Article

Eligibility of Input Tax Credit vis-à-vis inherent loss of inputs during manufacture

By Charulatha R and Nimrah Ali

The Division Bench of Hon’ble Madras High Court recently in the case of Eastman Exports Global Clothing, settled an interesting question of law pertaining to the reversal of Input Tax Credit (‘ITC’) on the loss of inputs which is inherent to the process of manufacturing. Although the judgment pertains to the treatment of manufacturing loss under Section 19(9)(iii) of the Tamil Nadu VAT Act, the principle enunciated by the Court is very helpful in determining the entitlement of ITC vis-à-vis Section 17(5)(h) of the Central GST/State GST Act. The article notes that the Hon’ble Court emphasised on the test of indispensability of the input in the emergence of the end product, rather than its physical presence in the end product itself, to determine the faith of the claim of ITC on manufacturing loss. It also observes that the Eastman judgement might come to assistance against the contention that the inputs which are lost during the process of manufacture equals to inputs being ‘destroyed’ under Section 17(5)(h). The authors note that the judgement draws a distinction between goods ‘destroyed’ and goods ‘used’ in the manufacture. However, in the authors’ opinion, the principles enunciated in the judgment may not be applicable uniformly to all the instances of denial of ITC. It may be better to assess each situation individually on a case-to-case basis.

Goods and Services Tax (GST)

Notifications and Circulars

• E-invoice – Threshold limit to be decreased to INR 5 crore
• GTA services – Time limit to make a declaration to pay GST under forward charge, extended

Ratio decidendi

• Offline or online game of skill like ‘Rummy’ is not gambling or betting, even if played with stakes – GST not leviable – Karnataka High Court
• Ocean freight – Gujarat High Court directs refund of IGST paid during July 2017 to December 2019
• Construction service involving transfer of property in land – Deeming fiction about land cost is applicable only when assessee unable to supply bifurcation – Madras High Court
• Provisional attachment cannot be kept pending endlessly – Madras High Court
• Payment of tax in instalments – Benefit of Section 80 is not available if assessee filed even GSTR-1 – Madras High Court
• E-way bill – Conduct of the transporter is required to be examined before imposition of penalty – Calcutta High Court
• Regional Vigilance & Enforcement Officer of Home Department can conduct inspection of premises – Andhra Pradesh High Court
• Refund on account of SEZ supplies – Non-submission of physically signed and scanned declarations is not fatal – Rajasthan High Court
• Transporter cannot seek release of detained conveyance stating that tax has been paid by the concerned assessee – Madras High Court
• Appeal to Appellate Authority – Limitation – Four months is not 120 days – Allahabad High Court
• Application for Advance Ruling by recipient of service is maintainable – Calcutta High Court
• Manufacture with inputs from recipient when is supply of goods and not service – Rajasthan AAR
• Margin scheme is not available in case of purchase of old gold jewellery and sale thereof after melting – Karnataka AAR
• Charitable trust renting rooms to pilgrims when liable to GST – Gujarat AAR
• Bonus received from service recipient when is also liable to GST at the rate of service supplied – Telangana AAR
• Input Tax Credit when is not available on construction of shed using pre-fabricated structures – Telangana AAR
• Sale or right to use parking space service and construction service are not naturally bundled – West Bengal Appellate AAR

Customs

Notifications and Circulars

• Crude soyabean oil and crude sunflower seed oil – Exemption from BCD and AIDC when imported under Tariff Rate Quota authorisation
• Amnesty scheme for one-time settlement of default in export obligation under Advance authorisation and EPCG authorisation, clarified
• Apples import prohibited if CIF import price is less than INR 50 per kg

Ratio decidendi

• ‘Pre-import condition’ under advance authorisation scheme was not ultra vires Foreign Trade Policy – Supreme Court
• Modification of assessment order can also be sought under Section 149 – ‘Documentary evidence’ under Section 149 not includes decisions of Courts – Supreme Court
• Pipelines connecting two facilities around 217 km apart is eligible for EPCG scheme – Word ‘premises’ is wide enough to cover entire stretch – CESTAT Kolkata
• Drawback is required to be refunded on written-off unrealised export invoices – RBI Circular dated 12 March 2013 not affects exporters obligation in enactments other than FEMA – Delhi High Court
• No reassessment permissible after goods cleared for home consumption – CESTAT New Delhi

Central Excise, Service Tax & VAT

Ratio decidendi

• No service tax on hostel fees – Hostel services and education services are naturally bundled in the ordinary course of business of education services – CESTAT New Delhi
• Credit note issued to dealer in consideration of replacement of defective part under warranty is exigible to sales tax – Supreme Court
• Demand – Extended period – Suppression of facts must be wilful and with intention to evade, even when expression ‘wilful’ absent before words ‘suppression of facts’ – CESTAT Delhi
• User Development Fee collected by airports is a statutory levy even if not deposited in government treasury – Supreme Court
• Batteries specifically designed for use in solar power generating system qualify as non-renewable energy device – CESTAT Kolkata
• Fertilizer or plant growth regulator – Mere presence of micronutrients does not make a product a plant growth regulator – CESTAT Mumbai