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Blocked Input Tax Credit (ITC) under GST: Key Points You Need to Know

editor — Thu, 25 Apr 2024 05:48:46 +0000

In the realm of Goods and Services Tax (GST) in India, understanding Input Tax Credit (ITC) is crucial for businesses to ensure compliance and optimize their tax liabilities. However, not all GST paid on purchases can be claimed as ITC. There are certain scenarios where the Input Tax Credit is blocked, preventing businesses from claiming it against their output tax liability. In this comprehensive guide, we delve into the concept of Blocked Input Tax Credit under GST, highlighting key points and recent rulings.

What is Blocked Input Tax Credit (ITC)?

Blocked Input Tax Credit, as per GST laws, refers to specific goods and services on which GST is paid but businesses are ineligible to claim them as Input Tax Credit. These items are deemed ineligible because they are not considered as inputs directly utilized in the production or provision of taxable goods or services.

Recent Rulings and Clarifications:

Introduction:

In the complex landscape of Goods and Services Tax (GST) in India, the eligibility of Input Tax Credit (ITC) plays a significant role for businesses. The recent ruling by the Maharashtra Appellate Authority for Advance Ruling regarding Las Palmas Co-Op. Housing Society sheds light on crucial aspects of ITC denial. Let’s delve into the details to understand the implications of this ruling.

Facts of the Case:

Las Palmas Co-Op. Housing Society sought to avail Input Tax Credit for lift installation charges paid to the lift contractor. However, the Maharashtra Appellate Authority upheld the ruling of the Maharastra Advance Ruling Authority, denying the society’s eligibility for ITC. Citing sections 16(2)(b), 17(5)(c), and 17(5)(d) of the CGST Act, 2017, the authority emphasized that ITC would only be available for tax paid on works contract services when such services are utilized as input for further supply of works contract service.

Issue:

The central issue revolves around the eligibility criteria for Input Tax Credit under the CGST Act. The appellant, Las Palmas Co-Op. Housing Society, failed to fulfill the conditions outlined for availing ITC on works contract services. The authority highlighted that the society, not being a works contract service provider, did not provide any works contract service to its members, thereby rendering it ineligible for ITC.

Held:

The Maharashtra Appellate Authority for Advance Ruling affirmed the decision of the Maharastra Advance Ruling Authority, ruling that Las Palmas Co-Op. Housing Society is not eligible to avail Input Tax Credit in respect of the GST paid on lift installation charges. The authority emphasized that the appellant did not meet the criteria outlined in sections 16(2)(b), 17(5)(c), and 17(5)(d) of the CGST Act, 2017. Consequently, the appeal filed by the appellant was deemed not maintainable and liable to be rejected.

Introduction

The case of Malabar Cements Limited, brought before the Authority for Advance Ruling in Kerala, sheds light on the complexities surrounding input tax credit under the Goods and Services Tax (GST) regime in India. This case revolves around the eligibility of Malabar Cements Limited to claim input tax credit on the GST charged by a service provider for hiring buses or motor vehicles with a seating capacity of more than 13 persons for employee transportation. Understanding the outcome of this case is crucial for businesses navigating the nuances of GST regulations.

Facts of the Case

Malabar Cements Limited, a government-owned Public Sector Company in Kerala, sought an advance ruling regarding the admissibility of input tax credit on GST charged by a service provider for providing transportation facilities to its employees. The company operates its factory round-the-clock in remote areas where public transportation is limited. To ensure the commuting needs of its employees are met, Malabar Cements Limited engages a service provider to provide non-air-conditioned buses with a seating capacity exceeding 13 persons. The service provider levies a GST of 5% on the hiring charges, leading to the question of whether Malabar Cements Limited can avail input tax credit on this GST.

Issue

The central issue in this case is twofold. Firstly, it concerns the eligibility of Malabar Cements Limited to claim input tax credit on the GST charged by the service provider for hiring buses or motor vehicles with a seating capacity exceeding 13 persons for employee transportation. Secondly, it delves into the extent to which the input tax credit can be availed by Malabar Cements Limited, particularly considering the portion of the transportation cost borne by the company itself.

Held

Upon thorough examination of the relevant legal provisions and the arguments presented by Malabar Cements Limited, the Authority for Advance Ruling concluded that the company is indeed eligible to avail input tax credit on the GST charged by the service provider. However, the extent of this credit is restricted to the cost of transportation borne by Malabar Cements Limited. This ruling provides clarity on an important aspect of GST compliance for businesses engaged in employee transportation services and underscores the need for meticulous adherence to statutory provisions.

Introduction

The recent ruling by the Authority for Advance Ruling (AAR) in Madhya Pradesh has significant implications for businesses in the amusement park industry, particularly regarding Input Tax Credit (ITC) under the Goods and Services Tax (GST) regime. The case of Atriwal Amusement Park sheds light on the eligibility criteria for claiming ITC on various components and services utilized in the construction of water parks, offering crucial guidance to businesses operating in this sector

Facts of the Case

Atriwal Amusement Park, a company specializing in the construction of water parks, sought clarification from the AAR regarding the eligibility of Input Tax Credit (ITC) on several aspects of its construction activities. The key components and services under scrutiny included the purchase of water slides, site development services, and the construction of swimming pools or wave pools, all of which are subject to taxation under GST regulations.

Issue

The central issue in this case pertains to the eligibility of Atriwal Amusement Park to claim Input Tax Credit (ITC) on specific components and services utilized in the construction of water parks. The inquiry seeks clarification on whether these elements qualify as ‘Plant and Equipment’ under GST provisions, thus enabling the applicant to avail of ITC benefits.

Held

Upon careful consideration of the facts and legal provisions, the Authority for Advance Ruling (AAR) in Madhya Pradesh arrived at the following decisions:

Water Slides: The AAR ruled in favor of Atriwal Amusement Park, affirming its eligibility to claim Input Tax Credit (ITC) on the purchase of water slides made from durable PVC material. This decision is based on the classification of water slides as ‘apparatus, equipment, and machinery,’ thereby meeting the criteria for ITC under GST regulations.

Site Development Services: However, the AAR denied ITC claims on goods and services related to site development and preparation where water slides are installed. The rationale behind this decision lies in the exclusion of land-related services from the definition of ‘Plant and Equipment’ eligible for ITC benefits.

Swimming Pools or Wave Pools: Similarly, the AAR ruled against the eligibility of ITC on the construction of swimming pools or wave pools. Despite being integral components of amusement parks, these structures were deemed civil in nature and not considered part of the supportive framework or foundation of the plant, thus falling outside the scope of ‘Plant and Equipment’ for ITC purposes.

Introduction

The integration of solar power systems has become increasingly common as businesses seek to adopt sustainable and eco-friendly energy solutions. This article examines a specific case, the ruling in the matter of Unique Welding Products Pvt. Ltd. vs. GST AAR Gujarat, to explore the eligibility of Input Tax Credit (ITC) for the installation and commissioning of a roof-top solar system.

Facts of the Case

Unique Welding Products Pvt. Ltd., a welding wires manufacturing and sales company based in Anand, Gujarat, installed a roof-top solar system with a capacity of 440 KW on its factory roof for captive power generation. The company sought clarification on its eligibility for ITC under the Central Goods and Services Tax (CGST) Act, 2017.

Issue

The main issues raised in the case were whether Unique Welding Products Pvt. Ltd. is eligible for ITC on the purchased roof-top solar system with installation & commissioning and whether the roof-top solar system, along with its installation and commissioning, constitutes plant and machinery, making it eligible for ITC under section 17(5) of the CGST Act.

Held

The ruling authority concluded that unique Welding Products Pvt. Ltd. is eligible to avail ITC on the roof-top solar system with installation & commissioning under the CGST/GGST Act and the roof-top solar system, with installation and commissioning, qualifies as plant and machinery for the company, making it eligible for ITC under section 17(5) of the CGST/GGST Act.

Introduction

The West Bengal Appellate Authority for Advance Ruling recently tackled the question of Input Tax Credit (ITC) eligibility concerning the construction of immovable property subsequently leased out for commercial purposes. This article provides an overview of the ruling, its implications, and the legal context surrounding it.

Facts of the Case

M/s. Mindrill Systems and Solutions Private Limited, hereinafter referred to as “the Respondent,” constructed a warehouse and leased it to a commercial entity. GST was duly paid on this supply of service. Subsequently, the Respondent sought an Advance Ruling from the West Bengal Authority for Advance Ruling (WBAAR) regarding the availability of Input Tax Credit (ITC) for capital expenses incurred during the warehouse’s construction. The question pertained to whether these expenses could offset tax liabilities arising from renting out the warehouse.

Issue

The central issue at hand revolved around whether Input Tax Credit (ITC) could be claimed in relation to the construction of immovable property subsequently let out for commercial purposes.

Held

The West Bengal Appellate Authority for Advance Ruling, in Appeal No. 04/WBAAAR/Appeal/2023, deliberated on the matter. It observed that clauses (c) and (d) of sub-section (5) of Section 17 of the Central Goods and Services Act, 2017 (“the CGST Act”), dictate that ITC is not available for works contract services or goods or services received for the construction of immovable property. Therefore, such transactions fall within the purview of blocked credit.

Furthermore, the Authority noted that the explanation provided in clause (d) of Section 17 specifies that credit is also blocked for reconstruction, renovation, additions, alterations, or repairs capitalized in the books of accounts. However, it clarified that the condition of capitalization in the books of accounts applies solely to the mentioned activities related to immovable property.

In conclusion, the West Bengal Appellate Authority for Advance Ruling held that no Input Tax Credit (ITC) is available concerning the construction of the warehouse subsequently leased out by the Applicant.

Introduction

The recent ruling by the GST AAAR Tamilnadu has shed light on a crucial aspect of Input Tax Credit (ITC) concerning structural support for overhead cranes within an ‘Integrated Factory’ building. Coral Manufacturing Works India Private Limited brought forth an appeal challenging the existing orders of the Advance Ruling Authority, Tamil Nadu, seeking clarification on the applicability of ITC in this scenario.

Facts of the Case

Coral Manufacturing Works India Private Limited constructed a warehouse and let it out for commercial purposes, paying GST on the service provided. The company filed an application for Advance Ruling, questioning whether ITC could be availed for the capital expenses incurred on the construction of the warehouse. The West Bengal Authority for Advance Ruling held that ITC was not admissible for expenses capitalized in the books of account. Dissatisfied with this ruling, the Revenue Department appealed against it.

Issue

The primary issue revolved around the eligibility of Input Tax Credit (ITC) concerning structural support erected for overhead cranes within an ‘Integrated Factory’ building. Coral Manufacturing Works India Private Limited sought clarification on whether the Integrated Factory Building itself could be considered as plant and machinery under the CGST Act.

Held

The GST AAAR Tamilnadu held that while the overhead crane and its structural support qualified as plant and machinery, the Integrated Factory Building itself did not. Consequently, Coral Manufacturing Works India Private Limited was only eligible for an ITC proportional to the structural support for the overhead crane, but not for the construction of other civil structures like the building’s side walls and roof.

Introduction

In the case of Raminfo Limited, the GST AAR Telangana has made a significant determination regarding the eligibility of Input Tax Credit (ITC) on the purchase of a 7-seater vehicle, which will be converted into an ambulance for onward supply. This article explores the details of the ruling, its implications, and the broader context of GST regulations.

Facts of the Case

Raminfo Limited has secured a work order from the Government of Tripura to supply ambulances, specifically Mobile Common Service Centres. To fulfill this order, they are procuring Maruti Suzuki Eeco (7 seater) vehicles and modifying them in their workshop located in Hyderabad, Telangana State. Seeking clarity on GST rates and ITC admissibility, Raminfo Limited filed an advance ruling before the AAR Telangana.

Issue

The primary issue at hand is whether Raminfo Limited is eligible to claim Input Tax Credit (ITC) on the purchase of Maruti Suzuki Eeco (7 seater) vehicles, which will be transformed into ambulances for onward supply to the Government of Tripura.

Held

The AAR Telangana, in its order TSAAR Order No.02/2023, concluded that Raminfo Limited is indeed eligible to avail ITC on the purchase of vehicles used for further supply. Citing Section 17(5)(a) of the CGST Act, the AAR noted that ITC on such purchases is not blocked. Therefore, Raminfo Limited can claim ITC on the tax paid for the purchased vehicles. Additionally, the AAR clarified that GST at the rate of 28% will be applicable on the supply of ambulances to the Government of Tripura.

Understanding Blocked Input Tax Credit under GST is paramount for businesses to avoid unnecessary tax liabilities and ensure compliance. By staying updated with recent rulings and clarifications, businesses can make informed decisions regarding their tax planning strategies. It’s imperative to consult with tax experts to navigate the complexities of GST laws effectively.

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E-Invoicing Under GST

editor — Fri, 12 Apr 2024 11:41:19 +0000

E-invoicing within the GST framework refers to the electronic authentication of invoices as outlined by GST regulations. It’s akin to how GST-registered businesses utilize e-way bills for transporting goods. Likewise, specific GST-registered entities are required to produce e-invoices for their Business-to-Business (B2B) transactions.

What is e-invoicing under GST?

E-invoicing, or electronic invoicing, refers to a system where B2B invoices and certain other documents are electronically authenticated by GSTN for further use on the common GST portal.
The GST Council decided to implement e-invoicing in its 35th meeting, initially covering specific categories of mostly large enterprises, which later expanded to include mid-sized and small businesses.

Who must generate e-invoice and its Applicability?

E-invoicing applies based on turnover criteria or e-invoice limits set by phases.
Taxpayers exceeding specified turnover limits in any financial year from 2017-18 to 2021-22 must comply with e-invoicing from FY 2022-23 onwards.
Certain notified businesses are exempt from e-invoicing, such as insurers, banking companies, and others as listed by CBIC notifications.

Transactions and documents criteria

Systems before & after e-invoicing

Time limit to generate e-Invoice

Process of getting an e-invoice

Benefits of e-Invoicing to businesses

How can e-invoicing curb tax evasion?

What are the mandatory fields of an e-invoice?

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Reinstatement of GST Numbers Contingent on Clearing Dues Highlights Tax Adherence and Procedural Flexibility

editor — Tue, 09 Apr 2024 12:22:39 +0000

Introduction:

This case law concerns a judgment from the High Court of Jammu & Kashmir and Ladakh, which offers a lifeline for GST compliance by restoring GST registration upon the settlement of dues.

Facts of the Case:

The petitioner’s GST registration was canceled following their failure to respond to a show cause notice issued by tax authorities on November 16, 2021. Subsequently, the petitioner’s appeal was dismissed due to their absence before the Appellate Authority.

Issue:

The main issue was whether the petitioner’s GST registration, canceled due to non-compliance with the show cause notice and absence during the appeal, could be reinstated upon their commitment to clear outstanding taxes, penalties, and interest as per GST laws.

Petitioner’s Argument:

The petitioner advocated for the restoration of their GST number, pledging to settle all dues, including taxes, penalties, and interest, in accordance with the GST Act, 2017, upon reinstatement.

Respondent’s Argument:

The Respondent, represented by the Advocate General, did not oppose the petitioner’s proposal to settle dues and reinstate the GST number.

Held:

Considering the unique circumstances and lack of objection from the Respondent, the High Court of Jammu & Kashmir and Ladakh disposed of the case by instructing the petitioner to approach the concerned Officer for GST number restoration within seven days. Upon restoration, the petitioner must settle taxes, penalties, and interest within another seven days, as mandated by the GST Act, 2017.

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Collaborative Audits by Central and State GST Authorities Targeting Businesses

editor — Tue, 09 Apr 2024 06:48:00 +0000

Beginning this fiscal year, there will be a collaborative effort between Central and State Goods and Services Tax (GST) authorities to conduct audits within the indirect tax framework.

This joint approach is expected to bring significant advantages to taxpayers by eliminating repetitive notifications and inquiries. Current industry data suggests that around 11,000 cases are either duplicated or entangled in legal disputes due to investigations by both Central and State agencies. Various Central GST zones have issued internal communications instructing officials to collaborate with their state counterparts on audits to ensure better coordination, as per sources.

The concept of conducting audits collaboratively was proposed during a national coordination meeting last month to streamline tax enforcement processes. The directives indicate that Central GST officers should also participate in audits conducted by State GST teams to improve SGST officers’ audit capabilities and facilitate the exchange of crucial compliance information. To support these joint audit efforts, the Central Board of Indirect Taxes and Customs (CBIC) has instructed each zone to devise a specific framework.

The responsibility for implementation, delegated to zonal heads, aims to optimize time and resources. Experts in the industry believe this initiative will enhance the fairness and efficiency of the audit process, providing a more comprehensive examination that benefits both tax authorities and taxpayers. It will help in avoiding redundant procedures and shield taxpayers from undergoing multiple audits for the same issues.

Furthermore, the CBIC has directed its officers to halt investigations into offenses already under scrutiny by state GST officials or for which notifications have been issued.

Source: https://economictimes.indiatimes.com/news/company/corporate-trends/central-state-gst-officials-to-conduct-joint-audits-of-firms/articleshow/109143298.cms?from=mdr

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State’s GST Department Witnesses 43% Decline in GSTIN Applications Following Introduction of Biometric Verification to Combat Fraudulent Billing

editor — Fri, 05 Apr 2024 04:41:47 +0000

A notable development within the state’s GST department reveals a substantial 43% decrease in the average monthly count of GSTIN (Goods and Services Tax Identification Number) applications since November 2023. This reduction, from 26,800 applications to 15,350 between November last year and February this year, is not indicative of a slowdown in business or establishment formations. Rather, it reflects a strategic initiative by the state government aimed at curbing fraudulent billing practices right from the registration stage.

A new protocol mandating biometric verification for GSTIN applicants has been initiated as part of a pilot program. This additional step effectively filters out illegitimate applications, thereby contributing to the observed decline in application numbers. Rolled out in November 2023, this initiative aims to bolster the security and efficacy of the registration process. Similar pilot projects are also underway in Andhra Pradesh and Puducherry.

According to a senior official from the SGST department, fraudulent billing often commences with the acquisition of counterfeit GST registration through deceptive means. These fictitious entities’ GSTINs are then exploited to generate sham invoices and claim input tax credits without any actual exchange of goods. Additionally, instances have surfaced where individuals have discovered the unauthorized use of their banking and identity credentials for these fake registrations.

Bogus billing has posed a significant challenge for Gujarat, particularly since the GST rollout. The state government has incurred losses amounting to Rs 11,443 crore due to tax evasion schemes involving fraudulent billing practices. The cumulative value involved in such operations is nearing Rs 1 lakh crore since the GST’s inception.

Under the revised verification framework, applicants must undergo thumbprint authentication and furnish various identification documents during GST registration to verify their identity. Moreover, applicants may undergo further scrutiny in the future if deemed necessary. The integration of biometric verification is anticipated to act as a deterrent against fraudulent activities by ensuring that GST registrations are exclusively issued to legitimate entities.

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Employees get ₹3,731 crore GST penalty demand; Bombay HC strikes it down

editor — Thu, 04 Apr 2024 05:43:47 +0000

Should an employee of a company be held responsible for forking out penalties related to tax demands raised on the company by revenue authorities? Goods and Services Tax (GST) enforcement officials believed so when they slapped a demand last September for a ₹3,731 crore penalty on a taxation manager and other employees of global logistics major Maersk for alleged tax evasion of the same amount by the company.

In a judgment that could bring relief to other employees at firms in the midst of GST disputes, the Bombay High Court last week struck down the demand and show cause notices issued by the Directorate General of Goods and Service Tax Intelligence in the case, terming them bad and illegal.

Terming it “highly unconscionable and disproportionate” for revenue officers to hold employees responsible for liabilities of the company, a division bench of Justice GS Kulkarni and Justice Firdosh P Pooniwalla held it would not be incorrect to contend that the purpose of issuing the show cause notice to the petitioner who is merely an employee, was designed to threaten and pressurize them.

GST officials had alleged that a sum of ₹1561 crore was wrongly utilized as Input Tax Credit by Maersk and those credits were wrongfully distributed. While Maersk is a foreign company which does not have any employee or fixed establishment in India, solely for the purpose of representing and acting on its behalf before the Indian tax authorities, the firm had given the power of attorney to some employees of its steamer agent in India, incorporated as Maersk Line India Pvt. Ltd.

“This ruling is significant for employees of large-sized businesses, where potentially interpretative GST positions are adopted by employees without any malafide intention. Such imposition of substantial penalties in recent investigations had caused lot of unrest amongst such employees,” an expert said.

Source: https://www.thehindu.com/business/employee-gets-3731-crore-gst-penalty-demand-bombay-hc-strikes-it-down/article68025394.ece

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Mandatory E-Invoicing for Businesses with Turnover above INR 5 Crores

editor — Thu, 04 Apr 2024 05:17:18 +0000

The GSTN, in its recent Advisory No. 628 dated April 3, 2024, has made e-Invoicing mandatory for businesses with a turnover exceeding INR 5 crores starting from April 1, 2024.

If your turnover surpasses INR 5 crores in the fiscal year 2023-2024, it is imperative to commence e-Invoicing from the subsequent financial year, commencing April 1, 2024.

Businesses meeting the notification criteria yet not enabled on the portal can self-enable for e-Invoicing by accessing https://einvoice.gst.gov.in. They can report through any of the 4 new Invoice Registration Portals (IRPs), ranging from e-Invoice IRP 3 to e-Invoice IRP 6.

For further details, please refer to the Advisory at: Advisory No. 628

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ITC Transition not to be denied in case of Input Service Distributor (ISD)

editor — Sat, 23 Mar 2024 06:22:00 +0000

In the case of Siemens India Ltd. v. Union of India [Writ Petition No. 986 of 2019 dated February 09, 2024], the Hon’ble Bombay High Court, drawing upon sub-section (7) of Section 140 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”), postponed the proceedings for further examination. The court upheld the temporary halt granted to the Assessee, who is an Input Service Distributor (“ISD”), emphasizing that Input Tax Credit (ITC) legitimately available to the Assessee before the Appointed Day should not be forfeited due to the absence of an effective procedural mechanism for transferring ITC to the Electronic Credit Ledger for utilization. This situation could lead to the permanent loss of such ITC.

Facts of the case:

Siemens India Ltd. (“the Petitioner”), registered as an Input Service Distributor (ISD), initiated a writ petition regarding the transition of Input Tax Credit (ITC) available to them on July 1, 2017 (“the Appointed Day”). The petition contested the Revenue Department’s (“the Respondent”) refusal to allow transition or utilization of ITC in the Electronic Credit Ledger, citing a defective electronic mechanism.

These proceedings stemmed from a Supreme Court order dated March 24, 2023, in Union of India and Ors. v. Siemens Ltd. and Ors [SLP (Civil) Diary No. 7213 of 2023], directing a fresh consideration of the case, taking into account relevant contentions and legal provisions.

Issue:

Is an Input Service Distributor (ISD) entitled to transition ITC available on the Appointed Day?

Held:

The Bombay High Court, in Writ Petition 986 of 2019, made the following determinations:

The primary concern revolves around the legal ramifications of sub-section (1) and sub-section (7) of Section 140 of the CGST Act, outlining transitional arrangements for the carry-forward and utilization of ITC by ISDs.
Citing sub-section (7) of Section 140 of the CGST Act, the Court emphasized that legitimately available ITC with the Petitioner before the Appointed Day cannot be forfeited due to the absence of an effective procedural mechanism for transferring ITC to the Electronic Credit Ledger for utilization, thus preventing permanent loss of such ITC.
The Court suggested that a thorough examination of these issues by the GST Council would aid in the adjudication process.
It was decided that interim relief granted to the Petitioner would remain in force.
The case was adjourned until August 9, 2024.

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Registration not to be cancelled retrospectively when vague SCN is issued and no reasonable opportunity granted to file reply

editor — Tue, 19 Mar 2024 12:25:25 +0000

The Delhi High Court, in the case of M/s. Friends Media Add Company vs. Principal Commissioner of Goods and Service Tax [W.P.(C) No. 1260 of 2024 dated February 12, 2024], altered the GST cancellation ruling to apply prospectively from the date of the show cause notice (SCN). The court held that GST registration should not be revoked retroactively if the SCN lacks clarity and no opportunity was given to contest the retrospective cancellation.

Facts of the case:

The Revenue Department (referred to as “the Respondent”) issued an SCN on August 25, 2023, to M/s. Friends Media Add Company (referred to as “the Petitioner”), alleging issuance of invoices or bills without actual supply of goods or services, resulting in improper claim of input tax credit or tax refund. Subsequently, the GST registration of the Petitioner was cancelled retroactively via an order dated December 12, 2023 (referred to as “the Impugned Order”).

The Petitioner challenged the Impugned Order through a writ petition before the High Court, arguing that the SCN lacked specificity as it did not cite any instances of invoices or bills issued without actual supply of goods or services, which formed the basis of the SCN issuance.

Issue:

Whether GST registration should be cancelled retrospectively when the SCN issued is vague in nature and no opportunity was granted to file objection against retrospective cancellation?

Held:

The Hon’ble Delhi High Court in Writ Petition (C) No. 1260 of 2024 held as under:

Section 29(2) of the Central Goods and Services Act, 2017, empowers the Proper Officer to cancel GST registration retrospectively, but this should not be done mechanically and must be based on objective criteria.
The mere failure to file returns for a certain period should not automatically lead to retrospective cancellation, especially if returns have been filed and taxes paid for other periods.
The Proper Officer must consider that retrospective cancellation could deny credit to the petitioner's customers for supplies made during the affected period.
The SCN did not adequately notify the petitioner of the possibility of retrospective cancellation.
The petitioner was not given an opportunity to object to the retrospective cancellation of GST registration.
Therefore, the court ordered that the cancellation be modified to operate prospectively from the date of issuance of the SCN.

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Understanding the SARFAESI Act, 2002: Scope, Aims, Procedures, and Documentation

editor — Mon, 18 Mar 2024 07:18:20 +0000

India’s financial sector plays a crucial role in the country’s economic development. However, outdated legal frameworks hindered the efficient recovery of defaulted loans and contributed to rising nonperforming assets (NPAs). In response, various committees, including the Narasimham Committee I and II and the Andhyarujina Committee, were formed to examine banking sector reforms and propose changes in the legal system.

What is the SARFAESI Act, 2002?

The SARFAESI Act, short for the “Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act,” empowers banks and financial institutions to auction commercial or residential properties to recover loans when borrowers default. It allows for the reduction of Non-Performing Assets (NPAs) through recovery methods and reconstruction.

Applicability and Objectives

The SARFAESI Act applies to secured loans, enabling banks to seize properties without court intervention, except for agricultural land. Its objectives include facilitating the recovery of NPAs, enabling banks to auction properties, and streamlining the recovery process.

Key Provisions and Processes

The Act regulates Asset Reconstruction Companies (ARCs) and facilitates the securitization of financial assets. It empowers banks to take possession of securities and manage them, appoint managers, or lease/sell the assets. Borrowers are given a 60-day notice period to discharge liabilities before action is taken.

Role and Amendments

The SARFAESI Act allows banks and ARCs to convert debt into equity, adjust debt with property value, and sell properties with deferred payments. Borrowers have rights to remit dues, receive officer default compensation, and approach Debt Recovery Tribunals for grievances.

Methods of Recovery

Recovery under the SARFAESI Act includes securitization, asset reconstruction, and enforcement of security without court intervention. These methods enable financial institutions to efficiently recover NPAs.

Assets Not Covered

Assets not covered by the SARFAESI Act include those under the Sale of Goods Act or Indian Contract Act, properties not liable for attachment under civil procedure laws, and conditional contracts without security interests.

Conclusion

The SARFAESI Act, 2002, strengthens India’s financial sector by providing effective mechanisms for loan recovery. Its provisions empower banks and financial institutions to streamline the recovery process, reduce NPAs, and foster economic stability.

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