INDIRECT TAXATION

3 August, 2020
What is indirect tax?
● Incidence and liability are not as per usual norms now.
Equalisation levy is not on income at all-it is a direct tax
The principles and differences between direct and indirect tax are different under classical and
modern principles. So a direct tax may look like indirect tax.
Eg. Security transaction tax-is a direct tax.
Fringe benefits tax.

● Progressive and regressive-ability to pay is a principle of direct tax. But this is only
limited to individuals. So if I have to purchase a car and want a Maruti 800- my rate of
taxation will be lower.
So progressive taxation rate is also present in the indirect tax regime. Luxury items are charged
more with tax than usual everyday use/essential items.
In the previous regime, cubic capacity of car 500 CC/1000CC – tax depended on that also. So an
Ambani and a normal person will pay the same tax.
Why is there no single rate of GST -why 4 rates?
Excise has 70-80 rates of classification.
Sometimes there is a subsidy which is applicable to individuals and not to business houses.

● Possibility of evasion of tax is higher in direct tax and lower in indirect tax and this is
one of the advantages of indirect tax. This is because you can hide income and pay tax
accordingly. Hiding source is possible but since tax is on transaction in indirect tax,
it’s a chain and you can’t break it, so basically it is difficult to evade the tax. This is
especially so in GST as you can’t claim credit benefit in case you break the chain. Fake
invoices, etc are however means by which you can claim different amounts for credit and
is a kind of evasion. But even though it’s happening, it’s possible to check veracity of
transaction at every stage where credit is claimed. GST regime has made a difference to
reducing tax evasion in indirect tax. Tax evasion under direct tax regime is more than
70% in India. In USA it is less than 14%. In India only around 6% of population is
paying tax. Now attempts are being made to bring transparency even under direct tax
regime.
 ● Collection of indirect tax was easier in previous regime than GST but levy and
collection is easier in indirect tax. One principle is administrative convenience
which was given by Adam Smith and this is possible in indirect tax regime. It is not on a
yearly basis etc. and can be paid on a month by month basis. For eg.-manufacturer or
seller or service provider, importer and exporter. It is to be collected on a transaction
basis and paid, hence is easier. This reduces collection costs of Indirect tax Dept.
Income Tax Dept. in every district etc. but Indirect Tax Dept. is not present in every
sub-division. Major litigation is also in direct tax as against indirect tax.
● Tax base of indirect tax is larger than direct tax . Everyone has to pay, unlike in direct
tax where some people are exempt from paying. In indirect tax you have to pay on any
transaction.
● Direct tax has to be paid in lump sum as against indirect tax.
● No definition of both dir. and indirect tax- it’s just the method of levy and collection that
defined direct and indirect tax. Another factor is matters of incidence and liability-on
different people in Indirect tax (except GST’s Reverse Charge Mechanism). Another
difference is the ‘ability to pay.’

4 August, 2020
Advantages of Indirect taxes
1. Psychological advantage to taxpayer.
2. Manufacturers, dealers, service providers-psychologically favoured.
3. Easier to collect.
4. Lower collection cost + tax base is larger
5. Less tax evasion -as it on transaction and difficult to always fake/hide.
6. Controls wasteful goods-luxury goods basically which are taxed more than other
essential goods.
7. Supports local industries or small and medium scale industries (MSME).
8. High revenue generating as compared to Direct taxes. This is including customs,
duties, GST, etc.
9. Larger tax base-everyone has to pay.
10. a tool to control the economy and maintain law and order

Disadvantages of Indirect taxes.

1. Regressive in nature, not following principle of ability to pay like direct tax.
 2. Reduces the demand of goods by increasing rate of duty.
3. It increases project cost.
4. It also makes modern technology very costly.
5. It increases smuggling as you increase import duty.
6. Perceived as inflationary (inflation based).

Constitutional Scheme of Taxation Regime (specifically indirect tax)

7th Schedule -Power to levy tax. Entry 82 (List I) [Taxes on income other than agricultural income]. is
for income tax, all income except agricultural income. E.g. Equilisation levy is on transaction and
is taxable in the hands of the person who is paying fees for advertising to the company such as
Google. Entry 82 is tax on income ONLY but because of Entry 97 [Any other matter not enumerated
in List II or List III including any tax not mentioned in either of those Lists.], tries to bring so many other
things under the ambit of taxation. This is because Entry 97 is residuary entry and that’s how
they justify legislative competence to tax.

For indirect tax-7th Schedule

● Entry 83, Custom [Duties of customs including export duties].
● Entry 84-Excise Duty[Duties of excise on tobacco and other goods manufactured or produced in India
except—(a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs
and narcotics, but including medicinal and toilet preparations containing alcohol or any substance
included in sub-paragraph (b) of this entry.- on goods manufactured or produced in India -pay under
Central Excise Act, 1984].
● Exclusions are alcohol for human consumption because state has power to levy on this
under Entry 2 of State List. Even opium, narcotic drugs, hemp-are subject to state
legislative competence. IF narcotics are used for toilets use or medicinal purpose like
sanitisers-covered under Central Excise Act.
● Exports are normally tax free.
● Service tax-Entry 97 of Union List till 2017 when we shifted from service tax to GST.
92 C Entry [Taxes on services.] was never notified.
● Validity of gift tax-GTO v. DH Nazareth, 1971 1 SCR 195-important case on
validity of gift tax was challenged. Gift tax is now under income tax act but before it
was under Entry 97. In 1998 Gift Tax Act was abolished and gift was understood as
income.
 ● Wealth Tax-is still there but may be abolished soon. It is also under Entry 97. UOI v.
HS Dhillon, 1971 2 SCC 779. Here challenge for constitutional validity. No other
Entry dealing with it under Constitution.

(& 246) Article 265- No Tax shall be levied or collected except by authority of law-they try
to say levy and collection are separate and should be under authority of law. Cannot tax based
on administrative order. You have to legislate on it. Levy and assessment are same thing. It
includes imposition of tax as well. But collection is different. Cases-UOI v. Delhi Cloth Mills,
AIR 1963 SC 791.
Wallace Flour Mills Co. Ltd. v. CCE, 1972 44 AJLT 598 SC.
Puchgar Prints v. UOI, AIR 1989 SC 516- Levy includes both imposition and assessment of taxes,
but not collection. The word collection has been separately used in Article 265. A lot of times
collection may be delayed. Levy and imposition are separate activities from collection.

Refund Process under Direct and Indirect tax. If you’ve paid excess tax and want to claim
refund. especially when I have already passed the burden to the consumer? Unjust enrichment to
manufacturer? But there is no organised consumer group here who have paid excess amount?
Then how does government deal with this amount? Because otherwise levy is unjust. This
amount is transferred to a Consumer Welfare Fund which came into being in 2004. SC said
government can retain money as government is representative of people. This is because you
can’t send the money back to the consumers or manufacturers. Pre-2004 cases of SC this was the
stance of the SC-government has right to retain money. But subsequently the fund was created
in 2004 and consumer ministry was given right to utilise the money. So government can spend
money in the way they want to.
For e.g. Under GST-I’m manufacturing an article that is subject to 18% rate as per classification. I
have to now pay 18% tax but because classification is not clear (characteristics of classification is
what is used to identify), and maybe in my view it is classification of 28% and because of that I
submit price and classification list pay tax accordingly. But now the moment this is cleared by
government, I supply goods and when revenue department starts assessment, then they identify
correct classification as 18%. So I have paid 10% extra tax and the goods are not with me. Then
what to do with that refund? You can’t give to manufacturer as it is unjust enrichment and
cannot give to consumers as cannot identify them. It is NOT part of consolidated fund unlike
taxes usually.
If you look into other constitutional scheme of taxes, there is one principle of Rule against
Double Taxation. It can be both in the case of Direct and Indirect Taxes under any Fiscal
Enactment. Is it constitutional or unconstitutional? It is sort of permissible because you pay
income tax and then also GST when you buy anything with already taxed income. if same person
for same transaction etc. at micro level- should be avoided- no explicit provision in the
constitution
SC cases establishing this doctrine; SC allows it in case it is a part of the interpretation of the
legislation, however at macro level, there should not be any double taxation

State of Andhra Pradesh v. L&T, 2008 9 SCC 191- considerable judicial opinion that there
should not be double taxation in absence of statutory provision. Like if there is not DTAA then
we do pay double taxes.

Q. Is there any provision on retrospective amendment/retroactive amendment or clarificatory

amendment? What is the difference?
S 9- clarificatory amendment too much litigation.
Chota Bhai Jetha Bhai Patel v. UOI, AIR 1962 SC 1006-legislative power can be exercised to
confer retrospective and prospective effect.

Rules of Interpretation-Rule of purposive/strict/literal construction.

Purposive interpretation is v imp under tax regime.

Constitutional Scheme of GST-101 Amendment-CBIC Website, check it.

[Refer to Diary Notes. 6-13 August, 2020]

From Radhika’s notes
05.08.2020
- How GST came in India?- Amendment 101 (pdf of the amendment )
● 2003 Tax Reform Committee- report submitted in 2004- suggested change in Indian
Indirect regime in India- there is requirement to shift to non-distortionary taxes in indirect
taxes to increase consumption and enhance taxation in goods and services. A well-defined GST
is most elegant as it avoids distortions and there is no avenue for avoiding tax. At every level in
the chain there would be tax credit provided to the contributor.
● One cannot give goods and service at the same time- software as a goods or service;
restaurant service; SIM cards, etc.- erstwhile regime
● State tax is not equal to central tax and vice versa. Hence these distortions having
cascading effects were seen.
● WTO- trade policy review in India- wrt to Indirect taxation, VAT was implemented in
every state in 2005-06. VAT covers most goods except essential products. Furthermore, larger
no. of services are also taxable. The bundle there was VAT, Service tax and Central Excise Act.
India in 2007 committed to WTO that it will adopt common GST.
● 2009- First discussion Paper by Powered committee submitted.
● 2010- white paper on GST.
● Every government has sovereign power to tax and the constitution only limits that- the
entries in Schedule VII- w.r.t the power to charge a numeric threshold on tax- there is no
provision for any other tax threshold except for GST where a numeric cap of 40% is given.
The same was made in the constitution amendment. (can amend with 2/3rd majority)
● 2011: Suggestions- 10 elements- Current GST system is different from 2011.
○ The base should extend to all G&S including immovable property.
○ There should be a single low rate of GST.
○ Tax should be destination based.
○ Tax should be designed on invoice credit methods.
○ Full and immediate input tax credit in case of capital goods.
○ GST must replace all transaction based G&S.
○ There should be seamless flow of taxes among all levels.
○ Export should be zero rated.
○ There is threshold exemption for small dealers.
○ Full computerisation of compliance and returns.
● Dual mode of GST- CGST and SGST- it is not uniform GST but Central and State
GST- not all states are ready to give their power to tax- state can impose VAT while centre can
impose service tax- GST- both agreed to share this power. The Central excise Act, service tax,
sales tax- GST; sales tax, entertainment, entry tax etc- at state level are a part of GST.
[cooperative federalism example- this dual model]- A dual model is required as both
centre and state have power to collect tax as per their division of power- a dual GST
would be in line with fiscal federalism. (we have gone away from the idea of one part to
tax. We cannot give whole power to either centre or state)
● Amendment bill 2016- 101st amendment-
Article 246A- Notwithstanding anything contained in articles 246 and 254, Parliament, and,
subject to clause (2), the Legislature of every State, have power to make laws with respect to
goods and services tax imposed by the Union or by such State.
(2) Parliament has exclusive power to make laws with respect to goods and services tax where
the supply of goods, or of services, or both takes place in the course of inter-State trade or
commerce.
Supply is a taxable event defined under CGST & SGST ACT.
CGST, SGST, UTGST and IGST-
IGST- comes from Article 246A- “inter-State trade or commerce”- the place of supply is in State
A and place of supplier is in State B, then IGST will be charged on this transaction [only centre
has right to make laws on this]
CGST and SGST- for “Intra-state” supply. The centre and state both can make laws and the
same is divided equally amongst the two.
Earlier, the legislative competence was a part of schedule VII, but after the 101st amendment,
the legislative amendment is a part of the constitution and not the lists.
Article 248- residuary powers of the parliament (coming from entry 97 list I) - replaced
“parliament” with “subject to Article 246A, Parliament.” If it is subjected to 246A, implying they
cannot bring any other aspect under GST as in case of entry 97, list 1.
The power to impose tax under entry 97 came from Article 248. With 246A, this random
imposing of tax through GST has been withheld, as for 248, subject to 246A has been inserted.

Article 249 and Article 250- similar “subject to 246A” has been inserted.
06.08.2020- Missed-Read Divya docs-handwritten
Read: A. 268 – duties levied by the Union, but collected and assigned by the States.
A.268A – empowers the states to levy service tax – though never came into effect, and now
omitted.
A. 269 –
A.270 – How the taxes would be divided among the Union and the States.
A.279A – GST Council: can the states accounting for some local factors, charge GST at a
different rate. How to resolve these kinds of disputes. Goods and Service Tax Disputes
Settlement Authority. This body has not been notified yet.

07.08.2020
Central Excise Act & Rules AND Goods & Services Tax.
 - Central Excise Act, 1944
- Central Excise Rules, 2000
- Central Excise Tariff Act, 1985
- CENVAT Credit Rules, 2004 and 2015
- Central Excise Valuation Rules, 2000
- Central excise valuation (retail sale price) rules, 2008
- GST Act & Rules.

1. What is a taxable event?- An event that gives rise to levy and collection both.
So what is this levy and what gives rise to this levy?- This levy is on manufacturing of goods.
Subject matter of excise duty- goods.
Excise Act:
Section 3- Charging provision of excise duty- There is a link between excise act and tariff act
“Duties specified in First Schedule and the Second Schedule to the Central Excise Tariff Act,
1985 to be levied.
There shall be levied and collected in such manner as may be prescribed a duty of excise to be
called the Central Value Added Tax (CENVAT) on all excisable goods (excluding goods
produced or manufactured in special economic zones) which are produced or manufactured in
India as, and at the rates, set forth in the Fourth Schedule”
[classification of the goods becomes important- on what purpose the rate will be
applicable is the problem. Major point of disputes is classification.]

Important feature of excise levy:

Tax of goods- entry 84 classifies it as duty on goods and the act calls it excisable goods. The
difference is that something might be considered as goods for entry 84 but the same may not
qualify under excise act.
Eg- Electricity- is a good- State of Andhra Pradesh v. NTPC (2002 SC)- SC says electricity is
a moveable property, even though it is not tangible but it is still transferable. Hence it is a good.
However, electricity is not under excise act hence not excisable.
Steam- even though cannot be stored, is still goods- but not excisable under excise act.
Anything manufactured under tariff act will not be considered for excise act- SC has in a catena
of judgments has laid that tariff is not excise but it's a duty on the goods. Goods need to be
marketable and moveable in order to qualify as taxable under excise act. One cannot bring
anything under tariff act in order to bring it under the ambit of excise taxation.
For excise act, definition of excisable goods is section 2(d) of the act. The goods should be
consumable as the tax burden at the end is supposed to be consumed by the consumer.
Taxability- SOGA- transfer of ownership is mandatory.
Excise Act- transfer of possession and not ownership.
the term ‘any commodity’ is used, which is not used here. Works Contract: Article 366(29A) –
concept of deemed sale: it considers that even in the case of indivisible contract, the state has the
right to tax both goods and services. Indivisibility does not mean indivisibility in terms of
account. Demarcation between goods and service elements is tried to be made to levy taxes.
Therefore, in the case of restaurant, both VAT and service tax was levied. Software: TCS case: if
branded, then goods; if customized software, then it is a service. State Governments are still
levying sales taxes on customized software because the moment it is referred to a device, it
becomes movable. Madras HC – 2009: customized software – state has the right to levy sales tax. Software:
Tata Consultancy Services v. State of Andhra Pradesh, AIR 2005 SC 371; BSNL v. Union of
India (dominant aspect theory), 2006 3 SCC 1 – sim card; State of Andhra Pradesh v. NTPC
(electricity); Associated Cement Companies Ltd. v. Collector of Customs, 2001 4 SCC 593:
whether drawing and design is goods or not. Intellectual property put on a media or device. The
value of the paper may be very less, but the value of intellectual property is huge. What should
be the value of tax on goods – should only the paper be considered a goods or even the
intellectual property be also considered part of the goods. The moment the drawing is put on
paper, it becomes a part of the goods and thus, tax would be levied. State of Karnataka v.
Prolab and others, AIR 2015 SC 1098: concept of deemed sale.

Usage of Commodity in Sales Tax Act and not in Excise Act- “works contract”- principle of
“deemed sale”- indivisible contract (there cannot be distinction between goods and services
provided under this act)- Article 366 (29A)- consideration that goods are a part of the service- in
this case the state has the right to tax- this non- divisibility meant that there cannot be separate
accounting treatment. Also, one of the reasons for GST to come.
TCS case- software if customizable is a service, if mere software on a CD, etc. are goods.
However in the case of India, states still levy sales tax on customizable softwares. Even after
GST the problem exists.
Indivisible contracts-
TCS v. State of AP AIR 2005 SC 371
Aspect theory- BSNL v. UOI 2006 3 SCC 1 (Sim card)
State of AP v. NTPC (electricity case above)
 Associated Cement Companies (ACC) v. Collector of Customs 2001 4 SCC 593
- The question before SC is whether drawing and design of goods is goods or not- e.g. if one
wants to import such design in India- what would be considered as a good in this case- the paper
only or the IP (the design) on that good as well?- IP is goods. Hence, it would be taxable in toto.
SC on taxable event-
1. Goodyear India Ltd. v. State of Haryana, AIR 1990 SC 781 - Taxable event is that on
happening on which the charge is fixed. It is that event which on its occurrence creates or
attracts the liability to tax. Even though a taxable event happens to be at a particular point of
time the levy and collection of such tax may be postponed for administrative convenience.
2. Commissioner of Central Excise V. Wazir Sultan Tobacco Co. Ltd. AIR 1996 SC
3025- the levy is and remains on the manufacture and production alone. Only the collection is
shifted to the stage of removal. Such removal is not a taxable event. The taxable event is the
manufacture and production. There has to be manufacturing and then only we look into the point
of taxation- charge/collection is postponed up to the place and time of removal- the excise duty
commences the moment you start manufacturing but it completes only when it is removed.
Why such postponement- there can be manipulation after payment of duty immediately
after manufacture- there can be value creation without manufacturing activity
particularly.
3. Article 366(29A) interpretation- State of Karnataka v. Prolab & ors.- AIR 2015 SC 1098- 3
judge bench- explained deemed sale under sales tax act- whole march of law till 2015 (since
1956 to 2015)- they clarify legislative intent under works contract/ indivisible contract and
deemed sale.

EXCISABLE GOODS- Section 2(d) r.w. Section 3- Excise duty is a duty on the
manufacturing and not on sale, hence actual sale is not required at all for excise duty.
Hence, sales tax is different from excise duty. However, the capability of the goods to be
bought and sold is what decides its marketability. Hence only if manufactured goods
that are capable to be bought and sold, then excise would be charged. However, the
same would be postponed till the date of clearance.
Eg- One completed project on August 07, 2020 but dispatching goods on December 25, 2020.
The rate in august was 20% and in December the rate was increased to 25%. Under Indirect
taxation, levy is on one event but collection is on date, time and place of removal. Hence in this
case, the rate would be 25%.
 Hence the place, date and time of removal is important as the removal decision depends
completely on the manufacturing and the stage of the product when it is removed also helps in
assisting in determining the excise rate.
Then why not consider it from the POV of removal? Example is customs act- what if in case
one imports but goods never reach you? Why would one be up for charging custom then.
Similarly, in this case the charge is created on levy however, the same across charges in taxation
are on the idea of removal and not just the time when the instance of levy came into picture.
[more details- definition and explanation of removal- section 3]

Tax on marketable and moveable goods only.

What is marketable- Test of marketability- is different under SOGA, Sales Tax Act and Excise
Act.
Under the Sale Tax Act:
Excise Act
1. something which is capable of being bought and sold as actual sale is not a condition
under excise act. If something is manufactured and not sold but is kept for captive
consumption, this is also considered taxable under excise act. Example- Sample drugs-
taxable under excise act not for sale- sale is not at all an important criterion. E ven if it is given
for free, it is still taxed under the excise act. Even if it is intermediate goods, it is still charged
under the excise act.
2. If something can be sold out in the market (actual sale) does not mean it is marketable.
Everything saleable doesn’t mean that everything is marketable.
3. If something is there in market for sale and there is actual sale- can you say that the product is
marketable?- can sale tantamount to marketability?- there can be situations that actual sale
happens but that does not mean that it is marketable per se.

11.08.2020
Union of India v. Sonic Electronic Pvt. Ltd., 2002 145 ELT 274 SC: Marketability of goods
has certain attributes. And it is difficult to lay down a precise test to determine the marketability.
The essence of marketability is neither in the form nor in the shape or condition in which the
manufactured articles are to be found. It is the commercial identity of the article known to the
market for being bought and sold. The fact that a product is generally not being bought and sold
or has no demand in the market would be irrelevant. Plastic body of mosquito repellent is not
marketable; therefore, it has no commercial standing in the market. Burden lies on the Revenue
to claim marketability. Similarly, steam is not marketable. The manner in which a good is being
advertised is also not relevant.
Union of India v. Delhi Cloth Mills, AIR 1963 SC 791: It was held that to become goods an
article must be something which ordinarily comes to the market to be bought and sold.
Manufacturing Vanaspati Oil, which was an excisable goods. Groundnut oil + til oil: raw
material. Refined oil got produced as an intermediate goods, which was consumed within the
factory while preparing the Vanaspati oil. Revenue issues a notice regarding the taxability of the
refined oil as Vanaspati oil wasn’t taxable. SC – refined oil which is produced at the intermediate
stage is not marketable, the product is not known as refined oil. Refine oil is not marketable as it
was deodorized, so no excise duty could be charged. It was not known in its own condition to
the market, market only knew it in a state post hydro-processing and deodorization process.
Commercial understanding: how the product is known to the market.
Nestle India Ltd. v. CCE, Chandigarh, 2009 235 ELT 577 SC: Nestle was engaged in the
manufacturing of food products in Moga. Lactogen and Cerelac and one other product. These
infant foods have nil rate of tax. The manufacturer buys many vitamins from other manufactures
after paying excise duty. They are mixed in a pre-determined ratio with the help of electro-
mechanical device by the means of mechanical agitation. – inter-mixture of vitamins
(intermediate product). Item so obtained in stored in aluminum drums. Revenue claims that
inter-mixture of vitamins is a final product and liable to be taxed. At this stage of inter-mixture, it
is not marketable because this pre-determined ratio is of no use to other manufacturers.
Everything is saleable, but the criteria is of marketability. Inter-mixture is also not a
manufactured good – there is no change in the quality of the good. It remains the same. So, no
excise duty.
12.08.2020
Union of India v. Indian Aluminum Co. Ltd., 1995 77 ELT 268 SC: even the test of
marketability has some limitations. Taxability of aluminum dross and skimming. If one
manufactures aluminum, there is a refuse called dross and skimming. Everything which is sold is
not necessary as marketable commodity as known as commerce. Even though rubbish could be
sold, it cannot be said as marketability. In 1995, dross and skimming were added as a separate
category in the Excise Tariff Act. 2006 – SC held that it is marketable now, but as it is not
manufactured, so no excise duty. The manufacturer did not intend to manufacture the aluminum
ash, it’s a refuse. In 2010, Revenue had established the case that dross and skimming is
marketable and its commercially understood so.
It depends on the commercial understanding of the product eg. its own industry and market
demand etc. Eg- Aluminium ashes in UOI v. Indian Aluminium Company was not considered
marketable because it didn't have any specific market and the intention of the manufacturer was
missing.
Sterlite Industries v. Commissioner of Central Excise, 2006 193 ELT 35, Mumbai
CESTAT: Customized good. The goods were returned to the manufacturer for meeting the
purchase order specification. When the first time the goods were cleared by the manufacturer,
whether they were marketable or not. Tribunal: goods which were removed in the first instance
were not marketable and was an attempt to pass defective goods. The further process
undertaken by the manufacturer to meet the specifications would make it marketable now.

Hence we can conclude that marketability is subjective in nature. It has to be decided on

a case to case basis. In the GST regime, the taxable event has been shifted from manufacturing
to supply because of such uncertainty as existing under Excise Act. Even waste is taxable under
GST.
There is no specific criteria under entry 84 or section 3 to provide for goods to be marketability.
This marketability comes from the judicial review and not from the legislature’s POV. Judiciary
has also created problems wrt to definition of excisable goods and hence the legislative and
judicial definition are different. The concept of marketability comes from the fact that the tax is
on the GOODS.
Bhor Industries v. CCE- 1989 40 ELT 280 (SC)- mere mention of an article
/substance/matter/material under tariff act, will not make it marketable. There needs to be
geographical area relevance, etc. the good has to pass the test of marketability in order to
come under excise.
Ambalal Sarabai Enterprises v. CCE- 1989 43 ELT 214- manufacture of dextrose- waste
product here was starch hydrolysate- lysate of starch(entry under entry)- the starch
hydrolysate had short shelf life (not more than 24 hours) and because of such short shelf life, it
was not marketable in that condition. SC- had accepted this contention and said that just because
it is mentioned in the tariff act will not make it marketable. The intermediate product was
transient and was incapable of being sold and hence it was not marketable in that condition.
Hence no tax.
UOI v. Delhi Cloth Mills- 1997 5 SCC 767- the manufacturer was producing calcium carbide-
to manufacture acetylene gas- this carbide was not ISSI standard of purity. This is different from
the one sold in the market. SC held that such carbide was not excisable in the condition it was
produced. The argument that it can be improved to increase its marketability is relevant as
further processing was required and it is not marketable in the stage it is produced in the present
case and condition.
Gujarat Narmada Valley Fertilizers Co. Ltd. v. CCE- 2005 7 SCC 94- the court said that the
burden on proof is always on the department to prove that the product is marketable. There
should be concrete proof that the product is marketable (based on the question of fact.
Furthermore absolute burden of proof for such marketability is with the department)- there is
no requirement of hypothetical possibility of purchase and sale. There has to be sufficient
proof that the product is commercially known with proper evidence with whole market
and industry specific evidence. Commercial understanding- Since it is a classification
case the evidence can have a wide range to prove industrial use- eg- for medicine
doctor’s prescription has been submitted; etc.
13.08.2020
Bata India v. CCE-
Travancore Industries Ltd. v. CCE- 1997 94 ELT 279- Assess manufactured Calcium Carbide
and acetylene black with acetylene gas a bi-product. Under Excise Act, acetylene under any form
is taxable. The question of marketability was asked. Tribunal ruled in favour of the revenue. The
SC looked at the assessee’s reasons- The gas produced was not marketable because, 1. It contains
impurities such as moisture, phosphoric ammonia which makes it dangerous for transport and
highly explosive; 2. For marketability, it is necessary that the gas must be dissolved in acetone
and compressed in specific cylinders. This scientific evidence was overlooked by the tribunal. SC
remanded the matter back with the contention that the assessee’s point is to be looked at.
Assessee’s claim of marketability was correct as it required further processing and once it
requires further processing, it is not marketable.
Hindustan Petroleum Corp v. CCE, 2007 210 ELT 407 CESTAT: Assessee was storing
diesel sten. They were using it for factory purposes but not selling. Court: it is not marketable as
it is a prohibited good.

Movability
Moveable or immovable goods- eg., mobile towers- Since the taxability is on the moveable and
goods- Municipal cop. Of greater bombay v. Indian oil corp. AIR 1991 SC 686 (discussed
what is movable and what is immovable- if the chattel is movable in the same condition-
movable property; if it has to be dismantled to be re-erected at a different place and is attached
to the earth- immovable [effect on the condition of the goods. It does not change the
characteristics of the goods in the first place.- it depends on the nature of the goods.
Big generators- to be attached to the earth- nuts and bolts + cement concrete structure- the
moment it is attached- for using it efficiently and more better enjoyment- it can be transported-
if nuts and bolts removed- movable
CCE v. Solid and Correct Engineering Works & Ors. (check once)
Triveni Engineering v. CCE, AIR 2000 SC 2896: Manufacturer purchasing turbine from other
manufacturer. Then he purchased alternator as well by paying excise duty. These two are
assembled to make a single material – turbo-alternator, which is erected at the site of the
consumer. To decide the movability, one has to look into whether the product can be transferred
from one place to another in the same condition and perform the same functio n for which it is
manufactured or assembled. However, even if after non-important are dismantled and it does
not affect the performance, it is still movable. The size of the goods is irrelevant. So, turbo-
alternator is not taxable as it is not movable.
1. Whether dismantling done or not?
2. After dismantling whether the goods can perform the same function or not?
Circular issued after this judgment accepting this decision. No. 58/1/2002 issued on 15.1.2002.
Shreepur Papermill Ltd. v. CCE, 1998 97 ELT 3 SC: the fixing of something to ground for
better enjoyment would not make it immovable. The question is whether it could be sold in
same condition in the market without affecting their condition.
If essential parts are to be dismantled, then immovable. Dismantling is not the prime factor: it is
about whether the product possesses the same characteristics. If something is dismantled only
for transportation, it is still movable. Criterion is about the functions.

manufactured/produced.
Entry 84: goods manufactured and produced in India. However, manufacturing is defined under
the Excise Act. For the purpose of Income Tax, it is relevant for certain deductions, but not a
taxable event. Legislative intent is to keep it open and make it as wide as possible to increase the
tax base. So, it is very subjective.
Income tax act- u/s 2(29BA)- defines manufacture-“manufacture”, with its grammatical
variations, means a change in a non-living physical object or article or thing-
(a) resulting in transformation of the object or article or thing into a new and distinct object or
article or thing having a different name, character and use; or
(b) bringing into existence of a new and distinct object or article or thing with a different
chemical composition or integral structure
Excise Act- 2(f)- deeming provision-: Manufacture includes any process which is incidental or
ancillary for the completion of a manufactured product. Any process which is specified in
relation to any goods of the Central Excise Tariff Act amounts to manufacture. …
Three schedules: I: basic excise duty where all excisable goods are mentioned; II: additional
excise duty; III: special mechanism where all electronic goods, packed goods, and consumable
goods are mentioned which are sold on the basis of MRP, also covered under the Legal
Metrology Act.
The definition of manufacture is emphasizing on ‘process’. Under this provision, legislature has
the power to overrule judicial interpretation by inserting notes in the schedule. E.g. packaging of
drinking water – it does not amount to manufacturing but taxed. Pipes used in water supply –
painting/galvanization process of the pipes?

PROCESS- Union of India v. Delhi Cloth Mill, 1963- SC says that there would be a process
taxed only when transformation changes the character, use or chemical properties of the goods.
This does not include mere value addition, change in appearance or improving the marketability
conditions.
Writing a line in the section or chapter note that the process is taxable under excise act, deems to
move away from the judicial interpretation and increased the ambit of entry 84. However, SC
has upheld the “process” amendment under entry 97 of the constitution. This step was taken as
an anti-a voidance measure. However, despite this definition, legislation has the power to tax the
process which is not a manufacturing process under the above definition. Legislature can amend
the Tariff Act and write in the section or chapter notes and mention that a particular process
amounts to manufacture. However, the SC has upheld the constitutional validity of these
provision under entry 97.
Ujagar prints v. UOI, where the SC has observed that levy includes assessment as well
imposition, however collection is different. There cannot be tax collection without government
sanction.
[SIMPLE- process cannot be taxed under entry 84- hence tax it under 97]
CCE v. SR Tissue pvt. Ltd. - Jumbo Rolls case- these jumbo rolls were made into smaller
paper materials- there was 200% value addition: toilet rolls, napkins and facial tissue papers were
mentioned in the excise tariff act under separate heading and jumbo rolls were considered as raw
material. But as SC puts it- it is not a manufacture. Hence the govt. Had to widen the ambit of
the process under excise act. SC said that conversion of jumbo rolls into smaller toilet rolls,
napkins etc. is not manufacture because there is no change in the end product. If legislature
wants to tax this value addition, 2(2) comes into picture, they just have to write in relevant
chapter note that conversion of jumbo rolls into these products amounts to manufacture.

Reading IT and excise act to define manufacturing (Not pari materia)

Reading both acts together for purpose of definition of manufacture – scope of both acts. Is it
possible that a process amounts to manufacture under one act and not the other? Judicial
interpretation of manufacture under excise act can be applied for income tax act as well because
they have taken definition of manufacture to interpret process from the income tax act only. IT
act emphasises on transformation, change is important. Under excise act, change is not an
important criterion to declare any process as manufacturing. Under excise act, it has a wider
connotation. It may amount to manufacture, even without change. You may be a manufacturer
for purpose of levy of excise duty but you may not be a manufacturer for purpose of benefits
under income tax act.

ITO v. Arihant tiles and marbles pvt. Ltd.- 2010 321 ITR 79 (SC)- (partial reading)
Issue: the manufacturer was manufacturing the marbles and converting them into tiles and
polishing them. Whether conversion of marble blocks into tiles will be covered under
manufacture or not?
Arihant tiles is already a manufacturer under EA and he is paying excise under there- but for IT
act, revenue has stated “it is not manufacture under IT act and hence cannot claim benefits
under section 80(i)(a)”.
SC – this process will amount to manufacture but before concluding one observation is made –
para 23 of judgement – if the contention of the Department is to be accepted, namely that the
activity undertaken by the respondents herein is not a manufacture, then, it would have serious
revenue consequences. As stated above, each of the respondents is paying excise duty, some of
the respondents are job workers and the activity undertaken by them has been recognised by
various Government Authorities as manufacture. To say that the activity will not amount to
manufacture or production under Section 80IA will have disastrous consequences, particularly in
view of the fact that the assessees in all the cases would plead that they were not liable to pay
excise duty, sales tax etc. because the activity did not constitute manufacture. Keeping in mind
the above factors, we are of the view that in the present cases, the activity undertaken by
each of the respondents constitutes manufacture or production and, therefore, they
would be entitled to the benefit of Section 80IA of the Income Tax Act, 1961.
They are not looking at definition of manufacture under income tax act, whether complete
change or not, what they are looking into is that you are already declared as a manufacturer
under one law and paying excise duty, so we can’t say that you are not manufacturer for income
tax act. You will come again and plead that kindly refund my excise duty because I am not
manufacturer. No question of schedule 2 because this provision is not coming under schedule 2.
It is question of general provision under excise act, so under general provision if you are
manufacturer so under income tax act can you claim the benefits or not? Generally if definitions
of an act are exhaustive and no ambiguity is there, you can’t read other act into it but here it
would have created other problems that is why SC made an observation like this.

17 August, 2020
ITO v. Arihant Tiles case
Case decided in favour of assessee to claim benefits under the Income Tax Act under Section 80.
If this is not said they could also claim refund of excise paid under the Excise Tax Act. Thus,
process was held to be manufacture. Under IT Act, definition is more exclusive as against the
Excise Act’s definition.

India Cine Agencies v. CIT, 2009 308 ITR 98 SC-Under IT Act, where similar benefits as in the
above case were discussed. Here the person who is manufacturer was manufacturing small rolls
from jumbo rolls for photographic film of desired size. Whether this is manufacture? If yes, then
benefit, if not, then no benefits. This case is different from one of the similar cases
discussed as this case is under IT Act. SC decided in favour of assessee and said this is
manufacture. Assessee contended this is manufacture and Revenue contended otherwise. The
test for this is “does a new and different good emerge having distinctive name, feature, character,
use, etc. ….”
Deduction was allowed to be claimed. Same Court in 2005 -CCE v. SR Tissues Pvt. Ltd. AIR
2005 SC 3694. A similar activity in 2005 was conversion of jumbo tissue rolls into different types
of small tissue paper rolls and court decided them to be not manufacture as no new product was
formed. The product remained a tissue paper only. It is not known as a commercially different
product. This conversion was also not noted in the deemed manufacture provision. Thus,
neither deeming provision nor the judicial provision calling it manufacture. In this case they
discussed numerous judgements – Breaks India Ltd. v CCE 1989 judgement -test of end use-“If
by process a change is effected in a product which was not there previously and which change
dissipates the utility of the product for which it is made then process is not simple but one which
is ancillary to manufacture of product….” Transformation is the focus of the judiciary. Another
case was Shyam oil case-refining of edible vegetable oil-not manufacture. Edible oil remains as
edible oil after refining also. Refining held not to be manufacture. Moti laminates case, and another
1998 UOI v JG Glass Industries 1989 judgement-printing and colour on glass bottles-does
printing and colour on plain glass bottle amounts to manufacture? Any transformation? New
commodity? Nope. Thus, not manufacture. Plain and printed have their own market. Two fold
test emerges-
1. Whether by the said process a different commercial commodity comes into existence or
original identify ceases to exist?
2. Whether the commodity which was already in existence will serve no purpose but for the said
process? (Product is of no use w/o process)
If yes, then manufacture.
SC concluded -printing of colour and logo not manufacture as there is no
change/transformation and printed bottle is not a different commercial commodity.
Plain bottle and printed bottles have their own demands each.

But this decision is different from the above one where process was called manufacture.

Value addition and mere mentioning in Tariff Act under separate headers are not enough to
suggest a process is manufacture. So both arguments of department were negated by SC in SR
Tissue case. Assessee denied manufacture of wet tissue paper also as was also contested by
Revenue. This point was not discussed by SC.
India Cine Agencies v Commissioner, IT, 2009 308 ITR 98 SC: certain benefits under the IT
Act. Manufacturer: manufacturing by way of conversion of jumbo rolls of photographic film
rolls into small and flat rolls in a desired size. Court: in favour of the Assessee, it is
manufacturing – it is manufacturing activity under the IT Act. The two goods are different
products. Assessee: it is manufacturing. The test to determine whether a particular activity is
manufacturing depends on whether a new or different good emerged having different name and
character commercially known as distinct good … one process or several process … liability to
duty. The moment there is transformation into a new commodity commercially known as a
distinct and separate commodity having its own character, use and name, whether be it the result
of one process or several processes `manufacture' takes place and liability to duty is attracted.
SR Tissue case (Read above): process of conversion of jumbo rolls of tissue papers is not
mentioned under the Chapter notes, so not manufacturing. The end-product are not different in
the commercial understanding. There is no change in the characteristics – they remain same in
both the products. A new product is made only for convenience. So, similar process under the
two statutes are looked at differently by the court. Court – end product is not different –
characteristics are also same – moisture, absorption etc. if fragrance added, or wet tissues – then
change is there – but mere change for convenient use will not amount to manufacture. (1) value
addition is not important to declare a process as manufacturing process. (2) Mere mention in the
tariff act at two different place is not going to prove a process as manufacturing process. It has
to be tested on definition under excise and judicial interpretation. (3) for conversion into tissue
paper – matter remanded back to commissioner to look into whether assessee has facility for
conversion into wet tissue paper..
Brakes India Ltd. v. Supdt. of Central Excise & Others, (1997) 10 SCC 717 - test of
character or end-use by observing as follows:
"If by a process, a change is effected in a product, which was not there previously, and which
change facilitates the utility of the product for which it is meant, then the process is not a simple
process, but a process incidental or ancillary to the completion of a manufactured product. It will
not be safe solely to go by a test as to whether the commodity after the change takes in a new
name, though in stated circumstances, it may be useful to resort to it. This may prove to be
deceptive sometimes, for it will suit the manufacturer to retain the same name to the end
product also. The 'character or use' test has been given due importance by pronouncements of
the Supreme Court. When adopting a particular process, if a transformation takes place, which
makes the product have a character and use of its own, which it did not bear earlier, then the
process would amount to manufacture under section 2(f) irrespective of the fact whether there
has been a single process or have been several processes."
Shyam Oil Cake Ltd. v. Collector of Central Excise, Jaipur – whether refining of edible
vegetable oil, as a process, constituted "manufacture". It was held that the product even after
refining continued to remain an edible vegetable oil. It was further held that neither in the
section note nor in the chapter note, refining as a process was indicated as amounting to
manufacture. In the circumstances, it was held that refining of edible vegetable oil did not
amount to "manufacture".
 UoI v. J.G. Glass Industries 1998: the question was to declare a process of printing and
coloring of the glass bottles. Manufacturers were manufacturing plain glass bottles in one unit,
and printing and coloring in another unit. Whether the printing of color and logo amounts to
manufacture or not? Plain glass bottle has not lost its identity in the market. Both has its own
market. There are two-fold test …
1. whether by the said process a different commercial commodity comes into existence or
whether the identity of original commodity ceases to exist;
2. whether the commodity which was already in existence will serve no purpose but for the
said process.
If one does not perform on the goods the process, it shall have no demand in the market or is of
no use without the process. If the answer is yes, the process shall amount to manufacture.
Printing and coloring do not amount to manufacture as there is no transformation or change in
the characteristics. The plain bottle has its own market and does not cease to exist. Valuation:
value addition by printing is taxable under the excise tax, however, as it was undertaken in a
different unit as the process is not manufacturing, not taxable. Same in SR Tissues, 180% values
addition is not taxable.
Mere mention at the two different places would not amount to taxation and would not mean
that manufacturing process has taken place. IT Act: what are the prerequisites to consider
something as manufacturing: the definition is exhaustive and has a limited scope. If there is a
complete change in the product and thus, it requires transformation: in character, name, use etc.
Because it provides benefits to the assessee, any declaration of manufacturing would grant
benefits to the assessee.
Value addition, even if not manufacture, it will be considered for excise act and rate of excise
duty. Same rate will be applied after value addition. Then why is it important for deciding what is
manufacturing? Industries are divided into different units for tax avoidance. For example this
process of printing is carries out in different unit and not manufactured, so cannot be taxed even
if value addition. Therefore, in GST tax is on supply
India Cine Agencies case: they did not discuss the SR Tissues case. So, the SC stated that flat
rolls are a different commercial product. The rolls in a flat file of a particular size is a different
commercial product and has a different identity and characteristics, so it amounts to
manufacturing. Same process has been declared in different manners. So, the only way to
reconcile these two decisions is to see it from the purview of beneficial interpretation of the
fiscal statutes.
Excise Act: any process can be declared as manufacturing if that process is incidental or ancillary
for the manufacture of a product, or is mentioned in the Act as deemed to be manufacturing.
Transformation is required due to the judicial interpretation. In addition to that, certain
processes are declared to be a manufacturing process under the Act as the definition is inclusive.
So, the definition is very wide. Here, if the revenue proves that a particular process is a
manufacturing process, the assessee would be duty-bound to levy tax.
Entry 84: excise is a duty on goods which is manufactured or produced in India. Difference
between the two terms

Other relevant cases:

CCE v. Tata Iron and Steel Co. Ltd.-2003, 154 ELT 343 SC.
CIT v. Sesa Goa Ltd., 2004 271 ITR 331 SC.
CCE v. SAIL, 2012 283 ELT 112 SC.

18 August, 2020
Excise Tax has broader understanding (inclusive)/definition of manufacture. But in Income
Tax Act, definition is very exclusive (transformation, etc)-because it provides a benefit. Thus,
Revenue always argues under IT Act that a process does not amount to manufacture.

India Cine case does not discuss SR Tissue case. That’s why SC said they are different commercial
products as against jumbo rolls of photography rolls=manufacture. There is a difference in
court’s interpretation of manufacture under IT Act (purposive interpretation, beneficial
provision) and Excise Act.

CCE v. Tata Iron and Steel Co. Ltd.-Section 3 of Customs Act-empowers government to levy
additional custom duty at power with excise duty on like product produced in India. Importation
of coal from a country. Whether subject to custom duty under Section 3. Discussed coal mines
act and excise act. Duty levied under Coal Mines Act and not under Entry 84. Revenue argued
that because there is excise duty on coal, the same duty or similar rates can be imposed under
Customs Tariff Act. The coal which is imported is not manufactured nor produced then you
cannot levy excise duty in India is the other contention. They said that Coal Mines Act levy is
not comparable to Excise duty. What is subject to Coal Mines Act levy is not what can be subject
to additional levy under Customs Act. And because goods are not manufactured goods, you
cannot levy excise duty. //whether under the Customs Tariff Act empowers the Dept to levy
additional customs duty on every import at par with excise duty leviable in India in a like article
produced in India. If no like article produced, any similar article based on the description would
be considered. It was done under s. 3 of the Customs Act. The assessee imported coal after its
washing. Whether the coal is subject to additional custom duty or not. Under the Excise Act,
there is no duty on the coal. But it is there under the Coal Mines Act. So, this excise duty is not
under Entry 84. Revenue: as there is an excise duty under the Coal Mines Act, similar duty could
be imposed under the Customs Tariff Act. SC: coal which is raised is neither manufactured nor
produced goods – So no excise duty could be imposed even in India, therefore, additional
customs duty could also not be imposed. Coal Mines Act is not an excise duty and it is not levied
under Entry 84. S.3, Customs Tariff Act: says that duty shall be equal to excise duty. Only excise
duty leviable on a like available is the concern, not any other duty in any other statute. SC:
because the goods are not manufactured goods, excise could not be levied.
In Sesa Goa case-Assessee had purchased plant and machinery which were used for extracting,
mining processing iron ore. He claimed that plant and machinery used in the mining and
processing activity for iron ore is allowable under Section5 and Section 32 A as an investment
allowance and other benefits under Section 80 I. Revenue said no benefit as mining of iron ore
not manufacture not production so no benefit. SC said it is production not manufacture.
Production is wider than manufacture. While every manufacturer can be characterized as
production, the same is not applicable vice versa. Because 32 A includes manufacture and
production both, benefit can be provided and similarly, even under Section 80 I benefits can
be provided. Dust impurities etc are also removed in iron ore like in the case of coal. Here they
say iron ore is production. // The assessee had purchased some plants and machinery, which
are used for extracting, mining and processing the iron ore. He claims that this plan and
machinery are allowable under Section 80I and 32A of the IT Act. This process of mining
amounts to manufacturing process, so he should be given benefits under the IT Act. Revenue:
extraction of iron ore is neither manufacturing nor production process. SC: mining of iron ore is
a production process, though not manufacturing. Buddharaja case: the word production has a
wider connotation. Every production need not amount to manufacture. So, benefits of the IT
Act must be provided. Tata iron case was not discussed in this case as it is under income tax act
– but why difference in interpretation of both cases – raising coal and iron ore are similar
processes. Why is coal also not produced. maybe beneficial interpretation in sesa goa.
Sir: Why not coal also produced item? Because coal is neither manufacture nor produced then
why for iron ore? “raised and extracted”. The difference between TISCO and Sesa Goa cases
basically.
CCE v. SAIL, 2012 283 ELT 112 SC. [Sir said that compare this case with Sesa Goa case.]
SAIL who is assessee, co. is extracting iron ore which is being processed washing, grinding,
screening, etc. Revenue claimed that these process amount to mf and therefore charge excise.
Assessee said not manufacture as it does not change composition of iron ore and the iron ore
remains and so no excise duty. SC accepted Assessee’s arguments. Different from Sesa Goa-
2004 judgement where iron ore was said to be production process. So difference in
manufacture in excise and income tax act is what should be looked at here. //mining iron
ore. The Dept submitted that SAIL was mining and subjecting the same to further process like
crushing, washing, screening and grinding for concentration of the ore and to remove foreign
material. In each stage, water is added to remove the sticky particular and removal of foreign
material to increase the iron content. The demand notice was issues by the Dept stating that
these processes amount to manufacture, so subject to Excise duty. Assessee: washing of iron ore
would not convert ore into a concentrated ore. Concentration is improved by separation
impurities. It does not amount to manufacturer as it remains iron ore and there is no change in
the commercial understanding. It remains in the raw form. SC: the removal of foreign material
and other processes does not result in manufacture of different product, no excise duty.
Composition of the iron ore is not changed.

Grasim Industries Ltd. v. UOI, 2011 273 ELT 10 SC-Here assessee was manufacturer of white
cement. He repaired his worn out machineries, etc. with the help of electrodes. In this
procedure also a lot of metals are used. In the process of repair, steel and iron scrap were
generated. This is not manufactured item and did not pay excise duty. Dept sent show cause to
pay excise duty on these scrap and waste produced by machinery. SC said not by product of
white cement manufacturing but that of repair process and so not to levy excise duty.
UOI v Aluminium Dross and Sceamings Co case-similar. The main intended product has to be seen.
If it is coming from. Main product then can levy, but cannot as here it is coming from
repairing process.

19 August, 2020
UOI v. JG Glass Industries 1989-Processes which do not amount to manufacture. In 2015,
controversy again arose on one of the manufactured item. This principle was moved away from
and then went back to the JG Glass case again in another decision.
Servomed Industries Pvt. Ltd. v. CCE. 2015 319 ELT 578 SC-Appellant (assessee) was paying
excise duty on syringe and needles. After sterilization they were put in a printed pouch. Dept
contended that this process of sterilization brings about a change in character and converts
them into disposable syringe and needles-new commodity -based on JG Glass case. If the
second limb of two-fold test of JG Glass was to be strictly applied here then the non-sterilized
syringes not being usable but for sterilization could have led to yet another judgment without the
distinction being a landmark one. From the point of view of medical professional, it is only after
sterilization that such goods are considered fit for use by a person thus a new commercial
commodity coming into existence. In fact one can even stretch the argument to say that once
sterilized, the identity of an ordinary syringe and needle ceases to exist.
One is a raw material and one is end product and without sterilization no one will use, that’s why
new product is created. SC- said no, not manufacture.
(1) Where the goods remain exactly the same even after a particular process, there is obviously
no manufacture involved. Processes which remove foreign matter from goods complete in
themselves and/or processes which clean goods that are complete in themselves fall within this
category.
(2) Where the goods remain essentially the same after the particular process, again there can be
no manufacture. This is for the reason that the original article continues as such despite the said
process and the changes brought about by the said process. [JG Glass case]
(3) Where the goods are transformed into something different and/or new after a particular
process, but the said goods are not marketable. Examples within this group are the Brakes India
case and cases where the transformation of goods having a shelf life which is of extremely small
duration. In these cases also no manufacture of goods takes place.
(4) Where the goods are transformed into goods which are different and/or new after a
particular process, such goods being marketable as such. It is in this category that manufacture of
goods can be said to take place.
Out of the 4 categories the Apex Court concluded that it is only when the activity falls under the
last category, the same would amount to manufacture and invite excise duty liability. The Court
took note of the decision in JG Glass however it found in the present case as falling under the
first category and held that it would not matter the goods in question are only used after
sterilization as all medical items must of necessity first be sterilized. What triggered the Supreme
Court to rule in favour of the assesse was the fact that if sterilization would amount to
manufacture, then if an item is sterilized five times in a day by a doctor, then the same item
would be chargeable to excise duty again and again and such a scenario would lead to an
absurdity and ‘fly in the face of common sense’. Thus, Servo-Med has expanded and refined JG
Glass ratio by emphasizing on quantum of change or transformation brought about before one
proceeds to fasten excise duty liability
Trigger point here was to rule in favour of Assessee or Revenue then item sterilized 5 times in a
day would amount to manufacture at any point of time. So addition or no addition of value
would cause sterilization would make a process manufacture.

CCE v. Fitrite Packers, 2015 324 ELT 625-Assesee was purchasing blank GI papers and
printing customer specific logos and colour, or any other specification provided on it. Change in
end use. If we take JG Glass case, then there is manufacture. Court said manufacture. Same
reasons as in above case. Restriction in end use, now becomes special paper and marketability
comes from customisation. [No doubt, the paper in-question was meant for wrapping and this end use
remained the same even after printing. However, whereas blank paper could be used as wrapper for any kind of
product, after the printing of logo and name of the specific product of Parle thereupon, the end use was now
confined to only that particular and specific product of the said particular company/customer. The printing,
therefore, is not merely a value addition but has now been transformed from general wrapping paper to special
wrapping paper. In that sense, end use has positively been changed as a result of printing process undertaken by
the assessee. We are, therefore, of the opinion that the process of aforesaid particular kind of printing has resulted
into a product, i.e., paper with distinct character and use of its own which it did not bear earlier . Thus, the 'test of
no commercial user without further process' would be applied as explained in paragraph 20 of Servo-Med
Industries (supra). The aforesaid paragraph is extracted hereunder.]
Restriction of end use-reduces marketability basically that only that person who asked for
customisation can use it and not everyone else.

Here printer is printing paper as per specification-this was held to be manufacture.

If general printing, SR tissue case will apply and not manufacture. If general – sale of goods.
2 examples – 1st – purchasing paper and printing as per customer specification
2nd example – customer has provided paper and then assessee is printing and brand logo and
then giving back to customer
TCS case had not decided on customization. In sir’s. opinion, both are services, so how excise
tax?
In this case court did not consider if this is goods or services, value addition is only printing.
One case says apply JG glass case while the other doesn’t- same year- the court is rather
confused with its decision.
 20 August, 2020
All goods that are covered under 3rd schedule (deeming), processes related to them which
involve, packaging, repackaging or labelling or alteration to make it marketable will be considered
as manufacture. And all the value addition because of these activities will amount to manufacture
even if no change. If no value addition, subject to excise duty but in end you are not paying any
excise duty in the end. This was brought in 1996 as there was tax evasion on a lot of products.
Example – packaging of water does not amount to manufacture – but if added in chapter note, it
will amount to manufacture.

WHAT IS INCIDENTAL OR ANCILLIARY PROCESS TO COMPLETION OF

MANUFACTURED PRODUCT? (section 2(f)(i))
This brings marketability concept. Packaging of cigarettes or tobacco, it can be sold in lose form
but packaging is mandatory. Packaging of something that is already marketable is not incidental.
ITC v CCE (on cigarette packaging), 2002 151 ELT 246 SC
Packaging not required-it is not incidental to manufacturing but incidental for sale
What is required is to make product marketable which is an essential condition for excise duty

Keshav Dev Shivprasad v. UOI, 1992 61 ELT 04-incident or ancillary process must be integral and
inextricable part of manufacture resulting in presenting manufactured or finished/complete
product. (tea packaging-not integral held here). Marketability is an essential test.
The cumulative effect of all such incidental or ancillary processes resulting in manufacture is that
when a new substance is brought into existence or if it is a new or different article having a
distinct name, character or use resulting from a particular process or processes, such an activity
would then amount to manufacture, and duty of excise would be leviable on such a substance. –
tea packaging not incidental or ancillary.
Quality testing will be incidental process, where certification is required or certain quality is
required for marketability. But in every case it will not be incidental.

Whether quality testing is integral to the process. Not in every case so cannot generalise this.
Sometimes certification is also required. Suppose you manufacture ayurvedic products,
labelling is also essential for making product marketable
If something is to enhance sales then process is not incidental or ancillary. Then it cannot
be considered as manufacturing process. Not to complete manufacture but to increase
sales/capture market. Sale cannot be applied as criteria here.

Calcutta Clinical research Industries v. UOI, 1999 109 ELT 56 Cal HC-because labelling is mandatory
-it is integral or inextricable process to make product marketable.

For example ISI mark when necessary will become an inextricable part of manufacturing
process.

SD Fine Chemicals v. CCE, 1995 77 ELT 49 SC.

Marketability and manufacturing have both been discussed. -Prachi Industries v. CCE, 2008 225
ELT 16 SC.
Cipla Ltd. v. CCE, 2008 155 ECR 66 SC.
SKB Dry fruits Marketing Co. Ltd v. CCE, 2008 224 ELT 339.

21 August, 2020
Manufacture-whether melting or re-melting will amount to manufacture. For eg.-this is plastic
and by melting you are making new items. The court treats this as manufacturing and levies
excise duty on it.

Re-melting-Century Spinning and Manufacturing Co. v. UOI, 1981 8 ELT 676 (Bom HC)
CSAT judgement-National Metal Works v. CCE, 2005 179 ELT 189 (App. Tribunal)

Mixing and blending 2 or 3 things together – if it generates a 3rd article which is a new
commodity or their transformation -then manufacture. Mere mixing and blending is not
manufacturing. A new thing which is a commercially viable product, only then it is manufacture.
CCE v. Goyal Gases, 2000 119 ELT 5 SC-mixing of Nitrogen and O2 with inert gases-no new
product emerges-SC dismisses for want of evidence of new product with usability and
commercial viability and marketability. Matter remanded back to Commissioners.
Gail v. CCE, 2004 163 ELT 37 (App. Tribunal)-mixing of propane and butane to get LPG
which is a new product-allowed as manufacture. This is because LPG is marketable in itself as a
product.
Supplying 2 or more items together is manufacture or not?
Halkins Cookers Ltd. v. CCE, 1997 96 ELT 507 (SC)-cooker-things put in different packet like
casket, or lid, etc. different packaging and final packaging on everything then. The things are
purchased from different manufacturers by paying excise duty. Revenue claimed this would
amount to manufacturing again. Court said no. This is only supplying together and does not
change end use. There is no new or different product in place. Therefore, NOT
manufacture. This only adds to convenience -that is separate packaging. Similarly in case of
water purifier and RO-things packaged separately. Does not make it manufacturing.
CCE v. Berger Paints India Ltd., 1997 93 ELT 100- Whether assembling of machinery is
manufacture or not? Usha Rectifier Corp. v. CCE, 2011 263 ELT 55 SC. Co here-manufacturer
of electronic transformer, conductors, semi-conductors, electronic items. During manufacture,
also manufacturing machinery (testing equipment) to test final product. Assessee stated-and
considered it as plant and machinery in their accounts books. Such items were assembled in
factory for research and development only. Research being unsuccessful, they were dismantled-
then not manufacture. Otherwise we have to import from foreign countries-that’s why own
equipment. SC-fact that they were importable (and this machinery was used only to save forex)-
marketable-assembling of testing equipment-manufacture. Once mentioned in Balance
sheet-it will be excisable-even though not successful-and not marketable? Why have you
mentioned in directors report and balance sheet-so manufacture held. If it was not successful
actually, then not marketable and therefore no excise duty on it. Court said this could be used as
a colourable device to evade excise duty.
A lot of sample trucks -are excisable -Cadella Laboratories.

Who is manufacturer? Section 2 (f)-last para.

● Not just person who employs labourers in manufacturing process. Also includes any
person who engages in manufacture and production of goods on his or her own account.
● Liability on one person, incidence on another-in indirect tax.
● Who is the person and where the liability can be fixed on that person. It is possible that
through colourable device and manipulation, you can divert/minimise the liability. Thus,
it is important to understand WHO is manufacturer!
● E.g. Give wheat to Miller-who converts it into wheat flour. Who is manufacturer? Owner
of wheat or miller who converts it into flour? Is ownership irrelevant? [Who converts to
flour]
● E.g. Maruti Co. hired small scale industries or medium scale industries for manufacturing
parts or accessories of the car. As per specification of Maruti Co. who will be
 manufacturer? They are also putting brand name of Maruti on the products and then
giving to Maruti Co. Then who will be manufacturer? [Maruti] What if these small scale
industries are created as a colourable device? Excise is on manufactured and produced
goods. Now suppose MSMEs/small scale industries are exempt from taxation. Then you
can use this for claiming benefits.
[McDowell’s Case-colourable devices for tax avoidance. Raw material supplier will be
taxable if it proved that persons are dependent on them (aka the small scale manufacturer)-
related parties. If they are independent, then no problem]

CCE v. MM Khambhatwala, AIR 1996 SC 3319- Here appellant supplied raw material to
the various household ladies who were manufacturing dhup, agarbattis, etc in their houses.
Final products was sold directly from premises and not brought to factories. There was no
control of appellant. Whether household ladies or person who supplied raw material is
manufacturer? Court held-ladies are manufacturers and not supplier of raw materials or the
owner of the end product. This is because they are not hired (control and supervision
essentially) labourers. Here there was no control or supervision over the ladies and they were
manufacturing independently.
Main points: Look at WHO is converting goods into final goods and whether they are
dependent (hired labour-owner liable then) or independent (they themselves are
manufacturers under excise act).
Pawan Biscuits Co. Ltd. v. CCE, 2000 120 ELT 24 SC-here Pawan biscuits was making biscuits
for Britannia which supplied raw material, recipe, packaging material. The product was being
manufactured strictly as per specifications of Britannia. They were being sold in Britannia’s
brand name. There was also an agreement between Pawan Biscuits and Britannia, that if
specifications not met, then product will not be accepted. Who is manufacturer? SC held- Pawan
Biscuits is independently manufacturing biscuits for so many other companies also, they are not
hired labourers. They are manufacturers.
Manufacturer in case of Pepsi or Coke when it has an agreement with a Bottling Co. Pepsi or
Coca Cola is NOT manufacturer and only owner of Brand name. The one who is exclusively
manufacturing for them as per specification will be manufacturer. They are independent
entities.
Dependent means control and supervision. Exclusively working for them. Exclusivity
will not make someone dependent.
Profit and Relation test to be applied
 1. Who is making manufacturing profit?
2. What is the relationship getting the work done-master servant or agent-principal
(hired labourers then)?
Has to be manufactured/produced in India.
Point of taxation/ collection?
2. Methods of valuation
3. Classification of the goods & Services
4. Credit system
5. Procedural requirements

24 August, 2020
Pg 35-44-AT notes for missed duration
GST -101st Constitutional Amendment
1. Dual Model of GST (Centre and State both tax on same subject matter)-concurrent
jurisdiction of both centre and state-fiscal federalism. IGST-only centre will levy and
collect.
2. Recipient and supplier in different states-Centre has power to levy [IGST]. Imports also
considered as inter-state supply.
3. Compensation for industrial states for loss of revenue. This is because taxable event
changed from origin based. Now it is consumption or destination based.
The growth rate (deemed growth rate). States would receive compensation at deemed
growth rate at 14% for 5 years from 2017.
4. Not inclusive administration. Human intervention is less and everything is on GST
platform. All transactions and process only through e-modes – GSTN platforms. It is a
PAN based system.
5. If the turnover exceeds 20 lakh rupees, then registration is compulsory under
GSTN in case of supplier of services, in case of supplier of goods, it is above 40
lakh rupees. In case of certain states, for the supplier of services, it is 10 lakhs and 20
lakhs for supply of goods. Composition limits: if turnover is 1.5 crores, one can
choose to be a composition dealer and under that there are certain benefits
afforded: The dealer cannot charge input tax benefit, the rate of taxation is low, the
tax is on their turnover and not on their supply, they don’t have to maintain any
document and clear goods on the basis of invoice, it is optional and not
mandatory.
6. Exemption limit is provided. If your turnover exceeds 20 Lakh, then you have to be
registered under GST Act. If lower than 14-20 lakh, you are exempted from GST system.
Some states have 10 lakhs and 20 lakhs as limits also. Composition dealer-optional-
benefits provided also to him. Cannot charge input tax credits. Composition Scheme is
a simple and easy scheme under GST for taxpayers. Small taxpayers can get rid of
tedious GST formalities and pay GST at a fixed rate of turnover. This scheme can be
opted by any taxpayer whose turnover is less than Rs. 1.5 crore. No Input Tax Credit can
be claimed by a dealer opting for composition scheme. The dealer is barred from
carrying out inter-state transactions.
7. Anti-profiteering provisions: Unique feature of GST system. This means that if due to
change or reduction in rates of taxation. You cannot make profits out of reduction in
rates and then that benefit has to be passed on to consumer, if you don’t do that, then
you’re making profiteering and for that anti-profiteering provision has been made.
National anti-profiteering authority established for the same. [Clause 171 has been
inserted in the GST Act which provides that it is mandatory to pass on the benefit due to
the reduction in the rate of tax or from input tax credit to the consumer by way of
commensurate reduction in prices. For example, eating out has become cheaper
under GST (mostly 18% GST as compared to earlier 20.5%). This benefit must be
passed on to the consumers. This is because the reduction in tax rate will directly be
evidenced by invoices, and the recipient will get benefit of the rate reduction. Such can
be seen now in the cases of eating out and travelling through app-based taxis.]

8. Reduction in cascading effect of taxation: Central and state taxes cannot be claimed
against each other. [In simple words “cascading tax effect” means a tax on tax. It is a
situation wherein a consumer has to bear the load of tax on tax and inflationary prices as
a result of it.]
9. Common national market: one nation, one tax. A single rate of tax is applicable due to
GST. This as different from the position earlier. VAT etc. still outside of GST system
and so multiple rates in different states.
10. Exports are 0 rated now under GST and no taxes on them now. Protection of domestic
industries also because of IGST.
11. Self-regulating tax system.
12. Digitalization. Transparency is higher also. Better documentation (invoice based).
13. Consumption based tax: both industrial and non-industrial states are getting benefits.
 14. The only demerit is documentation because for each and every transaction you have to
maintain to claim any benefit. Transparency is high and less tax evasion is possible now.
15. Taxable event was removal earlier in case of excise duty. In case of service tax-it was
provision of service. Now under GST point of taxation is supply. This is defined
under Section 7 of CGST Act. Inclusive definition. Helps to cover many things within
ambit. “such as” means illustrative. Not exclusive or inclusive or exhaustive. It means
limited to these….. It is a transaction of goods or service. Section 2(52)-definition of
goods and Section 2 (102)-definition of service. It has to be sale, transfer, barter,
exchange, license, disposal (writing off is also considered a disposal), etc. “Made or
agreed to be made for a consideration”. What is consideration is defined under Section
2(31). Even compensation received under non-compete agreements is considered as
consideration under IT Act. Transaction considered as compensation is also considered
as supply here. Lastly, it has to be in the course of or in furtherance of business. By a
person-not clarified. What is business -defined under Section 2(17). (no need of
continuity, one time activtity also included) Goods-other than money and securities,
every movable property. It includes growing crops and actionable claims. In relation to
lottery, betting and gambling -actionable claims included and not the others. Services
means anything other than goods.
Definition of business under Income Tax Act.
25 August, 2020
(Take for this day)
Three schedules. Section 7. Import of goods or services for a consideration, even though for
personal use, whether or not in the furtherance of business, is taxable. Only requirement is that it
must be for a consideration. Check 7(1)(A): from the amendment Act. Clarified what
constitutes a transaction of goods and what constitutes a transaction of services. Schedule III is a
negative list.
Schedule I, Item 1: gift, transfer of computers to a school. Read with s.17(5) – negative list of
ITC – things on which ITC is not allowed. Item 2: Related person: Explanation to s.15. Distinct
person: s.25. Business vertical – between two branches, if separate registration number. Item 3:
principal-agent. Item 4: Import.
Who is a person (inclusive list) same as before, not much change.
Section 7(1) (A)
Schedule 1 of the Act
SCHEDULE II- SUPPLY OF GOODS OR SUPPLY OF SERVICES
1.      Transfer
2.      Land and Building
3.      Treatments of process or another’s goods
4.      Transfer of business assets
a.       Forming part of the assets- no longer part of the assets after transfer- different from
Schedule I as in that ITC has been claimed- here no such requirement.
b.      Used for a private use or any other person- not relating to business- consideration not
relevant- considered as supply
c.       Exceptions- 1. going concern; 2. carried on by a personal representative- not constitute
supply. When a person ceases to be a taxable person- immediately before that- the transfer he
makes would constitute supply. Under 2. Deemed to be a taxable person- as in his name it is not
registered- after the death of the father- the son takes up the business- he is not registered with
the system and will apply in some time- he will be deemed to be a taxable person.
5.      Supply of service- dispute regarding works contract, photography, restaurant- tried to
resolve such confusions and clarify the position.
a.       Renting of immovable property; (already discussed under land and building- here
mentioning “any”)
b.      Construction – ready-to-move-in building- it is complete and I purchase it- if entire
consideration paid after the issuance of the completion certificate- not a supply of service- no
GST as it is a case of sale of building and not covered under the GST system. Intended for sale
and sale- there is a difference- book the flat earlier and take possession only when the flat
constructed- buyer is an identified person- agreement to sale.
c.       Temporary transfer or permitting the use or enjoyment of any IPR
d.      IT Software- decided the ISODA Case- TCS case- if branded then treated supply of goods
and if it is tailor-made- supply of service. But here under GST it has made it clear that it would
be supply of service- mode of transfer irrelevant
e.       Refrain- non-compete agreement, tolerate or do an act- IPL auction, performance like
stand-up, dancing, singing etc.
Maharashtra v. Bajaj Finance Ltd (2018): Cheque bouncing- charges made – whether that
charge is supply or not- whether GST applicable on the cheque bouncing- to tolerate an act-
GST applicable- supply of service. Amount for tolerating the act of the customer. In the
erstwhile regime- no such provision. It is very open ended- in fact any kind of fine can come
under its ambit. Defaulter on EMI payment- fine charged or interest- even that is supply as
tolerating an act.
f.       Transfer of Right to use any goods
6.      Composite Supply (viv-a-vis mixed supply)
2(30) composite supply- one of which is a principal supply; goods or service or both; naturally
bundled together; For ex: purchased a machinery and transportation and insurance cost and
installation cost- principal supply is machinery- other services are necessarily bundled- all of it
will be supply of goods
2(74) mixed supply- not naturally bundled; For ex: gift pack provided- dry fruits, chocolates etc-
can be supplied independently; on whichever item there is a highest GST rate applicable- that
will be applicable on the whole of value of the gift pack.
7.      Clubs or association – even if not registered- to its members
Srimad Rajchandra Adhyadhmkit satsang sadhana Kendra, 2018 97 Taxman 20 AAR:
Whether the sale of religious books, DVDs in satsang would attract GST? AAR Mah: it was
contended that the money earned was used for the main object – for charitable and religious
purposes. Such activities could not be said to be business. AAR: there was no exception for
registered charitable goods, it could be said to be a business. GST is applicable. Any money
earned for the charity is not excluded.

SCHEDULE III-NEGATIVE LIST

Via amendments incorporated
1.      Supply from a non-taxable territory to another non-taxable territory without such goods
entering into India- innocent passage- transported to Bangladesh via India- goods not going to
be consumed in India- no GST can be charged on that
2.      Supply of warehouse goods without clearance- for consumption- not imported in India-
custom clearance necessary for import-
3.      Consignee to any other person by endorsement of document to title- before clearance for
home consumption- high sea sales
Study from CA 2 folder
(take for 31st August, 2020)
2 September, 2020
Determination of place of Supply
1. Location of supplier
2. Location of place of supply
Both in same state-intra state supply-CGST or SGST
If in different-inter-state supply-IGST

Movement of goods has to be determined based on invoice.

B2B-business to business as here claim of ITC benefits comes into picture. Wherever movement
stops, there is place of supply.
“Deemed place of supply”-sub-clause b
Actual place of supply where goods are to be consumed.
● Agreement between supplier and 3rd person-3rd person’s direction on the basis of which
supply is being done-his place of biz becomes deemed place of supply.
● B directs A to supply goods to C-B’s place is deemed place of supply even though actual
place of delivery is that of C-IGST becomes applicable. There are 2 transactions -one
b/w A and B and one b/w B and C-so another invoice can be made-IGST.
● Suppose a trade in Maharashtra receives an order from a B, trader in London to deliver
100 mobiles to another trader C, in Maharashtra. Where is place of SS-outside India.
Section 7(5) of IGST act. Not export-not a zero rated supply-inter-state will be subject to
GST -CGST not applicable.
Disputes regarding determination of place of supply:
● How are they resolved?
 ● Section 97 of CGST Act-Authority for Advanced Ruling’s [AAR] jurisdiction to
determine disputes on certain questions
● “Place of supply” is to be determined to decide which tax is payable-state or integrated
tax.
● Under GST, AAR has been established in every state. This is a state authority now. Every
state also an appellate authority for it in every state [Appellate AAR/AAAR]. You can
even seek a ruling in advance from them.
● In re Banyan Tree Advisor Ltd (2019), Asiatic Clinical Research Private Ltd. (2019)-
both rejected application on place of supply’s determination-they were both Karnataka
AAR’s rulings. But Sutherland Mortgage Service v. Principcal Comm, 2020 115
Taxmann 82 [Kerala HC] case-Kerala authority also rejected determination of place of
supply. They sought HC to send this matter to AAR for determination of place of supply
under clause e of Section 97. One observation was made by HC and remanded to AAR-
that HC directed AAR to decide place of supply. [https://taxguru.in/goods-and-service-
tax/aar-can-decide-question-place-supply-kerala-hc.html]
But is this right? because every state has a separate AAR and one state cannot decide a
matter for another state and this interpretation by the court would cause conflicts
between states. There are 2 different states involved for supply. There were also demands
for a National Appellate Authority for AARs because otherwise AARs will tend to side
with the state.

(take last bits)

3 September, 2020
Section 10(2) gives power to GST Council to determine place of supply in case it cannot be
determined they can do so by notification or fix rules for determining the same.

Section 11-imports/exports-location of importer is place of supply or the person who has

submitted bill of lading, etc.-that person’s place. In case of export, outside India-location.
Reverse charge mechanism-all provisions of GST will apply on recipient and not supplier.
Recipient has to be registered and pay tax as supplier-this is reverse of normal mechanism.
Importation is thus taxable on reverse charge mechanism. Exporting-as goods will be consumed
outside India, they will be taxed outside India -GST is destination based-this is also because of
export incentives-they are zero rated supply (S 16 of IGST Act) in India-promotes make in India,
etc. also.
S 16: Zero rated supply: So whatever tax is available as input tax credit, can be claimed as
refund from government.

Section 12: Place of Supply of Services where location of supplier and recipient is in India-
Domestic Supply of Services. It can be divided into 2 parts-
● general provision which is generally applicable on everything/every case, and
● special basis to determine place of supply-which is specific to some situations Sub
section 3-14.

Location of supply is provided under both IGST and CGST Act.

Section 2(14)-location of recipient of services.
Section 2 (15)- location of supplier of services.

Section 12 (2): this has to be read with above 2 provisions.

Note-Section 12 (2)(a) and Section 2(14) are for registered persons only.

Section 12 (3)-immoveable property concerned-then place of supply will be where the

property is located. Suppose I book hotel from an agent in Jodhpur for a hotel in Kerala. Where
is place of supply? Is it inter-state or intra state supply? It would be inter-state supply as the
location of property is in Kerala. Say I have to visit Singapore and I book hotel from an agent in
India or through a booking website like MMT, etc.-then place of supply will still be India-based
on the proviso to the Section here. The place of supply is shifted from outside India to place of
recipient to charge GST. Here booking of hotel is what is being considered as a service and not
staying in the hotel. Suppose I book through an agent and pay the entire value of my entire 3
days of stay at the hotel-this will also be included in the provision.

Explanation: there are IGST Rules also-“as prescribed” refers to them.

4 September, 2020
Sub-section 4: “restaurant and catering services, personal grooming, fitness, beauty, treatment, health service
including cosmetic and plastic surgery shall be the location where the services are actually performed”
E.g.-Catering services of Maharashtrian company in Jodhpur-place of supply is Jodhpur where
service is actually being performed-considered as an inter-state supply. IGST invoice will be
raised in the name of recipient.

Sub-section 5: “The place of supply of services in relation to training and performance appraisal to,––
(a) a registered person, shall be the location of such person;
(b) a person other than a registered person, shall be the location where the services are actually performed.”
In case of registered person-location of recipient
In case of non-registered person-location where service will be performed.

Sub-section 6: “The place of supply of services provided by way of admission to a cultural, artistic, sporting,
scientific, educational, entertainment event or amusement park or any other place and services ancillary thereto,
shall be the place where the event is actually held or where the park or such other place is located.”
Place where event is actually held will be place of supply. We also consider place of supply. For
online events, Section 40 comes into picture.

Sub-section 7: “The place of supply of services provided by way of,—

(a) organisation of a cultural, artistic, sporting, scientific, educational or entertainment event including supply of
services in relation to a conference, fair, exhibition, celebration or similar events; or
(b) services ancillary to organisation of any of the events or services referred to in clause (a), or assigning of
sponsorship to such events –
i) to a registered person, shall be the location of such person;
(ii) to a person other than a registered person, shall be the place where the event is actually held and if the event is
held outside India, the place of supply shall be the location of the recipient.

Explanation.––Where the event is held in more than one State or Union territory and a consolidated amount is
charged for supply of services relating to such event, the place of supply of such services shall be taken as being in
each of the respective States or Union territories in proportion to the value for services separately collected or
determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or
agreement, on such other basis as may be prescribed.”
Note: First clause was admission, here it is organization.

(take for the missed parts)

Sub-Section 8: When handed over-in unregistered person
Register placed -in case of registered person

Sub-clause 9: is about goods unlike above which was for persons.

B-B-not look at where you start/embark-location of registered person. Only when B-C then you
see where you embark on journey.
Suppose right to passage for future use is given.

Registered persons are those who are under obligation to pay GST under Section 22 of the
CGST Act. B-B everyone has to be registered, except if you are within an excepted limit.
Voluntary registrations are also there-PAN, Aadhar, address.

Registered to unregistered-registered has to pay tax on supply even if made by an unregistered

person. Then why will there be a purchase from an unregistered person?

[Take for Sep 5, 2020]

7 September, 2020
Time of supply of goods
(Section 12 and for services -Section 13 of CGST Act)
● Omitted sub-section 1 after amendment to read only as Section 31.
● Suppose 15 July, 2020-purchase order received by supplier. 20 July, 2020-invoice has
been issued by supplier. 15 August, 2020-supply has been made. Payment received on 20
August, 2020. Time of Supply is 20 July as per Section 12 (2)(a).
● Suppose 15 July, 2020-purchase order received by supplier for 10 lakh INR. 20 July, 2020
he receives advance payment of 50,000 INR. 31 July, 2020-Supply of goods done with
invoice for 5 lakh INR (so goods were worth 5 lakh). 15 August, 2020-another supply of
3 lakh INR and issued invoice for the same. 20 August, 2020 made supply of goods
worth 2 lakh INR and issued invoice for the same. 50k paid was a security deposit and it
is not created as a form of consideration. 20 July will not be considered for any purpose
and the remainder will be for time of supply specific dates. In case we consider 50k as
consideration, then recipient of service will tell on which dates’ money he wants to
amount to be adjusted. (Check this once)
 ● Suppose 15 July, 2020-purchase order received by supplier for 10 lakh INR. On 20 July,
2020 he receives of 5 lakh INR. On 31 July, 2020 he supplies goods of worth of 7 lakh
INR and issues invoice. On 15 August, 2020-another supply made with invoice for
goods worth 3 lakh INR. Time of supply-respective dates-20 July-5 lakhs, 31 July-7 lakh,
and 15 August for 3 lakh.
● Advance payment-in 2017 when Act implemented-all kinds of advance payment were
considered as time of supply, but this was changed by a notification in November, 2017-
unless it acts as a consideration for supply, i.e., it was for receipt of payment.
● Suppose I have made supply of goods worth 20k and issued invoice on 15 Jul, 2020. I
show invoice of 21k-this 1k could be considered as advance payment for next supply. So
above rule will be applied unless it 1k is appropriated for consideration. Here option is
given to supplier for excess amount and not the actual amount. (Read Proviso)-he can
consider excess date as time of supply or the appropriate to the next date.
● The money may be paid as token money basically towards actual payment-1k is the
amount provided under the proviso.
● Explanation 2: Receipt of payment-the earlier of 1. Amount entered into books of
account OR 2. Amount credited in bank account-Date of Receipt of Payment.
● Section 12(3) discussed with illustration. Reverse charge mechanism where recipient
makes tax payment.

8 September, 2020
Sub-section 4-supply of vouchers-time of SS shall be date of issue if SS identifiable or
redemption of voucher in all other cases.
If voucher mentions the product for which it can be availed is mentioned-then supply is
identifiable but if it is general, then you can purchase anything and it’ll become date of
redemption.
Even if voucher is given as gift/promotion, GST is applicable. This is being disputed also right
now.

Sub-clause 5: Residuary provision if time of SS can’t be fixed based on other above-mentioned

provisions. It is either filing of periodical return or date of payment of tax. Suppose you think
your goods are exempt from GST and you do not issue invoice or say you’ve been ordered to
pay GST by a Court Order, then the time of SS may be determined by this sub-section 5.
Payment of tax under protest payment-means when there is difference b/w your calculation of
tax and that of revenue’s but you pay the tax based on what you’ve been ordered to and then file
an appeal.

Sub-clause 6: special case as to time of SS. Suppose there is SS of goods on 15 July-invoice

issued for 5 lakhs. Payment date for that is August 30. But if you don’t make payment, then 2%
late fees/penalty/interest charged. If you don’t make payment by August 30 th, then have to pay
additional 2%, then the date on which such payment is made will be time of supply.

Section 13 -time of supply of services

Earlier before GST, point of tax for provision of services was- provision of services-when you
receive payment. In 2012 shifted from provision of service to receipt of payment.

2(a)-date of issue of invoice within time prescribed or date of receipt of payment-whichever is

earlier
(b) date of provision of service if invoice not issued within prescribed period or date of payment.
(c)-when recipient shows receipt of services in his books of a/c.

Section 31 read with Rule 41 (refer to bare act CGST Act)

Rule 47 of CGST Rules-what to be there in invoice. Explains why there is difference in Section
12 and 13 of the CGST Act.

(3)-reverse charge basis

(a)-date of payment as entered into books (as payment) of a/c of recipient or date of debit in
bank a/c. OR
(b)-date immediately following 60 days from issue of invoice or any document showing supply of
services

Proviso-when entry made that he has received services

Proviso 2-entry into books of a/c or date of payment

Section 14-Transition period

Tax rate changes keep happening and there is no need to change rates via legislature.
Maybe after SS there is change of tax and you issue invoice after supply.
Suppose 15 July-made SS of G/S. on 20 July, change of rates from 18% to 12% in that category
of SS. Supply before change.
(a) (i)-Payment after change on 31st July- 5 August -invoice on 31st July-then time of SS is 31st July
on which payment was received. This means you have to incorporate change of tax rates in your
invoice.
(ii)

Take for 9th

(check with someone) 10 September, 2020
Composition Levy Scheme-also under GST (Optional scheme)
On what basis excise duty is fixed? Capacity of machines/plants which can manufacture that
item. Neither it is value nor turnover-based on production capacity of the machine which is fixed
by government every year. Validity of method upheld by SC.

State of Kerala v. Builders Association of India, AIR 1997 SC 3640-scheme upheld-government

can evolve a convenient, hassle free and simple method and it should be optional. Cannot make
it mandatory on assessee. Advantage of this method is to make it invoice free which means that
whatever is being sold or produced, no documentation is required for them. This is because
you’re not allowed to claim ITC. Depending on nature of business, you can choose this method
and it’s not compulsory. Once you start scheme, have to carry it on for a year.

CCE v. Venus Casting Ltd., AIR 2000 SC 1568-scheme brought to cover gutka, pan masala etc.
(notified in 2008) as there was a lot of tax evasion in that area. Capacity of machine-on which
levy.

MRP Method-This was not there since inception of Act (when only Specific duty method and
transaction value methods were there). It was adopted in 1997 to cover the category of the goods
which are considered to be __ and where Legal Meteorology Act is applicable. Tax evasion in
packed items and groceries was seen. Actual price going to retailer was very high-they observed
that agreement price b/w seller and dealer was very low and that at which it was sold to retailer
was very high. So, this caused a lot of money going untaxed. Complete change is necessary for
manufacture and So 2(3) added-deemed manufacture concept was added (Schedule 3-anything to
make product marketable basically). Amendment made in Section 2(f) and added this method.
Even if dealer changing price was held to be manufacture. This meant if they are selling to
retailer for a different price, it amounts to manufacture. So, this concept of MRP came to cover
white goods, groceries, etc. which were prone for tax evasion.
Section 4A says that valuation of excise goods with respect to retail sale price.
Essential conditions:
1. notification by government to cover such goods under MRP-scheduled 3 of Central Excise
tariff Act-notification under it is important.
2. only those goods are covered where legal meteorology act and rules thereunder are applicable
or any law in force which deals with packaged goods like drugs and pharmaceuticals act. So,
goods exempted under such acts are also exempted from scheme.
3. government when notifying goods under schedule 3 has to be with rate of abatement. This
means abatement amount is deducted to arrive at value on which MRP value will be applicable.
4. should be intended to be sold.
If any one condition it missing, scheme is not applicable.

Pepsi bottle, plus nestle chocolate free- now Metrological Act applicable on chocolate but
whether that chocolate which is transaction b/w Pepsi and Nestle subject to transaction scheme
or MRP scheme? Jayanti Food Processing Pvt. Ltd. v. CCE, 2007 8 SCC 34- SC clubbed more
than 15 cases here. V imp case!

S 4: Transaction Value Method-(came in 2000, it was on average price and not agreement
price earlier-it was deemed value then. Before 1986, it was normal value which was fixed by
government and it was not even deemed value) agreement price b/w seller and buyer-transaction
value it is called. Based on this, excise rate is applicable.

14 September 2020
Section 4 A of Excise Act:
Penal consequences-payment redemption
Now valuation has been shifted from manufacturer to Deptt. Because earlier manufacturer had
power to declare MRP and they would tamper with it by not declaring it as per law. There are
now rules on how MRP will be fixed by the Deptt.
Circular -how to read situation of combo pack, etc.
Under Section 4A-conditions to be fulfilled for valuation under this scheme. These 5 conditions
are v important, more than the nature of the sale.
Section 4A of the Act-when goods are liable for confiscation by deptt. and valuation will be done
by deptt.
3 situations:
1. Manufacturer removes such goods from place of manufacture without declaring retail price.
2. Declares MRP but it is not as per the law.
3. Declares MRP but alters after removal from place of manufacture. So, you’re tampering or
altering the MRP.
Valuation will then be made by the Deptt. In these three situations and there will be
confiscation.

The explanation 1 defines what is retail sale price. Maximum price at which goods will be sold
to consumers-all charges and excise duty, commission payable to dealers-everything is included
in it. Price is not the sole consideration, tested whether at arms’ length or not-Price should be
sole consideration, otherwise in case of related parties (relation b/w supplier and manufacturer),
Deptt. Will value it.

Explanation 2 (i): Where more than one retail sale price is there (on same packet basically-for
different states), maximum MRP will be taken.

Explanation 2(ii): Altered retail price will be deemed to be retail price. It is an offence to alter
price in one of the provisions, and here it is said alteration to increase, the altered price will be
the retail price. Why? Problem occurs after removal of goods if there is alteration. Relate this
with Section 2(f)-deemed manufacture for Schedule III goods. So, changing price was also
manufacture under the provision-taxable under excise act. So, whosoever alters price, that
person is taxable under excise act.

Explanation 2 (iii): Maximum retail price will be taken for the purposes of valuation of goods
intended to be sold in an area.

Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008
Rule 4 and then Rule 5 will be applicable (in hierarchy)
4(c) (i)-Suppose manufacturer has declared goods on 15 Aug, 2020 and which is considered as
alleged goods-fixed price-whether clearance made before 1 month of identical codes? Nearest
clearance is taken. So, b/w 1 August and 15 September, 1 August will be taken.
(ii)manufacturer is not first-time manufacturing goods, deptt. will conduct enquiry in market on
sample basis and find out.

Proviso says highest retail sale price will be considered.

Explanation says -enquiry to be carried out on a sample basis.

Rule 5: This is a kind of penal consequence on manufacturer. Even if you have cleared within
one month before and after, that would also be taken into consideration-so for all goods
increased/altered price will be taken.

Obliterates means doing anything-offence. Other provisions include only alter and increase.

Rule 6: Best judgement assessment. Discretion to Deptt.

15 September 2020
Transaction Value Method-Section 4 of the Central Excise Acts
Also, this method is used under GST. Section 4-inserted in 2000-by an amendment, before that
it was based on normal wholesale value at factory rate-and excise duty was charged on it. Once
price is fixed, even if there was variation, the fixed price had to be used. So, they would charge
higher value from retailer but paid tax on lower value. Before normal wholesale value (in 1983),
before that there was a deemed value-method of average valuation as goods are not subject to
self-assessment-physical control mechanism, every clearance has to be by the department-before
1983-controlled phase. This price once accepted by department was used.

--Deemed-wholesale value-transaction value--It took 9 years post 1991 (LPG) to change to this
method. Here each transaction is considered a separate transaction. So, if I want to sell goods for
100-then one transaction, and 150 to another-separate transaction. Manufacturer can choose
price based on buyer class. Different buyer classes can have different price. There is an
agreement price b/w buyer and seller-not related parties and price is sole consideration of
transaction.

Section 4 (1)-conditions for valuation, if not under this Section then Revenue would decide.
So, umbrella protections under Section 4 can be applicable only if conditions under the Section 4
are fulfilled.
Conditions: Transaction value accepted only if there is (1) SALE. Even if excise duty is
chargeable but there is no sale, Transaction value under Section 4 is not applicable. (2) Sale
should happen at time and place of removal for Section 4 to be applicable. (3) Assessee and
buyer are not related parties. In cases where Act is not applicable, Rules will be applicable. (4)
Price has to be sole consideration for such sale. If there are other arrangements b/w buyer and
seller (hidden costs, etc.), price will not be considered as only consideration.
No sale example-when excise can be still be levied-free samples. This means transaction value is
not applicable and Central Excise Rules only would be applicable. Goods produced for captive
consumption. Central Excise Rules only would be applicable here.

(2)-Delivery at the time and place of removal. Place of removal defined under 4(3)(c) and (cc) for
time of removal. Excise duty completes only when you remove the good. Showroom, godowns
would also be place of removal. The definition of place of removal has been expanded under this
provision. The moment goods cleared from warehouse-place of removal and moment of
clearance-time of removal. This would mean w/o excise duty-place of removal has to then be
decided by manufacturer and gotten approved from department. Maybe factory in Jodhpur and
Depot is in Maharashtra, Agra and Delhi-I can clear goods from factory and send to depot
without payment of duty -so now even clearance from depot will be considered place of
removal. Before that, these depots, warehouse, etc. were not considered place of removal.
Earlier, manufacturer had to decide and get approved from department.
Time of removal-when you obtain consent from department.
In cases where delivery is not time and place of removal-valuation is as per rules.

(3)-Assessee and buyer and not related parties then? Defined under the Act who are related
parties. It also includes relatives as per meaning assigned under Cos. Act. If parties are related,
then transaction value is not accepted because there could be manipulations and arrangements. It
means there are additional considerations if they are related parties. Price is not sole
consideration in case of related parties. Like an agreement b/w buyer and seller that seller will
charge 100 Rs. From buyer and Buyer says you have to purchase some other raw material from
me also-this will affect transaction and price is not sole consideration. If you’re related parties,
Revenue always presumes price is not sole consideration. It is not considered an arms’ length
transaction.
(4)-price should be sole consideration -comes with related parties usually, but this condition may
also occur independently. That is buyer and seller are not related but buyer supplies packing
material to seller and seller transfers goods to buyer at a certain price-so this price should be
included and seller’s charged price is not sole consideration.

Q. Why arms’ length is being used in the Related parties? Rule 3 provides so in addition to what
is written in the Section. Also included in the SC’s observations in judgements that even if you
are related parties and you prove transaction is at arms’ length, then no problem.

Section 4 (3) (d)-transaction value defined.

Paid or payable when goods sold. Inclusive list also given -in addition to agreement price-any
other amount buyer is liable to pay by reason of or in connection with sale-so even if not directly
paid or payable-it may be paid to a third party-that would also be included. Anything in
connection with sale is also included in transaction value. Whether payable at time of sale or any
other time-this makes royalty also come within transaction value as an example. “Including but
not limited” -in addition to agreement price. Agreement price is just price of goods, but anything
in addition paid by buyer will also be included in transaction value as per the provision. “does
not include” restrictive part-amount of duty, sales tax, any other tax which is payable or paid
actually. This means invoice value is always considered-price cum duty-price is already inclusive
of duty and it cannot be charged over and above this. So, when you go to grocery store, price is
100-100 is inclusive of taxes- so when they make invoice, they make calculation as to how much
is tax and how much is value of commodity. Here also agreement price is always considered as
price cum duty. So, sales tax, or any other tax which is part and parcel of agreement price have to
be excluded to arrive at actual value of goods for purpose of excise valuation.

Union of India & Ors. v. Bombay Tyre International Ltd., 1983 MANU SC 0224 1983
1 SCC 476. (SCC citation)

Unsettles whole concept of valuation-CCE v. Fiat India Pvt. Ltd., 2012 9 SCC 332.

16 September, 2020
(Malpani’s Q)
CCE v. Fiat India Pvt. Ltd., 2012 9 SCC 332.
Old provision of S 4, this case concerned.
CCE v Gurunanak Regrigeration case-this case is important. It was discussed in Fiat India case
too. SC made it clear that if transactions are at arm’s length where normal price is available-
assessable value even if it the price is lower than cost of production and parties are not related .
So long as transaction is at arm’s length and no influence or effect of relationship or flowback of
money allegations, transaction price even below cost of production will be accepted.
SC citation of above- CCE v Gurunanak Refrigeration Corporation, 2003 1 53 ELT 2004 SC

Bisleri Case (2005)-relied on Gurunanak case-Here there is a bottling company which is

manufacturing goods (water and cold drinks) being a subsidiary of Coca Cola Ltd. (they only
manufacture concentrate and charge royalty on it on a principal to principal basis). Because Pepsi
is selling at 10 Rs. you also sell goods for 10 Rs. and if there is anything like a loss or price
reduction, we will support-this support price is fixed and this has been provided by Coca Cola to
the bottling company-provided in the form of credit notes. Q before Authorities was whether
this support price should be added in the transaction value? 3 parties involved-Cola or Pepsi
(owner of brand name), Bottling Co. (seller) and buyer whose relationship with Bottling Co.
from whom it purchases products is relevant. Here authority challenged the agreement and said
whatever credit notes have been issued have to be added in value at which bottle is sold to buyer.
SC said no flowback of money from buyer to assessee-not to be added in transaction value. The
buyer should incur such expenditure and here buyer is paying normal price, support price is
being provided only by Coca Cola to Bottling Co. Parent Co. to subsidiary co. as price support
and not from buyer to seller-thus to not be included.
Glass bottles of Pepsi and Coke-there is an amount of security charged for the bottle to be
returned. SC said bottle is a separate category from the contents of the bottle. -negated this
argument of this amount to be included in transaction value.
Sir referred to Bombay Tyre case and arguments made in this case. –“…so long as bears nexus
with charge”-anything which can be added up to place of removal. Addition made post
manufacturing can be added in transaction value. Not just manufacturing cost and profits to be
included.

Q. Can Revenue decide price of goods? So, if there is an agreement where I have been selling my
goods at manufacturing costs w/o profit margins to compete in the market, can it be challenged?
Manufacturer gets to decide the price. MRP printed is final and you can’t challenge that. Even
Revenue cannot challenge the price.
In Fiat case- Revenue challenged the price, said it was below cost price and penetration of
market was an extra commercial -should be added in transaction value. Fiat accepted that they
were selling goods at below manufacturing cost as was contended by the Revenue department.
Price is common for everyone (as in all customers).

This case unsettled the concept of transaction value (as was settled in Gurunanak case) in 2012.
They said here that no, meaning of normal value is manufacturing cost plus manufacturing
(notional) profit at reasonable rate, but did not define how to calculate profit. Though it is in
favour of Revenue, the Revenue has not taken this judgement’s benefit.

17 September, 2020
Fiat Uno Model cars manufacturer-excisable goods. Business managed by Premier Automobile
co and transferred to Fiat Co. They were importing cars and then assembling them in India.
1996-2001-year of enquiry where it was found that wholesale price declared by assessee was
much lesser than cost price. Price was 3, 80,000 Rs and 3, 98, 500-if assembled from 2 different
packs. Price at which car was transferred from assessee to dealer was 1 lakh something-which
was the transaction value and they said have to pay tax on this. There was no consideration from
dealer (transferee) to transferor (Fiat). No related parties- and principal to principal transaction.
Said not normal price as per S 4, lesser price is being charged to compete with other
competitions and to penetrate market. They said this is normal price for us in trade and they are
not selling to any other and said price is the sole consideration here. Bombay Tyre case referred by
Revenue to say-at least manufacturing cost + manufacturing price needs to be included. Assessee
said this is nowhere said in the judgement-normal wholesale price will be considered as value is
what was said. Q in Bombay Tyre was incidence and collection of levy are different or same. SC
said Legislature can decided incidence and levy point-parliament has power to do that. You
cannot claim post manufacture added values cannot be added in final value of good. Collection
and levy are different aspects as under Article 265 also.
(para 13 of judgement and marked up parts discussed)-Assessee’s contention:
Normal price is not defined under Act, it means price at which particular assessee sold goods to
any non-related parties in ordinary course of business. Excise Act cannot decide the value of
good, can only decide what is value for Excise Act, unless it is proved parties are related and
price is not sole consideration for transaction. Revenue has not proved either of the above.
Add everything till point of taxation (as different points of incidence and taxation)-held in
Bonbay Tyre
Distinguished Gurunanak and Bisleri case saying that price list in Fiat case has not been approved
unlike in the aforementioned cases.
In Bisleri case-even below cost, cannot challenge as can be challenged only if price is not sole
consideration and related parties-b/w buyer and assessee, if nothing is coming from buyer, sole
consideration. Support notes were coming from Franchise Co and other-this was distinguished.
Para 66, even in Gurunanak and Bisleri cases-goods were being sold below manufacturing cost,
but price list was approved-only point of distinction.
Para 70, Said selling goods below manufacturing costs and penetration of market is extra
commercial consideration. -Rule 11 Base Judgement Evaluation Rule-manufacturing cost
+notional profit. Costing A/Cs confidential and no one wants to share them. If Costing A/Cs
shown to Revenue, can be leaked also. But needed to see how price is being arrived at.
Q. Year End sales-can you sell goods below cost price to clear stocks after this judgement? Do
you come to court at all times to get price approved?
Circular 979/2014-No mere sale of goods below manufacturing cost cannot be taken as sole
basis for rejecting transaction value. Clarified that what Fiat case said is not good law.

Fiat Case is beneficial for Revenue.

Bisleri and Gurunanak case-beneficial for Assessee.

18 September, 2020
Whether agreement price will always be price cum duty or just price w/o attributing and
accounting for duty? It is inclusive of taxes.
CCE v. Maruti Udyog Ltd. 2002 3 SCC 547-the above was held in this case. Even if the
agreement does not mention price cum duty, it is considered so. Manufacturer sold scrap and
metal waste arising from car manufacturing, Deptt raised demand for excise duty and they said it
was not payable. Assessee value to be determined after deducting duty-Tribunal-this was
challenged. Appeal dismissed by SC and held that S 4(1)-wholesale price which is charged is
deemed to be for purpose of excise duty, even if transaction value is arrived, the taxes should be
excluded to arrive at excisable value of goods. Agreement price will always be considered as price
cum duty and the duties have to be excluded to arrive at assessable value for excise duty. They
are not required to explicitly mentioned that agreement price is price cum duty.
Another definition change in 2000 of transaction value. Charging different price from another
retailer. Transaction to transaction basis-being also considered-each removal as a separate
transaction for assessable value-this helps Revenue also. One good can be subject to different
assessable value-depends on transaction. Removal A has a separate value and Removal B has a
separate value-so different value will be charged.

GKN Drive Soft v CCE, 2003 145 ELT 17 App Tribunal, Place of removal concept becomes
relevant. Condition of goods at time and place of removal is very important for determining
excisable value, any activity performed by any other person on the goods will not be accounted
unless the party performing it is related to the manufacturer-colourable device-any process
performed on goods is not to be added in assessable value.

CCE v. Akay Cosmetics, 2005 182 ELT 294 SC-cost of factors up to factory gate when value
for cost of secondary packing done after removal is not includable. No secondary packaging
costs are added, but if it is done by another entity and it is seen as a colourable device-then
considered.

Proctor and Gamble Izing and Health Ltd. v. CCE, 2005 190 ELT 289 SC-where court said
that if the packets are cleared from factory and then repackaged and then on those they are
selling at different price, and Revenue establishes the fact that they are related to
manufacturer/shell co -doing just to minimize liability-matter to be looked at by Tribunal.
Manufacture and valuation are 2 different concepts-what is manufacturer is not relevant. Any
process happening after removal is very important. If by any other unrelated person, not
included. Extended arms of manufacturer-then has to be looked into.

Court said galvanizing will not be manufacture, but value will be added value added by process in
assessable value-process is being carried on only to reduce liability and claim value addition is not
taxable as process is not manufacture. So, the process is understood as a colourable device to
evade taxation.

Goods cleared w/o payment of duty for exports (zero rated)

Goods cleared on 15 July, 2020
Lying on port till 15 Sep, 2020 as importer who purchased goods rejected the purchase and
denied the purchase.
He cleared goods on 15 Sep, 2020 for own consumption because what else is he going to do
with them lol. Transfers to home buyers on a discounted price-excise duty will be charged now
as used for home consumption. Which transaction value will be considered-July wali or Sep
wala? Rules will be applied here. Place of removal was factory gate only.
But in such cases court allows the port to be place and time of removal.

Application of Rules_Central Excise Valuation Rules 2000

before 2000, 1975 Rules were there. There are 11 Rules-applied if conditions under Section 4(1)
(a) are not fulfilled. When tax is under 4(1)(b)-applied.
Rule 4-applicable on free supply like gift, sample, or goods w/o any consideration. This Rule
says that nearest removal is considered. Suppose free supply made on 15 Aug to someone,
whatever is nearest, before or after, that is considered as base price and subject to adjustment. If
nearest is that to an industrial consumer, or that in bulk and not in retail, price will be different,
have to make adjustment based on transaction, value has to be arrived at by Deptt. Suppose
there is a Pharma co. and they are making free samples and supply them to doctors-then this 100
units is assessable? What is the value-not sale as it is free sample-here we look for nearest supply
at a particular price and then adjust it based on date and nature of removal (sold to industrial
buyer or whom-nature). Valuation is not guess work, it is not an exact science.

CCE v. Rajasthan Scheming and Something Mills, 2007 218 ELT 641 SC-said clearly-
Valuation is not an exact science and some guess work is involved. Rules help in actual value
assessment-different methods are provided under the Rules, but they converge to a single value.
Adjustments also have to be made.

CCE v. Uni (missed due to beautiful connection)

Rate and nature of removal-factors for determination of assessment value.

Take for 19 September, 2020

21 September, 2020
Rule 6 was discussed on 19th.
To or from under Section 9-explained meaning-includes in connection with (sale). Not remote
or doubtful.
A case was mentioned by Sir -risk v Vasudeva.

Pepsi (only brand name owner, manufacturing concentrates only) with Bottling Co-which makes
the cold drink-manufacturer of final goods-sell it directly to dealer-brand name owner are not
buyer and not involved in sale process. Brand name owner uses royalty plus value for raw
material. Whether royalty payable for using brand name will be added in transaction value, and
assessable value of concentrate? Not selling concentrate to anyone else. Royalty will be added in
invoice value of goods and assessable value-as it in connection with sale. There is apportionment
of royalty in value of goods-if payable by bottling co to Pepsi-
Pepsi Foods Ltd. v. CCE 2003 158 ELT 552 SC.

Advertisement by brand owner can also be consider if they are buyer! Not for Pepsi or Coke as
they are NOT buyers. Suppose Britannia/Parle hired a company to manufacture goods for them
and they advertise. Added in the assessable value.
If not in connection with sale, then not included.
CCE v. Surat Textile Mills, 2004 5 SCC 201.
CCE v. Parle Products Ltd., 2006 198 ELT 486 SC. Said advertisement expenditure incurred by
buyer who is customer, can be added to sale price to determine assessable value if owner has
enforceable legal right to insist on such expenditure.
Circular 619/10/2002-Issues by CBEC on 19th Feb., 2002.

Packing charges supplied by buyer have to be added in assessable value-CCE v. Hindustan

Safety Glass works, AIR 2005 SC 1312. Added if it is durable and returnable -apportionment
should be there. 1 time use whole cost added. Else amortized over life span of packing. Best
example is gas cylinder-returnable -value will be amortized over life span of cylinder-durable and
returnable both.

Design, engineering, loading/handling charges, etc. included

CCE v. IFGL Refractories Ltd.-2005 6 SCC 713-here seller had some advance license which was
surrendered to enable manufacturer to get advance intermediate license due to which seller
agreed to sell at price much lower-added-supplied by buyer, if seller arranges everything, then
added in price, if buyer also makes -added- remember they have to be incurred by buyer and
should be by reason of or in connection with sale.
Exclusions:
Taxes. Because it is price cum duty, taxes have to be excluded from that.
Def of transaction value-Section 4-taxes excluded.

Ishan Sarkari Dairy Mills v. UOI, AIR 2002, SC 57. Here concept of “any other taxes” explained.
They said that because tax-Constitution of India
State of UP was charging one administrative charge which is recovered on molasses (produced
when manufacturing sugar) sold or supplied by occupier of sugar factories. There was a UP
Molasses Control Act, 1964-and they have also referred to Constitution of India
-366 (28)-imposed under any law-may be general or special-compulsory payment. Q here was
whether this imposition which was named as administrative charge would be included in
molasses’ value -whether included in “any other taxes”. Here SC said the word “any other
taxes”-wide connotation-something which can be levied-here it is a compulsory extraction-not
related to service provided by govt.-so not fees plus not quid pro quo-because it is tax here-it has
to be seen as a tax and therefore excludable from assessable value. If for specific service-not tax-
it is a fee.

Penalty or fine incurred by seller-cannot be included in price that buyer pays-hence NOT part of
assessable value of goods.

For after sale service and for discounts, -discounts excluded from assessable value if it is as per
normal sale practice.
After sale service: will be included- Volvo India Ltd. v. CCE, 2005 182 ELT 471 App Tribunal-
held free service -after sale service-is part of sale consideration-included in sale price-optional
after sale service is not includable.

Ford India Ltd. v. CCE, 2007 212 ELT 44 CSTAT judgment-reiterated above.

Discount Section 15 of CGST-when it will be added and when not. Discount should be
excludable from taxable value-SC judgments. Normal trade discount, quantitative discount-as per
normal trade practice-have to see reason for discount. Discounts as per ordinary course of
business-allowed as deduction and NOT any other discounts.
Loscus Borthers Ltd. v. CCE, AIR 2005 SC 1523-here said that it cannot be said that discount
should be uniform in all circumstances, categories of buyers all over the country but discount has
to be as per normal business practice. Cannot be given on extraneous basis, has to be founded in
reasons (endowed with reasons).
So, suppose 20% discount to wholesaler and 10% to others- the court says such discount has to
be on some basis-as per normal trade practices.

Elgi Equipments v. CCE, 2007 215 ELT 348 SC-here it was said that varying discount is
permissible, uniformity is not required, the only thing is that it should be based on rational
criteria as per normal trade practices.

S 15-CGST ACT. Rule 25-35 of GST Rules.

22 September, 2020
Taxes, discounts as per normal trade practices excluded.

Rule 7-Clearance from depot, what price will be taken?

Normal value-Rule 2-when highest aggregate goods sold.
Suppose 3 transactions
● 95 goods for 90 Rs -base for method of evaluation as greatest aggregate quantity-
Normal transaction value
● 80 goods for 95 Rs.
● 85 for 100 Rs

Rule 8: captive consumption, no sale but use for consumption by assessee within factory.
100% cost of manufacturing + 10% profit margin (assuming it is profit over and above cost).

Rule 9: if parties are related parties. Defined in Act.

Section 4 (3)(b) of Central Excise Act- defines related parties-persons shall be deemed to be
related if they are inter-connected undertakings (Rules have limited the definition of inter-
connected undertakings), or they are relatives, or buyer is a relative and a distributor of the
assessee, or a sub-distributor
of such distributor or they are so associated that they have interest, directly or indirectly, in the
business of each other (mutuality of interest-Dairy Case).
Arms’ length
In Rule 9: here they are suggesting Re-sale price method to be used in case of related parties
Suppose: A (seller) and B (buyer) related -at Rs. 100, B re-sells to C for Rs. 200 and C re-sells to
D for Rs. 300.
A& B and B&C are related, we consider transaction b/w C and D-then their transaction’s value
is used for value in case of A &B subject to adjustments. Here if B&C are not related then
transaction b/w B&C would have been taken as base for evaluation. Re-sale price will always be
subject to adjustment based on profit margins-re-sale method says 90% value will be taken so
here 90% of Rs. 200 unless B has made a value addition-so here Rs. 180 b/w A and B. and in
case of B&C being related then price b/w C &D would be used.

Proviso says that in a case where a related person does not sell but consumes goods, then value
to be determined by Rule 8-which is on captive consumption (cost of production + 10%).

Rule 10: added to limit definition of inter-connected undertaking.

Inter-connected undertaking -Excise Act + SC/HC-they only want this to be there

(check this) Rule 10A First is manufacturer by job worker and principal manufacturer -approved-
agreement price
Second is manufacturer by job worker on behalf of principal manufacturer-transferred to depot
or premises of consignment of principal manufacturer, etc-Rule 7 is used.

Rule 11: value to be determined by reasonable means consistent with the principles and general
provisions of these rules and sub-section (1) of section 4 of the Act. Manufacturing cost plus
notional profit-Best judgement Evaluation Rules-Fiat case used. Residuary provision.

Test 2:
Place of SS of service and import and export-IGST Act-S 11, 12, 13 and 14 will be part of
syllabus.
CGST-S12, 13, 14-Time of supply of goods and services or goods/services if there is change in
rates of taxation
Methods of Valuation under Excise Act-
1. Specific Duty Method
2. Tariff Value
3. Compound Levy Method
4. production Capacity
5. MRP Scheme of Value
6. Transaction Value Method

Cases:
1. Maruti Suzuki India Ltd. v. CCE, 2010 257 ELT 226 CESTAT larger bench -applicable to
all tribunals in India. Case on inclusions under transactional value. appellant manufactured the
cars and sold to the dealer. Dealer by way of dealership agreement is under an obligation to
undertake pre-delivery inspection, + three free after sale services. the expenses of 3 free service
of car to be provided by the dealer was taken care of and included in arriving at a sale price to
which cars were cleared to the dealer and the dealers were given the right to sell the cars at a
profit margin subject to the maximum price fixed by the appellant. Thus in view our prima facie
the expenses incurred by the dealer for providing free service to the customer are not includible
in transaction value.
2. CCE v. Damnet Chemicals Pvt. Ltd., 2007 216 ELT 3 SC. Q here was on whether 2 parties
can be deemed to be related persons if registered office of both parties are in same premises and
buyer’s purchase is bulk.
whether two parties can be deemed to be related persons if the registered office of both parties
are located in same premises and buyers are bulk purchasers. It is no doubt true that the
registered office of BBL and the respondent-company was located in the same premises. The
BBL owns the industrial gala in which respondent's factory exists for which the respondent-
company pays market rent for its operation. The BBL before entering into a lease agreement on
each occasion obtained a valuation report from an independent Valuer for the purposes of fixing
the quantum of rent. The BBL entered into a lease agreement with the respondent-company
under the Board Resolution of the company. Mere fact that both the registered offices are
situated in the same premises and the manufacturing unit of the respondent-company is situated
in the industrial gala owned by the BBL would not make both the companies are related to each
other. There is no mutuality of interest between both the companies.  BBL admittedly does not
hold any shares in respondent-company nor the respondent-company owns any shares in BBL.
One of the Directors in both the companies appears to be common. There is no evidence on
record in support of the allegation that the transactions between the respondent- company and
BBL were not on a principle to principal basis. The Commissioner found that the transaction
between both the companies was not a simple relationship between manufacturer and seller,
because respondent-company manufactured the product but did not mention its name on the
product or carton, but mentioned that the product was marketed by BBL and put the logo of
BBL thereon and that BBL did not pay any consideration to the respondent- company in that
regard. This is totally contradictory to the evidence available on record as held by the Tribunal.
The name of the manufacturer is also mentioned on the product. There is no evidence to arrive
at any conclusion that there was a hidden flow back of money between both the companies. The
respondent did not take any loan or advances from BBL. The appellant did not produce any
evidence to show that BBL has an interest in the respondent-company's business.
3. CCE v. Bharti Telecom Ltd., 2008 226 ELT 3 SC-here court discussed assessable value to
related and unrelated persons and discussed re-sale value method.
4. CCE v. Mysore Kirloskers Ltd. 2008 226 ELT 161 SC-Additional consideration and how it
will be includable.
It is true that the charges for drawings, designs etc. have to be added to the assessable value of
the machines manufactured, based on use of such drawings, designs, jigs, fixtures, tooling etc.
However, before adding the value of the drawings etc, it has to be established that the
consideration had a nexus with the negotiated price of the assessable goods under clearance, i.e.
machines in the instant case. Without establishing any such nexus, the Commissioner of the
Central Excise could not have demanded the duty on the additional amount of consideration of
Rs.43 lakhs. The agreements, i.e. the written orders, for the supply of four machines as per the gate passes in
this case were not considered/relied upon in the original proceedings. Therefore, it could not be determined whether
the prices of drawings, tooling etc. were part and parcel of the agreement for supply of machine. It is well to
remember that each clearance is an assessment based on a separate contract and a contract
price would normally be the value for assessable goods. The order passed by the Commissioner does not
indicate that no machines were subsequently manufactured by the respondent after using drawings, designs, jigs,
fixtures, tooling etc. supplied by the ITC. Therefore, loading of the entire amount of Rs. 43 lakhs without such a
finding and recovery of duty thereon was not permissible at all. The order of the Commissioner does not indicate
adequate reasons to invoke proviso to Section 11A(1). On the basis of vague allegations made in the show cause
notice neither the proviso to Section 11A(1) could have been invoked nor penalty could have been imposed upon
the respondent under Rule 173Q of the Central Excise Rules. On the facts and in the circumstances of the case,
this Court is of the opinion that the Tribunal did not commit any error in setting aside the order passed by the
Commissioner and the instant appeal which lacks merits, deserves dismissal.
Union of India v. Atic Industries: "For treating the customer as a related person, the first part of
the definition of 'related person' as given in Section 4 (4)(c) requires that the person who is
sought to be branded as a 'related person' must be a person who is so associated with the
assessee that they have interest directly or indirectly in the business of each other. Thus, it is not
enough that the assessee has an interest directly or indirectly in the business of the person alleged
to be a related person nor is it enough that the person alleged to be a related person has any
interest directly or indirectly in the business of the assessee. It is essential to attract the
applicability of the first part of the definition that the assessee and the person alleged to be a
related person must have interest direct or indirect in the business of each other. The equality
and degree of interest which each has in the business of the other may be different; the interest
of one in the business of the other may be direct while the interest of the latter in the business of
the former may be indirect, but that would not make any difference so long as each has got some
interest direct or indirect in the business of the other. In cases, where 50% share of the
manufacturing company is held by7 the customer company, the customer company can be said
to be having interest in the manufacturing company as a shareholder but for this reason, it
cannot be said that the manufacturing company has any interest direct or indirect, in the business
carried on by one of its shareholders even though the shareholding of such shareholders may be
50%. In the absence of mutuality of interest in the business of each other, the customer
company holding shares in the manufacturing company cannot be treated to be a
'related person'."
Additional consideration- how and when will be includable? CCE v. Mysore Kirloskars Limited
(?) 2008 226 ELT 161 SC: It is true that the charges for drawings, designs etc. have to be added
to the assessable value of the machines manufactured, based on use of such drawings, designs,
jigs, fixtures, tooling etc. However, before adding the value of the drawings etc, it has to be
established that the consideration had a nexus with the negotiated price of the assessable goods
under clearance, i.e. machines in the instant case. Without establishing any such nexus, the
Commissioner of the Central Excise could not have demanded the duty on the additional
amount of consideration of Rs.43 lakhs. The agreements, i.e. the written orders, for the supply of
four machines as per the gate passes in this case were not considered/relied upon in the original
proceedings. Therefore, it could not be determined whether the prices of drawings, tooling etc.
were part and parcel of the agreement for supply of machine. It is well to remember that each
clearance is an assessment based on a separate contract and a contract price would normally be
the value for assessable goods. The order passed by the Commissioner does not indicate that no
machines were subsequently manufactured by the respondent after using drawings, designs, jigs,
fixtures, tooling etc. supplied by the ITC. Therefore, loading of the entire amount of Rs. 43 lakhs
without such a finding and recovery of duty thereon was not permissible at all. 
It is true that the charges for drawings, designs etc. have to be added to the assessable value of
the machines manufactured, based on use of such drawings, designs, jigs, fixtures, tooling etc.
However, before adding the value of the drawings etc, it has to be established that the
consideration had a nexus with the negotiated price of the assessable goods under clearance, i.e.
machines in the instant case. Without establishing any such nexus, the Commissioner of the
Central Excise could not have demanded the duty on the additional amount of consideration of
Rs.43 lakhs. The agreements, i.e. the written orders, for the supply of four machines as per the
gate passes in this case were not considered/relied upon in the original proceedings. Therefore, it
could not be determined whether the prices of drawings, tooling etc. were part and parcel of the
agreement for supply of machine. It is well to remember that each clearance is an assessment
based on a separate contract and a contract price would normally be the value for assessable
goods. The order passed by the Commissioner does not indicate that no machines were
subsequently manufactured by the respondent after using drawings, designs, jigs, fixtures, tooling
etc. supplied by the ITC. Therefore, loading of the entire amount of Rs. 43 lakhs without such a
finding and recovery of duty thereon was not permissible at all. The order of the Commissioner
does not indicate adequate reasons to invoke proviso to Section 11A(1). On the basis of vague
allegations made in the show cause notice neither the proviso to Section 11A(1) could have been
invoked nor penalty could have been imposed upon the respondent under Rule 173Q of the
Central Excise Rules. On the facts and in the circumstances of the case, this Court is of the
opinion that the Tribunal did not commit any error in setting aside the order passed by the
Commissioner and the instant appeal which lacks merits, deserves dismissal
Circular no. 643/34/2002 on 1 July, 2002-discussed free after sale service will be includable in
price. And with this circular Maruti Suzuki India Ltd. v. CCE discusses same issue.
https://taxguru.in/excise-duty/circular-no643342002cx-dated-172002.html

GST Valuation Rules 2017 in Chap 4 of CGST Act.

Rule 27-35 CGST Rules-method of valuation
● Sale has been substituted with supply here
● Price is sole consideration
● Parties are unrelated
Can apply Fiat Case partly too.

CA 3-onwards read Meha -pg 30

5 October, 2020
Rule 32-
One of the currencies has to be foreign, difference to be multiplied with difference
1% of the gross amount of Indian rupees-value for charging GST-if RBI rate for exchange is not
available.

12 October, 2020
GST classification also based on HSN classification
6 Rules of classification-General Rules of classifications
Rule 1-title is not important, like when it says textile products, etc.-only for reference, not
binding. For legal purposes, classification needs to be determined as per terms of
heading, chapter notes (at the start of a chapter), relevant heading needs to be with that.
Chapter notes + heading=clear and conclusive answer for classification, read with
relevant heading.
Important points:
1. Title of Section, Chapter, Sub-chapter do not have legal force.
2. Terms of headings are legally relevant-heading notes +chapter notes+ section notes
3. Rules of interpretation need not be resorted if can make out description from
heading/chapter notes.
4. Notes of 1 chapter or section CANNOT be applied to interpret headings in another
chapter.
Each section can have 4-5 chapters which have headings, each chapter is distinct and heading
notes/chapter notes of 1 chapter cannot be used in another one.

Eg. 842230-contains machinery for filling, closing, ceiling, labelling bottles, cans, etc.
847230-similar goods- machinery for closing, ceiling nails
Q has to be which is the correct heading for correct classification?
Both similar, but Chapter 84 note provides that 1st does not cover office machinery of second
one.
22-heading
84-chapter
If chapter note not provided, then Rule 1 will not be applicable and will look at Rule 3. Basically,
as long as chapter note is conclusive, need not go beyond.
CCE v. Wood Polymer Ltd. 1998 97 ELT 193 SC
(A Saurashtra case was also mentioned, check that)
CCE v. Phil Corporation Ltd., 2008 223 ELT 9 SC. -here where could processed cashew nuts,
peanuts, etc. manufactured by dry roasting, seasoning, etc. be classified-Ch 20 and 8 (edible fruits
and nuts-considered agricultural products with nil rate of duty) were relevant of Central Excise
Tariff Act. The Respondent processed cashew nuts, almonds, peanuts, by dry & oil roasting,
salting, etc. in a clear container and packed them-cleared under a brand name. Without payment
of tax, here classified under Ch 8. Deptt. Claimed that such goods were classifiable under 20 and
not 8. 20 deals with preparation of vegetables, fruits, or other parts of the plant. 20 includes
other nuts-which are dry, oil or fat roasted whether or not coated with spices, salts, etc.-this is
because of chapter note which made the same clear. SC observed Central Excise Tariff Act is
based on HSN classification which was harmonized system, which is no longer harmonized but
has been suitably adopted. Classification is just to classify goods in a heading to fix rates. HSN
was a guide for deciding issues of classification, HSN notes of Ch 20-here it mentioned products
in question were included and also categorically stated that Ch 8 products were specifically
excluded under 8. Thus, products in question here would fall under Ch 20 and not 8. The goods
have to be cleared with payment of excise duty. Assessee had done wrong classification. Court
looked at Rule 1-chapter notes -safe guide for classification.

Chapter notes looked at for correct classification in both the above cases-both on Rule 1.

Rule 2-classification of incomplete, disassembled goods. -goods cleared in unassembled or

disassembled form. Like bicycle. It is cleared in a disassembled form and it has to be fixed and
assembled properly. Whether you can classify this product as parts or under category of bicycle?
This is not manufacturing process.
2(a) says-any reference in a heading to an article shall be taken to include reference to that article
in complete or unfinished provided that as presented (cleared) from place of removal as long as
the item has essential characteristics of a complete product.
Summary: Thus, if a heading refers to a complete article, then its unfinished form will also
fall under it provided the unfinished product has essential characteristics of finished
product. The unassembled and disassembled form falls under the same classification.

When you cleared car w/o seats-whether it is parts of car or car only? It will be classified as car
and not parts because it has essential characteristics of final product.

Cases on Rule 2 (a)

Shulzer Flowell Hydro Ltd. v. CCE, 2004 176 ELT 195 (tribunal judgement-CSTAT)-here court
explained meaning of “as presented” -it means as cleared from factory. They said as cleared from
factory, have to make a composite meaning.
So, if goods cleared in 2 lots, but because in agreement-composite contract, then even if cleared
in 2 lots, will be combined to see as 1 product. Combining will make complete product!
Agreement is also important-whether composite or standalone? So, in case of composite
agreement, clearing in 2 lots -will still be considered as a combined, complete product.
Parts need not be cleared at same time, since goods are voluminous, so long as they constitute
one product-here it was turbine. (bought out items -bought from another manufacturer were
also a part of the consignment here)-Because there was a composite agreement (sale of turbine
to buyer) and nature of product did not allow clearance in 1 lot, so 2 consignments-will NOT
make it parts of turbine, but turbine itself.

CCE v. Frick India Ltd., 2007 216 ELT 497 SC-Here Q was whether it was a standalone
agreement or composite agreement, 2(a)-is NOT applicable to standalone agreements. Diff
b/w the 2 types of agreement seen here. Q here was whether part of compressor cleared as a
standalone item should be classified with compressor. Here we have to look at clause and
agreement to uncover its nature. Assessee was manufacturer, and he cleared some parts of it
under headings 8414 -compressor, safety vales under 8481 and filters under 8421. Agreement
clearly says standalone items. There were other items like belts, etc. which were also cleared.
Here manufacturing of ACs was going on. Dept. contended that under Rule 2(a), safety valves
and filters to be cleared under compressor, as essential parts of compressor-add value of both in
value of compressor. SC observed 2(a) was not applicable because
1. Compressors were removed as “standalone” items and not in a
disassembled/unassembled condition.
2. Section & Chapter note did not provide guideline on this. Valuation different from
classification. (since they wanted to add value of parts under value of compressor). Here what
is being decided is classification and not valuation.
Here classification was held to be distinct as parts and on standalone basis.
Tata Motors v CCE + Flowell cases, just because compressor is voluminous, you clear one lot in
one consignment, and another in other, look at nature of agreement-complete product. In
the above cases, court distinguished this.

CCE v. L&T, 2009 239 ELT 373, Chennai Tribunal-here said goods such as mobile towers, etc.
are cleared in CKD or SKD condition but do not have essential characteristics of goods, “as
presented” -very important. The time of removal and place of removal are important. Flowell
Hydro (exceptional case where nature of agreement looked at, else in every case we look at composite nature of
agreement, otherwise we see standalone clearance) very different-big machinery which cannot be cleared
in one go.
2 Tests:
1.As presented
2. Essential characteristics
If not satisfied, then cannot classify goods as complete goods. These 2 conditions are
complimentary and need to be satisfied.

(take for 13th October, 2020)-from AJ

CCE v. L&T 2009 239 ELT 373: if the goods, such as towers, are cleared in
SKD/CKD condition, but they do not have essential characteristics, then 2(a) cannot be
applied and the goods cannot be classified as complete goods.
CCE v. Scan Machineries, 2009 234 ELT 282: if the parts of the complete
machinery in a phased manner under a single purchase order, it is the acknowledged
practice of the trade. the assessee cleared machinery in a phased manner but paid the
entire duty at the time of the first clearance of parts, as per trade practice. The clearance
was against a single purchase order. It was held that clearance is of a single machine and
not as parts of machine.
2011: CCE v. Lipi Boilers, 2011 263 ELT 271: even if the goods cleared from
the factory as SKD packs, and certain items are outsources from other manufactures and
directly transported to the consumer, then the goods shall be classified as complete
goods if such bought out goods are not major parts. If major parts are bought out, then
it would be considered as part of the goods. ‘as presented’ or ‘as cleared’ is important. If
the goods require major assembling and adjustments, then again the goods would be
classified as parts of the goods.
● CCE v. Lipi Boilers – whether the value of a bought out item is to be added to the value
of the boiler. Boiler was cleared in CKD (complete-knock down, entirely unassembled)
condition on payment of duty. Certain items were purchased from market and supplied
directly at place of installation. Since bought out items are essential parts of the boiler,
they are included in the assessable value.

Salora International v. CCE, 2012: manufacturing some parts, assembling

together for testing purposes. After testing, they are disassembled. Then they are cleared
from the factory in dissembled form. Assessee – parts of the goods. SC – even it is for
testing purpose, the parts have been assembled. After disassembling, they are just writing
certain numbers on the parts as assembling directions. Other job workers just need to
make minor adjustments to make it a TV set. Even it is cleared on the parts form, it has
essential characteristics of a finished TV set as the parts are sequenced and directions on
assembly in there. So, 2(a) applicable.
e.g. Exemption notification - Component of car or mobile phone is exempted
from import duty and can be imported without impose license. So, if someone imports
parts in CKD packs without license, then as per Rule 2(a), as the disassembled form has
all the essential characteristics, it would be classified as per 2(a). But as the exemption
notification exempts from import duty and import license, could the goods be
confiscated? Whether classification would be binding on the exemption notification?
Classification and exemption are different concepts. Vashatronics v. Collector of
 Customs, 1999 106 ELT 89: regarding washing machine. Court – goods will be
confiscated. It was alleged that all the components for washing machine in SKD
condition were imported except the electric motors, timbers, and rubber belts. Even
without the above said small parts, the imported goods had got the essential character of
a washing machine. Therefore, in terms of Rule 2(a) of General Rules for Interpretation
of Customs Tariff Schedule, as discussed earlier, the department proceeded to classify
the items under Heading 8450.19 of the CTA as washing machine with rate of duty 70%
(Basic), plus 50% (Aux.) plus 20% (Addl.) plus 50% SED.
● Salora International v. Central Excise - The issue under consideration in this appeal is
whether the goods manufactured by the appellant are liable to be taxed as ‘Parts of
Television Receivers’ falling under Tariff Entry 8529 of the Central Excise Tariff
contained in the First Schedule to the Central Excise Tariff Act, 1985 (in short ‘the
Tariff’) or as ‘Television Receivers’ under Tariff Entry 8528 of the Tariff, for the year
1989-90. The appellant is a manufacturer of various components of television sets. The
components are manufactured at its factory at Delhi. Thereafter, the said components
are assembled in the same factory for the purpose of testing of each component and for
checking the working of each television set. Thereafter the television sets so assembled
are disassembled and then transported as parts to various satellite units of the appellant
company at different places. In these satellite units, the separate components are re-
assembled and, as per the appellant, some further processes are carried out in order to
make those sets marketable. The issue is whether such components, which are
manufactured at and transported from the factory of the appellant at Delhi are liable to
be assessed as ‘Television Receivers’ or as ‘Parts of Television Receivers’. The main
question that arises for consideration in this case is that of the applicability or otherwise
of Rule 2(a) of the Rules for Interpretation to the goods of the Appellant, and the effect
of Section Note 2 to Section XVI of the Tariff, reproduced above, on the applicability of
such provision. The rules for the interpretation of the Schedule to the Central Excise
Tariff Act, 1985 have been framed pursuant to the powers under Section 2 of that Act.
According to Rule 1 titles of Sections and Chapters in the Schedule are provided for ease
of reference only. But for legal purposes, classification "shall be determined according to
the terms of the headings and any relevant section or Chapter Notes". If neither the
heading nor the notes suffice to clarify the scope of a heading, then it must be construed
according to the other following provisions contained in the Rules. Rule-I gives
primacy to the Section and Chapter Notes along with terms of the headings. They
should be first applied. If no clear picture emerges then only can one resort to the
subsequent rules. However, on closer scrutiny of the unique facts of this case, it is our
view, the goods of the appellant may not be said to be ‘parts’ as per Section Note 2 to
Section XVI of the Tariff. The appellant not only used to assemble all parts of the
Television Receivers and make complete television sets, but the said Television Receivers
were also operated in the manufacturing unit of the appellant and thoroughly checked
and only upon it being confirmed that the Television Receivers were complete in all
respects, they were disassembled and along with relevant material and individual serial
numbers, sent to the various satellite units. Once the Television Receivers are assembled
or are made completely finished goods, the manufacturing process is over and we are not
concerned as to what happens subsequently. Whether they are sent to the satellite units
of the appellant in its complete form or in a disassembled form is irrelevant. Looking to
the facts of the case, it is not in dispute that complete Television was manufactured by
the appellant and therefore, in our opinion, the Revenue had rightly classified the goods-
product as complete Television set even though it was subsequently disassembled. It is
seen from the material on record, that at the time of the parts of the TV set being
transported from the factory of the appellant, the parts manufactured by it are already
identified as distinct units. As it can be seen from the affidavit of the Revenue, which has
not been controverted by the appellant, the parts manufactured by it are matched and
numbered within the factory itself, and also assembled together to receive pictures for
the purpose of testing and quality control. The consequence of this is that the goods
assembled at the satellite units would be identifiably the same as those assembled
together by the appellant in its factory for the purpose of testing, as all such parts are
already numbered and matched. This element of identifiability shall take the goods
manufactured by the appellant away from being classified as ‘parts’, and they will
be classified as identifiable Television Receivers. The fact that the packing material
for the products is also manufactured and transported by the appellant further lends
credence to this conclusion. In this regard, despite the attempts of the appellant to
establish otherwise, we are unable to see how the goods transported by them shall not be
covered by the Rule, especially as a complete or finished article, ‘presented unassembled
or disassembled’. The terminology of the Rule is wide enough to cover the goods
transported by the appellant, and we are not convinced that the processes required to
be carried out at the satellite units are so vital to the manufacture of the Television
Receivers so as to render the goods transported by the appellant lacking the ‘essential
character’ of Television Receivers. Rule 2(a) of the Rules for Interpretation has been
couched in wide terms, and in terms of this Rule, it is our view that the goods produced
by the appellant do in fact possess the essential character of Television Receivers.
● There’s an exemption notification which says mobile phone parts can be imported
without import license. One importer has imported mobile phones in CKD packs, has
been cleared as parts. But applying rule 2(a), if it has essential characteristics, it should be
classified as a finished product. But if it’s a finished product, then importer has violated
it, cus if he doesn’t have license?? So will classification be binding on the exemption
notification? Classification and exemption are two different things. See, Vashatronics
v. Collector of Customs.
● Is it parts of a good being cleared, or goods being cleared in parts? If it’s the first one,
then it will be classified in a diff. diff headings as parts and not complete products, but if
it’s the second one then it’s a complete product and 2a applies.

Parts of the goods cleared – then they are parts only. But, if they are goods
cleared in parts – then it is a complete product, and will be classified under the
relevant heading of the complete products.
Collector of Customs v. Maestro Motors Ltd., AIR 2005 SC 1492: under this
Notification what is exempted are components and parts falling within Chapter 87 of the
First Schedule to the Customs Tariff Act, 1975 and goods specified in Column 3 of the
Table. Thus in this Notification, unlike as in Notification No. 29/93, components in
CKD packs are not exempted. Under this Notification it is only components and parts
which fall within Chapter 87 are exempted. The wording is very clear. For a component
and part to be exempted it must be a component or part within Chapter 87 of the First
Schedule to the Customs Tariff Act, 1975. If, by virtue of interpretative Rules, for
purposes of the First Schedule to the Customs Tariff Act, 1975 the imported goods are
not considered to be components and parts, then for purposes of this Notification also
they cannot be said to be components and parts. In our view, CEGAT has erred in
holding that the interpretative Rule 2(a) does not apply to a Notification. When a
Notification exempts goods falling within the First Schedule to the Customs Tariff Act,
1975, then the goods must be classified in the same manner both for purposes of
payment of custom duty as well as for purposes of exemption/benefit under that
Notification. However if the wording of the Notification show that an item is specifically
exempted then the exemption will apply to that item even though for purposes of
classification it may be considered to be something else. To take this very case as in
illustration, where like in Notification No. 29/83 components including components in
CKD packs, were given benefit of exemption those components would get exemption
even though for purposes of payment of duty they are classified as cars. But where, as in
this case, components and parts falling within Chapter 87 are exempted, then the
components and parts must be considered to be components and parts for purposes not
just for exemption but also for payment of custom duty. If for purposes of payment of
custom duty they are not deemed to be components and parts, then they are also not
components and parts for purposes of the Notification. In other words when, in a
Notification, the exemption is with reference to an item in the First Schedule to the
Customs Tariff Act, 1975, then the interpretative Rules would equally apply to such
Notification. In such cases, if they are not components and parts for the purposes of
payment of custom duty they would not be components and parts even for the purposes
of the Notification. Thus, M/s. Maestro Motors Ltd. are not entitled to the benefit of
Notification No. 72/93.
● Collector of Customs, Bangalore v. Maestro Motors – M/s. Maruti Udyog Ltd. imported
from M/s. Suzuki Motors Company Ltd. two shipments i.e. 24 CKD packs (completely
knocked down condition) and 48 CKD packs respectively of passenger car components.
They filed two Bills of Entry bearing Nos. 118/ 345 and 1412/261 for clearing the goods
which were claimed to be components of motor vehicles under Tariff Heading 8704 of
the Customs Tariff. They also claimed benefit of Notification Nos. 29/83 and 29A/83.
By two Orders dated 9th September, 1983 and 30th September, 1983, the Adjudicating
Authority held that the imported components being complete cars in CKD packs had
the essential character of the finished product and as such the consignments were to be
treated as motor cars and not components. It was held that M/'s. Maruti Udyog Ltd. was
not entitled to the benefit of Notifications as the Notifications were only for
components. The questions for consideration by this Court was whether the CKD packs
imported into country could be considered to be motor cars and not components and
secondly, whether M/s. Maruti Udyog Ltd. are entitled to the benefit of Notification No.
29/83. It is settled law that to avail he benefit of a notification a party must comply with
all the conditions of the Notification. Further, a Notification has to be interpreted in
terms of its language. If in the Notification exemption is granted with reference to tariff
items in the First Schedule to the Customs Tariff Act, 1975, then the same rules of
interpretation must apply. In that case the goods will be classified, even for the purposes
of the Notification, as they are classified for purposes of payment of customs duty. But
where the language is plain and clear effect must be given to it. In this Notification what
is exempted is components, including components of fuel efficient motor cars in semi-
knocked down packs and completely knocked down packs. Undoubtedly, for purposes
of levy of custom duty, by virtue of Interpretative Rule 2(a), the components in a
completely knocked down pack would be considered to be cars. But in view of the clear
language of the Notification the components including components in completely
knocked down packs are exempted. Effect must be given to the wording of the
Notification. Thus, components in completely knocked down packs would get the
exemption under this Notification, even though for purposes of classification they may
be considered to be cars. When a Notification exempts goods falling within the First
Schedule to the Customs Tariff Act, 1975, then the goods must be classified in the
same manner both for purposes of payment of customs duty as well as for
purposes of exemption/ benefit under that Notification. However if the wording
of the Notification show that an item is specifically exempted then the exemption
 will apply to that item even though for purposes of classification it may be
considered to be something else. To take this very case as in illustration, where like in
Notification No. 29/83 components including components in CKD packs, were given
benefit of exemption those components would get exemption even though for purposes
of payment of duty they are classified as cars. But where, as in this case, components and
parts failing within Chapter 87 are exempted, then the components and parts must be
considered to be components and parts for purposes, not just for exemption but also
payment of custom duty. If for purposes of payment of custom duty they are not
deemed to be components and parts, then they are also not components and parts for
purposes of the Notification. In other words when, in a Notification, the exemption is
with reference to an item in the First Schedule to the Customs Tariff Act, 1975, then the
interpretative Rules would equally apply to such Notification. In such cases, if they are
not components and parts for the purposes of payment of custom duty they would not
be components and parts even for the purposes of the Notification. Thus, M/s. Maestro
Motors Ltd. are not entitled to the benefit of Notification No. 72/93. (check this once)
● Award Electronics v. CCE - even if all or major components of unit are imported, it
cannot be said that complete units were imported, classification is diff. from notifications
governing import.
● Thomson consumer electronics v. collector of customs - The appellants had imported
parts of audio system in SKD condition. The said assemblies imported required a licence
under ITC (HS) Classifications which was not produced. Hence they were issued with
show cause notice alleging evasion of duty and also they were alleged that the item is
music system classifiable under Heading 8520.33 and the goods were valued at Rs.
37,43,969/- as against the assessment of Rs. 31,57,915/-. It was alleged that they had
misdeclared the SKD parts of audio system as parts/components and not as audio
system in SKD condition (semi-knocked down condition).  On a careful consideration of
the submissions, we notice that the items imported is in SKD condition and in terms of
Note 2(a), the authorities have rightly classified the item as audio system and there is no
error or infirmity on this aspect of the matter. The goods required an import licence and
they are mere parts and components as all the items were in SKD condition in sets.
● Collector of customs v. Hindustan motors – import v. classification.
● Rule 2(b): classification of mixture or combination of material or substance with
other material or substances. Reference to a mixture or material will be taken to
include reference to combination containing that mixture or material.
● E.g even if coffee is mixed with something else it will still be classified as coffee.

Rule 3(a): CCE v. Simplex Mills Co Ltd., 2005 181 ELT 345 SC – Rule 3 must be
understood only in the context of Rule 2(b).
Pragati Silicon Pvt. Ltd. v. CCE, 2007 211 ELT 534 SC: Plastic name plate case
Jyoti Industries v. CCE, 2000 115 ELT 559 Appellate Tribunal
CCE v. Maharshi Ayurveda Corporation Ltd., 2006 193 ELT 10 SC:
● Rule 3(a): “sanitary wear” is one heading, second heading says “all household
articles of iron and steel” – what is the general description and what is the
specific one? Sanitary wear is general.
● Plastic name plate – is it an “accessory of motor vehicle” or “article of plastic”? it
will be accessory, cus that’s more specific.
● Jyoti Overseas v. CCE - The above mentioned appellants are engaged in the
manufacture of cotton fabrics. The fabrics manufactured were heavily and thickly woven
with multiple warp/weft/yarns. They cleared those goods without paying any duty on
the belief that they fall under Chapter 52 of the Cental Excise Tariff Act and so not liable
to duty. Department took up the stand that the goods manufactured are classifiable
under Heading 59.09 or 59.11 of the Cental Excise Tariff Act. Thereupon, show cause
notices were issued demanding huge amounts by way of differential duty and penalties
for violation of the provisions of the Cental Excise Act, 1944 and the Rules framed
thereunder. Manufacturers tried to substantiate their contention that the goods as cleared
by them from their factory were classifiable under Chapter 52 of the Tariff Act only and
that they are not classifiable under Heading 59.09. Since the goods are classifiable under
Tariff heading 52.05, no duty was payable. This contention of the manufacturers was
overruled by the orders impugned in these appeals. Hence, the matter is before this
Tribunal. Section XI of the Central Excise Tariff Act, 1985 relates to textiles and textile
articles. Chapter 50 to 63 fall under this Section. Note 6(a) to Section XI states that
Chapters 50 to 55 and 60 and except where the context otherwise requires Chapters 56
to 59 do not apply to goods made up within the meaning of Note 5. Note 6(b) further
states that Chapters 50 to 55 and 60 do not apply to goods of Chapters 56 to 59. From
this provision it is clear that goods falling under Chapters 50 to 55 and 60 fall in one
group and those under Chapters 56 to 59 in another group. Goods classifiable under
Chapters 50 to 55 and 60 cannot be goods satisfying the description made up as stated in
Note 5. Except where the context otherwise requires goods which are made up cannot
fall under Chapter 56 to 59 Term "made up" has been defined by Note 5. Nowhere in
the impugned orders the adjudicating authority came to the conclusion that the
 manufacturer carried out any processing activity on the fabrics and such processed
fabrics were cleared by them. The goods cleared from their factory continued to be grey
fabrics from the appellants, subjected them to further processing and thereby used it as
tarpaulin, bags, jeep hoods, tents, etc. Subsequent use to which it was put by the dealer
can have no relevance to the classification or for fixing assessable value to decide the
duty payable on the goods. Value of the fabrics at the time of removal of the goods
is to be assessed for the purpose of levying duty under the Central Excise Act.
While valuing the goods, the nature of the goods at the time of removal of the
goods from the factory alone is to be ascertained. Subsequent use to which the
goods are put by the dealer can have no relevance to the valuation of the goods or
assessment to duty. In view of this specific provision of the Central Excise Act, the
adjudicating authority was clearly in error in classifying the goods based on the
subsequent use to which it was put by the dealers.
● Simplex I:  In Simplex Mills Co. vs. Collector of Central Excise, Nagpur, 1993 (49)
ECR 147, this Tribunal interpreted the scope and ambit of Chapter Heading 59.09 as it
stood at the relevant time. While analysing that Chapter Heading, this Tribunal lost sight
of Note 7 to Chapter 59. Had the sub-heading 5909.00 been examined in the light of
Note 7 to Chapter 59, the conclusion would have been entirely different. When the
Chapter Heading 59.11 is examined in the light of Note 7 to Chapter 59 as has been
done in the earlier paragraph, we are clear in our mind that the conclusion reached by the
Bench in 1993 (49) ECR 147 is unsustainable. We accordingly hold that the said decision
can never be treated as one laying down correct law.
● Simplex II: CCE v. Simplex Mills Company Limited - The respondent is engaged in
the manufacture of Textiles, namely; grey cotton canvas cloth, hundred percent
cotton/grey cotton, belting and duck. The issue to be resolved is whether these goods
are classifiable under Tariff Headings (TH) 52.02, 54.08 or 59.09 of the Schedule to
the Central Excise Tariff Act, 1985. The appellant contends that they are classifiable
under TH 59.09. The respondent on the other hand cleared the goods classifying them
either under TH 52.02 or 54.08. The rules for the interpretation of the Schedule to
the Central Excise Tariff Act, 1985 have been framed pursuant to the powers
under Section 2 of that Act. According to Rule 1 titles of Sections and Chapters in the
Schedule are provided for ease of reference only. But for legal purposes, classification "
shall be determined according to the terms of the headings and any relevant section or
Chapter Notes". If neither the heading nor the notes suffice to clarify the scope of a
 heading, then it must be construed according to the other following provisions contained
in the Rules. Rule-I gives primacy to the Section and Chapter Notes along with terms of
the headings. They should be first applied. If no clear picture emerges then only can one
resort to the subsequent rules. The appellants have relied upon Rule 3. Rule 3 must be
understood only in the context of Sub-rule (b) of Rule 2 which says inter alia that the
classification of goods consisting of more than one material or substance shall be
according to the principles contained in Rule 3. Therefore when goods are prima facie,
classifiable under two or more headings, classification shall be effected according to Sub-
rules (a), (b) and (c) of Rule 3 and in that order. Applying the Rules of interpretation
particularly Rule 1, we are of the opinion that the reasoning of the Tribunal in Jyoti
Overseas is unexceptionable and in our opinion the decision in Simplex-I was
correctly overruled
● Pragati Silicones Private Limited v. CCE: whether the Name Plates, Lables, Emblems
made from plastic for use on Motor Vehicles are classifiable under Chapter 87 of the
Schedule to the Central Excise Tarrif Act as parts or Motor Vehicle or Motor Cycles as
claimed by them or under sub-heading 3926.90 as other articles of plastics. The ld.
Advocate for the Appellants has emphasised that the impugned goods namely name
plates, lables, emblems are parts of motor vehicles and these are not accessories as these
have been specifically designed to be used in respect of specific motor vehicles or motor
cycles. According to Sarkar's 'Words & Phrases of Excise & Customs, Second Edition,
part is an element of a sub assembly, not normally useful by itself and not amenable to
further disassembly for maintenance purpose". In common Parlance parts are used in the
manufacture of the final product and without which the final product cannot be
conceived of. A Motor Vehicle is a complete vehicle without affixation of emblems or
name plates and we agree with the submissions of ld. DR that it cannot be treated as a
part without which motor vehicle is not complete. The Supreme Courts decision in the
case of Jay Engineering Works does not advance the case of the Appellants as it was not
held in that case that name plate was part of the fan as it was held only to be an input
used in or in relation to the manufacture of fan and eligible for benefit of Notification
No. 201/79. A name plate can certainly be used only in respect of the product whose
name it carrier but it does not make it a part of the motor vehicle on this gound.
Heading 39.26 specifically covers articles of plastics and as it is not in dispute that
the impugned goods have been made of plastics they would be classifiable under
heading 39.26 only. 
 ● CCE v. Mahashri Ayurveda Corporation Limited 2006 - The issue involved in these
cases is whether the product "Herbonic" tonic is classifiable under Central Excise Tariff
Heading No.2001.90 or 2108.90. The respondents had filed a classification list effective
from 25.4.1994 for the product "Herbonic" put up ordinarily for sale in unit containers
under sub-heading 2001.90 declaring the same to be a preparation of vegetables, nuts and
other parts of plants and fruits/seeds claiming nil rate of duty under notification no.2/94
dated 1.3.1994 whereas as per appellants the product is a mixture of assorted vegetables
and dry fruits or seeds and is a health vitalizer being used for all round growth and
improvement of memory and general health of children and adults and the product
merits classification under sub-heading 2107.91 chargeable to duty at the rate of 20% ad
valorem. FINDINGS The product under reference is a mixture of assorted vegetation
and dry fruits and seeds. That different vegetations namely Khas Khas, Aswagandha &
Brahmi Booti is turned into powder and processed in Khas Khas and giri badam
(almond) oil and then the whole mixture is processed in sugar syrup under vacuum and
thereafter choti illayachii (cardamom) and root kewara are added as flavour. Since the
product "Herbonic" is mixture of different vegetation it is rightly been classified by the
Tribunal under Chapter 20. In Chapter 21 there is an entry reading as "Edible
preparations, not elsewhere specified or included" under the particular heading
"Miscellaneous Edible Preparations". Chapter Note 9(a) of the Chapter 21 reads
"Heading No. 21.08, inter alia includes: [a] protein concentrates and textured protein
substances; [b] preparations of use, either directly or after processing (such as cooking;
dissolving or boiling in water, milk or other liquids), for human consumption". Sub-
heading 2107.91/2108.90 covers other edible preparations not elsewhere specified and as
such is residuary in nature. As per Rule 3 (a) of the rules of interpretation of
Schedule-I, the heading which provides the specific description should be
preferred to the heading providing a general description
● Rule 3(c) = specific heading prevails over general.

14 October, 2020
CCE v Comm of Central Excise Mineral Fibres, 2012, 278 ELT 518 SC-here company started
manufacturing slag wool and mineral wool
Classified under heading 680300, -accepted from 1993-1998 by the Dept. But another specific
heading was introduced in 1997 and amendment says 687010 (slag wool or similar wool)-goods
covered having weight more than 110% slag. Revenue contended that when there was a specific
heading. That entry is required to be applied and not the new one. Assessee, started mfg. in 1993
and they used more than 23% glass slag. Till 1998 they had used old classification and new one
was based on composition and introduced in 1998. After introduction of heading, assessee
wanted to shift to new heading. Revenue contended that there is a specific heading (old one)-this
is specific and as general interpretation Rule 3A, specific headings will prevail over general ones.
Assessee said appropriate one was the new heading. SC here held that there was a specific
entry which speaks of rock wool and slag wool under old one (chargeable at 18%) but
there was another head which was introduced consciously by legislation chargeable at
8%, so it was not in dispute that goods had more than 25% of the material in question
was used, then in any classification dispute b/w specific heading & general heading
based on composition which is beneficial to assessee-then the beneficial one will prevail.
Court has given a different opinion from general rules in this case.

Specific entry v/s residuary entry-which one to be preferred?

Rule 3B talks about fixed and composite goods. (mixed supply under GST)-how goods are to be
classified. Mixtures, composite goods consisting of different materials and made of different
components which cannot be classified as per Rule 3A shall be classified as per Rule 3A-then
they will be classified as per heading which gives essential characteristics of goods. E.g. mobile
phones. What is meaning of composite? Capable of multiple functions basically there, in
different combinations have to identify which is main function-acc. To that goods will be
classified? If cannot identify it, then Rule 3C will be used. Even if mobile phone is known for
camera, phone is sellable and that function is v important, but still will be classified as per main
function of phone-telephone.
Circular No 45/98-Customs Circular issued on 30 June, 1998 and Excise Circular-17 of 2007
issued on 19 April, 2007.
Rule 3B-this rule would apply only if goods cannot be classified under 3A-under 3B, essential
function of good is seen for classification.
BHEL v. Collector of Customs, 1987 28 ELT 545-goods subject to different rates of excise duty,
but will we classify goods under 1 heading or different ones? Suppose photocopier machine,
there is scanner, there is fax-how to classify goods? Now there is led pencil with eraser at back-
how to identify what is essential character as pencil and eraser will be separately classified. Or
suppose there is table cloth with pen stand? What is main character of the good? But suppose
cannot find main/essential character under 3A or 3B, then 3C has an answer-it says that if there
are 4 headings-9401, 9402, 9403 and 9404 in a chapter and it is not possible to classify under
previous chapters, will be automatically under 9404-residuary heading-last in numerical order.
Called “latter is better”-heading which falls at end, automatically classified here.

2012 277 ELT 299 SC-CCE v Wockhard live sciences ltd.- this case is important for specific v
residuary entry. Here the company was manufacturing 2 products- Iodine cleansing solution (this
was general name), and surgical scrub (this was branded product). Revenue contended that said
products were not medicament/medicine-they should be capable of curing a disease or element
and could not be classified under chapter heading 3003-the product in dispute and its patent
proprietary solution -the iodine cleansing solution was cosmetic and should be classified under a
different heading. The assessee contended them to be medicines and revenue said they were
medicated detergent. SC said -it is specific case of assessee that product in question are used for
external treatment of human beings, this was not disputed by revenue, but revenue said they
were mainly used for detergent and not for cure or prevention of a disease which is true for
medicines. What to look for classification? It is not disputed that surgeons use cleansing solution
for degerming before operations/surgery-to prevent disease-thus product could be classified as a
medicine/medicament-classified under Residuary entry-assessee succeeded-labelling,
character, use of product are all important to be seen when classifying goods.

When entry in HSN and Central Tariff-not aligned, then?

Gamlin Ltd. v. CCE, Mumbai, 2008 230 ELT 193 SC-ruled that when entry in HSN and
Central Tariff-not aligned, reliance cannot be placed on HSN classification. SC reversed
judgement of tribunal here which was based on HSN classification. Here Central Excise Tariff
Act classification was not seen to be aligned with HSN based on marketability, etc.
CCE v. Mannampalakkal Rubber Latex Works, 2007 217 ELT 161 SC-on Rule 3 where court
looked at composition and user test (essential character test).
● CCE v. Mannampalakkal Rubber latex works limited – manufacturer of latex based
adhesive. The test to be applied is the composition test, and the end-user test would only
be applied as a last resort – rubber content in this product is more than 90%, so the
product must be classified as prepared rubber instead of the general classification of
adhesives.
● Collector of Customs CCE v. Acer India Pvt Limited – desktop computer is a
combination with key board mouse etc, these are marketable and used separately. Laptop
 is an integral and inseparable form, combination of cpu monitor mouse keyboard etc, so
it’s a composite good.
● What is the meaning of main function and additional function? Nirulas Corner House
Limited v. Collector of Customs AIR 1999 SC 2008. CCE v. HP India (2007 215 ELT
484 SC) – preloaded software in laptop is an integral part, so laptop + software is
classified as laptop and valued as one unit.
● Value of software was 67 lakhs, hardware was 65k. Here, software is more imp. – Sprint
India Limited v. Collector of Customs.
● Rule 4 - Plastic blinds minimize sunlight, can be classified in 3925 even though there’s no
specific tariff schedule, but 3925 is just the most similar.
● Rule 5 – special rule, only applicable to cases where there is a question of classification of
packing materials/containers – camera cases, gun cases, etc.
● Rule 6 - Title of the Section has no bearing on classification. Each section has a few
chapters depending on the nature of goods. Each chapter has headings. Each heading
has further sub-headings. We apply rule 3 and compare headings (sometime even rule 4)
but when comparing sub-headings, we can’t compare sub-headings with headings, but
one sub-heading can be compared with only another sub-heading.

“Set of articles” meaning? This term is used under Rule 3

Collector of Customs v. Asus India Pvt. Ltd., 2007 218 ELT 17 SC-Question was whether
computer and laptop are same product or 2 products? There were certain exemptions for
computers. Assessee had imported laptops and sought exemptions, court allowed for
exemptions to be claimed but said laptop and computer-different products. Separate
marketability and use. Laptop comes in separable and distinct form-composed of CPU, monitor,
keyboard etc. In computer all these products have a different and separate identity and they can
be detached and separated. Thus, both are different. Allowed exemption based on tariff note,
not on similarity of products.

What is the meaning of main function and additional function? (important for machines)
Nirula’s Corner House Pvt. Ltd. v AIR 1999 SC 2008
CCE v. HP India, 2007 215 ELT 4844 SC (held preloaded software in laptop forms an integral
part of it, so laptop + software have to be seen as 1 unit. Laptop was imported by assessee,
software was preloaded, that time software was exempted from duty, assessee wanted to say
though integral, software to be separate for classification to take benefit of exemption
notification, court said no-integrated part and cannot now make it a separate category, value it is
as 1 unit.

In another case-Sprint RPG India Ltd. v. Collector of Customs, 2000 116 ELT 6 SC-Assessee
imported hard drive which had a software -and software’s value was 67lakh, drive value was
65,000-what is essential character where? It is coming from software and not item carrying
software!

15 October, 2020
(take for beginning)
Rule 4:
Heading appropriate to the goods which are more alike in respect of characteristics, function
and use- Akin Rule. For Example: plastic film used to filter the layer of sunglight on cars- no
specific entry in Tariff schedule- ventilation blind included- most akin to the plastic blinds and
hence classified in the heading 3925.

Rule 5-Special rule-classification of packing materials and containers and cases which
are cleared along with the goods. The camera cases, drawing instruments cases, etc.-many
illustrations given, classified with the main product itself. Conditions are that these
containers, etc. are created especially for the article, suitable for long term use. So, camera
cover made for camera, sold along with goods, classified with principal goods. If cleared
separate to main good, not classified together.
Sub-Rule (a)-like Pepsi glass bottles, cleared with Pepsi, but only one-time use-then Sub-rule
(b) is applicable.
Long term use under 5(a)-like camera cases and repetitive use under 5(b)-long term but
repetitive (means return back) use-like Pepsi glass bottle or cylinder

Rule 6 (general rule) For legal purposes-normally we consider sub-heading as chapter is broad.
Title of section just for reference and not used for classification, each section has chapters-one
chapter may have 10 headings and each heading may have 1 sub-heading, then compare sub-
heading at level of sub-heading only. Classification of goods under sub-heading would be
classified -may be compared with another sub-heading at level of another sub-heading which
may be under same heading or different one. General interpretative rules may not be
applicable in certain cases, then trade parlance theory is applicable-last resort. To make
proper classification, burden is on revenue to prove goods are known, understood in
common trade parlance and that this is the correct classification.

1986-Atul Glass Industries Pvt. Ltd. v. CCE, 1986 3 SCC 480. Hindustan Safety Glassworks v.
UOI, similar goods and issue in both. In Atul Glass case, classification of free glass miller-
whether in residuary category or glass or glassware? The next case of Hindustan Safety, windscreen
used in car-whether it is other glass and glassware or accessories of motor? Before HSN
classification, in 1983 it was known as Brussels Nomenclature. What SC said here was that test
applied. Here the court had to classify the product which is called a glass mirror, court deciding
correct classification. At 1975 time there was no Tariff Act, Tariff number was only mentioned,
they were given as per Brussels Nomenclature, the court said how the test can be applied to
determine correct classification if cannot classify them as per Tariff-Nomenclature.
See how is product classified by those using the product-trade parlance theory? -those who deal
with or use product-test applied when statute does not contain any definition-last resort
types. So, classify glass in residuary list-as it is understood different from glass and glassware,
different from function. Simple glass has been converted into mirror-different commercial
product different from normal glass now as a mirror with reflective properties. Para 12 of
judgment -important. Mirror can be created even without glass. Word glass is descriptive of
mirror. Glass mirror cannot be classified as a class. Para 10-circumstances that glass mirror has
been classified as glass and glassware is of no consequence because fist schedule to excise act is
not modelled on Brussels Nomenclature. Thus, cannot adopt the classification. Para 11-fact that
mirror has been classified by ISI as glass and glassware in its glossary would also not change the
classification. Manner in which product treated has to be seen. For windscreen said it is
accessory item. Popular meaning in trade parlance was discussed by SC in 1986 itself and has
been seen to be used even now.
● Atul Glass Industries v. CCE - whether glass mirrors fall under Tariff Item No. 23A(4)
or Tariff Item No. 68 of the First Schedule to the Central Excises and Salt Act. The test
commonly applied to such cases is: How is the product identified by the class or section
of people dealing with or using the product? That is a test which is attracted whenever
the statute does not contain any definition. It is a matter of common experience that the
identity of an article is associated with its primary function. It is only logical that it should
be so. When a consumer buys an article, he buys it because it performs a specific
function for him. There is a mental association in the mind of the consumer between the
article and the need it supplies in his life. It is the functional character of the article which
identified it in his mind. In the case of a glass mirror, the consumer recalls primarily the
reflective function of the article more than anything else. It is a mirror, an article which
reflects images. It is referred to as a glass mirror only because the word glass is
descriptive of the mirror in that glass has been used as a medium for manufacturing the
 mirror. The basic or fundamental character of the article lies in its being a mirror. We are
firmly of the view that glass mirrors cannot be classified as 'other glass and glass ware' set
forth in Tariff Item No. 23A(4), and must therefore fall under the residuary Tariff Item
No. 69.
● An additional point arises in M/s Hindustan Safety Glass Works Ltd. (Transfer Cases
Nos. 349, 350 and 355 of 1983). The manufacturers of motor vehicles place orders with
the appellant for the manufacture of screens for fitting in motor vehicles . They are
commonly known as wind screens, rear screens and door screens. The screens are
manufactured according to the specific shape and measurements indicated in the orders,
for different vehicles require screens of different shapes and measurements. The screen
is manufactured from sheet glass. It is first given shape and size according to the
specifications contained in the order and thereafter subjected to the process of
toughening. It is a fabricated article. Upon the tests and having regard to the foregoing
considerations which have appealed to us when considering the proper classification of
glass mirrors, we have no hesitation in holding that the screens cannot be described as
"glass or glass wares" under Tariff Item No. 23A(4). No one dealing in or using the
screens would consider them as "glass or glass ware". They can only be considered as
motor vehicle parts. Even if we assume that they could fall under Tariff Item No. 23A(4)
relating to 'glass and glass ware' also, inasmuch as Tariff Item No. 34A is a special entry
and Tariff Item No. 23A(4) is a general entry, the special must exclude the general and
therefore also it is Tariff Item No. 34A which prevails and is attracted.
● Windscreen used in car – how to classify – “other glass and glass wear” or “accessories
of motor vehicle”?
● If statute doesn’t contain any definition, then we apply the trade parlance theory or
popular meaning theory.
● Product has to be identified by the section and class of people using the product – last
resort to classify goods if definition in statute is not clear.
● Glass mirror was not regarded as glass.

Ayurvedic or patented medicine.

Dabur India Limited v. CCE, 2005 4 SCC 9-
Referenced CCE v. Pandit JP Sharma, CCE v. Sharam Chemicalworks and CCE v.
Viccolaboratries (call it not cosmetic, it is Ayurvedic)-all 3cases within Dabur case.
Dabur case-2 products -Dabur Lal oil and Dabur Janam Ghunti-how to classify them was the Q.
Oil-assessee wanted to classify it is an ayurvedic oil/medicine and revenue wanted to classify it as
massage oil-under different headings of classification. Similarly, in second product, assessee
wanted to classify it is an ayurvedic medicine or an ayurvedic oil as per revenue. Matter was
remanded to tribunal to see the process of mfg. for 1st product, SC held that criteria to determine
-don’t use scientific and technical meaning but see the popular meaning (trade parlance theory)
based on use of the product. Whole argument of revenue was that the product was available
everywhere and not just medical store, even medicine can be sold at general store and need not
always be sold at medical store. Court discussed above 3 mentioned cases which are in favour of
assessee, one case in favor of dept. C Vaidyanath v. CCE. Court differentiated this case, matter
decided in favour of assessee.
16 October, 2020
CCE v. Ciens Laboratories and CCE v. Time Pharma
Moisturax- care (revenue) v. cure (assessee)?
Therapeutic or prophylactic use- medicament
Department- 3304 as a cosmetics- care of skin other than medicaments
Very thin line of difference between medicament and cosmetics.
Except the cream base, all the ingredients had Therapeutic or prophylactic properties.
Excise Dept: Even if there is subsidiary t or p value- still cosmetics (primary t or p, then only
medicament- otherwise cosmetics). Moreover, available across the counter w/o prescription of
the Dr.
Assessee: presence of pharma substance- cure of certain diseases relating to skin.
Court held in favour of the assessee- medicament and for cure.
If product-care-cosmetic, to cure/therapeutic (except for unani, ayurvedic) quality-medicine.
Para 3 of the heading note-thin difference b/w medicament and cosmetic.
Pharmaceutical content also discussed. Except cream base all products which were there-were
having therapeutic/prophylactic properties. Even if products contain some subsidiary
therapeutic property (as a secondary and not primary)-then cosmetic-this is what dept. said. They
also added it is sold across counter and without prescription, so not a medicine. For this they
used chapter notes to contend that it is cosmetic. Assessee said very presence of pharma
substance in the product (lactic acid, paraffin in liquid form)-will change product and make it
medicament and hence should be medicament.
SC held: (in favour of assessee-it is a medicine and classifiable Chap 30 and not 33)
3 principles laid down in this case:
1. When a product contains pharmaceutical ingredients who have curative properties, the
curative attributes are important in the product regardless of the quantity.
2. There are several medicines sold over counter and it is not necessary that only those sold by
prescription and over counter in medical store are medicines.
3. Prior to deciding the issue, need to see how people who use the product perceive it. Cosmetics
help in enhancing beauty but medicinal products cure medical conditions. So, a product used to
cure conditions, even in a small quantity has to be branded as a medicament. In case of the
cream, prescribed by dermatologist.
Even Vaseline petroleum jelly and Boroplus are medicament. Vicks Vaporub and Iodex-99%
cream base and only 1% is menthol, but still it was classified as medicament because it has
curative attributes, so quantity/amount of curative aspect is not relevant. Even Chavanprash is
considered as a medicament. Ayurvedic medicines have different criteria and proprietary
products have different classification.

Meghdooot Granudyog Seva Gram v. CCE-held composition and curative properties would
make the difference in classification. If composed of pharmaceutical and has curative properties,
has to be classified as a medicament.
“appellant drawn our attention to….”
CCE v. Sharma Chemicalworks, “mere fact that product is sold under counter and not under
doctor’s prescription.
Puma Herbal judgement of 2006 also discussed-cosmetics enhance beauty and medicament
treats medical condition. Just because doctor does not prescribe-does not mean it is not
medicine. See primary use of product. E.g., of baldness used-just because product caused hair to
grow and improved appearance, does not make it cosmetic.

CS Laboratories case-read

Other aspects also which were discussed.

CCE v. Vinayaka Bodybuilding Industries Ltd., 2008 224 ELT 3 SC. Here court decided
relevance of registration certificate -RC (and description within it) granted by road transport
authorities and said it should be used to classify goods. As per registration certificate, vehicle
considered 12 +1 driver, assessee wanted to make it 16-seater. Court said we have to rely on RC
to classify it.

Guljag Industries v. UOI 2008 224 ELT38 Raj HC-the manufacturer wrongly classified some
products and paid duty on that. This was accepted by dept as classification but later he claimed a
different classification by saying previous one was wrong. The Revenue dept disputed this and
said cannot change classification and denied CENVAT credit (which is now input tax credit)-but
court negatived dept’s claim and allowed the change. You can change the classification to claim
credit. Assessee’s contention was held to be justified. Adjudicating authority has to first decide
correct classification and then consequential order like input credit, etc.
It is a matter of right of the assesse- the classification has to be right in the first place and on that
premise should the consequences be seen (like credit).

SC-Ponds India Ltd. v. Commissioner-2008 227 ELT 497-relevant for classification-

Can internet sources like Wikipedia etc. be relied on for classification-court said no, cannot rely.
It may be used like an external aid to construction but since they are not authentic source, they
can be used only for information gathering and not classification. SC had not accepted ISI
classification and Brussels’ classification also-for reference only but they are not authentic
sources for classifying goods under Tariff Classification -they are not conclusive sources!

Court has also heavily relied on consumer identity of products-2012-McDonald’s v. CCE- Q of

whether softy is ice cream (here duty is high) or other milk products (here duty is less). Assessee
wanted it to be classified as other milk products. Court held it is ice cream (even if it is
technically not because of less fat content), following popular parlance theory. Basically,
consumer perception of products was given weight to.

17 October, 2020
Pleasantine Products v. CCE
Scrabble- classification in 9503 and 9504- puzzle or educational toy (assesse 9503). But revenue
claimed it to be indoor board game in 9504. Court decided that it is a board game. Functioning
of scrabble and difference between a game and a puzzle. It is not similar to a crossword. Three
differences: Outcome is fixed in crossword but the same is not there in scrabble, clue and
chance, skill. Scrabble is a board game as per the dictionary and the suitable classification will be
a board game only.

Possibility of classification under two headings -9503-assessee-Scrabble-education doll/puzzle-&

9504- Revenue said it was a game and not toy or puzzle-it had pieces and should be classified as
board game. Revenue’s contention was accepted finally by court. For this court looked at
functioning of scrabble, difference b/w game and puzzle-3 distinct features drawn: 1. Outcome.
2. Clue and Chance and 3. Skill. In puzzle outcome is fixed and pre-determined but in Scrabble
words are written in clues and words have to be written and there is chance to win. As per the
dictionary -scrabble is board game and players use letter and tiles and so they considered it a
board game.
CCE v. Louis Shoppe, 1996 3 SCC 445-Handicraft v/s normal furniture-difference? Court had
to decide this difference
1. some machinery can be used and primarily has to be made by hand
2. nature of ornamentation-substantial in nature-
This test is important even under GST
Handicraft and general furniture. How to make a difference between the two?
Two tests laid down by the SC- pre-dominantly made by hand, but does not matter if some
machinery is used in the process. It must be graced with regional appeal- element of artistic skills

CCE v. International Tobacco Co. Ltd. 2008 231 ELT 207-basic characteristic, function, use-
more important than the name used in trade parlance. Rules of interpretation of tariff come into
play if classification cannot be determined based on terms of heading or chapter note. Here
product was tipped gold tip cigarette. Was it filtered cigarette or non-filtered (lesser rates)? Court
looked at function and use and said just because it is tipped at the end does
Court relied for the classification on the basic character, function and use. In some situations,
this will override the trade parlance and will be more important than the name used in
the trade parlance. They had to classify gold tip cigarette- whether filter cigarette or non-
filtered (lesser rate). Court decided that it was non-filter- basic characteristics and function
looked into.

Classification of parts and accessories-important and there is a case on it (imp) -SC settled the
dispute in this case. This classification of parts is not there in the Rules, only in cases.
CCE v. Insolation Electricals, 2008 224 ELT 512 SC-if you have to classify parts, parts are
essential component of whole w/o which whole cannot function and parts are supplementary in
nature. Parts suitable solely for a machine in which main item falls, i.e., if they are made
particularly suitable for a machine, then it will be classified under the product itself. But if it is a
general use product and can be used in many products’ manufacturing then it must be classified
in the heading of the part and not main product.

CCE v. Aldec Corporation, 2005 188 ELT 241 SC-court basically decided the issue what is
difference b/w special part and general-purpose part-aluminum grill for AC was to be classified
here-court said this is not part of condition and can be used for other purposes as well. General
purposes-so separate classification. Accessories are generally classified under a separate category.
 19 October, 2020
Classification under GST
7 rates of GST for goods starting from 0 to 28%
5 rates of GST for services starting from 0 to 28%
Goods were classifiable in 3 rates when discussion started on classification
Merit rate-5% category
De-merit rate-28%
Standard rate-12-18% (there are 2 categories under this now 12% and 18%)
GST Council also discussed this and said they will club 12% and 18 % and make it one category
as 15-16%, because having 2 standard rates increases disputes over classification causing more
litigation. This was recommended by GST Council and Economic Advisor.
Classification steps:
Step 1: Identify whether it is supply of goods or supply of service. From Ganon Dunkerley to
ProLabs, what is goods and services is still relevant and remains contentious. There are 2
concepts-place and time of supply which are different for goods and services and have different
legislations governing them. These kinds of disputes are also still prevalent, except in few cases
where government has clarified in Schedule II in definition of supply. What is supply of goods
and services have been tried to be resolved to a large extent, but still remains an issue.
● Goods defined under Section 2(52) of CGST Act. Very exhaustive definition, items
which have a commercial value.
● Services defined under Section 2(102) of CGST Act. Anything other than goods. So,
you have to first see if an item is a good, and then whether it is services, when
determining whether something is a service under GST. (Exchange of services is
considered as a service).
Can we say it is not supply of service, but supply of goods? (Basically vice versa of how you
determine whether something is services because there you have to first check if it is a good?)-
Yes, you can do that if other conditions are fulfilled.

If it is supply of goods then 2 things need to be seen:

1. Customs Tariff Act-for HSN classification. Because under GST regime there is no tariff act
(unlike Excise Act), so full reliance on Customs Tariff Act for classifying goods under GST. But
there is one difference-which is rate of taxation. So, headings, chapter notes, etc. are relied on
but rates are different under GST. Rates Notification of 2017 talks about what rates are
applicable for GST. Schedule 1 talks about nil, 2-5%, 3-12%, 4-18% and 5-28%.
2. When reading schedules, have to read them with exemption notification (this is separately
notified by government-power under S 11 of the Act, government can exempt something from
taxation, depends if such power has been given under the Schedule).
3. If goods cannot be classified under any entries of a Schedule, but they are classifiable under
any Chapter/Heading of Customs Tariff Act, then how will goods be subject to GST? In such
case they will fall under Entry 543 of Schedule III -18% of rate.
4. If goods cannot be classified under Customs Tariff Act , but there is an entry in Rates
Notification, then goods will be classified under that entry. E.g., lottery falls under 2(82) of
Schedule II but cannot be found under Customs Tariff Act. Entry 2(42) of Rate notification will
be helpful.

If it is supply of services then

Service Account Code- has to be seen. UN CPC-Central Product Classification-service -SAC is
based on UNCPC. Standard format of classification is adopted from UNCPC. For rates, we look
at Rates Notification issued by Central Government, based on notification of Central
Government. It is different from Excise Act as there is a separate act for classification there.
There can be exemption notification for services too.

Benefits of Classification:
1. Main purpose of classification is to find out rate of tax.
2. Helps also in leviability of tax (taxable/non-taxable item)
3. The whether it is goods or service? (time, place, etc. are different for both)
4. Helps to find out exemption notification which is applicable.
5. Also helps government in collection of data about trade and industry in a systematic
manner. This is necessary for planning of GST. For e.g., in initial years revenue loss may
exist and there may be minimum rate of tax evasion.
6. Principles of taxation-progressive/regressive taxes-from where we get whether it is
progressive/regressive-based on classification only! Progressive as per Sir, different rates
of taxes-to make it progressive.
Indirect tax is regressive – but in certain cases it can be progressive i.e. by classification
(28% is only on luxury goods, and nil/5% is on all essential items).
GST Progressive or Regressive?
It is pre-dominantly regressive. Progressive (DT) or regressive (IDT). Even IDT to certain
extent is progressive, because of classification. The incidence and liability on two different
people- cannot make it progressive. But the government has divided into merit rate, demerit rate
and standard rate- this is progressive. Why essential items are kept under 5% rate or
consumption of goods in loose form- NIL rate and if branded and packed then 5% tax. In the
end, sin goods and luxury goods kept at a higher rate of 28%. Cannot follow the rigid form of
progressive taxation- it is impractical but wherever possible, the government has made
provisions for the same. Motor car- Maruti 800 v. BMW- even it is progressive depending on the
purchasing power generally. There is aim to make it as progressive as possible.

20 October, 2020
Composite [Section 2(30)] v/s Mixed Supply [Section 2(74) read with Section 8] + 3
Schedules of GST (Schedule II is v imp).
Works contract defined under Section 2(119) of CGST Act and restaurant services-supply of
service. Clause 6 of Schedule II: Works contract S. 2(119), and restaurant service are listed
in Schedule 2 as supply of service.
Schedule 1-3 of definition of supply.

Composite supply Section 2(30) of CGST Act-supply made by a taxable person to a recipient
consisting of 2 or more taxable supplies of goods or services or both. Have to identify what is
dominant in the transaction to determine rate of taxation.
2(30) ―composite supply means a supply made by a taxable person to a recipient consisting of two or more
taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied
in conjunction with each other in the ordinary course of business, one of which is a principal supply;
Illustration— Where goods are packed and transported with insurance, the supply of goods, packing materials,
transport and insurance is a composite supply and supply of goods is a principal supply;
Place and time are separately defined for goods and services.
Section 2(90)-principal supply defined.
(90) ―principal supply means the supply of goods or services which constitutes the predominant element of a
composite supply and to which any other supply forming part of that composite supply is ancillary;

Suppose I purchase machinery from manufacturer, he has to transport it to my place. So, I pay
for value of machine, insurance, packing, transportation. Transportation and insurance are
service but what happens here is that it is composite supply, activities are naturally bundled.
Classification will be done as per single supply. Individual rates of supply won’t apply basically.
Opposite of this is mixed supply. [Section 2(74) read with Section 8]
2 (74) ―mixed supply means two or more individual supplies of goods or services, or any combination thereof,
made in conjunction with each other by a taxable person for a single price where such supply does not constitute a
composite supply.
Illustration— A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated
drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied
separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately;

Here if there is mixed supply of 4 items, A -18%, B-28%, C-exempted supply and D-12%-so as
per S 8 of the CGST Act, the highest rate of taxation would applicable on the transactions. So, in
a hamper could have dry fruit, chocolates, etc. so here the item which has highest rate of tax will
be the rate of taxation. It does not have to be composite.
S 8-hightes rate of taxation to be applicable.

There have to be cases of composite supply-2 taxable supply. [check this bit]
2. Supply 1 and 2 have to be composite supply. Naturally bundled, normal course of business.
So, if it is exempted by notification, it will be considered as taxable supply.
3. One supply is taxable, one is nil rated, then composite supply and
4. One supply is taxable, one is not taxable, then not considered composite supply.
● Suppose there is a supply of food etc. in a restaurant along with alcohol. Is this a
composite supply or a mixed supply, or none of the above? Supply of food etc. is
taxable, but supply of alcohol is not taxable under GST. On the other hand, what if
supply 1 is taxable but supply 2 is exempted? It can still be a composite supply. Taxable
supply only means that it should be mentioned in GST notification and custom tariff act.
Similarly, one supply is taxable, the other supply is nil rate, then what? This will
not be considered a composite supply even if it is naturally bundled or provided
in the ordinary course of business.
● Restaurant services is a classic example of composite supply. Supplying alcohol along
with the food (non-taxable supply)- if supply 1 is taxable but supply 2 is non-taxable-
cannot be treated as composite supply.
● Even if exempted or NIL rate applicable- still taxable- taxable means that it is
mentioned in the GST Act.
● Spa, laundry services- naturally bundled along with hotel accommodation- principal
supply rate applicable. For Example: Hotel accommodation for 1000, breakfast is 400,
Spa service is free- still NIL supply
 ● Tour and Travel services- package includes accommodation, to-fro air fair, local
transportation, local sight-seeing, food also included- single indivisible transaction-
classify this according to the principal supply- tour and travel
Tax rates and accommodation. What is the rate of tax on hotel accommodation? If tariff is
less than 1k per room per night, then subject to nil rate of taxation (no tax basically). b/w 1k-
7500 rate per room per night, subject to 12%, above 7500-18% rate. So, 3 rates of classification
are there.
Rate is on 7500 of 18%-valuation is based on actual payment and classification is on declared
value as per Notification of government.
Suppose you avail accommodation for 7.5k, rate is 12% applicable, but if declared price is 8500
and they have given discount to you and are charging for 7500 which is not declared price, which
is taxable-classification is what? It will be on declared price for purpose of valuation. Rate of
taxation will be 18% but will be done on actual payment of 7500.
Notification issued by Government that classification will be on declared price and not
actual payment. However, for the purpose of valuation, we will take the actual payment. If the
discount is such that the customer is paying NIL- then free supply.
This situation occurs when buying foot ware, clothing etc. Retail price may be different.

So, value of hotel with breakfast-breakfast-SS of service. But because hotel accommodation is
less than 1k-s exempt, nil rate. Both of these supplies are considered separate supplies. So, if they
are individual supplies but supplied in conjunction, principal supply rate of supply will be used.
So, spa, laundry, etc. with hotel accommodation. But if less than 1k, then naturally bundled so
entire supply price is nil. Now say for tour and travel services to visit any place in India, tour
package includes accommodation, to and fro-airfare, local sightseeing, breakfast/dinner, but we
have to classify this as per principal supply which is tour and travels and so rate on tour and
travels will be taxed on whole transactions-as it is composite supply.

Supply of food in trains, is supply of goods or services? Train service-if it is included in ticket-
composite. But if you buy separate from train fare, is it restaurant service or supply of goods?
This was an issue in one case and was decided by the court.
Suppose in Jodhpur, there is Janta/15 AD restaurant, they supply food packing and in house
sitting also. So what kind of service will that be considered?

21 October, 2020
(take for beginning)
● if there is a transfer of title – it is supply of goods, if its transfer of right to goods without
transfer of title, then its supply of services (e.g. machinery on rent or lease basis).
● Transfer to title-goods
● Transfer of right of rent-services
● But even activities in relation to property bearing character of supply
● Subject matter is not taxable-immovable property, but certain categories of services
associated with property-tenancy, license, etc. are classifiable as supply of services.
● Schedule II-Deemed supply.
● Like Schedule II-moment person ceases to be taxable person, it becomes deemed supply
of goods or services. Schedule II clause 4 talks about transfer of business assets. Here the
goods are not important, it is the activity which is important.
● Schedule II
In some cases, activities in relation to goods can be treated as supply of services- subject
matter of tax is machinery- but because in one there is transfer of title (goods) but in the
other it is transfer of rights to use (service).
Renting of immovable property- neither goods nor services- but the given activities in
relation to the immovable property- partake the characteristics of supply
Maybe the subject matter is non-taxable- but because some activities on them are
classifiable as supply of service- renting, leasing out etc. of immovable property.
Deemed supply of goods and services- Entry 4(c)
● Supply of food in train is a supply of goods or service? If it is a part of the ticket itself-
then it is a composite supply wherein the principal supply is the travel service.
Palace on Wheels- Single indivisible package- composite supply and principal supply is
that of travel service.
● If you pay separately in train, then?
● Deepak and Company, In re, 2018 AAR, New Delhi
● Engaged in supply of food and beverages in train as per Railways arrangement- train is a
mode of transport and cannot be treated as restaurant- not considered as eating joints,
canteen
● Charge value of GST on the individual item and their respective GST rate- no services
provided
Janta Sweets- ground floor sweets and first floor restaurant services- composite or mixed or
individual supply? Supply of service or supply of goods?
Bakery stores or sweet shops- the problem is that restaurant services are subject to 5% rate.
Supply of goods are subject to different rates of taxes according to their individual classification.
In a number of cases, assesse wants to claim it as restaurant services wherein they are subject to
5% GST.

Supply of food in trains, is supply of goods or services? Train service-if it is included in ticket-
composite. But if you buy separate from train fare, is it restaurant service or supply of goods?
This was an issue in one case and was decided by the court. Deepak and Co. In Re, 2018 AAR
New Delhi, Assessee was engaged in supplying services to passengers in trains, AAR held train is
mode of transport and cannot be called restaurant and thus supply of food, water should be
charged on GST on individual items. There is no element of service involved. This is not a
restaurant.

Suppose in Jodhpur, there is Janta/15 AD restaurant, they supply food packing and in house
sitting also. So what kind of service will that be considered? Restaurant services subject to 5%
rate and supply of goods are subject to different rates based on good involved. So, in number of
cases assessee wanted to claim it as a restaurant services subject to 5% rate. But there are
different cases by AAR.
Ms. Square One Homemade Treats, In Re, 2019, AAR, Kerala-whether the sale of food and
bakery products falls under restaurant services? Said no-restaurant-food is prepared and served
in premises, this is a case of bakery where ready to eat food items are prepared and sold. So, 5%
rate classification was not allowed. Bakery is pre-made and in restaurant it is made at the time
when order is made.
Another issue which is important was discussed in 2019-Kundan Mishthan Bhandar In Re,
2019 AAAR, Uttarakhand-whether restaurant and sweet shop operated from same premises are
not composite supply of services. There are however cases of Maharashtra AAR, it has been held
to be composite supply of services and the principal supply being restaurant services, it was held
taxable at 5%. So, for example in case of Janta (ground floor-sweet shop and 1 st floor-dine in)-
what kind of supply is it? Composite? Mixed? Individual supply? There are some items in 5%
and others in 18%. Restaurant at 5% w/o ITC and sweet shops can claim ITC. Sweets are
normally made from material which is exempt from GST like milk, mawa, etc. so there is no
question of claiming ITC and that’s why they want to make it restaurant services. There are
multiple rulings in different states.
In 2020 itself, the government made it clear that the supply of food in railways is subject
to 5% GST.
Take away- supply of goods or service?

Composite supply independent and works contract are problematic-Sch. II, Item 6 1
Where it says to be supplied only in restaurant, this is causing the confusion! And causing
multiple rulings. Interpretation of “any other manner” -whether railways is not included in this
phrase?
● Schedule 2 sub-clause six deals with composite supply. But 6(b) talks only about supply
of food or other article but does not mention that it has to be in a restaurant!!! How do
you interpret “any other manner”, doesn’t supply of food in railways fail under 6(b)? this
is why there is so much confusion!!!!
● In one state they’ve said it’s a service, in another state they’ve said its composite supply,
in third state they’ve said its supply of goods – very confusing.
In 2020 government made this clear-supply of food in trains, etc. will be supply of
restaurant services subject to 5%.

United Engineering Works In Re, 2019 AAR, Kerala-question was whether it is composite
supply or composite supply of works contract? What is principal supply is to be determined for
tax purposes in case of composite supply. But in case of works contract composite supply- it is
viewed as a supply of services and the rate is fixed at 5%. This started problem because if
assessee wants to prove composite supply of works contract can claim 5% but in case it is only
composite supply, assessee is under obligation to find out what is principal supply. So, in some
cases disputes are there because of change in rate structure. In this case question was whether
supply of pumping sets with electrification, installation, etc. was which of the two kinds of
composite supply? What is works contract? Section 2(119) of CGST Act.2 Very wide definition
given.
United Engineering Works, In Re, AAR, Kerala (2019)

1
6. Composite supply
The following composite supplies shall be treated as a supply of services, namely:—
(a) works contract as defined in clause (119) of section 2; and
(b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other
article for human consumption or any drink (other than alcoholic liquor for human consumption), where such
supply or service is for cash, deferred payment or other valuable consideration.
2
2(119) ―works contract- means a contract for building, construction, fabrication, completion, erection,
installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of
any immovable property wherein transfer of property in goods (whether as goods or in some other form) is
involved in the execution of such contract;
Whether it is a composite supply or composite supply of works contract? Composite supply is
subject to classification on the basis of a principal supply- if principal supply is supply of goods
then classification is goods and if services then classification is services. All the works contract in
the form of composite contract it subject to 5% tax rate as a supply of service in works contract.
If just composite supply- then assessee will have to find out what is the principal supply and
accordingly that rate applicable.
2(119)- works contract- very wide connotation given to the works contract.
Supply of pumping sets, along with installation, electrification, commissioning- whether it is
composite supply or composite supply of works contract?- very wide in connotation- pumping
set will be workable only if it is attached to the earth and all the activities are undertaken-
immovable property.
AAR held that it is merely a composite supply, the principal supply being the pumping sets- rate
on it charged on the whole amount. Not works contract.
● In Re United Engineering Works 2019 AAR Kerala – what is the difference between
composite supply and composite supply of works contract. Composite supply is subject
to classification on the basis of principal supply, so if principal supply is supply of
service/goods, classification will be made accordingly. If it is a composite supply of
works contract, then it is always that principal supply is supply of service of works
contract (subclause 6 of schedule II), and all the works contract are subject to 5% rate (in
2019 there was an amendment, it became 5% from 12%). This started a problem – in
some cases disputes are there – works contract is 5%, but as per principal supply it could
even be 28%. In this case the question was whether supply of a pumping set and
electrification etc. is composite supply of a works contract or independent composite
supply. S. 2(119) defines works contract. It was held that its composite supply, principal
supply is of pumping set.

Sterlite Technologies Ltd., 2019 AAR, Maharashtra-here applicant is involved in manufacture of

telecom products such optic fibers, cables, etc. Question was whether it is composite supply or
composite supply of works contract? AAR said that it is composite supply of works contract
subject to 5%.

Raj AAAR-RFE Solar Pvt. Ltd. 2019-Engineering, procurement and commissioning contracts
for solar power generating are immovable property and composite supply falls within definition
of works contract. -and it’s a composite supply of works contract.

22 October, 2020
(check for the beginning 2-3 minutes)
See-Handbook of classification issued by CAs of India
CBEC Education Guide issued in 2012-legislative intent behind it can be understood. Bundled
services explained therein. Element of 1 service combined with those of others. E.g.,-
flying service with transport service. Illustration of hotel services (different things in 1 package)-
so these are considered as bundled services. There are certain indicators also which have
been listed in the Guide to under whether they are naturally bundled or not. So, these
indicators have been listed as follows-
1. perception of consumer (if they expect such service to be provided as a package in the
ordinary course of business like if you buy ACs you expect they will provide installation similarly
for TVs, or in case of cars-warranty will be expected to be provided).
2. majority of service providers in a particular area of business provide similar services.
3. nature of services in a bundle of services also helps to determine if the services are bundled
in a natural manner basically ancillary services together with main services, ancillary help to
enjoy the main services better.
4. single price or customer pays same amount no matter how much they use-this is not
conclusive but indicative of bundle of services.
5. elements are advertised as a package-but you can’t just blindly follow ads and have to
consider other things-again not conclusive and this is indicative
6. different elements are not available separately and independently unless you hire the
principal services-this is a test.
7. The different elements should be integral to the supply affecting the nature of the
supply. Like in tour package you remove sightseeing or hotel accommodation, that is will
change the nature of package.
There is no straightjacket formula to determine whether services are naturally bundled in the
ordinary course of business or not. This is subjective and every case has to be examined
individually in its own set of facts.
Principal supply -predominant one has to be determined-important in any case to determine tax
to be paid. In the education guide they say that it should have following features.
1. predominant element of supply should be there
2. keep in mind nature of supply involved to determine the supply which is predominant
3. whether it is single, indivisible, economic supply. If you can split it artificially, then not
mixed supply and it is composite supply.
UK and European Court of Justice cases discussed in the Guide to differentiate b/w mixed and
composite supply.
Card Protection Plan Ltd. v. CCE, 2012 22 Taxman.com 176 ECJ. Here, ECJ held that where a
transaction comprises number of features and ads, then whether it constitutes one single or
two or more supplies, should be determined based on facts and circumstances of the
case. Some elements could be main part of supply and some would be ancillary. If more than 1
sold, if they form objectively one single indivisible economic supply (closely linked) which it
is not possible to artificially split-then 1 supply. Just because single price is charged is not
determinative factor and conclusive factor of mixed supply.

Definition of predominant element has been discussed by ECJ in Aaeibeolegt v Skatteverdet,

2012 2 Taxman.com 175 ECJ- here court says that if services is better a means of enjoying goods
sold, then service is incidental to sale of goods Assessee had entered into single contract of
supply and installation of daily communication cables across countries. Property in cable passed
to client after it was installed and tested. Revenue dept. demanded services tax. Court held that
supply and installation of daily communication cables -so closely linked that they constitute a
single indivisible supply. Supply of goods element is predominant that it is supply of goods (in
favour of assessee) -sale of goods and not supply of services-so no service tax.

OV Bank NV v. Secy. of State for Finance, Netherlands, 2012 22 Taxman.com 174 ECJ. Here,
under a single contract basic software supplied, customization carried out on it and training by
supplier also given. Prices were listed separately for all 3 of the above. Dept. contended that
whole transaction amounted to supply of service liable to service tax. Court held that all elements
were so closely linked that they constituted one single indivisible economic transaction.
Predominant element is customization as it would make it useful to consumer and price
of that will make it higher. Different and separate prices were not seen as an indicative factor.
Whole contract is considered as a supply of service and therefore liability to pay service tax
arises.
“Specified description of services…if two or more elements are so closely linked that they form
single indivisible supply….predominance has to be determined considering extent, duration,
cost, usefulness of ingredients, economic essence and intention of parties….” [See-important
paras of the case]
Honorable Society of Middle Temple v. HMRC, 2013 STC 1998-UK Upper Tribunal decided.
This case laid down key principles to determine composite or mixed supply.
1. Every supply must normally be regarded as distinct and independent.
2. Essential feature must be examined to determine from the point of view of a typical
consumer. (consumer parlance theory)
3. There is no absolute rule and all factors to be considered in a transaction. Decided on facts
and circumstances of each case.

AAR-Case-Ernakulam Medical Centre In Re, 2019 AAR Kerala. Question regarding composite
supply in healthcare services. Now, the distinction was made on IPD and OPD (I-in and O-
Out). Healthcare is exempted under GST. Else it would have been taxed for individual supplies
if healthcare classification was not there. Q was whether bill charged in IPD will be single for all
utilities used to treat patient like nursing services, medicines, room rent, lab charge, equipment
charge, doctor fees, etc. Whether this will be considered as composite supply? Principal supply
will be healthcare services? AAR-Consider it as healthcare services, as a package-should be
considered as a composite supply. But here, it was also questioned before AAAR in case of
OPD. Healthcare services are restricted to doctor and medicines from pharmacy owned by
hospital and built supply-in OPD cannot be said to be composite supply. In OPD-only
consultation fees of doctor.
● Eranakulam medical centre in Re, 2019 AAAR Kerala – IPD and OPD was distinguished
– health care service is exempted – but if it is not under healthcare, GST will apply. What
happened in this case, the question was whether invoice raised on treatment as in-patient
is a single bill for all facilities received for treatment including room rent, lab testing,
nursing care, medicines, etc. it was held that this is composite supply, all are healthcare
service, and principal supply is healthcare service. But what about in case of OPD? It
was held in case of out-patient healthcare service is restricted to consultation of doctor,
medicine bought from pharmacy owned by hospital is billed separately, is not part of
composite supply, not covered by exemption notification.
UPS with battery – is it composite supply or mixed supply? – Avo Electro Power Limited, In Re,
2018 AAAR West Bengal.

AAR WB -Switching MO Electro power Ltd. In Re 2018 AAR, WB-Issue was whether the UPS
paired with battery -mixed supply or composite supply? Court said it is mixed supply because
single price-highest rate will be used for it. UPS and battery-single price and contract-assessee-
UPS cannot function w/o battery as it is integral part of supply. AAAR rejected this and said
storage battery has multiple uses and when supplied with UPS cannot be seen to be composite
supply. It is mixed supply.
This is problematic as per Sir-no. of cases will come for determining mixed and composite supply! Acc. to Sir first
we have to rule out it is not composite supply to see if it is mixed supply. Normally in case of mixed
supply-single price is not determinative factor, single invoice/bill also not determinative factor.

Suppose immovable property-renting for residence-not covered under GST-it is exempted-so

I’m charging suppose 20k for the flat where it says you can use ground floor for residence
purposes but 1st floor-2 rooms which can be used for coaching classes/business. And I’m
charging single price for both together. Is it taxable or not? Mixed or composite supply? Even
my exempted supply will be taxable as there is no apportionment. Both taxable supplies-no
problem. But here one is taxable and one is exempt. But here will have to pay tax on entire
invoice value. In case of mixed supply, even if one or two supplies are exempted, there is
no apportionment, have to pay tax on whole transaction in mixed supply. This is a
problem in mixed supply as per Sir.

23 October, 2020
INPUT TAX CREDIT
CENVAT came in 2000 (extended benefit of credit on every input good used in mfg. of final
product or in relation to mfg., till place of removal. Including capital goods).
ModVAT existed before CENVAT
Profarma credit was also there (it was allowed for few items using directly in mfg.)
Earlier it was in case of goods only, but ITC was extended to services under Service Tax
also. (there were separate rules also)
Cross utilization of goods against Services and vice versa was not allowed.
Kelkar Committee Report of 2012-Committee on Implementation of Fiscal
Responsibility and Budget Management, first time-recommended GST and Cross utilization
of goods against services was also recommended. Sep., 2004 this was amended and allowed. So,
input goods were eligible against services and vice versa-2004 itself. Economists have said GST
will reduce the cascading effect of taxation.
VAT was found to be transparent and useful and also reduced tax evasion and ensure better tax
compliance. When GST was introduced govt, said it won’t increase tax collection but it would
reduce tax evasion and make the system more transparent.
How VAT system works?
Is there no cascading effect in VAT?
[check this example with Radhika]
 ● 100 is the value 10 is tax-we have added value by processing those goods. For B now
value is 110+40=150, now again 10% tax will be there. Now B will sell it to C where
again there is a tax.
● 100 Rs goods are input goods for B. 10 claimed as credit by B.
● electronic Ledger account used now.

Now under GST you pay tax only on your own value addition and not on value plus tax. No tax
on tax also now under GST. Transparency also, makes it profitable for government. Audit
control is much better in the credit system-each level you look at value addition. Government
has been able to make it 0 rated supply because of credit system.
Central taxes were not integrated with state taxes and so there was no credit of state taxes against
central taxes and vice versa. Again, you’re paying tax on tax. Suppose you buy a car. Now the
car-there is sale tax (state tax) and excise duty-can’t claim each other against each other. So, this
caused cascading effect and it was very high in many transactions.
There are some things which are still outside scope of GST but largely we have removed tax on
tax.
S 16-21 not eligible for credits (Negative List) + S 41, 42 of CGST+ S 49 (Manner of claim of
ITC) +CGST Rules, 2017-Rule 36-45 (manner to claim and which inputs are allowed for credit).
(check with Radhika because Sir used same example as before)
If final goods exempted, can you claim credit?
INPUT TAX CREDIT
● Use of credit was very much limited. In Performa credit- very limited use.
● MODVAT credit- extended the benefit of ITC to some other products- even if not
contained in the end products.
● Regressed by CENVAT- 2000- extended the benefit- allowing ITC on every input goods
used in manuf of final product or related to manuf of final product- including the capital
goods- upto to the removal from the premises.
● Only applicable to goods- Service Tax not covered. For the first time in 2002- benefit of
ITC extended to Service Tax- CENVAT Credit for services- cross utilization of goods
against services and vice-a-versa- not allowed. In 2003 Task Force formed under the
Chairmanship of Mr. Kelkar- Comm. On Implementation of Fiscal Responsibility and
Budget Management- recommended the GST system for the first time- replace the IDT
 tax regime with GST. Recommended the cross utilization of goods against services-
partial integration of goods and services achieved in Sept 2004 iteself.
● Whole GST implemented in 2017- important feature of it- going to reduce the cascading
effect on taxation – Credit is a very important feature.
● How does this mechanism work?
What is VAT- how it helps in credit system? - credit system cannot be availed if not VAT- VAT
implemented in 2006 throughout India replacing Sales Tax. VAT was introduced in France for
the first time in 1954. VAT was found to be a transparent tax collection system and remove
cascading effect. Better tax compliance and tax evasion regulated, also as a long term policy,
increase the revenue of the government. Same goes for GST, as reduction in tax evasion and
more transparency. Audit control is much better in this system. Flxibility to the government to
prescribe different tax rates at different stages. The governemtn can make the zero rated supply
for the purposes of exports.
● How does the VAT system work?
Credit provision will only work in the VAT regime- without VAT- even if you can avail credit,
cascading effect will not be solved.
For Example: Without VAT and credit system
Tax on a product A is 10% of the Selling Price of Rs. 100. Manufacturer will issue the invoice
and say that the tax is Rs. 10. Manufacturer supplied this to B at 110. B added value to the
product of Rs 40- further processing – 150 and 10% of it tax- 150+15=165. (Government will
collect 10+15=25)
End price is Rs. 165.
If credit allowed on input goods- this 100 is input goods for B- B will maintain electronic Ledger
account, earlier passbook system. 10 will be claimed by B as input. Value will be 100 and 40
value addition- 140 and 10% tax- 140+14=154 (Paid Rs 14 to the government- he will have to
pay only 4 from his pocket as his value addition is only Rs. 4 and 10 from the credit)- You have
to pay tax on your own value addition.
Rs 140 is the value and 14 is the tax amount, C is the next person in the chain (also a
manufacturer)- paid 154 (claim 14 as the credit) and consider only 140 as the price and value
addition of 60. 200 and 10% tax- 200+20=220 (Government will collect 20- but only Rs. 6 to be
paid out of C’s pocket) In a supply chain- all suppliers and manufacturers at every stage to pay
the taxes
220- collect from D 20 and government will collect from C. When D making value addition of
100 – then value will be 200+100=300. 10%=30 (20 already paid, only pay 10 from his own
pocket)
Central taxes not integrated with state taxes- no credit of State tax against central tax and
vice=-a-versa
Excise duty (Central) + Sales Tax (State) = problem of cascading effect- tax on tax as cannot
avail cross utilization of credit.
Except for some things not covered under the regime (alcohol), GST has removed the cascading
effect to some extent.
So, every person is paying tax only on their own value addition, not on value addition +
tax. Paying tax on value + tax, it is called cascading effect. Credit system has many
advantages, it allows govt. to impose diff. tax rates, govt. can make 0 rated supply for
exports.

26 October, 2020
When GST paid without ITC- final price will increase as not pay from your own pockets-
anti-profiteering
Restaurant services- were not passing the benefit to the customers- claimed ITC but charged the
same higher rate from the consumers. Therefore, govt. reduced the tax rate and then removed
the ITC provision.
Initially restaurant services were taxable at 18% and they could claim ITC. From supplier point
of view. The restaurant owner purchases so many goods and so many services to provide the
output supply. Whatever taxes he had paid on input goods and services, he can claim them as
credit when he goes on to pay tax on final supply. Output tax liability is 500, input taxes are 200,
so 200 will be set off with 500 and he has to pay only 300 as taxes.
The same year govt. reduced tax liability to 5% and withdrew availing ITC. What is the
effect of this?
Sanitary pads-tax at rate 18% on them. Lot of debate and news as this is an essential good, the
tax was reduced to 5% w/o ITC. People are happy that rate has reduced but in effect there will
be no revision in price as now ITC will be borne by consumers as compared to it being
claimed before under 18%.

Input tax credit has effect on pricing of goods. Suppose you are supplier and you pay 10 Rs.
as tax on good A, 10 Rs. on good B, avail services C and D- pay 20 Rs. each as tax on them-60
Rs. paid as input tax. Output supply of goods you’re making, sell goods and taxability on them is
20%-so suppose you pay 100 Rs. as tax, 60 Rs. as credit-set off with 100, so you pay 40 Rs. only
out of your pocket. As a consumer you cannot avail this credit as you’re not a registered
business.

Definition of ITC-Section 16, CGST Act

1. Who can claim-registered person ONLY.
2. Conditions and restrictions provided under Section 17 read with Section 49 (manner of claim
of credit).
See S. 31 for what is credit note/debit note.
3. goods/services should be used (active use) or intended to be used (passive use) in the
business. (similar for depreciation -active and passive use)
4. Should be used or intended to be used in the course of the business-landmark shift in regime of
use. Previous regime credit was limited, now they have expanded concept of credit and allow
claiming credit for each and every aspect of business. Under CENVAT system, it was positive
system, now under GST it is negative system- “except for this, available for all”. Even CSR is
allowed under GST, under CENVAT credit, CSR was not allowed for claiming credit. GST is
more liberal and business oriented.
5. Section 16 is subject to sub-section 2-“notwithstanding”-overrides (1). He must be in
possession of tax invoice. So, A makes supply to B for Rs. 1000, this 1000 contains Rs. 100 as
tax also. So, goods may be supplied but invoice may be issued after a month, so it is important
that B is in possession of goods. Invoice/debit notes are important to understand when a claim
can be made for the ITC. What is meaning of receipt of goods/services-
● S. 16(1) is subject to S. 16(2). S. 16(2) – conditions precedent to claim ITC.
● S. 16(2)(a) – See S. 31 for what is credit note/debit note. A makes supply to B for Rs.
1000 (100 is the value of tax, 900 is value of goods). A issues invoice for 1000. A should
be in the possession of that invoice. (it may be possible that goods are supplied, invoice
is given after one month). But without invoice or debit note or any tax paying document,
no ITC can be claimed.
● S. 16(2)(b) – he should already have received the goods or services or both. Meaning of
receipt or goods or services has been discussed by the explanation in S. 16(2)(c). See
Section 10 of IGST.
S. 16(2)(d) – tax has to be actually paid

(b)(2)-Deemed supply has been included here.

(c) if A makes supply to B, A issues invoice of 1000 -100 is tax and 900 value of goods, can claim
100 as credit only if A has deposited this 100 Rs. to govt. if A has not done so, B cannot claim
ITC even if invoice is there, have utilized goods, etc. B’s claim is dependent on A’s activities.
Thus, ACTUAL payment of tax is very important for claiming ITC.
(d) ITC is subject to returns of supplier. Filing of return by A is very important!
2 Activities dependent on A-collected tax from B and has furnished returns for purpose of GST.
2 Activities dependent on B-possession of tax invoices, receiving goods/services (deemed receipt
also).

3 provisos:
1. in installments-can claim credit only on last installment.
2. what is the max. number of days in which payment can be received from receiver by supplier
(180 days). Every recipient has to pay the amount, including tax amount within 180 days in order
to be eligible to claim ITC.
3. if you failed to do so in 180 days, it will be added in later, can claim -by postponement on
actual payment.

(3)-Depreciation when we discussed the IT Act, what is the meaning of actual cost.
If you purchase machinery, what is actual cost to claim depreciation?
Value of machinery is 20 lakhs, but tax is 2 lakhs-22 lakhs paid for that.
On what price can you claim depreciation? What is the actual cost for claiming depreciation?
Depreciation can be claimed on actual cost. So whatever costs have been incurred in making
goods functional. Acc. to Sir, cannot claim double benefit on 2 lakhs-have to choose what is
more beneficial-IT Act or GST Act benefit for the 2 lakhs amount. This is applicable only on
Input goods subject to ITC.
Capital goods. Look at Section 2(19) of CGST Act.
Capital asset includes capital goods or not? Yes. Option to supplier is given as you can claim
both depreciation and ITC on them. Suppose A is supplier of machinery and B has to start
business activity. 2 lakhs can be claim both ITC or depreciation on it? This is ONLY for capital
goods.

Section 2(59) and 2(60) define input goods and input services.
2(62)-Input tax. CGST, SGST, UGST, IGST.
2(59) “input goods” means any goods other than capital goods used or intended to be
used by a supplier in the course or furtherance of business;
2(60) “input service” means any service used or intended to be used by a supplier in the
course or furtherance of business;
In CENVAT system:
Rule 2(a) input goods- in or in relation to manufacturing (integral part of the process) of the
goods- upto the place of removal. Purchase inputs for generation of electricity- captive power
plants- earlier a lot of dispute- not covered under the previous regime
Rule 2(l) input services

27 October, 2020

Definition of business is very wide and they have allowed all kinds of businesses for credit if it
has fulfilled conditions 2(62) and Negative list conditions.
Royal Talkies, Hyd. v. ESIC, 1978 SC-explained concept of “incidental or ancillary to
business”-the test for the same was held to be that such work should not be extraneous or
contrary to the establishment but it need not be integral part of your activity. Even if there is no
frequency or volume, it can be considered as “incidental or ancillary to business”. Here it was
held that canteen owned by cinema owner was held to be “incidental or ancillary to business”.
So, you can claim full credit for capital goods used in such ancillary business also under GST.
This was not allowed in CENVAT system.

Input goods means anything other than capital goods. Business under GST has a very wide
amplitude so it includes almost every kind of activity, those which are not even connected to
your main activity. CENVAT Credit Rules-input goods defined under Rule 2(d) and input
services under 2(l)-they allowed all kinds of input goods for purposes of credit only if they are
used in the process of manufacture or in relating to manufacturing process. They have limited
credit to manufacturing activity and not everything which facilitates manufacturing. Even if you
say purchase electricity or generate it (through plants)-whether they would be considered input
goods, they are covered under GST they were not covered in previous regime.

State of TN v. Burmah Shell Oil v. Distributing Co. of India Ltd., AIR 1973 1045. Court had
said that where primary business of petitioner was trading in oil or oil related products, periodic
sharing of scarp, old furniture, etc. was an activity incidental or ancillary to business.
Hindustan Zinc Ltd. v. Commercial Tax Officer, Sales Tax Tribunal-where main business of
petitioner was dealing with nonferrous items, it was held that sale of tender forms was ancillary
to business.

Another case of United India Insurance Co. Ltd. v. Commissioner of Commercial tax-assessee
was carrying on business of insurance. But he was also selling used goods in settlement of claim
of claims. So, this activity of sale by insurance co. was held to be ancillary to main business.

City Bank v. CST, DHC 2016 judgement-petitioner was engaged in banking business and in
certain cases could recover dues from defaulters by sale of their assets by auctioning-this was
held to be incidental to business. This means that under GST he can even claim credit on such
activity.
● activity of selling assets hypothecated to the bank was considered incidental to business.
Even if activity is isolated or in one-time, full claim of credit is allowed if other
conditions of S 16 and 17 are followed as well under GST.
Capitalization is an accounting method in which a cost is included in the value of
an asset and expensed over the useful life of that asset, rather than being expensed
in the period the cost was originally incurred.
(an important deviation from previous regime) In previous regime, capitalization in books of
a/c was not required-were eligible for credit but now under GST only those capital goods which
would be capitalized in books of a/c-can claim. If not capitalized, can make them input goods
easily under GST system. This was because capital goods were defined as per positive list
under CENVAT regime. Section 2(19)- capital goods defined under CGST-capitalization
means you account for goods in your income statement-they may be moveable or immoveable-
you take their book value. Under previous regime it was subject to positive list and so even if
they are not capitalized they were allowed under previous regime. The list was not exhaustive, it
was exclusive in some ways. But now under GST this freedom has been given to assessee that
every good that he considers for long term use or not can be considered for ITC. So, suppose
even if you do not want to capitalize them, they can still be classified as input goods now under
GST. Under GST the benefit has been extended to each and every activity which is covered in
the definition of business (which is wide).

Court has tried to increase ambit of word input goods or input services to provide benefit of
assessee-because credit system is for benefit of assessee so have to ensure the same. So many
activities have been liberally interpreted to mean inputs. This has been accounted for in
GST bare provision only.

(3 judge bench decision of SC which settled the position of law on this point) Vikram Cement
v. CCE, 2006 194 ELT 3 SC- input goods in CENVAT regime-to be used in manufacturing
process or in relation to it within premises of factory-court extended meaning of factory here-
held need not be used in factories. Use of explosives to manufacture limestone was held to be
input goods and services. Condition that it should be a captive mine.
Limestone used for cement-purchase it or extract it-assessee had ow mines away from factory-
used explosives to blast mines to extract limestones-wanted to claim explosives as input goods-
disallowed by Tribunal and Dept. -SC allowed it. Even mines are away from factory, they are
considered an extension of factory as they are integral, essential and ancillary activities for
manufacturing cement-only condition was that these mines are captive mines (used for own and
not a third party’s purpose). So, the credit claims were allowed here.
● CCE v. JK Udaipur Udyog – CENVAT credit was not made available in exact same facts as
Vikram Cement.
● Differing opinions earlier, this case settle the earlier position-JP Riva Cement v. CCE -If
extracted and brought in the factory- allowed. CCE v. JK Udaipur Udyog-Not available as
outside the factory

Input in relation to CENVAT credit- Electro chemicals industries v. CCE Chemical industries
fac 2005 181 ELT 2005 SC-purposive interpretation given by SC for input goods-not only things
contained in end product, even those items which will accelerate or aid in the process-will be
considered as input goods. Even if they are not contained in end product will be considered as
input goods -liberal interpretation given.

“Integrally connected process”-JK Cotton Spinning and Weaving Mills v. STO, AIR 1965 SC
1310-where SC had held that if process is integrally connected with ultimate production of goods
and it would be commercially inexpedient to manufacture w/o this process -designing is part of
process of mfg. so all inputs used in that are eligible for credit as it is a primary step for
manufacturing anything. Here court disallowed welding material are integrally connected-only
facilitating the process.
There is another case of SC-CCE v. Rajasthan Chemical Works, AIR 1991 SC.

Take for 28 October, 2020

● CCE v. Rajasthan Chemical Works AIR 1991 SC 2222: Court has explained the concept of
process under the Excise Act and how you can claim a process for the purpose of
CENVAT Credit. The process in manufacture or in relation to manufacture.
Manufacture is the cumulative process to which raw materials are subjected. Any
processes so integrally connected to the ultimate production of goods – this is one
in relation to manufacture. Liberal interpretation has been made by the Court to
include everything in relation to manufacturing process. Process was understood
cumulatively, even if something facilitates the chain of production and without which it
is inexpedient to manufacture the goods, you can claim CENVAT Credit (you have to
prove that they are so integrally connected). If quality testing is so imp. that you cannot
sell product because you have to obtain ISI Mark etc., so quality testing is also
considered as a manufacturing process (despite being a post manufacturing activity).
Meaning of the term process implies not only production bit the various processes
through which the raw materials undergo a change. Any process so integrally connected
to the production of the goods
● CCE v. Paper Industries, AIR 1989 SC 488: made it clear how marketability is an
essential process of manufacture. anything used to make the goods marketable and all
processes to make it marketable, the same would fall within the expression. Use of
wrapping paper is necessary to bring the goods into the market and hence a part of
manufacturing. Liberalised interpretation.
● GST clearly widened the definition to prevent these kinda disputes/did not wanna allow
anyone to argue restrictive interpretation.
● CCE v. Solaris Limited, 2007 214 ELT 481 SC. Captive power plants- raw materials
used in these plants allowed as an input? Court has allowed that the raw material used in
captive power plant for generation of electricity- integrally connected process, with some
restrictions. The assessee has its own captive power plants and using the LSHS raw
material. They transferred some electricity to the residence of workers and schools etc.
used in the premises only- wanted to claim full ITC on the duty paid on the raw material.
Whether 100% credit allowed or there should be apportionment. Assessee claimed full
credit- Court held that apportionment to be made and only the one used in the
manufacturing process to be claimed as input and credit on that allowed.
● Captive power plants- raw materials used in these plants allowed as an input? Court has
allowed that the raw material used in captive power plant for generation of electricity-
integrally connected process, with some restrictions. The assesse has its own captive
power plants and using the LSHS raw material. They transferred some electricity to the
residence of workers and schools etc. used in the premises only- wanted to claim full ITC
on the duty paid on the raw material. Whether 100% credit allowed or there should be
apportionment. Assessee claimed full credit- Court held that apportionment to be made
 and only the one used in the manufacturing process to be claimed as input and credit on
that allowed.
● Maruti Suzuki Limited v. CCE. Held same.
● Hindalco India Limited v. CCE. Kolkata CESTAT- CENVAT credit rules nowhere
spoke that 100% machinery used. where 98% of the electricity generated was used as
input, no need to make apportionment disallowance for the electricity- since cannot store
it, it had to be transferred to someone to use it at that point in time only. Even the Rules
don’t mention 100% use.
Tribunal took note of the fact that the CENVAT Credit Rules nowhere spoke that 100%
electricity has to be consumed in the factory. As the electricity could not be stored, so
where 98% of the electricity was used for captive purpose, no apportionment of the
credit is required. It was not possible to match the electricity produced with the
electricity consumed at the same point of time. There would always be surplus and
deficit. Same view was followed by the Mumbai CESTAT in Grasim Industries v. CCE,
2007 210 ELT 208.
● Grasim Industries v. CCE 2007 210 ELT 208 Mumbai. Held the same as Hindalco.
CCE v. MCC PTA India corporation limited 2010 249 ELT 370 Kolkata. Assessee had availed
credit/input for generation of electricity, but electricity was used in the CANTEEN and office
building situated within factory premises. Assessee contended that full credit should be allowed.
Tribunal disallowed the claim. Assessee availed credit for the generation and use of electricity,
some of which was used in the canteen and the office building situated within the factory
premises. Requirement under the Factories Act to have a canteen facility- statutory requirement.
But the CESTAT held that claim cannot be allowed as nowhere related to the manufacturing of
goods.
Assessee had availed credit on input used for generation of electricity. Electricity so generated
was used in the canteen of the factory and office building which was situated within the factory
premises. Assessee contended that the canteen and office was part of the factory and it was
essential to provide these facilities to the employees. Tribunal disallowed the claim and it
apportioned the electricity usage. Only that part which is used in the manufacturing
process would be allowed.
Now GST has made the rule flexible and everything is allowed if it is used or intended to
be used in the furtherance of business and not just manufacturing process.

● So there have been lots of differences in interpretation under CENVAT credit, and GST
regime has been made v. simple to counter this.
● Whether packaging is part of manufacturing process? SAIL v. CCE 2014 ECS 140
Delhi CESTAT. purchasing safety shoes and gloves as steel on high temperature is to be
transported. Court allowed the claim as it is mandatory for the manufacturing purpose.
 Jayco India Pvt Ltd. v. CCE, 2007 220 ELT 123, Delhi CESTAT: packaging material.
Whatever is done before the removal is allowed for the purpose of credit. If for the
purpose of valuation we are considered post-manufacturing activities upto the place of
removal, then why not allow credit to that extent. Packaging which is essential to
transportation process is also allowed. Whatever is done before the place of
removal even if it is post manufacturing has to be allowed for the purpose of
credit. Packaging material- no primary packaging or even secondary packaging. Allowed
for the purpose of credit before POR. Post- manufacturing activity upto the POR, credit
to be allowed. Even if not directly related to manufacturing. Primary packaging and
secondary packaging for transportation- both allowed.
● FREE GIFTS-Sri Warana Sarkari Prakriya Sangh v. CCE, 2007 209 ELT 196
Mumbai CESTAT. Under MRP Scheme of valuation under excise act, duty was based on
MRP declared. Appellant was manufacturer of Bournvita. He added 5-star to 1Kg pack
of /Bournvita and marketed it. 5-star was taxable on transaction value because he was
institutional consumer. He wanted to claim credit of taxes paid on 5-star chocolate.
Appellant was manufacturer of product bournvita. As a promotional scheme, gave two
5-stars free along with the product. Both under MRP scheme. The price remained
unchanged. He paid tax while purchasing from 5-star supplier (wanted to claim that
excise duty as credit). Definition of manufacturing under Excise Act 2(f)(iii)- allowed on
that ground- adoption of any other treatment on the goods to render the product
marketable to the consumer.
● Ahmedabad CESTAT- Prime Healthcare Products v. CCE 2009 245 ELT 530 –
toothpaste manufactured by assessee, toothbrush purchased from outside, sold as a
combi-pack. Toothbrush purchased from outside was held to be eligible for credit.
Toothpaste and toothbrush bundled together- toothbrush purchased from outside-
credit allowed on it. Excise Act 2(f)(iii)- allowed on that ground- adoption of any other
treatment on the goods to render the product marketable to the consumer

● Anything cleared as free was allowed as credit under CENVAT. But under GST free
supplies not eligible as credit as put up in the negative list.
● Why the negative list was incorporated? What is the background?
● What is the maximum time limit for credit to be claimed- 1 FY. Date of invoicing is very
important in the ITC system. If the period of 1-year lapses and no provision for carry
forward.

Section 17
Section 17(1): Where the goods or services or both are used by the registered person partly for
the purpose of any business and partly for other purposes, the amount of credit shall be
restricted to so much of the input tax as is attributable to the purposes of his business. (partly
for business and partly for other purposes- ITC can be availed only for the business purposes-
apportionment between personal use and business use) What is personal use?- Section 37 of the
IT Act disputed and the same relevant here as well.
● S. 17 CGST – apportionment between business use and other use. but diff. between
them is sometimes not clear.
● Section 17(2): If two taxable supplies, there is no requirement that input credit of one
supply should be used only against the same supply-output. However, this doesn’t apply
when the output is exempted.
● L1 – input. M1 – output – taxable supply.
● L2 – input. M2 – exempt supply.
● L1 – 100 rupees credit, L2 – 100. M1 -150 tax on final tax, M2 – nothing as exempted
supply. L2 cannot be used against M1. However, if there is a third supply using the same
inputs, then L2 could be used against such third supply. -CHECK
● Section 17(2): Two broad categories of zero rated - Export and supply to SEZ. Taxable
supply and zero-rated supply (deemed taxable supply- export and SEZ)- ITC allowed
even if not paying taxes on the final goods. Section 54- Refund defined
Taxable+exempted- only on taxable supply ITC
Taxable+zero rated- on both ITC
No one to one correlation- if making two taxable supplies- one input against another
taxable supply. Suppose input L (100 rs exit) and output M (taxable supply- 150), L1 (100
rs tax) another input and M2 (exempted supply)
● If u are using same inputs for taxable supply and input supply, either u go for S. 17(2), or
u can claim 50% of ITC and rest 50% will lapse in that month (this would happen in case
u have a common system for both taxable and exempt supply). Whatever u choose, it
will be ur choice for the entire year, you can’t change it.
● Suppose u have credit from L1 of 100 rupees, credit of L2 of 100. Tax on M1 is 150 and
M2 is exempted supply. You have ITC of 100 rupees against 150 rupees. But L2 input
against M2 you cannot claim because final good is exempted. But suppose you
are making M3 which is also taxable supply by using the same inputs, then you
and use L2 waala 100 against M3 by correlating L2 and M3.
● S. 17(3) - If u are making exempt supply, u cannot claim ITC. You have to maintain
accounts so u can do apportionment between exempt supply and taxable supply for ITC
purposes. S. 9(3),(4) – reverse charge in certain supply – in that case the recipient is
under obligation to pay tax – and so this is considered exempt supply for supplier and he
is not allowed to claim credit on that. (3) Exempt supply for supplier if the recipient
paying under RCM
● 17(5): Non-obstante clause- ineligible ITC
● (a): (i) having sitting capacity not more than 13 including driver not eligible to credit
except further supply (stock-in-trade), transportation of passengers and imparting
training.
● (aa): vessels and aircraft not eligible except further supply (stock-in-trade), transportation
of passengers and imparting training.
● (ii) transportation of goods
 ● General insurance and repair and maintenance relating to such motor vehicles not
eligible.
● S. 17(5)(c) - Suppose you are providing works contract service, and you hire a sub-
contractor to help you with this, so you received this works contract as an input service,
so you can claim it as ITC.
● Section 17(5)(d) - Suppose I am a service provider, I run a grocery store, I’ve
constructed my own godown, office building, shop, supermarket etc. I purchased cement
steel etc. so many raw material + hired contractor + transportation services etc. – I
cannot claim ITC.
● S. 17(5)(h) - Free supply of goods – can u claim ITC? – for e.g. you give an oven free
with the main product.
(f): 2 (77) “non-resident taxable person” means any person who occasionally undertakes
transactions involving supply of goods or services or both, whether as principal or agent or in
any other capacity, but who has no fixed place of business or residence in India;- except on the
goods imported by him, no ITC available

Explanation- made it clear that the meaning of P&M means apparatus, equipment, and
machinery fixed to earth by foundation or structural support that are used for making outward
supply of goods or services or both and includes such foundation and structural supports but
excludes—
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
● Under GST, building can never be considered as plants
● CMS Info Systems Limited v. Commissioner of CGST, 2019 108 Taxmann AAAR –
assessee was engaged in cash management business, i.e. supplying money to banks and
ATMs. Assessee sought an advanced ruling to determine ITC for cash-carrying van i.e.
whether this cash carry van was eligible for the claim of credit or not – Held: matter was
sent back to AAAR by the High Court - The Appellate Authority for Advance Ruling
(AAAR) has held that Input Tax Credit should be made available for 'cash carry vans'
that are used to transport cash. The applicant is involved in cash management, the supply
of automated teller machines (ATMs) and transporting cash from the currency chest to
various branches of banks. Since the AAR couldn't decide on this advance ruling, they
referred the case to the AAAR who held that the company was not eligible for claiming
ITC. The applicant then approached the Bombay High Court which ordered the AAAR
to revise their order. As per the revised ruling held by the AAAR, the transportation of
cash is done through cash carry vans which are generally purchased as raw motor
vehicles and fabricated to beef up the security of the vehicle. While GST is paid on the
purchase of the motor vehicle and the fabrication process, the ITC for the same is not
available. The applicant sought advance rulings on two concerns viz. whether the supply
of such motor vehicles as scrap, after its usage, can be treated as supply in the course or
 furtherance of business and whether such a transaction would attract GST? If so, what
would be the rate of GST and/or compensation cess? The second question was whether
ITC is available to the company on the purchase of motor vehicles if the answer to the
first question is affirmative. In their submission, the company stated that the supply that
is being transported is not the money but 'goods' and as they cannot use it for any
purpose, the same cannot be used as legal tender at any stage of the performance of the
services rendered by them. The AAAR concurred with the applicant's submission. 
● Cash management business- cash carrying vehicles. Not used as a legal tender but merely
as goods. HC remanded the matter back to the authority to re-consider. Money as
defined under Section 2(75)- means the Indian legal tender or any foreign currency,
cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller
cheque, money order, postal or electronic remittance or any other instrument recognised
by the Reserve Bank of India when used as a consideration to settle an obligation or
exchange with Indian legal tender of another denomination but shall not include any
currency that is held for its numismatic value;
● Transporting as any other goods- why should it not be allowed?
● CCE v. Prime Healthcare Products 2011 - wherein it was held that when a combo pack
of bought out tooth brush with tooth paste manufactured by assessee was sold,
CENVAT Credit of duty paid on tooth brush would be admissible since when brush is
packed with tooth paste, the process of re-packing, labelling etc amounted to
manufacture as per law. manufacturer was engaged in manufacturing toothpaste. Selling
as combo pack with toothbrush. Court allowed this while referring to the concept of
manufacture and marketable and allowed credit on toothbrush. Value of toothbrush can
be considered as included in the toothpaste, so it is not being offered as free.
● Bhuwalika 2010 249 ELT 218 CESTAT Larger Bench – the assessee is engaged in the
manufacture of hot-rolled products of iron and steel. For some natural reason if transit
loss- evaporation (difference in weight)- allowed. But in GST, if lost, not allowed. when
the goods are lost. Court allowed the credit. Whether CENVAT credit can be denied on
the ground that the weight of the goods recorded in the receipt is different from the
actual goods present in the factory. If goods lost due to natural reason during transit,
then it should be allowed.
● CCE v. TATA Advanced materials limited Karnataka High Court –CENVAT credit
on duty paid on capital goods claimed, later destroyed by fire- Insurance claim inclusive
of the excise duty amount as well. Excise dept demanded the reversal of ITC. HC said
that not a case of double benefit and held in favour of the assessee and held that no
reversal of ITC. The issue – assessee claimed CENVAT credit on duty paid on capital
goods which were later destroyed by fire. Insurance co. reimbursed the amount inclusive
of the excise duty. Should the CENVAT credit be reversed or it should be allowed to be
claimed by the assessee. HC allowed the credit. As per the 2004 Rules, the credit taken
irregularly stand cancelled and the credit utilized irregular has to be reversed. In the
instant case, the insurance co. has compensated the assessee. Merely because the
insurance co. has paid the assessee, it would not render the claim of credit as irregular or
wrong. The credit would be allowed even if it leads to double benefits.
● Flex Engineering Limited v. CCE 2012 276 ELT 153 SC – assessee is involved in the
manufacture of packaging machines classified under Chapter 8422.00 of Schedule to the
Central Excise Tariff Act. As the machine ordered is customer specific, if after inspection
by the customer it is found deficient in respect of its operations for being used for a
particular specified packaging, it cannot be delivered to the customer, till it is re-adjusted
and tuned to make it match with the required size of the pouches as per the customer's
requirement. On completion of the above process and when the customer is satisfied, an
entry is made in the RG 1 register declaring the machine as manufactured, ready for
clearance. The assessee filed declarations and availed of the benefit of Modvat credit in
respect of the Flexible Laminated Plastic Film in roll form & Poly Paper used for testing
the F&S machine. On 4th March, 1993, a notice was issued to the assessee to show cause
as to why the benefit of Modvat credit on the above goods be not denied, on the ground
that they have used the said material for the purpose of testing the final product i.e. the
F&S machine which cannot be treated as inputs as stipulated in Rule 57A of the Central
Excise Rules, 1944 (for short "the Rules"). As aforesaid, the High Court has answered
both the questions in the negative, opining that testing the performance of a final
product is not a process of manufacture and therefore, materials used for testing the
performance of the F&S machine cannot be termed as `inputs' for the purpose of
allowing Modvat credit. According to the High Court, anything required to make the
goods marketable must form a  part of the manufacture and any raw material or any
materials used for the same would be a component part of the end product. It has
observed that materials used after manufacture of the final product, viz. the F&S
machine, is complete, is only to detect the deficiency in the final product and therefore,
could not be the goods used in or in relation to the manufacture of the final product
within the meaning of Rule 57A of the Rules. Hence the present appeals by the assessee.
Therefore, the short question for consideration is whether the said material on which
Modavt credit is claimed by the assessee, not physically used in the manufacture of the
said machine but used for testing the F&S machines would be covered within the sweep
of the expression "in or in relation to the manufacture of the final products", as
appearing in Rule 57A of the Rules. In short, the bone of contention is as to what
meaning is to be assigned to the expression "in relation to the manufacture of final
products."  It is trite to state that "manufacture" takes place when the raw materials
undergo a series of changes and transformation that result in the formation of a
commercially distinct commodity having a different name, character and use. It is
equally well settled that physical presence of an input in the final finished
excisable goods is not a pre-requisite for claiming Modvat credit under Rule 57A
of the Rules. It may very well be indirectly related to manufacture and still be
necessary for the completion of the manufacture of the final product. It needs little
emphasis that the process of manufacture is complete only when the product is
rendered marketable. Thus, manufacture is intrinsically integrated with
marketability. Thus, the process of manufacture will not be said to be complete till the
time the machines meet the contractual specifications and that will not be possible unless
the machines are subjected to individual testing. Thus, in our opinion the process of
testing the customised F&S machines is inextricably connected with the
manufacturing process, in as much as, until this process is carried out in terms of
the afore-extracted covenant in the purchase order, the manufacturing process is
not complete; the machines are not fit for sale and hence not marketable at the
 factory gate. We are, therefore, of the opinion that the manufacturing process in the
present case gets completed on testing of the said machines and hence, the afore-stated
goods viz. the flexible plastic films used for testing the F&S machines are inputs
used in relation to the manufacture of the final product and would be eligible for
Modvat credit under Rule 57A of the Rules.
29 Oct-holiday
30 October, 2020
Section 54-refund defined. In case of exempt supply, cannot claim ITC. Sub-section 3 talks
about value of exempt supply-such as prescribed. Under Rules talk about apportionment
between taxable and exempt supply. [Apportionment formula is not relevant and sir won’t
discuss it.] Section 17-read.
Taxable supply and exempt supply-mix-option provided-go with (2)-make distinction and
accordingly claim ITC which is relating to taxable supply. But if you maintain common-then
50% you can claim and 50% will lapse. (check this missed part)
If you make 2 taxable supplies, there is no need of correlation.
(take for this day as unable to follow from previous)
Section 18: Special Circumstances
18(1)
(a) a person who has applied for registration under this Act within thirty days from the date
on which he becomes liable to registration and has been granted such registration shall
be entitled to take credit of input tax in respect of inputs held in stock (in possession)
and inputs contained in semi-finished or finished goods held in stock on the day
immediately preceding the date from which he becomes liable to pay tax under the
provisions of this Act; (Beneficial provision even if it relates to Pre-GST period or even
when you are a new company)
(b) a person who takes registration under sub-section (3) of section 25 shall be entitled to
take credit of input tax in respect of inputs held in stock and inputs contained in semi-
finished or finished goods held in stock on the day immediately preceding the date of
grant of registration; (Persons opting voluntary registration- similar provision applicable)
(c) where any registered person ceases to pay tax under section 10, he shall be entitled to
take credit of input tax in respect of inputs held in stock, inputs contained in semi-
finished or finished goods held in stock and on capital goods on the day immediately
preceding the date from which he becomes liable to pay tax under section 9; ( crossed the
turnover or voluntarily decided to be governed by GST regime- whatever inputs held in
stock- can claim credit on that)
Provided that the credit on capital goods shall be reduced by such percentage points
as may be prescribed; (proportional reduction for capital goods)
(d) where an exempt supply of goods or services or both by a registered person
becomes a taxable supply, such person shall be entitled to take credit of input tax in
respect of inputs held in stock and inputs contained in semi-finished or finished goods
 held in stock relatable to such exempt supply and on capital goods exclusively used for
such exempt supply on the day immediately preceding the date from which such supply
becomes taxable:
(2) Can claim till one year only. ITC will lapse and therefore within one year should you claim all
the ITC after registration.
(3) Where there is a change in the constitution of a registered person on account of sale,
merger, demerger, amalgamation, lease or transfer of the business with the specific provisions
for transfer of liabilities, the said registered person shall be allowed to transfer the input tax
credit which remains unutilised in his electronic credit ledger to such sold, merged, demerged,
amalgamated, leased or transferred business in such manner as may be prescribed.
(4) Where any registered person who has availed of input tax credit opts to pay tax under
section 10 or, where the goods or services or both supplied by him become wholly
exempt, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash
ledger, equivalent to the credit of input tax: (opposite of 1(c) from taxable to composition dealer
or when taxable supply becomes exempt supply 1(d)- reversal of the ITC claimed)
(6) Capital goods: In case of supply of capital goods or plant and machinery, on which input tax
credit has been taken, the registered person shall pay an amount equal to the input tax credit
taken on the said capital goods or plant and machinery reduced by such percentage points as
may be prescribed or the tax on the transaction value of such capital goods or plant and
machinery determined under section 15, whichever is higher:
Provided that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap,
the taxable person may pay tax on the transaction value of such goods determined under section
15.
Chapter X- Payment of Tax- Section 49
IGST, SGST/UTGST AND CGST
49(5): Order of claim of credit- cannot claim CGST against SGST. If paid CGST on the inputs
and want to claim SGST on the output- not available.
(a) IGST as an input tax- CGST and then SGST and then UTGST
(b) CGST as an input tax- IGST only
(c) SGST as an input tax- IGST only. Proviso- within that IGST first CGST and then if
remaining can SGST be applied
(d) UTGST as an input tax- IGST only
(e) the central tax shall not be utilised towards payment of State tax or Union territory tax;
and
(f) the State tax or Union territory tax shall not be utilised towards payment of central tax.
Chapter XI- Section 54: Refund Process
(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any
unutilised input tax credit at the end of any tax period:
Provided that no refund of unutilised input tax credit shall be allowed in cases other than––
(i) zero rated supplies made without payment of tax;
(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the
rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of
goods or services or both as may be notified by the Government on the recommendations of the
Council:- inverted duty structure- when input taxes are more than output taxes (Input subject to
28% and output is 5%- what will happen with the credit?- can claim refund from the
government)
Exceptions- 1. NIL rate or fully exempted
1. exported out of India are subjected to export duty:
2. Duty drawback scheme

Is it provided that this is only applicable to “goods”?

They have limited the ITC under the inverted duty structure only in relation to input goods and
not services– Rule 89(5)- amendment made in 2018 with retrospective effect.

VKC Footsteps India Pvt Ltd v. UOI (2020 Guj HC)- Sir’s opinion as well
HC allowed the input services claim be made under inverted duty structure – rules cannot
override the parent legislation wherein it is nowhere mentioned that it is restricted to input goods
only and not services
TVL Afcons JV v. UOI (2020 Mad HC)- He does not agree with this reasoning
Amendment is constitutional and valid and that the input services cannot be made under
inverted duty structure- merely a clarificatory amendment and rules can limit the applicability of
the parent legislation because claim can be made only according to the Rules.

ITC availed on inputs (which implies only goods and not services)
If we read the original Rule 89, it would be clear that the legislative intent was to provide this
scheme for both input goods and input services.
● Flex Engineering v. CCE – CENVAT credit was denied on inputs used in testing
material and not for manufacturing. Raw materials used after completion of machine, can
they be termed as manufacturing? Supreme Court granted Credit to the assessee.
Process of manufacture would not be complete if the product is not sellable as it
would not be marketable, and excise duty could not be levied. Process of testing
customised machine is intrinsically connected to manufacturing.
 ● This judgment is probably only because it was a customised machine, wont be the
same for all machines. Because the agreement had a clause that the purchasers have a
right to tell what changes should be made to the customised machine, and only then they
will purchase it, now obvi these changes can only be made after testing, its required to
make the product marketable.
● Coca Cola India Private Limited v. CCE – definition of input service under CENVAT
Credit – input service means any service used by provider of output service for providing
this output service – Coca Cola is just a brand name owner, manufacturer of final goods
is bottling co. bottling co. was manufacturing the bottles, cleared the products from the
place of manufacturing to the dealers. Dealers sell to wholesalers and retailers and then it
reaches the consumer. Coca cola had incurred certain advertisement expenditure on the
advertising of the final product i.e. which is manufactured by the bottling co. coca cola
wanted to claim taxes paid on advertisement service against the payment of tax on the
concentrate which is transferred to the bottling co. revenue said – this advertisement is
of final goods not of concentrate, so the manufacturer of final goods is bottling co., so
anyone who is authorised to claim anything related to final goods is the bottling co.
Bombay High Court decided in favour of assessee, and granted the benefit to Coca Cola.
Bombay HC said – if you look into first part of agreement where coke manufactures and
sells concentrate and charges royalty for its IPR, bottling co. pays royalty with the value
of the concentrate. This advertisement is not for the product, its for the brand, for
what they are charging royalty, and you are already taxing royalty (royalty forms part of
value). And so they can claim benefit of tax paid on ad. Services.
Input service- separate tax under the previous regime
Coca Cola India Pvt Ltd v. CCE, 2009 22 STT 130 Bombay HC
Definition of input service was more liberal than input goods. Could be claimed by the provider
if used in the output products. Manufacturer- using directly or indirectly in or in relation to the
manufacturing of final product. Brand owner and bottling company case facts- value of
concentrates + royalty paid by the bottling company to the brand owner. Bottling company
manufactures the final goods and has a separate distribution system with the dealers over which
brand owner has no control. Coca Cola incurred some advertisement expenses over the final
products manufactured by the bottling company. When hired the professional service of the
advertisement- paid service tax and wanted to claim the input tax on the service against the tax
on their concentrates. This advertisement not for the concentrate and the final goods and the
manufacturer of the same is the bottling company and bottling company can claim the same but
not Coca Cola. Tribunal gave in favour of revenue.- used by a manufacturer- bottling company
authorized to take it but not Coca Cola. The HC- in favour of the assessee and granted the
benefit- liberal interpretation and tried to establish link between the two products.

● ITC limited v. CCE – burden of service tax must be borne by the ultimate
consumer.
 ● CCE v. Manikgarh Cement Works – they said maybe factory is situated in a remote or
scheduled area where no one can purchase land, if the company is situated there, then
how will workers/managers reside there to perform their duty? If the co. has provided
accommodation, it is essential. As far as connection is established to the manufacturing
process, credit should be allowed. service tax credit was claimed by the assessee in
respect of certain services in the residential colony situated outside the factory premises.
It was allowed by the court in appeal. If a factory is situated in a remote area, where no
one is allowed to purchase land or construct anything, then how would the employee
function. So, if the co. has provided accommodation to the employee, it is essential for
its functioning. So, whatever services provided to the residential colony and services for
workers’ facilities must be allowed for credit. As far as link can be established before the
services and the manufacturing services, then the benefits of credit can be provided.
Force Motors Limited v. CCE. Manufacturer of the motor vehicles. They owned two
aircrafts which were stationed at the airport. Aircrafts used by the employees and executive for
business purposes. As stationed at the airport, certain charges had to be paid along with service
tax. The assessee wants to claim that service tax as a credit against the automobiles. This aircraft
was used for visiting the plants where the manufacturing process was undertaken. Court allowed
the credit of taxes. Situation changed under the GST regime, it would not be allowed. It is
included in the negative list.
● Ferromatic Milacron India Limited v. CCE - The service tax paid on the outdoor
catering services by the canteen located in the appellant's manufacturing premises stands
denied to them on the ground that such services cannot be held to be involved in or in
relation to manufacture of their final product. It has been held that employment of
outdoor caterer for providing catering services has to be considered as an input service
relating to business and Cenvat credit in respect of the same will be admissible.
● co. paid service tax towards air ticket purchase for the officials for business purposes.
Co. wants to claim this service tax as a credit against the supply of their manufactured
goods. Though it was not allowed, the tribunal remanded the matter to the first appellate
authority after considering the claim that the services availed were in respect of business
activity and the cost of the same stood reflected in their books and was part of the final
valuation process. Service tax paid on the air tickets for the executives to travel from one
place to the other for business purposes only- want to claim as credit against their supply
of goods. Service tax disallowed but the matter remanded to the first appellant tribunal
● Under the GST regime, not many things have been included in the negative list.
E.g. internet services and mobile services. Under the previous regime, the court has
allowed credit on these services. As they are not included in the negative list, credit could
be allowed.

ISD
● S. 2(61) – input service distributor.
● S. 20 of CGST – manner of distribution of credit by input service distributor.
● Head office of Reliance is in Bombay. Head Office receives services such as auditing,
accounting, service relating to customs clearance, etc. but the head office never
manufactures any goods, it is just the central point for every other plant/factory of the
company, simply a managing agency. How can reliance claim credit for stuff like this,
when credit can only be claimed by a supplier of goods or services? Further, refund is
 only allowed in zero rated supply and inverse duty structure, so obvi no refund is
possible.
● Suppose company head office is in Bombay, they have different plants and factories in
diff. places. There’s one plant in Pune, another in Aurangabad, a third in Nagpur. Head
office is receiving auditing services for accounts of Pune, Aurangabad and Nagpur. Head
office paid 1 lakh rupees as tax on auditing services. how this 1 lakh credit will be availed
as input tax credit? Head office cannot claim itself, so it will distribute this 1 lakh to all
three Pune, Aurangabad and Nagpur for services attributable to these three.

● Section 2(61) ―Input Service Distributor means an office of the supplier of goods or
services or both which receives tax invoices issued under section 31 towards the receipt
of input services and issues a prescribed document for the purposes of distributing the
credit of central tax, State tax, integrated tax or Union territory tax paid on the said
services to a supplier of taxable goods or services or both having the same Permanent
Account Number as that of the said office;
Why is it relevant?
For Example: Reliance Co. manufactures so many goods and has so many offices. The
Head Office is in Mumbai which receives auditing, customs clearance etc but never
provides for manufacturing of goods- only the central point which manages everything.
Taxes paid on the auditing services- how can he claim credit? There is no output supply.
Head Office paid Rs. 1 Lakh and paid 10 GST. Can distribute this ITC to the offices
wherein supply made and fulfil Section 20 conditions.
Two conditions- Same PAN number and registered as the ISD with the department
Refund will not be allowed as neither zero rated nor inverted duty structure.
● 20. Manner of distribution of credit by Input Service Distributor.— (1) The Input
Service Distributor shall distribute the credit of central tax as central tax or integrated tax and
integrated tax as integrated tax or central tax, by way of issue of a document containing the
amount of input tax credit being distributed in such manner as may be prescribed.
(2) The Input Service Distributor may distribute the credit subject to the following
conditions, namely:––
(a) the credit can be distributed to the recipients of credit against a document containing
such details as may be prescribed;
(b) the amount of the credit distributed shall not exceed the amount of credit available for
distribution;
(c) the credit of tax paid on input services attributable to a recipient of credit shall be
distributed only to that recipient;
(d) the credit of tax paid on input services attributable to more than one recipient of credit
shall be distributed amongst such recipients to whom the input service is attributable and
such distribution shall be pro rata on the basis of the turnover in a State or turnover in a
Union territory of such recipient, during the relevant period, to the aggregate of the turnover
of all such recipients to whom such input service is attributable and which are operational in
the current year, during the said relevant period;
 (e) the credit of tax paid on input services attributable to all recipients of credit shall be
distributed amongst such recipients and such distribution shall be pro rata on the basis of the
turnover in a State or turnover in a Union territory of such recipient, during the relevant
period, to the aggregate of the turnover of all recipients and which are operational in the
current year, during the said relevant period.
Under the previous regime, the head office could have transferred the credit to any plant
to any extent.
Antiprofiteering
● S. 171 CGST-Any reduction in rate of tax or benefit of ITC shall be passed on to the
recipient by way of commensurate reduction in prices. Anti-profiteering: section 171
CGST – Rules 122 to 135. The benefits of ITC and reduced taxation must pass on to the
consumers.
● This is a new system in India, not there in any previous indirect tax regime.
● National Anti-Profiteering Authority NAPA v. Hardcastle Restaurant Private Limited,
March 2020: constitutional validity of S. 171 of CGST Act read with Rule 126 of CGST
Rules 2017 was challenged.
Application can be filed by the consumers or the authority can take suo-moto action 🡪
standing committee (if ramifications are nation-wide) – state screening committee (local
goods or services which have ramifications only in the state) 🡪 will confirm prima-facie
evidence of profiteering 🡪 transfer the matter to DG of Anti-Profiteering 🡪 Detailed
investigation 🡪 submission of report to the NAA to adjudicate on these cases 🡪 they will
adjudicate on the same and give final decision 🡪 they can ask to reduce the price,
repayment with interest, pay penalty or can order for cancellation of registration in
extreme case.
● Dinesh Mohan Bhardwaj v. Brandwaneshwari – applicant booked a white colour car by
Honda from the showroom of the respondent on 28th April 2017. The price was 9 lakh
13 thousand. Applicant requested for change in colour, had taken delivery of car on 11
July. The price was now 9 lakhs 9 thousand after change in colour, but he got it for 8
lakhs 98 thousand. The applicant alleged that the combined effect of rate of taxation pre-
GST was 51%, but now it is 29%, so benefit by way of reduced price has to be given.
Thus, applicant approached the standing committee with allegations of profiteering.
Standing committee referred matter to DG for detailed investigation. Two issues:
whether rate of tax has been reduced, is reduction substantial, has benefit been passed.
Whether any ITC benefit should be passed? In Dinesh Mohan Bhardwaj v. M/s
Vrandavabeshwree Automobile Private Limited[1] (Honda Case), the complainant argued that
the reduction in price of the car sought to be purchased, was not commensurate to the
reduction in tax rate as well as higher input tax credit (ITC) available post the
introduction of GST. The NAA concluded that the reduction in tax rates post the
implementation of GST was only around 2%, and there was no additional ITC benefit
available to the respondent to be passed. Therefore, the NAA held that the respondent
had appropriately reduced the price of the car, post implementation of GST and not
contravened the anti-profiteering provisions.
Applicant: the combined effect of the rate of taxation was 51% in the pre-GST scheme,
while it is 29% under the new regime. So, the benefits has to be given. So, he filed an
 application on 1st Nov 2017 before the standing committee. Standing Committee: found
a prima facie issue of profiteering. Forwarded to the DG of Safeguards for detailed
investigation. Two issues: whether the rate of tax had been reduced post-GST; whether
the benefit of reduction has been passed to the consumer; whether any benefit on
account of ITC must be passed to the consumer. After detailed investigation, they
submitted the report: pre-GST rate of tax is factually incorrect. There was a reduction of
only about 2% under the new regime. It was only 31% in the previous regime. The
benefit was passed to the consumer as the price was lowered. So, application dismissed.
Now, here the dealer had provided some discount, so the dealer had reduced his margin.
Honda had not reduced the price. So, the question before NAA must be whether the
manufacturer should reduce the price or not. However, this has not been discussed by
the NAA.
Kumar Gandharv v. KRBL 4th May 2018 NAPA: KRBL manufactures India Gate
Basmati Rice. In the previous regime it was not taxable, but under GST it is taxable @ 5% with
ITC. Retailer purchased 10kg of this rice at 540 rupees and 585 in August and October
respectively. Since ITC became allowed, it was requested that price be reduced, as benefit of ITC
should be passed on. They said they did not avail benefit of ITC on any raw material, and so it
had no effect on price. Further price of paddy had increased so they had to increase price of rice.
The case was dismissed, held that there was no profiteering. The allegation in Kumar
Gandharv v. KRBL Limited[2], was that the benefit of reduced tax on ‘India Gate Basmati Rice’
had not been passed on to customers, since the price of a 10kg packet of rice was increased from
INR 540/- in August 2017 to INR 585/- in October 2017. The Directorate of Safeguards (DGS)
concluded that the rate of tax on ‘Indian Gate Basmati Rice’ had actually increased post the
introduction of GST and the increase in ITC was insufficient to nullify the increase in tax rate.
Additionally, there was steep rise in the price of paddy, which was the chief input for the product
under consideration. Therefore, the NAA’s order brought much needed clarity that an
increase in production costs due to market forces is a valid consideration while
determining profiteering
. Kumar Gandharv v. KRDL Ltd., 2018 NAA decided on 4 May 2018: KRDL is a
manufacturer of Basmati Rice. In the previous regime, it was not taxable. It is taxable with the
rate of 5% with ITC. Question: person purchased 10 kg packet of rice, the MRP was 540 and
585 in August and Oct 2017, respectively as it was packed and branded rice and GST was
imposed on the same. Respondent was thus eligible for ITC. Submitted the application to the
standing committee. ITC is allowed, so they should reduce the price. Forwarded to DG. DG –
the raw material are not subject to any tax under the GST. So, the manufacturer was not getting
any ITC. It would not have any effect on the price of rice. Also, during August and September,
there was an increase in the price of paddy, which led to the increase in price of rice. There is no
profiteering.
However, it is always argued that price has been revised due to various reasons like
change in price of raw materials, packaging products etc. How would be pricing be challenged
then? So, is anti-profiteering application only to existing stocks, because with change in stocks,
the manufacturer can show increase in price in various input goods?
Rishi Gupta v. Flipkart Internet Pvt Ltd., 2018 NAA, 18 July 2018: The application
filed in 11 Jan 2018 before the standing committee. He had ordered godrej almirah and
submitted tax invoice. Order made on 4 nov 2017. Tax novice dated 7 nov issued to him for
14852 by the Godrej co. The rate of GST had been reduced on 14 nov 2017 from 28% to 18%.
Co issued another invoice on 29 nov 2017, at the time of delivery, for an amount of 14152. The
respondent intimated that the excess amount of refunded on jan 18. Issue: when the rate was
28%, the co was providing discount of 500 rupees. After reduction in the GST rate, the base
price remained the same and it was sold without any discount. NAA: trade discount is part of
the trade margin of the supplier and withdrawal of the discount cannot be termed as
profiteering. Also, as base price has remained the same, there cannot be any case for
profiteering.
Shri Sukhbir Rohilla v. Pyramid Infratech Pvt ltd., 2018 on 18 sept 2018: two projects.
Several applications with Haryana Screening committee. Examined and they decided to forward
it to standing committee. Found prima facie evidence, and forwarded to DG. Booked flats under
the Haryana Affordable Housing Scheme. The above Applicants had booked flats with the
Respondent under the Haryana Affordable Housing Policy 2013 (here-in-after referred to as the
Policy), notified by the State of Haryana vide Notification No. PF-27/48921 dated 19.08.2013.
They had alleged that before coming in to force of the CGST Act, 2017 w.e.f. 01.07.2017, Excise
Duty and Value Added Tax (VAT) were being collected from them as Service Tax was
exempted, however, after the implementation of the above Act, 12% Goods & Services Tax
(GST) was levied on the construction service in place of Excise Duty and VAT w.e.f. 01.07.2017,
which was further reduced to 8% w.e.f. 25.01.2018 but the benefit of Input Tax Credit (ITC)
which was available to the Respondent and which was much more than the output tax liability of
the Respondent had not been passed on to them and therefore the Applicants should not have
been burdened with the entire GST of 12% or 8%. They had further alleged that the Respondent
had not agreed with the contention of the Applicants that the Respondent was charging 12% and
8% GST and was simultaneously also enjoying the benefit of ITC and was not giving the benefit
of the ITC, had claimed that the Respondent was contravening the provisions of Section 171 of
the CGST Act, 2017. Accordingly they had filed several applications with the Haryana Screening
Committee for appropriate redressal of their grievance. These applications were examined by the
Screening Committee in its meeting held on 30.10.2017 and it was decided to forward these
applications to the Standing Committee on Anti-profiteering for further necessary action. The
Standing Committee in its meeting held on 07.11.2017 after confirming that prima facie there
was evidence of non-compliance of the provisions of Section 171, had forwarded these
applications to the Director General of safeguards (DGSG) now redesignated as Director
General of Anti- profiteering(DGAP) for detailed investigation. 102 additional applications
against the Respondent were also received by the Standing Committee which were also
forwarded to the DGAP for investigation. They alleged that ITC benefits were not taken into
account. ITC was available was to the respondent, which must have been passed to the
consumers. It had to reduce the prices. From the above narration of facts it is absolutely clear
that the excess ITC was available to the Respondent the benefit of which he was required to pass
on to the Applicants. The Respondent cannot appropriate this benefit as this is a concession
given by the Government from it’s own tax revenue to reduce the prices being charged by the
builders from the vulnerable section of society which cannot afford high value apartments. The
Respondent is not being asked to extend this benefit out of his own account and he is only liable
to pass on the benefit of ITC to which he has become entitled by virtue of the grant of ITC on
the Construction Service by the Government. He shall not only pass on the benefit as has been
mentioned above to the 109 Applicants who are before us but to all the 2476 buyers as they are
identifiable. Respondent is further directed to refund or reduce the amount, to the extent
calculated above to each and every buyer at the time of collecting the last instalment along with
the interest @ 18% per annum to be calculated from the date of the receipt of the excess
amount from each buyer, within a period of 3 months from the date of receipt of this order.
Ankur Jain v. M/s Kunj Lab Marketing Pvt. Ltd., NAA 2018: the Applicant No. 1 was
a retailer, doing business in the name and style of M/s Anil Kumar Jain & Sons and to whom the
Respondent had been selling Nestle’s products. On receipt of the reference from the Standing
Committee on Anti-Profiteering, the Respondent was called upon by the DGAP to submit his
reply as to whether he admitted that the benefit of reduction in the GST rate had not been
passed on to the above Applicant by way of commensurate reduction in the price. The
Respondent was also asked to suo-moto determine the quantum of benefit not passed on and
indicate the same in his reply to the Notice. Applicant No. 1 stating that he had purchased Maggi
Noodle packs, each weighing 35 Gms., having Maximum Retail Price (MRP) of Rs. 5/- (here-in-
after referred to as “the product”) from the Respondent on 06.11.2017 vide invoice No. N1611
and on 28.11.2017 vide invoice No. N1867. The above Applicant had also alleged that prior to
15.11.2017, the Respondent was charging 18% GST on the product’s base price of Rs. 3.96/-
per pack, however, after the GST rate was reduced from 18% to 12% w.e.f. 15.11.2017, the
Respondent had started charging 12% GST on the product’s increased base price of Rs. 4.17/-
per pack. Thus, the Applicant No. 1 had further alleged that the Respondent had increased the
base price of the product from Rs. 3.96/- to Rs. 4.17/- after the GST rate applicable on the
product was reduced from 18% to 12%. The Applicant had also claimed that by increasing the
base price of the product it’s cum-tax price had remained unchanged at Rs. 4.67/- which showed
that the Respondent had not passed on the benefit of the reduction of GST rate to him. The
Respondent had also submitted that he had passed on the benefit of GST rate reduction in
respect of the product bearing MRP of Rs. 5/- through other packs of Maggi Noodles having
different grammage. The Respondent had further submitted that in the case of the product the
price reduction would have been around 21 paise to the retailer and around 25 paise to the
ultimate consumer which would have been inconvenient to both the retailer and the consumer
whereas on Maggi Noodles pack of 70 Gms. bearing MRP of Rs. 12/- per pack, the benefit on
account of GST rate reduction for the retailer would have been approximately 56 paise against
which the respondent had reduced the price by 92 paise with reduced MRP of Rs. 11/- and thus,
the benefit in respect of Rs. 5/- MRP pack had been passed on by reducing the price of other
packs of Maggi Noodles by more than what was required. NAA: you cannot arbitrarily decide on
what packets you can extend the benefits. It is further apparent from the record that the
Respondent has contended that he had passed on the benefit in respect of the product by way of
reducing the MRP of the 70 Gms. products. The Respondent has no such liberty to arbitrarily
decide in respect of which products he would pass on the benefit and in respect of which
products he would not pass such benefit. As per the provisions of Section 171 of the Act the
benefit has to be passed on to each recipient and the same cannot be selectively granted or
denied. It is also clear that the Maggi Noodle pack of 35 Gms. is distinct from a 70 Gms. pack
and both the packs may be bought by the different recipients/customers and hence the benefit
accruing to one customer cannot be given or denied to another nor can the benefit given to one
set of customers arbitrarily enhanced and set off against the another. No such adjustments are
permissible under the Act. Based on the above discussion the quantum of profiteering is
determined as Rs. 90,778/- including the profiteering of Rs. 2,253/- made by the Respondent
from the Applicant No. 1. Accordingly, the Respondent is directed to reduce the price of the
product commensurate to the reduction in the rate of tax. He is also directed to refund an
amount of Rs. 2,253/- to the Applicant No. 1 along with interest @ 18% P. A. from the date
form which the above amount was collected by the Respondent from him. Since the other
customers of the product are not identifiable, the Respondent is hereby directed to deposit the
balance amount of Rs. 88,525/- along with the interest at 18% P.A. till the date of deposit in the
respective Central or State Consumer Welfare Fund within a period of 3 months from the date
of receipt of this order.

31 October, 2020-Test 3
(take for missed week)
9 November, 2020
Types of customs duties
1. Basic custom duty under S 12 (discussed)-levied on all goods.
2. Additional custom duty/countervailing duty-under
● Section 3(1)-on imported goods-like articles-at par with basic duty has to be paid on
imported goods,
● Section 3(3)- on raw materials used in manufacture process -at par with that-o every
imported good
● Section 3(5)-at par with sales tax/VAT/local taxes on imported goods
● Section 3(7)-at par with IGST on imported goods-import considered as an inter-state
supply
● Section 3(9)-at par with compensation cess levied on like imported goods.
These 5 duties are in addition to custom duty and even method of valuation says you have to pay
custom duty, then additional custom duty-there is cascading effect (tax on tax). It is on value
+custom duty.
3. Section 6 and 7 of Custom Tariff Act-Protective duty.
4. Safeguard duty under Section 8 of Custom Tariff Act. Compatible with WTO obligations-
multiple cases are there on this.
5. Anti-subsidiary duty-Section 9- Countervailing duty on subsidized articles.
6. Anti-dumping duty -Section 9A-9C.

Section 3(1) -to subset basic duty on like article-have to pay in addition to custom duty. Not an
excise duty, it is under Entry 83-custom duty. All other provisions of Excise Act will be
applicable, but in substance it is a custom duty.
(Tata Iron case -neither produced nor manufactured coal-held no additional custom
duties). So procedural things of custom duty will apply, but basic principles of Excise Act
will apply for levy of custom duty. Exemption from basic custom duty does not
mean exemption from additional custom duty. Exemption notification is
important and there are strict interpretations made by judiciary when interpreting
them. Have to read what is exempted. Suppose there is conditional exemption and not
absolute exemption. Say under Excise Act-there is an exemption which is conditional.
Condition is that mobile phone is exempted subject to condition that manufacturer has
to manufacture every part of the mobile phone within factory to claim exemption. So, if
mobile is imported, can you claim exemptions?
CCE v. Tata Iron and Steel Company Ltd, 2003 154 ELT 343 SC: the issue was under the
Customs Tariff Act, whether under the Customs Tariff Act empowers the Dept to levy
additional customs duty on every import at par with excise duty leviable in India in a like article
produced in India. If no like article produced, any similar article based on the description would
be considered. It was done under s. 3 of the Customs Act. The assessee imported coal after its
washing. Whether the coal is subject to additional custom duty or not. Under the Excise Act,
there is no duty on the coal. But it is there under the Coal Mines Act. So, this excise duty is not
under Entry 84. Revenue: as there is an excise duty under the Coal Mines Act, similar duty could
be imposed under the Customs Tariff Act. SC: coal which is raised is neither manufactured nor
produced goods – So no excise duty could be imposed even in India, therefore, additional
customs duty could also not be imposed. Coal Mines Act is not an excise duty and it is not levied
under Entry 84. S.3, Customs Tariff Act: says that duty shall be equal to excise duty. Only excise
duty leviable on a like available is the concern, not any other duty in any other statute. SC:
because the goods are not manufactured goods, excise could not be levied
Also, if something is exempted from Customs Duty, it doesn’t mean that it will be exempt from
additional customs duty, as it is based on the excise charged in India.
Suppose, under Excise Act there is an exemption notification which is not absolute and
conditional in nature- if the manufacturer manufacturing semi-finished product within the unit
itself, then only the exemption on final goods applicable. If purchasing from somewhere else,
then no such exemption- if someone has imported the mobile phone in India, then will the
exemption notification be applicable?
In some cases, the court has made a very liberal interpretation, whereas in some cases, strict
interpretation has been preferred.

Courts have made liberal and strict interpretations both.

Collector of Customs v. Malwa Industries, 2009 235 ELT 214 SC. Exemption from
countervailing duty, when conditions cannot be fulfilled. Here assessee imported finishing agent
for textile processing. These products were exempt. But conditional exemption was there -which
provided that exemption would be available if goods are used in same factory. Custom dept. did
not grant exemption. In case of domestic goods, you can find out the use in the same factory,
but cannot do so in case of imported goods. SC allowed benefit of notification-if term “same
factory” is interpreted to mean that goods to be used in same factory where manufactured
goods-obviously cannot be fulfilled in case of imported goods. But importer should not be
placed at advantage and create a level playing field-purpose of CVD-so understood imported
goods in “same factory” to mean imported goods should not be sold by importer of goods, but
goods that are intended to be used in importers’ factory-then can claim benefit- liberal
interpretation. This was because could not have fulfilled condition under exemption
notification in any case.
If it is absolute exemption, granted in any case, but conditional notifications are
subjective in nature. There can be different kinds of conditions under the Act.
Collector of Customs v. Malwa Industries, 2009 235 ELT 214 SC
Lower Court said that conditional exemption notification cannot be applicable on additional
customs duty. Products exempt under excise exempt notification which was conditional upon
the condition if the goods are used in the same factory. In case of imported goods, how do you
find that out that using it as the raw material for consumption in the same factory? SC allowed
on the ground, if the term same factory is interpreted to mean that the goods are used in the
same factory are exempt- the same cannot be the case under Import and therefore, CVD liable.
But the object of the CVD is that the importer should not be placed in a better position- level
playing field. Therefore, issue decided in favour of the assessee.

Pen manufactured with aid of power-not exempt-if manufactured w/o aid of power (electricity)-
exempted. Now you want to import the pen, can you claim benefit of notification? Condition is
manufacturing pen with or without aid of power. Now you want to import article, can you claim
the exemption? Cannot rely on exporter/importer’s claims and as such cannot find out whether
power was used or not in manufacturing for levy of custom duty. Thus, always assume that
power was used in manufacturing process. Motiram Tolaram v. UOI, AIR 1999 SC 3121-it was
held here that rate of CVD could only be that which an Indian manufacturer would pay
under Excise Act. Thus, if an excise exemption notification has been issued, then the
reduced rate would be applicable-that is the effective rate.// Only effective rate applicable
and not the published rate. Rate of CVD could only be that which an Indian manufacturer is
liable to pay- if reduced due to certain notification, the reduced rate would be applicable.

“Like” article and similar article concept is very important here.

UOI v. Modi Rubber Ltd, AIR 1986 SC 1992-exemptions from basic custom duty does not
mean exemption from additional custom duty/countervailing duty. This is because of difference
b/w charges on custom and additional custom duty (duty on duty). The CVD was charged on
value -declared value as per S 14 of Customs Act even though there was an exemption on basic
custom duty.
Goodyear India Ltd. v. Collector of Customs, AIR 1997 SC 1683-held that exemption is
applicable only when goods are similar. 2 headings under Excise Act-2 different rates-higher rate
will be applicable on additional customs duty.
Collector of Customs v. Indian Organic Chemicals, 2000 118 ELT 3 SC Whether it is Exicse
Duty or Customs Duty?- we are looking into conditions of excise duty and the exemptions
applicable, but the same does not mean that it is excise duty, it will be called Customs Duty only
SK Patnaik v. State of Orissa, AIR 2000 SC 612. (same issue as above)-explained concept of
CVD and additional duties-purpose and objective.
a. Section 3(3)- at par with the basic excise duty leviable on the raw materials,
b. Section 3(5)- at par with the Sales Tax or VAT or any other local taxes,
c. Section 3(7)- at par with IGST and
d. Section 3(9)- at par with Compensation Cess.

10 November, 2020
(take for beginning)
S3(2)-method of calculation
On 10000, 20%-2004 Rs-it is a duty on duty. Section 14 says what should be included. Section
3(1) has an overriding effect-so tax on tax. Not unconstitutional as SC upheld it, said method of
calculation, because it is an addition to basic custom duty.
Proviso says that if in India it is required Legal Meteorology Act-same provision for imported
goods will apply-will have to declare retail price on imported goods.
S3(3)-for goods used as inputs in manufacturing-to counter-balance the excise duty on them-
This provision has not been used. This is because we provided CENVAT credit, and there is no
effect on value-similar in case of imported goods-Govt. can levy but it has not been used.
Section 3(1) uses term “shall” but here in (3) use of term is “may”. There is no practice of
levying such a tax.
S 3(7)-4th category of tax under Section 3. Came after GST-shifted from excise to GST-now
there is IGST-interstate supply-considered as imports and exports also. 8A provides mechanism
for warehouse goods. Manner of calculation for levy of IGST.
S 3(8)-known as GST on imports-basic custom duty, on that GST will be charged-tax on tax-
same method of levy as additional custom duty.
If particular goods are subject to 5%, then additional custom duty-also 5%-so whatever is
stricture for GST, same will apply for additional custom duty, unless conditional exemption is
there. All provisions, conditions, manner of levy-as are applied to levy of additional custom duty-
so it’s GST only
S 3(8A)-
Suppose there is an importer ABC Ltd.-imported goods in India on 31 July, 2020. There is invoice
value of goods-10 lakh-not cleared for home consumption, so bill of entry not submitted before
authority. Goods kept in bonded warehouse. From there, ABC Ltd. sold them to XYZ Ltd. -sale
happened before clearance for home consumption or getting them exported to a port for 15
lakhs. As per 8A-they have to pay IGST -as it is higher than value determined -i.e., 10 lakh-here
transactional value which is higher (15 lakh)-will be used. If any part of goods sold, then
proportionate calculation has to be made.
Proviso- “sold more than once”-ABC -sold to XYZ-sold to PQR-sold NJP-whatever is last
transaction -is taken for clause a and b-and subject to higher rate.
Provision amended to avoid transactions like this.
S 3 (5) and (12)- read

SECTION 6. Power of Central Government to levy protective duties in certain cases.

protective duty-not compatible with WTO provisions. Till now, no such notification. If Tariff
Commission recommends that there is need to protect interest of domestic industry-there has to
be levy of protective duty to protect interest-generalised conditions-this is why not complying
with WTO-how to determine/purpose of protective duty. Notification has to be mentioned
under Tariff Act. Starting and end date both need to be mentioned along with rate of protective
duty.

11 November, 2020
(take for beginning)
Section 8B
Cannot impose quantitative restrictions under WTO law, that’s why states empowered to put
safeguard duty-but have to establish that it’s for protecting domestic industry. It may be
originating/exporting.
Proviso-de minimis margin-no safeguard duty will be imposed, if goods for developing country-less
than 3%
Second proviso gives special power to exempt safeguard duty-discretion to govt. to exempt
safeguard duty if they think it’s important and has been notified in the official gazette.
(2)-something is imported into India, enquiry will take some time, pending that, on basis of
preliminary finding, if it is concluded that injury to domestic industry would be caused, govt. can
impose duty. Proviso-Govt. will refund if not found that duty should be applied. 200 days is the
max. period within which enquiry or final determination needs to be made.
(2A)-100% export-oriented undertaking or SEZ
If specifically made applicable (i) and read (ii).
(3)-read
(4)-4 years max. it can be imposed for. Read proviso-when it can be extended-can be done for
max. 10 years.
(4A)-all provisions of Custom Act will be leviable on safeguard duty also even though it is
imposed under Customs Tariff Act.

Section 9: countervailing duty on subsidized articles-

How can you manipulate-China is mfg. a good and govt. has provided an export subsidy on
manufacturing of such goods-so he manufactured. These goods and imported the goods from
China to Singapore manufacturer. Used them as input, he exports them to India (Singapore gave
no advantage), can you levy anti-subsidy duty on Singapore? Yes, can. Either you import
therefrom o another country-in same or different/altered condition-so long as it is established
that subsidy is provided in country of origin or from exporting country. Otherwise-exports
cheap-create injury to domestic industry!
Explanation: if used as a general condition provided to everyone-no discrimination-no subsidy
duty. Cannot impose subsidy duty for tax incentives.
1. Protection Duty: Section 6 and 7 of the Custom Tariff Act- not fully compatible with
WTO
(3) Even for the levy, it has to be made vide notification. Even by notification, such duty
increased and Parliament pulls it down, wouldn’t affect the duty levied till then
2. Safeguard Duty: Section 8B- fully compatible with WTO- Levied by CG government
and not a general use but specifically for increase in quantity of the imported goods and
serious injury caused to the domestic industry (New comers as well as existing). It is very
specific and compatible with WTO. Can quantitative restrictions be imposed?- increased
quantity consumption pattern or production patters- either in absolute or in relative
terms.
Proviso: Developing Country- de minimis margin- if the goods are originating from
developing country and less than 3%- no safeguard duty and if more than one
developing- individually less than 3% and collectively does not exceed 9%.
Proviso: CG vide notification (special power to exempt)
(2) provisional SD- something imported to India and enquiry will take some time-
pending the finding of the enquiry- govt can impose provisional SD/
 Proviso: refund the duty so collected if upon final determination turns out that no such
injury
Proviso:
(2A) Exemption to SEZ and export oriented undertaking but subject to two conditions-
if notification specifically includes the SEZ or EOU.
(4) Until revoked earlier, apply for 4 years.
Proviso: can extend the period
Proviso: cannot exceed 10 years from the date of first imposition
If beyond 10 years, re-start the whole process of prima-facie case, provisional enquiry,
final determination etc.
(4A) Whatever procedures under Customs Act- applicable to safeguard duty even if
levied under CTA.
3. Anti-subsidy duty: Section 9
4. Anti-Dumping Duty: Section 9A, 9AA, 9B, 9C

(take for missed days)

18 November 2020
Under main rule 7.
(C) royalty and license fee to be added in price if it is not included already. SC in one case said if
royalty is applicable in any case post import-clarification added in HSN classification also. CC v.
JK Corporation, 2007, 208 ELT 485 SC-post importation activity should not be included. Here
machines/plant were imported-40 lakh US dollar-license and know how fee-since process was
also patented by 3rd party, since post importation activity, so need not be added. Not related to
imported goods. After change, there was another case-CC v. Toyota Ltd. 2007 213 ELT 4 SC-
even post importation activity to be added in price if it is a condition for import/sale of goods
(accepts the amendment in the provision). CC v. Living Media India Ltd., 2011 271 ELT 3 SC-
pre-recorded music CDs were being imported, royalty to artist/producer? Becomes payable
when distribute CDs-condition of sale, related to sale, so should be included in assessable value
(pre/post importation, needs to be added). 1995 case (based on 1988 valuation rules-not that
relevant also-UOI v. Mahindra and Mahindra, 1995 76 ELT 461). Right for reproduction part
of value or not? -SBI v. CC, 2000 115 ELT 557 SC.

(D)The value of proceeds of re-sale which accrue directly or indirectly to seller-has to be added.
(E)-payments to be made and those made to 3rd party to satisfy obligations-residuary provision-
any other payment essentially.
Rule 2-cost of transport, loading/unloading, insurance, etc. not ascertainable costs, then also
provided how much to be taken.

Rule 12- Rejection of declared value. –

Basis for rejection-reason to doubt does not mean reason to suspect. There has to be
reasons/basis for rejection.

CC v. Aggarwal Industries, 2011 272 ELT 641 SC-

Take for 19th