Tax Vista Your weekly tax recap Edn. 174 - 16th Oct. 2023 By Dr. G. Gokul Kishore

 

 

GST registration cannot be cancelled based on environment issues

GST registration can be cancelled if the officer thinks it should be cancelled. There is no requirement of any law or proceedings. Allahabad High Court itself has expressed shock over the zeal shown by GST authorities in UP. The case was cancellation of GST registration of coal dealer engaged in buying and selling coal. Because the unfortunate dealer happened to be located in Agra where Taj Mahal is also located, citing some order by Taj Trapezium Authority (TTZ), Joint Commissioner of State GST issued direction to cancel GST registration and all coal dealers of Agra had to face the axe. The Court went through the TTZ Authority's direction wherein only specified dealers were mentioned but GST authorities could not have asked for more - they went ahead and cancelled registrations even though it hardly needs an explanation that purchase and sale of coal as such does not pollute the environment. It is to prevent and control pollution in Agra, TTZ Authority was formed. The taxpayer argued that CGST Act / UPGST Act is a complete code in itself and action can be taken for cancellation only as per the provisions therein and not under some other statute.

 

The Court ordered restoration of registration after observing "The Court is constrained to observe that the taxing authorities (GST) in the State of U.P on the zeal to pleasing the TTZ authorities have issued two letters dated 18.8.2022 and 19.09.202, copy of which have been annexed and Annexure Nos. 17 & 18 directing for cancel the registration of all coal dealer of Agra, which was neither intend nor the direction by the TTZ authorities. The authorities are bent upon to take action against all coal dealers of Agra illegally, which also clears from the Joint Commissioner's letter dated 24.9.2022." The case also has usual drama - order stating that no reply was filed and in the next line observing that reply has been considered. Unless quasi-judicial powers are taken away from tax authorities, God may find it difficult to save the taxpayers, particularly when readers go through the discussion on the next order below [2023-VIL-699-ALH].

 

Tax demand by non-tax authority - High Court quashes direction

If cancellation of registration was resorted to blindly in the above case, the present discussion is about order under GST passed by non-GST authority. There cannot be any surprise as taking an action without power or acting in excess of jurisdiction is a norm in Indian bureaucracy and tax administration cannot be an exception. The authority was Yamuna Expressway Industrial Development Authority whose Advisor directed the petitioner to pay GST of 18% on the premium charged by the Authority for leading of plot. The taxpayer-petitioner contended before the High Court that while exemption is available in such cases, the Authority itself obtained an advance ruling in its favour way back in 2018. The counsel for the said Authority argued that the petitioner may deposit the tax and claim refund from the tax authorities. The Authority had sought to justify its position on the ground that conditions of exemption notification were not fulfilled but the High Court found that the original notification did not have any condition attached at all i.e., it was unconditional. It held that the letter / direction issued by the Authority was not backed by law and the same was quashed. It ordered refund along with interest if any amount has been paid. Government undertakings set up for promotion or development of industries adopt the position which stifles growth and compel the entrepreneurs to engage in unnecessary litigation [2023-VIL-690-ALH].

 

Criminal complaint cannot be pursued when tax is paid and summons responded to

In a case dealing with interplay of GST and criminal laws, the High Court held that proceeding under Section 174 of the Indian Penal Code could not continue against the director of the company which was being investigated for alleged evasion of GST. Section 174 of IPC deals with "non-attendance in obedience to an order from public servant" and it covers non-compliance with summons. Subsequent to the investigation GST of about Rs. 5 crores was paid. The department filed a complaint case against the director since no authorised representative had attended after issue of summons and it contended that provisions of IPC could be invoked in view of the evasion of tax and non-cooperation with the officers. The petitioner argued and the High Court agreed that replies had been filed in response to the summons and tax had been paid and none of the failures prescribed in Section 132 of CGST Act for prosecution was present in the instant case and quashed the complaint case. This order exemplifies the vindictive attitude of tax authorities. Despite having accepted reply to summons, initiating proceeding in criminal court only under Section 174 of IPC speaks about the extent of animosity that the officers have for the taxpayers. Neither CBIC nor State Commercial Tax Commissioners have time to go through such orders and advise the officers on avoiding misuse of powers [2023-VIL-708-JHR].

 

Petition for reissue of invoice after lapse of time to avail ITC, is futile

Generally, the urge to avail ITC is not matched by proper diligence at the time of undertaking the transaction. The petitioner registered in Bihar purchased scrap from railways which was delivered in Jharkhand and was issued with invoice carrying CGST and SGST in 2017-18. It appears that the issue of input tax credit was pursued only in 2021 since the petitioner was informed that the transaction being inter-State, IGST ought to have been charged / paid instead of CGST plus SGST. The High Court declined to grant any relief on the ground that there was no proof of movement of goods into the State of Bihar and that the time to avail credit had lapsed in this case. Such transactions were undertaken in the initial period of GST and many scrap dealers who took part in auction by railways did not produce proof of their location which compelled railways to treat the transaction as intra-State. Though the same was brought under reverse charge from 13-10-2017, initially at the time of introduction of GST, there was good amount of confusion on the type of tax to be charged and place of supply provisions used to be discussed endlessly [2023-VIL-700-PAT].

 

Department cannot reject part of the documents to deny ITC refund

The petitioner approached the High Court aggrieved by the order of the appellate authority denying refund of ITC due to inverted duty structure. The petitioner was a manufacturer of footwear (GST 5% or 12% based on price) and one of his suppliers of PVC straps erroneously noted the classification as HSN 6404 (finished goods) instead of HSN 6406 (input material). GST had correctly been charged at 18%. The department refused to accept the certificate issued by the supplier that the HSN has been entered erroneously by them. The High Court held that wrong invoice from one supplier cannot bar the refund claim in entirety and in the facts of the case, there was no reason to doubt the genuineness of the certificate. The department's contention that there was no bar on the manufacturer engaging in trading was understandably not accorded any weight.

 

The other ground for denying refund was availment of excess ITC in contravention of Rule 36(4) of the CGST Rules. However the petitioner explained that this was on account of filing of returns in different time periods, the petitioner - monthly and some of the suppliers quarterly. The petitioner contended that the maximum refund amount was required to be considered in reference to the "relevant period" as defined in CGST Rules and that if computed on monthly basis, the credit available would have been more than availed by the petitioner. However, the petitioner had availed the amount due alone and was thus eligible for refund. The High Court opined that if the mismatch is only on account of the suppliers filing the quarterly returns, there cannot be a bar on refund and remanded the matter for proper adjudication [2023-VIL-711-DEL].

 

Forced migration and order by Asst. Commissioner violating High Court direction

The writ petition arose out of taxpayer facilitation at a very different level. The audacity of the tax officers cannot be imagined but can only be seen from the order. The petitioner registered under service tax was migrated to GST by the officer himself providing his own mobile number and e-mail as contact details without the knowledge of the petitioner. Later, the petitioner repeatedly approached the department to correct the same and it took two years for the department to effect the corrections. Technical issues in the GST portal appear to fall equally on all users. However, the department issued show cause notice and order for payment of interest on account delayed filing of returns. The petitioner fairly contended that the department ought not to have effected suo motu migration and since OTP could not be accessed by him returns could not be filed in time. Then department proceeded to issue garnishee notice to the bank and in the first writ proceedings, the Commissioner was directed to pass orders. However, the order came to be passed by an Assistant Commissioner/ proper officer. The High Court held that the order was in violation of its directions and remanded the matter. Taxpayers who have either not received any show cause notice so far or have received SCN only for small amounts should thank God, karma, well-wishers or whatever they believe in [2023-VIL-709-TEL].

 

Import restriction of cut flowers is not arbitrary

The goods involved are cut flowers but the litigation is thorny. When the import restriction is specialised, it is difficult to make the writ courts intervene. Import of cut flowers was restricted through Chennai airport only by DGFT. Obviously, importers in Delhi were annoyed and challenged the same as arbitrary particularly when exotic pests were not found from imported flowers in Delhi earlier. The government argued that operational efficiency would be maximised by restricting import through one port as phytosanitary inspection protocols are to be rigorously adhered to. The past pest outbreaks were also cited. The Court noted that bio-security is paramount particularly due to cross-border spread of Covid-19 virus and it is a facet of national security and not merely a health issue. The High Court refused to quash the notification after observing - "These are areas where the Respondents are best equipped to deliberate and enact suitable measures, including the evaluation of import conditions and the strategic deployment of personnel and equipment to mitigate the threat of invasive species or exotic pests. Courts cannot assume the role of the executive to dictate policy on matters such as import regulations, the safeguarding of domestic agriculture, or the allocation of state resources. Rather, these are specialized determinations best left to the discretion of experts in the relevant fields. In light of these submissions, we are of the view that the impugned notification and order do not arbitrarily discriminate against flower traders in the Delhi-NCR region but rather aim to fortify the bio-security of the nation." The Court took note of the statement that facilities are being upgraded in other cities as the grievance of petitioners has been recognised and addressed [2023-VIL-692-DEL-CU].

 

Transaction value cannot be revised through Section 149 when contemporaneous documents are absent

When big companies are before courts pleading condonation of certain mistakes, the kind of compliance management system they have or the advisory they seek becomes doubtful. One of the IT majors was before CESTAT with the prayer that the transaction value of imported goods was declared higher erroneously which should be allowed to be revised and therefore, excess duty paid should be refunded. The provisions involved are Section 154 of Customs Act which deals with correction of clerical errors, and this was ruled out (the operative portion of Tribunal order does not even discuss) and Section 149 relating to amendment of documents including bills of entry. The Tribunal relied on quite a lot of precedents to highlight the situations where Section 149 would be applicable and how transaction value under Section 14 is sacrosanct. It held that documentary evidence which was in existence at the time the goods were cleared (at the time of assessment) is a condition which was not satisfied in this case. Revised purchase order and revised invoice were apparently produced but, according to the Tribunal, they could not be related to the imported goods. Further, the supplier had indicated that credit note would be issued for differential amount and the same has not been produced. The order rejecting changes and disallowing reassessment was upheld.

 

One of the factors relating to Section 149 is about examination of goods as per precedent decisions and this is something which is difficult to comply with when the goods have already been absorbed in home consumption. The order indicates that challenging a bill of entry through appeal against self-assessment is not fool-proof when it comes to valuation and consequential refund [2023-VIL-1025-CESTAT-BLR-CU].

 

ITC not available on AC system, lift, fire extinguisher & electrical fitting

If there is a perception that advance rulings are completely against taxpayers, then it needs a change. There are appellate rulings which answer one question in favour of the taxpayer leaving all others undisturbed i.e., against the taxpayer. The Appellate Authority for Advance Ruling (AAAR) ruled that central air-conditioning system becomes part of the building after installation and therefore, it is an immovable property and this means ITC is not available on the works contract service of such system. If AC's fate is so, fate of lift and fire extinguishers need not be imagined - it would become immovable after erection and installation and therefore, ITC is strict no-go zone. In these cases, the AAAR has laboured to add that because they become immovable property, they cease to be plant and machinery. It is not known who interprets this provision providing for exclusion of plant and machinery from immovable property in such manner. Plant and machinery may be immovable but still ITC would be available, and this is why the exception. Electrical fittings part of which are concealed in the walls and roof of the building should not get ITC as are part of the building - one should fix electrical fittings without use of walls and roof to get ITC.

 

The only relief the taxpayer has got is in respect of ITC on roof top solar plant which is fixed by nuts and bolts and hence, it is "plant and machinery" (and therefore, not an immovable property as per AAAR). The ruling goes completely off the track when it holds ITC on architect fees and interior designing is not available. The reasoning is that as per accounting standards, professional fees should be capitalized and therefore, even if the taxpayer in the case before it has booked it as an expense in P&L, the same would not make them entitled to ITC [2023-VIL-37-AAAR].

 

 

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal. The author has published books on cross-border taxation and investigations & appeals under GST. He edits R.K. Jain's GST Law Manual. E-mail - gokulkishore@gmail.com)