Hiregange & Associates LLP

Chartered Accountants

JULY 2021

• Unblocking of ITC in the electronic credit ledger after 1 year as per Rule 86A(3)
• Supply of medicine by the Charitable trust to patients at lower costs amounts to “Supply of
Goods”
• Levy of Interest under Section 50 of the CGST Act,2017 on delay in filing of returns
• GST on Residential Welfare Associations for contributions up to Rs. 7,500
• No transfer of ITC for shifting of business from one State to another State
• Preferential location charges are a composite supply

Bangalore | Mumbai | Hyderabad | Gurugram | Noida | Chennai | Pune |

Visakhapatnam | Guwahati | Vijayawada | Kolkata | Raipur | KochiPage
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Contents
1. Blocking of electronic credit ledger after 1 year is not allowed. ..................................................... 3
2. Supply of goods by the charitable trust is a business activity carried out for pecuniary
benefits........................................................................................................................................................ 3
3. Levy of Interest on availment of inadmissible ITC ............................................................................. 5
4. Exemption to collections made by Residential Welfare Associations wherein the
contribution exceeds INR 7,500 per member per month ................................................................. 6
5. Transfer of ITC not allowed on shifting of the factory from one State to another State ............. 7
6. Issuance of a non-speaking order .......................................................................................................... 9
7. No service tax on convenience fees received by PVR ......................................................................... 9
8. Once the Tribunal order has confirmed the matter, the Department cannot issue SCN. ......... 10
9. Service tax is not liable to be paid on liquidated damages. ............................................................ 11
10. Distribution of ITC through the ISD mechanism is optional and not mandatory....................... 13
11. Cenvat credit not mentioned in ST-3 is a mere procedural lapse ................................................. 14
12. Cenvat credit of repairs and maintenance done in the regular course of the manufacturing
process is allowed ................................................................................................................................... 15
13. Show Cause Notice without affording an effective pre-consultation is set aside ....................... 16
14. Amendment of shipping bill cannot be denied if the conduct is bonafide .................................. 17
15. SCN is to be set aside if the allegations of revenue are incorrect even if the appellants are
following wrong practices. .................................................................................................................... 18
16. CENVAT credit can be availed if service tax is paid on exempt services ...................................... 19
17. Preferential location service is part of the composite supply of construction services ........... 20

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1. Blocking of electronic credit ledger after 1 year is not allowed.

[M/s Aegis Polymers V/s UOI & Ors. (2021 (7) TMI 647 - Bombay High Court)]
The electronic credit ledger of the assessee was blocked on 28.01.2020 and a year has
been passed but the electronic credit ledger is not been unblocked by the Department. In
this regard, the Petitioner preferred a writ petition before the Hon’ble HC on the grounds
that the blockage of ITC would cease to have effect after one year under Rule 86A(3) of
the CGST Rules, 2017. The Hon’ble HC held that although there was some technical error
on the part of the Petitioner in submitting the details of the ITC. Nonetheless, as one year
has already passed since the blockage of ITC, the electronic credit ledger deserves to be
unblocked.

H&A Comments: Under the GST laws, there are some rigorous safeguards available to
the Government exchequer for ensuring the protection of the interest of revenue such as
provisional attachment, blocking of electronic credit ledger etc. In recent times, it has
been observed that such provisions are invoked without caution. Although there is a time
limit of one year provided to the Government for the continuation of such blockage, the
same is not being adhered to in many cases. Thus, the taxpayers can take recourse to this
order and seek relief. It is apposite to note that similar relief was also granted in Aryan
Tradelink Vs UOI [2021-TIOL-1283-HC-KAR-GST].

2. Supply of goods by the charitable trust is a business activity carried out

for pecuniary benefits
[M/S. Nagri Eye Research Foundation V/s Union of India [2021(7) TMI 822-
Gujarat High Court]]

The Petitioner is a registered charitable trust and undertakes educational and research
activities in the field of ophthalmology and the prevention of blindness. In addition to the
above activities, the Petitioner also runs a medical store for the inpatient and outpatient
of the hospital managed by the Petitioner. The medical store sells the medicine at a
concessional rate. The profit so earned from such a medical store is applied to meet the
administrative expenses. In the light of the above facts, the petitioner made an application
to the Gujarat Advance Ruling Authorities on the following questions:

 Whether the medicines supplied by the medical store at a concessional rate amount to
the supply of goods? and

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 Whether the medical store managed by the charitable trust is required to be
registered under the GST Act?

In response to the above advance ruling application, the Advance Ruling authority held
that the sale of medicines by the medical store at concessional rates amounts to the
supply of goods in accordance with Section 7 of the CGST Act, 2017 and the Petitioner is
liable to register under GST. The Petitioner appealed against the above advance ruling
before the Appellate Authorities wherein the advance ruling was upheld. To challenge the
order of the Appellate Authorities the Petitioner filed a writ petition. In the light of the
above facts, the HC held;

 As per the provisions of the GST Act, there remains no doubt that every supplier who
falls within the ambit of Section 22(1) of the CGST Act, 2017 has to get registered.
Further, as per Section 7(1) of the CGST Act, 2017, the expression ‘supply’ includes all
forms of supply of goods and services or both such as sale, transfer, barter etc. made
or agreed to be made for a consideration by a person in the course or furtherance of
business.
 It was held that there is a supply against the consideration by the medical store
although such supply is made at a concessional rate. Further, such supply is made in
the course or furtherance of the business of the Petitioner as ‘business’ means any
trade or commerce any trade, commerce, manufacture, profession, vocation,
adventure, wager or any other similar activity, whether or not for a pecuniary
benefit.

H&A Comments: Under the erstwhile VAT laws, the legal precedent pronounced by
courts was that in cases where the main intention is not to conduct the business but to
advance the objective of the charitable institute say spreading the message of a spiritual
group and the business is only an ancillary activity to such main objective then, sale of
goods by such charitable institutes cannot be considered as a sale liable to VAT [Ref:
Commissioner Vs Sai Publication [(2002) 258 ITR 70 (SC)]. After the advent of GST,
whether such a principle would hold any value or not was a debatable issue. In that
context, the above judgement has cleared the air by upholding that all the activities like
commerce or trade would be included in the definition of business whether such activities
are done for a pecuniary benefit or not.

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3. Levy of Interest on availment of inadmissible ITC

[M/S. F1 Auto Components P Ltd Versus The State Tax Officer, Chennai (2021 (7)
TMI 600 - Madras High Court)
The issue involved in the instant case is whether the reversal of inadmissible ITC would
attract interest under Section 50 of the CGST Act, 2017. Before the discussion of the order
issued by the Hon’ble HC, it is apposite to note that a registered person can discharge his
GST liability either by utilising the ITC availed by him which is held in the electronic credit
ledger or by cash deposited in the electronic cash ledger. So when ITC availed by a
registered person is ineligible, the amount of GST paid in cash falls short of the amount of
GST payable in cash for that particular tax period. In the light of these facts, the HC held
that;

 Interest on ITC paid back through electronic credit ledger: - The HC placed
reliance on the order passed in a writ petition filed by M/s Maansarovar Motors
Private Limited (W.P. Nos. 28437 of 2019 etc. batch, order dated 29.09.2020) and
held that interest is not liable to pay to the extent of reversal of ITC through electronic
credit ledger.
 Interest on ITC paid back through electronic cash ledger: - The Hon’ble HC held
that Section 50(3) of the CGST Act, 2017 makes provision for levy of interest in case of
mismatch of ITC claimed by a recipient with GSTR 1 by the supplier. Thus, interest
under Section 50(3) of the CGST Act, 2017 would be levied only if the excess availment
is a result of a mismatch of ITC claimed by a recipient with the GST liability reflected
by its supplier. Consequently, if a registered person avails any ITC which is otherwise
ineligible as per the provisions of the GST law then, interest would not be levied under
Section 50(3) of the CGST Act, 2017 and it would be levied on the rates prescribed
under Section 50(1) of the CGST Act, 2017.
 In the instant case, the Petitioner availed ineligible ITC. Thus, the HC held that interest
would be levied only on such ITC which is paid back through the electronic cash ledger
and would be levied under Section 50(3) of the CGST Act, 2017.

H&A Comments: The interest prescribed under Section 50(1) of the CGST Act, 2017 is
18% whereas the interest prescribed under Section 50(3) of the CGST Act, 2017 is 24%.
Section 50(1) supra provides for levy of interest on ineligible ITC whereas Section 50(3)
supra provides for levy of interest on reversal of ITC excessively availed owing to

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mismatch in ITC under Section 42 of the CGST Act, 2017. It is pertinent to note that the
system of matching under Section 42 of the CGST Act, 2017 is not in place as of date.
Further, Section 50(3) of the CGST Act, 2017 is the only provision that provides for levy of
interest on inadmissible ITC thus, many times the Department proposed levy of interest at
the rate of 24% on ineligible ITC. This order could be used in such cases to contend that
the interest on ineligible ITC would be levied at 18% and not at 24%.

4. Exemption to collections made by Residential Welfare Associations

wherein the contribution exceeds INR 7,500 per member per month

[Greenwood Owners Association v. UOI 2021-TIOL-1505-HC-MAD-GST]

The Petitioner sought advance ruling on taxability of contributions received by the
Resident Welfare Associations (‘RWAs’) from its members where such contribution
exceeds INR 7,500 per member per month. The Advance Ruling Authorities held that
GST is payable on the full value of consideration if such consideration exceeds INR
7,500 per member per month. The Petitioner filed a writ petition before the HC against
the advance ruling pronounced by the Advance Ruling Authorities. The Hon’ble HC
held that

 Sr. No. 77 of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017
grants exemption to such RWAs who receive consideration from their member
“upto” INR 7500 per member per month. Let’s understand this with an example, if
one RWA collects INR 8,000 per member per month from its members then, in such
case, the amount collected to the extent of INR 7,500 shall be exempt and only INR
500 would be taxable. Thus, the HC reversed the advance ruling pronounced by the
Advance Ruling Authorities.
 The principle upheld by the HC was that where an exemption is available up to a
certain amount, it will be available up to such amount even if the amount collected
exceeds the exemption limit. The Court held that Circular No.109/28/2019 dated
July 22, 2019, clarifying to the contrary is against the express language of
exemption entry.

H&A Comments: The plain language of the exemption entry is clear that the exemption
shall be available for the amount collected upto INR 7,500. However, the aforementioned

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circular issued by the Government clarified that if the contribution exceeds INR 7,500 per
member per month then, the GST shall be leviable on the full value of consideration. The
order issued by the HC has provided is in line with the intention and scope of the
exemption entry while also upholding that the circular is contrary to the exemption
notification. Further, circulars not in line with the intent of law are non-est in law [Ref:
Ratan Melting Wires case 2008 (231) E.L.T. 22 (SC).]

5. Transfer of ITC not allowed on shifting of the factory from one State to
another State
[MMD HEAVY MACHINERY INDIA PVT LTD 2021-TIOL-1423-High Court-Madras
High Court-GST]

The Petitioner shut down its factory in Ambattur, Chennai in Tamil Nadu and shifted to Sri
City, Andhra Pradesh during June 2016 i.e. before the implementation of GST. Now, the
Petitioner had accumulated Cenvat credit which had remained unutilized because the
petitioner was predominantly engaged in the export of final products. Therefore, the
Petitioner requested the Department to permit the transfer of accumulated Cenvat credit
from its Tamil Nadu factory to its new factory in Sri City, Andhra Pradesh in terms of Rule
10 of the Cenvat Credit Rules, 2004. It is pertinent to note that the Petitioner did not
follow the procedure prescribed in Rule 10 of the Cenvat Credit Rules, 2004 for the
transfer of Cenvat Credit from one unit to another unit. Upon implementation of GST, the
Petitioner transferred the unutilised Cenvat credit to GST by the filing of Form TRAN-1. As
the Petitioner did not have any business in the State of Tamil Nadu, the Petitioner filed a
writ petition requesting the HC to transfer the ITC to its unit situated in the State of
Andhra Pradesh or to allow a refund of such ITC. In the light of the above facts, the HC
held that;

 The Petitioner cannot be allowed a refund of Cenvat credit transitioned into GST in
Form TRAN 1 because the relevant provision i.e. Section 54 of the CGST Act, 2017 does
not allow refund of unutilised ITC upon shifting of the factory from one State to
another State.
 Rule 41 of the CGST Rules, 2017 prescribes the procedure for transfer of ITC upon
transfer, sale or merger of two registered persons. The HC held that the Petitioner

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could not transfer ITC by following the procedure prescribed in Rule 41 of the CGST
Rules, 2017 because shifting of the factory from one State to another State does not fall
in the transfer of business under sale, merger, demerger etc.

H&A Comments: The facts of the above case were limited to the transfer of Cenvat credit
which was transitioned under GST. However, the above order has highlighted the fact that
there is no mechanism prescribed for the transfer of unutilized ITC on shifting of business
from one State to another State.

The erstwhile Rule 10 of the Cenvat Credit Rules, 2004 prescribed a mechanism for the
transfer of Cenvat credit from one unit to another unit. However, the GST law does not
contain such enabling mechanism.
It is imperative to note that Rule 41 of the CGST Rules, 2017 prescribes a mechanism for
the transfer of ITC in case of transfer of business wherein there is a change in the
constitution of the person whereas Rule 41A of the CGST Rules, 2017 prescribes a
mechanism for the transfer of ITC in the case wherein a registered person chooses to opt
for separate registration for another unit mentioned in the same State.
However, in case if a registered person wishes to shift the unutilized ITC from one State to
another State then, he could not follow Rule 41 of the CGST Rules, 2017, as upheld by the
Madras HC in the above case and strictly speaking shifting of business from one State to
another State by one registered person would not constitute a change in the constitution
of the person. Further, Rule 41A of the CGST Rules, 2017 could not be applied on the bare
reading of the rules. Also, practically ITC-02 [the form prescribed for Rule 41A] would not
allow a transfer of ITC between two States.
It is also imperative to note that in RE: Shilpa Medicare Limited AAR No.
05/AP/GST/2020 dated 24 February 2020, the Advance Ruling Authorities allowed the
applicant to transfer ITC upon shifting of business from one State to another State.
However, this advance ruling might not be considered as a good precedent because the
provisions of transfer of ITC have not been properly appreciated by the authority.
Based on the above paragraphs, it transpires that there is still a lot of confusion regarding
the treatment of unutilized ITC upon shifting of business from one State to another State
and the solution for this issue may depend upon the facts and circumstances of the case.

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6. Issuance of a non-speaking order

[M/s SHRINIDHI TELEFILMS 2021-TIOL-1417-High Court-Karnataka High Court-

Service Tax]
The Appellant was issued a show cause notice. The Appellant replied the show cause
notice which culminated into an order. The Appellant filed an appeal against the order to
the Commissioner (Appeals). The Commissioner (Appeals) ruled against the Appellant.
The matter reached the Tribunal. The Hon’ble HC held that;

 Neither the Commissioner (Appeals) and nor the Tribunal has considered the
submissions made by the Appellant and by a cryptic and cavalier manner have decided
the appeals. Both the orders in appeals have been passed without assigning reasons.
 The impugned orders passed by the Assistant Commissioner, Commissioner of Central
Excise (Appeals) and the Tribunal cannot be sustained on the sole ground that both of
them have not considered the submissions made by the Appellant.
 The impugned orders are, therefore, quashed and the matter is remitted to the
Assistant Commissioner to afford an opportunity of hearing to the appellant and to
adjudicate the issue about the issue of penalty afresh.

H&A Comments: It has become customary for the Department to issue non-speaking
orders i.e. confirm demand/reject reasons without assigning reasons thereof. In such
cases, wherein the consequences for such lapse are costly, the taxpayers might choose to
not go on merits and get the matter remanded by higher appellate authorities/Tribunals.

7. No service tax on convenience fees received by PVR

[M/s PVR LTD Vs COMMISSIONER OF SERVICE TAX 2021-TIOL-368-CESTAT-New

Delhi-Service Tax]
The issue involved relates to the taxability of the 'convenience fee' charged by PVR
Limited (the Appellant) on its customers for online booking of movie tickets under the
category of 'online information and database access retrieval system (OIDAR)' services. In
this regard, it was held that;

 OIDAR services, covers in its scope, the services of online access to database or
retrieval of information thereof.

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 Any person who visits the website of the appellant to seek information about the show
timings or like information does not have to make any payment and it is only when a
ticket is booked online that a convenience fee is required to be paid by the user.
 The substance of the transaction is, therefore, to book a ticket online and thereby
engage in e-commerce
 However, by providing a facility of online booking of tickets, it cannot be said that the
Appellant has provided services of online access or retrieval of information.
 Service tax under the category of OIDAR, therefore, cannot be levied upon a user
merely because he receives a code for getting a printout of the ticket from the cinema
hall
 The aforesaid discussion leads to the inevitable conclusion that the convenience fee
charged by the Appellant would not be leviable to service tax as online access or
retrieval of information or database.

H&A Comments: It is pertinent to note that there is a difference between the provision of
services using the information technology and providing OIDAR services. This difference
becomes crucial under the GST laws as the provision of OIDAR services calls for a separate
set of compliances. Therefore, this order is favourable in cases wherein there is a thin line
of difference between the provision of services using the information technology and
OIDAR services.

8. Once the Tribunal order has confirmed the matter, the Department
cannot issue SCN.

[M/S Lekh Raj Narinder Kumar Versus CCE & ST- Panchkula - 2021 (6) TMI 705 -
CESTAT CHANDIGARH]
The Appellant is engaged in the business of export of goods and filed seven refund
applications for the period 2007-2010. The said claim was rejected by the Department
under various grounds and the matter went up to the Tribunal. The Tribunal passed an
order sanctioning the refund to the Appellant. Consequent to the Tribunal order, the
Appellant had filed a refund application with the department. Out of the total refund
claimed, except to the extent of INR 9,61,121/- the entire refund was sanctioned. Now the

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matter was presented before the Tribunal against the rejection of INR 9,61,121/-. In the
light of these facts, the Tribunal held that;

 Once the tribunal has passed an order sanctioning the order of Refund, the
Department has only two options viz. Option 1 is to sanction the refund suo-moto or
Option 2 is to challenge the order before the higher forums. Since the order was not
challenged at the higher forums, the only option left with the department is to sanction
the refund.
 However, the Department, instead of choosing to comply with the orders of the
Tribunal, proceeded to issue the SCN which is not permissible in law
 The contention of the revenue that the interest on the delayed refund cannot be
sanctioned on the ground that the Prayer clause does not include delayed interest is
not sustainable
 The act of the issuance of show cause notice to the appellant shows the arrogance of
the departmental officers and they have no faith in the judiciary. The said act of the
departmental officer cannot be appreciated. Further, these types of actions put the
burden on the Government Of India monetarily and otherwise. Further, the
Department losses the faith of the society.

H&A Comments: Many times when the refund claim is made a subject matter of litigation,
the taxpayers forget to claim interest on delayed payment of refund. In this regard, it is
pertinent to note that Section 56 of the CGST Act, 2017 provides that if a refund is not
sanctioned within 60 days from the date of receipt of application then, the applicant
would be entitled to interest on such delayed amount of refund for the period starting
from the date of receipt of application till the date of refund of such tax.

9. Service tax is not liable to be paid on liquidated damages.

[Ruchi Soya Industries Ltd Versus Commissioner of Customs [2021 (7) TMI 415 -
CESTAT NEW DELHI]
The Appellant has set up a project for the generation of electricity using wind energy
using Wind Turbine Generator (GTW) from M/s. Suzlon. The maintenance of the said
WTG is given to Suzlon Global Services Ltd. (SGSL). The Appellant has agreed with the
SGSL for the same. As per the said agreement, SGSL has to compensate the Appellant

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when the annual average machine availability falls less than 95% to 92.5% and thereafter
for every 1% fall subject to a prescribed limit. The Department conducted the audit at the
premises of the Appellant and found credit notes issued against the appellant by the SGSL
due to a fall in the annual average machine availability. The Department contended that
the said amounts were liable to service under section 66(D) of Finance Act, 1994 because
the Appellant is tolerating an act committed by the SGSL. In the light of the above facts, the
High court held that;

 The impugned clauses convey that the service provider has agreed to provide
maintenance service of as good as 92-95% accuracy and any downfall therefrom shall
not be tolerable to the service recipient instead the service provider shall be liable to
compensate the recipient.
 The machine availability clause in the present case, when read with the entire
agreement, reflects an apparent intent that the terms of the agreement shall not be
violated and that the service provider shall not compromise the quality of service.
Hence, it cannot, by any stretch of the imagination, cannot be called as the amount
received by the Appellant is in lieu of any service rendered by the appellant to M/s.
SGSL.
 First of all machine availability clause is not opined to be an act of tolerance on the
part of the appellant not even from the perspective of the dictionary meaning of the
word ‘tolerance’. Secondly, to fall under Section 66E(e), the act has still to be the
service by one person to be provided to another.
 It is clear from the facts that there is no denial on the part of the Department of the
fact that the Appellant/service recipient has already suffered service tax on the
invoices raised by M/s. SGSL from time to time. The credit note issued by M/s SGSL,
service provider is a refund of the excessive amount paid by the Appellant on account
of defined service to be provided by M/s SGSL. It does not represent any service
rendered by the Appellant to M/s SGSL to attract any service liability of the appellant.
 It should also be remembered that there is a marked distinction between ‘conditions
to a contract’ and ‘considerations for the contract’. A service recipient may be required
to fulfil certain conditions contained in the contract but that would not necessarily
mean that this value would form part of the value of taxable services that are
provided.

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 The Larger Bench of this Tribunal while deciding the issue in an appeal filed by M/s.
South Eastern Coalfields Ltd. Final order No. 51651 of 2020 has held that recovery of
liquid damage from the other party cannot be said to be an amount towards any
service per se. The purpose of imposing compensation is merely to ensure that the
defaulting act is neither undertaken nor repeated and the same cannot be said
towards tolerance of the defaulting party.
 It also relied upon the decision of Hon’ble Apex Court in the case of Association of
Leasing and Financial Service Companies vs. Union of India reported on 2010 (20) STR
417 (SC) wherein it has been held that when no service has been rendered, service tax
cannot be levied.

H&A Comments: It is a common belief in the Department that liquidated damages

received in any form are taxable. However, it is pertinent to note that the Tribunals and
the Courts have consistently held that the receipt of liquidated damages is not a service
leviable to service tax. The same legal principle is also upheld by international courts.
Thus, it seems that it is a battle worth fighting for.

10. Distribution of ITC through the ISD mechanism is optional and not
mandatory
[M/S Maini Precision Products Ltd Versus Commissioner of Central Tax,
Bengaluru East 2021 (7) TMI 457 - CESTAT Bangalore]

The Appellant, being a manufacturer and a service provider, availed Cenvat credit under
the erstwhile law for the period from FY 2014-15 to FY 2017-18 (till June). The Appellant
had multiple units in the State of Karnataka and after the implementation of GST, the
Appellant took one single registration in Karnataka. During the departmental audit, it was
observed that the appellants availed irregular Cenvat credit they did not distribute Cenvat
credit to other units located in Karnataka. In the light of these facts, the Bangalore CESTAT
held that;

• For the period before 01 April 2016, the appellants were not liable to distribute
CENVAT credit because before such date the distribution of Cenvat credit by ISD was
optional as the rule was that the credit "may be distributed".

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• For the period after 01 April 2016, as the eligibility of the Cenvat credit is not in
question, the net effect of not distributing the credit to various units would be NIL and
the situation would be revenue neutral as the balance credit is transitioned to GST in
one State in a single registration only.
• The non-distribution of credit by way of the ISD mechanism is condonable as a
procedural lapse. Thus, the demand is not sustainable and the same has been set aside
by allowing the appeal of the appellant.

H&A Comments: It is apposite to note that Section 20(2) of the CGST Act, 2017 provides
that ITC through ISD “may” be distributed subject to the following conditions whereas
Section 20(1) of the CGST Act, 2017 provides that the ISD shall distribute the ITC of CGST
as CGST or vice versa. Due to the usage of ‘shall’ under sub-section (1) and ‘may’ under
sub-section (2), there is confusion as to whether the distribution of ITC through the ISD
mechanism is optional or compulsory.
In this regard, the aforementioned order of the Tribunal could be used to contend that the
substantive provision for distribution of ITC through ISD is Section 20(2) of the CGST Act,
2017 whereas if one decides to distribute ITC through ISD then, it shall be in accordance
with Section 20(1) of the CGST Act, 2017. Thus, the distribution of ITC through ISD is
optional and not mandatory. Further, if one chooses not to distribute ITC through the ISD
mechanism then subject to the eligibility of such ITC, the registered person cannot be
asked to reverse the ITC which was not distributed through the ISD mechanism.

11. Cenvat credit not mentioned in ST-3 is a mere procedural lapse

M/S. Origin Learning Solutions Pvt. Ltd. Versus Commissioner of Service Tax,
Chennai [2021 (7) TMI 898 - CESTAT Chennai]
The Appellant is engaged in the export of services and had applied for refund under Rule
5 of Cenvat Credit Rules, 2004 for the period July 2013 to September 2013. The refund
was rejected on the ground that the Cenvat credit has not been shown in the ST-3 returns.
In the light of these facts, CESTAT observed that: -

 As the services have been exported, the service tax paid on the input services used for
the export of services should be refunded to the appellants as per Rule 5 of Cenvat
Credit Rules, 2004.

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 Further, the appellants have properly accounted in their books of account. Not
mentioning the Cenvat credit in ST-3 returns is a procedural lapse, which should be
condoned. Thus, the refund is eligible.
H&A Comments: This order could be relevant for the refund claims rejected on the
ground that the relevant disclosures are not made in the relevant returns. However, this
order could get questioned in respect of ITC availed under GST as one of the relevant
conditions for availment of ITC is punching of ITC figures in the GST returns.

12. Cenvat credit of repairs and maintenance done in the regular course of
the manufacturing process is allowed

[M/S Hindustan Zinc Limited Versus Commissioner, Central Goods, And Service
Tax, Udaipur 2021 (7) TMI 199 - CESTAT New Delhi]
The Appellants availed Cenvat credit with respect to repairs and maintenance of plant and
machinery. The Department disallowed such credit on the ground that the same
amounted to commercial or industrial construction. In the light of these facts, it was held
that;

 Invoices are not related to ‘Commercial Construction Service' rather they are input
services received in the course of the day-to-day running of the plant, operation, and
maintenance of STP plant, drain cleaning and scrap collection work, putting up of
safety signage in the plant area and also for earthwork and excavation work, etc. at the
'wet gas plant'. Further, a ‘jerosite pond' is essential for carrying out the
manufacturing of dutiable final products.
 These services are allowable as input services as no production can happen without
carrying out the essential operation in the plant or factory of the appellant of the
dutiable finished products.
 Repair and maintenance is a continuous process in this type of industry where the raw
mineral is processed, and the process is called ‘beneficiation’ for obtaining enriched
ore for further processing. Thus, these services are not classifiable as commercial
construction services, being in the nature of repair & maintenance.

H&A Comments: Section 17(5)(c) and (d) provides that the ITC of GST paid with respect
to the goods or services received for construction of immovable property shall not be

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allowed. Further, explanation to Section 17(5)(c) and (d) enlarges the scope of the
construction to include alterations or repairs also subject to capitalisation.
However, if such activities are used for plant and machinery then, the ITC is not blocked.
Although Section 17(5)(c) and (d) defines the term plant and machinery, however, there
is a lot of controversy surrounding this subject. In this regard, the above order might act
as a support for the availment of repairs credit in large scale industries wherein repairs
and maintenance are carried out frequently and involves huge investments.

13. Show Cause Notice without affording an effective pre-consultation is

set aside
[Dharamshil Agencies Versus UOI 2021 (7) TMI 1064 - Gujarat High Court]

The Petitioner was registered under the erstwhile Service Tax laws. The Petitioner was
audited by the Department. In furtherance of the audit proceedings, the Superintendent
visited the office of the petitioners and handed over a copy of the letter dated 12 April
2019 at 13.55 hours, calling upon the petitioners to remain present on the same day at 14
hours for a pre-show cause notice consultation. It was stated in the said letter/notice that
if the petitioners did not appear for such pre-show cause notice consultation, it would be
presumed that they did not wish to be consulted before the issuance of SCN. The
Petitioners, therefore, addressed a letter to the authority requesting another date for pre-
show-cause notice consultation as it was not possible to effectively make representation
on such short notice. Respondent No.2 issued the show-cause notice on the same day
demanding service tax along with interest and penalty. The Petitioner challenged such
show cause notice because an effective pre-show cause notice consultation was not
afforded. In the light of these facts, it was observed that: -

 As per Circular 10.03.2017, the Board had made the issuance of pre-show cause notice
consultation mandatory for the Principal Commissioner/Commissioner before the
issuance of show-cause notice in cases involving the demands of duty above INR 50
lakhs and that such consultation was made mandatory with an object to reduce the
litigations.
 The Petitioners have requested a reasonable time for the effective consultation,
without considering the said request, the Department issued the show-cause notice on
the same day. Such a high-handed action, not only deserves to be deprecated but to be

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seriously viewed. The show cause notice is in contravention of the mandatory
instructions given by the Board, therefore, is set aside.

H&A Comments: The object behind introducing the concept of pre-show cause notice
consultation was to reduce the litigation. The necessity of pre-show cause consultation
got amplified when the Department started issuing notices on an Adhoc basis without
making proper inquiries such as issuance of notice for the difference in turnover reported
in ST-3 returns and books of accounts. Various high courts have already quashed notices
issued without affording a pre-show cause notice consultation. However, this order has
gone a level up and held that not only a pre-show cause notice consultation is required
but it should be effective as well. Therefore, the High Court has set the principle that a
pre-show cause notice consultation should not be a mere empty formality but should be
effective as well.

14. Amendment of shipping bill cannot be denied if the conduct is

bonafide

[Commissioner of Customs V/s Angel Starch And Food Pvt. Ltd., 2021-TIOL-395-
CESTAT-MAD]
The Respondent filed drawback shipping bills and did not opt for the MEIS benefits while
filing such shipping bills. The Respondent applied to the Department for amendment of
such shipping bills to seek the MEIS benefits in addition to the drawback. The
Department rejected such an amendment. Against such rejection, the Respondent filed an
appeal before the Commissioner (Appeals) who set aside the order of the Department and
allowed the amendment of the shipping bill. The appeal is filed by the department against
the order passed by the Commissioner (Appeals). . In the light of these facts, held that;

 As per Section 41(3), if the proper officer is satisfied that the export manifest or export
report is in any way incorrect or incomplete and there was no fraudulent intention, he
may permit such manifest or report to be amended or supplemented. The Appellant
has requested for the amendment to include the MEIS benefit.
 Denial of such amendment on the flimsy grounds that the Department would not be
able to retrieve the shipping bill is bad in law. The appeal filed by the Department is
dismissed and the amendment is allowed.

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Chartered Accountants
H&A Comments: In addition to MEIS, this order might also be relevant for schemes that
are subsuming MEIS such as RODTEP. Thus, it is pertinent to note that when export
promotion schemes are otherwise eligible, one needs to relook at the relevance of
procedural aspects as in some cases, they might be condonable.

15. SCN is to be set aside if the allegations of revenue are incorrect even
if the appellants are following wrong practices.

[Larsen & Toubro Limited Vs C.C. 2021 ACR 99 CESTAT Ahmedabad]

The Appellant entered into a contract for the installation of the statue of Sardar Patel. For
such installation, the Appellant appointed a vendor in China for the fabrication and
delivery of the statue. The statue cannot be delivered as such owing to its size and thus,
was fabricated in pieces and shipped in the form of Bronze Cladding Panels (Micro Panels)
which were delivered in multiple shipments. The statue was imported as micro panels but
the components were assembled by way of welding by using filler metals. The Appellant
classified the statue as micro panels under CTH 8306 2110 and paid IGST @ 12%. The
Department issued a show cause notice alleging that the statue is classified under CTH
8311 9000 and subject to IGST @18%. The demand was confirmed and culminated in an
order. The Appellant challenged the order by way of appeal and it was observed that: -

 CTH 8311 is exclusively used for the goods which are coated or cored with flux
material and of a kind used for soldering, brazing, welding, or deposition of metal or
metal carbides; wire and wire rods of agglomerated metals, base metals powder used
for metal spray. Thus, only those goods which are used for welding, etc. would be
covered under this entry. However, the goods imported in this case are not used for
any of these purposes.
 The goods imported by the appellant are parts of the statute. If the contention of the
revenue is accepted, then the above statute should also be called welding material
because the statue is also the assembled form of the same imported parts.
 The goods imported are of bronze metal which is joined by way of welding and the
goods imported are not used as welding material. Welding material is classifiable
under CTH 8311.

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Chartered Accountants
 Further, the goods classifiable under CTH 8311 must be coated or cored with flux
material. But the parts of the statue are complete and do not have any coating or cored
with flux material.
 Also, the onus to prove as to how a particular item would be classified as on the
Revenue and in the instant case, the Revenue has not discharged such onus.
 Even assuming that the classification reported by the Appellant is incorrect, but since
the Revenue’s claim under CTH 8311 is incorrect, the classification adopted by the
Appellant will sustain.
 Further, the alternate heading under which goods can be classified is CTH 9703 0010
which covers original sculptures and the import duty leviable under this heading is the
same as that of CTH 8306 2110.
 Even if the heading CTH 9703 appears to be more suitable. However, no differential
duty will arise. Further, irrespective of whether the classification claimed by the
appellant is correct or not since the classification proposed by the Revenue is
incorrect, the entire cast of the Revenue would not sustain.

H&A Comments: This order is a classic example of challenging the orders wisely.
However, under GST, the Commissioner (Appeals) is also empowered to issue notice for
additional demand. Thus, using this strategy calls for caution under GST.

16. CENVAT credit can be availed if service tax is paid on exempt

services

[M/s Petro Carbon and Chemicals Pvt. Ltd Vs Commissioner of CGST And. CX
2021-TIOL-413-CESTAT-KOL]
The Appellant availed services of transportation of goods from foreign companies for
transportation of imported material into India. The foreign companies issued invoices to
the Appellant for the recovery of transportation charges and the Appellant is charged
appropriate service tax on such amount under reverse charge mechanism. The Appellant
also availed Cenvat credit of such service tax paid. The Department contended that the
said services are exempt and thus, the Appellant was not liable to discharge service tax on
such services and on this basis, the Cenvat credit availed by the Appellant is ineligible. On
an appeal, the Tribunal the following: -

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 Hiregange & Associates LLP
Chartered Accountants
 The revenue had not disputed that the services are used for the business purpose only
and also, the Appellant is availing cenvat credit of the service tax already paid by him
and thus, the entire situation is revenue neutral;
 The Appellant cannot be asked to reverse the Cenvat credit availed on tax paid under a
reverse charge basis when the payment is not disputed.

H&A Comments: If tax has been paid, even though it is not liable to be paid then, the
revenue cannot dispute the eligibility of Cenvat credit since the entire situation would be
revenue-neutral.

17. Preferential location service is part of the composite supply of

construction services

[Shreno Ltd Vs C.C.E. & S.T. 2021 ACR 98 CESTAT Ahmedabad]

The Appellant is engaged in real estate projects and recovered preferential location
charges along with the consideration for the supply of residential complex service. Service
tax has been paid by the Appellant at the same rate as applicable to the construction of
residential complex Service [i.e. on abated value]. The revenue contended that service tax
at full rate is liable to be paid on the recovery of preferential location charges and raised a
demand for the differential service tax amount. The Appellant paid such tax on the
premise of the revenue along with interest and sought a refund of such tax paid. However,
the revenue denied a refund. Being aggrieved, the Appellant filed an appeal and it was
observed that: -

 The preferential location is only for those customers who procure property from the
Appellant and also, the preferential location service is not allowed on a stand-alone
basis.
 Such preferential location service is a part and parcel of Construction of Residential
Complex Service. As per Section 66(F) of the Finance Act, preferential location service
and residential complex service are naturally bundled services and thus, the taxes to
be paid on preferential location charge will be at the same rate as that of construction
of Residential Complex Service.

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Chartered Accountants
H&A Comments: This judgement would be relevant under GST as well because a builder
receives a lot of charges which along with the construction service forms a part and parcel
of the construction services only.

Disclaimer: This material and the information contained herein prepared by Hiregange & Associates is intended for
clients and other Chartered Accountants to provide updates and is not an exhaustive treatment of such subject. We
are not, by means of this material, rendering any professional advice or services. It should not be relied upon as the
sole basis for any decision which may affect you or your business.

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 Hiregange & Associates LLP
Chartered Accountants

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