Case Details: Muzamil N vs. Deputy State Tax Officer - I - [2024] 169 taxmann.com 451 (Madras)

Judiciary and Counsel Details

• Mohammed Shaffiq, J.
• B. Manoharna for the Petitioner.
• T.N.C. Kavshik, Addl. Govt. Pleader, for the Respondent.

Facts of the Case

The petitioner, a registered dealer engaged in the scrap business, was assessed for the financial year 2018-19. During an inspection under Section 67 of the CGST Act, it was alleged that the petitioner fraudulently availed ineligible input tax credit based on invoices issued by a non-existent supplier. A notice in Form DRC-01A was issued on 16.12.2022 via the GST portal, followed by a formal show cause notice on 07.03.2023. The petitioner failed to respond or participate in the adjudication process, claiming they were unable to access the portal. Subsequently, an assessment order dated 04.01.2024 was issued confirming the liability.

High Court Held

The High Court noted that the petitioner was not provided a fair opportunity to explain the alleged discrepancies. The principles of natural justice were violated as the notices and orders were not effectively communicated. The petitioner expressed readiness and willingness to pay 25% of the disputed tax and requested one final opportunity before the adjudicating authority to present their objections to the proposal.

Therefore, the Court set aside the assessment order and directed the respondent to ensure that fresh orders are passed in accordance with the law after affording the petitioner a reasonable opportunity of being heard.

List of Cases Reviewed

• M/s. K. Balakrishnan Balu Cables v. Assistant Commissioner of GST & Central Excise [W.P.(MD) No.11924 of 2024 dated 10.06.2024] [Para 4] followed.

The post Order Denying ITC Without Providing the Assessee an Opportunity to Explain Discrepancies to Be Set Aside appeared first on Taxmann Blog.

Press Release, Dated 21-12-2024

The GST Council’s recent recommendations introduce key reforms and compliance updates aimed at streamlining tax processes and reducing business costs. These include a retrospective amendment in Section 17(5)(d) of the CGST Act, 2017, replacing “plant or machinery” with “plant and machinery” from 01.07.2017, which nullifies the Supreme Court’s Safari Retreats ruling and significantly impacts the construction sector. The removal of reverse charge on sponsorship services and reduced cess for merchant exporters will lower costs and enhance global competitiveness.

Further, trade facilitation measures include clarity on voucher taxation, GST exemption for small transaction fees by payment aggregators, simplified registration for small businesses, and the exemption of GST on penal charges by banks and NBFCs for non-compliance with loan terms.

Additionally, the GST on the sale of old and used vehicles, including EVs (except specific categories), will increase from 12% to 18%. The inclusion of the Input Matching System (IMS) in GST legislation marks a significant shift in compliance dynamics, requiring businesses to evaluate its impact carefully. These changes reflect a balance between easing compliance burdens and optimizing revenue generation.

Click Here To Read The Full Update

The post Key Recommendations From the 55th GST Council Meeting Announced by Government appeared first on Taxmann Blog.

Case Details: Ashish Traders v. State of U.P - [2024] 169 taxmann.com 394 (Allahabad)

Judiciary and Counsel Details

• Arun Bhansali, CJ. & Vikas Budhwar, J.
• Ajay Kumar Yadav, Ashish Bansal & Shalini Goel for the Petitioner.
• Ankur Agarwal, S.C. for the Respondent.

Facts of the Case

The petitioner challenged a GST demand order, alleging that the notices were uploaded under the ‘Additional Notices and Orders’ tab instead of the ‘Due Notices and Orders’ tab on the GST portal. This prevented the petitioner from responding within the limitation period. Referring to a similar case, Ola Fleet Technologies Pvt. Ltd. vs. State of U.P., the High Court noted that the GST portal’s technical limitations may have caused this error.

High Court Held

The court held that this amounted to a violation of natural justice, as the petitioner was denied proper communication of the notices. Consequently, the impugned order was quashed, and the Assessing Officer was directed to issue a fresh notice with at least 15 days’ clear notice in the prescribed manner.

List of Cases Reviewed

• Ola Fleet Technologies (P.) Ltd. v. State of U.P. [Writ Tax No. 855 of 2024, dated 22-7-2024](para 6) followed.

List of Cases Referred to

• Ola Fleet Technologies Pvt. Ltd. v. State of U.P. & 2 others Writ Tax No. 855 of 2024 (para 3).

The post High Court Directs Reissuance of Notice in GST Case as SCN Was Uploaded Under the Wrong Tab appeared first on Taxmann Blog.

Case Details: Ishan Gupta v. Union of India - [2024] 169 taxmann.com 406 (Chhattisgarh)

Judiciary and Counsel Details

• Ramesh Sinha, CJ.
• Shevendu Pandya & Sanskar Rajput, Advs. for the Appellant.
• A.S. Kuchwaha, Sr. Adv. for the Respondent.

Facts of the Case

The applicant was arrested in connection with the offence punishable under Sections 132(1)(b) and 132(1)(c) of the Central Goods and Services Tax Act, 2017 (CGST Act). The prosecution alleged that the applicant was involved in creating fake firms and issuing fraudulent invoices. It was claimed that these fake firms were established to inflate turnovers and claim wrongful Input Tax Credits (ITC) without any actual exchange of goods or services. The applicant filed a bail application before the Chhattisgarh High Court and contended that the same tax liabilities were being sought from both the applicants and other entities, which is legally untenable under the CGST Act, Section 132(c), as no end-users or beneficiaries have been implicated, showing a clear failure of the investigative process.

High Court Held

The Chhattisgarh High Court held that the applicant was languishing in jail since 22.06.2024, and the charge sheet had been filed. The conclusion of the trial was likely to take some time. However, the GST Department failed to investigate or seize the accounts of the actual beneficiaries in the down-chain, while the applicant’s bank accounts were seized even before any summons were issued.

Additionally, the same tax liabilities are being sought from both the applicants and other entities, which is legally untenable under the CGST Act, Section 132(c), as no end-users or beneficiaries have been implicated, showing a clear failure of the investigative process. Thus, without commenting anything on the merits of the case, the High Court was inclined to grant regular bail to the applicant.

The post Bail Granted Due to Investigation Lapses in Issuing Fake Invoices Under GST | HC appeared first on Taxmann Blog.

The Indirect Tax Judgments of 2024 include several landmark rulings by the Supreme Court that clarified key issues in taxation. In Mineral Area Development Authority v. Steel Authority of India, the Court held that royalty on mining is not a tax and affirmed states’ authority to levy taxes on mineral rights. In Commissioner of Customs v. Canon India (P.) Ltd., the Court validated the jurisdiction of DRI officers to issue show-cause notices under amended provisions of the Customs Act. In Bharti Airtel Ltd. v. Commissioner of Central Excise, Pune, mobile towers and prefabricated buildings were classified as movable property eligible for CENVAT credit. The judgment in Safari Retreats Private Ltd. v. Chief Commissioner of CGST upheld restrictions on Input Tax Credit (ITC) for immovable properties, with nuanced exceptions for functional properties qualifying as "plant." Finally, K.P. Mozika v. ONGC Ltd. clarified that contracts retaining substantial control with the contractor are services, not deemed sales. These rulings significantly influence GST, customs, and service tax frameworks in India.

Table of Contents

1. Mineral Area Development Authority. v. Steel Authority of India [2024] 164 taxmann.com 806 (SC)
2. Commissioner of Customs v. Canon India (P.) Ltd. [2024] 168 taxmann.com 221 (SC)
3. Bharti Airtel Ltd. v. Commissioner of Central Excise, Pune [2024] 168 taxmann.com 489 (SC)
4. Chief Commissioner of CGST v. Safari Retreats Private Ltd. [2024] 167 taxmann.com 73 (SC)
5. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. [2024] 158 taxmann.com 340 (SC)

1. Mineral Area Development Authority. v. Steel Authority of India [2024] 164 taxmann.com 806 (SC)

1.1 History and Background

• Two concurrent judgements (25 July) and (14 August) of the Larger Bench (“LB”) of the Supreme Court.
• Indian Cement v. State of Tamil Nadu [Civil Appeal No. 62(N) of 1970, Dated – 25-10- 1989] – Distribution of legislative powers between the Union and States on taxation of mineral rights. Royalty is tax and state legislatures lack competence to levy taxes on mineral rights – Subject-matter is covered by the Mines and Minerals (Development and Regulation) Act, 1957 (“MMDR Act”).
• State of W.B. v. Keshoram Industries [Civil Appeal nos. 1532-33 of 1993, Dated 15-1- 2004] – India Cement judgement erroneous and royalty is not a tax.
• Issues – Whether Royalty is in the nature of tax? The substantive issue before the Supreme Court was ascertaining the ambit of Constitutional powers of the State legislatures to impose taxes on mineral rights in contrast to the Constitutional powers of the Parliament.
• On one hand, the Parliament has the power to legislate on the subject matter ‘and exercising this power, had enacted the MMDR Act, which provides for charging of royalty on the holder of mining lease in respect of any mineral removed from the lease area. On the other hand, States also have the power to legislate on the subject matter under ‘taxes on land and building’ as well as ‘taxes on mineral rights’, subject to any limitations imposed by the Parliament by law relating to mineral development’.
• “Taxes on lands and buildings” in Entry 49 List II of the Constitution: Whether it covers a tax which involves a measure based on the value of the produce of land?
• Seven judge bench of India Cements was contrasted by five judge bench in Keshoram which held royalty was not tax. Being larger bench, India Cements still prevailed, till referred to nine judge bench in March 2011.
• Post Kesoram, several State legislatures (Rajasthan, UP, Bihar etc.), started exercising legislative powers to impose levies on mineral bearing land. However, these levies faced constitutional challenge before the state High Courts in light of the India Cement Case.
• [2024 INSC 607]: 14 August – Whether MADA judgement on 25 July should be given prospective effect.
• MADA (14 August) – The doctrine of prospective overruling is applied when a constitutional court overrules a well-established precedent by declaring a new rule but limits its application to future situations.
• Demands for tax under state legislation pertaining to Entries 49 and 50 of List II of the Seventh Schedule were stayed in terms of the law laid down in India Cement.
• Since MADA (25 July) overruled established India Cements judgement, question of prospective overruling came up.

1.2 Findings

• The judgement by majority declared that royalty on mining is not in the nature of a tax and overruled the judgement in India Cement v State of Tamil Nadu. Order was made applicable from 1 April 2005.
• Supreme Court concluded that “lands and buildings” in the taxation-related Entry 49 of List II of the Seventh Schedule includes mineral land. Further,theSupreme Court also held royalty is a consideration and not a tax.
• The Supreme Court held that the State is entitled to tax royaltybyvirtueofEntry 49 which empowers the States to levy taxes on land and buildings as well as by virtue of Entry 50 which empowers the States to levy tax on mineral rights subject to any limitations imposed by the Parliament by law relating to mineral development.
• Entry 49 contemplates the levy of tax on land and buildings as a unit and it does not allow the State to levy tax on division of interest in the building or land or service rendered on or in connection with lands and buildings.
• The Supreme Court rejected prospective overruling. Earlier demands could be levied only to the extent of tax and not interest and penalty.
• Basis MADA (25 July) if states were to levy any demand of tax, the same not to operate on transactions made prior to 1 April 2005.
• Installment payments (over 12 years) to be allowed for said demands commencing 1 April 2026. Levy of interest and penalty not imposed for period prior to 25 July 2024.
• MADA (25 July) had upheld the legislative competence of States under Entries 49 and 50 of List II. If this is given a prospective application, the validity of all relevant legislation enacted before the date of the decision, that is 25 July 2024, will be tested on the touchstone of interpretation of the previous law on which conflict exists because of Keshoram.
• If applied prospectively, the relevant state taxing legislations may be invalidated, requiring the states to refund the amount collected to the assesses.
• Important observation in the judgement that pendency of litigation should not be a detriment to assessee.

1.3 Dissent of B.V. Nagarathna J

• The nature of royalty under the MMDR Act is that it is in the nature of a tax under Article 366(28) of the Constitution which defines taxation to include the imposition of any tax or impost, whether local, general or special, and the word tax should be construed accordingly. Royalty is a tax and not a contractual payment but a statutory levy under the MMDR Act.
• Entry 49 – List II deals with taxation of lands and buildings. It does not cover mineral bearing lands. Taxes on land and buildings under Entry49ListIIcontemplates a tax levied directly on land.
• Unhealthy competition between states for the derivation of additional revenue. Competition among mining companies for mining leases in states that do not seek to impose levies apart from royalty.

1.4 Key Takeaways

• The Court held that royalty is a consideration for the grant of a privilege for removing or consuming the minerals which is paid in terms of contractual as well as statutory obligations. The mere fact that such payment is made under a statutory obligation would not change the nature of such payment to be ‘tax.
• The lessor charges royalty as a consideration for parting with the right to win minerals, while a tax is an imposition of a sovereign. Royalty is paid as consideration of doing a particular action, that is, extracting minerals from the soil, while tax is generally levied with respect to a taxable event determined by law. Royalty generally flows from the lease deed as compared to tax which is imposed by authority of law.
• The competence of the State to levy tax or cess on royalty has been upheld. Hence, States are entitled to levy tax on royalty under the law enacted by the State. There is no direct connection between the taxing powers of the States in relation to mineral rights, and regulatory powers of the Parliament in relation to mines and minerals.
• The word ‘land’ includes ‘land of every description’ and also contemplates land as a unit, irrespective of the use to which it is put. This allows the States to levy tax on mineral bearing lands. Hence, if land includes everything below and above the surface, constitutionally speaking, even sub-soil minerals form part of the land, which essentially encapsulates the difference between States’ power to impose ‘taxes on land and building’ vis-à-vis ‘taxes on mineral rights.

1.5 Impact on Industry

• Possibility of various States imposing taxes on mineral rights at different rates may have a bearing on the comparative competitiveness of various mines and mineral based industries.
• Unhealthy competition among mining companies could result in a slump in mining activity in certain mineral-extracting states, due to levies that the states are now authorized to impose
• The judgement will be a leading case to guide taxability of the transactions related to land and building under GST (long term lease, transfer of development rights etc. where the power of Centre to levy taxes on such transactions have been questioned)
• If leasehold rights are considered a benefit conferred upon a person to enjoy the occupancy and possession over a piece of land for the lease period, then whether assignment of long-term leasehold rights amounts to transfer of a benefit arising of land.
• The question about applicability of lease of immovable property is pending before a larger Bench of the Hon’ble Supreme Court in Civil Appeal No. 4487/2010, which will now be decided by the Supreme Court.
• Whether “the interest in land” and “leasehold rights” [which are the said benefits] are on a different footing from “lease” simpliciter. Whether GST can be made applicable on long term lease (assignment) transactions will be the substantial question of law to be decided.

2. Commissioner of Customs v. Canon India (P.) Ltd. [2024] 168 taxmann.com 221 (SC)

2.1 History and Background

• In this Review Petition, the Supreme Court reviewed its 2021 judgment in Canon India Private Limited v. Commissioner of Customs [2021] 125 taxmann.com 188 (SC)] dated 09.03.2021, which questioned the jurisdiction of the Directorate of Revenue Intelligence (‘DRI’) to issue show-cause notices (‘SCNs’) under Section 28 of the Customs Act, 1962 (‘the Customs Act’). The Court vide judgment dated 09.03.2021 initially held that the DRI officers lacked jurisdiction to issue SCNs, reasoning that only officers directly involved in assessment under Section 17 could initiate SCN proceedings under Section 28.
• The Syed Ali Case – In Commissioner of Customs v. Sayed Ali, [[2011] 10 taxmann.com 416 (SC)] case dated 18.02.2011, the Supreme Court examined the jurisdiction of the Collector of Customs (Preventive) to issue SCNs under Section 28 of the Customs Act. Analyzing Sections 2(34), 17 and, 28 of the Customs Act, the Court held that there is a direct linkage between Sections 17 and 28, and only those customs officers explicitly assigned the duties of assessment and re-assessment under Section 17 in a specific jurisdiction could lawfully issue SCNs under Section 28. It ruled that the Collector of Customs (Preventive) did not have the requisite jurisdiction in the case at hand.
• Customs (Amendment and Validation) Act, 2011 – To address gaps highlighted in Syed Ali (supra), Parliament enacted the Customs (Amendment and Validation) Act, 2011, inter alia introducing Section 28(11) in the Customs Act. This Section retroactively validated the authority of all officers appointed under Section 4 as officers of customs before 06.07.2011, deeming them as ‘proper officers’ with assessment powers.
• Sunil Gupta and Mangali Impex Cases – In Sunil Gupta v. UOI , [[2014] 51 taxmann.com 366 (Bombay)], dated 03.11.2014 the Bombay High Court upheld the constitutional validity Section 28(11) of the Customs Act. However, in Mangali Impex Ltd. v. UOI, [[2016] 69 taxmann.com 302 (Delhi)] dated 03.05.2016, the Delhi High Court inter alia ruled that Section 28(11) was too broad, as it enabled multiple officers to claim jurisdiction and hence, the same was declared as unconstitutional.
• Canon India Case (2021) – In 2021, the Supreme Court held that DRI officers were not proper officers under Section 28 and thus lacked the jurisdiction to issue SCNs. The Court stated that only customs officers who conducted the original assessment under Section 17 could later initiate SCN proceedings under Section 28, following the reasoning in Syed Ali (supra). It was also held that the usage of definite article ‘the’ and not indefinite article ‘a’ in the phrase ‘the proper officer’ referred specifically to the officer conducting the original assessment, restricting authority to initiate SCN proceedings to the same authority. The Court also held that although Notification No. 40/2012 dated 06.07.2011, issued by the Board, designated DRI officers as proper officers, it was issued by the Central Government under Section 2(34) rather than under Section 6, and therefore does not confer jurisdiction to DRI officers to issue SCN under Section 28.
• Review Petition and Amendments vide Finance Act, 2022 to Validate Past Actions – Following the Canon India (supra) 2021 decision, the Department filed a review petition challenging the ruling. The Finance Act, 2022 also made amendments to validate past actions and address the defects pointed out in Canon India (supra) 2021 decision. The amendments were made inter alia to Section 2(34) and Section 5 of the Customs Act to empower the Board to assign functions to officers. Section 3 was substituted to include officers of DRI and a new Section 110AA was inserted providing that after investigation, the case should be transferred to the officer who had taken the original decision in the matter. This was done retrospectively

2.2 Key Findings

• No interlinkage between Sections 17 and 28 – The Supreme Court held that Sections 17 (assessment) and 28 (recovery of duty) serve distinct functions and are not inherently linked. Section 17 enables customs officers to assess duty at the time of import or export, whereas Section 28 grants specific officers the power to recover unpaid or short-paid duties through SCNs.
• Interpretation of the Term ‘the Proper Officer’ in Section 28 – The Court in the review judgment held that ‘the proper officer’ does not imply exclusivity to authority involved in initial assessments. Instead, it refers to the officer appointed under the Customs Act to fulfill Section 28’s specific function of issuing SCNs for recovery of duty.
• DRI as Proper Officers and the Interplay between Sections 2(34), 3, 4, 5, and 6 of the Customs Act – The Court analyzed the scheme of ‘officers of customs’ appointed under Sections 2(34), 3, 4, 5, and 6 in detail and held that DRI officers, already part of the customs structure as ‘officers of customs’, derive their authority from Sections 2(34) and 5 directly.
• Validation of Section 28(11) of the Finance Act – The Supreme Court upheld the constitutionality of Section 28(11) of the Customs Act, which was introduced by the Customs (Amendment and Validation) Act, 2011, effective from 16.09.2011, to validate past actions by DRI officers in light of Sayed Ali (supra). Accordingly, the decision of the Bombay High Court in Sunil Gupta (supra) was affirmed, and the decision of the Delhi High Court in Mangali Impex (supra) was overruled.

2.3 Impact on Industry

• All pending cases will now be required to be adjudicated on merits and other issues such as limitation before the relevant forums, such as adjudicating authorities, CESTAT etc.
• The impact on cases where DRI SCNs were quashed on the grounds of jurisdiction and that the Department has not filed appeal will now be required to be analyzed to assess whether such cases can be reopened by the Department.
• This decision also raises questions about its impact on Supreme Court ruling in ITC v. CCE, [[2019] 111 taxmann.com 105 (SC)] which recognized self-assessment as an assessment order by the officer under amended Section 17 whereas the present decision makes a significant departure by holding that role of proper officer under Section 17 is limited to ‘reassessment’ in certain specified situations and the same must be distinguished from self-assessment done by the assessee.
• Furthermore, the decision affirms the legislative power to rectify jurisdictional gaps, setting a precedent that may influence future jurisdictional challenges within the legal framework. It also underscores that the merits of a matter take precedence over jurisdictional arguments, as such issues can always be retrospectively cured by the Department.

3. Bharti Airtel Ltd. v. Commissioner of Central Excise, Pune [2024] 168 taxmann.com 489 (SC)

3.1 History and Background

• Conflicting views of Bombay High Court (BHC) in Bharti Airtel’s case and Delhi High Court (DHC) in Vodafone Mobile Case on whether mobile towers and pre-fabricated buildings (PFB)/structures will be covered under the definition of capital goods and are inputs as defined under CENVAT Rules. Consequently, whether mobile service providers will be entitled to credit. BHC took the view that:

1. 1. tower and parts which are fixed to the earth and become immovable properties. These are not goods and consequently, not “capital goods” under CENVAT Rules.
   2. tower and parts in CKD/SKD would fall under Chapter Heading 7308 of the Central Excise Tariff Act which is not specified in Rule 2(a)(A) (i) or (ii) of the CENVAT Rules to be treated as “capital goods”.
   3. towers and PFB are neither components, spares and accessories of goods falling under any of the Chapters or Headings of the Central Excise Tariff Schedule as specified in Rule 2(a)(A)(i), the goods in question would not be “capital goods” did not agree that tower is an accessory of antenna

• DHC held that:

1. 1. applied the permanency test and held that towers are fastened to the civil foundation to make these wobble free and stable. They can be unbolted and reassembled without any damage and relocated to a new site and are not permanently annexed to the earth.
   2. towers and shelters act as components and parts and in alternative as accessories to the BTS and antenna, thus fall under “capital goods”.
   3. applied functional utility test and held that each component of BTS has to work in tandem with one another and because of these utility and functions, these items would be considered to be “inputs” within the ambit of Rule 2(k) of the CENVAT Rules.
   4. that the Assessee is entitled to the credit immediately on receiving the inputs irrespective of the subsequent treatment i.e. by way of fastening, bolting etc.

3.2 Findings

• Summarized the principles to determine the nature of property in para 11.8 (whether movable or immovable) and held that on the basis of the permanency, intendment, functionality and marketability tests, towers and PFB do not qualify to be immovable property but are movable properties, hence ‘goods’.
• The towers and PFB are not permanently annexed to the land or the building as the tower can be removed or relocated without causing damage to it. The attachment of the tower to the building or the land is not for the permanent enjoyment of the building or the land. The tower is fixed to the land or building for enhancing the operational efficacy and proper functioning of the antenna which is fixed on the tower by making it stable and wobble free. The fact that the tower, if required can be removed, dismantled in the CKD and SKD and sold in the market is not disputed.
• Without tower and PFB, antenna and BTS cannot effectively function and there can be no doubt that tower is to be considered as an accessory of antenna. Since they support the BTS/antenna (which are admittedly capital goods) for effective transmission of mobile signals, these items are covered by the definition of “capital goods” under Rule 2(a)(A) (iii).
• Without any doubt, tower and PFBs are used for providing output service by way of inputs. Without the use of tower and PFB, it is inconceivable that the service provider can provide mobile services effectively.

3.3 Key Takeaways

• Mobile towers and PFB will not qualify as immovable property merely because they are attached to the earth. These structures are never intended to be permanent and the attachment by way of nuts etc. is only for providing support and effective functioning to the antenna. They can be easily dismantled and moved to any other place without any substantial damage. Thus, they are “goods”.
• Mobile towers and PFB are accessory to the antenna as they are necessary for providing height and stability to the antenna for efficient working. They can be considered as an accessory to antenna and BTS which are “capital goods” falling under Chapter 85 of the Schedule to the Central Excise Tariff. Thus, they are also “capital goods”.
• Mobile towers and PFB are “used for” providing output service. Their usage in providing output service is not remote but proximate. Thus, they are also “inputs.

3.4 Impact on Industry

• This judgment will significantly improve the telecom industry’s financial health, enabling accelerated deployment of digital infrastructure across India. This will also help to release substantial working capital that will be further reinvested in infrastructure development by the Telecom industry.
• Reduction in the overall cost of service delivery across the sector.
• However, the judgment also brings to light critical challenges and inconsistencies. The GST law explicitly excludes telecommunication towers from the definition of plant and machinery for ITC purposes.

4. Chief Commissioner of CGST v. Safari Retreats Private Ltd. [2024] 167 taxmann.com 73 (SC)

4.1 History and Background

• To provide a brief background, the petitioner, Safari Retreats Private Ltd. is a company engaged in constructing shopping malls and  thereafter renting out such constructed units to tenants. The company accumulated ITC on goods and services used in the construction of these malls, including cement, steel, and professional services. However, when the company sought to offset the ITC against GST payable on rent, the authorities denied the claim, citing the embargo under Section 17(5)(d) of the CGST Act, 2017. This provision blocks ITC on goods and services used in the construction of immovable property unless it relates to plant and machinery.  Petitioner challenged the aforesaid embargo under Section 17(5)(d), arguing that ITC should not be blocked when immovable property is used for further taxable supplies, such as renting or leasing.
• The Hon’ble Supreme Court on analysis of the admissibility of input tax credit as per GST laws delivered its long-awaited verdict in this case. The judgement addresses the key issue of whether the definition of “plant and machinery” in the explanation appended to Section 17 of the CGST Act, 2017 (“CGST Act”) equally applies to the expression “plant or machinery” used in clause (d) of sub-section (5) of Section 17 and whether the construction of building necessary for providing a service, is a “plant”, qualifying under the exception provided under Section 17(5)(d) of the CGST Act and accordingly goods or services or both received for this purpose are eligible for input tax credit.  The judgement finally also gave its ruling on the constitutional validity of clause (c) and (d) of Section 17(5) and Section 16(4) of the CGST Act.

4.2 Findings

• The Supreme Court has held that the terms used in Section 17(5) (d) have to be read differently from the words “plant and machinery” used elsewhere in the CGST Act, and any different interpretation would cause violence to the intention of the legislature when drafting this section of the CGST Act. The words in the aforesaid Section should necessarily be interpreted pertaining individually to “plant” or “machinery”.
• Accordingly, the Supreme Court held that a “functionality test” in each case should be resorted to assess whether a building qualifies as a ‘plant’ (for example – if it is constructed for a specialized purpose). If the same is true, then subject to other conditions under the CGST Act pertaining to the availing input tax credit being fulfilled, and the supply being a “service”, the input credit of goods or service or both used for such construction may be eligible to be taken. For works contract service under Section 17(5)(c), the Supreme Court held that benefit of input tax credit was not available except for the exceptions provided in the said sub-clause.
• On the issue of constitutional validity of Sections 17(5) (c and d) and Section 16(4), the Supreme Court held there was no ambiguity and accordingly the question of reading down the provisions did not arise.

4.3 Key Takeaways

• The Supreme Court upheld the Revenue’s stance that Section 17(5)(d) blocks ITC for goods and services used in constructing immovable property, even when the property is let out.
• The Court ruled that this restriction is in line with the legislative intent to prevent the misuse of ITC and does not violate constitutional provisions.
• The Court however also provided a nuanced interpretation, suggesting that ITC may be available if the immovable property qualifies as ‘plant or machinery’ under the CGST Act.
• That being so, commercial properties like shopping malls typically do not fall into this category unless they meet the functionality test.

4.4 Impact on Industry

• Businesses must carefully analyze their operations to determine whether their buildings play an essential functional role and can qualify as ‘plant’ for the purpose of claiming ITC under GST law. The judgment highlights the fine balance between preventing tax avoidance and maintaining the seamless credit system central to the GST regime.
• Nonetheless, the judgement provides a window of opportunity to real estate, hospitality, malls, co-working spaces and other like sectors, where the construction can now be assessed in terms of the Supreme Court judgement, and input credit, which was previously held to be ab-initio unavailable, be allowed to be availed leading to tax efficiency in these sectors.

5. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. [2024] 158 taxmann.com 340 (SC)

5.1 History and Background

• This case analyzes whether certain transactions related to the leasing of motor vehicles, cranes, and tankers constitute sales (hence subject to sales tax) or services (subject to service tax).
• The primary issue revolves around whether these agreements constitute a transfer of the right to use goods, as per Article 366(29A)(d) of the Constitution of India, which would render them deemed sales and liable for sales tax under the Assam General Sales Tax Act, 1993 (‘the Sales Tax Act’) and the Assam VAT Act, 2003 (‘the VAT Act’). Conversely, if these transactions are deemed to be service contracts, they would attract service tax under the Finance Act, 1994 (“Finance Act”).
• The appellant, K.P. Mozika, engaged in contracts to provide various vehicles to Oil and Natural Gas Corporation Ltd. (“ONGC”) and Indian Oil Corporation Limited (“IOCL”) for specific operational use. The High Court’s interpretation held these as deemed sales, thereby subjecting them to VAT.
• The appellant contended that the contracts did not involve a transfer of the right to use since control and possession over the equipment were not passed to ONGC or IOCL. They retained responsibility for the crew, maintenance, and other operational aspects, ensuring that effective control remained with them. Since effective control and possession remained with the contractor, these transactions should be classified as services.

5.2 Findings

• The Court has interpreted sub-clause (d) of Clause 29A in various decisions and referred to the decision of the Constitution Bench in the case of 20th Century Finance Corporation Ltd. v. State of Maharashtra [2000 taxmann.com 1581 (SC)] to emphasize that transfer of the right to use goods necessitates exclusive possession by the transferee, a condition not satisfied in their contracts.
• To resolve the controversy, the Court invoked the five tests laid down by Dr. AR Laxmanan, J in the case of Bharat Sanchar Nigam Limited v. Union of India [[2006] 3 STT 245 (SC)]. These tests are pivotal in determining whether a contract constitutes a transfer of the right to use goods.
• The Court highlighted that the contracts in question did not intend to transfer the right to use specific goods to ONGC. Instead, they aimed to provide services, such as the use of cranes and tank trucks. As the control over these assets remained with the contractor, the Court held that the contracts did not fall under the Sales Tax Act and the VAT Act.
• In its conclusive remarks, the Court clarified that if the substantial control remains with the contractor and is not transferred to the user, there can be no transfer of the right to use the goods. In such cases, the transaction is considered a service within the meaning of Section 65(105) (zzzzj) of the Finance Act.

5.3 Key Takeaways

• The Court’s decision emphasizes the importance of effective control and possession in determining whether a contract constitutes a deemed sale or service agreement.
• The Court’s interpretation reinforces the principle that legal control and possession must entirely shift to the hirer for a transaction to qualify as a sale under Article 366(29A)(d).
• Furthermore, the Court pointed out that the ownership, maintenance, and legal consequences of using the goods rested with the contractor, indicating that the control remained with the contractor. This observation reinforced the notion that the contracts were primarily for providing services, rather than transferring the right to use goods.
• Accordingly, the transaction will be of rendering service within the meaning of Section 65(105)(zzzzj) of the Finance Act after the said provision came into force.

5.4 Impact on Industry

• This judgment underscores the importance of meticulously examining the terms of contracts to determine whether they constitute transfers of the right to use goods, as defined under Article 366(29A)(d) of the Constitution. It provides clarity and guidance to businesses and legal practitioners in understanding the tax implications of such transactions.
• This judgment delineates the boundary between sales tax and service tax, providing clarity on contractual arrangements in service-oriented industries. The decision is instrumental in guiding future cases involving equipment leasing and service contracts, establishing a precedent in taxation matters.

The post Top Indirect Tax Judgments of 2024 – Comprehensive Analysis | Key Insights appeared first on Taxmann Blog.

R. Muthukumaran – [2024] 169 taxmann.com 393 (Article)

1. Introduction

Section 76 of the Central Goods and Services Tax (CGST) Act, 2017, is a crucial provision that ensures the tax collected from customers is remitted to the Government, regardless of whether the supplies were taxable or exempt. This section also addresses the scenario where the tax is collected but not paid, highlighting the potential liabilities for taxpayers. While taxpayers might assume that they are safe once the time limits under Section 73 or Section 74 are barred, Section 76 remains a tool for the Government to recover the tax collected but not remitted.

Key Provisions of Section 76

1. Tax Collected but Not Remitted:

• Section 76 applies when a person collects tax from any other person but fails to remit it to the Government. This obligation remains even if the supplies in respect of which the tax was collected are exempt or non-taxable.
• The failure to pay the collected tax to the Government renders the taxpayer liable for penalties and interest, as outlined under the provisions of this section.

2. Scope of Section 76:

• Non-Taxable or Exempt Supplies: Taxpayers who collect tax on non-taxable or exempt goods or services are still required to remit the collected tax to the Government.
• No Time Limit for Recovery: Unlike Sections 73 and 74, which have specific time limits for issuing notices and initiating proceedings, Section 76 does not have a time limit for initiating recovery actions. This means that even after the time limits for assessments under Sections 73 or 74 are barred, the Government can still recover the tax amount through Section 76.

3. Interest on Collected but Unpaid Tax:

• Interest is calculated from the date the tax was collected until it is paid to the Government. The interest rate is prescribed under Section 50 of the CGST Act, which is typically 18% per annum.

4. Penalty for Non-Remittance:

• A penalty of 100% of the tax amount or Rs. 10,000, whichever is higher, is imposed on the taxpayer for failing to remit the collected tax to the Government.

5. Time Limit for Issuing an Order:

• The proper officer must issue an order within one year from the date of the notice. However, if the issuance of the order is stayed by a court or appellate tribunal, the stay period is excluded from the time limit.

Click Here To Read The Full Article

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Case Details: Bum Bum Corporation v. State of Madhya Pradesh - [2024] 169 taxmann.com 360 (Madhya Pradesh)

Judiciary and Counsel Details

• Sanjeev Sachdeva & Vinay Saraf, JJ.
• Mukesh Agrawal & Ayush Gupta, Advs. for the Petitioner.
• R.D. Padraha, Govt. Adv. for the Respondent.

Facts of the Case

The petitioner was aggrieved by the action of the GST department whereby coercive measures had been taken for recovery of alleged outstanding demand for the period of 2018-19. It filed writ petition before the Madhya Pradesh High Court and contended that the demand was already challenged before the Appellate Authority and the said demand was set aside. However, a tax demand was created against petitioner and it was willing to deposit statutory pre-deposit amount.

High Court Held

The Honorable High Court noted that the petitioner intended to impugn the said order before the Appellate Tribunal but the Tribunal was not functioning. It was also submitted that by coercive measures, the Electronic Credit Ledger (ECL) had been blocked and bank account of the petitioner had been put on hold. The Court also noted that the Board has issued guidelines for recovery of outstanding dues in cases where first appeal has been disposed of till the Appellate Tribunal comes into operations.

Therefore, the Court directed that the ECL of the petitioner shall be unblocked to enable it to make pre-deposit of the said amount as the petitioner had ample credit in the ECL to cover the 20% pre-deposit requirement. On petitioner making pre-deposit of said amount and complying with other requirements of Circular dated 11.07.2024, no further coercive action shall be taken against petitioner.

The post Unblocking of Credit Ledger Directed as Assessee Was Unable to Make Pre-Deposit to File Appeal Due to Blocked Credit Ledger | HC appeared first on Taxmann Blog.

Case Details: Bharti Airtel Ltd. v. Commissioner, CGST Appeals-1, Delhi - [2024] 169 taxmann.com 390 (Delhi)

Judiciary and Counsel Details

• Yashwant Varma & Girish Kathpalia, JJ.
• Sujit Ghosh, Sr. Adv., Kumar Visalaksh, Udit Jain, Ms Akansha Dikshit, V. Lakshmikumaran, Yogendra Aldak & Sumit Khadaria, Advs. for the Petitioner.
• Anurag Ojha, SSC, Subham Kumar, Dipak Raj, Kumar Abhishek, Ms Ira Singh, Aryan Dhaka, Anurag Sahay, Rohit Kumar, Advs., Mukul Singh, CGSC, Ms Avshreya Pratap Singh, SPC & Abhigyan Siddhant, GP for the Respondent.

Facts of the Case

In the present case, the writ petition was filed to challenge the proceedings under GST in which the department raised demand of tax along with interest and penalty on the ground that input tax credit was denied on inputs and input services used for setting up passive infrastructure i.e. telecommunication towers. It was contended that telecommunication towers would not fall within ambit of Section 17(5)(d) and hence, denial of input tax credit would not sustain.

High Court Held

The Honorable High Court noted that the Supreme Court in case of Bharti Airtel Ltd. v. Commissioner of Central Excise [2024] 168 taxmann.com 489 has conclusively held that telecommunication towers cannot be construed as immovable property. The Court further noted that telecommunication towers would not qualify as immovable property as they neither qualify test of permanency nor can be said to be attached to earth. The mobile towers can be dismantled and moved and they were never erected with an intent of conferring permanency. Their placement on concrete bases was only to enable those towers to overcome vagaries of nature. Thus, the denial of input tax credit on telecommunication towers would not sustain.

List of Cases Reviewed

• Commissioner of Central Excise v. Solid and Correct Engineering Works [2010] 5 SCC 122 (para 16)
• Vodafone Mobile Services Ltd. v. Commissioner of Service Tax 2018 SCC OnLine Del 12302 (para 19)
• Bharti Airtel Ltd. v. Commissioner of Central Excise [2024] 168 taxmann.com 489 (SC) (para 19) followed.

List of Cases Referred to

• Bharti Airtel Ltd v. CCE 2024 SCC OnLine SC 3374 (para 6)
• Vodafone Mobile Services Limited v. CST 2018 SCC OnLine Del 12302 (para 6)
• CCE v. Solid and Correct Engineering Works & Others (2010) 5 SCC 122 (para 15).

The post Telecom Towers Are Movable Properties as They Do Not Meet the Test of Permanency and ITC on Same Cannot Be Denied | HC appeared first on Taxmann Blog.

GSTN Update dated December 18th, 2024

The GSTN has issued an advisory to inform that the FOIS of Indian Railways has now been integrated with the E-Way Bill system via Application Programming Interfaces (APIs). Therefore, the taxpayers transporting goods via the Indian Railways FOIS must ensure the correct entry of the number or RR No./eT-RRs in the EWB system. The format for entering RR No./eT-RRs has been standardized to ensure consistency and accuracy.

The taxpayers with a pre-existing E-Way Bill (EWB) for goods transported from the factory to the railway station, and who are subsequently transporting goods by rail under FOIS, must follow these steps:

• Update Part-B of the E-Way Bill using the “Multi-Transport Mode” option on the EWB portal.
• In the updated section, select Rail as the mode of transport.
• After selecting this option, the system will show a prompt to enter the corresponding RR No./eT-RRs

Click Here To Read The Full Update

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Editorial Team – [2024] 169 taxmann.com 352 (Article)

Global IDT Insights provides a weekly snippet of tax news specifically related to Indirect Taxes from around the globe.

1. ECJ Rules on VAT Credit Availability

The case involved Weatherford Atlas Gip (Weatherford) located in Romania providing oil services and the National Agency for Tax Administration which is the Tax Authority of Romania (hereinafter referred to as ‘Tax Authority’). Weatherford took over Foserco, also located in Romania, which offered support services for oil and gas extraction.

Before takeover by Weatherford, Foserco purchased certain administrative services such as IT, HR, Marketing, Accounting and Consultancy services, outside Romania and applied reverse charge mechanism, as required for VAT compliance. Tax Authority of Romania denied Weatherford’s right to deduct input VAT for these services.

The primary issue was whether right to deduct input VAT could be denied to Weatherford on the grounds that the administrative services acquired by Foserco before merger, were not exclusively used for Foserco’s outward taxable activities being support services for oil and gas extraction.

Weatherford (The Petitioner) argued that the administrative services formed part of Foserco’s general costs, directly contributing to its taxable activities. Weatherford contended that VAT law does not require proving the necessity or appropriateness of services as long as they are linked to taxable transactions and fiscal neutrality is maintained.

Tax Authority argued that the inward administrative services were not sufficiently linked to Foserco’s outward taxable activities, questioned about their necessity & claimed the documentation provided was inadequate to establish a direct link between them.

The European Court of Justice (ECJ) ruled in favour of Weatherford. It held that under Article 168 of the VAT Directive, the right to deduct input VAT cannot be denied if the services are objectively used for taxable activities. The court reasoned that fiscal neutrality is fundamental, and assessments of necessity or appropriateness by tax authorities are not tenable.

Source: Court Judgment

Click Here To Read The Full Article

The post [Global IDT Insights] ECJ Rules on VAT Credit Availability & Others appeared first on Taxmann Blog.