AMIT BAJAJ ADVOCATE

In a significant ruling, the Gauhati High Court, in the case of Mahabir Tiwari v. Union of India, has set aside and quashed Notification No. 56/2023-Central Tax, dated December 28, 2023. This notification, which extended the time limit for issuing orders under Section 73(10) of the Central Goods and Services Tax (CGST) Act for the financial years 2018-19 and 2019-20, was deemed "ultra vires" (beyond legal power) due to the absence of a recommendation from the Goods and Services Tax (GST) Council.

The petitioner, Mahabir Tiwari, challenged the validity of the said notification, arguing that the extension of the limitation period for proceedings under Section 73 was invalid as it was done without the mandatory recommendation of the GST Council and without considering any "force majeure" conditions. The petitioner's firm had faced a demand of Rs. 1,20,01,973 based on an order passed on August 29, 2024, following the challenged extension.

The Core of the Legal Challenge: Section 168A and GST Council's Role

The crux of the matter revolved around Section 168A of the CGST Act, 2017, which grants the Government the power to extend time limits in special circumstances. Crucially, this power can only be exercised "on the recommendations of the GST Council by notification" and specifically for "actions which cannot be completed or complied with on account of force majeure". The petitioner contended that there was no force majeure as required under Section 168A for the extensions granted.

The High Court observed that Notification No. 56/2023-Central Tax, dated December 28, 2023, which extended the limitation for financial year 2018-19 until April 30, 2024, and for financial year 2019-20 until August 31, 2024, was issued without the recommendation of the GST Council.

Precedent and Judicial Reasoning

The court heavily relied on a similar case, Barkataki Print and Media Services v. Union of India, where a Coordinate Bench of the same High Court had already ruled Notification No. 56/2023-Central Tax to be ultra vires for the very same reason – being issued without the GST Council's recommendation.

In its detailed reasoning, the Gauhati High Court affirmed that the term "on the recommendation of the Council" in Section 168A implies that such a recommendation is a "sine qua non" or an essential prerequisite for the Government to exercise its power to extend timelines. The court cited the Supreme Court's observations in V.M. Kurian v. State of Kerala, emphasizing that the meaning of "recommendation" must be understood in the context of the rules and their objectives, signifying a "favourable report".

The judgment further delved into the constitutional framework of GST, particularly Articles 246A and 279A, highlighting the unique cooperative federalism inherent in the GST regime. The court clarified that while not all recommendations of the GST Council may be binding, the specific wording of Section 168A makes the existence of a recommendation a mandatory condition for exercising delegated legislative power. The court noted that the Central Government's admission of no recommendation from the GST Council, while still stating "on the recommendations of the Council" in the notification, amounted to a "colourable exercise of power".

Furthermore, the court found that the "force majeure" condition, which is a prerequisite for extensions under Section 168A, was not considered by the GST Council before the issuance of Notification No. 56/2023-Central Tax.

Outcome and Implications

In light of these findings, the Gauhati High Court concluded that Notification No. 56/2023-Central Tax was indeed ultra vires the Central Act and legally unsustainable. Consequently, the Demand-cum-Show Cause Notice dated May 30, 2024, and the subsequent Order-in-Original dated August 29, 2024, issued against Mahabir Tiwari, were also set aside and quashed, as they were based on an invalid extension of the limitation period.

This judgment reinforces the critical role of the GST Council in the Indian indirect tax system, underscoring that the Government's power to extend time limits under Section 168A is not unfettered but is contingent upon the specific recommendations of the Council and the presence of force majeure conditions. It provides significant relief to taxpayers affected by extensions issued without adherence to these statutory requirements.

Mahabir Tiwari vs. Union of India [2025] 175 taxmann.com 176 (Gauhati)[02-06-2025]

Amendment in section 7-Scope of supply:

Section of 7 of the CGST Act, 2017 deals with the scope of supply. It defines supply in an inclusive manner. It is proposed to add clause (aa) in sub-section 1 of section 7 which runs as under:

“(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice versa, for cash, deferred payment or other valuable consideration.

Explanation.––For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of 77 activities or transactions inter se shall be deemed to take place from one such person to another;”

The above amendment seem to have been carried out to nulify the landmark judgement of Hon’ble Supreme Court  in the case of  Calcutta. Club Limited (2017) 5 SCC 356 wherein the court held that service tax need not be charged by clubs for services to its members. The verdict was seen as also being applicable in GST as GST has replaced service tax.

Now after this amendment such transaction and activities will be covered by scope of supply.

It is pertinent to mention here that along with this amendment simultaneously para 7 of Schedule II to CGST Act is also proposed to be omitted, which provided the similar provisions which was deemed to be as supply even without consideration. Now after the amendment the said activites are itself included in the definition of scope of supply with a specific explanation overriding any other law or judgement contrary to it.

Amendment in section 16-Additional condition for claiming ITC:

 Section 16 of the CGST Act deals with the conditions for claiming input tax credit by any person. An additional condition is proposed to be added in section 16 which mandates that the invoice or debit note on the basis of which credit is taken must be uploaded in GSTR-1 by the supplier and the same should also have been communicated to the recipient in terms of procedure laid down in section 37. The proposed amendment is as follows:

“(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;”.

It is pertinent to mention here that the proposed amendment seem to have been added to provide a legal backing for Rule 36(4) of CGST Rules, 2017, which allows only 5% ITC in excess of eligible ITC available in respect of invoices or debit notes the details of which have been uploaded by the suppliers in GSTR-1 u/s 37(1) of CGST Act, if that be the case can it be said Rule 36(4) till date is ultra vires of the Act, is a question which could be subject to judicial scrutiny.

 Amendment in section 35 and 44-No requirement of GST audit:

 Section 35(5) which mandated for audit of annual accounts by a chartered accountant or cost accountant if turnover exceeded prescribed limit, is proposed to be omitted. Now after the amendment there will be no need of GST audit u/s 35(5). Section 44 simultaneously has also been proposed to be amended to provide that every registered person shall file an annual return  which may include a self certified reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year, with the audited annual financial statement for every financial year electronically, within such time and in such form and in such manner as may be prescribed.

The time period earlier prescribed for filing annual return as 31^st December every year now is also proposed to be amended within such time as may be prescribed.

Amendment in section 50-Interest only on tax paid through cash ledger:

 Section 50 is proposed to be amended to provide that interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in  accordance with section 39 of the Act, i.e. after the due date of GSTR-3B,   shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger.

In nut shel the proposed amendment provide for levy on interest only on that part of tax  which is paid from the cash ledger, if the return GSTR-3B is filed late.

 This amendment is proposed wef 01.07.2017. Similar amendment was also carried out in the Finance Act, 2019 however it was made applicable wef 01.09.2020. Now, the same is done with retrospective effect.

Amendment in section 75-change in definition of self assessed tax:

Section 75(12) which provides for the recovery of self assessed tax which remains unpaid as per GSTR-3b i.e. return filed u/s 39, is proposed to be amended to add an explanation which defines the word self assessment tax.

The proposed amendment defines self assessment tax  as including the tax payable in respect of details of outward supplies furnished u/s 37 but not included in a return furnished u/s 39.

 In other words the tax liability declared in  GSTR-1 but not declared in  GSTR-3b will be considered as self assessed tax u/s 75(12) and recovery of such tax can be initiated u/s 79 of CGST Act, 2017. It is pertinent to mention here that section 79 provides various modes of recovery of tax including attachment of immovable property etc.

Amendment in section 129, 130 and 74:  

Section 129 of CGST Act which deals with detention, seizure and release of goods and conveyance in transit  has been amended to a large extent.

 Unamended Section 129(1) provides that goods in  transit detained on the ground of their transportation in contravention of the provisions of the Act or rules shall be released either

(a)       on 100% payment of tax and penalty equal to 100% of tax payable in case of taxable goods and 2% of value of goods or 25000 which ever is less where the owner comes forward and

(b)       on deposit of applicable tax along with 50% of value of goods and in case of exempted goods in such case on deposit of 5% of value of exempted goods or 25000 whichever is less where the owner does not come forward

It is proposed to amend the above Clauses (a) and (b) of section 129(1) to provide that goods shall be released

(a) on penalty of 200% of tax payable on the goods in question, where owner comes forward

and

(b)on payment of penalty @ 50% of the value of goods or 200% of tax payable whichever is higher, where the owner does not come forward.

The word applicable tax has been omitted in the proposed amendment in both the above clauses. However the proposed  amendment would not result in any relief from the amount payable under section 129 as with deltetion of the words applicable tax, penalty amount has been doubled.

 The unamended provisions give an impression of double taxation because not only applicable tax is supposed to be paid u/s 129 but also is required to be paid in the returns filed u/s 39, since the ITC of tax paid u/s 129 is denied u/s 17(5) to the recipient, so in order to give ITC of the applicable tax on goods in question one has to pay applicable tax again u/s 39 in the return filed by such person.

After the amendment only penalty is payable u/s 129(1)(a) or (b), which can be further contested in appeal.

Amendment in section 74:

 Consequent to the amendment in section 129(1)(a) and (b) a simultaneous amendment is made in section 74 so as to make seizure and confiscation of goods and conveyances in transit a separate proceeding from recovery of tax.

No provisional release of goods detained u/s 129 on bond:

Sub-section 2 of section 129 is proposed to be omitted which provides for application of section 67(6) to the goods detained u/s 129. Section 67(6) provides for provisional release of goods seized upon execution of bond and furnishing of a security  or on payment of tax, interest and penalty payable.  Now after the amendment there will no provisional release of goods u/s 129.

Proceedings u/s 129 to be completed within 14 days:

Section 129(3)  is also proposed to be amended so as to provide that notice after detention or seizure will be issued within 7 days specifying the penalty payable and thereafter  an order shall be passed within a period of seven days from the date of service of notice for payment of penalty under clasue (a) or clause (b) of section 129(1).

Sub-section 6 of section 129 is also proposed to be amended to provide that if a person  transporting the goods or owner of the goods  fails to pay the amount of penalty u/s 129(1) within fifteen  days from the date of receipt of order then goods or conveyance so detained or seized shall be liable to be sold or disposed off in the manner and within the time prescribed.

The interesting thing in the amendment is that both goods and vehicle can be sold or disposed off to realize the penalty amount in case of non payment, However an option is proposed to be given to the transporter to get his conveyance released on payment of Rs. 1 Lakh or penalty u/s 129(3) which ever is less.

So the proposed amendment in section 129(6) itself provide for a procedure for realization of penalty instead of initiating  proceedings u/s 130

 Amendment in section 130:

 Consequent to amendment in section 129, amendment in second proviso to section 130(2)  is also made to provide for that the aggregate amount of fine in lieu of confiscation and penalty shall not be less than 100% of the tax payable on such goods, which in the pre-amended law is the amount equal to the penalty payable u/s 129(1).

Sub-section 3 of section 130 is also proposed to be omitted which makes the owner of the goods liable for payment of tax, penalty or other charges payable in respect of goods or conveyance confiscated. That means after the omission of sub section 3 only fine in lieu of confiscation and penalty which shall not be less than 100% of the tax payable, will be payable u/s 130 where the goods are confiscated.

Amendment in section 107-25% pre-deposit in appeal against  order u/s 129 :

 Section 107(6) is amended to provide that appeal against order u/s 129(3) will be filed only after a sum equal to 25% of the penalty has been paid by the appellant.

Amendment in section 83:

 Section 83 is amended so as to provide that that whenever proceedings under chapter XII(Assessments) Chapter XIV(Inspection , search and seizure) or Chapter XV(demand and recovery) are initiated the Commissioner may for the purpose of protecting interest of the Govt Revenue may provisionaly attach any propery belonging to any taxable person or any person specified u/s 122(1A). In the unamended section attachment could be done only during the pendency of proceedings u/s 62,64,67,73 or 74.

Amendment in section 16 of IGST Act-

There is a proposal for a major amendment in section 16 of IGST Act. Section 16(3) of IGST Act today provides that Export of goods or services can be done in two ways

One With payment of IGST where refund is automatically  given by customs

Two without payment of IGST where refund has to be applied of unutilized Input tax credit

Now the proposed amendment provides that export of goods or services will be done only without payment of IGST under a bond or LUT.

It is further provided in the proposed amendment that in case of non-realisation of sale proceeds within the time limit as specified under The Foreign exchange Management Act, 1999, the refund obtained would be deposited within 30 days along with interest.

It is pertinent to mention here that recently a similar Rule 96B was introduced vide Notification No 16/2020 Dated 23.03.2020. It seems this proposed amendment u/s 16 is also introduced to give a legal backing to the Rule 96B. It is strange that rules are introduced before the relevant amendment under the Act.

Under the proposed amendment it is further provided that export of goods or services with payment of IGST will be made only by those class of persons or in case of those class of goods, which are notified by the Government on the recommendation of the GST Council.

All the proposed amendments in the GST will be applicable from such date as the Central Government may by notification appoint.

With the advent of GST and dawn of old indirect tax regime in the form of  VAT, service tax and central excise etc, the State and Central Governments are looking forward to bring an end to the litigation in the older regime and in consequence thereof we are witnessing lot of dispute resolution schemes introduced by Central and State Governments.

The Punjab Government, Department of Excise and Taxation has also introduced a one time settlement scheme for outstanding dues under Punjab VAT Act , 2005 and CST Act, 1956(hereinafter called as relevant Acts) on 18.01.2021 and implemented wef 15.01.2021. The scheme aims at giving relief to the small taxpayers in the form of waiver from interest penalties and partial waiver from tax already due in the assessments. The various features of the scheme are as under:

1.   Applicability: The scheme is applicable for all the outstanding dues created in assessments completed till 31^st December 2020 under the Punjab VAT Act, 2005 and CST Act, 1956. One has to apply under the scheme by 30^th April 2021.

2.   Who can apply: Any persons whose assessment has been made under the relevant Act till 31^st December 2020 is eligible to apply under the scheme. Scheme is not applicable for those persons on whom penalty or other demand has been imposed/raised without assessment, for example scheme is not applicable for road side penalty u/s 51 of the Punjab VAT Act, 2005.

3.   Procedure:

(a) A person seeking to apply under the scheme has to file an application in form OTS-1.

(b) Additional statutory forms  for example C, F, H , I etc  if any, which could not be produced at the time of assessment  can also be submitted along with application for further reduction in additional demand.

(c)Along with the application proof of payment of tax determined under the scheme after waiver has also to be submitted.

(d) Once application is submitted an acknowledgement in form OTS-2 shall be issued.

(e) If all the tax determined and deposited is found to be correct along with other particulars required to be mentioned in the application, an order of settlement in form OTS-4 shall be passed or

(f) If there is any deficiency the a notice in OTS-3 will be issued to complete the same within 7 days.

4.   Appeal cases: The scheme is also applicable for appeal cases i.e cases where appeal is pending before any of the appellate authorities i.e the Deputy Excise and taxation commissioner (Appeals) or Tribunal or High Court or Supreme court. However in appeal cases a declaration shall be submitted that once the dues are settled under the scheme , the applicant shall withdraw such appeal within a period of seven days from the date of communication of order of settlement and the proof thereof shall be submitted to the concerned officer.

5.   Extent of waiver: The scheme provides for waiver of 100% of interest and penalty upto an additional demand of Rs. 500000/- and additional 90% waiver from tax in case where additional demand is upto Rs. 100000/-. There is no relief to taxpayers whose additional demand is more than Rs. 5 lakh. It is pertinent to mention here that additional demand is ussualy the sum total of tax interest and penalty imposed in the assessment order.     

The slab of additional demand has to be calculated (so far CST Act is concerned ) after reduction on account of additional statutory declaration forms.

It can be explained with the help of an example as follows:

Now in above example although additional demand as per assessment order is 150000/- but after submission of additional statutory forms if the reduction in tax and interest comes to Rs. 50000/- then the slab for giving waiver under the scheme would be Rs. 100000/- and thus there will be waiver from tax element  left after reduction  @ 90% apart from 100% waiver from interest and penalty.

In case of appeal where 25% of additional demand is already deposited which was a pre-requisite for entertaining an appeal on merits u/s 62(5) of Punjab VAT Act, 2005, the waiver will be such 25% of additional demand or the amount of waiver as per scheme as discussed above whichever is higher.

Certain terms and conditions:

(a)Application in form OTS-1 has to be filed saperately for every assessment year and accordingly order of settlement shall be issued under the relevant Act.

(b) No refund shall be given in respect of 25% deposited of additional demand in appeal cases.

(c) In appeal casee appeal has to be withdrawn within 7 days from the communication of order of settlement otherwise the order stands cancelled.

(d) An order of settlement shall not be reopened in any proceedings by way of review or revision or any other proceedings under the relevant Act.

(e) Any determined amount paid undrer the scheme shall not be refundable.

(f) No appeals against the settlement order shall lie before any of the appellate authorities

(g) Any tax shown as paid in the assessment order if is later found to be actually unpaid, then the same shall be recoverable along with applicable interest and penalty, if any, under the relevant provisions of the Act, notwithstanding with the scheme.

Table of waiver

The Notification of scheme can be downloaded herebelow:

Punjab OTS Scheme