Madras High Court: ITC of Cess can not be utilized for Output Tax Liability


23.10.2020: The Honorable Madras High Court held that the Education Cess, SHEC, and Krishi Kalyan Cess can not be set-off for Output GST Tax Liability. This is in the case of UOI Vs Sutherland Global Services P Ltd having Writ Appeal No. 53 of 2020 in the Hon’ble Madras High Court.

Earlier, a single judge raised the issue in favor of the assessee stating that they were entitled to adjust the above type of Cess, which is unusable and lying in the electronic ledger as of 30 June 2017. Thus, it was held that the assessee can utilize such Cenvat credit against the output of GST tax liability. The decision was given on the basis of Section 140 of the CGST Act, 2017.

Thus, the Madras high court said that all the three aforesaid types of Cess were imposed by different Finance Acts. Similarly, the charge of Education Cess and Secondary and Higher Education Cess was however dropped and deleted by the Finance Act, 2015.

Further, The Krishi Kalyan Cess was however abolished only with effect from July 1, 2017, vide Taxation Laws (Amendment) Act, 2017.

Now, the two-member division Judge bench in their order dated 16-10-2020 held that the earlier judgment is mistaken in allowing the claim of the Assessee under Section 140 of the CGST Act on the below grounds.

  1. The character of the tax levy in the form of Cess is distinct and stand-alone.
  2. Taxpayers’ input tax credit even under the Cenvat Rules was not allowable for such cross-utilization of Input Tax Credit.
  3. The third explanation will apply to the entire Section 140 of the Act. Also, it excludes carry forward or adjustment of any kind of Cess against Output GST liability.

As a result, the court allowed the appeal of the revenue department in this case. Thus it is held that the Assessee is not eligible to carry forward and set off of unutilized Education Cess, Secondary and Higher Education Cess, and Krishi Kalyan Cess against the GST Output Liability. This is in reference to Section 140 of the CGST Act, 2017.

Gujarat High Court: Refund of “Unutilized ITC of Services” is Allowed

11.08.2020: This is the case of VKC Footsteps India Pvt Ltd Vs UoI, the High court of Gujarat held that refund of unutilized ITC on services shall be allowed.

In this case M/S. VKC Footsteps India Pvt. Ltd(Petitioner) is engaged in the business of manufacture and supply of footwear which attracts GST @5% and the majority of the inputs and input services procured by them attract GST @12% or 18%. Inspite of utilisation of credit for payment of GST on outward supply, there is accumulation of unutilized credit in electronic credit ledger.

The respondents(Union of India) are allowing refund of accumulated credit of tax paid on inputs such as synthetic leather, PU polyol etc. but refund of accumulated credit of tax paid on procurement of ‘input services’ such as job work service, goods transport agency service etc. is being denied. Thus, petitioners have, therefore, challenged validity of amended rule 89(5) of the CGST Rules, 2017 to the extent it denies refund of input tax credit relatable to Input services.

Hon’ble Gujarat High Court Held as under

It appears that rule 89(5) of the Rules and more particularly the explanation (a) thereof, provides that Net Input Tax Credit shall mean “input tax credit” availed on “inputs” during the relevant period other than the “input tax credit” availed for which refund is claimed under sub-rule (4A) or (4B) or both – therefore, the grievance of the petitioner is that only the “inputs” is referred to in Explanation

(a) to sub-rule (5) of Rule 89 of the CGST Rules, 2017 and, therefore, “Input Tax Credit” on “Input services” are not eligible for calculation of the amount of refund by applying rule 89(5) –

Thus, it results in violation of provisions of sub-section 3 of Section 54 of the CGST Act, 2017 which entitles any registered person to claim refund of “any” unutilized input tax credit – section 7 of the Act provides that “scope of supply” includes all forms of supply of goods or services.

Therefore, for the purpose of calculation of refund of accumulated “input tax credit” of “input services” and “capital goods” arising on account of inverted duty structure is not included into “inputs” which is explained by the Circular 79/53/2018-GST dated 31.12.2018 wherein it is stated that the intent of law is not to allow refund of tax paid on “input services” as part of unutilised “input tax credit”.

Therefore, as per provision of sub-section 3 of Section 54 of the CGST Act, 2017, the legislature has provided that registered person may claim refund of “any unutilised input tax”, therefore, by way of Rule 89(5)of the CGST Rules, 2017, such claim of the refund cannot be restricted only to “input” excluding the “input services” from the purview of “Input tax credit”.

Further, the intent of the Government by framing the Rule restricting the statutory provision cannot be the intent of law as interpreted in the Circular No.79/53/2018GST dated 31.12.2018 to deny the registered person refund of tax paid on “input services’ as part of refund of unutilised input tax credit.

Explanation (a) of Rule 89(5) of the Rules is held to be contrary to the provisions of section 54(3) of the Act –

Therefore, the Net ITC should mean “input tax credit” availed on “inputs” and “input services” as defined under the Act. Hence, the Respondents are directed to allow the claim of the refund made by the petitioners considering the unutilised input tax credit of “input services” as part of the “net input tax credit” (Net ITC) for the purpose of calculation of the refund of the claim as per rule 89(5) of the Rules for claiming refund under sub-section 3 of section 54 of the Act – Petitions are allowed.

Delhi High Court Asks Commissionerate to Refund GST Amount with Interest

This is in the Case of Jian International Vs Commr Delhi GST

The petitioner contends that in accordance with Section 54(6) of DGST Act read with Rule 91(2) of Delhi GST Rules, 2017, proper officer is required to refund at least 90% per cent of the refund claimed on account of zero-rated supply of goods or services or both made by registered persons within a period of seven days from the date of acknowledgment issued under sub-rule (l) or sub-rule (2) of Rule 90 of DGST Rules.

He states that despite the period of fifteen days from the date of filing of the refund application having expired on 19th November 2019, the respondent has till date neither pointed out any deficiency/discrepancy in FORM GST RFD-03 nor it has issued any acknowledgement in FORM GST RFD-02.

The High Court Held as under:

• Rule 90 and 91 provide a complete code for the acknowledgment, scrutiny and grant of refund

• Where no deficiency memo is issued within l5 days, the application will be presumed to be complete in all respects

• Where all documents are annexed, issuance of deficiency memo would be hyper technical

• Where there is deficiency. the original application could be rejected, and fresh application is to be filed. On facts, no communication being issued within l5 days, respondent has lost the right to point out any deficiency, in the petitioner’s refund application, at this belated stage.

• Respondent directed to refund with interest.

Telangana High Court Rules out: Tax can not be Collected by Threat or Force

The Telangana High Court Rules out that Vehicle Detention was Incorrect and the Tax can not be collected by Threat for force. This is in the Case of Commercial Steel Company – Decision of Hon’ble Telangana High Court in the Writ Petition No. 2161 of 2020.


Petitioner had purchased goods from JSW Karnataka and goods were destined for Hyderabad. Goods intercepted at Jeedimetla in Telangana and notice of detention alleging “wrong destination” issued under Section 129 (3) of the CGST Act. Though the goods were accompanied by tax paid documents which reflected payment of IGST, a demand made for payment of CGST + SGST.

It is contended by the petitioner that since at that time the petitioner could not contest it on account of a marriage in the family, on 12.12.2019 at Hyderabad, and since the driver of the vehicle was pressurizing for release of the vehicle, Petitioner was forced to pay the amount mentioned in the notice.

The petitioner further contended that the said collection of tax and penalty by the respondents is through coercion and threat in spite of the fact that the consignment was covered by all the requisite documents. It is alleged that when the goods were in transit in an inter-State sale, the respondents cannot detain the same and demand and collect the tax in the manner they have done which is arbitrary and without jurisdiction.

The decision of the Hon’ble Court: The Hon’ble High Court held that-

• In our considered opinion, there were no good and sufficient reasons for detention by the 1st respondent of the vehicle and the goods which it was carrying when the transaction causing movement of the goods was inter-State in nature and the provisions of the SGST were not shown to have been violated. Also, there is no warrant to levy any penalty since it cannot be said that there is any wilfulness in the conduct of the dealer.

• It is settled law that no tax shall be levied or collected except by authority of Law as per Article 226 of the Constitution of India.

• In Dabur India Ltd. vs. State of Uttar Pradesh1, the Supreme Court observed that a litigant cannot be coerced by the Government to make payment of duties which the litigant is contending not to be leviable. The Supreme Court held that though the State is entitled to enforce payment and to take all legal steps, it cannot be permitted to play dirty games with the citizens to coerce them in making payments when the citizens were not obliged to make them. It also observed that if any money is due to the Government it should not take extra-legal steps to recover it.

• Therefore, in our considered opinion, the impugned action of the respondents in collecting the amount of Rs.4,16,447/- from the petitioner towards tax and penalty under the CGST and SGST Act, 2017 under threat of detention of the vehicle carrying the said goods for an absurd reason (‘wrong destination’) when the vehicle in question carried all the proper documents evidencing that it was an inter-State sale transaction is clearly arbitrary, violative of Articles 14, 265 and 300-Aof the Constitution of India.

• The 1st respondent is directed to refund the same with interest at the rate of 6% per annum from 13.12.2019 till the date of payment within a period of three (03) weeks from the date of receipt of a copy of the order.

High Court Order: Circulars can not prevail over Statutory Provisions

Case of Precot Meridian Vs Vs CC reported in 2020-TIOL-29-HC-MAD-GST

The assessee-company was exporting cotton. During the relevant period, the assessee had exported cotton through seven shipping bills and paid an amount towards IGST. further, the assessee claimed to have paid such tax before making export, on account of which, it is liable to receive refund of input tax credit.

The assessee wrongly availed higher duty drawback, but later rectified the mistake by repaying the same with interest and then sought refund of the IGST paid.

Further, the Revenue department relied on Circular No.37/2018 -Customs and rejected the refund claim on grounds that the assessee wrongly claimed higher duty drawback and then suo motu reversed the same without sanction from the Department.

Hence having relinquished the right to receive refund of IGST, the assessee was not entitled for it – The Revenue also claimed that the entire system is computerised and cannot be operated manually – Thereby, once an exporter drew higher duty drawback, the system automatically scrolls out IGST refund. Hence the present petition was filed, seeking that directions be issued to disburse the refund amount.

Decision of the Hon’ble High Court

Considering the findings of the Apex Court in Commissioner of Central Excise, Bolpur v. Ratan Melting and Wire Industries it is clear that Circulars cannot prevail over the statute. Circulars are issued only to clarify the statutory provision and it cannot alter or prevail over the statutory provision.

Therefore, in such circumstances, it is clear that the explanation of provisions of drawback has nothing to do with the IGST refund. Hence, Circular No.37/18-Customs , dated 09.10.2018 is not applicable in the present case. Hence the Revenue is directed to refund the amount of IGST paid by the assessee for the goods exported from India which are zero rated supplies, within a period of six weeks from receipt of a copy of the order.

Case of Abbott Healthcare Pvt Ltd Vs CST reported in 2020-TIOL-40-HC-KERALA-GST


It is the case of the petitioner that as per the business model operated by it in the State of Kerala, it places its diagnostic instruments at the premises of unrelated hospitals, laboratories etc. for their use for a specified period without any consideration – The petitioner also enters into Reagent Supply and Instrument Use Agreements with various hospitals, laboratories etc, where under, the arrangement between the parties is for the supply of medical instruments to the hospital/laboratory concerned, for their use, without any consideration for a specified period and for the supply of specified quantities of reagents, calibrators, disposables etc. at the prices specified in the agreement, through its distributors on payment of applicable GST.

It is stated that, as per the agreement, while the supply of instruments is by the petitioner, the supply of reagents, calibrators and disposables are effected by its distributor, who purchases the said products from the petitioner on principal to principal basis. When the distributor supplies the reagents, calibrators and disposables to the hospitals/laboratories concerned, the distributor discharges the applicable GST on the price charged for supply of the said products.

In other words, there is no direct sale/supply of the reagents, calibrators and disposables by the petitioner to the hospitals/laboratories in question. When a consignment of instruments was being transported to a laboratory without any consideration, pursuant to the agreement entered into between the parties, the same was seized by the Assistant State Tax Officer, Kozhikode, on the ground that the goods were not accompanied with a tax invoice but were being transported under a delivery challan.

Although the detained goods were subsequently released consequent to the petitioner furnishing a bank guarantee and a bond as provided under the CGST Act and Rules, the petitioner thought it appropriate to obtain an Advance Ruling from the Authority for Advance Ruling and which held that – 2018-TIOL-186-AAR-GST held that the placement of specified medical instruments to unrelated customers like hospitals, laboratories etc., for their use without any consideration, in the backdrop of an agreement containing minimum purchase obligation of products like reagents, calibrators, disposables etc. for a specified period constituted a “composite supply”. that the principal supply in the said composite supply was of the transfer of right to use goods for any purpose which was liable to GST under Sl.No.17(iii). Heading 9973 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017; that supply of reagents, calibrators, disposables etc., became taxable at the rate of tax applicable to the instruments, namely, 18% [9% CGST + 9% SGST]. The appellate authority for Advance Ruling upheld this order, hence the petitioner is before the High Court.

The Hon’ble High Court held as under

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There was no occasion for the AAR to go into the issue of whether the supply effected was a composite supply or not and, therefore, its findings on the said issue are at any rate legally untenable – The concept of enhancement of utility of the instrument through the supply of reagents/calibrators/disposables, while relevant for the purposes of valuation of the supply of instruments, cannot be imported into the concept of composite supply under the GST Act – A distinction has to be drawn between the nature of a supply and the valuation thereof – While clubbing of two independent supplies may be resorted to for the purposes of valuation of each of those supplies, there is no scope of clubbing of two independent supplies so as to notionally alter the very nature of each of those supplies as they existed in fact, at the relevant point in time.

Transactions envisaged under the agreement entered into between the petitioner and its customer hospitals/laboratories militate against viewing them as a composite supply. Firstly, the supplies are made by two different taxable persons; the supply of instrument being by the petitioner and the supply of the reagents, calibrators and disposables being by his distributor, who purchases it from him on principal to principal basis.

Although it could be argued that there is a relationship between the said persons that influences the valuation of the supply, the same does not take away from the fact that the supplies are, in reality, made by two different taxable persons. Secondly, the two supplies do not answer to the description of being “naturally bundled and supplied in conjunction with each other in the ordinary course of business“. In fact, the business model followed by the petitioner appears to have held the field for a considerable period of time and would show that in the ordinary course of business, the supplies
are not Bundled.

A finding as regards composite supply must take into account supplies as effected at a given point in time on “as is where is” basis

Where the same taxable person effects a continuous supply of services coupled with periodic supplies of goods/services to be used in conjunction therewith, one could possibly view the periodic supply of goods/services as composite supplies along with the service that is continuously supplied over a period of time. Matters will have to be decided based on the facts in a given case and not in the abstract as was done by the AAR – Matter remitted back to the AAR for a fresh decision on the query raised before it by the petitioner company. AAR shall pass fresh orders in the matter, after hearing the petitioner, within a period of six weeks.

Arbitrary and illegal detention not to be resorted to – Erodes Confidence of Public in Tax Administration

This is in the Case of Alfa Group Vs Assistant State Tax Officer reported in 2019-TIOL-2701-HC-KERALA-GST.


During the relevant period, certain goods belonging to the petitioner were detained in a parcel godown, on grounds that the value quoted in the invoice accompanying the goods was low, compared to the Maximum Retail Price of the goods.

It was also alleged that the HSN code of the goods was incorrect – The petitioner claimed that the reasons given in the detention order did not justify detention of goods u/s 129 or u/s 130 – Hence the present writ was filed, seeking directions to release the goods.

Decision of the High Court

It is found that none of the reasons stated in the order justify the detention of the goods. No provision under the GST Act mandates that the goods should not be sold at prices below the MRP declared.

Nothing exists in the detention order to show that on account of the alleged wrong classification of the goods, there was any difference in the tax rate adopted by the assessee. When the scheme of the GST Act is to facilitate free movement of goods after self-assessment by the assessee, the Revenue cannot resort to arbitrary and legally unwarranted detention of goods in the course of transit – Such actions erode public confidence in the tax administration system and the Economy.

Hence the detention order merits being quashed and the Revenue authorities concerned are directed to release the goods belonging to the petitioner. Suitable instructions may also be issued to field formations to refrain from resorting to such unwarranted detention of goods.

Tax Recovery can not be initiated without determination of tax liability

This is in the case of VN Mehta And Company Vs Assistant Commissioner having case ref. 2019-TIOL-2594-HC-MAD-GST.

The Facts of the case reads as: The present writ challenges the proceedings initiated against the petitioner directing recovery of certain amount from the account maintained by the petitioner. Such recovery was ordered on account of tax, cess, interest & penalty payable by the petitioner as it had failed to pay the same.

The petitioner claimed that the proceedings had been initiated straightaway, without framing assessment or initiating proceedings to determine the tax, cess, interest or penalty as claimed. It was claimed that Section 79 of the CGST Act cannot be invoked to recover the sum if such sum is an arrear payable by the petitioner.

It was also claimed that though a statement had been obtained from the petitioner to the effect that it had availed ITC on the strength of invoices issued by fake units, such statement had later been retracted.

High court decision reads as:

It is seen that except issuing proceedings u/s 79, no other proceedings were ever initiated against the petitioner determining its tax liability as was sought to be recovered – Section 79 of the Act contemplates that any amount payable by a person to the Govt under any of the provisions of the Act and Rules made thereunder is not paid, the proper officer could recover the amount by one or more modes.

Hence, it is evident that the term amount payable by a person is to mean that such liability arises only after determining such amount in a manner known to law. In this case, the relevant authority relied on the so-called admission made by the petitioner in its statement. Considering relevant excerpts from the petitioner’s statement, it is seen that some parts of the statement contradict each other. Besides, the statement was retracted as well.

Hence such statement which purports to be an admission is not available to the Revenue – It is also for the Revenue to determine the tax liability by resorting to procedures as per law rather than issuing the proceedings straightaway u/s 79, based on such statement later retracted. Hence the proceedings initiated u/s 79 is unsustainable.

Moreover, provisional attachment u/s 83 can be resorted to only if proceedings are pending u/s 62, 63, 64, 67, 73 & 74. No proceedings are pending under any such provisions. Hence Section 83 is of no avail to the Revenue. Thus the proceedings are not maintainable and merit being set aside.

Gujarat High Court: GST law doesn’t allow officers to obtain statement from family members forcefully !

Case: Paresh Nathalal Chauhan Vs State of Gujarat reported in 2019-TIOL-2472-HC-AHM-GST

The case pertains to search and seizure operations conducted by GST officials on the residential premises of the petitioner. The Gujarat HC was displeased by the manner in which the search and seizure operations were conducted by the officials and recorded the following order.

Order of the High Court

Section 67(2) of the Act empowers the authorised officer to search and seize the goods, documents or books or things – however, s.67(2) does not empower the officer concerned to record statements of family members through force or coercion or to record their conversations in their mobile phones.

It is not permissible for the authorised officer to use coercive measures against family members to find out the whereabouts of the taxable person. It is shocking to see that in a premises where there are three ladies, namely, the petitioner’s mother, wife and young daughter, male officers together with a CRPF officer have stayed throughout the day and night despite the fact that the goods, articles and things were already seized on 11.10.2019.

Entire exercise carried out by the officers from 12.10.2019 to 18.10.2019 was totally without any authority of law and in flagrant disregard of the provisions of the Act and the rules and in total abuse of the powers vested in them under the Act.

Manner in which the The officers have conducted themselves by overreaching the process of law and acting beyond powers vested in them under s.67(2) of the CGST Act, 2017 needs to be deprecated in the strictest terms. A proper enquiry needs to be made in respect of the action of the respondent officers of staying day and night at the premises of the petitioner without any authority of law.

First respondent Commissioner of State Tax, Ahmedabad shall carry out a proper enquiry in the matter and submit a report before the Court on or before 13th November 2019. Matter to be heard on 13.11.2019.

Registry to forthwith forward a copy of the order to the Commissioner of State Tax as well as Chief Secretary of the State to look into the matter and do the needful to ensure that such incidents are not repeated.

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