Tax Vista Your weekly tax recap Edn. 39 - 15 March 2021 By Dr. G. Gokul Kishore

DRI Officer not empowered to issue demand notice when assessment was made by Customs officer

The Supreme Court has held that Additional Director General of Directorate of Revenue Intelligence (DRI) was not the proper officer to exercise power under Section 28(4) of Customs Act, 1962 (Show Cause Notice for demand of duty involving extended period) when the goods were cleared for import by a Deputy Commissioner of Customs and the initiation of the recovery proceedings in the case before it is without jurisdiction and liable to be set aside. It held - "The power has been so conferred specifically on "the proper officer" which must necessarily mean the proper officer who, in the first instance, assessed and cleared the goods i.e. the Deputy Commissioner Appraisal Group. Indeed, this must be so because no fiscal statute has been shown to us where the power to re-open assessment or recover duties which have escaped assessment has been conferred on an officer other than the officer of the rank of the officer who initially took the decision to assess the goods."

The Apex Court held that where a particular officer has exercised his power of assessment, the power to order re-assessment must also be exercised by the same officer or his successor and not by another officer of another department (referring to DRI) though he is designated to be an officer of the same rank. The top Court was categorical in holding that allowing an officer, who has not passed the original order of assessment, to re-open the assessment is impermissible. According to it, the nature of the power conferred by Section 28 (4) to recover duties which have escaped assessment is in the nature of an administrative review of an act and therefore, it should be construed as conferring the power of such review on the same officer or his successor or any other officer who has been assigned the function of assessment.

Notification No. 40/2012-Cus. (N.T.) on appointment of proper officers was viewed as ill-founded on the ground that it does not confer any powers on any authority to entrust any functions to officers but merely defines a proper officer. It held that this notification has been issued by CBIC in exercise of non-existent power under Section 2(34) and if the intention was to entrust DRI officers with functions of Customs officers, then the Central Government should have exercised powers under Section 6 for such purpose. The issue involved was admissibility of exemption from basic customs duty to Digital Still Image Video Cameras (DSIC). In this judgment, the Supreme Court has also held that there was no willful misstatement of facts to invoke extended period of limitation [2021-VIL-34-SC-CU]

Telephone calls and e-mails not substitute for hearing - HC directs fresh consideration by a different officer

The petitioner filed refund claims for unutilized input tax credit for various periods. All of them were rejected on the ground that they were facilitating provision of service and therefore, they would be covered under "intermediary" which meant that the claim of export of service was not sustainable. The order was passed without offering personal hearing and the department contended before the High Court that the telephone calls and e-mails exchanged can be treated as personal hearing. The High Court rejected such bizarre contention and held that application for refund cannot be rejected without giving an applicant an opportunity of being heard as per the rules and such hearing cannot be substituted by telephonic conversations and exchange of e-mails. The impugned orders were set aside and the department was directed to pass fresh orders. Since the officer who passed the orders had disclosed her mind and adopted adverse position against the taxpayer already, the High Court directed de novo consideration of the matter by a different officer. This order stands out for the reason that likelihood of bias is sufficient to change the quasi-judicial authority. In almost all the cases which are remanded for de novo consideration, such likelihood can be apprehended and therefore, parties will be in a position to seek change in the authority for second round of adjudication [2021-VIL-185-BOM]

Bank account of family members cannot be provisionally attached

As per Section 83 of CGST Act, any property including bank account of the taxable person can be attached during pendency of proceedings under specified provisions and this provision is being used frequently these days. In an order passed on November, 2020 [2020-VIL-525-BOM], the Bombay High Court had held that such provisional attachment of bank account of family members was not sustainable as they were not taxpayers and Section 83 is invocable against the taxpayer (taxable person). It seems the department's attachment for property of family members of taxpayers is quite strong and in yet another case, bank accounts of mother, wife and son of the taxpayer were attached and the High Court noted its earlier order and directed release from provisional attachment of such accounts. Last week, in Tax Vista (dated 8-3-2021), CBIC's guidelines on use of the power of provisional attachment emphasizing attachment of movable property only when immovable property is not sufficient to safeguard interest of revenue, were discussed. It will take some time for such guidelines to percolate to the field formations but taxpayers may have to approach High Court when they are not followed [2021-VIL-202-BOM]

Order passed on date of show cause notice set aside by High Court

Following principles of natural justice is quite unnatural for the quasi-judicial authorities as noted in this column before. E-way bill was generated with a clerical error of mentioning 470 kms as distance instead of 1470 kms. This e-way bill expired when the goods were in transit. The department issued show cause notice and fixed a date for personal hearing. But, on the date of notice itself, order demanding tax and penalty was passed. The High Court was surprised to see such order and the same was set aside. CBIC's circular on imposition of token penalty for minor infractions in e-way bills was also taken note of. This order has been mentioned in this column as the High Court notes about arrival of goods at a particular check post. It appears that this is inter-State border check post. Abolition of check posts was campaigned as the major achievement at the time of introduction of e-way bills [2021-VIL-201-TRI].

GSTR-3B errors - High Court allows rectification

Committing a mistake while making entries and filing of statutory returns is a routine affair. Not providing a simple mechanism to rectify and file revised return in the grand IT based GST portal has caused immense pain and drain of resources to taxpayers. The Gujarat High Court has directed the department to permit the writ petitioner to rectify the GSTR-3B return filed for May, 2019. The Delhi High Court judgment in Bharti Airtel Ltd. v. UOI [2020-VIL-197-DEL] has been followed.

The High Court expressed its disappointment over lack of response from the department on two occasions - first, the taxpayer had sent a written request which did not elicit any response. Secondly, before the High Court, the department did not file any counter / reply for two years as the petition was filed in 2019. The High Court directed that late fee should not be levied since the petitioner was dragged into unnecessary litigation only on account of technicalities of the department. It said - "We hope and trust that the writ applicant may not have to come back to this Court on any further technicalities that the Department is in the habit of raising, and thereby giving result to unnecessary litigation." [2021-VIL-197-GUJ].

GSTR-1 error - High Court directs department to allow rectification

In an order similar to the one noted above, the Madras High Court has directed the department to allow the petitioner to rectify the mistake of mentioning GSTIN of a different buyer in GSTR-1. The supplier had to come to High Court because the recipient could not avail input tax credit when the invoice had GSTIN of a different person. The High Court followed its earlier judgment as reported in 2020-VIL-523-MAD. According to the Court in the relied upon case, the returns as originally envisaged have not been implemented and therefore, liability should not be cast when the mistake is bona fide and opportunity to correct the return should be extended. Subject to time-limit for availment of ITC and other conditions as may be specified, the government can bring one-time amnesty scheme so as to permit rectification of various returns filed in the past [2021-VIL-193-MAD].

Refund of unutilized ITC and refund in case of deemed exports - Certain issues clarified

CBIC has clarified a few issues relating to refund. In the case of refund of tax paid on deemed exports, the recipient may claim such refund. Alternatively, if the recipient does not avail ITC, based on undertaking from the recipient, the supplier may claim refund. The circular points out that the portal is seeking debit of credit availed when recipient files refund claim to ensure dual benefit is not availed and there is no restriction on availment of ITC by the recipient as per the rules. An earlier circular in this regard has also been modified.

Claimants of refund where details of supplies made to SEZs declared inadvertently in wrong table in GSTR-3B were allowed to file the claim for the period till 30-6-2019 and this has been now extended to 31-3-2021. For refund of unutilized ITC, in the formula prescribed in Rule 89(4) of CGST Rules, it has been clarified that the restriction on turnover of zero-rated supply of goods to 1.5 times the value of like goods domestically supplied by the same or similarly placed supplier would also apply to adjusted total turnover used in this formula. An illustration has also been provided in this circular. While clarifying issues is welcome, one wonders why the system has been made so complex at the first place compelling taxpayers to get surprises from the portal followed by relaxations and clarifications [CBIC Circular No. 147/03/2021-GST dated 12-3-2021].

Health check-up is not health care service - Corporate health check-up not exempt from GST

Occupational Health Check-up service (OHS) is commonly known as corporate health check-up programme and it is implemented by several business organisations to ensure that health of the employees is checked periodically and any health-related issue is diagnosed at the initial stage and preventive action is taken. The applicant is a hospital and it sought applicability of GST on such programme. It contended that the same would be part of health care services which are exempt. However, the Authority for Advance Rulings (AAR) did not agree. It held that the services are provided to the corporate entity and not to the employees, payment is made by the company for such services and the same is to ensure timely diagnosis of any disease so that prophylactic measures can be taken. It also held that the services are not provided for diagnosis or treatment or care for illness, injury, etc., but it is undertaken routinely to keep employees fit and healthy. It held that in the case of the applicant, such OHC service provided by way of deputing nursing staff, doctors and paramedical staff to companies for providing health check-up service, ambulance facility and camps conducted for health check-up outside the hospitals cannot be considered as health care service and therefore, exemption will not be available.

The AAR answered another question also adopting the same view as held in similar rulings on this issue. Supply of medicines, surgical items, implants, consumables and other allied items provided by the hospital through in-house pharmacy and used to provide health care services to in-patients will be considered as composite supply where principal supply would be health care service of treatment. Therefore, such supplies would be exempt. It also held that supply of food and room rent will also be covered under such exemption. Recently, there were press reports that the department is examining the possibility of taxing food supplied to in-patients despite CBIC clarification on this issue. These rulings should act as a deterrent if such mis-adventure is contemplated [2021-VIL-150-AAR].

State skill development entity not exempt from GST

Exemption has been granted to services provided by National Skill Development Corporation (NSDC), Sector Skill Council (SSC) approved by NSDC, assessment agencies approved by NSDC or SSC and training partner approved by NSDC of SSC in respect of specified programmes implemented by NSDC and specified vocational courses. Tamil Nadu Government had set up Tamil Nadu Skill Development Corporation on the lines of NSDC and this body is not for profit company. There is no exemption entry covering such body constituted by State Governments similar to the one granted to NSDC and therefore, the Authority for Advance Rulings (AAR) held that such body would be required to be registered under GST law. It appears to be a lacuna in the notification and the State Government should take up this issue in the GST Council meeting. Surprisingly, a notification issued by West Bengal government providing exemption from GST to similar skill development corporation of the State was cited in the hearing before AAR. It is not known how SGST exemption alone would be sufficient if the CGST notification has not been amended [2021-VIL-144-AAR].

Printing is principal supply in supply of trade advertisement material

One of the issues being taken before AAR and Appellate AAR (discussed in Tax Vista earlier) is supply of trade advertisement material like flex banners or standees where content for printing is provided by the customer and the PVC material and other items are procured by the supplier. The Tamil Nadu AAR had earlier held that it would be composite supply with printing service being the principal supply and it could not be considered as supply of goods. The Appellate AAR has now affirmed this ruling. It has been held that the purchase order is issued for printing the copyrighted digital content of the client, material blanks owned by the appellant are transferred to the client as trade advertisement material after such printing and the copyright is always with the client and the appellant do not have any propriety rights to the content. Therefore, the appellant does not have whole propriety right on the final product of trade advertisement material supplied and the activity is a contract for work or service only. As there is incidental transfer of property in goods in this transaction, it will be a composite supply.

This dispute belongs to the category on which epic battles have been fought in courts. Another round of major litigation and jurisprudence may be required till this contentious issue attains finality [2021-VIL-12-AAAR].

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