facility to pay any amount due under the Act is not available in respect of self -assessed tax in returns, also puts to rest any doubts as to whether GSTR 1 is a return under the GST Law or not.
2. Carrying of Physical Copy of Invoice is mandatory -soft copy is not valid – Rule 138A of the CGST Rules 2017(J. K. Jain Buildtech India Pvt. Ltd. Vs Assistant Commissioner(WPA 3415 of 2022 Calcutta High Court))
The question involved in this particular case was whether an invoice in physical form should accompany a consignment of goods being transported. The petitioner was penalised for not carrying the invoice in physical form, although e-way bill was accompanying the consignment. The petitioner’s contention was that Rule 138A(1a) does not provide for the production of invoice in physical form and that it would suffice if the person in charge of the conveyance carries the invoice in electronic or digital form. The petitioner further contended that Rule 138A(1b) specifically used the words “physical form” only in the context of e-way bill and therefore, only the e-way bill has to be carried along with the consignment in physical form.
The Honourable Court observed that the expression used in the heading of Rule 138A is clear that “documents and devices to be carried by a person in charge of the conveyance”, included under sub-Rule(1)(a), the invoice. It also observed that “It is trite that the provision in a taxing statute has to be construed strictly and no benevolent interpretation is available while construing taxing statute. When the said provision specifically provided for that documents and devices to be carried by the person-in-charge of a conveyance including the invoice, this clearly means that the invoice has to be carried in physical form and if required shall be produced in its physical form.” The Honourable Court provided an opportunity to the petitioner to produce the physical invoice before the authorities and directed the authorities to adjudicate the matter after considering the invoice so produced.
The above judgement lays down in unambiguous terms that an invoice in physical form should mandatorily accompany a consignment of goods being transported. However it may be noted that in the case of an e-invoice, it would suffice if the QR code having the invoice reference number is produced electronically for verification by the proper officer. Attention is invited to Rule 138(2), which provides as follows :-
“In case, invoice is issued in the manner prescribed under sub-rule(4) of rule 48, the Quick Response(QR)code having an embedded Invoice Reference Number(IRN) in it, may be produced electronically, for verification by the proper officer in lieu of the physical copy of such tax invoice”
3. Claiming Time Barred ITC for the period of Cancellation – ALLYSUM INFRA vs UOI – Gujarat High Court -Special Civil Application No. 23556 of 2022
In this case, the petitioner’s GST registration was cancelled and the petition was filed to get the cancellation revoked. By the time the petition was heard, the CBIC had issued Notification 3 of 2023( Central Tax) dated 31st March 2023, which provided an opportunity to the taxpayers whose registration was cancelled on or before 31st December 2022, to apply for revocation of cancellation by 30th June 2023. The Honourable Court taking cognizance of the Notification, allowed the petitioner to apply for revocation of cancellation.
In this case, the petitioner’s registration was cancelled with effect from September 2021. On being pointed out by the petitioner’s advocate that the retrospective cancellation of registration may come in its way for claiming input tax period for the period from the cancellation of registration till the date of restoration of registration, the Honourable Court observed that “when the competent authority considers the issue of revocation of cancellation of petitioners’ GST registration under the aforesaid notification, the petitioners shall be entitled to lodge its claim for availment of Input Tax Credit in respect of the period from the cancellation of the registration till the registration is restored.”
The Honourable Court has permitted the petitioner to claim Input Tax Credit for the period from which its registration was cancelled i. e from September 2021, despite the fact that the time limit for claiming input tax credit for the financial year 2021-22, had already lapsed in view of the provisions of Section 16(4) of the CGST Act 2017. However the grounds on which such a time barred claim was allowed have not been detailed in the judgement. It needs to be seen whether the Department files an appeal against this part of the judgement.
Interestingly a judgement on similar lines has been pronounced by the Honourable Rajasthan High Court in the case of M/S R. K. Jewelers(Civil Writ Petition Number 4236/2023).
4. Applicability of Reverse Charge on Rent Paid by a Company to its Directors – M/S Cords Cable Industries Limited vs Commissioner, Central Excise, Jaipur(Rajasthan) – CESTAT New Delhi-Service Tax Appeal No. 52207 of 2018
Although this judgement has been delivered under the Service Tax Regime, it is equally applicable under the GST Regime as well. In this case, the appellant, a private limited company had made rental payments to 2 persons, who also happened to be the directors of the company. The Department demanded service tax under reverse charge mechanism on the ground that taxable services provided or agreed to be provided by a director of a company to the company is liable for reverse charge.
The Honourable Tribunal held that the directors are providing the service of renting of immovable property in their individual capacity as owners of the premises and not as directors of the company and accordingly, the company cannot be asked to pay service tax under the reverse charge mechanism. Incidentally, in this case, service tax was collected and paid by the landlords( who happened to be the directors in this case) on the rental receipts. This was considered as an additional ground for holding that reverse charge was not applicable.
Under the GST Law also, there is an identical provision under Notification 13/2017-Central Tax(Rate) – as per serial number 6 of the Notification, services supplied by a director of a company or body corporate to the said company or body corporate is liable for reverse charge. The ratio of this judgement can be applied to GST as well. It can be argued that the service of renting of immovable property is being provided by the directors in their individual capacity and not in the capacity of the directors of the company.
5. Burden of Proving Genuineness of Input Tax Credit is on the recipient – State of Karnataka Vs M/S Ecom Coffee Trading Private Limited -Supreme Court – Civil Appeal No. 230 of 2023
In a significant decision under the erstwhile VAT laws, the Hon’ble Supreme Court has held that the burden of proving the correctness of input tax credit claimed, is on the purchasing dealer. The ruling also held that in the event of non -payment of tax by the selling dealer, the purchasing dealer has to produce not only purchase invoices and proof of payment made to the supplier, but also other additional documents such as name and address of the selling dealer, details of the vehicle that delivered the goods, payment of freight charges, acknowledgement of taking delivery of the goods etc.
The above ruling rendered in the case of Escom Gill Coffee Trading Pvt Ltd under the Karnataka Value Added Tax Act 2003, is likely to have implications under the GST regime as well. Since receipt of goods is an essential condition for availing Input Tax Credit under GST( Section 16(2)(b) of the CGST Act 2017), the Department is likely to insist on production of e-way bills, transport bills /receipts, GRNs etc in order to verify claims of input tax credit. For the taxpayer, the ruling provides a ray of hope in the case of non-payment of tax by the selling dealer, as it holds that input tax credit shall be allowed to the purchaser /recipient of goods in such cases where he is able to produce documents in support of the purchases such as invoice, payment details, transport documents etc.
The above ruling reinforces the importance of maintenance of proper records and documents in support of purchases. Copies of e-way bills, transporter receipts etc should be maintained along with the purchase invoices. Even in cases where the purchase invoices are not reflected in GSTR 2A/2B, these supporting documents will be helpful in substantiating the genuineness of the input tax credit claimed, in any legal proceedings.
It may also be noted that this ruling did not consider the vires of the condition that tax must be paid by the supplier for the recipient to claim input tax credit. The judgement dealt with the nature and extent of documents to be produced by the recipient to prove the genuineness of input tax credit availed by him in his returns.
6. Uploading of Orders on common portal constitutes proper mode of service – Pandidorai Sethupathi Raja vs Superintendent of Central Tax – W. P. No. 25666 of 2022 -Madras High Court
In this case, the Honourable Madras High Court was dealing with a bunch of writ petitions filed against cancellation of GST Registration. In one such case, the petitioner had not filed appeal against the order of cancellation on the ground that it was not served through registered post or substitutes service but was uploaded in the GST portal. The petitioner claimed that uploading of order on the common portal does not amount to “tendered, published or affixed” as provided under Section 169(2) of the CGST Act.
The Honourable High Court rejected this contention of the petitioner and held that making an order available in the portal would tantamount to “tendering” of that order to the recipient. Further as per Section 169(1)(d) of the CGST Act, making available an order, notice etc on the common portal is a valid service of such communication.
The petitioner had also argued that under the Income Tax Law, whenever a notice or any other communication is sent to the taxpayer, he received an sms or email alert which is not being done under GST. On this argument, the Honourable Court accepted the Department’s contention that, every month, the taxpayer has to visit the GST portal at least monthly once for filing the monthly returns and therefore the necessity for an alert stands obviated.
The above judgement reaffirms the importance of regularly checking the GST portal for any notices or orders. It may be noted that any notices /orders uploaded by the Department in the GST portal can be viewed either under “View Notices and Orders” or under “View Additional Notices and Orders” under the option “Services – User Services”.
One practical issue with the above mode of service is how to know when the notice /order is uploaded in the portal. How will the taxpayer know if some officer has belatedly uploaded a back dated order. For example an order dated 1st September is uploaded on 30th September. GSTIN should ensure that the technology used prevents such belated uploading of orders. In the interest of convenience and ease of doing business, the taxpayer should also get an sms or e-mail alert whenever a communication is sent from the Department.
7. Scope of Intermediary Services – M/S Ernst and Young Limited vs Additional Commissioner, CGST Appeals -II, Delhi AND ANR.
In this case, the petitioner’s application for refund of unutilized input tax credit on account of export of services without payment if IGST, was rejected by the Department on the ground that the services provided by the petitioner was not export of services. The Department held that the services provided by the petitioner were in the nature of intermediary services and accordingly in view of the provisions of Section 13(8)(b) of the IGST Act 2017, the Place of Supply of services shall be India and therefore the services do not constitute export of services.
The petitioner was providing professional services, business advisory services, technical assistance services etc to E&Y UK, Australia, US and New Zealand in pursuance of agreements entered into with these parties. The Adjudicating and Appellate Authorities held that the services provided by the petitioner were intermediary services. The Appellate Authority reasoned that the services provided were at the instance of foreign based entities but the same were not provided in their respective foreign territories. Therefore, it could be construed that the subject services were provided in India.
The Honourable High Court, held that a plain reading of the aforesaid definition makes it amply clear that an intermediary merely “arranges or facilitates” supply of goods or services or both between two or more persons. Thus, it is obvious that a person who supplies the goods or services is not an intermediary. The services provided by the intermediary only relate to arranging or facilitating the supply of goods or services from the supplier. In the present case, there is no dispute that the petitioner does not arrange or facilitate services to EY entities from third parties; it renders services to them. The petitioner had not arranged the said supply from any third party.
The Adjudicating Authority had reasoned that since the petitioner provides services on behalf of E&Y Limited, it was an intermediary. The Honourable Court held that this reasoning is fundamentally flawed. It is apparent that the Adjudicating Authority has interpreted the last limb of the definition of ‘intermediary’ under Section 2(13) of the IGST Act as controlling the definition of the term. The Court disagreed with this interpretation. The limb of Section 2(13) of the IGST Act reads as “but does not include a person who supplies such goods or services or both or securities on his own account” but this does not control the definition of the term ‘intermediary’; it merely restricts the main definition.
The opening lines of Section 2(13) of the IGST Act expressly provides that an intermediary means a broker, agent or any other person who “arranges or facilitates supply of goods or services or both or securities between two or more persons”. The last line of the definition merely clarifies that the definition is not to be read in an expansive manner and would not include a person who supplies goods, services or securities on his own account. There may be services, which may entail outsourcing some constituent part to a third party. But that would not be construed as intermediary services, if the service provider provides services to the recipient on his own account as opposed to merely putting the third party directly in touch with the service recipient and arranging for the supply of goods or services.
Thus, even if it is accepted that the petitioner has rendered services on behalf of a third party, the same would not result in the petitioner falling within the definition of ‘intermediary’ under Section 2(13) of the IGST Act as it is the actual supplier of the professional services and has not arranged or facilitated the supply from any third party.
This judgement clarifies the following points on the role of an intermediary :-
a) An intermediary only arranges or facilitates the supply of services between two or more Any person who supplies goods or services is not an intermediary. The services provided by the intermediary only relate to arranging or facilitating the supply of goods or services from the supplier.
b) Even if a person supplies services on behalf of another person, he cannot be considered as an intermediary since he is the actual supplier of services and has not arranged or facilitated any supply from a third party.
8. Intermediary Services – No CGST /SGST – Dharmendra M Jani – Writ Petition No 2031 of 2018-Bombay High Court
The vires of Section 13(8)(b) of the IGST Act which provides that the Place of Supply in the case of intermediary services is the location of the service provider, has been challenged in Courts. In this case also, the provision was challenged on the ground that it violates Article 14 of the Constitution by discriminating against service providers providing intermediary services, by holding that the place of supply in such cases is in India and thereby denying them the benefit of export of services. One of the essential conditions to be satisfied for a service to be an export of service is that the place of supply should be outside India.
In this case, the Division bench gave a split verdict, with one of the judges holding that the provision is Ultra Vires Article 14 of the Constitution of India and the other judge disagreeing with this view and therefore the matter was referred to the Chief Justice. It was held by the Chief Justice that the differential treatment of intermediary services was based on a reasonable classification peculiar to the services provided by the petitioner and therefore the provision is not Ultra Vires Article 14 of the Constitution. It may also be noted that the Honourable Gujarat High Court in the case of Material Recycling Association of India Versus Union of India, had upheld the constitutional validity of the provisions of Section 13(8)(b) of the IGST Act 2017.
Interestingly, the Honourable High Court considered the contention of the petitioner that provisions of Article 246A, Article 269A and Article 286 of the Constitution empower the Parliament to tax interstate transactions and that the Parliament does not have legislative competence to tax export of services under the CGST and SGST Acts, which undisputedly pertain to intra-state supply of goods and services and held that the provisions of Section 13(8)(b) of the IGST Act are confined to the IGST Act and cannot be made applicable for levy of tax on services under the CGST and the State GST Act.
The above conclusion arrived at by the Honourable High Court implies that in the case of a service provided by an intermediary to a person located outside India, IGST will be applicable. There was a difference of opinion among experts on whether IGST or CGST and SGST is to be charged in respect of such transactions.
A number of writ petitions were filed before the Honourable High Court in in respect of orders which were appealable before the GST Appellate Tribunal, since the Tribunal is not yet constituted. The Honourable High Court sought the Department’s response in this regard. The Department filed an affidavit before the Court stating that the time limit for filing appeal against orders appealable before the GST Appellate Tribunal has been extended to 3 months from the date of the order or from the date of constitution of the Tribunal, whichever is later. This was further clarified vide Clause 4. 2 of Circular number 132 dated 18th March 2020.
After consideration of the affidavit filed by the Department, the Honourable High Court advised the CBIC to issue instructions to incorporate Clause 4. 2 of Circular 132 in each order appealable to the GST Appellate Tribunal.
The above case will provide relief to the taxpayers as the CBIC has declared before the Honourable High Court that no hardship would be caused to the taxpayer due to non constitution of the Appellate Tribunal.
10. Rule 89(4C) is ultra vires the Constitution – M/S Tonbo Imaging India Private Limited -W. P. No 13185 of 2020
The Judiciary has consistently held that Rules cannot supersede the Act. It has also been held in a number of judgements that Circulars cannot be contrary to the Law under which they have been issued. Under any Law, the Act lays down the basic statute ; Rules are then framed to lay down the procedural matters and Circulars are issued to clarify certain aspects of the law. However, under GST the process has sometimes been reverse, with the Circulars being issued first prescribing matters beyond the framework of the law ; then Rules are framed in line with the Circulars and after that finally the Act is amended to validate the Rules. Rule 36(4), Rule 86 A, and Rule 86B are examples in this regard.
The above decision is to be viewed in the above context. Rule 89(4C), which deals with refund of unutilized input tax credit on account of export of goods without payment of tax, was amended with effect from 23rd March 2020 vide Notification 16/2020. Vide the amendment, the Turnover of zero rated supply of goods was restricted to 1. 5 times the value of like goods domestically supplied by the same or similarly placed supplier. The petitioner challenged the amendment before the Honourable High Court of Karnataka. The Court held that the amendment is illegal, arbitrary, unreasonable, irrational, unfair, unjust and ultra vires Sections 16 of the IGST Act and 54 of the CGST Act. Some of the grounds on which the Honourable High Court arrived at its decision are:
a) Rule 89(4C) is ultra vires Section 54 of the CGST Act and Section 16 of the IGST Act, as it restricts the refund. The very intention of zero rating exports is to make the entire supply chain tax free. By whittling down the refund, the Rule is ultra vires in view of the well settled principle of law that Rules cannot override parent legislation.
b) Rule 89(4C) is in violation of Article 14 of the Constitution as it discriminates against exporters exporting without payment of IGST. The Rule restricts the refund only in cases where export is made without payment of IGST whereas no such restriction is placed on exporters who export with payment of IGST. Thus there is a hostile discrimination between between 2 classes of persons.
c) Rule 89(4C) is unreasonable as it takes away the exporter’s right to claim refund of all the taxes paid, by putting a restriction. It is unreasonable and arbitrary as adequate reasoning is not present ;this would make such amendment unreasonable for the reason that it bears no rational nexus with the objective sought to be achieved by Section 16 of the IGST Act.
d) Rule 89(4C) is also suffers from the vice of vagueness for the reason that the words “like goods” and “similarly placed supplier “used in the Rule are completely open ended and not defined anywhere in the CGST/IGST Act or Rules.
e) The Rule also fails to clarify as to what would be the consequence if there are no goods supplied in the domestic market and value of like goods provided by other suppliers is not available etc.
There are similar other instances under the GST Law, where the Rules have superseded the Act as mentioned earlier. The recent amendment in Rule 89(4C) restricting the refund based on FOB value of the goods is also likely to be challenged as there is no enabling provision under the CGST /IGST Act.