Subject: Reverse Charge Taxation under Section 9(4) of the CGST Act – Pre and post-notification suspending reverse charge taxation

Querist is a registered person and has rented a commercial property in Meghalaya which is taken on rent from a landlord who is unregistered. The rent itself is above ₹ 10 lakhs. Is the Querist liable to pay tax on reverse charge basis even though the landlord is clearly liable to be registered (threshold registration limit in Meghalaya is ₹ 10 lakhs), but is not registering deliberately? What is the effect of the Notification No. 38/2017 – Central Tax (Rate) dated 13-10-2017 on this liability? Is the abolition of reverse charge tax retrospective?


i. Under Section 9(1) of the CGST Act, a “taxable person” is liable for payment of GST on any supplies made by him. The term “taxable person” is defined in Section 2(107) of the CGST Act to mean any person who is “registered” or “liable to be registered under Section 22 or 24” of the CGST Act. This is the normal method of taxation where the supplier is liable to pay the tax.

ii. In the present case, Section 9(4) is relevant which fixes liability on registered recipient to pay the tax when it acquires a supply from an unregistered supplier. In Section 9(4) the words used to describe such a supplier are a “supplier who is not registered”. There is no distinction in this case between a supplier who is unregistered because he is not liable to be registered and a supplier who is liable to be registered and still chooses not to take registration. The drafting of Section 9(4) should be contrasted with the drafting of Section 9(1).

iii. Thus, even if the supplier has not registered after crossing threshold limit for registration (₹ 10 lakhs for Meghalaya), he still remains an unregistered dealer qua Section 9(4) and the recipient, if he is registered, is liable for reverse charge taxation.

iv. Now, after the Notification No. 38/2017 – Central Tax (Rate) was issued on 13-10-2017, all intra-State supplies are exempt from reverse charge liability under Section 9(4) till 31-3-2018. Since the supply in this case was a local supply (renting of property), the notification will exempt the Querist from reverse charge taxation till 31-3.2018.

v. The Notification does not say that it is retrospective. As such, it is safe to say that it is prospective and liability which accrued before the Notification was issued is not affected.

Subject: Anti-Profiteering Problems


Querist is a manufacturer of FMCG products. Querist has following problems while computing anti-profiteering benefit to be passed on to consumers:

(1) In case of certain products, some of the inputs have become costlier due to increase in tax rates and some other inputs have become cheaper due to reduction in tax rates. A big customer insists that Section 171 obliges the Querist to pass on full benefit of reduction in tax rates on inputs and it cannot be set off against increased tax cost on other inputs. He says that the increased input tax cost must be absorbed by the Querist whereas the input tax savings must be passed on fully to him without any set-off. Is this a proper interpretation of Section 171?

(2) In case of some products, the output rate has gone up and while the tax rate on inputs has gone down. Whether the entire benefit of input tax saving is to be passed on to the customer or can the loss on increase in output tax rate be set-off against these input tax savings? What is the answer if the situation is reverse: that is, the output side tax rate has gone down, but the input side taxation has increased?

(3) In many cases, even though the input tax rates have gone down, the sellers of input materials have not reduced their prices. Is the Querist supposed to pass on benefit of reduction in input tax rate even if he himself has not received any benefit? Is the Querist under a duty to force his suppliers of input goods to reduce prices in such a situation?


i. The anti-profiteering mechanism is contained in Section 171 of the Central Goods and Services Tax Act, 2017 and pari materia provisions of the State Acts. Section 171 reads:

“171. Anti-profiteering measure

(1) Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.

(2) The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.

(3) The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.

ii. As of now, no method or formula has been prescribed for calculating the anti-profiteering benefit which has to be passed on to purchasers.

iii. Section 171 basically requires suppliers to pass on two types of benefits:

(1) Reduction in rate of tax on any supply;

(2) Benefit of input tax credit.

iv. With respect to the first query, there is no requirement in Section 171 that the benefit of input tax rate reduction on some of the inputs should be passed on in full to the customer when at the same time there is a loss on some other inputs due to increase in rate of input tax. The calculation of benefit of input tax credit has to be on a global basis, though restricted to a particular product. Therefore, it would be wrong to set-off the loss of input tax credit on inputs which are used in one product against input tax savings of another product. However, it is perfectly fine to set-off loss of input tax credit on inputs against benefit of input tax credit on inputs when both such inputs are used in the same product. There is nothing in Section 171 which obliges a supplier to burn his hands to protect the interests of the consumer. There is no requirement to absorb any input tax loss in such cases.

v. With respect to the second query, where the tax rate on output has gone up and the tax rate on the inputs has gone down, the input tax benefits can be set-off against the output rate increased tax costs and only the net savings should be passed on. If there is a net loss, then the price can be increased to that extent. There is no bar to such increase in price. The same answer will apply for a reverse situation where the output rate has gone down but the inputs rates have increased.

vi. With respect to the third query, it is not necessary to pass on any benefit of input tax which is not actually received. Even if the rate of tax on inputs has decreased, however if the seller of input goods has not passed the benefit of input tax to the Querist, the Querist is not obliged to pass on any such benefit to his customer. Furthermore, there is nothing in the Section 171 which mandates that the Querist must force his suppliers to give benefit of input tax credit so that he can pass on benefit to his own customers. Neither law nor equity requires any such exercise. However, it would be good sense to talk to supplier of input goods to pass on the benefits of input tax reduction since it will otherwise make Querist’s products uncompetitive if rivals have managed to get such a benefit and reduce the prices.

Subject: Whether medicines supplied by doctor to patient in course of treatment are supplies of goods or services?

Query: Querist is a doctor who had approached a Central Excise Officer on clarification as to the exemption offered to Healthcare services. The Officer has opined that under Schedule II Clause 1(a) any “transfer of title in goods” is deemed to be a supply of goods. The Officer has advised Querist to pay tax on cost of medicines plus gross profit margin and only avail the exemption for health care services for the services elements of diagnosis, consultancy etc.

Querist seeks to know whether this opinion is sound in law


i. Entry 74 of the Notification No. 12/2017 – Central Tax (Rate) has exempted the following services:

“Services by way of-

(a) health care services by a clinical establishment, an authorised medical practitioner or para-medics;

(b) services provided by way of transportation of a patient in an ambulance, other than those specified in (a) above”

ii. That Notification defines “health care services” in Clause 2(zg) thus:

“(zg) “health care services” means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma.”

iii. It is true that the exemption is given in respect of services, however, the supply of drugs and medicines has always been held to be incidental and ancillary to the supply of medical services. See the following authorities:

(1) Bharat Sanchar Nigam Ltd. v Union of India [(2006) 3 SCC 1]

(2) Hemendra Surana, Dr. v State of Rajasthan [(1993) 90 STC 251 (Raj.)]

(3) International Hospital Pvt. Ltd. v. State of UP [2014 SCC Online All 1956]

(4) Fortis Health Care Ltd. v. State of Punjab [2015 SCC Online P & H 2018]

iv. Now, an incidental supply of goods will take on the character of the principal supply as per Section 8 of the CGST Act. The incidental supply will lose its character and be regarded as if it is part and parcel of the principal supply itself. Supply of medicines and drugs will thus lose their identity and merge into the identity of the principle supply which is the supply of medical services.

v. Hence, there is no separate supply of goods when drugs and medicines are used in medical treatment.

vi. As far as the contention of the Central Excise Officer is concerned, that the supply of drugs and medicines will amount to a deemed supply of goods under the deeming provisions of Schedule II 
Clause 1(a), the same is an incorrect proposition.

vii. Firstly, there is no transfer of title in drugs and medicines which are used in treatment. These drugs and medicines are consumed and destroyed in process of treatment. As the Supreme Court has said in case of food served in restaurants in Northern India Caterers v. Lt. Governor of Delhi [(1978) 4 SCC 36] :

“Before consumption title does not pass. After consumption, there remains nothing to be subject of title”.

Similar analogy will apply in this case.

viii. Even otherwise, it is our considered view that Schedule II Clause 1(a) dealing with “transfer of title in goods” does not deal with incidental transfers of title or incidental transfer of property. It must be remembered that Schedule II Clause 1(a) is to be read along with the rules for composite and mixed supply in Section 8 of the CGST Act. Under Section 8, an incidental transfer of title or an incidental transfer of property will automatically lose its identity and be merged with the principal supply. Schedule II 
Clause 1(a) cannot be said to override 
Section 8.

ix. Thus, when Schedule II Clause 1(a) speaks of transfer of title in goods, it must be taken as a transfer or title in goods in a chattel qua chattel fashion where the transfer of title or the supply of goods is the dominant intention of parties. In this sense, the Sale of Goods Act, 1930 requirement of dominant intention of chattel qua chattel transfer still remains alive when interpreting Schedule II Clause 1(a) even though that clause does not expressly spell out any such requirement or does not expressly use the word “Sale of goods”. Wheresoever the transfer of title is not made with a dominant intention of a chattel qua chattel transfer of title, in such cases the transfer of title will always be incidental to some other supply and will lose its separate character. As such, Schedule II Clause 1(a) will never apply to such incidental transfers of title.

GST – Labour charges


A partnership firm is having contract of supply of labour to ONGC and other big employers. He is charging them on the basis of labour supplied say 10 person @ ₹ 1,000/- per day. On the reverse side he is getting similar labour from various contractors say 10 person @ ₹ 800/- per person per day. The turnover during the year comes to more than ₹ 50 lakh.

Kindly advise whether GST (Service Tax) is payable by our contractor and at what rate. I presume on the inward labour he has to create liability and claim, input credit when he raise Bill to ONGC?


Yes. The GST Act covers both, Supply of Goods and Services. Therefore, providing labour to ONGC is also supply as per the GST Act and tax will be payable. Since the turnover is exceeding ₹ 20 lakh, contractor is liable for registration and discharge liability.

Since, contractor is also having inward supply of labour from unregistered person, he has to pay RCM under section 9(4) of the CGST Act and he can claim ITC of the same.

GST – Tax Free Goods


Mr. A sells tax free goods. His turnover is about ₹ 1 crore. Every time he pays lorry freight about ₹ 5,000/-.

Mr. A and lorry operator both are unregistered.

In the circumstances, as to whether is he liable to pay RCM. u/s. 9 ?


It appears that since A deals in exempted goods, he not liable to obtain the registration under GST. Section 9(4) of the CGST Act reads as under:

“(4) The Central Tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”

It can be seen that if the supply from unregistered person is to registered person, then only RCM is required to be paid. Since that is not the position in present case, no RCM will apply.

GST – Adatiya Transaction


Mr. B is engaged in Kachhi Adat (Dalali) only. Whether is he liable to pay GST and obtain Registration Certificate? What is difference between Kachha adatiya and Pakka adatiya and liability on Pakka adatiya?


Even if receipt is from Kachhi Adat i.e. dalali (may be termed as brokerage), it will be towards supply of services. If the receipts are more than ₹ 20 lakh, registration and payment of GST will be required.

There is also query about Pakka Adatiya. Agents are known by various names. The relationship depends upon the particular terms and conditions. However, normally, Kachha adatiya brings the seller and buyer together and the actual sale/purchase transaction is done between the seller/buyer. Kachha adatiya will not be liable for GST on sale made by seller. He will only get commission which is his income and on which he will pay GST.

In market, Pakka adatiya is one who stores the goods of the principal and disposes of the same on behalf of principal. If these are the facts between principal and Pakka adatiya, then the dispatch of goods to Pakka adatiya will amount to supply as per entry (3) in Schedule I to the CGST Act. In such case, principal has to pay outward tax and pakka adatiya will take ITC and dispose of the goods by paying outward liability.

In such case, the Pakka adatiya will get commission from principal, which will be supply of services to the principal and for which Pakka adatiya has to discharge GST liability as supply of services.

Thus, even if B is engaged in Pakki Adat still there will be receipt from the supply of services and tax will be required to be discharged subject to turnover limit as discussed above.



If the person from whom T.F. purchases are effected pays lorry freight on behalf of customers and charges lorry freight in his bill, then what will be the position of GST and particularly RCM ?


Freight will be part of transaction value of the supplier and there is no freight payment as such by the recipient. This is position is clear from section 15 of CGST Act. The relevant portion is reproduced below.

“15. (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

(2) The value of supply shall include –

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;

(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;”

Though in the query all terms and conditions are not available, since freight is incurred by supplier and claimed in the invoice, it is presumed that it is prior to giving delivery and hence part of transaction value.

Otherwise also it will fall in composite supply and therefore also no separate freight expenses for recipient and hence no RCM liability.

However, if the freight is considered to be paid on behalf of recipient then it will cease to be part of supplier transaction value. Still there will not be RCM liability on recipient as he is not paying freight directly to GTA. The liability of RCM in case of GTA is on the person who pays to GTA.

Query No. 1 : (Method of Accounting vis-a-vis ICDS – 2016)

In case of Income from Profession Cash system is followed. However income from Other Sources (interest on FD etc.) is declared up to 31-3-2016 (A.Y. 2016-17) following mercantile system.

Assessee desires to follow cash system since 1-4-2016 (A.Y. 2017-18) even in respect of Income from Other Sources.

Assessee is liable to get his accounts audited u/s. 44AB r.w.s. 44ADA of the Act.

It appears that the change in method of accounting is necessitated for bringing uniformity in respect of two heads of Income and as such must be held to be bona fide.

In Form No. 3CD what type of disclosure should be made ? In A. Y. 2017-18 if no interest income is actually received. Income to be offered to tax would be ₹ NIL. Is it correct?


The Finance Act, 1995 amended section 145 of the Income-tax Act, 1961 with effect from assessment year 1997-98 to provide that income chargeable under the heads “Profits and Gains of Business or Profession” or “Income from Other Sources” must be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The hybrid system of accounting viz mixture of cash and mercantile is not permitted from assessment year 1997-98 and ownwards. However, assessee may adopt mercantile system of accounting for business and cash system of accounting for income from other sources.

So, now from the assessment year 2017-18, the assessee would like to follow cash system of accounting for income from other sources which was hitherto followed mercantile system of accounting. But this system should be followed by the assessee consistently in future to prove the consistency.

In clause 13(b) of Form No. 3CD the assessee would have to show change in method of accounting employed for computing income from other sources vis-a-vis method employed in the immediately preceding previous year. If due to change in the method of accounting, no interest income is received, then, it would have show NIL.

ICDSs, are mandatorily apply to all taxpayers (other than an individual or a HUF who is not subject to the audit u/s. 44AB of the Act) following mercantile system of accounting for the purpose of computation of income under the head “Profits and Gains of Business or Profession” or “Income from Other Sources”, so they are not applicable to cash system of accounting.

From the query it is clear that the assessee is entitled to get accounts audited u/s. 44AB r.w.s. 44ADA of the Act. These sections are applicable if income falls under the head “Profits and Gains of Business or Profession” and not when income falls under the head “Income from Other Sources”.

Query No. 2 : (Gift by HUF)

A’s HUF consists of karta A and Members Mrs. A, S-1 and D-1. The HUF derives income of ₹ 3 lakhs as interest on FD with bank and agri. income of ₹ 10 lakhs.

Now HUF can make a reasonable gift to its members. Also income received by a member out of the HUF income is also exempt u/s. 10 (2).

What are the tax implications of receiving gift in the hands of member taking into account provisions of Sec. 10 (2) and Section 56 (2) (x) ?

It appears that there would be no liability in the hands of member concerned u/s. 56(2)(x) since the income itself is exempt u/s. 10(2). Is it correct ?


S. 56(2)(vii) was applicable up to March 31, 2017, which is yet on statute.

From April 1, 2017, clause (x) of S. 56(2) is applicable, wherein the expression “relative” shall have the same meaning as assigned to it in the Explanation to clause (vii), which provides that any gift received by a member from HUF is not liable to tax. Otherwise also income in the hands of member is not liable to be included in the total income u/s. 10(2) of the Act.

Query No. 3 : (Sec. 44AD – Profits & gains of business on presumptive basis)

A firm carrying of eligible business having an annual turnover of ₹ 1.25 crore declares income from business as per accounts at ₹ 13 lakhs which is higher than the deemed income of ₹ 10 lakhs u/s. 44AD.

Can such firm claim deduction from its income on account of remuneration/ interest to partners?

One possible interpretation is that it is only when income as per accounts is less than deemed income of 8% and the assessee returns income at 8% the firm will not be allowed to claim such deduction. To put it differently, when income declared is more than 8% (as in the above example), benefit of deduction u/s. 40 (b) would be available.


The presumptive scheme of taxation has been introduced for sparing the small assessee from need for compulsory maintenance of accounts u/s. 44AA and tax audit under section 44AB.

In such case, the assessee shall be assessed on the presumptive income. The section provides the presumptive “‘income @ 8% of the total turnover or gross receipts of business or as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business”.

From the facts, it is clear that assessee is maintaining books of account and wants to offer higher than 8% of the total turnover i.e. real income as per his accounts, then S. 44AD would not be applicable as per the Tribunal in Shivani Builders vs. ITO [295 ITR (AT) 281 (Ahd)]. Therefore, claiming expenses in other provisions of the Act are not prohibited while calculating the business income.

Query No. 4 : (Clubbing of income u/s. 64 and Deduction u/s. 54F)

Mr. X owns more than one residential house property. He makes a gift of ₹ 80 lakhs to Mrs. X who does not own any house property. She buys a commercial property using the gift amount and sells it after 4 years. She then purchases a residential house in her name and claims deduction u/s. 54F of the Act.

Even if clubbing provisions are applicable it appears the net income i.e. amount of Capital Gain after claiming deduction u/s. 54F, only could be clubbed with the income of Mr. X. Is it correct ?


Yes, the income will have to be computed as if it is being assessed in the hands of the spouse or minor child and then translated into the hands of other spouse or parent, as the case may be.

In CIT v. Lalji Agarwal [234 ITR 820 (All.)] it has been held that where the salary payment is genuine, but all the same, is required to be clubbed with the income of husband, because wife does not have technical or professional qualification, the income that should be clubbed, is only net income after standard deduction.

On this principle, it would seem that, if the income in question is exempt from inclusion in the hands of the spouse or child, either by reason of general exemption for a category of income i.e. agricultural income or by reason of limit up to which it is exempt, it cannot be assessed in the hands of other spouse or parent either.

Note: Please send your queries relating to Direct, Indirect & International Taxation, Accounting & Auditing Standards and Company Law, FEMA etc., to AIFTP, having interest to the Members.

(1) Implementation of GST Act, 2017 has completed 100 days and Government is trying to solve the queries and seriously considering the complaints made by the taxpayers and trying to simplify the provisions of GST Act and its Rules.

(2) At this juncture, we humbly suggest that, “there is a need to do away with input tax credit provisions for all the dealers for real simplification and for eradication of corruption at large, by keeping low rate of tax to be levied on every transaction of supply of goods and services under the Goods and Services Tax Act, 2017 (GST) and no input credit is required to be claimed by the dealer/s and there is no necessity to issue ‘tax invoice’ by the dealer/s”.

(3) Our above suggestion is similar to that of the Composition Scheme under the GST Act, 2017. Under the said scheme only the small dealer/s having turnover up to 75 lakhs has an option to select the Composition Scheme under which he cannot claim input credit of taxes paid by him. Further, he cannot issue tax invoice like other registered dealers under the said GST Act. However, different category of dealers have to pay a small tax at the flat rate, as prescribed under the Composition Scheme of the said Act, as per particulars below:

Category of dealer Flat rate of GST to be paid
(i) Trader 1%
(ii) Manufacturer 2%
(iii) Restaurant 5%

(4) Further, under the said Composition Scheme, the taxpayers are not required to file monthly returns under the GST Act and are also not required to give the particulars of the purchases and services for claiming the set off of the Input Credit of Taxes paid. They are required to file one annual return and four quarterly returns only. The compliance under this scheme is easy and no tension for any disallowance of the claim of Input Credits like other registered dealers. They know their tax liability under the GST Act beforehand and once they have paid the above prescribed flat rate of tax, in time, they have not to pay a single rupee more to the Government. Thus, they know their tax liability under the GST Act, in advance and can do business peacefully, without any headache for keeping various details of records to prove the claim of Input Tax Credit for taxes paid by them. Further, if the vendor fails to pay the tax collected by him to the Government for any reason whatsoever, the dealer will not get input credit to that extent. In fact, the implication of the above composition scheme is easy and better for the Government to collect the revenue also.

(5) As reported in Gujarati ‘Mid-Day’, dated 4th October, 2017, more and more taxpayers have opted for the above Composition Scheme. Up to the deadline of 21st July, 2017 about 1 lakh taxpayers had opted for the above Composition Scheme. Thereafter, up to the revised deadline of 16th August, 2017 about 10 lakhs taxpayers had opted for the above Composition Scheme. Further, up to the another revised deadline of 30th September, 2017, about 5 lakh 40 thousand additional taxpayers had opted for the above Composition Scheme. At present, out of 89 lakhs taxpayers under the GST Act, 2017, about 15 lakh taxpayers have opted for the above Composition Scheme.

(6) As reported in Gujarati ‘Mid-Day’, dated 10th October, 2017, the Revenue Secretary Mr. Hasmukh Adhia has informed that deadline for Composition Scheme may be further extended up to 31st March, 2018, so that more and more small dealers/taxpayers can opt for the above Composition Scheme which is very simple.

(7) At this juncture, we humbly suggest that the benefit of the above Composition Scheme may be extended at the option of the big dealers/tax payers having turnover of more than ₹ 75 lakhs but upto say ₹ 5 crores imposing a little higher flat rate of tax than the small dealers have to pay having turnover u to ₹ 75 lakh. Similarly, the Composition Scheme can also be extended at the option of the other big dealers having turnover of above ₹ 5 crores but up to ₹ 25 crores and so on, covering all the dealers under the GST Act to opt for the Composition Scheme, imposing little higher and higher flat rate of tax as may be thought fit by the Government. Such flat rate of tax may be increased and/or decreased from time-to-time, as per the required revenue collection under the GST Act, 2017 and we are sure that the dealers/taxpayers, whether small or big, will opt for the Composition Scheme that may be prescribed by the Government for all the taxpayers as suggested above. There will be no necessity of complex audit report by Chartered Accountant or Cost Accountant for verification of the purchases and services and/or tax invoices for verifying the claim of input credit of taxes paid by the Dealer/s.

(8) In short, for real simplification and difficulties faced by the taxpayers under the GST Act, 2017, there is a need to do away with input tax credit provisions, by keeping low flat rate of tax to be levied on every transaction of supply of goods and services and also to do away with the provisions of reverse charge mechanism. Hence, there will be no temptation to do wrong by not issuing sale bill/s or by issuing fake/bogus and unaccounted sale bill/s. Further, there will be better tax compliance and no chance of revenue loss, on account of giving wrongful input tax credit and/or input tax credit in respect of bogus bills. Consequently, there will be no need to have complex audit provision and comprehensive audit report.

(9) Our above suggestion may amount to multiple tax system but if that is found beneficial to us as stated above, the Government should introduce the same and discard the present VAT type GST legislation.

(10) We humbly further suggest that to simplify the provisions of present GST Act, 2017, instead of SGST, CGST and IGST with their respective rules and procedures there should be only single GST, with low rate of tax, and the Government and members of the GST Council may kindly consider the same.

(11) The Central and all the State Governments concerned, may consider the above important suggestions to make good the complaints of hardship made by the 
dealers and to achieve the goal of real simplification.


The indirect tax system in India, both at Centre’s and States’ level, remains unduly complex, unfair, distortionary and structurally flawed, with a narrow base and susceptible to tax avoidance and evasion. This is despite the sincere and painstaking efforts made in past two decades to bring structural changes in the design of the present tax system.

Needless to say, the basic objective of any tax reform in the ‘Indirect Tax Regime’ would be to address the problems of the current systems. It should not only establish a system that is economically efficient and neutral in application, distributionally attractive and simple to administer, but at the same time, be capable of broadening the tax base while maintaining the autonomy of the taxation powers of the Centre and the States guaranteed under the Constitution. The switchover to ‘Goods and Services Tax’ (“GST”) is justified as it is viewed that GST is capable of addressing the problems associated with the current tax system and of achieving the above objectives.

After a long and painful wait, GST is finally knocking at the door of every business entity in the country! This eagerly-awaited, grand, ‘game-changer’ and gargantuan ‘Tax-reform’ is set to be implemented in the country from July 1, 2017. If one goes by the oft­ repeated, confident and clear utterances – that brooks 
‘no nonsense’ – of the top echelon of the North Block, GST will certainly meet its destiny on this date!

‘Place of Supply’ Provisions – Current Tax Regime vis­ a-vis GST Regime

The current Indirect-tax Regime in India is ‘origin based’ and therefore, a formal concept of ‘Place of Supply of Goods’ is, as such, not prevalent. The major principle for determining the ‘situs of sale of goods’ as prescribed under the Central Sales Tax Act, 1956 (‘CST Act’) is the ‘location of the origin of the goods’. Thus, Central Sales Tax (CST) being levied under the CST Act is an ‘origin-based tax’ that is against the ‘destination principle’.

Under the Service Tax regime, no doubt, ‘Place of Provision of Services Rules’ are prescribed which are based on the ‘Destination Principle’. However, a close look at these Rules would reveal that their relevance is primarily in the Context of the cross-border i.e., international transactions in services. Since ‘Service Tax’ is a Central levy, the determination of ‘place of Supply of Service’ in case of the domestic transactions is never an issue.

However, as GST is ‘destination based consumption tax’, it is essential that an elaborate set of principles governing ‘Place of Supply’ (POS) for goods or services is provided. The federal character of Indian Republic also poses another challenge when one contemplate the POS provisions. (Please refer the discussion in the ensuing paragraphs). The provisions for determining ‘Place of Supply’, therefore, are critical to the whole design of GST.

The POS provisions – which are distinct for goods and services – are contained in the Integrated Goods and Services Act, 2017 (‘IGST Act’). The POS provisions are largely based upon the ‘International VAT/GST Guidelines’ (‘Guidelines’) issued by OECD in November, 2015. These important Guidelines merit a brief discussion here. (For the ease of reading, the terms ‘VAT’ & ‘GST’ are used as synonymous terms throughout the article.)

OECD’s VAT/GST Guidelines & its significance

The Guidelines are the culmination of nearly two decades of efforts to provide internationally accepted standards for consumption taxation of cross-border trade, particularly in services and intangibles. The Guidelines aim at reducing the uncertainty and risks of double taxation and unintended non-taxation that result from inconsistencies in the application of VAT in cross-border context.

a. Overarching purpose of a VAT: A broad-based tax on final consumption

The over-arching purpose of a VAT is to impose a broad­ based tax on consumption, which is understood to mean final consumption by households. A necessary consequence of this fundamental proposition is that the burden of the VAT should not rest on businesses.

The Central design feature of a VAT: staged collection process

The Central design feature of a VAT, and the feature from which it derives its name, is that tax is collected through a staged process. This Central design feature of the VAT, coupled with the fundamental principle that the burden of the tax should not rest on businesses, requires a mechanism for relieving businesses of the burden of the VAT they pay when they acquire goods, services or intangibles. There are two principal approaches to implementing the staged collection process of VAT, one is invoice-credit method (which is a ‘transaction-based method’) and other is subtraction method (which is ‘entity based method’). Almost all VAT jurisdictions (including India) of the world have adopted the invoice-credit method.

This basic design of the VAT with tax imposed at the every stage of the economic process, but with a credit for taxes on purchases by all but the final consumer, gives the VAT “its essential character in domestic trade as an economically neutral tax”. As the introductory chapter to the Guidelines explains:

“The full right to deduct input tax through the supply chain, except by the final consumer, ensures the neutrality of the tax, whatever the nature of the product, the structure of the distribution chain, and the means used for its delivery (e.g., retail stores, physical delivery, internet downloads}. As a result of the staged payment system, VAT thereby “flows through the businesses” to tax supplies made to final consumers”.

POS Provisions: ‘A crucial cog in the GST wheel’:

The principal aim of VAT (or GST) and its Central design demand that VAT system must have mechanisms for identifying the jurisdiction of consumption, by connecting the supplies to the jurisdiction where final consumption of the goods or services or intangibles to take place. VAT systems, thus, need ‘Place of Taxation’ (or ‘Place of Supply’) Rules to implement the destination principle, not only for business-to­ consumer (B2C) supplies, which involve final consumption, but also for business-to-business (B2B) supplies, even though such supplies do not involve final consumption. POS provisions, thus, act as a crucial cog in the GST wheel and keep it running uninterruptedly and smoothly.

POS Provisions under GST Regime: Different Perspectives

The POS Provisions under GST regime can essentially be viewed from the following perspectives, viz.:

• Constitutional Perspective

• Destination Perspective

• Taxability Perspective

• Seamless Credit Perspective

These are briefly discussed below:

I. Constitution Perspective

As stated above, India is a federal republic where the Centre and the States enjoy distinct taxation powers. This division of taxation powers between the Centre and the States is guaranteed under the Constitution of India vide Article 246 read with Schedule VII thereof. This Constitutional Scheme of taxation powers for the Centre and the States has ensured that the Centre cannot levy tax on the distributive trade and the States cannot levy tax on services.

However, the core feature of GST requires that both, the Centre and the States have concurrent jurisdiction to levy tax on all supplies of goods or services or both and on the same tax base. This objective is achieved through ‘The Constitution (One Hundred and First Amendment) Act, 2016’ vide which certain significant amendments have been carried out in the Constitution, paving a way for ultimate introduction of GST in the country.

The inevitability of maintaining the autonomy of taxation powers of the Centre and the States as guaranteed under the Constitution has also compelled India to adopt a ‘dual GST structure’ rather than a ‘unified GST structure’. Under dual GST structure, both, the Centre and the States would concurrently levy Central GST (CGST) and State GST (SGST) respectively on all supplies on a comprehensive basis.

In order to ensure a smooth implementation of GST regime, keeping in mind the ‘destination principle’ and with a view to avoid any possibility of conflicting interpretations, the powers to enact the laws governing ‘inter-state supplies’ are vested with the Centre only. Thus, the statutory framework governing inter-State supplies, imports and exports is provided by the IGST Act that also contains the principles of determining ‘Place of Supply’ of goods or services or both.

II. Destination Perspective

The fundamental issue of economic policy in relation to the application of the VAT/GST is whether the levy should be imposed by the jurisdiction of origin or destination. Under the destination principle, tax is ultimately levied only on the final consumption that occurs within the taxing jurisdiction. Under the origin principle, the tax is levied on the various jurisdictions where the value was added. The key economic difference between the two principles is that the destination principle places all the firms competing in a given jurisdiction on an even footing whereas the origin principle places consumers in different jurisdictions on an even footing.

The application of the ‘destination principle’ in VAT achieves neutrality in cross-border trade. Thus, in international trade, applying this principle, exports are not subject to tax with refund of input taxes (that is, “free of VAT” or “zero-rated”) and imports are taxed on the same basis and at the same rates as domestic supplies. By contrast, under the ‘origin principle’, each jurisdiction would levy VAT on the value created within its own borders.

For these reasons, there is a widespread consensus that the destination principle, with revenue accruing to the country of import where final consumption occurs, is preferable to the origin principle from both a theoretical and practical standpoint. In fact, the destination principle is the international norm and is sanctioned by World Trade Organisation (‘WTO’) rules.

Because of the widespread acceptance of the destination principle for applying VAT to cross-border trade, most of the POS provisions are generally intended to tax supplies of goods, services and intangibles within the jurisdiction where consumption takes place.

In theory, POS Provisions or Place of Taxation Rules should aim to identify the actual place of business used for B2B supplies (on the assumption that this best facilitates implementation of the destination principle) and the actual place of final consumption for B2C supplies. However, the Guidelines recognise that Place of Taxation Rules (or POS Provisions) are in practice rarely aimed at identifying where business use or final consumption actually take place. This is a consequence of the fact that VAT must in principle be charged at or before the time when the object of the supply is made available for business use or final consumption. In most cases, at that time, the supplier will not know or be able to ascertain where such business use or final consumption will actually occur. VAT systems therefore generally use proxies for the place of business use or final consumption to determine the jurisdiction of taxation, based on features of supply that are known or knowable at the time that the tax treatment of the supply must be determined. For this purpose, B2B supplies are assumed to be supplies where both the supplier and the customer are recognised as businesses, and B2C supplies are assumed to be supplies where the customer is not recognised as a business.

III. Taxability Perspective

POS Provisions, when viewed from ‘taxability perspective’, involve the following considerations viz:

• nature of supply and that is, whether the ‘supply’ is ‘inter-state’ or intra-State’?

• subject of supply and that is, whether supply is of ‘goods’ or ‘services’ or ‘both’?

• category of supply that is, whether the supply is ‘business-to-business’ or ‘business-to-consumers’?

I. ‘Inter-State Supply’ and ‘Intra-State Supply

Section 7 and Section 8 of the IGST Act define, in an elaborate manner, the terms ‘inter-State supply’ and ‘intra-state supply’ respectively.

To summarise, an ‘inter-State supply’ of goods or services, within the terms of Section 7, is:

i. Where the location of the supplier and the place of supply are in two different States or two different Union Territories or a State and a Union Territory;

ii. Supply of goods into the territory of India, till they cross the customs frontiers of India;

iii. Supply of services imported into the territory of India;

iv. Supply of goods/services to or by an SEZ Developer or an SEZ Unit;

v. Supply when supplier of goods or services or both is located in India and the place of supply is outside India;

vi. Any other supply in the taxable territory, not being an intra-State supply and not covered elsewhere under Section 7.

On the other hand, an ‘intra-State supply’ of goods or services in terms of Section 8 is where the location of the supplier and the place of supply of goods/services are in the same State or same Union Territory. However, ‘Iintra-State supply’ shall not include:

i. supply of goods/services to or by a SEZ Developer or SEZ Unit;

ii. supply of goods imported into the territory of India till they cross the customs frontiers of India; and

iii. supplies made to a tourist referred to in Section 15.

In order to determine whether the supply of goods or services qualify as ‘Inter-state’ or ‘Intra-State’, one has to first determine the location of the supplier and the place of supply in terms of POS provisions.

Viewed from another angle, it is also important to determine whether a ‘supply’ is an ‘Inter-state’ or ‘Intra-state’ so as to ensure discharge of appropriate tax liability and that is, IGST or CGST/SGST. The adverse consequences in terms of Section 19 of the IGST Act or Section 77 of the CGST Act may follow in the event of the wrong determination of the character of supply and the consequential inappropriate discharge of tax liability.

POS Provisions facilitate the proper determination of the ‘nature or character of supply’.

II. Subject of ‘supply’: Whether ‘goods’ or ‘services’ or ‘both’?

Implementation of the destination principle i.e., adopting practical place-of-taxation-rules (or POS rules) that identify the jurisdiction in which final consumption occurs, raises a host of additional questions because identification of the jurisdiction in which final consumption occurs can be effectuated only through proxies that reflect one’s “best guess” where final consumption is likely to occur since ‘in many (if not most) cases consumption is not directly observable.’

Implementing the destination principle with respect to cross-border trade in goods is relatively straight forward, based on the assumption that the destination of the goods determined by physical flows is a reasonable proxy for where consumption of the goods is likely to occur. Thus, exported goods are commonly ‘zero rated’ and imported goods are taxed at the border.

However, implementing the destination principle is more complicated with respect to the taxation of cross-border trade in services and intangibles than with respect to cross-border trade in goods. Until fairly recently, cross-border trade in services attracted relatively little attention because most services were consumed where they were performed. Consequently, there was not much cross-border trade with respect to which a ‘destination’ needed to be identified.

This state of affairs changed dramatically with the enormous growth in cross-border trade in services, driven by forces of globalization and facilitated by technological innovation. With the increasing “disconnect” between performance and consumption or use of services in a territorial sense, the traditional rule for determining the place of taxation of services by reference to the service provider’s establishment becomes problematic. The problem was exacerbated by the growth of multinational corporations, which render services in myriad locations through complicated legal structures. The problem is not merely confined to designing an appropriate regime for taxing cross border trade in services and simply adopting a destination-based rule for the place of taxation of services akin to the rule for the place of taxation of goods.

The more fundamental problem is that the enormous growth in services involving suppliers in one jurisdiction and customer in another often involves services that are intangible in nature, making it more difficult both to determine the appropriate jurisdiction of ‘destination’ and to enforce the tax on the basis of that determination, because such services are not amenable to border controls in the same manner as goods. Such services circularly defined as services “where the place of consumption may be uncertain” or, perhaps, a bit more precisely, as ‘services and intangible property that are capable of delivery from a remote location’ include services such as consultancy, accountancy, legal and other intellectual services, banking and financial transactions, advertising, transfer of copyright, provision of information, data processing, broadcasting, telecommunication services, online supplies of software and software maintenance, online supplies of digital content, digital data storage and online gaming.

The above challenges, in fact, raised by cross-border trade in services and intangibles are the raison d’etre of the OECD’s VAT/GST Guidelines which also is the bedrock on which the POS Provisions of the IGST Act rest.

III. Category of Supply: Whether B2B or B2C?

The approaches used by VAT systems to implement the destination principle for B2B supplies and the tax collection methods used for such supplies are often different from those used for B2C supplies. This distinction is attributable to the different objectives of taxing B2B and B2C supplies: taxation of B2C supplies involves the imposition of a final tax burden, while taxation of B2B supplies is merely a means of achieving the ultimate objective of the tax, which is to tax final consumption. Thus, the objective of place of taxation rules (or POS Provisions) for B2B supplies is primarily to facilitate the imposition of a tax burden on a final consumer in the appropriate country (and/or the State) while maintaining neutrality within the VAT system. The overriding objective of place of taxation rules (or POS Provisions) for B2C supplies, on the other hand, is to predict, subject to practical constraints, the place where the final consumer is likely to consume the services or intangible supplied.

In addition, because of the different characteristics of supplies to businesses and supplies to households, VAT systems often employ different mechanism to collect the tax in connection with B2B and B2C supplies, and these different mechanisms in turn often influence the design of place of taxation rules (or POS Provisions) and of the compliance obligations for suppliers and customers involved in cross-border supplies.

IV. Seamless Credit Perspective

One of the many meanings ascribed to GST reads as under:

“A destination-based Value Added Tax which is levied on ‘Value Added’ to goods and services at each stage in the economic chain of supply. Therefore, all different stages of production and distribution act as mere ‘Tax Pass-through’ and the tax essentially sticks on the final consumption within the taxing jurisdiction. Credit is made available across goods and services and even across the States. GST thus, operates as a pure VAT.”

It is thus, evident that all types of supplies, whether Inter-state or intra-State, of goods or services or both are likely to be covered within the tax net with only minimal exclusions. It is therefore imperative to ensure ‘seamless credit’ across the economic chain of supply of goods or services which is the chief aim of GST or VAT. The availability of seamless credit will also ensure that tax is not imposed nor does it rest on the businesses but is ultimately imposed only on the final consumption in the hands of the final consumer. Since, in principle, GST is a creditable/refundable tax, it shall not be a cost for the business nor a revenue proposition for the Centre or the States.

This ‘wash-through’ nature of GST or VAT has a significant bearing, not only on the conceptual design of IGST and its operative mechanism, but also the designing of the POS Provisions, particularly in the context of inter-State transactions.


A careful reading and analysis of the POS Provisions contained in the IGST Act would reveal that the provisions are broadly in conformity with the OECD International VAT/GST Guidelines as well as prevalent practices in many VAT/GST jurisdictions of the world. The Guidelines are based on certain generally accepted principles of tax policy applicable to consumption taxes and also recognised by the Ottawa Taxation Framework Conditions (1998). These principles are as follows:

• Neutrality : Taxation should seek to be neutral and equitable between forms of electronic commerce and between conventional and electronic forms of commerce. Business decisions should be motivated by economic rather than tax considerations. Taxpayers in similar situations carrying out similar transactions, should be subject to similar levels of taxation.

• Efficiency: Compliance costs for businesses and administrative costs for the tax authorities should be minimised as far as possible.

• Certainty and Simplicity: The tax rules should be clear and simple to understand so that taxpayers can anticipate the tax consequences in advance of a transaction, including knowing when, where, and how the tax is to be accounted.

• Effectiveness and Fairness: Taxation should produce the right amount of tax at the right time. The potential for tax evasion and avoidance should be minimised while keeping counteracting measures proportionate to risks 

• Flexibility: The systems for taxation should be flexible and dynamic to ensure that they keep pace with technological and commercial developments.

POS Provisions will certainly be an unknown and unchartered area for the distributive trade though a section of the manufacturers and service providers may have some familiarity with the concept in view of the ‘Place of Provision of Services Rules’ currently in vogue under Service Tax Regime. POS Provisions are like veins of the GST body, carrying, both, tax and corresponding credit throughout the body. It is, therefore, not only essential but also inevitable for all the stakeholders, whether taxpayers or tax administrators or tax professionals, to gain sufficient understanding of these provisions so as to be able to comply with the GST law correctly.


1. International VAT/GST Guidelines by OECD (April 2014)

2. Discussion Drafts for Public Consultation – International VAT/GST Guidelines by OECD (Dec. 2014 – Feb. 2015)

3. A Hitchhiker’s Guide to the OECD’s International VAT/GST Guidelines by Walter Hellerstein, University of Georgia School of Law (18 FLA Tax Rev 589 (2016))

4. lnterjurisdictional Issues by Keen & Hellerstein

5. Jurisdiction to Tax in the New Economy by Walter Hellerstein [38 GA.L. Rev. I. 28(2003)]

[Courtesy: BCAS Journal – Special Issue on GST – July, 2017]

[Source : Article printed in souvenir of National Tax Conference held on 2nd & 3rd September, 2017 at Kolkata]

1. What is Works Contract under Sales Tax and Vat Regime

Works Contracts as we understood up to 1-7-2017, was the result of Judicial pronouncements right from first Gannon Dunkerley’s case (9 STC 353(SC) ) to L&T Ltd. (65 VST 1(SC)) (LB)

In short, a contract involving work and labour, could not be taxed under sales tax laws as such transactions were not within the ambit of Sale of Goods Act. Then came 46th Amendment to Constitution, permitting the State to levy the tax on transfer of property in goods involved in execution of works contract. Thus, what was taxed was not works contract but transfer of property in goods involved in such contracts. Such transactions were called deemed sales. States taxed the goods involved in Works contract. The tax was leviable for works contracts in relation to immovable as well as for movable property. One illustration would be sufficient to explain this. The construction of building (immovable) was a works contract and repair of a car was also a works contract.

The Apex Court has in the last decision of L&T (cited supra) upholding levy of tax by States on under construction flat or building observed as follows:

“Whether contract involves a dominant intention to transfer the property in the goods is not at all material. It is not necessary to ascertain what is the intention of the contract. Even if the dominant intention of the contract is not to transfer the property in goods and rather it is the rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the material used in such contract if it otherwise has the elements of works contract.

The term works contract in Article 366(29A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. It takes within its fold all genre of works contract and is not restricted to one species of contract to provide for labour and services alone…… The object and intention of clause (29A) was to enlarge the scope of expression “tax on sales or purchase of goods” and overcome State of Madras v. Gannon Dunkerley & Company (9 STC 353 (SC)). Thus, even if in a contract, besides the obligation of supply of goods and materials and performance of labour and services, some additional obligations are imposed such contract does not cease to be a works contract. The additional obligations in a contract would not alter the nature of contract so long as the contract provides for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations such contract would be covered by the term works contract.

The distinction between a contract for sale of goods and a contract for work (or service) has almost diminished in the matters of composite contracts involving both (a contract for work / labour and a contract for sale).”

This judgment read with the judgment of Kone Elevator (71 VST 1 (SC)), (Six Member Bench – two judges passing dissenting judgment) answers all the controversies for deem sales, which as we shall see, is to be rechristened as deemed services. The Apex Court confirmed the L&T judgment by observing as follows

“We may hasten to add that this position is stated in respect of a composite contract which requires the contractor to install a lift in a building. It is necessary to state here that there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly, if separate contract is entered into for installation, that would be a contract for labour and service. But, a pregnant one, once there is a composition contract for supply and installation, it has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel. Therefore, it would not be appropriate to term it as a contract for sale on the bedrock that the components are brought to the site, i.e. building, and prepared for delivery. The conclusion, as has been reached in Kone Elevators (supra), is based on the bedrock of incidental service for delivery. It would not be legally correct to make such a distinction in respect of lift, for the contract itself profoundly speaks of obligation to supply goods and materials as well as installation of the lift which obviously conveys performance of labour and service. Hence, the fundamental characteristics of works contract are satisfied. Thus analysed, we conclude and hold that the decision rendered in Kone Elevators does not correctly lay down the law and it is, accordingly, overruled.“

The Centre sought to levy the service tax on the services/labour involved in works contracts under the Finance Act 1994, by introducing section 65(105) (zzzza).

While both the enactments simultaneously taxed different aspects of works contract, there was definite overlapping as both had independent provisions and rules to determine the turnover and taxable turnover. This happened despite the Constitution Bench judgment of Godfrey Philips (139 STC 537 (SC)). Some of the writs are still pending before various Courts (for example Software – whether service or sale is still to be decided).

Prior to 1-7-2012, the taxable service under works contract service was defined in section 65(105)(zzzza). This definition excluded levy of tax on works contract in respect of road, airport, railways, transport terminals, dams. It excluded repairs and maintenance in respect of goods. Broadly the service tax was restricted to limited types of contract namely

a. Works contract for carrying out erection, commissioning or installation.

b. Works contract for commercial or industrial construction

c. Works contract for construction of complex

d. Works contracts for turnkey projects including engineering procurement and construction or commissioning project.

The definition of works contract in section 65B (54), of Finance Act 1994 reads as follows

“Works contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property for carrying out any other similar activity or part thereof in relation to such property.”

Both the service tax provision and the State Vat provision had their own rules for determining the value of service in various types of works contracts and for determining value of goods transferred in execution of works contract respectively.

Admittedly, there was no common rule pointing out that in a works contract of (for example) ₹ 1 lakh, if the value of goods is determined as ₹ 60 thousand under VAT Act, then the value of service for the purpose of service tax enactment should be accepted as ₹ 40 thousand only. The definitions of Works Contract under the Central Sales Tax Act and under the Finance Act 1994 were also different. Thus there was an unintentional overlapping of taxation which is sought to be remedied by the GST regime.

2. Works Contract – Under the Goods and Services Tax regime

Under GST, the levy is on supply of goods or services or both. The concept of transfer property in goods is given a go by.

Section 2(119) defines “works contract” to mean a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration on commissioning of any immovable property wherein the transfer of property in goods (whether as goods or in some other forms) is involved in execution of such contract.

The intention of the legislature which is abundantly clear from the above definition is that the works contract under the GST should mean only the contracts in relation to immovable property. The question therefore would be how would the contract involving supply and services both in relation to movable property be taxed under the GST regime. To understand this, we must refer to the definition of composite supply of section 2(30). This definition reads as follows:

“Composite supply means a supply made by a taxable person to a recipient consisting of 2 or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is principal supply.

Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.

The word composite supply should not be confused with mixed supply. Section 2(74) defines mixed supply as follows:

“Mixed Supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.”

The contracts involving supply of goods and services in relation to movable property would also fall in the definition of composite contracts.

The important aspects of composite supply are:

a) supply should be by a taxable person

b) to a recipient

c) two or more taxable supplies of goods or services or both

d) which are naturally bundled and

e) supplied in conjunction to each another

f) in the course of business

g) one of which is principal supply.

Each and every aspect is related to each other–each to be present in a transaction simultaneously. First (a) and (b) indicate presence of two parties. (c) and (d) indicate existence of two or more goods or services which are naturally bundled. The presence of “and” suggests presence of simultaneous conditions. Such supply should be in the course of business and of the two or more supply of goods or services or, one should be a principal supply. Whether supply is principal supply or not can be determined from the nature of transactions and circumstances of the case.

3. Construction Contracts – Deemed Service

In the Construction Contracts, the Builders and Developers find special place, be it litigation or relief. Schedule II of CGST Act of 2017 may please be referred to. Schedule II lists down certain transactions which will be deemed to be supply of goods or services. Clause 5 refers to the transactions of supply which would be deemed to be supply of services. In terms of clause 5(b), Construction of a complex, building, civil structure or a part thereof including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the “competent authority” or up to its first occupation, whichever is earlier. The expression competent authority is defined to include a registered architect, registered chartered engineer or a licensed surveyor of the respective local body of the city or the town etc.

Again clause 6(a) which refers to composite supply states that following composite supplies shall be treated as supply of services namely “Works contracts as defined in section 2(119)”.

Thus, the works contract under section 2(119) is a deemed service contract for the purpose of GST. The provision also confirms that although, clause 6(a) of Schedule II includes the contracts described in clause 5(b), the purpose of carving out clause 5(b) is to give separate treatment to building construction contract vis-à-vis other contracts relating to immovable property.

Clause 3 of this schedule (schedule II) under the title, treatment or process, refers to any treatment or process which is applied to another person’s goods as a supply of services. Thus the works contract involving supply of goods or services can be a contract of process or treatment on other’s property, say dyeing of cloth, painting of car, would be considered as falling in this type. Repairs of motor car – would it be a treatment or composite contract? The primary object is to repair the car, some supply of spares may be incidental. It is possible to argue that it’s a treatment to car. However the distinction gains importance if the tax liability differs in two types of contracts.

4. Treatment to incidental contracts

Under the MVAT Act the taxation of construction contract was governed by a notification where only specific types of construction contracts were included. This notification at the end specified that any contract incidental or ancillary to the construction contract defined in the said notification would also be a construction contract provided such contracts are awarded and commenced before the completion of the main contract. Thus, electrification, painting, interior, plumbing, fittings etc., were also treated as construction contracts if they were awarded and commenced before the completion of the main contract. Under the GST regime, the definition itself makes it abundantly clear that any contract in relation to immovable property would be a works contract. It necessarily follows that such incidental or ancillary contracts would also be a works contract falling under section 2(119). The better part of the GST regime is that such incidental contracts need not be before the completion of the original contracts. Therefore, the existing buildings renovation, improvement, modification, repairs etc., like plumbing, painting, restructuring would also be a works contract for immovable property. The inclusion of the word “fitting out” in the definition of works contract also implies that the contract like fixing of windows, window grills or erection of glass curtain walls would be a construction contract in relation to immovable property. Such contract can be in relation to old /existing property or new property.

5. What is immovable property

Hon’ble Bombay High Court had an occasion to decide the issue in the case of Permasteelisa India Ltd. (91 VST 129) (Bom.), as to whether fixing up a glass curtain walls would constitute a construction contract. Unfortunately, the Hon’ble Bombay High Court ruled against the applicant and held that such contract would not constitute contracts for construction of buildings. On facts, on the basis of the contract the High Court ruled that the transaction of the applicant comprises of design, fabrication, supply and installation of structural glazing works (curtain walls). These are typically designed and assembled aluminium frames filled with glass. The process involves fabrication and assembling of specially designed extruded powder coated aluminium sections into the frames, on which the glazed panels are bounded. These activities are done in the factories of the applicant and after transporting the same to the worksite they are erected on the buildings. The High Court refused to accept the alternative argument that the contract would get covered by the phrase incidental or ancillary activity to the construction of the buildings. This judgment would no more be applicable under the GST regime as any contract for construction, fabrication, installation, fitting out, improvement, modification etc., would cover installation of the glass walls to the immovable property.

Some area of doubt may be there or a second view is possible since the definition under section 2(119) refers to the contracts for any immovable property. To overcome this it would be ideal to define the contract in proper context as contract in relation to immovable property.

Another aspect which needs consideration is whether transfer of flats to the existing tenants, would amount to supply under GST Act? The definition of supply includes barter, however what about consideration? Section 2(31) includes monetary value for any act or forbearance. In case of transfer of flats to existing tenants, what the builder or developer is giving is something he is entitled to under the law as a matter of right and therefore should not be taxed under GST. Such transfer will not fall under Schedule 1. Thus in my opinion, such transfer of flat in lieu of surrendering the tenanted premises will be out of GST levy. One more point supporting my view is different treatment given under stamp duty. I am sure, the future litigation would be for such types of transaction.

If a tenant wishes to have additional place, qua that additional place value, the existence of works contract cannot be denied.

The expression “Plant and Machinery” as per section 17, for the purpose of chapter V (ITC) and chapter VI (Registration) means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes— (i) land, building or any other civil structures; 
(ii) Telecommunication towers; and (iii) Pipelines laid outside the factory premises.

The exclusion of pipeline outside the factory for the purpose of ITC is logical but for determining whether the contract is for immovable property, the true test would be practical application. The case laws governing what is immovable property would be applicable. Admittedly plant and machinery is treated as immovable property since it is not possible to move the entire plant and machinery as such. Moving or removing installed plant or machinery would involve damage to the property. It is possible that some of the items recovered after disintegration may be useful; however that would not alter the nature of the transaction as that being immovable. The famous case of Sirpur Paper Mills Ltd (JT-1997(10)-SC-82) often relied on by the Sales Tax authorities, is further distinguished by the Apex Court in the case of Duncan Industries Ltd. (JT-1999(9)-SC-421) where Supreme Court on facts held the plant & machinery to be immovable. Therefore whether a transaction is for immovable property or not is always a question of facts than of law. The Larger Bench of Supreme Court in a recent case of Voltas Limited (80 VST 12 (SC)) held that works contract for fabrication and installation of Water Chilling Plant at customer’s factory would fall under the description of ‘fabrication & installation of plant & machinery’ and not under the description of ‘installation of air conditioner and AC cooler’. The Supreme Court observed that any endeavour to drag the works contract in the framework of ‘installation of air conditioner and AC cooler’ would be repugnant to the basic interpretation of the statute and subordinate legislations. To exclude the work of fabrication from the works contract under the work order would render works contract truncated to a form not intended by the customer.

The case of Sirpur Paper Mills is further distinguished in the case of Triveni Engineering (120 ELT 273 (SC)) & Mittal Engineering (88 ELT 622 (SC)). In case of Triveni Engineering the Apex Court observes whether an article is permanently fastened to anything attached to the earth requires determination of both – the intention as well as the factum of fastening to anything attached to the Earth – The Supreme Court held that installation or erection of Turbo Alternator on the platform constructed on land would be immovable property and as such it cannot be excisable goods.

Elecon Engineering Company Limited decision by CEGAT New Delhi (107 ELT 337) was perhaps the first one after the Sirpur Paper Mills to distinguish the SC decision on facts. It was held that coal handling plant was a large assembly of machinery building structure spread over a vast area comprising of variety of machineries including switchgear, cables and transformers etc. The photograph confirmed that it cannot be bought or sold in the market. The Tribunal observed that there are civil structures to support the machinery spread over several hectares of land. It was not a case of merely attaching the machine to earth for vibration-free functioning (as in case of Sirpur Paper Mills). The plant was thus held as immovable property.

In case of TTG Industries Ltd. (167 ELT 501 (SC)) the Apex Court held that the drilling machines and mud guns are not equipment which are usually shifted from one place to another. Once they are erected and assembled they continue to operate from where they are positioned till such time as they are worn out or discarded. They really become components of the Plant & Machinery. Having regard to the manner in which these machines are erected and installed upon concrete structures, they do not answer the description of excisable goods.

The Bombay High Court’s judgment in case of Commissioner of Sales Tax v. Steel Plant Pvt. Ltd. (99 STC 532) is short but useful to determine the nature of transaction. In this case the construction of a slaughter house was held as contract for installation and erection of plant.

One may find few decisions in favour of the Revenue as well. However, the true test would be as observed by the Supreme Court in the cases cited above. The draftsman’s skill in drafting a contract would play a major role .

As for construction of building – immovable property the ultimate test, as settled by now is issuance of occupation certificate. There can be instances where the occupation certificate is received just before the introduction of GST, but payments are still to be received. Whether there would be a liability under GST? In my opinion on the day of introduction of GST, the construction contract was complete and for the payment to be received by the developer, (for the constructions where O.C is received prior to 1-7-2017), there is no liability to pay GST. This is despite clause 5(b) of schedule II, where it states that entire consideration should be received after receipt of OC. The last paragraph of K. Raheja is reconfirmed by the Larger Bench of Apex Court in L&T-(65 VST 1). This judgment is applicable under GST too. The reason is GST Act is not retroactive. If the property is such where OC is received as on 1-7-2017, no GST can be levied for any payment to be received later on.

Nonetheless, the rest of the works contract in relation to movable property would be a composite supply or supply for processor treatment. Be it tyre-retreading, car repairs, machine repairs, interior designing involving transfer of property in goods.

6. What is the taxable event for the Works Contract – Time of supply

Let us go to the provisions relating to time of supply of service. Section 13(2) of the CGST Act lays down the various possibilities as follows:

Time of Supply of Services – Section 13
Description of Event Time of Supply
Normal Case – Thumb rule Earlier of the following:

1. Date of Issue of Invoice (if Invoice issued within 30 days of supply of services)

2. Date of Receipt of Payment or Date of Provision of Service (if Invoice not issued within 30 days)

3. The date on which recipient shows receipt of service in his book

Liability under Reverse Charge basis 1. Date of payment entered into books of account of Recipients or payment debited in bank account

2. Date Immediately following 60 days from date of Issue of Invoice or any other documents

In any other case Date of receipt of service in the books of account of the Recipient

The works contract in relation to immovable property would also include construction of properties which need not be buildings, for example plant and machinery. One can refer to the case laws in relation to immovable property under the sales tax or excise laws to determine whether the contract is for movable or immovable property. The test is the contract must result into immovable property or should be for immovable property.

The works contracts of immovable property are normally completed over months or may be years. There is a specific provision for continuous supply of goods and continuous supply of services.

Section 2(33) reads as follows

“Continuous supply of services” means a supply of services which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations and includes supply of such services as the Government may, subject to such conditions, as it may, by notification, specify.

The construction contract would be per se continuous supply because the contract normally continues over a period of time, at least for more than 3 months and there is normally condition to make periodic payment.

The time of supply provision that is section 13(2) refers to the period prescribed under section 31(2) for raising of invoice. Section 31(2) makes it mandatory for the registered person supplying taxable service to issue a tax invoice before or after the service but within a prescribed period. The time prescribed for raising of invoice in terms of Rule 47 is 30 days from the date of supply of service. Therefore, all the contracts of immovable property should ideally fix the time for raising the invoice. For example, in the contract for sale of under-construction flats, one would normally find the stages at which the payment has to be made by the buyer of the flat like completion of first slab, second slab, etc. therefore, no sooner as the work of the first slab is completed and is certified as completed by the architect the developer must send a notice to the persons from whom he has to recover the instalments.

Rule 31(5) reads as follows

“Subject to the provisions of clause (d) of sub-section (3), in case of continuous supply of services,–– (a) where the due date of payment is ascertainable from the contract, the invoice shall be issued on or before the due date of payment; (b) where the due date of payment is not ascertainable from the contract, the invoice shall be issued before or at the time when the supplier of service receives the payment; (c) where the payment is linked to the completion of an event, the invoice shall be issued on or before the date of completion of that event”.

The above provision makes it clear that it would be wise to define the due date of payment in the contract to avoid any litigation.

In case of the composite supply of goods and services, the time of supply is determined in terms of section 13. Normally, the contracts which are not in relation to immovable property are completed within 3 months and therefore such contract would fit in section 13(2). However, there may be contracts of repair of heavy machinery where the goods are sent for repairs and the repairs takes more than 
3 months. In that case, such contract would also be continuous supply of service. However, an area of doubt can be whether such contract can be stated to be provided continuously or on a recurrent basis under a contract. Normally, in case of repair contracts the time period is not fixed. There is no provision for periodic payment obligations. Section 2(33) also refers to the notifications by the Central Government.

7. Rate of tax

Sl. No. Chapter, Section or Heading Description of Service Rate 
(Per cent)
Chapter 99 All Services
Section 5 Construction Services
Heading 9954 (Construc-tion services) (i) Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. (Provisions of paragraph 2 of this notification shall apply for valuation of this service) 9
(ii) Composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017. 9
(iii) Construction services other than (i) and (ii) above.* 9
“*” this is substituted as follows
This notification is further amended on 22-8-2017. In the said notification, in the Table,- (i) against serial number 3, for item (iii) in column (3) and the entries relating thereto in columns (3), (4) and (5), the following shall be substituted, namely:-
*“(iii) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied to the Government, a local authority or a Governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, – (a) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958); (b) canal, dam or other irrigation works; (c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal. 6
(iv) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and 6 – 2 Services Tax Act, 2017, supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, – (a) a road, bridge, tunnel, or terminal for road transportation for use by general public; (b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awas Yojana; (c) a civil structure or any other original works pertaining to the “In-situ rehabilitation of existing slum dwellers using land as a resource through private participation” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers; (d) a civil structure or any other original works pertaining to the “Beneficiary led individual house construction/enhancement” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana; (e) a pollution control or effluent treatment plant, except located as a part of a factory; or (f) a structure meant for funeral, burial or cremation of deceased 6
(v) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, or installation of original works pertaining to,- (a) railways, excluding monorail and metro; (b) a single residential unit otherwise than as a part of a residential complex; (c) low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India; (d) low cost houses up to a carpet area of 60 square metres per house in a housing project approved 6 – 3 by the competent authority under – (1) the “Affordable Housing in Partnership” component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana; (2) any housing scheme of a State Government; (e) post-harvest storage infrastructure for agricultural produce including a cold storage for such purposes; or (f) mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages 6
(vi) Construction services other than (i), (ii), (iii), (iv) and (v) above. 9

Thus in less than one month of introduction of GST, there is partial roll back qua certain types of contract, of course they are all Government contracts.

There are two entries in Notification 12/2017 dt. 28th June, 2017, which exempts some of the services for immovable property. They are as follows.

Sl. No. Chapter, Section or Heading Description of Service Rate 
(Per Cent)
10 Heading 9954 Services provided by way of pure labour contracts of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works pertaining to the beneficiary-led individual house construction or enhancement under the Housing for All (Urban) Mission or Pradhan Mantri As was Yojna. Nil Nil
11 Heading 9954 Services by way of pure labour contracts of construction, erection, commissioning, or installation of original works pertaining to a single residential unit otherwise that as a part of a residential complex. Nil Nil

Notification 11/17 – Central Tax (Rate) dated 28th June, 2017 notifies different types of services. Some of the services in relation to movable properties are described in this Notification. Here also in the Notification No. 20/17 there is some amendment as far as the printing services are concerned. If the paper for printing is supplied by the employer then such printing of newspapers or books, journals or periodicals would be subject to 5% GST. But if the paper is not supplied by the publisher but only the content is supplied by the publisher, in that case the rate of tax will be 12%.

Under the Heading 9989 other manufacturing services; publishing, printing and reproduction of services, material recovery services, other than one subject to 12% to be liable to 18% GST.

Therefore, in general except where specifically provided the GST for providing movable service – works contract in relation to movable property would be liable to 18%.

8. Valuation of works contract

The consideration under section 2(31) refers to the monetary value/transaction value. The purpose of valuation of construction contract one must refer to Note 2 given under Notification 11/17 – Central Tax (Rate) dated 28th June, 2017 providing deduction of land cost recovery as follows:

“2. In case of supply of service specified in column (3) of the entry at item (i) against Serial No. 3 of the Table above, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one-third of the total amount charged for such supply. Explanation – For the purposes of paragraph 2, “total amount” means the sum total of, – (a) consideration charged for aforesaid service; and (b) amount charged for transfer of land or undivided share of land, as the case may be.”

Thus clear 33.33% deduction is allowed towards cost of land. This is deeming price. No scope for proving actual land cost. This probably explains the enhancement of rate from the promised rate of 12% to 18%. This note needs corresponding amendment after amendment to this entry on 22-8-2017.

As the construction contract would be composite contract of services, the rate as prescribed and amended hereinabove would apply. We would come little later on about the transitional position. As regards the works contract in relation to these notified services in Notification 11/17, rate as prescribed would apply subject to conditions, if any, specified therein. As the contracts in relation to movable properties would be a composite supply in terms of section 8(A), a composite supply comprising two or more supplies, one of which is principal supply, shall be treated as supply of such principal supply. For example, in case of repair of a car, the same should fall under maintenance repair and installation service (except construction services at Sr. No. 25 under Heading 9987).

9. Concept of naturally bundled

It would be interesting to discuss as to what is the concept of “Naturally bundled”. Only one recent judgment by Advance Ruling Authority New Delhi would be sufficient to understand what is meant by ‘naturally bundled’. One of the classic examples to understand ‘composite supply’ is given in the definition itself (reproduced hereinabove).

In the case of Godaddy India Website Pvt Ltd. the Authority for Advance Ruling (AAR) (Central Excise, Customs and Service Act) gave an elaborate ruling on 4th March, 2016 (Ruling No. AAR/ST/08/2016). The applicant wish to enter into service agreement with (Godaddy US) located in Arizona, USA. It proposed to provide a gamut of services to its client Godaddy USA like marketing and promotion services (direct marketing, branding activities, offline marketing), supervision of quality of third party customer care services, payment processing services, etc.

The question before the AAR was whether various support services proposed to be provided by the applicant to Godaddy USA are a bundle of services being ‘naturally bundled’ in the ordinary course of business and accordingly in a single service, being business support service. The AAR referred to section 66F of the Finance Act, 1994, which refers to principle of interpretation of specified description of services or bundled services.

“SECTION 66F. Principles of interpretation of specified descriptions of services or bundled services. — (1) Unless otherwise specified, reference to a service (herein referred to as main service) shall not include reference to a service which is used for providing main service.

‘Illustration The services by the Reserve Bank of India, being the main service within the meaning of 12 clause (b) of section 66D, does not include any agency service provided or agreed to be provided by any bank to the Reserve Bank of India. Such agency service, being input service, used by the Reserve Bank of India for providing the main service, for which the consideration by way of fee or commission or any other amount is received by the agent bank, does not get excluded from the levy of service tax by virtue of inclusion of the main service in clause (b) of the negative list in section 66D and hence, such service is leviable to service tax.

(2) Where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general description.

(3) Subject to the provisions of sub-section (2), the taxability of a bundled service shall be determined in the following manner, namely :— (a) if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which gives such bundle its essential character; (b) if various elements of such service are not naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which results in highest liability of service tax. Explanation.— For the purposes of sub-section (3), the expression “bundled service” means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services.”

The AAR held that various support services proposed to be provided by the applicant to Godaddy USA are a bundle of services being naturally bundled in the ordinary course of business and accordingly a single service. This was based on the submission of the applicant that the main service by the appellant was business support service and processing payments and oversight of services of third party call centres are ancillary and incidental to the provision of main services. It is thus always a question of documentation which can assist the taxable person to find as to what is the main activity in the naturally bundled services or which is the principal supply. The tax liability of composite contract would be guided by the tax liability of the principal supply.

To find what is the principal supply, one must go to the intention behind the entering of the agreement which the Apex Court in the BSNL case (145 STC 91 (SC) (LB)) referred to as ‘dominant nature test’. It is true that in the context of works contract prior to 1-7-2017, dominant nature test was not be relevant, for GST, especially in view of the phrase ’Naturally Bundled and Principal Supply”, one will have to find the dominant intention behind a composite contract.

I am not discussing here the works contract in relation to textile as it would require a separate paper as the GST on textiles. Similarly I have not discussed the provisions of the job work.

10. The place of supply for works contract

The place of supply qua the immovable property is very clear. In terms of section 12(3) of IGST Act, 2017 the place of supply of services, directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out co-ordination of construction services and any services ancillary to the services referred to hereinabove shall
be the location at which immovable property is located or intended to be located.
The phrase ‘intended to be located’ is important for pre-construction services.

In terms of section 7(3) of IGST Act, 2017, supply of services, where the location of the supplier and the place of supply are in

(a) Two different States;

(b) Two different Union Territories; or

(c) A State and a Union Territory,

shall be treated as supply of services in the course of inter-State trade or commerce.

For example, if a contractor in Maharashtra is given a contract to construct a commercial building in Andhra Pradesh (AP), then all the supplies by the supplier who is in Maharashtra (unless he is registered in AP) would be subject to IGST.

The question therefore can be whether it is advisable for a contractor to register its site as a registered place in a State where he is not otherwise registered.

It is possible to argue that such person can register as casual taxable person. But this provision of casual taxable person is meant for specific situation. A construction contract which normally takes more than 3 months or almost a year to complete cannot be registered as a casual taxable person. Ideally therefore if the contract in the other State is likely to continue over a period of time, it would be wiser to take registration under the main section 22 rather than a casual taxable person.

Term casual taxable person is defined in section 2(20) which read as follows:

“Casual taxable person means a person who occasionally undertakes transactions involving supply of goods or services or both in the course of furtherance of business whether as principal, agent or in any other capacity in a State or a Union Territory where he has no fixed place of business.

Section 27 refers to specific provision related to casual taxable person or a non-resident taxable person.

A non-resident taxable person is defined in section 2(77) to mean any person who occasionally undertake transactions involving supply of goods or services or both, whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India.”

There are specific provisions for a casual taxable person; he has to deposit the estimated liability in advance. The registration shall be valid for 90 days and such person can make taxable supplies only after issuance of certificate of registration. In case of an extension of time beyond 90 days he shall be called upon to deposit additional amount of tax equivalent to estimated tax liability during the extension period.

Therefore in my opinion taking registration as casual taxable person would not be advisable. While taking the decision as to whether to take a separate registration for the construction site, one must consider the cost-benefit ratio, specifically the administrative cost as also the availability of other benefits like Input Tax Credit.

At times maintaining a separate office especially with the present GST regime requiring huge procedural formalities, would be a big economic decision. One must think twice before establishing a separate office, taking registration in a separate State. As you are aware, in terms of section 25(4) of CGST Act, 2017, a person who has obtained or is required to obtain more than one registration whether in one State or Union Territory or more than one State or Union Territory shall, in respect of each such registration, be treated as distinct person for the purpose of this Act. Therefore if a small works contract is to be done in another State, like fixing of grills windows etc., which would not take more than a month’s time to complete the works contract, it would be ideal to collect IGST and pay.

11. Input Tax Credit

The works contractor shall be entitled to take input tax credit under section 16 on all input and input services used in supply of services – works contract – construction contract. The only prohibition given is by way of block credits under sections 17(5)(c) and (d) which reads as follows:

“(c) the works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service.

(d) Goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services or both are used in the course of furtherance of business.“

The explanation under these clauses states that for the purpose of clauses (c) and (d) the expression ‘construction’ includes reconstruction, renovation, addition or alteration or repairs to the extent of capitalisation to the said immovable property. The definition of plant and machinery is already given by me hereinabove. Therefore if the owners of the land wish to construct a factory building then he is supplied works contract services for construction of immovable property. Then he would not be allowed the input tax credit qua the tax charged by the contractor on such supplies.

Whether the factory building is plant and machinery or not is another debatable issue. The State authorities have always treated the construction of factory building as other than plant and machinery although in a given case it may be possible to argue that it is a part of plant and machinery because it is a place which houses the plant and machinery. Under GST, 
the factory building would be immovable property.

One further issue can be Factory shade whether it is immovable property? The issue becomes more complex when such shade is not made of bricks and sand but under newer technology where it can be erected within a day’s time by using materials or fabrications which are brought in CKD condition. Well such would be the issues under GST on account of change in 
technology. The settled law is law must move with times.

Similarly if a taxable person purchases steel, cement, sand etc. and is charged the GST on invoices and if such goods are used for construction of the factory guest house, then he will not be allowed the input tax credit in terms of section 17(5)(d).

12. Transition provision for works contract

A) Registration

This need not be explained now. All the existing registered dealer under State VAT laws will have “seam less transition” (!) to the GST regime. The technological problems in this seam less process are manmade, one must admit.

B) Provisions related to Input Tax Credit

140. (1) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law in such manner as may be prescribed: Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:—

(i) where the said amount of credit is not admissible as input tax credit under this Act; or

(ii) where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date; or

(iii) where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.

140(2): A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, credit of the unavailed CENVAT credit in respect of capital goods, not carried forward in a return, furnished under the existing law by him, for the period ending with the day immediately preceding the appointed day in such manner as may be prescribed:

Provided that the registered person shall not be allowed to take credit unless the said credit was admissible as CENVAT credit under the existing law and is also admissible as input tax credit under this Act.

Explanation.–– For the purposes of this sub-section, the expression “unavailed CENVAT credit” means the amount that remains after subtracting the amount of CENVAT credit already availed in respect of capital goods by the taxable person under the existing law from the aggregate amount of CENVAT credit to which the said person was entitled in respect of the said capital goods under the existing law.

140(6): A registered person, who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under the existing law shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely:––

(i) such inputs or goods are used or intended to be used for making taxable supplies under this Act;

(ii) the said registered person is not paying tax under section 10;

(iii) the said registered person is eligible for input tax credit on such inputs under this Act;

(iv) the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of inputs; and

(v) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day.”

Therefore unlike the VAT regime a construction contractor under the GST regime would be eligible to claim full ITC for the taxes paid by him prior to 1-7-2017 for the goods in stock, semi-finished goods. The goods for the construction contract can be finished only when the final property is delivered or OC is obtained. Therefore till such time the entire material used can be claimed as unfinished goods in stock and the input tax credit for the tax paid on purchases made 12 months prior to 1-7-2017. This will be further affirmed by the fact that for the services to be provided after 1-7-2017 the contractor would be liable to pay GST to the extent the amount received after 1-7-2017.

An important aspect which needs to be considered is, if the contract/work order is completed prior to 1-7-2017 then they shall not be considered works contract for the purpose of GST. The same would apply where the occupation certificate is received for the construction contract prior to 1-7-2017. If that be the case, no tax under GST would be payable as such contracts are not works contracts for the purpose of GST.

C) Ongoing Works Contracts

This is one of the biggest challenges and a dispute may arise under the transitional provision. The major issue was sorted out by the State of Maharashtra for at least the Government contracts. You would appreciate that the Government contracts although may continue over a period of time, the taxation aspect would not be allowed to alter by the employer i.e. the Government, be it Central Government or State Government. On 19th August, 2017 the State of Maharashtra has issued an internal circular as regards how to deal with the Government contract and applicability of the GST thereon. The directions given therein clarify all issues of ongoing works contracts.

(i) The contracts awarded after 1st July, 2017 would be taxed as per GST provisions. (Kindly refer to the latest amendment of 22nd August given in the beginning of this article)

(ii) The tender of works contract accepted prior to 22nd August, 2017 but work order not given – presuming that such tenders would not have considered the GST applicability, all the tenders would be cancelled and a short tender notice would be given for fresh tenders. The contracts requiring immediate order like repairing of road etc., would be given priority 
and the GST provisions would be taken care of.

(iii) The tender accepted prior to 1st July, 2017 but work order given after 1st July, 2017. The work order would not be cancelled but the necessary amendment in the price of the works contract, as an impact of GST, should be considered.

(iv) Tender issued between 1st July, 2017 and 21st August 2017 – if work order is not given the procedure as per (ii) should be followed.

(v) Work order issued prior to 1st July, 2017 and the work commenced prior to 1st July, 2017 and to be continued after 1st July, 2017 (on-going contract) –

(a) For the work completed prior to 1st July, 2017 and bill received prior to 1st July, 2017, the tax applicable as per VAT should be paid.

(b) The work completed prior to 1st July 2017, and the bill issued after 1st July, 2017, tax to be paid as per VAT provisions.

(c) Part of the work done after 1st July, 2017, tax to be paid as per GST. The Law and Judiciary Dept. should look into the amendment required in future bills.

D) Ongoing construction contracts

The State of Maharashtra has made an amendment to the composition scheme adopted by the builders/developers. In terms of the original composition scheme under the MVAT Act announced in 2010 the builders/developers selling under-construction flats along with the interest in the land were allowed to pay 1% composition towards VAT on the total consideration for sale of flats. The time for collection of this 1% composition was fixed as at the time of registration of agreements to sell flat. Normally such registrations were made on receiving about 20% of the consideration and for majority of the under-construction buildings the MVAT was paid at 1%. By an amendment made on 30th May, 2017 the provision is made to the effect that, irrespective of the Notification of 2010 and irrespective of the payment made by the developers at 1% on the total consideration, any amount received for such registered document after 1st June, 2017 composition at 1% would again be payable. For any payment towards consideration received by the developer after 1st July, 2017, the applicable GST should be paid. The only solace given was, that the developers would be allowed to carry forward the credit of tax paid at 1% at the time of registration. The developers in Maharashtra therefore will have to claim the credit for such 1% paid prior to 1st July, 2017 and for the said contracts part of the consideration would be received after 1st July, 2017. Such credits will have to be taken in the last return to be filed under the MVAT Act i.e. for the month of June, 2017.

E) Anti-profiteering provision

Section 171 of the CGST Act reads as follows:

“171. (1) Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.

(2) The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.

(3) The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.”

The result of this provision should be positive on ongoing construction contracts. The Union Finance Minister has in the initial stage warned the construction contractors that the Input Tax Credit which they would be getting on account of the GST provisions and the transition provisions must be passed on to the customer. As stated earlier, if the partly constructed building and the material used therein which is purchased in last one year is to be treated as semi-finished goods in stock, huge input tax credit will be available to the construction contractors. It is also true that by citing uncertainty or ambiguity in the law the contractors may not be willing to pass on the benefits to the customers. However, the awareness in the customers can now be seen on account of wide media publicity. I hope the poor customer who has agreed to pay the lifetime earnings to buy a shelter for himself and family would be benefitted.

With this I end my Article. I have tried to pen down my thoughts on the subject. I am sure more discussion and debate will help us in arriving at proper conclusions.

1. Introduction

Reopening of assessments under section 147 of the Income-tax Act, 1961 is one of the important tools to safeguard the leakage of revenue. Since past few years, there have been plethora of re­opening of cases relating to bogus purchases. Recent trends in the Income tax department is the reopening of the assessment by the AO on the basis of the information received from the Sales Tax Department/other AO. During the re­assessment/assessment proceedings almost all the notices issued 
u/ss. 133(6)/131 of the Act sent by the AO to the supplier returned unserved. Even the assessee is unable to produce the suppliers for verification of purchases.

As tax professionals, it is our duty to make proper representation before the Assessing Officer as well as Appellate Authorities within the framework of law. Proper representation before the tax authorities becomes very important, because once the addition is confirmed by the Tribunal, the Assessing Officer will levy the concealment penalty, and once the penalty is confirmed the department may initiate prosecution proceedings. Therefore, it is imperative to make a proper representation before the Assessing Officer and in case of reopening proceedings, where proceedings are not dropped and the AO proceeds to frame a reassessment order making additions, one is required to draft proper grounds of appeal and statement of facts before Commissioner (Appeals). Many-a-times, it is observed that assessees/their representatives do not file or file inadequate and incomplete statement of facts and in the grounds of appeal even the grounds challenging the reopening proceedings is not taken.

2. Requirement of recording of proper reasons

It is the author’s experience that in almost fifty per cent of the cases, if not more, entire re-opening proceeding is held by the appellant authority – if not CIT(A) then the ITAT – to be bad in law. As a consequence, the additions made by the AO in the reassessment order fall to the ground.

As such, it becomes important that the grounds challenging the reopening proceedings are taken before the appellate authorities.

There are various judicial precedents which can be gainfully employed in an event a challenge is thrown by the assessee to the reopening of assessment. They are discussed in brief as 
under –

1. There should be direct nexus between the material coming to the notice of the AO and the formation of belief that there is escapement of income.

* Lakhmani Mewal Das 103 ITR 437 (SC).

2. If there is no material or there is no rational and intelligent connection between the reasons and belief, so that on such reasons, no one properly instructed on the facts and law could reasonably entertain the belief, the conclusion would be that the AO had no reasons to believe.

* Ganga Saran & Sons (P) Ltd. v. ITO 130 ITR 1 (SC)

3. (a) The words used in section 147 are “has reason to believe” and these words are stronger than the words “is satisfied”.

(b) The belief entertained by the ITO must not be arbitrary or irrational. It must be based on reasons which are relevant and material.

* Ganga Saran & Sons (P) Ltd. v. ITO 130 ITR 1 (SC)

* ITO v. Nawab Mir Barkat Ali Khan Bahadur 97 ITR 239 (SC)

4. The words of the statute are “reason to believe” and not “reason to suspect”.

* Bir Arjna Enterprises (P) Ltd. v. ITO 204 ITR 258 (J&K).

5. The belief must be held in good faith, it cannot be merely a pretence.

* Madhya Pradesh Industries (P) Ltd. v. ITO 77 ITR 268 (SC)

* Y. Rajan v. ITO 77 ITR 839 (AP)

* Abdul Majid v. ITO 178 ITR 616 (MP)

6. The AO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour.

‘k Sheo Nath Singh v. CIT 82 ITR 147 (SC)

3. Direct decisions holding reopening to be bad merely on the basis of “information” as to bogus purchases/transactions

a) In a case before the Hon’ble Delhi High Court in the case of CIT vs. Shri Atul Jain 299 ITR 383, the facts were that the assessee had purchased shares of 
M/s. Globe Commercials Ltd. through M/s. Maheshwari Sons, stock and share broker. Subsequently, these shares were sold at a much higher value through another broker Satish Kumar Goel, proprietor of R. K. Aggarwal & Co. The assessee had disclosed long-term capital gains arising from the transaction. According to the AO some intra-departmental information was received by the Assessing Officer to the effect that the assessee had taken a bogus entry of long term capital gain after paying the equivalent amount in cash together with premium for the accommodation entry to Satish Kumar Goel. This information was received from the Deputy Director of Income Tax (Investigation), Gurgaon. Based on the information received, the Assessing Officer took action to issue a notice under Section 148 of the Income-tax Act, 1961 to the assessee. The AO proceeded to record ‘reasons to believe’ as under

“As per information received from DDIT (Inv.) Gurgaon, the assessee had taken bogus entry of capital gains ₹ 1,08,845/- on 22-6-1996 (A.Y. 1997-98) by paying cash along with some premium and taking cheque of same amount.”

According to the Hon’ble High Court, the reasons recorded were vague and not proper. The Assessing Officer had not even recorded his satisfaction about the correctness or otherwise of the information. The Assessing Officer did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. Therefore, the entire reassessment order was quashed.

b) In another case before the same High Court in the case of CIT v. SFIL Stock Broking Ltd. reported in 325 ITR 285 the facts were similar. In this case before the High Court the facts were that the assessee in his original return of income filed on 30th Nov., 1998 had shown a long-term capital gain of ₹ 40,953/-. The said return was processed under section 143(1) on 22nd March, 2002. Subsequently, by a letter dt. 17th March, 2003, the Dy. Director of IT (Inv.) informed the AO of the assessee that during the course of investigation Shri Satish Goel, proprietor of M/s. R. K. Aggarwal & Co. has stated on oath that the transactions through bank account No. 003097, of Corporation Bank were only paper transactions in which the party was intending to take bills paid in cash and issue cheques/drafts showing the said amounts as sale of shares. It was further informed that he was neither a share broker nor a member of any stock exchange and that he was doing the work of giving entries. Further information was given that the entry of ₹ 20,70,000/- in Account No. 003097, dt. 28th Feb., 1998 and 1st March, 1998 was nothing but entry taken by paying cash. Thereafter, on the basis of the aforesaid information, a notice under section 148 of the said Act was issued by the AO to the assessee, which was allegedly the beneficiary of the bogus claim of long-term capital gains shown on sale/purchase of shares.

The Hon’ble High Court had once again no hesitation in holding the reassessment order as invalid on the basis of improper reasons recorded i.e., without applying his mind to the information and without independently arriving at a belief.

c) In yet another case which was before the Hon’ble Gujarat High Court in the case of Varshaben Sanatbhai Patel v. ITO (unreported decision), where the reopening was done on the basis of alleged information in regard to alleged bogus purchases made by the assessee, the reasons recorded were as under –

“On verification of details available on records, it is noticed that assessee has made bogus purchases of ₹ 30,65,639/- during the financial year 2008-09 i.e. A.Y. 2009-10. By claiming bogus purchases in the trading and P&L A/c as an expense, the assessee has shown less profit to the extent of the amount of bogus purchases.”

The reopening proceedings were challenged before the High Court by filing a writ petition. The Court again quashed the reopening by giving the following reasoning –

“It is settled legal position as held by a catena of decisions that the substratum for formation of belief that income liable to tax has escaped assessment has to form part of the reasons recorded. In the present case, the substratum for formation of belief, as indicated in the order rejecting the objections as well as the affidavit­ in reply, is the information given by the DGIT (Inv.), Mumbai, which got no relation with the reasons recorded, which are stated to be based upon the material available on record. Under the circumstances, the Assessing Officer, on the basis of the material on record, could not have formed belief that there was any escapement of income chargeable to tax so as to validly assume jurisdiction under section 147 of the Act.”

d) In another case before the Delhi Tribunal in the case of Unique Metal Industries v. ITO, Order dtd. October 28, 2015, reopening once again was solely on the basis of information received from another AO that the assessee has booked bogus bills but without independent application of mind of the AO of the assessee to the information. Such re­openimg was held to be invalid.

4. Following decisions may be gainfully employed in case of normal scrutiny proceedings where AO alleges bogus purchases

a) Sagar Bose v. lncome-tax Officer 56 ITD 561 (Cal.)

“The assessee had furnished all the details and particulars of purchase and sales item­ wise, bill-wise, amount-wise, quantity-wise, date-wise, stock folio-wise and had established the linkage and correlation between the purchases and sales. The assessee had explained that goods were purchased, materials were consumed and thereafter respective sales were effected but the Assessing Officer had rejected this contention only on the ground that as seller was non-existent, there could not have been any purchases. The Assessing Officer had not analysed data and figures of production with reference to the stock register and purchases, production and sales, etc., in order to correlate the purchases and production on one hand and the sales and stock on the other. Whether such correlation and linkage existed between purchase and production on one hand and sales on the other was completely ignored by the Assessing Officer.”

b) Deputy Commissioner of Income-tax v. Adinath Industries 252 ITR 476 (Guj.)

“Where Assessing Officer observed that purchases made by assessee from ‘GI’ were fake and latter was only a billing agent, its S.T. Registration had been cancelled and payments made by bearer cheques to party were withdrawn on same day, assessee, however, submitted all details like bills, gate pass, receipt note, weight note, laboratory report, sample report, truck number, etc., and the Assessing Officer had himself accepted existence of ‘GI’ in another case. Held, since assessee had produced all relevant materials to show purchase of materials and their use in production, Tribunal was justified in deleting addition made”.

c) When purchases are recorded in the books (and evidence of use is there), it cannot be added Shivalik Loha Mills 126 Taxman 101 (Chdg.)(Mag.)

d) Bogus loss in shares.

Where payment by account payee cheque is not disputed and also the existence of the booker is not in dispute the claim of loss cannot be denied even if after the issue of summons, the booker does not appear.

CIT vs. Carbo Industrial Holdings Ltd. 244 ITR 422 (Cal.)

e) Non-production of the share broker by the assessee (if other conditions as above are satisfied) but all the details of purchase and sale of shares are furnished – loss claimed is genuine.

CIT v. Emerald Commercial Ltd. & Ors. 250 ITR 539 (Cal.)

f) Pijush Ghana v. ITO, ITA No. 1646 /K/ 09, ‘A’ Bench order dated 18th May, 2010.

The AO added the undisclosed purchase and further estimated the gross profit relatable to this undisclosed purchase.

Held, since the AO has estimated the gross profit on the undisclosed purchase, there is no justification for separate addition of undisclosed purchase treating it as unexplained expenditure of the assessee u/s. 69C of the Act.

g) Where purchaser could not be verified but were supported by bills, entries were made in books of account and payment was made by cheque, no addition can be made.

CIT v. Nangalia Fabrics (P) Ltd. [Guj.] 40 206

h) Investment in undisclosed purchases cannot be added on estimate basis

– Goodwill Impex, New Delhi v. assessee dated 15th January, 2016

ITA No. 2151/Del/2009 & CO No. 199/Del/2009

– India Seed House v. Assistant Commissioner of Income-Tax 116 Taxman 40 (Delhi)(Mag.) (TM)

[Source : Article printed in souvenir of National Tax Conference held on 2nd & 3rd September, 2017 at Kolkata]

1. Introduction

The provision of Section 133A was inserted by the Finance Act, 1964, with effect from 1st April, 1964. Since then, it has undergone many amendments over the years including those, increasing the powers and scope of the IT authorities and the last such amendment was made by the Finance Act, 2017 whereby the scope of survey was further extended. The survey provisions, is a permanent source for the department to create fear amongst the business community and therefore, always have a deterrent effect.

It is a matter of common experience that the number of surveys is generally increased in the last quarter of the financial year which is understood to be with the object of achieving the budget targets. Quite often the Income Tax Department is alleged to exert pressure to make the surveyed assessee declare income to the desired extent, irrespective of the fact whether surveyed person is having undisclosed income or not. Interestingly, even false evidences are created to support the declaration of the undisclosed income. Because of the frequent enlargement in the scope the powers of the authorities, a surveys have nowaday’s become a mini search yet however, many safeguards as provided in a search are completely lacking in a survey. Whereas in a search, the highest authority has to accord sanction; must record reasons to believe; must adhere to the ground rules, seizure must be in presence of two witnesses and so on, just contrary thereto in a survey, no such safeguards are found. In any case, survey action is an important weapon in the armory of the Income Tax Department.

2. Types of Survey: Survey may be of four types

• Specific Survey u/s. 133A(l) – This is the case of a survey of the business/institutional premises.

• Survey of Expenditure on Marriage functions, Parties etc. u/s. 133A(5) –
This involves collecting information regarding the nature and scale of expenditure incurred by a person on functions, ceremonies and events such as Marriages, Birthday Parties etc.

• Door to Door Survey u/s. 133B – The object of survey is to locate new assessees and thereby unearth black money. Persons who have been avoiding from coming into the tax net are brought into the mainstream, through a shop to shop or house to house survey. However, the charitable institutions are still out of the scope of this provision in absence of any amendments made similar to Sec. 133A.

• TDS & TCS Survey – U/s. 133A(2A) w.e.f. 1-10-2014 by Finance (No. 2) Act, 2014.

3. Who can conduct survey – Authorised/Authorising Officer [Expln. to Sec. 133A(1)]

Authorised/Authorising Officers:

• Principal Director /Commissioner (added by FA (No.2), 2014 w.r.e.f 1-6-2013)

• Director/Commissioner

• Joint Director/Joint Commissioner

• Deputy Director/Deputy Commissioner. (Authorised)

• Assistant Director (Authorised}

• *Assessing Officer (AO) (Authorised)


• Tax Recovery Officer (Authorised)

• Sec.92CA(7) provide additional power of survey u/s. 133A to the TPO also, as defined in Explanation to Sec.92CA. Earlier TPO had the power only u/s. 131, Sec.133(6) but not the power u/s. 133A.

• Inspector of Income Tax (authorized) (For certain specific cases only i.e. for purposes of Sections 133A(1)(i), 133A(3)(i) & 133A(5) – as per Explanation (a) to Sec. 133A)

4. Territorial Jurisdiction of the Income Tax Authorities

The above authorities may enter in the following places:

a. any place within the limits of the area assigned to him, or

b. any place occupied by any person in respect of whom he exercises jurisdiction,

c. any place in respect of which he is authorised for the purposes of the survey.

5. Place to be surveyed

5.1 Business premises

A survey can be carried out at any place where the business is carried on. As per Explanation below Sec. 133A(l), such place also includes a place where books of account or other documents or any cash or stock or other valuable article or thing relating to the business or profession are/is stated to be kept.

5.2 Charitable institutions

Although the existing provisions are perhaps already quite draconian yet the Government still realised that it can do even better. Therefore, by the Finance Act, 2017 w.e.f. 1-4-2017, the tax authorities will have unrestricted rights to enter any place where any “activity for a charitable purpose” is carried out. Furthermore, they can order anyone present at the place, even a volunteer assisting in that charitable activity, to provide them with any information regarding the books of account of the charity, or any other information that they feel like. It doesn’t require much imagination to see how this provision can be used to harass charities, disrupting activities organised by them, scaring off potential volunteers. The amendment should apply on/after 1-4-2017 which is the cutoff date.

5.3 Residential premises

Normally the survey team is not empowered to enter residential premises so also in the cases of TDS Surveys. However, when the books of account, other documents or the stocks or any other valuable items or things are stated to be kept at the residence, the survey team may entre such premises. During the course of the recording of the statement, when shortfall in cash or stock is found the assessee usually explains the availability of the same at the residence, ignoring of the fact that by stating so, the assessee is inviting the survey team.

5.4 Survey at the place of a third party or office of Tax Consultant

Such places on the face of it are not the places where the assessee carries on his business and therefore, the residential or office premises of third parties which include the office of a Chartered Accountant, a pleader or Income-tax Practitioner of whom the assessee may be a client, are not the places where the survey team may enter into.

• Refer CBDT Circular No. 7D dated 3-5-1967. However, the above restrictions do not apply to cases of search & seizure where specifically authorized u/s. 132.

• In U. K. Mahapatra & Co and Others vs. ITO & Others (2009) 308 ITR 133/221 CTR 328(Orissa), the Revenue conducted survey u/s. 133A in the premises of Petitioner, a Chartered Accountant Firm which was the auditor of the assessee, and impounded certain files. It was held that although Explanation to Sec.133A allows survey of any other place where the books of account of assessee are kept but the precondition for conducting survey u/s. 133A, is that the client in course of survey must state that his books of account/documents and records are kept in the office of his CA/lawyer/tax practitioner & not otherwise. The said decision now stands affirmed in ITO vs. U. K. Mahapatra & Co. (2009) 225 CTR 131/186 Taxman 181/27 DTR 155 (SC).

5.5 Locked business premises

There appears no specific provision or guideline enabling a survey team to break open the lock or the doors or the windows etc. to enter the premises or ingress therein. The law contemplates entry by the survey team only when it is open and during the business hours of the assessee. However, in contrast, in a search u/s. 132, the search team is authorised to break open the locks, remove obstacles etc. (Ref. Rule 112 of the IT Rule 1962). Thus, to enter into locked premises by the survey team may tantamount to a tresspassing and the authority concerned may invite a civil action.

6. Timings of Survey

As per Sec.133A(2), a survey team may enter the business premises only during the business hours when the place is open for the conduct of business. However, in any other place (including the place where charitable activities are being carried or), the authorities can enter only after the sunrise but before the sunset. The prescription is with regard to the entry in the premises however, there is no time limit prescribed to go out of the premises. In other words, if the survey team enters the premises within the prescribed time limit but if the volume of work, is so much that it is consuming more time than they may continue even after the sunset and such survey cannot be regarded as illegal, as held in the case of N. K. Mohnot v. DCIT & Ors. (1995) 128 CTR 247/215 ITR 275 (Mad).

7A. Power of the survey team

As per Sec. 133A(3), during the course of survey, IT authorities may do the following:

7.1 Place marks of identification on the books of account or other documents inspected by him,

7.2 Take extracts or copies from such books of account or documents,

7.3 Impound and retain the books of account or documents inspected by him.

• Such powers can be exercised only after recording the reasons to do so. The books of account can be retained for a period of 10 days (excluding the holidays). However, as per FA (No. 2), 2014 this has been increased to 15 days. For retaining the same beyond that period, prior approval of the higher authorities has to be obtained. However, the Law is silent as to allowing any opportunity to the assessee to object the impounding of books of account.

• The IT authority cannot remove any cash, stock or any other valuable things, during the survey. This prohibition contained in Sec.133A(4) is absolute and unqualified as held in CIT v. Mool Chand Salecha (2002) 256 ITR 730/174 CTR 1 (Raj).

• In Mrs. Rumena Rahman vs. Union of India (2004) 265 ITR 16/187 CTR 58 (Gau.) held that the authorities are required to impound and retain books of account only after recording reasons in writing.

• Permission for retention should be granted judiciously, there should be justification as to non-co-operation by the assessee as held in Raj & Raj Investments v. ITO (2007) 293 ITR 57/213 CTR 206 (Kar.).

7.4 Make an inventory of any cash, stock or other valuable article or thing checked or verified by him.

7.5 Record the statement (not on oath} of any person, which may be useful for or relevant to any proceedings under the Act.

7.6 However, in the case of TDS survey u/s. 133(2A), an IT Authority shall not be having powers to impound and retain the books of account or other documents nor to make an inventory of cash, stock or other valuable articles/things. Thus, his powers are only limited to place mark of identification on the accounts of documents inspected by him and to record the statement and that too with respect to the TDS & TCS.

7B. Limitations upon the survey team

It is not that blind powers have been conferred upon the IT authorities in the course of survey inasmuch as:

• They cannot impound/retain/remove any stock, cash, etc. but can only retain the books of account.

• They cannot break open the lock/safe/doors.

• They cannot seal the premises or pass prohibitory orders.

• They cannot damage the walls, tear the sofas or bed or to try anything which they suspect being hidden.

• They cannot personally search a person.

• They cannot snatch the mobile, etc.

• They cannot stop or ask to stop CCTV or any recording device during the survey.

• They cannot stop the persons coming in and going out.

• They cannot stop carrying on/off business & profession or of charitable activities or any other normal activities.

• A business place cannot be sealed during the course of survey. In Shyam Jewellers & Anr. v. Chief Commissioner (Admn) U.P. & Ors. (1992) 196 ITR 243 (All.), the Court held that sealing of business place during survey or even in course of search u/s. 132 is not permitted in view of the fundamental right to practice any profession or carry on any trade or business bestowed under Article 300A of Constitution of India and is also violation of Article 19(1)(g) relating to the fundamental rights of a citizen. This was followed in the case of M.D. Overseas Ltd. v. DGIT (2011) 333 ITR 407 (All.).

• The authorities cannot stop the business or the normal activities of a person. The authorities do not have power to interrupt the ordinary business or peaceful life of a citizen. They should use the power given to them strictly within the four corners of large power. Since the powers vested are large, even a millimetre departure there from is not allowed. Refer Dr. Vijay Pahwa v. DCIT (1995) 129 CTR 64/250 ITR 354 (Cal.) and L. R. Gupta & Ors. v. Union of India (1992) 194 ITR 32/101 CTR 179 (Del.).

8.1 Powers of Inspector

An Income Tax Inspector (“Inspector” for short) has the following limited powers:

a. 133A(l)(i) to inspect the books of account or other documents,

b. 133A(3)(i) to place marks of identification on the books or account or other documents inspected by him

c. 133A(5) to enquire regarding the expen-diture incurred in any function, ceremony or event and to record a statement.

8.2 Powers cannot be given to Inspector

The Inspector can act only up to the extent of authority given to him by the authorised authority u/s. 133A and such empowered authority can authorise inspector only for limited purpose. The Inspector cannotbe authorised to exercise following powers and purpose:

i . To make an inventory of any cash, stock or other valuable article or thing checked or verified by him and therefore, also he cannot require the survey person to afford him the necessary facility for this purpose.

ii . To record the statement of any person which may be useful, for, or relevant to any proceeding under this Act. Refer ITO v. Jewells Emporium (1994) 48 ITD 164/12 CCH 287 (Ind.).

9. Duties of the person present

As per Sec. 133A(6), every person present at the place and time of survey must extend the following facilities:

a. To afford the facility to inspect such books of account or other documents as may be required and which may be available at such place.

b. To afford the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein.

c. To furnish such information as may be required as to any matter which may be useful for, or relevant to, any proceeding under the Act.

10. Consequences of non co-operation

The following consequences may flow because of non co-operation by the person surveyed:

• As per Sec. 133A(6) provisions of Sec.131(1) may be made applicable for enforcing compliance with the requirement made.

Under Sec.131(1), the concerned IT authority may also assume powers which are vested in a court under the Civil Procedure Code, 1908 while trying a suit.

• If the assessee does not co-operate in respect of facilitating inspection or verification, or doesn’t supply or share to the survey team and it is felt that the assessee is deliberately avoiding such inspection, evading furnishing of information and in answering the material questions, the survey team may get their action converted into a search u/s. 132 of the Act.

• Useful Case Laws:

– Vinod Goyal v. UOI (2001) 252 ITR 29 (P&H)

– Dr. Nalini Mahajan & Ors. v. DIT (Inv.) & Ors. (2002) 257 ITR 123 (Del.)

– Jignesh Farshubhai Kakkad v. DIT (Inv.) & Ors. (2003) 264 ITR 87 (Guj.)

Hence, it is advisable for the assessee to co­ operate with the survey team in respect of all the matters connected with the survey, namely verification, inspection, furnishing of information and answering the statements recorded by the survey team.

11. Surveys of Functions: Sec. 133A(5)

With a view to detect unaccounted money being spent on lavish and in ostentatious wedding ceremonies and other social functions, the IT authorities, having regard to the nature and scale of expenditure incurred by an assessee, in connection with any function, ceremony or event, have the powers to call for the details of such expenses incurred by the assessee. However, such information can be obtained only after completion of such function, ceremony or event. For this purpose statement of the assessee or any other person who, may possess related information, can also be recorded. For example, in the case of marriage, enquiries can be made from a hotel, a restaurant, caterer, decorators, printers of invitation cards, jewellers, etc., who may give the information with regard to the expenditure incurred at the time of marriage. Such statement can be used in any proceedings under this Act . The terms Function, Ceremony or Event is not defined in the Act but in common parlance it Includes Marriage, Birthday, Anniversary, Mundan Sanskar, Bhandara. All the powers given in this section are available to Inspector also. [Explanation (a) to s. 133A]

12. Power during TDS survey

Even prior to the introduction of new provisions, the Hon’ble Calcutta High Court in the case of Reckitt and Colman of India Ltd v. ACIT (TDS) (2001) 251 ITR 306/170 CTR 611 (Cal.) affirmed, by Division Bench in 252 ITR 550, held that the officer in charge of Tax Deduction at Source could survey and compel the production of books and document by exercise of survey power.

But now the FA (No. 2) Act, 2014 certain important amendment have been made relating to survey and consequently, a new sub-section (2A) has been inserted in Sec.133A w.e.f. 1-10-2014 so as to provides that an income-tax authority acting under this sub-section may for the purpose of verifying that tax has been deducted or collected at source and for this purpose, such authorities shall be having the power to enter the premises as also to require the deductor/collector to offer him necessary facilities for inspection of the accounts/other documents and to furnish such information which he may require relating to TDS/TCS matter as are the powers conferred in normal survey.

However, while acting under sub-section (2A) of Sec.133A he shall not impound and retain in his custody any books of account or documents inspected by him or make any inventory of any cash, stock or other valuables.

13. Precautions (As also rights)

13.1 Precautions to be taken before the conduct of survey

The assessee

• Should avoid keeping large cash and stock balances. Needless to say that one major after effect of the demoralisation was availability of the large cash shown by the assessees on 8-11-2016. As we are aware the department issued notices u/s. 133(6) in large quantity and even surveys were carried out. Such cases, if selected for scrutiny, may have to face the additions u/ss. 68, 69B etc., and if so done, the assessee may face serious consequences in terms of heavy amount of tax, surcharge, cess etc. u/s. 115BBE as also a penalty u/s. 271AAC introduced by Act No. 8 of 2016 (w.e.f. 1-4-2017).

• Should avoid keeping books of account at any place other than the Registered Office and more particularly should not keep the accounts and other related papers, cash, stocks etc., relating the business, at the residence.

• Should avoid keeping cash, stock, books of account of different firms at one place. But if it is unavoidable, the place of keeping belongings of one firm should be clearly identifiable or there should be a visible demarcation of the place or the belongings of different firms.

• Should normally keep the books of account updated and in any case, at least the primary books.

• Should keep stock registers maintained and updated.

• Should keep track of unbilled goods, cash receipts, goods received without bills and of cash expenditure.

• Should avoid back-dating and correction/ editing in the books of account.

• The computer hard disk should not contain any irrelevant data.

• Must keep all CCTV camera fully operational.

13.2 Precautions during Survey

The assessee

• Should not be unduly influenced by the pressure tactics exerted by the authorities and should try to remain cool.

• Should satisfy itself about the identity of the authorities and in case of any doubt must contact the superiors and may also ask for the copy of approval of the Joint Director or Joint Commissioner for verification.

• Should be polite and must co-operate, should give suitable answers instead of adopting evasive tactics which may irritate the authorities. A continued non-co-operation may make the authorities convert a survey in a search.

While explaining the discrepancies in cash and stock or to avoid presentation of books of account must not state the same to be kept at residence in which case, he is inviting the authorities to survey the residence also.

Sometimes it is beneficial that the survey team to get a document e.g. a registered/unregistered bill and similar document to impound, if it is not being done, which, may help the assessee explaining many things later on e.g. the creation of the HUF, the source of the availability of the cash, gold ornaments etc. and so on.

13.3 Precautions during recording of statements

• It is advisable that at the time of recording of statement it must be specifically requested to the authorities to provide opportunity to look into the record and/or to complete the same if found incomplete before making any categorical admission. In any case, if assessee is not able to answer the discrepancy, the assessee must state that such difference shall be reconciled at a later point of time after looking into the record. But the very fact of possibility of such circumstances must be stated and got recorded in the statement.

• If the person is unable to immediately reconcile/explain the difference/ discrepancy in cash, stock etc., before making any categorical admission may state that the same shall be explained later after looking into the records etc.

• Before answering, the person must properly understand the question to be answered. Further while answering, a reference as to time and/or the person should also be given even if not asked.

• If he is medically unfit or has otherwise developed tension due to which he is unable to properly answer, he must request the authorities to record this fact in the statement itself.

• The statement should be signed only after properly reading and/or understanding the same.

• In ITO v. Vardhman Industries (2005) 24 CCH 185/(2006) 99 TTJ 509 (Jd), held that the statements recorded by the Inspector and the ITO, without reading over and explaining them to the assessee before obtaining his signature, were invalid.

• If income is being surrendered, the same should be with respect to the current year to the extent possible unless there is a direct & cogent evidence available indicating the fact of the income being related to the preceding year.

• To add Andaman Timber Industries v. CCE (2015) 127 DTR 0241/281 CTR 241 (SC)held that: not allowing assessee to cross-examine witnesses by Adjudicating Authority though statements of those witnesses were made as basis of impugned order, amounted in serious flaw which make impugned order nullity as it amounted to violation of principles of natural justice

13.4 Steps to be taken after Survey

• Copies of the statements of all the persons, whether recorded at the time of Survey or later on u/s. 131, of inventory and of hard disc should be collected from the department.

• The provisions of Right to Information Act, 2005 can be effectively used.

• To complete the books of account and other records taking care of all the discrepancies and shortcomings noticed and/or remaining unnoticed during survey. Also it is advisable to get the accounts audited.

• Must file retraction at the earliest available opportunity with a copy to the higher authorities. Also refer Para 17.4.


14. Presence of counsel during survey

Sec. 288(1) does not entitle an authorised representative to attend the survey proceedings and does not help in seeking personal presence in survey proceedings. The said section provides that any assessee, who is entitled or required to attend before any Income-tax authority or the Appellate Tribunal in connection with any proceeding under the Act, except when required to attend personally for examination on oath or affirmation u/s. 131, may attend through an authorised representative, subject to the other provisions of Sec. 288. It has been seen that presence of the tax consultant may not be of much help to the assessee inasmuch as he is not allowed to interfere in the proceeding in any manner.

• The Article 22(1) of the Constitution of India provides that person shall not be denied the right to consult, and to be defended by, a legal practitioner of his choice. The counsel can be present during survey proceedings as held in Nandini Satpathi v. P. L. Dari AIR (1978) SC 1025.

• A person has a right of a counsel to appear in an enquiry or investigation as held in K.T. Advani v. State (1986) 60 Comp Cas. 603 (Del).

• In Central Excise & Customs matters, the Court has held that it is advisable to permit presence of lawyers during interrogation, though they cannot be allowed active participation. Refer Abdul Razak Haji Mohd. v. UOI (1986) 26 Taxman 234 (Bom.), Anil G. Merchant v. Director of Revenue Intelligence (1987) 12 ECR 183 (Mad.).

14.1 Slips or loose papers found during survey

The authorities often find slips, loose-papers etc. having some jottings/notings thereon and the A.O. tries his best to draw inferences there from in his attempt to compute the unaccounted income. The issues arising are (i) whether such loose-papers belong to the assessee, (ii) whether such chits & loose papers can be termed as books of account or documents, (iii) whether the contents thereof are binding against the assessee etc., (iv) whether the figures & jottings mentioned in such loose papers without there being any narration or sensible details, can represent income of the surveyed person. Sec.132(4A) raises a rebuttable presumption as regards ownership/truthfulness of the contents of seized accounts and documents, which rule of evidence has been extended to survey also and can be used in any proceedings under this Act vide Sec. 292c.

14.2 Presumption as to ownership Sec. 292C

Sec. 292C provides a rebuttable presumption regarding the assets, documents and books found in possession or control of any person in the course of a search or survey [Inserted by Finance Act, 2008, w.r.e.f. 1-6-2002] that:

• Such books of account, other documents money, bullion, jewellery, other valuable article or thing belong or belong to such person.

• The contents of such books of account and other documents are true.

• The signature and every other part of such books of account and other documents which purports to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.

• Surendra M. Khandhar v. ACIT & Ors. (2009) 224 CTR 409/(2010) 321 ITR 0254 (Bom.) held that assessee having failed to rebut the presumption u/s. 292C, addition u/s. 69 on the basis of documents seized from the possession of the assessee was rightly made by AO & sustained by the Tribunal.

• Ashwani Kumar v. ITO (1991) 42 TTJ 0644/39 ITD 183 (Del) held that Income from undisclosed sources. Addition under s. 69 – Presumption under s. 132(4A) – Notings on slip found at business premises. There is nothing to show that slip was in possession or control of assessee – Presumption under s. 132(4A) is thus not attracted – Further, the slip does not indicate whether the figures noted thereon referred to quantities of money or of goods and which side represents receipts and which outgoings – Presumption that figures on the right side represents income is not permissible for lack of supporting evidence – Additions cannot be sustained.

• Refer CIT v. S. M. Aggarwal (2007) 211 CTR 180/293 ITR 43 (Del.) held that both CIT(A) and Tribunal having deleted addition in block assessment by concurrent findings that document relied on by Revenue was dumb document, such findings were essentially of fact not giving rise to any substantial question of law.

• Deaf & Dumb Documents

– Jayanti Lal Patel v. ACIT & Ors. (1997) 233 ITR 588 (Raj.)

– CIT v. Girish Chaudhary (2008) 296 ITR 619 (Del.)

• Loose slips/sheets/papers are not books of account as held in CBI v. V.C. Shukla (1998) 3 sec. 410has held that “File containing loose sheets of papers are not ‘book’ and hence entries therein are not admissible under s. 34 of the Evidence Act, 1872.”

• In the context of Sec. 271(1)(c) Explanation 5 sub-clause (1), in the case of Sheraton Apparels v. ACIT (2002) 256 ITR 20 (Bom.)

• S.P. Goyal v. DCIT 77 TTJ 1 (Mum.) (TM)

15.1.1 No evidentiary value of statements recorded during the survey

It is commonly found that income tax authorities record confessional statements and/or obtain admission from the person surveyed. Section 133A permits the income tax authority only to record a statement of any person which may be useful but does not authorise for taking any sworn in statement. Paul Mathew & Sons vs. CIT (2003) 181 CTR 207/263 ITR 101 (Ker.), has held:

‘ contradistinction to the power u/s. 133A, section 132(4)…. enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A…. it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law…”

Refer ACIT vs. Satya Narayan Agarwalla (2002) 91 TTJ (Cal.).

15.1.2 No addition permissible on the basis of sole statement

There are many cases including those in the recent past on the aspect that merely and solely based on the confessional statement, admitting some income, without there being any corroborative evidence or cogent material, no addition is permissible in law.

• The Hon’ble Madras High Court in the case of CIT vs. Kader Khan (2012) 300 ITR 157 (Mad.) has held that where assessee has admitted suppressed income but there was no documentary evidence in possession of the department, now held that Section 133A does not empower any I.T. Authorities to examine any person on oath and hence such statement has no evidentiary value. Consequently, admission made during such statement cannot by itself be made a basis of addition unless corroborated by some independent evidence. S.L.P. of the department against the said judgment has been dismissed vide order dated 20-9-2012 in CIT vs. Kader Khan (2013) 352 ITR (St.) 480 (SC).

• In the case of CIT vs. Ashok Kumar Jain (2014) 369 ITR 145 / (2015) 229 Taxman 65 (Raj.), the assessee surrendered ₹ 5 crores during course of survey, however in the return of income he offered only ₹ 3 crores. AO made the addition of ₹ 2 crores. Tribunal deleted the addition. On appeal by revenue the Court held that if the assessee did not adhere to the surrender made during the course of survey, it was for the Assessing Officer to bring on record cogent material and other evidence to support the addition rather than rely on the statements simpliciter. Therefore, there was no infirmity or perversity in the order of the Tribunal.

• Also refer Sahil Study Circle Pvt. Ltd. v. Dy. CIT (2016) 46 ITR 182 (Delhi)(Trib.), CIT v. M.P. Scrap Traders (2015) 372 ITR 507 (Guj.) (HC), Gajjam Chinna Vellappa & Ors. v. ITO (2015) 370 ITR 671 (T & AP) and Rajesh Jain v. DCIT (2006) 100 TTJ 929 (Del.).

• The CBDT has also similarly instructed to their subordinates and it will be apt to reproduce to refer the binding CBDT Circular No. 286/2/2003 dt. 10-3-2003 (repeated in further communication dated 18-12-2014), which has been frequently and repeatedly referred & cited in various judicial pronouncements.

15.2 Retraction of admission

The CBDT has also similarly instructed the subordinate authorities must avoid obtaining admission/confession under coercion/undue inference vide various instructions through letter No. 286/2/2003 dated 10-3-2003.

15.2.1 It is trite law that an admission, though a best evidence against such person however, if shown to be out of ambiguity, under tension or was against the facts or misconception of law, can be validly retracted.

15.2.2 It has been held by the Hon’ble Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala & Others (1971) 39 CCH 442/(1973) 91 ITR 18 (SC):

“Such admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the 
books of account do not disclose the correct state of facts’

The above decision has been applied/referred/ considered in the cases of ITO v. Vijay Kumar Kesar (2010) 231 CTR 165/327 ITR 0497 (Chhattisgarh), Ester Industries Ltd. v. CIT (2009) 226 CTR 112/316 ITR 260 (Del), Sonia Magu & Ors. v. CIT (2009) 227 CTR 680/(2011) 336 ITR 0227 (Del), ACIT v. Hukum Chand Jain & Ors. (2010) 236 CTR 92/(2011) 337 ITR 0238 (Chattisgarh), T. P. lndrakumar v. ITO (2011) 238 CTR 213/(2010) 322 ITR 0454 (Kar), Hukum Chand jain v. ITO (2011) 241CTR 280/334 ITR 0197 (Raj) and A One Batteries (P) Ltd. v. DCIT (2011) 242 CTR 436/58 DTR 0245(Jharkhand)
apart from many other cases.

15.2.3 In Nagubai Ammal v. B. Sharma Rao AIR 1956 SC 593 held:

“An admission is not conclusive as to be truth of the matters stated therein. It is only a piece of evidence, the weight to be attached to which must depend on the circumstances under which it is made. It can be shown to be erroneous or untrue”

There is no form prescribed for retraction. The intention to retract must be clear & manifest precisely & clearly explaining the grounds of retraction. Refer CIT v. Jagdish Naraian Ratan Kumar (2015) 373 ITR 394 (Raj.), Prakash Azad 50 Tax World 33 (Jp). In Sidhharth Shankar Roy v. Commissioner of Customs, Mumbai 2013 (291) ELT 244 (Trib.) (Mum.) held that retraction must be addressed to the same officer to whom confessional statement was given. In the survey cases however, since the statements were recorded by the survey team before whom admission was made who may not be available now therefore, it is the AO to whom retraction should be filed with a copy to the higher authority.

15.3 Interrogation of Human Rights

Interrogation till late night amounts to “torture” & violation of “human rights” – Officers are held liable for to pay compensation from their salary Refer CCIT v. State of Bihar, Through Chief Secretary (Rajendra Singh) (2012) 205 Taxman 232/71 DTR 268/250 CTR 304 (Patna)(HC) Thus, in an appropriate case, the assessee can make a suitable compliant to human right commission. Such statement is liable to be ignored. Refer Kailashben Manharlal Chokshi v. CIT (2008) 220 CTR 0138 & [(2010) 328 ITR 0411 (Guj.)].

15.4 Violation of Human Rights

It has to be established by the assessee with the support of strong & cogent evidence that such admission was made because of ignorance/a mistaken view of law or of facts or because it was obtained by the authorities under duress and for want of record etc. However, it is always advisable to make a retraction at the earliest opportunity available. The retraction letter must be filed to the jurisdictional AO with a copy to the higher authority. Although there is no Form prescribed for retraction however, the intention to retract must be clear & manifest, precisely & clearly explaining the grounds of retraction. Otherwise a retraction made abnormally late is always liable to be rejected. Refer Jagdish Naraian Ratan Kumar (Supra), Prakash Azad 50 Tax World 33 (Jp). In Sidhharth Shankar Roy v. Commissioner of Customs, Mumbai 2013 (291) ELT 244 (Trib.) (Mum.).

15.5 Evidentiary value of evidence collected during illegal survey

In the case of CIT v. Kamal & Co. (2007) 213 CTR 0200 / (2009) 308 ITR 129 (Raj.), and affirmed by the Supreme Court in 313 ITR 0125 (St.), it was held that any material collected during an illegal survey has got evidentiary value and can be used by the Assessing Officer against the assessee. To justify its finding, the Court followed the rulings of Dr. Partap Singh v. Director of Enforcement (1985) 46 CTR 319/155 ITR 0166 (SC) and Pooran Mal vs Director of Inspection (Inv.) (1974) 93 ITR 505/(1973) 41 CCH 0511 (SC) to the effect that illegality of search does not vitiate the evidence collected during such illegal search. The only requirement is that the Court or the authority before which such material or evidence brought is to be cautious and circumspect in dealing with such material or evidence. It was held that if materials collected during an illegal search could be used, on the same analogy, material collected/found during an illegal survey could be allowed to be used by the Assessing Officer because the procedure in regard to the use of material either collected in search or in survey is same. Also refer ITO v. U. K. Mahapatra & Co. (2009) 225 CTR 131 / 186 Taxman 181 / 27 DTR 155 (SC).

15.6 Discrepancies in Cash, Stock & Unrecorded Turnover etc.

The outcome of the survey, many a times results in the discrepancies in cash and stock etc. which, are found in excess or shortage when the physical availability is compared with the books of account. Addition on account of suppressed sale may also be made, based on certain other material found during survey. There may be many reasons behind such discrepancy.

15.7.1 Discrepancy in Stock

In case of shortage of stock normally entire sale is added however, depending upon the facts, it may be contended that it is only the net profit which can be added as income and not the entire sale. In case of excess stock also authorities normally make the addition of the entire amount, however, here also depending upon the facts it can be contended that it is only the net profit which can be added. The accounting treatment to be given, the implications of Sec. 40A(3), Sec. 69C etc. and of GST, if applicable must be considered. The following decisions may be referred to:CIT v. President Industries (2000) 158 CTR 372 (Guj), CIT v. Mehta Gwar Gum & Co. (2008)12 DTR 219 (Raj), CIT v. Balchand Ajitkumar (2004) 186 CTR 419 (MP), CIT v. S.M. Omer (1992) 201 ITR 608 (Cal), Ashok Kumar Rastogi v. CIT (1991) 100 CTR (All) 204, Man Mohan Sadani v. CIT (2008) 304 ITR 52 (MP), ACIT v. Ratan Industries (P) Ltd. (2012) 143 TTJ 24 (Agra) (TM), Sharma Associates (1995) 55 ITD 171 (Pune)(TM), Janta Tiles v. ACIT (2000) 66 TTJ 695 (Pune), Kishore Mohanlal Telwala v. ACIT 64 TTJ 543 (Ahd), Abhishek Corporation v. DCIT 63 TTJ 651 (Ahd), ITO v. B. D. Dal & Oil Industries (1192) 40 ITD 180 (JP), Tarachand Shantilal v. ITO (1987) 28 TTJ 128 (JP).

15.7.2 Discrepancy in cash

At the time of survey, when the physically available cash, is compared with the balances as shown in the cash book, there may arise situation of the excess as also short cash. The excess cash may be on account of various reasons being, the amount received on account of recovery from debtors or the sales effected but yet to be entered, the cash received for safe keeping or assessees personal money may be lying in the cash box and so on. Similarly the cash shortage may occur because of the withdrawals made but yet to be recorded due to pending entries etc.

The department is used to make addition not only of the excess cash (which may be justified in absence of satisfactory explanation) but also of the short cash. However, there appears no direct provision authorising addition merely due to short cash and such additions have been deleted by the court. On the contrary a deduction u/s. 37(1) can be claimed if the facts permit. Refer ITO vs. J.K. Bankers (1987) 27 TTJ 170/(1986) 5 CCH 55 (All Trib).

15.8 Treatment of income surrendered declared without specifying the nature thereof

When declaration of income is made without specifying the nature of income, then such income may be taxed, under the head ‘Income from other sources’ and the assessee may be denied the claim of expenditure otherwise allowable or the deductions under Chapter VI -A etc. It is advisable to specify the nature of income surrendered because if facts indicate that the income is generated from business, a case can be made out to get it taxed as business income and consequently, suitable allowances, deductions and/or benefit of depreciation etc., can be claimed and got allowed. In the case of M/s. Mangaldeep v. ITO (2007) 37 TW 35 (JP) (SMC) it was held that “The value of the access stock and cash found and surrender during the course of survey will be taxed only under the head of Business & Profession inasmuch as the same related to the cloth business of the assessee. Consequently, the ITAT directed that such surrendered income should be considered for computing the remuneration allowable under the provisions of Sec. 40(b)(v).”

However, to take care of ACIT v. Ratan Industries (P) Ltd. (2012) 143 TTJ 24 (Agra) (TM) following Fakir Mohmed Haji Hasan v. CIT (2001) 165 CTR 0111/247 ITR 0290 (Guj.).

15.9 Penalty u/s. 271(1)(c) in the cases of survey

15.9.1 The charge of concealment of income or furnishing the inaccurate particulars so as to impose penalty u/s. 271(1)(c), presupposes the return of income already filed because it is only on a comparison with such return of income, the income surfaced during the course of survey, the AO can reach to a conclusion as to concealment or furnishing the inaccurate particulars but not otherwise. It therefore, follows that where some income surfaced during survey is surrendered within the financial year and the same is then shown in the regular return of income filed within the prescribed time limit, there cannot be any penalty u/s. 271(1)(c) [or u/s. 270A for and from A.Y. 2017-18].

For this proposition reference can be made to the cases of in CIT v. S.A.S. Pharmaceuticals 335 ITR 259 (Del), CIT v. V. Narsimha Prasad 250 ITR 852 (Kar.) and Jt. CIT v. Signature (2004) 85 TTJ 117 (Del. ‘C’).

15.9.2 However, one must take care of the decision in Mak Data P. Ltd. v. CIT (2013) 358 ITR 593 (SC) where, in absence of any plausible explanation except that surrender was made to buy peace and to avoid litigation, penalty was confirmed.

16. Reopening in search and survey cases

16.1 No reopening, merely based on the confessional statement in absence of independent material

16.1.1 Reason cannot be mere whim and should be based on real material. Statement made during survey has no evidentiary value, not a good basis for reopening hence reassessment held invalid, even though initial assessment was completed u/s. 143(1) because no incriminating material found for the year reopened is AY 2003-04, subjected to reopening. Alfa Radiological Centre Pvt. Ltd. v. ITO (2015) 44 ITR 184 (Chandigarh Trib).

16.1.2 In absence of an independent material –Statement recorded during survey cannot form a valid basis for reopening – During a survey u/s. 133A, son of assessee in his statement offered some income however, no other material was found. The AO issued a notice u/s. 148 based on such admission. The ITAT quashed the reopening as not valid. On further appeal by the department “the High Court observed that the statement made during the course of survey by the son of the assessee formed the sole basis of reopening, and the reasons recorded did not give any further details as to what is the amount which had been accepted by the son of the assessee and how the same would bind the assessee. The High Court also referred to the Tribunal’s reliance on CBDT Circular dated 10-3-2003 wherein the insistence on the part of the Board is not to force any confession as any such confession recorded by the officer is based on no other evidence except the oral version in confessional mode and if later on it is retracted, it leaves the revenue with no basis.” CIT v. ShardabenK. Modi (2013) 217 Taxman 89 (Guj. HC).

16.1.3 Retracted statement cannot form the basis of reopening. Protective assessment without substantive assessment is not permissible u/s. 147. Reopening held invalid. G. K. Consultants Limited. v. ITO (Del. Trib.).

16.1.4 CIT v. Shardaben K. Modi (2014) 365 ITR 169 (Guj. HC).

16.1.5 Held that reopening on the basis of statements of managing director and chartered engineer during survey showing higher valuation of intangible assets and/or bogus claim was sustainable. Petition of assessee was dismissed. Powerdeal Enery Systems (I) (P) Ltd. vs. ACIT (2014) 112 DTR 409 (Bom. HC).

16.2.1 Survey report and other materials did not indicate any income chargeable to tax has escaped assessment. There is no material before the AO to record the belief as to escapement and the reasons recorded prior to and subsequent to the survey, not satisfying the requirement of law, Reopening held invalid. Held, allowing the petitions, that neither the survey report nor any other material indicated that any income chargeable to tax for the relevant assessment years had escaped assessment. AO, therefore, had nothing before him which would enable him to record his belief that any such escapement had taken place. Notice was held not valid. Hemant Traders v. ITO (2015) 375 ITR 167 (Bom. HC).

16.2.2 Recorded reasons had no nexus to form an opinion with material found in survey to connect assessee to the supplier – Hence reassessment invalid. Madan Madhav Fertilizer & Chemicals (P.) Ltd. v. JCIT (2013) 216 Taxman 34 (Mag. HC)

16.2.3 Held that a perusal of the original assessment order made it abundantly clear that the AO had not only referred to the documents and records found in course of the survey under section 133A of the Income-tax Act, 1961, from the business and office premises of the assessee but also those were test checked and evaluated in undertaking that exercise. The endeavour on the part of the Assessing Officer to initiate a reassessment proceeding under sections 147 / 148 of the Act on the purported ground that the same records/documents disclosed that the amount had escaped assessment was unconvincing and untenable as well. The notice of reassessment was not valid as it was based on mere change of opinion of the AO. CIT v. Vardhman Industries. (2014) 363 ITR 625/264 CTR 580 (Raj. HC).

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. The author does accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

[Source : Article printed in souvenir of National Tax Conference held on 2nd & 3rd September, 2017 at Kolkata]

Section 254(2) of the Income-tax Act 1961 deals with the powers of the Income Tax Appellate Tribunal for rectification of its order. Section 254(2) before amendment w.e.f. 1-6-2016 read as under:-

“254(2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer.”

The word 4 years was substituted by the word “six months” by Finance Act, 2016 and has been made effective from 1-6-2016. The amended provision stood as under:-

“254(2) The Appellate Tribunal may, at any time within six months from the end of the month in which the order was passed, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer.”

The short question arises is with regard to applicability of the am·endment reducing the power of rectification from four years to six months. Whether the amendment shall apply to all rectification petitions filed on or after 1-6-2016 even if the order was passed by the Tribunal before 1-6-2016 or to the orders which were passed on or after 1-6-2016 or to the appeals filed on or after 1-6-2016.

The Hon’ble Mumbai “J” Bench of the ITAT in the case of DCIT 8247/Mum/2017 in its order pronounced on 25th April, 2017 has taken the view that the amended provisions shall apply to all rectification petitions filed after 1-6-2016.

Whether the said decision requires reconsideration may be deliberated. The issues to be considered are, whether limitation provided in section 254(2) is applicable to the rectification petition filed by the appellant or respondent or to the suo motu rectification by the Tribunal itself? Whether right to appeal is substantive right or mere procedural right? Whether amendment is retrospective and accordingly apply to all petitions fled on or after 1-6-2016?

On a close look to the provisions contained in section 254(2), it can be seen that the said provision is in two parts. The first part starts “The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the records amend any order passed by it under sub-section (1) and,” There is also a comma after the word and which makes the intention more clear that the section is in two parts. This also makes the first part disjunctive of the first part. The first part puts a limitation on the powers to the Tribunal to rectify a mistake on its own. The second part is deals with the rectification of the mistake which is brought to its notice by the assessee or the Assessing Officer. Therefore when the Tribunal itself found any mistake in its order it has to rectify such mistake and for such rectification limitation provided is 4 years. It is noticeable that in the first part there is (,) after sub-section (1) and after (,) the word and is used. The use of (,) and thereafter the word “and” thus suggests that for the second part no limitation has been provided, may be for the reason that the appellant or the respondent may not suffer for mistakes if any in the order of the Tribunal since the Tribunal is the highest fact finding authority. We may also look into the provisions of section 154 which deals with the rectification of mistake by Income Tax Authorities. Section 154 read as under:

154(7) “Save as otherwise provided in section 155 or sub-section (4) of section 186, no amendment under this section shall be made after the expiry of four years from the end of the financial year in which the order sought to be amended is passed.”

154(8) Without prejudice to the provisions of sub section (7), where an application for amendment under this section is made by the assessee or by the deductor or by collector on or after the 1st day of June 2001 to an income tax authority referred to in sub-section (1), the authority shall pass an order within six months from the end of the month in which the application is received by it,-

(a) making the amendment or

(b) refusing to allow the claim.

The language clearly provides that no order can be rectified after 4 years and further if the application is made by the assessee or by the deductor or collector application so made within 4 years have to be disposed of within 6 months from the end of the month in which the application is made.

When language used in section 254(2) is different than the language used in sections 154(7) and 154(8) and when plain meaning is given the language used in section 254(2) it is clear that no limitation is provided when rectification is moved by the appellant or the respondent. Moreover, the language of section 254(2) that it is in two parts have been noticed by the courts. Reference may be made to the judgment of the Hon’ble Supreme Court in the case of Sree Ayyanar Spinning & Weaving Mills Ltd. v. Commissioner of Income-tax (2008] 301 ITR 434 (SC) (Date of order 1-5-2008). The observations of the Hon’ble Supreme Court is as under:-

“Analysing the above provisions, we are of the view that section 254(2) is in two parts. Under the first part, the Tribunal may, at any time, within four years from the date of the order, rectify any mistake apparent from the record and amend any order passed by it under sub-section (1). Under the second part of section 254(2) reference is to the amendment of the order passed by the Tribunal under sub-section (1) when the mistake is brought to its notice by the assessee or the Assessing Officer. Therefore, in short, the first part of section 254(2) refers to suo motu exercise of the power of rectification by the Tribunal whereas the second part refers to rectification and amendment on an application being made by the Assessing Officer or the assessee pointing out the mistake apparent from the record.”

The above judgment have been followed in the following cases:-

i. Desai Investment (P.) Ltd. v. Income Tax Officer, 2(1)(2), Mumbai [31-3-2010] (2011] 10 71 (Mumbai)

ii. Deputy Commissioner of Income-tax, Central Circle, Mangalore v. HML Agencies (P.) Ltd. (7-1-2011] [2011] 12 397 (Bengaluru)

iii . Peterplast Synthetics (P.) Ltd. v. Assistant Commissioner of Income Tax [12-11-2013] (2014] 44 302 (Gujarat)

iv. Commissioner of Income-tax, Madurai v. Sree Ayyanar Spinning & Weaving Mills Ltd. [12-8-2014] (2015] 54 73 (Madras)

“254(2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer. The other questions that whether right to appeal is substantive right or mere procedural right and whether amendment is retrospectively applicable and accordingly apply to all petitions fled on or after 1-6-2016?

The amendment was introduced by Finance Bill, 2016. The notes on clauses and memo explaining the Bill also suggests that that the amendment shall come into force w.e.f. 1-6-2016. However both the notes on clauses and Memo explaining the provisions does not deal with the specific aspect as to which orders the amendment shall apply. Therefore to deliberate of the same we have to travel elsewhere. The provisions contained in Section 6 of the General Clauses Act, 1897 may be looked into:-

“6. Effect of repeal – Where this Act, or any Central Act or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not –

(a) revive anything not in force or existing at the time at which the repeal takes effect; or

(b) affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder; or

(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or

(d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or

(e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed.”

Section 6(c) mandates that the repeal shall not affect any right, privilege accrued or incurred under any enactment so repealed. Therefore one has to see whether the right to appeal and any right with regard to the appeal is substantive right or mere procedural right. There is no dispute that procedural right is applicable to all the pending matters but substantive right is to be governed by the repealed Act.

In the case of Colonial Sugar Refining Co. Ltd. v. Irving, 1905 AC 369, the facts were that a right of appeal was available from the Supreme Court of Queensland, to the King in Council. The aforesaid right was taken away by the Australian Commonwealth Judiciary Act, 1903 (hereinafter referred to as, the 1903 Act). Section 39(2) of the 1903 Act, provided for an appeal from the Supreme Court of Queensland, to the High Court of Australia. The question which arose for determination was whether from a suit pending when the 1903 Act was enacted, a remedy of appeal would lie before the King in Council or before the High Court of Australia.

It was held by the Privy Council : “As regards the general principles applicable to the case there was no controversy. On the one hand, it was not disputed that if the matter in question be a matter of procedure only, the petition is well founded. On the other hand, if it be more than a matter of procedure, if it touches a right in existence at the passing of the Act, it was conceded that, in accordance with a long line of authorities extending from the time of Lord Coke to the present day, the appellants would be entitled to succeed. The Judiciary Act is not retrospective by express enactment or by necessary intendment. And therefore the only question is, was the appeal to His Majesty in Council a right vested in the appellants at the date of the passing of the Act, or was it a mere matter of procedure? It seems to their Lordships that the question does not admit of doubt. To deprive a suitor in a pending action of an appeal to a superior Tribunal which belonged to him as the right is a very different thing from regulating procedure. In principle, their Lordships see no difference between abolishing an appeal altogether and transferring the appeal to a new tribunal. In either case there is an interference with existing rights contrary to the well-known general principle that statutes are not to be held to act retrospectively unless a clear intention to that effect is manifested.”

In the case of Nana v. Sheku, 32 Born. 337(8) it was held that

“To disturb an existing right of appeal is not a mere alteration in procedure. Such a vested right cannot be taken away except by express enactment or necessary intendment. An intention to interfere with or to impair or imperil such a vested right cannot be presumed unless such intention be clearly manifested by express words or necessary implication”

In the case of Delhi Cloth and General Mills Co. Ltd. v. Income-tax Commissioner, Delhi, AIR 1927 PC 242 (C) it was held that

“While provisions of a statute dealing merely with matters of procedure may properly, unless that construction be textually inadmissible, have retrospective effect attributed to them, provisions which touch a right in existence at the passing of the statute are not to be applied retrospectively in the absence of express enactment or necessary intendment”

In the case of Kirpa Singh v. Rasalldar 
Ajaipal Singh, AIR 1928 Lah. 627 (FB) (D) it was held that

“Right of appeal was not a mere matter of procedure but was vested right which inhered in a party from the commencement of the action in the Court of first instance and such right could not be taken away except by an express provision or by necessary implication.”

In the case of Sardar Ali v. Dolimuddin, AIR 1928 Cal. 640 {FB) (E) the facts were that the suit out of which the appeal arose was filed in the Munsiff’s Court at Alipore on 7-10-1920. The suit having been dismissed on 17-7-1924, the plaintiffs appealed to the Court of the District Judge but the appeal was dismissed. The plaintiffs then preferred a Second Appeal to the High Court on 4-10-1926. That Second Appeal was heard by a Single Judge and was dismissed on 4-4-1928. In the meantime Cl. 15 of the Letters Patent was amended on 14-1-1928 so as to provide that no further appeal should lie from the decision of a Single Judge sitting in Second Appeal unless the Judge certified that the case was a fit one for appeal. In this case the learned Judge who dismissed the Second Appeal on 
4-4-1928, declined to give any certificate of fitness. The plaintiffs on 30-4-1928, filed an appeal on the strength of Cl. 15 of the Letters Patent as it stood before the amendment. It was held that by Rankin C.J. vide 641-642:-

“Now, the reasoning of the Judicial Committee in the Colonial Sugar Refining Company’s case (A) is a conclusive authority to show that rights of appeal are not matters of procedure, and that the right to enter the superior court is for the present purpose deemed to arise to a litigant before any decision has been given by the inferior court. If the latter proposition be accepted, I can see no intermediate point at which to resist the conclusion that the right arises at the date of the suit.”

It was held that the new clause could not be given retrospective effect and accordingly the date of presentation of the Second Appeal to the High Court was not the date which determined the applicability of the amended clause of the Letters Patent and that the date of the institution of the suit was the determining factor.

In the case of Nagendra Nath v. Man Mohan Singha, AIR 1931 Cal. 100 (N) the facts were that the plaintiffs instituted a suit for rent valued at ₹ 1,306/15 and obtained a decree. In execution of that decree the defaulting tenure was sold on 20-11-1928, for ₹ 1,600. On 19-12-1928, an application was made, under O. XXI, R. 90, Civil PC, by the present petitioner, who was one of the judgment debtors, for setting aside the sale. That application having been dismissed for default of his appearance the petitioner preferred an appeal to the District Judge of Hoogly who refused to admit the appeal on the ground that the amount recoverable in execution of the decree had not been deposited as required by the proviso to S. 174, Cl. (c), of the Bengal Tenancy Act as amended by an amending Act in 1928. The contention of the petitioner was that the amended provision which came into force on 21-2-1929, could not affect the right of appeal from a decision on an application made on 19-12-1928, for setting aside the sale.

It was held by Mitter J. (at pp. 101-102) : “We think the contention of the petitioner is well-founded and must prevail. That a right of appeal is a substantive right cannot now be seriously disputed. It is not a mere matter of procedure. Prior to the amendment of 1928, there was an appeal against an order refusing to set aside a sale (for that is the effect also where the application to set aside the sale is dismissed for default) under the provisions of O.43, R. (1), Civil PC. That right was unhampered by any restriction of the kind now imposed by S. 174(5), Proviso. The Court was bound to admit the appeal whether appellant deposited the amount recoverable in execution of the decree or not. By requiring such deposit as a condition precedent to the admission of the appeal, a new restriction has been put on the right of appeal, the admission of which is now hedged in with a condition. There can be no doubt that the right of appeal has been affected by the new provision and in the absence of an express enactment this amendment cannot apply to proceedings pending at the date when the new amendment came into force. It is true that the appeal was filed after the Act came into force, but that circumstance is immaterial – for the date to be looked into for this purpose is the date of the original proceeding which eventually culminated in the appeal.”

In the case of Janardan Reddy v. The State, AIR 1951 SC 124(0) and Ganpat Rai v. Agarwal Chamber of Commerce Ltd., AIR 1952 SC 409 (P) it was held that a right of appeal is not merely a matter of procedure. It is matter of substantive right. This right of appeal from the decision of an inferior Tribunal to a superior Tribunal becomes vested in a party when proceedings are first initiated in, and before a decision is given by, the inferior court.

In the case of Hoosein Kasam Dada (India) Ltd. v. State of Madhya Pradesh, AIR 1953 SC 221 the question, which arose for consideration in the cited case was, with reference to the maintainability of an appeal preferred by the appellant, under section 22(1) of the Central Provinces of Berar Sales Tax Act, 1947, to the Sales Tax Commissioner, Madhya Pradesh, against an assessment order passed by the Assistant Commissioner. Since the appellant did not attach to the appeal any proof of payment of tax in respect of which the appeal had been preferred, the authorities declined to admit the appeal. It was held by the Hon’ble SC Court, following the decision of the Privy Council in Colonial Sugar Refining Co. Ltd. as well as certain other decisions that

“A right of appeal was not merely a matter of procedure. An appellate remedy, it was held, wasa substantive right. The right of appeal from the decision of an inferior Tribunal becomes vested in a party, when proceedings were first initiated before an inferior Court. Such a vested right, it was held, could not be taken away except by an express enactment or by necessary intendment. Accordingly, it was concluded, that the earlier provision which created the right of appeal, would continue to apply. The unamended provision was held, to govern the exercise and enforcement of the right of an appeal. It is thus concluded, that there could be no question of the amended provision divesting the aggrieved party of its right to appeal.”

In the case of Daji Saheb v. Shankar Rao Vithalrao Mane, AIR 1956 SC 29 the facts were that on the date of the decree of the High Court, the defendants had a vested right of appeal to the Federal Court, as the properties were of the requisite value, and on 6-1-1950 they sought a certificate of leave to appeal, which was bound to be granted. The Constitution establishing the Supreme Court as the final appellate authority for India came into force on 26-1-1950. Did the vested right become extinguished with the abolition of the Federal Court? If the court to which an appeal lies is altogether abolished without any forum substituted in its place for the disposal of pending matters or for the lodgment of appeals, the vested right perishes no doubt.

The Court was to examine whether the Constitution which brought the Supreme Court into being makes any provision for an appeal from a reversing decree of the High Court prior to the date of the Constitution respecting properties of the value of ₹ 10,000 and more being entertained and heard by the Supreme Court. It was held

“10. If we accede to the argument urged by the respondents, we shall be shutting out altogether a large number of appeals, where the parties had an automatic right to go before the Federal Court before the Constitution and which we must hold was taken away from them for no fault of their own, merely because the Supreme Court came into existence in place of the Federal Court. An interpretation or construction of the provisions of the Constitution which would lead to such a result should be avoided, unless inevitable.”

In the case of Garikapatti Veeraya v. N. Subbiah Chaudhry, AIR 1957 SC 540 (Constitution Bench Judgment) the headnotes are as under:-

This application for special leave to appeal arose out of a suit instituted on April 22, 1949, and valued at ₹ 11,400. The Trial Court dismissed the suit and the High Court in appeal reversed that decision on February 10, 1955. Application for leave to appeal to the Supreme Court was refused by the High Court on the ground that the value did not come up to ₹ 20,000. It was contended on behalf of the applicant that he had a vested right of appeal to the Federal Court under the law as it then stood and that Court having been substituted by the Supreme Court, he was as of right entitled to appeal to that Court under Article 135 of the Constitution.

In the above case, the Hon’ble SC observed that from the decisions cited above the following principle clearly emerge :

“(i) That the legal pursuit of a remedy, suit, appeal and Second Appeal are really but steps in a series of proceedings all connected by an intrinsic unity and are to be regarded as one legal proceeding.

(ii) The right of appeal is not a mere matter of procedure but is a substantive right.

(iii) The institution of the suit carries with it the implication that all rights of appeal then in force are preserved to the parties there to till the rest of the career of the suit.

(iv) The right of appeal is a vested right and such a right to enter the superior Court accrues to the litigant and exists as on and from the date the lis commences and although it may be actuall y exercised when the adverse judgment is pronounced such right is to be governed by the law prevailing at the date of the institution of the suit or proceeding and not by the law that prevails at the date of its decision or at the date of the filing of the appeal.

(v) This vested right of appeal can be taken away only by a subsequent enactment, if it so provides expressly or by necessary intendment and not otherwise.”

It was held that “For reasons stated above we think that the suit, out of which this application arises, having been instituted before the date of the Constitution the parties thereto had, from the date of the institution of the suit, a vested right of appeal upon terms and conditions then in force and the judgment sought to be appealed from being a judgment of reversal and the value of the subject matter being above ₹ 10,000 the applicant had a vested right of appeal to the Federal Court under the provisions of the old Civil Procedure, Code read with the Government of India Act, 1935, and the Federal Court (Enlargement of Jurisdiction) Act, 1947. Such a vested right of appeal was a matter which did not fall within Article 133 and jurisdiction and powers with respect to such right of appeal was exercisable by the Federal Court immediately before the commencement of the Constitution and consequently the applicant had a right of appeal under Article 135 and the High Court was in error in refusing leave to appeal to the petitioner. As in our opinion the petitioner was entitled under Article 135 to come up on appeal to this Court as of right and such right has been wrongly denied to him we are prepared, in the circumstances of this case, to grant him special leave to appeal to this Court under Article 136 of the Constitution. The petitioner will have the costs of this application from the respondents Nos. 1 and 2.”

In the case of Manujendra Dutt v. Purmedu Prasad Roy Chowdhury, AIR 1967 SC 1419 the facts were that the appellant was the tenant of the respondents on a piece of land. According to the lease agreement the period of lease was fixed at ten years but the lessee was entitled to renew the lease after that period under certain conditions. The lease agreement further provided that if the lessor required the lessee to vacate the premises whether at the time of the expiry of the lease or thereafter (in case the lessee exercised his option to renew the lease), six months’ notice to the lessee was necessary. The lessee exercised his option to continue the lease and offered to fulfill the conditions therefor. The Court of Wards on behalf of the respondents, sought to impose further conditions for the renewal of the lease which the appellant did not accept.

The Court of Wards thereupon filed a suit in the Court of the First Subordinate Judge, Alipore for the eviction of the appellant on the ground that he was a trespasser. In the meanwhile the Calcutta Thika Tenancy Act, 1949 was passed by the West Bengal Legislature. As provided in s. 29 of the Act the suit was transferred to the Thika Controller.

Thereafter Amendment Act 6 of 1963 was passed which deleted s. 29 and the appellant urged before the Controller that he no longer had jurisdiction to try the matter. This contention was rejected and on the merits the Controller decided against the appellant holding that in view of s. 3 of the Act the six months’ notice required by the lease agreement for the eviction of the appellant was not necessary. The High Court also decided against the appellant who thereupon came to this Court with certi fi cate . It was held that

“(i) Though s. 29 was deleted by the Amendment Act of 1953 the deletion could not affect pending proceedings and would not deprive the Controller of his jurisdiction to try such proceedings pending before him at the date when the Amendment Act came into force. Though the Amendment Act did not contain any saving clause, under s. 8 of the Bengal General Clauses Act, 1899 the transfer of the suit having been lawfully made under s. 29 of the Act its deletion would not have the effect of altering the law applicable to the claim in the litigation. There is nothing in s. 8 of the Amending Act, 1953 suggesting a different intention and therefore the deletion would not affect the previous operation of s. 5 of the Calcutta Thika Tenancy Act, or the transfer of the suit to the Controller or anything duly done under s. 29. That being the correct position in law the High Court was right in holding that in spite of the deletion of s. 29 the Controller still had the jurisdiction to proceed with the said suit transferred to him.”

In the case of Maria Cristina De Souza Sadder v. Amria Zurana Pereira Pinto, (1979) 1 section 92 the Question of Law before the Court was “What was the law of limitation applicable in the Union Territories of Goa, Daman and Diu to proceedings launched therein prior to and pending at the date of liberation? The question arises in these circumstances.” It was held

“5. On the question as to where the appeal could be lodged we are clearly of the view that the forum was governed by the provisions of the Goa, Daman and Diu (Extension of Code of Civil Procedure, 1908 and Arbitration Act, 1940) Act, 1965 (Central Act XXX of 1965) read with the provisions of the Goa, Daman & Diu Civil Court Act, 1965 (Goa Act XVI of 1965) both of which came into force simultaneously on June 15, 1966 and the appeal was required to be filed in the Judicial Commissioner’s Court. Under the Central Act XXX of 1965 with effect from June 15, 1966 the provisions of the Indian Civil Procedure Code were extended to the Union Territories of Goa, Daman and Diu and the corresponding provisions of the Portuguese Code were repealed while under the Goa Act XVI of 1965 the instant suit which was pending before the Comarca Court at Margao was continued and decreed by corresponding Court of the Senior Civil Judge, who ultimately decreed it on March 8, 1968. Under the Indian Civil Procedure Code read with Section 22 of the Goa Act since the property involved in the suit was of the value exceeding ₹ 10,000/- the appeal clearly lay to the Judicial Commissioner’s Court. The contention that since the right of appeal had been conferred by Portuguese Code, the forum where it could be lodged was also governed by the Portuguese Code cannot be accepted. It is no doubt well-settled that the right of appeal is a substantive right and it gets vested in a litigant no sooner the lis is commenced in the Court of the first instance, and such right or any remedy in respect thereof will not be affected by any repeal of the enactment conferring such right unless the repealing enactment either expressly or by necessary implication takes away such right or remedy in respect thereof. This position has been made clear by Clauses (b) and (c) of the proviso to Section 4 of the Central Act XXX of 1965 which substantially correspond to Clauses (c) and (e) of Section 6 of the General Clauses Act, 1897. This position has also been settled by the decisions of the Privy Council and this Court (vide the Colonial Sugar Refining Company Ltd. v. Irving, 1905 AC 369 and Garikapatti Veeraya v. N. Subbiah Choudhury, (1957) 1 SCR 488, but the forum where such appeal can be lodged is indubitably a procedural matter and, therefore, the appeal, the right to which has arisen under a repealed Act, will have to be lodged in a forum provided for by the repealing Act. That the forum of appeal, and also the limitation for it, are matters pertaining to procedural law will be clear from the following passage appearing at page 462 of Salmond’s Jurisprudence (12th Edn.):

Whether I have a right to recover certain property is a question of substantive law, for the determination and the protection of such rights are among the ends of the administration of justice; but in what courts and within what time I must institute proceedings are questions of procedural law, for they relate merely to the modes in which the courts fulfil their functions.

It is true that under Clause (c) of the proviso to Section 4 of Central Act XXX of 1965 (which corresponds to Section 6(e) of the General Clauses Act, 1897) it is provided that a remedy or legal proceeding in respect of a vested right like a right to an appeal may be instituted, continued or enforced as if this Act (meaning the repealing Act) had not been passed. But this provision merely saves the remedy or legal proceeding in respect of such vested right which it is open to the litigant to adopt notwithstanding the repeal but this provision has nothing to do with the forum where the remedy or legal proceeding has to be pursued. If the repealing Act provides new forum where the remedy or the legal proceeding in respect of such vested right can be pursued after the repeal, the forum must be as provided in the repealing Act. We may point, out that such a view of Section 6(e) of the General Clauses Act, 1897 has been taken by the Rajasthan High Court in the case of Purshotam Singh v. Narain Singh and State of Rajasthan, AIR 1955 Raj. 203. It is thus clear that under the repealing enactment (Act XXX of 1965) read with Goa Enactment (Act XVI of 1965) the appeal lay to the judicial Commissioner’s Court and the same was accordingly filed in the proper Court.”

In the case of CIT v. Bengal Card Board Industries & Printers (P.) Ltd. (1989) 176 ITR 193 (Calcutta) (Date of Order 13-6-1988), the facts were that on completion of the assessment relating to the assessment year 1974-75, the assessee made an appeal to the AAC on 
9-1-1975. Meanwhile, sub-section (4) was inserted in section 249 by section 59 of the Taxation Laws (Amendment) Act, 1975 with effect from 1-10-1975. As required under the aforesaid sub-section, the assessee had not paid the undisputed tax before filing the appeal to the AAC. The AAC, therefore, held the appeal as incompetent and dismissed it. However, on appeal, the Tribunal held that the right of appeal was a substantive right and, therefore, the same could not be withdrawn or curtailed by the amendment which came into effect from 1-10-1975. He, therefore, allowed the assessee’s case.It was held that

“The right of appeal is a statutory right. It is a creature of the statute. The right of appeal is not merely a matter of procedure. It is a substantive right. This right is vested in an assessee when proceedings are first initiated and before a decision is given by the first Court or the authority. For the purpose of the accrual of the right of appeal, the crucial and relevant date is the date of initiation of the assessment proceeding, i.e. , the date of issue of notice under section 143(2). It is the law existing on the day the proceeding was first initiated which governs the exercise and enforcement of the right of appeal. A subsequent amendment cannot curtail this right. Where, on the date of initiation of the assessment proceeding, law permitted an appeal to be preferred without payment of the admitted tax liability, but subsequently, if the law is amended requiring deposit of the entire amount of admitted liability before the appeal is entertained, the right of appeal in such a case should be governed by the unamended law.

The provisions of sub-section (4) of section 249 came into force with effect from 1-10-1975. Under the said sub-section, the assessee is required to pay the undisputed tax, i.e., tax on the returned income, in order to enable him to file an appeal before the AAC. This new requirement regarding payment of tax on the income returned cannot be said to be merely to regulate the exercise, of the assessee’s pre-existing right of appeal. It, in effect, curtails the right itself and cannot be regarded as a mere rule of procedure. The provisions of section 249(4) are substantive provisions. It is now well-settled that a statute pertaining to the right of appeal has to be given a liberal construction since it is remedial in nature. A right of appeal will not be restricted or denied unless such construction is unavoidable.

In the instant case, the appeal was a continuation of the original proceedings. Although the appeal was preferred on 9-10-1975, the right of the assessee to prefer an appeal accrued when the notice under section 143(2) was issued or in any event when the assessment was made. The right of appeal having accrued to the assessee prior to 1-10-1975, when the amendment came into force, the date of filing of the appeal was neither relevant nor material. Law as it stood prior to 1-10-1975 should, therefore, govern this case.

For the aforesaid reasons, the provisions of section 249(4) could not be applied to the facts of the instant case and, therefore, the Tribunal was justified in holding that the appeal before the AAC was maintainable.

In the case of Commissioner of Income Tax, Orissa v. Dhadi Sahu (1992) 199 ITR 610 (SC) the facts were that for the assessment years 1968-69 and 1969-70, the ITO initiated penalty proceedings under section 271(1)(c) for concealment of income and the matter was then referred to the IAC under section 274(2). Pending reference before the IAC, section 274(2) was amended with effect from 1-4-1971. The IAC imposed penalties by order dated 15-2-1973. On appeal, the Tribunal cancelled the penalties holding that the IAC had no jurisdiction to levy the penalty. On Second Appeal, the High Court affirmed the order of the Tribunal. On appeal to the Supreme Court: HELD

“20. It will be noticed that the Amending Act did not make any provision that the references validly pending before the Inspecting Assisting Commissioner shall be returned without passing any final order if the amount of income in respect of which the particulars have been concealed did not exceed ₹ 25,000. This supports the inference that in pending references the Inspecting Assistant Commissioner continued to have jurisdiction to impose penalty. The previous operation of Section 274(2) as it stood before April 1, 1971, and anything done thereunder continued to have effect under Section 6(b) of the General Clauses Act, 1897, enabling the Inspecting Assistant Commissioner to pass orders imposing penalty in pending references. In our opinion, therefore, what is material to be seen is as to when the references were initiated. If the reference was made before April 1, 1971, it would be governed by Section 274(2) as it stood before that date and Inspecting Assistant Commissioner would have jurisdiction to pass the order of penalty.”

In the case of Hitendra Vishnu Thakur v. State of Maharashtra, (1994) 4 Sec 602 it was observed by the Hon’ble Court in Para 26 of the order as under:–

(i) A statute which affects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such as construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits.

(ii) Law relating to forum and limitation is procedural in nature, whereas law relating to right of action and right of appeal even though remedial is substantive in nature.

(iii) Every litigant has a vested right in substantive law but no such right exists in procedural law.

(iv) a procedural statute should not generally speaking be applied retrospective where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished.

(v) a statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation unless otherwise provided, either expressly or by necessary implication.”

In the case of K.S. Paripoornan v. State of Kerala, (1994) 5 sec. 593 the Hon’ble Court observed as under:

“67. In the instant case we are concerned with the application of the provisions of sub-section (1-A) of Section 23 as introduced by the Amending Act to acquisition proceedings which were pending on the date of commencement of the Amending Act. In relation to pending proceedings, the approach of the courts in England is that the same are unaffected by the changes in the law so far as they relate to the determination of the substantive rights and in the absence of a clear indication of a contrary intention in an amending enactment, the substantive rights of the parties to an action fall to the determined by the law as it existed when the action was commenced and this is so whether the law is changed before the hearing of the case at the first instance or while an appeal is pending (See Halsbury’s Laws of England, 4th Edn., Vol. 44, para 922)”. Similar is the approach of the courts in India. In United Provinces v. Atiqa Begum26 Sulaiman, J. has observed: (FCR p. 163) “Undoubtedly, an Act may in its operation be retrospective, and yet the extent of its retrospective character need not extend so far as to affect pending suits. Courts have undoubtedly leaned very strongly against applying a new Act to a pending action, when the language of the statute does not compel them to do so.”

In the case of Shyam Sunder v. Ram Kumar, (2001) 8 sec. 24, the issues were framed and the trial court decided all the issues in favour of the plaintiffs/respondents and consequently on 30-5-1990 the suit was decreed. The respondents after passing of the decree by the court of the first instance deposited the purchase money as required under Order 20 rule 14 CPC. The appeal preferred by the appellants before the First Appellate Court and the Second Appeal before the High Court were dismissed and the decree of the trial court was affirmed. The appellants thereafter preferred this appeal by way of special leave petition. During pendency of the appeal, Section 15(1)(b) of parent Act, on the basis of which the suit was filed by the plaintiffs/respondents was amended and was substituted by new Section 15 whereby the right of a co-sharer to preempt a sale was taken away. It was held that

“28. From the aforesaid decisions the legal position that emerges is that when a repeal of an enactment is followed by a fresh legislation, such legislation does not effect the substantive rights of the parties on the date of suit or adjudication of suit unless such a legislation is retrospective and a court of appeal cannot take into consideration a new law brought into existence after the judgment appealed from has been rendered because the rights of the parties in an appeal are determined under the law in force on the date of the suit. However, the position in law would be different in the matters which relate to procedural law but so far as substantive rights of parties are concerned they remain unaffected by the amendment in the enactment. We are, therefore, of the view that where a repeal of provisions of an enactment is followed by fresh legislation by an amending Act, such legislation is prospective in operation and does not effect substantive or vested rights of the parties unless made retrospective either expressly or by necessary intendment. We are further of the view that there is a presumption against the retrospective operation of a statute and further a statute is not to be construed to have a greater retrospective operation then its language renders necessary, but an amending Act which affects the procedure is presumed to be retrospective, unless amending Act provides otherwise. We have carefully looked into the new substituted section 15 brought in the parent Act by the Amendment Act, 1995 but do not find it either expressly or by necessary implication retrospective in operation which may affect the rights of the parties on the date of adjudication of suit and the same is required to be taken into consideration by the appellate Court. In Shanti Devi v. Hukum Chand, (1996) 5 SCC 768, this Court had occasion to interpret the substituted section 15 with which we are concerned and held that on a plain reading of section 15, it is clear that it has been introduced prospectively and there is no question of such section affecting in any manner the judgment and decree passed in the suit for pre-emption affirmed by the High Court in the Second Appeal. We are respectfully in agreement with the view expressed in the said decision and hold that the substituted Section 15 in the absence of anything in it to show that it is retrospective, does not effect the right of the parties which accrued to them on the date of suit or on the date of passing of the decree by the Court of first instance. We are also of the view that present appeals are unaffected by change in law insofar it related to determination of the substantive rights of the parties and the same are required to be decided in light of law of pre-emption as it existed on the date of passing of the decree.”

In the case of Ambalal Sarabhai Enterprises Limited v. Amrit Lal and Co., (2001) 8 sec. 397 the question for consideration before the Court was what is the effect of the amendment which incorporated Section 3(c) in the Delhi Rent Control Act, hereinafter referred to as the Rent Act in the pending eviction proceedings. It was held that

“36. In view of the aforesaid legal principle emerging, we come to the conclusion that since proceeding for the eviction of the tenant was pending when the repealing Act came into operation, Section 6 of the General Clauses Act would be applicable in the present case, as it is Landlord’s accrued right in terms of Section 6. Clause (c) of Section 6 refers to “any right” which may not be limited as a vested right but is limited to be an accrued right. The words ‘any right accrued’ in Section 6(c) are wide enough to include landlord’s right to evict a tenant in case proceeding was pending when repeal came in. Thus a pending proceeding before the Rent Controller for the eviction of a tenant on the date when the repealing Act came into force would not be affected by the repealing statute and will be continued and concluded in accordance with the law as existed under the repealed statute”.

In the case of Thirumalai Chemicals Ltd. v. Union of India, (2011) 6 sec 739 it was held that

“16. Therefore, unless the language used plainly manifests in express terms or by necessary implication a contrary intention a statute divesting vested rights is to be construed as prospective, a statute merely procedural is to be construed as retrospective and a statute which while procedural in its character, affects vested rights adversely is to be construed as prospective.”

In the case of Radiance Fincap Pvt. Ltd. v Union of India & Ors. (Civil Appeal No. 4283 of 2011) Date of Order 12-1-2015, it was argued by the UOI that in view of promulgation of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Ordinance, 2014 on 31-12-2014, by inserting the proviso to sub-section (2) of Section 24 of the Act, the period of stay obtained in the judicial proceedings shall be excluded for computation of five years’ period to hold that the acquisition proceedings are lapsed and, therefore, the said provision does not enure to the benefit of the applicants it was held that

“The right conferred to the land holders/owners of the acquired land under Section 24(2) of the Act is the statutory right and, therefore, the said right cannot be taken away by an Ordinance by inserting proviso to the abovesaid sub-Section without giving retrospective effect to the same.”

The aforesaid judgment was followed in the case of Arvind Bansal v. State of Haryana (Civil Appeal Nos.417- 418 of 2015 decided on 13-1-2015), Karnail Kaur v. State of Punjab (Civil Appeal No. 7424 of 2013 decided on 22.01.2015) and Competent Automobiles Co. Ltd. v. Union of India & Ors. (Civil Appeal No. 5054 of 2008 decided on 26-2-2015)

In the case of Videocon International Ltd.v SEBI (SC) Civil Appeal No. 117 of 2005 (Date of Order 13.01.2015) the facts were that as per Section 15Z of the SEBI Act prior to the amendment, potulated that the appellate remedy would extend to” …any question of fact or law arising out of such order.”. Whereas, the appellate remedy was curtailed consequent upon the amendment, whereunder the appellate right was limited to, “…any question of law arising out of such order.” It was held that

“28. In the facts and circumstances of this case, it is apparent that Section 15Z of the SEBI Act prior to the amendment, postulated that the appellate remedy would extend to “…any question of fact or law arising out of such order.”. Whereas, the appellate remedy was curtailed consequent upon the amendment, whereunder the appellate right was limited to, ” …any question of law arising out of such order.”. Accordingly, by the amendment, the earlier appellate package stands reduced, because under the amended Section 15Z, iris notopen to an appellant, to agitate an appeal on facts. That being the position, it is not possible for us to accept the contention advanced at the hands of the learned counsel for the appellant, that the amendment to Section 15Z of the SEBI Act, envisages only an amendment of the forum, where the second appeal would lie. In our considered view, the amendment to Section 15Z of the SEBI Act, having reduced the appellate package, adversely affected the appellate right vested of the concerned litigant. The right of appeal being a vested right, the appellate package, as was available at the commencement of the proceedings, would continue to vest in the parties engaged in a lis, till the eventual culmination of the proceedings.”

In the case of Dr. Bhim Rao Ambedkar Educational Society v CIT(E) ITA No. 25 of 2016 (Allahabad HC), the assessee made an application under Section 10(23C) which came to be rejected on 26-12-2008 and the order was served on the appellant admittedly on 6-1-2009. At that point of time, no statutory right of appeal was available against such an order. The right of appeal emerged only with effect from 1-6-2015 under the Finance Act, 2015 that inserted Clause (f) in Sub-section (1) of Section 253. The appellant has urged that that cause having arisen with this right of appeal, the limitation against the order dated 26-12-2008 deserves to be waived. It was held that

“The only ground seeking condonation of delay is that since the right of appeal has now been created, therefore, the appellant has a right of appeal against the order passed in 2008. We are unable to agree with this proposition inasmuch as, a right of appeal is a matter of procedure that gets converted into a substantive right as a creature of statute. The appeal has to be filed within the limitation prescribed. It cannot create a retrospective right to file an appeal which did not exist in the year 2008 or even on 6-1-2009 when the order was served on the appellant. In the absence of existence of such a right, it was open to the appellant to have filed a writ petition challenging the same in 2008-09. The very same view has been taken by the Tribunal and it has declined to grant any benefit of a bona fide act as urged by the appellant. The statutory remedy of appeal having come into existence on 1-6-2015, cannot be stretched retrospectively for extending the benefit a s claimed by the appellant for condoning the delay. The reliance placed on the judgment by the learned counsel for the appellant is misplaced and n o substantial question of law having arisen, the appeal deserves to be rejected.”

The Hon’ble Supreme Court in the case of Shah Sadiq & Sons 166 ITR page 102 has clearly laid down that the rights which have accrued are saved unless they are taken away expressly.

From the aforesaid judgments the principles laid down by the Courts the law appears to be well settled that right to appeal and connected petition with the appeal is a substantive right. The law as on the date of fling of the appeal should be applicable to all such matters. Therefore section 254(2) as amended in my view is applicable only to the appeal which are filed on or after 1-6-2016.

In that view of the matter, the decision of the Hon’ble Mumbai Bench of the Tribunal require reconsideration.

[Source : Article printed in souvenir of National Tax Conference held on 2nd & 3rd September, 2017 at Kolkata]


An education which does not teach us to discriminate between good and bad, to assimilate the one and eschew the other, is a misnomer.

— Mahatma Gandhi

Respected Professional Colleagues,

At last 22nd meeting of GST Council has given some breathing space to trade and industry people. Certain facilitative changes have been recommended to ease the burden of compliance on small and medium businesses. Some of them are :

Composition Scheme

a) Threshold turnover to opt for composition scheme is raised from ₹ 75 lakh to ₹ 1 crore. The option once exercised shall become operational from the 1st day of the month.

b) It has been decided that the persons, who are otherwise eligible for availing the composition scheme and are providing any exempt service, shall be eligible for composition scheme e.g. a doctor running a clinic (exempted service) can now opt for composition scheme for its pharmacy business.

Relief for Small & Medium Enterprises

a) Earlier any person providing inter-state service (other than job worker) was not eligible for threshold exemption of ₹ 20 lakh, however now such service providers are exempted from obtaining registration if their turnover is less than ₹ 20 lakh. Any person who has already taken registration may opt for cancellation.

b) Now small & medium businesses having turnover up to ₹ 1.5 crore shall file quarterly returns in GSTR-1, 2 & 3 Form and shall also make payment on quarterly basis. This provision shall be effective from October-December 2017 quarter. However, all taxpayers will be required to file Form GSTR-3B on a monthly basis till December, 2017.

c) Reverse charge mechanism u/s. 9(4) of the CGST Act and section 5(4) of the IGST Act shall be suspended till 31-3-2018.

d) Small units having aggregate turnover up to ₹ 1.5 crore are exempted from payment of GST on advance received towards supply of goods. GST shall be paid only on supply of goods. This exemption is not for supply of service.

e) Service of GTA provided to unregistered person shall be exempted from GST.

Other measures

a) Registration and operationalisation of TDS/TCS provisions shall be postponed till 31-3-2018.

b) E-way Bill shall be implemented in staggered manner w.e.f. 1st January, 2018 and full-fledged roll out w.e.f. 1st April, 2018.

Export benefit

a) Refunds of input tax for exports outside India shall begin from 10th October, 2017 for month of July and from 18th October, 2017 for month of Aug.

b) Refunds of IGST and input tax for export to SEZ shall begin from 18th October, 2017.

c) Merchant exporter can now procure goods from domestic supplier on payment of GST @ 0.1%. However, exporters holding adv. authorisation/EPCG and EOU can now procure goods from domestic supplier without payment of GST.

d) As a measure of relief, the Government has also extended the deadline for sale of pre-GST goods with stickers of revised rates by 3 months to December 31, 2017.

e) 27 items including unbranded namkeen, unbranded ayurvedic medicines, hand made yarn, ICDs food packages, khakra, chapatti, waste obtained from rubber, plastic and paper have been brought under 5% slab.

f) In a drive to curb black money and shell companies, the Government has collected vital information from the banks. 13 banks have submitted their data stating that 5,800 companies (out of more than 2 lakh that were struck off) were operating 13,140/- accounts. Few of the companies are found to have more than 100 accounts to their names. These companies were having a meager balance of ₹ 22.05 crore to their credit on 8th November, 2016, however from 9th November, 2016, till date they are struck off, these companies have altogether deposited a huge amount of ₹ 4,573.87 crore in their accounts and have withdrawn an equally large amount of ₹ 4,552 crore. This is the state of affairs of Indian economy and it is apprehended that this may be the tip of an iceberg of corruption, black money and black deeds of these companies.

g) On income tax administrative site, CBDT have issued an instruction No. 8/2017 dated 29th September, 2017 prescribing e-proceeding as a part of e-governance. E-proceeding would enable seamless flow of letters/notices, questionnaire, orders etc. from Assessing Officer to the account of concerned assessee in e-filing website. On receipt of departmental communication, assessee would be able to submit the response along with attachments by uploading the same on e-filing portal. The response submitted by the assessee would be viewed by the Assessing Officer electronically in Income Tax Business Application (ITBA module). It is also prescribed that in assessment proceeding being carried out through e-proceeding facility, a particular proceeding may take place manually e.g. where manual books of account or documents have to be examined or where notices u/s. 131 are to be issued or where examination of witness is required or where a showcause notice contemplating any adverse view is issued by the Assessing Officer and the assessee request for personal hearing to explain the matter.

Friends, lastly I have to state that the elections in the entire zone of our Federation are being held and I appeal to all the members to maintain decorum. The object of our Federation is a National Service and that too to impart education. This is a pious service which can be done even without having any post. Out past Presidents have built-up this organisation brick by brick and it is our duty to maintain its strength.

With these words I conclude my communiqué with the quote of Swami Vivekananda –

“Self-sacrifice, indeed, is the basis of all civilisations. Infinite patience, infinite purity and infinite perseverance are the secret of success in a good cause”.

With Best Regards

Prem Lata Bansal

National President