Tax Vista Your weekly tax recap Edn. 33 - 1 February 2021 By Dr. G. Gokul Kishore

Budget 2021 - Major changes on Customs and GST fronts

Budget 2021 has proposed to bring major changes in Customs and GST laws. Customs duty rate on several imported items has been increased through the Finance Bill, 2021 presented in the Parliament today (read with notifications). Various amendments have also been proposed in the Customs Act, 1962, Customs Tariff Act, 1975, CGST Act, 2017 and IGST Act, 2017. One of the major changes proposed in the Customs Act relates to provision of validity period of two years for conditional exemptions. Unless an exemption notification is amended or rescinded before, the amendment to Section 25, through new sub-section (4A) conveys that exemptions with conditions will automatically lapse after 31st March after two years of issuance of such notification. For the exemptions currently in force, such period will be reckoned from 1-2-2021 and therefore, all of them will be reviewed in 2023.

Another major change proposed is fixing time-limit of two years for completion of investigations and inquiries by the department. This period is extendable by one year if Principal Commissioner or Commissioner of Customs approves as per the newly proposed Section 28BB. Investigations cannot be an endless exercise as per this amendment. Time-period for filing bill of entry is being amended (Section 46) to provide for prior filing (before arrival of conveyance) in all cases.

A stringent provision is set to enter the statute by way of new Section 114AC whereby penalty for fraudulent availment of input tax credit on export goods can go upto 5 times the refund claimed. Like GST, Customs will also have a common portal for filing of documents, forms, payment of duties, etc. (Section 2 amendment read with new Section 154C). It appears that the present ICEGATE will be specified as this common portal. Section 149 on amendment to bills of entry, etc., is being amended to permit changes through electronic mode also (in the common portal). Importers and exporters will also be permitted to make specified changes in the documents through the common portal. Again, like GST provisions, uploading of orders, notices, etc., in the Customs Common Portal will be one of the authorized modes of service as per amendment proposed to Section 153.

Customs Tariff Act amendments contemplated mainly pertain to anti-dumping duty and countervailing duty whereby anti-absorption provisions are being brought. If export price is lowered without commensurate change in cost of production or export price to countries other than India or resale price in India from the exporting country, then the anti-dumping duty can be varied. While rate changes in respect of customs duties are not discussed in this column, imposition of new Agriculture Infrastructure and Development Cess on specified imported goods is worth taking note of. Readers may go through the notifications to know more about such changes as available in VIL.

On the GST side, CGST Act is being amended (Section 7) retrospectively from 1-7-2017 to effectively tax clubs and associations in respect of the services supplied to own members and for this purpose an explanation is being inserted to state that the person and members are deemed to be two separate persons. The relevant entry in Schedule-II is being omitted. The amendment is eloquent to overcome judgments on doctrine of mutuality to the contrary. It was argued in this column that amendment should be made to the benefit of taxpayers as such supplies are not supply per se but the tax administration always has the last laugh.

Section 16 is proposed to be amended to effectively provide input tax credit only if GSTR-1 is filed by the supplier and the supplies get reflected in GSTR-2A like return. One of the significant changes proposed is to remove mandatory requirement of filing annual return (GSTR-9) and instead, taxpayers may file self-certified reconciliation statement. The much-delayed amendment to Section 50 with retrospective effect so as to effectively levy interest only on net cash liability is being brought now. A draconian amendment relates to quantum of penalty under Section 129 relating to detention and seizure of goods and conveyance in transit. In cases where the owner comes forward to pay the dues, the penalty may go upto 200% of the tax amount from the present 100%. Section 129 is being delinked from Section 130 on confiscation. Another stringent amendment relates to invocability of recovery provisions under Section 79 if self-assessed tax is not paid by including tax assessed under GSTR-1 but not included in GSTR-3B.

IGST Act has not been spared in this year's Budget. Section 16 is being amended to state that zero-rated supplies will cover only those supplies to SEZ for authorized operations only. If sale proceeds are not realized by the supplier making zero-rated supplies within the prescribed period, then ITC obtained as refund is liable to be paid back with interest. Surprisingly, unlike the present provision entitling all registered persons to pay tax on zero-rated supplies to claim refund the amendments propose to restrict such facility to only specified classes of persons or specified supplies as notified.

C&AG not empowered to audit private entities in GST regime also

The Bombay High Court has held that officers of Comptroller & Auditor General of India (C&AG) are not empowered to audit private entities both in pre-GST as well as GST regimes. Powers of audit parties from C&AG to conduct audit of records of taxpayers have been under litigation since Service Tax regime. In the latest judgement on this issue, the High Court has held that CERA audit (Central Excise Receipts Audit as the C&AG audit is generally referred as) cannot be extended to private entities in view of the provisions contained in Section 16 of C&AG (Duties, Powers and Conditions of Service) Act, 1971.

As per Article 149 of the Constitution of India, C&AG shall perform duties and exercise powers as prescribed in relation to accounts of the Union and the States or other authority / body established by law. Such duties and powers are prescribed under C&AG (DPC) Act. This statute speaks about conduct of audit of expenditure from Consolidated Fund of India, transactions in respect of Contingency Fund and Public Accounts and accounts of PSUs. The tax department is of the view that since this Act confers power to audit all receipts of the government, CERA audit of private taxpayers is valid.

The High Court held that C&AG is empowered to audit receipts which are payable into the Consolidated Fund and not receivables and the database with respect to receipts which are payable into such Fund are available with the respective departments and such statutory scheme points to absence of jurisdiction to C&AG to audit accounts of private entity directly. The only exception carved out is the request by the President or Governor to undertake audit of any authority or body but even such power is available to such body or authority performing governmental functions. The High Court further noted even if such power is presumed as available in the present case, request / sanction should be obtained which is not available. The period of audit spanned pre-GST and post-GST regimes and therefore, the High Court held that there is no provision in the CGST Act to empower C&AG officers to conduct such audit of taxpayers. The communication from the department calling for records for CERA audit was held as without jurisdiction and unconstitutional.

The judgment will have wide ramifications as audit process has just begun in GST regime. Taxpayers in other parts of the country are expected to challenge such letters or intimations on audit by CERA parties. The department may carry this issue before the Supreme Court even while contemplating amendment to CGST Act. However, the larger question as to the absence of statutory backing in the parent Act for C&AG audit continues to haunt from pre-GST time and the same is yet to be addressed [2021-VIL-58-BOM].

TRAN-1 - Department keeps the battle alive

A Single Judge Bench of Kerala High Court directed the department to open the GST portal or enable manual filing in respect of the petitioner who could not file TRAN-1 form. The department went on appeal before Division Bench. The crux of the matter is that the taxpayer, placing trust in press release (dated 10-11-2017) to the effect that last date for filing TRAN-1 form was 31-12-2017 and therefore, an attempt was made to file on 29-12-2017 but could not file the same. The department argued that the taxpayer did not make any effort to file before 27-12-2017 which was the actual last date and there was no technical glitch in the present case.

The DB did not accept department's appeal on the ground that a dealer who acted based on press release during the transitional stage could not be said to have committed any default. It observed - "It is also admitted that there was no press release intimating that the date specified in the press release was a mistake or that it was not supported by any consequent notification. A large group of dealers believe the statements that come in the newspapers and especially in the absence of a clarification or a subsequent notification, it cannot be said that a dealer, who acted upon the basis of a press release, especially during the transitional stage could be said to have committed any default. It is elementary that when a period is prescribed for doing an act, the person bound to do such an act is entitled to wait until the last day and he cannot be found fault with for not carrying out such an act much ahead of the date of expiry."

The DB also was of the view that the Grievance Redressal Committee had dealt with the issue in a hyper-technical manner and such an approach was wrong [2021-VIL-54-KER]. The press release apparently conveying the wrong last date is available in the CBIC portal even today without any disclaimer. When the portal was experiencing so many issues, most of the taxpayers were clueless about TRAN-1 related problems and so much of confusion was prevalent on last date, the department cannot push the entire blame on the taxpayer to deny such validly earned credits from pre-GST regime.

E-way bill need not be cancelled if goods not transported within 24 hours

E-way bill related disputes continue to dominate writ proceedings in various High Courts. In a recent case, the issue agitated was department's allegation that the e-way bill generated was not used on the same day but used after four days and therefore, it was re-used. It was also argued that had it been otherwise, the e-way bill should have been cancelled.

The High Court did not agree. It held that Rule 138 does not provide that the dealer should necessarily cancel the e-way bill if the goods are not transported within 24 hours of generation. It further held that the rule does not provide for consequences that may follow if such e-way bill is not cancelled. Cancellation has been provided only if transportation is not made and the person concerned chooses to cancel the same within 24 hours.

Highlighting finer legal issues, the High Court said that the tax authorities should have conducted inquiry on whether goods were transported as per the e-way bill or not and the onus was on the department that the e-way bill was used for transportation on an earlier occasion. Use of e-way bill twice was a conclusion drawn without any evidence or material, as per the Court. The impugned order was aside and the department was ordered to return the amounts paid by the taxpayer [2021-VIL-53-ALH]

Capital subsidy to meet cost of project liable to GST

In an almost identical two rulings, the Odisha Authority for Advance Rulings (AAR) has held that capital subsidy received by the applicant is towards the cost of the project and such subsidy is not treatable as grants but it would be consideration as per CGST Act. On such reasoning, it was held that the same would be liable to be included in transaction value for the purpose of GST. The applicant was engaged for greenfield public street lighting system by various urban local bodies to install and maintain street lighting and the said subsidy was to the extent of 90% of capital expenditure of the project. The AAR further held that value of goods constituted major portion of the contract, there was clear bifurcation regarding equipment and O&M fees in the agreement and therefore, they are naturally bundled supplied in conjunction with each other to qualify as composite supply. Supply of goods was held to be the principal supply.

The AAR rejected the applicant's contention on the transaction being a works contract as the electric lighting poles after installation become immovable. It held that the contract was not related to building, fabrication, etc., of immovable property as envisaged in the definition of works contract but the supply was in the nature of goods with ancillary installation services [2021-VIL-127-AAR and 2021-VIL-128-AAR].

These are projects which involve huge sums and almost every State has implemented the same giving thrust to use of LED and other energy-efficient lighting systems. They are for public welfare and the municipalities and other local bodies pay for such projects. If the project cost goes up because of tax rate, it is the common man who will be burdened with more in the form of increase in property tax or other charges levied by such local bodies. The financial health of local bodies is generally not good and such tax regime does not do any good.

ITC on demo vehicles used for test drive, not available

It may be an elementary statement to say that motor cars / vehicles used for test drive or such demonstration purpose are used for business purpose by dealers and they should be entitled to input tax credit. However, the bar on availing ITC on motor vehicles as per Section 17(5) of CGST Act leaves out only three exceptions. The applicant before the AAR argued that such demo vehicles can be covered under those used for training purpose or for further supply as they will be sold after use for certain period. But the AAR rejected both the arguments though it agreed that demo vehicles are used for business but ITC provisions bar the same. Not claiming depreciation on tax component was held as not a determinant in so far as Section 17(5) is concerned and eligibility to ITC cannot be determined based on payment of GST on the year of sale. This issue has been subject to contrary rulings whereby some of them have clearly held that ITC would be available on such demo vehicles. CBIC may issue a circular to clarify the same to set at rest the controversy and divergence [2021-VIL-114-AAR].

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal)