TaxTMI 
TaxTMI 
2026 (8) TMI 1116
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....eal-1 Commissionerate in Appeal Nos.563 of 2025, 564 of 2025 & 565 of 2025. The said appeals came to be filed before the Joint Commissioner by the present respondent (hereinafter called the 'taxpayer') under sub-section (1) of Section 107 of the CGST Act against the common Order in Original No. 399 dated 02.02.2025 passed by the Assistant Commissioner of CGST & CX, Chowringhee Division, Kolkata North Commissionerate in case No. JD190225001830, No. JD1902250017988 and No. JD190225001785F. [3]. The adjudicating authority by the said Order in Original (hereinafter called 'OIO') directed the taxpayer to reverse proportionate ITC to the tune of Rs. 74,75,604/- (Rupees Seventy-four Lakhs Seventy-five Thousand Six Hundred Four only) for 03 financial years from 2017-2020 for availing the said sum of ITC on exempt supplies and to pay applicable interest thereon along with penalty of an equal sum of Rs. 74,75,604/- (Rupees Seventy-four Lakhs Seventy-five Thousand Six Hundred Four only). [4]. The aggrieved taxpayer assailed the said order of the adjudicating authority before the appellate authority under sub-section (1) of Section 107 of the CGST Act. As indicated, the appellate authori....
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....in the notice. [9]. The show-cause notice in paragraph 2 contains a table which demonstrates as to how the revenue determined the amount of ITC to be reversed by the taxpayer in accordance with Section 17 of CGST Act read with Rules 42 & 43 of the CGST Rules and the corresponding provisions of the State GST Act and Rules. The table aforesaid is reproduced hereunder:- F.Y Total Taxable Turnover (INR) Total Exempt Turnover (INR) Total Turnover (Taxable+ Exempt) (INR) Exempt Turnover to Total Turnover Ratio ITC Available as per GSTR-3B (INR) Total ITC Reversed (INR) in Table 4B(1) of GSTR-3B ITC to be reversed as per Ratio Computed (INR) Net ITC to be REVERSED 2017-18 36730988 13536249 50267237 0.27 IGST= 80773 IGST= 0 IGST= 21751 IGST= 21751 CGST= 1574848 CGST= 0 CGST= 424084 CGST= 424084 SGST= 1574848 SGST= 0 SGST= 424084 SGST= 424084 IGST= 944607 IGST= 36000 IGST= 408510 IGST= 408510 CGST= 4664897 CGST= 0 CGST= 2017409 CGST= 2017409 2018-19 93991062 71622012 165613074 0.43 SGST= 4664897 SGST= ....
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....- "We Power Tech Global Private Limited registered with GSTIN: 19AAPFA2433C1ZP have not contravened the provisions of Section 17 of the CGST Act, 20173. The brief fact is that we purchased a Drilling Machine (Hydra) from M/s Aqua Construction & Company registered with GSTIN: 19AAPFA2433C1ZP on 31.08.2017 having invoice number AQUA/HDD/09(17-18) only once but by mistake our Chartered Accountant has shown it twice while filing GSTR-1. Still, we have not taken ITC Input twice. Sir, to claim our innocence we are enclosing the invoice of M/s Aqua Construction &Company so that you can verify it as Annexure-1. Sir, we are enclosing the Independent Auditors Report for the period 2017-2018, 2018-2019 and 2019-2020 as Annexure 2. Sir, we are enclosing the list of our suppliers for verification for 2017-2018, 2018-2019, 2019-2020. As Annexure 3. Sir, we enclosing our Bank Statement as Annexure 4 for the disputed period along with our statement of License sales & purchases as Annexure 5 alongwith the invoices. Sir, we will request you to verify all the documents and provide us an opportunity to clear any doubts." [12]. The adjudicating a....
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.... taxpayer. It is pertinent to mention here that the system of self-assessment is specifically incorporated in respect of GST under the provisions of Section 59 of CGST Act, 2017 which reads and is quoted hereunder: "Section 59. Every registered person shall self-assess the taxes payable under this Act and furnish a return for each tax period as specified under section 39." Since the said taxpayer were liable to self-assess the liability to pay tax and/or avail eligible ITC they had an obligation to furnish the correct and complete information, which I gravely note from the Show-Cause-cum-Demand Notice and the records, that the said taxpayer have miserably failed in pursuit of their statutory duty, more so by availing ITC which was procured by obtaining fake invoices when there is no supply of services. Had the department not initiated the scrutiny against the said taxpayer the matter would have gone unearthed. Therefore, the amount of inadmissible ITC wrongly availed and utilized is liable to be reversed or paid under Section 74 of the CGST Act, 2017 read with corresponding Sections of SGST Act, 2017 and Section 20 of the IGST Act, 2017 along with interes....
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....ds for the purpose of determination of taxable liability. Moreover, in view of the amendment to Explanation 1 to Rule 43, CGST Rules, 2017, effected vide Notification No. 14 of 2022 dated 05.07.2022, the taxpayer was entitled to the benefit of exempt supplies (sell of duty credit scrips) with retrospective effect. (ii) In terms of Section 17(2) of the CGST Act, apportionment of ITC should have been restricted to taxable supplies including zero rated supplies only. It should not have included exempt supply duty credit scrips. (iii) The demand for reversal of ITC for sale of duty credit scrips would go against the objective of the Government to incentivise the exporters for promotion of exports and amount to violation of the provisions of Rules 42 & 43 of the CGST Rules, 2017. (iv) Invocation of the provision of Section 74(1) was not warranted in the proceedings because there was no wilful suppression or misstatement contemplated under Section 74(1) of the CGST Act. The taxpayer sought for the rejection of the OIO under the premises aforesaid. [14]. The appellate authority was of the view that sale of MEIS licences falls within the category of exempt sup....
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....al supplies which is taxable in nature. I find that the adjudicating authority in Para 4.2.3 of the impugned order had considered the sale and purchase of MEIS Iicense as 'Exempted Supply' and accordingly ordered to reverse the proportionate ITC to the tune of Rs. Rs. 74,75,604/- alongwith interest and penalty alleging that common ITC had been used for exempted supply as well as taxable supply. 5.5. I find that vide notification no. 14/2022 dt: 05.07.2022 a new clause (d) was inserted in the Explanation-1 to Rule 43 wherein the scope of the said explanation was expanded to exclude the value of duty credit scrips from the aggregate value of exempt supplies for the purpose of the Rule 42 as follows: "[Explanation 1: -For the purposes of rule 42 and this rule, it is hereby clarified that the aggregate value of exempt supplies shall exclude: - (a)... (b)... (c)... (d) the value of supply of Duty Credit Scrips specified in the notification of the Government of India, Ministry of Finance, Department of Revenue No. 35/2017-Central Tax (Rate), dated the 13th October, 2017, published in the Gazette of India, Extraordinary, Part I....
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.... and established principles of statutory interpretations. Now, in view of the findings as discussed hereinbefore and in terms of Sec 107 of the CGST Act 2017, I proceed to pass the following order. ORDER I allow the appeal and reject the orders vide DRC 07 no. ZD1902250018130, ZD1902250017988 & ZD190225001785F dated 03.02.2025 (Order -in-Original No. 399/CHOW/AC/Kol-N/2024-25 dated 02.02.2025) passed by the Assistant Commissioner, Chowringhee Division, Kolkata North Commissionerate. So, the instant case is herewith disposed off accordingly. [15]. The said order of the appellate authority is under challenge before us. [16]. We have heard Mr. Shankha Majumdar, Superintendent, CGST appearing on behalf of the revenue before us. We have also heard Mr. Subham Tulsian, Chartered Accountant, who is representing the respondent in this appeal. [17]. The grounds of the appeal before us are mainly as follows:- i) The sale of duty credit scrips was an exempt supply during the period of assessment from 2017-2020. In terms of the statute, the taxpayer is not entitled to ITC for exempt supplies, therefore, the adjudicating authority lawfully directed th....
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....s also duly been discharged by him. But, insofar as the question of sale of duty credit scrips is concerned, the said scrips are received as rewards in order to encourage exports. Once issued by the Government, such scrips can be sold as such and does not require any taxable input. Therefore, the duty credit scrips cannot be treated at par with other exempt goods and services and as such the appellate authority has rightly held that ITC availed by the taxpayer on the sale of duty credit scrips is not reversable. The taxpayer has, therefore, sought for dismissal of the appeal. [20]. In the course of his arguments, Mr. Shankha Majumdar, Superintendent, vehemently contended that the appellate authority committed serious error in holding that amendment of Rule 43 of CGST Rules effected by Notification No. 14/2022 dated 05.07.2022 would be given retrospective effect since it conferred a benefit to the taxpayer. It was argued by Mr. Majumdar that the sale of duty credit scrips falls in the category of exempt supplies and since the taxpayer availed ITC on such exempt supplies during the assessment period before the Notification came into force, he was legally bound to reverse the ITC a....
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....he Government litigation. The Circular fixed monetary limits for filing of appeals or application by the revenue before the GST Appellate Tribunal, High Courts and Supreme Court which clearly indicates that for filing appeals before the GSTAT, such monetary limit would be Rs. 20,00,000/-. It is submitted by Mr. Tulsian that the Circular has statutory force since it has been issued by the competent authority in exercise of powers conferred under Section 120(1) read with Section 168 of CGST Act pursuant to the recommendation of GST Council. Mr. Tulsian has further contended that unless the policy framed by the Government of India for the purpose of reducing litigation by fixing a monetary limit is adhered to by the departmental officer, the goal to be achieved by such policy will be frustrated. Mr. Tulsian concludes his submission on this issue by contending that the present appeal does not fall within the ambit of any of the exclusions provided under paragraph 4 of the Circular and, therefore, the appeal is required to be dismissed in limine. [24]. In continuation of his arguments Mr. Tulsian contends that the order impugned is passed on a sound reasoning. According to him the ap....
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....d 05.07.2022 retrospectively whereby the value of duty credit scrips was excluded from the aggregate value of exempt supplies by insertion of clause (d) after clause (c) in Explanation 1 to Rule 43 of CGST Rules, 2017 by way of amendment? iii) Whether in the given facts and circumstances of the case, the Revenue was legally correct in invoking Section 74(1) of the CGST Act, 2017 against the taxpayer? FINDINGS [28]. As regards the question as to whether this appeal is entertainable in view of the monetary limit for filing appeal before the GSTAT fixed by Circular No. 207/1/2024-GST dated 26.06.2024 issued by the Government of India, Ministry of Finance, Department of Revenue, the argument of the revenue is that the Circular is not applicable to this appeal because clause-viii of paragraph 3 of the said circular has provided in unambiguous terms that whenever more than one appeals have been decided by a composite order, the amount involved in individual appeal or individual demand notice shall not be considered for determining as to whether it falls within the threshold of such monetary limit. Rather the total amount of tax/interest/penalty/late fee, as the case may be....
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....l Litigation Policy which was conceived with the aim of optimizing the utilization of judicial resources and expediting the resolution of pending cases. It underscores the importance of prudent litigation practices by establishing thresholds for filing appeals in Revenue matters. Specifically, the Policy mandates that appeals should not be pursued when the amount involved is below a specified monetary limit set by Revenue authorities. Furthermore, it discourages filing appeals in cases where established precedents from Tribunals and High Courts have settled the matter and have not been contested in the Supreme Court. [31]. Undoubtedly the said circular has statutory force because the Central Board of Indirect Taxes and Customs (hereinafter called 'CBIC') has been empowered under Section 120(1) read with Section 168(1) of CGST Act, 2017 to issue such orders or instructions or directions fixing the monetary limit to regulate the filing of the appeal. It would be appropriate to reproduce Section 120 and Section 168(1) of the CGST Act, 2017 for the sake of clarity. The said Sections read as under:- "120. Appeal not to be filed in certain cases. - 1) The Board may, ....
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....x, Mazgaon, Mumbai in paragraph 17 has succinctly held as under:- 17. The circular issued by the CBDT and CBIC are having binding character as far as its officers are concerned not as far as judicial authorities like High Court exercising jurisdiction under Article 226 or 227 of the Constitution of India. We are also of the opinion that since the Tribunal is not department under CBIC any circular issued by the CBIC does not have a binding effect on Tribunal. However, it can be looked into for the purpose of interpretation, having persuasive role. In this connection, we rely upon two judgments. 1. K.P. Varghese v. ITO [1981] 7 Taxman 13/131 ITR 597 (SC), 2. Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC) [italics supplied by us] [33]. Since the matter has been raised before us by the parties, we have given due consideration to the said Circular in order to ascertain the bearing of the said circular on this appeal. Paragraph 1.1 of the circular contains the entire provision of Section 120 of CGST Act, 2017. Paragraph 2 of the circular fixes the monetary limits in the tabular form for fling the appeal before the GSTAT, High Court and Supreme Court. Para....
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....or the Court, as the case may be, that the appeal in such cases was not filed only for the reason of the amount of the tax in dispute being less than the specified monetary limit and, therefore, no inference shall be drawn that the decisions rendered therein were acceptable to the Department. Accordingly, they should draw the attention of the GSTAT or the Court towards the provisions of sub-section (4) of section 120 of the CGST Act, 2017 as reproduced in para 1.1 above. [34]. From a careful reading of the contents of the circular, it has appeared to us that under the directions contained in the circular, the revenue has to carefully consider the various principles laid down under this circular before filing such appeal. It is contended by the revenue that they have strictly followed the instructions contained in the circular. Clause viii of paragraph 3 of the circular and the exclusion clause provided in clause iv of paragraph 3 of the circular have been specifically referred to which support the contention of the Revenue that filing of the present appeal is not affected under this circular. We find force in the submission of the Revenue. There is, therefore, no merit in the co....
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....ecified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon with effect from such date as may be specified in such notification. [40]. Therefore, the goods or services or both notified under sub-section (1) of Section 11 of the CGST Act, 2017 shall be treated as exempt supply as defined under clause (47) of Section 2 of the CGST Act, 2017. The Central Government, in exercise of its power, conferred under the said sub-section (1) of Section 11 of CGST Act, 2017 came out with Notification No.2 of 2017 from the Ministry of Finance, Department of Revenue with effect from 28.06.2017, whereby the supply of some goods and services specified in the schedule appended to the said notification were exempted from the central tax leviable thereon under Section 9 of the CGST Act, 2017. There were as many as 148 items in the said schedule. The duty credit scrips were not then included in the said list of the exempt supplies. [41]. 03 months later, the Government of India by similar statutory notification No. 35 of 2017 dated 13.10.2017 amended its earlier Notification No.2 of 2017 dated 28.06.2017 referred to in the precedin....
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....(3) of the CGST Act empowers the Central Government i.e. the Rule Making Authority to give retrospective effect to the rules or any of them from a date not earlier than the date of which the provisions of CGST Act, 2017 came into force. In the wisdom of the Rule Making Authority, they brought the amendment in force with a prospective effect from 05.07.2022 despite having power under the enabling provision of Section 164(3) of the Act to effect it retrospectively. [45]. But the appellate authority having ignored the specific provision provided under the amended Rules of 2022 applied the said amendment retrospectively in favour of the taxpayer for the assessment made for transactions made by him 04 years back in 2017-2020 and allowed his appeal on the analogy that the amended rule being beneficial to the taxpayer, its benefit cannot be denied to him by applying the rule prospectively. [46]. The appellate authority, however, relied on various decisions of the Hon'ble Apex Court to arrive at such conclusion. As we have gathered from the impugned order passed by the first appellate authority, it relied on the following judgments of the Hon'ble Supreme Court :- i) Sedco Fo....
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....on by the first appellate authority, the Hon'ble Apex Court decided a batch of criminal appeals and Special Leave Petitions where the following 03 questions arose before the Hon'ble Apex Court :- i) When can the provisions of Section 3(1) of the Terrorist and Disruptive Activities (Prevention) Act, 1987 (hereinafter referred to as the 'TADA') be attracted ? ii) Is the 1993 amendment amending Section 167(2) of the Code of Criminal Procedure by modifying Section 20(4)(b) and adding a new provision of Section 20(4)(bb) applicable to the pending cases i.e. is it retrospective in operation ? iii) What is the true ambit and scope of Section 20(4) and Section 20(8) of TADA in the matter of grant of bail to an accused brought before the designated court and the factors which the designated court has to keep in view while dealing with the application for grant of bail u/s.20(4) of the Act and for grant of extension of time to the prosecution for further investigation under clause (bb) of Section 20(4) of the Act and incidentally whether the conditions contained in Section 20(8) of TADA Control, grant of bail under Section 20(4) of the Act also? [49]. The Hon'bl....
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....Court that a beneficial circular has to be applied retrospectively while oppressive circular has to be applied prospectively. Thus, when the circular is against the assessee, they have right to claim enforcement of the same prospectively. Paragraphs 2 and 3 of the judgment reads as under:- 2. We have heard Mr. A.R. Madhav Rao, learned counsel for the appellant and Mr K. Radhakrishna, learned Senior Counsel for the respondent. We have perused the orders passed by the lower Authorities and also of the Tribunal. The point raised by the learned counsel for the appellant is covered by the recent judgment of this Court in Civil Appeal No. 4488 of 2005, Commissioner of Central Excise, Bangalore versus M/s. Mysore Electricals Industries Ltd., reported in 2007 (204) E.L.T. 517. In the said Judgment, this Court held that a beneficial circular has to be applied retrospectively while oppressive circular has to be applied prospectively. Thus, when the circular is against the assessee, they have right to claim enforcement of the same prospectively. 3. In view of the submission made by the learned counsel for the appellant and also of the judgment of this Court in Mysore Electri....
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....herefore, contended that the proviso brought by way of amendment should be given effect to retrospective date when Section 43B became a part of income Tax Act, 1961. As it is intended to obviate unexpected hardships in the application of Section 43B, the Hon'ble Apex Court in paragraph 15.2 on this issue has held as under:- 15.2. Certain courts have interpreted the provisions of section 43B in a manner which may negate the very operation of this section. The interpretation given by these courts revolves around the use of the words any sum payable. The interpretation given to these words is that the amount payable in a particular year should also be statutorily payable under the relevant statute in the same year. Thus, the sales tax in respect of sales made in the last quarter was held to be totally outside the purview of section 43B since the same is not statutorily payable in the financial year to which it relates. This is against the legislative intent and, there fore, by way of inserting an Explanation, it has been clarified that the words 'any sum payable', shall mean any sum, liability for which has been incurred by the taxpayer during the previous year irresp....
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....d be read as forming a part of section 43B from its inception. This submission has taken support from decisions of a number of High Courts before whom this question came up for consideration. The High Courts of Calcutta, Gujarat, Karnataka, Orissa, Gauhati, Rajasthan, Andhra Pradesh, Patna and Kerala appear to have taken the view that the proviso F must be given retrospective effect. Some of these High Courts have held that "sum payable under section 43B(a) refers only to the sum payable in the same accounting year, thus excluding sales tax payable in the next accounting year from the ambit of section 43B(a). The Delhi High Court has taken a contrary view holding that the first proviso to section 43B G operates only prospectively. We will refer only to some of these judgments." [italics supplied by us] [54] The issue we are dealing with in the case in hand is that whether Explanation 1(d) inserted in Rule 43 of GST Rules, 2017 which excludes the value of supply of duty credit scrips from the aggregate value of exempt supplies with effect from 05.07.2022 for the purpose of calculating proportionate ITC reversal of the taxpayer could be applied retrospectively to allow th....
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....le Apex Court was of the view that where the statute is curative or merely clarificatory of previous law, retrospective operation thereof may be permitted. In the case in hand, apparently the amendment to Rule 43 was not brought to cure or clarify any doubts or ambiguity. [57]. With a view to the discussion made above, we are of the considered view that the first appellate authority was not correct in applying the said amendment in Rule 43 retrospectively in favour of the taxpayer. In our view, the rule framers intended to enforce the amendment prospectively and there is no reason to alter it in favour of the taxpayer. The issue is accordingly decided. [58]. Now, the issue which we are going to decide is whether Section 74(1) of the CGST Act, 2017 under which the SCN No.8/SC/GST/Chow/Kol-N/2024-25 dated 01.089.2024 was issued against the taxpayer could be invoked in the given facts and circumstances of the case. In order to decide this question, we need to have a look at the provision of law at the outset. Section 74(1) of the CGST Act, 2017 reads as under : Section 74. Determination of tax [,pertaining to the period up to Financial Year 2023-24,] not paid or short p....
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....axpayer has also uploaded his annual returns on the portal. There is, therefore, no act of non-submission or non-declaration of facts or information on the part of the taxpayer. He also produced the invoices to bring to light the fact that he used to sell duty credit scrips. Therefore, no mala fide intention could be attributed to the taxpayer. [61]. Pursuant to the direction of the Hon'ble Supreme Court in the case of Northern Operating Systems Private Limited (NOS) in Civil Appeal No.2289-2293 of 2021, an instruction bearing No.05/2023-GST was issued by CBIC vide F.No. CBIC-20004/3/2023-GST, dated 13th December, 2023 stating therein that Section 74(1) can be invoked only in cases where there is a fraud or wilful mis-statement or suppression of facts to evade tax on the part of the said taxpayer. The said instruction contains that Section 74(1) cannot be invoked merely on account of non-payment of GST, without specific element of fraud or wilful mis-statement or suppression of facts to evade tax. It also provides that only in the cases where the investigation indicates that there is material evidence or fraud or wilful mis-statement or suppression of fact to evade tax on the pa....
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....ment in Form GSTR-3B. He never concealed that he availed ITC on the value of supply of duty credit scrips. The department was not also unaware of the fact that he supplied duty credit scrips during the financial years 2017-20. When both sides were aware of the fact, the taxpayer cannot be accused of fraud or wilful suppression. In the case of Anand Nishikawa Co. Ltd. Vs. Commissioner of Central Excise, Meerut, reported in (2005) 7 SCC 749, the Hon'ble Supreme Court in paragraph 26 of the judgment succinctly held that the "suppression of facts" must be construed strictly, it does not mean any omission and the act must be deliberate and wilful to evade payment of duty. The relevant observations of the Hon'ble Supreme Court in para 26 are as under:- 26. In Tata Iron & Steel Co. Ltd. vs. Union of India & Ors [1988 (35) ELT 605 (SC)], this Court held that when the classification list continued to have been approved regularly by the department, it could not be said that the manufacturer was guilty of "suppression of facts". As noted herein earlier, we have also concluded that the classification lists supplied by the appellant were duly approved from time to time regularly by the....