Law of Taxation-II

Supply
• Supply defined in Section 7
• Levy and collection in Section 9
• 2 types of supply – mixed and composite
• Power to grant exemptions – Section 11
• Article 366 (12A) – GST tax means a tax on the supply of goods and services, except
taxes on alcohol
• Section 7 defines supply as all forms of supply of goods or services made or agreed to be
made for a consideration by a person in furtherance of business
• CCIT v. Taj Mahal Hotel – ‘include’ is not exhaustive, merely indicative
• Ramesh Mehta v. Sanwal Chand Singhvi – ‘include’ is expansive in nature, but while
expanding the definition, object of the Act needs to be kept in mind
• Calcutta Club v. CIT – doctrine of mutuality, SC stated that in the course of club
supplying services, it was found not in furtherance of business
• Sun Pharma v. CIT – when ambiguity in tax law, favour of assessee
• Bharat Cooperative Bank Ltd. v. Employees Union – If in place of “includes”, “means”
were used, it would have become a hard and fast definition because “Means” is
conclusive.
• Royal Hatcheries v. State of Andhra Pradesh – If “such as” or “as” are used, then it is
not conclusive, it can be further expanded.
Goods
• Section 2(52) – every kind of movable property other than money and securities
• Includes actionable claims, growing crops, and things attached to or forming a part of the
land which are agreed to be severed before supply or under a contract of suppy
• Municipal Corporation Greater Bombay v. Toll: Test of movable property is whether
things attached to earth are movable to other place in the same position, then it is a
movable property. If dismantled, or can be dismantled and then re-erected, then it is a
movable property.
• State of A.P. v. NTPC: Expansion of goods into tangible and intangible goods. The SC
stated that sale of electricity happens only when there is consumption.
• Tata Consultancy Services v. State of A.P. – SC laid down a test for intangible goods –
1. Utility, or
2. Capable of being bought and sold, or
3. Capable of being transmitted, transferred, delivered, stored and possessed
• BSNL v. UOI – Goods can be tangible or intangible, subject to the test laid down in TCS
v. State of AP
Services
• Section 2(102) – services defined w/r Art. 366(26A)
 • Anything other than goods, money and securities
• Includes money changing activities
• Sale of land where in relation to that sale, that sale constitutes to be a service, it is
essentially a value addition on that particular land where that selling could be termed as
service
• For sale of a completed building, sale is excluded from definition of services, if certain
conditions are fulfilled, therefore no GST
• Webster Dictionary – Services is product of labour which is not a tangible commodity
• UOI v. Martin Lottery Agency – SC defined services as following :-
1. Work done for another
2. Economic activity resulting in value addition but is intangible (only percieved not
seen)
3. Benefits may last long but the act perishes when it is done
4. Once availed, cannot be returned
• SEBI v. Pan Asia – ‘service’ also includes arrangement of transactions in securities
Consideration
• Section 2(31) defines consideration as:-
1. Payment made or to be made
2. In money or otherwise
3. Paid by recipient of goods or services
4. Paid by any other person
5. Can be monetary or non-monetary
6. Monetary value of the act or forbearance constitute consideration – buyer agrees not
to buy raw material from anyone else
• What is not consideration?
1. Govt. subsidy
2. Deposit in respect of supply
3. Donations, gifts, charities
Activities amounting to supply without consideration
• Permanent transfer of business assets, where input tax credit has been availed on such
assets
• Supply of goods or services between related persons in the course of business – Section
15 (a)
• Related persons include –
1. Such persons of one another’s business
2. Legally recognised persons as partners in business
3. Such persons are employer and employee
4. Any person directly or indirectly holds 25% of the outstanding voting stock of the
companies
 5. Members of the same family, one of them controlled directly or indirectly by third
persons.
Furtherance of Business
• Section 2(17) defines Business as –
1. Any trade, commerce, manufacture, profession, vocation, adventure, wager, or any
other similar activity
2. Incidental or ancilliary activities are business
3. Member, Board of Revenue v. Controller of Stores – any activity which is ancillary
is also business. If you cannot establish an association with main business, then not
incidental or ancillary.
4. State of Tamil Nadu v. Binny Ltd. – SC held that an employer who is, in relation to
this employment, maintaining a store and making sales to his employees is an
ancillary business
5. Federal Bank v. State of Kerala – Bank making a sale of pledged goods constituted a
“business” as it is ancillary to the main business.
6. Indian Express v. State of Tamil Nadu – The sale of old/unsold copies of newspapers
constituted “business”as they were incidental and ancillary to the main business.
7. The Hindu v. State of Tamil Nadu – Sale of news print/waste cuts of the news print
was definitely ancillary. Therefore, this was also “business”.
8. Shrimad Rajchandra Adhyatmik Stasang Sadhana Kendra – the sale of spiritual
goods, provision of food/accommodation by charitable organisations, sale of booklets
by religious outfits, etc. could constitute a business
9. CST v. Sai Publication Fund – publication and sale of books to spread message of
Sai Baba was not business as main purpose was charity
10. Tirumala Tirupati Devasthanam v. State of Madras – SC held that the activities of
the temple trust were not commercial activities therefore not a business
11. Charitable Insitutions (State of A.P) v. Shri Bramaramba – There was sale of food
in this religious insittution, transport services were also provided to the pilgrims: this
cannot be considered as business, as it is a part of religious activities.
• Educational programmes business or not
1. IIT v. State of UP – no tax liability with regards to the conducting of educational
programmes
2. Indian Chartered Acc. India v. DGIT – no tax liability with regards to the
conducting of educational programmes
3. DCCT v. South India Textile Rsearch Educational Institution – conducting research
programmes cannot be said to be business
4. CTO v. Banasthali Vidyapeeth – Education is not a business, sale of prospectus
cannot be subjected to tax
5. Gandhi Kashi Vidyapeeth v. State of UP AND University of Delhi v. Ramnath –
when a University is making sale of publications, is it not considered a business
6. Manipal University v. State of Karnataka – sale of application forms constitute
business
Composite and mixed supply
• Composite supply – Section 2(30)
1. Two or more supply of services or goods made in combination
2. Naturally bundled
3. In conjunction with each other
4. supplied during natural course of business
5. principal supply will determine tax liability
• Mixed supply – Section 2(74)
1. Supply of two or more supplies
2. Supply which attracts higher rate of tax is applicable will be the tax liability for
entire supply
3. Not naturally bundled, but put together
4. Supply made as a single piece
5. Not dependent on others
• Samsung v. CCT – Allahabad HC held supply of mobile with charger is composite
supply, naturally bundled, one being dependent on the other.
• Nokia v. State of Punjab – like the Samsung case, Punjab HC held that battery is
ancillary to the supply of a mobile
• IAC Electricians Pvt. Ltd. – AAR West Bengal held that loading and unloading
composite service along with transportation supply
• Columbia Asia Hospitals Ltd. – Karnataka AAR held that supply of medicine and food
along with hospital services is composite supply
• Switching Avo Electro Power Ltd. – AAR West Bengal held that when UPS and battery
are a supplied package, it will be mixed supply since they are not naturally bundled. It
was challenged before the Appellate Authority of Advanced Ruling. AAAR held that
UPS with built-in batteries composite supply, but when UPS supplied with external
battery, it will be mixed supply
• Tax liability on composite and mixed supplies is defined in Section 8. In composite
supply, identify principal supply for tax determination whereas in mixed supply, identify
product with the highest rate of tax.
• Principal supply is defined in Section 2(90) as supply of goods and services which
constitute a predominant element of a composite supply and to which any other supply
forming part of that composite supply is ancillary.
• Individual supply means that every supply will be built and taxed separately, for each
item there will be a separate rate of tax.
• In 2020, AAR has deliberated whether individual supply is a third category in addition to
mixed and composite supply
1. Halliburton Off-Shore Oil Services – AAR Andhra Pradesh held that the supply of
mud engineering services along with services of imported mud chemicals is not
composite supply. Therefore, every supply which is separate and separately priced
would-be individual supply of goods and services.
 2. Cartus India Pvt. Ltd. – Cartus provided services of facilitating, administering and
management of relocation of employees. Karnataka AAAR held ‘A la carte’ services
relating to employee relocation is neither a composite nor a mixed supply.
3. Abbot Healthcare Ltd. v. CCT – Abbot supplying instruments to hospitals, other
articles supplied by distributors, both had separate registration. AAR Kerala held it to
be composite supply as one was related to the other one. Kerala HC reversed the
decision, and held it was not a composite supply. Additionally, concept of composite
or mixed supply cannot be applied where two different registered persons were
supplying. Therefore, it is individual or independent supply.
4. Dilip Kumar v. Commissioner of Customs – Sun exports decision (1997) which said
that if there is an ambiguity in a provision, it should be in favor of taxpayer. This was
overruled and SC held that any ambiguity should not be in favor of the assessee, but
in favour of the assessor. In a dispute between mixed and composite supply, you go
in favour of mixed supply, as composite supply favours assessee.
5. Vrinda Engineers Pvt. Ltd. – They had two separate services of erecting a steel
structure and then painting it. AAR held that although they are supplied in
conjunction with each other, they can be supplied separately as single service,
therefore are not interdependent. Since not naturally bundled, they are mixed supply.
6. Infobase Services Pvt. Ltd. – Two services in question, one printing (GST 12%) and
second advertisement (GST 18%). Since they are not naturally blended, it will be
mixed supply hence 18% tax rate applicable.
NOTE – List of activities which are neither supply of goods, nor supply of services are –
1. Employer-employee services
2. Courts/Tribunals services
3. MLAs/MPs functions
4. Duties of person holding constitutional post
5. Duties performed by a government servant
6. Services of funeral and other cremation services
7. Sale of land or building
8. Sale of flat after completion
9. Actionable claims other than gambling
Concept of person under GST
• Defined in Section 2(84)
• A registered person for the purpose of GST is provided from Sections 22 to 25.
• According to the definition, a person includes:-
1. Individual
2. HUF
3. Company
4. Firm
5. LLP
6. AoP or BoI
 7. Corporation established under central or state legislation
8. Body corporate incorporated under the laws outside India
9. Co-operative society
10. Local authority
11. Central government/ state government
12. Society
13. Trust
14. Every artificial juridical person not mentioned above
• All the above constitute a taxable person, who is registered person or is liable to
registration under Section 22 to 24 under the CGST Act
• Section 3(42) of the General Clauses Act defines person – any company or association, or
BoI, whether incorporated or not.
Whether an unincorporated or incorporated club or association is a person?
• Section 2(84)(f) – an association whether incorporated or not in India or outside India is a
person
• Section 2(17)(e) – provision by a club or association for benefits to its members is
business
• The doctrine of mutuality comes in consideration here. It states that when transactions are
carried out between people in mutual association with each other and generate returns
therefrom, such returns are not taxable.
• There were some cases where this was accepted by SC but was rejected by Constitution
itself under Article 366(29A) by the 46th Amendment.
• This ousted the doctrine of mutuality from the Indian context, but it is conflicted in
judicial decisions – there are two decisions of the SC which reject the provision and
uphold the doctrine.
• Trivandrum Club v. Sales Tax Officer – a club which lets out rooms and cottages to
guests, whether members or not, on rent, would be liable to pay tax. This would be
regardless of whether it was incorporated or not
• Young Men’s Indian Association v. JCTO – a club acted as a distinct legal entity,
regardless of incorporation. In relation to its members, it was only acting like an agent.
The supply to its members, there was no sale involved, with no transfer element.
Therefore, there could not be taxable in its supply to its members. This decision brought
in the doctrine of mutuality.
• Fateh Maidan Club v. CTO – Young men’s position was reiterated
• Jharkhand HC in Ranchi Club Ltd. v. Chief Commissioner of Central Excise and
Gujarat HC in Sports Club Gujarat Ltd. v. Union of India held that no service tax could
be demanded on services provided by a club to its own members by applying the doctrine
of mutuality and by relying on Young Men’s Indian Association.
• The 46th Constitutional Amendment brought in Article 366(29A), by virtue of which
Young Men’s Indian Association’s position is decided otherwise thus declaring that
 doctrine of mutuality has no place within the Constitutional mandate. The club should
make the members liable for a sale made by the club to its members.
• State of West Bengal v. Calcutta Club Ltd. – Whether services provided to the members
by the club would attract the definition of supply under Section 7? Whether the club and
its members are different persons? Assistant Commissioner of Commercial Taxes issued a
notice to respondent club for not paying sales tax on sale of food and drink to members of
the club. The club approached Tribunal and it relied on Automobile Association of
Eastern India v. State of West Bengal. The Tribunal held that no tax could be levied on
the services and supply to a club’s own members by virtue of doctrine of mutuality. The
tribunal’s decision was challenged in SC and it was decided on 3 questions:
1. Whether Doctrine of Mutuality was still applicable after the 46th constitutional
amendment with Art. 366 (29A)?
2. Whether the Cosmopolitan Club and Fateh Maidan Club cases, where the Doctrine of
Mutuality had been applied, are valid?
3. Whether supply of food, beverages, etc. by a club to its own members consisted a
“sale”?
Contention of the State –
1. In Dy. Commercial Tax Commissioner v. Enfield India Ltd., it was held that doctrine
of mutuality was not a principle in relation to tax laws, but a principle created in the
context of criminal liability- it has nothing to do with tax laws.
2. In Walter Fletcher v. Income Tax Commissioner, it was held that the doctrine of
mutuality would not have a universal, but a restricted application – in relation to
criminal liability.
Contention of Calcutta Club –
1. The Calcutta Club Ltd. argued that the profit motive is a prerequisite for taxation.
They relied on State of Gujarat v. Raipur Manufacturing Co. Ltd. which held that a
transfer becomes a sale only with a profit motive.
2. The 46th Amendment has not done away with the doctrine of mutuality of Young
Men’s Indian Association
Decision of SC
1. The SC relied on Graff v. Evans, a transaction where a member of a club acquired
liquor which was the property of the club, it was not a sale but a mere transfer.
2. The court also relied upon Trebanog Working Mens Club and Institute v.
MacDonald, where it was held that a club holding property on behalf of its members
does not have a separate entity in relation to its members.
3. The Court also looked into Bangalore Club v. Commissioner, where it was held that
in relation to tax laws, the doctrine of mutuality would apply regardless of the
amendment.
4. The SC also referred to Halsbury’s Laws of England, and Silloth Golf Club v. Smith,
to conclude that the doctrine of mutuality would apply to tax laws. The Court also
 relied upon ITO Mumbai v. Venkatesh Premises Co-operative Society, where it was
held that members perform the activities of the club themselves, and so, they do not
create a separate legal entity.
The SC concluded that there was no sale between the club and the members, as one
person cannot sell goods to himself. In addition, the doctrine of mutuality has not been
done away with in the context of tax laws, and that it is not eliminated from the
constitution and still holds as a good law.
Whether an association of persons or a body of individuals could be claimed as a person?
• Under section 2(84)(f) of GST Act, they can be considered as a person
• B.N. Elias – Oxford dictionary defines association as ‘to join in for a common purpose’.
The characteristics of association are –
1. Two or more persons
2. Common purpose
• CIT v. Indira Balakrishna – SC held that an association of persons is a combination of
individuals who are engaged together in a joint enterprise but does not include
partnership
Whether an unincorporated joint venture is an association of persons?
• Geo Consult – Characteristics of an association are –
1. Two or more people
2. Voluntary combination
3. Common purpose or activity
4. To produce profits or gains
5. The object must be to produce income jointly
• Murugeshan Brothers v. CIT – it was held that owners of a property are not an
association of persons, if they have not come together voluntarily to form business
• Tests for unincorporated JV for the purposes of GST: -
1. Joining of two or more persons for a common purpose
2. Jointness in efforts and endeavours
3. Common management and common activities
4. Joint liability for execution
5. Sharing of profits and losses
Tax liability Pre-GST era
• Excise duty in general was on manufacture, not on the manufacturer or the person who
produces it, rather on the process of manufacturing
• R.C. Jall v. Union of India – excise duty can be levied at any stage but the character on
which the duty can be levied must be on manufacture or production
• Mohan Breweries and Distilleries v. CTO – Tax liability can be shifted to the producer if
the tax on manufactured goods is proved
 • Gujarat Ambuja Cement v. Union of India – collection of tax is to be made as a question
of legislative convenience. If the tax liability is on a person, he will be liable to pay it,
irrespective of whether he has passed it to the consumer or not.
• Bengal Shrachi Housing Development v. Union of India – though under the law, tax
liability is provided as against the provider, it passed on to the recipient and the recipient
has to pay the tax.
• J.K. Jute Mills v. State of U.P. and S. Kodar v. State of Kerala held that when the tax
liability is on the manufacturer, and if it is not passed on to the consumer, whoever has
the liability under the law has to pay it.
Tax liabilty under GST
• Section 2(107) – A taxable person has to be registered under the provisions of Sections 22
to 24 of the GST Act
• Primarily, the supplier is the taxable person
• Section 22 – every supplier shall be liable to be registered, if the aggregate turnover is
more than the exempted limit. Therefore, a supplier is a taxable person.
• Section 24 – category of people listed are required to be registered
• Section 51 – provides the various circumstances and people who are entitled to deduct tax
at source. The person who deducts tax at source is liable to pay tax.
• Section 52 – prescribes the circumstances where a person is liable to collect tax. That
person liable to collect tax is liable to pay tax.
• Section 2(105) – supplier is defined as the person supplying the goods and services, and
shall include an agent acting on behalf of the supplier.
• Pant Merchants Ltd. v. CCE – The person liable to pay money in a transaction is the
recipient and the person receiving the money is the supplier.
• Section 2(93) – For a supply of goods and services, the person to whom the supply is
made is the recipient
• As per Section 23, originally turnover was more than 20 lakhs and for certain north-
eastern states, the turnover was 10 lakhs for registration. After an amendment, if a
supplier is simply a supplier of goods, then the threshold turnover limit would be 40
lakhs, and in the north-eastern states, the limit is 20 lakh rupees.
Reverse charge mechanism
• Section 9(3) – liability to pay tax is on a person other than the supplier for the specified
categories of goods and services. In these cases, tax shall be paid based on reverse charge
mechanism
• Examples of reverse charge mechanism –
1. Goods of a transport agency where tax liability is on the recipient
2. Individual advocate
3. Service provided by sponsorship to any partnership firm
• Another notification stated that recipient will pay tax for supply of cashew nuts, bidi,
tobacco leaves, silk yarn when supplied by an agriculturist ONLY to a registered person.
 • So, as per Section 9(3), the recipient should be a registered taxable person and should
have a turnover of more than 20 lakhs annually
• Section 9(5) – electronic commerce operators are liable to pay tax
• Specified services are services by way of transportation of passengers by radio taxi,
motor cab with a central control enabled GPS or service by way of providing
accommodation in hotels, guest houses, clubs, etc. meant for residential or lodging
purposes.
• Opta Cabs Pvt. Ltd. – billing was raised by Opta, but amount collected by drivers. It was
held since billing by Opta, they are liable to pay tax.
• Humble Mobile Solutions Pvt. Ltd. – if the service provided is of a driver not of a cab,
AAR held since it for supply of drivers, section 9(5) not liable
• Under Section 52, there is a concept of 1% tax to be collected by the e-commerce
operator. Regarding online services in relation to accommodation, these services also
employ the reverse charge mechanism.
Registration under GST – Sections 22 to 24
• Based on your aggregate turnover
• Normal states – 20 lakhs, specified states – 10 lakhs
• Advantages of registration –
1. legally recognized supplier
2. Legally authorized to collect tax
3. Authorized to pass on credit of taxes to recipient
4. Can claim ITC
• Supplier liable to be registered in the State from where he makes a taxable supply, or
where he has a fixed establishment or place of business
• Section 22 – persons liable for registration
1. Registered person under the pre-GST law
2. Successor of a business
3. Transferee in case of amalgamation
• Section 24 – compulsory registration in certain cases
1. Person making inter-state supply
2. Casual taxable person making taxable supply – person who occasionally undertakes
transactions in relation to goods
3. People who are required to pay tax under reverse charge mechanism
4. Non-resident taxable persons
• Section 23 – persons not liable for registration, can register voluntarily
1. Persons engaged in business of goods exempted from tax
2. Agriculturist or handicrafts
3. Persons exempted by central government
• Person needs to register within 30 days of becoming eligible
• Casual taxable person and non-taxable person needs to register 5 days prior to
commencement of business
 • 19(2) – if an application is rejected by an appropriate officer, there should be a show
cause notice given.
• In the following cases it was held the provisions of CGST Act mandate a clear
compliance with principles of natural justice, in absence of which the cancellation will be
struck down.
1. Ashwani Agarwal v. Union of India
2. Mahadev Trading Co. v. Union of India
3. Special Wire Products Pvt. Ltd. v. Assistant Commissioner, CGST
4. Kashi Bhandar v, State of UP
5. Bhavani Textiles v. Assistant Commissioner
• 3 circumstances where registration can be cancelled –
1. On his own motion for non-compliance with GST rules
2. On an application by a registered person
3. On an application by legal heirs
• Conditions to be satisfied for cancellation
1. business has been discontinued;
2. business has been transferred;
3. business amalgamated with other legal entity;
4. change in the constitution of business and whether the taxable person is no longer
liable to be registered.
• Cancellation of registration for violation of rules –
1. If he does not conduct the business in the declared place of business as was declared
in the application
2. Issuance of invoice or bill without supply of goods or services
3. Violating Section 171 relating to anti-profiteering
4. Violating Rule 10A relating to furnishing of bank account details
Composition Scheme or Composition Levy
• Alternate scheme for registration
• Available only for supplier of goods, not to a supplier of services
• to help small scale suppliers
• Section 10 provides for composition scheme
• Registration by Chartered Accountants
• Reasons for introduction
1. Benefit for CAs
2. Benefit for small-scale suppliers
3. Simplified tax scheme
• Eligibility
1. Traders of goods having turnover up to 1.5 crores per annum for general states
2. Special category – 75 lakhs
3. J&K – 1 crore
• Conditions for application of composition scheme –
 1. Manufactures of ice-cream, tobacco, pan masala NOT eligible
2. Only supply of food for human consumption eligible
3. Supplier of goods who provides services as well
4. No inter-state supply
5. Not a casual taxable person
6. Not a non-resident taxable person
Value of Supply
• Section 9 is the charging section and value is determined in Section 15
• Excise regime in pre-GST regime had 3 types of values –
1. Section 3(2) of Central excise Act provides for tariff values
2. Section 4A of Central Excise Act provides for MRP value
3. Section 4(3)(d) provides for transaction value
• In GST, there is only transaction value, no tariff or MRP value, because Section 9 r/w
Section 15 says value under GST will be determined on transaction
• Conditions to be satisfied in relation to determining value of supply –
1. Supplier and recipient should not be related
2. Price is the sole consideration in determination of value
• Tata Johnson Controls v. State of Maharashtra – development charges, design charges,
loading, inspection, late fee, penalty for delayed payment and measuring weight charges
can be added as incidental expenses to the transaction value.
• Infrastructure Development Finance Co. Ltd. v. ACIT and Bajaj Finance Ltd. – If any
loan is provided and there is a penal amount of interest to be added, payment of EMI and
a loan from the bank, all can also be added
• MP Purva Kshetra Vidyut Vidhran Co. and TP Ajmer Distribution Ltd. – electricity
constitutes exempt supply under GST.
• CCE v. Maruti Udyog and CCE v. Durga India Ltd. –valuation should be based on a
bank calculation, as to the value of supply
• EID Parry v. ACCT and Ponni Sugar Co, Ltd. v. DCTC – Subsidies can be added to
actual value to determine transaction value.
• TISCO General Office Recreation Club v. State of Bihar – value of supply should NOT
include any discount.
• Ultratech Cement Ltd. and Maya Appliances Pvt. Ltd. – discounts given for supply are
not eligible to be added to transaction value.
Classification of goods and classification of services (Harmonised system of nomenclature)
• The rates of tax provided for CGST under these provisions are –
1. 2.5% for Schedule I
2. 6% for Schedule II
3. 9% for Schedule III
4. 14% for Schedule IV
5. 1.5% for Schedule V
 6. 0.125% for Schedule VI
• One classification done by the World Customs Organisation to bring uniformity called the
Harmonised System of Nomenclature (HNS)
• It gives a common nomenclature to various goods across legal systems with different
numberings
• In imports, this helps in making tariff easily decipherable
• In India, there are 2 legislations where HNS is accepted – Central Excise Tariff Act, 1985
and the present GST
• HNS is relevant to determine, in cases of disputes, whether the tax paid by you is
appropriate and whether the revenue authorities found it relevant to apply a different rate
of tax.
• Goods are primarily classified in Sections, then Chapters, then Headings, then
Subheadings.
• Eg:- raw silk Section 11, chapter 50 silk, 03 heading silk waste, nomenclature 5003
(chapter number, heading number) hence silk waste
• Silk waste not combined is 500310 (chapter no., heading no., sub heading no.)
• Salora International Ltd. v. CCE – in such circumstances where the question of finished
v. unfinished goods arises, it must be considered as complete and finished goods and not
as parts. Function test is where you determine the essential character of the product.
• Nagaraju Bros. v. State of AP – conflict between a specific entry and general
classification, specific entry will prevail
• CCE v. Acer India – essential character test was applied and tax was valued on the basis
of the whole computer rather than a combination of CPU, monitor, mouse, etc.
• CCE v. Cien Laboratories – a body cream that can be classified as both medical and
cosmetics was classified as medicine because of the presence of a pharmaceutical
substance in the cream shows that it is used for therapeutic purposes. Essential character
test.
• CCE v. Vicco Laboratories – Burden of proof that the product is classified under a
particular tariff head lies on the tax authorities
• Grenfell v. IRC – the words are required to be interpreted in a popular sense and not in
the strict sense
• CCE v. Wockhardt Life Sciences – antiseptic cleaning solution used before operation
will be considered medicinal or residuary entry. It was classified as medicament as it was
primarily used to prevent infection.
• CCE v. Connaught Plaza Restaurant – soft serves at McD should be considered ice-
cream or dairy products. Since ice cream is more specific entry compared to dairy
products, hence it is an ice cream. SC also said it matters what the consumer perceives
the product as.
• CCE v. Gujarat Perstorp Electronics Ltd. – for classification, understanding of a word is
to be the common, natural and ordinary meaning of the word
• CCE v. Carrier Aircon Ltd. – end use alone should not be a criterion. A product could be
classified for various purposes.
Input Tax Credit
• purpose is to avoid the cascading effect of taxation
• tax paid at previous stage could be claimed as credit for subsequent stages
• Sections 16-21 discuss the concept of ICT
• One person pays tax at the first stage, and that paid tax will be availed as credit in a
subsequent stage when he makes a supply
• This way only the differential amount is paid to the government by him
• Eg:- X got supplies 1 lakh worth of steel from A. For this he paid tax of 18,000. Also he
got raw material from B worth Rs. 10,000 and he paid tax of Rs. 2800. Total tax payable
is 20,800. Now these raw materials got converted into utensils worth Rs. 2 lakhs. Now
these utensils were sold to Y with Y paying 36000 taxes to X. Since X already paid
20,800 as taxes on raw material before, he gets a deduction available as ITC, and he only
has to pay Rs. 15,200 to the government.
• During pre-GST regime, entire tax which was paid at an earlier stage was added to the
value as a result of which the price increased and there was a higher price burden on the
final consumer.
• Section 16(1) – Eligibility to avail ITC
1. Must be a registered person
2. The amount of supply you make, you can claim ITC on that
3. Goods and services to be used ONLY in the course of business
• Prerequisites for claiming ITC
1. Person claiming ITC must be in possession of a tax invoice
2. Person claiming ITC has to have received the goods or services
3. paid tax to supplier
4. supplier has furnished the return
5. If inputs received were in lots, eligibility will come only when the last lot is received
6. He should pay the supplier the value of the supply with tax within 180 days of issue
of the invoice.
• Conditions which need to be satisfied based on Pre-GST positions –
1. Section 16(1) – used or intended to use ONLY for business
2. Not necessary that input services must be used, mere intention to use is not enough.
3. There may be various factors which prevent utilization in course of business because
of
a) Process loss
b) Handling loss
c) Loss due to natural causes
For these losses, ITC can still be claimed. Total value of the input could be claimed
as ITC irrespective of certain unavoidable losses.
Multi Metals Ltd. v. Asst. Collector Central Excise & Swadeshi Polytex Ltd.
Collector Central Excise – if there is any process loss, handling loss or loss due to
 natural causes you can claim ITC for the entire value of supply and not deduct the
loss caused because of the above processes.
• Burden of proof is on taxable person availing ITC
• Section 17(5) – when ITC cannot be claimed
1. Motor vehicles for transportation of persons having approved seating capacity of 13
persons or less including the driver
2. Lease or license
3. Vessels and aircraft
4. Maintenance of vessels and aircrafts
5. Food, beverages, outdoor catering, beauty treatment
6. Membership of a club, health and fitness centre
7. Travel benefits extended to employees on vacation
8. Work contract services – construction, repairs, renovation, additions, alternations and
re-construction of immovable property
9. Taxes paid under composition scheme
10. Goods and services received by non-resident taxable person
11. Goods and services for personal consumption
12. Goods lost, stolen, destroyed, written off or given as a gift or free samples
13. Penalty paid after confiscation of goods.
• YKK India Pvt. Ltd. – motor vehicle used for transport of employees from factories, ITC
cannot be claimed, held by AAR. Later on overturned by AAAR Haryana, where it was
observed the use of buses for the transportation of employees would be permitted vis-à-
vis ITC, but the use of cars would not.
• Mohan Ghosh – motor vehicle given on rent which is used for further supply, no ITC as
a vehicle on lease or rent you cannot claim ITC
• Chowgule Industries – ITC can be claimed for motor vehicle for trial run as they are for
the purpose of business
• Purewal Stone Crusher – purchasers of excavators, road rollers and dumpers can claim
ITC because according to the motor vehicle act, these vehicles do not constitute motor
vehicles, therefore Section 17(5) will not apply. Hence, ITC can be claimed.
• National Aluminum Co. – company guest house providing accommodation to
employees, ITC cannot be claimed as it is not in furtherance of business
• General manager, ordinance factory, Bhandra – gardening and hospital expenses are
not eligible for ITC as not in furtherance of business
• Essel Petropack v. CGST – Input services for CSR activities can be claimed for ITC, as
CSR is not charity but statutorily mandated.
• Aditya Space Pvt. Ltd. – brokerage services that could be brought within the term
“supply” would be eligible for ITC
• Vidya TeleLinks Case AAR Uttarakhand – For a telecommunication tower, it was held
that movable goods supplied, which could be dismantled and re-erected, would be
eligible to the scope of ITC benefits. Therefore, ITC was eligible in respect of electronic
panels, cables, radio transmission equipment.
• GGL Hotel and Resort Co.Ltd. – GGL had taken some land on lease and constructed a
resort, where they were liable to pay annual lease rent. It was held that land should be
treated as part of the cost of goods and services received for the purpose of constructing
immoveable property and according to section 17 ITC is not eligible.