Tax Vista Your weekly tax recap Edn. 49 - 24 May 2021 By Dr. G. Gokul Kishore

IGST levy on oxygen concentrator imported for personal use is unconstitutional

In one of the well-written landmark judgments, not only of pandemic times, but otherwise as well, the Delhi High Court has held that imposition of IGST on oxygen concentrators which are imported by individuals and are received by them as gifts i.e., free of cost, for personal use, is unconstitutional. It quashed Notification no. 30/2021-Customs dated 1-5-2021 whereby partial exemption was granted by reducing IGST rate to 12% from 28% to oxygen concentrator imported for personal use. According to the Court, imposition of IGST on oxygen concentrators, imported as gifts for personal use is violative of Article 14 of the Constitution on the ground that an artificial, unfair and unreasonable distinction has been drawn between persons, who are similarly circumstanced as the petitioner and those who import oxygen concentrators through a canalizing agency. It held that oxygen concentrators are to be treated as drugs as per Notification No. 50/2017-Customs and it would be sufficient for the purpose of claiming exemption if the persons like the petitioner furnish a letter of undertaking to the designated officer that the oxygen concentrator would not be put to commercial use.

In this case, the petitioner had imported oxygen concentrator which was gifted to him by his relative. The petitioner contended that imposition of IGST was discriminatory, unfair, and unreasonable and that it affected his right to life and health.

The High Court noted that before 1-5-2021, IGST rate was 28% for individual importer as against oxygen concentrators which were imported for commercial use which always attracted IGST of 12%. Commencing the judgment with the observation that taxing statutes are amenable to judicial review under Article 14 of the Constitution, the High Court said that differential treatment does not, by itself, constitute violation of Article 14 but the charge of denial of equal protection can get sustained only when there is no reasonable basis for differentiation. For this purpose, it analysed the Adhoc Exemption Order no. 4/2021-Customs whereby IGST on such goods was completely exempted when imported by government or relief agencies (canalizing agencies). It then held that the distinction is manifestly arbitrary and unreasonable between two identically circumstanced users depending on how the oxygen concentrator has been imported. It held that exclusion of individuals, such as the petitioner, from the benefits of such ad hoc exemption order only because they chose to receive the oxygen concentrators as a gift directly, without going through a canalizing agency is, violative of Article 14 of the Constitution and there was no justification for such exclusion. It further held that while it is permissible for the State to identify a class of persons, to whom tax exemption would be extended, it is not permissible for the State to exclude a set of persons who would ordinarily fall within the exempted class by creating an artificial, unreasonable, and substantially unsustainable distinction.

On equity being considered as not material when it comes to tax levy, the Court held that tax is an exaction and it does not recognize equity but it must bend to the will of equity in times of calamity which causes wholesale degradation in the human ability to contribute to the coffers of the State. It took judicial notice of GST collections and the practice of increasing tax rates to deal with calamities to garner revenue but in this case, the department did not advance such plea.

The High Court observed that Notification No. 30/2021-Customs was issued under Section 25(1) of Customs Act in "public interest", the Adhoc Exemption Order No. 4/2021-Customs has been issued under Section 25(2) on account of "exceptional circumstances prevailing due to the COVID-19 pandemic." It then said - "Given the fact that both notifications were issued in the wake of the pandemic, raging across the country, it makes little sense as to why individuals such as petitioner, are sought to be excluded from the beneficence which is bestowed on persons who fall within the sway of the notification dated 03.05.2021."

Laying down important jurisprudence, the High Court said that in times of peril, the Courts must examine the stand taken by the State to defend an action instituted to lay challenge to a tax on the anvil of Article 21 of the Constitution as it is not the form but the impact of the tax which will determine its tenability. According to it - "The State should relent, or at least lessen the burden of exactions which take the form of taxes, duties, rates and cess, in the very least, in times of war, famine, floods, epidemics and pandemics since such an approach allows a person to live a life of dignity which is, a facet of Article 21 of the Constitution."

On the argument that recommendation of the GST Council is required as per Section 6(1) of IGST Act for grant of exemption from IGST, the High Court countered saying that the relevant exemptions have been granted by notifications under Section 25(1) and Section 25(2) of Customs Act in respect of so much of IGST that was leviable under Section 3(7) of the Customs Tariff Act read with Section 5 of the IGST Act and in both the notifications (exemptions), there is no reference to Section 6(1) of the IGST Act. It agreed with Amicus Curiae's point that the power to grant exemption from IGST is relatable to Section 3(12) of Customs Tariff Act [2021-VIL-405-DEL].

Reports indicate that the government is considering filing of appeal in the Supreme Court against this judgment. Nothing can be more insensitive in these times of grave calamity than pursuing such option. GST Council meeting is scheduled on 28th May, 2021. It is expected that some of the States will focus on grant of exemption from GST on all goods and services related to Covid-19 relief. It is likely that this judgment will also come up during discussions. These are extraordinary times for the Central Government to rise to the occasion, show maturity and compassion and sacrifice some revenue for greater public good besides assuring the States that it will always consider everyone's interest as paramount.

CGST Rules amended - Revocation of cancelled registration, withdrawal facility for refund application and relaxation of e-way bill restriction when returns not filed

The Central Board of Indirect Taxes and Customs (CBIC) has issued Notification No. 15/2021 - Central Tax amending CGST Rules. Rule 23 dealing with revocation of cancelled registration provides for request to be made within 30 days of cancellation. Now it has been amended to provide for additional time. Joint / Additional Commissioner has been empowered to extend the time-limit for another 30 days and the Commissioner can extend the time for another 30 days. Circular No. 148/04/2021-GST dated 18-5-2021 has also been issued by CBIC explaining the process of seeking and grant of additional time for revocation of cancelled registration. This is applicable till the time online facility is not available in the GST portal. It begs reason as to why different officers in the hierarchy have been given such power in installments for extension as the proper officer himself could have been provided the power to extend upto 90 days if sufficient cause is shown for not filing reply within 30 days of cancellation.

Rule 90 relating to refund has been amended to exclude, from the 2 years limit, the time spent from filing the refund claim to removing deficiencies in the claim. If the claim is filed again after removing deficiencies, the time-limit will be computed from such later date only. Rule 90 has been amended further to provide for facility of withdrawal of refund claim filed. This could be due to filing of application by mistake, filing under wrong category, incorrect details mentioned in the application etc. A new form has been prescribed for this purpose. The amount debited at the time of filing refund claim, will be credited back if the refund claim is withdrawn. Rule 138E restricts generation of e-way bill if returns for two periods are not filed by supplier or recipient. Now, it has been amended to apply this restriction only in respect of outward movement of goods i.e., by the supplier.

Best judgment assessment - Method adopted to be made known to taxpayer

Section 46 of CGST Act / respective SGST Act requires notice to be issued if a person fails to furnish return (GSTR-3B). If return is not filed despite such notice, then the proper officer may determine tax liability according to the best of judgment taking into account relevant material. In a case before Telangana High Court, the petitioner was aggrieved over best judgment assessment whereby liability of SGST / CGST / IGST was determined at three times the monthly average SGST liability. This was challenged and the High Court held that it was prima facie arbitrary and contrary to the provisions. The department was directed to issue notice indicating the method of assessment for adopting best judgment assessment and after hearing the petitioner, pass fresh order [2021-VIL-396-TEL].

Best judgment assessment does not mean an assessment by the officer without any basis or any basis which need not be disclosed. The officer is required to exercise best of his judgment as per law. When reason or rationale is absent, then such assessment cannot be said to be based on any judgment and is liable to be set aside.

Provisional attachment of property of advisor to company not sustainable

The Delhi High Court has quashed the order of provisional attachment of bank account of mentor / advisor to the company against which investigation was launched alleging ITC related fraud. The Court noted that Section 83(1) of CGST Act provides in no uncertain terms that provisional attachment can be ordered only in respect of bank account belonging to taxable person and taxable person is one who is registered or liable to be registered under the said Act. As per the Court, one of the jurisdictional elements (taxable person) is missing in this case and therefore, the proceedings are without jurisdiction. Further, material to link petitioner with the alleged fake invoices was not placed on record and in the absence of material, draconian step of provisional attachment of bank account by invoking Section 83 was not sustainable [2021-VIL-393-DEL].

Some officers resorted to provisional attachment even when proceedings were not pending under specified sections and High Courts granted relief in such cases. To overcome such capacity constraint among tax administration, CGST Act has been amended to include specified chapters in entirety. One may see an amendment to the term "taxable person" used in Section 83 in future as provisional attachment of family members and others (advisor) has been held as not sustainable in several cases.

CAROTAR - Bank guarantee required when verification of COO certificate initiated

Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 - commonly known by the abbreviation CAROTAR was invoked in respect of goods imported from Bangladesh. The Customs department entertained the doubt as to whether the importer has satisfied the value addition criterion for claiming preferential tariff under SAFTA. Goods were not granted clearance and the importer was before the High Court pleading for release of goods without insisting on security / bank guarantee as the verification is on random basis and not as per CAROTAR.

The department argued that facts were not properly presented by the petitioner as verification of country of origin certificate (COO certificate) was initiated as per Rule 5(1) of CAROTAR with intimation to the importer-petitioner and they were asked to seek provisional assessment for clearance of goods under Section 18 of Customs Act, 1962 read with Rule 6(4)(c) of CAROTAR. As the importer did not come forward to furnish BG, the goods were not cleared. The High Court noted that minimum value addition and certain components of price were under scrutiny and verification was prima facie justified. It held that goods may be released if bank guarantee is submitted. It appears that the importer was primarily aggrieved over furnishing of BG but has ended up with further delay in clearance and litigation cost [2021-VIL-389-TRI-CU].

Rule 5 of CAROTAR provides for seeking information from the importer if country of origin criterion is reasonably believed as not met. Rule 6 empowers the Customs authorities to send verification request to the authority in the exporting country and Rule 6(4)(c) gives the option to the importer to clear the goods on provisional assessment after furnishing security for differential duty. Imports from least developed countries are always susceptible to suspicion as to country of origin and value addition and importers should be prepared for consequences of application of CAROTAR in such cases. The risk of denial of preferential rate of customs duty is inherent once CAROTAR is invoked.

Refund of ITC due to exports - Glitches and confusion over type of tax

Refund claim was filed in respect of unutilized input tax credit due to exports but, it appears, refund of SGST was granted and CGST and IGST were not granted. The petitioner before High Court has argued that due to glitches in GST portal, entire refund claim got auto-populated under SGST head. The department countered saying that documentary proof in this regard was not submitted. The petitioner had submitted refund claims manually also. The Court has set aside the impugned order rejecting refund of CGST and IGST and directed the authority to verify the claim again. The issue involved is not clear - if the entire refund amount got consolidated under SGST head due to system issue but was sanctioned / granted, then there should not be any grievance. But it appears there is an order rejecting refund of CGST and IGST as well [2021-VIL-392-MAD].

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