Notification No. 3/2023 - Compensation Cess (Rate) dt. 26.07.2023-Is it retrospective?, Goods and Services Tax - GST

[k.lakshmipati rao]

Dear Experts,

Greetings for the Day!

The 50th GST Council Meeting held on dt.11-07-2023. On the recommendations of GST Council, below Notification issued.

Notification No. 3/2023 - Compensation Cess (Rate) dt. 26.07.2023:

(xlv) against S. No. 52B, in column (3), for the entry, the entry “Motor vehicles known as Utility Vehicles, by whatever name called including Sports Utility Vehicles (SUV), Multi Utility Vehicles (MUV), Multi-purpose vehicles (MPV) or Cross-Over Utility Vehicles (XUV), with engine capacity exceeding 1500 cc ; Length exceeding 4000 mm and Ground Clearance of 170 mm and above.

Explanation: For the purpose of this entry, the Ground Clearance means ground clearance in unladen condition.” shall be substituted;

This notification shall come into force on 27th July 2023.

However, the GST dept., issued SCN demanding CESS @22% retrospectively w.e.f. 11-09-2017, under entry 52B by virtue of Notification No.05/2017- Compensation CESS (Rate) date 11-09-2017.

Therefore, I request the Experts to share any Supreme Court orders, wherein, we can find that any Clarifications, Amendments, Explanations of any previous Law whether Prospective or Retrospective in Nature?

Best wishes

K.Lakshmipati Rao

9618904545

Posts / Replies

[Amit Agrawal]

In the context of the query raised, one should note Section 11(3) of the CGST Act, 2017 which reads as follows:

"The Government may, if it considers necessary or expedient so to do for the purpose of clarifying the scope or applicability of any notification issued under sub-section (1) or order issued under sub-section (2), insert an explanation in such notification or order, as the case may be, by notification at any time within one year of issue of the notification under sub-section (1) or order under sub-section (2), and every such explanation shall have effect as if it had always been the part of the first such notification or order, as the case may be."

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

As per minutes of 50th GST Council Meeting, 'It has been decided to amend the entry 52B in compensation cess notification to include all utility vehicles by whatever name called provided they meet the parameters of Length exceeding 4000 mm, Engine capacity exceeding 1500 cc and having Ground Clearance of 170 mm & above and to clarify by way of explanation that ‘Ground clearance’ means Ground Clearance in un-laden condition.'. 

I do not see how such 'amendment and explanation' can be treated as 'retrospective'. You can find so many judgements in your support. 

But, before answering this any further, can you please explain why (& on what basis) Dept. is calling this as retrospective amendment? I need the 'wordings' used by Dept. in this regard while issuing the SCN. 

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[k.lakshmipati rao]

Many Thanks to Mr. Amit Agarwal ji for your quick response. The contents of SCN are as under.

In view of the above notification/press release/Circular, it has been clarified that the ground clearance of vehicles in un-laden condition needs to be measured. The explanation only serves the purpose of clarification and does not amend the already existing statue established by any previous notification.

In view of above, it appears that the vehicles satisfy all four conditions required for applicability of Compensation Cess @ 22% in terms of entry No.52B of Notification No.5/2017 Compensation cess rate, however, the Registered person has discharged compensation Cess @20% and thus short paid compensation cess.

[Amit Agrawal]

Dear Querist,

Kindly note that it is NOT the Dept's case that Notification No. 3/2023 - Compensation Cess (Rate) dt. 26.07.2023 is retrospective in nature.

Demand raised by Dept. is based in their interpretation of Notification No.05/2017- Compensation CESS (Rate) date 11-09-2017 wherein they are using Notification No. 3/2023 - Compensation Cess (Rate) dt. 26.07.2023 just as an 'additional support'. 

Mere quoting series of judgements where amendments were not treated as retrospective, will not help your defense as Dept's demand is on different footing. 

For defending your case on merits, you need to be able to demonstrate why Dept.'s demand is legally untenable and why your product does not fall under Entry No. 52B of Notification No.05/2017- Compensation CESS (Rate) date 11-09-2017. 

For defending your case on limitations & penalty u/s 74, your can use 'clarification' given in Notification No. 3/2023 - Compensation Cess (Rate) dt. 26.07.2023 as "proof" of your bonafide belief behind paying lower compensation cess. 

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Dear Querist,

The issue can be contested on the following grounds :-

(i) Regarding the classification of the goods, burden of proof is cast upon the department--- the Supreme Court in the case of CCE Vs. Vicco Laboratories - 2004 (12) TMI 92 - SUPREME COURT (SC 3-member Bench)., Hindustan Ferodo Ltd. Vs. CCE - 1996 (12) TMI 49 - SUPREME COURT, Hewlatt Packard India Sales Vs. Commissioner Customs (Imports) - 2023 (1) TMI 700 - SUPREME COURT & CCE Vs. Hindustan Lever Ltd. - 2015 (8) TMI 1012 - SUPREME COURT. There are so many case laws to this effect.

(ii) Retrospective angle cannot be brushed aside totally. See the meaning and essence of the word, 'explanation' used in Section 11 (3) of CGST Act and Section 6(3) of IGST Act.

"An Explanation merely widens the scope of the main Section and is not meant to carve out a particular exception to the contents of main section" -----

Sonia Bhatia Vs. State of U.P. - 1981 (3) TMI 250 - SUPREME COURT. Dictionary to 'explain' means to make clear.

Thus retrospective insertion can be made only to clarify which already existed and not otherwise in any other way.

Both should be read conjointly.

[Padmanathan Kollengode]

Learned Kasturi Sir and Amit Ji, in the particular context of this query being raised and the departs contention as reproduced in post above, isn't section 11(3) in support of Revenue?

[Amit Agrawal]

Dear Shri Padmanathan,

Said explanation was NOT added within one year of issue of the notification. So, Section 11(3) does not support Revenue in this case.

And also, Revenue's stand here is NOT treating Notification No. 3/2023 - Compensation Cess (Rate) dt. 26.07.2023 as 'retrospective'  but they are treating as 'clarificatory'. 

Position of law - prior to 26.07.2023 - needs to be seen from wordings used in entry 52B of Notification No.05/2017- Compensation CESS (Rate) date 11-09-2017 INDEPDENDENTLY (i.e. without getting influenced by subsequent development vide Notification No. 3/2023 - Compensation Cess (Rate) dt. 26.07.2023). Section 11(3) supports this position of law in given situation. 

And tax-payer - as far as defense on merits is concerned - needs to demonstrate that - prior to 26.07.2023 - the ground clearance of vehicles in laden condition (& NOT unladen condition) needs to be measured. 

As far as defense on limitations & penalty u/s 74 is concerned, of course, tax-payer can use 'explanation' added on 27.07.2023 as 'proof' that issue involved was a matter of interpretation, issue was not free from doubt prior to 26.07.2023 and tax-paper has bonafide reasons to pay compensation cess at lower rate for earlier period. Section 11(3) helps tax-payer in this regard. 

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Besides above, while defending such a case, I would argue that Section 11(3) actually supports tax-payer and not Revenue.

I would argue that any 'explanation' added after one year of notification should be treated as 'amendment' (i.e. changing the position of law existing before the date of amendment) and not 'clarification' even when the word 'explanation' is used by specifically relying on Section 11(3).

I would argue that any other interpretation of Section 11(3) will make said provision as redundant / non-existent and no provision of law can be interpreted in this way. 

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Please note and as can be seen from my last post at serial No. 9, what is stated in that post, are 'arguments'. And they should not be taken as my views / opinion per se. As jurisprudence of GST law is at nascent stage and still evolving, these arguments will be thoroughly tested in courts of law over a period in future.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[V Rajalakshmi]

A statute that affects the substantive rights is presumed to be prospective in operation unless made retrospective by expressive. Whereas, a statute that merely affects procedure is presumed to be retrospective in its application. In this regard the landmark judgment of Hon’ble Supreme Court “Hitendrra Vishnu Thakur vs state of Maharashtra - 1994 (7) TMI 343 - SUPREME COURT can rely on ref para 26.

[KASTURI SETHI]

Dear Sir,

               The essence is  O.K. and analogy is O.K. but the above judgement of Supreme Court pertains   to TADA case. The case laws specifically pertaining to taxation laws should be preferred to.    The department always prefers to case laws pertaining to indirect taxes in such a situation.