Tax Vista Your weekly tax recap Edn. 71 - 25 October 2021 By Dr. G. Gokul Kishore

Refund of amount paid during investigation - High Court entertains writ petition

GST regime has begun with huge number of cases of alleged evasion and fraud being booked, most of them involving huge stakes and often, the investigations are packed with high drama and emotion. In a case of this nature involving a major food delivery company, an amount of around Rs. 27 crores was paid during investigation by DGGI and refund of the same was subsequently sought which was held as pre-mature by the department. The High Court did not agree. It has taken note of the facts and expressed its view pointing to a direction that refund should be granted but the order directs the department to consider the claim in the light of its observations.

This order adopts the ratio of certain precedent judgments to hold that if an amount is proved as wrongfully withheld, there is no bar in exercising writ jurisdiction to issue directions to consider refund claim. The department had opposed the writ petition on the ground that the petitioner had already filed refund claim. The Court held - "If the Court comes to a conclusion that the collection of amount which even if were to be taxes, is without authority of law, the Court possesses the power to issue appropriate direction upon determination of the validity of collection of amount / tax as being illegal to issue appropriate directions. The mere fact that application has been made for refund does not in any way take the right of the petitioner to seek for appropriate direction in the present proceedings, as the refund has merely been deferred and in effect, no decision is taken, even otherwise, the question of alternative remedy is of no significance, when the eventual direction in the present writ is only for consideration of the refund application."

Generally, amounts paid during investigation are stated as "voluntary payments" and in a few recent cases, the department has been adopting the stand before Courts that the amount represents tax payable and paid by taxpayer on self-ascertainment basis as per relevant provisions. In this case also, similar stand was taken which has not been approved by the Court. It held that investigation cannot continue if tax liability is self-ascertained because if such payment is accepted, the matter ends. On the charge by the petitioner that the payments were made under coercion, based on the facts of midnight inquiry, summoning of officers, locking of doors by officers from inside and payments at odd hours, the Court has accepted the same. Taking note of substantial amounts of tax paid by the petitioner, it has also been held that a bona fide taxpayer is required to be treated with dignity and better than a "detenu and arrestee".

On video recording of proceedings, the department adopted a strange argument that Apex Court direction on this issue was relating to only installing CCTV, the High Court said that such process would include recording also [2021-VIL-741-KAR].

Landmark judgments have been delivered and CBIC had issued several instructions but such issues of payment of amounts under coercion during investigation, summoning high-level officers during night and questioning them throughout night till early morning, compelling payments during interrogation with the threat of arrest, etc., have been a regular occurrence throughout the history of implementation of indirect tax laws. Neither judgments nor instructions can rein in indiscretion or the arrogance of power. GST law requires significant amendments to build sufficient safeguards for taxpayers even while conferring such police powers on tax officers which is also required to safeguard public revenue.

Refund stuck in technical glitches - High Court orders payment

In GST regime, even for implementation of routine orders in favour of taxpayers, one has to go to High Court. This is the simple and taxpayer friendly version of GST implemented in the country. Among the numerous such orders, recently, the taxpayer was before the High Court for such refund based on appellate order holding that the amount deposited under Section 129 of CGST Act was liable to be refunded. The department stated before the Court that due to technical glitches such amount could not be refunded as the amount was paid from a "temporary account". The Court was not happy and directed the department to pay the refund amount within 30 days. Section 129 itself needs amendment. It provides for seizure of goods and vehicles on "contravention of any provision". This is an open-ended provision without any kind of restriction or qualification. More serious dimension is requirement to pay tax and penalty to get them released though bond and BG would be sufficient for provisional release. Because of absence of any restriction, lot of instances of invocation of such provision can be seen [2021-VIL-734-KER].

Summary of SCN and order on the same day - High Court quashes order

GST law requires issuance of show cause notice before any tax is perceived by the department as not paid. It further requires a summary of such SCN to be made available electronically to the taxpayer in Form GST DRC-01. A recent order of Madras High Court reveals that DRC-01 (summary) was uploaded in GST portal and adjudication order was also passed on the same day. Facts are not clear in this case because the order mentions about SCN having been issued in 2019 but DRC-01 and orders being issued on a particular date in 2021. Nevertheless, providing summary of SCN and passing order on the same day can never get approval of the judiciary in view of blatant violation of principles of natural justice. The Court has quashed the order and ordered issuance of DRC-01 afresh if SCN had been issued already. Both CBIC and State GST departments need to organize massive training programme on issues relating to demands, refunds, adjudication and appeals [2021-VIL-737-MAD].

Mechanical SCN invoking suppression, etc., for mismatch issue - High Court quashes

These are days of mechanical - system generated - templated show cause notices. Officers in certain jurisdictions have no time to strike out what is not relevant in the format / template for SCN. Taxpayers have no option but to knock the doors of High Court by invoking writ jurisdiction. In a recent case, Jharkhand High Court has quashed both the summary of SCN in DRC-01 and the SCN on the grounds of being vague and missing foundational allegation as to whether there was suppression or fraud etc. The SCN has been reproduced in this order of the High Court and except the figures and name of the officer, no effort has been taken to actually frame any charge or allegation. When a serious provision like Section 74 of CGST Act / relevant SGST Act is invoked, the ingredient which is alleged should not only be present but also be clear and eloquent. Another harassing issue is invocation of Section 74 in every case of SCN - in this case, it appears the issue is mismatch between GSTR-3B and GSTR-2A which can hardly get covered under suppression when both the returns have been filed and the figures have been taken out only from such returns filed. As noted in the above portion, comprehensive training programme is due for SGST officers [2021-VIL-732-JHR].

Transitional credit - Two years of waiting and yet no relief

Transitional credit brings eternal pain as the litigation on this issue indicates. One of the earliest taxpayers to move the High Court and get relief on filing TRAN-1 form in 2019 has not got the benefit till today. The department did not open the portal or allow manual filing, it seems. The High Court is disappointed and has directed the departmental officer (nodal officer) to be present in the Court on the date of next hearing. The taxpayer has been waiting for two years. The department filed a review petition which was dismissed for non-prosecution and now restoration application has been stated as pending. The Court is dismayed at the non-opening of the portal and non-compliance of its directions for two years. It has been repeatedly pointed out in this column that serious attention is required on this issue and GST Council Secretariat should take stock of the pending litigation, number of cases, etc., and come up with appropriate solution which will end the agony of the taxpayers. Taxpayers cannot be made to wait as if they are expecting a dole from the government. It is the credit of the tax paid and because, the government chose to replace the tax system, such credits cannot be made to vanish [2021-VIL-738-GUJ].

Salary, EPF and ESI amounts reimbursed from recipient, liable to GST

Advance rulings are, in many cases, very frugal in terms of discussions or analysis. In a non-speaking and cryptic ruling of this nature, the Authority for Advance Rulings (AAR) has held that cost of salary and expenses towards EPF and ESI which are reimbursed by the service recipient are includible in taxable value and therefore, liable to GST. The ruling dismisses reliance placed on precedent judgments on the ground that they do not lay down general principles and they pertain to service tax provisions. It further adopts literal interpretation of Section 15 of CGST Act to hold that such amounts are not excludible as per this provision. It has also said that the applicant is not a pure agent and this finding is without a line of discussion. The applicant is a provider of housekeeping service and opted for such ruling in respect of amounts received from hospital - service recipient [2021-VIL-385-AAR].

Small and medium taxpayers suffer more when they are advised to seek advance rulings which are mostly against taxpayers. Such taxpayers also do not have the benefit of having appropriate structure whereby they can satisfy the conditions applicable for coverage under pure agent as per CGST Rules. While most of the issues relating to GST may be attributable to defective provisions and more defective implementation, a share of the blame also lies with either lack of advice or provision of not-so-correct advice to taxpayers.

Industrial plots sold after erection of structure, liable to GST

Industries have to develop despite GST as it appears from the interpretation of GST law by various authorities. Land is allotted to an industrial park which is an SPV and this SPV will develop internal infrastructure and then will sell the developed plot to individual entrepreneurs desirous of setting up industry / factory. It appears that the applicant charges for development and then the developed plot is sold. Facts are not vey clear but the AAR has held the obvious - if land is sold without development, GST will not be payable and if the land is sold after erection of civil structure or building, then such supply will be liable to GST. The ruling also briefly mentions about works contract and readers may face the challenge of deciphering the same. The rulings are qualified by "if" - if a particular activity is undertaken, then liability will arise. It is generally expected that the Authority records all the facts and then gives a final finding without making the ruling conditional on presence or absence of facts [2021-VIL-389-AAR].

Advance ruling not available on completed transaction

Section 95 of CGST Act defines advance ruling and it covers specified questions in relation to supply being undertaken or proposed to be undertaken. In a transaction involving assignment of trademarks (permanent transfer - sale) by a foreign party to the Indian party, the effective date as per the relevant deed pre-dated the application filed seeking advance ruling. The AAR has held that advance ruling facility will not be available when the subject transaction has already been completed as it is neither "being undertaken" nor "proposed to be undertaken". It is not clear as to the reasons for seeking advance ruling in the year 2020 when the trademarks were permanently transferred in 2019 itself. It may also be a fact that the effective date pertained to 2019 while the transaction as such was not completed till filing of application. An interesting issue involved but not decided in this case is about treatment of such assignment as supply of goods or of service and liability under reverse charge on the recipient [2021-VIL-388-AAR].

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal. Two books authored by him have been published recently - Cross-border Transactions under Tax Laws & FEMA (July 2021) and GST - Investigation, Demands, Appeals & Prosecution (August 2021))