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Calcutta High Court’s Verdict on GST Pre-Deposit Requirements

editor — Fri, 12 Apr 2024 10:29:32 +0000

Introduction:

In a recent ruling, the Calcutta High Court addressed the clarification of GST pre-deposit requirements, specifically focusing on the interpretation discrepancy between the GST Department and the GST Law.

Facts of the Case:

Issue:

Petitioner’s Argument:

Respondent’s Argument:

Held:

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GST Applicability to Compensation for Liquidated Damages in Agreements

editor — Wed, 03 Apr 2024 10:27:09 +0000

In a recent ruling by the Andhra Pradesh Authority for Advance Ruling (AAR) in AAR No. 12/AP/GST/2023 dated December 21, 2023, significant clarity was provided regarding the GST implications of compensation collected for liquidated damages under contractual agreements. This ruling pertains to the case of South India Krishna Oil & Fats (P.) Ltd. (“the Applicant”), a manufacturer of edible oils, and sheds light on whether such compensation amounts are subject to GST and the related input tax credit implications.

Facts of the Case:

The Applicant, engaged in the production of edible oils, enters into agreements with customers for the supply of specified quantities of edible oils at agreed-upon rates, with delivery within specified timelines.
Instances arise where customers fail to lift the agreed quantities of edible oils within stipulated delivery dates, leading to breach or non-performance of contractual obligations.
In response to such breaches, the Applicant collects compensation amounts, termed "Liquidated Damages or Trade Settlement," from defaulting customers.

Held:

The AAR observed that as per the definition of "consideration" under Section 2(31) of the CGST/APGST Acts, it encompasses any payment made in response to or for the inducement of the supply of goods or services.
It was opined that the compensation amounts paid by customers to the Applicant for non-performance or breach of contract constitute consideration for tolerating an act or situation under an agreement.
Consequently, such compensation amounts were deemed to constitute a supply of service and were subject to CGST at 9% and SGST at 9% each under Chapter Heading No. 9997 at Serial No. 35 of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017.
Additionally, it was held that since GST is leviable on the collection of compensation for liquidated damages, the restriction of Input Tax Credit (ITC) of common services under Rules 42 and 43 of the CGST/APGST Rules does not apply.

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Decision by High Court Allows Refund of Reversed ITC When Supplier Pays Tax

editor — Tue, 02 Apr 2024 04:23:57 +0000

The Delhi High Court, in the matter of Pedersen Consultants India Pvt. Ltd. v. Union of India and Ors. [W.P. (C) 1039/2024 dated March 19, 2024], resolved the writ petition, permitting registered entities to submit refund applications for reversed Input Tax Credit (ITC) when the supplier has subsequently filed returns and paid taxes.

Facts of the case:

In the matter of Pedersen Consultants India Pvt. Ltd. v. Union of India and Ors. [W.P. (C) 1039/2024 dated March 19, 2024], the petitioner, Pedersen Consultants India Pvt. Ltd., filed a writ petition. The petition sought direction for granting Input Tax Credit (ITC) benefits on invoices where the recipient had filed subsequent returns and paid taxes.
The petitioner argued that they were compelled by the Revenue Department to pay taxes on invoices where the supplier hadn't filed returns on time. However, the supplier later filed returns and paid taxes, potentially leading to double taxation. Hence, the petitioner sought a refund for the taxes paid on such invoices.
Responding to objections, the petitioner proposed filing a refund application under Section 54 of the Central Goods and Services Tax Act, 2017 (CGST Act). Additionally, they cited Notification No. 13/2022 dated July 05, 2022, advocating the exclusion of the period between March 1, 2020, and February 28, 2023, from the limitation for filing refund applications. The petitioner also requested exclusion of the period between filing the writ petition and the court's order.

Held:

The Delhi High Court, in W.P. (C) 1039/2024, dismissed the writ petition, allowing the petitioner to file a refund application under Section 54 of the CGST Act. The court directed the respondent to adjudicate the petitioner's claim in accordance with the law. Notably, the court recognized the petitioner's eligibility under the Notification, excluding the period from March 1, 2020, to February 28, 2022, for computing the limitation period for filing refund applications.

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Madras High Court Strikes Down Excessive GST Demand on Trade Payables

editor — Sat, 30 Mar 2024 04:41:27 +0000

Introduction:

The Madras High Court invalidated the order demanding payment concerning all trade payables, asserting that it exceeded the boundaries outlined in the original show cause notice. This ruling is significant in the realm of audit cases and is poised to have widespread benefits.

Facts of the case:

The petitioner contested an order dated 31.12.2023, arguing its overreach beyond the purview of a preceding show cause notice by subjecting all trade payables to GST.
Following an audit report on 26.09.2023, the petitioner received a notice on 30.09.2023 proposing a tax of Rs. 43,66,708.14. However, the final order imposed a tax exceeding Rs. 90 crores, markedly surpassing the initial estimate.
Despite compliance with statutory Input Tax Credit (ITC) requirements, the petitioner faced penalties.
The crux of the matter lies in the imposition of GST on the entirety of the petitioner's trade payables, a move perceived by the petitioner as beyond the notice's scope and contrary to legal provisions.

Petitioner’s Argument:

The petitioner contends that the order unjustly expanded the taxable amount well beyond the initial estimation, unfairly taxing trade payables as a taxable supply despite adhering to ITC regulations.

Held:

The Madras High Court deemed the imposition of GST on trade payables, as reflected in financial statements, prima facie unsustainable.

The court nullified the order, instructing the petitioner to remit 10% of the disputed amount, excluding trade payables, and mandated a fresh review with adequate opportunity for the petitioner to present their case.

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Assessment Order not sustainable when vague in nature

editor — Sat, 23 Mar 2024 05:37:30 +0000

In the legal case of Rainbow Stones (P.) Ltd. versus Assistant Commissioner (ST), as documented in Writ Petition No. 4510 of 2024 dated February 26, 2024, the Madras High Court responded by granting the writ petition. This decision was based on the assertion that the Assessment Order lacked clarity and proper justification.

Facts of the case:

Rainbow Stones (P.) Ltd. initiated a writ petition contesting an assessment order issued on December 31, 2023 (referred to as “the Impugned Order”), which centered around disparities between the Input Tax Credit (ITC) claimed in GSTR-3B and that reflected under GSTR-2A. The petitioner argued that the Impugned Order, issued by the Revenue Department (referred to as “the Respondent”), lacked specificity. The sole observation noted in the Impugned Order was the rejection of the petitioner’s response.

Held:

The Madras High Court, in Writ Petition No. 4510 of 2024, overturned the Impugned Order. The court held that the order lacked specificity, which was the basis for confirming the demand for tax, interest, and penalty. The High Court directed that the matter be reconsidered and a fresh order issued after affording the petitioner a reasonable opportunity to be heard.

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Central GST Authority cannot initiate proceedings when State GST Authority has already initiated proceedings on the same subject matter

editor — Sat, 23 Mar 2024 05:00:24 +0000

The Gauhati High Court, in the matter of Rajesh Mittal vs Union of India [WP(C) No. 371 of 2024 dated January 25, 2024], based its decision on sub-clause (b) of sub-section (2) of Section 6 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”). It ordered a halt to the proceedings initiated by the Revenue Department. The court ruled that the Central GST Authority had improperly issued the Show Cause Notice (SCN) when the State GST Authorities had already issued an SCN on the same issue.

Facts of the case:

Rajesh Mittal, hereinafter referred to as "the Petitioner," was served a Show Cause Notice (SCN) by both the State GST Authorities and the Central GST Authority.
The State GST Authorities issued the SCN on December 01, 2023, while the Central GST Authority issued theirs on December 27, 2023.
The notices accused the Petitioner of wrongfully availing input tax credit (ITC), violating Section 16(4) of the Central Goods and Services Tax Act, 2017 ("the CGST Act").
The Petitioner responded to the notices accordingly.

Held:

The Gauhati High Court, in the case of WP(C) No. 371 of 2024 dated January 25, 2024, based its decision on sub-clause (b) of sub-section (2) of Section 6 of the CGST Act.

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Prohibition of Concurrent Proceedings for the Same Period under GST Legislation

editor — Fri, 22 Mar 2024 08:15:17 +0000

Introduction:

In a significant judgment, the Hon’ble Guwahati High Court addressed the issue of whether simultaneous proceedings for the same period under both the Central Goods and Services Tax Act, 2017 (CGST Act) and the State Goods and Services Tax Act, 2017 (SGST Act) are permissible. The court, in the case of Subhash Agarwalla v. State of Assam [Case No. WP(C)/ 683/2024 dated February 12, 2024], ruled that the initiation of proceedings under either the CGST Act or the SGST Act precludes the initiation of parallel proceedings for the same period under the other act. Consequently, any order issued under one act remains suspended until the specified returnable date. This article examines the case of Subhash Agarwalla v. State of Assam, providing insights into its background, the court’s decision, and its implications for the broader landscape of GST law.

Facts:

Subhash Agarwalla (“the Petitioner”) received a Demand-cum-Show Cause Notice dated November 23, 2022 (“the Impugned SCN”) from the SGST Authority under Section 73 of the SGST Act, regarding potential liabilities for the Financial Year 2017-2018. Subsequently, another Demand-cum-Show Cause Notice dated April 27, 2023 (“the Impugned SCN”) was issued by the CGST Authority, covering the Financial Years 2017-2018, 2018-2019 & 2019-2020. Both notices alleged the improper utilization of Input Tax Credit (“ITC”) by the Petitioner, violating Section 16(4) of the CGST Act/SGST Act. Following the Impugned SCN, the CGST Authority issued an Order-in-Original on November 14, 2023 (“the Impugned Order”). Subsequently, the SGST Authority passed its own Order-in-Original on December 11, 2023 (“the Impugned Order”).

Issue:

The primary issue at hand is whether initiating two parallel proceedings for the same period is permissible under GST Law.

Held:

The Hon’ble Guwahati High Court, in Case No. WP(C)/ 683/2024, held the following:

Conclusion:

The ruling by the Guwahati High Court establishes a precedent, emphasizing the prohibition of simultaneous proceedings for the same period under the CGST and SGST Acts. This decision reflects the legislative intent to prevent redundancy and ensure an efficient adjudication process. As businesses navigate GST compliance complexities, understanding such legal nuances is crucial to mitigate unnecessary legal complications.

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