Fact of the Case: The petitioners were holding companies which had furnished corporate guarantees in favour of their subsidiary companies to banks/financial institutions for securing credit facilities. These corporate guarantees were generally furnished without receiving any consideration or commission from the subsidiaries. The GST authorities treated such corporate guarantees as a supply of service and sought to levy GST by applying Rule 28(2) of the CGST Rules, which prescribed the value of the corporate guarantee at 1% of the amount of the guarantee per annum or the actual consideration, whichever was higher. The petitioners challenged the constitutional validity of Rule 28(2), the related provisions of the CGST Act, the retrospective levy, the relevant circulars and the proceedings initiated under Section 74.

Held by court : The Gujarat High Court partly allowed the writ petitions. The Court held that Rule 28(2) of the CGST Rules is constitutionally valid, but the expression “whichever is higher” has to be read down. The Court also held that GST on corporate guarantees furnished prior to 26 October 2023 under Rule 28(2) is violative of Articles 14 and 19(1)(g); however, where such guarantees continued, the levy would apply from 26 October 2023. The Court further upheld Section 15(4) of the GST Acts.

The Court also quashed and set aside the proceedings initiated under Section 74, holding that the circumstances did not establish the required fraud, wilful misstatement or suppression of facts. The Court directed that any excess GST deposited should be refunded or adjusted, and the impugned circulars were set aside to the extent they were contrary to the judgment.

Fact of the Case: The DGGI, Mumbai Zonal Unit, was investigating M/s Alphaneon Techsolutions Pvt. Ltd. and its group entities for alleged wrongful availment and passing of Input Tax Credit without actual supply, circular invoicing and non-payment of GST on import of services. The respondent, Sunil Biyani, was found at the premises during inspection. Three summonses under Section 70 of the CGST Act were issued to him. After seeking adjournments, he applied for anticipatory bail before the Sessions Court, which was rejected, and thereafter approached the Bombay High Court.

The Department stated that no order under Section 69 had yet been passed since investigation was at a nascent stage. The High Court rejected anticipatory bail because there was no existing apprehension of arrest, but nevertheless granted one week’s protection from arrest from communication of any future Section 69 order. The Union of India challenged this protection before the Supreme Court.

Held by court : The Supreme Court held that once an application seeking pre-arrest bail is dismissed as non-maintainable, the High Court or Sessions Court cannot nevertheless grant protection from arrest in the nature of interim relief. Interim relief must be ancillary to substantive relief and cannot survive dismissal of the main proceeding. Accordingly, the one-week protection granted by the Bombay High Court was set aside.
However, the Supreme Court accepted that an order passed by the Commissioner under Section 69 is a sine qua non for seeking anticipatory bail and must therefore be communicated to the person sought to be arrested. Communication enables the person to challenge the arrest authorisation, including the Commissioner’s “reasons to believe”, and to exercise the remedy of anticipatory bail. The order may also be communicated electronically. Significantly, the Court expressly reiterated that without communication of the Section 69 order, the question of arrest would not arise.

Fact of the Case: The petitioner, engaged in sorting, blending, processing and packing tea for Hindustan Unilever Limited, had availed CENVAT credit under the erstwhile Service Tax regime. On introduction of GST from 01.07.2017, its unutilised CENVAT credit was transitioned under Section 140 of the CGST Act through GST TRAN-1 and reflected in its Electronic Credit Ledger. Subsequently, demands were confirmed against the petitioner by an Order-in-Original dated 27.12.2023.

The petitioner appealed before CESTAT and made the mandatory pre-deposit of ₹79,77,301 by debiting its Electronic Credit Ledger through GSTR-3B. CESTAT rejected this mode, relying principally upon CBIC Instruction dated 28.10.2022, holding that pre-deposit in legacy matters had to be made through cash on the designated portal. The petitioner therefore approached the Karnataka High Court challenging CESTAT’s order and claiming that transitioned CENVAT credit could validly satisfy the statutory pre-deposit requirement.

Held by court : The Karnataka High Court held that Section 35F does not prescribe an exclusive mode for making pre-deposit; neither does it mandate cash payment nor prohibit utilisation of available credit. Section 140 of the CGST Act preserved the petitioner’s vested CENVAT credit by transitioning it into the Electronic Credit Ledger. Such transition did not create new credit but merely preserved existing credit in another form. The Court also relied upon Yasho Industries Ltd. and Army Welfare Housing Organisation.

The Court further held that the CBIC Instruction dated 28.10.2022 merely provides an administrative procedure for cash payments and cannot override statutory provisions or judicial precedents. Accordingly, the Court quashed CESTAT’s order and declared that the ₹79,77,301 pre-deposit made by debiting the Electronic Credit Ledger through GSTR-3B constituted valid compliance with Section 35F. CESTAT was directed to entertain and adjudicate the appeal on merits.

• Deputy State Tax Officer, Tax Payer Services Circle, Kannur North
• Deputy Commissioner (Arrear Recovery), State GST Department
• Central Board of Indirect Taxes & Customs, GST Policy Wing
• State of Kerala

Fact of the Case: The petitioner, Rakesh Krishnan, proprietor of Peekey Builders and Interiors, was a registered taxpayer under the CGST and SGST Acts. An Order-in-Original under Section 73 of the SGST Act denied Input Tax Credit claimed for February 2020 and March 2020 on the ground that the relevant returns had not been furnished within the time prescribed under Section 16(4) of the CGST Act. The assessment order was dated 16.08.2024, followed by recovery proceedings.

The petitioner approached the Kerala High Court contending that he was entitled to the benefit of Section 16(5) of the CGST Act because the relevant returns had been furnished before the statutory cut-off date of 30.11.2021. The Court noticed from the impugned order itself that the returns for February 2020 and March 2020 had been filed on 06.11.2020 and 14.11.2020 respectively, both well before the cut-off date prescribed under Section 16(5).

Held by court : The Kerala High Court found merit in the petitioner’s contention. It observed that Section 16(5) permitted the petitioner to claim Input Tax Credit because the returns pertaining to February 2020 and March 2020 had been filed within the applicable cut-off date of 30.11.2021. The returns were admittedly furnished on 06.11.2020 and 14.11.2020 respectively. Consequently, denial of ITC solely with reference to the earlier limitation contemplated under Section 16(4) required reconsideration in light of Section 16(5).

Accordingly, the High Court disposed of the writ petition by quashing Ext.P2, the assessment Order-in-Original dated 16.08.2024. The competent officer was directed to reconsider the matter and grant the benefit of Input Tax Credit to the petitioner in light of Section 16(5), if the petitioner is otherwise eligible. Thus, the Court did not grant unconditional ITC but directed its grant subject to satisfaction of the other eligibility requirements.

Fact of the Case: DGGI alleged that M/s Nikita Industries Pvt. Ltd. (“NIPL”), of which Manoj Bansal was a Director, fraudulently availed ITC of approximately ₹15.44 crore on invoices issued by 31 bogus/non-existent firms without actual receipt of goods. Investigation alleged that the petitioner purchased lead metal from the open market without invoices and obtained invoices from dummy firms to enable NIPL to avail fraudulent ITC. A complaint under Section 132(1)(b) and (c) of the CGST Act was instituted against Manoj Bansal.

The petitioner approached the High Court seeking quashing of the complaint and subsequent proceedings. His principal contention was that NIPL was the registered person that allegedly availed the ITC, whereas the criminal complaint arraigned only him and not NIPL. Therefore, prosecution of the Director based on the company’s alleged offence was not maintainable without prosecuting the company itself.

Held by court : The High Court observed that Section 137 of the CGST Act and Section 141 of the Negotiable Instruments Act are pari materia. Relying principally upon the Supreme Court’s decision in Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd., the Court held that commission of the offence by the company is an express condition precedent for attracting the vicarious liability of its Director. Consequently, where the offence alleged is that of the company, prosecution of the Director alone cannot be sustained without arraigning the company.

The Court further noted that NIPL was the “registered person” under Section 2(94) and was the entity that allegedly availed fraudulent ITC. Accordingly, the complaint against Manoj Bansal and all subsequent proceedings were quashed. The Court, however, expressly granted liberty to the authorities to proceed for the offence under Section 132 of the CGST Act in accordance with law.