- SUPREME COURT UPHOLDS HIGH COURT RULING: BAIL CANCELLED IN GST CASE WITH TEMPORARY PROTECTION GRANTED.
The case of Bharat Bhushan versus the Director General of GST Intelligence saw Bharat Bhushan getting anticipatory bail from a trial court but later having it canceled by the Bombay High Court citing the Supreme Court’s judgment in the State of Gujarat against Choodamani Parmeshwaran Iyer.
This precedent established that anticipatory bail provisions under Section 438 of the Code of Criminal Procedure (CrPC) cannot be applied when a person is summoned under Section 69 of the Central Goods and Services Tax (CGST) Act, 2017.
Section 69 empowers GST officers to arrest individuals without a warrant if there are reasonable grounds to believe that they have committed an offense under the Act.
Issues – A critical question was whether Section 438 of the CrPC’s anticipatory bail provision can also be used when a summons has been issued under Section 69 of the CGST Act. The Court held that by its overriding provisions as per Section 69, anticipatory bail cannot apply in GST summons cases since it is at odds with CrPC’s intent. Thus, this case involved examining these legal provisions.
Courts Decision
The Supreme Court maintained the High Court’s ruling on cancelling the anticipatory bail claiming precedence of legal provisions conferred under CGST Act. However, about the applicant’s rights through Bharat Bhushan, six weeks were provided for interim protection against an arrest by the Supreme Court. This was meant to allow him to file a writ petition on Article 226 of the Constitution of India and seek redress through them. Temporary protection granted by the Court aimed at ensuring Bhushan could litigate his case without being subject to any risk of detention.
Case Title and Details
Case Title: Bharat Bhushan Vs Director General of GST Intelligence
Case Number: SLP (Crl) No. 8525/2024 Judges: Justice J.B. Pardiwala and Justice Ujjal Bhuyan
2. ITC CLAIMED BY THE RECIPENT CANNOT BE DENIED WITHOUT CONDUCTING DUE-DELLIGENCE BY SUPPLIER.
M/s. Suncraft Energy Private Limited (Respondent) is engaged in the sale of goods and GST charged from their clients. Subsequently, the Input Tax Credit (ITC) was utilized on input supplies through Form GSTR-3B. However, this caused a mismatch between the ITC that had been claimed via GSTR-3B and the auto-populated ones in GSTR-2A due to some suppliers’ failure to report these transactions in their GSTR-1 for the financial year 2017-2018.
Based on these mismatches, a notice was issued to Suncraft Energy Pvt Ltd by the Revenue Department (Petitioner) on December 6, 2022. The notice demanded that the previous excess ITC claimed by the company be reversed. Despite paying taxes to the suppliers and meeting the requirements of section 16(2) of the Central Goods and Services Tax Act, 2017 (CGST), the Respondent maintained that there had been a wrongful reversal of ITC. In light of this decision made on February 20th, 2023, the Adjudicating Authority ordered INR 6,50,511 together with interest and penalty. Dissatisfied with this order, Suncraft Energy filed an appeal before the Calcutta High Court.
Issues – Whether the ITC claimed by the recipient can be denied solely based on the mismatch between Form GSTR-3B and Form GSTR-2A without investigating the supplier’s actions. Whether the reversal of ITC without proper inquiry into the supplier’s tax compliance is justifiable under the CGST Act.
Courts Decision
The decision made by the Calcutta High Court was upheld by the Supreme Court of India when it was hearing a Special Leave Petition filed by the Assistant Commissioner of State Tax. No ITC can be denied according to the Court as claimed by the receiver until a thorough investigation is made into the supplying party’s actions. The Special Leave Petition was dismissed by the Supreme Court reaffirming that before reversals of ITC can be demanded, suppliers’ tax compliance has to be thoroughly investigated.
Case Details: Assistant Commissioner Of State Tax Vs. Suncraft Energy Private Limited & Ors.
Court: Supreme Court of India Case Number: Special Leave to Appeal (C) No(s). 27827-27828/2023Date of Judgment/Order: December 14, 2023
3. PURCHASERS ARE RESPONSIBLE FOR VERIFYING THE GST REGISTRATION OF SELLERS SAYS THE SUPREME COURT
Arhaan Ferrous and Non-Ferrous Solutions (P.) Ltd. supplies iron scrap. This dispute arose from the seizure of goods in transit while being carried from the supplier, M/S K.S. Enterprises located at Vijayawada to Sankarampet where they were supposed to be delivered to the buyer, M/S Radha Smelters Private Limited. The revenue department (the petitioner) detained the goods while in transit since it believed that M/S K.S. Enterprises did not have a legitimate place of business at Vijayawada. The petitioner had proceeded under section 130 of the Central Goods and Service Tax Act 2017 (CGST Act) against suppliers for non-compliance with GST laws.
Nevertheless, the Respondent presented bona fide records such as receipts, E-way vouchers, and measurement slips which showed that he/she paid for the said goods. They claimed that their compliance with the relevant GST provisions made detained unjustifiable and other subsequent processes. In its judgment, the Andhra Pradesh High Court found for the Respondent noting that proceedings against her cannot be sustained on matters dealing with suppliers’ registration problems only. It held that if there were queries related to updates on business places where such suppliers operated, it was through Section 130 of the CGST Act that the Petitioner should have brought in claims against them.
ISSUES
Was it right for the Revenue Department to hold the goods as well as start proceedings against the Respondent due to the problems with the supplier’s GST registration? Is it necessary that the purchaser (Respondent) should check if the seller is registered under GST on the GST portal? What are the duties of a purchaser in ensuring the legality of GST claims and compliance?
Courts Decisions
On November 6, 2023, the Supreme Court of India dismissed the Special Leave Petitions filed by the Deputy Assistant Commissioner-1 (ST).
Verification Duty: The apex court reiterated that it is upon buyers to ascertain from the GST portal whether their suppliers are correctly registered under GST regulations. Such verification is crucial for the verification of the transaction’s authenticity. Scope of Responsibility: The Court emphasized that the extent of a purchaser’s obligation is limited to establishing a supplier’s GST registration. Therefore, upon carrying out this exercise, which ends up in purchase, all other queries regarding issues associated with the supplier’s GST registration or address concerned should be channeled towards him/her directly. Dismissal of SLP: Consequently, there was no cause for interfering with High Court decisions ˈ, which led to the dismissal of Special Leave Petitions before the Supreme Court. This ruling strengthens the axiom that purchasers cannot be penalized simply because their suppliers are not compliant provided they did their homework in checking GST registration status.
Case Analysis: Deputy Assistant Commissioner-1 (ST) Vs. Arhaan Ferrous and Non-Ferrous Solutions (P.) Ltd.
Court: Supreme Court of India
Case Number: Special Leave to Appeal (C) Nos. 2473-2475/2023
Date of Judgment/Order: November 6, 2023
4. SUPREME COURT REDUCES PENALTY FOR EXPIRED E-WAY BILL TO 50% IN GOODS TRANSPORTATION CASE
Vardan Associates Pvt. Ltd., a company involved in horizontal directional drilling, was transporting a consignment of capital goods from Auraiya, Uttar Pradesh, to Durgapur, West Bengal. An E-way bill was generated, but the consignment got intercepted after its validity expired resulting in tax and penalty by the authorities.
Argument of Appellant: The unexpected events including the slow shipping company’s failure to provide a truck induced the appellant to make his arguments for postponement. The shipment he was talking about was moving from one department of the company to another hence needed not to be treated like an ordinary sale and therefore exempted from GST.
Objection Raised by the Respondents: They contended that the appellant ought to have timely transportation as he was intelligent concerning such dealings and the penalty existed because of the expiry of the E-way bill.
ISSUES – Validity of the Penalty: Whether the penalty imposed due to the expiry of the E-way bill was justified, considering the appellant’s contention that the delay was caused by unforeseen circumstances.GST Applicability: Whether the consignment, being an inter-unit transfer of capital goods, should be subject to GST, as it was argued not to constitute a sale/purchase transaction.
Courts Decision
The quantum of the penalty was surveilled by the apex court. While sustaining the levy amount, the Bench cut down the penal sum to half of the earlier one, that is, ₹27,00,000/-, thus arriving at a total of ₹81,00,000/-. This reduction was justified by the court on account of the possession of consignment by appellants and the factual situation but advised them to remain more alert henceforth.
Case Name: Vardan Associates Pvt. Ltd. Vs Assistant Commissioner of State Tax Central Section & Ors.
Court: Supreme Court of India
Appeal Number: Civil Appeal No. of 2023 (@ Special Leave Petition (C) No. 21079 of 2022) Date of Judgment/Order: 31/10/2023
5. SUPREME COURT CLARIFIES GOOD FAITH PROTECTION FOR GST OFFICERS IN PRE-LITIGATION STAGE
The incident was born out of a temporary command given by the Gujarat High Court in response to a writ petition submitted by Paresh Nathalal Chauhan. The respondent moved for protection against arrest under Section 69, associated with Section 132 of the Goods and Services Tax (GST) Act. The High Court, when examining the case, raised questions about the relevance of the good faith clause specified under Section 157 of the GST Act for these officers and also condemned their conduct.
ISSUES – The primary issue was whether the good faith clause, which offers protection to officers acting under the GST Act, could be applied to shield them from prosecution or legal proceedings before any such actions were initiated.
Courts Decision
Controversial aspects questioning the good faith clause’s availability for officers were removed from the interim order by the Supreme Court of India. The Court explained that Section 157’s immunity under the GST Act was not absolute and must be taken into account within limitations. Moreover, it pointed out that before an action is instituted, charged, or begun against a GST officer good faith clause can’t be adjudicated by the High Court. This decision urged for finding a balance between protecting the bona fide actions of officers according to law and ensuring transparency and accountability. Thus, the appeal was disposed of with this elucidation by the Supreme Court as a guiding precedent in other similar cases.
Case Details:
Case Name: State of Gujarat & Anr. Vs Paresh Nathalal Chauhan
Court: Supreme Court of India
Appeal Number: Civil Appeal No. /2024 (Arising Out of SLP (C) No. 666 /2021)
Date of Judgment/Order: 12/03/2024
6. THE SUPREME COURT ALLOWS FULL ITC CLAIMS FOR EXEMPTED BYE-PRODUCTS IN THE VAT MANUFACTURING PROCESS
The case of Modi Naturals Ltd Vs Commissioner of Commercial Tax UP was taken to the Supreme Court of India regarding whether Input Tax Credit (ITC) can be claimed on the raw material used for the production of taxable as well as exempted goods. M/s Modi Naturals Ltd., an appellant, is a manufacturer of Rice Bran Oil (RBO) and Physical Refined RBO both classified as taxable goods under the Uttar Pradesh Value Added Tax Act, 2008 (UP VAT Act). De-Oiled Rice Bran which is also known as an exempted product is also produced during the manufacturing process.
ISSUES – The disagreement revolved around the rightness of availing Input Tax Credit (ITC) for all taxes that were paid on buying rice bran notwithstanding the production of exempted by-products. In this context, the appellant argued that as per explanation (iii) under section 13 of the UP VAT Act, ITCs cannot be refused as far as they involve the production of exempted by-products that form part and parcel with manufacturing taxable goods.
Courts Decision
The Supreme Court ruled in favor of the appellant, stating that the Assessee could claim the full amount of ITC on Rice Bran used for manufacturing Rice Bran Oil and its by-products. The Court emphasized that Explanation (iii) to Section 13 of the UP VAT Act prevents the Assessing Authority from disputing ITC claims when exempted goods are produced as by-products or waste products during the manufacturing process.
Case Name: Modi Naturals Ltd Vs Commissioner Of Commercial Tax UP
Court: Supreme Court of India
Appeal Number: Civil Appeal No(S). 5822-5823 Of 2023
Date of Judgment/Order: 06/11/2023
7. SUPREME COURT RULES NO ADVERTISEMENT TAX ON BUSINESS SIGNBOARDS DISPLAYING GENERAL INFORMATION
Harsh Automobiles Pvt. Ltd. (Appellant) versus Indore Municipal Corporation (Respondent) Circumstances: A Hyundai car dealership operated by the appellant had put up a signboard on their business premises displaying their trade name and business details. This signboard was then attempted by Indore Municipal Corporation to impose an Advertisement Tax.
ISSUES – Whether Advertisement Tax can be imposed on signboards that only display general business information.
Whether such signboards fall within the scope of Advertisement Tax as per municipal regulations.
Courts Decision
advertisement Tax on signboards utilized for general commercial information as of October 9, 2023, was ruled out by the Supreme Court. Reasoning: The Court established that signboards exhibiting only business names and general information are not adverts and thus exempted from Advertisement Tax.
Case Name: Harsh Automobiles Private Limited Vs Indore Municipal Corporation
Appeal Number: Civil Appeal No. 5362 of 2023
Date of Judgement/Order: 09/10/2023
Court: Supreme Court of India
8. SC RULES NO SERVICE TAX ON ISSUANCE OF CORPORATE GUARANTEE BY DIRECTOR WITHOUT CONSIDERATION
The issuance of corporate guarantees by Delweiss Financial Services Ltd., a company engaged in providing financial services, on behalf of its group companies. They issued it without any monetary or even non-monetary consideration. The Central Goods and Services Tax (CGST) and the Central Excise Department asserted that this act was formulating itself as a taxable service in nature. Legal Provisions in Query: Therefore, this case was primarily hinged on the interpretation of the Finance Act of 1994, which specifically states: Section 65B(44): “Service” refers to any undertaking performed by a person for others who reward them. Section 66B: Impose tax on services offered or going to be provided are applicable in taxable categories done within the taxable area.
ISSUES – Whether the issuance of a corporate guarantee by a director on behalf of group companies, without consideration, qualifies as a taxable service under the Finance Act, 1994.Whether the lack of monetary or non-monetary consideration affects the taxability of such services.
Courts Decision
In the wake of the Supreme Court ruling on March 17, 2023, the issuing of corporate guarantees that are not paid for has been declared not to be a taxable service. In this case, as per Section 65B(44) under the Finance Act 1994 for any service to be taxed there has to be a provider and some form of consideration. Because Edelweiss Financial Services did not receive any payment in exchange for issuing the corporate guarantee; therefore no tax was levied. The Department could not show that there was any type of payment involved at all.
Case Details: Commissioner of CGST and Central Excise vs. Edelweiss Financial Services Ltd.
Case Name: Commissioner of CGST and Central Excise vs. Edelweiss Financial Services Ltd.
Appeal Number: Civil Appeal No. /2023 (Diary No. 5258/2023)
Date of Judgement/Order: March 17, 2023
Court: Supreme Court of India
9. SUPREME COURT RULES AGAINST SEIZURE OF CASH NOT A PART OF BUSINESS STOCK: REVENUE DEPARTMENTS ACTIONS UNLAWFUL
As for the instance of State Tax Officer (IB) & Ors vs Shabu George & Anr., the Supreme Court of India was called upon to decide on whether it was lawful or not to seize cash that was found outside stock in trade items. Such was the contention before a bench comprising Justices J S Khehar and I M Quddusi in a case where large sums of money were recovered during a raid conducted by the Revenue Department at Shabu Geoge’s house. Thus, on similar lines, the Kerala High Court had earlier directed the release of this money arguing it does not belong to the business inventory.
ISSUES – Whether the Revenue Department was justified in seizing cash that did not form part of the stock in the trade of the business.
Requirement for Show Cause Notice: Whether the Revenue Department was required to issue a show cause notice to the respondent after the seizure.
Courts Decision
Kerala High Court’s decision was upheld by the Supreme Court, which indicated that the Revenue Department cannot illegally confiscate cash not linked with stock in the trade of the company. The Court also stated that the Revenue Department was late in issuing a show cause notice, which only reinforced its decision to release the money.
Case Name:
State Tax Officer (IB) & Ors. vs. Shabu George & Anr.
Court: Supreme Court of India
Appeal Number: Special Leave Petition (Civil) Diary No. 27670/2023
Date of Judgment/Order:31 July 2023
10. SUPREME COURT RULES CREDIT NOTES FOR DEFECTIVE PARTS ARE TAXABLE CONSIDERATION UNDER SALES TAX LAWS
The Supreme Court of India ruled on the tax ramifications associated with credit notes issued by manufacturers to dealers in the case of Tata Motors Ltd. vs. Deputy Commissioner of Commercial Taxes. The case specifically focused on whether these credit notes, which were meant to replace automatically malfunctioning parts, would be subject to taxation according to sales tax laws.
ISSUES – Nature of Credit Notes: Whether credit notes issued by a manufacturer to a dealer, relating to the replacement of defective parts, qualify as valuable consideration and are therefore subject to sales tax.
Applicability of Precedent: The applicability of the judgment in Mohd. Akram Khan to the current case and its impact on the interpretation of sales tax legislation.
Courts Decision
One way to show that credit notes given by a manufacturer directly to a dealer to replace broken parts count as valuable consideration under the sales tax laws is through the Supreme Court’s ruling. Under relevant state statutes therefore such credit notes attract sales tax. The judgment further states that principles enshrined under the Ekram Khan case apply in similar circumstances; hence, appellants (meaning dealers) should remit sales tax according to the repayment indicated on their credit notes. The court ruled against the dealers who had appealed but ruled in favor of revenue appeals.
Case Name: Tata Motors Ltd. vs. Deputy Commissioner of Commercial Taxes
Appeal Number: Civil Appeal No(s). 1822/2007
Date of Judgment/Order: 15/05/2023
Courts: Supreme Court of India
