Jay Jay Mills India Pvt Ltd Vs State Tax Officer

GST - Petitioner had applied for refund of ITC under Section 54 of the CGST Act, 2017 but the same came to be rejected, hence these petitions - Petitioner predominantly stresses upon the ground that the rejection orders do not give reasons for inadmissibility of refund and, therefore, they are non-speaking orders.

Held: Petitioner has rightly contended that the respondent had, in a cryptic manner, rejected some of the proposals by stating that, as per Section 54 (8)(a), the ineligible goods or services are not directly used for making zero-rated supply - Apart from this, there is absolutely no other reasons adduced in the order - It is a settled proposition of law that whenever an application of this nature is made, the statutory authority are bound to consider the claim made and pass a reasoned order - In the present case, the petitioner had made an application for refund under Section 54 of the Act and when the respondent had issued notice to them for rejection of the ineligible goods and services of SGST, CGST and IGST, they have given a detailed reply, objecting to the notices - All these objections were required to be dealt with by the authority, before taking a final call, which is conspicuously absent - As such, the order itself can be termed to be "a non speaking order" and, therefore, are liable to be set aside - However, if the respondent is granted an opportunity to pass fresh orders, after considering the objections of the petitioner, the ends of justice could be secured - impugned orders are set aside and the matter is remanded - orders to be passed within a period of 60 days - Petitions disposed of: High Court [para 4 to 6]

- Petitions disposed of: MADRAS HIGH COURT

2020-TIOL-1601-HC-MAD-GST

Krome Led Lighting Technologies Pvt Ltd Vs Assistant Commissioner

GST - Technical glitches on GST portal - TRAN-1 - By the impugned order dated 16.07.2018, Single Judge has only relegated the appellant to appear before the Assessing Officer and submit their application and the Assessing Officer was directed to forward such application to the Nodal Officer, who in turn would forward it to the concerned Grievance Committee - In appeal, Appellant submits that the case of the Assessee was slightly different, in the sense that the Superintendent of GST and Central Excise has already passed an order on 7.2.2018 which was against the assessee; that after that event, the Adjudicating Authority has passed an order, against which the appeal filed by the assessee is pending before the Commissioner of Appeals. He therefore submitted that the Appellate Authority may be allowed to decide the appeal on merits and in accordance with law.

Held: Bench is of the opinion that since the Single Judge has only directed the appellant to raise their grievance before the Nodal Officer/Nodal Committee, there is nothing to interfere with the said order by the Division Bench in the present intra court appeal - The case of the Assessee is admittedly pending before the Commissioner of Appeals as of now - Therefore, Bench is of the considered opinion that any observation on the merits of the case is likely to prejudice the case of the parties before the Bench, either the assessee or the Revenue - Therefore, Bench declines to make any observation on the merits of the case - In the circumstances of the case, writ appeal is disposed of by relegating the appellant before the Commissioner of Appeals, where the appeal is pending and it is expected that the said Authority decides the appeal in accordance with law, after giving an opportunity of hearing to both the sides, as expeditiously as possible: High Court [para 6, 7]

- Petition disposed of: MADRAS HIGH COURT

2020-TIOL-1599-HC-MAD-GST

Transtonnelstroy Afcons JV Vs UoI

GST - Refund of Tax - Inverted Duty Structure - Section 54 of CGST Act, 2017 - Rule 89 of CGST Rules, 2017 - Whether s.54(3)(ii) is violative of Article 14 of the Constitution - Whether Rule 89(5) is in conformity with s.54(3)(ii) - Whether it is necessary to interpret Rule 89(5) and,in particular, the definition of Net ITC therein so as to include the words input services.

Observations -

+ We observe that the proviso to Section 54(3) of the CGST Act and, more significantly, its import and implications do not appear to have been taken into consideration in VKC Footsteps -- 2020-TIOL-1273-HC-AHM-GST except for the brief reference in paragraph 23… In any event, we intend to independently analyse the relevant provisions before concluding as to whether we subscribe to the view in VKC Footsteps - 2020-TIOL-1273-HC-AHM-GST.

+ In our opinion, in connection with the interpretation of any statute and more so a tax statute, the first step in the interpretive process is to carefully examine the text of the statute while bearing in mind the context.

+ If such approach is adopted as regards Section 54 of the CGST Act, it is evident that Section 54 is a generic refund provision. Section 54(3) is specific to refund of unutilised input tax credit. The proviso thereto qualifies Section 54(3) by confining the benefit of refund to the two cases specified in sub clauses (i) and (ii).

+ In H.E.H. Nizam, the Supreme Court held that a proviso performs the function of qualifying the substantive clause. In S. Sundaram Pillai v. V.R. Pattabiraman, (1985) 1 SCC 591(Sundaram Pillai), the Supreme Court delineated the multiple roles that a proviso could play and held that a proviso could even acquire the tenor and colour of a substantive enactment.

+ We find that Section 54(3) undoubtedly enables a registered person to claim refund of any unutilised input tax credit. However, the principal or enacting clause is qualified by the proviso which states that "provided that no refund of unutilised input tax credit shall be allowed in cases other than ".

+ Parliament has used a double negative in this proviso thereby making it abundantly clear that unless a registered person meets the requirements of clause (i) or (ii) of Sub-section 3, no refund would be allowed. On further examining sub-clause (ii), we find that it uses the phrase "where the credit accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies".

+ If the interpretation canvassed by Mr.Parthasarathy and Mr.P.B.Harish is to be accepted, the words "credit accumulated on account of " would be rendered otiose or redundant.

+ While interpreting any statute, one of the cardinal rules of interpretation is that every word of the statute should be given meaning and one should not construe a statute in such a way as to render certain words redundant. As explained above, sub-clause (ii) would have merely stated "where the rate of tax on inputs being higher than the rate of tax on output supplies" and the words "credit has accumulated on account of" would not have been introduced if the intention was not to identify the source from which - i.e. input goods and the rate of tax thereon - unutilised input tax credit should accumulate for entitlement to refund, if the intention was to provide a refund of the entire unutilised input tax credit.

+ We conclude that Section 54(3)(ii) qualifies the enacting clause by also limiting the source/type and, consequently, quantity of unutilised input tax credit in respect of which refund is permissible. Hence, the proviso to Section 54(3) does not merely set out the two cases in which registered persons become eligible for a refund of unutilised input tax credit.

+ The proviso performs the larger function of also limiting the entitlement of refund to credit that accumulates as a result of the rate of tax on input goods being higher than the rate of tax on output supplies.?

+ When Rule 89(5), as it stands today, is analysed in the context of Section 54(3)(ii), it is clear that Net ITC has been re-defined in the amended Rule 89(5) so as to provide for a refund only on unutilised input tax credit that accumulates on account of input goods, whereas, as per the un-amended Rule 89(5), Net ITC covered not only input tax credit availed on input goods but also on input services. In light of the conclusion that a refund is permitted only in respect of unutilised input tax credit that accrues or accumulates as a result of the higher rate of tax on input goods vis-a-vis output supplies, we are of the view that the amended Rule 89(5) is in conformity with the statute.

+ On the other hand, the unamended Rule 89(5) exceeded the scope of Section 54(3)(ii) and extended the benefit of refund to the credit that accumulates both on account of the rate of tax on "inputs" and "input services" being higher than the rate of tax on output supplies.

+ Consequently, Bench concludes that Rule 89(5) of the CGST Rules, as amended, is intra vires both the general rule making power and Section 54(3) of the CGST Act. There is no dispute as regards the power to amend with retrospective effect either as such power is conferred under Section 164 of the CGST Act, albeit subject to the limitation that it cannot pre-date the date of entry into force of the CGST Act.

+ In our view, Rule 89(5), as amended, is fully in line with Section 54(3)(ii). Therefore, there is no necessity to read into Rule 89(5). In fact, if the words "input services" are read into Rule 89(5), in our opinion, Rule 89(5) becomes ultra vires Section 54(3)(ii) .

+ For all the above reasons, we are unable to subscribe to the conclusions in VKC Footsteps - 2020-TIOL-1273-HC-AHM-GST. In our view, the Gujarat High Court failed to take into consideration the scope, function and impact of the proviso to Section 54(3).

+ Even in the context of non-tax legislation, while interpreting a defined term, the first port of call is the statutory definition and one turns to the trade or common parlance meaning if the context clearly points away from the statutory definition. In a tax statute context, the requirement to stay true to the statutory definition is more compelling.

+ The correct meaning of the word "inputs", as used in Section 54(3)(ii) of the CGST Act should be gleaned by applying the afore-stated principles. The text uses the word "inputs" and this word is defined in Section 2(59) as "any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business".

+ Section 54(8)(a) uses the words "inputs" and "input services" separately and distinctively in the context of refund of tax paid to exporters. Similarly, the Explanation to Section 54 uses the terms "inputs" and "input services" separately and distinctively, thereby indicating the legislative intent to distinguish one from the other.

+ Keeping in mind the aforesaid factors, we are unable to countenance Mr.Ghosh's submission that the word ''inputs'' should be read so as to include ''input services'' merely because the undefined word ''output supplies'' is used in Section 54(3)(ii). Hence, we conclude that both the statutory definition and the context point in the same direction, namely, that the word "inputs" encompasses all input goods, other than capital goods, and excludes input services.

+ The refund of input tax credit cannot be equated with a discount or abatement either. In the context of a registered person being subject to an inverted duty structure and, therefore, not being in a position to set-off the entire input tax credit, instead of a set-off, Parliament has enabled a sub-class of such registered person to claim and receive a refund of unutilised input tax credit.

+ This is clearly in the nature of a benefit or concession and cannot be equated with a refund claim for excessive taxes that were paid inadvertently or any other claim for a debt due to the registered person from the tax authorities.

+ This issue can be approached from another perspective: would a registered person be entitled to such refund but for the statutory prescription in Section 54(3)(i) & (ii)? The answer is a resounding 'no'.

+ Question that arises for consideration is whether the classification for purposes of refund is liable to be struck down as being in violation of Article 14. Before proceeding to analyse this issue, it is pertinent to bear in mind that the Court is required to begin with the presumption that the statute is constitutionally valid. No doubt, this a rebuttable presumption. One should also bear in mind that economiclegislations are interpreted on a different benchmark especially when it comes to classification.

+ It should also be borne in mind that the refund of unutilised input tax credit entails the outflow of cash from the Government's coffers. We concluded earlier that a right of refund is purely statutory and, therefore, cannot be availed of except strictly in accordance with the conditions prescribed for the same.

+ Counsel for Revenue had relied upon the judgment in Satnam Overseas Exports and, in particular, paragraphs 60 & 61 thereof, wherein the court held that the right to refund is a statutory right and that the legislature may decide to include or omit classes of persons who would be entitled to such refund.

+ In the case at hand also, Bench finds that there is a classification of sources of unutilised input tax credit into sources that give rise to a right to refund, i.e. input goods, and those that do not, i.e. input services. As a corollary, registered persons may be entitled to full, partial or nil refund as regards unutilised input tax credit accumulating on account of being subject to an inverted duty structure. As correctly contended by Revenue Counsel, the latitude to make classification in matters related to taxation is wider than in other forms of legislation.

+ In the context of the CGST Act, Bench notes that the legislation is intended to consolidate the indirect taxes on goods and services under a common umbrella. There is no doubt that the object and purpose of the present GST laws is to avoid the cascading of taxes and to impose a tax on consumption, be it goods or services. Thus, the long-term objective appears to be to treat goods and services, as far as possible, similarly. Nonetheless, it must be borne in mind that this is an evolutionary process.

+ By way of illustration, we may draw reference to the fact that the concept of input tax credit was not originally available under sales tax law and central excise law. It was first introduced in the form of MODVAT credit. MODVAT credit was initially available only in respect of goods. After the introduction of service tax through the Finance Act, CENVAT credit was introduced and made available both in respect of goods and services. However, refund of unutilised input tax credit was not provided.

+ Thereafter, the GST laws have been introduced which enable registered persons to avail input tax credit both on goods and services but there are restrictions as regards refund. When viewed objectively and holistically, we find that, under the GST laws, goods and services are treated similarly in certain respects but differently in other respects. Even with regard to rate of tax, almost all services attract a uniform rate of 18%, whereas goods are taxed at rates that vary considerably.

+ The subject matter of controversy is the entitlement to refund of unutilised input tax credit and not the availing of input tax credit. Under Section 54(3)(ii), Parliament has provided the right of refund only in respect of unutilised credit that accumulates on account of the rate of tax on input goods being higher than the rate of tax on output supplies.

+ Goods and services have been treated differently from time immemorial, as reflected in the use of the expressions, quantum valebant, as regards the measure of payment for goods, and quantum meruit, as regards the measure of payment for services, supplied non-gratuitously and without a formal contract.

+ While there has been a legislative trend towards a more uniform treatment as between goods and services, the distinction has certainly not been obliterated as is evident on perusal of the CGST Act, including provisions such as Sections 12 & 13, etc., which are specifically targeted at goods and services. Keeping in mind the following factors: the inherent differences between goods and services, notwithstanding the trend towards similar treatment; the subject matter of classification, namely, curtailment of entitlement to refund of input tax credit to credit accumulated from the procurement of input goods; the equal treatment meted out to registered persons who avail input services inter se and those who procure input goods inter se; the wide Parliamentary latitude as regards classification qua tax and economic legislations, which is recognised and affirmed by the Supreme Court; and the nature and character of refund as a creation of statute and subject to statutory eligibility conditions, Benchis unable to countenance the contention of petitioner that the non-conferment of the right of refund to the unutilised input tax credit from the procurement of input services violates Article 14.

+ On the contrary, we conclude that the classification is valid, non- arbitrary and far from invidious.

+ Given the fact that Bench has concluded that Section 54(3)(ii), on a plain reading, does not violate Article 14, it is not necessary to draw definitive conclusions on the scope of reading down or to examine if the casus omissus rule should be deviated from in this case.

+ The ambit of reading down and the exceptions to the casus omissus rule would have to await an appropriate case that warrants a finding on these issues.

Held:

+ Section 54(3)(ii) does not infringe Article 14.

+ Refund is a statutory right and the extension of the benefit of refund only to the unutilised credit that accumulates on account of the rate of tax on input goods being higher than the rate of tax on output supplies by excluding unutilised input tax credit that accumulated on account of input services is a valid classification and a valid exercise of legislative power.

+ Therefore, there is no necessity to adopt the interpretive device of reading down so as to save the constitutionality of Section 54(3)(ii).

+ Section 54(3)(ii) curtails a refund claim to the unutilised credit that accumulates only on account of the rate of tax on input goods being higher than the rate of tax on output supplies. In other words, it qualifies and curtails not only the class of registered persons who are entitled to refund but also the imposes a source-based restriction on refund entitlement and, consequently, the quantum thereof.

+ As a corollary, Rule 89(5) of the CGST Rules,as amended, is in conformity with Section 54(3)(ii). Consequently, it is not necessary to interpret Rule 89(5) and, in particular, the definition of Net ITC therein so as to include the words input services.

Conclusion:

++ Writ petitions challenging the constitutional validity of Section 54(3)(ii) are dismissed.

++ All the writ petitions challenging the validity of Rule 89(5) of the CGST Rules on the ground that it is ultra vires Section 54(3)(ii) of the CGST Act and/or the Constitution are dismissed.

[paras 39 to 41, 44, 50 to 52, 55, 59 to 64]

- Petitions dismissed: MADRAS HIGH COURT

2020-TIOL-1587-HC-DEL-VAT

Space Optical Company Vs CTT

In writ, the High Court acknowledges the plea of the Revenue to withdraw the subject order, with liberty to pass a fresh order after hearing the assessee. Hence such order is set aside and the matter is remanded to the adjudicating authority for deciding upon the same in 12 weeks' time.

- Case remanded: DELHI HIGH COURT

SERVICE TAX

CENTRAL EXCISE

2020-TIOL-1420-CESTAT-MUM

Royal Foodstuffs Pvt Ltd Vs CCE

CX - The assessee is engaged in manufacture of excisable goods viz. Frozen Fruits Pulp, Juices and Vegetable products - During the disputed period, assessee had exported the entire finished goods manufactured by it - Central Excise duty is not leviable on exportation of goods and thus, the assessee was not in a position to utilise Cenvat credit available in its books of accounts - Assessee had filed the refund claim application for such accumulated credit under Section 11B of CEA, 1944 - The issues involved were considered by Tribunal and the appeals filed by assessee were allowed by way of remand to the Commissioner (A) - Pursuant to the remand direction of Tribunal, the Commissioner (A) took-up de novo proceedings and passed the order dated 17.10.2018 in favour of assessee by granting the refund benefit - The issue arising out of the present dispute is no more res integra inasmuch as on the identical issue, assessee was granted with the refund benefit for earlier period - Therefore, the impugned order is set aside and the matter is remanded to the Commissioner (A) for deciding the issues afresh: CESTAT

- Matter remanded: MUMBAI CESTAT

CUSTOMS

Simplex Infrastructures Ltd Vs DGFT

Cus - Petitioner challenges the order passed by the Dy. Director while referring to appendix 1A appearing at page 380 and more particularly to entry 25 at page 384 thereof which says that in case of West Bengal, Sikkim, Tripura and Union Territory of Andaman and Nicobar the Additional Director General of Foreign Trade is the Regional Authority - The petitioners relying upon this provision says that the order having been passed by the Deputy Director General is without jurisdiction and as such the same is required to be set aside on the jurisdiction ground alone.

Held: Without going into the dispute as to the value of the authorisation, Bench is of the view that justice will be subserved if the matter is remanded back to the respondent no.3 who has unlimited jurisdiction as to the value of authorisation to decide the case afresh on the basis of the show cause notice dated 6th June, 2018 - The respondent no.3 shall be at liberty to decide the issue within 31st December, 2020 after affording an opportunity to the writ petitioners to represent its case - all allegations contained in the writ petition are deemed to have not been admitted by the respondents - Petition disposed of: High Court

- Matter remanded: CALCUTTA HIGH COURT

2020-TIOL-1422-CESTAT-MUM

Classic Marble Company Pvt Ltd Vs CC

Cus - The assessee is engaged in business of import and trading of marble blocks and slabs - During disputed period, assessee had imported such goods from Italian suppliers and filed the Bills of Entry for assessment - Initially, the Bills of Entry were provisionally assessed and thereafter the same were finally assessed by Department - Based on detailed investigation into the matter, the Customs Department issued the SCN alleging inter alia, that the assessee had presented undervalued invoices to the Customs for assessment of goods and that the amounts indicated in the undervalued invoices were remitted through banking channels and that portion of the value which was excluded from the invoices, was paid in cash or wire transfer - The adjudicating authority has rejected the declared value in respect of subject Bills of Entry under Section 14(1) ibid r/w Rule 12 ibid and re-determined the assessable value under Section 14(1) ibid read with Rule 3(1) ibid, holding that sufficient evidence exists to show that actual invoice values were hidden from the Indian Customs authorities and manipulated invoices were presented for assessment purposes - In support of such contentions, no credible evidences were produced by department - Further, the procedures laid down under Rule 12 have not been succinctly followed for rejection of declared value - As per statutory provisions, the proper officer should have reasonable doubt as to the transactional value on account of truth or accuracy of value declared in relation to imported goods and for that purpose, he must ask the importer of such goods further information which may include documents or evidence; and on receiving such information or in the absence of response from the importer, the proper officer has to apply his mind and decide whether or not reasonable doubt as to the truth or accuracy of the value so declared persists - When the doubt persists, then sub-rule (1) to Rule 3 will not be applicable and transaction value has to be determined by sequentially proceeding through Rules 4 to 9 of Valuation Rules, 2007 - The Supreme Court in case of Century Metal Recycling 2019-TIOL-215-SC-CUS-LB has held that the procedures provided for rejection of declared value under Rule 12 ibid was mandatory in nature and such statutory provisions are required to be strictly adhered to by the proper officer - The mandates of Rule 12ibid read with Rules 4 to 9 ibid have not been complied with by the department - Thus, rejection of declared value is contrary to statutory provisions and accordingly, redetermination of alleged transaction value cannot stand for judicial scrutiny - No merits found in the impugned order, same is set aside: CESTAT

- Appeal allowed: MUMBAI CESTAT

2020-TIOL-1419-CESTAT-BANG

Bio Gen Extracts Pvt Ltd Vs CC

Cus - Appellant initially exported Phycocyanin and a part quantity of the same was rejected for quality reasons which was re-imported by him without payment of duty in terms of Notification No. 158/95-Cus dated 14.11.1995 on executing Bond with Bank Guarantee - Appellant have re-exported the said goods after rectifying the defect and the identification of the re-exported goods is not disputed by the Department - After payment of the duty along with interest as demanded by the department, the appellant sought suitable amendment to the re-exported shipping documents to enable the appellant to claim drawback in terms of Section 74 but the same was not considered and their request was rejected without affording an opportunity of hearing which is in violation of the principles of natural justice - It is substantive right of the exporter to claim drawback and it has been consistently held by various High Courts that substantive right should not be denied on account of procedural irregularities - Judgments relied upon by the appellant have admitted that free shipping bills can be converted into drawback shipping bills subject to certain conditions, therefore, keeping in view the various decisions and the Circular 1063/2/2018-CX dated 16.02.2018, Bench sets aside the Communication dated 12.03.2019 and remands the matter back to the Commissioner - needful to be done within a period of two months: CESTAT [para 6]

- Matter remanded: BANGALORE CESTAT