1. Banner Printing

Facts : The Applicant is in business of flex banner printing. The applicant gets image done on computer software from customers for different sizes and print the same on flex (HSN 3921) as flex banners and deliver the same to its customers. At times, the applicant is required to provide design and charge the customer for consolidate value of design and print; and bill them for composite supply value. These flex banners are used for both commercial and non- commercial purposes such as birthday, marriage and political purpose.

The applicant purchases flex material, inks etc., for delivery of flex banners. Certain customers provide design to be printed on the flex banner. On customer requirement, the applicant provides design services also and Print the same on flex banner and charge as consolidate supply of flex banner. The applicant charges customer on per sq., feet basis on size of flex banner printed by them. The customer does provide design, size and specification of matter to be printed and does not provide any material. All the material i.e., flex, ink, etc., are procured by applicant only. In pre-GST regime the applicant paid tax under works contract on value of material only.

The applicant had filed an application in form GST ARA-01, Dated 4-6-2019, by paying required amount of fee for seeking Advance Ruling on the following issues’, as mentioned below.

The applicant has raised the following Questions raised before the Authority: Whether supply of print on flex is classifiable as supply of goods or services? If yes, whether falls under HSN 4911 under entry no 132 of Schedule II of Notification No. 1/2017- CTR? If answer to question 2 is yes, whether supply of print on flex noncommercial purpose is also classifiable under HSN 4911 under entry no. 132 of Schedule II of Notification No. 1/2017-CTR?

Observations & Findings : The applicant in the instant case is engaged in supply of printed flex material and the raw materials of the goods in questions are completely procured by the applicant himself. Immaterial of the fact that whether the content is supplied by the customer or it is designed by the applicant himself basing on the requirement of the customer, the applicant transfers the title in the goods i.e., printed material on flex to the customer as defined under Section 7 of CGST Act, 2017 read with Schedule -II Sl.No.1 (a) of CGST Act, 2017.

Further, the supply of print on flex is classifiable vide Notification No. 1/2017 – Central Tax (Rate) dated 28-6-2017 under Sl. No.132 under HSN code 4911 and attracts tax rate of 12%. Further, the same has been clarified in detail vide the clarification issued under F.No.354/263/2017 -TRU, Dated 20th October, 2017 in Circular No. 1l-11-2017-GST.

Ruling : The supply of print on flex is classified under Goods only as per Section 7 of CGST Act, 2017 read with Schedule -II Sl. No.1 (a) of CGST Act, 2017. It is classifiable vide Notification No. 1/2017 – Central Tax (Rate) dated 28-6- 2017 under Sl. No.132 Chapter/Heading/ Sub-Heading/Tariff item 4911 and attracts tax rate of 12%. Supply of print on flex used for non-commercial purpose does not change the classification per se and attracts same rate of tax as mentioned above.

[[2020] 117 taxmann.com 919 (AAR – ANDHRA PRADESH) – Sree & Co.]

2. Government Contracts :

Facts : The applicant entered in to contract with APEPDCL relating to “Supply and erection of 11No.s 33/11KV Indoor Sub stations and their connected lines in Z2 Division of Visakhapatnam circle on turkey basis.” The applicant entered in to contract with APEPDCL relating to Supply and Erection of 33KV Inter linking lines in Srikakulam, Vizag and Vizianagaram District Turnkey Basis. The applicant entered in to contract with APSPDCL, relating to “System improvement project works for erection of 2 nos 33/11kv GIS indoor sub stations at Vijayawada and 1 no. at 33/11kv GIS Indoor Sub-station at Guntur and their connected lines on semi turkey basis under IPDS Scheme”.

The applicant seeks advance ruling, whether APSPDCL & APEPDCL is a Government authority/ Government Entity or not? What is the applicable rate of GST on work agreement entered into with the APSPDCL & APEPDCL?

Observations & Findings : The Government of India vide Notification Number 12/2017 – Central Tax (Rate), dated: 28th June 2017 notified the rate of GST applicable on supply of services. Under this notification for heading 9954 the applicable rate of GST is 9%. The said Notification was amended through Rate Notification Numbers, 20/2017, 24/2017, 31/2017, 46/2017 and 01/2018.

The Applicant Contractees i.e. APSPDCL and AEPDCL are Government Companies i.e. wholly owned by the Government of Andhra Pradesh. When a copy of Audited Annual Accounts of M/s APSPDCL and APEPDCL are examined, it is evident from the schedule of Equity Share Capital of the Annual Statement that 100% share capital is held by the Government of Andhra Pradesh in the name of Honourable Governor of Andhra Pradesh. Thus, based on the above facts, it is concluded that the Government of Andhra Pradesh is having full control over the APSPDCL and APEPDCL and they are covered under the definition of Government Entities.

For all the civil works, where materials such as sand, metal, gravel etc., are involved, the rates are inclusive of seigniorage charges as fixed by the Competent Authority of Government of AP and the same will be recovered from the contract bills for remittance to the Government. Materials such as Power Transformers, 100 Sqmm Conductor & Station Transformer will be supplied by department. In some agreements all the materials are in Contractor’s scope. Now the works under discussion have been undertaken to execute/Implement various schemes for constructing sub stations, providing bore wells, erection of lines and required conductors etc. Moreover, the above works undertaken by APSPDCL and APEPDCL are for business purpose and the benefit of concessional Rate of 12% (6% under Central tax and 6% State tax) as per notification is NOT available to the applicant.

Ruling : The applicable rate of tax is 18% for the services referred by the Applicant as per entry no. (ii) of S.No.3 of the table of Notification No. 11/2017 -Central Tax (Rate), Dated: 28th June 2017.

The value of materials recovered on cost recovery basis by the Contractees from the R.A. bills issued by the applicant is includible in the taxable value of supply in terms of Section 15(2) (b) of the CGST Act, 2017.

[2020 (7) TMI 405 – AAR, Andhra Pradesh – M/S. GVS Projects P Ltd.]

3. Taxable supply

Facts : The applicant is a company engaged in conducting chit auctions. They register the members and conduct auction in respect of each chit each month. The company will be collecting subscriptions from members by dividing the prize money with number of members. The applicant is collecting the foreman commission @5% from the amount to be distributed to the member taking the prize money. The GST is paid on the foreman commission @12%. The applicant is responsible to pay the prize money by due date to the winner of auction. However, many a time, the subscribers fail to deposit subscriptions by the specified date. The applicant charges interest/penalty by whatever name called, from the members paying the subscriptions belatedly. The interest /penalty has no element of services except that it is in an auction in money inasmuch as it is collected as a part of subscription for delay.

The applicant raised the questions, whether the interest/penalty collected for delay in payment of monthly subscription by the members forms a supply under GST? IIf the said interest/penalty is a supply, what is the classification and rate of duty applicable on the said supply?

Observations & Findings : The GST Act 2017 mentioned the value of supply, vide Section 15 (2).

“shall include-(d)- interest or late fee or penalty for delayed payment of any consideration for any supply”;

It is clear from the simple reading of 15(2)(d) that the interest, late fee or penalty charged from customer shall be added to the transaction value and hence shall be taxable at the rate at which such goods/ services are taxable or in other words the classification of interest, late fee or penalty cannot be different from the classification of goods or services.

Ruling : The additional amount being charged in delay of payment by whatever name called should be classified as principal supply and the classification of the same cannot differ from the original supply. Hence the additional amount charged on delayed payment shall be taxed as per original supply i.e. supply of financial and related services. It is classified under SI. No 15 of Heading 9971 Financial and related services, GST @12% as per Notification No. 8/2017-Integrated Tax (Rate) dated, the 28th June, 2017 as amended from time to time.

[2020 (7) TMI 447 – AAR, Andhra Pradesh – Ushabala Chits P Ltd.]

4. Place of Supply :

Facts : The applicant is a registered proprietorship firm deals in supply of goods as well as provides services. The applicant received order for Fixing of Air conditioner & VRV system in Goa for a client (Recipient) registered outside Goa but not registered in Goa. Although the applicant sought ruling on many issues, only one issue could be dealt by this authority for issuing Ruling and that is whether supply made by applicant from Goa on behalf of third person who is not in the taxable territory of Goa to a place in Goa is to be taxed as Interstate Supply or Intra State Supply.

Observations & Findings : To determine the classification of any supply as Interstate Supply or Intra State Supply, two ingredients are relied upon and these are location of the supplier and place of supply. In the instant case, as said by the applicant, location of the supplier is Goa, place of supply will be outside Goa as per section 10(1)(b) of the IGST Act since, goods are supplied on behalf of a registered person outside Goa to a place in Goa.

Section 10(1)(b) of IGST Act is reproduced as “where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person.”

Ruling : The nature of supply made by the applicant is to be treated as a supply of goods in the course of interstate trade or commerce and tax is to be charged accordingly.

[2020 (7) TMI 311 – AAR, Goa – High Tech Refrigeration and Air Conditioning Industries]

5. Exempted supply :

Facts : The Applicant, is providing Mapping Services to various Municipal Corporation & Councils. The main aim behind doing the map making activity is to identify unpermitted construction areas. The Applicant has submitted that the services provided by them are Pure Labour Services, provided to Government or Local authority or a Governmental authority by way of an activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.

Observations & Findings : We find that the applicant’s main query is whether in view of the submissions made, the services supplied by them would be covered under clauses (1) & (2) of Twelfth Schedule of Article 243W? and thus exempt under Entry No. 3 of Notification no. 12/2017-Central Tax (Rate) dated 28-6-2018. We find that the Services are provided by the applicant are in relation to Urban planning including town planning and Planning of land- use and construction of buildings in as much as all the said activities help the local authorities to do Town Planning, Urban Planning & Control the Land use by the general public. We find that the Services supplied by them are covered under Article 243W of the Constitution, as functions entrusted to Municipality. Hence the provisions as per SI. No. 3 of the Notification No. 12/2017 – Central Tax (Rate) dated 28-6-2017 as amended applies in their case and therefore, the Subject Services being Pure Services, provided by the applicant to the various Municipal Corporations and Councils are in relation to aforesaid functions entrusted to the said local authority and exempt from GST.

Ruling : Mapping services provided to Municipal Corporation for planning of land use are ‘pure services’, exempt from GST.

[[2020] 117 taxmann.com 749 (AAR – MAHARASHTRA) – Core Project Engineers & Consultants (P.) Ltd.]

6. Long Term Lease :

Facts : That the Rail land Development authority (RLDA), a statutory authority under Ministry of Railway, Government of India -I, issued a request for which was publicized by RLDA for grant of lease for residential & commercial development along with development of financial infrastructure for 99 years.

The Applicant company has entered into a long term Lease Agreement of 99 years with RLDA for undertaking residential & commercial development along with development of financial infrastructure. The Applicant Company paid a sum in parts as Security deposit which, in case of breach is refundable after forfeiting the bid security deposited separately for both the Plots as per the terms of the lease agreement. The issue to be examined in the present case is whether the amount paid prior to 29-3- 2019 in pursuance to the lease agreement of 99 years executed on 8-11-2019 are exempt from levy of GST in view of the Notification No. 04/2019-Central tax(rate) dated 29-3-2019 or Notification No. 12/2017-Central Tax(rate) dated 28-6-2017? or not;

Observations & Findings : While examining the functions of RLDA, we find that it is a statutory authority constituted under the Railways Act, 2005 with obligation, inter alia of development on Railway land for commercial use, entrusted to it by the Central Government for the purpose of generating revenue by non- tariff measures. We observe that in background of its function, especially of generating revenue, RLDA is leasing the parcels of land and thus it is a rental or leasing service of land for commercial function. In a way, it is clear from facts that RLDA is supplying rental or leasing service involving own land. The said service is classifiable under HSN 997212 ‘rental or leasing services involving own or leased non-residential property’.

Serial No. 5A of Notification 13/2017- Central Tax (Rate) dated 28-6-2017 (as amended) provides that ‘supply of renting of immovable property’ made by Central Government to a registered entity is taxable under RCM i.e. the recipient of service is liable to pay GST.

Ruling : Land given on lease for 99 years for residential development by statutory body is leviable to GST under RCM.

[[2020] 117 taxmann.com 797 (AAR- RAJASTHAN) – Hazari Bagh Builders (P.) Ltd.]

7. Composite supply :

Facts : The Applicant has received work orders from Ajmer Vidyut Vitran Nigam Ltd. (AVVNL) through tender process. AVVNL is a company incorporated by Govt. of Rajasthan for distribution of electricity in various parts of Ajmer district. Work undertaken by applicant as per contract along with two work orders involves (a) supply of materials/equipments and (b) erection, testing and commissioning of materials/equipments supplied in building of rural electricity infrastructure.

The applicant sought ruling on whether the contract entered into with AVVNL as per the work orders combine of supply, erection, testing and commissioning of materials/equipments for providing rural electricity infrastructure qualifies as a supply for work contract under section 2(119) of the CGST Act? If Yes, whether such

supply, erection, testing and commissioning of materials/equipments for providing rural electricity infrastructure made to AVVNL would be taxable at the rate of 12% in terms of Sr. No. 3(vi)(a) of the Notification No. 11/2017- Central Tax (Rate) dated 28-6-2017 as amended w.e.f. 25-1-2018?

Observations & Findings : It is observed that all the five conditions prescribed implicitly by Entry No. 3(vi)(a) of the Notification No. 11/2017 – Central Tax (Rate) dated 28-6-2017 are satisfied by the applicant except one, viz. that the activity is meant predominantly to be used other than commerce, industry, or any other business or profession. Thus, work undertaken by the applicant as per Contract RGGW/TN-13 for AVVNL, Ajmer by way of supply of material/equipment and erection, testing & commissioning of supplied material/ equipment is though a Composite Supply of Works Contract but the same is not covered under the Entry No. 3(vi)(a) of the Notification No. 11/2017 – Central Tax (Rate) dated 28-6-2017 (as amended).

Ruling : The work undertaken by the applicant as per Contract RGGVY/TN- 13 (encompassing both work orders) is a Composite supply of Works Contract and is not covered under Entry No. 3(vi)(a) of the Notification No. 11/2017- Central Tax (Rate) dated 28-6-2017 (as amended) as consequentially are not eligible to be taxed at lower rate of 12% and hence are liable to be taxed @18%.

[[2020] 117 taxmann.com 702 (AAR- RAJASTHAN) – ARG Electricals (P.) Ltd.]

8. Supply of food to hospitals :

Facts : The Applicant is engaged in supplying food and beverages at the canteen of their customers. The Applicant himself does not get paid for by the consumers of the food and beverages. The Recipient of the services are hospitals who enter into contract with the applicant. The charges are received from the hospitals on monthly basis on the coupons collected. In short, it is deciphered that the Applicant is vested with management of the canteen facilities.

The applicant sought the ruling, whether Food supplied to Hospitals i.e. Government Hospital, Private Hospitals and Autonomous Bodies on outsourcing basis, GST is chargeable? If GST is chargeable what is the tax rate? If no GST is chargeable on the Supply of food, the GST already paid by the Hospitals and remitted to Government is recoverable from their future bills?

Observations & Findings : The Notification No. 13/2018 – State Tax (Rate), issued in G.O.Ms No. 171, Revenue (CT-II) Department, Dt. 20-08-2018 was amended vide Notification No. 27/2018. In terms of the above amendment, from 01.10.2019, the supply of food by the applicant to hospitals fall under entry no. (ii) of S. No. 7 of Not. No. 11/2017 – State Tax (Rate), issued in G.O.Ms No. 110, Revenue (CT-II) Department, Dt. 29-06-2017 and is subject to 5% GST with the condition of non-availability of input tax credit.

Ruling : For the period from 01.07.2017 to 26- 07-2018 – 18%. For the period from 27.07.2018 onwards – 5%. Provided that credit of input tax charged on goods and services used in supplying the service has not been taken.

[2020 (8) TMI 104 – AAR, Telangana – Navneeth Kumar Talla]

HIGH COURTS GUJARAT HIGH COURT

VKC Footsteps India (P) Ltd. v.

Union of India & Ors.

[J.B. Pardiwala & Bhargav D. Karia, JJ]

Special Civil Application No.2792 of 2019 Date of Decision: July 24, 2020

Refund—Inverted duty Structure—Vires of Rule 89(5) of CGST Rules,2017— Refund of ITC on ‘input services’ denied by respondent in view of Rule 89(5) of the Rules—Said rule excludes ITC on input services as apart from Inputs used—Rule held to be contrary to section 54(3) of the Act as the said provision permits ITC on ‘any’ unutilised ITC—Rule held to be ultra vires the section 54(3) of the Act—Respondent directed to refund the accumulated ITC on input services also.

A writ has been filed for declaring Rule-89(5) of CGST Rule, 2017 as ultra vires to the extent it denies refund of ITC related to Input Service in case of inverted duty structure.

The petitioner receives input services on payment of GST in course of its business and avails ITC of GST paid thereon. The input and input services attract GST rate of about 18% which is higher than rate of tax paid on outward supply of goods. Thus the unutilized credit is accumulated which is not being refunded

fully by the respondent in view of the aforesaid amended rule. Section 54(3) of CGST Act provides for refund of any unutilized input tax credit and the said provision specifies the quantum of refund which includes credit availed on input services apart from inputs. A circular No.79/53/2018 dated 31.12.2018 was issued by the Govt. revising the formula to calculate refund on account of inverted duty structure. This formula excluded input services from the scope of net ITC for computation of refund which violates the provision Section 54(3) of the Act.

By prescribing the formula in Rule 89(5) of the rules, exclusion of tax paid on ‘input service’ as part of the refund of unutilized input tax credit is contrary to provisions of subsection 3 of section 54 of the CGST Act. Analyzing the provisions of the Act and Rules, keeping in mind the scheme and object of the Act, the intent of the government by framing the rule restricting the statutory provision cannot be the intent of law as interpreted in the circular dated 31.12.2018 so as to deny refund on input services as part of refund of unutilized ITC. Therefore, explanation (a) to Rule-89(5) which denies the refund of unutilized ITC paid on Input Services as part of ITC accumulated is ultra vires the provision of Sec.54 of the CGST Act. Therefore, respondents are directed to allow the claim of refund made by petitioners considering unutilized ITC of input services for claiming refund under Sub-section 3 of 54 of the Act.

HIGH COURT FOR THE STATE OF CHHATTISGARH

Dhamtari Krishi Kendra v.

Union of India & Ors.

[P. SAM KOSHY, J]

WRIT PETITION NO.70 of 2019

Date of Decision: July 17, 2020

Technical Glitch—TRAN 1 & TRAN 2— Inability to submit the forms due to technical glitch—Direction sought from High court to respondents for considering the same— Rejection on grounds that no evidence given showing submission within time and facing technical glitch—Writ filed— Held—Contentions raised in earlier round of litigation ought to have been considered by department—Complaint regarding failure to submit lodged at petitioner’s end well within time—Manual returns and registered post sent in this regard—Absence of reasoned order by department—matter remitted back for reconsideration keeping in mind documents proving the contentions of petitioner on record Submission of TRAN-1 and TRAN-2 was done a day before the last date of filing but failed due to technical glitch. Though a direction was sought from High Court to the authorities to consider the records and documents of the petitioner for filing of returns, the Commissioner refused the grant of permission to submit TRAN-1 and TRAN-2 on the ground that the petitioner had failed to produce any evidence to show that he tried to submit the forms within the stipulated period and that he faced technical glitch. The petitioner thus approached the High Court. It is held that the respondents should have considered the contentions of the petitioner earlier. Considering the timely complaint filed by the petitioner i.e. a day before the last date of filing , manual filing done shortly within a period of one month in addition to sending returns through

registered post; the Commissioner should have given reasons of rejection. Hence, the matter is remitted back to the Commissioner for passing a fresh order, keeping in mind that the petitioner has produced certain documents of his being unable to submit forms electronically. The Commissioner may refer the matter to GST Council for its recommendations. The Commissioner shall take a decision at the earliest.

KERELA HIGH COURT

Devices Distributors v.

The Assistant State Tax Officer [A.K. Jayasankaran Nambiar, J] WP No 14969 of 2020

Date of Decision: July 23, 2020

Detention of goods—Goods in transit covered with proper documents—Detention on grounds that invoices furnished not consecutively numbered—Transportation of other goods under the invoices falling in between those invoices suspected—Held goods in question covered with proper documents—Suspicion of other goods being transported without information no ground for detaining the goods in question u/s 129 of the GST Act—writ allowed—

The goods in transit were detained for the reason that the invoices furnished were not consecutively numbered for three invoices. It was suspected that the invoices in between the sets of invoices might have been used for transportation of other goods that were not brought to the notice of department. A writ is filed in this regard

Held that such a doubt cannot be a justification for detention u/s 129 of the GST Act, especially when the goods were covered with an e- way bill and invoice. In any case the doubt here was about the goods that could have been transported and not about the goods that are detained actually. Allowing the writ, the goods are ordered to be released.

TRIPURA HIGH COURT

Kalpana Stores v.

State of Tripura & Ors.

[CJ Akil Kureshi and Arindam Lodh, JJ] WP No 729/2019

Date of Decision: December 17, 2019

Natural Justice—Detention of goods—Goods in transit seized—Tax and penalty imposed by passing mere ‘order of demand of tax and penalty’ instead of assessment order—No opportunity of hearing given before confirming the demand—Writ entertained since impugned order was in breach of provisions of law— Impugned order quashed—

The goods in transit were detained and tax and penalty was imposed by the officer. The goods were released upon payment. A writ is filed on the ground that the said tax with penalty was imposed without affording an opportunity of hearing to the petitioner.

Disapproving the action of authorities, it is held that the impugned order is not an assessment order of petitioner’s tax liability but a mere order of demand of tax and penalty. Such order has to be confirmed after giving an opportunity of hearing to the petitioner. The order is in breach of subsections 3 and 4 of section 129 of the GST Act, 2017. Therefore, despite there being an appellate remedy, present petition is entertained and the impugned order is quashed.

GUJARAT HIGH COURT

Sawariya Traders v.

State of Gujarat

[J.B. Pardiwala and Bhargav D. Karia, JJ]

R/ Special Civil Application No. 22211 of 2019 Date of Decision: February 26, 2020

Detention of goods—Show cause notice issued u/s 130 of CGST Act, 2017 silent about discrepancy of goods and conveyance— Notice served to driver of conveyance—Writ applications filed for quashing of notice and release of goods—Permission to file application before concerned authority for provisional release of goods and conveyance granted— Also, applicants to file reply for discharge of the said notice—writ disposed of

A detention notice in form GST MOV-10 was issued u/s 130 of CGST Act thereby detaining both goods and the vehicle. The show cause notice was silent about the discrepancy noticed on physical verification of goods and conveyance. Moreover, the said notice was issued to the driver of the vehicle instead of owner of goods. Disposing off the Writ- applications filed for quashing of notice and for release of goods, the Hon’ble court has permitted the writ applicants to prefer an application addressed to the authority concerned u/s 67(6) of the Act for provisional release of goods and conveyance. Regarding challenge to the show cause notice, it is held that the applicants shall file a reply and make good his case that the impugned notice deserves to be discharged.

GUJARAT HIGH COURT

Cera Sanitaryware Limited v.

State of Gujarat & Anr.

[J.B. Pardiwala,J]

Civil Application No. 8050 of 2020

Date of Decision: July 14, 2020

Writ—Maintainability of—notice of intimation issued u/s 74(5) of GST Act, 2017—writ filed for quashing of—writ not maintainable against such notice of intimation—applicant entitled to ignore it till further issuance of show cause notice

Where the writ applicant seeks issuance of writ against the notice of intimation issued in form GST DRC-01A u/s 74(5) of the Act by the respondent, the Hon’ble High court has held that such a challenge is not maintainable in law. It may be ignored by the applicant till further show cause notice is served u/s 74(1) of the Act. When further notice is served under section 74(1), the applicant would be given opportunity of hearing before his actual liability is determined.

IN THE HIGH COURT OF DELHI

Jian International v.

Commissioner of Delhi Goods and Service Tax

[Manmohan and Sanjeev Narula, JJ.] WP NO.4205 OF 2020

Date of Decision: July 22, 2020

Refund—Zero rated supply—Application filed for refund u/s 54 of Delhi GST Act, 2017 alongwith interest on zero rated supply of goods—Application neither acknowledged nor deficiencies pointed out within the stipulated period as required u/r 90 of GST Rules— Held—Application to be presumed as complete—Permitting rectification after statutory timelines period would mean fresh filing thereby sabotaging petitioner’s right to claim interest from the relevant date of filing— A writ is filed seeking direction to the respondent to grant refund claimed under Section 54 of the Delhi GST Act, 2017 alongwith interest. It is contended by the petitioner that it had filed an application for refund claimed on account of zero rated supply of goods and services which was neither acknowledged by the respondent within the stipulated time period nor any deficiency was pointed out within a period of 15 days from date of filing, as required under Rule 90 of the DGST Rules.

It is held that in such a case the refund application would be presumed to be complete in all respects in accordance with Rule 89 of CGST/DGST Rules. Permitting the respondent to process the refund application beyond the statutory time limes as provided under Rule 90 of CGST Rules shall mean rejection of petitioner’s initial application for refund and that would require filing of fresh application after rectifying the alleged deficiencies. In such an eventuality the petitioner’s right to seek refund would be delayed and its right to claim interest from the relevant date of filing of original application for refund would also be impaired.

The respondent has lost right to point out any deficiency at this stage. Therefore, refund alongwith the interest shall be payable within 2 weeks as per law.

HIGH COURT OF ORISSA AMIT BERIWAL

v.

STATE OF ODISHA [S.K. PANIGRAHI, J.] BLAP NO. 2217 OF 2020

Date of Decision: July 27, 2020

Bail—Bogus ITC—Arrest against offence punishable u/s 132 of GST act, 2017—Bail application filed—Threat of tampering evidence—Two accused still at large—Huge amount of fake ITC involved involving many fake identities—Court cannot lose sight of impact of such activity on economy—Efforts of government to collect tax cannot be permitted to be sabotaged by such criminals—bail denied A bail application is filed against the arrest made being accused of an offence punishable under Section 132 of OGST Act, 2017. The petitioner is accused of engaging in fabricating fake invoices without supply of physical goods to other existing and non-existing firms thereby enabling the recipients to avail and utilize the ITC while discharging tax liabilities. On search and inspection by the State authorities it was found that no business is being conducted at the declared place of business, no transport documents to show actual supply of goods, no warehouses to stock such goods, no equipments to measure were available in the premises.

Out of the four accused, two are still evading arrest. The GST fraud committed is having huge ramification on the revenue collected by State and there is a possibility that the accused may tamper the evidence.

These complications created by the unscrupulous fraudsters could lead to arrest of innocent traders. The Government officials are doing their best to ensure tax collection. Their efforts cannot be permitted to be sabotaged by such criminals who prey on public exchequer. The increasing numbers of fraud in respect of ITC are alarming and a system needs to be devised to ensure that ITC is not misused. Hence, the court is not inclined to release the petitioner on bail at this stage. The bail application is dismissed.

MADHYA PRADESH HIGH COURT AMIT BOTHRA

v.

STATE OF MP

[Virender Singh, J] MCRC No.21628/2020

Date of Decision: July 27, 2020

Bail—Clandestine manufacturing—evasion of GST—search conducted—confessional statement alleged to have been taken under threat—nature and allegation and specific evidence collected considered—facts put forth by applicant taken into account—bail granted As per revenue the petitioner was indulging in clandestine clearance of Pan Masala without payment of GST and that they had confessed to evasion of GST payment to the tune of

Rs.225 Cr. The revenue is contesting against the grant of bail to the petitioner. The petitioner has alleged that no clandestine purchase is possible as purchases are done from government companies or from traders registered under GST Act, 2017. It is contended that their statements were recorded under threat and pressure. The tax evasion was presumed by the Department due to delay in paper work and submissions of invoices on account of COVID-19 and complete lock down pursuant thereto.

Considering nature and gravity of the allegations made and the specific evidence collected in respect of these allegations, elaborate discussion of which would not be apt as it may adversely affect the interest of either party, specific facts put forth by appellant, the Court is granting bail subject to furnishing of bond with separate sureties.

TELANGANA HIGH COURT

Mallemaala Entertainments (P) Ltd. v.

Deputy Commercial Tax Officer

[M.S. Ramachandra Rao, J] Writ Petition No.10862 of 2020 Date of Decision: 30:07.2020

Assessment—Amalgamation of X and Y— Assessment proceedings to be dropped against X for the period when X and Y stood amalgamated—

Natural Justice—show cause notice served without mentioning date is against the rules of natural justice

After the two companies MAPL and MEPL were amalgamated a show cause notice was issued by first respondent proposing to levy tax for inter-State sales effected by MAPL for the period subsequent to the period when amalgamation was brought into effect. The petitioner stated not having received it.

No date of the show cause notice given to MAPL nor did the petitioner receive it. This leads to violation of Natural Justice. The amalgamated companies ought to be assessed in the name of the petitioner with whom it is merged. Thirdly it is observed that the assessment is alive before the 2nd respondent. Hence writ petition is allowed with permission to the 2nd respondent to issue a show cause notice to the petitioner for the period concerned and the petitioner may file objections to the said notice including plea of bar of limitation.

KERALA HIGH COURT

State Tax Officer, The Commissioner of Commercial Taxes

v.

Village International School, K.K.S.

Reekumar

[K. Vinod Chandran & T.R. Ravi, JJ]

W.A. NO.573 OF 2020 Date of Decision: July 21, 2020

Rejection of application—Amnesty scheme— Whether application can be rejected on grounds of appeal intended by state from the order of first appellate authority—Held—No requirement of a specific provision for the state to withdraw the appeal filed as settlement based on statutory provision binding on the department—cases where revenue proceedings already initiated, proceedings have to be withdrawn on settlement under section 31 A of KGST Act as it would be render them infructuous on deposits made by assessee— No power to state to reject the application and requirement under subsection 7—circular stating where appeal already filed by state, settlement would be based on original assessment order is regarded to be issued in absence of any such provision in the scheme In this case the petitioner had filed an application under the Amnesty scheme introduced by Sec.31A of Kerala VAT Act, 2003

providing the assessee to absolve itself from the arrears. The question that arose was that if such application could be rejected on the ground that an appeal was intended by the State from the order of the 1st Appellate Authority.

The rejection was based on a circular of the Tax Department which was held to traverse beyond the statutory provisions by the single Ld. Judge. An appeal is filed by the State against the said order.

It is held there is no requirement of a specific provision that requires the State to withdraw the appeal filed since the settlement arrived at on the basis of statutory provision is binding on the department. If revenue proceedings are already initiated, they have to be withdrawn when the matter is settled under 31 A. The State appeals would be rendered infructuous on a settlement arrived at under Sec.31A as it is an inevitable consequence of deposits of amount determined under Sub-section of the amnesty scheme. There is no power given to the State to reject an application.

The circular was issued in contemplation of cases where appeals have been filed by the State wherein the requirement is to make settlement on basis of demand raised on the original assessment order. Such a provision is absent in the scheme. The appeals are thus rejected.

MADRAS HIGH COURT

P.R. Mani Electronics v.

Union of India & Others

[A.P. Sahi, C.J. & Senthil Kumar Rama Moorthy, JJ]

W.P. No.8890 of 2020 Date of Decision: July 13, 2020

Vires—Rule 117 of CGST Rules, 2017—Govt is empowered to make rules u/s 164 of the Act— Insertion of words ’within such time’ in S 140 of CGST Act, 2017 after amendment prescribes the time limit without relying on generic of s 164—therefore, rule 117 is intra vires Sec 140 of CGST Act—

Scope of Rule 117—ITC is not a property but a concession given to assessee which can be availed only with prescribed conditions— Extending time limit of the said Rule does not mean there is no time limit for availing ITC—

Section 16 of CGST Act is indicative of the legislative intent of prescribing the time limit for availing ITC—Against the statutory backdrop , the time limit for availing ITC is compelling which otherwise would make it unworkable—Meaning of word ‘shall’ in section 16 of CGST Act is peremptory which makes the provision mandatory—

Rule 117 makes it obligatory for the GST TRAN 1 to be filed electronically and not through hard copy—thus writ is dismissed 

The validity of Rule 117 of the CGST Rules, 2017 is challenged on the ground that it is ultra vires Sec.140 of the CGST Act, 2017. The petitioner had submitted its returns in form of hard copy of Form GST TRAN-1 two days later after the last date of electronic filing due to inability to log into the portal. No response was received with regard to entitlement to transactional ITC. The petitioner has contended that the ITC is in the nature of property and it cannot be deprived of it. It is also contended that Rule 117 is directory and not mandatory.

U/s 164 the Govt. has the power to makes rules to give effect to the provisions of the Act and also confer retrospective effect to the rules.

Rule 117 was framed whereby a time limit was fixed for submitting the said form. By inserting words, “within such time” in Sec.140 with retrospective effect the time limit is prescribed without relying entirely on the generic section 164, therefore, Rule 117 is intra vires Sec.140 of the CGST Act.

The ITC is not a property of the petitioner but has to be construed as a concession and cannot be availed without complying with the conditions prescribed. The fact that the time limit may be extended under certain circumstances specified in Rule 117 including Rule 117A does not mean that there is no time limit for transitioning credit.

Keeping the statutory backdrop in mind in reference to section 16 of CGST Act and section 19 of TNVAT Act, in the context of transactional ITC, the case for time limit is compelling and disregarding the time limit and permitting a party to avail transactional ITC in perpetuity would render the provision unworkable.

In Sec.16(4) of the CGST Act , the word “Shall” used is peremptory. Thus the object and purpose of Sec.140 warrants the necessity to be finite. The time limit is therefore, mandatory and not directory.

Lastly the Form GST TRAN-1 is required to be filed electronically and not manually as specified in Rule-117, therefore, the respondents cannot be directed to permit the petitioner to file to Form GST TRAN-1 and claim the transactional ITC, unless any dispensation are granted by the Tax Authorities.

The outbreak of COVID-19 has resulted a surge in the demand for relevant medical supplies and prevention material/services, such as sanitizers, disinfectants, PPE kits, protective masks, protective spectacles, rubbing alcohol, gloves, infrared thermometers, ventilators, fumigation services etc. Goods and Services Tax (hereinafter referred to as ‘GST’) on masks, sanitizers, gloves, PPE kits and some other key COVID-19 medical supplies may fall either under the 5% or 12% or 18% GST slabs due to some valid controversies about their classification based on their contents and usage in accordance to the accepted principles of classification of goods and services. The present pandemic has also led to a trail of amendments, relief measures and other changes directed at regulating the foreign trade and associated matters. The analysis of such measures and changes in brief as well as some controversies shall provide the reader an insight on the possible widespread effects needing reconsideration of earlier understanding.

1. TRADE FACILITATION CUSTOMS LAW

The following are the major amendments which have been introduced in effect to the outbreak of COVID-19 intending at regulating & providing relief to the business keeping into consideration the requirement of the current situation.

1. PROCEDURE FOR EXPORT OF PPE MEDICAL COVERALLS NOTIFIED

Trade Notice No. 17/2020-21 dated 29.06.20201 issued by the Directorate General of Foreign Trade (hereinafter referred to as ‘DGFT’) restricts the export of PPE medical coveralls for COVID-19 (hereinafter referred to as ‘the Product’) and fixes the export quota of 50 lakh Product Units per month. It notifies the online application procedure through DGFT’s ECOM system for Export authorizations and criteria for export of the aforementioned commodity. This is as follows:

• Export of only 50 lakh units of the Product shall be allowed monthly.

• Exporters to apply online through DGFT’s ECOM system for Export authorizations

• Only applications for export of the Product filed from 1st to 3rd day of each month to be considered for monthly quota.

• Approvals/allocations to be done by 10th of every month in accordance with Handbook of Procedures.

• Validity of Export License will be for 3 months only.

Further, the requirements/eligibility criteria for issuance of Export license for exporting the products along with documents to be submitted along with online application have been laid as follows:

• The applicant shall be a manufacturer of the Product.

• Applicant is to submit copy of Testing/ Accreditation of the Product issued to him from laboratories notified/recognized by the Ministry of Textiles.

• Applicant to either submit copy of importing country’s PPEs medical coveralls Standards Certificate obtained by it or copy of Bureau of Indian Standards Certificate obtained by it, if importing country does not insist in a Standard Certificate.

• Applicant to submit a Chartered Engineer’s certificate certifying that fabrics used in the Product were manufactured in India.

• Copy of Applicant firm’s IEC.

• Only one application per IEC will be considered during a month

• Copy of Purchase Order/Invoice

• All documents to be duly self-attested by

authorized person of the firm.

2. DUTY EXEMPTIONS

The Department has exempted the levy of customs duty and health cess on medical equipment to combat COVID-19 pandemic by virtue of Notification No. 20/2020-Cus dated April 9, 2020 upto 30.09.2020.2 The following goods are covered by the exemption notification:

S. No.	HSN	DESCRIPTION OF GOODS
1.	9018 or 9019	Artificial respiration or other therapeutic respiration apparatus (Ventilators)
2.	63 or any Chapter	Face masks and surgical masks
3.	62 or any Chapter	Personal protection equipment (PPE)
4.	30, 38 or any chapter	COVID-19 testing kits
5.	Any chapter	Inputs for the manufacture of above items

The importer however should follow the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017

3. OTHER EXEMPTIONS

The DGFT in another relief measure by way of Trade Notice No. 62/2012-2020 dated 06.04.20203 directed that where imports taking place under a Free Trade Agreement, have claimed preferential treatment but original hard copy of Certificate of Origin on account of disruptions caused by COVID-19 pandemic cannot be produced or only a digitally signed copy or unsigned copy of the certificate may be accessed and cleared provisionally.

The final assessment may however be done subsequently on submission of the original certificate by the importer. Also, the revenue may be secured through undertaking and appropriate security.

2. CONTROVERSIAL ISSUES AS PER HSN Code vis-à-vis GST RATE ON SOME ITEMS OF EXTENSIVE USE AGAINST COVID-19

GOODS AND SERVICES TAX LAW

1. ISSUES RELATED TO CLASSIFICATION

The pandemic has led to introduction of new products and services in the market. Additional facilities for manufacture of such products have also been resorted to by several ventures as their new business lines. After detailed research and analysis of Harmonized System Nomenclature (hereinafter referred to as ‘HSN’) as updated till 2017 by World Customs Organization, we have prepared and enclosed the table providing various important products, their description, HSN Code, relevant rate notification and its item number as well as the GST tax rate in accordance to the prescribed Schedule under the GST law. The possible notifications and relevant entries have been incorporated with our brief comments for easier understanding and brief analysis of the most appropriate applicable classification and GST rate on the specifically described product. The difference of opinion regarding the categorization of some items has emerged due to very complicated structure of the classification entry which is really difficult to comprehend. The issues of classification have already started surfacing as being raised by the investigating agencies of the GST Departments.

There have been contrasting views regarding the classification of N95 Mask whether would be suitable under Heading 9018 or 9020 of the Harmonized System of Nomenclature.

1. Masks used for medical purposes and for other than medical purposes

In India, masks can be broadly divided into 4 types, on the basis of their physical features. These are:

1. Masks with detachable filters or with a mechanical part;

2. Masks without a detachable filter or a mechanical part;

3. Masks made of cellulose paper or felt or non woven fabric; and

4. Textile masks including designer masks which have now formed a part of the suit sets.

Further, the World Health Organisation in its 2016 Guidelines on Personal Protective Equipment (hereinafter referred as ‘PPE’) recommended technical specifications for surgical mask.4 Guidance Flyer issued by WHO recommends Advanced masks (Surgical masks for single use only & N95 masks) for health workers or those in contact with COVID 19 patients or COVID patients themselves5. While, homemade masks of cloth have been recommended for people not suffering from medical conditions or having breathing difficulties. Guidelines prescribing the use of PPE in different settings have also been issued by the Ministry of Health and Family Welfare.6

There has however, emerged another category of face masks with replaceable filters. The following columns (I) and (II) state the competing entries for classification of the aforementioned Mask:

	I	II
HSN	9018	9020
Rate	12%	12%
Text	Instruments and Appliances used in Medical, Surgical, Dental or Veterinary Sciences, Including Scientigraphic Apparatus, Other Electromedical Apparatus and Sight -Testing Instruments	Other breathing appliances and gas masks, Excluding Protective Masks having neither Mechanical Parts nor Replaceable Filters

Our View:

Heading 9020 constitutes of two major categories of ‘Other Breathing Appliances’ and ‘Gas Masks’ but at the same time excludes the protective masks which do not have mechanical parts or replaceable filters. Hence a protective mask of the category having replaceable filters shall be classified within the Heading 9020 and shall attract a GST rate of 12%.

The second part of the heading containing exclusion of protective masks having neither mechanical parts nor replaceable filters creates a complexity and needs a clearer consideration of the facts of each case in order to classify a mask under the heading 9020 or 9018.

Further, the third category of ‘textile mask’ is classifiable under Heading 6307.90 depending upon the ‘sale value’ of the mask as a textile article. A textile mask with a sale value below ₹ 1000/- piece shall attract a rate of 5%. On the other hand, a textile mask with a sale value exceeding ₹ 1000/- piece shall attract a rate of 12%.

2. Face Shields majorly used for medical purposes

A constituent of the ‘Personal Protective Equipment’ is a plastic face shield with headgear providing good visibility to both the wearer and the patient with an adjustable band attached firmly around the head. It aims to protect the facial area from exposure to airborne particles containing virus that may be expelled by another person.

The following are the competing entries:

	I	II
HSN	9018	3926.90
Rate	12%	18%
Text	Instruments and Appliances used in Medical, Surgical, Dental or Veterinary Sciences, Including Scientigraphic Apparatus, Other Electromedical Apparatus and Sight -Testing Instruments	Other articles of plastics and articles of other materials of headings 3901 to 3914 [other than bangles of plastic, plastic beads and feeding bottles]

Our View:

Face Shields as have been described above, are being majorly used for ‘medical’ purposes and the same shall qualify as an ‘instrument and appliance’ classifiable under Heading 9018, sub-heading ‘Other’ with HSN 9018 99 with applicable rate of 12%.

The possible contrary view has emerged based on the two rulings rendered by the United States CROSS Rulings7 where under both the rulings, it has been held that such face shields brought into U.S. shall have a classification under Heading 3926.90 attracting a rate of 18% holding that they “would be considered articles of plastic, and as they are not more specifically provided for elsewhere.” The said view makes the impugned product susceptible to challenge and leviable to a higher rate.

The latter entry is however expansive and according to the general rules of interpretation, a specific entry over a general entry shall prevail. The entry for classification of a specially designed item based on its specific use is a better categorization being a nearer entry.

3. Mechanical Sprayer including battery/ power operated used in fumigation

A battery/power operated mechanical sprayer usually works when user slides the locking button to the unlocked position, which enables the trigger button. When the user presses the trigger button, the motor is activated, which bring the water, water-based sanitizers or disinfectants up the suction hose via the pump to the spray chamber.

	I	II	III
HSN	8424	8424.89	84131910
Rate	12%	18%	5%
Text	Sprinklers; drip irrigation system including laterals; mechanical sprayers	Mechanical appliances (whether or not hand-operated) for projecting, dispersing or spraying liquids or powders; fire extinguishers, whether or not charged; spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines [other than sprinklers; drip irrigation systems including laterals; mechanical sprayer; Nozzles for drip irrigation equipment or nozzles for sprinklers]	Pumps for Liquids, whether or not fitted with a measuring device, Liquid Elevators — Other — Hand Pumps

Our View:

The article ‘battery/power operated mechanical sprayer’ clearly falls within the Heading of ‘Mechanical Sprayers’ under 8424 subjecting the same to a rate of 12%. A specific entry reading ‘mechanical sprayers’ has been listed thereunder.

However, a contrary view might be taken claiming a classification under the heading 8424.89 attracting a higher rate of 18% under the heading ‘Mechanical Appliances’. A careful consideration of the physical characteristics of the impugned product is required as to whether the product shall constitute a ‘sprayer’ or ‘gun’ or ‘appliance’.

A pump or a liquid elevator on the other hand shall be classifiable under Heading 8413.19.10 attracting a rate of 5%. Similarly, gun sprayer has been specifically stated under Heading 8424.89.

4. Hand Sanitizers

Most controversial item concerning the classification issue is ‘sanitizer’. The specification as per WHO note on Handrub Formulations mentions the ingredients: Ethanol, Isopropyl Alcohol, Hydrogen Peroxide and Glycerol. The majority of the formulation contains either Ethanol or Isopropyl Alcohol.8

The Director General of Goods and Services Tax vide its (internal) communication dated June 16, 2020 relating to evasion of GST in respect to Alcohol based – Hand Sanitizers (as used in ‘WCO Classification’) has stated that some manufacturers of the product are classifying product under wrong tariff heading 3004 attracting a rate of 12% while the product shall attract a rate of 18% under Heading 3808.

The most competitive entries under which a sanitizers or disinfectants could fall are as follows:

	I	II	III	IV	V
HSN	3004	3401	3402	3808	3824
Rate	12%	18%	28%	18%	18%
Text	Medicaments for therapeutic or prophylactic uses, put up in measured doses or in forms or packings for retail sale, including Ayurvedic, Unani, homoeopathic siddha or Bio-chemic systems medicaments, put up for retail sale	Soap, Organic surface-active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap	Organic surface- active agents (other than soap); surface-active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparations, whether or not containing soap, other than those of heading 3401	Insecticides, rodenticides, fungicides, herbicides, antisprouting products and plant-growth regulators, disinfectants and similar product	Prepared binders for foundry moulds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included
Notes to HSN Code Chapter 34 Note 2 of Chapter Note while defining ‘soap’ for 3401 states that Products containing abrasive powders remain classified in heading 3401 only if in the form of bars, cakes or moulded pieces or shapes. In other forms they are to be classified in heading 3405 as “scouring powders and similar preparations”. Note 3 defining ‘organic surface-active agents” are products which when mixed with water at a concentration of 0.5% at 20oC and left to stand for one hour at the same temperature: give a transparent or translucent liquid or stable emulsion without separation of insoluble matter; and reduce the surface tension of water 4.5 X 10-2 N/m (45 dyne/Cm) or less.

Our View:

1. Heading 3004

   The Heading 3004 primarily deals with ‘Medicaments’ and states its properties thereafter. The present commodity does not largely fulfill the basic criteria as has been set by the heading 3004, probably the classification adopted by some of the manufacturers needs serious reconsideration.

   The HSN classification 3004 could only be attracted for sanitizer because of its characteristic being “prophylactic” which means measures designed to prevent the occurrence of an adverse event, a disease or its dissemination. For the purpose of the correct classification of the product, many other accepted principles of classification needs to be examined in depth.

2. Heading 3824

   The classification HSN 3824 is a general category for chemical products which do not fall in any other classification.

   A view has been taken by the US CROSS Rulings in NY N3110379 where it has been held that the sanitizer made of Alcohol from Rum Distillated 70 % v/v, to be used in antimicrobial applications such as hand sanitizing and also containing distilled water, hydrogen peroxide, glycerin and isopropyl myristate shall be classified under Heading 3824 i.e. “Prepared binders for foundry molds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included: Other: Other: Other: Other: Other: Other.”

   A similar view has been taken by NY N30436510

   wherein the product constituted of a liquid

   sanitizer comprising of the active ingredient, ethyl alcohol (62% of the total product), the remainder of the hand sanitizer comprising of water, isopropyl alcohol, glycerin, fragrance, propylene glycol, and aloe barbadensis leaf juice.

   If we go by the view as supported by US CROSS Rulings NY N311037 and NY N304365 wherein a similar issue relating to classification of hand sanitizer was raised before the authority then unfortunately the appropriate Heading for classification of hand Sanitizers is 3824 attracting a rate of 18%.

   However, the analysis of the same is to be made taking into consideration the chemical constitution, intended use and by applying other relevant tests for determination of appropriate classification of the product. The products falling under same family is an important consideration for attracting the particular classification, by this criteria the questioned product must fall in 3808 covering “Insecticides, rodenticides, fungicides, herbicides, antisprouting products and plant- growth regulators, disinfectants and similar product”.

3. Heading 3402

   Heading 3402 concerns “Organic surface- active agents (other than soap); surface-active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparations, whether or not containing soap, other than those of heading 3401.”

   If the product sanitizer could be characterized as per its contents as an organic substance then such sanitizer may fall in 3402, but in accordance to the principle of use of the product, the nearest entry is 3808 which could appropriately be used for deciding the applicable rate of tax under GST being a consumption based tax collection system.

   The appropriate Heading for classification of hand Sanitizers is 3808 attracting GST rate of 18%. Hand sanitizers fall under the category: ‘Insecticides, rodenticides, fungicides, herbicides, antisprouting products and plant-growth regulators, disinfectants’ and shall qualify as ‘similar product’ as per the same family of consumable products as well as for the reason that they possess similar properties to the genus of products covered in the category.

5. Disinfectant

Disinfectants with constitutions of alcohol, benzalkonium chloride solution or peroxyacids, or other disinfectants are common in use in present times.

Our View:

‘Disinfectant’ is specifically mentioned under Chapter Heading 3808 attracting a rate of 18%, so there is not much to debate on its classification for the present purposes.

The classification of the good is dependent upon the chemical properties of the product. The rules of classification have relied on chemical composition and reactions and hence, a reference to chemical composition is also a prerequisite to the classification of the product.

6. Protective Garments generally known as the Personal Protective Equipment (PPE) WCO Classification provides for the following Headings which may be perused for classification of the said product:

   1. 3926.20: Protective unisex garments made of plastic sheeting, textile reinforced plastics or textile backed plastics

   2. 4015.90: Protective unisex garments made of rubber sheeting…

   3. 4818.50: Paper or cellulose garments

   4. Other Sub headings of Chapter 62, which can be discussed as follows:

	I	II	III
HSN C	6210.10	6210.50	6210.50
Rate	5% or 12%	5% or 12%	5% or 12%
Text	Protective garments for surgical/medical use made up of felt or nonwovens whether or not impregnated, coated, covered or laminated (fabrics of heading 56.02 or 56.03).This includes spun- bonded garments.	Other protective garments of textiles and rubberised textile fabrics or woven fabrics that are impregnated, coated, covered or laminated (fabrics of headings 59.03, 59.06 or 59.07).	Unisex protective garments made of rubberized textile fabrics

Our View:

While a distinction on the basis of the broad heads may be done depending on the properties of the protective garment, the most closely related heading under Chapter 62 is the Heading 6210.10 i.e. Protective garments for surgical/medical use made up of felt or nonwovens whether or not impregnated, coated, covered or laminated (fabrics of heading 56.02 or 56.03).This includes spun- bonded garments.

As per Wikipedia, Felt has been defined as “Felt is a non-woven textile. It is made by compressing and matting fibres together until they connect to form a sturdy fabric. Felt has a long history and is the oldest form of cloth known. Felt has been used in many cultures as a material for clothing, footwear, rugs and even tents.”

The reason for the above conclusion is that in major cases, the use of the commodity is ‘surgical’ or ‘medical’ and that the material used for making the protective garment is made of ‘felt or nonwovens whether or not impregnated, coated, covered or laminated’.

PPE made from plastic sheeting other than felts impregnated, coated, covered or laminated with plastics or embedded in plastics will be classifiable under the Heading 3926.20 with an applicable rate of 18%.

7. Gloves including surgical rubber gloves and others

Gloves, full fingered are being commonly used for prevention from the spread of the disease. They are made by using varied materials ranging from plastic, rubber, textile, etc. A differentiation on the basis of material used to manufacture the product and the purpose of manufacturing them has been made.

The following are the competing Headings for undertaking the process of classification of the product:

	I	II	III	IV	V
HSN	3926.20	4015.11	4015.19	6116.10	6216
Rate	18%	12%	18%	5% or 12%	5% or 12%
Text	Other articles of plastics and articles of other materials of headings 3901 to 3914 [other than bangles of plastic, plastic beads and feeding bottles]	Surgical rubber gloves or medical examination rubber gloves	Articles of apparel and clothing accessories (including gloves, mittens and mitts), for all purposes, of vulcanised rubber other than hard rubber [other than Surgical gloves]	Knitted or crocheted gloves which have been impregnated or covered with plastics or rubber	Textile Gloves that are not knitted or crocheted

Our View:

An intricate analysis of the properties of the material used to manufacture the product and those specified in the description of the product is required to ascertain the correct classification of the product. The intended use of the product in light of the destination based tax collection system read with the principles used in the classification process are needed to be relied upon.

The most commonly used type: Rubber gloves shall be classifiable as ‘Surgical rubber gloves’ attracting a lower rate of 12% or shall constitute an ‘article of apparel and clothing accessories’ attracting a rate of 18% shall depends upon the very facts of each case.

8. UV Disinfectant Boxes

UV Disinfectant boxes and similar appliances usually contain a component emitting ultraviolet (UV) rays/light to disinfect documents, medical instruments, articles, etc. and are in common use in work places and hospitals to sanitize the inputs.

Our View:

The most closely related Heading to the impugned product is Heading 8543.70.99 i.e. “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this Chapter.” The present Entry is of a residuary and general nature attracting a rate of 18% under the rate notification.

It is hence iterated herein that UV disinfectant process is also commonly used in medical establishments for disinfecting of medical instruments, etc. but UV Disinfectant boxes does not find any specific mention in Chapter 90 which contains Medical or Surgical Instruments and Apparatus.

2. AVAILABILITY OF INPUT TAX CREDIT

   1. Handwash, sanitizer, masks etc. provided to the employees by the employer

In the series of inadvertent event of spreading of corona virus turning into pandemic, the Prime Minister under Sections 6 and 10 of the Disaster Management Act, 2005 declared the pandemic as a ‘national disaster’, followed by the national lockdown as per Order dated 24.03.2020 under the Act. The Ministry of Home Affairs thereafter issued guidelines11 which have been updated from time to time to prescribe National Directives for COVID-19 Management. These include special directions for Work Places, which are as follows:

1. Provision for thermal scanning, handwash, sanitizer will be made available at all entry and exit points and common areas

2. Frequent sanitisation of entire office, common facilities and all points which come into human contact.

3. Wearing of face cover is compulsory in all work places and adequate provision of the same should be made

4. Employees showing any symptoms of COVID 19 should be immediately sent for checkup in nearby medical hospitals/ clinics.

5. Arrangement for transport facilities to be ensured with social distancing wherever public/private transport is not feasible

6. Intensive communication and training on good hygiene practices shall be taken up

Standard Operating Procedures12 for offices, factories, workplaces and establishments has been prescribed to be as follows:

1. All workplaces to have adequate measures for temperature screening and provide sanitizers at convenient places

2. All organisations to sanitise their workplaces between shifts.

3. All areas in the premises to be disinfected

4. For workers coming- from outside, special transportation facility to be arranged without any dependency on public transport

5. Medical insurance for workers to be made mandatory

Hence, in light of the above laws, the ‘work places’ are required to fulfill the above mentioned conditions. A failure to comply with any of the above shall on the other hand attract penal measures as imposed by State laws. Hence, a compliance of the above provisions is necessary for carrying on the business i.e. such activities by virtue of the above laws is in course or furtherance of business. Moreover, to instil confidence in the employee’s to work together at workplace all these products are necessary otherwise the work cannot be possible adhering the social distancing norm to fight COVID-19.

Section 16 of the Central Goods and Services Tax Act, 2017, prescribes the eligibility for taking credit. Section 17(5) however specifies a list of supplies in respect of which such credit shall not be available. The list blocks credit in respect of the following:

1. Under clause (b), Food and beverages

2. Under clause (b), life insurance and health insurance.

3. Under clause (h), goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

In addition to the above, the following cases shall also be referred in order to determine the correct position in relation to the availability of credit on the supplies on which such credit on input has been blocked.

• In Re: Caltech Polymers Pvt. Ltd. 2018 (10) TMI 1313 –AAR Kerala

The present application was filed with the issue of whether the food expenses for canteen services recovered from the employee without any profit margin would be liable to GST. The Appellate Authority held that the activity would constitute a ‘supply’ and would
constitute a taxable service. It was observed before the Advance Ruling
Authority that there is an involvement of ‘consideration’ as has been defined under Section 2(31) of the CGST Act, 2017 and that such provision of food shall fall within the meaning of ‘business’ as has been defined under Section 2(17)(b) of the CGST Act, 2017.

• CCE v. Brakes India Ltd. 2018 (11) TMI 1748

The issue before the Madras High Court was whether an activity carries out in compliance of statutory requirement under a particular Act alone would make the said activity/ service as input service under Rule 2(l) of the CENVAT Credit Rules, 2004 especially when such service/activity has no nexus in or integral connection to the manufacture of final product. It was held that when the employer spends money to maintain factory premises in an eco-friendly manner based upon the directives issued by the Statutory Authorities, the tax paid on such services would form part of the costs of the final product, that the same would fall within the ambit of ‘input services’ and that the assessee is entitled to claim the benefit.

• CCE v. Stanzen Toyotetsu India (P.) Ltd. 2011 (4) TMI 201

It was held that credit on Outdoor catering services, transportation charges, rent-a- cab scheme and Group Health Insurance shall be available. It was held that it is clear from the definition any service used by the manufacturer whether directly or indirectly in or in relation to the manufacture of final products constitutes input service. If the credit is availed by the manufacturer, then the said service should have been utilized by the manufacturer directly or indirectly in or in relation to the manufacture of final products or used in relation to activities relating to business – merely because these services are not expressly mentioned in the definition of input service it cannot be said that they do not constitute input service and the assessee is not entitled to the benefit of CENVAT credit.

Our View:

Considering the unique and challenging circumstances to protect human beings from the virus by introduction of the new law to fight the COVID pandemic, the business are entitled to undertake certain compulsory activities which were not prevalent before the COVID scenario. The circumstances however have found a mention in the previous excise regime wherein the credit was available in cases an activity which was compulsory to be undertaken by a law. The same has been asserted by the Appellate Authority for Advance Rulings under the New GST regime as well. So, the direct expenses for such fight to protect the business interests including all stakeholders are legitimate expenses in furtherance of business and thus the ITC would be eligible on all such inward supplies, as mandated by the law.

2. CSR Expenditure

   • The Mumbai Bench of CESTAT in the case of Essel Propack v. Commissioner [2018-TIOL-3257-CESTAT-Mumbai] held that Corporate Social Responsibility (hereinafter referred to as CSR) is not in the nature of charity and is directly connected with the principal manufacturing activity of the company which is largely dependent on smooth supply of raw materials. The Bench held that contribution towards Social Responsibility is a mandatory requirement for public sector undertakings and has also been made obligatory for the private sector. CENVAT credit was allowed to the appellant for the reason that the production and sustainability of the company would be at stake if such activity is not treated as ‘business’ activity.

   • The Kerala Authority for Advance Rulings in an application filed by Polycab Wires Pvt. Ltd. 2019-VIL-100- AAR, the applicant had distributed electrical goods to people affected by the flood in Kerala in discharge of the applicant’s CSR obligations. It was hence adjudicated that the goods were distributed on free basis without collecting any money. Such distribution shall amount to ‘disposal by way of gift’ and no ITC shall be available as per Section 17(5)(h).

In a similar context to that of the mandatory CSR activities by law, while the erstwhile regime provides for credit, the AAR denies the same by invoking the specific provision of Section 17(5) concerning blocked credit.

The tussle on whether an obligation imposed by introduction of a law to the effect amounts to a supply in the course or furtherance of business is yet to reach the Courts. It points at the blatant denial of the right available to the taxpayer to avail ITC.

3. CONCLUDING REMARKS

The present circumstances of pandemic are once a lifetime challenge, so the situation needs to be tackled with exceptional thinking and innovative actions. The issues of classification or categorization of products and services needs to be re-invented considering the distinctive facts and circumstances. The GST law needs to be uniquely interpreted considering the crucial need to protect the human race both from the ill-effects of deteriorating health and economy.

CLASSIFICATION OF GOODS & SERVICES USED MAJORLY IN COVID ERA
Compiled & Presented by Mukul Gupta – Senior Partner & Counsel, Prateek Gupta – Partner & Counsel and Akshi Narula – Associate Lawyer At Sharnam Legal
S. No.	NOTIFICATION NUMBER	HSN/ SAC NO.	Entry	DESCRIPTION OF GOODS/ SERVICES	RATE OF TAX	GST Schedule- Rate
1	PERSONAL PROTECTIVE EQUIPMENT (PPE) KIT Protective garments for surgical/medical use made up of felt or nonwovens whether or not impregnated, coated, covered or laminated (fabrics of heading 56.02-felt, whether or not impregnated, coated, covered or laminated as well as 56.03-non-wovens, whether or not impregnated, coated, covered or laminated). This includes spun-bonded garments. As per Wikipedia, Felt has been defined “Felt is a non woven textile. It is made by compressing and matting fibres together until they connect to form a sturdy fabric. Felt has a long history and is the oldest form of cloth known. Felt has been used in many cultures as a material for clothing, footwear, rugs and even tents.”
1.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	6210.10	223	Articles of apparel and clothing accessories, not knitted or crocheted, of sale value not exceeding Rs. 1000 per piece	5%	Schedule I – 2.5%
1.2	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017		170	Articles of apparel and clothing accessories, not knitted or crocheted, of sale value exceeding ₹ 1000 per piece	12%	Schedule II – 6%
2	OTHER PROTECTIVE GARMENTS OF TEXTILES AND RUBBERISED TEXTILE FABRICS OR WOVEN FABRICS THAT ARE IMPREGNATED, COATED, COVERED OR LAMINATED (FABRICS OF HEADINGS 59.03, 59.06 or 59.07). Example: a unisex full body woven suit impregnated with plastics would be classified under 6210.50 – Other women’s or girls’ garments”
2.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017 dated 28th June, 2017	6210.20 6210.30 6210.40 6210.50	223	Articles of apparel and clothing accessories, not knitted or crocheted, of sale value not exceeding Rs. 1000 per piece	5%	Schedule I – 2.5%
2.2	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017		170	Articles of apparel and clothing accessories, not knitted or crocheted, of sale value exceeding Rs. 1000 per piece	12%	Schedule II – 6%
3	PROTECTIVE GARMENTS MADE FROM PLASTIC SHEETING OTHER THAN FELTS IMPREGNATED, COATED, COVERED OR LAMINATED WITH PLASTICS OR EMBEDDED IN PLASTICS
3.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	3926.20	111	Other articles of plastics and articles of other materials of headings 3901 to 3914 [other than bangles of plastic, plastic beads and feeding bottles]	18%	Schedule III – 9%
4	N95 MASKS: Available in variety of categories/models with or without detachable filters or mechanical parts as per the requirement of the situation under which the mask should be scientifically used.
4.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	9018.00	218	Instruments And Appliances Used In Medical, Surgical, Dental Or Veterinary Sciences , Including Scientigraphic Apparatus, Other Electromedical Apparatus And Sight -Testing Instruments	12%	Schedule II – 6%
4.2	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	9020.00	220	Other Breathing Appliances And Gas Masks , Excluding Protective Masks Having Neither Mechanical Parts Nor Replaceable Filters	12%	Schedule II – 6%
5	TEXTILE MASKS INCLUDING DESIGNER MASKS : Textile face masks,without a replaceable filter or mechanical parts, including surgical masks and disposable face-masks made of non-woven textiles.
5.1	Notification No.1/2017- Central Tax (Rate) Substituted vide Notification No. 14/2019-Central Tax (Rate) dated 30-09-2019 w.e.f. 01- 10-2019	6307.90	224	Other made up textile articles, sets, of sale value not exceeding Rs. 1000 per piece	5%	Schedule I – 2.5%
5.2	Notification No.1/2017- Central Tax (Rate) Substituted vide Notification No. 41/2017 dated 14-11-2017, w.e.f. 15- 11-2017		171	Other made up textile articles, sets of sale value exceeding Rs. 1000 per piece [ other than Worn clothing and other worn articles; rags]	12%	Schedule II – 6%
6	CELLULOSE/PAPER MASKS
6.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	4818.50	153	Toilet paper and similar paper, cellulose wadding or webs of cellulose fibres, of a kind used for household or sanitary purposes, in rolls of a width not exceeding 36 cm, or cut to size or shape; handkerchiefs, cleansing tissues, towels, table cloths, serviettes, napkins for babies, tampons, bed sheets and similar household, sanitary or hospital articles, articles of apparel and clothing accessories, or paper pulp, paper, cellulose wadding or webs of cellulose fibres	18%	Schedule III – 9%
7	PLASTIC FACE SHIELD (covering more than the eye area)
7.1	Notification No.1/2017- Central Tax (Rate) vide Notification No. 41/2017 dated 14-11-2017, w.e.f. 15- 11-2017 Rate of tax reduced from 28% to 18%	3926.20	111	Other articles of plastics and articles of other materials of headings 3901 to 3914 [other than bangles of plastic, plastic beads and feeding bottles]	18%	Schedule III – 9%
8	PROTECTIVE SPECTACLES
8.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	9004.90	178	Spectacles, corrective [other than goggles for correcting vision]	12%	Schedule II – 6%
9	MEDICAL VENTILATORS (artificial respiration apparatus) Provides mechanical ventilation by moving breathable air into and out of the lungs.
9.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	9019.20	219	Mechano-therapy appliances; massage apparatus; psychological aptitude-testing apparatus; ozone therapy, oxygen therapy, aerosol therapy, artificial respiration or other therapeutic respiration apparatus	12%	Schedule II – 6%
10	SOAP, PAPER SOAP
10.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	3401.00	61	Soap; organic surface-active products and preparations for use as soap, in the form of bars, cakes, moulded pieces or shapes, whether or not containing soap; organic surface active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap; paper, wadding, felt and nonwovens, impregnated, coated or covered with soap or detergent	18%	Schedule III – 9%
11	HAND SANITIZER
11.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	3808.00	87	Insecticides, rodenticides, fungicides, herbicides, anti- sprouting products and plant- growth regulators, disinfectants and similar products [other than bio-pesticides mentioned against S. No. 78A of schedule -II]	18%	Schedule III – 9%
12	TRIGGER SPRAYER used for Fumigation/sterlisation of the surface and area.
12.1	Notification No.1/2017- Central Tax (Rate) Substituted vide Notification No. 06/2018 dated 25.01.2018	8424.89	325	Mechanical appliances (whether or not hand-operated) for projecting, dispersing or spraying liquids or powders; fire extinguishers, whether or not charged; spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines [other than sprinklers; drip irrigation systems including laterals; mechanical sprayer; Nozzles for drip irrigation equipment or nozzles for sprinklers]	18%	Schedule III – 9%
13	PUMP DISPENSER used for Fumigation/sterlisation of the surface and area.
13.1	Notification No.1/2017- Central Tax (Rate) Substituted vide Notification No. 06/2018 dated 25.01.2018	8424.89	325	Mechanical appliances (whether or not hand-operated) for projecting, dispersing or spraying liquids or powders; fire extinguishers, whether or not charged; spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines [other than sprinklers; drip irrigation systems including laterals; mechanical sprayer; Nozzles for drip irrigation equipment or nozzles for sprinklers]	18%	Schedule III – 9%
14	MECHANICAL SPRAYER including battery/power operated and those used in fumigation/sterlisation of the surface and area.
14.1	Inserted vide Notification No. 6/2018 Dated 25-01- 2018	8424.00	195B	Mechanical Sprayer	12%	Schedule II – 6%
15	STEAM SANITIZER: Medical, surgical or laboratory sterlizers, function by steam or boiling water
15.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017 substituted vide Notification No. 41/2017 Dated 14-11-2017	8419.20	320	Machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens and other equipment of heading 8514), for the treatment of materials by a process involving a change of temperature such as heating, cooking, roasting, distilling, rectifying, sterilising, pasteurising, steaming, drying, evaporating, vaporising, condensing or cooling, other than machinery or plant of a kind used for domestic purposes; instantaneous or storage water heaters,non-electric other than Solar water heater and system	18%	Schedule III – 9%
16	OTHER DISINFECTANT PREPARATIONS put up in forms or packings for retail sale such as rubs and wipes impregnated with alcohol or other disinfectants
16.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	3808.94	87	Insecticides, rodenticides, fungicides, herbicides, anti- sprouting products and plant- growth regulators, disinfectants and similar products [other than bio-pesticides mentioned against S. No. 78A of schedule -II]	18%	Schedule III – 9%
17	HYDROGEN PEROXIDE in bulk, Bulk H202 whether or not with solidified with urea
17.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	2847.00	58	Medicinal grade hydrogen peroxide	12%	Schedule II – 6%
18	HYDROGEN PEROXIDE presented as a medicament H2O2 put up for internal or external use as a medicine, including as an antiseptic for the skin. Only covered here if in measured doses or in forms or packings for retail sale (including directly to hospitals) for such use
18.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	3004.90	63	Medicaments (excluding goods of heading 30.02, 30.05 or 30.06) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of transdermal administration systems) or in forms or packings for retail sale, including Ayurvaedic, Unani, homoeopathic siddha or Bio-chemic systems medicaments, put up for retail saleadministration systems) or in forms or packings for retail sale, including Ayurvaedic, Unani, homoeopathic siddha or Bio-chemic systems medicaments, put up for retail sale	12%	Schedule II – 6%
19	HYDROGEN PEROXIDE put up in disinfectant preparations for cleaning surfaces H2o2 put up as cleaning solutions for surfaces or apparatus.
19.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	3808.94	87	Insecticides, rodenticides, fungicides, herbicides, anti- sprouting products and plant- growth regulators, disinfectants and similar products [other than bio-pesticides mentioned against S. No. 78A of schedule -II]	18%	Schedule III – 9%
20	OTHER CHEMICAL DISINFECTANTS put up in forms of packings for retail sale as disinfectants or as disinfectant preparations, containing alcohol, benzalkonium chloride solution or peroxyacids, or other disinfectants
20.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	3808.94	87	Insecticides, rodenticides, fungicides, herbicides, anti- sprouting products and plant- growth regulators, disinfectants and similar products [other than bio-pesticides mentioned against S. No. 78A of schedule -II]	18%	Schedule III – 9%
21	PLASTIC GLOVES
21.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	3926.20	111	Other articles of plastics and articles of other materials of headings 3901 to 3914 [other than bangles of plastic, plastic beads and feeding bottles]	18%	Schedule III – 9%
22	SURGICAL RUBBER GLOVES
22.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	4015.11	85	Surgical rubber gloves or medical examination rubber gloves	12%	Schedule II – 6%
23	OTHER THAN SURGICAL RUBBER GLOVES
23.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	4015.19	85	Articles of apparel and clothing accessories (including gloves, mittens and mitts), for all purposes, of vulcanised rubber other than hard rubber [other than Surgical gloves]	18%	Schedule III – 9%
24	KNITTED OR CROCHETED GLOVES WHICH HAVE BEEN IMPREGNATED OR COVERED WITH PLASTICS OR RUBBER
24.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	6116.10	222	Article of apparel and clothing accessories or cap/topi, knitted or crocheted, of sale value not exceeding Rs 1000 per piece	5%	Schedule I – 2.5%
24.2	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	6116.10	169	Articles of apparel and clothing accessories, knitted or crocheted, of sale value exceeding Rs. 1000 per piece	12%	Schedule II – 6%
25	TEXTILE GLOVES THAT ARE NOT KNITTED OR CROCHETED
25.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	6216.00	222	Article of apparel and clothing accessories or cap/topi, knitted or crocheted, of sale value not exceeding Rs 1000 per piece	5%	Schedule I – 2.5%
25.2	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	6216.00	169	Articles of apparel and clothing accessories, knitted or crocheted, of sale value exceeding Rs. 1000 per piece	12%	Schedule II – 6%
26	DISPOSABLE HEAD NET
26.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	6505.00	171B	Other headgear, knitted or crocheted, or made up from lace, felt or other textile fabric, in the piece (but not in strips), whether or not lined or trimmed; hair-nets of any material, whether or not lined or trimmed	18%	Schedule III – 9%
27	SHOE COVERS
27.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	6307.90	224	Other made up textile articles, sets, of sale value not exceeding Rs. 1000 per piece	5%	Schedule I – 2.5%
27.2	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017		171	Other made up textile articles, sets of sale value exceeding Rs. 1000 per piece [ other than Worn clothing and other worn articles; rags]	12%	Schedule II – 6%
28	UV DISINFECTANT BOXES
28.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	8543.70. 99	394	Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this Chapter	18%	Schedule III – 9%
	Comment: UV disinfectant process is also used in medical establishments for disinfecting of medical instruments, etc. but UV Disinfectant boxes does not find any specific mention in Chapter 90 which contains medical or surgical instruments and apparatus.
29	TEST KITS/Instruments and Apparatus used in Diagnostic Test – Diagnostic reagents based on polymerase chain reaction (PCR) nucleic acid test.
29.1	Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017	3822.00	80	All diagnostic kits and reagents	12%	Schedule II – 6%
30	SWAB & VIRAL TRANSPORT MEDIUM SET
30.1	Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017	3006.10	65	Pharmaceutical goods specified in Note 4 to this Chapter [i.e. Sterile surgical catgut, similar sterile suture materials (including sterile absorbable surgical or dental yarns) and sterile tissue adhesives for surgical wound closure; sterile laminaria and sterile laminaria tents; sterile absorbable surgical or dental haemostatics; sterile surgical or denatal adhesion barriers, whether or not absorbable; Waste pharmaceuticals] [other than contraceptives]	12%	Schedule II – 6%
31	FUMIGATION SERVICES
31.1	Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017	9983.00	21	(ii) Other professional, technical and business services other than (i) and (ia) above and serial number 38 below.	18%	Schedule III – 9%
Comment: The physical/chemical features, use of the product/service i.e. the actual facts and circumstances of the case shall be the ultimate determinants of the correct classification of the product. The appropriate classification of a product/service might differ from the list provided.

 

1. http://dgft.gov.in/sites/default/files/TradeNotice17_0.pdf
2. https://cbic.gov.in/resources//htdocs-cbec/customs/cs-act/notifications/notfns-2020/cs-tarr2020/cs20-2020.pdf.
3. https://www.cbic.gov.in/resources//htdocs-cbec/customs/cs-circulars/cs-circulars-2020/Circular-No-18-2020.pdf
4. https://apps.who.int/iris/bitstream/handle/10665/251426/9789241549721-eng.pdf?sequence=1&ua=1
5. https://www.who.int/docs/default-source/searo/bangladesh/2019-ncov/home-made-maskiv.pdf?sfvrsn=a5f05f58_8
6. https://www.mohfw.gov.in/pdf/GuidelinesonrationaluseofPersonalProtectiveEquipment.pdf
7. Number N311621 concerning classification of face shields imported from the United Kingdom dated May 13, 2020 and Number G89437 concerning classification of face shields imported from South Korea dated April 11, 2001.
8. https://www.who.int/publications/i/item/guide-to-local-production-who-recommended-handrub-formulations
9. Concerning the tariff classification of Hand Sanitizer from Netherlands dated April 7, 2020.
10. Concerning the tariff classification of Hand Sanitizer from China dated May 21, 2019.
11. https://www.mha.gov.in/sites/default/files/MHAOrderextension_1752020_0.pdf; https://mha.gov.in/sites/ default/files/MHA%20Order%20Dt.%201.5.2020%20to%20extend%20Lockdown%20period%20for%202%20weeks%20 w.e.f.%204.5.2020%20with%20new%20guidelines.pdf
12. https://www.mha.gov.in/sites/default/files/MHA%20order%20dt%2015.04.2020%2C%20with%20Revised%20Consolidated%20Guidelines_compressed%20%283%29.pdf

As per Section 9 of CGST Act, GST shall be payable on supply of goods or supply or both. Section 2(52) defines goods to mean as “every kind of moveable property”. Section 2(102) define “service” mean anything other than “goods”. Therefore, it is necessary to understand the meaning of words “moveable property”. The moveble property has been defined in Section 2(11) of Sales of Goods Act, 1930.

2: The term immoveable property has not been defined under CGST Act, 2017. Hence, we have to fall back upon the definition as given in various enactments namely – Section 3(26) of General Clauses Act define “immoveable property”:-

(26) “immovable property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth;

3: Section 2(z) of Real Estate (Regulation & Development) Act, 2016 (hereinafter called RERA) define “immoveable property” includes land, buildings, rights of ways, lights or any other benefits arising out of land and things attached to the earth or permanently fastned to anything, which is attached to the earth, but not standing timber, standing crops or grass”

4: Section 2(6) of Registration Act also define “immoveable property”

“immovable property” includes land, buildilngs, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefits to arise out of land, and things attached to the earth, or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass.

5: The Hon’ble Supreme court in C.I.T. Andhra Pradesh v. Taj Mahal Hotel, MANU/SC/0239/1971 has observed that “considering the scope of meaning of the word ‘plant’, held, “where a word is not defined in a statute, it must be construed in its popular sense. Therefore, the word “land” as appearing in Clause 5 of Schedule III has to be understood in popular sense – and interpretational solace could be drawn from Land Acquisition Act as well.

6: The Clause 5 of Schedule III attached to CGST Act reads as under:-

5. Sale of land and, subject to Clause (b) of paragraph 5 of Schedule II, sale of building.

7: In view of the fact that in Clause 5 of Schedule III, the word appearing is “Land” and not “immoveable property” and, therefore, we have to understand the meaning and scope of the word “Land”. Unfortunately, the land has not been defined in CGST Act and consequently we have to look to (i) either popular meaning as has been held in CIT v. Taj Mahal Hotel (Supra) or as defined under other laws viz
(i) Land Acquisition Act, 1894 (ii) Bombay Land Revenue Act, 1879.

8: Section 3(a) of Land Acquisition Act,1894, the expression “land” include benefits that arise out of land and things attached to earth or permanently fastened to anything which is attached to the earth. Likewise, Section 3(4) of Bombay Land Revenue Code, 1879 define “land” includes benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the earth.

9: The Supreme Court, while interpreting the word “land” as appearing in Land Acquisition Act, in Municipal Corporation of Greater Bombay vs. The Indian Oil Corporation Ltd: MANU/SC/0171/1991 has held as under:-

The question then is whether it is a land? Indisputably the definition of ‘land’ also is of an inclusive definition. Its accompaniments are land which is being built upon or is built upon or covered with water; benefits to arise out of land; things attached to the earth or permanently fastened to anything attached to the earth and rights created by legislative enactment over any street.

10: The Hon’ble Supreme Court in the case of State of Maharashtra Vs. Reliance Industries Ltd.: MANU/SC/1186/2017, has noted the following definitions of land given in various legal dictionaries.

The Dictionary of English Law [1959 edn., Vol. 2, p. 1053 by Earl Jowitt] LAND, in its restrained sense, means soil, but in its legal acceptation it is a generic term, comprehending every species of ground, soil or earth, whatsoever, as meadows, pastures, woods, moors, waters, marshes, furze, and heath; it includes also houses, mills, castles, and other buildings; for with the conveyance of the land, the structures upon it pass also. And besides an indefinite extent upwards, it extends downwards to the globe’s centre, hence the maxim, Cujus est solum ejus est usque ad caelum et ad inferos; or, more curtly expressed, Cujus est solum ejus est altum (Co. Litt. 4-a).

Words and Phrases Judicially Defined (By Roland Burrows-Vol. III, 1944 edn., p. 206)

The word “land” would be variously understood by different persons. To a farmer the word “land” would not mean his farm buildings; to a lawyer the word would include everything that was upon the land fixed immovable upon it. Smith
v. Richmond per Lord Halsbury, L.C., at p. 448.

The Law Lexicon   

The word “land” is a comprehensive term, including standing trees, buildings, fences, stones, and waters, as well as the earth we stand on. Standing trees must be regarded as part and parcel of the land in which they are rooted and from which they draw their support.

11: It would also be beneficial to understand the meaning and scope of “immoveable property” as interpreted in various judgments of Hon’ble Supreme Court.

12: While interpreting the word “immoveable property” in Ananda Behra Vs. State of Orissa: MANU/SC/0018/1955, the Supreme Court has held that a “profit a prendre” is a benefit arising out land and that in view of Clause (26) of Section 3 of the General Clauses Act, it is immovable property within the meaning of the Transfer of Property Act. Now question arises what is the meaning of words “profit a prendre”.

13 The Supreme Court in State of Orissa Vs. Titaghur Paper Mills Company Limited : MANU/SC/0325/1985, while, relying upon Halsbury”s Law of England, defined “profit a prendre” in the following words:-

115. The meaning and nature of a “profit a prendre” have been thus described in Halsbury’s Laws of England, Fourth Edition, Volume 14, paragraphs 240 to 242 at pages 115 to 117: 240. Meaning of ‘profit a prendre’

A profit a prendre is a right to take something off another person’s land. It may be more fully defined as a right to enter another’s land to take some profit of the soil, or a portion of the soil itself, for the use of the owner of the right. The term ‘profit a prendre’ is used in contradistinction to the term ‘profit a prendre’, which signified a benefit which had’ to be rendered by the possessor of land after it had come into his possession. A profit a prendre is a servitude.

241. Profit a prendre as an interest in land.

A profit a prendre is an interest in land and for this reason any disposition of it must be in writing. A profit a prendre which gives a right to participate in a portion only of some specified produce of the land is just as much an interest in the land as a right to take the whole of that produce. 242. What may be taken as a rofit a prendre.

The subject matter of a profit a prendre, namely the substance which the owner of the right is by virtue of the right entitled to take, may consist of animals, including fish and fowl, which are on the land, or of vegetable matter growing or deposited on the land by some agency other than that of man, or of any part of the soil itself, including mineral accretions to the soil by natural forces. The right may extend to the taking of the whole of such animal or vegetable matters or merely a part of them. Rights have been established as profits a prendre to take acorns and beech mast, brakes, fern, heather and litter, thorns, turf and peat, boughs and branches of growing trees, rushes, freshwater fish, stone, sand and shingle from the seashore and ice from a canal; also the right of pasture and of shooting pheasants. There is, however, no right to take seacoal from the foreshore. The right to take animals ferae naturae while they are upon the soil belongs to the owner of the soil, who may grant to others as a profit a prendre a right to come and take them by a grant of hunting, shooting, fowling and so forth.

116: A profit a prendre is a servitude for it burdens the land or rather a person’s ownership of land by separating from the rest certain portions or fragments of the right of ownership to be enjoyed by persons other than the owner of the thing itself (see Jowitt’s Dictionary of English Law, Second Edition, Volume 2, page 1640. under the heading “Servitude”). “Servitude” is a wider term and includes both easements and profits a prendre (see Halsbury’s Laws of England, Fourth Edition, Volume 14, paragraph 3, page 4).

14: In view of the above discussions, various activities such as laying down (i) water pipe lines (ii) storm water pipelines (iii) sewer lines (iv) electric poles permanently fastned to the earth (iv) development of parks; (v) play ground (vi) installation of underground pipes for gas, oil and water, in my view, would fall within the realm of “ profit a prendre”

15: The Supreme Court in State of Orissa Vs. Titaghur Paper Mills Company Limited MANU/SC/0325/1985, defined “immoveable property” as appearing in General Clauses Act:-

Clause (26) of Section 3 of the General Clauses Act, 1897, defines “immovable property” as including inter alia “benefit to arise out of land”. The definition of “immovable property” in Clause (f) of Section 2 of the Registration Act 1908, illustrates a benefit to arise out of land.

16: Further, in Titaghar Papers Mills Ltd (supra), the court has held that what constitutes benefits arising out of land have been summarized in Mulla on “The Transfer of Property Act, 1882″, and it would be pertinent to reproduce the whole of passage. The passage (at pages 16-17 of the Fifth Edition) is as follows:

A ‘benefit to arise out of land’ is an interest in land and therefore immovable property. The Registration Act, however, expressly includes as immovable property benefits to arise out of land, here diary allowances, rights of way lights, ferries and fisheries’. The definition of immovable property in the General Clauses Act applies to this Act. The following have been held to be immovable property: varashasan or annual allowance charged on land; a right to collect dues at a fair held on a plot of land; a hat or market; a right to possession and management of a saranjam; a malikana; a right to collect rent or jana: a life interest in the income of immovable property; a right of way; a ferry; and a fishery; a lease of land.

17: The Constitution Bench of Hon’ble Supreme Court in Ananda Behera and Ors. vs. The State of Orissa: MANU/SC/0018/1955 has defined “immoveable property” in the following words:-

Section 3(26) of the General Clauses Act defines “immovable property” as including benefits that arise out of the land. The Transfer of Property Act does not define the term except to say that immovable property does not include standing timber, growing crops or grass. As fish do not come under that category the definition in the General Clauses Act applies and as a profit a prendre is regarded as a benefit arising out of land it follows that it is Immovable property within the meaning of the Transfer of Property Act.

18: The Supreme Court in State of Orissa and Ors. vs. Titaghur Paper Mills Company Limited: MANU/SC/0325/1985, has observed as under:-

Thus, while trees rooted in the earth are immovable property as being things attached to the earth by reason of the definition of the term “immovable property” given in the General Clauses Act, the Orissa General Clauses Act and the Registration Act, read with the definition of the expression “attached to the earth” given in the Transfer of Property Act.

19: The Supreme Court in Sunil Siddharth vs. CIT MANU/SC/0164/1985, while considering the expression “Transfer of Property”, has observed as follows:

“In its general sense, the expression “Transfer of Property” connotes the passing of rights in the property from one person to another. In one case there may be a passing of the entire bundle of rights from the transferor to the transferee. (emphasis supplied).

20: We may also see as to whether grant of development right would fall in Clause 2(a) of Schedule II of CGST Act or not? Schedule II deems certain specified transaction as supply of goods or services. Entry No.2(a) deems any lease, tenancy, easement, license to occupy land as supply of services.

21: Clause 2(a) of Schedule-II speaks of mere permission to occupy land and enjoy the same as supply of services – without ownership rights. However, when there is complete and full transfer, alienation or divesting of all ownership rights, title and interest in the immoveable property by way of execution of Registered Sale Deed or Registered Conveyance Deed or Title Deeds, this transaction, in my firm view, shall not fall under Entry No.2(a) of Schedule II, as there would a permanent transfer, alienation and/or disposal of immoveable property.

22: The Hon’ble Supreme Court in a landmark judgment in the case of Suraj Lamp and Industries Pvt. Ltd. vs. State of Haryana MANU/SC/1222/2011 has held that the land, building or civil structure and other immoveable property could be transferred by way of execution of Registered Sale Deed/Conveyance Deed. The following observations were made.

12: Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of Sections 54 and 55 of Transfer of Property Act and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted under Section 53A of Transfer of Property Act). Section 54 of Transfer of Property Act enacts that sale of immoveable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge on its subject matter.

16: We therefore reiterate that immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance. Transactions of the nature of ‘GPA sales’ or ‘SA/GPA/ WILL transfers’ do not convey title and do not amount to transfer, nor can they be recognized or valid mode of transfer of immoveable property.

23: The Hon’ble Bombay High Court in Sadoday Builders Private Ltd. and Ors. v. The Jt. Charity Comm.: MANU/MH/0791/2011, has observed as under:-

From these judgments, what appears is that a benefit arising from the land is immovable property. FSI/ TDR being a benefit arising from the land, consequently must be held to be immovable property and an Agreement for use of TDR consequently can be specifically enforced, unless it is established that compensation in money would be an adequate relief.”

24: The Hon’ble Tribunal in DLF Commercial Projects Corporations v. Commissioner of Service Tax, Gurugram (22.05.2019 – CESTAT – Chandigarh) : MANU/ CJ/0032/2019, has observed as under:-

As the Hon’ble High Court observed in the case of Sadoday Builders Private Ltd. and Ors. (supra) that transferable development right is immovable property, therefore, the transfer of development rights in the case in hand is termed as immovable property in terms of Section 3
(26) of General Clauses Act, 1897 and no service tax is payable as per the exclusion in terms of Section 65B(44) of the Finance Act, 1994.

25: In view of the above discussions, the various activities partake the character of “development rights” in view of the judgment of Hon’ble Bombay High Court and Hon’ble Tribunal, held to be benefits arising out of land. It would be noticed that even the definition of land, as given in Section 3(a) of Land Acquisition Act, inter-alia, says that the land would include the benefits arising out of land. The various activities such as laying down
(i) pipe lines (ii) storm water pipelines (iii) sewer lines (iv) electric poles permanently fastned to the earth (iv) development of parks; (v) play ground (vi) installation of underground pipes for gas, oil and water would fall in the realm of land. Hence, all developmental activities are, in my humble view, benefits arising out of land and consequently fall in Clause 5 of Schedule III and hence NO supply and resultantly not taxable. On the lighter side, girl with or without jewellery would still be bride at the time of marriage – land be it raw land or developed land, would still be land only and its character would not change.

26 In my view, sale of plot is akin to sale of land and activities like road laying, drainage works, electricity supply facilities are incidental to development and does not change character of land. The utilities, road and parks are not supplied to the purchaser of plot but surrendered to the Public Authority/ Municipal Corporation and rights therein are vested in the public authority.

27: By vitue of aforesaid judgments, all other facilities which had been installed, erected and commissioned over the open un-developed land, so as to make it “developed plot” and title to those facilities would also be convyed to the plot-holder, a registered deed of documents would be necessary and hence, the value addition is required to form part of total consideration shown in the Sale Deed or Conveyance Deed or Title Deed which is registered under Section 17 of Indian Registration Act.

28: Can we perceive a situation whether Clause 5 Schedule III would cover or encompass only raw land and not developed plot of land ?.

29: The AAA of Karnataka, Gujarat, Madhya Pradesh have held that development of land and selling it as plots is essentially a supply of service and hence these transactions are taxable.

1. M/s Satyaja Infratech (AAA Guj. 20.9.2019)

2. M/s Maarq Spaces (P) Ltd (AAA Kar 30.9.2019)

3. M/s Vidit Builders (AAA MP 6.1.2020)

4. Sh Dipesh Anil Kumar Naik(AAR Guj 19.5.2020)

30: How, Ld AAA decided the cases in totally biased and prejudiced mannter. The classic case is AAA Gujarat in M/s Satyaja Infratech dated 20.9.2019 2020-TIOL-80-AAR GST wherein it has been held that the entire sale consideration i.e. 100% of the plot value would be taxable. Can 100% consideration which is inclusive of value of land would be subject to tax – answer is BIG NO.

31: The Clause 5 of Schedule III to CGST Act “ Sale of land and, subject to Clause (b) of paragraph 5 of Schedule II, sale of building” shall neither be treated as supply of good nor supply of services. The development rights are akin to the benefits arising out of land and hence outside the purview of taxation by virtue of Schedule-III to CGST Act. In my view, the Clause 5 of Schedule III would cover all activities that are directly and closely connected to the purchase and sale of land including all activities in connection with the development of plots. Therefore, all other connected activities (which are part of developmental activities) which are incidental or ancillary to the main activities connected with the development of land would be outside the purview of supply of either goods and services.

32: Notwithstanding the above, yet as a bundant caution, if it is decided to pay tax, the following route could be followed:-

1. The Developer to carry out all developmental activities himself and develop the plots out of land and sell the developed plots upon execution of registered Sale Deed/Conveyance Deed etc upon receipt of sale consideration. Since, it is self service, no GST would be payable.

2. To appoint either one or more than one contractors to undertake various developmental activities. The contractors would be raising taxable invoices.

3. The Developer can avail ITC of tax so paid on the taxable invoices of contractors.

4. After development, the Developer will have to raise (i) Bill towards sale of developed land/plot (ii) Taxable Invoice for proportionate development charges which were incurred in the whole project and charge GST and pay to the Government after claiming ITC of tax so paid on the invoices of contractors.

 

*Advocate Past Central Council Member, the ICSI

 

1. The Gujarat High Court in the case of VKC footsteps India Pvt. Ltd. v. Union Of India, Judgment dated 24.07.2020 has declared Explanation (a) to the Rule 89 (5) of the CGST Rules, which denied the refund of “un-utilized input tax” paid on “input services “ as part of “input tax credit” accumulated on account of inverted duty structure, as ultra vires the provision of Section 54 (3) of the CG ST Act, 2017. The said Explanation (a) to the Rule 89 (5) has been read down to the extent that Explanation (a) which defined “Net input tax credit” to mean “input tax credit” only.

2. A view is being expressed that the judgment of the Gujarat High Court, declaring the parliamentary law unconstitutional, is a binding precedent all over India and all the State Governments, Tribunals and High Courts should follow the same. The author of this article, with due respect, begs to differ from this view for the reasons stated below.

3. Late Dr. B.P. Saraf , Hon’ble Judge of the Bombay High Court, as he then was, had lucidly explained the law of binding precedents in the case of The Commissioner of Income Tax v. Thana Electricity Supply Limited, (1994) 206 ITR 727. The Court’s observations are reproduced below :

   Para 20 –

   1. ‘(a) the law declared by the Supreme Court being binding on all courts in India, the decisions of the Supreme Court are binding on all courts, except, however, the Supreme Court itself which is free to review the same and depart from its earlier opinion if the situation so warrants. What is a binding is, of course, the ratio of the decision and not every expression found therein.

   2. The decisions of the High Court are binding on the subordinate Courts and authorities or Tribunal’s under its superintendence throughout the territories in relation to which it exercises jurisdiction. It does not extend beyond its territorial jurisdiction.

   3. The position in regard to the binding nature of the decisions of a High Court on different Benches of the same court may be summed up as follows:

      1. a single judge of High Court is bound by the decision of another single judge or a Division Bench of the same High Court. It would be judicial impropriety to ignore that decision. Judicial comity demands that a binding decision to which his attention had been drawn should neither be ignored nor overlooked. If he does not find himself in agreement with the same, the proper procedure is to refer the binding decision and direct the papers to be placed before the Chief Justice to enable him to constitute a larger Bench to examine the question (see Food Corporation of India v. Yadav Engineer and Contractor, (1982) 2SCC499;

      2. A Division Bench of a High Court should follow the decision of another Division Bench of equal strength or a full Bench of the same High Court. If one Division Bench differs from another Division Bench of the same High Court, it should refer the case to a larger Bench.

      3. Where there are conflicting decisions of courts of coordinate jurisdiction, the later decision is to be preferred if reached after full consideration of the earlier decisions.

   4. The decision of one High Court is neither binding precedent for another High Court nor for courts or Tribunals outside its own territorial jurisdiction. It is well settled that the decision of a High Court will have the force of binding precedent only in the State or territories on which the court has jurisdiction. In other States or outside the territorial jurisdiction of that High Court it may, at best, have only persuasive effect.

   By no amount of stretching of the doctrine of stare decisis, can judgements of one High Court be given the status of a binding precedent so far as other High Courts or Courts or Tribunals within their territorial jurisdiction are concerned. Any such attempt will go counter to the very doctrine of stare decisis and also the various decisions of the Supreme Court which have interpreted the scope and ambit thereof. The fact that there is only one decision of any one High Court on a particular point or that a number of different High Courts have taken identical views in that regard is not at all relevant for that purpose. Whatsoever maybe the conclusion, the decisions cannot have the force of binding precedent on other High Courts or on any subordinate courts or Tribunals within their jurisdiction. That status is reserved only for the decisions of the Supreme Court which are binding on all courts in the country by virtue of Article 141 of the Constitution.

4. The law of Stare Decisis thus explained in Thana Electricity has not yet been overruled by the Supreme Court or contradicted by any judgment of our own High Court. However, the holders of other view say that the Supreme Court in their lordships’ judgment in Kusum Ingots & Alloys Ltd. v. Union of India (2004) 6 SCC254 in clear terms stated that an order passed on a writ petition questioning the constitutionality of a parliamentary Act, whether interim or final, keeping in view the provisions contained in Article 226 (2) of the Constitution would have effect throughout the territory of India. In other words, a support is being drawn from the judgment of the apex court in Kusum Ingots for the proposition that judgment of the Gujarat High Court in VKC Footsteps declaring the Explanation (a) to Rule 89(5) as ultra vires the Section 54(3) of the CGST Act is binding on State of Maharashtra and also on Bombay High Court.

5. To examine the correctness of this proposition, we will have to see whether the observations of the Supreme Court really convey that the declaration of provision of Union law by one High Court as unconstitutional binds the other High Court. For that purpose, we will have to read para 21 and 22 of the said judgement together:

   ‘21. A parliamentary legislation when it receives the assent of the President of India and is published in the Official Gazette, unless specifically excluded, will apply to the entire territory of India. If passing of legislation gives rise to a cause of action, a writ petition questioning the constitutionality thereof can be filed in any High Court of the country. It is not so done because a cause of action will arise only when the provisions of the Act or some of them which were implemented shall give rise to civil or evil consequences to the petitioner. A writ court, it is well settled, would not determine a constitutional question in a vacuum.

   22. The court must have the requisite territorial jurisdiction. An order passed on a writ petition questioning the constitutionality of a parliamentary Act, whether interim or final keeping in view the provisions contained in clause (2) of Article 226 of the Constitution of India, will have effect throughout the territory of India subject of course to the applicability of the Act.’ (Highlight by us).

6. Thus so read, both the paragraphs only convey that the parliamentary legislation has applicability all over India and consequently the writ petition challenging the constitutionality thereof can be filed in any High Court in India. The High Court in which the petition is so filed must have the requisite territorial jurisdiction and the order passed by it will have effect all over India. However, such effect would be subject to the power granted to the High Court under article 226 (2) of the Constitution of India.

7. Article 226 (1) of the Constitution empowers the High Court to issue directions, orders or writs to any person including government within it’s territorial jurisdiction. Article 226 (2) says that such power can be exercised even if the seat of the government or the residence of the person against whom the writ is issued is not in the territorial jurisdiction of the said High Court. However, the cause of action ( right to sue ) for the exercise of such power should arise within the territorial jurisdiction of such High Court. Article 226 (2) does not say anything further. Neither the observations of the Supreme Court in Kusum Ingots say that the order passed by the High Court has binding effect on the High Courts in other parts of the country nor article 226 (2) of the Constitution can be construed to mean so.

8. Article 141 of the Constitution specifically states that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. If the makers of the Constitution wanted the law declared by any High Court to be binding on other High Courts then they would have provided for the same in similar manner. They have not said so and therefore the judgment of High Court having binding effect on other High Courts is out of question.

9. Even otherwise, these observations of the Supreme Court in Kusum Ingots are neither Ratio decidendi of that judgment nor Obiter dicta. These are only casual observations of the Supreme Court. In Kusum Ingots, the question that arose for consideration before the Supreme Court was whether the seat of the parliament or the legislature of a State would be relevant factor for determining the territorial jurisdiction of High Court to entertain a writ petition under article 226 of the Constitution. In that case, the appellant had a registered office at Mumbai. It obtained a loan from the Bhopal branch of State bank of India. The bank issued a notice for repayment of the said loan from Bhopal purported to be in terms of the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Questioning the vires of the said Act, a writ petition was filed before the Delhi High Court by the appellant which was dismissed on the ground of lack of territorial jurisdiction. The only submission made on behalf of the appellant before the High Court as also before the Supreme Court was that as the constitutionality of a parliamentary Act was in question, the High Court of Delhi had the requisite jurisdiction to entertain the writ petition. The Supreme Court held that a writ petition questioning the constitutionality of a parliamentary Act shall not be maintainable in the High Court of Delhi only because the seat of the union of India is in Delhi. It was so held because the Court in that case found that there was no cause of action at Delhi. While delivering the judgment the Court made observations on the effect of an order passed by the High Court on writ petition wherein the constitutionality of the Union law was challenged, however whether such effect is persuasive or binding for other High Courts was never for determination.

10. In fact, the Supreme Court later on in the case of Ambica Industries (2007) 6 SCC 769 observed that the decision of High Court shall be binding only on the authorities which are within it’s jurisdiction and it will only be of persuasive value on the authorities functioning under a different jurisdiction. This decision was also rendered considering Article 226(2) of the Constitution and the location of cause of action, though partial.

11. Hon’ble Bombay High Court in Thana Electricity has reproduced the observations of Justice Chagla C.J. in the case of Mohandas Issardas v. A.N. Sattanathan, AIR 1955 113. The Court in that judgment explained the distinction between Ratio decidendi , Obiter dicta and casual observations in the following manner:

    (Para 31 & 32)

“ an obiter dictum is an expression of opinion on a point which is not necessary for the decision of a case. This very definition draws a clear distinction between a point which is necessary for the determination of the case and a point which is not necessary for the determination of the case. But in both cases points must arise for the determination of the Tribunal. Two questions may arise before a court for its determination. The court may determine both although only one of them may be necessary for the ultimate decision of the case. The question which was necessary for the determination of the case would be the ‘ratio decidendi’ ; the opinion of the Tribunal on the question which was not necessary to decide the case would be only an obit dictum.———

It cannot be suggested that the doctrine of obiter dicta was so far extended as to make the courts bound by any and every expression of opinion either of the Privy Council or of the Supreme Court, whether the question did or did not arise for the determination of the higher judicial authority. –.

12. The observations of the Supreme Court in the case of The Commissioner of Income Tax v. Sun Engineering Works (P) Ltd. (1992) 4 SCC 363 may also be seen: (Para 39)

    ‘It is neither desirable nor permissible to pick out a word or a sentence from the judgement of this Court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by this Court. The judgement must be read as a whole and the observations from the judgement had to be considered in the light of the questions which were before this Court. A decision of this Court takes it’s colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgement, divorced from the context of the questions under consideration by this Court, to support their reasoning. In Madhav Rao Scindia v. Union of India (1971) 1 SCC 85 this Court cautioned :

    ‘it is not proper to regard a word, a clause or a sentence occurring in the judgement of the Supreme Court, divorced from its content as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgement.’

13. The Full Bench of the Bombay High Court in the case of Kamlesh Kumar Ishwardas Patel v. Union of India and Others, W.P. No.284 of 1994 dated 26.08.1994 has explained the law relating to ratio decidendi and Obiter dicta in the following manner :

‘ — what is binding under the provisions of article 141 of the Constitution of India, is the law declared by the Supreme Court. If there is clear enunciation or declaration of law, the same would be binding even though such a declaration of law was not strictly necessary for disposal of the case or the declaration of law is not followed by actual application thereof in the case in question. The law declared as well as applied in a particular decision becomes ratio decidendi of the case while a mere declaration of law, even though solemn and thoroughly reasoned, without application thereof is branded as obiter dictum.’

14. Hon’ble Bombay High Court has followed the above referred Full Bench decision in Kamlesh Kumar in another matter, namely, H.A.D.A. v. P.V. Anturkar, 2009  (3) L.J. and held that the observations of the Supreme Court in the case of Devraju Pillai v. Sellayya Pillai (1987) 1 SCC 61 were only casual observations.

15. As aforesaid, in Kusum Ingots, the question of the judgment of one High Court on the constitutionality of the provision of parliamentary Act, whether has binding effect or persuasive effect was never before the Supreme Court and therefore any observations made by the Court on the effect are neither ratio decidendi nor obiter dicta and are only casual observations having no precedential value.