July 2019

GOODS AND SERVICES TAX (GST)

PULOMA DALAL | JAYESH GOGRI | MANDAR TELANG
Chartered Accountants

 I. HIGH COURT


25 2019 [23] G.S.T.L. 162 (All) DM Advertisers Agency vs. State of U.P.
Date of order: 14th February, 2019

 

If States do not have power to levy tax on any particular activity, municipal corporations cannot enjoy such power – No taxes can be levied without power

 

FACTS

A writ petition was filed by the petitioner, an advertising company, challenging the vires of the Mathura Vrindavan Nagar Nigam (Vigyapan Kar Ka Nirdharan and Wasuli Viniyaman) Upvidhi, 2017 which enforced bye-laws with effect from 6th January, 2018 by virtue of section 172(2)(h) of the U.P. Municipal Corporation Act whereby advertisement tax was levied. However, the said provision had stood deleted vide section 173 of the U.P. GST Act enforced on 1st July, 2017. Moreover, the power to impose advertisement tax by the state was divested through section 17 of the Constitution 101st (Amendment) Act with effect from 16th September, 2016 which deleted Entry 55 of List-II of the VIIth Schedule of the Constitution of India by which the state legislature was invested with the power to make laws in respect of taxes on advertisement.

 

HELD

The Hon’ble Court held that when the state legislature was deprived of power to levy tax on advertisement, clearly the municipal corporations also ceased to have the power to impose any tax on advertisement. Therefore, Mathura Vrindavan Nagar Nigam had no legislative competence on 6th January, 2018 to promulgate the aforesaid bye-laws. Accordingly, the writ petition was allowed, striking down the aforesaid bye-laws as ultra vires.

 

26 2019 [23] G.S.T.L. 164 (All) Mandeep Dhiman vs. Dy. Dir., Directorate-General of GST Intelligence
Date of order: 6th March, 2019

 

A writ of habeas corpus shall not be maintainable when a person is in custody on the basis of orders passed by a court of competent jurisdiction

 

FACTS

A writ of habeas corpus was filed directing the respondents to produce the detainee before the Court. The detainee was arrested u/s. 69 of the Central Goods and Services Tax Act, 2017 for the offences specified in section 132(1) of the said Act. The detainee had also filed a bail application before the Chief Judicial Magistrate which was subsequently rejected, in response to which the aforementioned writ was filed.

 

HELD

The Hon’ble High Court dismissed the writ petition stating that writ of habeas corpus shall not be maintainable since the person detained was in custody on the basis of the orders passed by a Court of competent jurisdiction.

 

27 2019 [23] G.S.T.L. 178 (Mad) TVL. R.K. Motors vs. State Tax Officer, Virudhunagar
Date of order: 24th January, 2019

 

Goods seized as they were not offloaded at designated place but taken further to another delivery point. But tax was duly paid on said goods, thus seizure order was held to be grossly unreasonable

 

FACTS

A writ petition was filed challenging the vindictive and drastic order levying penalty and detention of goods and vehicle. E-way bill was generated by the petitioner having separate billing and shipping addresses. The goods under transit were not offloaded at the designated place; instead, they were taken further towards the billing address. The said goods were also covered under appropriate documents and the tax was remitted. There was no attempt of evasion. The vehicle in transit was intercepted by the respondent Department when it was en route to the billing address. The vehicle was seized and the driver of the vehicle was asked to co-operate. It appeared that he did not co-operate with the authorities. Therefore, owing to the circumstances, the impugned order was passed by the respondent. Hence, writ petition was filed questioning the detention order.

 

HELD

The Hon’ble High Court held that the order passed by the respondent was grossly unreasonable and disproportionate; it said the respondent ought to have taken a sympathetic and indulgent view. Hearing both the parties, the petitioner was directed to pay a sum of Rs. 5,000 as fine to the respondent and ordered the release of the goods and the vehicle, thereby quashing the impugned orders and allowing the petition.

 

28 2019 [23] G.S.T.L. 191 (Ker) Chaithanya Granites and Marbles vs. Assistant State Tax Officer, State Goods and Services Tax Department, Kasaragod
Date of order: 19th September, 2018

 

E-way bill expired due to breakdown of the vehicle, goods and vehicle directed to be released on personal bond without bank guarantee

FACTS

The present writ petition was filed against the detention order passed by the Department despite reasonable submissions for interim release. The petitioner had purchased goods from a company in Maharashtra. These were entrusted to the parcel agency after generating the E-way bill. En route to the destination, the vehicle broke down and required repairs in Karnataka. In the meanwhile, the state of Kerala was caught in unprecedented floods which made it impossible for the transporter to resume the journey. Thus, the E-way bill expired since it took more time than usual for the transporter to reach the destination. The vehicle was intercepted by the respondent and the goods were seized u/s. 129 of the GST Act, 2017. Hence the writ petition.

 

HELD

The Hon’ble High Court of Kerala held that that once the petitioner had explained the circumstances through submissions, the respondent ought to have taken a lenient view rather than a practical view. The said writ petition was disposed by holding that the goods be released under security of personal bond from the petitioner without insisting on the bank guarantee.

 

29 2019 [23] G.S.T.L. 3 (Ker) Noushad Allakkat vs. State Tax Officer (WC), State GST Deptt., Manjeri
Date of order: 4th October, 2018

 

Bank guarantee submitted with regard to detention of goods cannot be enchased during limitation period of appeal

 

FACTS

The petitioner, a dealer in timber, purchased timber in Tamil Nadu and was transporting it to Kerala. The said goods were intercepted and detained u/s. 129 of the Kerala GST Act, 2017 for the supplier’s failure to collect IGST. Subsequently, an order was passed imposing tax and penalty. The petitioner obtained provisional release of goods after furnishing a bank guarantee for tax and penalty and also tendered bond and security for the value of the goods.

 

Later, he decided to contest the adverse order by filing a statutory appeal u/s. 107 of the said Act. But before the petitioner’s action on the Department, it threatened to apprehend him to invoke the bank guarantee on failure to produce goods at the appointed date and time as laid down under Rule 140(2) of the CGST Rules, 2017 and confiscate them. Aggrieved by the same, the petitioner preferred a writ petition before the Hon’ble High Court.

 

HELD

The Hon’ble High Court, while deciding the issue, relied on the decision of Commercial Tax Officer vs. Madhu M.B. 2017 (6) GSTL 150 (Ker.) wherein it was held that a dealer ought to produce the goods at the time of adjudication, which was not produced by the petitioner; therefore, he was held liable for penalty. But the Court also left room for the petitioner to distinguish the judgement and assert its case before the Appellate Forum. It was further held that pending the petitioner’s three months’ time to prefer an appeal against the impugned order, the act of the respondent was inequitable to invoke the bank guarantee. The writ petition was disposed with a direction to the Department to not invoke the bank guarantee for three months. In the interim, the petitioner was directed to make efforts before the appellate authority to get an interim protection, pending appeal.

 

30 2019 [23] G.S.T.L. 168 (Kar) Avinash Aradhya vs. Commissioner of Central Tax, Bengaluru
Date of order: 18th February, 2019

 

In case of an offence punishable under GST Law, anticipatory bail granted on imposing stringent conditions

FACTS

A group of petitioner companies along with other companies indulged in continuous issuance of fake invoices without actual supply of goods with an intention to enable them to avail the input tax credit fraudulently. Revenue registered a complaint against these companies upon finding that the invoices which were issued and circulated among these companies and other companies reached back to the originating companies without actual movement of goods, thereby transferring the irregular input tax credit to the originating companies for payment of GST and Sales Tax; it held that this was offensive and criminal in nature.

 

Consequently, the Revenue issued arrest orders against this group of companies. The petitioner filed an anticipatory bail application before the Hon’ble High Court contesting the arrest order stating that as per section 137 of the GST Act, the maximum punishment which can be imposed upon making out of offence and conviction is five years and as per section 138 of the said Act, offence can be compounded before the Commissioner on payment (of penalty). It further contested that there was no irregularity or loss to revenue of Central or State Governments. The GST was paid by creating invoices. The only allegation against the petitioner was that it gave only inflated transaction, therefore this cannot be an offence under the said Act.

 

The respondent, however, vehemently objected to the contention of the accused, stating that the petitioner claimed ITC without any payment of tax and without there being any movement of goods, due to which the economy of the country could be affected. Further, the respondent contested that actually no tax was paid to anybody and rather only paper transactions happened and such acts would affect trade transactions of the nation. The act of the petitioner appeared to be a scam and if allowed to be continued it would have its own cumulative effect on the economy as a whole. And if the accused were released on bail then the entire investigation would be affected which may hamper the case of the prosecution.

 

HELD

The Hon’ble High Court relied on the Hon’ble Supreme Court decision passed in the case of Om Prakash & Anr. vs. Union of India & Anr. 2011 (24) STR 257 (SC) and in the case of Siddharam Satlingappa Mhatre vs. State of Maharashtra and others, reported in (2011) 1 SCC 694 to understand the parameters to follow while dealing with anticipatory bail. The Court observed that no material was produced by the Revenue to show the magnitude of loss likely to be caused and how the said act could affect the economy of the country.

 

Thus, considering the gravity of the offence and punishment which was likely to be involved, the Court ordered the accused to be released on bail to meet the ends of justice with imposition of some stringent conditions, that each petitioner would have to execute a bond of a sum of Rs. 5,00,000 with two sureties for the like sum to the satisfaction of the authority and to surrender before the Investigating Officer within 15 days from the date of passing of the High Court order. Further that they should not tamper with the prosecution evidence or any documents required for the purpose of investigation and should co-operate with the investigation and should not leave the country without prior permission of the Special Court for Economic Offences and refrain from undertaking similar type of criminal activities covered under the Act.

 

31  [2019] 104 taxmann.com 31 (AAAR-Maharashtra) IMS Proschool (P) Ltd., in re
Date of order: 4th February, 2019

 

AAAR held that the scope of exemption under Entry No. (69) of Notification No. 12/2017-CT(R) is restricted only to the activities in relation to specific schemes implemented by National Skill Development Council and not to other skill development training programmes provided by approved training partners of NSDC under its general mandate to promote skill development

 

FACTS

The appellant offers educational training and skill development courses through classroom training and virtual coaching for various national and international certifications. The appellant is an approved training partner of the National Skill Development Corporation (NSDC) and the courses offered are approved by NSDC. However, in some cases, the qualification packs (QPs) / National Occupation Standards (NOS) with reference to certain courses are pending final approval and hence such courses are conditionally / exceptionally approved by NSDC. The appellant is offering such courses to corporates and business institutes. In some cases, the training part is sub-contracted to business partners of the appellant.

 

The appellant sought advance ruling as to whether they would be entitled to exemption provided under Entry No. (69) of Notification No. 12/2017-CT (R) dated 28th June, 2017 in respect of  services provided by the training partner approved by NSDC in relation to any other scheme implemented by NSDC.

 

AAR held that the NSDC programme would cover only the actual schemes and programmes of skill development that are undertaken by government through its various ministries, departments, directorates, attached offices and organisations and cannot in any way be construed to include all the courses that enhance skills.

 

Aggrieved by this ruling of the AAR, the appellant filed the appeal. Referring to clause (i) and (iii) of Entry No. 69(d), the appellant submitted that the scope of the said entry is broad as it covers activities in relation to schemes implemented by NSDC and hence, once it is established that NSDC is involved in implementation of the activity of training programmes / courses, the exemption should be granted to the appellant.


HELD

The appellate authority observed that NSDC is acting as the nodal implementing agency for various schemes implemented by the Ministry of Skill Development and Entrepreneurship. The AAAR held that, as regards various courses run by it, there is no conclusive evidence that such training programmes are covered under clauses (i) or (iii) of Entry 69(d). As regards the appellant’s submission that the scope of the said entry is broad as it covers activities in relation to schemes implemented by NSDC, the appellate authority noted that NSDC has two mandates, i.e., to implement specific schemes of government and a general mandate to encourage and support the private sector and skill development.

 

Thus, the appellate authority held that the scope of exemption given under said Entry No. (69) is restricted to the schemes implemented by Ministries through NSDC acting as nodal agency and cannot be extended to general initiatives undertaken by NSDC. For arriving at such a conclusion, the AAAR took a view that the words “National Skill Development Programme” is very limited in scope and is restricted only to the efforts that are undertaken through government funding, government schemes and specially-designed government programmes. Accordingly, the appellate authority upheld the order of AAR that since the training provided by the appellant is covered under the general mandate of NSDC and is not related to specific government-funded schemes implemented by NSDC, the appellant is not entitled for this exemption.


32  [2019] 104 taxmann.com 422 (AAAR-Maharashtra) Spaceage Syntex (P.) Ltd., in re

Date of order: 13th March, 2019

AAAR held that duty-free import authorisation (DFIA) are included in duty credit scrips, as referred under the Foreign Trade Policy. The sale or purchase of DFIA are exempt from GST in light of Sr. No. 122(a) of Notification No. 02/2017-CT (R)

 

FACTS

The appellant sought an advance ruling to decide whether GST is applicable on sales and / or purchase of DFIA (Duty-Free Import Authorisations) as Sr. No. (122a) of Notification No. 2/2017-CT (R) exempts duty credit scrip (DCS). The AAR observed that the DSC are issued under chapter 3 of the Foreign Trade Policy, whereas DFIA are issued under chapter 4 of FTP; observing other procedural differences between DSC and DFIA, AAR held that DFIA are liable to GST. Being aggrieved, the appellant filed the present appeal.

 

HELD

The appellate authority observed that DCS are rewards provided to exporters under MEIS / SEIS schemes and the goods imported / domestically procured against them are freely transferrable. DCS can be used to offset basic custom duty and additional custom duty for import of goods. The DFIA is issued to allow duty-free imports of inputs, i.e., it is an instrument to extend incentive to exporters by entitling them to import the goods specified under the import authorisation, without payment of customs duties.

 

Thus, the appellate authority found that though the DCS and the DFIA have been envisaged under different chapters and under different schemes of the export of the FTP followed by DGFT, the basic nature and functionality of both the instruments is the same, i.e., to set off basic customs duty on imports of goods. Further, it was noted that in Atul Glass Industries Ltd. 1986 (25) ELT 473 (SC), the Supreme Court had held that the words and expressions must be construed in the sense in which they are understood in trade, by the dealer and the consumer. The DCS and DFIA are construed as same in trade parlance and are widely known as duty-paying scrips or licenses or duty credit scrips due to their common functionality and nature.

 

Further, the appellate authority observed that since the said DCS cannot be used for payment of GST, the GST rate on sale / purchase of DCS was reduced from 5% to 0% so as to restore the lost incentive on sale of DCS to exporters. Accordingly, the appellate authority set aside the ruling of AAR by holding that DFIA is equivalent to DCS and thus chargeable to nil rate of GST on sale or purchase of DFIA.

 

33  [2019] 104 taxmann.com 88 (AAR-Madhya Pradesh) J.C. Genetic India (P.) Ltd., in re
Date of order: 21st January, 2019

 

AAR held that the exemption for healthcare services provided by clinical establishments is not applicable to entities functioning as sub-contractors of clinical establishments

FACTS

The applicant, a healthcare company, is engaged in diagnosis, pre- and post-counselling therapy and prevention of diseases by providing necessary sophisticated tests. It also provides genomic information which helps physicians and wellness professionals in curing diseases and improving human health. The applicant has a collaboration with diagnostic companies accredited by NABL (National Accreditation Board for Testing and Calibration Laboratories) and DSIR (Department of Scientific and Industrial Research) certified to provide advanced genetic tests that help in prevention and management of cancer and various health and metabolic disorders. The applicant sought an advance ruling as to whether it qualifies to be a ‘clinical establishment’ and eligible for exemption from GST to healthcare services provided by clinical establishments in terms of Notification No. 12/2017-CT (R).

 

HELD

AAR noted that the applicant has a collaboration with diagnostic companies accredited by NABL and DSIR, which indicates that the applicant does not have their own authority for giving clear report / opinion of their own for the tests and they have to get all the tests conducted and certified by the said NABL-accredited laboratory. Thus, AAR held that the applicant is functioning as sub-contractors to the said accredited companies and not as an independent clinical establishment.

 

Further, AAR observed that the exemption under said Entry No. (74) is service-specific as well as service-provider specific. To qualify for the said exemption an establishment has to satisfy dual conditions of providing healthcare service as well as being a clinical establishment. Thus, AAR held that while the services provided by the applicant may be healthcare service, since they do not qualify to be a clinical establishment the benefit of said exemption would not be available to them.

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