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July 23, 2018

Legal Capsule: Summary of judicial decisions defining the indirect tax landscape in India by Economic Laws Practice

Indian tax litigation landscape assures a plethora of court rulings, given the 24 High Courts and various benches of the Tribunal pronouncing verdicts on a regular basis. Broadly speaking, various issues involved in all types of indirect taxes levied (in the pre-GST era) pertained to classification, valuation, taxability, benefits of exemptions and/or Notifications/Circulars, eligibility of CENVAT credit, input tax credit, refund/rebate/drawback, availability of various schemes under the Foreign Trade Policy for the promotion of exports from India, constitutionality of entry tax, etc. These issues inter alia constitute the major litigation defining indirect taxes landscape in India.

Pursuant to the roll out of GST wef 01 July 2017, the judiciary has been instrumental in disposing of the cases in relation to the erstwhile legislation expeditiously. New Tribunal Benches have been formed and Tribunal Members have resorted to faster ways of disposal of cases by clubbing matters involving similar issues and bulk disposals. Adjudicating authorities and First Appellate Authorities have been transitioned into GST regime and rigorous training is imparted for faster understanding of the new legislation and resolution of queries/issues.

A few of the recent landmark judgments have had industry-wide ramifications for the indirect tax landscape in India. These are summarised below.

State of Kerala & Others vs. Fr. William Fernandez & Others


Supreme Court upholds levy of entry tax on imported goods - 'Origin' of goods held as irrelevant for chargeability of taxes 
  • The Supreme Court of India (“SC”)upholds levy of entry tax on goods imported from outside the country into local areas for consumption, use or sale, under entry tax acts of Orissa, Kerala and Bihar.
  • Concludes that “goods imported after having been released from customs barriers are not immune from any kind of State Taxation, which fall equally on other similar goods”, thus rejecting the assesses’ contention that such immunity shall continue till goods reach the premises where they are to be taken for consumption, sale and use. 
  • Legislation is concerned only with entry of goods into a local area for consumption, use or sale, and the ‘origin’ of goods has no relevance with regard to chargeability of entry tax.
  • This judgment is likely to force companies to reassess their sourcing and supply chains and re-visit pricing for goods being imported for local consumption in an area.

Commissioner of Trade & Taxes, Delhi vs. Arise India Ltd. 


Supreme Court upholds High Court’s quashing of Input Tax Credit disallowance to bona-fide purchaser for seller's default. 
  • SC dismisses Revenue’s Special Leave Petition and refuses to interfere with order of Delhi High Court (“HC”) that held Section 9(2)(g) of Delhi VAT Act - to the extent it disallows Input Tax Credit (“ITC”) to purchaser due to default of selling dealer in depositing tax - as violative of Articles 14 and 19(1)(g) of the Constitution of India.
  • According to the HC, Section 9(2)(g) gave a free hand to Department in deciding to proceed either against the purchasing dealer or selling dealer. In the present instance, the defaulting party was the selling dealer for which the purchasing dealer was expected to bear the consequence. HC observed that failure by Legislature to distinguish between bona fide and non-bona fide purchasing dealers resulted in Section 9(2)(g) applying equally to both the classes of purchasing dealers, which was certainly hit by Article 14 of Constitution.
  • SC grants liberty to Revenue to move the HC with particulars of cases where purchase transactions are not bona-fideto have the matters therein remitted back to the competent authority.
  • This judgement is a big relief to all the bona-fide purchasing dealers across different industries, who could otherwise be held liable for default by the selling dealers

M/s JSW Energy Limited (Maharashtra) 

Advance Ruling Authority [No. GST-ARA-05/2017/B-04]
  • The conversion of coal (supplied by M/s Jindal Steel Limited to the Applicant) into power is considered to be a “manufacture” under GST Act as the product undergoes a complete transformation and electricity is a new commodity which is delivered to M/s Jindal Steel Limited.   
  • Supply of power by the Applicant is not covered under the ambit of job work and shall be considered as a supply between related persons. 

M/s Deepak & Co. (New Delhi) 

Advance Ruling Authority [No. 02/DAAR/2018]
  • Supply of food served on-board trains shall be considered as pure supply of goods and levied to GST according to individual GST rates
  • Supply of newspaper shall attract ‘nil’ rate of GST in accordance with Notification No. 2/2017-Central Tax (Rate) dated June 28, 2017
  • Supply of food in stalls of platform at the rates fixed by Indian Railways shall be classified as “supply of goods” and not as “supply of service” and leviable to individual rates

These cases are shaping the indirect tax framework in the post-GST era in India and are vital for providing clarity to many of the new provisions under this Act. Tax Litigation in India is in a volatile state at present; however, with time, many of the issues will stabilize and a cleaner and a transparent system as envisaged by the Government. The ‘One Nation One Tax’dream is on its way to be realised.

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