Tax Vista Your weekly tax recap Edn. 41 - 29 March 2021 By Dr. G. Gokul Kishore

Cancelled registration - HC restores with ITC benefit for past period

The facts as contained in most of the writ petitions before High Courts reveal a sad story. In a particular case, the petitioner, an importer of furniture, succeeded in first appeal so as to get relief against cancellation of VAT registration. Due to such cancellation of VAT registration, provisional registration granted under GST was not made final and eventually, GST registration was cancelled. All these happened in 2017. As usual, correspondences with authorities did not yield any result. Finally, they had to approach the High Court. The High Court has directed the department to activate the registration with effect from 1 July, 2017. The petitioner has also been allowed to file returns without any requirement of late fee. The department has been further directed to allow input tax credit without raising dispute on time-limit under Section 16(4) of CGST Act. It is because of existence of such courts of justice and equity, the common man has trust in the system in the country [2021-VIL-224-GUJ]

Mis-match in stock - Excise days being re-visited in GST

In the Central Excise regime, there used to be a saying in the department. Any factory will have discrepancy between physical stock and the stock register and if any officer wanted to book a case of clandestine removal, he can simply compare these two any time. Old habits die hard. It appears that GST officers visited premises of the taxpayer, found out such mis-match between physical stock and the figures in stock register and seized the goods. The taxpayer was before the High Court arguing that such prohibition has been placed without forming the opinion that the goods are liable to confiscation and that the statement of the employee was obtained under threat and coercion. The High Court directed reconciliation and passing of order by the officer concerned after hearing the petitioner. Though cited by the department's counsel, it is not clear as to why Section 67(6) of CGST Act providing for provisional release of seized goods on execution of bond and furnishing of security was not complied with in this case [2021-VIL-236-DEL]

Transition credit - Litigation is permanent

Orders from various High Courts on issues relating to transitional credit are being regularly reported by VIL. Last week, VIL has reported at least four orders. Furnishing details in wrong column in TRAN-1 form has been held by the Department to be detrimental to transition in one of the cases. The Gujarat High Court followed its earlier order on identical issue and directed either opening of portal to enable the petitioner to file rectified TRAN-1 form or allow them to file manually [2021-VIL-232-GUJ]

In another case relating to typographical error relating to declaration of stock in TRAN-2 form, credit was denied and the petitioner pleaded that credit could not be rejected only because of inadvertent and bona fide error. The Gujarat High Court accepted the plea and following similar order relating to TRAN-1, it directed the GST authorities to open the portal so that the petitioner may file rectified TRAN-2 or accept manual form. It specifically directed the department not to raise any objection on time-limit for filing TRAN-2 [2021-VIL-230-GUJ]

The department filed writ appeals assailing Single Judge's order in a batch of petitions whereby relief on TRAN-1 was earlier allowed. The Division Bench of Karnataka High Court has upheld such order holding that the reliance placed on Adfert Technologies order [2019-VIL-537-P&H] was correct. It noted that respondent-assessees did not assail vires of the provisions but only highlighted the technical glitches / difficulties and they attempted to file TRAN-1 or revised TRAN-1 besides approaching Nodal Officer. Rule 117 of CGST Rules mentions "technical difficulties on common portal" but the same has not been defined and it should be given a liberal interpretation. The order is detailed and can be seen at 2021-VIL-221-KAR. The same Court has, in another case, issued direction on grant of credit denied due to technical glitches in the portal [2021-VIL-227-KAR].

Parallel proceedings - HC grants interim relief

In this column, some of the orders dealing with parallel proceedings initiated by both CGST and SGST officers against the same taxpayer have been discussed. In an interim order, Calcutta High Court has stayed proceedings whereby summons has been issued by the State GST officers when proceedings initiated by Central GST officers are pending. The Court has taken note of the bar contained in Section 6(2)(b) of West Bengal GST Act. Blocking of electronic credit ledger has also been challenged in this case. For this, the State Government has argued that SGST officers are acting as an agent of Central GST authorities and such action cannot be treated as a "proceeding" under Section 6(2)(b). Validity of Rule 86A of CGST Rules / WBGST Rules is also under challenge. On parallel proceedings, views of various High Courts have been divergent. GST Council should step in before such multiple proceedings create deeper impact on business [2021-VIL-237-CAL].

GST Tribunal not in sight - High Court provides relief

Allahabad High Court has been entertaining certain writ petitions on the ground that the GST Tribunal has not yet been constituted. In a recent case, petition was filed assailing the appellate authority's order whereby part relief was granted and part demand was confirmed on the ground of unexplained transactions in two instances. The High Court has held that when issuance of invoices and e-way bills were not denied by the appellate authority, conclusion as to goods sold or purchased being unaccounted is not sustainable. It said that invoice is the primary evidence of transaction and the conclusion on tax evasion in view of such fact is without basis. In the appellate authority's order, department's contention on mismatch between GSTR-3B and GSTR-2A was also rejected. After taking note of such facts, the Court held that allegation of discrepancy is a lighter charge as compared to concealment of turnover. The impugned order was set aside and the authority was directed to pass fresh order [2021-VIL-226-ALH].

Recovery of interest - DRC-07 to be issued and not DRC-01

The simple law of GST has numerous forms - a form prescribed for every process and step. Because every process is electronic / online and such online system requires templates, CGST Rules is full of forms. The petitioner before Gujarat High Court had assailed DRC-01 issued by the department on two grounds. First, the amount sought to be recovered is interest and the same is liable to paid only on net cash tax liability as per retrospective amendment to Section 50 of CGST Act (amendment made by Finance Act, 2021). The Court after taking note of the amendments under way, held that the demand of interest based on gross tax liability is not sustainable. The second ground related to the form applicable in such cases. DRC-01 is the summary of notice as per Rule 142(1) but it does not refer to Section 50. The Court held that DRC-01 could not have been issued for recovery of interest on delayed payment of tax. Further it held that as per Rule 142(5), DRC-07 should have been issued. The Court granted liberty to the department to initiate fresh proceedings as per law. Since interest demand may not arise consequent to amendment to Section 50, fresh proceedings may not be initiated. Otherwise, mere use of incorrect form cannot dilute liability, if the same is otherwise present as per law [2021-VIL-240-GUJ]

Rejection of declared value and confiscation of goods without hearing, not sustainable

Certain movies are re-made. In indirect taxes, despite enormous jurisprudence on Customs Valuation, rejection of declared value without hearing and confiscation of goods for under-valuation is a movie which is repeatedly made. Rule 12 of Customs Valuation Rules clearly provides that if the department has reason to doubt the truth or accuracy of the value declared, the importer may be asked to furnish further information and at the request of the importer shall intimate him in writing the grounds for such doubt and provide a reasonable opportunity of being heard before taking a final decision. Also, Section 124 of Customs Act mandates that no order confiscating any goods or imposing any penalty on any person shall be made unless the person concerned is given a notice in writing informing him of the grounds and such person must be given an opportunity of making a representation.

The goods "smart plugs" were imported but the Customs authorities entertained the doubt about requirement of import license from the relevant department. Later a virtual hearing took place and the adjudication order was passed confiscating the goods and also enhancing the declared value. For both the processes - confiscation and rejection of declared value, no notice was given. The High Court quashed the order and directed the department to assign hearing afresh to a different officer [2021-VIL-234-BOM-CU].

Cenvat credit - HC expunges remark on fraud made by CESTAT

The amounts involved appear to be less but the petitioner was agitated over dismissal of appeal by CESTAT on the ground of fraud. The issue was availment of Cenvat credit on labour services but the departmental representative, during the course of hearing in the Tribunal, raised the issue that transport bills were converted into labour bills thus amounting to willful mis-statement and fraud. The Tribunal compared the handwriting and dismissed the appeal after holding that the petitioner had practised fraud.

The assessee had settled the issue under SVLDRS but sought High Court's intervention to expunge the remark on fraud and also for setting aside the costs imposed by the Tribunal. The High Court held that simply asking counsel for the party to instantaneously respond to the allegation of fraud was not correct and finding of fraud could not have been reached by the Tribunal on such haphazard and hurried basis without any conclusion having been reached as to the intent to deceive. It further held that fraud cannot be said to have been proved but it was merely alleged and an inference of fraud was drawn. The Tribunal's order was set aside and the finding on fraud was expunged.

The order of HC contains a succinct commentary on what constitutes fraud and how it should be dealt with. It says - "To constitute fraud there must be an intent to deceive. When an allegation of fraud is made, it must be enquired into. Enquiry would necessarily mean granting reasonable opportunity of hearing to the party accused of committing fraud. Evidence must be led and thereafter fraud must be proved. No conclusion of fraud can be drawn on mere allegation and by way of inference." [2021-VIL-233-BOM-CE]

Appeal pending and issue sub judice - Advance ruling not available

The Uttarakhand Authority for Advance Rulings has refrained from answering questions on availability of input tax credit on materials used in construction of hotel building and also on lifts, etc., on the ground that the matter is sub judice. Appeal filed by department in the Supreme Court against Odisha High Court order in Safari Retreats [2019-VIL-223-ORI] and appeal filed before Uttarakhand High Court in another case on such issue have been cited as the reason for declining to answer the questions. Proviso to Section 98(2) of CGST Act states that the AAR shall not admit application where the question raised is already pending or decided in any proceedings in the case of "an applicant". It appears that filing of appeal before the jurisdictional High Court on a particular issue will create an embargo on all similarly placed taxpayers in that particular State from seeking advance ruling.

The AAR has made several important or interesting observations whereby input tax credit has been held as not available but the same is not part of the ruling, As per these observations, after completion of construction of hotel / banquet hall, the applicant would be using the same to supply services of accommodation, restaurant and renting of banquet hall and therefore, same would be hit by "own account" clause and the bar on ITC as contained in Section 17(5)(d). Lift, sanitary items, underground cables etc. are also an integral part of the building and they being immovable property cannot be treated as plant and machinery and they will be covered under the exclusion clause under "plant and machinery" as provided in the explanation under Section 17(5). However, ITC on repair and maintenance of such lifts, etc., would be available [2021-VIL-186-AAR]

Sweetmeat shop having restaurant - AAR answers GST questions

When sweets and namkeen are sold across the counter separately by an establishment and sale of snacks and beverages is undertaken in another portion as a restaurant, the former would be covered as sale of goods. The West Bengal AAR has held that when goods are supplied from the sweetmeats parlour without any element of supply of services or as a part of any services, it cannot be considered as a composite supply and therefore, such supplies shall be treated as supply of goods. In respect of supply of food and beverage items made in the restaurant or as takeaways from the restaurant counter, the same has an element of supply of services and it shall be covered under composite supply under restaurant services attracting 5% GST. The AAR has also ruled on exemption when supplies are made to educational institution and coverage under outdoor catering taxable @ 5% GST when supplies are made to guests with restriction on ITC. It appears that preparation of sweets or namkeens is easier than unbundling issues relating to GST [2021-VIL-185-AAR].

Agricultural produce - Handling by port authority not covered under exemption

The Puducherry AAR has ruled that the port authority (company) is not entitled to exemption under Notification No. 12/2017-Central Tax (Rate) in respect of loading, unloading, etc., of wheat and other agricultural produce. Entry No. 54(e) of this notification provides exemption to such activities and the definition of agricultural produce seeks to cover those on which no further proceeding is done (after cultivation) or such processing is done so as to make it marketable for primary market without altering essential characteristics. It appears that the applicant was bagging the wheat for transportation to the factory of the importer and in such factory, processing took place. It is not clear as to why for the process adopted at importer's factory, the port-company / applicant is being denied exemption. If this is the fact, then the ruling may be erroneous [2021-VIL-183-AAR].

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