IMPORTANT

JUDICIAL RULINGS
(UNDER DEVELOPMENT)

Abhay Desai
B. Com., C.A., L.L.B., D.I.S.A.
ITC DENIAL - GSTR – 2A MISMATCH
• Arise India Limited vs Commissioner Of Trade & Taxes (Delhi High
Court) (W.P.(C) 2106/2015)
• Purchasing dealer cannot be asked to do the impossible
• Recovery from seller
• Failure to make reasonable classification violates Article 14
• SLP of the department dismissed by SC in case of Arise India where the
transactions were bonafide unlike other petitioners before the Del HC.
• Sec. 16(2) of the CGST Act, 2017
• Bharti Telemedia Ltd. Vs. Union Of India & Ors. (Delhi High Court)
(W.P.(C) 6293/2019)
RULE 36(4)
• Notification No. 49/2019 – Central Tax
• Rule 36 – inserted with effect from 09.10.2019
• (4) Input tax credit to be availed by a registered person in respect of invoices or
debit notes, the details of which have not been uploaded by the suppliers
under sub- section (1) of section 37,shall not exceed 20 per cent of the eligible
credit available in respect of invoices or debit notes the details of which have
been uploaded by the suppliers under sub-section (1) of section 37.
• Circular No. 123/42/2019 – GST dt. 11.11.2019
RULE 36(4)

Case Eligible ITC as per books Eligible ITC reflected Permissible ITC Actual ITC which
in 2A (Eligible ITC in 2A + can be claimed
20%)

I 10,00,000/- 6,00,000/- 7,20,000/- 7,20,000/-

II 10,00,000/- 7,00,000/- 8,40,000/- 8,40,000/-

III 10,00,000/- 8,50,000/- 10,20,000/- 10,00,000/-*

RULE 36(4)
• How will the said restriction be enforced ?
• Self-assessment basis
• From which date will the restriction be applicable ?
• Apply only on the invoices / debit notes on which credit is availed after 09.10.2019
• Which eligible ITC as per books is to be compared with the permissible
ITC as per the new sub-rule ?
• Import, documents issued under RCM, credit received from ISD etc. is outside the
ambit of the sub-rule
• Whether the ineligible ITC reflected in GSTR – 2A would also be
considered for deriving the permissible ITC ?
• Restrict availment of ITC beyond 20% of the eligible ITC reflected in GSTR – 2A
RULE 36(4)
• Whether the restriction is to be calculated supplier wise or on
consolidated basis ?
• Calculation would be on consolidated basis for the given tax period.
• On which date the eligible ITC in 2A is to be seen to calculate the
permissible ITC ?
• Amount of eligible ITC for computing the permissible ITC has to be seen as per
GSTR – 2A available on the due date of filing of the returns in FORM GSTR-1 of
the concerned suppliers.
RULE 36(4)
• How to subsequently avail the ITC restricted in a particular tax
period ?
Tax period Oct, 19 Nov, 19

ITC as per books 10,00,000 12,00,000

Eligible ITC as per 2A 6,00,000 2,00,000 (for Oct 19) & 9,00,000 (for
Nov 19)
Permissible ITC 7,20,000 (6,00,000 + 2,40,000 (for Oct 19 – 2,00,000 + 20%)
20%) & 10,80,000 (for Nov 19 – 9,00,000 +
20%)
Restricted ITC 2,80,000 40,000 (for Oct 19) & 1,20,000 (for
Nov 19)
RULE 36(4)
• Whether time dimension is relevant for implementing the said sub-
rule ?
• Circular indirectly provides for the invoice level matching for
computing the restricted ITC and its subsequent availment with 20%
tolerance limit.
RULE 36(4)
• Vires of the sub-rule
• Article 14 of the Constitution of India
• Sec. 16(1) permits imposition of restriction only qua the tax charged on a particular
supply
• Sec. 43A has not yet been notified.
• As GSTR – 3B is considered as GSTR – 3, it shall be deemed that the matching
visualized u/s 41, 42 & 43 has been done away with.
• Vires of the Circular
• CCE v. Ratan Melting & Wire Industries (2008) 231 ELT 22
• “Subject to” – “conditional upon” K. R. C. S. Balakrishna Chetty & Sons v. State of
Madras (1961 AIR 1152)
• Circular therefore providing for the application of the sub-rule qua every tax period
by considering the GSTR – 2A on the 11th of the concerned subsequent month is
clearly going beyond the provisions of the sub-rule.
RULE 36(4)
• How to account for ITC flowing from quarterly filers ?
• A view can be taken that similar to ISD invoices (as permitted by the circular),
even ITC pertaining to quarterly return filers can be fully taken.
• In absence of a detailed log of GSTR – 2A, how to compute the
eligible ITC ?
• In absence of any log, how will the tax payer (if forgets to download 2A on
11th) or the department enforce such restriction as the same is qua the
eligible ITC as on the due date ?
ITC – TIME LIMIT
• AAP & Co. (SCA No. 18962 of 2018)(Guj.)
• 32. Thus, in view of the above, the impugned press release dated 18th October 2018
could be said to be illegal to the extent that its para-3 purports to clarify that the last
date for availing input tax credit relating to the invoices issued during the period
from July 2017 to March 2018 is the last date for the filing of return in Form GSTR-
3B.
• 33. The said clarification could be said to be contrary to Section 16(4) of the CGST
Act/GGST Act read with Section 39(1) of the CGST Act/GGST Act read with Rule 61 of
the CGST Rules/GGST Rules.
• Notification No. 49/2019 – Central Tax
• Rule 61(5) is amended to provide that GSTR – 3B shall be the “return” specified u/s
39(1). Said delayed birth has also been given a retrospective effect so as to apply the
same from 01.07.2017 (date of implementation of GST).
• Legal validity ?
• Where is the entire mechanism to categorize GSTR – 3B as a return u/s 39 ?
ITC – OTHER STATE’S
• IMF Cognitive Technology Private Limited Order No. RAJ./AAAR/01/2019-
20 (GST AAAR Rajasthan)
• Only CGST ITC of other State’s was sought
• Going further, Central tax is Central GST levied under Section 9 of the CGST Act. After
going through the Section 9(1) above, we find that the Central GST is a tax levied on
all intra-State supplies of goods or services or both . Going ahead, Intra-state supply
of service , as per Section 8(2) of the Integrated GST Act, 2017 means supply of
services where the location of the supplier and place of supply of services are in the
same State. Thus crux of the matter is that for a person registered in
Rajasthan, Central GST or Central tax is a tax levied under Section 9 ibid on supplies
having both location of the supplier and place of supply in Rajasthan . At this point it
becomes absolutely clear that ITC of the Central GST or Central tax would be
available to a person registered in Rajasthan if the location of the supplier and place
of supply of the services are in Rajasthan .
• Is it so ?
ITC – CONSTRUCTION RELATED
• Safari Retreats Pvt. Ltd. [TS-350-HC-2019(ORI)-NT]
• Considering the provision under section 17(5)(d), the narrow construction of
interpretation put forth by the department is frustrating the very objective of
the Act, inasmuch as the petitioner in that case has to pay huge amount of tax
without any basis.
• the petitioner has retained the property and is not using it for its own
purpose, but it is letting out the property, which is covered under the GST law,
but still the petitioner has to pay huge amount of GST, to which he is not
liable.
• the provision of section 17(5)(d) is to be read down and the narrow restriction
as imposed, is not required to be accepted, the very purpose of the credit is
to give benefit to the assessee.
• SLP(C) No. 026696/2019 filed before SC.
SUPPLY
• Bai Mamubai Trust COMMERCIAL SUIT (L) NO. 236 OF 2017 (Bom.)
• 58. The Learned Amicus Curiae correctly submits that enforceable reciprocal
obligations are essential to a supply. The supply doctrine does not
contemplate or encompass a wrongful unilateral act or any resulting payment
of damages. For example, in a money suit where the plaintif seeks a money
decree for unpaid consideration for letting out the premises to the defendant,
the reciprocity of the enforceable obligations is present. The plaintif in such a
situation has permitted the defendant to occupy the premises for
consideration which is not paid. The monies are payable as consideration
towards an earlier taxable supply. However, in a suit, where the cause of
action involves illegal occupation of immovable property or trespass (either
by a party who was never authorised to occupy the premises or by a party
whose authorization to occupy the premises is determined) the plaintif’s
claim is one in damages.
SUPPLY – CROSS CHARGE
• Columbia Asia Hospitals Pvt. Ltd. (Order No. KAR/AAAR/Appeal-
05/2018) (GST AAAR Karnataka)
• Supply
• Therefore, for an activity to qualify as “supply” in terms of Section 7 of the CGST Act, the
following conditions are to be fulfilled:
• (i) The activity has to involve a transaction in either ‘goods’ or ‘services’ or both;
• (ii) The activity should be undertaken for a consideration
• (iii) There should be agreement to engage in the transactions of the nature specified;
• (iv) The activity should be in course or furtherance of business
• Schedule I is an exception to the above test
• The execution of the above mentioned activities by the IMO which is for the benefit of all
their other units is in the nature of a service by the IMO. As such there is a supply of
service by the IMO to the other distinct units of the Company.
SUPPLY – CROSS CHARGE
• Valuation
• The valuation for the supply of the service rendered by the IMO to the other distinct
persons will be done in terms of Rule 28 or 30 of the COST Rules. In arriving at the
cost of provision of the service by the IMO, the cost of employees working in the
IMO has to be factored into. This is because the activities performed at the IMO
cannot be done without human workforce and hence the cost of such workforce is
an integral part of the service provided by the IMO.
• Employee – whether of the GSTIN or legal entity
• When viewed in this background, the employees stationed at the location of a
particular establishment of a distinct person are deemed to be rendering their
services only to that establishment of a distinct person and not to any other distinct
person even though all distinct persons are of the same business entity. Such
services of employees, when rendered in the course of their employment are not
considered as a ‘supply of service’ in terms of entry I to Schedule ID. However, when
the services of employees are benefiting other distinct persons, then such services of
employees will be considered as a ‘supply of service’ by one distinct person to
another. It is in this perspective that the entry 1 to Schedule III should be viewed and
understood.
SUPPLY – CROSS CHARGE
• Service Tax decisions
• The Appellant has placed reliance on a few CESTAT decisions (cited supra) to buttress
their case. We have gone through all case laws relied upon and hold that the said
decisions will not be applicable to the matter at hand since they were rendered in
the context of the Service Tax law. The taxable event under the Service Tax law and
under GST are vastly different and hence the ratio of decisions rendered in the light
of the taxable event under Service Tax provisions cannot be applied to the
transactions under GST regime. As such the case laws relied upon by the Appellant
are not of any assistance to this case.
• Cross charge or ISD
• In the case of cross charge, there is an element of service rendered by the person
who cross charges his other units even though they belong to the same legal entity.
On the other hand, in the case of ISD, there is no element of service at all, but a
mere distribution of credit
• Matter pending before Karnataka High Court
SUPPLY – LIQUIDATED DAMAGES
• Maharashtra State Power Generation Company Limited 2018 (9) TMI 1185
(AAAR)
• The finding of this evaluation when there being a delay, the contingent liability of
liquidated damages translates into an actual recoverable liability. This is the second
event. What we say has been incorporated in the agreement in the words thus - The
liability of payment of these liquidated damages by the Contractor will he
established once the delay in successful completion of trial operation is established
on the part of the Contractor.
• It is only while making the payment of the above acceptable amount that the
applicant deducts some amount towards liquidated damages. Thus, the value of the
work done and which is to be paid is not affected by the amount deducted therefrom
towards liquidated damages.
• The impugned income though presented in the form of a deduction from the
payments to be made to the Contractor is the income of the applicant and would be
a supply of 'service' by the applicant in terms of clause (e) of para 5 of Schedule II
appended to the GST Act.
SUPPLY – LIQUIDATED DAMAGES
• Australian GST GSTR 2006/9
• an entity may be said to be making a supply by refraining from doing
something or tolerating some act or situation if the entity was subject to an
obligation to do so and then performed accordingly.
• Entry 22.3 of the VAT Notice 708 issued by HM Revenue and Customs,
UK provides –
• “Liquidated damages are agreed pre-estimated sums to be paid in the event
of a breach of contract by one of the parties. The amount is either a set figure
or determined by a formula.. If you receive liquidated damages, you are not
receiving payment for a supply by you and no VAT is due on that amount.”
SUPPLY – LIQUIDATED DAMAGES
• Indian Contract Act, 1872
• “73. Compensation of loss or damage caused by breach of contract
• When a contract has been broken, the party who suffers by such breach is entitled to
receive, from the party who has broken the contract, compensation for any loss or
damage caused to him thereby, which naturally arose in the usual course of things
from such breach, or which the parties knew, when they made the contract, to be
likely to result from the breach of it…”
• “74. Compensation for breach of contract where penalty stipulated for
• When a contract has been broken, if a sum is named in the contract as the amount
be paid in case of such breach, or if the contract contains any other stipulation by
way of penalty, the party complaining of the breach is entitled, whether or not actual
damage or loss is proved to have been caused thereby, to receive from the party who
has broken the contract reasonable compensation not exceeding the amount so
named or, as the case may be, the penalty stipulated for.”
SUPPLY – LIQUIDATED DAMAGES
• ONGC v. Saw Pipes (2003) 5 SCC 705
• The clause “whether or not actual damage or loss is proved to have been caused
thereby” would not be dispensing with the establishment of proof.
• This emanates from the understanding that the reasonable compensation agreed
upon as liquidated damages in case of breach of contract is in respect of some loss or
injury
• In such cases, the requirement to prove loss or injury or damage may be dispensed
with, if it is difficult or impossible to prove than the genuinely pre-estimated can be
awarded.
• Union of India v. Raman Iron Foundry AIR 1974 SC 1265
• Irrespective of stipulations in the form of liquidated damages, a plaintiff can recover
damages to the extent of the claim being reasonable compensation for the injury
sustained by him, and not the entire sum laid down as liquidated damages; thereby,
erasing the differences between liquidated damages and unliquidated damages.
SUPPLY – DIRECTOR’S REMUNERATION
• Alcon Consulting Engineers (India) Pvt. Ltd. (KAR ADRG 83/2019)
• As Director is not the employee of the company, tax is leviable and the same
shall be paid under RCM.
• No reasoning provided as to why a Director cannot be an employee of
the company ?
PLACE OF SUPPLY
• Saji s. v. Commissioner [2018] 99 taxmann.com 218 (Kerala)
• 9. As seen, Section 77 provides for the refund of the tax paid mistakenly under one head
instead of another. But Rule 4 speaks of adjustment. Where the amount of refund is
completely adjusted against any outstanding demand under the Act, an order giving details
of the adjustment is to be issued in Part A of FORM GST RFD-07. The petitioner's counsel lays
stress on this process of adjustment and asserts that the amount remitted under one head
can be adjusted under another head, for the demand can be any amount under the Act.
• 10. Under these circumstances, I find no difficulty for the respondent officials to allow the
petitioner's request and get the amount transferred from the head 'SGST' to 'IGST'. It may, as
the Government Pleader has contended, take some time, but it is inequitable for the
authorities to let the petitioner suffer on that count.
• Rule 92(1)
• Order of refund in FORM RFD 06
• Order of adjustment, if entire refund is adjusted against o/s demand, in FORM RFD 07 (Part
A)
• It merely allows adjustment of refund against dues under the respective Act.
• Sec. 79(1) – Recovery of tax
E-WAY BILL
• Sri Krishna Traders Vs State of Gujarat (Gujarat High Court) (SCA No.
11016 of 2019)
• Seizure u/s 130 without issuing notice u/s 129
• Prima facie incorrect and vehicle as well as goods directed to be released
TRANSITIONAL CREDITS
• Adfert Technologies Pvt. Ltd. Vs Union of India & Ors. (Punjab & Haryana High
Court) (CWP No. 30949 of 2018)
• From the perusal of record and arguments of counsel for both sides, we find that there are
two types of cases namely (i) registered persons who did/could not file TRAN-1 by 27.12.2017
and have no evidence of attempt to load TRAN-1 (ii) registered persons loaded TRAN-1 by
27.12.2017 but there is mistake and they want to revise already loaded TRAN-1.
• Various reasons assigned by Petitioners seem to be plausible and we find ourselves in
consonance with the argument of Petitioners that unutilized credit arising on account of
duty/tax paid under erstwhile Acts is vested right which cannot be taken away on procedural
or technical grounds ……. The Respondent authorities were having complete record of already
registered persons and at present they are free to verify fact and figures of any Petitioner thus
inspite of being aware of complete facts and figures, the Respondent cannot deprive
Petitioners from their valuable right of credit.
• We fully agree with findings of Hon’ble Gujrat and Delhi High Court noticed hereinabove and
find no reason to take any contrary view. We are not in agreement with the cited judgment by
the Revenue of Hon’ble Gujrat High Court in Willowood Chemicals case as the Gujrat High
Court itself in subsequent judgments and Delhi High Court in a number of judgments (as
noticed hereinabove) have permitted petitioners (therein) to file TRAN-I Forms even after
27.12.2017.
TRANSITIONAL CREDITS - CESSES
• Sutherland Global Services Private Limited Vs Assistant Commissioner CGST
and Central Excise (Madras High Court) (Writ Petition No. 4773 of 2018)
• Instructions issued by the Central Board of Excise and Customs dated 07.12.2015,
reveal a policy decision, not to allow utilisation of accumulated credit of EC and
SHEC, but nowhere states that the credit has lapsed.
• Section 140(8) which specifically deals with centralised registration also provides for
transitioning of credit conditional upon an original or revised return being filed
within three months of the appointed date reflecting a carry forward of the credit
from the closing balance available.
• Availment of credit and its utilisation thereof is a substantive right of the taxpayer
and should be denied only in the event of an express legal prohibition to this effect.
• Significantly, Explanation (3) which clarifies that the expression ‘eligible duties and
taxes’ excludes any cess not specified in Explanation (1) or (2), has not been notified.
• Sec. 140(8) vis-à-vis Sec. 140(1)
THANKS !!
Abhay.Desai@ydco.in