Category: Uncategorized

Unreported Decisions – ST – September 2022

3.Whether inadvertent payment of IGST instead of CGST and SGST be adjusted against CGST and SGST demand?

Facts and Pleadings: The Petitioner is engaged in business of execution of works contracts, manufacturing and sale of machinery. Petitioner is registered in the state of Andhra Pradesh. The Petitioner received work order from Ministry of Defense, New Delhi related to execution

of work on defense vessels. The said work had to be carried out in line with the technical specifications given by the department of defense and according to terms of contract. The bills for the same were to be raised in the name of Programme Director, Headquarters of ATVP (Advance Technology, Vessel Programme Wing of the Ministry of Defense, New Delhi). The said work was physically undertaken at Vishakhapatnam. The Petitioner collected IGST and discharged the same since as per Petitioner the place of supply is New Delhi.

Subsequently, the department issued a show cause notice proposing to treat the transaction as intra-state supply of goods within the state of Andhra Pradesh instead of interstate supply of goods. The department passed order treating the transaction as intra-state supply and levied CGST and SGST and did not adjust the IGST already paid by the Petitioner.

The Petitioner filed Writ Petition seeking to quash the order passed by adjudicating authority or direct the adjudicating authority to adjust the amount paid as IGST towards the demand of CGST and SGST.

High Court judgment:

The Hon’ble High Court upheld the order of adjudicating authority and held that officer cannot make adjustment of IGST paid against the liability of CGST and SGST. The High Court held that the Petitioner may claim refund of IGST in accordance with the provision of the act after payment of CGST and SGST and in view of the same, the contentions of the Petitioner were held not tenable. The High Court directed the Petitioner to pay CGST and SGST amount due and then claim refund of the amount already paid towards IGST.

Walchandnagar Industries Limited Vs The Assistant Commissioner – ST – 2022-TIOL-1111-HC-AP-GST

Unreported Tribunal Decisions- September 2022

By Ajay R. Singh, Advocate and CA Rohit Shah

1. S. 41(1): – Remission/Cessation of Trading Liability- Assessee Failed to Furnish Confirmation from Loan Creditors

Facts:

Assessee undertook unsecured loans and accordingly, he was asked to furnish confirmation from loan creditors. Since the assessee did not furnish confirmations from some of the creditors and also some of the confirmations produced by the assessee did not contain PAN; the AO concluded that the assessee failed to establish creditworthiness of the lenders. Thus, the AO treated such amount as cessation of liability under section 41(1). On appeal, CIT(A) confirmed the addition holding that despite several opportunities, the assessee could not furnish any further confirmation from the loan creditors.

Held:

Admittedly, it was loan creditors and not a trading liability. So, assessee did not obtain allowance or deduction in computing profits and gains of business or profession in respect of assessment of any year. Therefore, the first condition enumerated under section 41(1) did not have application to the facts of instant case. Hence, the addition made by AO and sustained by CIT(A) under section 41(1) was deleted.

KA Rame Gowda vs. ACIT, Exemption

[ITA No.456/Bang/2019]

2.Income from undisclosed sources-Addition under section 68-Receipt of unsecured loan-Section 133(6) notice remained unserved

Facts:

Assessee received unsecured loan from (P). AO doubted creditworthiness of the lender and issued notice under section 133(6) which remained unserved. Therefore, AO treated loan amount received by assessee as unexplained credit under section 68.

Held:

AO had not disputed the identity of lender, rather made addition solely alleging creditworthiness. So far as creditworthiness was concerned, assessee had furnished audited balance-sheet of P which duly incorporated all the entries once, assessee discharged the onus as required under section 68, it could not be penalized for non-compliance of notice under section 133(6) by the lender especially when section 133(6) notice remained unserved, rather notice remained uncomplied with.

Mahalaxmi Saws (P). Ltd. v. ITO

[ITA No. 280/JP/2019] AY 2012-13

 

By Vinay Kumar Jain & Jay Chheda, Advocates

1.  Whether the telecommunication services offered by Indian Telecom Service Provider to inbound international subscriber of a Foreign Telecom Operators qualifies as Export of Service and thus Zero Rated Supply?Facts and pleadings: Vodafone Idea Limited (‘VIL’), registered under the Maharashtra Goods and Services Act, 2017 has entered into contract with Foreign Telecom Operators (‘FTOs’) wherein VIL has agreed to provide international long distance call and roaming telecom services to overseas subscriber coming to India. The overseas subscriber is the subscriber of FTO and for continuity of services within India, the subscriber requires International roaming services. Since the FTO doesn’t have a telecom license within India, the FTO has entered into contract with VIL to allow the subscriber to use the network of VIL in India. Depending upon the usages of the subscriber, VIL would raise an invoice on FTO and in turn FTO would charge from its respective subscriber.The consideration received by VIL is in convertible foreign exchange and accordingly VIL filed for refund of Integrated Goods and Services Tax (IGST) paid on the export of services to FTO. However, the Adjudicating Authority rejected the refund of IGST on the ground that the place of supply of services provided by VIL is in Maharashtra since the subscriber of FTO is in Maharashtra, hence not an export of service. VIL challenged the order before Appellate Authority and Appellate Authority set aside the order and allowed the refund claim filed by VIL.

The department filed a Writ Petition before Bombay High Court and contended that the services provided by VIL were supplied to the subscriber of FTO in India as per Section 13(3)(b) of IGST Act. The Department argued that since the subscriber of FTO makes calls within the territory of Maharashtra, the place of supply of service is within Maharashtra and not outside India. Therefore, roaming services provided by VIL to subscribers of foreign entities are actually consumed in India only. Hence, services are not exported.

VIL argued that all telecom service provides have an agreement with the other telecom service providers in different countries to provide telecom services to their subscribers when traveling to other country and vice versa. According to the agreement, VIL is contractually obligated only to the FTOs for the services under the agreement for which the consideration is payable in convertible foreign exchange. VIL raises invoices on FTOs for allowing FTOs to make/receive calls while roaming.

Bombay High Court Judgement: The High Court observed that as per Section 2(93) of the CGST Act which defines “recipient of supply of service” is a person who is liable to pay the consideration for supply of goods or service. For the services rendered by VIL the consideration is payable by FTOs in convertible foreign exchange. Further, the subscribers do not engage with VIL in case of any telecommunication service difficulties and nor do the subscribers make any payment to VIL. The overseas FTO’s are liable for deficiency of service to the subscriber.  Further, Section 13 of the IGST Act, further clarifies that Section 13(3)(b) is applicable when services are supplied to an individual. In the present case, FTOs are not individuals and services are supplied to FTOs. The FTOs further supply such services to their subscribers. The High Court acknowledged the concept of customer’s customer cannot be your customer and relied on several cases upholding the principle. Therefore, subscribers of FTOs cannot be VIL’s customers as per Section 13(3)(b) of IGST Act.

Further, the High Court observed that as per Section 13(2) of the IGST Act, the place of supply of services, except the services specified in sub-sections (3) to (13), shall be the location of the recipient of services. Since the recipient of services is the FTO whose services do not fall under subsections (3) to (13), location of the recipient of service, i.e., of FTOs, is outside India and services qualify as export of service.

Vodafone Idea Limited v. The Union of India – Judgement dated 4^th July 2022 in Bombay High Court

 
2.    Supreme Court directs opening of GSTN portal for two months to claim transitional credit by all taxpayers.

The Hon’ble Supreme Court vide Order dated 22.7.2022 disposed off an array of Petitions by common order seeking to avail transitional credit. The Hon’ble Supreme Court directed the Goods and Service Network (GSTN) to open the portal for filing and processing the concerned forms for availing the transitional credit via Form TRAN-1 and TRAN-2 for two months, w.e.f, 01.09.2022 and 31.10.2022. Further, the Hon’ble Supreme Court added that any aggrieved assessee can via the aforementioned forms file or revise the already filed forms irrespective of having filed a Writ Petition before the High Court or in situations wherein the case has been decided by the Information Technology Grievance Redressal Committee (ITGRC).  After the successful claims of the transitional credit, the Hon’ble Court has directed to reflect such amount in the Electronic Credit Ledger of the assessee. 

Appositely, the Hon’ble Court directed the GSTN to ensure non-occurrence of any technical glitches during the period, i.e., 01.09.2022 and 31.10.2022. Further, the concerned officers of the department are directed to decide upon the veracity of the claim for such transitional credit and pass appropriate orders thereon after granting reasonable opportunity of being heard.

Union of India Vs. Filco Trade Centre Pvt. Ltd. & Anr. – Judgement dated 22^nd July 2022 in Supreme Court of India (S.L.A. (C) No(s). 32709-32710/2018

3.    Whether Circular issued by CBIC clarifying annuity received by contractors towards construction of roads is not exempted under Notification No. 32/2017-CT Rate legally correct?

Facts and Pleadings: M/s DPJ Bidar – Chincholi Road Project Private Limited (hereinafter referred to as ‘Petitioner’) was entrusted with the construction of road by the Karnataka Road Development Corporation Ltd. (KRDC)

As a consideration for construction and maintenance of the roads, the Petitioner was paid certain amounts termed as ‘annuity’ by KRDC. In certain contracts where construction and maintenance of the roads was outsourced to private entities, consideration was paid by permitting the contractors to collect tolls from the vehicles plying on the road.

Exemption was granted under GST towards collection of toll charges under Notification No. 12/2017 dated 28.06.2017. Subsequently, it was proposed that annuity, which was being paid by the highway authorities as a consideration instead of permitting them to collect toll charges be also exempted from GST. Thereafter, the GST Council through its 22^nd Council meeting issued Notification No. 32/2017-CT Rate dated 13.10.2017 through which exemption to service by way of access to a road or a bridge on payment of annuity was granted.

Thereafter, the CBIC issued Circular No. No. 150/06/2021-GST dated 17.6.2021 and clarified that service by way of access to a road or a bridge on payment of annuity is exempted and the activity of receipt of annuity towards construction and maintenance of highway is not exempted. The Petitioner was aggrieved by the said Circular and filed the Writ petition and pleaded that the aforementioned Circular is contrary to the Exemption Notification.

Karnataka High Court judgement: The Court observed that though what was exempted is mentioned as service by way of access to a road or a bridge on payment of toll charges, the said toll charges is collected as consideration by the contractors towards construction and maintenance of the road only. Accordingly, the entire consideration received by contractors for construction and maintenance of the road which is collected as toll charges is exempt from GST. Annuity is paid to the contractors in lieu of toll charges. The GST Council, in its 22nd meeting held on 06.10.2017 took note of the same and as entire toll charges were being exempted from GST, the Council decided to recommend exemption for annuity also.

The High Court held that the Notification clearly exempted the entire annuity towards construction and maintenance of roads and one cannot possibly infer that annuity towards construction of roads is not included as well. The Circular has the effect of overriding the said Notification and therefore is bad in law.

M/s. DPJ Bidar and Ors. V Union of India and Ors. – Judgement dated 11^th July, 2022, W. P. No. 22250 of 2021 C/W W. P. No. 7233 of 2022 (T-RES), High Court of Karnataka.

Unreported Tribunal Decisions – August 2022

 By Ajay R. Singh, Advocate and CA Rohit Shah

1.    263 rws. 54B: – Exemption not claimed by the Assessee in Original Return of Income but claimed in Response to the Return filed in response to Notice us 147 : Revision not justified :

The assessee filed his original return declaring total income of Rs.3,21,640/-, which was processed u/s 143(1) of the Act. Information was received by the AO leading him to believe that certain income escaped assessment. Notice u/s 148 was issued. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee had, inter alia, not disclosed the long-term capital gain. Therefore, AO added a sum of Rs.32,59,900/- as long term capital gain (net of exemption u/s.54B of the Act amounting to Rs.20,09,600/- towards the value of new agricultural land purchased). The ld. Pr.CIT observed that the assessee was not entitled to exemption u/s.54B of the Act since such a claim was not made in the return of income but only during the course of assessment proceedings. For this proposition, he relied on the judgment of Hon’ble Supreme Court in the case of Goetz India Ltd. Vs. CIT (2006) 284 ITR 232 (SC). Thus, in his opinion, rendered the assessment order erroneous and prejudicial to the interest of revenue. Held: The ld. Pr.CIT has not disputed the otherwise admissibility of exemption u/s.54B of the Act. His opinion was that such a claim could not have been made before the AO for the first time during the course of re-assessment proceedings otherwise than through filing a revised return. This, in his opinion, ran contrary to the judgment of the Hon’ble Supreme Court in the case of Goetz India Ltd. (supra). Clearly, the ratio of this decision is that the AO has no power to entertain a claim made otherwise than by way of revised return. However, it is worth mentioning that in this judgment itself, the Hon’ble Supreme Court has held that the power of the appellate authorities will not be affected by non-making of a claim in the return and the Tribunal has power to allow relief on a point for which no deduction was made in the return of income. In that view of the matter, it gets graphically clear that even though the AO is not empowered to allow exemption/deduction under the relevant provision unless a specific claim is made in the return of income, but such a claim can be entertained at the appellate stage, if it is really sustainable. Thus, the embargo is only on the AO and not on other higher authorities. Albeit, technically the AO was not competent to entertain such a claim, but legally the ld. Pr. CIT was duty-bound to accept it, when he was satisfied with its otherwise eligibility. Since the ld. Pr. CIT has not disputed the eligibility of the claim in law, it cannot be said that that the assessment order, seen in totality is erroneous and prejudicial to the interest of the Revenue and thus allowed the appeal.

Anandrao Sheshrao Bharose vs. Pr.CIT-1, Nashik

[ITA No.275/Pun/2021  dt 5/7/2022 ; Pune Bench : A ; A.Y. 2012-13 ]

2.    Additional ground: Ground of Appeal not pressed inadvertently at the First Appellate Stage can be pressed subsequently:

The assessee and his family entered into a Joint Venture Agreement with M/s. Darode Jog & Associates for development of 5500 sq. mtrs. of land owned by the assessee. The said Joint Venture Agreement was registered on 15-07-2008, from which the assessee was to get 40% of gross sales proceeds.  In pursuance of such understanding the assessee received Rs.55,00,000/- during the year as advance. The AO held Rs.50,00,000/- as business income considering the cost of land as on 01-04-1981 for Rs.5,00,000/-. Having aggrieved by the order of AO, the assessee raised said issue before the CIT(A) but however the CIT(A) dismissed the said issue as not pressed. Before Hon ITAT the Assessee submitted that by inadvertent mistake the said ground stated to have been not pressed before the CIT(A) and the assessee intends to prosecute the said ground before this Tribunal. The assessee submitted that the assessee held the said property as capital asset and for A.Y. 2007-08 the same was assessed as Long-Term Capital Gain. The assessee also drew attention to sub-section (2) of section 45 and argued that if investment is converted into stock-in-trade, gains on such investments is to be assessed u/s. 45(2) of the Act and referred to case laws compilation. Assessee also submitted that the AO has not appreciated the provisions of section 45(2) of the Act and wrongly charged as business income. He prayed to remand the issue to the file of AO with a direction to examine the issue with correct provisions of law u/s. 45(2) of the Act. The ld. DR vehemently opposed the same and argued that the assessee did not prosecute the said ground before the CIT(A) and intentionally withdrew the same. He submitted that there is no point in remanding the issue to the file of AO as the issue attained finality by withdrawal before the CIT(A). Held considering plea of the assessee Hon’ble ITAT remanded back the issue to the file of AO for its fresh consideration in determining the capital gains u/s. 45(2) of the Act. Thus, the additional grounds raised by the assessee was allowed for statistical purpose.

Baban G. Kumbharkar v. Dy. Commissioner of Income Tax, Central Circle-2(3), Pune

[ITA No. 2317/PUN/2016; dated 1/8/2022 ; Pune bench : A ; AY 2010-11]    

Unreported Decisions – ST – July 2022

By Vinay Kumar Jain and Jay Chheda, Advocates

1. Whether transfer of Input Tax Credit from one branch to another branch of same legal entity under the garb of Facilitation Service and Business Support service is legal and acceptable?

Facts and pleadings: JSW Steel Ltd., Odisha (hereinafter referred to as ‘Petitioner’ or ‘JSW Orissa’) is engaged in the business of manufacturing and sale of hot and cold rolled coils, sheets and plates bearing GSTIN 21AAACJ4323N2ZR. JSW Steel Ltd., Maharashtra (‘JSW Maharashtra’) has obtained GST registration as Input Service Distributor under GSTIN 27AAACJ4323N2ZF. JSW Maharashtra had participated in a tender bidding process invited by the Government of Odisha for lease of iron ore blocks in Odisha. JSW Maharashtra was granted the lease after successful bid. JSW Odisha paid bid premium, royalty and other charges to Odisha State government towards license for right to use minerals at the mining blocks. JSW Odisha paid the applicable OGST and CGST under reverse charge (‘RCM’) on the various charges paid and availed Input Tax Credit (‘ITC’). Further, JSW Odisha utilized the said ITC against output liability on stock transfer of goods and sale of goods. JSW Odisha also raised an invoice on JSW Maharashtra towards facilitation charges for payment of license fees on behalf of JSW Maharashtra and discharged output IGST liability by utilizing ITC accumulated at its end. Through the said transaction the accumulated ITC at JSW Odisha was exhausted and ITC was indirectly transferred and made available to JSW Maharashtra, which being an ISD, distributed the same to various other units of JSW.

The Odisha state GST officials objected to such modality as they were of the view that the intention of raising invoice towards facilitation charges on JSW Maharashtra was to indirectly transfer the accumulated ITC at JSW Odisha to JSW Maharashtra which in turn would be transferred by JSW Maharashtra as ISD to other units of JSW. The department initiated proceedings under Section 74 of the CGST Act, 2017 and confirmed demand against JSW Odisha of Rs. 401,16,88,016/- along with penalty of Rs. 401,16,88,016/- and interest of Rs. 99,14,51,105/.

The Odisha state GST officials objected to such modality as they were of the view that the intention of raising invoice towards facilitation charges on JSW Maharashtra was to indirectly transfer the accumulated ITC at JSW Odisha to JSW Maharashtra which in turn would be transferred by JSW Maharashtra as ISD to other units of JSW. The department initiated proceedings under Section 74 of the CGST Act, 2017 and confirmed demand against JSW Odisha of Rs. 401,16,88,016/- along with penalty of Rs. 401,16,88,016/- and interest of Rs. 99,14,51,105/

The Petitioner i.e. JSW Odisha challenged the said order in Writ Jurisdiction and argued that the Petitioner’s payment of royalty and other statutory dues to Odisha State government were made on behalf of JSW, Maharashtra. Hence, the Petitioner contended that the unutilized ITC is of JSW Maharashtra who is competent to distribute such ITC to its other units. The Ld. Advocate General argued that the transactions in question are sham due to lack of “supply” of “goods” or “services” by JSW Odisha to JSW Maharashtra. Further the Ld. Advocate General stated that JSW Odisha has not obtained ISD registration to distribute ITC to JSW Maharashtra.

Orrisa High Court Judgement: The Hon’ble High Court held that that JSW-Company from its Head Office at Bombay had applied and participated in the tender process but JSW as a Company, has been granted the mining lease for iron mines situated within Odisha. To utilize such mines in Odisha, registration was obtained by JSW in the state of Odisha. Subsequently, JSW Odisha paid royalty and other statutory dues and ITC was also claimed which lead to excess ITC remaining as unutilized at JSW Odisha. Such unutilized ITC was sought to be utilized by raising facilitation output invoices on JSW, Maharashtra in the garb of ‘support services’. The Court held that the JSW Odisha’s claim of depositing output GST under RCM on behalf of JSW Maharashtra lacks sufficient evidence to back such claim and the transaction in question prima facie amounts to siphoning of tax credit from one branch to another. Accordingly, the High Court declined to allow the prayer of the Petitioner to restrain the Revenue to affect recovery of the demand confirmed under section 74. However, the High Court issued notice to Revenue to file its response on the challenge of lack of jurisdiction of State of Odisha to confirm such demand as ITC has been availed by JSW Maharashtra and no proceedings can be initiated against JSW Odisha.

M/s JSW Steel Ltd. v. Union of India and Others – Judgement dated 17.05.2022 in W.P. (C) No. 10052 of 2022 & I.A. No. 5190 of 2022, High Court of Orrisa

2. Whether the Show Cause Notice issued by the officers of Directorate of Revenue Intelligence (DRI) were within jurisdiction or not in view of the amendments in Finance Act 2022 to negate the impact of decision of Supreme Court in the case of Cannon India?

Facts and pleadings: In the said case, Writ Petition was filed to challenge the Order-in-Original emanated from Show Cause Notice issued by the officers of Directorate of Revenue Intelligence (DRI). The Petitioner challenged the order contending the lack of jurisdiction of DRI officers on the ground that they are not a “proper officer” within the meaning of Section 2(34) of the Customs Act, 1962 by relying on two decisions of the Hon’ble Apex Court, Commissioner v. Sayed Ali 2011 (265) E.L.T. 17 (S.C.) and Canon India Private Limited Vs. Commissioner of Customs 2021 (376) E.L.T. 3 (S.C.) which held that the officer from DRI is not a “Proper Officer” as per Section 2(34) of the Customs Act, 1962 for issuing Show Cause Notice under Section 28 of the Customs Act, 1962.

During the pendency of the proceedings, Finance Bill, 2022 was passed proposing changes to the Customs Act, 1962. Section 97 of the Finance Act, 2022 validated all proceedings already taken before the commencement of the Finance Act, 2022 by any officers of Customs as specified in the Customs Act, 1962 and to subsequently complete the pending proceedings post the commencement date in accordance with the provisions of the Customs Act,1962 as amended by the Finance Act 1962.

Madras High Court Judgement: The High court acknowledged the pending proceedings in this matter when the Finance Bill, 2022 (Section 97) was passed proposing changes to the provisions of the Customs Act, 1962 (Section 2(34), 3, 4, 5) and validating the actions already taken. Vide the Budget Amendments in 2022, Section 3 notified the officers of DRI, Customs (Preventive) and Customs (Audit) as officers of Customs. Further amendment to Section 5 provided powers to the CBIC to notify functions of officers and appoint class of officers as ‘proper officers’. Further specific inclusion in section 5 has been undertaken to provide for concurrent jurisdiction in multiple officers. Further such amendments shall retrospectively apply since the time Customs Act has been brought into force and validate all previous actions carried out by this class of officers.

The Hon’ble High Court observed that post Budget Amendments in 2022, the Officers of Directorate of Revenue Intelligence (DRI) are appointed as “Officers of Customs” under notification issued under Section 4(i) of the Customs Act, 1962. Further under Section 6 of the Customs Act, 1962, the powers and functions (duties) of the Board or “Officers of Customs” specified in Section 5 read with Section 4 can be entrusted on these officers. Hence, the court held that, the orders passed are valid and legal and will be disposed off in accordance with the provisions of the Customs Act, 1962 and Section 97 of the Finance Act, 2022.

N.C. Alexender Vs The Commissioner Of Customs, Chennai II Commissionerate – Judgement dated 9 June 2022 in Madras High Court

3. Whether the principle of unjust enrichment apply in case of refunds when the Petitioner is engaged in export of services?

Facts and pleadings: Jar Productions Pvt. Ltd. (hereinafter “Petitioner”) is registered under the Companies Act, 2013 and providing production services to ‘A Suitable Company Ltd.’ located in London, U.K. (ASCL). The Petitioner had entered into an agreement with ASCL, wherein as per Clause 4.10, any refund of tax received by the Petitioner, shall be deducted from the production expenses while computing the consideration towards production services. The Petitioner paid output IGST on the consideration received and utilised inputs/input services ITC for payment of output IGST liability and filed first refund claim for the period April to July 2019 on 31.03.2021. The said refund claim was allowed by the Department. Thereafter, the Petitioner filed another refund application for period August 2019 to October 2019. However, a Show Cause Notice was issued to the Petitioners, and subsequently the said claim was rejected on the ground that the incidence of tax was passed by the Petitioner to ASCL, resulting in unjust enrichment to the Petitioner. The Petitioners filed an appeal against the said order, however the same was also dismissed. Similarly, the refund claim of the Petitioners for the period November 2019 to July 2020, was also rejected on similar grounds. Hence, the Petitioner filed Writ petition before Bombay High Court against the said orders.

The Petitioner submitted that based on the decisions of the Hon’ble Bombay High Court in various judgements, the principle of unjust enrichment does not apply to the export services (zero rated supplies) rendered by the Petitioner.

Bombay High Court Judgement: The Hon’ble High Court noted that the Respondents did not dispute the entitlement of refund of GST by the Petitioner but contended the passing of incidence of tax to ASCL. The Court observed that as per Section 54(8)(e) an applicant is entitled to the refund of tax if the incidence of tax has not been passed on to the recipient of the services. The Court observed that in the present case, the agreement executed between the Petitioner and the ASCL shows that the approved production budget includes all costs in connection with the production services including the amount of Indian GST, thereby depicting that GST is included in all costs in connection with production services. Thus, the Court observed that it can be clearly established that the incidence of tax has not been passed to ASCL since as per Clause 4.10 the amount of GST is refunded to the Petitioner is to be deducted from the total cost in connection with the production services as per the said Clause. Therefore, the Hon’ble High Court set aside the orders of both, the Adjudicating Authority and the Appellate Authority holding that services rendered by the Petitioner were export services and because no passing of incidence of tax was established by the Respondent.

Jar Productions Private Limited v. The Union of India & Ors. – Judgement dated 09.06.2022, W.P. No. 1143 of 2021, High Court of Bombay

4. Whether inordinate delay in adjudication of show cause notice is fatal and violation of the principles of natural justice?

Facts and pleadings: Unic Associates (hereinafter referred to as “Petitioner”) were served with a Show Cause Notice on 06.10.2010 (hereinafter referred to as ‘SCN’). The Petitioner was aggrieved by the demand proposed in such SCN which had been adjudicated by the Department in the year 2021. The Petitioner citing the well settled principles of case laws and jurisprudence stating that such proceedings completed long after the issue of SCN to be quashed since they are in violation of the principles of natural justice.

Madras High Court Judgement: The Hon’ble High Court stressed on the fact that the authorities are overburdened by several litigations, hence, holding the orders passed long after the issuance of the SCN to be in violation of the principles of natural justice as not fair. Additionally, it added that the Petitioner could have approached the court under Article 226 of the Constitution of India for a Mandamus to direct the Department to adjudicate the show cause notice by completing the necessary assessment in reasonable time. The Hon’ble High Court dismissing the petition expressed that Petitioner of being equally guilty of the delay in not following up with the Department to pass an order at an earlier date.

Unic Associates Vs CCE, Chennai North – Judgement dated 05.01.2022 in W.P. No. 28292 of 2021, High Court of Madras

Unreported Decisions – July 2022

By Ajay R. Singh, Advocate and CA Rohit Shah

1. Business disallowance under section 43B(d)/(e) read with ‘Explanation 3D – Deduction on actual payment – Bank interest expenses

Assessee debited bank interest expenses of Rs. 1,93,79,723 in profit and loss account. On being queried that as to why said interest expenditure may not be disallowed in case the same was not actually paid within the meaning of section 43B(d)/(e) read with ‘Explanation 3D’, it was submitted that as interest charged by the bank was fully recovered from his bank accounts and nothing was pending for payment since entire amount of interest was paid in the subsequent month thus, the provisions of section 43B(d)/(e) read with ‘Explanation 3D’ were duly complied with. AO was of the view that claim of the assessee that the interest had been actually paid was not factually correct and also not in accordance with the definition of ‘actual payment’ provided in ‘Explanation 3D’ to section 43B of the Act. Insofar the certificate issued by the bank of having received the amount towards interest element was concerned, AO was of the view that same was issued by bank as per their internal accounting adjustments as per RBI guidelines and same had nothing to do with application of provisions of section 43B. In the backdrop of his aforesaid deliberations, AO under section 43B(d)/(e) read with ‘Explanation 3D’ disallowed assessee’s claim for deduction of interest expenditure.

Held:
Section 43B(d)(e) read with ‘Explanation 3D’ contemplates that any sum inter alia payable by assessee on any loan or advances from a scheduled bank in accordance with terms and conditions of agreement governing such loan or advances would be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him. Further, as per ‘Explanation 3D’ it has been clarified that a deduction of any sum, inter alia being interest payable on any loan or advance from a scheduled bank would be allowed if such interest has been actually paid and any interest which had been converted into a loan or advance shall not be deemed to have been actually paid. The controversy in assessee’s case emerged from the different manner in which section 43B(d)/(e) read with ‘Explanation 3D’ had been construed by assessee and the revenue. A bare reading of Explanations 3C and 3D to section 43B provides an answer to the problem by making it clear that where interest amount has not been converted into loan or borrowing (or) loan or advance, as the case may be, there is no question of denying the benefit of deduction. In the instant case interest amount had been actually paid by assessee through Overdraft/Cash Credit account and the same had not been converted into loan or borrowing (or) loan or advance. Therefore, AO was directed to vacate disallowance of the interest expenditure made by him under section 43B(d)(c) read with ‘Explanation 3D’.

ACIT v. Ashok Radhakishen Mehra

[ITA No.5096/Mum/2019 ; Bench A ; A.Y. 2015-16 ; dt 18/2/2021 ]

2. Capital Gains- No Cost of Acquisition – No Capital Gains

The assessee filed return in response to notice u/s 148 declaring Long Term Capital Gains and other income by considering Cost of Acquisition as FMV of land as on 01/04/1981 as land was acquired by the original owner prior to 1-4-1981. No such plea that land came into the possession of the appellant in the circumstances that cost of land was not conceivable was taken before the AO. During the course of appellate proceedings, it was claimed that appellant was in possession of land for a long period and therefore, owner of the land had requested the revenue authorities to delete their name and put the name of the appellant as owner in the land records. One report of advocate regarding the investigation of the title of the property along with certified copy of mutation entry was furnished. The assessee had also relied on the decision of the courts where in case of adverse possession for a long period, cost to the encroacher was not found determinable, hence, on sale of property by such owners (encroachers) was not held liable to the capital gain tax. Revenue contended that, no material whatsoever was brought on record to show that assessee was in forcible possession of the land and there was any litigation Civil or Criminal between the heirs of G. B. Patwardhan and the appellant. Also, there was no evidence to hold that it was forcible and adverse possession in the hands of the appellant. Therefore, it was held that land was gifted to the appellant on 12.09.1973 and accordingly, cost of acquisition in the hands of appellant can be taken at the option of the appellant either the cost in hands of late G. B. Patwardhan or the FMV as on 01.04.1981.

Accordingly, as per GST provisions, the importer of goods located in India is deemed service recipient of ocean transportation service and accordingly liable to pay IGST under reverse charge on said services. The Respondent did not dispute the IGST liability under reverse charge on ocean transportation when it imported goods on Free on Board (FOB) basis since in such cases the Respondent contracted for ocean transportation services.

Hon’ble ITAT, held that section 49(1)(i) to (iv) prescribing cost; with reference to certain modes of acquisition wherein if it is found that the capital asset in issue has been acquired under the specified mode; gift herein is to be taken for which the previous owner had acquired the same for valuation consideration followed by Explanation thereto inserted by Finance Act, 1965 w.e.f. 1-4-1965, the dept failed to rebut the clinching fact that the learned lower authorities could not find the actual cost of acquisition paid by way of valuable consideration. However, as the same could not be done, appeal of the assessee was allowed and the Assessing Officer was directed to frame his consequential computation after adopting the cost of the asset’s acquisition in issue as “NIL”

The Tribunal followed the decision in case of CIT Vs. Sambhaji Nagar Co-op. Hsg. Society Ltd. (2015) 370 ITR 325 (Bom) as well as CIT Vs Markapakula Agamma (1987) 165 ITR 386 (AP) .
Baban G. Kumbharkar v. ITO

[ITA No. 2315 & 2316/PUN/2016 ; Bench : A Pune ITAT ; dated 18/6/2022 ; AY 2007-08 & 2008-09 ]

 

Unreported Decisions – ST – June 2022

By Vinay Kumar Jain & Sachin Mishra, Advocates

1. Whether service tax is payable under reverse charge on reimbursement of salaries and allowances towards secondment of employees from foreign group companies to Indian group entity?

Facts and Pleading: : Northern Operating Systems Pvt Ltd. (hereinafter referred to as “Respondent”) is a service provider under the categories of "Manpower Recruitment Agency Service", "Business Auxiliary Service" etc. The Respondent entered into agreements with its various group companies located in the United States of America, United Kingdom, Dublin, Singapore etc. and provided Back Office and Operational support services to group companies. As per the understanding with group companies, the Respondent requested the group companies for Managerial and Technical personnel to assist the Respondent in its business and accordingly the employees were selected by the foreign group company and seconded / deputed to Respondent in India. The seconded employees would receive their salary, bonus, social benefits and other expenses from the overseas group company and thereafter the Respondent would reimburse the same to the group company on cost to cost basis. The employees would be under the control of the Respondent and the Respondent had the right to ask the employee to return if the performance was not as desired. The department demanded service tax under reverse charge mechanism from the Respondent under the category ‘Manpower Recruitment or Supply Agency Service’ for payments made to overseas group companies with respect to seconded personnel. The period of dispute pertained to October 2006 to March 2014.

The Hon’ble CESTAT Bangalore held that no service tax is payable on the said transaction since provision of service by an employee to the employer in the course of or in relation to his employment stands excluded from the definition of service

Supreme Court Judgement: On appeal by the Revenue, the Hon’ble Supreme Court affirmed the findings of the Adjudicating Authority and held that employer-employee relationship did not exist between the Respondent and seconded employees. It was observed that although the seconded employees were under visible control and worked under the direction of the Respondent in India, the seconded employees continued to be on the payroll of the overseas group company. If the Respondent was not satisfied with the seconded employee, the secondee returned to the overseas group company and continued their employment. Additionally, after successful completion of secondment, the seconded employee returned to the group company. Despite the reimbursement being on cost to cost basis, however, the consideration in the transaction was that the Respondent benefited from the skilled employees, assigned them with specific jobs or assignments and thereby benefited from increase in revenue and therefore there is quid pro quo in secondment of employees. Accordingly, the demand of service tax under the category “Manpower Supply Services” was confirmed on merits.

The Hon’ble Apex Court held that the invocation of extended period of limitation is unsustainable since merely non-payment of taxes is not equivalent to collusion or willful misstatement or suppression of facts with intent to evade taxes. The Apex Court observed that the issue was not free from doubt and various cases were relied by CESTAT in Respondent’s favor, therefore extended period of limitation is not invokable.

Commissioner of CCE Bangalore vs. Northern Operating Systems Pvt. Ltd. – Judgement dated 19 May 2022 in CA 2289-2293/2021, Supreme Court

Northern Operating Systems Pvt. Ltd.

2. Whether an Indian importer of goods can be subject to levy of Integrated Goods and Services Tax (‘IGST’) on the component of ocean freight in a CIF purchase contract wherein the freight has been paid by the foreign seller of goods to a foreign shipping line?

Facts and Pleading: Mohit Minerals Pvt. Ltd. (hereinafter referred to as “Respondent”) was importer of non-coking coal from overseas which is sold to domestic industries. The Respondent imported goods by ocean transport on a Cost-Insurance-Freight (‘CIF’) basis from a place outside India. The Respondent paid customs duties on the import of goods, which included the value of ocean freight. In the case of a CIF contract, the ocean transportation is arranged by foreign seller by engaging a shipping line, without the involvement of the importer. The CGST Act levied IGST at the rate of 5 percent on the supply of transportation of goods, in a vessel from a place outside India up to the customs station of clearance in India. Further, Sr. No. 10 of Notification 10/2017 categorized the recipient of services of supply of goods by a person in a nontaxable territory by a vessel to include an ‘importer’ under Section 2(26) of the Customs Act 1962.

Accordingly, as per GST provisions, the importer of goods located in India is deemed service recipient of ocean transportation service and accordingly liable to pay IGST under reverse charge on said services. The Respondent did not dispute the IGST liability under reverse charge on ocean transportation when it imported goods on Free on Board (FOB) basis since in such cases the Respondent contracted for ocean transportation services.

Supreme Court Judgement: The Hon’ble Supreme Court held that in a CIF contract, the supply of goods is accompanied by the supply of services of transportation and insurance, the responsibility for which lies on the seller (the foreign exporter in this case). The supply of service of transportation by the foreign shipper forms a part of the bundle of supply of goods between the foreign exporter and the Indian importer, on which IGST is payable under Section 5(1) of the IGST Act read with Section 20 of the IGST Act, Section 8 and Section 2(30) of the CGST Act at the time of import of goods. The additional levy of IGST on supply of the service component i.e. ocean transportation would contradict the principle enshrined in Section 8 and be in violation of the scheme of the GST legislation and lead to double taxation. Based on this reason, the Hon’ble Supreme Court held that while the notifications assuming the importer of goods as deemed service recipients are validly issued under Sections 5(3) and 5(4) of the IGST Act, it would be in violation of Section 8 of the CGST Act and the overall scheme of the GST legislation to levy IGST once again on ocean transportation service. The Court upheld the impugned judgment of the Hon’ble Gujarat High Court to the extent that tax on the supply of a service, which has already been included by the legislation as a tax on the composite supply of goods, cannot be allowed.

Further the Apex Court observed that the recommendations of the GST Council made under Article 279A is non-qualified and merely recommendatory in nature.

Union of India & Anr. v. Mohit Minerals Pvt. Ltd. Through Director– Judgment dated 19 May 2022 in Civil Appeal No. 1390 of 2022, Supreme Court

Mohit Minerals Pvt. Ltd.

3. Whether the Mediclaim premium paid by the Appellant towards policies for employees who had opted for ‘Voluntary Separation Scheme’ would be covered under the definition of ‘input services’ under Rule 2(l) of CENVAT Credit Rules, 2004?

Facts and Pleading: Reliance Industries Ltd. (hereinafter referred to as the “Appellant”) is engaged in the business of manufacturing petrochemical products. The Appellant announced a Voluntary Separation Scheme (“VSS”) for employees with Indian Petrochemicals Corporation Limited (“IPCL”). As per the Scheme, certain compensation/benefits would be provided to such employees whose application is accepted. Further such employees would also be eligible for Mediclaim benefits. The Appellant availed CENVAT credit amounting to ` 1,33,37,699/- of the service tax paid on Mediclaim insurance premium under Rule 2(l) of the CENVAT Credit Rules, 2004 (“CCR”). The period of dispute relates to the period prior to 2011. However, the Department issued show cause notice disallowing cenvat credit on the ground that premium paid by the Appellant was towards mediclaim policies for IPCL employees who had opted voluntary separation and such employees were no more employees of the company and would, therefore, be not covered under the definition of “input service”.

Due to conflicting views, the matter was referred to Larger Bench of CESTAT. The Appellant argued that the amount paid as premium is not a gratuitous payment but towards the contractual obligation as per VSS scheme which was necessary to keep the business viable and thereby would come under Rule 2(l) which defines “input service”. The Appellant stressed on the fact that, all premiums were paid prior to the employees being relieved from service i.e. they were still under employment of the Appellant and hence, cannot be regarded as ex-employees. Further, the premium paid forms part of the cost of production of goods as per CAS-4.

The department argued that the Appellant has wrongly availed CENVAT credit on account of insurance premium paid for ex-employees and conten
ded that there is no nexus with the manufacturing activities of the Appellant and the service tax paid on the insurance premium. The department further contented that the expression ‘relating to business’ in Rule 2(l) of the 2004 would mean activities integrally related to business activity and the activity of VSS cannot be considered as an activity integrally related with the business of manufacture.

Larger Bench Interim Order: The Hon’ble Larger Bench of CESTAT observed that ‘input service’ as per Rule 2(l) means any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and includes services used in relation to activities relating to business. The Tribunal observed that the term “input service” is very exhaustive in nature and is not confined to mere manufacture of the product. It not only covers services, which fall in the substantial part, but also covers services, which are covered under the inclusive part of the definition. Further, on close examination of VSS, the Tribunal observed that the scheme was an option for existing employees to cut short their service tenure for which they would receive certain benefits/compensation. The Tribunal accepted the contention of the Appellant that the premium amount paid is a part of the "golden handshake" between the Appellant and its employees who agree to take premature termination, aimed at keeping the business operations of the Appellant cost effective and viable. Moreover, such payment is borne out of contractual obligation and cannot be termed as gratuitous payment. Therefore, the Scheme certainly has a direct nexus to the manufacturing operations of the Appellant. Furthermore, the Tribunal relied on the definition of ‘employee’s cost’ defined under Cost Accounting Standards and observed that medical benefits pertaining to employees and dependents is an integral part of the employee cost even if they are in terms of VSS/retirement/separation schemes.

Accordingly, the Hon’ble Tribunal held that the Appellant would be entitled to avail CENVAT credit on the service tax paid on insurance premium for employees who had opted for the VSS on the ground of it being related to manufacturing operations of the Appellant.

Reliance Industries Ltd. vs. Commissioner of Central Excise (LTU), Mumbai decided on 18.04.2022 by CESTAT Larger Bench vide Interim Order No. 5/2022

Reliance Industries Ltd.

4. Whether the extension of limitation period as per Supreme Court order dated 8.3.2021 be applicable to refund claims under Section 54 of the CGST Act, 2017?

Facts and Pleading: Vyplavi Granites Ltd. (hereinafter referred to as “Petitioner”) is engaged in the business of processing of raw granite blocks and export of polished granite slabs/tiles. The Petitioner filed refund claim of ` 46,72,862/- towards tax period commencing from April, 2018 to March, 2019 in Form RFD-01 dated 13.03.2021. The Department (“Respondent”) rejected the refund claim of the Petitioner for the period April, 2018 to January, 2019, on the ground that the same is time barred as claim is filed beyond the time limit of two years. Aggrieved by the Order in Original passed by adjudicating authority, the Petitioner filed a Writ Petition before Andhra Pradesh High Court.

The department contended that as the Petitioner did not make any claim within the time stipulated in the statute, the Petitioner is not entitled to any relief under Article 226 of the Constitution of India. The Petitioner contended that the Respondent has failed to take into consideration the Order of the Hon’ble Supreme Court in Suo Motu Writ Petition (Civil) No. 3 of 2020 dated 8.3.2021 and has wrongly rejected the claim made by the Petitioner under Section 54 of the GST Act, 2017.

Judgment: The Hon’ble High Court of Andhra Pradesh observed that in order to get entitlement for refund for the period from April, 2018 to March, 2019, one should have filed an application on or before 19.05.2020, however, the Petitioner filed the application on 13.3.2021. However, the Hon’ble High Court placed reliance on the Order of the Hon’ble Supreme Court in Suo Motu Writ Petition (Civil) No.3 of 2020 dated 8.3.2021 wherein the Apex Court has directed that while computing the period of limitation for any suit, appeal, application or proceeding, the period from 15.3.2020 till 14.3.2021 is to be excluded. Accordingly, the High Court held that if the said period is excluded from computation of the period of limitation, the entire claim of the Petitioner is within time limit. Consequently, the Hon’ble High Court set aside the impugned order dated 30.4.2021 to the extent of rejecting the refund claim for the period from April, 2018 to January, 2019 and remanded the matter for fresh consideration to the authorities.

Vyplavi Granites Vs. The Deputy Commissioner Of Central Tax & Ors., High Court of Andhra Pradesh decided on 25.4.2022

The Deputy Commissioner Of Central Tax & Ors.

 

Unreported Decisions – June 2022

By Ajay R. Singh, Advocate and CA Rohit Shah

1. Section 54F- Denial on the ground of Non-Completion of Construction within 3 Years

The assessee is an individual sold plots and invested the same in a villa project in Bangalore and claimed exemption u/s 54F of the I.T. Act . The A.O. disallowed and brought to tax as the sale consideration of plots was not deposited in capital gains scheme on or before the due date of filing of the return u/s 139(1) of the I.T. Act. Aggrieved by the order of the Assessing Officer, the assessee preferred appeal to the first appellate authority. The CIT(A) held that the assessee was not able to prove that the house has been constructed within three years from the date of sale of original asset. It was further held by the CIT(A) that completion certificate issued by the builder showed the date of completion as 25.07.2015 did not prove the construction of the house is completed unless the same is issued by the local municipal authority. Accordingly, the CIT(A) confirmed the addition made by the Assessing Officer. Aggrieved by the order of the CIT(A), the assessee preferred appeal before the Tribunal.

 Tribunal held that exemption u/s 54F has to be granted if the stipulated conditions are fulfilled. The requirement of depositing the amount in Capital Gain Account Scheme (CGAS) arises only if the following conditions are not satisfied:

(a) Net consideration invested in new asset within one year before the date on which the transfer of the original asset took place, or

(b) Not utilized by the assessee for purchase or construction of the new asset before the date of furnishing of return of income u/s 139 .

If these conditions are not satisfied, only then, such unutilized amount has to be deposited in CGAS before due date for filing return of income u/s 139. It is clear from sub-section (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in section 54F(1), if the assessee wants the benefit of section 54F, then he should deposit the said capital gains in an account which is duly notified by the Central Government. Tribunal also observed that the provisions of section 54F of the Act only provides that the sale proceed should be invested in construction of house property within three years. In other words, in order to get the benefit u/s 54F of the Act, the assessee need not complete the construction of the house in all aspects and occupy it. The essence of the said provision is whether the assessee who received capital gains has invested the proceeds in a residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respect and as required under the law, that would not disentitle the assessee from the said benefit. Tribunal also relied in the case of CIT v. Smt. B. S. Shanthakumari (Kar), wherein the Hon’ble High Court allowed Exemption us 54 and thus allowed appeal.

Smt Chandrakala Shashidhar v. ITO Ward 5(2)(4) Bengaluru [ITA No.1039/Bang/2018 A.Y. 2014-15 ; Bench B Bangalore ; dt: 14/7/2021 ]

Smt Chandrakala Shashidhar

2. S. 194C: Transportation expenses- Supplier booked the transporters for supply of goods – Payment made by assessee – Inference – No contract between assessee and transporters :

Assessee was engaged in business of trading of pineapple fruits. He incurred expenses under the head transportation without deducting tax at source under section 194C of the Act . Accordingly, AO made disallowance of such expenses. On appeal before CIT(A), the assessee submitted that the transportation expenses had actually been incurred by supplier who used to raise bills for the transport expenses along with sales bills raised to the assessee. Accordingly, the assessee contended that such transportation expenses were part of the purchases and therefore, the same were outside the purview of the provisions of TDS. However, CIT(A) disagreed with the contention of the assessee, upheld the disallowance made by the AO.

Admittedly, assessee was buying pineapples from different States, which were brought to the State of Gujarat. Such goods could not be transported by the assessee without incurring the transportation cost. Generally, transportation expenses are subject to provisions of section 194C and the said provision requires the assessee to deduct tax at source on expenses incurred in pursuance to contract. In case on hand, on perusal of truck numbers to whom the assessee made payment for the transportation expenses, it was found that all of those numbers were registered with the State of Kerala from where the assessee was transporting the goods. Thus, it could be inferred that all those transporters were engaged by supplier but the payment was made by the assessee in his books of account. Hence, there was no contract between the assessee and the transporters and accordingly, the provisions of section 194C could not be invoked in the case on hand. Consequently, there could not be any disallowance of expenses on account of nondeduction of tax at source

Hanifbhai Hajimohammed Pinepalwala v. ITO\ [ITA No. 1177/Ahd/2018 AY 2008-09 Bench SMC Ahmedabad dt 23/3/2021]

Hanifbhai Hajimohammed Pinepalwala

Unreported Decisions – April 2022

By Ajay R. Singh, Advocate and CA Rohit Shah

1. Section 263- Revision held invalid when two possible views are possible on merits of a question- the AO has adopted one view :

The the assessee was the resident of USA and was filing his return of income in USA. The assessee did not file return of income for the year under consideration. On the basis of NMS data available on the ITS, it was noticed that, the assessee had purchased a property for the consideration of Rs.50,40,000/-. In view of this fact the assessment was reopened u/s 147/148 of the Act and accordingly the assessment was completed u/s 144 r.w.s. 147 of the Act whereby the income of the assessee was assessed to the tune of Rs.16,80,000/- being 1/3rd of the value of the property. On verification, it was found that there was nothing on record to establish the share of investment made by each of three persons and no material was available to establish about the filing of the return of other two persons. Therefore, PCIT invoked revision u/s 263 of the Act as the order was erroneous in so far as prejudicial to the interest of the revenue.

Assessee submitted that The PCIT did not record the reasons to which the order passed by the AO is erroneous and prejudicial to the interest of the revenue. In first reason for invoking the revisional power by the PCIT is in connection with the total investment in the property and in second reason, the PCIT mentioned about taxing the other two persons who were the share-holder in purchased the property. These facts had already been considered by the AO while passing the assessment order. The assessee had already been taxed to the extent of 1/3rd share meaning thereby a possible view has already been taken by the AO. Nothing therein to mention about the erroneous of order and prejudicial to the interest of the revenue. In these facts and circumstances and relied upon the decision in the case of CIT Vs. Gabrial India Ltd. 203 ITR 108 (Bombay HC) wherein it was held that the AO had exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion. Such a conclusion could not be termed as erroneous simply because the CIT did not feel satisfied with the conclusion. The Hon’ble Court has also noted that though the words ‘prejudicial to the interest of the Revenue’ have not been defined, but it must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised.

The ITAT referred to various cases such as CIT Vs. Arvind Jewelers 259 ITR 502 Gujrat HC, CIT Vs. Hindustan Coco Cola Beverages Pvt. Ltd. 331 ITR 192 (Del), , CIT Vs. Sunbeam Auto Ltd., 332 ITR 167 and held that since the matter of controversy had already been examined by AO and a possible view had already been taken, therefore, invoking the revisional power u/s 263 of the Act nowhere seems justifiable. And thus, allowed Assessee’s Appeal.

Anand Vithal v. PCIT-27 Navi Mumbai

[ITA No.1139/Mum/2021 dated 7/4/2022 ; Bench A; A.Y. 2010-11]

ITA No.1139/Mum/2021 dated 7/4/2022

2. S. 11: Applicability of proviso to section 2(15)

Assessee is a company engaged in the business of manufacturing of fertilizer chemicals and paints. It filed its return of income at a loss of Rs. 1,84,26,369/- under normal provisions and at a book profit of Rs. 6,40,71,301/- under section 115JB of the Act. The return of income was selected for scrutiny and assessment order under section 143(3) of the Act was passed determining the total income of the assessee at Rs. 2,44,00,300/-.

Assessing officer considered the software as intangible asset depreciable at 25% instead of 60% as claimed by the assessee. The disallowance of depreciation on software ERP SAP is of Rs. 3,84,70,669/-.

Assessee has installed ERP SAP software amounting to Rs. 10,99,16,199/-. The assessee claimed depreciation thereon under section 32 of the Act at the rate of 60%. The learned Assessing Officer held that depreciation at the rate of 60% is allowable only on computers and software embedded in such computers which are part and parcel and are inseparable. Therefore, according to the learned Assessing Officer assessee has acquired only the license and hence, it is eligible for depreciation at the rate of 25% applicable to intangible assets.

The assessee preferred the appeal before the learned CIT(A). The learned CIT(A) held that depreciation at the rate of 60% is allowable only on system software which are integral part of the computer, however, the claim of the assessee was depreciation at the rate of 60% on ERP SAP software which is nothing but a software for the automation of office working.

Assessee submitted that the depreciation Schedule as New Appendix-I and in Part-A (tangible assets) at serial no. 5 of plant and machinery, where ‘computers including the computer software’ are eligible for depreciation at the rate of 60%. He further referred to note No. 7 where computer softwares are defined. He submitted that there is no justification to consider the depreciation at higher rate only on systems software. He further relied on the decision of Hon’ble Madras High Court in CIT vs. Computer Age Management Services (P.) Ltd. [2019] 109 taxmann.com 134 (Madras), wherein a software license acquired by the assessee is allowed depreciation at the rate of 60%.

Hon’ble ITAT observed that entry number 5 under Part A allows depreciation at the rate of 60% on computers including computer software. Note-7 states that computer software means any computer programme recorded on any disk, tape, perforated media or other information storage device. Apparently, it does not make any difference between application system software or application software. Further, part B of appendix-1 prescribed deprecation at the rate of 25% on certain intangible assets such as knowhow, patents, copy rights trademarks, license fee, franchise or any other business or commercial right of similar nature. Therefore, held that the license obtained by the assessee would fall in the definition of computer software so as to make it eligible as tangible asset and then depreciation rate at the rate of 60% will apply and thus allowed the appeal.

M/s Arkema Chemicals India P. Ltd. v. ACIT Circle 15(1)(1) Mumbai [ITA No. 1032/ Mum/2021 dated 22/4/2022; Bench A AY 2017-18 ]

M/s Arkema Chemicals India P. Ltd.

Unreported Decisions – ST – April 2022

By Vinay Kumar Jain & Sachin Mishra, Advocates

1. Whether in absence of any mechanism, ITC inadvertently utilised for payment of IGST on exports in contravention of Rule 96(10) of the CGST Rules, 2017, can be re-credited or restored, once the IGST along with interest is paid upon realisation of mistake?

Facts and Pleading: : M/s. I-Tech Plast India Pvt Ltd. (hereinafter referred to as “Petitioner”) is engaged in the business of manufacturing various types of toys. The Petitioner is importing raw-material under the advance license without payment of the import duty. The finished goods produced using the raw-material so imported have been exported by the Petitioner. The Petitioner opted for payment of IGST on exports, and thereafter claimed refund of such IGST on exports. However, inadvertently, the Petitioner utilized the ITC for payment of the IGST on exports (instead of paying the IGST separately) which, in turn, was automatically refunded. In view of Rule 96(10) of the CGST Rules, 2017 the Petitioner could not have utilized the ITC for payment of the IGST on exports. Upon realizing the aforesaid mistake, the Petitioner separately paid the requisite IGST (which was refunded in past) along with the interest thereon and informed concerned authorities. Subsequently, the Petitioner requested the authorities to re-credit/restore the ITC in the electronic credit ledger which was, inadvertently, utilized for payment of the IGST. The Petitioner, thereafter made several attempts with authorities for restoration of the above ITC. Despite these repeated attempts, when the ITC was not restored as requested, the Petitioner preferred the present petition.

The Petitioner argued that since the Petitioner has voluntarily paid the IGST on exports with interest, the corresponding ITC (which was initially utilized for payment of such IGST on exports) must be recredited/restored in the electronic credit ledger with interest. Despite the repeated oral as well as written representations by the Petitioner, the ITC is not being re-credited/ restored on the count that there is no such mechanism whereby the ITC can be recredited/restored upon voluntary payment of the IGST. As per the Petitioner, an honest taxpayer like the Petitioner must not suffer owing to lack of appropriate mechanism. Accordingly, the Petitioner argued that the action of the department in not recrediting/restoring the ITC in question is also not in consonance with Article 265 as well as Article 300-A of the Constitution of India, 1950

The department argued that Petition is not maintainable as the Petitioner is not at all entitled to claim the refund on the count that once an amount in question is paid in the Form-DRC-03 voluntarily, the same cannot be refunded.

Judgment: The Hon’ble High Court observed that in so far as the erroneous grant of refund and return of such refund amount together with interest by the Petitioner is concerned, the same is undisputed. Accordingly, the Hon’ble High Court held that the first part of the transaction is nullified inasmuch as the amount erroneously refunded has already been repaid by the Petitioner along with interest. The Hon’ble High Court further held that if the authorities have accepted that there was an error and resultantly, accepted repayment of the erroneous refund, as a corollary, the credit of the ITC must be restored. The Hon’ble High Court observed that it cannot be that for the purpose of repayment, there was an error, and for the purpose of restoration of the ITC, there was no error. There is no question of any refund of the ITC at all. The Hon’ble High Court observed that the question is one of restoration of the ITC in the electronic credit ledger and not a refund thereof. Hence, any reference to sub-rule (10) of rule 96 of the CGST Rules is completely misconceived and not tenable. Accordingly, the Hon’ble High Court directed the respondent authorities to re-credit/restore the ITC to the tune of Rs.1,39,49,810/- in the electronic tax ledger of the Petitioner.

M/s. I-Tech Plast India Pvt LTD vs. State of Gujarat, decided on 07.04.2022, in R/Special Civil Application No. 3653 of 2021

M/s. I-Tech Plast India Pvt LTD

2. Whether onsite service rendered by subsidiaries or branch offices on behalf of the Holding Company or Head office located in India to overseas clients amounts to export of services? Whether value of onsite services provided by the subsidiary directly to their clients would be deducted from the value of “total turnover” while calculating refund under Rule 5 of the Credit Rules?

Facts and Pleading: M/s. Tech Mahindra Ltd., India (hereinafter referred to as ‘Assessee’) is engaged in business of providing software development services primarily to clients located outside India involving both Offshore and Onsite work. The Offshore work is undertaken by the Assessee in India whereas the Onsite work is undertaken by the Assessee with the help of their overseas branches/subsidiaries. The services provided by the Assessee to their overseas clients are classified in two manners, namely, Model I & Model II. Under Model I, foreign customer enters into a direct agreement with the Assessee. As per the contract, Assessee has to perform both offshore and onsite activities as a part of single transaction. The Assessee in turn sub-contracts the onsite work to their subsidiary. Model II covers only few cases where the overseas customers request the subsidiary of the Assessee to specifically enter into a direct contract with them. The subsidiaries of the Assessee enter into contract with the overseas customers on behalf of the Assessee but due to lack of capability to perform the entire activity on their own, they subcontract the entire contract to the Assessee as such with all the risks and rewards. No separate invoice is raised for Model-II by the Subsidiary. The subsidiaries work on cost plus basis and raise a consolidated invoice to the Assessee for performing the onsite services under both the models. Further, the Assessee is raising the invoice on the overseas customers for entire services rendered i.e. onsite as well as offshore. The Assessee has considered the above said taxable ITSS services (onsite as well as offshore) provided to foreign clients under both the Models as the export of taxable services provided from India in terms of Rule 6A of the Service Tax Rules, 1994. Accordingly, the Assessee filed a refund claim under Rule 5 of CENVAT Credit Rules, 2004 for claim of refund of cenvat credit availed on service tax paid on input services which were used in providing the output services exported without payment of service tax.

Department alleged that for Model-I, the activities carried out by the subsidiaries/branches are separate and are carried out by different legal entity. Therefore, as per department, since the onsite services provided by the subsidiaries are performed locally and procured, utilized as well as get consumed abroad, these services do not get covered in the ambit of the taxable services exported from India Territory as claimed by the Assessee. Department further alleged that in case of onsite services provided under Model-I, the condition (a) & (e) of the Rule 6A of the Rules are not satisfied, therefore, the test of exportability within the meaning of Rule 6A of the Rules fails. Further, the department also excluded the value of the onsite services provided under Model-II by the overseas subsidiaries from the value of the ‘total turnover’, while calculating the admissible refund claim amount as per Rule 5 of Credit Rules.

The Assessee submitted that when the onsite services are not provided by the Assessee then there is no question of including the amount received on such services in the value of the total turnover. Thus, the value of the onsite services has to be excluded from the Total Turnover while calculating refund under Rule 5 of the Credit Rules. The Assessee also submitted that the location of the Assessee in India is the place from where services are provided to customers. The Assessee also submitted that the onsite services rendered by the overseas subsidiaries and branches under Model-II would also qualify as export as it is the Assessee i.e. providing the services.

Judgment: The Hon’ble CESTAT agreed with the submissions of the Assessee and held that in respect of Model I, the services provided by the Assessee to their overseas clients through their subsidiaries and branch offices located outside taxable territory were in fact the services provided by Appellant to their clients for which they were billing their clients and receiving foreign exchange from their clients. The Hon’ble CESTAT observed that all the services provided by the Assessee to their overseas clients have been provided under umbrella of a single contract. As per Hon’ble CESTAT, the subsidiaries do not provide any services to clients independently. In fact, subsidiaries were providing services to Assessee and raising invoice to them on which the Assessee has discharged service tax under reverse charge mechanism. Therefore, as per Hon’ble CESTAT, these services are input services to the Assessee for providing the export services to their clients overseas. Further, with respect to Model II, Hon’ble CESTAT held that the said onsite services were not provided by the Assessee and therefore the same cannot be treated as part of the “total turnover” of the Assessee. Accordingly, the Hon’ble CESTAT dismissed the appeals filed by Revenue.

CCE & ST vs. Tech Mahindra Ltd., CESTAT, Mumbai decided on 4.3.2022 vide Final Order No. A/85255-85262/2022.

Tech Mahindra Ltd., CESTAT

3. Whether proceedings are to be set aside on the count of inordinate delay in adjudication of the show cause notices on the count that the same have been transferred to call book is justified in view of several Circulars issued by CBIC?

Facts and Pleading: M/s. ATA Freight Line (I) Pvt Ltd (hereinafter referred to as ‘The Petitioner’) was engaged in the activity of buying and selling space in vessel. The Petitioner recovered the expenses from its clients to facilitate export/import of goods for providing cargo handling/ freight service incurred expenses. Five show cause notices were issued in 2011, 2012, 2013, 2014 & 2016 against the Petitioner on the aforesaid transaction for non-payment of service tax on freight difference. The Petitioner has filed reply to the aforesaid show cause notices at respective time itself. However, no further communication was received from the department afterwards. Petitioner addressed a letter dated 23.2.2021 to department seeking copy of closure report, if any. Department vide its letter dated 12.4.2021 informed Petitioner that show cause notices had been put in call book. Hence, the Petitioner challenged the said show cause notices by way of writ petition on the count of delay in adjudication.

The Petitioner stated that department ought to have adjudicated upon those 5 show cause notices within a reasonable period of time and could not have transferred to call book. The Petitioner also submitted that in any event, the Petitioner is not responsible for any delay in adjudication of those show cause notices for last several years. The Petitioner thus cannot be made to suffer on the ground that the department has transferred the show cause notices to call book contrary to law.

The department contended that the show cause notices could not be adjudicated upon due to the reason that the said show cause notices had been transferred to call book. As per department, a case is transferred to call book if such case cannot be adjudicated immediately due to certain specified reasons and adjudication is to be kept in abeyance. The transfer of show cause notice to call book is governed by circulars issued by CBIC i.e. Circular No.162/73/95-CX dated 14.12.1995, Circular No.719/35/2003-CX dated 28.5.2003 and Circular No.992/16/2014-CX dated 26.4.2016, Circular No.1053/2/2017-CX dated 10.3.2017. The department further submitted that the issue involved in the subject show cause notices in the writ petition are regarding non-payment of service tax on freight difference. The said show cause notices had been initially transferred to call book in the light of appeal filed by department in High Court against the order of CESTAT dated 30.9.2015 in case of M/s. Greenwich Meridian Logistics (I) Pvt. Ltd. The appeal filed by the department was dismissed by the High Court. The department filed appeal before the Supreme Court which was dismissed on the grounds of delay vide order dated 1.4.2019. Subsequently, the show cause notices however, were kept in call book in the light of similar issue where department had filed appeal in High Court against the order of CESTAT dated 27.7.2016 in respect of M/s. Phoenix International Freight Services Pvt. Ltd. The said departmental appeal is still pending before High Court.

Judgment: The Hon’ble High Court held that a show cause notice issued a decade back should not be allowed to be adjudicated upon by the department merely because there is no period of limitation prescribed in the statute to complete such proceedings. As per Hon’ble High Court, larger public interest requires that revenue should adjudicate the showcause notice expeditiously and within a reasonable period. Accordingly, it was held that keeping the show-cause notice in the dormant list or the call book, such a plea cannot be allowed or condoned by the writ court to justify inordinate delay at the hands of the revenue. The Hon’ble High Court further observed that it is duty of department to take the said ShowCause notice to its logical conclusion by adjudicating upon the said Show-Cause Notice within a reasonable period of time. In view of gross delay on the part of the department, the Petitioner cannot be made to suffer. In this regard, the Hon’ble High Court relied on Parle International Ltd. Vs. UOI, 2021 (375) E.L.T. 633 (Bom.) & The Bombay Dyeing and Manufacturing Company Limited Vs. Deputy Commissioner of CGST & CX, delivered on 14.2.2022 in Writ Petition No.2874 of 2021. Accordingly, the Hon’ble High Court held that the principles of law laid down in the above referred judgment would apply to the facts of this case. Accordingly, the show cause notices were quashed.

M/s. ATA Freight Line (I) Pvt Ltd vs UOI, The High Court of Bombay, dated 24.03.2022, in Writ Petition No. 3671 OF 2021

M/s. ATA Freight Line (I) Pvt Ltd