Gujarat HC strikes down 1 year limit on Cenvat invoices under sec 140 of the GST Act for "first stage dealers"

18th September, 2018

The question before the Hon'ble Court in Filco Trade Vs UOI -was whether the Petitioner a first stage dealer could claim credit on invoices which were dated more than 12 months prior to the implementation of GST. 

Seemingly, clause(iv) of sub-section(3) of section 140 imposes this condition. This condition therefore distinguished "a first stage dealer" from a "manufacturer".  While a manufacturer could avail CENVAT credit of tax paid on purchases and utilize this credit towards discharging duty liability of goods manufactured by him, a dealer neither takes credit nor utilizes  but only passes on the credit of tax already paid to customers.  

The Court ruled : "....the benefit of credit of eligible duties on the purchases made by the first stage dealer as per the then existing CENVAT credit rules was a vested right. By virtue of clause (iv) of sub-section (3) of section 140A such right has been taken away with retrospective effect in relation to goods which were purchased prior to one year from the appointed day........

32. For all these reasons we find that clause (iv) of subsection (3) of section 140 is unconstitutional. We therefore strike down the same. Petitions are allowed and disposed of. " Read the judgement


Evasion by banks alleged by GST authorities

14th September, 2018

The Mumbai GST Commissionerate appears to have raised objections on an alleged a tax evasion by some banks in their money transfer services. This is  being called as a “cut and pay” model adopted by the banks and their operatives i.e. banking correspondents (BC) and their agents.

The total amount of service fees payable for the transaction to the BCs and their agents ranges between 1-1.5%. Out of this, 0.2% to 0.6 % is BC agent/retailer commission which is retained by the BC.

Apparently, RBI guidelines DBOD no. BL.BC.43/22.01.009 dated Sept 28, 2010 permits only the bank to charge the customer and prohibits the BC or its agents from charging any fee directly to the customers for the services rendered on behalf of the bank.

The Department’s objection is, GST is being evaded by the bank on the amount that is retained by the BC agents/ retailers in cash. Reportedly, Yes Bank and AXIS Bank have denied these allegations saying their approach was cleared by tax experts and they are following the industry's practice.

Time to wake up! Last chance to claim the unclaimed GST credits and make reversals of for the year FY 2017-18 -before 30th September, 2018 – Steps to be taken.

12th September, 2018

1.    Unclaimed GST for FY 2017-18 for goods or services received but credit deferred due to doubts on eligibility. Eligibility must now be determined and credit availed and included in the Sept 2018 return.
2.    Correct and reconcile mis-matches between the liability declared by vendor (GSTR2A) and credit claimed by recipient in the books of accounts.
3.    Issue adjustment notes i.e. credit or debit notes. This must reflect in books of accounts and this must in the return of  30th Sept 2018.
4.    Compute and reverse tax credits (rule 42) on exempted outward supplies. This must be done provisionally every month and finalized at after the financial year end.
5.      Credit reversal Section 16(2) of the CGST Act when vendors are not paid the consideration within 180 days. Delay will trigger an interest liability.



Consumer anti profiteering complaints to be investigated

12th September, 2018

GST aims to amalgamate and eliminate cascading of Central and State taxes. So input tax credits and overall lower tax rates mean lower tax outflow for tax payers. The lower tax must benefit consumers who really bear the burden of the indirect tax.

The GST law also creates anti-profiteering provisions to penalise vendors who do not pass on the benefit to consumers.  Several complaints have been most notably by consumers of white goods that tax benefits are not being passed on.  For instance tax rate was reduced by 10% on refridgerators, washing machines and water heaters  (from 28% to 18%). The antiprofiteering officials will be now looking into complaints.

The Companies concerned are reported to have denied these accusations claiming they have passed on the entire GST benefit.

Supreme Court imposes penalty on CIT for trying to mislead.

29th August, 2018

The Supreme Court bench headed by Justice Madan B Lokur said it was "shocked" that the Commissioner of Income Tax, Ghaziabad presented "false and misleading" facts trying to mislead it and slapped a penalty of Rs 10 lakhs. 

The department claimed a similar case was pending in the Supreme Court since 2012 and that this case be tagged with it.  However the registrar's office pointed out that the old case was already decided way back in Sept 2012. The Apex Court stated that "the Commissioner of Income Tax has taken the matter so casually," and came down hard on the departmental lawyers trying to hoodwink the top court
The petition was dismissed with costs of Rs 10 lakh to be paid to the Supreme Court Legal Services Committee within four weeks.  Read the Judgement

Niti Aayog recommends slash in import duty and GST on gold

It is reported that Niti Aayog has recommended to the government to slash import duty on gold from the current 10% and similarly slash GST on gold from the current 3%. The reason advanced for the recommendation is that this will lead to greater compliance and will also reduce the smuggling of gold.

The committee has also suggested other exemptions on exports and scrapping of commodity transaction tax on gold derivatives and provision for capital gains tax exemption for gold related financial instruments.

Labour leader James Corbyn takes on the media and fake news.

He says “ But we must  also break the stranglehold of elite power and billionaire domination over large parts of our media. Just 3 companies control 71% of national newspaper circulation and five companies control 81% of local newspaper circulation. This unhealthy sway of a few corporates and billionaires shapes and skews the priorities and world view of powerful sections of the media….”

Notifications issued consequent to 28th GST Council Meeting revising rates and introducing changes

27th July, 2018

The new notifications can be found chronologically listed in the following lists:

1. CGST Rate Notifications of 2018

2. IGST Rate Notifications of 2018

3. UTGST Rate Notifications of 2018

4. Compensation Cess Rate Notification 2018

5. Press Release dated 21st July 2018 after 28th GST Council Meet

GST Council exempts sanitary napkins, reduces rates on several items, simplifies the return etc.

21st July, 2018

Fresh reports on the recommendations consequent to the 28th GST Council Meeting held today are :
1.    Tax rates over 30 items have been reduced to 18% and 12%.
2.    Sanitary napkins will now be totally exempt from GST.
3.    Annual ceiling for tax payers to qualify under the composition tax raised to Rs 1.5 Crores. As a result of this new tax payers will get included.
4.    Many changes mooted to correct typographical errors  and similar corrections
5.    GST on bamboo flooring reduced to 12%
6.    No decision taken by the Council on sugar cess.

These changes will come into effect on notifications being issued by the Govts.

Read the article 

Read 5 Govt Press releases dated 21st July

To simply GST first step is "remove 28% tax slab", says outgoing CEA Arvind Subramanian

28th June, 2018

Outgoing CEA says first step to simplify GST is to do away with 28 per cent tax slab. 

Mr Arvind Subramanian said “I am saying that in an ideal system the 28 per cent rate has to go. The cesses may have to be there because we are going to have higher rates for some products but there shouldn’t be multiple rates even here. In my report, we had called for one 18 per cent rate and then 40 per cent rate. Cesses are a different way of implementing the 40 per cent rate.”

Currently, there are seven slabs in GST 0, 0.25%, 3%, 5%, 12%, 18% and 28%. In addition there is compensation cess applicable to "sin" or "luxury" goods. All this makes the GST structure both complex and high.


Read 5 Govt Press releases dated 21st July

To simply GST first step is "remove 28% tax slab", says outgoing CEA Arvind Subramanian

28th June, 2018

Outgoing CEA says first step to simplify GST is to do away with 28 per cent tax slab. 

Mr Arvind Subramanian said “I am saying that in an ideal system the 28 per cent rate has to go. The cesses may have to be there because we are going to have higher rates for some products but there shouldn’t be multiple rates even here. In my report, we had called for one 18 per cent rate and then 40 per cent rate. Cesses are a different way of implementing the 40 per cent rate.”

Currently, there are seven slabs in GST 0, 0.25%, 3%, 5%, 12%, 18% and 28%. In addition there is compensation cess applicable to "sin" or "luxury" goods. All this makes the GST structure both complex and high.


HSBC report says GST has not increased formalisation of Indian Economy

24th June, 2018


A British brokerage firm HSBC seems to contradict what Mr Arun Jaitley recently said a few days ago. He said that GST and Noteban are reforms that are leading to the gradual increase in formalisation of the Indian economy.

The HSBC report on the contrary, says, the demand for cash in India has gone up - "Cash in circulation is rising above trend, but not because rural India is faring better, rather it is due to a revival in the 'informal' sectors, thanks to the continued remonetisation".
 Click for News Archives  


Recent Court / Tribunal Judgements

 CESTAT Decisions

26th July, 2018 : CESTAT Bangalore : Sree Rama Coffee Works Vs Commr of Customs : Whether coffee roasting machine is classifiable under 85167990 and exempted under Not No. 21/2002 or under CTH 84198190 without exemption.  Tribunal has held 85167990 applies only to domestic appliances.  This machince an industrial appliances would fall under 84198190.

20th July 2018 : CESTAT Delhi : Sukan Power Systems Ltd & Ors Vs CCE Delhi III: The Tribunal quashes Commissioner (Appeals) order as statement recorded during investigation cannot be admitted without observing the procedure in Sec 9D(1) (b) of CEA. The Tribunal relies on the judgement of Punjab & Haryana High Court in the case of M/s Ambika International & ors. Vs. UOI.

17th July, 2018 : CESTAT Delhi : Sir Ganga Ram Hospital Vs C.S.T. Delhi-IDuring audit it was observed the appellants outsourced 4 diagnostic services to 3 diagnostic centres. The Tribunal held "the arrangement vis a vis appellant and diagnostic centre is clearly an arrangement of Business Support System." The Tribunal set aisde the demands under Management Maintenance & Repair Services. Appeal was partly allowed.

13th July, 2018 : CESTAT Mumbai : Mahindra Engg. Vs CCE, Pune-I : The appellant refund claim was allowed but amount credited to Consumer Welfare Fund. The appellant had intimated on enquiry that the said amount was treated as expenditure in their P&L account accordingly the amount was credited to the Consumer Welfare Fund. The Tribunal held “The only possible way to pass the bar of Unjust Enrichment is that the disputed tax /duty is not expensed off in the accounts, but booked as ‘Receivables’.” Appeal dismissed.

9th July, 2018 : CESTAT Bangalore : Bhagwan Mahaveer Jain College Vs CC, Bangalore: It was alleged 200 PCs imported under Not. 51/96-Cus for reasearch in the field of agriculture, computers etc. were only used for their courses in microbiology, botany, biochemistry. The Tribunal held "Essentiality Certificate has been issued and Bangalore University is registered with the DSIR. Therefore, the importer is eligible the conditions of the Notification have been satisfied..".  Appeal is allowed.

3rd July, 2018 : CESTAT Delhi : Udaipur Treasure  Vs C.C.E. & S.T.-Indore  : Appellant availed Cenvat Credit but provided no output service or paid service tax. The Tribunal rejected the appeal held "Credit... allowed to be taken contingent upon ...rendering output service which is chargeable to Service Tax..."

3rd July, 2018 : Elinjikal Foods & Beverages  & Ors  Vs CCE (Adj) etc.  : The appeal involves valuation where the buyer, Concept Sales was alleged to sell the goods at twice the purchase price. Investigation revealed interconnectedness, interdependence & inexplicable financial transactions. The Tribunal held "..under these circumstances, it has to be held that leave about mutuality of interest, all the companies were one and the same managed by Shri George Varghese; corporate entities are created as a façade."

2nd July, 2018 :  CESTAT Allahabad : Piem Hotels Ltd. Vs CCEST, Lucknow : The main dispute was over credit availed on invoices of Indian Hotels as "Management Consultancy". The dept disputed this saying it was "Franchisee Service" and hence truncated credit only to the extent of 20% should have been availed, not  100%. The issue since then is settled at Indian Hotels end in their favour. Accordingly, the appellant is entitled to full 100% credit.

2nd July, 2018 : CESTAT Allahabad : Alert Protection And Security Vs CCEST, Meerut-i : Details as per the bank statements and bills received from the customers did not match with the service tax returns. The appellant argued the balance sheet figures were lower. The Tribunal accepted the revenue’s argument and held that the balance sheet does not carry any weight.  Appeal is rejected.

2nd July, 2018 : CESTAT Ahmedabad : Radha Trading  & Ors Vs CC-Kandla : DRI seized the goods on charges of under valuation alleging the goods were routed through SEZ units to actual importers. They relied on evidences and statements of persons indicating that the DTA buyers/ importers were negotiating directly with overseas suppliers etc. The appeal was against the harsh conditions of provisional release. Appeals were partly allowed. 

2nd July, 2018 : CESTAT Delhi : Pee Cee Cosma Sope Ltd. Vs CE, C & CGST – CCE & ST, Jodhpur :  Cenvat Credit on outward freight inadmissible. On time bar appeal rejected on grounds of suppression.

High Court Judgements


2nd July, 2018  : Allahabad High Court : Hamdard (Wakf) Labs Vs Commr Of Commercial Taxes : The High Court upholds the Tribunal order and holds that "Sharbat "Rooh Afza" is not unclassifiable under Schedule-V of the Act and liable to tax @ 12.5%. It is neither fruit juice nor fruit drink nor processed fruit.

2nd July, 2018 :  Delhi High Court : JOYCE KAROUNG Vs NARCOTICS CONTROL BUREAU : Relying on the SC judgment in Babua v. State of Orissa, (2001) 2 SCC 566 the High Court concluded the petitioner is not prima facie not guilty. Also, liberty of a citizen must be balanced with the interest of the society especially where narcotic drugs and psychotropic substances are involved. It is alleged that this is not the first offence.

22nd June, 2018 : MP High Court : Star Automobile Vs Commr : Appellant was issued a notice for Rs. 26.61 lakhs and later confirmed in adjudication and both appeal stages. The appellant raised the time-bar issue before the Tribunal. The Hon'ble Court dismissed the appeal u/s 35G as "the appeal does not involve any substantial questions of law for adjudication by this Court and the proposed questions ....are purely factual.." 21st June, 2018 : Bombay High Court : Lloyds Steel Industries Vs CESTAT & Ors : The issue involved eligibility of cenvat credit on appliances/instruments used for maintenance. Tools or instruments must be demonstrated to be used during manufacturing process. The Court held the items do not qualify as capital goods and upheld CESTAT order denying credit.
21st June, 2018 : Calcutta High Court : ARCL Organics Ltd Vs CCE, Kol V : The substantial question of law was: “Whether an appeal can be dismissed for non-compliance of pre-deposit without considering merits? Though clandestine removal was raised, Tribunal did not go into the merits but dismissed merely on the ground that pre-deposit was not made.  If appellant makes the pre-deposit of 10% of the duty within 30 days, appeals will stand restored. 20th June, 2018 : Karnataka High Court : Principal Commr CE Vs  AZKO NOBEL : The Dept appeal was filed seeking an answer to a question of law already answered by the Tribunal in favour of the assessee that the Amendment of Rule 6(6)(i) of Cenvat Credit Rules, 2004, was clarificatory and hence restrospective in nature. The Court uphold the decision of the cognate bench & dismissed appeal.
18th June, 2018 : Chattisgarh HC : Shrikishan & Co Vs Addl Commr Commrcl Tax : Whether bitumen emulsion should be assed under under residual category at % or 4% as per Entry-23 of Schedule-II of Part II of the Chhattisgarh VAT Act. Based on a detailed analysis, Hon'ble High Court sets aside revisional authority order and rules bitumen emulsion is covered by Entry-23 of Part II of Schedule-II of the VAT Act and rate of VAT would be 4% or applicable. 18th June, 2018 : Himachal Pradesh HC : The State of HP Vs Tritronics India :  The Court rejects Revenue plea to condone delay in Revision saying HP VAT Act, 2005 "is a complete code in itself....and as there is no provision contained in the Act, making the provisions of Limitation Act applicable.....this Court has no inherent power to condone the delay in entertaining a Revision Petition which stands filed beyond the period of limitation prescribed in the Act."

Click for earlier Judgements in 2018

Classification Of Goods Under GST

Date : 25th January, 2018

 Rate and value are two most critical parameters to determine tax liability

The indirect tax payable on goods is quantified by applying a tax rate on the transaction value of goods assessed. Except in case of a specific rate i.e. tax payable is a specific amount for a unit of measure i.e. numbers, weight, volume or area. In all other cases, the tax rate and value are the most critical parameters to determine the correct tax liability.

Ideally any GST should have fewer tax rates not seven different rates

In Singapore, Japan or Australia for instance, a single GST rate applies to all goods & services. This is 7%, 8% and 10% respectively. So, in Singapore, whether the item is a fountain pen, a 65” colour TV, or a cup of coffee in Starbucks, the GST rate is a standard 7% on these items. A standard rate eliminates classification disputes eliminating the need for an elaborate tariffs to classify goods or services.

A single rate across all items is not be possible in India. Financial inequality makes it necessary to differentiate and apply different tax rates for different types of goods.  For instance, goods meant for mass consumption, luxury goods, goods injurious to health and other goods must attract different tax rates. In such a multiple-rate situation, accurate classification is mandatory to avoid disputes.

The multiple indirect tax rates on goods were reduced over decades to 12.5%

Indian indirect tax laws at both the Central and State levels were continuously rationalised to minimize classification disputes. Innumerable tax rates tended to tax disputes on classification. This problem was addressed and number of tax rates minimised over the decades.

Tariff & tariff schedules provided the legal substrate for accurate classification

Also, tariffs and tariff schedules were made a part of the tax legislations to provide legal authority to classification. Till 1986, the Central Excise and Salt Act contained the First Schedule listing items from 1 to 68. In January 1986 the Central Excise Tariff Act [aligned with the global Harmonized System of Nomenclature (HSN)] became operative.

The First Schedule to the Central Excise Tariff Act 1985 reflected the HSN. This included the descriptions, notes in each Section, Chapter, Heading and Sub-heading and corresponding duty rates. The General Rules of Interpretation and Explanatory Notes to the Central Excise Tariff Act also reflected the HSN.

In short, these became the legislative substrate for accurately classifying goods. Similarly, the respective sales tax and subsequent VAT laws set out Tariff Schedules to determine the tax rate applicable for different items.

In addition, notifications were issued exempting goods, manufacturers, dealers, specific end-uses etc. either fully or partially from tax. These notifications together with the Tariffs determined the effective rate applicable on any transaction.

GST on goods is a move away from a smaller number of tax rates to seven different tax rates

Another significant point is that just before implementing GST on 1st July 2017, most goods attracted 12.5% central excise duty rate and similarly the VAT rate applicable on most goods was 12.5% or 5%. This meant minimum scope for classification disputes.

After GST, the scene has completely transformed. GST brings several schedules with different GST rates for goods. The combined CGST + SGST rates in these schedules are 0%, 0.25%, 3%, 5%, 12%, 18% and 28%. It’s not unusual to find that goods which were hitherto under the same tax bracket are in GST spread over 12%, 18% and even 28%.

Increased number of tax rates needs more robust legislation for accurate classification

As stated above increased number of tax rates creates more scope for classification disputes. Naturally, one would expect the GST law would be made correspondingly robust to prevent such disputes. This is not so. On the contrary none of the GST legislations (CGST, SGST, IGST, UTGST) seem to include any tariff or tariff schedule, Section or Chapter Notes, General Rules of Interpretation  or Explanatory Notes as a part of these enactments.

Currently only notifications are the legal basis to determine GST rates – No tariffs or tariff schedules

The only legislation currently available to determine GST rates are notifications (subordinate legislations) issued from time to time. For example, the central tax rates applicable to different goods was set out by Notification 1/2017 Central Rate dated 28th June 2017. This notification prescribes different GST rates for items included in different schedules.

Also Table to the notifications lists out the Chapter headings comprising of 4 digits (presumably from the HSN) and the corresponding description of each Chapter heading. This apparently is the only legal authority to determine the GST rates applicable to goods. Though it is generally understood that GST classification is based on HSN, there is no legal authority to link HSN with GST.

There is no Tariff or Tariff Schedule with legal authority to rely upon. Although there is a Explanation at the end of the Notification which makes applicable the “rules of interpretation” to the Customs Tariff Act, 1975 including the Section, Chapter Notes and the general explanatory notes to the   First Schedule, it still falls very short of a globally evolving HSN with no legal authority to refer to the Explanatory Notes to the HSN which is sometimes crucial to determine classification of goods.

The relevant portion of the Explanation to the Notification reads as under :

"(iii) “Tariff item”, “sub-heading” “heading” and “Chapter” shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

(iv) The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification."

How this came to be?

In the CBEC FAQ dated 31.3.2017, the classification of goods under GST has been covered in Question No 20. It reads as under :

“Q 20. How will the goods and services be classified under GST regime?

Ans. HSN (Harmonised System of Nomenclature) code shall be used for classifying the goods under the GST regime.

Taxpayers whose turnover is above Rs. 1.5 crores but below Rs. 5 crores shall use 2-digit code and the taxpayers whose turnover is Rs. 5 crores and above shall use 4-digit code. Taxpayers whose turnover is below Rs. 1.5 crores are not required to mention HSN Code in their invoices.”


Thus the applicability of the HSN Codes can be summarised as under:

⦁    If turnover is less than Rs 1.5 Crores no need to follow HSN
⦁    If turnover exceeds Rs 1.5 Crores but less than Rs 5 Crores ONLY 2 digit HSN codes (Chapter level details) required
⦁    If turnover exceeds Rs 5 Crores ONLY 4 digit HSN codes (Chapter Heading level details) required

Decision regarding classification in the 14th GST Council meeting on 18th May, 2017

Similarly in the 14th Meeting of the GST Council on 18th May, 2017 this point was discussed and appears at Point No 29.1 of the minutes of the said meeting. It reads :

“29.1. The Secretary drew attention to paragraph 6 of the agenda notes to agenda item 9 in Volume-3 and stated that GST rates would generally be prescribed at the 4-digit HS Classification, unless a carve out was required to specify the rate for a good at 6 or 8-digit levels. He proposed that for GST purposes, the classification of goods and the Rules for Interpretation thereof as given in the First Schedule to the customs Tariff Act, 1975 be relied upon.

The Council agreed to this proposal.” (emphasis supplied)

Decision in the GST Council doesn’t seem to be converted into GST law

Though this transpired in the GST Council on 18th May, 2017, the proposal to adopt the First Schedule of the Customs Tariff Act, 1975 for classification of goods and rules of interpretation under GST  has not been converted into law.  Currently, the notifications prescribing GST rates at 4-digit level are the only law under GST to classify and determine GST rates.

Perhaps this was caused by a need to implement GST quickly and keep the GST law simple keeping in mind small tax payers.

Budget speeches, trade notices FAQs have only persuasive value if there is ambiguity

It is well established that public notices, FAQs, budget speech etc. cannot alter the legal position carved out by Acts, Rules and Notifications.  These documents may have persuasive value and could be relied upon only if there is ambiguity or doubt.  Conversely, if the descriptions in the notification is clear and unambiguous, there is no need to refer to any external aid to interpret. The notification alone will determine the classification and GST rate applicable.

Absence of Tariff with legal authority could lead to classification related litigation

The absence of a Tariff with legal authority seems to be a lacuna in newly implemented GST. It could lead to classification disputes and litigation.
Under GST, tax payers are therefore faced with a combined impact of multiple tax rates for goods and also the absence of legislative authority for proper interpretation and classification. If a single GST rate was applicable on all goods, there would be no difficulty.

Either the Tariff should be legislated or the number of tax rates reduced to avoid litigation

The Government of India appears to be apprised of this situation and distinct steps have been taken to lower tax rates on a large number of items on three occasions since implementation. However, these changes have not reduced the number of GST slabs. Either the GST law must be amended to insert HSN and its interpretative tools to smoothen classification or the number of GST rates reduced to just three slabs.

For any queries or help on indirect taxation in India contact:

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Phone : +91 9820215006

Tax Risk Management Part 1

An Introduction


Risk comes from not knowing what you’re doing. 
- Warren Buffet

Read the Article


Tax Risk Management Part 2

Tax Risks as Black Swan Events!

If you were asked "What 'tax risks' you perceive in your business?" What would be your answer?

Read the Article



Indirect Tax Risk Management

Indirect Risk Tax Management




Economic Survey of India 2017-18