S.No

Subejct

Held

1

Petitioner’s contention

Packing material, consumables etc. used as raw material qualified as input in terms of statutory provisions. For refund under inverted duty, there need not be one-to-one correlation between inputs or outputs but a rationale principle of comparing average rate of duty of inputs with the rate of duty of outputs. Other grounds of rejection that refund was due to high input purchases and they were in stock during the claim period is not referable to statutory scheme as it does not talk of stock, but only refers to output turnover

2

Facts

Description
Output
Inputs utilised
GST
Cotton
5%
Cotton
5%
Packing Material
12%
Other Inputs
28%
Cotton Blended Yarn
5%
Cotton
5%
Manmade Fibre
18%
Packing Material
12%
Other Inputs
28%
Store/Spare Consumable
18%
Polyester/
Viscose blended yarn
12%
Cotton
5%
Manmade Fibre
18%
Packing Material
12%
Other Inputs
28%
Store/Spares Consumable
18%
Polyester/
Viscose Yarn
12%
Manmade Fibre
18%
Packing Material
12%
Other Inputs
28%
Store/Spares Consumable
18%
Other Outward supply
0.1%
Cotton
5%
Manmade Fibre
18%
Packing Material
12%
Other Inputs
28%
The Court observed that while two output supplies namely cotton yarn and cotton blended yarn were taxable @ 5%, the rate of GST on inputs, except cotton, was more than the rate of tax on output supplies. One of the inputs (raw material) namely cotton attracted 5% GST, but all other inputs namely packing material, store consumables and spares, manmade fibre and other inputs carried higher rate of tax, i.e., 12%, 18% and 28%. As far as other two output supplies namely polyester/viscose blended yarn and polyester/viscose yarn were concerned, rate of GST on output supplies was 12%. For manufacturing of polyester/viscose blended yarn, as many as five inputs (raw materials) were utilised, namely cotton, manmade fibre, packing material, store consumables and spares and other inputs. Cotton alone was taxable @ 5% which was lower than GST on output supply. Other input, namely, packing material carried 12% rate of GST which was equal to the rate of GST on such output supply. However, three other inputs, namely, manmade fiber, store consumables and spares and other inputs attract higher rate of GST which was 18% and 28%. Similarly, polyester/viscose yarn was also taxable @ 12% and out of four inputs, the rate of GST on packing material alone being 12% was equal to the rate of tax on such output supply. However, remaining inputs, namely, manmade fibre, store consumables and spares as also other inputs carry rate of tax higher than the rate of tax on such output supply. Under the heading “other outward supply”, the rate of GST is only 0.1% whereas all the inputs (raw materials) used to manufacture carry higher rate of GST, i.e. 5%, 12%, 18% and 28%.
The Court observed that above comparative analysis clearly revealed that all the inputs taken together and utilised through the process of manufacturing, the output supplies would carry higher rate of GST as compared to the rate of GST on such inputs, either taken individually or collectively both. The rate of tax on output is ranging from 0.1% to 5% or 12% whereas rate of tax applicable on some inputs may be 5% or 12%, but on remaining inputs, rate of GST is certainly higher than 5% or 12%.

3

Observed

Plural Use of words “inputs” and “output supplies”- Proviso (ii) to Section 54(3) provides “where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies”. The language of the provision signifies plurality of both inputs and output supplies. Use of the word, “inputs” signifies that there may be more than one input and it was not possible to read “inputs” as “input” alone. Thus, refund of unutilised ITC due to inverted rate cannot be restricted to those cases of single input and single output supply.
Rate of Tax on inputs should exceed Rate of tax on output - Scheme of refund is applicable where accumulation of unutilised ITC is a result of tax rate on inputs being higher than tax rate on output supplies. As inputs were taxed @ 5%, 12%, 18% & 28% and output taxed @ 0.1%, 5% & 12%, thus, tax rate on inputs was held to be higher than tax rate on output supplies.
Rejection because 80% output was of 5% and input majority was of 5%- Refund was rejected as output sales to the extent of 80% was having 5% duty and input too was majorly of 5% rate and thus, rate was held to be more or less the same. The approach that “rate is more of less the same” was held to be running contrary to statutory scheme and once all inputs and output supplies on comparative basis lead to a situation where tax rate on inputs is higher than tax rate on output supplies, scheme of refund was to be given full effect.
Overall rate of all inputs should be marginally higher than rate of output supplies - While rate of tax on certain inputs was 18% and 28%, no output supplies attracted tax rate beyond 12%. Therefore, if overall rate of all inputs is marginally higher than rate of output supplies, accumulation of unutilised ITC will bring it within the net of inverted duty structure.
Rejection on the claim that refund is mainly on account of accumulation of high input purchase and they were in stock during the period- Refund was rejected that claim of refund was mainly due to high input purchases and they were in stock during the claim period. It was stated by the Court that Statutory scheme does not talk of the stock, but refers to output turnover (adjusted turnover) during the claim period. Rule 89(5) envisages that total ITC claimed on inputs during the claim period gets consumed in respect of the turnover of the claim period. Obviously, once refund is sanctioned, ITC claimed for relevant tax period cannot be carried forward to the subsequent claim periods. Thus, determining factor is rate of tax and quantum of ITC and not the value/quantum of individual inputs (going into an output) and the outputs. Stock based approach, thus was held to violate the statutory scheme of refund.
Circular No. 79 dated 31.12.2018 and Circular No. 125 dated 18.11.2019 do not provide guidelines for claims for refund involving multiple outputs- The Court observed that competent authority issued guidelines for refund wherein there were multiple inputs but situation of multiple output supplies was not dealt by aforesaid circulars.
Affirmation of rejection of the claim of petitioner by Appellate Authority cannot be on a ground other than the ground for rejection of claim by the Adjudicating Authority

Held

Where tax rate on some inputs is higher than tax rate on output supplies, and where outputs are more than one, statutory scheme of refund based on inverted duty structure shall be applicable and, refund claim would be determined based on computation prescribed in Rule 89(5) and not based on any other mode of computation.

S.No

Subject

Case

Held

1

Authorisation U/Sec 67 would be in respect of business premises of an assessee and cannot be in respect of each and every person and each and every article, goods, books, and documents which may be discovered during search operation.

Velayudhan Gold LLP v. Intelligence Officer [2023] 156 taxmann.com 21 (Kerala) (20-10-2023)

Search was conducted at the business premises of M/s Sobhana Jewellery. During the search, it was seen that some gold ornaments were kept in a bag of employees of petitioner (i.e. Velayudhan Gold LLP) who were present during the search at the business premises of M/s Sobhana Jewellery. The gold ornaments were found to be accompanied by a delivery challan issued by the petitioner (i.e. Velayudhan Gold LLP) endorsing 22kt gold ornaments with net weight of 1332.590 gms in the name of M/s Sobhana Jewellery. It was issued for transportation of ornaments from the petitioner (i.e. Velayudhan Gold LLP) to M/s Sobhana Jewellery. The net weight of the gold ornaments on verification was found to be 1647.97 grams. Discrepancies were found between documents and actual stock in bag. As a result, gold ornaments found in bag were seized, and seizure memo was prepared. Petitioner contended there was no authorisation in respect of jewellery items of petitioner (i.e. Velayudhan Gold LLP), which were seized from premises of M/s Sobhana Jewellery.
The court observed from perusal of Section 67(2), when search and seizure operations are authorised, at that time, it would not be known which are the items or documents or books which might be recovered or which would have been kept at a secreted place. What is relevant is that while granting authorisation for search and seizure operations, the authority granting such permission, i.e., Joint Commissioner or Officer above the rank of Joint Commissioner, should have reasons to believe that the goods, documents or things hold relevance and are useful in any legal proceedings and the same are secreted at a particular place. The petitioner's (i.e. Velayudhan Gold LLP) gold jewellery items were also found stored in a bag at the premises of M/s Sobhana Jewellery. The contention of the petitioner that there was no authorisation for the seizure of 1647.970 grams of gold, the property of the petitioner, does not merit consideration as there was authorisation for the search of the premises of M/s Sobhana Jewellery and these gold items, which the petitioner had later on claimed ownership, was found in a bag in the premises of M/s Sobhana Jewellery. There cannot be authorisation in respect of each and every person and each and every article, goods, books, and documents which may be discovered during the search operation. The authorisation has to be done in respect of the business premises of an assessee, and if things, items, books or documents are found that the authorised officer has reasons to believe that they would be relevant for the purpose of proceeding under the SGST/CGST Act 2017, they are liable to be seized. (Section 67 of CGST Act, 2017)

2

Tax collected but paid after notice U/Sec 73(1), although within 30 days of the notice will attract 10% penalty by virtue of Section 73(11)

Global Plasto Wares v. Assistant State Tax Officer [2023] 156 taxmann.com 7 (Kerala) (17-10-2023)

Petition was filed against the penalty in the impugned order to the extent of Rs. 40,000/- . Petitioner contended that he had paid all tax before thirty days from the date of the notice. The notice was dated 28-2-2022 and petitioner had paid the tax on 10-3-2022. Petitioner relied upon Section 73(8). Department contended that Section 73(8) comes into play when an assessee has not paid the tax on the transactions. But where assessee had collected tax from the others and not credited it to the Government then Section 73(11) will come into play as Section 73(11) of the GST Act, 2017 begins with a non-obstante clause i.e. ; "notwithstanding anything contained in sub-section (6) or sub-section (8), penalty under sub-section (9) shall be payable where any amount of self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax".
The Court held that considering provisions of Sub-sections 6, 8 and 9 of Section 73, if a person fails to deposit tax collected by him within a period of thirty days from due date of payment of tax, Sub-section 8 will not be applicable and such person would be liable to penalty. (Section 73(11) of CGST Act, 2017)

3

Taxability of Coaching Fees collected from students by an educational Institution to be examined considering Circular dated 3-8-2022 which states that all services supplied by "educational institution" to its students were exempt from GST in first sentence of paragraph 4.3

Alva’s Education Foundation v. State of Karnataka [2023] 156 taxmann.com 6 (Karnataka) (05-10-2023)

Petitioner had charged its students the following amounts as 'coaching fees' i.e. Tuition fees towards II PUC CET Crash & Coaching and CA-CPT Coaching, Training fees for providing certification courses & placement and training fee for JV-A IET, Penal fee/fine, Various Misc. Fees viz., towards Alva's Nudisiri event, abacus, students welfare fund, internet, damages to hostel mess property, library fee and college fees. The authority while observing that amounts/fees charged to the prospective students for entrance or admission or eligibility certificate were exempted but not coaching fees. The conclusion was based on definition of "educational institution" contained in clause 2(y) of Notification dated 28-6-2017 and Circular dt 3-8-2022 in No. 177/09/22-TRU.
The Court observed that authority while examining expression educational services under Notification dated 28-6-2017 in light of Circular dated 3-8-2022, had to necessarily consider the same in the light of paragraph 4.2 and first sentence in paragraph 4.3 of the Circular which was as follows-
4.2 In this regard, it is stated that educational service supplied by educational institutions to its students are exempt from GST vide Entry 66 of the Notification No. 12/2017 Central Tax(Rate), dated 28-6-2017 relevant portion of which read as under:-
"Services provided -
(a)
by an educational institution to its students, faculty and staff;
[aa] by an educational institution by way of conduct of entrance examination against consideration in the form of entrance fee:]"
4.3 Therefore, it can be seen that all services supplied by an 'educational institution' to its students are exempt from GST...”
The authority was persuaded not to hold against petitioner relying upon later part of paragraph 4.3 and 4.4 overlooking first part of paragraph 4.3. The Court stated that there was an obvious error in the order as question was not about entrance fee but about coaching fee which would have to be examined considering Circular dated 3-8-2022 which states that all services supplied by "educational institution" to its students were exempt from GST in first sentence of paragraph 4.3. Objection was raised that re-consideration may not include, whether abacus course extended by the petitioner to its students with the assistance of an external agency as abacus course is not recognized in any law as a qualification. Petitioner relied upon the judgement of Educational Initiatives Pvt. Ltd. v. Union of India reported in 12. 2022 (63) G.S.T.L. 45 (Guj.) The Court remanded the matter back to the authority and directed that every aspect should be examined including this aspect in light of judgement of High Court of Gujarat. (Section 9 and 11 of CGST Act, 2017)