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LATEST JUDGEMENTS & RULINGS IMPACTING COMMON BUSINESSES

CA MANOJ KUMAR GOYAL

Corporate Suite No. 02,

4^th Floor, Ansal Plaza Mall,

Vaishali, Ghaziabad.

For – NORTHERN INDIA REGIONAL COUNCIL OF ICAI

Date -14^th APRIL,2022

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CA. Manoj Kumar Goyal is a fellow member of the ICAI. He is a professional with post qualification experience of more than two decades across multifarious industry spectrums. Manoj is currently working as a Senior Partner with M/s RHMS & Company, Chartered Accountants. He is an excellent communicator with demonstrated capabilities in negotiating with various authorities, professionals and clients for securing favorable judgements, deals, sanctions and exemptions. Manoj is a Skilled Trainer and Speaker with an aptitude of attracting the audience for hours. He has been a regular visiting faculty with various organizations such as office of the CAG of India, different Branches and Study Circles of the ICAI. After serving various reputed Indian and Multinational organizations, he has now completely devoted himself into the field of GST. Manoj has also authored handful of articles and books on different topics. Manoj has authored different books on GST in the series called “GST Unlocked”. He is an approved faculty on GST listed by Indirect Taxes Committee of the ICAI. He is also accredited trainer on GST by NACIN. He has served as Convener of Trans Hindon CPE Study Circle of CIRC of the ICAI. Manoj can be reached at manojgoyal@rhms.in (0120-4558542).

About

CA. Manoj Kumar Goyal

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INDEX

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ADVANCE RULINGS

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Fact of the Ruling-

• M/s. International Inspection Services Private limited supply inspection and expediting services during the manufacturing of equipment and packing of equipment/material in India and also abroad. They perform the inspection services for their foreign clients in respect of the equipment/machinery/material in India but which is intended to be exported. They receive inspection charges from their clients in foreign currency. As the goods are ultimately exported to outside the country, they request clarification regarding liability of their supplies to tax.

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Question: -

• Whether services rendered for foreign companies (which do not have any business place/agency in India)in India is considered as an export or not?

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• Whether services provided in respect of goods that are being exported are also considered as Export of services?

1. M/s. International Inspection Services Private Limited-A.R. Com/06/2020 TS AAR Order No.33/2021, dated 29^th December, 2021

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Finding and Discussions-

• The recipient of services provided by the applicant is a foreign buyer of Indian goods. The applicant performs services in relation to goods located or under manufacture in the territory of India on behalf of the foreign buyer..

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• The liability to tax in this situation is governed by the place of supply rules as enumerated under Section 13 of the IGST Act, 2017. This Section deals with place of supply of services where location of supplier or location of recipient is outside India. Section 13(3) read as follows-

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“3. The place of supply of the following services shall be the location where the services are actually performed, namely:

(a) Services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services.”

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• In the instant case, the location of the recipient is outside India however the location where the services are actually performed in respect of goods is in the Country. Therefore, the place of supply of services provided by the applicant are within the Country and hence liable to SGST & CGST in the State of Telangana.

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Answer: -

• Place of supply of services provided by the applicant are within the Country and hence liable to SGST & CGST and will not be treated as export.

Cont..

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Fact of the Ruling-

• M/s. Syngenta India Limited, the Applicant, manufactures/sells pesticides, herbicides & various types of seeds and offers various incentives to its employees as a part of its employment policy, like group insurance policy for its employees, Parental Insurance Policy, etc.

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• Applicant issues employment letter (“ Employment Agreement ”) to its employees, which contains various terms and conditions of employment. Applicant, in its General Employment Conditions ( 'HR Policy' ) also mentions the terms and conditions related to work, responsibility, termination, etc.

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• Parental Insurance

Voluntary Parental insurance is provided to employees & whereas premium of the group insurance policy of the employees is completely borne by Applicant, the amount of the Parental Insurance Policy, is recovered from the salary of the employee who opts for it. The Applicant has entered into an arrangement with the insurance company to provide the said parental insurance cover where the Applicant initially pays the entire premium along with the applicable taxes to the insurance company and the insurance company issues the premium receipt in the name of the Applicant. Applicant recovers full amount paid to the insurance company, in respect of the parental insurance and no profit element is involved while recovering the premium of the policy.

2. M/s. Syngenta India Limited-GST-ARA-25/2020-21/B-05, dated 19^th January, 2021

Cont..

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• The claims, by employees under the parental insurance policy, are directly filed with the insurance company. Thus, Applicant is only a facilitator and is not providing any service to its employees.

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• Notice Pay Recovery

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There are various instances where the employees decide to resign and leave the employment without serving the complete notice period.

In case the employee does not serve the mandated notice period, in part or in full, the Applicant is entitled to monetary compensation, hereinafter referred to as “Notice Pay Recovery” from the employee's salary payment.

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Such amount is deducted by the Applicant as a compensation for breach of the terms of the Employment Agreement by the employees. Applicant feels that the notice pay recovery so charged and collected by them is in the nature of compensation on account of business loss suffered by the Applicant.

Further, in respect of Notice pay recovery, the Applicant deducts the salary of the employees based on the Employment Agreement and as per the HR Policy of the Applicant.

Cont..

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Question: -

• Whether the GST would be payable on recoveries made from the employees towards providing parental insurance?

• Whether the GST would be payable on the notice pay recoveries made from the employees on account of not serving the full notice period?

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Finding and Discussions-

Parental Insurance

• The issue whether the GST would be payable on recoveries made from the employees towards providing parental insurance, has already been decided by this Authority in the case of M/s Jotun India Private Limited wherein the question raised was similar viz. “Whether recovery of 50% of Parental Health Insurance Premium from employees, amounts to supply of service under Section 7 of the Central Goods and Service Tax Act,2017?

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Vide Order No. GST- ARA- 19/2019-20/B-108 Mumbai dated 04-10-2019 this authority had ruled that recovery of 50% of Parental Health Insurance Premium from employees, did not amount to supply of service under Section 7 of the Central Goods and Service Tax Act, 2017.

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• Further, a similar question was also raised by M/s POSCO India Pune Processing Centre Private Limited in their application before this Authority viz “Whether recovery of Parents Health Insurance expenses from employee in respect of the insurance provided by the Applicant amounts to supply of service under Section 7 of the Central Goods and Service Tax Act, 2017?

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• This Authority had answered the question as follows:-

“The recovery of Parents Health Insurance expenses from employee does not amount to supply of service under the GST Laws. Since there is no supply of services there is no question of time and value of the supply. The applicant cannot claim ITC of GST charged by the insurance company. Even in the case of M/s POSCO India Pune Processing Centre Private Limited, they were recovering only 50 % premium from their employees and in the subject case entire 100% is recovered from the employees of premium paid by the applicant to the Insurance Company.”

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Notice Pay Recovery

• Similar issue was before Hon'ble Madras High Court in W.P. Nos 35728 to 35734 of 2016 in the case of GE T&D India Ltd Vs Deputy Commr of Central Excise, LTU, Chennai 2020-VIL-39-MAD-ST.

The Hon'ble high court applying the CBEC's clarification observed that “the employer cannot be said to have rendered any service per se much less a taxable service and has merely facilitated the exit of the employee upon imposition of a cost upon him for the sudden exit”.

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• The Hon'ble Court further held that 'the definition in clause (e) of Section 66E is not attracted to the scenario before me as, in my considered view, the employer has not 'tolerated' any act of the employee but has permitted a sudden exit upon being compensated by the 'employee in this regard. Though normally, a contract of employment qua an employer and employee has to be read as a whole, there are situations within a contract that constitute rendition of service such as breach of a stipulation of non-compete. Notice pay, in lieu of sudden termination however, does not give rise to the rendition of service either by the employer or the employee.

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Cont..

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• In the GST era also services provided by an employee to the employer is treated as neither supply of goods or services under Schedule III of the CGST Act.

Thus, services by an employee to the employer in the course of or in relation to his employment have been placed out of the purview of GST. In present case also the said compensation which accrues to the employer is in relation to the services provided by the employee. Such compensation is related to the Services not provided by him to the employer during the course of employment.

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• Though the said judgment pertains to the Service Tax period we do not find any change in the position of law in this regard after introduction of GST.

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Answer: -

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1. Answered in the negative. Therefore, GST would not be payable on recoveries made from the employees towards providing parental insurance

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• Answered in the negative. Similarly, GST would not be payable on the notice pay recoveries made from the employees on account of not serving the full notice period?

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Cont..

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Fact of the Ruling-

• The applicant Smt. Bhagyalakhsmi Devamma Vangimallu whose trade name is M/s. Versatile Resource Solutions has entered into a contract with M/s. Asian Institute of Gastroenterology Private Limited, Somajiguda, Hyderabad for providing housekeeping services. As per the memorandum of Understand the applicant will provide Housekeepers and supervisor to maintain and assist the medical team of the Hospital in maintaining cleanliness, covering 24 Hours service on shift basis. It is the opinion of the applicant that as the salary / wages are fixed by the Hospital management and as EPF, ESI are statutory payments, therefore these amounts reimbursed by the Hospital management cannot form value of supply.

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Question: -

• Whether or not applicant is liable to pay tax on the amount of wages / salaries, EPF/ESI etc., reimbursed by the client?

3. Smt. Bhagyalakhsmi Devamma Vangimallu, Trade Name is M/S. Versatile Resource Solutions-A.R.Com/03/2019 TSAAR Order No.14/2021, dated 08^th October, 2021

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Finding and Discussions-

• The applicant has made various averments regarding the deductibility of Wages / Salaries, EPF, ESI contribution which are reimbursed by the Hospital from the value of supply which is eligible tax under CGST/SGST Act.

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• In this connection it is observed that the case law relied by the applicant relates to interpretation of service tax valuation rules, enumerated in the Finance Act. The Hon’ble High Court of Delhi and later the Hon’ble Supreme Court of India discussed the applicability of Rule 5 of Service Tax Rules and Sections 66 and 67 of Finance Act of India. No general principles have been laid down for determination of value of supply on service in these Judgment which travel beyond the interpretation of these rule and related section pertaining to the pre–GST Service tax.

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• The applicant is not a pure agent under GST Law. Further the deductions available under Section 15 of the CGST Act do not include the amounts pertaining to EPF, ESI, Salary, or Wages. Therefore, entire amount received from the Hospital are eligible to CGST / SGST Act 2017.

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Answer: -

• The applicant is not a pure agent under GST Law. Further, the deductions available under Section 15 of the CGST Act do not include the amounts pertaining to EPF, ESI, Salary, or Wages. Therefore, entire amount received from the Hospital are eligible to CGST / SGST Act 2017.

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• The applicant is liable to tax on all the amounts received from the Hospital.

Cont…

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Fact of the Ruling-

• The Appellant is a company engaged in the business of organizing wedding & other banquet functions on a large scale, from its premises at Ambience Golf Drive, Near Caitriona Apartment, Behind Ambience Mall, Gurugram, Haryana. The Appellant creates a temporary structure (i.e. a hall) on the above mentioned premises.

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Question: -

1. Whether the Temporary Structure (i.e. hall or pandal or shamiana or any other place) built up with Iron/Steel Pillars tight up with Nuts and Bolts (as shown picture enclosed) specially created for functions would be treated as Movable or Immovable property in pursuance to the GST Law?

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2. Whether credit of the tax paid on Iron/Steel Pillars tight up with Nuts and Bolt used for the creation of Temporary Structure (i.e. hall or pandal or shamiana or any other place) especially for functions are admissible under section 16 of the CGST Act, 2017?

4.M/s. VDM Hospitality Private Limited (Authority For Advance Ruling, Haryana)- HAR/HAAR/R/2019-20/02, dated-21^st June, 2020

Cont…

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Finding and Discussions-

• In this case, the applicant company is in the business of organizing wedding and other functions from its own premises at Ambience Golf Drive, Gurugram Haryana. Since, the premises where the structure has been erected is company's own premises, it suggests that the shamiana/ tent/pandal has been constructed/ erected for permanent enjoyment. It is not the case of applicant that it plans to dismantle and move the structure to some other place.

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• The pictures attached with the application also depict that the civil work has been undertaken on a very large scale at the premises and this also indicates the permanent nature of the construction/ erected. Further, the concretionary base and the pillars used as platform and support to the structure is also of large dimensions and the platform or the structure cannot be put to beneficial use without the existence of the other. Merely because the walls and roofs have been replaced with pre-fabricated structure (an Engineering marvel), an immovable property cannot be categorized as movable property. Since, both the degree and nature of annexation/ attachment of the structure to the earth is strong and permanent, the structure in question is an immovable property.

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• The applicant is not entitle to the credit of input tax in view of the provisions of Section 17(5)(d) of the CGST/ HGST Act, 2017.

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Answer: -

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1.The structure created by the applicant is an immovable property for the purposes of GST Law.

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2. The applicant is not entitle to the credit of input tax in view of the provisions of Section 17(5)(d) of the CGST/ HGST Act, 2017.

Cont…

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Fact of the Ruling-

• M/s. Airport Authority of India (hereinafter referred to as AAI, for the sake of brevity) is an authority created under the Airport Authority of India Act,1994 (hereinafter referred to as the AAI Act). The AAI Act was enacted to provide for the constitution of the AAI for the better administration and cohesive management of the airports. AAI has been created for the purpose of establishing or assisting in the establishment of airport and for the matters connected thereto

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Question: -

1. Whether said business arrangement between AAI and SPV is a transfer of going concern or otherwise?

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2. Whether the transfer of business by AAI to SPV be treated as Supply under Section 7 CGST?

5. M/s. Airport Authority Of India-GUJ/GAAR/R/46/2021, dated 27^th August, 2021

Cont…

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Finding and Discussions-

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• Transfer of a going concern means transfer of a running business which is capable of being carried on by the transferee as an independent business in continuity without any hindrance for a foreseeable period. Such transfer of business will comprise transfer of assets for running the business. Such transfer as going concern may involve transfer of employees as requisite to carry on the business without interruption. In effect, it implies that the business will continue in the new hands with regularity and a nature of permanency - subject business arrangement between AAI and SPV merits to be covered under transfer of going concern.

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• Further, from the construction of the wordings in sections 18(3); 22(3) and 85(1); Schedule II(4) of CGST Act and the Rule 41(1) CGST Rule, it is found that ‘transfer of Business’ is more of an event in pursuance to a business arrangement - subject business arrangement is ‘Transfer of business of an independent part with respect to SVP International Airport’ by AAI to SPV for a period of fifty years which is a foreseeable future - subject supply is Transfer of Going Concern as an independent part with respect to the said Airport.

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Answer: -

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1. The subject Supply is ‘Transfer of Going Concern Service’.

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2. The Subject Supply of ‘Transfer of Going Concern service’ is Supply under Section 7 CGST Act,2017.

Cont…

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Fact of the Ruling-

• The applicant M/s. Adama India Private Limited, supplies insecticides, fungicides and herbicides. The applicant submits that as per Section 135 of the Companies Act, 2013, it has been spending the mandatory amount on CSR activities in the form of donations to the Government relief funds/educational societies, civil works or installation of plant and machinery items in schools or hospitals, distribution of food kits etc; that the vendors that supply goods/services to the applicant for the purpose of undertaking the CSR activities charge GST on their output supplies; that the applicant intends to avail the Input Tax Credit(ITC) of the inputs and input services being procured for the purpose of undertaking the CSR activities.

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Question: -

1. The applicant seeks to know whether CSR activities are in the course of furtherance of business and will therefore be counted as eligible ITC in terms of Sections 16 and 17(5) of the CGST Act, 2017?

6. M/s. Adama India Private Limited (Gujarat Authority For Advance Ruling)-GUJ/GAAR/R/44/2021,dated 11^th August ,2021.

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Finding and Discussions-

• We find that as per Rule 4(1) above (for the period prior to 23-1-2021), the CSR activities undertaken by the company shall exclude activities undertaken in pursuance of it’s normal course of business. As per Section 2(d) above(w.e.f. 23-1-2021), ‘Corporate Social Responsibility’ does not include activities undertaken in pursuance of normal course of business of the company. We find that the CSR activities are not activities undertaken in pursuance of applicant’s normal course of business.

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• Section 16(1) of the CGST Act, stipulates that a registered person is entitled to take credit of input tax charged on any supply of goods or services or both, which are used or intended to be used in the course or furtherance of his business. Thereby, we hold that the Section 16(1) of the CGST Act bars CSR activities from input/input service.

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• In pursuance to Companies CSR Rules framed by the Central Government and in pursuance to wordings of Section 16(1) CGST Act, we disagree with both the applicant’s and revenue’s stand for admissibility of ITC on CSR activities. In fact, we note that the applicant submitted that CSR activities being undertaken by the applicant can become eligible for ITC if only it is established that such activities are in the course and furtherance of business. As per law, Section 16(1) CGST Act bars CSR activities from ITC. We therefore find no merit to discuss the item wise CSR activities of the applicant

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Answer: -

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1. CSR activities, as per Companies (CSR Policy) Rules, 2014 are those activities excluded from normal course of business of the applicant and therefore not eligible for ITC, as per Section 16(1) of the CGST Act,2017.

Cont…

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Fact of the Ruling-

• The applicant submitted that they are maintaining canteen facility to its employees at its factory premises to comply with the mandatory requirement of maintaining the canteen as per the Factories Act, 1948. The applicant submits that as per the proviso to Section 17(5) (b) of Central Goods & Service Tax Act, 2017, ITC of GST paid on goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

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• The Applicant is recovering nominal amount on monthly basis to ensure use of canteen facility only by authorized persons/employees and expenditure incurred towards canteen facility borne by Applicant is part and parcel of cost to company. In press release, dated 10.07.2017 also, it was clarified that, supply by employer to employee in terms of contractual agreement of employment (part of salary/CTC) is not subject to GST. Once employee ceases to be in employment with Applicant, he/she is not authorized to use the canteen facility. In other words, employer-employee relationship is must to avail this facility.

7. M/s Tata Motors Ltd(Gujarat Authority For Advance Ruling)- GUJ/GAAR/R/39/2021, (In Application No. Advance Ruling/SGST&CGST/2021/AR/24),dated-30^th July, 2021

Cont…

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Question: -

1. Whether input tax credit (ITC) available to Applicant on GST charged by service provider on canteen facility provided to employees working in factory?

2. Whether GST is applicable on nominal amount recovered by Applicants from employees for usage of canteen facility?

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• If ITC is available as per question no. (1) above, whether it will be restricted to the extent of cost borne by the Applicant (employer)?

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Finding and Discussions-

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• GST charged by service provider on canteen facility provided to employees working in factory - levy of GST - nominal amount recovered by Applicants from employees for usage of canteen facility - ITC to be restricted to the extent of cost borne by the Applicant (employer) or not - Section 17(5)( b) of CGST Act, 2017 .

Cont…

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15(5)(1) (b) ³[the following supply of goods or services or both-

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

(ii) membership of a club, health and fitness centre; and

(iii) travel benefits extended to employees on vacation such as leave or home travel concession:

Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.]

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Cont…

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• Sub clause of Section 17(5)(b)(i) ends with colon: and is followed by a proviso and this proviso ends with a semicolon - Colons and semicolons are two types of punctuation. Colons are used in sentences to show that something is following, like a quotation, example, or list. Semicolons are used to join two independent clauses/ sub clauses, or two complete thoughts that could stand alone as complete sentences. That means they're to be used when you're dealing with two complete thoughts that could stand alone as a sentence.

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• Section 17(5)(b)(i) sub-clause ending with a colon and followed by a proviso which ends with a semi colon is to be read as independent sub-clause, independent of sub clause Section 17(5)(b)(iii) and its proviso [of sub clause iii]. Thereby, the proviso to section 17(5)(b)(iii) is not connected to the sub-clause of Section 17(5)(b)(i) and cannot be read into it.

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• ITC on GST paid on canteen facility is blocked credit under Section 17 (5)(b)(i) of CGST Act and inadmissible to applicant - GST, at the hands on the applicant, is not leviable on the amount representing the employees portion of canteen charges, which is collected by the applicant and paid to the Canteen service provider.

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Answer: -

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1. ITC on GST paid on canteen facility is blocked credit under Section 17 (5)(b)(i) of CGST Act and inadmissible to applicant.

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• GST, at the hands on the applicant, is not leviable on the amount representing the employees portion of canteen charges, which is collected by the applicant and paid to the Canteen service provider.

Cont…

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Fact of the Ruling-

• The Applicant, engaged in providing specified educational services has entered into an Agreement and a Memorandum of Understanding (MOU) with the Gujarat University, Ahmedabad on 05.07.2017 for knowledge sharing in the fields of Computer Animation, Mobile Computing & Application, IT-Infrastructure Management Systems (ITIMS) for Skill development, Entrepreneurship development, Youth empowerment and promotion of skill based training.

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• Further, the applicant, providing specified educational services in the field of Information Systems Education as detailed below-
• The applicant is handling the courses, namely M.Sc.-IT in Animation, M.Sc.-IT in Mobile application, M.Sc.-IT in IMS (Infrastructure Management Systems) and M.Sc.-IT in Network Securities, in partnership under MOU with Gujarat University.

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• The applicant designs the aforementioned courses on request of Gujarat University and then the contents of the courses are approved by the Gujarat University.

8. M/s. D.M. Net Technologies (Isha Chirag Patel)- GUJ/GAAR/R/75/2020,dated-17^th September, 2020

Cont…

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• The applicant then on the basis of the approved courses, provide training to the students as a partner under MOU with Gujarat University.

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• The awareness and admission of the course is done by the Gujarat University. The fees for the said courses are also collected by Gujarat University. The applicant helps to administer the admission and fees collection process.

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• Further, the applicant has submitted that the Gujarat University is providing the infrastructure facilities, viz. Classroom; Computer Systems and office equipment; Internet facilities; All required software; and All other required infrastructure. After the training is completed, the enrolled students undergo examination which is conducted by the Gujarat University. On successful clearance of examination, a Degree is granted by Gujarat University. The applicant is not involved in the said process.

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• On receipt of the fees and completion of training, the applicant submits an information note to the Gujarat University (Partner of MOU), on the basis of which a fixed percentage of share as specified in Agreement is given to the Applicant.

Cont…

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Question: -

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Whether the services provided by the applicant in affiliation to/ partnered with Gujarat University and providing education for degree courses to students under specific curriculum as approved by the Gujrat University, for which degrees are awarded by the Gujarat University, are exempt from GST vide Entry No. 66 of the Notification No.12/2017-Central Tax (Rate) dated 28^th June, 2017?

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Finding and Discussions-

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• The applicant, submitted that "services provided by an educational institution to its students, faculty and staff” is exempt from tax under the CGST Act, vide Entry at Sr. No. 66 of the Notification No.12/2017- Central Tax (Rate) dated 28.06.2017 and the applicant qualifies as an “educational institution” in so far as those courses for which affiliation has been obtained from the University and partnered with Gujarat University in the State of Gujrat and for which University Curriculum is prescribed and qualification recognized by the law for the time being in force is given after the conduct of examinations by such University. The applicant is exempted from GST. Further, the applicant has also referred the Advance Ruling Authorities of Karnataka State’s Order No. KAR ADRG 20/2018 passed in the case of M/s Emerge Vocational Skills Private Ltd.

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• Entry at Sr. No. 66 of the Notification No.12/2017- Central Tax (Rate) dated 28.06.2017 states that "services provided by an educational institution to its students, faculty and staff” is exempt from tax under the CGST Act.

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• In order to be exempted from GST, applicant must qualifies as an “educational institution”. The meaning of educational institution defined in para 2(y) of the Notification No.12/2017-Central Tax (Rate) dated 28.06.2017-

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“(y) an “educational institution” means an institute providing services by way of;

(i) Pre-school education and education up to higher secondary school or equivalent;

(ii) Education as a part of a Curriculum for obtaining a qualification recognised by any law for the time being in force;

(iii) Education as a part of an approved vocational education course.”

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Meaning of “education as a part of a Curriculum for obtaining a qualification recognised by any law”, as per GST E flyer_40_Education Service issued by the NACEN is-

“It means that only such educational services are in the negative list as are related to delivery of education as “a part of the law”. It is important to understand that to be in the negative list, the service should be delivered as a part of curriculum. Conduct of degree courses by Colleges, Universities or Institutions which leads grant of qualifications recognised by law would be covered. Training given by Private Coaching Institutes would not be covered as such training does not lead to grant of a recognized qualification.”

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• Advance Ruling Authority find that the applicant is an educational consultant and a professional in the fields of Computer Animation, IT-Infrastructure Management System and Mobile Computing & Application Education, which uses their experience and knowledge in teaching, to help with curriculum development and other issues to Gujarat University and parents face.

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• The applicant designs and handles the courses, namely M.Sc.-IT in Animation, M.Sc.-IT in Mobile application, M.Sc.-IT in IMS (Infrastructure Management Systems) and M.Sc.-IT in Network Securities, which undertaken by Gujarat University. The applicant then on the basis of the approved courses, provide training to the students. Further, the applicant also helps to administer the admission and fees collection process. Training given by the applicant as a Private Institutes would not be covered, as such training does not lead to grant of a recognized qualification. Thus, the applicant does not have any specific curriculum and does not conduct any examination or award any qualification/degree. Hence, the applicant does not qualify as educational institution.

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• Further, the applicant receives fees (i.e. 60% of total fees collected from students by Gujarat university) from Gujarat University, which attract GST @18%.

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Answer: -

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Answered in Negative and thus, services provided by applicant is not exempt from GST.

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SUPREME COURT

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JUDGEMENT

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Fact of the Case-

• The writ petition was filed following divergence in the rulings provided in VKC Footsteps India Pvt. Ltd. v. Union of India, wherein validity of Rule 89(5) of the Central Goods and Services Tax Rules, 2017(“the CGST Rules”) was challenged.

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• Section 54(3) of the Central Goods and Services Tax Act, 2017, provides for claiming of refund of Unutilized ITC and Rule 89(5) of the CGST Rules provides for a formula to calculate the refund of said Unutilized ITC. An amendment vide Notification No. 26/2018- Central Tax dated June13,2018 substituted the Rule having retrospective effect from July 01, 2017. Also, the revised formula excluded input services from the scope of “Net Input Tax Credit” (“Net ITC”) for computation of refund under Inverted Duty Structure. Consequently, the substituted rule of 89(5) of CGST Rules denied refund on ITC claimed on Input Services, i.e. allowing refund of ITC on inputs alone.

Union of India &ors. Versus VKC footsteps India Pvt Ltd.(Civil Appeal No 4810 of 2021, dated 13^th Sep,2021- Supreme Court

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Issue involved in the case-Refund of unutilised ITC on input services to challenge the validity of Rule 89(5) on the ground that it is ultra vires Section 54(3)(ii) -interpretation of sub-Section (3) to Section 54 and Explanation 1 to sub-Section (1) of Section 54.

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Findings and discussions-

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• The Gujarat HC (in the case of M/s VKC Footsteps India Private Limited (Civil Appeal No 4810 of 2021) had earlier allowed refund of ITC in respect of input services under the inverted duty structure under the GST law. It had held that the relevant provisions under the GST law are contrary and ultra vires and need to be read down to the extent it denies refund of ITC on input services. The Revenue had filed a SLP against the Gujarat HC order before the Supreme Court.

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• In similar case, the Madras HC (in the case of Tvl. Transtonnelstroy Afcons Joint venture vs Union of India) had rejected the petitioner’s contentions upholding the constitutional validity and held that the relevant provisions are in conformity with the parent statute. The petitioner had filed an SLP challenging the said order of the Madras HC before the Supreme Court. The SC had accepted the SLP filed by the petitioner and issued notice to the revenue. Further directed that no coercive steps shall be taken.

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Pronouncement-

The Hon’ble Supreme Court in the current case while analyzing the validity of formula prescribed in Rule 89(5) observed that while the anomalies of the formula do continue to exist, an anomaly per cannot invalidate a fiscal rule which has been framed in exercise of the power of delegated legislation.

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We accordingly order and direct that:

1. The appeals SLP (Civil) filed by the Union of India against the judgment of the Gujarat High Court dated 4 July 2020 in VKC Footsteps India Pvt. Ltd. (supra)and connected cases are allowed and the judgment shall be set aside.

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• The appeals- SLP (Civil) filed by the assessee against the judgment of the Madras High Court in Tvl. Transtonnelstroy Afcons Joint Venture (supra) and connected cases dated 21 September 2020 shall stand dismissed. As a consequence, the writ petition filed by the assessee shall also stand dismissed.

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HIGH COURT

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JUDGEMENTS

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Fact of the Case-

• Petitioner is carrying on the business of manufacturing and trade of Poly Vinyl Chloride (PVC) pipes, high-density polyethylene and low-density polyethylene pipes, scrap iron angles, iron scraps etc.

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• Department issued a show cause notice (SCN) in Form GST REG-17 under Rule 22(1) of the OGST Rules, 2017 for cancellation of Petitioner’s registration on the ground that “in case, Registration has been obtained by means of fraud, wilful misstatement or suppression of facts,”.

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• Petitioner filed a reply on 19^th August, 2020, Adjudication officer by an order dated 25^th August, 2020 dropped the proceedings for cancellation of the registration.

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• Further, on the very same day, the proper officer issued another SCN for cancellation of registration, this time on the ground that: “you have claimed ITC (Input Tax Credit) of ₹ 2,04,650,06 against fake invoices issued by non-existent supplier”

1. M/s. Bright Star Plastic Industries Versus Additional Commissioner Of Sales Tax (Appeal) And Others, dated 04.10.2021 (W.P.(C) No.15265 of 2021)- Orissa High Court

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• A detailed reply was sent by the Petitioner to the aforesaid SCN on 31^st August, 2020.

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• Petitioner had purchased G.P. Sheets from M/s. Pawansut Enterprises in the year of 2018 and submitted invoice details of all the invoices including GST amount. Further mentioned that petitioner has shown in GSTR-3B and there was no mismatch with GSTR-2A i.e. supplier has filed its GTSR-1.

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• It was ascertained that the purchases had been made from a dealer, who is registered with the Department, and ITC was being claimed on the basis of the tax invoices that fulfilled the requirement of law. Reliance was placed on a decision of the Delhi High Court in On Quest Merchandising India Pvt. Ltd. v. Government of NCT of Delhi (2017) 64 GST 623 (Delhi), wherein it was observed that the buyer cannot be put in jeopardy when he has done all that the law requires him to do and further that the purchasing dealer has no means to ascertain and secure compliance of the selling dealer.

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• Further, on 17^th October 2020 an intimation was issued in Form GST DRC-01A Part-A under Section 74(5) of the OGST Act read with Rule 142(1A) of the OGST Rules by the adjudicating officer calling upon the Petitioner to pay the tax, interest and penalty amount aggregating to ₹ 3,48,066/- on the ground that the ‘ITC claimed was against fake invoices issued by non-existent supplier’.

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Cont..

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• Thereafter, reply was sent on 2^nd November 2020 by the Petitioner to proper officer asking for being provided with the material in possession of adjudicating officer.

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• Finally, on 3^rd December 2020, adjudicating officer cancelled the Petitioner’s registration with effect from 3^rd November 2020 with the remark “clarification submitted not satisfactory, hence cancelled.”

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• On 10^th December, 2020 the Petitioner applied under Section 30 of the OGST Act for revocation of the cancellation of registration. On 18^thDecember 2020, proper officer issued SCN in Form GST REG-23 for rejection of the said application. After the Petitioner filed a reply there to on 24^th December 2020,proper officer on 7^th January 2020 rejected the revocation application.

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• On the same time, on 8^th January 2021, proper officer issued a SCN under 74 (1) of the OGST Act read with Rule 142(1) of the CGST Rules fixing the date of filing the reply to the SCN dated 17th October 2020 till 8th February 2021.

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• At time stage, Petitioner filed writ petition and writ petition was disposed of by this Court on 17^th January, 2021directing the Petitioner to file an appeal before the Appellate Authority. Challenging the order dated 7^th January, 2021 i.e. against the order of the proper officer rejected the revocation application.

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• The Petitioner filed an appeal before the Additional Commissioner CT & GST (Appeals).The said appeal was rejected by impugned order dated 5^th April 2021.

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• The Petitioner has filed this petition questioning the order dated 5^th April, 2021 passed by the Additional Commissioner of CT & GST (Appeal), Bhubaneswar rejecting the Petitioner’s appeal questioning the order passed by the Proper Officer rejecting the Petitioner’s application for revocation of cancellation of his registration on 7th January, 2021 under Section 30(2)of the OGST Act, for restoration of registration.

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Issue involved in the case-Cancellation of registration of petitioner has been taken by the Proper officer to prevent future fraud or to prevent from recurrence for such the regular claims of the ITC - Section 30(2) of the Orissa GST Act. 

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Finding and Discussions-

• The reasoning in the impugned order dated 5^th April, 2021 of the Appellate Authority is only that “the preventive measure has been taken by the proper officer by cancellation of the registration of the appellate to prevent future fraud or to prevent from recurrence for such the regular claims of the ITC and that is the interest of the Government revenue”. As noted earlier, the cancellation of the Petitioner’s registration was for a very terse reason:“clarification submitted not satisfactory”. As a result, the Court is not in a position to appreciate the actual reasons that prevailed with either the Appellate Authority or the proper officer for cancellation of the Petitioner’s GST registration.

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• According to petitioner, out of the 21 transactions of purchase made by the Petitioner during the relevant period, it is only the purchase from one dealer viz., M/s. Pawansut Enterprises, that has attracted the SCN issued to the Petitioner by proper officer on the ground that ITC had been claimed against a fake invoice.

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• Petitioner further submitted, that on a collective reading of Section 16 of the OGST Act with Rule 21 of the OGST Rules 2017, there is no provision that enables the cancellation of the registration of the purchasing dealer for any fraud committed by the selling dealer. Secondly, he points out that the cancellation registration of the selling dealer M/s. Pawansut Enterprises took place only on 1st October 2019 i.e., long after the dates of the purchases made by the present Petitioner from the said dealer. He, therefore, submits that on the date of purchases took place, there was no way that the Petitioner would have known that at some future point in time, the registration of the selling dealer was going to be cancelled.

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• Learned ASC for the Department drew the attention of the Court to the reply filed to the present petition where it has been stated that when a field visit was undertaken to the address shown for the selling dealer, the premises were found to be occupied by some other person and not the selling dealer. From the said visits which were undertaken on 1st July 2019, a conclusion was drawn that the transactions entered into by the present Petitioner with the selling dealer in April and August 2018 were fake transactions.

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• The Court finds merit in the contention of Petitioner that for the fraud committed by the selling dealer, which resulted in cancellation of a selling dealer’s registration, there cannot be an automatic cancellation of the registration of the purchasing dealer. Rule 21 of the OGST Rules reads as under:

“21. Registration to be cancelled in certain cases. The registration granted to a person is liable to be cancelled, if the said person,

• does not conduct any business from the declared place of business: or

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• issues invoice or bill without supply of goods or services in violation of the provisions of the Act, or the rules made thereunder; or

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• violates the provisions of Section 171 of the Act or the rules made thereunder.”

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None of the three circumstances outlined above, in Clauses (a), (b) & (c) are attracted in the present case. Consequently, Rule 21 of the OGST Rules cannot be invoked by the Department, in circumstances such as the present, to cancel the registration of the purchasing dealer.

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• The Court finds that the decision of the Gujarat High Court dated 10^th December 2020 in Special Leave Application No.15508 of 2020 (Vimal Yashwantgiri Goswami v. State of Gujarat) supports the case of the Petitioner.

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• The High Court came to the conclusion that the cancellation of registration was without any reason and the explanation offered by the registered dealer in response to the SCN issued for cancellation of registration was not even discussed. Here too apart from simply stating that the explanation offered was not ‘satisfactory’, no reasons have been given by the proper officer for cancellation of the petitioner’s registration. The appellate order also only proceeds on the basis that this is a preventive measure. It fails to discuss the explanation offered by the Petitioner.

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• Further, Court relied on decision dated 3^rd August, 2021 of the High Court of Telangana at Hyderabad in W.P.No.7063 of 2021 (M/s. Deem Distributors Private Ltd. v. Union of India).

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• In the present case, on the dates that the Petitioner entered into the transactions of purchase with M/s. Pawansut Enterprises i.e., April and August 2018, the GST registration of M/s. Pawansut Enterprises had not been cancelled. That was to take place much later on 1st October 2019. Therefore, on the date the purchases took place there was no means for the Petitioner to know that entity which had a valid GST number was in fact non-existent.

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• Also, court said that, to attribute fraud in such circumstances to the Petitioner, as a purchasing dealer, the Department would have to satisfy a high threshold of showing that the purchaser indulged in the transactions with the full knowledge that the selling dealer was non-existent. The Department would have to show that somehow the purchasing dealer and selling dealer acted in connivance to defraud the revenue. This threshold has not been made in the present case. In other words, the Department has failed to show that the Petitioner as a purchasing dealer deliberately availed of the ITC in respect of the transactions with an entity knowing that such an entity was not in existence.

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Pronouncement: -

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For the aforementioned reasons, the impugned order of the LPO rejecting the Petitioner’s application for revocation of its cancellation of registration and the impugned appellate order dated 5^th April 2021 rejecting the Petitioner’s appeal are hereby set aside. The Department is now directed to restore the Petitioner’s registration forthwith by issuing appropriate orders/directions not later than one week from today. The Petitioner will correspondingly now be permitted to file all the return which it could not file on account of the cancellation of the registration.

Cont..

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Fact of the Case-

• The Petitioner is a partnership firm engaged in the business of execution of works contract including civil, electrical, and mechanical.

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• A demand was raised by the Deputy Commissioner of CT & GST, Barbil Circle, Jajpur, Odisha, which resulted in an extra demand for IGST, CGST and OGST inclusive of interest.

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• An appeal was filed electronically in Form-GST APL- 01 before the Additional Commissioner of Sales Tax (Appeal), under Section 62 (1) of the OGST Act read with Rule 100 (1) of the OGST, Rules.

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• As per Sec.107 (6) of the OGST Act, the Petitioner was required to make payment equivalent to 10% of the disputed amount of tax arising from the order against which the appeal is filed.

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• This payment of pre deposit was made by the Petitioner by debiting electronic credit Ledger instead of debiting Electronic Cash Ledger.

2. M/s. Jyoti Construction Versus Deputy Commissioner Of CT & GST, Barbil Circle, Jajpur-, W.P.(C) Nos.23508, 23511, 23513, 23514 and 23521 of 2021 ,dated 07^th October 2021- Orissa High Court

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• Additional Commissioner of Sales Tax (Appeal), after considering the fact that payment pre deposit was required to be made by the Petitioner by debiting its Electronic Cash Ledger as provided under Section 49(3) read with Rule 85 (4) of the OGST Rules. However, it was noticed that the Petitioner sought to make payment of the pre-deposit by debiting the electronic credit ledger. Considering this to be defective and liable for rejection of the appeal.

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• Therefore, Petitioner filed writ petition challenging the order passed by the Additional Commissioner of Sales Tax (Appeal),rejecting the appeal filed by the Petitioner under Section 107 (1) of the Odisha Goods and Services Tax Act,2017 (OGST Act) and holding that the appeals filed are defective.

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Issue Involved in the case-Pre-deposit for filing appeal under GST to be paid through electronic cash ledger

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Finding and Discussions-

• Petitioner submitted that is that under Section 49 (4) of the OGST Act, the amount available in the ECRL could be used for making "any payment towards output tax” under the OGST Act or the IGST Act “in such manner and subject to such conditions and within such time as may be prescribed”. Under Rule 85 (4) of the OGST Rules, the amount deducted under Section 51, or collected under Section 52, or the amount payable on reverse charge basis, or the amount payable under Section 10, or any amount payable towards interest, penalty, fee or “any other amount under the Act” shall be paid by debiting the ECL (i.e. the cash ledger) maintained under Rule 87 and the electronic ledger liability register (ELR) shall be credited accordingly.

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• Further, it is submitted by Petitioner that on a collective reading of the above Rules, the pre-deposit could be made by debiting the ECRL. Learned counsel refers to the definition of “Output Tax” under Section 2 (82) of the OGST Act which means “tax chargeable under this Act on taxable supply of goods or services or both” made by the taxable person or his agent but excludes tax payable on reverse charge basis. On this basis, it is contended that since what in effect be the Petitioner was paying was a percentage of the output tax as defined under Section 2(82) of the OGST Act, the amount could well be paid by debiting the ECRL.

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Also, Petitioner, refers to the decision of Supreme Court of India in J.K. Synthetics Ltd. v. Commercial Taxes Officer 94 (1994) where certain observations were made in the context of payment of interest. It was held that the provisions that permit the levy and collection of interest, even if construed as forming part of the machinery provision, “is substantive law for the simple reason that in the absence of contract or usage, interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount.”

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• On the other hand, respondent refers to Section 49 (3) of the OGST Act which requires payment to be made from the ECL and Section 49 (4) which refers to the ECRL. It is submitted that the pre-deposit cannot be equated to the output tax. The proviso to Section 41 (2) of the OGST Act sets out the purposes for which the input tax credit (ITC) can be utilized. It can be utilized for payment of “self-assessed output tax as per the return”. It is pointed out that self-assessment is defined under Section 59 of the OGST Act i.e. when the tax payer files a return under Section 39 of the OGST Act and the Form GSTR-3B, the taxpayer is deemed to be self-assessed.

Further, respondent refers, to the decision of the Supreme Court of India in M/s. Jayam & Co. v. State of Tamil Nadu (2016) which held that the ITC itself is a concession and has to be utilized as per the provisions in the GST statute and not otherwise.

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• As per court findings, it is not possible to accept the plea of the Petitioner that “Output Tax”, as defined under Section 2(82) of the OGST Act could be equated to the pre-deposit required to be made in terms of Section 107 (6) of the OGST Act.

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• Further, as rightly pointed out by respondent, the proviso to Section 41 (2) of the OGST Act limits the usage to which the ECRL could be utilised. It cannot be debited for making payment of pre-deposit at the time of filing of the appeal in terms of Section 107 (6) of the OGST Act. It is not therefore possible to accept the plea Section 107 (6) of the OGST Act is merely a “machinery provision”.

Cont..

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Pronouncement

• The court said that it is not possible in the present case to equate the output tax payable to the amount of pre-deposit required to be made. There is world of difference between an amount which is refundable and an amount which is liable to be paid as output tax. Here there is no amount refundable to the Petitioner which could be utilized for making of payment of the pre-deposit.

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• The Court is unable to find any error having been committed by the appellate authority in rejecting the Petitioner’s contention that the ECRL could be debited for the purposes of making the payment of pre-deposit.

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• The Court finds no merit in these writ petitions and accordingly, the writ petitions are dismissed.

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CA. Manoj Kumar Goyal

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manojgoyal@rhms.in

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9810148436