Tax Vista Your weekly tax recap Edn. 32 - 25 January 2021 By Dr. G. Gokul Kishore

Provisional attachment not valid if order not served

Among the numerous orders of High Court where the dispute is related to provisional attachment of bank account or other property, a recent order has thrown light on Rule 159 of CGST Rules as compared to the oft-quoted Section 83 of CGST Act. While the provision in the parent statute empowers the Commissioner to provisionally attach property, Rule 159 requires the order of attachment to be served on the party and the party may file his objection within 7 days. If the objection is found to be sustainable, then property is liable to be released. It appears the attachment order was not served on the petitioner as per the above provision. The High Court held that if the written order of the Commissioner is not communicated, the party will not know the reasons for arriving at the conclusion by the Commissioner. The attachment was set aside by the High Court. The Court also ordered refund of the amount paid claimed by the department as voluntarily made, after retaining 10% of the tax demanded based on the show cause notice issued during the pendency of the writ proceedings [2021-VIL-42-P&H].

Provisional attachment - High Court expresses dismay over flood of litigation

Tax department is empowered to inquire and investigate, inspect premises and search and seize books and documents. Such powers are provided in Section 67 of CGST Act. This is a power routinely exercised by preventive or anti-evasion wings. But, in GST regime, the moment a taxpayer is under such investigation, bank account is attached provisionally under Section 83 by the department. Petitioners have succeeded in getting such attachment lifted as most of such orders are mechanical without proper application of mind. The Gujarat High Court is peeved at the flood of litigation on this issue. It notes - "We have noticed over a period of time that in each and every matter in which proceedings under Section 67 of the Act are initiated, an order of provisional attachment of the bank accounts under Section 83 of the Act would follow. This mechanical exercise of the power is not appreciated. The Legislature has thought fit to confer upon the authority the power to provisionally attach the property of the assessee in the hope that such power is not exercised casually but, only after due and proper application of mind. A mechanical or casual exercise of such power will dilute the very efficacy of the provisions of Section 83 of the Act. Every day there are not less than ten matters on the subject of Section 83 of the Act in the cause-list. When there are plethora of judgments explaining Section 83 of the Act in details, then why so much of litigation in the High Court. The only reason that can be attributed is the mechanical exercise of power under Section 83 of the Act. This should stop at the earliest."

The case involved attachment of bank accounts having balance of around Rs. 22,000. The High Court observed that attachment should be to protect the interest of revenue and there is no good reason to attach accounts having such paltry amount. The High Court has requested the government and tax administration to read the judgment "thoroughly" and issue appropriate instructions or guidelines on exercise of power of provisional attachment [2021-VIL-34-GUJ].

ITC cannot be blocked for recovery of dues from a different company

A company "X" had dues under VAT. The director of such company is also a director of another company "Y" registered under GST law. The department, in an attempt to recover some dues from X, invoked Rule 86A of CGST Rules and blocked utilization of input tax credit by Y. The High Court allowed the writ petition filed by Y to unblock the credit freeze. It noted that Rule 86A can be invoked only in cases of fraudulent availment of ITC and in the present case, it could not have been invoked. The department relied on provisions under CST Act but the same was held as inapplicable on the ground that the provision related to private company whereas in the present case, X is a public limited company. Though other provisions in CGST Act were also cited for recovery of dues under pre-GST laws, the High Court was not impressed. The urge to use draconian powers needs to be contained by CBIC through instructions as is being urged in this column repeatedly [2021-VIL-40-GUJ].

Restoration of cancelled registration - HC deprecates department's conduct

Cancellation of registration has become the norm these days. In pre-GST regime, one would have hardly come across such cases. For every minor infraction, suspension and cancellation of registration, bringing business to halt and making the taxpayer run to the department for restoration "somehow" is the order of the day. In a case where the taxpayer did not file returns for six months, GST registration was cancelled but the appellate authority ordered revocation of cancellation. The department hardly respects orders of quasi-judicial authorities and courts and therefore, it was not implemented. The taxpayer was compelled to approach the High Court. Before the High Court, the department contended that the petitioner had not filed returns for the old period and not paid tax dues. But the real reason appears to be issues with the GST portal.

The Court used strong words while directing the department to restore the registration online - "The contention that there is no provision of restoration of a GST registration, once it has been cancelled borders on the absurd. In case, no provision for its restoration has been made in the software, the same is not the fault of the petitioner and it is for the department and the respondents to make provisions for the same in the software and on the GST Portal. Merely because such provision has not been made, the petitioner cannot be made to suffer and non-compliance of an appellate order, passed by a competent appellate authority cannot be accepted or permitted on the plea raised in the counter affidavit or during the course of arguments." The days are not far when GST law becomes much more stringent in implementation than the pre-GST tax laws [2021-VIL-35-ALH].

Detention for suspicion over mis-classification not sustainable

In an order explaining in detail the objective, scope and interpretation of the provisions relating to detention of goods and vehicles as contained in Section 129 of CGST Act, the Kerala High Court has held that Section 129 forms part of the machinery provisions under the CGST Act to check tax evasion and detention on the ground of mere suspicion of mis-classification is not valid. It held that only if the goods transported and as described in documents are entirely different, detention can be justified.

The case involved batch of petitions. In one of the petitions, the goods were soft drinks and declared / classified as "fruit drinks" while the tax authorities were of the view it should be classified as "aerated soft drinks with added flavours". This issue itself is complicated with numerous notices being issued. The second petition pertains to detention on the ground of mis-description that fryums were described / classified as pappad. Readers may go through the advance rulings reported in VIL on classification of this product. Pappad, classifiable under Chapter 19, is exempted from GST while fryum is stated as classifiable under Chapter 21 attracting 18% GST. The goods were classified as pappad and therefore, bill of supply and e-way bill were the documents generated. The High Court held that detention is not valid in this case also on the ground of mis-classification but directed the petitioner to approach the appellate authority on the issue of validity of e-way bill. Another petition pertained to movement of goods in two trucks with single invoice whereas the department argued it should be according to the procedure prescribed for movement of goods in lots. In this case, the High Court directed the petitioner to avail alternative remedy of appeal [2021-VIL-30-KER].

Curriculum designed and training provided leading to degree - GST payable

Most of the advance rulings have held that training or coaching provided by private training institutes which may be affiliated to Universities is not covered by exemption meant for educational institution. Though the same has been reiterated in a recent ruling, the facts are slightly different. The applicant is an IT training institution and based on the curriculum designed by the applicant and training provided to students by the applicant, the University awards degree to students. The course leads to grant of qualification recognized by law which is one of the key ingredients of exemption under Notification No. 12/2017-Central Tax (Rate). However, the applicant being a private training institute, his training per se does not lead to such educational qualification, as per the Authority for Advance Rulings (AAR). The ruling further states that the applicant does not have specific curriculum and does not conduct examination leading to such degree. This is a grey area though intention of the exemption entry is clear. An appropriate circular should set at rest doubts in this sector [2021-VIL-63-AAR].

Fryums classifiable under Chapter 21 attracting 18% GST

The product is unfried fryums and the issue is classification and applicable rate of GST. Host of taxpayers have gone to AAR for a ruling and all of them were under the impression that the product is classifiable as pappad under Tariff Item 1905 90 40 and the same is exempted. However, the AAR held that unfried fryums and pappad are not one and the same but different products, as per common parlance test and also certain precedent decisions. The applicant also had relied on numerous precedent judgments but obviously they are distinguished and held as not applicable. One of the important rulings on this subject is Shiv Shakti Gold Finger [1996-VIL-53-SC] wherein the Apex Court dealt with the issue whether gol pappad (circular pappad) manufactured using maida and other ingredients can be considered as pappad. It was held that pappad would govern all the varieties of pappad, whether they are circular or flat in shape consisting of all the ingredients whether it is pulses, rice, maida etc. But this judgment has also been held as inapplicable in the present case by AAR. The product has been held as classifiable under Tariff Item 2106 90 99 attracting 18% GST though such entry is residuary [2021-VIL-83-AAR].

The entry in the exemption Notification No. 2/2017-Central Tax (Rate) reads "1905 - Pappad, by whatever name it is known, except when served for consumption". The intention to use pappad as a generic name is obvious. The product is manufactured mostly by self-group groups comprising women. Such products do not have great brand value to ride on. It appears to be an anomaly to tax such food items along with soap and shampoo at the rate of 18%. Either they should be exempted or they should be put under 5% rate.

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