As Per the Employees’ Provident Funds (Amendment) Scheme, 2014 enforced
w.e.f. 1st September, 2014. Wherever Word Rupees Six Thousand Five Hundred
( 6,500/-) occurs, the word Rupees Fifteen Thousand ( 15,000/-)is to be substituted.

The Employees Provident Funds and Miscellaneous provisions Act, 1952 is enacted to provide a kind of social security to the industrial workers. The security, however, differs from the security provided to them under the Workmen’s Compensation Act or the Employees’ State Insurance Act. The Employees’ Provident Funds and Miscellaneous Provisions act mainly provides retirement or old age benefits, such as :—

1) Provident Fund,

2) Superannuation Pension, Individual Pension, Family pension and

3) Deposit linked insurance.

Provision for Terminal benefit of restricted nature was made in the Industrial Disputes Act, 1947, in the form of payment of retrenchment compensation. But this benefit is not available to a worker on retirement, on reaching the age of superannuation or voluntary retirement.

The Employees’ Provident Funds and Miscellaneous Provision Act, 1952 is intended to provide wider terminal benefits to the industrial workers. For example, the act provides for payment of terminal benefits in various contingencies such as retrenchment, closure, and retirement on reaching the age of superannuation, voluntary retirement, resignation and retirement due to incapacity of work.

Provident Fund

1) Provident Fund is a social Security Benefit to employees.

2) It is a compulsory saving by an employee during his employment.

3) It is meant for old age

4) This is required to be availed on retirement from service.

5) An employee who contributes to provident fund is also eligible to receive a matching contribution from his employer.

6) Your provident fund is named as “Employees Provident Fund”

Employees Provident Fund Act / Scheme

1) Employees’ Provident Fund is set up under the Central Act viz. Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, in the year 1952

2) It is applicable throughout the country.

3) It is applicable to almost all establishments falling under the industries / class of establishments, wherein 20 persons are employed

4) In the case of cinema theatres workers it is applicable to such establishments wherein 5 persons are employed.

5) Benefits to an employee are provided through the schemes framed under the Act.

6) Provident Fund benefits are provided under the Employees’ Provident funds Scheme, 1952

7) Pensions benefits are provided under the Employees’ Pension funds scheme, 1952

8) Insurance benefits are provided under the Employees’ Deposit Linked Insurance Scheme, 1976

9) A member of Employees’ Provident fund is automatically eligible for pension and Insurance benefits without paying any additional amount of contribution.


  1. Every establishment which is a factory engaged in any industry specified in Schedule 1 and in which 20 or more persons are employed and

  2. Any other establishment employing 20 or more persons which Central Government may by notification, specify in this behalf (Infancy period of 3 yrs has been withdrawn by ordinance, w.e.f. 22-9-1997)

  3. Any establishment employing even less than 20 persons can be covered voluntarily u/s 1(4) of the Act.

  4. Any establishment registered under Co-operative Societies Act, 1912, or any State Act of Co-operative Societies, Employing 50 or more employees’
    and working without the aid of power.

  5. The Employees’ Provident Fund act is applicable to the cinema theatre employing 5 or more workers.

    1. If an establishment consists of different departments / branches, whether located in the same place or in different places, all such departments or branches are treated as part of the same establishment.

    2. The Act continues to apply even if the number of employees falls below 20 employees

Non Applicability

Any establishment registered under Co-operative Societies Act, 1912, or any State Act of Co-operative Societies, Employing less than fifty employees and working without the aid of power.

  1. To any establishment under the control of Central / State Government, having their own scheme / rules for Contributory Provident Fund or Pension for its employees.

  2. To any establishment set up under central, Provincial or State Act having its own scheme / rules for P. F. and Pension for its own employees.

  3. To any establishment, which is exempted by the Central or State Government by notification because of its financial position.

  4. To apprentices appointed under Apprentices Act 1961 or under Standing Orders of the establishment.

  5. To employees whose pay exceeds ₹ 15,000/-(w.e.f. 1st Sept., 2014) at the time of joining service.


  1. Any person who is employed for work of an establishment or employed through contractor in or in connection with the work of an establishment where salary is less than ₹15,000/- p.m. and optionally covered where salary exceeds ₹15,000/- p.m. (w.e.f. 1st Sept., 2014).

  2. Any person who is classified as disabled employee under new para 82 of the Employees Provident fund Scheme, 1952 and working in the private sector, with monthly wages upto ₹25,000/- p.m. provided they are appointed on or after 01-4-2008.

  3. Any person who is classified as International Worker under new para 83 of the Employees Provident Fund Scheme, 1952.

A contribution of P.F. is to be deducted on (as per the Supreme Court Judgment Dated : 28th Feb., 2019)

  1. On Basic Wages.

  2. Dearness Allowances. (Special Allowance in Maharashtra) & all allowance which are commonly paid to all employees.

Except following

Principles laid down for allowances to be excluded for PF Deduction of contribution:

  • Allowances which are variable in nature;

  • Allowances which are linked to any incentive for production resulting in greater output by an employee; or

  • Allowances which are not paid across the board to all employees in a particular category; or

  • Allowance which are paid especially to those who avail the opportunity.

  • House Rent Allowance

  • Overtime Allowance

  • Statutory Bonus

  • Leave Encashment

  • Production or Incentive Bonus

  • Service charges collected from customers and paid to employees

  • Notice pay in lieu of termination

  • One month wage u/s 33(2)(b) of Industrial Disputes Act

Voluntary Coverage

If the employer and the majority of employees agree by a settlement to be bound by the provisions of the act and make application to the effect to the Central Provident Fund Commissioner u/s. 1(4)

Clubbing of Two Establishment

In such cases the tests are:— 1) Unity of ownership, 2) Unity of Management, 3) Unity of Control, 4) Unity of Finance, 5) Unity of Labour, 6) Unity of employment, 7) Functional integrality, 8) Continuity of process, 9) Inter-transferability of employees.

To Compute 20 or more Employees Following Employees are Counted

The permanent, temporary, full time, part time, casual, time – rated, piece – rated employees, contract employees, persons employed in various departments, head office, branches, sales offices, godowns or any other different places etc. and sales representatives are counted for computing the employment strength. Apprentices engaged under the Apprentices Act. 1961 are not counted for the purpose of applicability.

Excluded Employee

1) An employee who, having been a member of the Fund, has withdrawn the full amount of his contribution in the Fund (a) on retirement from service after attaining the age of 55 years of (b) migration from India for permanent settlement abroad; or for taking employment abroad;

1) An employee whose pay at the time he is otherwise entitled to become a member of the fund, exceeds ₹ 15,000/- per month (w.e.f. 1st Sept., 2014)

2) A person who, according to the Certified Standing Orders, is an apprentice, or who is declared to be an apprentice by the authority specified in this behalf by the appropriate Government.

Contribution rates w.e.f 1st April 2017

Employee’s Contribution 12% and

Employers Contribution 12% plus 1.00% = 13.00%

From employers contribution out of 12% contribution 8.33% is deposited in the Employees’ Pension Fund subject to a ceiling that the contribution payable by the employer be limited the amount payable on his pay of
₹ 15,000/-pm hence maximum contribution under Employees’ Pension Fund will be ₹ 1,250/-. And balance 1.00% includes administrative charges and EDLI Contribution.

Provident Fund Challans Consist following Accountants and Rate of Contribution w.e.f 1st June 2018:–

A/c. No.




























***Explanation on the PF Notification No : 742 Dated: 15-3-2017 for Reduction in Rate of Administrative Charges from 0.85% to 0.65% of the pay:–

w.e.f. 01/04/2017 Minimum Administrative Charges under A/c II for non-functioning Establishments/Factories shall be ₹ 75/- pm and for operational Establishments/Factories Minimum Administrative Charges shall be
₹ 500/- pm

From June 2018 Salary Admin Charges under A/c II has further reduced from 0.65% to 0.50%.

Employees’ Provident Fund Scheme Started w. e. f. 15-11-1952

Salary Slab

Rate of Contribution for Less than

Rate of Contribution for 50 or More employees

Adm. charges

Inspection charges in r/o exm. estt.

Eligibility period of membership

(₹ 1,000/-) from 1-1-1961 to

(6.1/4%) from 1-1-1952 to 31-7-1988 (for less than 50 employees)

(6.1/4%) from 1-1-1952 to 31-12-1962 (For 50 or more Employees)

(0.37%) from 1-1-1952 to
30-9-1986 (min. ₹ 5/- w.e.f. 1-12-1978)

(0.09%) from 1-1-1952 till date

(240 days/ 12 moths) from
1-1-1952 to 31-8-1974

(₹ 1,600/-) from 1-12-1976 to 31-8-1985

(8.1/3%) From 1-8-1988 to 21-9-1997 (for less than 50 Employees)

(8%) from 1-1-1963 to 1-8-1988 (For 50 or more Employees)

(0.65%) from 1-10-1986 to 31-7-1988

(0.09%) from 1-11-1952 to

(120 days/ 6 months) from 1-2-1981 to

(₹ 2,500/-) from 1-9-1985 to 31-10-1990

(10%) from 22-9-1997 till date

(8.1/3%) from 1-8-1988 to 31-5-1989 (for 50 or more Employee)

(1.10%)from 1-8-1998 till date

(0.18%)(0.09%) from 1-8-1998 till date

(60 days/ 3 months from
1-2-1981 to

(₹ 3,500/-) from 1-11-1990 to 31-10-1990


(10%) from 1-6-1989 to 30-4-1997 (For 50 or more Employees)


On Dt. of joining from 1-11-1990 but as per CPFC circular w.e.f. 1-5-1995

(₹ 5,000/-) from 1-1-1994 to 31-5-2001


(10%) from 1-5-1997 to 21-9-1997 10% for 20 and above w.e.f. 1-5-1997


On Dt. of joining from 1-11-1990 but as per CPFC Circular w.e.f. 1-5-1995

₹ 5,000/-


(12%) from
22-9-1997 to


₹ 6,500/- w.e.f. 1-6-2001


(12%) from 1-6-2001

From 1-4-2017 0.65%


₹ 15,000/- w.e.f. 1-9-2014


(12%) from 1-6-2001

From 1-6-2018 0.50%

  1. Benefits— Provided under the Scheme

There are Three kinds of Benefits Provided under the Scheme:-

  1. Withdrawl Benefit

  2. Benefit of non-refundable advances

  3. Benefit of financing of Life Insurance Policies.

(i) Withdrawl Benefit:-

  1. A member can withdraw the full amount standing to his credit in the Fund in following circumstances immediately:—

    1) Retirement after attaining the age of 55 yrs.

    2) Retirement due to incapacity of work

    3) Migration for permanent settlement abroad

    4) Mass Retrenchment

    5) Voluntary Retirement

    6) Closure of Establishment

    7) Transfer to an establishment not covered under the Act

    8) Discharge with payment of retirement compensation, etc.

  2. In all the other cases of leaving servicers he can withdraw the full amount if he remains unemployed after the waiting period of two months unemployment.

(ii) Benefit of Non-Refundable Advances:-

Non refundable advances from the amount standing to the credit of a member in the Fund can be sanctioned for the following purposes:-

1) Purchase of Dwelling Site

2) Purchase of Dwelling House/Flats

3) Construction of House

4) Illness viz Hospitalisation for more than a Month, major surgical operation, or suffering from T.B., Laprosy, Paralysis, Cancer, Heart Ailment etc.

5) Marriage of a self /son/ daughter/sister/brother

6) Post Matriculation Education of Son/Daughter.

7) Damage to the property due to natural calamity (Floor / Riot / Earthquake)

8) Member affected by cut in the supply of electricity

9) Members who is physically handicapped

10) Investment in Varishtha Pension Bima Yojana

(iii) Benefit of Financing of Life Insurance Policies

1) Where a member desires that premium due on a policy of Life Insurance taken by him on his own life should be financed from his Provident Fund Account

(Provided that no such payment shall be made unless the premium is payable yearly)

[(A member employee can also withdraw full amount standing to his credit. In fund (para 69)….]

  1. On Resignation.

  2. On Retirement from the service on attaining the age of 55yrs.

  3. On Retirement on account for permanent or total incapacity to work.

  4. Immediately before Migration from India for permanent settlement abroad or for taking up employment abroad.

  5. On Termination due to voluntary retirement scheme, retrenchment, closure of the factory / establishment.

  6. Withdrawal within one year before the retirement:- It permit withdrawal of upto 90 per cent of the amount standing at his credit, at any time after attainment of the age of 54 years by the Member or within one year before his actual retirement on superannuation, whichever is later.

  7. Option for withdrawal at the age of 55yrs for investment in Varishtha Pension Bima Yojana:- On an application from a Member in such form as may be prescribed, permit withdrawal of upto 90% of the amount standing at his credit at any time after attaining the age of 55yrs by the Member, to be transferred to the Life Insurance Corporation of India for investment in Varishtha Pension Bima Yojana

Rules & Regulations for Loan, Advance & Withdrawal from EPF

Minimum Service Limit for EPF Loan

Did you find yourself eligible for partial withdrawal of EPF? Do you have one of the above reasons? Yes? Still, you may not get the PF money. There is minimum service condition for each cause.

No Minimum Service Limit

  • Medical Treatment

  • Calamity

  • Pre Retirement

Minimum 5 Years of Service

  • Home or Plot Purchase

  • Construction of House

  • Alteration or Addition in Home

Minimum 7 Years of Service

  • Marriage

  • Education

Minimum 10 Years of Service

  • Home Loan Repayment

  • Home Repair

Rules of PF withdrawal before Leaving the Job

You can take the non refundable Loan from the EPF account. But it does not mean that you should prefer this option. Never try to touch the retirement fund.

You can withdraw the PF money if you leave the job and remain unemployed for 2 months. Even in some circumstances you can get PF money just after leaving the job. But to withdraw amount from EPF during the job, you have to fulfill many conditions.

  1. You have to fulfill the minimum service need. The best part is the duration of the service is total. Duration of each job is added to this calculation, given you have transferred your PF accountsto the new job. Now you can transfer the PF amount easily with the introduction of UAN.

  2. There is a limit on the amount you can withdraw. It can be up to 36 times of your wages (basic+DA). The maximum amount for withdrawal depends upon the reason of PF withdrawal.

  3. You need to give proof of the reason you have mentioned.

Let us see the conditions of partial PF withdrawal for each purpose.

PF Withdrawal for Marriage

  • You can withdraw from the EPF account on the occasion of marriage. The marriage can be of yourself, sister, brother, son or daughter.

  • The minimum service period for this advance is 7 years.

  • You can withdraw up to 50% of the total employee contribution. You can use this reason 3 times in your life.

  • Marriage invitation card along with the application should be submitted through the employer.

PF Withdrawal for Education

  • You can withdraw fund for the education of self and children.

  • You should have completed a total service of 7 years.

  • You can get up to 50% of the employee contribution.

  • This option can be used 3 times in a lifetime.

  • You should attach bonafidecertificate duly indicating the fees payable from the educational institution.

PF Advance for Medical Treatment

  • You can take an advance from PF account for the treatment of self, spouse, children and parents.

  • There should be hospitalization for more than a month. If the claimant is an employee, he should have taken leave from the organization.

  • You can avail advance in case of TB, leprosy, paralysis, cancer, mental derangement or heart ailment without the hospitalization.

  • You have to give the certificate from the doctor stating the hospitalization need. In case of above mentioned disease you need to give the certificate from specialist doctor.

  • You can take 6 times of wages (basic+DA) or total employee share, whichever is less.

  • There is no limit on the frequency.

Purchase Home or Construction Using PF Money

  • Buying home or plot is one of the most important decisions of life. We invest most of our savings on this. But do you want to compromise with your retirement years. Think about this before applying for PF withdrawal.

  • You can withdraw from PF for the purchase of a home or construction of the house only once.

  • You must have completed 5 years in service.

  • Property should be registered in the name of self or jointly with spouse

  • There should not be any joint owner of property other than the spouse.

  • You can get 36 times of wage (basic+DA) for this purpose.

  • You need to give a filled declaration form with the application.

EPF Loan for Buying a Plot

  • PF money can be also used for buying a plot.

  • You can avail the withdrawal facility for purchase of plot only once.

  • You must have completed 5 years in service.

  • There should not be any co-owner of the property other than the spouse.

  • You can get 24 times of wages (Basic+DA).

  • You need to give a copy of the purchase agreement.

  • You should give a declaration with the application.

Alteration or Addition in the House

  • You must have completed 5 years in service.

  • At least 5 years after the construction of house.

  • You can get 12 times of wages.

  • Property should be owned by you or jointly with the spouse. Only once in service.

  • Alteration proof is required.

  • Repair of House

  • All the condition is similar to the alteration of house except you have to wait at least 10 years after the construction of house.

Lockout of the Company

  • If you are not getting wage for last two months and your company is locked out or closed for at least 15 days, you can take a loan from EPF.

  • You can get the amount equal to your unpaid wages.

  • There must have balance in employee contribution.

  • You can check your PF balance through various methods.

  • If closure has been for more than 6 months, you can also use the employer’s contribution. (Do you wait for such a long time)

Withdrawal Prior To Retirement

  • You must have completed 57 years of age

  • Retirement should be after one year.

  • You can get up to 90% of the total provident fund balance.

  • You need to give a certificate from the employer stating the date of retirement.

In Case of Calamity

  • There is no condition of minimum service.

  • You have to give certificates of damage from competent authority. You can get up to 50% of the employee share.

  • No other condition.

The Form and Process of Applying for PF Advance

To get the partial amount of EPF you have two ways to apply. The first way is the preferred one. In both the method you need to attach a declaration form with the application if you are taking advance for the following purposes.

  • Flat or plot purchase

  • House construction

  • Alteration or addition

  • Repair of the house

Option 1

Now, member have very easy way to partially withdraw the EPF amount. The EPFO has come with a simple new EPF withdrawal form 31 (new). This form requires very few information

The best thing about this form is that it does not require the approval from the employer. Yes, member can directly submit this form online. But to use this easy facility, member need UAN activated and KYC done.

Option 2

If a member can’t get advance through the first method, member can apply through the employer.

member should use form 31 for the advance through the employer. member can download this form from the EPFO website.

Time to Get the PF Advance

The application submitted through the first method would take less time. member can expect money within a week. But the second method can take up to one month. It depends on employer’s promptness. Some regional PF offices take more time.

Rate of Interest on PF Accumulation as Declared by Central Government


Rate of Interest







Compound interest, at a rate determined by the Central Government from Time to Time, is paid on the amount standing to the credit of a member as on 1st day of April every year.

From 1st April 1993, the yearly interest to be computed on monthly running balance

Rate of Damages on Delayed Payment of Contribution


Up to 2 Months


@5%per annum


Above 2 Months & up to 4 months


@10%per annum


above 4 Months & up to 6 Months


@15%per annum


Above 6 Months


@25%per annum

Plus Simple Interest @ 12% P.A. is charged separately on delayed payment of contribution

Employees’ Deposit Linked Insurance Scheme, 1976, (E. D. L. I)

The purpose of the scheme is to provide life insurance benefits to the employees of the establishments covered by the E. P. F. & M. P. Act, 1952. As such, the scheme is applicable to the employees of all factories and other establishments covered by the said Act.


Vide Notification No. 8 published in Gazette of India Part II – Section 3 – Sub-section (i) dated 8-1-2011, in paragraph 22, after sub-paragraph (2), of the Employees’ Deposit Linked Insurance Scheme, 1976 a new sub-Para 22A has been inserted, namely:

“(22A) On the death of an employee, who is a member of the Fund or a provident fund exempted under Section 17 of the Act, as the case may be, who was in the employment of the same establishment for a continuous period of twelve months, preceding the month in which he died, the persons entitled to receive the provident fund accumulations of the deceased shall, in addition to such accumulations be paid an amount, equal to :—

  1. The average monthly wages drawn (subject to a maximum of rupees six thousand five hundred before 24th May, 2016, after than ₹ 15,000/- to be considered) during the twelve months preceding the month in which he died, multiplied by twenty times, or :-

  2. The amount of benefit under sub-paragraph (i), Whichever is higher.

In view of the above amendments, family members of deceased employee are entitled for higher EDLI benefits of ₹ 6,00,000/-, if he has served for more than 12 months or more with same establishment.

On the death of an employee insurance amount is payable to nominee or family members

Maximum benefit = ₹ 6,00,000/- (w.e.f. 24th May, 2016)

Minimum Amount Payable ₹ 2,50,000/- (Upto Two years w.e.f 15-2-2018)

For claiming EDLI Benefit Form No 5 IF to be submitted to the PF Authority.

Note:- EDLI Contribution from the Regional PF Commissioner can be obtain and subsequently this coverage can be taken from any Government or Private Insurance Companies.

Employees’ Pension Scheme, 1995

  1. Definition

Employees’ Pension Scheme is a survivor, old age and disability pension scheme. The Earlier Family Pension Scheme, 1971 offered only one type of benefit, namely survivors benefit, i.e. payment of pension to widow/widower on death of the member in service. On the other hand, the new scheme caters for three types of contingencies:-


Survivor pension


If death occurs during service period


Old Age Pension


Pension on Superannuation.


Permanent Disability Pension


In the event of member suffering permanent disability while in service Minimum pension amount will be ₹ 1000/- pm. Even if not rendered pensionable service provided that he/ she has made atleast one month’s contribution to the pension fund.

  1. What is Meaning of (a) Actual Services, (b) Past Services, (c) Pensionable Services, (d) Eligible Services, and (e) Pensionable Salary?

    1. Actual Service means the service rendered from 16-11-1995 or from the date of joining, whichever is later, to the date of exit.

    2. Past Service means the service rendered from the date of joining the Family Pension Fund till 15-11-1995

    3. Pensionable Service means the service for which contributions have been received or are receivable

    4. Eligible Service means the actual service plus past service.

    5. Pensionable Salary means the average monthly pay drawn in the span of 12 months preceding the date of exit from the membership of Employees’ Pension Fund.

  2. Characteristics

In the scheme three scales of pensionary benefits have been offered according to the length of service

Early Pension on Cessation of Employment

Old age pension on account of superannuation/retirement is normally payable on attaining the age of 58 yrs or 60 yrs. However, member cannot opt for taking earlier than 58 yrs. on his exit from employment but under no circumstances pension will be payable before the age of 50 yrs. A member who desires to draw monthly pension from a date earlier than 58 yrs. of age will be allowed to draw a monthly reduced pension due on the date of exit form employment. If the member is subsequently employed in a covered establishment, his pensionable service in the scheme certificate will be taken into account for working out his full pensionable service.

Scheme Certificate

There are occasions when a member may leave employment and or may move from a covered establishment to an uncovered establishment before he reaches the date of superannuation, he may opt for a scheme Certificate. The certificate will indicate his pensionable salary and the amount of pension due on the date of exit from employment. If the member is subsequently employed in a covered establishment, his pensionable service in the scheme certificate will be taken into account for working out his family pensionable service.

Widow Pension:-

1) Widow pension is of the three categories- i) of death of the member during service ii) on the death of the member after leaving service but before attaining the age of 58 yrs. and iii) in case of death of the member after commencement of payment of monthly members pension.

2) Widow on death of the member during the service is equal to monthly member’s pension.

3) The essential conditions for grant of widow pension are as follows:-

  1. The death of the member occurred while in service.

  2. The member has contributed at least one month’s contribution.

  3. The member had not attained the age of 58 yrs.

  4. The death of the member had taken place before the commencement of monthly member’s pension.

1) Children Pension :-

  1. The member left behind three children one daughter aged 20 yrs, two sons aged 16 yrs and 12yrs, elder son will get pension. The daughter will get pension for 5 yrs by which time she will be 25 yrs of age after 5 yrs. of the vesting of pension. After the daughter ceases to be the beneficiary, the youngest child, then aged 12yrs, will start receiving pension till the age of 25 yrs.

  2. The amount of children pension will be @ 25% of widow pension for each of the two children, viz. 25% + 25% of ₹1087 or ₹272 + ₹ 272 for two children.

2) Widow Pension after Commencement of Monthly Pension

1) In case of death of the member after vesting of pension, the amount of widow pension is payable @50% of the monthly member’s pension subject minimum of
₹ 250/- p.m. for example

Mr. ‘Z’ a pensioner dies at the age of 66 yrs. leaving behind his widow aged 62 yrs.

Mr. ‘Z’ drawing pension @ ₹ 1000/-pm. The widow pension in this case will be ₹ 500/-pm.

2) In case the member leaves behind any child less than 25 yrs of age, children pension is payable for each equal to 25% of the widow pension subject to a minimum of ₹ 115/- pm.

Payment / withdrawal of Provident Fund Amount

On retirement from service after attaining 55 years of age.

  1. On retirement due to total in capacity for work caused by bodily or mental infirmity.

  2. On migration from India for permanent settlement abroad or for taking employment abroad.

  3. On termination of service

  4. On retrenchment.

  5. On termination under voluntary retirement scheme.

  6. On closure of an establishment

  7. On transfer from a factory that is covered to an establishment not covered.

  8. On discharge.

  9. On the death of a member.

    In case of death of a member, the amount is payable to the nominee and in the absence of nominee, to the members of the deceased’s family except the following:—

    1. Sons of the deceased employee or the sons of deceased sons who attained majority.

    2. Married daughters whose husbands are alive of the deceased employee or his deceased son.

  10. If it becomes payable to a person charged with murder, the payment stands suspended till the conclusion of the proceedings. If convicted, the amount is payable to eligible members. If acquitted, it is payable to him.

Procedure of Payment

  1. Every employee shall forward an application in Form 19 for payment of PF amount at his credit,

    In cases specified under clauses within Five days to the commissioner duly attested.

  2. In case of death, the application is to be sent within 5 days of its receipt by the employer.

  3. If the applicant is unable to send the application through the employer, he can send it directly to the commissioner who will forward it to the employer for re-submission to him within five days.

3) Payment of Pension Through Banks

The pension is disbursed through Nationalised Banks of the respective state. The member/ pensioner are required to open an account in the Bank where pension is desired and indicate the option in the application in Form 10-D.

Mode of Recovery of Provident Fund Dues

Any amount of contribution, damages, accumulations required to be transferred, or administrative charges due from an employer may be recovered from him in any of the following modes:-

  1. Attachments and sale of the movable or immovable property of the establishments of employer.

  2. Arrest of the employer and his detention in prison

  3. Appointing a receiver for the management of the movable or immovable properties of the establishment of employer.

The recovery shall be made by the recovery officer pursuant to a Recovery Certificate issued by the authorised officer specifying the amount of arrears.

Other Mode of Recovery of Provident Fund Dues

Besides, the modes aforesaid, the authorised officer may recover the amount by any of the following modes:-

  1. Recovery from any person of amount due from him to employee who is in arrears

  2. Application for release of money, to the court in whose custody there is money belonging to the employer

  3. Recovery by distraint and sale of movable property.

After Marriage Earlier Nomination Becomes Invalid

As per the EPF Act, only defined family members can be nominated in an EPF account.

  1. In the case of a male member ”family” means his wife, his children (whether married or unmarried), his dependent parents and his deceased son’s widow and children.

  2. In the case of a female member, “family” means – her husband, her children (whether married or unmarried), her dependant parents, her husband’s dependent parents and her deceased son’s widow and children.”

However, the rules of nomination for EPF and EPS are different.

“Family, in respect of whom nomination may be made, is defined differently for the purpose of Provident Fund Scheme and Pension Scheme.

In the case of EPF, a member has an option to nominate even his/her parents, apart from spouse and children. However, in the case of EPS, a member can nominate only his spouse and children.”

“After marriage, member can still nominate his parents (irrespective of his gender) or any other family member as defined in the law, in his EPF account. However, for pension scheme account, he can only nominate his spouse and children after his marriage.”

As per the rules, if the EPF member does not have any family member as defined above, then he/she can nominate any other person but the nomination will become invalid when the person acquires a family, as per the law.

The member is required to make nomination using Form 2.

Recently, EPFO (Employees’ Provident Fund Organisation) has launched the e-nomination facility on the member e-sewa portal.

EPF members whose account is Aadhaar-linked and verified (KYC Completed) can use the facility to make fresh nominations (e-Nomination).

Benefits to the family on the death of a Member.

  1. (1) [Pension to the family] shall be admissible from the date following the date of death of the member if the member dies-

(a) While in service, provided that at least one month’s contribution has been paid into the Employees’ Pension Fund, or

(b) After the date of exit but before attaining the age of 58, from the employment having rendered service entitling him/her to monthly members’ pension but [before the commencement of pension payment, or],

(c) After commencement of payment of the monthly members pension.

Note.- The cases where a member has rendered less than 10 years eligible service on the date of exit but has retained the membership of Pension Fund, and dies before attaining the age of 58 years, shall be regulated under sub-paragraph (8) of paragraph 12.

(2) (a) The monthly widow pension shall be :-

(i) In the case covered by clause (a) of sub-paragraph (1) equal to the monthly member’s pension which would have been admissible as if the member had retired on the date of death of ₹ 450 or the amount indicated in Table “C” whichever is more.


Offences / Contraventions


Whoever makes any statement knowing it to be false or by means of misrepresentation with intention to avoid making of payment towards Employees Provident Fund or deposit Linked Insurance Fund.

Imprisonment up to 1 year or find of ₹ 5000 or both.

Commission of default in the payment of administrative charges towards Employers Provident Fund or payment of inspections charges

Imprisonment up to 3 years and fine of ₹ 5000 (minimum imprisonment for 6 months)

Commission of default in making payment of Employee’s contribution u/s. 6 of the Act

Imprisonment up to 3 years and fine of ₹ 10000/- (Minimum imprisonment for 1 year)

Commission of default in payment of contribution or administrative charges or inspection charges towards the Deposit Linked Insurance Fund

Imprisonment up to 1 year and find of ₹ 5000/- or both (minimum imprisonment for 6 months)

Commission of default or contravention in the compliance of any of the rule and provisions of the Act

Imprisonment up to 1 year or fine up to ₹ 4000

Commission of default or contravention of any of the conditions under which exception u/s. 17 was granted.

Imprisonment up to 6 months and fine up to ₹ 5000/-

Commission of any further and subsequent repetition of offence after previous conviction / offence.

Imprisonment up to 5 years and fine up to ₹ 25,000/- (minimum imprisonment 2 years.)

  1. A charitable society, which is an association of members, is registered with the Charity Commissioner, but has not been registered under section 12A/12AA. It has surrendered its tenancy in an office premises for  75 lakh, which has been held by it since 1970, and is buying a new office premises on ownership basis for 80 lakh. Is the capital gains on such surrender chargeable to tax?

Ans. The surrender of tenancy rights in respect of premises used as an office gives rise to long term capital gains, where the cost of the tenancy rights is to be taken as nil under section 55(2)(a). Such capital gains is not exempt under section 11(1A) on account of reinvestment in another capital asset, as the society is not entitled to exemption under section 11, since it is not registered under section 12A/12AA. The society is also not entitled to exemption under sections 54 or 54F, as the new property being acquired is not a residential house. Tenancy rights is also not part of the block of assets of Non-residential buildings, in which block the new office premises would fall. Therefore, the entire sales proceeds of the tenancy rights would be subject to long term capital gains tax.

  1. An Indian citizen, A, is working as crew of a ship operating worldwide, owned by a foreign shipping company and sailing under a foreign flag. He left India during the financial year 2020-21 on the ship on a new contract, and was in India for 20 days during the year. He anticipates that he will not be present in any other country for more than 15 days during the financial year, and will therefore not be a tax resident of any country during the year. He has income in India only by way of interest on NRO deposits of 12 lakh, and on NRE deposits of 15 lakh. He seeks advice on whether his salary as the crew of the ship for financial year 2020-21, which would be directly credited to his NRE account in India, would be taxable in India? Also, what would be the position if his interest on NRO deposits was more than  15 lakh during the year?

Ans. Under section 6(1) of the Income-tax Act, 1961, since A left India for the purposes of employment during the year, and was in India for less than 182 days during the year, he would be regarded as a person not resident in India.

The Finance Act 2020 has however inserted a new sub-section (1A) to section 6, which overrides sub-section (1), and provides that an Indian citizen, having total income, other than income from foreign sources, exceeding ₹ 15 lakh during the previous year, is deemed to be resident in India for that year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.

In this case, A is an Indian citizen and not a resident of any other country. Though his gross income from Indian sources is ₹ 27 lakhs, out of such income, ₹ 15 lakh is exempt from tax under section 10(4A), and therefore his total income from Indian sources is only ₹ 12 lakh. His salary as crew of the foreign ship is from foreign sources, and is therefore not to be considered for this purpose. Therefore, this provision also would not apply to him, and he would be regarded as a person not resident in India.

In case his interest on NRO deposits was more than ₹ 15 lakh, assuming that he has not claimed any deduction under Chapter VI-A by which his total income for Indian tax purposes has reduced below ₹ 15 lakh, the total income would be more than ₹ 15 lakh. In such a situation, A would be regarded as a person resident in India by virtue of section 6(1A). He would however be a person resident but not ordinarily resident in India, as section 6(3), amended by the Finance Act 2020 provides that such a person deemed to be a resident in India under section 6(1A) would be a person resident but not ordinarily resident in India.

In either case, whether a non-resident or a resident but not ordinarily resident, all income received in India is taxable. The salary directly credited to A’s NRE account may be regarded as received in India. Fortunately, the CBDT has clarified vide Circular No 13 of 2017, dated 11.4.2017 that salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in the total income merely because the said salary has been credited in the NRE account maintained with an Indian bank by the seafarer. Therefore, such salary of the seafarer for work done on the foreign ship outside India will not be taxable in India.

  1. A company has over 10,000 employees working all over India. Due to the lockdown, all the offices are closed since 24th March 2020, and are expected to remain closed till 3rd May 2020. The employer has therefore not been able to get declaration from the employees regarding their proposed investments, and whether they intend to opt for the concessional tax rates under section 115BAC. The salaries for April 2020 are to be paid on 30th April 2020. How should the employer compute the estimated tax liability of the employees?

Ans. It is well settled law that the employer should make a best estimate of the tax liability of the employees, given the relevant information that he is in his possession. Due to the lockdown, the employer has no information other than that of salary income, details of Provident Fund contributions of employees, and details of tax saving investments made in the past years by the employees. The employer would therefore be justified in estimating the investments which the employee would make in the current year, pending receipt of declarations from employees after the lockdown is lifted. The estimates can be revised after declarations are received.

The CBDT has issued a circular C1 of 2020 dated 13th April 2020, clarifying that an employee intending to avail of the concessional rate under section 115BAC has to intimate the employer of such intention in each financial year. The employer can then make deduction and compute the tax liability in accordance with section 115BAC. As per the circular, if such intimation is not made by the employee, the employer shall deduct TDS without considering section 115BAC. The employer may not be able to judge whether section 115BAC is advantageous to the employee or not, as the employer would not have details of house property loss of the employee, investments being made under section 80C, mediclaim premium under section 80D, donations eligible under section 80G, etc. Since the employer would not be in a position to judge whether the employee will opt for section 115BAC or not, he would need to compute the tax liability under normal provisions, ignoring section 115BAC.

  1. Date of issuance of completion certificate is the date of project completion :

Facts : The Applicant company is engaged in development of real estate projects. The company is having a project at comprising of 77 individual saleable units. The said project is residential-cum-commercial project. Out of total of 77 units, the company has booked 33 units in advance and received consideration in advance in respect of those 33 units when the project was under construction. The company has duly collected and paid applicable service tax or GST on those 33 units. The project has been completed fully in all respect and the company has also applied for completion certificate before the competent authority. However the said completion certificate has still not been received. Out of those 33 units sold, the company has provided the possession to 4-5 buyers. Thus First Occupancy has been provided by the Company in the project premises. Now the company desires to book rest of the 44 units wherein it has not received any consideration in advance before the first occupancy. That Structural Engineer has also certified the fact that work has been completed in the applicant’s project and issued completion Certificate. The Applicant sought to know whether the sale / booking of units in a project after its first occupation and receipt of advance against that booking is classifiable under Para 5 of Schedule-III to the CGST Act, 2017 as sale of building and thus neither regarded as Supply of goods nor supply of services? Thus whether the same is outside the purview of Goods and Services Tax? Whether the booking of units in a project and consequently receipt of advance against that booking after first occupation of the project, where the project has been completed and promoter has applied for issuance of completion certificate, which is pending before local authority; is outside the purview of Goods and Services Tax?

Observations & Findings : As per Schedule-II of CGST Act, 2017 provides that, the following shall be treated as supply of services, namely:- “Construction of a complex, building, civil structure or a part thereof, including a or building intended for sale to a buyer, wholly or partly except where the entire consideration has been received after of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier”.

Ruling : The date of issuance of completion certificate by the competent jurisdictional authority in the instant case shall be considered as the date of completion of the property and if the entire amount of consideration has been received after such date of completion, then that would not be treated as a taxable service. If any part of the consideration is received before such date, then the transaction would be treated as a supply of service as per clause 5 of Schedule II to the GST Act, attracting the levy of GST. The first occupation as claimed by the applicant in the instant case, without having the mandatory completion certificate by the jurisdictional authorities is found to be devoid of any merit.

[2020 (3) TMI 240 – AAR, CHHATTISGARH – AMAN AGRAWAL (Bilaspur Infrastructure Pvt. Ltd]

  1. Supply of health care service (Physiotherapy)

Facts : The Applicant, stated to be providing a form of treatment called “Physiotherapy” to cure osteoarthritis and disorders of similar nature, seeks a ruling on whether the above service is exempted under serial no 74 of the Notification No 12/2017 Central Tax (Rate) dated 28/06/2017, as amended. It also wants to know whether it needs to stay registered under the GST Act.

Observations & Findings : Entry No. 74 (a) of the Exemption Notification exempts inter alia health care services by a clinical establishment from payment of GST. Para No. 2 (zg) of the said notification defines health care services. It means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of the body affected due to congenital defects, developmental abnormalities, injury or trauma. ‘Clinical establishment’ within the meaning under Para No. 2(s) of the Exemption Notification, is a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India, or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases. The term ‘recognised system of medicine’ is not defined in the GST Act or notifications issued thereunder.

Ruling : The Authority did not accept the Applicant’s claim that it is a clinical establishment offering treatment in the recognised ayurvedic system of medicine. Its supplies are not, therefore, health care service by a clinical establishment, as defined under Para No. 2(s) of the Exemption Notification. Applicant’s supply is, therefore, not exempt under Entry No. 74 of the Exemption Notification. It needs to remain registered, as its liability to pay GST does not cease.

[2020 (3) TMI 896 – AAR, West Bengal – Optm Health Care P Ltd.]

  1. Input Tax Credit on Vehicles :

Facts : Applicant intends to lease out vehicles like trucks, tankers, etc. without operator to goods transport agencies. It wants to know, Whether supply of services by way of leasing of goods transport vehicles without operators to goods transport agencies would be exempt under Sl. No. 22(b) of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017. Whether the credit of input tax paid on purchasing of motor vehicles is admissible or not.

Observations & Findings : Rental service of transport vehicles with operator is taxable under Sl. No. 10 of Notification No. 11/2017 – CT (Rate) dated 28-06-2017 . But it does not apply to the Applicant’s case, as the Applicant intends to lease out the vehicles without operator.

Section 17(5)(a) of the GST Act does not allow input tax credit on inward supply of motor vehicles of a specific category (those meant for transportation of persons having seating capacity not exceeding thirteen persons). The restriction, therefore, does not apply to the goods transport vehicles. Sl. No. 17(iii) of the Rate Notification does not prohibit claiming input tax credit on the goods given on lease.

Ruling : The Applicant’s service of leasing goods transport vehicles is classifiable under SAC 997311 and taxable under Sl. No. 17(iii) of Notification No. 11/2017 – CT (Rate) dated 28-06-2017. The Applicant can claim input tax credit in accordance with law on the goods transport vehicles so leased out.

[[2020] 113 424 (AAR-WEST BENGAL) – Ishan Resins & Paints Ltd.]

  1. Composite Supply :

Facts : The Applicant is engaged in the activity of providing technological and system solutions, including electrification, industrial automation, motion and robotics, data management and production control systems. Rail Vikas Nigam Ltd., has awarded it the contract for ‘extension of SCADA for Noapara – Dakshineswar Metro Corridor’. The Applicant seeks a ruling on whether Entry 3(v) of Notification No. 11/2017 – Central Tax (Rate) dated 28/06/2017, is applicable for its supply to RVNL by way of erection, commissioning, installation, completion etc. of SCADA System.

Observations & Findings : According to Serial No. 3 (v) (a) of the Rate Notification, the composite supply of works contract, as defined under section 2(119) of the GST Act, supplied by way of construction, erection, commissioning, or installation of original works pertaining to railways, including monorail and metro, is taxable at 12% rate.

Ruling : The Applicant is making a composite supply of works contract taxable under Entry No. 3 (v) (a) of Notification No. 11/2017 – Central Tax (Rate) dated 28/06/2017.

[2020 (3) TMI 895 – AAR, West Bengal – ABB INDIA LTD.]

  1. Crushing of Food Grains :

Facts : The Applicant intends to supply to the State Government the service of crushing food grains supplied by the Government, whole, unpolished food grain for processing. The Applicant will return the grain after crushing. The processed food grain will be used for distribution through the PDS. The Applicant seeks a ruling whether the above activity is exempt under SI No. 3 or 3A of Notification No 12/2017 CT (Rate) dated 28/06/2017.

Observations & Findings : In its Circular No. 51/25/2018-GST dated 31/07/2018 the Central Government clarifies that the service tax exemption under Sl No. 25(a) of Notification No. 25/2012 dated 20/06/2012 (hereinafter the ST Notification) has been substantially, although not in the same form, continued under GST vide SI No. 3 and 3A of the Exemption Notification. The activity is in relation to any such function, the supply to the governments or governmental authorities/entities or local authorities is exempt, provided it is either a pure service or a composite supply, where supply of goods does not constitute more than 25% of the value.

Ruling : The Applicant’s agreement with the State Government binds both the supplier and the recipient in such a way that neither can divert the food grains to any use other than distribution through PDS, the Applicant’s composite supply of crushing the food grains belonging to the State Government and delivery of the crushed grains will be exempt under Sl.No. 3A of Notification No 12/2017 CT (Rate) dated 28/06/2017.

[[2020] 114 369 (AAR-WEST BENGAL) – Sakshi Jhajharia]

  1. Transfer of title in goods :

Facts : The applicant is engaged in the supply of automotive components such as door locks and strikers (in short parts’) for various sectors of the automotive industry. As per the agreement entered into with the foreign supplier manufactures the parts and the same are physically imported into India. However, the moulds developed by the foreign supplier are retained with the supplier and are not physically imported into India. Thus, there is only a transfer of ownership in the mould from the foreign supplier to Applicant and the foreign supplier retains the physical possession of the moulds. The Applicant raises separate invoices on the Indian buyer i.e., one for the supply of parts and another for transfer of ownership of the moulds from the Applicant to the Indian buyer. The applicant sought to know whether GST will be applicable on the transfer of title in moulds from applicant to Indian buyer?

Observations & Findings : In view of the expression Supply as defined under Section 7 of the CGST Act 2017, the transfer of title in goods, constitutes a supply.

Ruling : GST is applicable on the transfer of title in moulds from the applicant to the India buyer.

[[2020] 115 99 (AAR – TAMILNADU) – Automative Components Technology India (P.) Ltd.

  1. Works Contract :

Facts : The applicant has entered into joint development agreement with land owners for development of plots which also includes construction of concrete roads and compound walls, development of garden, construction of drain and water supply system and erection of electric poles and transformer etc. The applicant seek to know whether it is covered in para 5 of Schedule III (Sale of Land) or classified under works contract and how the valuation would be done.

Observations & Findings : Provisions in the agreement state that applicant has no right over the land and consequently the applicant cannot claim to be engaged in the activity of sale of land as envisaged in the provisions of entry at Serial number 5 of said Schedule III. The provisions of this entry will apply only to those persons who are the owners of the land and not to persons who are incidental to the sale of land. Section 15 of the CGST Act, 2017 provides that the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply where the supplier and the recipient are not related and the price is the sole consideration.

Ruling : The activities performed/to be performed by the applicant cannot be classified under Para 5 of schedule Ill. It amounts to supply of services under works contract and is liable to be taxed under GST Act. Rule 31 applies in the instant case and the value of supply is equal to the amount received/receivable by the applicant

[2020 (3) TMI 442 – AAR, MADHYA PRADESH – Vidit Builders]

  1. Input Tax Credit Immovable Property :

Facts : The Applicant, a Co-operative Housing Society registered, provides various services to its Residents for which members are charged Maintenance charges under various Heads like – Service Charges, Electricity Charges, Lift Charges, Insurance, etc. The Applicant Society charges GST on such Maintenance Bills as applicable. It seeks to know whether it entitled to ITC of GST paid on replacement of existing lift/elevator at its own premises to vendor registered under GST Act for manufacture, supply, installation and commissioning of lift/elevator, as lift, after erection and installation is an immovable property because it becomes part of an immovable property that is building.

Observations & Findings : Explanation to Section 17(5) is very clear. ITC is available for “plant and machinery”. Plant and machinery means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes – Land, building or any other civil structures.

Ruling : the Applicant, shall not be entitled to claim Input Tax Credit of GST paid on replacement of existing lift/ elevator at its own premises to the vendor registered under the Goods and Services Tax Act for manufacture, supply, installation and commissioning of lift/ elevator.

[[2020] 114 233 (AAR – MAHARASHTRA) – Las Palmas Co-operative Housing Society Ltd.]

  1. Input Tax Credit on Demo Cars :

Facts : The applicant is an authorized dealer for Maruti Suzuki India Limited for supply of motor vehicles and spares and for servicing as also for some other commercial vehicle manufacturers. The applicant has made purchases of motor vehicles against tax invoice which are reflecting in the books of account as capital goods. The vehicles are used as demo cars for providing trial run to customers to understand the features of the vehicle. This is an essential part of marketing and sales promotion to facilitate supply of cars. The applicant seeks to know whether they are entitled to take ITC on cars used as domo cars.

Observations & Findings : As per section 17 (5) (a) the input tax credit shall not be available on motor vehicles except when they are used for making further supply of such motor vehicles. The further supply of such demo motor vehicle are made after one or two years and constitutes a taxable supply and GST is paid thereon. GST Act does not prescribe the time within which further supply is to be effected. Hence, the impugned tax credit is available.

Ruling : The applicant is entitled to avail Input tax credit charged on inward supply of Motor Vehicle which are used for Demonstration purpose in the course of business of supply of Motor Vehicle as input tax credit on capital goods and whether the same can be utilised for payment of output tax payable under this Act.

[[2020] 113 365 (AAR – MAHARASHTRA) – Chowgule Industries (P.) Ltd.]

  1. Restaurant Service :

Facts : The applicant intends to serve food and beverages for consumption in a restaurant, which is owned and operated by one ‘C’ and is situated in a retail arcade and ‘C’ also operates a hotel under the brand name ‘JW Marriott’ on the same plot as the arcade. The Hotel offers rooms for lodging and boarding which have a declared tariff above Rs.7500 per day. It sought to know that What would be the rate of tax applicable to the applicant providing restaurant services as per facts of the case mentioned.

Observations & Findings : As per Sl. No. 7(iii) of Notification No. 11/2017-CT(Rate), dated 28-6-2017, as amended, supply of food or drinks in a restaurant for consumption within the restaurant premises or away from the restaurant premises, where the restaurant is located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes with a tariff of Rs.7,500 and above per unit/room per day or equivalent for any unit/room in the premises, the applicable rate of GST will be 18%.

Ruling : Rate of tax applicable in the subject case is 18% GST (9% each of CGST and SGST).

[[2020] 114 234 (AAR – MAHARASHTRA) – Kutting Fusion Hospitality LLP]

  1. Transactions before 01/07/2017 :

Facts : The Applicant has stated that they had entered into an agreement, dated November 21, 2016 with the contractee for construction of a Building. As per the Agreement the applicant received ‘Mobilization Advance’ from the contractee before the implementation of the GST, i.e., prior to 01/07/2017. They have also stated that, on receipt of ‘Mobilization Advance’ the applicant had paid Service tax. It sought to know that are they liable to pay GST on the amount of Mobilisation Advance adjusted against the invoices raised during the GST regime.

Observations & Findings : Section 142(11)(b) applies to transactions in services on which Service tax was leviable and it over-rides Section 13 of GST law which states that liability to pay tax on services arise at the time of supply as determined by provisions of Section 13.

Ruling : The Mobilisation advance to the extent received prior to the implementation of GST towards supply of Works Contract Service is not to be subjected to GST as per the provisions of Section 142(11)(b) of the GST Act 2017.

[2020 (3) TMI 295 – AAR, Tamil Nadu – Shapoorji Pallonji and Company P Ltd.]





(D Y Chandrachud & Sanjiv Khanna, JJ)

Dated: February 28, 2020

Transitional Credit – TRAN-1 – Section 140 – Rule 117- CGST Act

Supreme Court dismissed SLP filed by Union of India against Punjab & Haryana High Court judgment whereby it was had held that nobody shall be denied to carry forward legitimate claim of CENVAT/ITC on the ground of non-filing of TRAN-1 by 27.12.2017. The Apex Court did not feel inclined to exercise its jurisdiction under Article 136 of the Constitution.

This dismissal of SLP has paved way for a number of persons to claim their unutilised credit on the appointed day even if they had not filed TRAN-1 within the stipulated time. Though dismissal of SLP may not be considered as binding precedent of Supreme Court but since P&H High Court was based upon many other judgments in this regard from other High Courts, this case would certainly have impact on the outcome of those cases, wherever they have been challenged.

The amendment incorporated in Section 140 of CGST Act through Finance Act, 2020 may not have much impact on the rights of persons who have already succeeded through writ petitions as the said judgments were not based upon the non prescription of time in the section which is now being sought to be rectified.

Special Leave to Appeal (C) No. 4408/2020




[Dr. Dhananjaya Y Chandrachud & Ajay Rastogi JJ]

Dated: April 13, 2020

Classification – Entries in Schedule – Drugs – Medical Oxygen IP – Nitrous Oxide IP – Are Drugs – Drugs and Cosmetics Act 1940 – Taxable under Entry 88 of Schedule IV of Andhra Pradesh VAT Act, 2005.

The short point of law that arose in this case was whether “Medical Oxygen IP” and “Nitrous Oxide IP” are taxable under Entry 88 of Schedule IV of the Andhra Pradesh Value Added Tax Act 20051 or as “unclassified goods” under Schedule V. The classification of the two products determines the rate of tax to be levied on them – 4%/5% 2 under Entry 88 or 12.5%/14%3 under Schedule V.

The Apex Court upholding the judgment passed by the Andhra Pradesh High court has held in favour of the respondent Assessee that the substances ‘Medical Oxygen IP’ and ‘Nitrous Oxide IP’ should be taxed as drugs under Entry 88 of the AP Value Added Tax Act, 2005, and not as ‘unclassified goods’.

Contention was raised by the state against the inclusion of the said products under clause 3(b)(i) of Entry 88 on the grounds that these were substances and not medicines. These could not be included since the said Entry specifically excluded ‘medical grade oxygen’. The said products were absent in the given entry. Moreover, for a substance to be included in the said Entry, it had to be covered by the definition as given in 3(1)(b) 1940 Act.

Observing the publication from WHO, and various judgments from other High Courts, the court highlighted the curative and instrumental use of Medical Oxygen IP and Nitrous Oxide IP in the prevention and mitigation of disease and disorder. Therefore, the court upheld the order of the High court that the said substances are used for or in the diagnosis or treatment or mitigation or prevention of any disease or disorder in human beings falling within the ambit of S 3(b)(i) of the 1940 Act and hence are included under Entry 88 of the 2005 Act.

Civil Appeal No 2230 of 2020




(D Y Chandrachud & Ajay Rastogi, JJ)

Dated : February 19, 2020

Anti Profiteering – National Anti-Profiteering Authority – Challenge to Vires of Section 171 of CGST Ac and Rule 126 of CGST Rules – Petitions transferred to Delhi High Court for uniformity of view

Various persons being aggrieved by the orders of The National Anti-Profiteering Authority Challenged the Constitutional validity of Section 171 of the CGST Act read with Rule 126 of the CGST Rules before High Courts under Article 226. The petitions were pending before the High Courts of Delhi, Bombay and Punjab & Haryana. The National Anti-Profiteering Authority approached Hon’ble Supreme Court seeking transfer of cases pending before Bombay High Court to Delhi High Court. Considering the fact that Twenty writ petitions are pending before the Delhi High Court and two writ petitions which are the subject matter of the present Transfer petitions are pending before Bombay High Court it would be appropriate and proper that in the interests of a uniform and consistent view on the law, all the writ petitions should be transferred to the High Court of Delhi, where earlier writ petitions are already pending.

Transfer Petition (Civil) Nos. 290-292 of 2020


High Court of Punjab and Haryana




(S. Muralidhar & Avneesh Jhingan JJ)

Dated : March 13, 2020

Classification – Entries in Schedule – Mango Drink namely ‘Slice’ etc. – Fruit Drink even if it has fruit pulp content of 16% only and remaining being Sugar and Water – otherwise the drink would become unfit for consumption – Entry did not intend to mean that it should be made only of fruit – Where Two Views are possible – one which favours the assessee should be adopted.

In this case the question arose was whether the mango drink ‘Slice’ happens to be a fruit drink or not.

The Revisional authority had passed an order against the assessee -company holding that the said drink promoted by it was not a fruit drink since it contained only 17% mango pulp. Rest 83% included water, sugar and other natural/ artificial flavours. Hence, it was exigible to tax @ 12.5 % being an unclassified item. The appellant however, urged that the said drink was a fruit drink and water is required for solubility and sugar for taste and increasing shelf life. It thus ought to be covered under Entry 100-D of Schedule C of HVAT Act.

The Hon’ble High Court has clarified that on perusal of Entry 100D of Schedule C it is clear that the legislature used the word ‘drink’ made of ‘fruit’; it did not intend that the percentage of the fruit in such drinks should be so high to a point of making it impossible to drink. It would not be possible to classify a product as fruit drink which is no different from concentrate.

Entry 100-D of the Schedule C of the HVAT Act does not admit of a narrow interpretation particularly when it uses the words ‘fruit drinks made of’ the fruit in question. Even if one applied the common parlance the Appellant is right in contending that Slice does not cease to be a drink made of fruit only because the actual Fruit content is only 16%.

Also, when two diverse views are possible, one beneficial to the assessee should be preferred.

Hence, slice is a fruit drink falling under entry 100D of Schedule C of the Act.

VATAP No. 338 of 2019

Gujarat High Court




(J.B. Pardiwala & A.C. Rao JJ)

Dated: February 14, 2020

Review – Transitional Credit – TRAN-1 – Section 140 – Rule 117- CGST Act- Departmental Review dismissed.

Revenue file a Review Petition in the case of Siddharth Enterprises allowing filing of TRAN-1 after prescribed time time, contending that it was in ignorance of earlier judgments of Willowood Chemicals Ltd. vs Union of India 2018 (19) GSTL 228 (Guj) and Jay Chemicals Industries Ltd. vs Union of India 2018 (19) GSTL 440 (Guj). Gujarat High Court dismissed the Review Applications on 14/2/2020 filed by Revenue. The Hon’ble court observed that the judgment under review was in league with the earlier judgment of same High Court in case of Filco Trade Centre Pvt. Ltd. vs Union of India 2018(17) GSTL 3 (Guj) which recognised the accrued ITC as a vested right and struck down Section 140(3)(iv) of CGST Act. The court held that Rule 117 is only procedural in nature and is not mandatory.

Misc. Civil Application (For Review) No. 1 of 2019 in R/Special Civil Application No. 5758 of 2019

Calcutta High Court




(Shekhar B Saraf, J)

Dated: March 04, 2020

Transitional Credit – TRAN-1 – Section 140 – Rule 117- CGST Act- Form can be filed even after expiry of period prescribed as per Rules.

On the issue of Tran-1, Calcutta High Court also took a view in favour of taxable persons allowed the assessees to file TRAN-1 after the lapse of period prescribed by the rules. It was observed that though the time-limit for uploading of TRAN-1 is extended till March 31, 2020, sub-rule 1A of Rule 117 extends this benefit only to those registered persons who could not upload the form in time on account of technical difficulties on the common portal and in respect of whom, the GST Council forwards a recommendation for extension. It was notice by the court that assessees transitioning into a new procedure set out under the GST regime are bound to face complications and in some cases may be completely unable to carry out the new procedure. The court following the decisions given by other High Courts held that there is no reason to take a different view. It was held that a procedural law should not take away the vested rights of persons that are provided to them by statute. However the said claim of assessee is subject to scrutiny by the Department.

W.P. 17234 (W) of 2019

Bombay High Court




(Nitin Jamdar & M S Karnik, JJ)

Dated: March 20, 2020

Transitional Credit – TRAN-1 – Section 140 – Rule 117- CGST Act – Vires of Rule 117 – Article 14 – Constitutionality of Rule upheld – Assessee not allowed to file TRAN-1 after 27.12.2017.

Bombay High Court dismissed a bunch of petitions seeking writ to allow filing of TRAN-1 after the stipulated period i.e. 27.12.2017. The petitioners also laid challenge to the vires of Rule 117 on the ground of same being ultra vires Section 140 and for being violative of Article 14 of the Constitution. Prayer was also made to allow filing of TRAN-1 relying upon various other judgments of High Courts.

The High Court however negatived the contention and held that the rights and privileges accrued during the existing law have been saved u/s 174 of the CGST Act and was conditional. It cannot be contended that such a right can be exercised without conditions under the new law and such condition can be with regard to the time also. If the legislature deemed appropriate it could have allowed the earlier credit to lapse as well but it allowed it to continue with certain conditions and to be claimed within prescribed time. ITC is not a right but a concession

On the contention that Rule 117 prescribing time does not emanate from Section 140, the Court held that the power to prescribe time u/r 117 can be traced to Section 164(2) which is very wide in its amplitude. Therefore no valid challenge can be laid to Rule 117 on this ground.

In so far as contention of Petitioner that the time limit prescribed u/r 117 is arbitrary and is in violation of Article 14 of the Constitution. It was held that

When economic legislation is questioned, the Courts are slow to strike down a provision which may lead to financial complications. What is claimed by the petitioner is not a right but a concession and secondly the rule is not ultra vires. The provision under challenge is a transitional provision having its effect only for a limited time. This view is also supported by Gujarat High Court in Willowood Chemicals Ltd. vs Union of India 2018 (19) GSTL 228 (Guj) held that Rule 117 is not ultra vires and there is no indefeasible right to carry forward CENVAT credit and the stipulation of the time limit is reasonable. Therefore, the time limit stipulated under rule 117 is neither unreasonable or arbitrary nor violative of Article 14.

Petitioner sought the relief on the basis of pronouncements of other High Court where filing of TRAN-1 was allowed. Rejecting this, Court held that the High Courts in the above decisions have exercised writ jurisdiction to direct the Respondents to give relief to the petitioners before it. The Courts may have done so in equity jurisdiction. We have concluded that the time limit stipulated is neither ultra vires nor unreasonable. Issuing a writ would mean overriding this time limit. The concept of a time limit under this provision is not casual but has a larger purpose to serve. The GST Act deals with the generation and distribution of the revenue. The collected revenue is expended on various functions for which budgetary allocations are made and time limits are stipulated for the execution of various schemes. For fiscal planning, certainty regarding receipt and distribution of revenue is necessary. If relief is to be granted to the individual Petitioner overriding the time limit on equity, the perception of what is equitable will differ from authority to authority. This would lead to uncertainty. The operation of this complicated tax system will become unworkable. The time limit placed under the impugned rule being rooted in need to have certainty in fiscal management, we are of the opinion that equity jurisdiction ought not to be exercised.

Another contention was raised that the phrase ‘technical difficulties’ will have to be defined by the Court and it cannot be left to the IT Grievance Cell of the GST council to define the same.

The GST Council is not a body to resolve technical issues. Therefore, an IT Grievance Redressal Mechanism was developed by the GST Council. This Committee involved the CEO of the GST, Network Director General of Systems, CBSC and the Nominee from State as technical persons. Based on the report of this Technical Committee, a further recommendation would be made. Therefore, there is no merit in the contention that the power could not have been delegated to the IT Grievance Redressal Committee.

Writ Petition No. 6998 of 2018

Chhattisgarh High Court




(P Sam Koshy, J)

Dated: March 16, 2020

Detention of Goods – Undervaluation – Section 129 – Section 68 – Not Permissible – Assessing Authority to take action

Petitioner- Company manufactures ‘Pan Masala and Tobacco products’. The goods were dispatched in a vehicle to its customers along with invoice and E-way Bill as required under Section 68 of the Act. On its way, the vehicle was intercepted and goods were detained on the ground that there was discrepancy in the valuation of goods. Subsequently, an order was passed whereby tax and penalty was assessed for releasing the goods. The petitioner filed a writ in this regard raising the contention that the petitioner had fulfilled the requirement of Section 68 of CGST Act 2017 by producing the E-Way bill and tax invoice. It was contended that that discrepancy in valuation cannot be a ground for detention of goods. The state on the other hand contented that the price at which goods were sold was not matching the MRP of the product due to which goods were detained.

Allowing the writ petition, The Hon’ble court has held that the factum of manufacturer selling his products to its customers at a lower price than MRP cannot be a ground for detention of vehicle. Even if it is contrary to law, proper proceedings as per law are to be initiated. The Assessing Authority could have been intimated regarding the discrepancy in the given case for initiating proper proceedings. The vehicle could not have been detained for a proceeding u/s 129 of CGST Act 2017 r/w Rule 138 of CGST Rules 2017. Hence, the goods are ordered to be released and state authorities are not precluded from initiating proceedings as per law for undervaluation of goods.

WPT No 36 of 2020

High Court of Gujarat

Manoj Bhanwarlal Jain


State of Gujarat

(Umesh A. Trivedi J)

Dated: March 12, 2020

Arrest – Bail – Offences under GST – Section 132 – wrongful availment of ITC beyond 5 Crores – No Complaint filed even after 52 days – no remand was ever sought – Bail granted.

In an offence committed u/s 132(1)(c) of Central Goods and Services Tax Act, related to availing ITC wrongfully beyond an amount of Rs 5 Crores, whereby the applicant was arrested , an application is filed for grant of bail.

The Hon’ble Court has viewed that even after a lapse of 52 days after the date of arrest; no complaint is filed by the officer concerned. No remand was ever sought by the officer of the department. Therefore, the application stands allowed and bail is granted on execution of personal bond and one surety. Certain restrictions are imposed on the applicant on breach of which appropriate action would be taken against it.

R/ Criminal Misc Application No. 3488 of 2020

High Court of Kerala




(Alexander Thomas, J)

Dated: February 04, 2020

Assessment – Order passed on grounds not specified in Notice – Rectification Application filed – Rejected – Not Justified – Matter Remitted back for fresh consideration of Rectification Application

The petitioner is an assessee under the KVAT Act engaged in the execution of works contract. A pre-assessment notice was issue mainly proposing to fix turnover on the basis of the figures as seen from the profit and loss account. There are proposals to disallow the exemption claimed by the petitioner under Rule 10 as also disallow a minor portion of input tax credit. The petitioner filed replies pointing out that the figures as per the financial statements also include the transactions outside Kerala, value of land etc. which are outside the purview of taxation under the VAT Act. However, Assessment Order was passed by taking the value as per the financial statements for Kerala as the basis for assessment. A portion of input tax credit and the expenses were also disallowed for reasons not stated anywhere in the pre-assessment notice. Application for rectification filed was also rejected

On A Writ the High Court held that,

The petitioner has indeed made strong grounds for judicial review. Petitioner has made a specific case that the pre-assessment notice does not disclose grounds which has actually been now relied on in the impugned assessment order. Further that, going by the data and facts and figures now projected in application for rectification would indicate that the petitioner has made out a very strong case that even parameters like land cost, corpus fund, electrical and water charges, etc. has already been reckoned by the 1st respondent, while determining the issue of value added tax, as per the impugned Ext.P-5 assessment order. Such an aspect would certainly termed as “wednesbury unreasonableness” in the decision making process, which led to the impugned assessment order.

In that view of the matter, it is ordered that the impugned order rejecting the plea for rectification will stand set aside. Rectification application filed under Sec. 66 of the Kerala Value Added Tax will stand remitted to the 1st respondent, for consideration and decision afresh, after hearing the petitioner.

WP(C) No. 33901 of 2019(K)

High Court of Gujarat





(Harsha Devani & A G Uraizee, JJ)

Dated: March 12, 2020

Review – Grant of Interest – Writ allowed granting Refund of Principle amount – Interest prayer rejected – Review not maintainable where court rejected the prayer even if reasoning for declining such relief may be fallacious.

The applicant had filed a petition seeking refund of an amount of ₹ 73, 60,061/- of education cess and higher secondary education cess paid under mistake of law for the period from July 2004 to April 2014.

In the writ petition, the petitioner had sought two reliefs (i) a direction to the respondents to sanction refund of ₹ 73,60,061/- and (ii) grant of interest at the rate of 18% per annum. By the judgment and order dated 16.6.2016.

The court had allowed the petition in favour of the applicant by setting aside the order-in-original dated 24.11.2014 and directing the second respondent to forthwith sanction and grant the applicant refund of ₹ 73,60,061/- as claimed vide application dated 17.7.2014. However, as regards the claim of interest at the rate of 18% per annum, court held that the interest claimed is not backed by any statutory provision and hence, such relief cannot be granted.

Petitioner sought review seeking grant of interest at the rate of 18% per annum or such other rate as the court deems fit.

Court had considered the prayer of Interest and rightly or wrongly, for the reasons set out in the order, declined to grant such relief. Once the court has, after duly recording reasons, turned down the prayer for grant of interest, even if the reasoning for declining such relief may be fallacious, the same would not fall within the scope of a review application.

Application rejected Misc. Civil Application (for Review) No. 1 of 2016

In R/Special Civil Application No. 2556 of 2015

High Court of Rajasthan




(Sandeep Mehta & Vijay Bishnoi, JJ)

Dated: April 07, 2020

Recovery of Tax – IB Code, 2016 – Financial Creditors – Have Precedence over Tax Dues which fall under category of Operational Creditors – Resolution passed and approved allowing a part of amount to be paid for outstanding tax dues – No fresh Recovery can be made from Petitioner who took over management.

A company named Binani Cement suffered huge losses and was unable to pay the debts to the Financial Creditor, which preferred an insolvency application under Section 7 of the Insolvency Bankruptcy Code 2016. A Corporate Insolvency Resolution Process (hereinafter to be referred to as ‘CIRP’ for brevity) was initiated by the NCLT under the provisions of the IBC 2016. After reviewing and comparing the resolution plans received, the COC came to the conclusion that the resolution plan of the petitioner company Ultra Tech was the best one equipped to achieve the purpose of the IBC i.e. the maximization of the value of the assets. In the meeting of the COC the resolution plan submitted by Ultra Tech was approved unanimously and it was declared to be the successful resolution applicant. The resolution plan dealt with the dues of all the creditors equitably and was superior in terms of recovery to the banks and other creditors as compared to the losses which all the creditors would have suffered in case the company had gone into liquidation.

While considering the resolution plan, the NCLT duly approved proportion/distribution of the payment to be made by the petitioner company to all the creditors. The resolution professional collated claims of all operational creditors after following the due process of law and with due diligence, verified the claim of the respondent Goods and Service Tax Department to the extent of ₹ 72.85 crores towards liabilities of excise duty and service tax. The resolution professional, also determined that liquidation value of the Binani Cement was ₹ 2300/- crores which was much less than the outstanding debt. The resolution plan was approved by the National Company Law Appellate Tribunal

Pursuant to receiving this final seal of approval of the resolution plan, the petitioner Ultra Tech took over the management and operations of Binani Cement Ltd. and the name of the company was changed to Ultra Tech Nathdwara Cement Ltd. The resolution plan was fully implemented and payments in its terms were duly made to all the creditors including the statutory creditors.

Despite the resolution plan having attained finality and having been executed, the respondent department raised numerous demands from the petitioner for the period from April 2012 to June 2017 and interest up to 25.7.2017. Having failed to get any positive response from the respondents, the petitioner company has approached this Court through this writ petition under Article 226 of the Constitution of India seeking the relief.

Financial creditors have to be given precedence in the ratio of payments when the resolution plan is being finalized. It is the financial creditors who are given right to vote in the COC whereas, the operational creditors viz. Commercial Taxes Department of the Central Government or the State Government as the case may be, have no right of audience. The purpose of the statute is very clear that it intends to revive the dying industry by providing an opportunity to a resolution applicant to take over the same and begin the operation on a clean slate. For that purpose, the evaluation of all dues and liabilities as they exist on the date of finalization of the resolution plan have been left in the exclusive domain of the resolution professional with the approval of the COC. The courts are given an extremely limited power of judicial review into the resolution plan duly approved by the COC. In the case at hand, the situation has proceeded much further. The operational creditors i.e. the Commercial Taxes Department of Govt. of Rajasthan as well as the respondent Commissioner of Goods and Service Tax assailed the resolution plan by filing appeals before Hon’ble the Supreme Court with a specific plea that their dues have not been accounted for by the COC in the resolution plan. The objection so raised stands repelled with the rejection of the appeals by Hon’ble the Supreme Court. In addition thereto, it may be mentioned here that from the two possible situations; one being liquidation and the other being revival, the respondents will gain significantly in the later because as per the assessed liquidity value, their dues have been assessed as nil, whereas as per the resolution plan with revival of the industry at the instance of the resolution applicant (the petitioner company herein), their rights have been secured to the extent of ₹ 72 crores odd. It may be emphasized here that the amount of ₹ 72 crores assessed by the resolution professional in favour of the respondent GST Department has already been deposited by the successful resolution applicant i.e. the petitioner company.

Therefore, the respondents would be acting in a totally illegal and arbitrary manner while pressing for demands raised vide the notices which are impugned in this writ petition and any other demands which they may contemplate for the period prior to the resolution plan being finalized.

The demand notices are ex-facie illegal, arbitrary and per-se and cannot be sustained.

D B Civil Writ Petition No. 9480/2019

High Court of Jharkhand




(H C Mishra & Deepak Roshan, JJ)

Dated: March 19, 2020

The petitioner Company is the manufacturer and seller of heavy and medium commercial vehicles and its spare parts and accessories. The Company, in normal course of its business, allowed trade discounts and such incentives and discounts are normally accounted for at the end of the financial year. Similarly, the petitioner Company also received trade discounts and incentives in respect of the raw materials, purchased by it, in the similar manner.

Section 9 (5) of JVAT Act was inserted way of an amendment made in the year 2011. Pursuant to which the petitioner became liable to pay the tax on the said trade discounts and incentives as well.

The petitioner Company challenged the amendment in the JVAT Act, being ultra vires and unconstitutional, stating that the assessment orders after the year 2011, are under challenge and pending before the appellate / revisional authorities, and these appeals / revisions shall be dependent upon the result of this writ application, as the appellate / revisional authorities cannot look into the challenge to the vires of the JVAT Act.

Section 9 of the JVAT Act speaks of levy of tax on sale and determination of taxable turnover. Thus, it is not in dispute that the VAT is chargeable on the transactions, which come within the meaning of the sale, defined in the Sale of Goods Act, 1930, or under Article 366(29-A) of the Constitution of India. By bringing sub-Section (5) of Section 9 in the JVAT Act, by the Jharkhand Value Added Tax (Amendment) Ordinance, 2011, what has been purported to be done, is that the trade discounts / incentives, which earlier, were not being treated as sales either under the Sale of Goods Act, or under Article 366(29-A) of the Constitution of India, and thus were not taxable under the JVAT Act, were brought within the purview of sale by a deeming fiction, stating that such trade discounts / incentives shall be deemed to be sale by the dealer.

State Government has exceeded its legislative competence and has in that effort, treated the trade discounts / incentives as taxable transactions, treating them to be sale by a deeming fiction by bringing sub-Section (5) in Section 9 of the JVAT Act, and has thus sought to make such transactions taxable, which are in addition to the transactions described under Article 366(29A) of the Constitution of India, which the State Government could not do, and admittedly, prior to bringing of Section 9(5) of the JVAT Act, into the Statute Book, such transactions were never being subjected to tax under the JVAT Act.

With Regard to maintainability of writ at this stage the court held that they do not find any substance in the submission of learned counsel for the State that in the present case only apprehending danger is challenged, and judicial review is not available at the stage prior to making a decision, on the ground of quia timet action. The law relating to quia timet action, is also no more res integra, in view of the law laid down by the Apex Court in Bhilal Bhai’s case (supra), and Tashi Delek Gaming Solutions Ltd.’s case (supra), holding that a quia timet application would be maintainable.

Accordingly Section 9(5) of the JVAT Act, brought into force by amendment in the JVAT Act in the year 2011, was held to be beyond the legislative competence of the State Legislature, and the same is ultra vires Article 246(1) of the Constitution of India, and cannot be sustained in the eyes of law.

Question of retrospectivity was left open as the provision itself was found to be unconstitutional.

WP (T) No. 7806 of 2011

Controversy in relation to payment of GST on remuneration to a director of a company under reverse charge has erupted recently primarily because of two Advance Authority Rulings 1) In Clay Craft India Pvt. Ltd.1 and 2) In Alcon Consultancy Engineering Pvt. Ltd.2 Dust has also gathered on account of the decision of Hon’ble Kolkata Tribunal in case of Brahm Alloy Limited3 holding that GST is payable by company under reverse charge on remuneration paid to whole time / executive directors. In this article, an attempt is made to put the issue in right perspective and clarifying the doubts in the minds of the taxpayers.

The Charging section 9 of CGST Act4 (hereinafter referred to as ‘Act’) relating to levy and collections provides that barring certain item like supply of petroleum goods, crude, etc as mentioned in sub-section 2, tax shall be levied on supply of goods or services or both except the supply of alcoholic liquor for human consumption at the rate not exceeding 20%, as may be notified. The scope of supply of goods or services or both is provided in S.7, according to which all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

Service provided by a director of a company to the said company is leviable to tax as a ‘supply’. However, Entry 1 of Sch. III attached to the Act which provides that service by an employee to the employer in the course of or in relation to his employment is neither a supply of goods nor a supply of service. Thus, provision of service by a director in the course of or in relation to his employment of a company is clearly out of the ambit of GST. However, a director can provide service to a company in different capacities. The issue of applicability of GST on various kinds of services by a director to a company for a remuneration (read consideration) revolves around these two provisions.

Notification No. 13/2017 – CT (R) issued in exercise of the powers granted u/s. 9(3) provides that in relation to certain type of supply of goods or services both, the tax shall be paid on reverse charge basis by the recipient as if he is the person liable for paying tax in relation to such supply. It is to be noted that payment under reverse charge by a company triggers only if a director provide a taxable service in the capacity of director. If the director provide a taxable service not in the capacity of director than he has to pay tax in forward charge.

Taxability of director’s remuneration in service tax regime:

Under the negative list based service tax regime from 01.07.2012, service rendered by a director of a company to the said company was taxable as an ‘activity’ as defined u/s.65B (44) of the Finance Act, 1994 and the company was liable to pay service tax under reverse charge vide Notification No. 45/2012 – ST dtd. 07.08.2012. At the same time, as per sub-clause (b) of the said section, the provision of service by an employee to the employer in the course of or in relation to his employment was excluded from the scope of definition of service. Thus, service provided by a director to the said company which is not in the course or in relation of employment, the reverse charge is not triggered. It can be said that the treatment of leviability and applicability of reverse charge is pari – materia same in both the laws and any clarification or judicial pronouncements under the erstwhile service tax law is equally applicable to GST.

Here it is relevant to refer to the Education Guide issued under service tax in relation to the term, “in the course or in relation to employment”:

“2.9.1 Are all services provided by an employer to the employee outside the ambit of services?

No. Only services that are provided by the employee to the employer in the course of employment are outside the ambit of services. Services provided outside the ambit of employment for a consideration would be a service. For example, if an employee provides his services on contract basis to an associate company of the employer, then this would be treated as provision of service”.

2.9.2 Would services provided on contract basis by a person to another be treated as services in the course of employment?

No. Services provided on contract basis i.e. principal-to-principal basis are not services provided in the course of employment.”

The CBIC had also issued a Circular No. 115/096/09 – ST on 31.07.2009 in relation to applicability of service tax under business auxiliary service on commission paid to the managing director, whole time or independent director by the company and also applicability of service tax on independent director under management consultant service. The board clarified that the remuneration paid to the managing director or whole time or independent director of the company are not liable to service tax within the scope of the business auxiliary or management consultant service, as the case may be. However, in case the director provide any advice or consultancy to the company, for which he is being compensated separately, such service is chargeable to service tax.

Though above clarifications pertains to pre-negative list period, they are relevant even today in the context of GST on director’s remuneration. They clarify the differentiation between service provided by a director in the course of employment and other services for which separate remuneration / consideration is charged.

The following table explains the liability of GST and the manner of payability in the context of service of a director to such company.

If a director is appointed to perform as an employee in the course of or in relation to his employment as per the terms of employment (contract of service)

Not liable being employee – employer relationship (any payment such as sitting fees is also covered in this)

Other services which are outside the scope of terms of employment for which separate remuneration is provided, for e.g. renting of his property to the company, sell or purchase of the goods, consultancy as a professional (contract for service)

A director provide such service in his individual capacity for which separate remuneration is charged (payable by the director under forward charge)

As a director who is not an employee, for e.g. a nominee director receiving sitting fees

Payable by the company under RCM

Guiding principles of the employee-employer relationship are found under the Indian Contract Act, the Companies Act, Income Tax Act and the Judicial pronouncements:

The definition of ‘director’ of the company under the Companies Act, 2013 is contained in S. 2(34) of the Companies Act, 2013. ‘Director’ means a director appointed to the Board of the Company. As per the Articles of Association directors are appointed by the shareholders in Annual General Meeting and power is given to the Board of Directors to appoint whole time director, managing director and executive director from the Board of directors. The Board of Directors may appoint any additional director or any person to fill a casual vacancy. Some directors are nominated by the banks or foreign collaborators to be a part of the Board of Directors (BOD) as nominee director. An ordinary director is not an employee of the company, however, an employee may be appointed as director. In such a case, he is acting in dual capacity as an employee and also as director as an agent of the company.

The terms of appointment of directors, their tenure and the remuneration is decided by the appointing authority which appointment determine the employee-employer relationship, e.g. If the director can be removed before expiry of his term, he is an employee of the company.

Under the Income Tax Act, a director’s remuneration as an employee of the company is taxable under the head, ‘salary’. The judiciary has laid down certain principles for establishing the employee – employer relationship and without such relationship the income is taxed as ‘income from other source’ or as ‘business income’ depending on the source of income. If the director is performing as a consultant or in exercise of his profession for a consideration or acting as agent of the company, it is treated as ‘income from business or profession’ and he may not be treated as an employee.

If a person has to work under the direct control and supervision of the principal and he has no discretion of his own in the performance of his duties, he is deemed to be an employee and the remuneration payable to him in such a case is chargeable to tax under the head salaries. On the other hand, if principal exercises only a supervisory control in respect of work entrusted to the person and he has wide discretion of his own in the execution of the policies of the principal, the presumption is that such person is not an employee but an agent of the principle. The remuneration payable to such person in such a case is liable to be taxed under the head ‘Profits and gains of business or profession’.

In Ram Prasad v. CIT AIR 1973 SC 637 = (1972) 42 Companies 544 = 86 ITR 122 (SC), the Hon’ble Supreme Court while holding that a managing director is an employee of the company, observed that, ‘A director of a company is not a servant but an agent inasmuch as the company cannot act in its own person but has only to act through directors who qua the company have the relationship of an agent to its principal. A Managing Director may have a dual capacity. He may both be a Director as well as employee, depending upon the nature of his work and the terms of his employment. Whether or not a Managing Director is a servant of the company apart from his being a Director can only be determined by the articles of association and the terms of his employment. Where the articles of association and terms and conditions of the agreement definitely indicate that the assessee was appointed to manage the business of the Company in terms of the articles of association and within the powers prescribed therein and under the terms of the agreement he can be removed for not discharging the work diligently or if he is found not to be acting in the interest of the Company as Managing Director, then it can hardly be said that he is an agent of the Company and not a ‘servant’.

In McDowell & Company v. CIT (2002) 123 Taxman 912 (Mad HC), the Hon’ble Madras High Court held that under S.197 of Companies Act, 2013 remuneration may be paid to any director by way of monthly payments or commission based on percentage of net profit.

In Rentworks India P. Ltd. v. CCE (2016) 43 STR 634 it was held that when salary paid to a foreign director was treated as income from salary by income tax department, service tax cannot be demanded.

In Allied Blenders and Distillers Pvt. Ltd v. CCE & ST (2019) 101 462 (Mum.) it is held that when remuneration to the whole time directors for managing day – to – day affairs of the company and deductions were made on account of provident fund, etc. and TDS as applicable to the salary in the course of employment and the company was not required to pay service tax under reverse charge.

In Brahm Alloy Limited Versus Commissioner Of CGST & C. Ex., Durgapur 2019 (24) G.S.T.L. 616 (Tri. – Kolkata) it is observed that the assessee has filed ledger copy of directors remuneration which showed that the remuneration payable to director has been accounted on quarterly basis and not on month on month basis as being done generally. On asking to establish employee – employer relationship between the company and the directors, a certificate from a chartered accountant was submitted. Apart from an Extract of the Minutes of Meeting of the Board of Directors regarding the appointment of the whole time director and also a copy of the appointment letter. The Ld. member held that, It is my considered view that to establish the employer-employee relationship for the purposes of the remuneration/salary, the Resolution of the company should cover both, the terms of appointment/hiring of the services of the individual and similarly it should also cover that in case of nonperformance of the specified duties, the individual shall be fired and/or his appointment would be terminated. In short, to establish the employer employee relationship, the clause of hiring and firing are an essential ingredient without which it cannot be construed whether the individual is the Promoter/Director or an employee Director. The remuneration cheque has to be paid on a month to month basis along with the admissible perquisites. There is a deviation in the facts of the present case. I also observe that the directors have shown the remuneration under the head ‘Salary’ in the respective Income Tax Return and Tax was deducted at source by the appellant company on such payments”. (emphasis supplied).

In the view of the writer, respectfully the above decision of a Single Member Bench may not be regarded as correct decision as the reasoning is not appear to be convincing to hold that remuneration payable to whole time managing director is not covered the exclusion clause of S.65B(44) of the Finance Act, 1994.

AAR ruling in Alcon Consultancy Engineering Pvt. Ltd.

In the present case, the assessee wanted to know that whether payment under RCM is applicable or not. The Authority ruled that the company and is located in the taxable territory and the Directors’ remuneration is paid for the services supplied by the Director to the applicant company and hence the same is liable to tax under reverse charge basis under section 9(3) of the Central Goods and Services Tax Act, 2017.

This ruling does not lay down any principle of the law and therefore if any dust created on account of this ruling is wholly misplaced.

AAR ruling in Clay Craft India (P) Limited

In this case the ruling was sought by the assessee that,

“a) whether GST is payable under reverse charge mechanism (RCM) the salary paid to director of the company who is paid salary as per contract b) whether the situation would change from a) above if a director is also a part time director of a company?”.

The Authority considered the decision of Hon’ble Karnataka High Court in Regional Director, E.S.I. v. Sarathi Lines (P) Ltd. [1998] ILLJ 28 Kar. In this case, it is observed as follows:

“It is true in the case of a Director or Managing Director of a Company he is not an employee of the Company but an agent in as much as the Company cannot act in its own person but has only to act through their Directors. Still it is possible that such a Director or Managing Director can have a dual capacity of an agent as well as an employee. It will depend on his work and the terms of his employment as discernible from the articles of association or terms of agreement. This was the view taken by the Supreme Court in AIR 1973 SC 637 (supra), even though it was a case arising under the Income tax Act. One of the tests laid down to ascertain whether a person is a servant or an agent is to examine whether under the terms of his employment, the employer exercises a supervisory control in respect of the work entrusted to him. A servant acts under the direct control and supervision of his master, whereas the agent in exercise of his work is not subjected to the direct control or supervision of the principal, though he is bound to exercise his authority in accordance with all lawful orders and instructions which may be given to him from time to time by his principal. After examining the articles of association of the Company the Supreme Court came to the conclusion that powers of the Managing Director had to be exercised within the terms and limitations prescribed thereunder and subject to the control and supervision of the Directors, which, would indicate that he was employed as a servant of the Company.”

That the above view was also held by the Hon’ble Supreme Court in the case of Ram Pershad v. CIT AIR 1973 SC 637 with the concluding remarks:

“The powers of the assessee have to be exercised within the terms and limitations prescribed thereunder and subject to the control and supervision of the Directors which in our view is indicative of his being employed as a servant of the company. We would therefore hold that the remuneration payable to him is salary. In this view, the other questions need not be considered, and the appeal is dismissed with cost”.

Despite of reference made to the above decisions and being considered by the Hon’ble Tribunal, the Authority ignored them as being irrelevant to the issue and held as follows:

“5.7. We further observe that consideration paid to the Directors is against the supply of services provided by them to the applicant company and are not covered under clause (1) of the Schedule III to the CGST Act, 2017 as the Directors are not the employee of the Company. In the instant case Director is the supplier of services and the applicant company is the recipient of the services. So it is very clear that the services rendered by the Director to the company for which consideration is paid to them in any head is liable to pay GST under RCM.

5.8 We also observe that the applicant company is located in the taxable territory and the Director’s consideration is paid for the supply of services by the Directors to the applicant company and hence the same is liable to GST by way of reverse charge basis as provided under Notification No. 13 /2017- Central Tax (Rate) dated 28.06.2017 issued under Section 9(3) of the Central Goods and Services Tax Act, 2017.

5.9 Notification No. 13 /2017- Central Tax (Rate) dated 28.06.2017 has given the distinct identity to the services provided by the Director and specifically included in the category of service on which GST will be payable under RCM. The case laws citied by the applicant are not relevant in the present case in as much as that the liability to pay GST under RCM in this case is required to be decided on the basis of the existing provisions of CGST law as being discussed briefly in this order”.

Thus, the decision of AAR cannot be said to be a correct one.

On perusal of the above discussion, it can be said that if the director is appointed to perform his duties in the course of his employment, than the relationship of employee and employer exists between the company and the director and GST is not leviable. The following table explains the liability to pay GST and applicability of payment under reverse charge by the company on payment of remuneration to the director.

Directors’ designation



Whether in the course of employment

Whole time director / Executive director

Section 2(94) of the Companies Act, 2013 defines the term ‘whole-time director’ as a director, who is in the whole-time employment of the company

Clearly the director is in whole time employment.


Managing director

Section 2(54) of the Companies Act, 2013 defines ‘managing director’ as a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called

They may be involved in day-to-day operations.

They may also not whole time director. It is possible to appoint a director as managing director though may not be under full time employment.

Terms of the employment are the deciding factor that whether a managing director is an employee.

In majority cases, YES.

However, depends on the terms of the employment.

Non executive Director

Other than an executive director

They do not take part in the day-to-day activities of the company. They only take part in the meetings of the BOD.


Independent Director

Independent Director means an independent director referred to in Section 149(6) of Companies Act 2013.

They are not under the control and supervision of the company.


Nominee Director

Nominee director means a director nominated by any financial institution in pursuance of the provisions of any law for the time being in force, or of any agreement, or appointed by any Government, or any other person to represent its interests [Explanation to Section 149]

They are under the employment of the company to which they represent. They are entitled to Sitting fees for attending the BOD meetings. Even the Sitting fees is paid to the organization that they represent.



Based on the principles set out in the Indian Contract Act, service tax, companies law and Income Tax Act, it appears that the AAR has failed to apply the provisions of the Act to the facts of the case. Further, the ruling in Clay Craft India (P) Limited, the decisions of the Hon’ble High Court and Supreme Court have been brushed aside. The decision of Hon’ble Mumbai Tribunal in Allied Blenders (supra) has correctly examined the same. It is increasingly proven that the remedy of advance ruling illusionary are sometimes like ‘aa bail mujhe maar’ and therefore should be used vary sparingly and after exercising proper discretion. Though AAR rulings are not binding on taxpayer other than the Applicant, it has created nuisance value. Therefore, the AAR rulings that have created controversy and confusion is not a cause of concern.


  1. (2020) 116 114 (AAR Rajasthan)

  2. (2019) 110 357 (AAR Karnataka)

  3. 2019 (24) G.S.T.L. 616 (Tri. – Kolkata)

  4. Same as otherwise provided reference to any section under this article relates to the Central Goods and Service Tax Act, 2017 also various State Goods and Service Tax Acts and Union Territories Goods and Service Tax Act. Identical provisions are also made in the Integrated Goods and Service Tax Act, 2017.

  5. Rajkamal Shah, CA. Ritu Swali

Under earlier regime of Sales Tax and Vat we have experienced variety of practical problems regarding implementation of check-post provisions throughout the country. Since, the check-posts are abolished and e-way bill system is implemented under the GST law, we do expect not only quick and easy movement of goods but the Government also expects reduction in leakage of Revenue. With the object to restrain evasion of tax, the legislature has drafted the e-way bill provisions in a fashion that today it hurdles the genuine people. Moreover, under pressure of revenue collection, the officers on field invoke provisions of e-way bill to detain the goods and to collect tax and penalty coercively in every case without application of mind. Ultimately, the implementation of e-way bill provisions burden the judicial system and encourages corruption and arm twisting.

In this article I have discussed the power of the officers to invoke e-way bill provisions and the validity of these provisions.

  1. Scope of Detention Under Section 129:

    1.1 As per sub-section (1) of Section 129 of the CGST Act, where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of the said Act or the rules made thereunder, all such goods, conveyance used for transporting such goods and documents relating to such goods and conveyance shall be liable to detention or seizure. After such detention or seizure of goods, vehicle and documents, they shall be released on payment of applicable tax and penalty or on payment of amount as specified in clause (a) or (b), as the case may be, or upon furnishing a security as specified in clause (c).

    1.2 The GST authorities consider any lapse / negligence / mistake / failure, either on part of the consignor or consignee or transporter, as contravention of the provisions of the GST Law for invoking provisions of Section 129 to detain the goods, vehicles transporting them and the documents relating thereto (for short, ‘the goods’). Thus, the most burning issue is regarding the power to invoke provisions of Section 129.

    1.3 In my view the expression ‘contravention of the provisions of this Act or the rules made thereunder’ used in Section 129(1) cannot be construed to include inadvertent mistake or curable defect/mistake or non-compliance which has no revenue consequences. There cannot be exhaustive list of such contravention for the purpose of detention of goods under Section 129. The action of detention can be taken only in cases where it is established that there is an intention or an attempt to evade tax in respect of the goods being transported. It is the duty of the proper officer to examine minutely the nature of contravention before taking action of detention. Thereafter, the proper officer has to take decision whether such goods are required to be detained or not. In my view in absence of an element of evasion of tax or an attempt to evade tax, it is not justifiable to invoke provisions of Section 129 for every contravention.

    1.4 Vide Circular No. 64/38/2018-GST, dated 14.09.2018, issued by Government of India, Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs, GST Policy Wing, it is clarified that in case a consignment of goods is accompanied with an invoice or any other specified document and also an e-way bill, proceedings under Section 129 may not be initiated in specified contraventions. This list of contravention is not exhaustive, but on the basis of situations specified in the Circular it is clarified that the proper officer cannot detain the goods for the specified contraventions. Thus, the action of issuance of circular itself shows that the intention of the Government is not to empower the officers to allow them to invoke provisions of Section 129 for every type of contravention.

    1.5 As per Rule 138C of the CGST Rules read with Circular No. 41/15/2018-GST, dated 13.04.2018 as amended and modified from time to time, the proper officer has to issue an order for physical verification/inspection of the conveyance, goods and documents in FORM GST MOV – 02, requiring a person in charge of the conveyance to station the conveyance at the place mentioned in such order and allow the inspection. Thereafter, the proper officer shall make a summary report of inspection in Part – A of FORM GST EWB – 03 within 24 hours of MOV – 02 form and he has to upload it on common portal. The final report of inspection shall be recorded in Part – B of FORM GST EWB -03 within 3 days of such inspection and to be uploaded on common portal. It is clear that the proper officer who stops the vehicle must have substantive reasons for detaining the goods after physical verification of goods and documents. The action of detention is not justifiable merely on the basis of suspicion. The authorities have to record reasons in reports and orders to justify their action of detention, and thereafter, they can make demand of tax and penalty to release the detained goods.

    1.6 Therefore, I am of the view that Section 129 of the CGST Act cannot be invoked for every contravention of the provisions of the Act or the Rules made thereunder. The nature of the contravention is the test to take action of detention of the goods.

  2. Legislative Power:

    2.1 As per Section 129(1)(a), the detained goods shall be released on payment of the applicable tax and penalty equal to 100% of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to 2% of the value of goods or Rupees 25,000/-, whichever is less, where the owner of the goods come forward for payment of such tax and penalty.

    2.2 Thus, even exempted goods are subject to detention under Section 129 and they shall be released on payment of specified amount. Therefore, I discuss hereinbelow the constitutional validity of this provision qua the exempted goods.

    2.3 On plain reading of Section 129(1)(a), it is clear that the legislature has used terms ‘on payment of applicable tax and penalty’ for the taxable goods and used term ‘on payment of amount’ for the exempted goods. Thus, there is a condition of payment of tax and penalty to get the taxable goods released. While the exempted goods can be released on payment of specified amount which is not the tax and the penalty per se. The amount payable as a condition for releasing the exempted goods is in nature of civil liability for the contravention for which the goods are detained.

    2.4 As discussed above, the provisions of Section 129 to detain the goods cannot be invoked for every contravention. The contravention must be of substantial nature which would have the result of revenue leakage. Of course, when the goods are exempted, there cannot be evasion of tax. However, such exempted goods may be a raw-material for manufacturing taxable goods and they are being transported without any documents and found to be unaccounted in books of account of the assessee. Then in that case such contravention can be considered as of substantial nature and is subject to detention under Section 129. In such circumstances, a condition of payment of specified amount to get the exempted goods released is justifiable. The legislature has not stated that the exempted goods shall be released on payment of penalty, but, the amount payable as condition for releasing the exempted goods is nothing but in nature of penalty. In my view such condition is to ensure compliance with the provisions of the Act and the Rules made thereunder and to check evasion of tax.

    In case of Lalji Moolji Transport Company vs. State of Rajasthan, Manu/RH/716/2002, the Rajasthan High Court has held that :

    “The requirement of law is meant to be strictly construed, particularly in areas of evasion of tax. We cannot lose sight of the fact that often there are attempts to avoid statutory obligation or requirement of oblique reason. An undue indulgence and leniency in favour of the tax-evaders on technical or misplaced sympathetic grounds leads to serious consequence’s affecting the revenue, and as such, development and security of the State. We are not oblivious of the fact that the penalty provisions cannot be used as a revenue – yielding provision. The object to the penalty provision is to ensure compliance in the larger public interest.”

    2.5 It is well settled law that the legislature while providing for levy of impost, has power to provide for incidental matters, including measures for prevention of evasion of tax. Therefore, the provisions which are intended to prevent the evasion of tax payable under the Act are within the legislative competence and no illegality can be attributed to such provisions. Cases referred are: –

(i) State of Rajasthan vs. D. P. Metal, (2002) 1 SCC 279;

(ii) Tripura Goods Transport Association vs. Commissioner of Taxes, (1999) 2 SCC 253;

(iii) CTO vs. Swastik Roadways and Anr., (2004) 3 SCC 640; and

(iv) State of West Bengal vs. E.I.T.A., (2003) 5 SCC 239.

2.6 In the above premises, the provisions of Section 129 of the CGST Act are with respect to check evasion of tax, and they are incidental or ancillary to the power given under Article 246A of the Constitution to levy tax on supply of goods. Therefore, provisions of Section 129(1)(a) empowers the authorities to demand the specified amount to release the detained goods is within the legislative power, but, the authorities cannot invoke such power as a matter of course particularly in case of exempted goods. In my view, the officers have very narrow access to this provision when the goods are exempted. In other words, the nature of contravention has to be examined with very narrow scope while exercising the powers to detain the exempted goods. It is apposite to note that definition of exempt supply includes non-taxable supply also.

  1. Disproportionate Penalty:

    3.1 As per Section 129(1)(a) of the CGST Act, if, the owner of the goods come forward to get the goods released, he has to pay penalty equal to 100% of the tax payable on the goods detained. In case, any person other than the owner of the detained goods come forward to get the goods released, then such person has to make payment of penalty equal to 50% of the value of the goods reduced by the tax amount paid thereon.

    3.2 Thus, the quantum of penalty, for the contravention for which the goods are detained, is specified on the basis of the persons who come forward to get them released. The language of the statute is simple and in no manner it does specify the circumstances under which such classification is applicable. This classification in the Statute is merely on the basis of the person who come forward to get the goods released irrespective of nature of contravention and circumstances under what the person other than the owner has come forwarded to get the goods released.

    3.3 It is held in case of State of West Bengal vs. E.I.T.A., (2003) 5 SCC 239 that in field of taxation, no legislation can be declared illegal, much less unconstitutional on the ground of being unreasonableness or harsh on the anvil of Article 14 of the Constitution, except, of course it fails to clear the test of arbitrariness and discrimination which would render it violative of Article 14 of the Constitution.

    3.4 If, a transporter come forward to get the goods released on behalf of the consignor as the goods were detained because of transporter’s mistake, he has to make payment of penalty which is much higher than the owner/consignor would be liable to pay. In my view the said provision which results in classification of the persons coming forward to get the goods released is not based on any intelligible differentia because in no manner the said provision specify the circumstances under which higher penalty would be payable if the person other than the owner comes forward. In other words, higher penalty would be payable in all cases irrespective of nature of contravention, if the transporter or any other person other than the owner comes forward to get the goods released. The provision results into unequal amount of penalty on two different parties for the same incidence of contravention. The classification results from the said provision does not have any nexus with the object it seeks to achieve. Therefore, the said provision is discriminatory in nature in my view because it prescribes a different penalty merely on the basis of the person coming forward to get the goods released.

    3.5 The afore stated view is supported by the judgment of the Supreme Court given in case of Shree Bhagwati Steel Rolling Mills vs. CCE, (2016) 3 SCC 643.

    “33. On the facts before the Gujarat High Court, there were three civil applications each of which challenged the constitutional validity of the aforesaid Rules insofar as they prescribed the imposition of a penalty equal to the amount of duty outstanding without any discretion to reduce the same depending upon the time taken to deposit the duty. The Gujarat High Court struck down the aforesaid Rules on the basis that not only were they ultra vires the Act, but they were arbitrary and unreasonable and therefore violative of Articles 14 and 19(1)(g) of the Constitution.

    35. However, insofar as the reasoning of the High Court is concerned on the aspects stated hereinabove, we find that on all three counts it is unexceptionable. First and foremost, a delay of even one day would straightaway, without more, attract a penalty of an equivalent amount of duty, which may be in crores of rupees. It is clear that as has been held by this Court, penalty imposable under the aforesaid three Rules is inflexible and mandatory in nature. The High Court is, therefore, correct in saying that an assessee who pays the delayed amount of duty after 100 days is to be on the same footing as an assessee who pays the duty only after one day’s delay and that therefore such rule treats unequals as equals and would, therefore, violate Article 14 of the Constitution of India. It is also correct in saying that there may be circumstances of force majeure which may prevent a bona fide assessee from paying the duty in time, and on certain given factual circumstances, despite there being no fault on the part of the assessee in making the deposit of duty in time, a mandatory penalty of an equivalent amount of duty would be compulsorily leviable and recoverable from such assessee. This would be extremely arbitrary and violative of Article 14 for this reason as well. Further, we agree with the High Court in stating that this would also be violative of the appellant’s fundamental rights under Article 19(1)(g) and would not be saved by Article 19(6), being an unreasonable restriction on the right to carry on trade or business. Clearly the levy of penalty in these cases of a mandatory nature for even one day’s delay, which may be beyond the control of the assessee, would be arbitrary and excessive. In such circumstances, this Court has held in Mohd. Faruk v. State of M.P.
    [Mohd. Faruk v. State of M.P., (1969) 1 SCC 853 : (1970) 1 SCR 156] : (SCC p. 857, para 10)

    “10. … The Court must in considering the validity of the impugned law imposing a prohibition on the carrying on of a business or profession, attempt an evaluation of its direct and immediate impact upon the fundamental rights of the citizens affected thereby and the larger public interest sought to be ensured in the light of the object sought to be achieved, the necessity to restrict the citizen’s freedom, the inherent pernicious nature of the act prohibited or its capacity or tendency to be harmful to the general public, the possibility of achieving the object by imposing a less drastic restraint, and in the absence of exceptional situations such as the prevalence of a state of emergency—national or local—or the necessity to maintain essential supplies, or the necessity to stop activities inherently dangerous, the existence of a machinery to satisfy the administrative authority that no case for imposing the restriction is made out or that a less drastic restriction may ensure the object intended to be achieved.”

    35. The direct and immediate impact upon the fundamental right of the citizen is that he is exposed to a huge liability by way of penalty for reasons which may in given circumstances be beyond his control and/or for delay which may be minimal. The possibility of achieving the object of deterrence in such cases can be achieved by imposing a less drastic restraint. In point of fact when we contrast these provisions with Section 37 of the Act, it becomes clear how arbitrary and excessive they are.

    3.6 Therefore, in my view the provisions of Section 129(1)(b) to the extent it imposes penalty equal to fifty percent of the value of goods reduced by tax amount paid thereon is violative of Article 14 and 19(1)(g) of the Constitution.

Today, if, e-way bill provisions are made applicable by the officers after examining each and every case closely, the judicial burden can be reduced substantially and the Government can reduce corruption and arm twisting practice.

‘Search and seizure’ is an important power conferred on the tax authorities, which is primarily put to use to detect tax evasion. An inspection may result in a search for further deep probe. Dictionaries define the word ‘search’ to mean ‘try to find something by looking or otherwise seeking carefully and thoroughly.’ Search is generally conducted to find something — may be books of account, goods, etc. — which has been concealed.

Chapter XIV of the CGST Act, 2017 (for short GST Act) deals with ‘search and seizure’. Section 67 (2) therein provides for exercise of such power. It reads as follows:—

“67. (2) Where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out under sub-section (1) or otherwise, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorise in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things:

Provided that where it is not practicable to seize any such goods, the proper officer, or any officer authorised by him, may serve on the owner or the custodian of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer:

Provided further that the documents or books or things so seized shall be retained by such officer only for so long as may be necessary for their examination and for any inquiry or proceedings under this Act.”

It may be seen from the above provision that an officer not below the rank of a Joint Commissioner only can authorize any other officer to conduct search or he may himself conduct search of the premises. In the first part of this subject, we have discussed the concept of ‘reason to believe’, which is sine qua non for giving authorization to conduct search also. The intention to conduct search is to seize goods, documents, books or things, which are secreted in any place. If it is not practicable to seize the goods, the proper officer may entrust the custody of such goods to the owner or custodian of the goods by following due procedure. Documents, books or things (dictionaries define the word ‘things’ thus—‘an object or entity that is not or cannot be named specifically’) so seized shall be retained only for so long as may be necessary for any enquiry or proceedings. Under sub Section (3) documents, books or things referred to in sub Section (2) which have not been relied upon for the issue of notice shall be returned to such person within a period of not exceeding thirty days of the issue of the notice. Sub Section (4) confers power on the authorized officer to seal or break open the door of any premises or to break open any almirah, electronic devices, box, receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed, where access to such premises, almirah, electronic devices, box or receptacle is denied. Under sub Section (5), the person from whose custody, any documents are seized shall be entitled to make copies thereof, except where making such copies or taking such extracts may, in the opinion of the proper officer prejudicially affect the investigation. Under sub Section (6), goods so seized shall be released as per the conditions mentioned therein. Under sub Section (7), where a notice has not been issued within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized. Such period of six months can be extended maximum by another six months on sufficient cause. Under sub Section (8), Government may by notification specify the goods or class of goods which shall be disposed of quickly by the proper officer in the prescribed manner, if such goods are perishable or hazardous etc. By Notification No. 27/2018-Central Tax dated 13.6.2018, Government has notified certain goods like salt, petroleum products, fireworks, etc., (total 17 items). Please see Notification for the complete list. Under sub Section (9), proper officer shall prepare an inventory of goods seized in the manner prescribed. Sub Section (10) reads as follows:—

“(10) The provisions of the Code of Criminal Procedure, 1973, relating to search and seizure, shall, so far as may be, apply to search and seizure under this section subject to the modification that sub-section (5) of section 165 of the said Code shall have effect as if for the word “Magistrate”, wherever it occurs, the word “Commissioner” were substituted.”

Section 165 (5) of the Cr.P.C., 1973 is to the following effect:—

“165 (5) Copies of any record made under sub- section (1) or sub-section (3) shall forthwith be sent to the nearest Magistrate empowered to take cognizance of the offence, and the owner or occupier of the place searched shall, on application, be furnished, free of cost, with a copy of the same by the Magistrate.”

The following are the true extracts of relevant Sections from the Code of Criminal Procedure, 1973:—

“93 (1) (a) Where any Court has reason to believe that a person to whom a summons or order under section 91 or a requisition under sub-section (1) of section 92 has been, or might be, addressed, will not or would not produce the document or thing as required by such summons or requisition, or

(b) where such document or thing is not known to the Court to be in the possession of any person, or

(c) where the Court considers that the purposes of any inquiry, trial or other proceeding under this Code will be served by a general search or inspection,

it may issue a search-warrant; and the person to whom such warrant is directed, may search or inspect in accordance therewith and the provisions hereinafter contained.

(2) The Court may, if it thinks fit, specify in the warrant the particular place or part thereof to which only the search or inspection shall extend; and the person charged with the execution of such warrant shall then search or inspect only the place or part so specified.

(3) Nothing contained in this section shall authorise any Magistrate other than a District Magistrate or Chief Judicial Magistrate to grant a warrant to search for a document, parcel or other thing in the custody of the postal or telegraph authority.”

“100 (1) Whenever any place liable to search of inspection under this Chapter is closed, any person residing in, or being in charge of, such place, shall, on demand of the officer or other person executing the warrant, and on production of the warrant, allow him free ingress thereto, and afford all reasonable facilities for a search therein.

(2) If ingress into such place cannot be so obtained, the officer or other person executing the warrant may proceed in the manner provided by sub-section (2) of section 47.

(3) Where any person in or about such place is reasonably suspected of concealing about his person any article for which search should be made, such person may be searched and if such person is a woman, the search shall be made by another woman with strict regard to decency.

(4) Before making a search under this Chapter, the officer or other person about to make it shall call upon two or more independent and respectable inhabitants of the locality in which the place to be searched is situate or of any other locality if no such inhabitant of the said locality is available or is willing to be a witness to the search, to attend and witness the search and may issue an order in writing to them or any of them so to do.

(5) The search shall be made in their presence, and a list of all things seized in the course of such search and of the places in which they are respectively found shall be prepared by such officer or other person and signed by such witnesses; but no person witnessing a search under this section shall be required to attend the Court as a witness of the search unless specially summoned by it.

(6) The occupant of the place searched, or some person in his behalf, shall, in every instance, be permitted to attend during the search, and a copy of the list prepared under this section, signed by the said witnesses, shall be delivered to such occupant or person.

(7) When any person is searched under sub-section (3), a list of all things taken possession of shall be prepared, and a copy thereof shall be delivered to such person.

(8) Any person who, without reasonable cause, refuses or neglects to attend and witness a search under this section, when called upon to do so by an order in writing delivered or tendered to him, shall be deemed to have committed an offence under section 187 of the Indian Penal Code (45 of 1860).”

Relevant Rule is Rule 139 of the CGST Rules, 2017. It is sine qua non to obtain search warrant, show to the person in-charge at the premises and obtain his signature. Search warrant shall contain all the required details like name and designation of the officer authorized to search, detailed address of the premises to be searched, name and designation of the officer issuing the warrant, date, place of issue, period during which the warrant has to be executed and DIN. The search warrant must be in writing and it shall contain all the matters that the law requires it to be stated therein. Form GST INS 01 is the authorization to be issued for conducting search. Para C of this form provides for search of both residential and business premises. Two respectable gentlemen of the same locality (panchas) shall be taken by the Officer as witnesses for search and they should be informed in advance about the proposed search. Officers and witnesses entering into the premises shall prove their identity and they should also offer themselves for search of their persons and bags, if any before commencing search. While leaving the premises also, they should offer for such search. Woman officer or employee has to accompany the search team. Panchanama of the search proceedings shall be drafted by the witnesses. Goods and documents seized must be listed in detail and attested by the witnesses, officer and the person in-charge of the premises. Copy of Panchanama along with its enclosures must be given to the person in-charge. Person in-charge must also co-operate with the Officer.

Under sub Section (11), if the proper officer has reasons to believe that any person has evaded or is attempting to evade the payment of any tax, he may for the reasons to be recorded in writing seize the accounts, registers or documents and grant receipt for the same. ‘Seizure’ generally means taking into custody any books and property as per the statutory provisions. FORM GST INS-02 is the order of seizure under Rule 139 (2) of the Rules. Under sub Rule (4), where it is not practicable to seize any such goods, the proper officer or the authorised officer may serve on the owner or the custodian of the goods, an order of prohibition in FORM GST INS-03 to the effect that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer. Under sub Rule (5), the officer seizing the goods, documents, books or things shall prepare an inventory of such goods or documents or books or things containing, inter alia, description, quantity or unit, make, mark or model, where ever applicable, and get it signed by the person from whom such goods or documents or books or things are seized. Under Rule 140 (1) of the Rules, the seized goods may be released on a provisional basis upon execution of a bond for the value of the goods in FORM GST INS-04 and furnishing of a security in the form of a bank guarantee equivalent to the amount of applicable tax, interest and penalty payable. As per sub Rule (2) in case the person to whom the goods were released provisionally fails to produce the goods at the appointed date and place indicated by the proper officer, the security shall be encashed and adjusted against the tax, interest and penalty and fine, if any, payable in respect of such goods. On proof of payment as prescribed in Rule 141 (1) of the Rules, the seized goods or things, which are of perishable or hazardous nature shall be released by issuing an order in FORM GST INS-05. Under sub Rule (2), on failure to pay the amount specified in sub Rule (1) such goods or things may be disposed of and the amount realized thereby shall be adjusted against the tax, interest, penalty or any other amount payable in respect of such goods or things. It will be useful to refer to some decisions on the subject:—

In the case of Vishnu Departmental Stores vs. State of Rajasthan and others (104 STC 443), the Rajasthan Taxation Tribunal held as follows:—

‘that no seizure took place in respect of books of account or goods. The words “inspection” and “examination” on the one hand and the words “search” and “seizure” on the other have separate meanings and connote different things. In the case of the former no detailed examination of anything is to take place whereas in the case of the latter the official has to make an exploratory exercise to ferret out something which is hidden or concealed. Where mere inspection or examination of the business premises of a dealer is made or conducted no reasons need to be recorded in writing prior to such inspection or examination. It is only in a case where search is made or seizure either of books of account or of goods is effected that reasons are to be recorded, under section 22 of the Act. Moreover, the provisions of rule 58 are attracted into application only in a case where search is made. No compliance with these provisions need to be made where only the inspection or examination is made or conducted. This is a case of mere inspection or examination and not a case of search and seizure.”

In the case of Dr. Pratap Singh vs. Director of Enforcement (1985) 155 ITR 166 (SC), the Honourable Supreme Court held that the High Courts and Supreme Court have the jurisdiction to call for and look into the reasons recorded to decide whether the issue of the search warrant was called for. It has also been held ‘Illegality of the search does not vitiate the evidence collected during such illegal search. The only requirement is that the court or the authority before which such material or evidence seized during the search shown to be illegal is placed has to be cautious and circumspect in dealing with such evidence or material.’

In the case of Tajal Hussain vs. State of Assam (No.WA.297/2019 dated 25.11.2019), the Honourable Guwahati High Court held as follows (Dr. Ashok Saraf, past President of AIFTP appeared on behalf of the appellant) :—

“26. Accordingly, we are of the view that if the authorities under the AGST Act of the State of Assam are of the view that the appellants are required to be proceeded with or prosecuted under the AGST Act, it would be appropriate to invoke the provisions of Section 67 of the AGST Act and proceed accordingly. But without invoking the provisions of Section 67 of the AGST Act and following the procedure prescribed therein, it would be inappropriate to allow the police authorities of Assam to continue with the detention and the seizure of the trucks containing the areca nuts on the plea that the appellants have violated some or any of the provisions under the AGST Act.”

In the case of Prakash V. Sanghvi vs. Ramesh G. Major DDIT (Inv) (356 ITR 426-2013) the Karnataka High Court held that in case of trespassing of assessee’s property, the delinquent officers may be prosecuted by a competent criminal court. Further the Act has not invested in the officer searching the premises to have a camp office at the residence of the assessee and call his attendance
in connection with the proceedings under the Act. However search warrant was held to be valid.

  1. V. Subba Rao, AdvocateHyderabad,Bojja Srinivas, Advocate, Visakhapatnam

The GST Council (for brevity, ‘Council’), in its 39th meeting held on 14.03.2020, made certain recommendations on GST law and procedures. In this article an attempt is made to provide a gist of the Council recommendations made on 14.03.2020 along with the relevant changes made in the Act / Rules (wherever amendments have been made).

1. Interest for delay in payment of GST: The council recommended that the interest for delay in payment of tax should be on the net cash liability with retrospective effect from July 01, 2017. This is welcome recommendation as there were many litigations faced by the trade and industry on this aspect as to whether the interest for delayed payment of tax declared in belated return should be computed on total tax (i.e. before adjustment of input tax credit) or net cash liability (i.e. amount payable through electronic cash ledger).

Conflicting judgements by various Honourable Courts are given below which are leading to many disputes

a. The Honourable Telangana and Andhra Pradesh High Court in the case of Megha Industries and Infrastructures Ltd. 2019 (4) TMI 1319 held that liability to pay interest under Section 50 of the CGST Act, 2017 is on total tax liability and not just on net tax liability. The Honourable High Court has noted the recommendation of GST council in it’s 31st meeting with regard to amendment in section 50 (interest would be leviable only on the amount payable through the Electronic Cash Ledger), but refrained from interpreting the recommendation in favour of the assessee as the recommendations were still on paper.

b. The Honourable Madras High Court in the case of Refex Industries Limited 2020 (2) TMI 794 held as follows

‘Proviso to Section 50(1), as per which interest shall be levied only on that part of the tax which is paid in cash, has been inserted with effect from 01.08.2019, but clearly seeks to correct an anomaly in the provision as it existed prior to such insertion. It should thus be read as clarificatory and operative retrospectively’

Further, the amendment made to Section 50 (1) of the CGST Act, 2017 vide Finance (No. 2) Act, 2019 (which is yet to be notified) which provides that where there is delay in filing the return, interest shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger does not clearly state whether the amendment is prospective or retrospective.

The above-mentioned recommendation of the Council giving retrospective effect in the CGST Act, 2017 is awaited.

A question arises as to what happens where interest is has already been remitted / appropriated. The author is of the view that where such interest has already been remitted without any protest, refund may not be granted. Where the same has been remitted under protest, there is a good chance to get the refund.

2. Revocation of cancelled registration: The Council recommended that where registrations have been cancelled till 14.03.2020, application for revocation of cancellation of registration can be filled up to 30.06.2020 (extension of period of application as one-time measure to facilitate those who want to conduct business). This is a welcome measure. Relevant notification in this regard is yet to be issued.

However, it may be noted that time limit prescribed for filing application for revocation of cancellation of registration is “thirty days” from the date of service of cancellation order (Section 30). Finance Act 2020 has inserted proviso under Section 30(1), whereby the time limit for filing application of revocation of cancellation order can be extended by the Additional Commissioner “thirty days” and additionally by Commissioner, for further period not exceeding 30 days.

3. Annual return relaxation and extension for financial year 2018-19: The Council recommended relaxation from filing reconciliation statement in Form GSTR 9C to tax payers having aggregate turnover below ₹ 5 crore. The Council further recommended extension of due date of filing annual return and reconciliation statement for financial year 2018-19 to 30.06.2020.

Vide Notification No. 16/2020-Central Tax dated 23.03.2020, Rule 80(3) of the CGST Rules, 2017 has been amended to provide that a registered persons whose aggregate turnover (under same Permanent Account Number, to be computed on all India basis) does not exceed 5 Crore for financial year 2018-19 are not required to get their books of accounts audit under GST law and furnish reconciliation statement in Form GSTR-9C. This amendment will help reduce small traders from compliance cost.

Further, vide Notification No. 15/2020-Central tax dated 23.03.2020, the time limit for furnishing Annual Return in Form GSTR-9/ Form GSTR-9A and Reconciliation Statement in Form GSTR-9C for the financial year 2018-19 from 31.03.2020 to 30.06.2020. The said notification uses the phrase ‘annual return specified under section 44 of the said Act read with rule 80 of the said rules’ and does not mention about ‘Reconciliation Statement’. Since the said notification gives reference to Section 44 of the CGST Act, 2017 as a whole, in the author’s view the said notification also covers Reconciliation Statement in Form GSTR-9C, since Section 44 (2) requires filing of annual return and reconciliation statement electronically.

Additional comment – Notification No. 47/2019 Central Tax dated 09.10.2019 provides that a registered person whose aggregate turnover (under same Permanent Account Number, to be computed on all India basis) in a financial year does not exceed ₹ 2 crore for financial years 2017-18 and 2018-19 have an option to file annual return (i.e. filing of annual return is not mandatory). However, it must noted that a registered person whose aggregate turnover (under same Permanent Account Number, to be computed on all India basis) during the financial year 2018-19 is more than ₹ 2 crore but upto ₹ 5 crore is required to file annual return on or before 30.06.2020 though filing of reconciliation statement in Form 9C is not required. Considering that the audit and filing of reconciliation statement in Form GSTR 9C for financial year 2018-19 has been enhanced for aggregate turnover (under same Permanent Account Number, to be computed on all India basis) upto ₹ 5 crore, it is recommended that similar relaxation should also be extended for filing annual return for financial year 2018-19 so as to reduce the compliance cost to small traders.

4. Facility of ‘Know Your Supplier’: The Council recommended introduction of Know Your Supplier facility to enable every registered person to have some basic information about the suppliers with whom they conduct or propose to conduct business. This recommendation is to enable the businesses to check the compliance rating of the suppliers which will help them partnering with suppliers who are compliant with GST and also help in timely availment of input tax credit. The new facility is to be implemented. Section 149 of the CGST Act, 2017 has envisaged Goods and Service Tax rating mechanism, however, the same is yet to be implemented.

5. Waiver of filing GSTR 1 for FY 2019-20 for tax payers under special composition scheme: The Council recommended waiver from furnishing Form GSTR-1 for financial year 2019-20 for tax payers who could not opt for availing the option of special composition scheme under notification No. 2/2019-Central Tax (Rate) dated 07.03.2019 by filing FORM CMP-02. In this regard Notification No. 12/2020 Central Tax dated 21.03.2020 has been issued providing that registered person availing benefit of concessional rate of tax have been waived from filing Form GSTR-1 and Form GST CMP-08 (payment of self-assessed tax) for the financial year 2019-20, if the said person has furnished a return in Form GSTR-3B for all the tax periods in financial year 2019-20.

6. Special procedure for registered person undergoing the corporate insolvency resolution process: The Council recommended special procedure for registered persons who are corporate debtors under the provisions of the Insolvency and Bankruptcy Code, 2016 and are undergoing the corporate insolvency resolution process (CIRP), so as to enable them to comply with the provisions of GST Laws during the CIRP period. In this regard Notification 11/2020 Central Tax dated 21.03.2020 has been issued which provides that a new registration should be taken in each of the States or Union territories where the corporate debtor was registered earlier to the date of appointment of IRP / RP. Reference can be made to the Notification 11/2020 Central Tax dated 21.03.2020 and Circular No.134/04/2020-GST dated 23.03.2020 for the special procedure to be followed for registration, filing of returns and availment of input tax credit in such cases. It is pertinent to note that the said notification brings in a deeming fiction as such corporate debtors from the date of appointment of IRP/RP shall be treated as distinct person of the corporate debtor.

7. Bunching of refund claims allowed across financial years to facilitate exporters: To overcome the refund problems in respect of filing of single application covering tax periods across two financial years the Council recommended allowing of bunching of refund claims cross financial years to facilitate exporters. In this regard the CBIC vide circular No. 135/05/2020 – GST, dated 31.03.2020 has provided that the exporters can file a single refund application for any number of tax periods without any restriction including periods covering more than one financial year. This is a welcome step for exporters who were facing hardship in claiming refund on such issues.

8. Deferment of E-invoice and QR Code: The Council recommended date of implementation of e-invoicing and QR code till 01.10.2020.

E-invoicing was to be implemented with effect from 01.04.2020. It was mandatory for all registered persons whose aggregate turnover in a financial year exceeded ₹ 100 Crores. Further, quoting of the Quick Response (QR) code in the tax invoice on B2C supplies was mandatory from 01.04.2020 for all registered persons whose aggregate turnover in a financial year exceeded ₹ 500 Crores. Vide Notification No. 13/2020-Central tax dated 21.03.2020 and Notification No. 14/2020-Central tax dated 21.03.2020 E-invoicing and QR code has been deferred to 01.10.2020. The CBIC has also notified certain class of registered person to whom the above would not apply, albeit, breach of turnover thresholds.

Registered Persons


QR Code

Insurance companies, Banking companies, Financial institutions (including NBFC), GTAs, Passenger transport agencies, Multiplex screens for exhibition of cinematograph films



Online information and database access or retrieval services (OIDAR Services)



This a good move as the testing on GSTN portal is still in progress and further since the trade and industry are still in the testing phase, this would give them ample time to ensure smooth implementation of E-invoicing and QR Code.

9. Extension of the present exemptions from IGST and Cess on the imports made under the AA/EPCG/EOU schemes up to 31.03.2021: The Council recommended the extension of exemptions from IGST and Cess on the imports made under the AA/EPCG/EOU schemes up to 31.03.2021. Vide (Notification No. 16/2020 – Customs dated 24.03.2020 and Notification No. 18/2020 – Customs dated 30.03.2020 exemption from levy of Integrated Tax (IGST) and GST Compensation Cess on goods imported by an EOU / STPI / EHTP unit/s and imports under Advance Authorization scheme and Export Promotion Capital Goods (EPCG) Scheme has been extended till 31.03.2021 which was hitherto available till 31.03.2020.

10. Continuation of existing system of furnishing FORM GSTR-1 & FORM GSTR-3B till September, 2020: The Council recommended continuation of existing system of furnishing FORM GSTR-1 & FORM GSTR-3B till September, 2020. This is a welcome move as the new return which was proposed to be implemented effective April 2020 would get tested fully before its implementation.

11. Curbing of fake invoicing and fraudulent passing of ITC: The Council recommended initiative to be taken to curb fake invoicing and fraudulent passing of ITC, restrictions to be imposed on passing of the ITC in case of new GST registrations, before physical verification of premises and Financial KYC of the registered person. In this regard Aadhar verification for grant of registration has been introduced vide Notification No. 16/2020-Central tax dated 23.03.2020, Notification No. 17/2020-Central tax dated 23.03.2020, Notification No. 18/2020-Central tax dated 23.03.2020 & Notification No. 19/2020-Central tax dated 23.03.2020. As per the said notifications Authentication of Aadhaar is mandatory for grant of registration w.e.f. 01.04.2020 and should be undertaken while submitting an application electronically in Form REG-01. This process will applicable to following category persons as under:


Authentication of Aadhar


Individual himself

Hindu Undivided Family

Karta of the HUF

Partnership firm

Managing and authorized partners


Authorized signatory of all types

Exception: Any person who is not a citizen of India

In case of failure of authentication, registration will be granted only after physical verification of the principal place of business in the presence of such person within 60 days from the date of application. After completing the physical verification, the proper officer shall upload the verification report along with other documents and photograph in Form GST REG-30 within a period of 15 working days of such verification.

12. Clarification in apportionment of ITC in cases of business reorganization under section 18 (3) of CGST Act read with rule 41(1) of CGST Rules: The Council recommended issuance of clarification in apportionment of ITC in cases of business reorganization under section 18 (3) of CGST Act read with rule 41(1) of CGST Rules. In this regard reference can be made to the detailed clarification issued by the CBIC vide Circular No.133 03/2020-GST dated 23.03.2020.

13. Appeals during non-constitution of the Appellate Tribunal: The Council recommended issuance of clarification in respect of filing appeals during non-constitution of the Appellate Tribunal. The CBIC vide Circular No. 132/03/2020-Central tax dated 18.03.2020 has clarified that the time limit of 3 months (6 months in case of appeals by the Government) to file appeal before the Appellate Tribunal shall be the later of the following dates:

1. Date of Communication of Order.

2. Date on which President / State President of the Appellate Tribunal enters office after its formation.

Therefore, currently the prescribed time limit to make application to appellate tribunal will be counted from the date on which President / State President enters office. Further, it is clarified that the Appellate Authorities, while passing the order, are advised to dispose all the pending appeals without waiting for the constitution of Appellate tribunal by mentioning in the preamble that the appeal may be made to the Appellate Tribunal, whenever it is constituted, within 3 months from the date when
the President / State President enters office.

14. Clarification on refund related issues: Based on the recommendation of the Council to issue clarification on refund related issues, the CBIC vide Circular No.135/05/2020 – GST, dated 31.03.2020 has issued the following clarification:

a. Reduction in rate of tax does not become a case for refund under inverted tax structure: It is clarified that that re-sale of goods subsequent to reduction in rate of tax does not entitle the supplier to refund of unutilized credit under the guise of ‘inverted tax structure’. In this regard the author is of the view that there is no such restriction under Section 54(3)(ii) of the CGST Act, 2017 and as such the same can be challenged before the Courts if refund is denied in such case. In this context the judgement of the Honourable Gujarat High Court in the case of Shabnam Petrofils Pvt. Ltd. 2019 (8) TMI 159 is relevant to be noted wherein Notification No. 20/2018 Central Tax (Rate) dated 26.07.2018 and Circular No.56/30/2018 was held ultra virus in the matter of refund of excess duty under inverted tax duty structure on man-made fiber yarns when rate of tax was reduced from 18% to 12%. The Honourable High held as follows:

i. The CGST Act itself provides for the lapsing of the ITC at Sections 17(4) and 18(4) respectively of the CGST Act. Thus, where the legislature wanted the ITC to lapse, it has been expressly provided for in the Act itself. No such express provision has been made in Section 54(3) of the CGST Act.

ii. No inherent power can be inferred from the provision of Section 54(3) of the CGST Act empowering the Central Government to provide for the lapsing of the unutilised ITC accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies.

iii. It is a well settled principle that the delegated legislation has to be in conformity with the provisions of the parent statute. By prescribing for lapsing of ITC, the Notification No. 05/2017-C.T. (Rate) dated 28.06.2017, as amended by Notification No.20/2018-C.T. (Rate) dated 26.07.2018, has exceeded the power delegated under Section 54(3)(ii) of the CGST Act.

b. Refund of incorrect payment of tax (other than exports and SEZ supplies): In respect of refund of incorrect taxes paid (paid as intra-State supply subsequently held to be inter-State supply and vice versa) it is clarified that that to avoid unintended encashment of credit balances, manner and proportion of refund would be the same as it was originally discharged – through the electronic credit ledger and cash ledger, respectively. Amount of tax that was discharged using input credit would be re-credited into the credit ledger and would not be granted as cash refund.

Amount of refund admitted in cash would be paid in Form GST RFD-06 and amount of refund admissible in credit would be in Form GST PMT-03. Further, in this regard Rule 86(4A) and Rule 92(1A) in CGST Rules, 2017 has been inserted vide Notification No. 16/2020 – Central Tax dated 23.03.2020.

c. Refund of unutilised input tax credit limited to invoices listed in GSTR 2A: Refund of unutilized ITC on zero-rated supplies without payment of tax and refund of unutilized ITC due to inverted tax structure would be limited to the invoices that are listed in GSTR 2A – the additional 10% in terms of Rule 36(4) of CGST Rules, 2017, though would be allowed as ITC, refund would not be granted to this extent. Further, HSN / SAC wise listing of inputs and input services should be filed with the application for refund, except in cases where the supplier of such goods or services is exempted from the requirement of furnishing HSN / SAC on the invoices. It is understood that this listing will be used to distinguish inputs with capital goods.

15. Based on the recommendation of the Council for amendments to CGST Rules, the following amendments have been notified:

a. Procedure for reversal of input tax credit in respect of capital goods partly used for affecting taxable supplies and partly for exempt supplies under rule 43 (1) (c): The procedure for reversal of input tax credit with respect to capital goods has been amended by amending Rule 43(1) (c) vide Notification No. 16/2020-Central Tax dated 23.03.2020 01.04.2020 as under:

  • ITC as per the invoice to be directly credited to the Electronic Credit Ledger

  • Where any capital goods initially meant for non-business purpose / exempt supplies is later used partly for business and non-business purpose or partly for taxable and exempt supplies, the ineligible
    credit to be added to the output tax liability on the basis of reduced percentage points (5% points per quarter).

  • Such ineligible ITC to be computed separately for CGST, SGST/UTGST and IGST.

  • The useful life of any capital goods to be 60 months i.e. 5 years from the date of invoice.

Hitherto, Rule 43(1)(c) prescribed for reducing the input tax credit at the rate of 5% per quarter and only balance amount to be taken as credit. Now, after amendment in Rules, gross ITC as per Invoice should be taken and reversal of ineligible portion should be shown as output tax liability.

b. Ceiling to be fixed for the value of the export supply for the purpose of calculation of refund on zero rated supplies: Vide Notification No. 16/2020-Central Tax dated 23.03.2020 effective 23.03.2020 the ‘Value of Zero-rated supply of goods’ in the formula prescribed for the purpose of refund of unutilized input tax credit is now restricted to the lower of the following:

i. Value of Zero rated supply of goods effected in a tax period without payment of tax under LUT; or

ii. 1.5 times the value of like goods domestically supplied by the same or similar placed supplier, as declared by the supplier.

This amendment is brought about to curb the illegitimate practices of certain exporters who claim refunds by inflating the value of goods exported but have failed to realize the sales proceeds in the required foreign currency. The amendment is silent on the acceptable methodology/source from where a tax payer applying for such refund could get the details of domestic valuation of like supplies. This amendment is applicable to goods and not services. This amendment, in author’s view, is penalizing the bona-fide exporter of goods who command a good price advantage in the international market.

c. To provide for recovery of refund on export of goods where export proceeds are not realized within the time prescribed under FEMA: Vide Notification No. 16/2020-Central Tax dated 23.03.2020 effective 23.03.2020 Rule 96B has been inserted in CGST Rules, 2017 to provide that Where sale proceeds against export of goods is not realised in full / in part (within the period allowed under FEMA, 1999) and refund of un-utilised input tax credit or IGST paid on export of goods has been paid to an applicant, the applicant is required to deposit the amount so refunded to the extent sale proceeds not realised, along with applicable interest within 30 days. Failing this, such refunded amount shall be recovered along with interest. However, if the assess requests by way of permission to Reservice Bank of India (for brevity, ‘RBI’) to write off the requirement of realisation of sale proceeds and the RBI grants such permission, the refund paid to the applicant shall not be recovered.

Subsequently, when the sale proceeds are realised, and applicant produces evidence of such realisation within a period of 3 months from the date of realisation, the proper officer may grant the refund of amount so recovered to the applicant.


An attempt has been made in this paper to make a reader understand the basics of the GST Council recommendations made on 14.03.2020 with the relevant changes made in the Act / Rules under the GST law. This paper is written with a view to incite the thoughts of a reader who could have different views of interpretation. Disparity in views, would only result in better understanding of the underlying principles of law and lead to a healthy debate or discussion. The views written in this article is as on 10.04.2020.