Contents

1. Mere delay in furnishing a certified copy of order appealed against, should not comePage
in |the
1
way of the Petitioner’s appeal for being considered on merits by the Appellate Authority 3
2. IGST paid on Ocean freight under RCM can be claimed as refund even beyond 2 years
provided u/s 54 as the said amount is collected by Revenue without authority of law ............. 4
3. No service tax under the head security agency service on the amounts collected by the Police
or Home Guards or any officers of the Govt ......................................................................................... 5
4. Refund cannot be denied due to the conditions mentioned in the service tax notification
especially when substantial conditions prescribed in the SEZ Act have been fulfilled .............. 6
5. Split judgment rendered on the Constitutional validity of levying GST on Cross border
Intermediary services - Difference in opinion, matter to be placed before CJI ............................ 7
6. Claiming of depreciation on entire invoice value as well as availing 100% CENVAT Credit on
capital goods is improper and corrective measure taken by reducing the value of capital
goods in the subsequent financial year does not make good the irregular availment of
CENVAT Credit during the previous year ........................................................................................... 10
7. ITC not to be reversed in relation to loss arising from manufacturing process ......................... 11
8. Tax evasion cannot be presumed merely on account of expiry of e-Way bill ............................. 12
9. Procedural delay would not disentitle the appellant from claiming the refund ........................ 13
10. Assessee is entitled to claim refund of the Cenvat Credit of Cesses as on 30-June-2017 .......... 14
11. Horse race clubs liable to pay GST only on commission and not entire bet amount ................. 15

Page | 2
1. Mere delay in furnishing a certified copy of order appealed against,
should not come in the way of the Petitioner’s appeal for being
considered on merits by the Appellate Authority.
[M/S Shree Udyog Vs Commissioner Of State Tax Odisha, Cuttack 2021[TIOL-1369-HC-ORISSA-GST]]

• The short point for determination in the said case was, whether the Appellate Authority
was justified in dismissing the Petitioner’s appeal on the grounds that non submission of
certified copy of the order appealed against within the prescribed period of seven days
would in turn result in filing of appeal beyond the prescribed period.
• Appellant in the said case, filed the appeal well within the prescribed period of 3 months,
however the certified copy of the order appealed against was furnished after 3 months
and 21 days from the date of filing of appeal, i.e., delay of more than 3 months from the
due date of filing of appeal. Thus, as per provisions of Rule 108(3) of OGST Rules 2017, it
was contended by Revenue that if certified copy of the order is submitted after seven
days, then the date of filing of appeal should be construed as date of furnishing of certified
copy. In turn, therefore the appeal was filed beyond the statutory period of 3 months.
• Hon’ble Court held that, this was a case of substantial compliance, and the interests of
justice ought not to be constrained by a hyper technical view of the requirement that a
certified copy of the order appealed against should be submitted within one week of the
filing of the appeal.
• The wordings of Section 107 (4) is such that the authority is not precluded from
condoning a delay of a longer period and therefore, delay in furnishing the certified copies
ought to be condoned in genuine cases specially during Covid restrictions. Writ petition
was thus allowed.

Comments: The said judgement has distinctly held that non submission of certified copy of order
is merely a technical lapse, which should not be fastened as a hurdle in process of delivering justice.
The said judgement in its obiter dicta part has also indirectly highlighted its liberal
approach against procedural non-compliances during Covid Pandemic. The said judgement
has directed to condone all delays except extraordinary, as long as the appeal is
accompanied by an ordinary downloaded copy of the order appealed against, verified as a
true copy by the Advocate for the Appellant.

Another important point highlighted in the said case is “certified copy” is actually
“Department certified” and in absence of same, temporarily “Advocate/representative

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 certified copy” shall suffix the purpose. It is indeed food for thought that when the law is
silent on the meaning of term certified copy, it can be argued that even
Advocate/representative certified copy in itself serves the purpose and is sufficient
compliance. The judgment also made a passing remark that, considering Covid restrictions,
the counsel for the parties can utilize print out of the judgment downloaded from official
website at par with certified copy subject to attestation by concerned advocate.

2. IGST paid on Ocean freight under RCM can be claimed as refund even
beyond 2 years provided u/s 54 as the said amount is collected by
Revenue without authority of law.
[Comsol Energy Pvt. Ltd. Vs. State of Gujarat [2021-TIOL-1334-HC-AHM-GST]]

The Petitioner filed the refund claims of the IGST paid on the Ocean Freight under the
reverse charge mechanism after the decision of Gujarat High Court in the petitioner’s own
case wherein it was held that the levy of the IGST under the RCM on the Ocean Freight for
the service provided by a person located in a non-taxable territory by way of
transportation of goods through vessel from a place outside India to customs frontier of
India is unconstitutional. Upon filing of the refund claims, the authority issued Deficiency
Memo on the premise that the refund claims were not filed within the statutory time limit
as provided under Section 54 of the CGST Act.
The High Court Observed that –
• Article 265 of the Constitution of India provides that no tax shall be levied or collected
except by authority of law. Since the amount of IGST collected by the Central
Government is without authority of law, the Revenue is obliged to refund the amount
erroneously collected.
• Relying on plethora of judgements it was held that, Section 54 of the CGST Act is
applicable only for claiming refund of any tax paid under the provisions of the CGST
Act. The amount collected by the Revenue without the authority of law is not
considered as tax collected by them and, therefore, Section 54 is not applicable. In
such circumstances, Section 17 of the Limitation Act is the appropriate provision for
claiming the refund of the amount paid to the Revenue under mistake of law.

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 Comments
This is an important aspect of the High Court ruling, therefore if any assessee identifies any
payment of tax under reverse charge on account of Ocean freight, then they can consider
the option of claiming refund even after expiry of period of 2 years as mentioned under
section 54. However, in case the tax paid under reverse charge is claimed as input tax
credit and utilised, then refund would not be eligible, since it amounts to unjust
enrichment.

3. No service tax under the head security agency service on the amounts
collected by the Police or Home Guards or any officers of the Govt.
[The Commandant Home Guard Training Center, Kir Khera Chittorgarh Vs. Comm. CGST,
Udaipur [2021-VIL-265-CESTAT-DEL-ST]]

The appellant is Commandant of Home Guards in the State of Rajasthan created under the
Rajasthan Home Guards Act, 1963 for bridging the requirement of reserved police force
required to maintain public safety, protection of persons. Revenue was of the opinion that
providing the security and collection of a consideration from Appellant amounts to
rendering “security agency service”. It is the case of the Revenue that the term “security
agency service” covers any person engaged in the business of rendering the services
relating to the security and, therefore, the appellant is covered by this definition as ‘any
person’ incudes government or Local Authority.
The Hon’ble Tribunal held that:
• The term ‘person’ appearing in the definition under Section 65(94) of the Finance
Act, 1994 must be construed to be a natural person and by no stretch of
imagination will include the State or its officers or the posts created under a statute
as held by the Constitution Bench of the Hon’ble Supreme Court in the case of West
Bengal Vs. Union of India - [AIR 1963 SC 124].
• Since State cannot be a person, it cannot be a “security agency”.

Comments

The said judgement has extensively examined meaning of the term ‘person’. Further, the
judgement has also highlighted that, any activity undertaken for maintenance of law cannot
be construed as business activity. The judgement will also assist in taking sound position
on the issue of RCM liability under GST when the services are provided by local authority

Page | 5
 or government. In many cases, activity provided by local authority or government is to
discharge the sovereign duty, the RCM liability should not be attracted in such cases, as the
ingredient of furtherance of business is absent in such cases.

4. Refund cannot be denied due to the conditions mentioned in the service

tax notification especially when substantial conditions prescribed in the
SEZ Act have been fulfilled.
[Wabco India Ltd. Vs. Comm. GST & CE Chennai [2021-VIL-263-CESTAT-CHE-ST]]

The only ground upon which the refund was denied in the said case was that the refund
claims were filed by the Appellant beyond the period of limitation of one year as prescribed
in terms of Paragraph 3 (III)(e) Notification No.12/2013-ST, dated 01.07.2013. The question
that arose before the Hon’ble Tribunal was whether the time-limit prescribed in the
notification would prevail over section 26(1)(e) of the SEZ Act which grants exemption from
payment of Service Tax on taxable services which are used to carry on authorized operations
in a SEZ.
The Hon’ble Tribunal held that:
• SEZ Act, vide section 26(1)(e) grants exemption from payment of service tax.
Appellant filed refund application for the service tax paid under RCM basis. However,
refund application was filed beyond the period ‘prescribed’ under Finance Act 1994.
• In light of various judgements of court of law, it was held that the exemption from
payment of service tax granted in SEZ Act was subject to ‘prescribed’ conditions. SEZ
Act does not prescribe any condition in regards with period of limitation.
• Further it is settled that, provisions of SEZ Act shall have overriding effect over
provisions of any other law.
• Therefore, exemption from payment of Service Tax is subject to conditions specified
under the SEZ Act and SEZ Rules only - the conditions mentioned in the service tax
notification cannot be applied so as to deny the refund when substantial conditions
prescribed in the SEZ Act have been fulfilled.

Comments

Although it is settled law that SEZ Act shall have the overriding effect, the present
judgement provides a further extension to the settled principle that if tax is exempted as
per provision of SEZ Act, it is liable to be refunded at any cost. The judgement has also

Page | 6
 enlightened the scope of the term ‘prescribed’, which is limited to that Act only, wherein
the term is used unless otherwise specified.

5. Split judgment rendered on the Constitutional validity of levying GST on

Cross border Intermediary services - Difference in opinion, matter to be
placed before CJI.
[Dharmendra M Jani Vs UOI and Others (Writ Petition No 2031 of 2018)]
[2021-TIOL-1297-HC-MUM-GST and [2021-TIOL-1326-HC-MUM-GST]]

The ultimate question before the Hon’ble Bombay high Court was constitutional validity of
the section 13(8)(b) and 8(2) of IGST Act, 2017 which as alleged artificially brings the
export of service into the ambit of taxation by treating the same as intra state supply of
service as against export of service. Ld. Jury had difference in opinion, one being in favour
and other against the assessee.

5.(a) In favour of Assessee Justice Ujjal Bhuyan held that -

• The Constitution has only empowered Parliament to frame law for levy and collection
of GST in the course of inter-state trade or commerce, besides laying down principles
for determining place of supply and when such supply of goods or services or both
takes place in the course of inter-state trade or commerce. Thus, the Constitution
does not empower imposition of tax on export of services out of the territory of India
by treating the same as a local supply.
• Petitioner fulfils the requirement of an intermediary as defined in section 2(13) of the
IGST Act and at the same time all the conditions stipulated in sub-section (6) of
section 2 for a supply of service to be construed as export of service are complied
with. It would also be an export of service in terms of the expression 'export' as is
understood in ordinary common parlance
• Section 13(8)(b) of the IGST Act read with section 8(2) of the IGST Act has created a
fiction deeming export of service by an intermediary to be a local supply i.e., an inter-
state supply.
• It is apparent that section 9 of the CGST Act cannot be invoked to levy tax on cross-
border transactions i.e., export of services.
• Likewise, from the scheme of the IGST Act it is evident that the same provides for levy
of IGST on inter-state supplies. However, by artificially creating a deeming provision

Page | 7
 in the form of section 13(8)(b) of the IGST Act, where the location of the recipient of
service provided by an intermediary is outside India, the place of supply has been
treated as the location of the supplier i.e., in India. This runs contrary to the scheme of
the CGST Act as well as the IGST Act besides being beyond the charging sections of
both the Acts.
• The Gujarat High Court in Material Recycling Association of India held that section
13(8)(b) of the IGST Act cannot be said to be ultra vires or unconstitutional in any
manner. With utmost respect the Court is unable to accept the views of the Gujarat
High Court.
• Section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017 is ultra vires the
IGST Act besides being unconstitutional.

5.(b) In favour of Revenue Justice Abhay Ahuja held that -

• While Section 8 of the IGST Act deals with nature of supply, Section 13 deals with
place of supply - One is to determine the nature of supply whether it is intra-State and
the other is to stipulate place of supply in the case where the supplier or the recipient
of the services is located outside India. Once the Parliament has in its wisdom
stipulated the place of supply in case of Intermediary Services be the location of the
supplier of service, no fault can be found with the provision by artificially attempting
to link it with another provision to demonstrate constitutional or legislative
infraction.
• To say that by virtue of Section 13(8)(b) read with Section 8(2) of the IGST Act,
Parliament has sought to impose tax on export of services out of the territory of India
by treating the same as local supply in violation of Articles 246A and 269 is
completely fallacious and untenable and the argument deserves to be rejected.
• When there is a specific provision defining Intermediary as contained in section
2(13) of the IGST Act and Intermediary Services are specifically dealt with in section
13(8)(b), the question of application of a general provision would not arise,
particularly when the constitutionality of both the above provisions has been upheld.
• Neither Section 13(8)(b) nor Section 8 (2) of the IGST Act are unconstitutional
or ultra vires the IGST Act - Section 13 (8) (b) is also not ultra vires Section 9 of the
CGST Act, 2017

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 • Even the omission of Article 286(3) pursuant to the Constitution (101st) Amendment
Act, 2016 signifies that the power to legislate on any matter relating to inter-state
supply is with the Parliament and not with the State. The whole purpose of Article
286(2) is to empower the Parliament to formulate principles to determine the situs of
supply
• The submission by petitioner that in terms of Section 13(2), Petitioner's service is an
export of service appears to be misplaced as Section 13(2) clearly stipulates that
except for the services specified in sub-sections (3) to (13), the place of supply to be
the location of the recipient of services. And one of such exception in Section 13(8)(b)
clearly stipulates that the place of supply for "intermediary services" shall be the
location of the supplier of services. Therefore, this submission appears to be
misplaced
• Section 13(8)(b) would not be hit by Article 14 as there is no discrimination between
Petitioner's case and other exporter of services.
• Although the judgement of Gujarat High Court in case of Material Recycling
Association of India is not binding upon this court but I (Abhay Ahuja J) am in
respectful agreement with the conclusion of the same.
In light of such difference in opinion, Registry to place the matters before Hon’ble the
Chief Justice on the administrative side for doing the needful.

Comments:

In the judgements, the view against the assessee advocates that, if at all the constitutional
validity is concerned then Parliament in its wisdom has clearly provided the place of
supply of intermediary to be in India i.e., intra state. Therefore, no fault can be called for in
such case whatsoever, when Parliament has specifically sought to tax intermediary. While
the parliament has large powers to levy taxes on supplies having nexus with the Indian
territorial operations. However, a view in favour of assessee goes beyond this aspect and
states that if at all provisions of section 13(8)(b) and 8(2) levying intra state supply are
assumed to be valid then in turn it would allow parliament to artificially fix and tax any
transaction undertaken in any part of the world. This could be achieved by merely
implanting a deeming fiction to drag place of supply and place of supplier within Indian
Territory, irrespective of the fact that activity would qualify as export in general parlance.

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6. Claiming of depreciation on entire invoice value as well as availing 100%
CENVAT Credit on capital goods is improper and corrective measure
taken by reducing the value of capital goods in the subsequent financial
year does not make good the irregular availment of CENVAT Credit during
the previous year.
[Surya Alumex Vs. Comm. CGST Alwar [2021-TIOL-319-CESTAT-DEL]]

Department alleged that the appellant has taken the Cenvat credit of Rs. 7,45,626/- on the
capital goods which were capitalised in the balance sheet at full invoice value inclusive of
Excise duty and have also claimed depreciation thereupon. Accordingly, the Cenvat credit
was proposed to be disallowed and to be recovered along with interest and proportionate
penalty.

Hon’ble Tribunal held that–

• Though the assessee has initially claimed the depreciation under Income Tax Act as
well as benefit of CENVAT Credit on capital goods but later surrendered the benefit
of Income Tax Act in the year 2015-16. Hence, it cannot be said that they have
availed both the benefits
• The adjustment in the balance sheet of 2015-16 cannot be considered as reversion
of the depreciation claimed in the balance sheet of the year 2013-14 and 2014-15.
• Corrective measures taken by the appellant but in subsequent financial year
definitely does not make good irregular availment of CENVAT Credit during the
previous year. No doubt the objective /idea of the Rule 4(4) of CENVAT Credit
Rules, 2004 is to prevent the double benefit but as already discussed above, the
appellant has failed to produce any evidence that double benefit which admittedly
was claimed by him, as to actually been reversed for the relevant financial year.

Comments
The decision fails to take into account the corrective action taken and that the benefit
availed under the Income Tax act duly paid back. Rectifying the mistake in the subsequent
returns is a right of a taxpayer which is available under the Income Tax Act and which is
rightly exercised. In our view, it would be incorrect to state that the subsequent
rectification would not make good the earlier mistake. There are various other decisions on
the same matter allowing the benefit of Cenvat credit on the grounds that the correction
has been made in the returns filed under the Income Tax Act.

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7. ITC not to be reversed in relation to loss arising from manufacturing
process.
[M/S. ARS Steels & Alloy International Pvt. Ltd. Vs The STO [2021-TIOL-1393-HC-MAD-GST]]
Petitioner was engaged in the manufacturing of MS Billets & Ingots. For manufacturing
Billets, MS Scrap was the input and MS Billet was the input to manufacture the TMT/CMD
Bars. During the manufacturing process, there was a small portion of loss of the inputs.

Department asked the petitioner to reverse a portion of the ITC claimed, proportionate to
the loss of the input, referring to the provisions of Section 17(5)(h) of the GST Act.

High Court Observed that -

• Section 17(5)(h) of the CGST Act applies only when goods are lost, stolen, destroyed,
written off or disposed by way of gift or free samples therefore, loss occasioned by the
process of manufacture cannot be equated to any of the instances set out in clause (h)
above.
• The situations as set out in clause (h) indicate loss of inputs that are quantifiable and
involve external factors or compulsions.
• HC highlighted the decision in the case of Rupa & Co. Ltd. - 2015-TIOL-2125-HC-MAD-
CX , wherein it was held that CENVAT credit should be granted on the original amount of
input used notwithstanding that the entire amount of input would not figure in the
finished product.
• The reversal of ITC involving Section 17(5)(h) as alleged by the revenue, in cases of loss
by consumption of input which is inherent to manufacturing loss is misconceived, as
such loss is not contemplated or covered by the situations adumbrated under Section
17(5)(h). The impugned orders to the above extent were set aside.

Comments:
A loss when is inherent to manufacturing process is not a loss but inevitable part of
production. In the manufacturing process, normal loss can be minimized but cannot be
done away with. In the erstwhile regime, various favourable judgments have been passed
on similar issue. However, in GST regime scope of section 17(5)(h) has been kept very
wide. This decision brings huge relief to the manufacturing sectors and also provide
insights on the scope and intent of section 17(5)(h). The judgement hints that, for any
activity which is inevitable to the manufacture (business), section 17(5)(h) cannot be
 dragged to reverse the credit. It further provides the correct interpretation of section
17(5)(h) i.e., the blockage of credit has to be applied at the time of availing the same.
However, once the credit is properly availed, then the provisions of section 17(5) cannot be
invoked for reversing of the credit rightly availed. It appears that the judgement would also
come to aid of credit in relation to goods (like vehicles) destroyed in process of testing (like
crash, airbag testing, etc.)

8. Tax evasion cannot be presumed merely on account of expiry of e-Way

bill.
[M/S Satyam Shivam Paper Pvt Ltd , (2021-TIOL-1338-HC-TELANGANA-ST)]

Petitioner made an intra state supply of paper through a tax invoice dated 04.01.2020 and
had also generated an e-way bill. However, due to traffic blockage due to agitation goods
could not be delivered till 06.01.2020. On 06.01.2020 i.e., after the expiry of e-way bill,
while the goods were in transit, they were detained by the Deputy State Tax Officer. As the
e way bill had expired. penalty was imposed along with tax.

The High Court Observed that -

• Without any evidence, the conclusion drawn by the STO that, there was evasion
of tax by the petitioner merely on account of lapsing of time mentioned in the e-
way bill is not correct. On account of non-extension of the validity of the e-way
bill by petitioner or the auto trolley driver, no presumption can be drawn that
there was an intention to evade tax.
• There has been a blatant abuse of power by the STO in collecting from the
petitioner, tax and penalty both under the CGST and SGST and compelling the
petitioner to pay Rs.69,000/- by such conduct.
• Petition allowed setting aside the order.

Comments
The Hon’ble High Court held that, in absence of any evidence, tax evasion cannot be
presumed merely on account of expiry of e-way bill. The concept of e-way bill is
introduced to track and punish the tax evaders i.e., involved in the clandestine removal of
the goods. Further, the penal provisions extend to 200% of the tax value and in some cases
 50% of the value of the goods. These extreme steps must be invoked only where the
department proves the fraudulent intention i.e., where the e-way bill is not generated or
incorrectly generated to make a clandestine removal of the goods. However, if no such
fraudulent activity is in existence, then the charge of such high penalties would not stand
ground. Thus, in various cases of e-way bill, where the penalties are levied based on these
procedural discrepancies, the present judgement would come to the aid of the taxpayers.

9. Procedural delay would not disentitle the appellant from claiming the
refund.

[Chariot International Pvt Ltd Vs Commissioner of Central Tax [2021-TIOL-346-CESTAT-Bang]]

Appellant had filed refund applications for refund of Cenvat credit under Rule 5 of CCR,
2004 read with Notification No. 27/2012-C.E. (N.T.) dt. 18/06/2012. Thereafter the
appellant received a show-cause notice proposing to reject the refund claims on the ground
that the appellant had not debited the amount in the cenvat register. Instead, appellant had
debited the said amount in GSTR 3B, as the said credit stood transferred into GST regime
through TRAN 1. The case of Department is that credit reversal in GSTR-3B pertains to GST
credit and not cenvat credit.

The CESTAT Observed that –

• Eligibility of the appellant to claim refund is not disputed and it is also not
disputed that the appellant has debited the amount claimed in the GSTR-3B. The
Tribunal has consistently held that credit reversed without being utilized is
considered as if credit has been taken at all. Hence the credit reversed in GSTR-
3B results in not claiming the credit at all .
• Learned Commissioner (Appeals) failed to examine whether the conditions
violated by the appellant is a procedural condition of a technical nature or a
substantive condition.
• There was only a delay in debiting the same and this delay is procedural delay
and will not disentitle the appellant from claiming the refund. Order set aside by
allowing the appeal of the appellant with consequential relief.
Comments
 The CESTAT has highlighted the settled principle that, procedural lapses will not deprive
the assessee from the substantive right. In yet another judgement of Tribunal
(Schlumberger Asia Services(supra)) (discussed in this newsletter), revenue’s stand that
reversal of credit in GSTR 3B is of GST and not of CENVAT, was rejected.

10. Assessee is entitled to claim refund of the Cenvat Credit of Cesses as on

30-June-2017
[SCHLUMBERGER ASIA SERVICES LTD Vs COMMISSIONER OF CE AND ST, GURGAON-I [2021-TIOL-
313-CESTAT-CHD]]

The Appellant was service provider and carried forward unutilized balance of Cesses lying
on June 30, 2017 into GST regime. The Appellant subsequently reversed the transferred
credit of Cesses pursuant to amendment made in Section 140 of the CGST Act. Thereafter,
the Appellant filed refund application for claiming refund of such Cesses.

Revenue’s stand was that, the appellant has taken the cenvat credit of cesses under GST
Regime on 01.07.2017, therefore, it has become GST credit and if any refund is required to
be filed by them, it is to be filed under CGST Act, 2017.

The CESTAT Observed that:

• In terms of Section 140 of the Act, the amount of EC, SHEC and KKC cannot be
transferred to GST account. Thus, it is only a cenvat credit of EC, SHEC and KKC lying
unutilized as on 01.07.2017. Therefore, the contention of the ld. AR that it is a GST
credit, is not acceptable when the provision of law is very much clear that the said
credit cannot be transferred into GST Regime.
• Further, the period of 1 year for filing refund application for claiming refund of
Cesses would be counted from date of amendment in Section 140 of the CGST Act
i.e., August 30, 2018, as the Appellant could not have filed refund application before
such amendment.
• When amendment itself took place on 30.08.2018, therefore, the relevant date of
filing the refund claim should be 30.08.2018. In that circumstance, the refund claim
filed by the appellant is not barred by limitation.
Comments
The judgement has granted a great relief to all those assesses who were having the archaic
balances of cess lying in their books of accounts and which could not be utilised due to
 implementation of the GST. CESTAT has observed that, mere reversal of credit in GST
regime would not colour the said credit as GST credit. Further, the said judgement has also
highlighted the concept of ‘cause of action’. For filing the refund application, the ‘cause of
action’ was only when the cess credit was explicitly disallowed on 30.08.2018. Therefore,
assessee cannot be held responsible for belated filing of refund when cause of action itself
did not exist earlier.

11. Horse race clubs liable to pay GST only on commission and not entire bet
amount.
[Bangalore Turf Club Limited and Mysore Race Club Limited versus the State of Karnataka [2021-TIOL-
1271-HC-KAR-GST]]

The Petitioner is carrying the business of a race club. The Petitioner particularly conduct
horse racing and facilities betting by the punters. The petitioners by themselves do not bet,
but only facilitates punters in their betting activity. The punter places the bet either
through totalisator run by the Petitioner or a bookmaker licensed by the Petitioner. If the
horse backed by the punter wins, the winning punter is required to surrender the receipt
and receive the winning amount from the losing punter. Commission is being taken by the
Petitioner for holding the entire amount. In erstwhile regime, the Petitioner was treated as
service providers under Chapter-V of the Finance Act, 1994 and Service Tax was levied on
the Petitioner’s commission alone. After the GST regime, an amendment was brought into
Rule 31A of the CGST Act by the insertion of sub-rule (3) to Rule 31A of the CGST Rules.
The amendment made GST leviable on the whole amount of bet that gets into the
totalisator. Therefore, the petitioner challenges the virus of Rule 31A(3) as the Petitioner is
then liable to pay GST on the total amount collected in the totalizator.

High Court observed that

• Betting is neither in the course of business nor in furtherance of business of the
Petitioner for the purposes of the CGST Act as the Petitioner hold the amount
received in the totalisator for a brief period in its fiduciary capacity for which it
receives consideration in form of commission and once the race is over the money is
distributed to the winners of the stake. Thus, the entire money held by totalisator
cannot be construed as consideration in terms of Section 2(31) of the CGST Act.
• Making the entire bet amount that is received by the totalisator liable for payment of
GST would take away the principle that a tax can be only on the basis of
 consideration even under the CGST. The Court compared it to stock broker or a
travel agent; both of whom are liable to pay GST only on the income i.e., the
commission that they earn and not on all the monies that pass through them.
• Rule 31A (3) of the CGST Rules/ KGST Rules does not conform to the provisions of
the CGST Act and thus are ultra-virus the enabling CGST Act and liable to be stuck
down. Therefore, the Petitioner is liable for payment of GST only on the commission
received for the services rendered through the totalisator and not on the total
amount collected in the totalisator.

Comments

The judgement is highly applauded and has provided great relief to the selected group
adversely affected by the provisions of Rule 31A(3). The judgement has highlighted that
GST cannot be charged on the amount held in custodial capacity as it does not take the
colour of consideration. The judgement also paws the way in correcting the GST law in the
way it was actually meant to be, and not universally tax everything that comes along.

12. DGGI Officers held as empowered to issue summons under GST

[Yasho Industries Ltd Vs Union of India (2021-TIOL-1381-HC-AHM-GST)]
The petitioner is a public limited company engaged in the business of manufacturing and
exporting specialized chemicals. The petitioner had received notice u/s 70 of the CGST Act
by the DGGI, calling upon the petitioner to give evidence and produce the documents as
mentioned therein in connection with the inquiry initiated against the petitioner.

The Petitioner had allegedly availed double benefit i.e. duty free import of goods under
EOU scheme and refund of IGST paid on export of goods. The Department contended that
availment of such double benefit is disallowed by Rule 96(10) of the CGST Rules, 2017.
Therefore, enquiry proceedings were initiated by the DRI i.e. Directorate of Revenue
Intelligence and also summons by the DGGI.

The petitioner has sought direction to quash and set aside the impugned Circular dated
5.7.2017 (Annexure-B), in connection with the assignment of functions to the officers as
the 'proper officers' in relation to the various functions of the CGST Act and the Rules made
thereunder. Petitioner contended that appointment of DGGI officers by way of circular no.
3/3/2017-GST dated 05.07.2017 is not a valid procedure.
 High Court held that -

• Since the impugned Circular dated 5.7.2017 has been issued in exercise of the powers
conferred by Section 2(91) of CGST Act and Section 2(91) of the CGST Act defines
‘proper officer’ to include officers assigned by Commissioner.
• As specified in N/N 14 of 2017 CT dated 01.07.2017 issued by CBIC, DGGI officers are
proper officers as contemplated under Section 2(91) and hence are entitled for issuing
summons as per section 70 of the CGST Act for carrying out the specific function.
• DGGI holding the designation of Senior Intelligence Officer was appointed as the Central
Tax Officer having all the powers under the CGST & IGST Act as exercisable by the
Central Tax officer of the corresponding rank hence is a proper officer to issue summons
under section 70 of the CGST Act.
• Therefore, there is no substance in the submission made that DGGI officers are not
‘proper officers’ as per section 2(91) of the CGST Act.

Comments

After the well celebrated judgement of Hon’ble Apex court in case of Canon India Pvt Ltd,
2021-TIOL-123-SC-CUS-LB, the present judgement of Hon’ble High Court is pronounced
against the assessee. It is noteworthy that the facts involved in both the cases are
drastically different as in case of Canon India the scope of the definition of the term ‘proper
officer’ was not explicitly coming out. The present judgement has also rejected the
contention of petitioner that assignment of function to the proper officer has to be done by
way of Notification and not Circular.

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