JSA Newsletter | Indirect Tax | July 2025 edition

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Recent rulings by courts and authorities

High Court

Refund of unutilised ITC[1] upon business closure held permissible

In the case of SICPA India Private Limited and Anr. vs. Union of India and Ors.[2], the High Court of Sikkim (“Sikkim HC”) allowed the refund of unutilised ITC upon discontinuance of business.

The Petitioners had closed down their manufacturing operations in Sikkim and claimed refund of the accumulated ITC balance amounting to INR 4,37,00,000 (Indian Rupees four crore thirty-seven lakh) lying in their Electronic Credit Ledger. The refund application was rejected by the Assistant Commissioner and later affirmed by the Appellate Authority on the ground that refund of ITC is not permissible under Section 54(3) of the CGST Act[3] in cases of business closure, as the said provision is restricted to 2 (two) scenarios zero-rated supplies and inverted duty structure. It was argued that Section 49(6) of the CGST Act independently provides for refund of balance lying in the Electronic Credit Ledger after payment of tax, and that Section 54 of the CGST Act merely lays down the procedure for such refund.

The Sikkim HC held that there is no express bar in the CGST Act against refund of unutilised ITC in case of business closure, and that tax cannot be retained without authority of law. It was further held that availability of alternative statutory remedy does not bar exercise of writ jurisdiction in such cases involving pure questions of law.

JSA Comment: While the Sikkim HC has allowed the refund under section 54 of the CGST Act, which does not contemplate refund under the scenario of closure of business, the proposition will be tested by other high courts and ultimately by the Hon’ble Supreme Court of India (“Supreme Court”). It is worth noting that in the earlier regime of central excise, CESTAT and High Courts took divergent views, while (dis)-allowing refund under Rule 5 of CENVAT Credit Rules, 2004 read with section 11B of the Central Excise Act, 1944, which never contemplated refund under the scenario of closure of business.

ITC cannot be allowed when supplier has not deposited tax to the Government

The question of eligibility of recipient to avail ITC in absence of payment of tax by the supplier to the Government was considered by the Allahabad High Court (“Allahabad HC”) in the case of Trendships Online Services Private Limited vs. Commissioner of Commercial Taxes[4]. In the said case, the assessee procured goods from a dealer whose registration was subsequently cancelled. Assessee claimed ITC of tax paid by them to the supplier and subsequently claimed ITC of the same. An SCN[5] was issued to the Petitioner proposing to recover ITC claimed by the assessee on account of the fact that the supplier had not deposited the tax with the government. Demand was subsequently confirmed and appeal against the said order was dismissed. Hence the order was challenged before the Allahabad HC.

Denying the benefit of ITC to the Petitioner, the Allahabad HC observed that Section 16(2) is a non obstante clause and the conditions provided therein prescribe that registered dealer will be entitled to the credit of ITC provided: (a) he is in possession of a tax invoice or debit note issued by supplier; (b) he has received goods or services or both and (c) subject to the provisions of Section 41 and 43A of the CGST Act that the tax charged in respect of such supply has been actually paid to the Government. The eligibility and availment of ITC is subject to deposit of tax by the supplier as clearly contemplated under Section 16(2)(c) of the CGST Act. In the present case, the tax charged was never deposited by the supplier and no compliance of Section 16(2)(c) of the CGST Act was made. Once the supplier has not deposited the tax mandated under Section 16(2)(c), the recipient cannot claim the benefit of ITC. The Petitioner apart from the tax invoice could not bring any document before the taxing authorities to demonstrate that the supplier had supplied the goods and had deposited the tax with the Government as mandated under Section 16(2)(c) of the CGST Act. For the said reasons, it was ultimately held that the Petitioner is not entitled to claim ITC of tax paid on goods procured by them.

JSA Comment: In National Plasto Moulding[6], the Hon’ble Gauhati High Court in the batch of writ petitions, challenging the validity of Sections 16(2)(c) and 16(2)(d) of the AGST[7] as well as the validity of Sections 16(2)(c) and 16(2)(d) of the CGST Act[8], granted relief to the assessee, by placing reliance on the judgement of the Hon’ble Delhi High Court (“Delhi HC”) in the matter of Quest Merchandising India (P.) Ltd. vs. Government of NCT of Delhi[9]. In the said matter, Delhi HC observed that the provisions of Section 9(2)(g) of the DVAT Act[10] can be read down and the demand raised against the purchasing dealers, who have entered into bona fide transaction, cannot be sustained. SLP[11] filed against the said order was dismissed by the Supreme Court.

Divergent views across high courts would ultimately be settled by the Supreme Court.

GST[12] Notices to be served via alternate modes if the assessee is unresponsive on portal

In the case of Namasivaya Auto Parts vs. Deputy State Tax Officer[13], the Madras High Court (“Madras HC”) set aside an ex-parte assessment order passed under the CGST Act for AY 2017–18, on the ground that the department failed to ensure effective service of the SCN beyond uploading it on the common portal.

It was submitted that notices issued in Form DRC-01A and Form DRC-01 were uploaded on the ‘Additional Notices and Orders’ tab of the GST portal, but no physical or alternative delivery was attempted, leaving the petitioner unaware of the proceedings. The Madras HC agreed, holding that while portal-based service is legally valid, in cases where the assessee fails to respond, the officer is duty-bound to explore alternate modes of service under Section 169(1) of the CGST Act particularly via ‘registered post acknowledgement due’ to achieve the substantive object of the CGST Act.

The Madras HC observed that a mere procedural compliance through digital upload, without ensuring actual notice, would render the process ineffective and lead to multiplicity of litigation. Emphasising judicial economy and fairness, the Madras HC quashed the assessment order and remanded the matter to the adjudicating authority with directions to allow the petitioner to file a reply and be granted a personal hearing, subject to a deposit of 25% of the disputed tax.

In absence of municipal legislation, Article 24 of AIFTA[14] is not enforceable

In the case of Purple Products Private Limited and Kothari Metals Limited vs. Union of India and Ors.[15], the Bombay High Court (“Bombay HC”) dismissed the petitions challenging show cause-cum-demand notices issued under Section 28 of the Customs Act[16] in connection with benefits availed under Customs Notification No. 46/2011 dated June 1, 2011, concerning import of Tin Ingots from Malaysia under the AIFTA. It was contended that since the dispute pertained to Rules of Origin, the authorities lacked jurisdiction to proceed without following the special dispute resolution mechanism under Article 24 of AIFTA. It was further argued that once a valid Certificate of Origin (“COO”) was issued by the Malaysian authorities, Indian Customs authorities were denuded of jurisdiction, unless the treaty-mandated resolution mechanism had been exhausted. It was the case of the petitioner that AIFTA, being a binding treaty, should override domestic procedure and customs authorities could not unilaterally deny the benefits without invoking ASEAN-India protocols.

Rejecting these contentions, the Bombay HC observed that Article 24 of AIFTA had not been transformed into or incorporated under municipal law and therefore was not directly enforceable in Indian courts. The Bombay HC reaffirmed that India follows a dualist-system and a treaty does not automatically form part of domestic law unless implemented through legislation. It also held that Section 28 of the Customs Act independently empowers authorities to investigate instances of fraud or misrepresentation, and the issuance of SCNs in such cases was valid.

JSA Comment: The premise of challenge in instant case was the lack of jurisdiction of proper officer under section 28 of the Customs Act. In its categorical observation viz. “there is no legal or jurisdictional infirmity in the issue of such show cause notices. The provisions of Article 24 of AIFTA do not deprive the customs authorities of their powers or jurisdiction to issue such show cause notices”, the Bombay HC clarifies that genuineness of COO is subject matter of jurisdiction of the proper officer and that he has sufficient power to investigate into and adjudicate upon violations due to misrepresentation, suppression or fraud.

Customs Excise Service Tax Appellate Tribunal

Licensing fee for erection and maintenance of mobile towers cannot be subject to service tax under ‘renting of immovable property’

The Kolkata bench of CESTAT[17] in the case of M/s. Patna Municipal Corporation vs. Commissioner of Central Excise and Service Tax[18] examined the applicability of service tax on licensing fees collected by the municipal corporation for erection and maintenance of mobile towers. In the facts of the case, the appellant was issued a SCN wherein demand of service tax was raised inter-alia on the licensing fees collected by the Appellant for the purposes of allowing to erect and maintain mobile towers on a specific premise.

In this regard, the CESTAT observed that the aforesaid activity is in the nature of granting permission to the companies to erect and maintain their mobile towers. Payment for acquiring the permission cannot be considered as ‘rent’ to fall within the definition of ‘renting of immovable property; service as defined under Section 65(105)(zzzz) of the Finance Act, 1994. In the present case what is being collected is a ‘licensing fee’ for granting permission and not a periodical rent as alleged. Thus, it cannot qualify as renting of immovable property.

Classification of LNB[19] under Heading 85437099 confirmed, upholding the CBEC[20] Circular

In the case of Dish TV India Limited vs. Commissioner of Customs, Central Excise and GST, Nagpur[21], CESTAT, Mumbai held that LNB merits classifiable under Tariff Heading 85437099, as per CBEC Circular No. 13/2013-Customs dated April 5, 2013 (“Circular”).

The dispute arose regards classification of imported LNBs used by the appellant in the manufacture of set-top-boxes. The appellant relied upon the Circular along with HSN[22] explanatory notes and classified the goods under Heading 8543. However, the Department contended that post-GST notifications, particularly Notification Nos. 01/2017-Integrated Tax (Rate) and 50/2017-Customs (as amended), altered the applicable tariff interpretation and necessitated classification under Heading 8529 as parts of television receivers.

It was held by the CESTAT that the said GST rate notifications did not override the Customs Tariff Schedule or affect classification principles under the Customs Act, as they were not issued under Section 11A of the Customs Tariff Act, 1975. It was observed by CESTAT that the Rules of Interpretation of the First Schedule and CBEC circulars remain applicable even after rate changes under GST laws, and the classification guidance issued via the Circular remains binding for uniformity in classification, as per Section 151A of the Customs Act.

It was further held that the proviso to Section 151A of the Customs Act, which protects quasi-judicial discretion in individual assessments, does not prevent the CBEC from issuing clarificatory circulars on classification. CESTAT also distinguished between legitimate binding classification guidance and mechanical direction in assessment, reiterating that the Circular merely aids uniformity and does not interfere with judicial process.

JSA Comment: The instant ruling fortifies the position that notification cannot alter the tariff classification. It is a settled position of law that a notification cannot alter the tariff classification of a particular good, as emphasised by the Supreme Court in Eskayef Limited[23], that an exemption notification cannot change classification of goods from one entry to another.

Courtroom updates

Supreme Court

Income earned on account of service claimed as export under the category of Business Auxiliary Service is not chargeable to service tax

In a significant development, the Supreme Court put an end to the long-drawn dispute regarding characterisation of transactions viz. service provided by Indian agents to a foreign entity, as export of services or otherwise, in pre-2012 regime of Export of Services Rules, 2005. Earlier, in the case of Paul Merchant vs. CCE Chandigarh[24], 3 (three) member bench of the CESTAT, Delhi, by a majority decision dated November 27, 2012, held that services provided by Indian agents to an Ireland-based entity qualified as export of services. The key proposition laid down by the CESTAT was that the ultimate beneficiary of the services rendered by the Indian entity during July 1, 2003 to June 30, 2007 was the Ireland-based principal of Paul Merchants. Thereafter, the Commissioner of Central Excise, being aggrieved by the CESTAT decision filed an appeal before the Hon’ble High Court of Punjab and Haryana. The said appeal filed by the service tax authority before the Hon’ble High Court of Punjab and Haryana was dismissed on May 23, 2024.

Finally, the Supreme Court in appeal against Vodafone, Microsoft Corporation, Samsung, IBM, Abban Offshore affirmed the order of the High Courts and the CESTAT, inter-alia, ruling that such transaction qualifies export of services and the income earned on account of service claimed as export under the category of ‘Business Auxiliary Service’ is not chargeable to service tax.

Petitions against delayed adjudication to be kept in abeyance

High Courts in writ jurisdiction were granting relief to taxpayers by way of setting aside the delayed adjudication and SCNs issued under the Central Excise Act, 1944, The Finance Act, 1994 and the Customs Act. In a major development, the Supreme Court in respect of petitions filed by the Central Government challenging the orders passed by the Delhi HC, affecting approximately 250 (two hundred and fifty) cases, directed the High Courts and CESTAT across the country to keep the matters in abeyance till the issue attains finality in their determination.

Legislative development

West Bengal retrospectively withdraws, rescinds, revokes and discontinues the incentive schemes

State of West Bengal under various schemes of incentives (“incentive schemes”), since 1993, extended several benefits such as financial incentives, waiver of interest, duties, refund or exemption or remission or reimbursement of taxes, tax incentives etc., to promote industrial development in the State. The incentive schemes attracted industries across sectors, resulting in setting up of new units as well as expansion of existing units. The State withdraws incentive schemes by virtue of The Revocation of West Bengal Incentive Schemes and Obligations in the Nature of Grants and Incentives Act, 2025 (“Revocation Act”).

Section 3 of the Revocation Act, which starts with a non-obstante clause, retrospectively withdraws, rescinds, revokes and discontinues the incentive schemes from the date of implementation of the respective schemes. Further, the said provision in clear terms have an over-ridding effect on any scheme, grant, obligation of the state, any judgment, order, decree of a court etc. It makes no exception.

Section 4 of the Revocation Act, absolves the State of any liability or obligation which may arise as a result of any judgment or decree, passed under the incentive schemes. Further, it is stated that the no proceeding or a suit may be initiated against the State for claiming any incentive under the incentive schemes.

JSA Comment: Industrial units enjoying the benefit of incentive schemes in the State would be impacted at 2 (two) different levels viz. direct financial impact and impact on account of change/modification made in the business in light of the promise made in the scheme, when originally granted. Units thus impacted, could consider challenging the Revocation Act in extra-ordinary jurisdiction of the High Court under Article 226 of the Constitution of India.

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