Daiwik Motors v. Assistant Tax Officer [2020] 113 taxmann.com 83 (Kerala)

Inter-Branch Stock Transfer of Goods having two separate GSTIN

Facts: Petitioner filed writ petition against order under Section 129 of CGST) Act detaining goods and vehicle belonging to petitioner, on the ground that, verification of documents that accompanied goods showed that consignor and consignee are two different entities with different GISTINs and transaction in question was supposedly a stock transfer. The documentation is, therefore, found to be not in accordance with the prescription under the CGST Act and Rules.

Contention of Petitioner- As per Rule 55 of CGST Rules, an invoice need not be generated wherever there is a transportation of goods for reasons other than by way of supply.

Observation-The learned counsel was however not able to point out as to why the particular transportation had to be viewed as one other than by way of supply. It was contention by the petitioner that transaction between parties was not a sale since there was no transfer of ownership of the goods to the consignee. Hon’ble Court however found that definition of supply under Section 7 is not confined to transactions of sale but includes transfer for other purposes also. Under such circumstances, detention was held to be justified.

Held: The permit was permitted to obtain a release of vehicle and goods on furnishing a bank guarantee for tax and penalty amount. Proper officer was then directed thereafter to refer the matter for adjudication in terms of the SGST Act and Rules.

Bansal Earthmovers (P.) Ltd. v. Assistant Commissioner of State Goods and Service Tax [2020] 114 taxmann.com 27 (Calcutta)

Circular No 41/15/2018 Dated 13^th April 2018 and nor Form MOV-07 is in consonance with Section 129 since they are not complying with mandatory provision of giving notice to person who is owner of goods and upon whom imposition of penalty is to be made

Facts: Vehicle had left premises of petitioner at 4.15 p.m. and waybill was generated at 5.10 p.m. In the meantime, vehicle had been intercepted at Phool Bari and because of lack of waybill vehicle was detained by relevant authorities. It is to be noted that statement (Form GST MOV – 01) of driver of vehicle was recorded at 5.00 p.m. on March 23, 2019 and vehicle was inspected on same day at 5.00 p.m. (Form GST MOV – 02). Subsequently, an order of detention under Section 129(1) of the WBGST Act, 2017 read with CGST Act, 2017 was passed on March 25, 2019 on the ground that no e-waybill was tendered for goods that were in movement.

Contention of the Petitioner: Following were the contention of Petitioner:

a) That the goods were not detained by the proper officer.

b) The waybill had been generated prior to the date, that is, March 25, 2019, when the order for detention was passed.

c) The fact that the petitioner did not possess the waybill at the time of interception was not entirely its fault but also as a result of the malfunctioning of the server of the respondent department.

e) As all other documents such as the invoice, challan and insurance policy were with the goods, there was no question of any mens rea for evading tax- It was contended that since documents such as invoice, challan and insurance policy were with goods and therefore, there was no mens rea what so ever for evasion of tax. (Dilip N. Shroff v. Jt. CIT [2007] 161 Taxman 218 [Coram: S.B. Sinha and P.K. Balasubramanyan, JJ.] ; Ferring Pharmaceuticals (P.) Ltd. v. Asstt. CTO [2006] 147 STC 252 (Cal.) [Coram: Asok Kumar Ganguly and Maharaj Sinha, JJ.] and Zarghamuddin Ansari (Anwar) v. Commercial Tax Officer [2001] 38 STA 129 (Cal.) (DB)

f) The penalty that has been imposed was done so in contravention of clause (3) and clause (4) of section 129 of the WBGST Act, 2017, that is, proper notice of the imposition of penalty was not provided to the petitioner- It was submitted that notice of hearing of the penalty to be imposed has to be given to the petitioner and not to the driver of the vehicle who was not the employee of the petitioner. He further submitted that compliance of the principles of natural justice is inbuilt in section 129 of the WBGST Act, 2017 and is a sine qua non for any imposition of penalty.

Observation-

Notice has to be served on the person aggrieved- Section 129(4) specifically states that no tax, interest or penalty shall be determined under Section 129(3) without giving person concerned an opportunity of being heard.

Hon’ble Court clearly held that notice for imposition of penalty requires to be served upon the person on whom the penalty is to be imposed. Furthermore, an opportunity of hearing has to be granted. In the event, such hearing is not granted, the same would definitely amount to violation of principles of natural justice. Audi alterem partem – no person should be judged without a fair hearing – is the minimum necessity that is required to be followed as per the above provision.

Hon’ble Court was of the view that when respondent authorities had in their possession documents such as invoice and challan that showed as to who was the owner of the goods, it was incumbent upon them to serve a copy of the notice upon the owner of the goods. Service simpliciter on the driver of the conveyance who was not even an employee of the owner of the goods cannot be construed to be good service under sub-sections (3) and (4) of section 129.

Issuance of Circular cannot override provisions of Law- With reference to the argument advanced by Mr. Ghosh with regard to the Circular and the FORM GST MOV-07 wherein the service of the imposition of notice is required to be made upon either the driver or the person-in-charge, Hon’ble Court was of the view that neither Circular nor Form is in consonance with Section 129. It is trite law that the Circular issued by the Central Board of Indirect Tax and Customs is only binding upon the authorities and not upon assessee. Therefore, Circular and Form are not complying with mandatory provision of giving notice to the person who is the owner of the goods and upon whom the imposition of penalty is to be made. Referred Case- A.S. Motors (P.) Ltd. v. Union of India [2013] 10 SCC 114

Held: Hon’ble Court held that in present case, there was more than a technical infringement of statutory provision as no hearing whatsoever was granted to the petitioner. Having not been granted an opportunity of hearing, petitioner was unable to put his case before the concerned authority. Surprisingly, notice in FORM GST MOV-07 was served upon the driver but order passed in FORM GST MOV-09 was served upon the driver and the petitioner-company. The authorities did not consider it necessary to put on notice the person upon whom the penalty was being imposed. As pointed out earlier, sub-section (3) and (4) of section 129 of the WBGST Act, 2017 specifically requires order of penalty to be passed after proper service and opportunity of hearing to be given upon the person on whom such penalty is to be imposed. Ergo, the requirement under section 129 (3) and section 129(4) has clearly not been complied with.

Since there has been a clear violation of principles of natural justice, and therefore, the impugned order was quashed and set aside and proper officer was directed to issue a fresh notice upon petitioner, and thereafter, grant an opportunity of hearing and pass a reasoned order. It was further made clear that as matter has been remitted to concerned officer for a reasoned decision, Hon’ble Court did not go into aspect of mens rea. The arguments with relation to requirement of mens rea under section 129 of the WBGST Act, 2017 and the burden of proof and/ or rebuttal of the presumption of guilt were left open to be decided by concerned officer.

U.P. Bone Mills (P.) Ltd. v. Union of India [2020] 114 taxmann.com 476 (Allahabad)

Held: The main grievance of the writ petitioners is that the concerned authorities have seized goods along with vehicle/truck illegally on the basis of sole allegation that driver/owner/person In-charge of goods had not tendered any document, e-way bill, etc., even when all the valid documents were actually produced before the officer by the driver. Since writ petitioner, being the company, is ready to pay excess amount after assessment as may be determined by concerned officer, writ petition was disposed off with a direction upon concerned respondent authority to calculate excess amount which is required to be paid by writ petitioner together with penalty, if any, and communicate the same to writ petitioner within a period of three weeks from date. If writ petitioner / company makes full payment in terms of such communication to concerned respondent authority within a week therefrom, goods as well as vehicle may be released in favour of the writ petitioners in accordance with law.

Ashwini jain v. State of U.P [2020] 114 taxmann.com 34 (Allahabad)

Since the provisions of Section 129 of UPGST Act are very clear, transporter cannot have benefit of a segregated liability and procedure prescribed for release of vehicle under the Uttar Pradesh Goods and Services Tax Act, 2017, cannot be avoided

Facts: Writ petitioner approached Court essentially seeking release of his vehicle which has been detained by the Assistant Commissioner (Mobile Squad)-3, Kanpur, on 8th November, 2019. Penalty was imposed for the purpose of release of the goods as well as the vehicle in terms of section 129(3) of the Uttar Pradesh Goods and Services Tax Act, 2017.

Contention of Petitioner- Petitioner is merely a registered owner of vehicle and has nothing to do with goods which were contained in vehicle. As such, he is not liable to pay the amount in terms of section 129(3) of the Uttar Pradesh Goods and Services Tax Act, 2017.

Held-: Hon’ble Court observed that for purpose of deciding matter, looking merely at the heading of the provision contained under section 129 would suffice which reads as follows:

“[129]. Detention, seizure and release of goods and conveyances in transit.”

It was held that above heading is wide and clear enough to encompass within its fold this vehicle which has been seized along with the goods and as such, the writ petitioner cannot wriggle out of his liability to pay amount as imposed in terms of section 129 of the Uttar Pradesh Goods and Services Tax Act, 2017, for the purpose of release of his vehicle. He cannot have the benefit of a segregated liability in the present context and the procedure prescribed for release of vehicle under the Uttar Pradesh Goods and Services Tax Act, 2017, cannot be avoided by the petitioner. The writ petition stands dismissed in terms of the observations made hereinabove.

Gaurav Agro Kendra v. State of U.P [2020] 114 taxmann.com 479 (Allahabad)

Judgement of Jurisdictional High Court needs to be followed by Appellate Authority

Facts- Assessing authority passed the dated 15.02.2018 not only for assessment of G.S.T. but with imposition of penalty. The main contention raised by petitioner was that notification to apply E-Way bill was not made known to the assessee. Mandate to apply mechanism of E-way bill was earlier circulated by the Government in the year 2017 but than it was kept in abeyance. The notification to apply E-way bill mechanism was revised subsequently but was not notified to the assessee. In absence of information of application of E-way bill mechanism, the petitioner made the transaction, as per the procedure then existing with required declaration. The document in that regard were not considered by the Assessing Authority as well as by the Appellate Authority as compliance of E-way bill system was not made by the petitioner though it was not notified by the Government. The order for assessment and penalty was challenged in appeal for the aforesaid reasons.

Held: Impugned orders have been challenged even in reference to the judgment dated 05.04.2018 passed in Harley Foods Products (P.) Ltd. v. State of U.P. [2018] 99 taxmann.com 24. It is also in light of subsequent judgment dated 19.11.2018 passed in Writ Tax No. 617 of 2018 (L.G. Electronics India (P.) Ltd. v. State of U.P.). It was held that E-way bill procedure during 1.2.2018 to 31.03.2018 was not applicable. In light of the aforesaid, the impugned orders cannot sustain. The appellate authority was expected to consider the issue in the light of the judgment in the case of Harley Foods Products (P.) Ltd. (supra). Ignorance of the judgment of a superior Court on the similar issue cannot be expected rather the appellate authority needs to be careful in future.

The impugned orders were accordingly set aside with remand to Assessing Authority to examine matter afresh in light of law propounded. It would be without applying E-way bill mechanism.

JMK Solar Energies (P.) Ltd. v. State of Gujarat [2020] 116 taxmann.com 10 (Gujarat); [2020] 116 taxmann.com 38 (Gujarat); Vivek Ramvilas Bansal v. Deputy Commissioner of State Tax

Issue- Challenge to Validity of Proceedings initiated under Section 130 of CGST Act, 2017

Held:- Pursuant to earlier interim order, petitioner had paid requisite amount against notice issued under Section-129 determining amount to be paid towards tax and liability and conveyance and goods were released,. However, later, a show-cause notice came to be issued under section 130 of the Act calling upon writ-applicant to show-cause why goods and conveyance should not be confiscated.

Hon’ble Court directed that since matter is now at the stage of MOV-10, writ-applicant was to before authority and file an appropriate reply to make good his case that notice issued in GST-MOV-10 deserves to be discharged. It shall be open for writ-applicant to place reliance on recent pronouncement in case of Synergy Fertichem (P.) Ltd. v. State of Gujarat [2019] 103 taxmann.com 426/77 GST 641 (Guj.).

Skipper Ltd. v. Union of India [2020] 116 taxmann.com 9 (Allahabad)

Held: By order dated 4th December, 2019, petitioner was required to furnish a bank guarantee equivalent to amount of his liability determined under section 129 of the Uttar Pradesh Goods and Services Tax Act, 2017 at the time of seizure of goods and conveyance in transit. It is beyond dispute that petitioner had furnished security in form of a bank guarantee of amount and in manner required of him by State Revenue Authorities, under section 129(1)(a) read with section 129(1)(c) of the UPGST Act, 2017, even prior to order dated 04-12-2019. Security in shape of bank guarantee remains deposited with State Revenue. The seized vehicle and goods have been released on strength of such security deposit. Hence, proceedings taken out under section 129 of UPGST Act, 2017 are liable to be concluded in view of section 129 (5) of the UPGST Act, 2017. The Revenue Authorities are directed to adjudicate the case on merits, expeditiously, preferably, within a period of three months from the date of receipt of a certified copy of this order.

Larsen & Toubro Ltd. v. Commissioner,State Goods & Service Tax Department [2020] 115 taxmann.com 212 (Kerala)

Issue-Part A of the E-way Bill generated but Part B not generated

Facts: Petitioner engaged in execution of work contract with Cochin Shipyard, challenged the proceedings initiated under section 129(3) of CGST Act. Notices were issued on premise that already purchased cranes working in Orissa were entrusted to the transporter – M/s. Zinka Logistics Solutions Pvt.Ltd for transportation to Kochi and in that respect, three separate delivery chalans were issued.

Contention of Petitioner-:

Petitioner had generated Part A of E-way Bill but Transporter had not filled Part B of Eway Bill-Petitioner generated e-way bills with Part A details in accordance with Rule 138 of the Central Goods Service Tax Rules, 2017. Pursuing aforementioned provisions of sub rule 1 of Rule 138 of Rules, it is a mandatory obligation upon a transporter to also fill the information in Part B of the Form GST e-way bill-01 (electronically). For the reasons that the transporter did not fill up that form, in other words, did not comply with the requirement of law in discharging the obligation, three trailers/vehicles while in the jurisdiction of Kochi were intercepted and retained by the Kochi Authorities.

By Virtue of Circular Dated 22^nd December 2017, transaction was legible to tax- The alleged detention could not have been done under provisions of section 129 of Act, in view circular dated 22-11-2017 issued by Ministry of Finance whereby in respect of other items, including cranes in instant case has been referred to be exempted from the applicability of IGST in the absence of any ‘supply’. It is just like that if the owner of a crane is transporting his goods from one State to another State, on account of the availability of the work.

It can only be a case of minor penalty- It could be a case of minor penalty as envisaged under section 122 of the Act.

In this regard, replies in response to impugned notices have already been filed, but there is no adjudication even by the Commissioner i.e., higher officer, though submitted representation dated 24-1-2020 also.

Held-Petitioner to submit a bank guarantee in terms of provisions of section 129 of CGST Act for release of the vehicle. However, that would be without prejudice and subject to the outcome of the decision to be taken by the adjudicating authority. In case the petitioner furnishes the bank guarantee within a period of one week, seized trailers along with goods would be released in accordance with law.

Hanuman Trading Co. v. State of Gujarat [2020] 116 taxmann.com 488 (Gujarat); Maruti Traders v. State of Gujarat [2020] 116 taxmann.com 47 (Gujarat); Moon Traders v. State of Gujarat [2020] 116 taxmann.com 48 (Gujarat); Synergy Fertichem (P.) Ltd. v. State of Gujarat [2020] 116 taxmann.com 221 (Gujarat)

Issue- Challenge to Validity of Proceedings initiated under Section 130 of CGST Act, 2017

Held:-Writ applicant had availed benefit of interim-order and got vehicle, along with goods released on payment of tax amount. Show cause notice has been issued under section 130 of Central Goods and Services Act, 2017. The proceedings shall go ahead in accordance with law. It shall be open for writ applicant to point out the recent pronouncement in case of Synergy Fertichem (P.) Ltd v. State of Gujarat [2019] 103 taxmann.com 426/72 GST 641. It shall be open for writ applicant to rely on observations made in paragraph Nos.99 to 104 of said judgment. The writ applicant should now make good his case that show cause notice, issued in GST-MOV-10, deserves to be discharged. In view of the above, this writ application stands disposed of.

Universal Scrap & Metals v. State of Gujarat [2020] 116 taxmann.com 150 (Gujarat)

Issue- Challenge to Validity of Proceedings initiated under Section 130 of CGST Act, 2017

Held: Proper officer was directed to immediately to look into application, preferred by writ-applicant in terms of Section 67(6) and pass appropriate order, in accordance with law. Exercise to be undertaken and complied within a period of one week from the date of receipt of the writ of this order. The general principles governing provisions of Sections 129 and 130 of the Act have been exhausted by this Court in the case of F.S. Enterprise v. State of Gujarat [2019] 111 taxmann.com 179/[2020] 32 GSTL 321. Keeping the aforesaid in mind, the authority concern shall proceed to pass an appropriate order, in accordance with law. It shall be open for the writ-applicant to make his case good before the authority for both, discharge of notice in GST-MOv-10 as well as release of goods, in exercise of powers under section 67(6) of the Act.

Sanjaybhai Laxmanbhai Gogara v. State of Gujarat [2020] 116 taxmann.com 231 (Gujarat)

Held: It appears that the writ-applicant availed the benefits of the orders passed by the Co-ordinate Bench of this Court, in accordance with law, and get the goods and vehicle released. This is a case in which the final order in Form GST-MOV-11 has been passed. In such circumstances, we relegate the writ-applicant to prefer an appeal, against such order, under section 107 of the Act, 2017.

The article summarises the cases in GST regime on the subject that whether Tax under RCM is payable on Dead Rent Payable by registered person to Government for right to extract minerals.

Raj Quarry Works [2020] 117 taxmann.com 423 (AAR – GUJARAT)

1. Facts: Applicant had entered into Quarrying lease/license agreement for “BLACKTRAP” material with Government of Gujarat. The applicant lease holder as per the terms and condition was required to pay Rent of Rs. 2,62,147/- per year or Royalty @ Rs. 250/- per Metric Ton, whichever is higher to the Govt. Of Gujarat.

2. Observation by AAR: The nature of service received is covered under Service Accounting Code 9973 37 – Licensing services for the right to use minerals including its exploration and evaluation. The Government has been providing service of licensing services for right to use minerals after its exploration and evaluation to applicant and applicant has to pay a consideration in the form of rent/royalty to Government. Payment of rent/royalty is for license given to extract minerals and amount of rent/royalty paid is based on the quantum of mineral extracted. Hence it is covered under Service Accounting Code 997337 – Licensing services for right to use minerals including its exploration and evaluation, as it is a license to extract mineral ore and also the right to use such minerals extracted.

3. Held: AAR also answered to applicant question of whether they are covered under exclusion clause (1) of entry No. 5 of the said Notification is that their service is “Licensing services for the right to use minerals including its exploration and evaluation” whereas entry No. 1 is “renting of immovable property”. AAR observed that applicant has taken a mine on lease for quarrying minerals from the Govt. Of Gujarat and said service is not service of Renting of immovable property therefore applicant does not fall under exclusion entry No. 1 of the said Notification. The transaction/service i.e. “leasing of mines” is between the State Government and applicant and the services are supplied by the State Government to the applicant which is a business entity. The subject transaction/service being a supply is not covered under the exceptions, the applicant being the recipient of such service shall have to pay tax on the said supply under reverse charge mechanism as per Notification No. 13/2017-Central Tax (Rate), dated 28-6-2017. Hence the applicant is liable to pay GST under reverse charge mechanism

PKR Projects and Engineers [2019] 112 taxmann.com 10 (AAR – ANDHRA PRADESH)

1. Observation- It was observed by AAR that Government provides license to various companies including Public Sector Undertakings for exploration of natural resources like oil, hydrocarbons, iron ore, manganese etc. For having assigned the rights to use the natural resources, the licensee companies are required to pay consideration in the form of annual license fee, lease charges, royalty, etc. to the Government. The activity of assignment of rights to use natural resources is treated as supply of services and the licensee is required to pay tax on the amount of consideration paid in the form of royalty or any other form under reverse charge mechanism.

The mining lease was governed by the AP Minor Minerals Concession Rules, 2017 (APMMCR). As per provisions of APMMCR, applicant was required to pay dead rent or royalty (whichever is higher but not both). This activity of payment of dead rent or royalty was on supply of service (Licensing services for the right to use minerals including its exploration and evaluation) wherein Government of Andhra Pradesh was supplier and the applicant was recipient. The said service was held to be classifiable under “Licensing services for the right to use minerals including its exploration and evaluation” at Serial No. 257, Heading 9973, Group 99733, sub heading 997337 of annexure “Scheme of classification of Services to Notification No. 11/2017-CT (Rate), dated 28.06.2017. Thus, service undertaken by applicant was held to be falling at item (viii) of serial No. 17 of Notification No. 11/2017, dt. 28-06-2017, further amended vide Notification No. 27/2018-Central Tax (Rate), dt. 31-12-2018 and attracts 18% GST (9% CGST+ 9% SGST) w.e.f. 01.01.2019.

2. Held- The activity undertaken by applicant was held to be classifiable under Heading 9973 (Leasing or rental services, with or without operator), as mentioned in the annexure at Serial No. 257 (licensing services for the right to use minerals including its exploration and evaluation) and sub-heading 997337 of Notification No. 11/2017-CT (Rate), dated 28.06.2017. The applicant was held to liable to discharge tax liability under reverse charge mechanism vide Notification No.13/2017-CT (Rate), dated 28.06.2017 (as amended from time to time) of the CGST Act, 2017.

Vinayak Stone Crusher [2019] 107 taxmann.com 273 (AAR- RAJASTHAN)

1. Facts – Applicant was engaged in business of Crushing of Boulder resulting in to broken or crushed stone, Ballast in the State of Rajasthan. Applicant had been granted mining lease for extracting “Rough Boulder of Stone from the mining ” at Village- Chak Gurjar Balai, Tehsil-Roop was District-Bharatpur (Rajasthan) by Rajasthan State Government on various terms and conditions as per the Lease deed. That the State Mining Department of Rajasthan Government, collect the royalty at the time of dispatch of boulder from the mining place.

2. Held: The mining lease is governed by Rajasthan Minor Minerals Concession Rules, 2017(RMMCR). As per provisions of RMMCR, the applicant is required to pay dead rent or royalty (whichever is higher but not both). This activity of payment of dead rent or royalty is a supply of service (Licensing services for the right to use minerals including its exploration and evaluation) wherein the government of Rajasthan is supplier and the applicant is recipient. The said service is classifiable under “Licensing services for the right to use minerals including its exploration and evaluation” at Serial No. 257, Heading 9973, Group 99733, sub heading 997337 of annexure “Scheme of classification of Services for Notification No. 11/2017-CT (Rate) dated 28.06.2017.

Wolkem Industries Ltd. [2019] 104 taxmann.com 418 (AAR- RAJASTHAN)

1. Facts: That applicant had been granted mining lease for extracting Wollastonite, Calcite, Feldspar and Quartz at village Khertala, Pindwara Tehsil, District Sirohi, Rajasthan by State Government on various terms and conditions as per Lease Deed. That Applicant was required to pay Dead rent/Royalty/Surface rent as per the rate notified by the State Government from time to time.

2. Submission by Petitioner-Royalty or Dead Rent paid by applicant to Government is nothing but an amount paid for getting right to use minerals granted to it for a specified period as per terms of lease. Dead rent payable to Government is consideration against transfer of right to use minerals including its exploration and evaluation as per lease granted by Government of Rajasthan to Applicant.

3. Held: The mining lease is governed by the Rajasthan Minor Minerals Concession Rules, 2017(RMMCR). As per provisions of RMMCR, the applicant is required to pay dead rent or royalty (whichever is higher but not both). This activity of payment of dead rent or royalty is a supply of service (Licensing services for the right to use minerals including its exploration and evaluation) wherein the Government of Rajasthan is supplier and the applicant is recipient. The said service is classifiable under “Licensing services for the right to use minerals including its exploration and evaluation” at Serial No. 257, Heading 9973, Group 99733, sub-heading 997337 of annexure “Scheme of classification of Services to Notification No. 11/2017-CT (Rate) dated 28.06.2017.

Aravali Polyart (P.) Ltd. [2019] 103 taxmann.com 382 (AAR- RAJASTHAN)

1. Facts of the Case- The applicant is engaged in business of mining of soapstone and dolomite the State of Rajasthan. The said products are classifiable under Tariff Heading 2518 and are leviable to GST on their supply at the rate of 5%. For the purpose of undertaking said mining activity, the applicant entered into a transfer agreement with Shri Ramesh Chand Singhvi on 07-04-2007 in order to obtain mining lease of soapstone and dolomite in village “Piparch”, Tehsil Badgon, District: Udaipur. That a document named “Purak Savinda” dated 08-06-2017 was executed by the applicant on stamp paper wherein the period of mining lease was extended up to 14-6-2028.

2. Held: The mining lease is governed by the Rajasthan Minor Minerals Concession Rules, 2017(RMMCR). As per provisions of RMMCR, the applicant is required to pay dead rent or royalty (whichever is higher but not both). This activity of payment of dead rent or royalty is a supply of service (Licensing services for the right to use minerals including its exploration and evaluation) wherein the government of Rajasthan is supplier and the applicant is recipient. The said service is classifiable under “Licensing services for the right to use minerals including its exploration and evaluation” at Serial No. 257, Heading 9973, Group 99733, sub heading 997337 of annexure “Scheme of classification of Services to Notification No. 11/2017-CT (Rate) dated 28.06.2017.

United Mining Corporation [2019] 102 taxmann.com 276 (AAR – HARYANA)

1. Facts: Applicant was granted a mining lease for extracting “Stone along with associated minor minerals” at village “Mankawas-2”, Distt. Bhiwani, Haryana by the State Government on various terms and conditions as per the LoI and Lease deed. That further in accordance with the Part-III (“Covenants of the Lessee”) in para 3(a) of the Lease deed it has been agreed that the bid amount of Rs. 20.99 cr. shall become “Annual Dead Rent” as amount agreed to be paid by lessee and the rate of same shall increase depending upon the terms of auction. Further, 3rd proviso to para 3(a) of Part-Ill of the executed lease deed provide:—

“Provided further that lessee/lessees shall be liable to pay the dead rent or royalty in respect of each mineral, whichever is higher but not both.”

That under para 5 to part-III of the executed lease deed the “Mode of payment of dead rent/royalty and surface rent” has been decided wherein it has been agreed that:—

• The applicant shall deposit one advance instalment of dead rent before commencement of mining operations;
• Royalty on the mineral excavated and dispatched at the rate specified in the first schedule or dead rent, whichever is more and not both on monthly basis.

That in compliance to the said lease agreement the applicant has paid annual dead rent or royalty as the case maybe. That in terms of the executed lease agreement the applicant is required to pay in addition to the annual dead rent, amount to the extent of 10% as rural development fund (for rehabilitation of environment).

2. Held: The services for the right to use minerals including its exploration and evaluation, as per Sr. No. 257 of the annexure appended to Notification No. 11/2017-CT (Rate), dated 28.06.2017 is included in group 99733 under heading 9973. The royalty/dead rent paid/payable to the Government by the applicant is consideration against the transfer of right to use minerals including its exploration and evaluation as per the lease granted by the Government to the applicant.

Poineer Partners [2018] 97 taxmann.com 511 (AAR – HARYANA)

1. Facts: That the applicant has been granted a mining lease for extracting “Stone along with associated minor minerals” at village “Pichopa Kalan”, Distt. Bhiwani, Haryana by the State Government on various terms and conditions as per the LOI and Lease deed. That further in accordance with the Part-Ill (“Covenants of the Lessee”) in para 3(a) of the Lease deed it has been agreed that the bid amount of Rs 16.46 cr shall become “annual dead rent” as amount agreed to be paid by lessee and the rate of same shall increase depending upon the terms of auction. Further, 3rd proviso to para 3(a) of Part-Ill of the executed lease deed provide:—

“Provided further that lessee/lessees shall be liable to pay the dead rent or royalty in respect of each mineral, whichever is higher but not both.”

That under para 5 to part-III of the executed lease deed the “Mode of payment of dead rent/royalty and surface rent” has been decided wherein it has been agreed that:—

• The applicant shall deposit one advance instalment of dead rent before commencement of mining operations;
• Royalty on the mineral excavated and dispatched at the rate specified in the first schedule or dead rent, whichever is more and not both on monthly basis.

That in compliance to the said lease agreement the applicant has paid annual dead rent or royalty as the case maybe. That in terms of the executed lease agreement the applicant is required to pay in addition to the annual dead rent, amount to the extent of 10% as rural development fund (for rehabilitation of environment).

2. Held: The services for the right to use minerals including its exploration and evaluation, as per Sr. No. 257 of the annexure appended to notification no. 11/2017-CT (Rate), dated 28.06.2017 is included in group 99733 under heading 9973. The royalty/dead rent paid/payable to the Government by the applicant is consideration against the transfer of right to use minerals including its exploration and evaluation as per the lease granted by the Government to the applicant.

3. Conclusion- Payment of Dead Rent is nothing but Royalty amount payable and a person is either required to pay dead rent or royalty (whichever is higher but not both). Therefore, if tax under RCM is payable on Royalty then its payable on Dead Rent as well as a person is either required to pay dead rent or royalty whichever is higher.

The only question arises when the amount calculated on per tonne basis is less than the Dead Rent. In such case, whether it still retains characteristic of Royalty or right to use property.

A question which regularly arises is whether Tax under RCM is payable on amount paid as contribution to DMF/NMET.  The article tries to put perspective about liability to pay tax on the contribution of the amount towards DMF/NMET. Lets first look at the regulatory provisions of DMF/NMET.

1. Regulatory Provisions for District Mineral Foundation (DMF Cess):

Before, discussing various judgements by AAR lets refer to Section 9B of the Mines and Minerals (Development & Regulation) Act, 1957 as amended from time-to-time reads as under:

“9B. District Mineral Foundation —

(1) In any district affected by mining related operations, the State Government shall, by notification, establish a trust, as a non-profit body, to be called the District Mineral Foundation.

(2) The object of the District Mineral Foundation shall be to work for the interest and benefit of persons, and areas affected by mining related operations in such manner as may be prescribed by the State Government.

(3) The composition and functions of the District Mineral Foundation shall be such as may be prescribed by the State Government.

(4) …..

(5) The holder of a mining lease or a prospecting licence cum mining lease granted on or after the date of commencement of the Mines and Minerals (Development & Regulation) Amendment Act, 2015, shall, in addition to the royalty, pay to the District Mineral Foundation of the district in which the mining operations are carried on, an amount which is equivalent to such percentage of the royalty paid in terms of the Second Schedule, not exceeding one-third of such royalty, as may be prescribed by the Central Government.

(6) The holder of a mining lease granted before the commencement of the Mines and Minerals (Development and Regulation) Amendment Act, 2015, shall, in addition to the royalty, pay to the District Mineral Foundation of the district in which the mining operations are carried on, an amount not exceeding the royalty paid in terms of the Second Schedule in such manner and subject to the categorization of the mining leases and the amounts payable by the various categories of lease holders, as may be prescribed by the Central Government.”

2. Regulatory Provisions for National Mineral Exploration Trust (NMET):

Section 9C of the Mines and Minerals (Development and Regulation) Act, 1957 as amended from time to time reads as under:

“9C. National Mineral Exploration Trust. – (1) The Central Government shall, by notification, establish a Trust, as a non-profit body, to be called the National Mineral Exploration Trust.

(2) The object of the Trust shall be to use the funds accrued to the Trust for the purposes of regional and detailed exploration in such manner as may be prescribed by the Central Government.

(3) The composition and functions of the Trust shall be such as may be prescribed by the Central Government.

(4) The holder of a mining lease or a prospecting licence-cum-mining lease shall pay to the Trust, a sum equivalent to two per cent of the royalty paid in terms of the Second Schedule, in such manner as may be prescribed by the Central Government.

3. List of AAR Cases-In the above background, lets discuss various judgements of AAR in this respect-

a) Naren Rocks and Mines (P.) Ltd [2019] 110 taxmann.com 280 (AAR – KARNATAKA)

b) NMDC Ltd [2019] 110 taxmann.com 284 (AAR – KARNATAKA)

c) NMDC Ltd [2019] 110 taxmann.com 473 (AAR – MADHYA PRADESH)

d) NMDC Ltd [2019] 105 taxmann.com 266 (AAR – CHHATTISGARH)

e) JSW Steel Ltd. [2019] 110 taxmann.com 286 (AAR – KARNATAKA)

Case-1-Naren Rocks and Mines (P.) Ltd [2019] 110 taxmann.com 280 (AAR – KARNATAKA)

a) Query-Whether GST is payable under RCM on DMF?

b) Observation- AAR observed that payment towards DMF are payable by a lessee in addition to royalty and the calculations are made on the basis of royalty.

• Amount paid is directly linked to Royalty Payable and computed as percentage of Royalty-Section 15 read with rule 27 says that any amount that supplier is liable to pay in relation to supply but which has been incurred by recipient is includible. Further, section 15(2) of the CGST Act, also provides that amount of any taxes, duties, cesses, fees and charges levied under any law for time being in force other than GST related Acts are includible in value of supply. There is no doubt that amount payable by way of DMF is on account of supply made and is directly linked to royalty payable and is also computed as a fixed percentage of royalty.
• Service provided by way of license to extract and right to use such goods is a single service where consideration is payable under different heads and in case any one of payments is not made, service provider, Government would not issue permit to use goods so extracted-It was also observed by AAR that in case of non-payment of DMF, mineral permits would not be issued to applicant and hence he would not be able to use land for mining and thus there would be no supply at all. Though ultimate beneficiaries are trusts set-up by the State Government and Central Government respectively, it is, like royalty, payable under the same Act. The payments are made to different persons does not mean that they are different suppliers, as amounts paid are classified on the basis of purpose for which amounts are applied. The service provided is only license to extract building stone and also right to use such goods extracted is a single service where consideration is payable under different heads and in case any one of payments is not made, service provider, that is Government would not issue permit to use building stone so extracted. Hence it forms value of the supply under section 15 and the charges for DMF being compulsory payment, would only amount to application of the amounts paid and still would form the value of the taxable services.

It was also inferred that service is a single service and there are no separate service providers for royalty and DMF and in all cases Government, which has provided license to mine and permitted use of such building stone mined, would be person who has supplied the service.

c) Held: The statutory contribution made to District Mineral Foundation (DMF) as per MMDR Act, 1957 is also part of the consideration payable for the Licensing services for right to use minerals including exploration and evaluation.

Case-2-NMDC Ltd [2019] 110 taxmann.com 284 (AAR – KARNATAKA)

a) Whether GST is payable under RCM on DMF and NMET?

b) Observation- AAR observed that payment towards DMF and NMET are payable by a lessee in addition to royalty and the calculations are made on the basis of royalty.

• Amount paid is directly linked to Royalty Payable and computed as percentage of Royalty-Section 15 read with rule 27 says that any amount that supplier is liable to pay in relation to supply but which has been incurred by recipient is includible. Further, section 15(2) of the CGST Act, also provides that amount of any taxes, duties, cesses, fees and charges levied under any law for time being in force other than GST related Acts are includible in value of supply. There is no doubt that amount payable by way of DMF and NMET is on account of supply made and is directly linked to royalty payable and is also computed as a fixed percentage of royalty.
• Service provided by way of license to extract and right to use such goods is a single service where consideration is payable under different heads and in case any one of payments is not made, service provider, Government would not issue permit to use goods so extracted-It was also observed by AAR that in case of non-payment of DMF and NMET, mineral permits would not be issued to applicant and hence he would not be able to use land for mining and thus there would be no supply at all. Though ultimate beneficiaries are trusts set-up by the State Government and Central Government respectively, it is, like royalty, payable under the same Act. The payments are made to different persons does not mean that they are different suppliers, as amounts paid are classified on the basis of purpose for which amounts are applied. The service provided is only license to extract building stone and also right to use such goods extracted is a single service where consideration is payable under different heads and in case any one of payments is not made, service provider, that is Government would not issue permit to use building stone so extracted. Hence it forms value of the supply under section 15 and the charges for DMF being compulsory payment, would only amount to application of the amounts paid and still would form the value of the taxable services.

It was also inferred that service is a single service and there are no separate service providers for royalty, DMF and NMET in all cases Government, which has provided license to mine and permitted use of such building stone mined, would be person who has supplied the service.

c) Held: The statutory contribution made to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) as per MMDR Act, 1957 is also part of the consideration payable for the Licensing services for right to use minerals including exploration and evaluation.

Case-3-NMDC Ltd [2019] 110 taxmann.com 473 (AAR – MADHYA PRADESH)

a) Whether GST is payable under RCM on DMF and NMET?

b) Observation-AAR observed that before judging whether activities undertaken by DMF and NMET are for business purposes or not, it is important to understand that underlying service is not actually being provided by the trusts, but rather payments made to these trusts is nothing but addition to royalty itself. That is to say, such payments are part of the original supply itself. The original supply, i.e. the mining rights given by Central Government to applicant was for a consideration payable in the form of royalty. It can be seen that the payments made to DMF and NMET are also part of same royalty, and consideration paid in respect of same supply.

• Whether amount paid as DMF and NMET falls within the purview of “Consideration”-For falling the amount paid as DMF or NMET under the purview of “Consideration”, first question is whether payment made to DMF and NMET are “in respect of, in response to, or for the inducement of, the supply of service by way of granting leasing rights’? For this purpose, provisions of MMDR Act, 1957 were noted which provided for payment of royalty as well as the contributions made to DMF and the NMET. AAR observed that as per Section 9 of MMDR Act, payment of royalty is ‘in respect of the minerals removed by the holder of the mining rights. The said Section 9 is reproduced here —

9. Royalties in respect of mining leases.-(1) The holder of a mining lease granted before the commencement of this Act shall, notwithstanding anything contained in the instrument of lease or in any law in force at such commencement, pay royalty in respect of any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area

It is worth noting that payment of royalty is described as being in respect of mineral removed or consumed by holder of mining rights. Therefore, it is no doubt a consideration for said mining rights.

• Payment towards DMF/NMET are nothing but payment towards Royalty-Further, Section 9B and Section 9C of MMDR Act, which talk about contributions made to DMF and NMET, state that such contributions are to be made by holder of mining rights ‘in addition to the royalty’. Since said Sections 9B and 9C use word ‘in addition to the royalty’, these contributions are also in the nature of royalty and as such are to be treated just like they were royalty. Per this view, the amounts payable to DMF and NMET are nothing but payments of royalty, albeit by a different name. Authority was of the view that money payable to DMF and NMET may be treated as nothing but royalty itself, since these contributions are described as being ‘in addition to’ the payment of royalty, which itself is “in respect of the mining rights. As such, therefore, such amounts are paid in respect of mining rights and said supply is already deemed to be taxable under reverse charge basis.
• The reason behind collection of DMF/NMET affirms the view of being part of Royalty-AAR also affirmed its view on the basis of intent behind contributions to be made to these trusts. The intention behind setting up these trusts is to rehabilitate the affected areas and the affected people as a result of the mining operations being carried out. Had the government not started these trusts, onus of rehabilitation would fall on government itself, and as such would result in an additional cost directly related to royalty. By way of such contributions, government has transferred such responsibility and cost thereof to the recipient, i.e. the applicant in this case. It should be seen that under regular valuation rules of GST, if any amount which the supplier is liable to pay has been incurred by the recipient, then such amount would also be added to the value of supply. While there is no legal liability on the government in this case, the intent behind such contribution is the same, i.e. to pass on the liability of the supplier to the recipient. In other words, if no such funds were set up, then the government might be forced to increase the royalty itself in order to meet the cost for rehabilitation. Therefore, the intent behind such contributions is clear, and therefore it is nothing but an addition to royalty.

c) Held: In respect of the second question raised by the Applicant regarding the taxability or otherwise of the additional contributions made to DMF and NMET, it was held that said contributions are nothing but additions to the royalty payable for the original supply itself, and is therefore liable to be added to the value of the original supply and treated accordingly for the purposes of GST.

Case-4-NMDC Ltd [2019] 105 taxmann.com 266 (AAR – CHHATTISGARH)

a) Whether GST is payable under RCM on DMF and NMET?

b) Contention of Petitioner- The applicant has emphasized the following points with regard to the amount contributed to DMF and NMET:—

1. That, the amount transferred to both the trusts cannot be treated as money consideration under business.
2. That, DMF & NMET both are trust which shall be a non-profit body and the objective of the foundation as per Rule 5 of the said rules is as under to work for the interest and benefit of persons and areas affected by mining or mining related operations in such a manner as specified in these Rules. The objective of DMF Trust is to mitigate advance impact of mining. In order to carry out the said objective, the contribution to such fund is made by Miners. It is pertinent to note that in lieu of such contribution made, there is no supply made by the trust to the Applicant and accordingly in no manner such contribution made DMF/NMET can be regarded as payment towards services. The said sum is towards benefit of the interest and benefit of persons and areas affected by mining related operations, exploration activities and cannot be considered as consideration towards mining right.

The main thrust of the applicant was that the amount given to both the trusts are not a commercial transaction in the course of business and that the contributions are made for public welfare activities.

c) Observation by AAR-

• Relevant Extract of Chhattisgarh District Mineral Foundation Trust Rules, 2015 –Rule 2 of Chhattisgarh District Mineral Foundation Trust Rules, 2015 stipulates following definitions with regard to the contribution made by NMDC to DMF and NMET in addition to royalty.

Rule 2(1)(d) “Collector” shall have the same meaning assigned to him/her under the Chhattisgarh land revenue code, 1959 (No. 20 of 1959)

Rule 2(1)(e) “Contribution” means the contribution to be collected in the Trust from the holders of a mining lease or a composite license (prospection license-cum-mining lease) in case of Minerals or a mining lease or a quarry lease or a quarry permit in the case of Minor Minerals in the District at such percentage of the royalty to be paid in terms of the Second Schedule of the Act, as may be prescribed by the Central Government in the case of Minerals and such percentage of royalty to be paid in the case of Minor Minerals as may be prescribed by the State Government from to time.

• Payment towards DMF and NET are collected by Collector in the same way as Royalty-AAR observed thatit was amply clear from above rules that way in which a Collector of District enters into an agreement/contract to gain royalty from mining lease of the Government land, in the same way he enters into an agreement with NMDC to make it contribute to both the trusts in addition to royalty. Thus, both trusts uphold parallel rights on ownership rights on Government land with regard to royalty of mining lease. Accordingly, owing to above discussions it was concluded that contribution made by M/s NMDC to DMF and NMET merits treatment as mining royalty in the course or furtherance of business of M/s NMDC.
• Trusts under DMF and NMET are Local Authority-In this context, Section 2(69) of the GST Act was examined. The definition of ‘local authority’ is provided as under: —

“Local Authority” means —

1. a “Panchayat” as defined in clause (d) of article 243 of the Constitution;
2. a “Municipality” as defined in clause (e) of article 243P of the Constitution;
3. a Municipal Committee, a Zilla Parishad, a District Board and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund;
4. a Cantonment Board as defined in section 3 of the Cantonments Act, 2006 (41 of 2006);
5. a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution;
6. a Development Board constituted under article 371 of the Constitution; or ‘**
7. a Regional Council constituted under article 371A of the Constitution;

It was observed by AAR that Para ‘c’, specified in the above definition of ‘local authority’ attains significance i.e. “and any other authority legally entitled to, or entrusted by the Central Government or any other State Government with the control or management of a municipal or local fund”. The activities undertaken by DMF and NMET are the same as enumerated in 11th schedule (Article 243G) and 12th schedule (Article 243W) of the Indian constitution. 11th and 12th schedule supra reads as under:

Eleventh Schedule (Article 243 G)

1. Agriculture, including agricultural extension.
2. Land improvement, implementation of land reforms, land consolidation and soil conservation.
3. Minor irrigation, water management and watershed development.
4. Animal husbandry, dairying and poultry.
5. Fisheries.
6. Social forestry and farm forestry.
7. Minor forest produce.
8. Small scale industries, including food processing industries.
9. Khadi, village and cottage industries.
10. Rural housing.
11. Drinking water.
12. Fuel and fodder.
13. Roads, culverts, bridges, ferries, waterways and other means of communication.
14. Rural electrification, including distribution of electricity.
15. Non-conventional energy sources.
16. Poverty alleviation programme.
17. Education, including primary and secondary schools.
18. Technical training and vocational education.
19. Adult and non-formal education.
20. Libraries.
21. Cultural activities.
22. Markets and fairs.
23. Health and sanitation, including hospitals, primary health centres and dispensaries.
24. Family welfare.
25. Women and child development.
26. Social welfare, including welfare of the handicapped and mentally retarded.Welfare of the weaker sections, and in particular, of the Scheduled Castes and the Scheduled Tribes.
27. Public distribution system.
28. Maintenance of community assets.

Twelfth Schedule [Article 243W of the Constitution (Seventy-Fourth Amendment) Act, 1992

1. Urban planning including town planning.
2. Planning of land- use and construction of buildings.
3. Planning for economic and social development.
4. Roads and bridges.
5. Water supply for domestic, industrial and commercial purposes.
6. Public health, sanitation conservancy and solid waste management.
7. Fire services.
8. Urban forestry, protection of the environment and promotion of ecological aspects.
9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally Retarded.
10. Slum improvement and up gradation.
11. Urban poverty alleviation.
12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.
13. Promotion of cultural, educational and aesthetic aspects.
14. Burials and burial grounds; cremations, cremation grounds and electric crematoriums.
15. Cattle pounds; prevention of cruelty to animals.
16. Vital statistics including registration of births and deaths.
17. Public amenities including street lighting, parking lots, bus stops and public conveniences.
18. Regulation of slaughter houses and tanneries.

The activities undertaken by DMF and NMET for local bodies were held to be same as mentioned above. On above lines duties of both trusts on basis of Rule 22 of Chhattisgarh District Mineral Foundation Trust Rules, 2015 mandates use of the said funds as under :—

22 Expenditure from the Trust fund- The Funds available with the Trust shall be used for:—

22(2) At least 60% of the funds available with the Trust shall be utilized for High priority areas like :—

• Drinking Water Supply – centralized purification systems, water treatment plants, permanent/temporary water distribution network including .standalone facilities for drinking water, laying of piped water supply system.
• Environment preservation and pollution control measures – effluent treatment plants, prevention of pollution of streams, lakes, ponds, ground water, other water sources in the region, measure for controlling air and dust pollution caused by mining operations and dumps, mine drainage system, mine pollution prevention technologies, and measures for working or abandoned mines and other air, water & surface pollution control mechanisms required for environment- friendly and sustainable mine development.
• Health care – the focus must be on creation of primary/secondary health care facilities in the affected areas. The emphasis should not be only on the creation of the health care infrastructure, but also on provision of necessary staffing, equipment and supplies required for making such facilities effective. To that extent, the effort should be to supplement and work in convergence with the existing health care infrastructure, the expertise available with the National Institute of Miners Health may also be drawn upon to design special infrastructure needed to take care of mining related illnesses and diseases. Group Insurance Scheme for health care may be implemented for mining affected persons.
• Education – construction of educational institutes and vocational training centers, additional class rooms, laboratories, libraries, Art and crafts room, toilet blocks, drinking water provisions Residential Hostels for students/teacher in remote areas, sports infrastructure, engagement of teachers/other supporting staff, e-learning setup, other arrangement of transport facilities for students (bus/van/cycles/rickshaws etc.) and nutrition related programs.
• (Welfare of Women and Children – Special programmes for addressing problems of maternal and child health, malnutrition, infectious diseases, etc.
• Welfare of aged and disabled people – Special program for welfare of aged and disabled people.
• Sanitation – collection, transportation & disposal of waste, cleaning of public places , provision of proper drainage & Sewage Treatment Plant, provision of disposal of faecal sludge, provision of toilets and other related activities.

It was observed by AAR that above-mentioned activities were to be compulsorily performed by both the trusts which have been enumerated under Article 243G and 243W of the Indian Constitution to be performed by Panchayats and Municipalities respectively. Thus, in terms of section 2(69) of GST Act, both DMF and NMET were held to be treated as local authority and on basis of state Notification No. 13/2017 dated 28-06-2017 liability was held to be arising on upon M/S NMDC, on contributions made to DMF and NMET under reverse charge basis.

d) Held:-The contributions made to District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET), by M/s NMDC as per MMDR Act, 1957 are liable to GST, under reverse charge basis.

Case-5-JSW Steel Ltd. [2019] 110 taxmann.com 286 (AAR – KARNATAKA)

a) Query: Whether GST is payable under RCM on DMF and NMET?

b) Observation- On perusal of Section 9B and 9C OF Mines and Minerals (Development and Regulation) Act, 1957 related to DMF and NMET, it was observed that both these payments were payable by a lessee in addition to the royalty and both the calculations are made on the basis of royalty.

Therefore from above provision AAR observed that, value of taxable supply of service not only includes amount of royalty paid to Government but also includes amount paid to District Mineral Foundation of district and to National Mineral Exploration Trust as these payments are made under statutory requirements of Mines and Minerals (Development and Regulation) Act, 1957 which is taxable under GST.

In view of above provision in instant case AAR held that since Government (Central/state) has provided the land to applicant on lease to carry out mining activity, Government (Central/state) becomes supplier of service and applicant (business entity) is recipient of service. Therefore, as per Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017 applicant is liable pay GST on payment made to District Mineral Foundation of district and payment made to National Mineral Exploration Trust on reverse charge basis.

c) Held- The Applicant is liable to pay GST under reverse charge, for the payment made towards NMET and DMF, in light of Sl. No. 5 of the Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017.

4. Comment:

Although in all the above cases, it has been held that tax is payable under RCM on the amount paid as contribution to DMF/NMET. However, it was interesting to note that there was no unanimity on why tax is payable under RCM. The relevant entry under which RCM is payable is Services supplied by the Central Government, State Government, Union Territory or Local Authority to a business entity.

AAR Chhattisgarh in the matter of NMDC Ltd [2019] 105 taxmann.com 266 (AAR – CHHATTISGARH) has held that since DMF and NMET are local authorities, therefore tax is payable under RCM as services are provided to registered person by a Local Authority.

In the case of Naren Rocks and Mines (P.) Ltd [2019] 110 taxmann.com 280 (AAR – KARNATAKA), NMDC Ltd [2019] 110 taxmann.com 284 (AAR – KARNATAKA), JSW Steel Ltd. [2019] 110 taxmann.com 286 (AAR – KARNATAKA) and JSW Steel Ltd. [2019] 110 taxmann.com 286 (AAR – KARNATAKA), since service provider is Government, therefore tax is payable under RCM.

Is there a chunk in armour, if it can be proved that amount paid to DMF/NMET is not an amount payable to Government but to the trusts and trust are neither Government nor Local Authority, therefore, Tax under RCM is not payable on those amounts? Although all AAR have held that RCM is payable but have not come out clearly on given subject.

Is it a question for the future to be decided?

Sri Krishna Traders v. State of Gujarat [2020] 116 taxmann.com 450 (Gujarat)

Challenge to Validity of Proceedings initiated under Section 130 of CGST Act, 2017

Facts: By an ad-interim order, Court had directed that goods to be released upon writ applicant on depositing the due amount. With this direction, writ applicant availed benefit of an interim-order and got goods released, on payment of requisite amount. The Court was called upon to adjudicate legality and validity of order passed by the authority in GST MOV-11.

Held: There were two grounds raised by department for the purpose of confiscation of goods. First is e-way bill was not generated and second ground was under valuation. In what state of circumstances authority would be justified to invoke section 130 of the Act, for the purpose of confiscation, is now explained in detail in Para No. 99 to 104 of Synergy Fertichem (P.) Ltd. v. State of Gujarat [2019] 103 taxmann.com 426/72 GST 641 (Guj.)

Rifty Vinimay Enterprises v. State of Gujarat [2020] 114 taxmann.com 565 (Gujarat)

Direction to release goods on furnishing of application under Section 67(6) for provisional release of goods

Held: Since,petitioner submitted that they would file an appropriate application under section 67(6) of the GST Act, 2017 for provisional release of the goods and conveyance during the adjudication process of the notice issued under section 130 of the GST Act, 2017 by the authority and would approach before authority to proceed with adjudication process under section 130 of the GST Act, 2017, therefore in view of above submissions, petition was disposed of by directing respondents authorities to consider application to be made by petitioner for provisional release of goods and vehicle in accordance with law. The respondent authorities were directed to decide such application as expeditiously as possibly preferably within two weeks from date of receipt of such application of the petitioner.

M. R. Traders v. Assistant State Tax Officer [2020] 116 taxmann.com 37 (Kerala)

Goods detained on the fact that delivery address mentioned on invoice and delivery address mentioned on Eway bill was different

Facts: The petitioner has GST registration in State of Kerala as well as Karnataka.In course of its business, petitioner had generated tax invoice dated 25-1-2020 for supply of Timber Tali Rough Square Logs from M R Traders, Karnataka to Kerala. The petitioner had calculated and paid CGST @ 9% and SGST @9% which is reflected in the tax invoice. An E Way Bill No.151196575196 was generated to transport goods through a vehicle bearing Registration No.KA 19AC 5112 for on road transport, vehicle bearing Registration No.KA 19 AC 5112 for on road transport, according to which the value of goods is Rs. 507859.02/-including GST.

While being so, the 1st respondent seized the vehicle when the goods were being unloaded in the firm’s premises at Kizhissery, Malappuram and the department issued Notice No.MOV 02 No/GST/93/19-20 dated 27-1-2020. The Notice was issued under Sec.129 (3) of the Central Goods and Service Tax Act, 2017 and the State/Union Territory Goods and Services Tax Act, 2017/under Section 20 of the Integrated Goods and Services Tax Act, 2017 seizure of the consignment that imposes extra tax and penalty for the release of the same, for the reason that the tax invoice and E Way bill are addressed to Erattupetta, Kottayam address and there is no document seen accompanied to unload the goods at Kizhissery.

The petitioner had calculated and paid CGST @9% and SGST @9% which is reflected in the tax invoice. The petitioner had declared the goods through online while generating E Way bill. The petitioner had recently started a branch of the firm at Kizhissery, Malappuram and these goods were to be transported to his branch. The petitioner firm had done everything their capacity to ensure that the details of the new branch is updated in the official site, however the same showed as ‘processing’. It was due to inexperience of trainee staff of the petitioner’s firm. The delivery address was shown as M R Trades, Erattupetta, Kottayam instead of Kizhissery Malappuram. The principle of natural justice has not been followed by the 1st respondent. The petitioner had submitted all the relevant documents before the 1st respondent. More over the 1st respondent has no authority to impose huge amount as penalty and other charges.

Held: Hon’ble Court ordered that vehicle and goods detained in pursuance of impugned order shall be immediately released by to the petitioner on his furnishing bank guarantee for the amounts shown in order. Thereafter, department will duly take up the matter for finalization of adjudication proceedings and shall afford adequate opportunity of being heard to the petitioner through their representative/counsel and while doing so, they shall take into consideration vital contention urged by the petitioner that the error pointed out by respondent, that address shown in invoice is different from address shown in E Way bill etc. is only a clerical mistake and is not a serious mistake which should justify the detention and penalty proceedings and also the other contentions raised by the petitioner.

Umiya Enterprise v. Assistant State Tax Officer [2020] 114 taxmann.com 564 (Kerala)

Goods detained since CGST and SGST was levied on the invoice in place of IGST

Facts: In the regular course of business, petitioner’s main supplier M/s. Rukmoni Boards Pvt. Ltd, Chennai despatched plywood under cover of valid invoice and E-Way bill on 10.1.2020 to petitioner in Kerala. The 1st respondent intercepted conveyance containing consignment invoking provisions in sec.129 alleging defects that no IGST is seen collected in tax invoice which amounts to contravention of sec.5(1) of the IGST Act read with Rule 46(e) & (m) of the CGST Rules. The petitioner was called upon to show cause as to why an amount of tax Rs. 1,20,985/-and the same amount as penalty under the IGST Act should not be imposed.

Contention of Petitioner: The alleged contravention of provisions is not at all a valid reason for suspecting genuineness of consignment. Supplier of goods is a registered dealer in Tamil Nadu holding valid GST registration. In invoice element of tax happened to be wrongly shown as CGST and SGST @ 9% as against IGST of 18%. This is an inadvertent mistake committed by the new Accountant of the supplier however tax in E-way Bill has been correctly declared as IGST Rs. 1,20,985/-. E-Way Bill issued under Rule 138 of the GST Rules generated on line is the fundamental document proving the correctness of the goods transported. The clerical error in the invoice will not prejudice the Revenue in any manner and the returns will automatically set right such trifling errors in documentation. However, the E-Way bill having been correctly generated, any adverse presumption of tax evasion is wholly out of context and untenable. It is also submitted that as per the provisions in sec.126 of the GST Act dealing with the general disciplines related to penal proceedings are not to be initiated for minor breaches of tax regulations or procedural requirements, omission or mistake in documentation.

Contention of Respondent: An argument was raised on the side of the respondents that the tax and penalty has been demanded as per the impugned order as otherwise there will be loss of tax revenue to the State of Kerala.

Held-Hon’ble Court held thatpetitioner has made out a strong case by which Court was persuaded to accept view that goods and vehicle detained could be released to petitioner on the basis of simple bond and it need not be insisted that petitioner will have to furnish a bank guarantee for amounts demanded in order.

It was further observed that respondents did not have any case that petitioner concern has any previous adverse records of tax evasions of non-compliance of tax laws. The above said contentions raised by petitioner on the basis of E-Way bill were held to be substantially strong to persuade the Court that goods could be released on condition that petitioner executes a simple bond in that regard. Hon’ble court on the basis of contention by counsel for petitioner further directed that petitioner may take steps to ensure that details are collected from local supplier involved in this transaction, which is based in Tamil Nadu, to ascertain whether said agency has duly filed their returns showing above said transaction also etc. and if such details are also available, the petitioner may produce those materials also before 1st respondent, as a matter of abundant caution to convince 1st respondent that there is no loss of revenue involved in this case etc. Thereafter, 1st respondent would afford reasonable opportunity of being heard to petitioner through authorised representative or counsel, if any and then will pass final orders in adjudication proceedings finalizing the same, without much delay. In this regard, it was ordered that all contentions raised by petitioner and any of the contentions that may be raised by petitioner before the 1st respondent should be duly adverted to and considered by the 1st respondent before passing the order and finalizing adjudication proceedings in that regard.

Govindwal Sahib Vanaspati Mills v. State of Rajasthan [2020] 116 taxmann.com 111 (Rajasthan)

Availability of Alternative remedy and Claim of Petitioner being Owner of the goods to be determined by competent authority since department from the statements of driver, records of Toll Plaza and GPS location of driver/goods-in-charge has claimed that goods covered by E-way Bill carried alongwith the goods stand delivered insofar as the E-way bill dated 7/12/2019 is concerned

Facts: Vehicle No. PB-03-AT-4881 loaded with cotton seed oil from M/s. Sunil Oil Mills, Goluwala, Rajasthan TO Punjab was intercepted on 9/12/2019 at Sriganganagar by issuing MOV-1 and MOV-2 indicating that owner/driver/person-in-charge of the goods has tendered documents for verification and upon verification authority was of opinion that inspection of the goods under movement was required to be done under the provisions of section 68(3) of the RGST Act read with Central GST Act, 2017 on account of the fact that E-way bill was dated 7/12/2019 and it was claimed that the vehicle broke down on the same date at the starting point and on account of contradictory statements, the documents were also required to be examined.

Certain other documents i.e. Form MOV-3, MOV-4 and MOV-6 were placed on record whereby, goods have been detained indicating findings based on statements of driver of truck regarding violation of provisions of GST Act and with reference to GPS Status of the vehicle in question,

Contention of Petitioner: With reference to provisions of section 129 of Act that petitioner being consignee of goods was deemed to be owner and was, therefore, entitled to seek release of the goods under section 129 of the Act and, therefore, action of respondents in denying release of goods despite petitioner being ready to comply with requirements of provisions is wholly unjustified and, therefore, respondents be directed to comply with requirements of section 129 of Act and release the goods.

Contention of Respondent- Petitioner does not have locus standi to invoke extra ordinary jurisdiction of this Court as petitioner has failed to establish his ownership on the goods found in the intercepted vehicle. Submissions have been made that pursuant to the notice MOV-6 and MOV-7 dated 28/12/2019 the requisite order has been passed on 14/1/2020, which order is appealable under section 107 of the Rajasthan GST/Central GST Act and, therefore, the petition is not maintainable.

It is submitted that from the material which has come on record, it is apparent that goods are from one M/s. Sunil Oil Mills, Goluwala and though E-Way bill pertains to the petitioner, from the statements of driver, records of the Toll Plaza and GPS location of the driver/goods-in-charge it is apparent that the goods which were loaded by M/s Sunil Oil Mills on 7/12/2019 have already been delivered to the petitioner on 8/12/2019 and in second round the vehicle (oil tanker) was refilled for some other firm and it started its journey under the same E-way bill and other documents only with a motive to avoid tax liability and, therefore, the petition deserves to be dismissed.

Held: Hon’ble Courtobserved that copious material produced by respondents showed modus operandi being employed for the purpose of evasion of tax liability under provisions of the Act and on that count status of the petitioner in seeking release of the goods claiming himself to be the owner, if at this stage was recognized by the respondents, would likely to prejudice plea/stand which was taken by respondent department. The status of petitioner as owner of goods is in question inasmuch as while petitioner relied on E-way bill dated 7/12/2019 for claiming himself the consignee, the claim of the respondents was that goods already stood delivered insofar as E-way bill dated 7/12/2019 was concerned. Therefore, claim of petitioner as owner qua goods which are loaded on detained vehicle had to be determined by competent authority in accordance with law and said aspect could not be preempted by directing release of goods to the petitioner.

No rejoinder was filed by petitioner disputing and/or contradicting material which had been produced by respondents by way of detailed reply and, therefore, at this stage, purportedly innocuous prayer made by petitioner could not be taken on its face value so as to order for release of the goods/vehicle. The order by competent authority was open to appeal and, therefore, on account of availability of alternative remedy also interference under Article 226 of the Constitution of India in the present nature matter was held not to be justified.

Jindal Pipes Ltd. v. State of U.P [2020] 114 taxmann.com 467 (Allahabad)

Service of Order on Driver when the consignor himself appeared as owner is not a valid service of order

Facts: Goodswere being transported from Ghaziabad to Ghazipur, however, E-Way bill, which was prepared by consignor at Ghaziabad from where goods were being transported, distance between Ghaziabad and Ghazipur had been stated as 90 kilometres which was in fact 980 kilometres. On 20.8.2018, when goods after being intercepted by the Mobile Squad Officials at Kanpur were seized under section 129 of UPGST Act, 2017, petitioner deposited due amount under Section 129 and got it’s goods released. When petitioner filed an appeal against order dated 21.8.2018 on 6.3.2019 under section 107 of the Act and by impugned order dated 20.8.2019, appeal was dismissed as having been filed beyond the limitation prescribed, the instant writ petition was filed.

Contention of the Petitioner-. The order was served upon driver of vehicle, Sri Narendra Kumar who was a driver of the transport agency and, therefore, order was neither served on consignee nor on consignor. Learned counsel relied upon a judgment of Allahabad High Court reported in S/S. Patel Hardware v. Commissioner of State 2019 (21) GSTN 145 wherein it has been specifically held that order by which tax was levied and penalty was imposed had to be served upon a person who was likely to be aggrieved by order. It specifically holds that driver was not a “person aggrieved” to whom order ought to have been communicated and, therefore, order definitely was not served upon a person who was likely to be aggrieved and, therefore, learned counsel for the petitioner submits that the appeal which was filed on 6.3.2019 was well within the limitation provided by section 107 of the Act.

Held- Order was served on driver and, therefore, was definitely not served on a person who would have been aggrieved by order and, therefore, service on driver was no service at all. The writ petition was, accordingly, allowed. The appeal shall now be entertained as having been filed within the limitation provided under section 107 of the Act.

Vajid v. State of U.P. [2020] 116 taxmann.com 2 (Allahabad)

For release of vehicle without release of goods, burden of proof lies on owner of vehicle to prove that whatever goods were carried in vehicle, were without his knowledge

Facts: Vehicle carrying goods were found to be carried in violation of UPGST Act, 2017. Petitioner was the vehicle owner and appeared before competent authority with a request to release vehicle. Prayer made by petitioner was not accepted by respondents and accordingly and in absence of payment, vehicle could not be released. The amount demanded by the respondents is huge. It cannot be satisfied by the petitioner thus, he is unnecessarily suffering on that count. It is submitted that petitioner was required to prove that whatever goods were carried in vehicle, were without his knowledge. Burden lies on owner of vehicle to prove his innocence however while a counsel appeared on behalf of the petitioner, no proof was produced to show that goods carried in vehicle was without his knowledge. Thus, an order for release of the vehicle could not be passed.

Held:  The petitioner alongwith owner of the goods was served with the notice before seizure of the goods. The petitioner is the owner of the vehicle but he failed to prove that he had no knowledge about the goods carried in the vehicle so as to discharge his burden as otherwise envisaged under the Act of 2017. In absence of discharge of burden by the owner of the vehicle, an order for release of vehicle could not be passed and we do not find any illegality in the order.

Ideal Movers (P.) Ltd. v. State Tax Officer [2020] 113 taxmann.com 560 (Madras)

Detention of Goods while in movement with Expired E-Way Bill

Facts: Petitioner is a transporter and had been engaged to transport a consignment by Essar Steel India Limited from Kancheepuram District to one Neel Metal Products Ltd. situated at Krishnagiri District. The consignment was accompanied by invoices. An e-way bill had been generated on 12.01.2020 at 7:23 p.m., valid till 16.01.2020. However, lorry had broken down on 13.01.2020 with major gear box damage near Vellore and was thus lying in Vellore at one Lawrence Automotive Private Limited, who vide certificate dated 16.01.2020 confirms this position also stating that the delay in carrying out the repair was on account of the intervening Pongal holidays. After repair, lorry proceeded to deliver goods to destination, however, accompanied by e-way bill that had expired/lapsed on 16.01.2020 itself. The lorry was intercepted at Vellore and detained for non-possession of valid e-way bill.

Observation: It was observed by Hon’ble that there has been some discussions on the phrase owner of the goods coming forward/not coming forward to pay tax and penalty and whether phrase come forward could include an offer by consignor to make payment. However, it was observed by the Court that since clauses (a) and (b) of sub-section (1) commence with phrase on payment, it is not sufficient for consignor to merely make an offer or undertake to remit the tax as in present case, but actually remit payment.

Hon’ble Court further observed that Section 129 is a complete code for purpose of addressing all violations committed in transit leading to detention, seizure and release of goods and brings within its sweep all such contraventions, irrespective of the gravity of the violation itself. This observation is made in response to submission of petitioner that offence in this case is only lapsing of e-way bill, and that too for bonafide reasons, and this offence may not be viewed very harshly. Hon’ble Court in this regard referred  to Chapter 16 of Central GST Rules 2017, setting out the E-way Rules in Rule 138. The second proviso under Rule 138(10) permits a transporter to extend the validity of the expired e-way after updating the details in the relevant Form and this benefit would be available in a case such as the present.

Held: The amount to be remitted would, in terms of Section 129(1)(b), be Rs.86,700/- each towards CGST and SGST. As for penalty, petitioner enjoys benefit of Circular no.10 of 2019 dated 31.05.2019 where at para 10, Commissioner has reduced penalty payable in certain circumstances to Rs.5000/-. Thus, upon remittance of taxes of a sum of Rs.86,700/- each towards Central and State Taxes and penalty of Rs.5000/-, the consignment shall be released forthwith.

Shajahan A.M. v. Assistant State Tax Officer [2020] 116 taxmann.com 7 (Kerala)

Applicable Tax Rate on Detention of Second Hand Used Motor Cycles

Held: The detained goods and vehicles involved as per impugned proceedings shall be immediately released to petitioner on his furnishing Bank Guarantee for respective values.  Hon’ble Court specifically instructed that adjudication officer will ensure that further proceedings pursuant thereto, be adjudicated and finalised after affording reasonable opportunity of being heard to the petitioner without much delay, preferably within a period of 3 to 4 weeks from the date of production of a certified copy of this judgment. While doing so, he will specifically consider and advert to plea made by petitioner that, abovesaid transaction is effected is the 1st transaction entered into by the petitioner, and that he was not having thorough knowledge relating to the fine tuned aspects emanated from the Goods and Service Taxes Act and the Rules framed thereunder, and that a sympathetic consideration may be made in this case.

Further, adjudication officer was asked to consider specific plea made by petitioner that, even otherwise the maximum tax that could be imposed in a case like this could be 12% and not at the rate of 28% as has been ordered in the impugned proceedings, in view of the prescriptions that detained motor cycles are used vehicles and not brand new vehicles, and therefore the tax imposable could be only at the rate of 12% as per the above notification dated 25.1.2018, etc.

Sri Krishna Trader v. State of Gujarat [2020] 116 taxmann.com 450 (Gujarat)

Challenge to Validity of Proceedings initiated under Section 130 of CGST Act, 2017

Facts: By an ad-interim order, Hon’ble Court had directed that goods to be released upon writ applicant on depositing an amount of Rs. 2,08,250/-. With this direction, writ applicant availed benefit of an interim-order and got goods released, on payment of requisite amount. The Court was called upon to adjudicate legality and validity of order passed by the authority in GST MOV-11.

There were two grounds raised by department for the purpose of confiscation of goods. First is e-way bill was not generated and second ground was under valuation. In what state of circumstances authority would be justified to invoke section 130 of the Act, for the purpose of confiscation, is now explained in detail in the case of Synergy Fertichem (P.) Ltd. v. State of Gujarat [2019] 103 taxmann.com 426/72 GST 641 (Guj.). The relevant Extract of the judgement was as follows:

“99. It is practically impossible to envisage various types of contravention of the provisions of the Act or the Rules for the purpose of detention and seizure of the goods and conveyances in transit. The contravention could be trivial or it may be quite serious sufficient enough to justify the detention and seizure. This litigation is nothing but an outburst on the part of the dealers that practically in all cases of detention and seizure of goods and conveyance, the authorities would straightway invoke section 130 of the Act and thereby would straightway issue notice calling upon the owner of the goods or the owner of the conveyance to show-cause as to why the goods or the conveyance, as the case may be, should not be confiscated. Once such a notice under section 130 of the Act is issued right at the inception, i.e, right at the time of detention and seizure, then the provisions of section 129 of the Act pale into insignificance. The reason why we are saying so is that for the purpose of release of the goods and conveyance detained while in transit for the contravention of the provisions of the Act or the rules, the section provides for release of such goods and conveyance on payment of the applicable tax and penalty or upon furnishing a security equivalent to the amount payable under clause (a) or clause (b) to clause (1) of section 129. Section 129(2) also provides that the provisions of sub-section (6) of section 67 shall mutatis mutandis apply for detention and seizure of goods and conveyances. We quote section 67(6) as under; “67(6) The goods so seized under sub-section(2) shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be.”

100. Section 129 further provides that the proper officer, detaining or seizing the goods or conveyances, is obliged to issue a notice, specifying the tax and penalty payable and, thereafter, pass an order for payment of such tax and penalty. clause (4) provides that no tax, interest or penalty shall be determined under sub-section (3) without giving the person concerned an opportunity of being heard. clause (5) provides that on payment of the amount, referred to in sub-section (1) of the proceedings in respect of the notice, specified in sub-section (3) are deemed to be concluded, and in the last, clause (6) provides that if the tax and penalty is not paid within 14 days of detention or seizure, then further proceedings would be initiated in accordance with the provisions of Section 130.

101. We are of the view that at the time of detention and seizure of goods or conveyance, the first thing the authorities need to look into closely is the nature of the contravention of the provisions of the Act or the Rules. The second step in the process for the authorities to examine closely is whether such contravention of the provisions of the Act or the Rules was with an intent to evade the payment of tax. Section 135 of the Act provides for presumption of culpable mental state but such presumption is available to the department only in the cases of prosecution and not for the purpose of section 130 of the Act. What we are trying to convey is that in a given case, the contravention may be quite trivial or may not be of such a magnitude which by itself would be sufficient to take the view that the contravention was with the necessary intent to evade payment of tax.

102. In such circumstances, referred to above, we propose to take the view that in all cases, without any application of mind and without any justifiable grounds or reasons to believe, the authorities may not be justified to straightway issue a notice of confiscation under section 130 of the Act. For the purpose of issuing a notice of confiscation under section 130 of the Act at the threshold, i.e,. at the stage of section 129 of the Act itself, the case has to be of such a nature that on the face of the entire transaction, the authority concerned is convinced that the contravention was with a definite intent to evade payment of tax. We may give one simple example. The driver of the vehicle is in a position to produce all the relevant documents to the satisfaction of the authority concerned as regards payment of tax etc., but unfortunately, he is not able to produce the e-way bill , which is also one of the important documents so far as the Act, 2017 is concerned. The authenticity of the delivery challan is also not doubted. In such a situation, it would be too much for the authorities to straightway jump to the conclusion that the case is one of confiscation, i.e., the case is of intent to evade payment of tax.

103. We take notice of the fact that practically in all cases, after the detention and seizure of the goods and the conveyance, straightway notice is issued under section 130, and in the said notice, one would find a parrot like chantation ” as the goods were being transported without any valid documents, it is presumed that the goods were being transported for the purposes of evading the tax”. We have also come across notices of confiscation, wherein it has been stated that the the driver of the conveyance is presumed to have contravened the provisions of the Act or the Rules with an intent to evade payment of tax. This, in our opinion, is not justified. The resultant effect of such issue of confiscation notice at the very threshold, without any application of mind or without there being any foundation for the same, renders section 129 of the Act practically otiose. We take cognizance of the fact that once the notice under section 130 of the Act is issued, then the vehicle is not released even if the owner of the goods is ready and willing to pay the tax and the penalty that may be determined under section 129 of the Act. Such approach leads to unnecessary detention of the goods and the conveyance for an indefinite period of time. Therefore, what we are trying to convey is that all cases of contravention of the provisions of the Act or the Rules, by itself, may not attract the consequences of such goods or the conveyance confiscated under section 130 of the Act. Section 130 of the Act is altogether an independent provision which provides for confiscation in cases where it is found that the intention was to evade payment of tax. Confiscation of goods or vehicle is almost penal in character. In other words, it is an aggravated form of action, and the object of such aggravated form of action is to deter the dealers from evading tax.

104. In the aforesaid context, we would like to clarify that we do not propose to lay down, as a proposition of law, or we should not be understood to have taken the view that, in any circumstances, the authorities concerned cannot invoke section 130 of the Act at the threshold, i.e., at the stage of detention and seizure. What we are trying to convey is that for the purpose of invoking section 130 of the Act at the very threshold, the authorities need to make out a very strong case. Merely on suspicion, the authorities may not be justified in invoking section 130 of the Act straightway. If the authorities are of the view that the case is one of invoking Section 130 of the Act at the very threshold, then they need to record their reasons for such belief in writing, and such reasons recorded in writing should, thereafter, be looked into by the superior authority so that the superior authority can take an appropriate decision whether the case is one of straightway invoking section 130 of the Act. Any opinion of the authority to be formed is not subject to objective test. The language of section 130 of the Act leaves no room for the relevance of an official examination as to the sufficiency of the ground on which the authority may act or proceed for the purpose of confiscation at the very threshold. But, at the same time, there must be material based on which alone the authority could form its opinion in good faith that it has become necessary to call upon the owner of the goods as well as the owner of the conveyance to show-cause as to why the goods and the conveyance should not be confiscated under section 130 of the Act. The notice for the purpose of confiscation must disclose the materials, upon which, the belief is formed. It could be argued that it is not necessary for the authority under the Act to state reasons for its belief. For the time being, we proceed on the basis of such argument. But, if it is challenged that the notice is bereft of the necessary details or the satisfaction of the authority is imaginary or based on mere suspicion, then the authority must disclose the materials, upon which, his belief was formed as it has been held by the Supreme Court in Sheonath Singh’s case [AIR 1971 SC 2451]. In Sheonath Singh (supra), the Supreme Court held that the Court can examine the materials to find out whether an honest and reasonable person can base his reasonable belief upon such materials although the sufficiency of the reasons for the belief cannot be investigated by the Court. The formation of the opinion by the authority that the goods and the conveyance are liable to be confiscated should reflect intense application of mind. We are saying so because it is not any or every contravention of the provisions of the Act or the Rules which may be sufficient to arrive at the conclusion that the case is one of an intention to evade payment of tax. In short, the action must be held in good faith and should not be a mere pretence.”

Held: Impugned order of confiscation, in Form GST MOV-11, was quashed and set aside. Matter was remitted to the respondent No.2 for fresh consideration, so far as the issue of confiscation is concerned. While considering the issue a fresh, the respondent No.2 had to bare in mind principles, explained in Synergy Fertichem (P.) Ltd. (supra) and more particularly, observations made in paragraph Nos.99 to 104 of the said judgment.

1. Arya Traders v. State of Gujarat [2020] 114 taxmann.com 500 (Gujarat)

Order passed under Section 130 to be recalled and fresh order to be passed by the concerned officer in view of pronouncement in the case of Synergy Fertichem (P.) Ltd. v. State of Gujarat [2019] 112 taxmann.com 370

Held: In view of pronouncement in the case of Synergy Fertichem (P.) Ltd. v. State of Gujarat [2019] 112 taxmann.com 370, it was suggested to the learned AGP to recall impugned order passed in MOV-11 and decide matter afresh keeping in mind principles of law as explained by in the above referred decision. AGP stated after obtaining necessary instructions from the officer concerned that the impugned order passed under Section 130 of the Act dated 19^th July, 2019 shall be recalled and fresh proceedings shall be initiated in accordance with law and a fresh order shall be passed after giving an opportunity of hearing to the writ applicants, keeping in mind the principles as explained by this Court in the above referred decision. Keeping in view of statement being made by learned AGP, Hon’ble Court did not adjudicate application on merits

However, it was observed by Hon’ble Court that goods and conveyance came to be detained and seized way back on 9^th July, 2019 and were in possession of GST Authorities. Since, authorities were directed to initiate fresh proceedings with regard to confiscation, therefore writ applicants were directed to deposit an amount of Rs. 4,15,800/- towards tax and penalty as determined under section 129 of the Act. On deposit of such amount, goods and conveyance shall be released forthwith subject to the final outcome of the confiscation proceedings.

2. AK Overseas v. State of U.P [2020] 114 taxmann.com 374 (Allahabad)

Release of Goods on satisfying the conditions as prescribed under Rule 140 of CGST Rules, 2017

Held: Rule 140 of CGST Rules is being reproduced hereinbelow-

“140. Bond and security for release of seized goods–(1) The seized goods may be released on a provisional basis upon execution of a bond for the value of the goods in FORM GST INS-04 and furnishing of a security in the form of a bank guarantee equivalent of applicable tax, interest and penalty payable.

Explanation- For the purpose of the rules under the provisions of this Chapter, the “applicable tax” shall include central tax and State tax or central tax and the Union territory tax, as the case may be and the cess, if any, payable under the Goods and Service Tax (Compensation to States) Act, 2017 (15 of 2017).”

Hon’ble High Court held that in case petitioner files an application before respondent no. 3 within three weeks from today indicating therein that he is ready to comply with the Requirement of Rule 140, the respondent no. 3 shall pass appropriate orders thereon within a further period of one week. In case the petitioner fulfils the requirement of Rule 140 together with its explanation, he shall release his vehicle along with the goods.

3. ABB India Ltd. v. Union of India [2020] 114 taxmann.com 157 (Gujarat)

Goods ordered to be released on deposit of tax amount with the respondent and penalty amount in form of bank guarantee

Facts: There were in all four vehicles involved in the matter. The goods were in nature of electrical goods and a notice under section-129(3) of the Act i.e. GST-MOV-07 came to be issued calling upon writ-applicant to appear before authority concerned on 31st December 2019 and order was received in GST-MOV-09 on January 9, 2020. The total liability towards the tax and penalty plus interest as fixed comes to around Rs.1,00,81,944/-.

Held: Hon’ble Court held that writ-applicant made out a strong prima-facie case to have some interim order in its favour. There were many larger issues, which were raised for the purpose of adjudication of this Court. However, on the present date of hearing, court was concerned with issue whether they should order release of goods and conveyance detained and seized by GST authority.

However, court was inclined to pass an interim order for release of the goods and vehicles. It was directed that writ-applicant to deposit an amount of Rs.50,40,972/- towards the tax with the respondent no.2 and the balance amount of Rs.50,40,972/- towards the penalty shall be in the form of a bank guarantee of any nationalized bank. On deposit of requisite amount and bank guarantee, authority concerned shall release goods and vehicles forthwith.

4. Brij Gopal Gupta v. Government of NCT of Delhi [2020] 114 taxmann.com 405 (Delhi)

Release of goods and conveyance on the condition of providing bank guarantee towards penalty amount and since petitioner is a transporter and contends that due tax in respect of goods has already been paid by suppliers in monthly returns, therefore either petitioner would provide proof of such tax payment or provide bank guarantee equivalent to tax amount

Facts: Petitioner preferred writ petition to assail order dated 02.12.2019 passed by Appellate Authority, Delhi, GST as well as order of demand of tax and penalty, passed by Proper Officer, State GST, Ward 74 with a prayer for release of conveyance bearing registration No. HR-38-W-5315 and goods contained therein, that were detained by the respondent on 05.08.2019. Writ was preferred since appellate tribunal of GST is presently non-functional on account of the stay granted by this Court vide order dated 19-11-2019 in Bharatiya Vitta Salahkar Samiti v. UOI bearing number W.P.(C) 6900 of 2018,.

Held: Appellant drewattention to section 129(1)(c) of the CGST Act, which permits release of seized goods and conveyance upon furnishing a security equivalent to the amount payable towards tax and penalty. Hon’ble Court therefore directed respondents to release vehicle aforesaid alongwith goods, upon petitioner furnishing a bank guarantee for penalty amount under the CGST Act , DGST Act and Cess, totalling to Rs. 7,30,782/-

Counsel for the petitioner contended that tax in respect of goods carried in aforesaid conveyance already stands paid by respective suppliers and petitioner was only transporting goods. Hon’ble Court ordered that petitioner shall also provide requisite proof in form of monthly returns to establish that tax on goods in question, being transported, stands paid. In case, tax in respect of said goods has not been paid, petitioner shall provide bank guarantee in respect of amount of tax as well. Bank guarantee shall be provided within two weeks for today to respondents, where after, vehicle and goods shall be released without any further delay.

1. AVH Corporation v. State of Gujarat [2020] 114 taxmann.com 709 (Gujarat)

Petitioner to file detailed reply in response to the Notice Issued under Section 130 and concerned authority to pas appropriate order expeditiously

Facts: Goods as well as vehicle came to be seized by G.S.T. Authorities on 05.11.2019 on the ground that applicant has committed breach of the provisions of the Gujarat Goods and Services Tax Act, 2017.

Held: Hon’ble Court did not go into details of alleged breach. The concerned authority had issued notice under section 130 of CGST Act, calling upon writ applicant to show cause as to why goods and vehicle should not be confiscated and appropriate penalty be imposed. The court was of the view that as notice for confiscation has been issued, it is expected of writ applicant now to file an appropriate detailed reply to the same, for the purpose of getting such notice discharged. For this purpose, writ applicant may rely upon decision rendered in the case of Synergy Fertichem (P.) Ltd. v. State of Gujarat [2019] 112 taxmann.com 370. The court did not exercise extraordinary jurisdiction under Article 226 of the Constitution of India. The concerned authority was directed to pass appropriate order, so far as the notice of confiscation is concerned, within a period of 15 days. The writ applicant is open to file its reply, if any, at the earliest and thereafter, concerned authority should look into the same and take an appropriate decision, keeping in mind the principles as explained by this Court in the case of Synergy (Supra).

2. Meghmani Organics Ltd. v. State of Gujarat [2020] 116 taxmann.com 25 (Gujarat)

Good being transported from one branch to another in the course of Intra State Branch Transfer detained as Part B of Eway Bill was not filled and Order Passed before the appointed date of hearing by the officer

Facts: On 23.06.2019, a consignment of CPC Blue valued at Rs. 25,70,000/- was being transported from factory of applicant situated at Panoli to one another factory of writ applicant located at Vatva, Ahmedabad i.e. Intra State Branch Transfer. While goods were in transit, mobile squad of respondent detained conveyance along with goods on 23.06.2019 and detention order was issued in form GST MOV-06 dated 23.06.2019 on the ground that Part-B of the e-way bill was not generated. Writ applicant immediately deposited an amount of Rs. 9,25,200/- with the respondent no.2 herein. On deposit of such amount, the goods and the conveyance were released.

On 23.06.2019 itself, a notice under Section 129(3) in Form GST MOV-07 was served upon the writ-applicant calling upon the writ-applicant to show-cause as to why the applicable tax and also penalty equal to 100% of the tax payable should not be recovered. The writ-applicant was directed to appear before the 2nd respondent on 08.07.2019 at 11.00 am. The writ applicant filed a detailed reply in writing dated 05.07.2019. The reply in writing dated 05.07.2019 came to be tendered before 2nd respondent on the date of hearing i.e. 08.07.2019. 2nd respondent proceeded to pass an order dated 02.07.2019 confirming imposition of tax and penalty without giving any opportunity of personal hearing, which was scheduled on 08.07.2019.

Contention of Petitioner- Being an intra state branch transfer (in the nature of transfer of goods from one Unit of a registered person to another), there was no obligation on the writ applicant to discharge any GST liability.

Held: Hon’ble Court held that this is a case of gross violation of the principles of natural justice. When the writ-applicant was asked to remain present on 08.07.2019 for the purpose of personal hearing, adjudication could not have been concluded and an order could not have been passed on 02.07.2019 i.e. before the scheduled date of hearing. This is suggestive of the fact that the reply of the writ-applicant in writing dated 08.07.2019 was also not taken into consideration.

It was contended on behalf of the respondents that the entire amount came to be deposited on the very first day i.e. the day and date of seizure then there was no question, thereafter, to give any opportunity of hearing to the writ-applicant.

The court did not accept the explanation. Hon’ble Court observed that the date on which goods and conveyance was seized, respondent no.2 asked writ-applicant to deposit a particular amount towards tax and penalty so that the goods and conveyance can be released. As writ-applicant wanted goods and conveyance to be released, he deposited the requisite amount. Later on, a show-cause notice came to be issued in the Form GST MOV-07 dated 23.06.2019. It was in the form of Notice under Section 129(3) of the Act, 2017. In the said show-cause notice, the applicable penalty along with the applicable tax has been stated and the writ-applicant was called upon to show cause as to why the said amount should not be recovered from him, failing which, the goods and the coveyance would be liable to be confiscated. The writ-applicant filed his detailed reply dated 05.07.2019 pointing out many relevant aspects of the matter including the fact that the seizure and detention itself was not justified. The writ-applicant was not given any opportunity of hearing before concluding proceedings for the purpose of Section 129(3) of the Act. To put it in another words, the case on hand is one of violation of sub-clause 4 of Section 129 of the Act, 2017. It provides that no tax, interest or penalty shall be determined under sub-section 3 without giving a person concerned an opportunity of being heard. The opportunity which the statute is talking about has to be meaningful opportunity and not just an eye wash.

The Hon’ble Court quashed and set aside impugned order dated 02.07.2019 determining tax and penalty and remitted matter to the respondent no.2 for fresh consideration of the entire issue after giving appropriate opportunity of hearing to the writ-applicant.

3. Bombay Veraval Transport Company v. State of Gujarat [2020] 114 taxmann.com 468 (Gujarat)

Notice Issued by Officer under Section 129, No reply filed by the applicant thus petition disposed with a direction to the petitioner to file the reply and concerned officer to pass an appropriate order

Held: Notice had been issued under section 129 of the Central Goods & Services Tax Act, 2017 and petitioner hadn’t filed any reply and therefore, no order was passed by the Authority, under section 129(3) of the Act.

In view of the aforesaid fact situation, Hon’ble Court disposed off the petition with the direction that as and when petitioner files reply to the notice, under section 129(3) of the Act, the respondent-Authority may consider the same, after giving an opportunity of hearing to the petitioner, in consonance with sub-section 4 of section 129 of the Act and pass an appropriate order, under the provisions of the Act. The petition was accordingly disposed of. Notice is discharged.

4. AV Traders v. State of Gujarat [2020] 116 taxmann.com 17 (Gujarat)

Order passed under Section 130 to be recalled and fresh order to be passed by the concerned officer in view of pronouncement in the case of Synergy Fertichem (P.) Ltd. v. State of Gujarat [2019] 112 taxmann.com 370

Held: In view of pronouncement in the case of Synergy Fertichem (P.) Ltd. v. State of Gujarat [2019] 112 taxmann.com 370, it was suggested to the learned AGP to recall impugned order passed in MOV-11 and decide matter afresh keeping in mind principles of law as explained by in the above referred decision. AGP stated after obtaining necessary instructions from the officer concerned that the impugned order passed under Section 130 of the Act dated 31st July, 2019 shall be recalled and fresh proceedings shall be initiated in accordance with law and a fresh order shall be passed after giving an opportunity of hearing to the writ applicants, keeping in mind the principles as explained by this Court in the above referred decision. Keeping in view of statement being made by learned AGP, Hon’ble Court did not adjudicate application on merits

However, it was observed by the Hon’ble Court that the goods and conveyance came to be detained and seized way back on 19th July, 2019 and were in possession of GST Authorities. Since, authorities were directed to initiate fresh proceedings with regard to confiscation, therefore writ applicants were directed to deposit an amount of Rs.4,02,500/- towards tax and penalty as determined under section 129 of the Act. On deposit of such amount, goods and conveyance shall be released forthwith subject to the final outcome of the confiscation proceedings.

5. Aashiward Marketing v. State of Gujarat [2020] 114 taxmann.com 326 (Gujarat)

Petitioner to file an appeal before appellate authority under section 107 of CGST Act, 2017

Held: Hon’bleCourt observed that question which fell for theirconsideration was, whether writ-application should be entertained or writ-applicant should be relegated to avail alternative remedy of preferring a statutory appeal before appellate authority under section 107 of the Act.

It was concluded that writ-applicant should prefer an appeal under section 107 of the Act before concerned appellate authority and no opinion was expressed on the merits of any of the submissions. The appellate authority was asked to keep in mind two judgments i.e. Insha Trading Co. v. State of Gujarat [2019] 112 taxmann.com 175 (Guj.) and Synergy Fertichem (P.) Ltd. v. State of Gujarat [2019] 112 taxmann.com 370 (Guj.) and Circular No.41/15/2018-GST issued by the Government of India, Ministry of Finance, dated 13.04.2018. Upon registration of the appeal, the same should be heard and disposed of with an appropriate order within a period of 15 days from the date of conclusion of the hearing.

6. Rajkumar Maheshwari V. Union of India [2020] 114 taxmann.com 400 (Gujarat)

Petitioner to deposit the sum of Rs 7,50,000/- and concerned officer asked to release the vehicle and at liberty to continue proceedings for confiscation under section 130 of CGST Act, 2017 keeping in mind decision in the case of Synergy Fertichem (P.) Ltd. v. State of Gujarat [2019] 103 taxmann.com 426/72 GST 641.

Held: Counsel for the petitioner made a statement that petitioner was ready and willing to deposit a sum of Rs. 7,50,000/-(Rupees Seven Lakh Fifty Thousand only) so as to get the release of the vehicle of the petitioner without prejudice to the rights and contentions of the petitioner to be raised before the authority for adjudication of the notice under section 130 of the Act, 2017. Assistant Government Pleader under instructions, made a statement that if petitioner deposited a sum of Rs. 7,50,000/- towards tax, interest and penalty within two weeks from today, then the vehicle of the petitioner would be released. In view of the statements made by the learned counsel for the parties, Hon’ble directed the petitioner to deposit a sum of Rs. 7,50,000/-before the respondent No.3 within a period of two weeks. Upon such deposit, vehicle of petitioner bearing number MP-07-GA-8154 should be released. The respondents – authorities were at liberty to continue the proceedings for confiscation under section 130 of the Act, 2017 keeping in mind the decision of this Court in the case of Synergy Fertichem (P.) Ltd. v. State of Gujarat [2019] 103 taxmann.com 426/72 GST 641.

Case- M/s. P.R.Mani Electronics Vs Union of India (Madras HC) Decision dated 13^th July 2020

1. Facts:

Petitioner is a proprietary concern involved in the retail trade of mobile phones, electrical, electronic, and other items. Earlier, Petitioner was registered as a dealer under the Tamil Nadu Value Added Tax Act, 2006 (the TNVAT Act) and, upon the coming into force of the CGST Act, the Integrated Goods and Services Tax Act, 2017 (the IGST Act) and the State Goods and Services Act, 2017 (the SGST Act) on 01.07.2017, the Petitioner obtained registrations under the GST laws.

When CGST and SGST Acts were introduced, as a transitional measure, carry forward of credit for taxes paid on inputs under previously existing indirect tax laws, which may be referred to as transitional ITC (Transitional ITC), was enabled by making provision in respect thereof. In terms thereof, according to Petitioner, he is entitled to avail Transitional ITC of Rs.4,62,496/- under the head of CGST and Rs.7,512/- under the head of SGST under the respective GST laws.

Assessee submitted copy of TRAN-1 before the Department on 29^th December 2017 and obtained an acknowledgement-According to Petitioner, on that date, Petitioner’s consultant could not enter the common portal and upload the form. Petitioner was not in possession of any evidence of logging-into common portal. However, Petitioner approached Sales Tax Collection Inspector, in person, on 29.12.2017, and submitted a hard copy of Form GST TRAN-1 and also received an acknowledgment. In spite of repeated follow up with Respondents, thereafter, Petitioner states that there was no response with regard to the entitlement of the Petitioner to Transitional ITC.

2. Ground raised by the Petitioner

a) The words “within such time” were not originally a part of Section 140(1) and were introduced by the Finance Act, 2020 under Notification No.43/2020 dated 16.05.2020 with retrospective effect from July 1, 2017.

b) ITC is in the nature of the Petitioner’s property and, therefore, the Petitioner cannot be deprived of its property merely because the requisite form could not be submitted within the prescribed time limit. The prescription of such time limit in Rule 117 is ultra vires Section 140 and violates Article 14 and 300-A of the Constitution of India in as much as it deprives the Petitioner of its property by way of ITC. (Comment-This ground was not later on pressed upon by the Petitioner)

c) The tax authorities were fully cognizant of the fact that registered persons were unable to submit the on line declaration within the prescribed period on account of technical glitches therefore, time limit was subsequently extended by inserting Sub Rule 1-A in Rule 117. The said provision itself states that it is introduced so as to enable submission of declaration by persons who could not submit the same within previously prescribed time limit on account of technical difficulties in the common portal. As per the learned counsel, this clearly indicates that the provision is intended to be directory and not mandatory notwithstanding the use of the word “shall” in Rule 117(1).

Relied upon Judgement-Micromax Informatics Ltd. v. Union of India, WP(C) No.196 of 2019 (Micromax Informatic)

3. Contention by the Respondents

ITC is in the nature of a concession granted to registered persons and, therefore any conditions, including time limits, subject to which such concessions are granted should be enforced strictly. In other words, concessions cannot be availed of unless the conditions relating thereto are fully complied with and time limit in Rule 117 should also be construed as mandatory.

Relied upon Judgements-

Jayam and Company v. Assistant Commissioner and another, (2016) 15 SCC 125

ALD Automotive Private Limited v. Commercial Tax Officer, now upgraded as Assistant Commissioner(ct) and others, (2019) 13 SCC 225

4. Observation by Hon’ble High Court

a) As stated earlier, the rule making power is contained in Section 164, which is couched in wide terms, and enables the Government to frame rules to give effect to the provisions of the Act and, in particular, to make rules for matters that are required to be prescribed by the CGST Act. Interestingly, the power to frame rules with retrospective effect is also conferred subject to the limitation that it should not pre-date the date of entry into force of the CGST Act. Pursuant thereto, Rule 117 was framed whereby a time limit was fixed for submitting the on line Form GST TRAN -1.

By Finance Act of 2020, words “within such time” were introduced in Section 140, with retrospective effect from 01.07.2020, thereby conferring expressly the power to prescribe time limits in Section 140 even without relying entirely on the generic Section 164. In this statutory context, Hon’ble Court concluded that Rule 117 of the CGST Rules is intra vires Section 140 of the CGST Act.

b) Judgement Referred for Time Limit prescribed under the Statue for claiming Input Tax Credit

• Judgement referred of Apex Court for validity of the conditions prescribed for claim of Credit

Case-1-Jayam and Company v. Assistant Commissioner and another, (2016) 15 SCC 125 (Jayam)- Hon’ble Supreme Court in the give case, albeit in context of TNVAT Act, wherein Hon’ble Supreme Court categorically concluded that ITC is a form of concession provided by the legislature and that it can only be availed of by satisfying prescribed conditions.

Case-2-ALD Automotive Private Limited v. Commercial Tax Officer, now upgraded as Assistant Commissioner(ct) and others, (2019) 13 SCC 225-Section 19(11) of TNVAT Act, 2017 also pertained to time limit for claiming ITC and uses the word “shall”. After examining the language of Section 19(11) and the context, including the object and design of the statute, the Hon’ble Supreme Court concluded that the time limit specified in Section 19(11) is mandatory.

• Judgement referred of Other High Courts for Section 140 read with Rule 117 Favoring the Petitioner-

Case-1-Blue Bird Pune Pvt. Ltd. v. Union of India [2019 SC Online Del 9250]- The said decision was based on earlier judgments of the Delhi High Court wherein it was observed that the GST system is in a “trial and error phase”.

Case-2-SKH Sheet Metals Components v. Union of India [2020 SCC online Del 650]- Mandatory or directory nature of Rule 117 was considered and Court concluded that it is directory both on the basis that the CGST Act does not specify the consequences of not complying with the time limit and because construing it as mandatory would prejudice the assessee.

Case-3- Brand Equity Treaties Ltd. v. Union of India [(2020) Taxmann.com 415]- CENVAT credit had accrued and vested in the assessee and is, consequently, property of the assessee. Brand Treaty Equities was decided prior to the amendment to Section 140 of the CGST Act whereby the words “within such time” were introduced. On the other hand, SKH Sheet Metals Components was decided after the amendment; nonetheless, the Delhi High Court concluded that the amendment settles the question as to the power to frame rules fixing the time limit for filing the declaration but does not fix a time limit for transitioning credit.

• Judgement referred of Other High Courts for Section 140 read with Rule 117 Favoring the Respondent-

Case-1- Nelco Limited v. Union of India [2020 SCC Online Bom 437] (Nelco)- The case was decided before Section 140 was amended. Even so, Court concluded that Section 164 of the CGST Act is wide enough to enable the framing of rules fixing a time limit to claim Transitional ITC. In addition, the Court concluded that ITC is a concession which is required to be availed of within the prescribed time, failing which it would lapse.

Case-2- Willowood Chemicals Ltd. v. Union of India [2014 (306) ELT 551]-Transitional ITC is a concession and that Rule 117 is intra vires Section 140 of the CGST Act.

c) ITC is a concession and not a vested right and prior to retrospective amendment to Section 140, Section 164 is widely and provides rule making powers except that such rules should be for the purpose of giving effect to the provisions of the CGST Act

ITC is not a vested Right-In light of judgment of Supreme Court in Jayam, contention of learned counsel for Petitioner to the effect that ITC is the property of the Petitioner cannot be countenanced and ITC has to be construed as a concession. In addition, it is evident that ITC cannot be availed of without complying with the conditions prescribed in relation thereto.

Prior to retrospective amendment to Section 140, power to frame rules for fixing a time limit in Rule 117 was “arguably” not traceable but section 164 is widely worded and provides rule making powers except that such rules should be for the purpose of giving effect to the provisions of the CGST Act – Prior to the amendment to Section 140 of the CGST Act, the power to frame rules fixing a time limit was arguably not traceable to the unamended Section 140 of the CGST Act, which contained the words “in such manner as may be prescribed”, because such words have been construed by the Supreme Court in cases such as Sales Tax Officer Ponkuppam v. K.I. Abraham [(1967) 3 SCR 518] as not conferring the power to prescribe a time limit.  A fortiori, upon amendment of Section 140 by introducing the words “within such time”, the power to frame rules fixing time limits to avail Transitional ITC is settled conclusively.

In view of Hon’ble Court, Section 164, is widely worded and imposes no fetters on rule making powers except that such rules should be for the purpose of giving effect to the provisions of the CGST Act.

In SKH Sheet Metals, Delhi High Court concluded, in paragraph 26, that the statute had not fixed a time limit for transitioning credit by also referring to the repeated extensions of time. Given the fact that the power to prescribe a time limit is expressly incorporated in Section 140, which deals with Transitional ITC, and Rule 117 fixes such a time limit, Hon’ble High Court did not subscribe to the view. The fact that such time limit may be extended under circumstances specified in Rule 117, including Rule 117A, does not lead to the sequitur that there is no time limit for transitioning credit

d) Claim of Input Tax Credit cannot be kept open for an indefinite time and a reference to the time limit under section 16(4) of CGST Act, 2017

Provision of Section 16(4) is indicative of legislative intent to impose time limits for availing ITC. Besides, Section 19(3)(d) of the TNVAT Act itself imposed a time limit for availing ITC and further provided that it would lapse upon expiry of such time limit. In view of Hon’ble Court, keeping the above statutory backdrop in mind, in the context of Transitional ITC, the case for a time limit is compelling and disregarding the time limit and permitting a party to avail Transitional ITC, in perpetuity, would render the provision unworkable.

Hon’ble High Court concurred with conclusion of Bombay High Court in Nelco that both ITC and Transitional ITC cannot be availed of except within the stipulated time limit. Such time limits may, however be extended through statutory intervention.

In SKH Sheet Metals, Delhi High Court observed that ITC is the heart and soul of GST legislations in as much as such legislations are designed to prevent the cascading of taxes. Hon’ble Court agreed with the position and said that there can be no quarrel with this conceptual position; however, it is not a logical corollary thereof that time limits for availing ITC and, in particular, Transitional ITC, are inimical to the object and purpose of the statute.

e) Whether Compliance of Rule 117 is to be treated as mandatory or Directory

• How to determine a provision is directory or mandatory

Hon’ble Court referred to the provisions of how to determine whether a provision is directory or mandatory. Following were the rules provided for construing a provision mandatory or directory referring to the below mentioned judgements-

f) Use of peremptory or negative language, which raises a rebuttable presumption that the provision is mandatory;

g) Object and purpose of statute and the provision concerned;

h) Stipulation or otherwise of the consequences of non-compliance;

i) Whether substantive rights are affected by non-compliance;

j) Whether the time limits are in relation to the exercise of rights or availing of concessions; or

k) Whether they relate to the performance of statutory duties

Judgements Referred-

Case-1-Union of India v. A.K. Pandey [(2009) 10 SCC 552] and Bachhan Devi v. Nagar Nigam [(2008) 12 SCC 372]

Case-2- C. Bright v. The District Collector, [2019 SCC Online Mad 2460]

• Why Compliance of Rule 117 is mandatory and no directory

I)The object and purpose of Section 140 clearly warrants the necessity to be finite.

II) ITC has been held to be a concession and not a vested right. In effect, it is a time limit relating to the availing of a concession or benefit.

III) If construed as mandatory, the substantive rights of the assessees would be impacted; equally, if construed as directory, it would adversely impact the Government’s revenue interest, including the predictability thereof.

On weighing all the relevant factors, which may be not be conclusive in isolation, in the balance, it was concluded that the time limit is mandatory and not directory.

I) Rule 117 specifies that return in Form GST TRAN – 1 is required to be filed electronically on the common portal. This requirement is not satisfied by handing over the form in person to the Sales Tax Collection Inspector, Tiruvannamalai. Consequently, in view of Hon’ble Court, Petitioner has completely failed to make out a case to direct the Respondents to permit the Petitioner to file Form GST TRAN -1 and claim the Transitional ITC of Rs.4,70,008/-.

Needless to say, if any dispensations are granted by the tax authorities with regard to availing of Transitional ITC, whether by filing Form GST TRAN-1 or otherwise, and to which the Petitioner may be entitled, this order will not preclude the Petitioner from making a claim for Transitional ITC

5. Held

In the result, the writ petition was dismissed. Consequently, the connected miscellaneous petition is closed.

6. Comment

The never-ending battle of TRAN-1 credit moves ahead. It is evident that the given matter would only be settled at Apex Court and till then taxpayers of every state are queuing up for decision by Hon’ble Apex Court.

However, most striking feature about judgement is mentioning of time limit of Section 16(4) and linking the time limit with reference to intention of Legislature and Rule 117.

Strictly construing it’s not an opinion about validity of time limit of Section 16(4), therefore might not fall with in the ambit of “obiter dictum”. However more importantly, underlying principle in judgement following precedent laid down by Hon’ble Apex Court regarding validity of time limit to avail Input Tax Credit might become be a ratio decidenti and binding precedent for times to come for Section 16(4). Although the issue for validity of time limit under Section 16(4) would be settling in the times to come but mention of Section 16(4) in the decision vis-à-vis Rule 117 and underlying principle of validity of time limit to be prescribed under the Act for claim of Input Tax Credit would only lend support to the claim for validity of limit in Section 16(4).

Some of the Articles on the subject of Section 140 of CGST Act, 2017 on our website are as follows:

a) Brand Equity Treaties Ltd. v. Union of India [2020] 116 taxmann.com 415 (Delhi)- https://gst-online.com/gstcase-122-round-up-of-leading-judgments-of-high-courts-in-april-and-may-2020-on-section-39-50-73-79-132-and-140-of-cgst-act-2017/

b) Nelco Ltd v. Union of India[2020] 116 taxmann.com 255 (Bombay)- https://gst-online.com/gstcase-121-round-up-of-leading-judgments-of-high-courts-in-march-2020-on-section-50-73-83-132-and-140-of-cgst-act-2017/

c) Rohan Dyes & Intermediates Ltd. v. Union of India[2020] 115 taxmann.com 387 (Gujarat)- https://gst-online.com/gstcase-121-round-up-of-leading-judgments-of-high-courts-in-march-2020-on-section-50-73-83-132-and-140-of-cgst-act-2017/

d) Shree Motors v. Union of India[2020] 115 taxmann.com 344 (Rajasthan)- https://gst-online.com/gstcase-121-round-up-of-leading-judgments-of-high-courts-in-march-2020-on-section-50-73-83-132-and-140-of-cgst-act-2017/ e) #GSTCase-55-Gist of Cases on TRAN-1 (Jan-Feb 2019)- Petitioner allowed to take credit on documents evidencing payment of Duty since no documents have been prescribed U/Sec 140(3)(iii) till date, Error in Filing or Non Filing of TRAN-1 due to technical Glitches-https://gst-online.com/petitioner-allowed-to-take-credit-on-documents-evidencing-payment-of-duty-since-no-documents-have-been-prescribed-u-sec-1403iii-till-date/

Case-17- K.P.H. Dream Cricket (P.) Ltd [2018] 98 taxmann.com 243 (AAR-PUNJAB)

1. Query

Query 1: Whether free tickets given as “Complimentary Tickets” falls within the definition of supply under CGST Act, 2017 and thus, whether the applicant is required to pay GST on such free tickets?

Query 2: Whether the applicant is eligible to claim Input Tax Credit (for short “ITC”) in respect of complimentary tickets?

2. Facts:

Appellant has been permitted by BCCI to establish and operate the team ‘Kings XI Punjab’. The applicant proposes to provide “Complimentary tickets” on account of courtesy/public relationship/promotion of business where no flow of consideration from the recipient/holder.

3. Observation:

The applicant withdrew the application post personal hearing and further submissions citing the fact that as per his views, circular no. 47/21/2018-GST has clarified his query. However, AAR while observing that there is no specific procedure for withdrawal of Advance Ruling and ‘concerned officer’ has been recognised as an equal stakeholder in the advance ruling process held that both applicant and ‘concerned officer’ has reached a conclusion diametrically opposite, therefore, allowing for withdrawal of the present application, without discussing the case on merits would not be in public interest. Hence, the circumstances call for discussion on merits rather than allowing withdrawal.

 Query 1: AAR observed that all forms of supply of services made or agreed to be made for a consideration by a person in the course or furtherance of business is included with in the ambit of supply vide Section 7(1)(a) of CGST Act, 2017. Section 2(31) of CGST Act, 2017 defines consideration wherein it covers monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person. AAR observed that when applicant issues a ‘complimentary ticket’ to any person, he is displaying an act of forbearance by tolerating persons who are receiving the services provided by the applicant without paying any money, which other persons not receiving such complimentary tickets would have to pay for.

As regards the monetary value of ticket given free of cost, AAR observed that monetary value of act of forbearance would be pegged to the amount of money charged from other persons not receiving the ‘complimentary tickets’ for availing the same services which would also be in consonance of Rule 32(6) of CGST Rules, 2017 which lay down that “(6) The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of goods or services or both shall be equal to the money value of the goods or services or both redeemable against such token voucher, coupon, or stamp”.

AAR observed that complimentary tickets would be covered by the term ‘token’ and ‘voucher’. Oxford dictionary defines ‘a voucher that can be exchanged for goods or services, typically one given as a gift or forming part of a promotional offer; and voucher is defined as ‘a small printed piece of paper that entitles the holder to a discount or that may be exchanged for goods or services’.

Further, AAR observed that when applicant issues a complimentary ticket to any person, he is certainly agreeing to the obligation of refraining from the act of stopping the complimentary ticket holder from enjoying his services, while he would certainly stop a person not holding any complimentary ticket and who has not paid any money from receiving services provided by the applicant. Therefore, activity of the applicant in issuing complimentary tickets to persons is covered under each limb of para 5(e) of Schedule II of the CGST Act, 2017 and thus would be covered under the scope of supply as per section 7(1)(d).

AAR also observed that on perusal of Schedule I, present case would not fall into any of the four activities mentioned in Schedule I.

Query 2: AAR observed that since the activity of providing the complimentary tickets would amount to supply and thus would be leviable to tax, applicant would be entitled to Input Tax Credit.

4. Held:

AAR held that activity of applicant of providing complimentary tickets free of charge to some persons would be considered as supply of service as per provisions of both section 7(1)(a) and 7(1)(d) and since all tickets supplied by the applicant including complimentary tickets would be taxable, the applicant would be eligible for claim of Input Tax Credit.

5. Comment-

1. Providing Free Tickets falls under Section 7(1)(a) of CGST Act, 2017:-

 The decision of AAR is highly questionable and might need reconsideration, some of the issues have been highlighted as under:

At the outset, applicant by issuing a ticket is supplying service of specified nature. By supplying ticket, he is not agreeing to tolerate the act of another but the applicant is allowing the recipient of the ticket to receive services provided by him. The fact that he does not want to receive consideration itself does not amount to tolerate an act.

Secondly, AAR has failed to analyse the term “consideration” on the basic cornerstone. As Section 2(31)(b) provides that “consideration” in relation to the supply of goods or services or both includes…monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person..”. Therefore, consideration has to be paid in relation to the supply of goods or services either by the recipient or any other person in response to, in respect of or for the inducement of supply.

Surprisingly, AAR itself has clearly observed that the present case does not fall under Schedule I, therefore the transaction is not a supply without consideration. Thus, it’s a supply against consideration.

Applying the conclusion as arrived by AAR, when the applicant sells free tickets, he is displaying an act of forbearance by tolerating persons who have not paid for their tickets. Thus he is the supplier in the given scenario. AAR observed that the amount of consideration is Value of the Ticket considering it as token/voucher (Although do not agree to the same but have been assumed relying upon the decision of AAR and has been deliberated late in the article).

The question now arises who is the recipient. Section 2(93) defines recipient as

 “recipient” of supply of goods or services or both, means—

(a) where a consideration is payable for the supply of goods or services or both, the person who is

liable to pay that consideration;..”

Therefore, as the AAR has held that supply by the supplier is against consideration, therefore to identify the recipient we would have to apply clause 2(93)(a) of CGST Act, 2017 which provides that the person who is liable to pay the consideration would be the recipient. But the moot question is who is going to pay the consideration or in fact who is liable to pay the consideration in the given transaction as contemplated by AAR as an act of forbearing. The person who has received the ticket is not liable to pay the consideration. So does the AAR intended that the applicant himself would be the supplier ad himself would be the person liable to pay the consideration to himself and therefore the transaction would be supply against consideration under section 7(1)(a). It’s not the correct conclusion.

The issue regarding classification of transaction as supply by virtue of Schedule II applying Section 7(1)(d) is not relevant in present times as Section 7 stands amended (from a date yet to be notified) vide CGST Amendment Act 2018 with retrospective effect from July 1, 2017.

The fact is the transaction in hand is a clear case of free supply of tickets which the AAR has taken to a completely different standing. It would be apt that we revisit Model Draft GST Law published in June 2016, Schedule I for “Matters to be treated as Supply without consideration”. The relevant entry of the Draft GST Law contained as follows:

5. Supply of goods and / or services by a taxable person to another taxable or nontaxable person in the course or furtherance of business.

The condition provided that any supply of goods and/or services without any consideration by a taxable person to another taxable or non taxable person in the course or furtherance of business would have been treated as Supply. If the law would have remained the same, such supply of free tickets would have been treated as Supply but providing free tickets is not at all an act of forbearance.

1. Free Tickets are voucher/token and value of such voucher/token would be the value of ticket:

The contention itself is contentious. Rule 32(6) provides that “value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of goods or services or both…”

Therefore, the critical term in Rule 32(6) is the word “redeemable” as Rule only provides for the value of token which is redeemable against supply of goods or services. The word “redeem” has been defined in Cambridge dictionary as “to exchange a piece of paper representing a particular amount of money for that amount of money or for goods to this value”. In the given matter of the applicant, piece of paper i.e. Ticket is a specific supply itself and is not redeemed against any other supply of goods or service. Therefore, when ticket itself covers a specific supply, availing service against the ticket cannot be held to be redemption of the voucher against any other service or goods.