GST - Smuggling of Areca Nuts - Single Judge had held [ 2019-TIOL-2530-HC-GUW-CUS ] that the police authorities would have no jurisdiction and power to investigate as regards violation of the provisions of the taxation laws as the same are governed by the provisions of the CGST Act, 2017  or AGST Act, 2017  under which there are separate investigative agencies; that the power of the police to investigate an offence will commence only on getting information either under Section 154 or 155 of the CrPC, therefore, unless there is information, either during an investigation or otherwise, the police cannot go for a roving inquiry; that since the seized areca nuts and the trucks essentially pertain to the main offence of smuggling coming within the purview of Customs Act, 1962, which are liable to be seized and confiscated under the Customs Act, these ought to be handed over the Customs authorities for their investigation; that if the Customs authorities need the help and assistance of the police, nothing prevents them from doing so - Held that the initial seizure of areca nuts and the trucks by the Assam Police cannot be said to be without authority - Appeal filed against this order before the Division Bench - Appellant submits that in view of specific provision in section 67 of the Act for inspection, search and seizure and the further provisions in the Acts itself providing for the procedure to be followed by the authorities under the GST Act, the refusal of the Single Judge in the judgment dated 25.10.2019 to declare the detention and seizure to be illegal, in respect of the offences under the GST Acts would be unsustainable; that for the alleged violation of the provisions under the Customs Act, Section 100 provides for the power to search the suspected persons and Section 110 provides for the power of seizure and confiscation of any goods that may be involved in such violations.

Held:

+ A reading of Section 67(1) shows that where the proper officer not below the rank of Joint Commissioner has reasons to believe that there is any violation or evasion of tax under the GST Acts, he may authorize in writing any other officer of the department to inspect any of the places of business of the taxable person - Under Section 67(2) where the proper officer either pursuant to an inspection carried out under Section 67(1) or otherwise has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under the Acts, are secreted in any place, he may authorize in writing any other officer to search and seize such goods, documents, books or things - Provisions of Section 67 of the AGST Act contains a clear provision that prior to any inspection, or as a matter prior to any search and seizure, a recording of reasons by the proper officer for such belief is a requirement of the law and only thereupon the process for search, seizure or confiscation can be undertaken: High Court [para 20]

+ A reading of Sections 100 and 101 of the Customs Act shows that if the proper officer or the empowered officer has reasons to believe that a person to whom the provision applies has secreted about his person any goods or documents liable for confiscation, a search may be conducted and pursuant thereto the subsequent actions be taken which may result in arrest, seizure or confiscation - Provisions of Section 100 and 101 of the Customs Act also contains a clear provision that prior to any search, arrest, seizure or confiscation, the proper officer or the empowered officer is required to have a reason to believe that the person concerned was involved in violation of any of the provisions of the Customs Act, and only upon the existence of such reasons to believe, the process for search, arrest, seizure or confiscation can be undertaken: High Court [para 23]

+ From the provisions of Section 67 of the AGST Act and 100 and 101 of the Customs Act, a process for search, seizure, confiscation etc for violating any of the provisions of the AGST Act or the Customs Act can only be initiated upon having reasons to believe by the proper or appropriate officer that a person concerned was involved in violation of any of the provisions of the GST Acts or the Customs Act - In the instant case, the documents made available on record so far as it relates to violation of the provisions of the AGST Act are not being relied upon by the respondents to indicate any such violation of the provisions of the AGST Act - What is contended is that some such documents are either fraudulent or it contains forged signatures resulting in offences under Sections 120(B)/420/467/471 of the IPC - Bench is, therefore, of the view that if the authorities under the AGST Act of the State of Assam are of the view that the appellants are required to be proceeded with or prosecuted under the AGST Act, it would be appropriate to invoke the provisions of Section 67 of the AGST Act and proceed accordingly - But without invoking the provisions of Section 67 of the AGST Act and following the procedure prescribed therein, it would be inappropriate to allow the police authorities of Assam to continue with the detention and the seizure of the trucks containing the areca nuts on the plea that the appellants have violated some or any of the provisions under the AGST Act: High Court [para 24, 25, 26]

+ If the police authorities of Assam are of the view that the appellants are required to be proceeded with or prosecuted for such fraud or forgery simpliciter, which on its own may be an offence under Sections 120(B)/420/467/471 of the IPC, it would be for the police authorities to proceed against them strictly by following the required procedure prescribed under the CrPC and bring such investigation to its logical end: High Court [para 27]

+ As regards the stand of the police authorities of Assam that they have the power to seize any property under Section 102 of the CrPC, it again has to be circumscribed that any seizure effected by invoking Section 102(1) of the CrPC would have to be subjected to the procedure prescribed under Section 102(3), i.e. to forthwith submit a report of the seizure to the Magistrate having jurisdiction over the matter - Without such procedure being undertaken, any detention of the trucks containing the areca nuts and their resultant seizure would have to be said to be without authority and jurisdiction - In the event the seizures are being followed up with submission of reports to the Magistrate having jurisdiction, it would be subjected to the procedures under the CrPC, including that of Section 451: High Court [para 28]

+ By taking note of the report of the Ministry of Agriculture and Farmers Welfare, Government of India as regards the bio-security aspects of the areca nuts and also the stand of the Customs department that the areca nuts may have been smuggled in from across the Myanmar border in violation of the provisions of the Customs Act, Bench is of the view that if the proper officer or the empowered officer has reasons to so believe, it would be appropriate to initiate proceedings under Section 100/101 of the Customs Act and thereafter follow the procedures prescribed in the Act as regards search, arrest, seizure or confiscation - Without following the prescribed procedure of the Customs Act, it would be inappropriate for the police authorities of Assam to continue with the detention and the seizure of the trucks containing the areca nuts by taking the plea that provisions of the Customs Act had also been violated by the appellants - it is for the appropriate authorities, particularly the authorities under the Customs Department to take a call on the matter as to what further is required to be done in respect of the detained/seized areca nuts, but such call has to be by strictly following the provisions of the Customs Act: High Court [para 29, 30, 31]

Conclusion:

++ Bench directs that the detained/seized goods be retained by the police authorities of Assam for a period of seven days - In the meantime, the GST authorities of the Government of Assam, the police authorities of the Government of Assam and the Customs authority of the Customs Department, Government of India shall take their respective decisions on how to proceed with the matter of the detained/seized trucks of areca nuts within the period of seven days - If any such decision is taken to proceeded against the appellants, the same be done by the respective authorities strictly as per the provisions of the GST Acts, the CrPC/IPC or the Customs Act, as the case may be - if the police authorities of Assam had already initiated and proceeded against the appellants under the CrPC for the offences under the IPC, the same be continued only by following the procedure provided under the CrPC and the appellants also avail the release of the goods, if lawfully seized as per the provisions of the CrPC: High Court [para 32]

++ In the event, no such appropriate decision is taken or the matter is proceeded under the appropriate provisions of law, as indicated above, by any of the aforementioned authorities, it would stand declared at the expiry of seven days that the detention and seizure of the 26 numbers of trucks of areca nuts belonging to the appellants would be illegal and unsustainable - It is again provided that in the event any of the three authorities proceeds against the appellants as per the respective laws indicated above, such proceedings shall be subjected to the logical outcome under the GST Acts, CrPC/IPC or the Customs Act, as the case may be: High Court [para 33]

++ The judgment dated 25.10.2019 in WP(C) No.6762/2019 [ 2019-TIOL-2530-HC-GUW-CUS ] and other connected writ petitions stands modified as indicated above.

- Appeals disposed of: GAUHATI HIGH COURT

AAR CASES

2019-TIOL-496-AAR-GST

NRB Hydraulics Pvt Ltd

GST - The applicant sub-contracted the manufacture of its products to vendors on labor jobs - The applicant claimed that the labor cost is paid by them to vendors taking into account the scrap generated during manufacture process - Hence the payment to vendor is partly in cheque and partly by barter - The GST on the scrap is paid by the vendors - The applicant sought to know as to by whom is GST to be paid on scrap generated from labour job at vendor's place.

Held - The authority can give a ruling on matters raised in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant - The applicant stated that the scrap is the property of the vendors - Hence the issue of taxability of sale/supply of scrap can only be raised by the vendors concerned and not by the applicant - Hence the present question raised by the applicant need not be answered since it is outside the context of Section 95 of the CGST Act: AAR

- Application dismissed: AAR

2019-TIOL-495-AAR-GST

Maneckji Cooper Education Trust

GST - The applicant is a charitable trust engaged in running a school and is engaged in providing education - It owns copyright of certain educational books and has given publication rights to one M/s S Chand & Co and has been receiving royalty from such company - The applicant was paying service tax on royalty amount under protest upto June 2017 - Later, the registration under service tax was migrated to GST Act - From July 2017, GST on royalty income came under reverse charge and the publisher was made liable to pay GST - Hence the registration under GST became redundant - Hence the applicant sought to know if the registration under the GST Act should be surrendered.

Held - The question raised by the applicant does not pertain to any matters mentioned u/s 97(2) of the CGST Act, in the sense that such provision does not deal with issues pertaining to whether or not a registration should be surrendered - Hence the authority does not have jurisdiction to pass any ruling on such matters - The issue at hand does not pertain to a matter in respect of which an advance ruling can be sought and so the application merits being dismissed as being non-maintainable: CESTAT

- Application dismissed: AAR

AAAR CASES

2019-TIOL-77-AAAR-GST

Strides Emerging Markets Ltd

GST - AAR had held that Narcotic Chewing Tablet namely, Nicotine Polacrilex Lozenge is rightly classifiable under heading 38.24 and is covered under Sl. no. 97 of Sch-III to 1/2017-CTR; attracts GST @18% - Appeal to AAAR.

Held: The active ingredient in ‘Nicotine Polacrilex Lozenge' in Nicotine which is a natural alkaloid - Nicotine Polacrilex Lozenge is a chemical preparation and hence is more aptly classifiable under chapter heading 38.24 of the Customs Tariff Act, 1975, therefore, rightly covered under Entry Sl. no. 97 of Schedule III with GST rate of 18% - AAR order upheld - appeal is dismissed: AAAR

- Appeal dismissed: AAAR

NAA CASES

2019-TIOL-73-NAA-GST

Director General of Anti-Profiteering Vs Signature Builders Pvt Ltd

GST - Anti Profiteering - During the relevant period, the DGAP received a reference from the Standing Committee on Anti Profiteering to conduct a detailed investigation in respect of four complaints filed u/r 128 of the CGST Rules, alleging profiteering by the respondent in respect of construction services supplied - Considering the contentions and evidence supplied by the respondent, the DGAP claimed that benefit of additional ITC to the tune of about 1.65% of the turnover which had accrued to the respondent in post-GST period, was required to be passed on to the applicants and other recipients - The DGAP found that the respondent had contravened the provisions of Section 171 of the CGST Act as such additional benefit of ITC had not been passed on - While the respondent was found to have passed on Rs 16515/- to the applicants, it nonetheless had realized ans amount of Rs 45,77,261/- which was required to be returned to eligible recipients.

Held: The respondent claimed that while computing the profiteered amount, the DGAP did not consioder the tax rate on those materials which were tax free in the pre-GST period - However, such argument is untenable since the DGAP computed the benefit of additional ITC by comparing ratios of ITC which was available to it in the pre and post GST period, from which it is clear that the respondent got additional benefit of 2.61% of the turnover - Besides, the DGAP did not calculate the profiteered amount by using averages - Hence the respondent's arguments are untenable - The respondent also claimed that no mechanism existed for computing profiteering in the Act, Rules or in the Procedure & Methodology formulated by the NAA u/r 126 and that in such circumstances, the respondent's calculations be accepted as method of passing on ITC benefit - In this regard, it is apparent that mathematical methodology is not required to be prescribed as it varies from case to case - However, the methodology adopted by the respondent is not explained in the written submissions and so the same cannot be accepted and adopted - The DGAP meanwhile computed the ratio of ITC to turnover after considering the credit available in pre GST period to the taxable turnover received in such period and compared it with post GST period - Based on this analysis, the DGAP calculated ratio of ITC of 5.65% to turnover in pre GST period when compared to ratio of 7.30% in post GST period and so calculated net benefit of ITC of 1.65% of total turnover - Moreover, the respondent claimed to have passed on benefit of about Rs 1.29 crores against the profiteered amount of about Rs 1.40 crores - However, the DGAP did not verify that such amount was passed on by the respondent on account of ITC benefit to buyers - Hence such claim of the respondent cannot be accepted on mere assertions - Such amount cannot be adjusted against the ITC - While the respondent also supplied details of credit notes through which he claimed to have passed on ITC benefit, such credit notes were not verified by the DGAP - No solid evidence was produced to establish their genuineness - Hence such credit notes cannot be relied on based on mere assertions - Considering the 1.65% net benefit of additional ITC, the authority determines the profiteered amount at Rs 1,40,41,916/- which includes 12% GST - The same is to be refunded to eligible applicants with interest - Hence the provisions of Section 171 of the CGST Act have been contravened - Moreover, the respondent is also liable to face penalties for contravening provisions of the Act - SCN be issued in this regard: NAA

- Application disposed of: NAA

2019-TIOL-72-NAA-GST

Director General Of Anti-Profiteering Vs Signature Builders Pvt Ltd

GST - The applicant approached the Standing Committee on Anti Profiteerting during the relevant period, alleging that the respondent had not passed on benefit of ITC through commensurate reduction in price as per Section 171 of the CGST Act and had also charged GST on the pre-GST base price of Rs 4000/- per square feet - The matter was then forwarded to the DGAP, which considered the documents submitted by the respondent and then concluded that the ITC as a percentage of the turnover that was available to the respondent during the pre-GST period was 3.17% and during the post-GST period was 5.89% - It was held that the same confirmed that post-GST, the respondent benefitted from additional ITC to the tune of 2.72% of the turnover.

Held - From the facts, it is clear that ITC as a percentage of the turnover that was available to the respondent during the pre-GST period was 3.17% and during the post-GST period was 5.89% - Hence it is established that the respondent benefitted from the benefit of additional ITC to the extent of 2.72% of the turnover - Since such computation was done based on the returns filed by the respondent as well as from the information supplied by him, the same can be relied upon - As per the DGAP's calculations, which are based on details submitted and returns filed, the profiteered amount stands at Rs 2,58,80,297/- - Hence the respondent is directed to reduce the price to be realized from the flat buyers commensurate with the benefit of ITC received - The respondent is also to refund the profiteered amount to the flat buyers without considering the benefit claimed to have been passed on - Nonetheless, no benefit is to be passed onto the applicant as the applicant did not purchase any flat or shop in the present project - Such profiteered amount be passed on along with 18% interest payable from the date from which the excess amount was collected - Moreover, denial of ITC benefit is an offence u/s 171(3A) and so penalty u/s 171(3A) r/w Section 133(3)(d) merits being imposed - SCN be issued in this regard: NAA

- Application disposed of: NAA

2019-TIOL-71-NAA-GST

Director General Of Anti-Profiteering Vs Fusion Buildtech Pvt Ltd

GST - Anti Profiteering - The applicant booked a flat in a project developed by the respondent - The applicant alleged that the respondent increased the price of the flat after introduction of GST w.e.f. 01.07.2017 and had not passed on the ITC through commensurate reduction in price - The UP State Screening Committee on Anti Profiteering recommended the matter to the Standing Committee on being prima facie satisfied that the respondent had failed to pass on the appropriate benefit of ITC to the applicant - The Standing Committee forwarded the matter to the DGAP, which proceeded to reject the contentions raised by the respondent and concluded that the benefit of 5.04% of ITC had accrued to the respondent and was required to be passed on to the applicant and other recipients.

Held - From a perusal of Section 171(1) of the CGST Act, it is clear that the legislative intent is amply clear and requires that benefit of tax reduction or ITC is to be passed on the customers by commensurate reduction in proces and the same cannot be retained by a supplier - The respondent contested that in the computation of ITC percentage for the relevant period, the DGAP did not factor the percentage of completion of each tower and unless such exercise is done, it could not be said that the credit taken was more in terms of percentage - Such contention is baseless since all towers are part of the present project and a project as a whole is taken for calculation of ITC to the turnover ratio for pre-GST & post-GST period and the same has been considered by the DGAP in calculation of percentage of ITC - Hence it is unnecessary to consider the percentage of completion of each tower - The respondent further claimed that provisions of Section 171 were applicable to the long term or continuous contracts and could not be said to be applicable to fresh contracts entered into after 01.07.2017 - Such contention too is irrelevant since the project commenced in the pre-GST era and continued in post-GST era - The provisions of Section 171 nowhere mention that the provisions were inapplicable to fresh contracts entered into after 01.07.2017 - The respondent further claimed to already have offered more than 10% discount in basic prices to all customers who booked flats post GST and that such discount was given mainly on account of availability of ITC - However, considering the provisions of Section 15(1) and Section 15(3)(a), such discount in basic prices claimed to have been paid to house buyers cannot be held to be benefit of ITC - This is because GST is chargeable on actual transaction value after excluding any discount and for the purpose of computation of profiteering, actual transaction value is to be considered for computing profiteered amount - Therefore, the respondent is found to have contravened the provisions of Section 171 and is directed to pass on the profiteered amount of Rs 4,79,04,342/- along with 18% interest within three months time - Besides, such contravention of the provisions of Section 171(3A) invites imposition of penalty u/s 171(3A) r/w Rule 133(3)(d) - SCN be issued to such effect: NAA

- Application disposed of: NAA

CGST RULES NOTIFICATION

67/2019

Seeks to extend the due date for furnishing of return in FORM GSTR-3B for registered persons in Jammu and Kashmir for the month of October, 2019

66/2019

Seeks to extend the due date for furnishing of return in FORM GSTR-3B for registered persons in Jammu and Kashmir for the months of July, 2019 to September, 2019

65/2019

Seeks to extend the due date for furnishing of return in FORM GSTR-7 for registered persons in Jammu and Kashmir for the months of July, 2019 to October, 2019.

64/2019

Seeks to extend the due date for furnishing of return in FORM GSTR-1 for registered persons in Jammu and Kashmir having aggregate turnover more than 1.5 crore rupees for the month of October, 2019.

63/2019

Seeks to extend the due date for furnishing of return in FORM GSTR-1 for registered persons in Jammu and Kashmir having aggregate turnover more than 1.5 crore rupees for the months of July, 2019 to September, 2019

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GST Council's 38th Meeting - Lottery eats away spirit of Cooperative Federalism!