AI Drafter 
TaxTMI 
TaxTMI 
2020 (7) TMI 726
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.....2792 of 2019 is treated as the lead matter. 3. The petitioner has prayed for the following reliefs: "20. The Petitioners, therefore, prays that this Hon'ble Court may be pleased to: (a) hold that the amended Rule 8 of the CGST Rules is ultra vires Section 54(5) inasmuch as Section 54(3) provides for refund of 'any unutilized input tax credit accumulated on account of inverted duty structure thereby covering credit of both 'inputs' and 'input services'; (b) hold that the amended Rule 89 of the CGST Rules is violative of Article 14 of Constitution of India inasmuch as it treats dealers with accumulated credit on inputs and dealers with accumulated credit on input services differently; (c) hold that Section 164(3) is unconstitutional inasmuch as it suffers from the vice of excessive delegation; (d) hold that the amendment of Rule 89 cannot be given retrospective application; (e) issue a Writ of Certiorari or any other appropriate Writ, Order or direction, in the nature of Writ, quashing the refund withholding orders dated 14.06.2018, and letter dated 11.06.2018 issued by Respondent No. 3 enclosed at Exhibit-1 and Exhibit-2 ....
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....Section 2(62) of the CGST Act inter alia as tax charged on supply of goods or services or both. "Input tax credit" is defined in Section 2(63) of the CGST Act as the credit of input tax. 6. Rule 89(5) of the Central Goods and Service Tax Rules,2017 (for Short "CGST Rules, 2017") is enacted to provide formula for determining the refund on account of inverted duty structure and an assessee is entitled to refund of the unutilized input tax credit availed during the relevant period proportionate to the turnover of inverted rated supply of goods vis-à-vis total turnover of the assessee for that period. Circular No. 79/53/2018-GST dated 31.12.2018 provides example at para 4(b) which is informative, (i) if, the rate of GST on some inputs is higher than the rate of GST applicable on the output supply, while rate of GST on some other inputs is lower than the rate of GST applicable on the said output supply, then that is a situation of inverted duty structure governed by Section 54(3) of the CGST Act, (ii) if, assessee supplies goods and none of which involve inverted duty structure, it is not entitled for any refund of unutilized input tax credit, (iii) ....
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....ure of GST leads to its description as being a tax on value addition, with final consumer alone ultimately bearing the tax. The GST law as enacted in India is also based on this principle. 11.2 It was submitted that the First discussion paper published on 10.11.2019 by the Empowered Committee of State Finance Ministers explained that the introduction of GST would achieve a continuous chain of set-off from the original manufacturer to the last retailer in the supply chain and eliminate the burden of all cascading effects. The relevant excerpts from the discussion paper have been reproduced hereunder: "1.14 In the GST, both the cascading effects of CENVAT and service tax are removed with set-off, and a continuous chain of set-off from the original producer's point and service provider's point upto the retailer's level is established which reduces the burden of all cascading effects. This is the essence of GST, and this is why GST is not simply VAT plus service tax but an improvement over the previous system of VAT and disjointed service tax. 1.15 The GST at the Central and at the State level will thus give more relief to industry, trade, agriculture and c....
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....ed to as "ITC" is one of the key features of Goods and Services Tax. ITC is a mechanism to avoid cascading of taxes. Cascading of taxes, in simple language, is 'tax on tax'. Under the present system of taxation, credit of taxes being levied by Central Government is not available as set-off for payment of taxes levied by State Governments, and vice versa. One of the most important features of the GST system is that the entire supply chain would be subject to GST to be levied by Central and State Government concurrently. As the tax charged by the Central or the State Governments would be part of the same tax regime, credit of tax paid at every stage would be available as set-off for payment of tax at every subsequent stage." 11.6 It was submitted that thus, GST is a consumption tax where tax burden is borne by the final consumer and business does not bear the burden of the tax since the business are allowed to take credit of the tax paid on anterior supplies received by them. 11.7 It was submitted that the Organisation of Economic Co-operation and Development (OECD) has issued international VAT/GST Guidelines which elucidate that VAT/GST are consumption tax and are borne ultima....
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.... the same model of destination-based consumption tax rule as is clear from the discussion paper, statement of objects and reasons of the bill introducing the CGST Act and FAQ. 11.9. It was further submitted that the tax on each stage but effectively only on value addition also ensures that there is free flow of goods and services within the country and also across borders of countries. It was submitted that for instance, as if rate of GST on an article, say fan is 10%. Then fan will suffer the same tax of 10% whether it is imported from outside India or procured domestically. However, if the tax regime is not based on value addition, the imported fan will suffer tax at the rate of 10% on its value, while the same article procured domestically will, in addition to the tax payable at the rate of 10% on value of fan will also suffer tax paid on inputs like motor etc. which will form part of the cost of fan which will seriously prejudice the domestic suppliers of fan. It was also submitted that governments want to encourage exports, by reliving domestic taxes levied on the goods which can be easily achieved under value added tax regime by simply refunding output tax of 10% on fan ex....
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....ctor would have availed input tax credit of Rs. 56 (tax paid to 'B', the supplier of vehicle body). This input tax credit would be used to pay GST on tractors of Rs. 36. It was submitted that in such a case, there will be an accumulation of input tax credit of Rs. 20 (Rs. 56 -36) to C. as the rate of GST on inward supplies i.e. tractor body is higher (being 28%) then the rate of GST on outward supplies of tractors (being 12%). It was submitted that the direct consequence in such situation would be cascading effect of taxes in the form of unabsorbed excess tax on inputs with consequent increase in the cost of product which is against the very tenet of GST being consumption tax (namely, only tax in the entire chain is the tax charged to end customer and in the entire supply chain there should not be any sticking or unabsorbed input tax credit). It was therefore, submitted that in such odd situations where rate of tax at final stage is less than the rate of tax on anterior stages is common feature when Government in public interest impose a lower rate of tax on products like fertiliser, tractors, low-priced footwear, etc. 11.12. It was submitted that in order to mitigate this anoma....
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.... to frame / enact Rule in this regard. It was submitted that this is unlike numerous other sections in the CGST Act, which expressly employ the word "prescribed". For example, Section 9 provides that the manner in which tax is to be collected may be prescribed, Section 16(1) provides that conditions and restrictions for availing input tax credit may be prescribed, Section 31(2) provides that the time within which a person supplying taxable service shall issue invoice may be prescribed. It was submitted that in other words, in the context of Section 54(3), any exercise of any power by Rule making authority to frame Rule in this regard is entirely unnecessary and unwarranted. Hence, Rule 89(5) of the CGST Rules,2017 and Explanation (a) thereto, is ultra vires to that extent. 11.14 It was submitted that the policy of Government that goods are to be exported and not taxes. Consequently, no output tax is charged on goods exported (or if levied, same is refunded). It was submitted that non-levy of output taxes on goods exported alone does not relieve of full burden of local taxation on goods exported. Therefore, apart from not levying taxes on goods exported, refund of the taxes paid ....
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....ture. It was submitted that on the lines of rationale of Rule 89(4), Rule 89(5) estimates refund attributable / relatable to inverted duty structure supplies by adopting proportionate turn over basis which is the sole and only purpose of formula for enabling Rule 89(5). 11.18 It was therefore, submitted that the need and the rational for the formula contained in Rule 89(5) in considering turnover of inverted duty structure goods vis-a-vis total turnover is understandable and reasonable, however, Rule 89(5) in the garb of fixing formula for determining pro-rata amount of credit relatable to inverted duty structure turnover vis-a-vis total turnover, has restricted the refund to input tax credit on inputs and by denying input tax credit on input services by defining 'Net ITC' to mean input tax credit availed on inputs only which consequently ignores/overlooks input tax credit relatable to input services. The relevant extract of amended Rule 89(5) reads thus: "(5) In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula : Maximum Refund Amount = {(Turnover of inverted rated supply of goods....
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....ut tax credit' employed in Section 54(3) would obviously mean "all" input tax credit including input services. 11.20 Reliance was placed on the following decisions of the Hon'ble Supreme Court in support of above submissions: (i) Shri Balaganesan Metals v. M.N. Shanmugham Chetty reported in (1987) 2 SCC 707 where in Para 18 & 19 word "any" in a statute is explained as under: "18. In construing Section 10(3) (c) it is pertinent to note that the words used are "any tenant" and not "a tenant" who can be called upon to vacate the portion in his occupation. The word "any" has the following meaning:- "Some; one out of many; an indefinite number. One indiscriminately of whatever kind or quantity." Word "any" has a diversity of meaning and may be employed to indicate "all" or "every" as well as "some" or "one" and its meaning in a given statute depends upon the context and the subject matter of the statute. It is often synonymous with "either", "every" or "all". Its generality may be restricted by context; (Black's Law Dictionary; Fifth Edition). 19. Unless the legislature had intended that both classes of tenants can be aske....
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....se extending from one to all. The other word 'potential' is again very wide. In Oxford Dictionary it is defined as 'capable of coming into being, possibility'. In Black's Law Dictionary it is defined as "existing in possibility but not in act. Naturally and probably expected to come into existence at some future time, though not now existing; for example, the future product of grain or trees already planted, or the successive future instalments or payments on a contract or engagement already made." In other words service which is not only extended to actual users but those who are capable of using it are covered in the definition. The clause is thus very wide and extends to any or all actual or potential users. But the legislature did not stop there. It expanded the meaning of the word further in modem sense by extending it to even such facilities as are available to a consumer in connection with banking, financing etc. Each of these is wide-ranging activities in day to day life. They are discharged both by statutory and private bodies. In absence of any indication, express or implied there is no reason to hold that authorities created by the statute are beyond ....
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....es, the court in an appropriate case can strike down the offending portion keeping intact the valid portions of the provision. Reliance was placed on para 10 in case of Lohara Steel Industries Ltd. v. State of AP. Reported in (1997) 2 SCC 37. 11.23 It was summarised that in the present case challenge to the vires of Rule 89(5) is only because of definition of Net ITC as per Explanation (a) to the said rule which defines "Net ITC" mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both where as Section 54(3) allows refund of any input tax credit and not credit on inputs only. Therefore if the above expression "on inputs" employed in Explanation (a) to Rule 8(5) is struck down, Explanation defining Net ITC will read as under: "Net ITC" shall mean input tax credit availed during two relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both" It was submitted that the Explanation (a) to Rule 89(5) will then be entirely in line with the main provision viz. Section 54(3). Hence, the offending words....
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.... (i) If the rate of tax on inputs is higher than the rate of tax on output supplies, the registered person would meet the eligibility for claiming refund and is therefore entitled to all/ ANY unutilised input tax credit lying in the electronic credit ledger. (ii) Department seeks to rely upon the definition of "input" as contained in Section 2(59) which excludes "input services" separately defined in Section 2(60) to contend that the proviso to Section 54(3) excludes refund of tax paid on input services. It was submitted that this interpretation is not correct as: (a) The words used in Clause (ii) of the proviso are "tax on inputs" and "tax on output supplies",considering that the intention of the legislature as evident from the object and scheme of the Act is to prevent cascading effect of tax and the Act specifically provides for availment of credit on inputs as well as input services, the words "tax on inputs" cannot be interpreted to mean tax on "inputs" as defined in Section 2(59) but have to be read as "input tax" as defined in Section 2(62) which includes input services within its purview. This interpretation is fortified by the use of the phrase "tax on ou....
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.... for allowing refund of unutilised input tax credit in respect of tax paid on inputs but not unutilised input tax credit in respect of tax paid on input services. 12.5. It was submitted that amended Rule 89(5) is also discriminatory since: (i) Refund of unutilised input tax credit in respect of tax paid on input services is permitted in the case of zero rated supplies (exports or supplies to SEZs). No intelligible differentia which has a rational nexus to the object sought to the achieved is perceptible. (ii)It is the Government which fixes rates of tax to be paid on different goods and services from time to time. It is only on account of prevalent rates that some industries would face an inverted duty structure while others do not. That may change if the rates are changed. Those industries which face an inverted duty structure and whose input services are taxed at a higher rate than the tax on their outward supplies, are not entitled to refund of unutilised input tax credit (which remains unutilised not on account of any action or inaction of the industry but on account of the rate structure set by the Government)while those industries which do not face an inv....
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....ance cost for the taxpayers in the form of number of returns, payments, etc. 3. In view of the aforesaid difficulties, all the above mentioned taxes are proposed to be subsumed in a single tax called the goods and services tax which will be levied on supply of goods or services or both at each stage of supply chain starting from manufacture or import and till the last retail level. So, any tax that is presently being levied by the Central Government or the State Governments on the supply of goods or services is going to be converged in goods and services tax which is proposed to be a dual levy where the Central Government will levy and collect tax in the form of central goods and services tax and the State Government will levy and collect tax in the form of state goods and services tax on intra-State supply of goods or services or both. 4. In view of the above, it has become necessary to have a Central legislation, namely the Central Goods and Services Tax Bill, 2017. The proposed legislation will confer power upon the Central Government for levying goods and services tax on the supply of goods or services or both which takes place within a State. The proposed leg....
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.... on goods or services or both to the consumers; and (k) to provide for elaborate transitional provisions for smooth transition of existing taxpayers to goods and services tax regime. 6. The Notes on clauses explain in detail the various provisions contained in the Central Goods and Services Tax Bill, 2017. 7. The Bill seeks to achieve the above objectives". Referring to the above, it was submitted that basic object of the GST Act is to streamline indirect tax structure earlier prevailing in India so as to levy tax on intra-state supply of goods and interstate supply of goods and other objective stated herein above. It was therefore, submitted that Rule 89(5) prescribing the formula for calculation of refund on account of inverted duty structure is contrary to sub-section 3 of Section 54 of the GST Act rendering in contradictory to the basic scheme and object of the GST Act. Reliance was placed on the decision of the Supreme Court in the case of Printers (Mysore) Ltd. and another vs. Assistant Commercial Tax Officer and Others reported in [1994] 2 SCC 434, to submit that the object of the GST Act is not to create a burden, which was not there but to rem....
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.... Section 2. Indeed, when Section 8(1) (b) speaks of goods, it is really referring to goods referred to in the first half of Section 8(3)(b), i.e., on first three occasions. It is only when Section 8(3)(b) uses the expression "goods" in the second half of the clause, i.e., on the fourth occasion that it does not and cannot be understood in the sense it is defined in Section 2(d). In other words, the "goods" referred in the first half of clause (b) in Section 8(3) refers to what may generally be referred to as raw material (in cases where they were purchased by a dealer for use in the manufacture of goods for sale) while the said word "goods" occurring for the fourth time (i.e., in the latter half) cannot obviously refer to raw material. It refers to manufactured "goods", i.e., goods manufactured by such purchasing dealer in this case, newspapers. If we attach the defined meaning to "goods" in the second half of Section 8(3)(b), it would place the newspapers in a more unfavourable position than they were prior to the amendment of the definition in Section 2(d). It should also be remembered that Section 2 which defines certain expressions occurring in the Act opens with the words: "In....
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....ice used or intended to be used by a supplier in the course or furtherance of business. Thereafter, reference was made to the definition of "input tax" as per section 2(62) of the GST Act, to submit that "input tax" in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him. 13.1 Learned advocate thereafter, referred to provisions of Section 17 of the GST Act, which provides for "Apportionment of credit and blocked credits" and submitted that Section 17(1) provides that where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business. Section 18 of the GST Act was also referred to point out "Availability of credit in special circumstances" in relation to inputs and Section 20 was referred to point out the "Manner of distribution of credit by Input Service Distributer". 13.2 It was pointed out that Section 140(3) of the GST Act provides for "Transitional arrangements fo....
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.... be or may be made by the Rules and sub-Section 3 of Section 164 empowers the Government to have retrospective effect of such rules. It was therefore, submitted that the Government has framed the CGST Rules, 2017 in exercise of this rule making power conferred under Section 164 of the CGST Act. In such circumstances, it was submitted that the Rule 89(5) cannot be held to be ultra vires as it only provides the method of calculating the refund on account of inverted duty structure. 14.3 Learned advocate for the respondent relied upon the decision of this Court in case of Willowwood Chemicals Pvt. Ltd. vs. Union of India in SCA No.4252 of 2018 rendered on 12th / 19th September 2018 and more particularly on the following observations of the Court made in paragraph Nos.22, 23, 25, 30, 31 and 32 as under : "22. We can however not be oblivious to Section 164 of the CGST Act, which is the rule making power and reads as under : "164. Power of Government to make rules : (1) The Government may, on the recommendations of the Council, by notification, make rules for carrying out the provisions of this Act. (2) Without prejudice to the generality of the pro....
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.... from the date of issuance of the documents specified in the proviso. The contention that such amendment would take away an existing right was rejected. 30. Both these judgments of the Supreme Court in the case of Kanhaiya Lal Mukundlal Saraf [Supra] and Tilokchand Motichand v. H.B Munshi, CST [Supra] came up for consideration before the 9Judge Bench in the case of Mafatlal Industries Limited & Ors., [Supra]. Mr. Justice B.P Jeevan Reddy speaking for the majority, summarized the conclusions in para 108 of the judgment. Portions relevant for our purpose, read as under: "108. [i] Where a refund of tax/duty is claimed on the ground that it has been collected from the petitioner/plaintiff - whether before the commencement of the Central Excise and Customs Laws [Amendment] Act, 1991 or thereafter - by misinterpreting or misapplying the provisions of the Central Excises and Salt Act, 1944 read with Central Excise Tariff Act, 1985 or Customs Act, 1962 read with Customs Tariff Act or by misinterpreting or misapplying any of the rules, regulations or notifications issued under the said enactments, such a claim has necessarily to be preferred under and in accordance with th....
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....laim outside the purview of the enactment, can be made either by way of a suit or by way of a writ petition. This principle is, however, subject to an exception. Where a person approaches the High Court or the Supreme Court challenging the constitutional validity of a provision but fails, he cannot take advantage of the declaration of unconstitutionality obtained by another person on another ground; this is for the reason that so far as he is concerned, the decision has become final and cannot be reopened on the basis of a decision on another person's case; this is the ratio of the opinion of Hidayatullah, CJ., in Trilokchand Motichand [Supra] and we respectfully agree with it. Such a claim is maintainable both by virtue of the declaration contained in Article 265 of the Constitution of India and also by virtue of Section 72 of the Contract Act. In such cases, period of limitation would naturally be calculated taking into account the principle underlying clause (c) of subsection [1] of Section 17 of the Limitation Act, 1963. A refund claim in such a situation cannot be governed by the provisions of the Central Excises and Salt Act or the Customs Act, as the case may be, si....
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....chequer. In case of larger claims, it may well result in financial chaos in the administration of the affairs of the State. [viii] The decision of this Court in STO v. Kanhaiya Lal Mukundlal Saraf [Supra] must be held to have been wrongly decided in so far as it lays down or is understood to have laid down proportions contrary to the propositions enunciated in (i) and (vii) above. It must equally be held that the subsequent decisions of this Court following and applying the said propositions in Kanhaiya Lal [Supra] have also been wrongly decided to the above extent. This declaration - or the law laid down in Propositions (i) to (vii) above - shall not however entitle the State to recover the taxes/duties already refunded and in respect whereof no proceedings are pending before any authority or Tribunal or Court as on this date. All pending matters shall, however, be governed by the law declared herein notwithstanding that the tax or duty has been refunded pending those proceedings, whether under the orders of an authority, Tribunal or Court or otherwise." 31. As per this decision, thus, the time limit provisions contained in the Central Excise and Customs laws for....
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....ime. Doing away with the time limit for making declarations could give rise to multiple large scale claims trickling in for years together, after the new tax structure is put in place. This would besides making the task of matching of the credits impractical if not impossible, also impact the revenue collection estimates. It is in this context that the Supreme Court in the case of Mafatlal Industries Limited (Supra), after rejecting the contention that a person can move proceedings for recovery of tax paid upon success of some other person before the Tribunal or Court in getting such tax collection declared illegal, was further influenced by the fact that any such situation could lead to utter chaos, if the claims are large. Under the circumstances, we do not find any substance in the petitioners' challenge to rule 117 (1) of the CGST Rules as well as GGST Rules." III. ANALYSIS 15. Having heard the learned advocates for the respective parties and having gone through the materials on record in order to decide the controversy as to whether Rule 89(5) of the CGST Rules, 2017 is ultra vires or not, it would be relevant to refer to the following provisions of the CGST Act, IGST Ac....
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.... shall be allowed in cases where the goods exported out of India are subjected to export duty: Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies. (4) The application shall be accompanied by- (a) such documentary evidence as may be prescribed to establish that a refund is due to the applicant; and (b) such documentary or other evidence (including the documents referred to in section 33) as the applicant may furnish to establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such tax and interest had not been passed on to any other person: Provided that where the amount claimed as refund is less than two lakh rupees, it shall not be necessary for the applicant to furnish any documentary and other evidences but he may file a declaration, based on the documentary or other evidences available with him, certifying that the incidence of such....
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....n for refund of tax, interest, penalty, fees or any other amount.- (1) Any person, except the persons covered under notification issued under section 55,claiming refund of any tax, interest, penalty, fees or any other amount paid by him, other than refund of integrated tax paid on goods exported out of India, may file an application electronically in FORM GST RFD-01through the common portal, either directly or through a Facilitation Centre notified by the Commissioner: Provided that any claim for refund relating to balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49 may be made through the return furnished for the relevant tax period in FORM GSTR-3 or FORM GSTR-4 or FORM GSTR7, as the case may be: Provided further that in respect of supplies to a Special Economic Zone unit or a Special Economic Zone developer, the application for refund shall be filed by the - (a) supplier of goods after such goods have been admitted in full in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone; (b) supplier of services along with such evidence regardi....
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.... for zero-rated supply of services for which the supply of services has not been completed during the relevant period; (E) ―Adjusted Total Turnover means the sum total of the value of- (a) the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the turnover of services; and (b) the turnover of zerorated supply of services determined in terms of clause (D) above and non-zerorated supply of services, excluding- (i) the value of exempt supplies other than zero-rated supplies; and (ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period. (F) ―Relevant period means the period for which the claim has been filed. (4A) XXXX (4B) XXXX (5) In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula:- Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC / Adjusted Total Turnover} - tax payable on such inverted rated supply of goods and services. ....
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.... shall be granted as per the following formula:- Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC / Adjusted Total Turnover} - tax payable on such inverted rated supply of goods and services. Explanation:- For the purposes of this sub-rule, the expressions - (a) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; and (b) Adjusted Total turnover shall have the same meaning as assigned to it in sub-rule (4)." 16. It would also be fruitful to refer to relevant part of the First Discussion Paper On Goods and Services Tax In India by the Empowered Committee of the State Finance Minister dated 10th November 2009, wherein it is observed for justification of GST as under: "Justification of GST 1.13 Despite this success with VAT, there are still certain shortcomings in the structure of VAT both at the Central and at the State level. The shortcoming in CENVAT of the Government of India lies in non-inclusion of several Central taxes in the overall framework of ....
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.... would have to be ensured that account-heads for all services and goods would have indication whether it relates to Central GST or State GST (with identification of the State to whom the tax is to be credited). (iv) Since the Central GST and State GST are to be treated separately, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. A taxpayer or exporter would have to maintain separate details in books of account for utilization or refund of credit. Further, the rules for taking and utilization of credit for the Central GST and the State GST would be aligned. (v) Cross utilization of ITC between the Central GST and the State GST would not be allowed except in the case of inter-State supply of goods and services under the IGST model which is explained later. vi) Ideally, the problem related to credit accumulation on account of refund of GST should be avoided by both the Centre and the States except in the cases such as exports, purchase of capital goods, input tax at higher rate than output....
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....made it the preferred alternative to customs duties in the context of trade liberalisation. 2. At the same time as VAT was spreading across the world, international trade in goods and services was expanding rapidly as part of globalisation developments, spurred on by deregulation, privatisation and the communications technology revolution. As a result, the interaction between value added tax systems operated by individual countries has come under greater scrutiny as potential for double taxation and unintentional non-taxation has increased. 3. When international trade was characterised largely by trade in goods, collection of taxes was generally undertaken by customs authorities, and when services were primarily traded within domestic markets, there was little need for global attention to be paid to the interaction between national consumption tax rules. That situation has changed dramatically in recent years and the absence of internationally agreed approaches, which can be traced back to that lack of need, is now leading to significant difficulties for both business and governments, particularly for the international trade in services and intangibles, and increa....
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....ion, were sufficiently significant to require remedies. This situation creates increasing issues for both businesses and tax administrations themselves since local rules cannot be viewed in isolation but must be addressed internationally. 7. Businesses are increasingly confronted by distortions of competition that sometimes favour imports over local production or prevent them outsourcing activities as a means of improving their competitiveness. Multi-national businesses are confronted with laws and administrative requirements that may be contradictory from country to country. This generates undue burdens and uncertainties, in particular when they specialise or group certain functions in one particular jurisdiction, such as shared service centres, centralised sales and procurement functions, call centres, data processing and information technology support. Businesses can incur double taxation when two different jurisdictions both tax the same supply, the first one because it is the jurisdiction where the supplier is established and the second one because it is the jurisdiction where the recipient is established. In the case of leasing of goods, for example, a third jurisdic....
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....oresaid report are as under: "BASIC PRINCIPLES I.A. INTRODUCTION 1. There are many differences in the way value added taxes are implemented around the world and across OECD countries. Nevertheless, there are some common core features that can be described as follows: • Value added taxes are taxes on consumption, paid, ultimately, by final consumers. • The tax is levied on a broad base (as opposed to e.g., excise duties that cover specific products); • In principle, business should not bear the burden of the tax itself since there are mechanisms in place that allow for a refund of the tax levied on intermediate transactions between firms. • The system is based on tax collection in a staged process, with successive taxpayers entitled to deduct input tax on purchases and account for output tax on sales. Each business in the supply chain takes part in the process of controlling and collecting the tax, remitting the proportion of tax corresponding to its margin i.e. on the difference between the VAT paid out to suppliers and the VAT charged to customers. In general, OECD countries with value-added taxes impose the tax at all s....
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....tax'. Under the present system of taxation, credit of taxes being levied by Central Government is not available as set-off for payment of taxes levied by State Governments, and vice versa. One of the most important features of the GST system is that the entire supply chain would be subject to GST to be levied by Central and State Government concurrently. As the tax charged by the Central or the State Governments would be part of the same tax regime, credit of tax paid at every stage would be available as set-off for payment of tax at every subsequent stage. Let us understand how 'cascading' of taxes takes place in the present regime. Central excise duty charged on inputs used for manufacture of final product can be availed as credit for payment of Central Excise Duty on the final product. For example, to manufacture a pen, the manufacturer requires, plastic granules, refill tube, metal clip, etc. All Electronic Way Bill in GST 150 GST FLYERS these 'inputs' are chargeable to central excise duty. Once a 'pen' is manufactured by using these inputs, the pen is also chargeable to central excise duty. Let us assume that the cost of all the above mentioned inputs is say,....
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....oposed to be subsumed under GST? Ans. The GST would replace the following taxes: (i) taxes currently levied and collected by the Centre: a. Central Excise duty b. Duties of Excise (Medicinal and Toilet Preparations) c. Additional Duties of Excise (Goods of Special Importance) d. Additional Duties of Excise (Textilesand Textile Products) e. Additional Duties of Customs (commonly known as CVD)" 19. The Circular no.79/53/2018-GST dated 31.12.2018 prescribes the calculation of refund amount for claims of refund of accumulated Input Tax Credit (ITC) on account of inverted duty structure as under: "Calculation of refund amount for claims of refund of accumulated Input Tax Credit (ITC) on account of inverted duty structure: 4. Representations have been received stating that while processing the refund of unutilized ITC on account of inverted tax structure, the departmental officers are denying the refund of ITC of GST paid on those inputs which are procured at equal or lower rate of GST than the rate of GST on outward supply, by not including the amount of such ITC while calculating the maximum refund amount as specified in....
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....nterpretation of the meaning of the term "inputs" with regard to the refund of accumulated ITC of input services and capital goods arising on account of inverted duty structure as under: "Misinterpretation of the meaning of the term "inputs": 12. It has been represented that on certain occasions, departmental officers do not consider ITC on stores and spares, packing materials, materials purchased for machinery repairs, printing and stationery items, as part of Net ITC on the grounds that these are not directly consumed in the manufacturing process and therefore, do not qualify as input. There are also instances where stores and spares charged to revenue are considered as capital goods and therefore the ITC availed on them is not included in Net ITC, even though the value of these goods has not been capitalized in his books of account by the claimant. 13. In relation to the above, it is clarified that the input tax credit of the GST paid on inputs shall be available to a registered person as long as he/she uses or intends to use such inputs for the purposes of his/her business and there is no specific restriction on the availment of such ITC anywhere else....
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....mean "input tax credit" availed on "inputs" during the relevant period other than the "input tax credit" availed for which refund is claimed under sub-rule (4A) or (4B) or both. Therefore, the grievance of the petitioner is that only the "inputs" is referred to in explanation (a) to sub-rule 5 of Rule 89 of CGST Rules 2017 and therefore, "input tax credit" on "input services" are not eligible for calculation of the amount of refund by applying Rule 89(5). Thus, it results into violation of provision of sub-section 3 of Section 54 of the CGST Act, 2017, which entitles any registered person to claim refund of "any" unutilised input tax credit. Sub-clause (ii) of the proviso to sub-section 3 of Section 54 negates the claim of refund of unutilized input tax credit other than where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies, except supplies of goods or services or both as may be notified by the Government on the recommendations of the GST Council. Therefore, it would be germane to refer to and analyse what is the meaning of "supply" as per Section 7 of the CGST Act,2017 which defines the scope of supply and reads a....
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....nking company. Rule 5 of the Banking Companies Rules, 1949, which were statutory rules, required a banking company to send periodically to the principle office of the Reserve Bank a statement in Form-I showing the remuneration paid during the previous calendar year to officers of the company. In a footnote to the Form, it was stated that remuneration includes salary, house allowance, dearness allowance, bonus, fees and allowances to Directors, etc. The contention was that Rule 5 enlarged the meaning and content of Section 10. The contention was repelled but not on the ground that the rule can validly enlarge the content of the Section, but on the ground that the Section itself used the word "remuneration" in the widest sense. It was however acknowledged by the Court that the Rule cannot go beyond the statute. The relevant observations are: - "We do not say that a statutory rule can enlarge the meaning of S.10; if a rule goes beyond what the Section contemplates, the rule must yield to the statute. We have, however, pointed out earlier that S.10 itself uses the word "remuneration" in the widest sense, and R.5 and Form-I are to that extent in consonance with the Section." ....
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....Mudaliar, (1969) 74 ITR 41 that if a rule clearly comes into conflict with the main enactment or if there is any repugnancy between the substantive provisions of the Act and the Rules made therein, it is the rule which must give way to the provisions of the Act. In Bimal Chandra Banerjee v. State of M.P. and Ors., (1971) 81 ITR 105, Hegde J. was examining the provisions of the M.P. Excise Act, 1915. The legislature levied excise duty only on those articles which came within the scope of Section 25 of that Act. The rule-making authority, which was the State Government, purported to levy duty on articles which did not fall within the scope of the Section. Holding this act of the State Government to be ultra vires the Section, it was observed as under: "No tax can be imposed by any byelaw or rule or regulation unless the statute under which the subordinate legislation is made specially authorises the imposition even if it is assumed that the power to tax can be delegated to the executive. The basis of the statutory power conferred by the statute cannot be transgressed by the rule making authority. A rule making authority has no plenary power. It has to act within the limits o....
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....that the value of taxable services for charging service tax has to be in consonance with Section 66 which levies a tax only on the taxable service and nothing else. There is thus in built mechanism to ensure that only the taxable service shall be evaluated under the provisions of 67. Clause (i) of subsection (1) of Section 67 provides that the value of the taxable service shall be the gross amount charged by the service provider "for such service". Reading Section 66 and Section 67 (1) (i) together and harmoniously, it seems clear to us that in the valuation of the taxable service, nothing more and nothing less than the consideration paid as quid pro quo for the service can be brought to charge. Sub-section (4) of Section 67 which enables the determination of the value of the taxable service "in such manner as may be prescribed" is expressly made subject to the provisions of sub-section (1). The thread which runs through Sections 66, 67 and Section 94, which empowers the Central Government to make rules for carrying out the provisions of Chapter V of the Act is manifest, in the sense that only the service actually provided by the service provider can be valued and assessed to servi....
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...., therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 25) This position did not change even in the amended Section 67 which was inserted on May 01, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of subsection (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider. 26) It is trite that rules cannot go beyond the statute. In Babaji Kondaji Garad, this rule was enunciated in the following manner: "Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over s....
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....uch as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of "interpretation of statutes". Vis-àvis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof. 28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that....
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....ed, the entire taxing statute need not be declared as ultra vires because it is feasible to separate taxes levied on authorised subjects from those levied on exempt subjects and to exclude the latter in the assessment to tax. In such cases this Court has said the statute itself should be allowed to stand. The taxing authority can be prevented by injunction from imposing the tax on subject exempted by the Constitution. In the present case the exemption notification as it originally stood exempted all re-rolled finished products sold in the State of Andhra Pradesh from tax provided tax had been paid in the State of Andhra Pradesh on the raw material. This exemption is still available to rerolled products which are manufactured within the State. No exception can be taken to this part of the notification. Only the portion of exemption notification which discriminates against goods manufactured outside the State violates the provisions of Article 304(a). In fact the words denying this exemption to goods manufactured outside the State were expressly and specifically added to the original http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4 exemption notification by the amending G.O.Ms.....