GST Controversies and Input Tax Credit Issues

 
CONTROVERSIES UNDER GST
 
 
V. Raghuraman
Senior Advocate
 
ISSUES UNDER INPUT TAX
CREDIT
 
2
 
AVAILEMENT/ REVERSAL
OF CREDIT
 
3
 
SUNCRAFT  ENERGY (P) LTD vs ASST.
COMMNR [2023 153 taxmann.com 81
(CAL)]
 
ISSUE: 
Non-reflection of supplier’s invoice in GSTR 2A - require reversal
of input tax credit by the buyer ?
HELD:
Press release dated 18.10.2018 clarifies that GSTR-2A is for
taxpayer facilitation and does not impact the ability of the
taxpayer to avail ITC on self-assessment basis.
The department without resorting to any action against the
supplier, who is the selling dealer, demand cannot be raised on
the buyer.
 
 
 
4
 
SUNCRAFT  ENERGY (P) LTD vs ASST.
COMMNR [2023 153 taxmann.com 81
(CAL)]
 
The tax invoices and the bank statement produced by the buyer
to substantiate that price of goods and taxes have been paid to be
considered.
It was directed to first proceed against the seller and only in
exceptional circumstances as clarified by Board, then and only
then action can be initiated against seller.
SLP has been dismissed by the Hon’ble Supreme Court [2023
(157) taxmann.com (352) SC]
 
5
 
Aastha Enterprises vs State of Bihar
[2023 (153) TAXMANN.COM 491
(Patna)]
 
ISSUE: 
Whether the purchasing dealer can be denied input tax credit
when selling dealer, who defaulted payment of collected tax to the State?
HELD:
The benefit of claiming credit is one conferred by Statute - if
conditions prescribed therein are not complied; no benefit flows to the
claimant.
The question of double taxation does not arise - since the claim is
denied only when the supplier who collected tax from the purchaser
fails to pay it to the Government.
 
 
 
6
 
Aastha Enterprises vs State of Bihar
[2023 (153) TAXMANN.COM 491
(Patna)]
 
HELD:
Statue has a measure to recover collected tax from the seller – it does
not absolve the liability of the taxpayer to satisfy the entire liability to
the Government.
The word 'Input Tax Credit’ postulates a situation where the
purchasing dealer has a credit in the ledger account maintained by it
with the Government. The said credit can only arise when the supplier
pays up the tax collected from the purchaser.
Accordingly, credit was denied to the purchasing dealer.
 
 
 
 
7
 
STATE OF KARNATAKA vs ECOM GILL
COFFEE TRADING P LTD [2023 (4) CENTAX
223 (SC)]
 
ISSUE: 
Burden of proof in respect of 
genuineness
 of purchases for
availing credit.
The respondents had claimed credit on alleged purchases made from
the respective dealers.
The Tribunal and High Court allowed the credit, by observing that as
the purchasing dealers produced the invoices issued by the
respective dealers and in some cases, made the payment through
cheques, the Assessing Officer was not justified in denying the
credit.
HELD:
Mere claim by dealer that he is a bona fide purchaser is not enough
and sufficient to claim credit.
 
 
8
 
STATE OF KARNATAKA vs ECOM GILL
COFFEE TRADING P LTD [2023 (4) CENTAX
223 (SC)]
 
Burden of proving the correctness of credit remains upon the dealer
claiming such credit. Such a burden of proof cannot get shifted on the
revenue.
Mere production of the invoices or the payment made by cheques is not
enough and cannot be said to be discharging the burden of proof cast
under section 70 of the KVAT Act.
Purchase transaction was required to be proved by furnishing details
viz. name and address of selling dealer, details of vehicle which had
delivered goods, payment of freight charges, acknowledgement of
taking delivery of goods etc.
Actual physical movement of the goods is the sine qua non for claiming
credit.
 
 
 
9
 
Malik traders VS state of up
 [2023 155 taxmann.com 517 (All)]
 
ISSUE: 
SCN was issued for wrong availment of ITC by the Petitioner
.
HELD:
Petitioner has brought on record - tax invoices, e-way bills, GR and
payment through banking channel, but no such details such as
payment of freight charges, acknowledgement of taking delivery of
goods, toll receipts and payment thereof has been provided.
In the absence of these documents, the actual physical movement
of goods and genuineness of transportation as well as transaction
cannot be established.
Reference made to
: Ecom Gill Coffee Trading Pvt Ltd (SC) decision
– To say that actual physical movement of goods to be proved.
 
 
 
 
10
 
Henna Medicals VS State Tax Officer
 [2023 155 taxmann.com 29 (Kerala)]
 
ISSUE: 
Credit of input tax was denied merely on ground of difference
between GSTR 2A and GSTR 3B filed by the Petitioner.
HELD:
Matter was remanded back – To examine the evidence of the petitioner
irrespective of the Form GSTR 2A for the petitioner's claim for the input
tax credit.
After examination, the assessing officer directed to pass a fresh order.
Reference made to: Diya Agencies v. STO WPC 29769/2023 (Cal HC) and
The State of Karnataka v. M/s Ecom Gill Coffee Trading Private Limited
2023 (3) TMI 533 SC.
 
 
11
 
DENIAL OF CREDIT ON ACCOUNT OF
MISMATCH IN GSTR 2A & GSTR 3B
 
Goparaj Gopalakrishnan Pillai vs State Tax Officer [2023 11 Centax
203 (Ker)] – 
Merely because tax paid is not reflected in GSTR2A would not
be sufficient to deny ITC to the buyer. Opportunity to be given to produce
evidence to support the claim of ITC by the buyer.
 
 
12
 
M/s. Gargo Traders 
VS Joint Commnr of
Central tax [2023 151 taxmann.com 270
(CAL)]
 
ISSUE:
 ITC was denied on ground that supplier was fake and non-existing.
GST registration of the supplier was cancelled with retrospective effect
covering the transaction of the petitioner.
HELD
: At time of transaction, supplier's name as registered taxable person
was already available on Government record and petitioner paid amount on
purchased articles as well as tax on same through bank and not in cash.
It cannot be said that there was any failure on petitioner's part in
compliance of any obligation required under statute.
Directed the concerned authority to verify the documents on which the
petitioner relies upon and grant the relief.
 
 
13
 
SHRADDHA OVERSEAS P. LTD VS ACST
[2023 (3) CENTAX 118 (CAL)]
 
ISSUE
: 
Availment of Input Tax Credit (ITC) without receiving any
goods, based on fake documents issued by non-existing dealers was
alleged.
HELD: 
Division bench while remanding the matter, observed that:
T
o conclude that the dealer is a non-existing dealer, there should be
material to show 
- O
n the date of transaction, there was no valid
registration.
If the cancellation of the registration of the dealer is by way of
retrospective cancellation, -  Question would be as to whether it
would affect the transaction, more particularly when the appellant
has been able to show that the payments has been done through
banking challans.
 
14
 
Vivo Mobile India (P) ltd VS UOI [2023
155 taxmann.com 324 (All)]
 
ISSUE: 
Revenue had passed an order opining that Petitioner had
availed/utilized excess ITC for the month of Feb & Aug 2020, which is
in violation of Rule 36(4) of CGST Rules, 2017.
On the other hand - Petitioner stated that revenue erred in looking at a
month-to-month reconciliation of ITC in GSTR 3B vs GSTR 2A. They
ought to have looked at that period as a single tax period i.e.,
cumulatively from Feb 2020 to Aug 2020.
Revenue relied on clause 3(3) of Circular No. 123/42/219-GST dated
11.11.2019 – clarified that the words "on the due date of filing of the
returns“ in Rule 36(4) – refer to the date when reconciliation to be
made. Whether ITC to be availed based on month-on-month or
cumulative reconciliation?
 
 
15
 
Vivo Mobile India (P) ltd VS UOI [2023
155 taxmann.com 324 (All)]
 
HELD:
The scheme of the Act is to let ITC arise and be availed provisionally, in a
continuously moving value addition chain, subject to other conditions
including actual payment of tax being eventually proven and remaining
undoubted.
Date of filing of GSTR 1 is fixed at 10
th
 of next month – by way of
principle it is difficult to accept that ITC could be availed only with
reference to that date.
Reference made to Bharti Airtel Ltd (SC) & Suncraft Ltd (Cal HC) – GSTR1
is a necessary step of facilitator.
 
 
16
 
Vivo Mobile India (P) ltd VS UOI [2023
155 taxmann.com 324 (All)]
 
HELD: Rule 36 (4) and its interpretation:
Rule 36(4) is complete and provides for a functional.
1
st
 Proviso to Rule 36(4) - 
condition in Rule 36(4) shall apply
cumulatively for the period Feb to Aug 2020: Meaning of cumulatively –
all additions made, taken together.
The purpose of proviso -  grant benefit of ITC late accrued, to transactions
completed in the past, by treating Feb to Aug 2020 as one period.
Clarified that Rule 36(4) – necessarily require the computation of eligible
ITC on a month-to-month basis, at the same time, a conscious departure
was caused by the first proviso for a fixed period February 2020 to August
2020.
 
 
 
17
 
VALIDITY OF SECTION
16(4) OF CGST ACT, 2017
 
18
 
Gobinda Construction VS UOI
 
[2023 154 taxmann.com 311(Patna)]
 
ISSUE: 
Constitutional validity of section 16(4) of the CGST Act has been
challenged as violative of Article 14 and 300A of the Constitution.
Alternatively, section 16(4) to be read as procedural requirement and
cannot override section 16(1) conditions.
HELD:
ITC is not unconditional - a registered person becomes entitled to
ITC only if the requisite conditions stipulated therein are fulfilled.
On close reading of section 16(1) – the provisions of section 16(4)
is one of the conditions which makes a registered person entitled to
take ITC.
 
 
 
19
 
Gobinda Construction VS UOI
[2023 154 taxmann.com 311(Patna)]
 
HELD:
Reference made to Godrej & Boyce Mfg. Co. (P.) Ltd. v. CST
[1992] 3 SCC 624 & ALD Automotive (P.) Ltd [2018] 99
taxmann.com 202 (SC) - ITC is in the nature of
benefit/concession extended to a dealer and the concession can
be received by the beneficiary only as per the scheme of the
statute.
Section 16(4) to be read as directory – The concession of ITC is
dependent on fulfillment of requisite conditions laid down in
under various provisions of section 16 including 16(4) thereof.
 Section 16(4) is constitutionally valid and not violative of Article
19(1)(g) and 300A of the Constitution.
 
 
 
20
 
THIRUMALAKONDA PLYWOODS VS Asst.
Commnr [2023 8 Centax 276 (AP)]
 
ISSUE: 
Constitutional validity of section 16(4) of the CGST Act has
been challenged as violative of Article 14 and 300A of the
Constitution.
HELD:
Section 16(2)
: Precisely while section 16 sub-section (2)
prescribes the eligibility criteria which is sine qua non for
claiming ITC, sub-section (3) and (4) impose conditions or
limitation for claiming ITC.
Whether 16(2) overrides the rest of section 16, especially
16(4)
: Section 16(2) only overrides the provision which enables
the ITC i.e., section 16(1). Section 16(2) is not an enabling
provision but a restricting provision
 
 
 
21
 
THIRUMALAKONDA PLYWOODS VS Asst.
Commnr [2023 8 Centax 276 (AP)]
 
HELD:
Section 16(4) being a non-contradictory provision and
capable of clear interpretation, will not be overridden by
non obstante provision u/s 16(2).
If the legislature has no intention to impose time limitation,
there was no necessity to insert a specific provision under
section 16(4) and to further intend to override it through
section 16(2) which is a futile exercise.
 
 
 
 
22
 
THIRUMALAKONDA PLYWOODS VS Asst.
Commnr [2023 8 Centax 276 (AP)]
 
HELD:
Whether section 16(4) violates Article 14, 19(1)(g) &
300A
: ITC is a mere concession/rebate/benefit but not a
statutory or constitutional right. Imposing conditions
including time limitation for availing the said concession will
not amount to violation of constitution or any statute.
The operative spheres of Articles 14/19/300A is different
from that of Section 16. Hence, no challenge on the ground
of constitutional provisions could be made.
 
 
 
 
23
 
BBA Infrastructure Ltd vs Senior Joint Comm
of State Tax[2023 157 taxmann.com 345
(Cal)]
 
ISSUE: 
Availment of ITC beyond the time limit stipulated under Section
16(4) of CGST Act, 2017- ITC was not taken through return but through
books of account immediately on receipt of goods and services in terms of
first proviso to section 16(2), and section 16(2) has overriding effect on
section 16(4) -
HELD:
Section 16(2) does not appear to be a provision which allows Input Tax
Credit, rather Section 16(1) is the enabling provision and Section16(2)
restricts the credit which is otherwise allowed to the dealers who satisfied
the condition.
FOLLWED - Gobinda Construction VS UOI (supra)
 
 
 
 
 
24
 
Issues on blocking of credit under
Rule 86A
 
ITC cannot be blocked solely based on communication of Commissioner
(Central Tax) and without any tangible material to form any belief that
ITC is fraudulently availed is not sustainable. Decisions rendered in
Income Tax Law for the expression ‘reason to believe’  is relevant [
See:
Parity Infotech Solutions (P) Ltd vs Government of National
Capital Territory of Delhi (2023) 7 Centax 169 (Del.)
].
 
Blocking of credit cannot be done by an officer below the rank of
Assistant Commissioner. Blocking of credit by any other officer was held
to be illegal and contrary to Rule 86A [
See: Guru Storage Batteries
vs State of Maharashtra (2023)  11 Centax 308 (Bom)].
 
 
 
 
 
25
 
Issues on blocking of credit under
Rule 86A
 
Electronic credit ledger cannot be blocked for more than one year [
See:
Raghbir Singh Govt. Contractor vs State of Haryana (2023) 4
Centax 396 (P & H) and TVL. New Royal Traders vs Asst Commnr
(2023) 10 Centax 350 (Mad)
].
Credit ledger cannot be blocked without assigning any reason for such
blocking [
See: Vijay Jaiswal  vs Asst Commnr (2023)  2 Centax
104 (Cal)].
 
 
 
 
 
 
 
26
 
Issues under section
17(5)
 
27
 
Issues under section 17(5)
 
ITC on construction services:
Safari Retreats Pvt Ltd (P.) Ltd. vs Chief Commissioner of CGST
[2019] 105 taxmann.com 324 (Orissa):
The credit on the input and input services used in construction of
shopping mall was allowed to be utilized for payment of GST on renting
of such shopping malls.
SLP before the Hon’ble Supreme Court is pending in Chief
Commissioner of CGST vs Safari Retreats (P.) Ltd 2019-TIOL-489-SC-
GST. All the pleadings are completed, and the judgement is reserved.
 
 
28
 
Issues under section 17(5)
 
Issues to be addressed in case of Safari:
Section 16 of the CGST Act, 2017 - the terminology used is “used in the
course or furtherance of business”. Credit is available when used in
course or furtherance of business.
Section 17(1) - business related input tax credits are allowable while
credit for other uses is not. Similarly, 17(2) talks of only business credits.
Leasing of immovable property is clearly a taxable supply on which entire
chain of input tax credit is available. Since, GST is enshrined on the
principles of ‘seamless flow of credit’ – no   credit can be denied when
supply chain continues.
 
 
 
29
 
Issues under section 17(5)
 
Issues to be addressed in case of Safari:
Credit on sale of land and buildings covered under Schedule III are
reversed under Section 17(2) and 17 (3) therefore, once the credit is
already lost, Section 17(5) cannot be used again to demand reversal of
input tax credit once over.
Appropriate meaning to interpret section 17(5): 
Section 17(5) talks
of blocking credits where transactions are covered under Section 17(1) –
credits when used for other purposes.
The non obstante clause found in Section 17(5) is to be read as not
overriding but in the context - credit is available under Section 16 or 18
when inputs are used for the purpose of business, and if the same is
used for “other purposes” credit has to be reversed.
 
 
 
 
30
 
Issues under section 17(5)
 
Usage of term plant and machinery in section 17(5)
:
Machinery meaning of
The word ‘machinery’, when used in ordinary language prima facie
means some mechanical contrivances which, by themselves or in
combination with one or more other mechanical contrivances, by the
combined movement and inter-dependent operation of their respective
parts generate power, or evoke, modify, apply or direct natural forces
with the object in each case of effecting so definite and specific a
result.  
[See: Commissioner of Income Tax Vs Mir Mohammad
Ali (1964) 53 ITR 165 (SC)].
 
 
31
 
Issues under section 17(5)
 
Plant meaning of –
Plant must be something which is used by the assessee in aid of the
object or purpose of the business. It is not only the means of
processing the end-product, but it includes the entire operation
undertaken for the purpose of obtaining the end-product. Railway
sidings were thus treated as ‘plant’. 
[See: CIT Vs Birla Jute &
Industries Ltd (2003) 260 ITR 55 (Cal)].
 
 
 
 
32
 
Issues under section 17(5)
 
The following has been held to be plant
:
Sanitary fittings in the bathrooms in a hotel 
[See: CIT Vs Taj Mahal
Hotel (1971) 82 ITR 44 (SC)].
Building which is used as hotel or cinema theatre is a plant 
[See: CIT
vs Anand Theatres (2000) 244 ITR 192 (SC)].
Generating-station building was so constructed as to be an integral
part of its generating system was held to be plant 
[See: CIT vs
Karnataka Power Corporation (2001) 247 ITR 268 (SC)].
Nursing home equipped to enable storage of surgical instruments &
bandages was held as plant 
[See: CIT vs Dr. B. Venkata Rao
(2000) 243 ITR 81 (SC)].
 
 
 
33
 
S.R. CONSTRUCTIONS.
VS UOI
[2023 6 Centax 38 (Tripura)]
 
ISSUE: 
Petitioner: Petitioner a construction company. They have a
works contract agreement with the M/s Hotel Polo Pvt. Ltd. and
constructed a hotel at Agartala.
Petitioner availed credit of inputs used for providing works
contract services. The said claim of ITC was rejecting – stating
that inputs were used for construction of immovable properties
and is hit by section 17(5).
HELD
: Petitioner has fulfilled all the conditions of work contracts
as he is providing work contract services under a contract for
construction of building of a Hotel, wherein transfer of property in
goods is involved in the execution of such contract.
 
 
 
 
 
34
 
S.R. CONSTRUCTIONS.
VS UOI
[2023 6 Centax 38 (Tripura)]
 
HELD
: Petitioner has been providing work contract services to the
owner of the hotel and not for its own.
For providing works contract of constriction services, Petitioner is
entitled to avail credit of goods/services being used for providing
such taxable works contract services.
Petitioner do not fall within the definition of section 17(5)(c) of the
CGST Act, 2017.
Comment
: Even though the hotel constructed remained to be
immovable property, credit was never denied, considering that
construction was carried not on Petitioner’s own account.
 
 
 
 
 
35
 
Issues under Section 17(5)
 
ARS STEEL & ALLOY INTERNATIONAL (P) LTD VS STO
[2021 127 TAXMANN.COM 787 (MAD)]:
ISSUE: 
Petitioner manufacturer of MS Billets and Ingots.
There was a loss of small portion of the inputs, inherent to
the manufacturing process.
Department seeks to reverse a portion of the ITC claimed by
the petitioners, proportionate to the loss of the input,
referring to the provisions of section 17(5)(h) of the GST Act.
17(5)(h): goods lost, stolen, destroyed, written off or
disposed of by way of gift or free samples.
 
 
 
 
 
 
36
 
Issues under Section 17(5)
 
ARS STEEL & ALLOY INTERNATIONAL (P) LTD VS STO
[2021 127 TAXMANN.COM 787 (MAD)]:
HELD: 
The situations set out above in clause (h) indicate
loss of inputs that are quantifiable and involve external
factors or compulsions.
A loss that is occasioned by consumption in the process of
manufacture is one which is inherent to the process of
manufacture itself and such loss was not contemplated or
covered by situations adumbrated under section 17(5)(h).
 
 
 
 
 
 
 
 
37
 
Issues under Section 17(5)
 
Insertion of new clause – Section 17(5)(fa) vide Finance Act,
2023, w.e.f. 1-10-2023:
(fa) Goods or services or both received by a taxable person, which
are used or intended to be used for activities relating to his
obligations under corporate social responsibility referred to in section
135 of the Companies Act, 2013 (18 of 2013).
This amendment is effective from 01.10.2023.
 
 
 
 
 
 
 
38
 
Issues under Section 17(5)
 
Insertion of new clause – Section 17(5)(fa) vide Finance Act,
2023, w.e.f. 1-10-2023:
    Issues:
o
For the period prior to 01.10.2023 – Credit can be availed on CSR
expenses – Retrospectivity and prospectivity?
o
Meaning of phrase “
activities relating to his obligations under
corporate social responsibility
” ?
o
Whether voluntary CSR expenditure is eligible for credit?
o
What if an individual or firms incurs CSR expenditure?
 
 
 
 
 
 
 
 
39
 
Circular No. 199/11/2023-GST dated
17.07.2023
 
Clarification regarding taxation and input tax credit aspects
between distinct persons:
 
 
 
 
40
 
Circular No. 199/11/2023-GST dated
17.07.2023
 
Clarification regarding taxation and input tax credit aspects
between distinct persons:
 
 
 
 
41
 
Circular No. 199/11/2023-GST dated
17.07.2023
 
Clarification regarding taxation and input tax credit aspects
between distinct persons:
 
 
 
 
42
 
Circular No. 199/11/2023-GST
 
Issues yet to be clarified:
o
The circular fails to address the valuation mechanism in case
where recipient is not eligible for full ITC – Whether open
market value under Rule 28 can be adopted or any other
valuation at the option of the assessee ?
o
Whether it is open to the assessee not to opt for ISD and
continue to charge all its expenses through cross charge? OR
is it permissible to opt for ISD for one period and cross
charge for other period?
o
Fate of the  pending litigations ? Is department going to
withdraw the appeals or petitions pending ?
 
 
 
 
 
 
43
 
Issues w.r.t. Real
Estate Sector
 
44
 
Issues w.r.t. JDA
 
JDA - Construction & handing over of specified number of flats in
lieu of developmental rights as Landowners share:
JDA is in the nature of exchange of immovable property and hence
does not qualify to be Construction service.
Landowners share under JDA – No purchaser during construction,
Supreme court in L&T case held that activity of construction of
apartment where there is no purchaser during construction stage
would not be a works contract and hence does not qualify to be a
service under Para 5(b) of Schedule II.
5(b) would also be not applicable as the building given to owners is
not a sale. Further, the consideration for such transfer, i.e. transfer
of ownership in land would be made only after completion of
construction.
 
 
 
 
 
 
45
 
Issues w.r.t. JDA
 
GST implications on Landowners– JDA:
The transfer of developmental rights are in the nature
of immovable property and hence does not qualify to
be supply.
The grant of developmental right to the
developer and permitting the developer to enter
/ possession of immovable property would not
be liable to GST levy under Para 2(a) of Schedule
II.
 
46
 
Issues w.r.t. JDA
 
ISSUE: Para 2A under Notification 11/2017-CT(R) – inserted
w.e.f., 1.4.2019: valuation of construction of landowners share:
Para 2A provides that value of construction shall be deemed to be
equal to Total amount charged for similar apartments in the project
from independent buyers (other than landowner), nearest to the
date on which such development right or FSI is transferred to
promoter,
Less the value of value of land transferred as prescribed in Para 2.
No specific or express provision under CGST Act, 2017 for levy on
‘landowners share’ under JDA – hence legally impermissible to impose
levy of tax on Landowner’s share in the hands of the Developer. In view
of the absence of statutory provisions of for levy of GST on the
landowners share, valuation prescribed in Para 2A could be challenged.
Valuation provision could be challenged on the basis that as there is no
service element in JDA between the developer and the landowners, no
question of applying valuation provision.
 
 
 
 
 
 
47
 
Issues w.r.t. JDA
 
ISSUE: Para 2A – inserted w.e.f., 1.4.2019: valuation of
construction of landowners share:
Valuation of landowner's share provided in Circular No.151/2/2012-
ST dated 10.02.2012 has been incorporated ‘verbatim’ in Para 2A
It is impossible to obtain value of similar apartments (sold to
independent buyers) nearest to date on which development right /
FSI was transferred to promoter under JDA – since development
rights were transferred at the time of entering JDA, whereas
apartments (sold to independent buyers) are constructed after many
years.
It is also a well settled principle that the law does not compel a man
to do that which he cannot possibly do and the said principle is well
expressed in legal maxim “lex non cogit ad impossibilia” is squarely
attracted to the facts and circumstances of the present case.
 
 
 
 
 
 
 
48
 
Issues w.r.t. Immovable Property
 
Issue: Entry 5(b) & 6(a) to Schedule II – Construction –
validity?
Whether Construction - entry  5(b) of II Schedule would
qualify to be supply? Whether Works contract is a supply?
 
Amendment by Finance Act, 2018 w.e.f., 1.2.2019 - Section 7 is
 
amended with retrospective effect from 1.7.2017 - the entries in
 
Schedule II shall first qualify as service and only then the
 
classification as Service or as Goods would come into play.
There is no deeming clause unlike in erstwhile Service Tax law, to
deem the sale of building during construction as service.
Entry 5(b) treats the entire activity of construction as ‘services’ is
ultra vires and contradictory to Article 366(29A)(b) which bifurcates
the transfer of goods portion from the composite contract and treats
the same as deemed sale.
 
 
 
 
 
 
49
 
Issues w.r.t. Immovable Property
 
Issue: Omission of CLAUSE (ii) – works contract entry
Omission of Works Contract – Entry 3(ii) – Composite supply of
works contract u/s 2(119) is unreasonable and arbitrary hence
violative of Article 14 & 19:
Omission makes it mandatory for choose other entries where
valuation of total amount has compulsorily included ‘value of land’.
Prior to omission, Developer / Promoter was eligible to opt for clause
(ii) of Sl. No. 3 of Notification No. 11/2017-CT (Rate) and pay GST
at 18% on Construction agreements.
Whether residual entry 3(xii) could be opted for payment of GST on
construction services alone?
 
 
 
 
 
 
50
 
Issues w.r.t. Immovable Property
 
Issue: GST on immovable property transactions being
unconstitutional lacking legislative competence:
Notification No. 11/2017-CT(R) - Para 2 is made applicable for all
‘Construction Service’ –value of ‘land’ shall be deemed to be 1/3rd of
total amount including the amount charged for transfer of land.
Value of land is deemed to be 1/3rd of total amount – which results
in levy of GST on land value over and above 1/3rd.
No legislative competence to levy tax on immovable property
transactions under Article 246A. Hence, violative of Article 265 of
the Constitution
Entries in Entry 3 of Notification read with Entry 5(b) of Schedule II
to the CGST Act, 2017 could be challenged as being unconstitutional
lacking legislative competence and violative of Article 246A and 265
of the Constitution
 
 
 
 
 
 
51
 
Issues w.r.t. Immovable Property
 
Issue: Para 2 of Notification no. 11/2017-CT(R) made applicable
to Sl.no. 3 (Construction Services) is illegal & ultra vires S.15
Paragraph 2 of Notification deeming the value of land at one-third of the
total amount charged is ultra-vires S.15 of CGST Act – Illegal and Ultra-
virus
Alternatively, Paragraph 2 should be read down so as to allow valuation
of land on the basis of actual amount received and not at deemed value
of one-third of total amount charged.
Hence, Para 2 to be ‘read down’ as not being mandatory and the
petitioner is allowed to value the land on the basis of actual amounts
received towards the transfer of land / undivided share in the land.
Wipro Ltd. Vs. Asst Collector of Cus & ors [2015 (319) ELT 177 (S.C.)]
Munjaal Manishbhai Bhatt vs UOI [2022 (62) GSTL 262 (Guj)], Avigna
Properties Pvt Ltd vs State Tax Officer [2023 (7) Centax 203 (Mad)]
 
 
 
 
 
 
52
 
Issue w.r.t. reimbursement of
GST on account of
enhancement of rate
 
53
 
Mas Construction vs Hubballi Dharwad
Smart City Ltd 2022 (57) GSTL 230 (Kar)
 
ISSUE: 
Works Contract awarded in GST regime stipulating payment
of Sales Tax/VAT component @ 5% in respect of materials whereas
contractor deposited applicable GST
HELD
: 
Contract having been entered into after coming into force of
GST and in view of aforesaid clarification which has been approved
by  Finance Department, contractee required to pay GST after
adjusting Sales Tax/VAT referred to in said contract particularly when
tax is a statutory liability and contractor would not retain same as
profit
Writ Appeal filed before Divisional Bench of the Hon’ble High Court of
Karnataka [WA 1427/2021] – interim order dated 07.03.2023 granted
 
 
54
 
Sri Chandrashekariah Vs State of
Karnataka, WP No. 9721 of 2019
 
ISSUE: 
Reimbursement of 
differential 
tax amount arising out
of change in tax regime from VAT to GST 
where:
(i)
“works contract” were entered prior to 01.07.2017 during
KVAT regime and works are completed pre-GST but
payments are made post-GST 
or
(ii)
Contracts entered prior to 01.07.2017 but partly executed
pre-GST and balance work executed post-GST or
(iii)
Contracts for which tenders were invited during KVAT
regime and finalised after 01.07.2017 under GST regime
(iv)
contracts which 
were invited during KVAT regime under
old schedule of rates (SR) but finalised under GST regime
 
 
55
 
Sri Chandrashekariah Vs State of
Karnataka, WP No. 9721 of 2019
 
HELD: 
The Hon’ble Court issued the following directions:
Payments received under pre-GST are to be assessed
under KVAT
Calculate the balance works to be completed after
01.07.2017
Derive the rate of materials, KVAT items required or used
to complete the balance works.
Deduct the "KVAT" amount from those materials and the
service tax, if applicable.
Add the applicable "GST" on those items.
 
56
 
Sri Chandrashekariah Vs State of
Karnataka, WP No. 9721 of 2019
 
HELD: 
The Hon’ble Court issued the following directions:
Input Credit on the materials is to be arrived 
at 
and be set
off as against the output GST, for those 
assessed under
regular VAT.
Further, the “tax difference” should be calculated on such
balance works executed or to be executed after 
01.07.2017
separately.
Based on the above calculation, concerned
department/authority has to decide whether agreement
needs to be changed or not.
Supplementary agreement may be signed with the revised
conditions
 
57
 
Back Street Engineers Co-operative
Society Ltd vs State of WB [2023 (156)
taxmann.com 454 (Cal)]
 
 
ISSUE: 
Petitioners were awarded contracts by Government
contractees prior to GST implementation but same were executed
in GST era - Petitioners received payments from Government
contractees without GST
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Petitioners were to be directed to file representations before
Additional Chief Secretary, Finance Department, Government of
West Bengal – who shall take final decision
 
58
 
Taxability of
Intermediary Services
 
59
 
DHARMENDRA M JANI [2023 (5) CENTAX
201 (BOM)]
 
Issue:
 Constitutional validity of Section 13(8)(b) of the IGST Act, 2017
which prescribes place of supply of intermediary services to be location of
supplier of services
Held:
  Split View – Matter referred to Third Judge
View expressed by Justice Ujjal Bhuyan
Unconstitutional - Runs completely contrary to very fundamental
principle of destination-based consumption tax
Offends Articles 245, 246A, 269A and 286(1)(b) of Constitution
Beyond charging section and creates an artificial deeming fiction
View Expressed by Justice Abhay Ahuja
Constitutional – Prevents the escape of revenue
Supply under consideration is an inter-state supply of service.
 
 
 
 
 
60
 
DHARMENDRA M JANI [2023 (5) CENTAX
201 (BOM)] – referee judge decision
 
Held: Before the Referee Judge
By Section 13(8)(b) - Place of supply shall be (is deemed to be) the
location of supplier of services.
Legal consequence by such deeming combination - A supply of service, of
the nature of intermediary services - in the nature of "export of service"
defined under Section 2(6) of the IGST Act - becomes an "intra-State" sale
falling under the charging provision (Section 9) of the CGST Act and the
MGST Act.
Neither CGST, nor SGST recognize tax on export of services - governed
within domain of IGST Act
Thus, fiction which is created by section 13(8)(b) would be required to be
confined only to provisions of IGST Act, as there is no scope for fiction
travelling beyond provisions of IGST Act to CGST and MGST Acts.
 
 
 
 
 
61
 
GENPACT INDIA (P) LTD VS UOI [2022 (144)
TAXMANN.COM (P&H)]
 
Issue:
 Petitioner - Business Process Outsourcing (BPO) Services entered into a
Master Services Sub-Contracting with Genpact International Incorporated (GI).
Whether the petitioner qualifies as an intermediary and thus not eligible for
refund?
Held: 
Petitioner was providing services which had been sub-contracted to it by
GI
Petitioner had no direct contract with customers of GI. Nothing on record to
show that petitioner was liasoning or acting as an "intermediary
Respondent-department had erred in holding petitioner to be in a principal-
agent relationship with GI.
Reliance placed on Circular 159/15/2021-GST dated 20.09.2021 – Minimum
three parties, Does not supply on his own account – Principal to Principal basis
 
 
 
 
 
62
 
E&Y LTD VS ADDT COMM, CGST APPEAL-II
[2023 (4) CENTAX 440 (DEL)]
 
Issue: 
Petitioner - provided various professional services to overseas EY
Entities in terms of the agreements. Whether the petitioner qualifies as an
intermediary and thus not eligible for refund?
Held: 
Petitioner was providing services to overseas entity and not involved
in arranging or facilitating services.
The last limb of section 2(13) of the IGST Act reads as "but does not
include a person who supplies such goods or services or both or securities
on his own account" - Does not control the definition - Merely restricts the
main definition.
There may be services, which may entail outsourcing some constituent
part to a third party. But that would not be construed as intermediary
services, if the service provider provides services to the recipient on his
own account.
 
 
 
 
 
63
 
OHMI INDUSTRIES ASIA P LTD VS ASST COMM.
OF CGST [2023 (6) CENTAX 163 (DEL)]
 
Issue: 
Petitioner - Petitioner was rendering market
research services directly to OHMI, Japan, its overseas
entity. Whether the petitioner qualifies as an
intermediary and thus not eligible for refund?
Held:
No allegation that it had arranged supply of such services
from a third party.
Petitioner was not acting as intermediary in respect of
market research services.
 
 
 
 
 
64
 
BOKS BUSINESS SERVICES 
VS Commnr of
CGST [2023 10 Centax 44 (Del)]
 
ISSUE: 
ITC claim filed by Petitioner on zero rated supply was rejected on the
ground that assessee was as an intermediary and has not made any export of
services.
Petitioner providing bookkeeping, payroll, and accounting services through the
use of cloud technology to its affiliated entity (incorporated in UK).
HELD
: Petitioner is neither facilitating the provision of services by a third entity
nor acting as a middleman for procuring  services for its affiliate. Petitioner is
providing services on principal-to-principal basis.
Reference made to
: M/s Ernst And Young Limited v. Additional Commissioner,
CGST 2023:DHC:2116-DB and M/s Cube Highways and Transportation Assets
Advisor Private Limited v. Assistant Commissioner CGST Division & Ors
2023:DHC:5822-DB.
Directed to process the refund claims of the Petitioner.
 
 
 
 
 
65
 
Levy of GST on mining
lease & royalty
 
66
 
The levy of service tax on the grant of mining lease by a Government
against payment of royalty was a subject matter of litigation under
Erstwhile Service Tax Regime:
Udaipur Chambers of Commerce and Industry v. UOI 2018
(8) G.S.T.L. 170 (Raj.) and Stay granted in Udaipur
Chambers of Commerce and Industry v. UOI 2018 (10)
G.S.T.L. J167 (S.C.)].
Gujmin Industry Association vs UOI 2019 (20) G.S.T.L. 11
(Guj.).
The issue that is revolving around the payment of royalty and the tax
thereon is that whether payment of royalty paid towards extraction of
minerals is in the nature of ‘tax’ and cannot be considered as
consideration for service. [See: India Cement Ltd & Others  vs State of
Tamil Nadu & Others (1990) 1 SCC 12].  This issue is pending before
Nine Bench in the case of 
Mineral Area Development Authority &
Others vs Steel Authority of India & Others (2011) 4 SCC 450.
 
67
 
Taxability of
secondment contracts
 
68
 
C.C., C.E. & ST Bangalore vs Northern
Operating Systems (P) Ltd [2022 (138)
taxmann.com 359 (SC)]
 
ISSUE: 
The overseas entity has a pool of highly skilled
employees which are seconded to the assessee. While
the employees were under the control of the assessee
and worked under its direction, the remuneration was
paid by the overseas employer. The overseas entity
raised a debit note on the assessee to recover the
remuneration.
Whether the overseas entity provided manpower services
to the assessee?
 
 
 
 
69
 
C.C., C.E. & ST Bangalore vs Northern
Operating Systems (P) Ltd [2022 (138)
taxmann.com 359 (SC)]
 
HELD
: It was observed that there is no single
determinative factor while deciding whether an
arrangement is a contract for service or contract of
service and applied the test of substance over form
It was opined that the arrangement is a quid pro quo,
whereby the assessee has the benefit of experts for a
limited period. It was held that the overseas entity was
providing manpower recruitment and supply services to
the assessee.
 
 
 
 
70
 
Taxability of secondment contracts
 
Based on the decision of the Apex Court, department has
issued numerous notices in the GST regime, demanding
tax under reverse charge mechanism on secondment of
employees
.
Points for consideration
 Whether employment contracts can be brought to levy of
GST ? [Section 7 read with Schedule III]
Aspect of dual employment
Whether any consideration flows from Indian entity to
overseas entity?
 
 
 
 
71
 
Taxability of secondment contracts
 
Interim Orders:
Alstom Transport India Ltd vs The State of Karnataka [WP
No. 23644/2023]: 
The petitioner has employed certain
expatriates and is paying salary in the Indian currency, and
because these employees have maintained their lien with the
corresponding overseas company, social security cost is paid. The
decision in the case of Northern Operating Systems Pvt. Ltd., is in
the peculiarities of that particular case and cannot be applied in
distinguishable circumstances. 
[Reference made in 
Mitsubishi
Electric India Pvt Ltd vs UOI (CWP-25351-2023 P&H)]
United Breweries Ltd vs The Additional Commissioner of
Central Tax [WP No. 22959/2023]
Bhoruka Extrusions Pvt Ltd vs ACCT [WP No. 25943/2023
Kar HC]
Biesse India Pvt Ltd vs ACCT [ WP No. 26812/2023 Kar HC]
 
 
 
 
72
 
Taxability of secondment contracts
 
Instruction No. 5/2023-GST dated 13.12.2023
A careful reading of the NOS judgment indicates that
Hon’ble Supreme Court’s emphasis is on a nuanced
examination based on the unique characteristics of each
specific arrangement, rather than relying on any singular
test.
The decision of the Hon’ble Supreme Court in the NOS
judgment should not be applied mechanically in all the
cases. Investigation in each case requires a careful
consideration of its distinct factual matrix, including the
terms of contract between overseas company and Indian
entity, to determine taxability or its extent under GST
and applicability of the principles laid down by the
Hon’ble Supreme Court’s judgment in NOS case.
 
 
 
73
 
Validity of show cause notices
issued under Section 73 of CGST
Act, 2017?
 
74
 
Validity of SCN issued under Section 73
 
Section 73(2) - 
I
ssuance of show cause notice at least 3
months prior to the time limit specified under sub-section 10
for issuance of order
Section 73(10) – 
Pass order within three years from the due
date for furnishing of annual return for the financial year to
which the tax not paid or short paid or input tax credit wrongly
availed or utilised relates to or within three years from the
date of erroneous refund.
Thus, show cause notice is to be issued within 33 months
 
 
 
75
 
Validity of SCN issued under Section 73
 
 
76
 
Validity of SCN issued under Section 73
 
Section 168A 
empowers Government to issue Notifications to
extend time limit specified under CGST Act, 2017, which
cannot be complied due to force majeure
.
Expression “force majeure” means a case of war, epidemic,
flood, drought, fire, cyclone, earthquake or any other calamity
caused by nature or otherwise affecting the implementation of
any of the provisions of this Act.
 
 
 
77
 
Validity of SCN issued under Section 73
 
In exercise of powers of Section 168A
Notification No. 35/2020-CT dated 03.04.2020 and
Notification No. 14/2021-CT dated 01.05.2021 
were
issued from time to time, so as to extend the time limit for
issuing show cause notice and passing orders, 
in view of
COVID pandemic
Subsequently,
 
Notification No. 13/2022-CT dated
05.07.2022
 was issued to extend the time limit for
passing order u/s 73 for FY 2017-18 to 30.9.2023
 
 
 
78
 
Validity of SCN issued under Section 73
 
In exercise of powers of Section 168A
Further,
 
Notification No. 9/2023-CT dated 31.03.2023
was issued to extend the time limit for passing orders u/s
73 as under:
 
79
 
Validity of SCN issued under Section 73
 
Issues for consideration
Reasons for issuing Notification in 2022 and 2023 under Section
168A, involving force majeure event?
Effect of Supreme Court order for extending limitation period dated
09.05.2022, which sough to 
exclude the period from 15.03.2020
till 28.02.2022 for the purposes of limitation.
SRSS Agro Pvt Ltd vs UOI [SCA No. 19720/2023]: 
It is
the case of the petitioner that the notification dated
31.03.2023 extending the time limit specified under Section 73
of the Act by virtue of the powers under Section 168A of the
Act is unjustified as extension has to be for 
special
circumstances. Notice issued to respondents
 
 
80
 
DRC-01A: Whether
Mandatory or Optional?
 
81
 
Agrometal Vendibles Pvt. Ltd. vs State of
Gujarat 2022 (63) G.S.T.L. 212 (Guj.):
 
Issue:
 This case relates to scrutiny of returns and inconsistencies
noticed in taxpayer’s records for year 2019-20. The writ-applicant
had received an intimation for tax ascertained as payable, through
DRC-01 dated 14-03-2022, instead of Form DRC -01A.
Held: 
At the stage of an intimation under sub-section (5) of
Section 74 in the Form GST DRC-01A, it is Rule 142(1A) which is
applicable. There is a vast difference between Rule 142(1)(a) and
Rule 142(1A) of the Rules.
Therefore, w.e.f. 15.10.2020, if the department deems fit to issue
any intimation of tax ascertained as being payable under sub-
section (5) of Section 74 in accordance with the Rule 142(1A) of
the Rules, it shall issue notice in the Form GST DRC-01A.
 
 
 
 
 
82
 
Gulati Enterprises Versus C.B.I. & C. – 2023
(68) G.S.T.L. 237 (Del.)
 
Issue:
 Whether a pre-show cause consultation notice was
required to be mandatorily issued, and is there any non-adherence
to Rule 142(1A) in the present case?
Held: 
The Court held that with effect from 15-10-2020 i.e., after
the impugned show cause notice was issued, Rule 142(1A) has
undergone a change, inasmuch as the word 'shall' has been
replaced with 'may'. The impact of the amendment was not
considered, as admittedly the show cause notice was issued prior
to 15-10-2020 i.e., on 21-5-2020
Therefore, having regard to the position which obtained prior to
15-10-2020, it was held that pre-show cause notice consultation
was mandatory under the unamended Rule 142(1A).
 
 
 
 
83
 
New Morning Star Travels Versus Deputy
Commissioner [(2023) 12 Centax 198 (AP)
 
Issue:
 The assessee was issued DRC-01A intimation by a GST
officer for period from July 2017 to 2018-19. Subsequently, the
case was transferred to another officer who issued show cause
notice under DRC-01 under Section 74(1) for period from 01-07-
2017 to 31-03-2021, but no intimation was issued as DRC-01A
under Rule 142(1A) for the period after 2018-19
Held: 
Prior to the amendment - the employment of the word
'shall' in Rule 142(1A) would indicate that the officer shall
necessarily follow the procedure prescribed under Rule 142(1A) of
the Act, meaning thereby, an intimation of tax shall be issued in
terms of Rule 142(1A) at first and if there is no response from the
tax payer, then he can issue a show cause notice under section
74(1) of CGST/APGST Act
 
 
84
 
New Morning Star Travels Versus Deputy
Commissioner [(2023) 12 Centax 198 (AP)
 
Held: 
Rule 142(1A) of CGST Rules, 2017 has been amended by
virtue of notification No. 79/2020-CT dt.15-10-2020 and by virtue
of the said amendment, the words 'proper officer shall' has been
substituted with the words 'proper officer may' as appearing in
Rule142(1A). Thus, post amendment, the issuance of intimation
under Rule142(1A) is not mandatory, but discretionary on the part
of the assessing authority.
Since the tax period related to 1-7-2017 to 31-3-2021 which
covers the pre and post amended period of Rule 142(1A), the
Respondent ought to have issued tax intimation to the Petitioner
under Rule 142(1A)
 
 
 
85
 
Recovery of refund without
challenging the order
 
86
 
Recovery of refund without challenging
the order
 
Ganesh Ores Pvt Ltd vs State of Orissa 
[2022 (59) GSTL
258 (Ori)] [SLP dismissed – 2022 (59) GSTL 257 (SC)] - There
is no restriction that the appeal needs to be filed before issue
of SCN in case of the erroneous refunds.
CCE Vs Flock India [2000 (120) ELT 285 (SC)]
 -where an
adjudicating authority has passed an order which is appealable
under the statute and the party aggrieved did not choose to
exercise the statutory right of filing an appeal it is not open to
the party to question the correctness of the order of the
adjudicating authority subsequently by filing a claim for refund
on the ground that the adjudicating authority had committed
an error in passing his order.
 
 
 
87
 
Recovery of refund without challenging
the order
 
Priya Blue Industries Vs CC (preventive) [2004 (172) ELT
145 (SC)]
 - A refund claim contrary to an assessment order is not
maintainable without the order of assessment having been
modified in appeal or reviewed under Section 28 of Customs Act,
1962
ITC Ltd. Vs. CCE [2019-TIOL-481-SC-LB]
 - Bill of entry being
an assessment order, no refund could be claimed unless the said
assessment is challenged.
Jairath International Vs UOI [2019-TIOL-2459-HC-P&H-
CUS] 
- Shipping bill is an assessment order and could be
challenged under the appeal provisions. Therefore, unless the
same is challenged, the shipping bill cannot be modified by way of
issue of show cause notice by any authority
 
 
 
88
 
Issues on Provisional
Attachment
 
89
 
Provisional Attachment
 
Different kinds of issues under Section 83 are:
In many cases, the forming of ‘opinion’ by the proper officer
has not been established for provisional attachment under
section 83 
[See: Radha Krishan Industries v. State of
Himachal Pradesh and Others - 2021-TIOL-179-SC-GST]
The order of provisional attachment continues to exist even
after one year has elapsed. The Act permits the proper officer
to provisionally attach the properties only for one year 
[See:
M/s. Krishna Fashion vs UOI 2022-TIOL-108-HC-DEL-
GST]
 
90
 
Provisional Attachment
 
Different kinds of issues under Section 83 are:
The cash credit accounts of the assessees are getting
provisionally attached even though in various decisions it is
settled that the cash credit accounts cannot be attached for
non-existence of debtor-creditor relationship [
See: Manish
Scrap Traders vs Principal Commissioner 2022-TIOL-54-
HC-AHM-GST]
Power to order a provisional attachment of the property of a
taxable person including a bank account is draconian in nature
[See: Radha Krishan Industries v. State of Himachal
Pradesh and Others - 2021-TIOL-179-SC-GST]
 
91
 
Provisional Attachment
 
The provisional attachment under section 83 is permissible
only when proceedings under section 62 or 63 or 64 or 67 or
73 or 74 are pending 
[See: S.S. Offshore (P.) Ltd. vs UOI
[2021] 131 taxmann.com 162 (Bombay); Bhavesh
Kiritbhai Kalani vs UOI [2021] 127 taxmann.com 199
(Gujarat)]
The bank account of the director of the company was
provisionally attached. The ground was that the said company
was availing ITC against fake/ineligible invoices. The bank
attachment is permissible only in respect of taxable person
(who is registered or liable to register) and not against any
other person 
[See: Roshni Sana Jaiswal vs Commnr of
Central Taxes [2021] 128 taxmann.com 357 (Delhi)]
 
92
 
 
 
 
 
 
Thank You
 
93
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Explore controversies under GST related to input tax credit issues. Learn about recent cases involving reversal of credits, buyer responsibilities, and legal implications for buyers and sellers. Understand the complexities of availing input tax credits under GST.


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  1. CONTROVERSIES UNDER GST V. Raghuraman Senior Advocate

  2. 2 ISSUES UNDER INPUT TAX CREDIT

  3. 3 AVAILEMENT/ REVERSAL OF CREDIT

  4. SUNCRAFT ENERGY (P) LTD vs ASST. COMMNR [2023 153 taxmann.com 81 (CAL)] 4 ISSUE: Non-reflection of supplier s invoice in GSTR 2A - require reversal of input tax credit by the buyer ? HELD: Press release dated 18.10.2018 clarifies that GSTR-2A is for taxpayer facilitation and does not impact the ability of the taxpayer to avail ITC on self-assessment basis. The department without resorting to any action against the supplier, who is the selling dealer, demand cannot be raised on the buyer.

  5. SUNCRAFT ENERGY (P) LTD vs ASST. COMMNR [2023 153 taxmann.com 81 (CAL)] 5 The tax invoices and the bank statement produced by the buyer to substantiate that price of goods and taxes have been paid to be considered. It was directed to first proceed against the seller and only in exceptional circumstances as clarified by Board, then and only then action can be initiated against seller. SLP has been dismissed by the Hon ble Supreme Court [2023 (157) taxmann.com (352) SC]

  6. Aastha Enterprises vs State of Bihar [2023 (153) TAXMANN.COM 491 (Patna)] 6 ISSUE: Whether the purchasing dealer can be denied input tax credit when selling dealer, who defaulted payment of collected tax to the State? HELD: The benefit of claiming credit is one conferred by Statute - if conditions prescribed therein are not complied; no benefit flows to the claimant. The question of double taxation does not arise - since the claim is denied only when the supplier who collected tax from the purchaser fails to pay it to the Government.

  7. Aastha Enterprises vs State of Bihar [2023 (153) TAXMANN.COM 491 (Patna)] HELD: 7 Statue has a measure to recover collected tax from the seller it does not absolve the liability of the taxpayer to satisfy the entire liability to the Government. The word 'Input Tax Credit postulates a situation where the purchasing dealer has a credit in the ledger account maintained by it with the Government. The said credit can only arise when the supplier pays up the tax collected from the purchaser. Accordingly, credit was denied to the purchasing dealer.

  8. STATE OF KARNATAKA vs ECOM GILL COFFEE TRADING P LTD [2023 (4) CENTAX 223 (SC)] 8 ISSUE: Burden of proof in respect of genuineness of purchases for availing credit. The respondents had claimed credit on alleged purchases made from the respective dealers. The Tribunal and High Court allowed the credit, by observing that as the purchasing dealers produced the invoices issued by the respective dealers and in some cases, made the payment through cheques, the Assessing Officer was not justified in denying the credit. HELD: Mere claim by dealer that he is a bona fide purchaser is not enough and sufficient to claim credit.

  9. STATE OF KARNATAKA vs ECOM GILL COFFEE TRADING P LTD [2023 (4) CENTAX 223 (SC)] 9 Burden of proving the correctness of credit remains upon the dealer claiming such credit. Such a burden of proof cannot get shifted on the revenue. Mere production of the invoices or the payment made by cheques is not enough and cannot be said to be discharging the burden of proof cast under section 70 of the KVAT Act. Purchase transaction was required to be proved by furnishing details viz. name and address of selling dealer, details of vehicle which had delivered goods, payment of freight charges, acknowledgement of taking delivery of goods etc. Actual physical movement of the goods is the sine qua non for claiming credit.

  10. Malik traders VS state of up [2023 155 taxmann.com 517 (All)] 10 ISSUE: SCN was issued for wrong availment of ITC by the Petitioner. HELD: Petitioner has brought on record - tax invoices, e-way bills, GR and payment through banking channel, but no such details such as payment of freight charges, acknowledgement of taking delivery of goods, toll receipts and payment thereof has been provided. In the absence of these documents, the actual physical movement of goods and genuineness of transportation as well as transaction cannot be established. Reference made to: Ecom Gill Coffee Trading Pvt Ltd (SC) decision To say that actual physical movement of goods to be proved.

  11. Henna Medicals VS State Tax Officer [2023 155 taxmann.com 29 (Kerala)] 11 ISSUE: Credit of input tax was denied merely on ground of difference between GSTR 2A and GSTR 3B filed by the Petitioner. HELD: Matter was remanded back To examine the evidence of the petitioner irrespective of the Form GSTR 2A for the petitioner's claim for the input tax credit. After examination, the assessing officer directed to pass a fresh order. Reference made to: Diya Agencies v. STO WPC 29769/2023 (Cal HC) and The State of Karnataka v. M/s Ecom Gill Coffee Trading Private Limited 2023 (3) TMI 533 SC.

  12. DENIAL OF CREDIT ON ACCOUNT OF MISMATCH IN GSTR 2A & GSTR 3B 12 Goparaj Gopalakrishnan Pillai vs State Tax Officer [2023 11 Centax 203 (Ker)] Merely because tax paid is not reflected in GSTR2A would not be sufficient to deny ITC to the buyer. Opportunity to be given to produce evidence to support the claim of ITC by the buyer.

  13. M/s. Gargo Traders VS Joint Commnr of Central tax [2023 151 taxmann.com 270 (CAL)] 13 ISSUE: ITC was denied on ground that supplier was fake and non-existing. GST registration of the supplier was cancelled with retrospective effect covering the transaction of the petitioner. HELD: At time of transaction, supplier's name as registered taxable person was already available on Government record and petitioner paid amount on purchased articles as well as tax on same through bank and not in cash. It cannot be said that there was any failure on petitioner's part in compliance of any obligation required under statute. Directed the concerned authority to verify the documents on which the petitioner relies upon and grant the relief.

  14. SHRADDHA OVERSEAS P. LTD VS ACST [2023 (3) CENTAX 118 (CAL)] 14 ISSUE: Availment of Input Tax Credit (ITC) without receiving any goods, based on fake documents issued by non-existing dealers was alleged. HELD: Division bench while remanding the matter, observed that: To conclude that the dealer is a non-existing dealer, there should be material to show - On the date of transaction, there was no valid registration. If the cancellation of the registration of the dealer is by way of retrospective cancellation, - Question would be as to whether it would affect the transaction, more particularly when the appellant has been able to show that the payments has been done through banking challans.

  15. Vivo Mobile India (P) ltd VS UOI [2023 155 taxmann.com 324 (All)] 15 ISSUE: Revenue had passed an order opining that Petitioner had availed/utilized excess ITC for the month of Feb & Aug 2020, which is in violation of Rule 36(4) of CGST Rules, 2017. On the other hand - Petitioner stated that revenue erred in looking at a month-to-month reconciliation of ITC in GSTR 3B vs GSTR 2A. They ought to have looked at that period as a single tax period i.e., cumulatively from Feb 2020 to Aug 2020. Revenue relied on clause 3(3) of Circular No. 123/42/219-GST dated 11.11.2019 clarified that the words "on the due date of filing of the returns in Rule 36(4) refer to the date when reconciliation to be made. Whether ITC to be availed based on month-on-month or cumulative reconciliation?

  16. Vivo Mobile India (P) ltd VS UOI [2023 155 taxmann.com 324 (All)] 16 HELD: The scheme of the Act is to let ITC arise and be availed provisionally, in a continuously moving value addition chain, subject to other conditions including actual payment of tax being eventually proven and remaining undoubted. Date of filing of GSTR 1 is fixed at 10thof next month by way of principle it is difficult to accept that ITC could be availed only with reference to that date. Reference made to Bharti Airtel Ltd (SC) & Suncraft Ltd (Cal HC) GSTR1 is a necessary step of facilitator.

  17. Vivo Mobile India (P) ltd VS UOI [2023 155 taxmann.com 324 (All)] 17 HELD: Rule 36 (4) and its interpretation: Rule 36(4) is complete and provides for a functional. 1stProviso to Rule 36(4) - condition in Rule 36(4) shall apply cumulatively for the period Feb to Aug 2020: Meaning of cumulatively all additions made, taken together. The purpose of proviso - grant benefit of ITC late accrued, to transactions completed in the past, by treating Feb to Aug 2020 as one period. Clarified that Rule 36(4) necessarily require the computation of eligible ITC on a month-to-month basis, at the same time, a conscious departure was caused by the first proviso for a fixed period February 2020 to August 2020.

  18. 18 VALIDITY OF SECTION 16(4) OF CGST ACT, 2017

  19. Gobinda Construction VS UOI [2023 154 taxmann.com 311(Patna)] 19 ISSUE: Constitutional validity of section 16(4) of the CGST Act has been challenged as violative of Article 14 and 300A of the Constitution. Alternatively, section 16(4) to be read as procedural requirement and cannot override section 16(1) conditions. HELD: ITC is not unconditional - a registered person becomes entitled to ITC only if the requisite conditions stipulated therein are fulfilled. On close reading of section 16(1) the provisions of section 16(4) is one of the conditions which makes a registered person entitled to take ITC.

  20. Gobinda Construction VS UOI [2023 154 taxmann.com 311(Patna)] 20 HELD: Reference made to Godrej & Boyce Mfg. Co. (P.) Ltd. v. CST [1992] 3 SCC 624 & ALD Automotive (P.) Ltd [2018] 99 taxmann.com 202 (SC) - benefit/concession extended to a dealer and the concession can be received by the beneficiary only as per the scheme of the statute. ITC is in the nature of Section 16(4) to be read as directory The concession of ITC is dependent on fulfillment of requisite conditions laid down in under various provisions of section 16 including 16(4) thereof. Section 16(4) is constitutionally valid and not violative of Article 19(1)(g) and 300A of the Constitution.

  21. THIRUMALAKONDA PLYWOODS VS Asst. Commnr [2023 8 Centax 276 (AP)] 21 ISSUE: Constitutional validity of section 16(4) of the CGST Act has been challenged as violative Constitution. of Article 14 and 300A of the HELD: Section 16(2): Precisely while section 16 sub-section (2) prescribes the eligibility criteria which is sine qua non for claiming ITC, sub-section (3) and (4) impose conditions or limitation for claiming ITC. Whether 16(2) overrides the rest of section 16, especially 16(4): Section 16(2) only overrides the provision which enables the ITC i.e., section 16(1). Section 16(2) is not an enabling provision but a restricting provision

  22. THIRUMALAKONDA PLYWOODS VS Asst. Commnr [2023 8 Centax 276 (AP)] 22 HELD: Section 16(4) being a non-contradictory provision and capable of clear interpretation, will not be overridden by non obstante provision u/s 16(2). If the legislature has no intention to impose time limitation, there was no necessity to insert a specific provision under section 16(4) and to further intend to override it through section 16(2) which is a futile exercise.

  23. THIRUMALAKONDA PLYWOODS VS Asst. Commnr [2023 8 Centax 276 (AP)] 23 HELD: Whether section 16(4) violates Article 14, 19(1)(g) & 300A: ITC is a mere concession/rebate/benefit but not a statutory or constitutional right. Imposing conditions including time limitation for availing the said concession will not amount to violation of constitution or any statute. The operative spheres of Articles 14/19/300A is different from that of Section 16. Hence, no challenge on the ground of constitutional provisions could be made.

  24. BBA Infrastructure Ltd vs Senior Joint Comm of State Tax[2023 157 taxmann.com 345 (Cal)] ISSUE: Availment of ITC beyond the time limit stipulated under Section 16(4) of CGST Act, 2017- ITC was not taken through return but through books of account immediately on receipt of goods and services in terms of first proviso to section 16(2), and section 16(2) has overriding effect on section 16(4) - 24 HELD: Section 16(2) does not appear to be a provision which allows Input Tax Credit, rather Section 16(1) is the enabling provision and Section16(2) restricts the credit which is otherwise allowed to the dealers who satisfied the condition. FOLLWED - Gobinda Construction VS UOI (supra)

  25. Issues on blocking of credit under Rule 86A 25 ITC cannot be blocked solely based on communication of Commissioner (Central Tax) and without any tangible material to form any belief that ITC is fraudulently availed is not sustainable. Decisions rendered in Income Tax Law for the expression reason to believe is relevant [See: Parity Infotech Solutions (P) Ltd vs Government of National Capital Territory of Delhi (2023) 7 Centax 169 (Del.)]. Blocking of credit cannot be done by an officer below the rank of Assistant Commissioner. Blocking of credit by any other officer was held to be illegal and contrary to Rule 86A [See: Guru Storage Batteries vs State of Maharashtra (2023) 11 Centax 308 (Bom)].

  26. Issues on blocking of credit under Rule 86A 26 Electronic credit ledger cannot be blocked for more than one year [See: Raghbir Singh Govt. Contractor vs State of Haryana (2023) 4 Centax 396 (P & H) and TVL. New Royal Traders vs Asst Commnr (2023) 10 Centax 350 (Mad)]. Credit ledger cannot be blocked without assigning any reason for such blocking [See: Vijay Jaiswal vs Asst Commnr (2023) 2 Centax 104 (Cal)].

  27. 27 Issues under section 17(5)

  28. Issues under section 17(5) 28 ITC on construction services: Safari Retreats Pvt Ltd (P.) Ltd. vs Chief Commissioner of CGST [2019] 105 taxmann.com 324 (Orissa): The credit on the input and input services used in construction of shopping mall was allowed to be utilized for payment of GST on renting of such shopping malls. SLP before the Hon ble Supreme Court is pending in Chief Commissioner of CGST vs Safari Retreats (P.) Ltd 2019-TIOL-489-SC- GST. All the pleadings are completed, and the judgement is reserved.

  29. Issues under section 17(5) 29 Issues to be addressed in case of Safari: Section 16 of the CGST Act, 2017 - the terminology used is used in the course or furtherance of business . Credit is available when used in course or furtherance of business. Section 17(1) - business related input tax credits are allowable while credit for other uses is not. Similarly, 17(2) talks of only business credits. Leasing of immovable property is clearly a taxable supply on which entire chain of input tax credit is available. Since, GST is enshrined on the principles of seamless flow of credit no credit can be denied when supply chain continues.

  30. Issues under section 17(5) 30 Issues to be addressed in case of Safari: Credit on sale of land and buildings covered under Schedule III are reversed under Section 17(2) and 17 (3) therefore, once the credit is already lost, Section 17(5) cannot be used again to demand reversal of input tax credit once over. Appropriate meaning to interpret section 17(5): Section 17(5) talks of blocking credits where transactions are covered under Section 17(1) credits when used for other purposes. The non obstante clause found in Section 17(5) is to be read as not overriding but in the context - credit is available under Section 16 or 18 when inputs are used for the purpose of business, and if the same is used for other purposes credit has to be reversed.

  31. Issues under section 17(5) 31 Usage of term plant and machinery in section 17(5): Machinery meaning of The word machinery , when used in ordinary language prima facie means some mechanical contrivances which, by themselves or in combination with one or more other mechanical contrivances, by the combined movement and inter-dependent operation of their respective parts generate power, or evoke, modify, apply or direct natural forces with the object in each case of effecting so definite and specific a result. [See: Commissioner of Income Tax Vs Mir Mohammad Ali (1964) 53 ITR 165 (SC)].

  32. Issues under section 17(5) 32 Plant meaning of Plant must be something which is used by the assessee in aid of the object or purpose of the business. It is not only the means of processing the end-product, but it includes the entire operation undertaken for the purpose of obtaining the end-product. Railway sidings were thus treated as plant . [See: CIT Vs Birla Jute & Industries Ltd (2003) 260 ITR 55 (Cal)].

  33. Issues under section 17(5) 33 The following has been held to be plant: Sanitary fittings in the bathrooms in a hotel [See: CIT Vs Taj Mahal Hotel (1971) 82 ITR 44 (SC)]. Building which is used as hotel or cinema theatre is a plant [See: CIT vs Anand Theatres (2000) 244 ITR 192 (SC)]. Generating-station building was so constructed as to be an integral part of its generating system was held to be plant [See: CIT vs Karnataka Power Corporation (2001) 247 ITR 268 (SC)]. Nursing home equipped to enable storage of surgical instruments & bandages was held as plant [See: CIT vs Dr. B. Venkata Rao (2000) 243 ITR 81 (SC)].

  34. S.R. CONSTRUCTIONS.VS UOI [2023 6 Centax 38 (Tripura)] 34 ISSUE: Petitioner: Petitioner a construction company. They have a works contract agreement with the M/s Hotel Polo Pvt. Ltd. and constructed a hotel at Agartala. Petitioner availed credit of inputs used for providing works contract services. The said claim of ITC was rejecting stating that inputs were used for construction of immovable properties and is hit by section 17(5). HELD: Petitioner has fulfilled all the conditions of work contracts as he is providing work contract services under a contract for construction of building of a Hotel, wherein transfer of property in goods is involved in the execution of such contract.

  35. S.R. CONSTRUCTIONS.VS UOI [2023 6 Centax 38 (Tripura)] 35 HELD: Petitioner has been providing work contract services to the owner of the hotel and not for its own. For providing works contract of constriction services, Petitioner is entitled to avail credit of goods/services being used for providing such taxable works contract services. Petitioner do not fall within the definition of section 17(5)(c) of the CGST Act, 2017. Comment: Even though the hotel constructed remained to be immovable property, credit was never denied, considering that construction was carried not on Petitioner s own account.

  36. Issues under Section 17(5) 36 ARS STEEL & ALLOY INTERNATIONAL (P) LTD VS STO [2021 127 TAXMANN.COM 787 (MAD)]: ISSUE: Petitioner manufacturer of MS Billets and Ingots. There was a loss of small portion of the inputs, inherent to the manufacturing process. Department seeks to reverse a portion of the ITC claimed by the petitioners, proportionate to the loss of the input, referring to the provisions of section 17(5)(h) of the GST Act. 17(5)(h): goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

  37. Issues under Section 17(5) 37 ARS STEEL & ALLOY INTERNATIONAL (P) LTD VS STO [2021 127 TAXMANN.COM 787 (MAD)]: HELD: The situations set out above in clause (h) indicate loss of inputs that are quantifiable and involve external factors or compulsions. A loss that is occasioned by consumption in the process of manufacture is one which is inherent to the process of manufacture itself and such loss was not contemplated or covered by situations adumbrated under section 17(5)(h).

  38. Issues under Section 17(5) 38 Insertion of new clause Section 17(5)(fa) vide Finance Act, 2023, w.e.f. 1-10-2023: (fa) Goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013). This amendment is effective from 01.10.2023.

  39. Issues under Section 17(5) 39 Insertion of new clause Section 17(5)(fa) vide Finance Act, 2023, w.e.f. 1-10-2023: Issues: For the period prior to 01.10.2023 Credit can be availed on CSR o expenses Retrospectivity and prospectivity? Meaning of phrase activities relating to his obligations under o corporate social responsibility ? Whether voluntary CSR expenditure is eligible for credit? o What if an individual or firms incurs CSR expenditure? o

  40. Circular No. 199/11/2023-GST dated 17.07.2023 40 Clarification regarding taxation and input tax credit aspects between distinct persons: Issue Head Clarification Whether (HO) can avail ITC on common inputs from third attributable to both HO or BO (branch office). Office HO has an option to distribute common credit by following ISD mechanism as per section 20 of CGST Act, 2017. availed parties but However, it is not mandatory for HO to distribute credit through ISD mechanism. HO can also raise a tax invoice to the concerned BO to distribute credit. Such credit is subject to section 16 & 17. [this method is commonly known as cross charge]. If ISD mechanism followed ISD registration to be taken. The credit in respect of which can be distributed either by invoice by following mechanism ? raising HO the an by ISD or

  41. Circular No. 199/11/2023-GST dated 17.07.2023 41 Clarification regarding taxation and input tax credit aspects between distinct persons: Issue Clarification The value declared in invoice shall be deemed to be open market value, irrespective of fact whether employee cost is included or not. If HO has not issued invoice in respect of any services the value of services may be deemed to be Nil. Provided recipient is eligible to full credit. Distribution of ITC in respect of internally services generated Whether required under section 31 or cost of all components salary cost to be included in the value of services, where BO is eligible to claim full credit. HO to mandatorily issue invoice particular including

  42. Circular No. 199/11/2023-GST dated 17.07.2023 42 Clarification regarding taxation and input tax credit aspects between distinct persons: Issue Clarification The cost of salary of employees of the HO, involved in services provided to Bos mandatorily include in the value of supply of services. Distribution of ITC in respect of internally services generated is not to required Whether BO is not eligible for full ITC followed or cross charge is permissible? ISD to be

  43. Circular No. 199/11/2023-GST 43 Issues yet to be clarified: o The circular fails to address the valuation mechanism in case where recipient is not eligible for full ITC Whether open market value under Rule 28 can be adopted or any other valuation at the option of the assessee ? o Whether it is open to the assessee not to opt for ISD and continue to charge all its expenses through cross charge? OR is it permissible to opt for ISD for one period and cross charge for other period? o Fate of the withdraw the appeals or petitions pending ? pending litigations ? Is department going to

  44. 44 Issues w.r.t. Real Estate Sector

  45. Issues w.r.t. JDA 45 JDA - Construction & handing over of specified number of flats in lieu of developmental rights as Landowners share: JDA is in the nature of exchange of immovable property and hence does not qualify to be Construction service. Landowners share under JDA No purchaser during construction, Supreme court in L&T case held that activity of construction of apartment where there is no purchaser during construction stage would not be a works contract and hence does not qualify to be a service under Para 5(b) of Schedule II. 5(b) would also be not applicable as the building given to owners is not a sale. Further, the consideration for such transfer, i.e. transfer of ownership in land would be made only after completion of construction.

  46. Issues w.r.t. JDA 46 GST implications on Landowners JDA: The transfer of developmental rights are in the nature of immovable property and hence does not qualify to be supply. The grant of developmental right to the developer and permitting the developer to enter / possession of immovable property would not be liable to GST levy under Para 2(a) of Schedule II.

  47. Issues w.r.t. JDA 47 ISSUE: Para 2A under Notification 11/2017-CT(R) inserted w.e.f., 1.4.2019: valuation of construction of landowners share: Para 2A provides that value of construction shall be deemed to be equal to Total amount charged for similar apartments in the project from independent buyers (other than landowner), nearest to the date on which such development right or FSI is transferred to promoter, Less the value of value of land transferred as prescribed in Para 2. No specific or express provision under CGST Act, 2017 for levy on landowners share under JDA hence legally impermissible to impose levy of tax on Landowner s share in the hands of the Developer. In view of the absence of statutory provisions of for levy of GST on the landowners share, valuation prescribed in Para 2A could be challenged. Valuation provision could be challenged on the basis that as there is no service element in JDA between the developer and the landowners, no question of applying valuation provision.

  48. Issues w.r.t. JDA 48 ISSUE: construction of landowners share: Para 2A inserted w.e.f., 1.4.2019: valuation of Valuation of landowner's share provided in Circular No.151/2/2012- ST dated 10.02.2012 has been incorporated verbatim in Para 2A It is impossible to obtain value of similar apartments (sold to independent buyers) nearest to date on which development right / FSI was transferred to promoter under JDA since development rights were transferred at the time of entering JDA, whereas apartments (sold to independent buyers) are constructed after many years. It is also a well settled principle that the law does not compel a man to do that which he cannot possibly do and the said principle is well expressed in legal maxim lex non cogit ad impossibilia is squarely attracted to the facts and circumstances of the present case.

  49. Issues w.r.t. Immovable Property 49 Issue: Entry 5(b) & 6(a) to Schedule II Construction validity? Whether Construction - entry qualify to be supply? Whether Works contract is a supply? 5(b) of II Schedule would Amendment by Finance Act, 2018 w.e.f., 1.2.2019 - Section 7 is amended with retrospective effect from 1.7.2017 - the entries in Schedule II shall first qualify as service and only then the classification as Service or as Goods would come into play. There is no deeming clause unlike in erstwhile Service Tax law, to deem the sale of building during construction as service. Entry 5(b) treats the entire activity of construction as services is ultra vires and contradictory to Article 366(29A)(b) which bifurcates the transfer of goods portion from the composite contract and treats the same as deemed sale.

  50. Issues w.r.t. Immovable Property 50 Issue: Omission of CLAUSE (ii) works contract entry Omission of Works Contract Entry 3(ii) Composite supply of works contract u/s 2(119) is unreasonable and arbitrary hence violative of Article 14 & 19: Omission makes it mandatory for choose other entries where valuation of total amount has compulsorily included value of land . Prior to omission, Developer / Promoter was eligible to opt for clause (ii) of Sl. No. 3 of Notification No. 11/2017-CT (Rate) and pay GST at 18% on Construction agreements. Whether residual entry 3(xii) could be opted for payment of GST on construction services alone?

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