Tax Vista Your weekly tax recap Edn. 72 - 1 November 2021 By Dr. G. Gokul Kishore

Revision of GST returns - Supreme Court turns down plea

The Supreme Court has held that not making GSTR-2A operational during the relevant period cannot be a ground to allow revision of the returns pertaining to such period. It allowed department's appeal against Delhi High Court's order whereby taxpayer's writ petition was earlier allowed. The plea to revise GSTR-3B returns for the period July to September, 2017 was taken citing the error of not having information on quantum of input tax credit being available resulting in payment of tax by cash to the extent of Rs. 923 crores. The High Court had allowed filing of rectified returns holding that there was no reason to restrict rectification mechanism to returns of subsequent months and para 4 of Circular No. 26 was read down. This has not been accepted by the Apex Court in its judgment dated 28-10-2021.

According to the Supreme Court, the High Court did not examine whether taxpayer was required to be fully dependent on auto-generated information for which "the answer is - an emphatic No", as per the order. It held that the taxpayer was under legal obligation to maintain books of accounts and records to reflect output tax liability (OTL) and they were obliged to do self-assessment, reckon eligibility to ITC and determine OTL based on such office records and books of accounts. GST portal is only a facilitator to feed or retrieve information and need not be the primary source for self-assessment and there has been no change in the position between pre-GST and GST regimes on this issue, as per the order. It reads - ".but the fact remains that for furnishing of returns, preparatory work has to be done by the assessee himself and is not fully or wholly dependent on the common electronic portal for that purpose. Just couple of weeks before the relevant period between July and September 2017, the writ petitioner / respondent No. 1 had been doing that exercise which it was expected to continue even under the post-GST regime. The factum of non-operability of Form GSTR-2A, therefore, is flimsy plea taken by the writ petitioner / respondent No. 1. Indeed, if the stated form was operational, the same would have come handy to the writ petitioner for doing self-assessment regarding eligibility of ITC and availing thereof. But it is a feeble excuse given by the writ petitioner / respondent No. 1 to assail the condition specified in the impugned Circular dated 29.12.2017 regarding the rectification of the return submitted manually in Form GSTR-3B for the relevant period (July to September 2017)."

Reiterating the fact that payment of tax by cash or credit is an option, the Apex Court says that it cannot be reversed or swapped as provisions do not permit the same and the relevant provision provides for correction of the return during the period when error is noticed and not in the return for the period to which it relates. GSTR-3B has been held to be a validly notified return though it was meant to be a stop gap arrangement [2021-VIL-87-SC].

This dispute apparently reveals the gaps in devising appropriate compliance strategy when a major tax reform was introduced. It also shows the issues in implementing processes which has resulted in payment of more than Rs. 900 crores from cash ledger even when ITC to this extent was available. While the High Court went by the technical glitches and patchy implementation of GST, the Supreme Court has opted to tread the line of strict interpretation of law and the obligations cast on the taxpayer by such law.

TCS by e-commerce operator - Supplier entitled to refund of balance in cash ledger

GST department is bent on fanning litigation on frivolous grounds. E-commerce operators are covered under requirement of tax collection at source (TCS) as per Section 52 of CGST Act. Such amount is required to be paid to the exchequer and the supplier can claim credit of such amount in his electronic cash ledger. Proviso to Section 54(1) provides for refund of balance amount lying in such cash ledger. In a recent case, one such supplier claimed refund of balance in cash ledger which was initially sanctioned, but the department reviewed the order, filed appeal and the first appellate authority rejected the refund. The supplier had to knock the doors of Telangana High Court which has allowed writ petition through a well-reasoned order.

One of the grounds for rejection of refund was that unjust enrichment was not examined initially. The department further raised strange contentions before the Court which have been rejected with eloquent reasons. One such argument was that the TCS amount was not a "tax" but the High Court held that Section 52 is part of Chapter X titled "Payment of tax" and therefore, such argument is not acceptable. The Court went on to say that if the contention is that TCS is not a tax then such collection would have to be treated as without authority of law. Analyzing Section 54(1), the order explains that it covers two different classes of persons who can claim refund namely - (i) any "person" and (ii) "registered person" and it also covers two different types of refunds namely (i) tax, interest or any other amount and (ii) balance in electronic cash ledger. The petitioner is covered under the second category as registered person entitled to claim refund of balance in cash ledger.

CBIC's FAQ stating that refund of excess balance lying in cash ledger is available to actual supplier in case of TCS has been sought to be distinguished by the department by contending that such departmental clarification does not bind quasi-judicial authorities. Rejecting such argument, the High Court has termed the same as perverse.

One of the major grounds taken by the department is about maintainability of the writ petition when appellate remedy of appeal to the Appellate Tribunal has been provided. Holding that taxpayers cannot wait in eternity when right to carry on business is violated, the Court notes - ".... it is an admitted fact that the said Tribunal has not yet been constituted, though more than 3 years have elapsed after the CGST Act has been introduced. Thus, the petitioner cannot be compelled to wait for eternity to agitate its claim seeking refund of the amount to which it is entitled to under the statute and also blocking its funds affecting its cash flows, merely because of existence of (non-functional) alternate forum/remedy on paper, by not invoking the jurisdiction under Article 226 of the Constitution of India. Further, mere existence of alternative remedy is no bar for invoking the jurisdiction under Article 226 of the Constitution of India, when right to carry on business is being impeded, resulting in violation of fundamental right as guaranteed under Article 19(1)(g) of the Constitution of India." [2021-VIL-760-TEL].

This dispute points to a deeper malaise. The rule that every refund claim should be examined for possible rejection and to the extent feasible, should be rejected on some ground, imaginary or otherwise and the claimants should be pushed into litigation was followed in pre-GST regime. It appears that this practice is being scrupulously followed in GST regime as well. Such anti-taxpayer methods will neither help in augmenting tax collection nor improving the compliance behaviour. Resources of all stake-holders get wasted in fighting such battles which could have otherwise been productively used by the members of industry.

Refund of IGST - Sad tale of stoic indifference by bureaucracy

GST is becoming just yet another tax with all problems associated with tax bureaucracy in full display. Refund of IGST paid on exports made in 2017 was not granted only because data from GSTN was not transmitted to ICEGATE. Therefore, the publicity given on reduction on papers like shipping bill itself being treated as refund claim became a hoax. The exporter filed a claim later for refund. Adjudicating officer, as usual, rejected the claim and appellate authority held that jurisdiction is with Customs and not with GST officers. It appears lot of communication between Customs and GST officers took place but nobody responded to the exporter. The High Court has taken note of all the pains of the exporter and directed refund along with interest. It has also imposed costs. The High Court has observed that the exporter has been made to run from pillar to post only because data of IGST refund has not been transmitted from GSTN to ICEGATE and the same was not petitioner's (exporter) problem and it was the responsibility of the authorities to ensure refund was granted. Unless something drastic is implemented fixing accountability, such bureaucratic dysfunctions will certainly derail any reform including GST [2021-VIL-742-BOM].

Refund withheld despite verification - High Court says exports will become unviable

In yet another case as above, Telangana High Court has directed refund of IGST relating to exports and drawback claimed by the petitioner which were kept pending apparently for verification but not sanctioned even after completion of such exercise. Refund was withheld in this case due to system-based alert on risky exporters requiring 100% examination of the export consignment and verification by the jurisdictional GST authorities. The petitioner made efforts so that the alert is removed from the system and refund gets processed. The Court has noted that on verification, the claim was found to be in order including verification of suppliers at different levels. The department contended that few of the suppliers of the petitioner have been identified as suspicious for passing fake ITC but the Court observed that such percentage is less and even then, 90% provisional refund can be granted.

Stressing the important role played by such refunds in promoting exports, the High Court says - "Inasmuch as no discrepancy has been found with regard to the suppliers of the petitioner, the refund claim by the petitioner cannot be denied to be processed on the ground that verification of the suppliers of the petitioner's supplier is pending. The reluctance on the part of the respondents in granting of refund to exporters upon completion of exports would result in taking away the incentive to export and would make the exports from the country unviable due to non-flow of funds in the form of refund assured under the Act." For almost every refund claim, writ remedy is becoming the only solace for taxpayers and exporters. It is the Constitution of India and interpretation adopted by the judiciary that protect the citizens including taxpayers [2021-VIL-762-TEL].

Work from home during Covid-19 - High Court order on cancellation of registration

Covid-19 also contributes to litigation as a recent case before Calcutta High Court shows. The taxpayer was before the Court on the ground that request for revocation of cancellation of registration was turned down by the department. The taxpayer contended that such action was taken on the ground that business was not carried out in officially registered principal place of business which was due to Covid-19 but business was being undertaken from time to time. The High Court has directed the authorities to pass fresh order. It appears that business was carried on which means the petitioner was adopting work from home model but in such case returns should have been filed and tax should have been paid. If this is the fact, then cancellation of registration for not making taxable supplies from the registered premises during the pandemic period cannot be justified [2021-VIL-743-CAL].

E-way bill disputes - Department on litigious course

Section 129 of CGST Act - one of the most frequently used provisions by the GST authorities - empowers the department to detain and seize goods and vehicles in transit in contravention of the provisions. In a particular case, the vehicle carrying the goods had reached the destination but were unloaded after some delay when the officers visited the premises. Action was taken under Section 129 but the Single Judge of High Court had held that action as not sustainable. Against such order, the department has filed appeal and before the Division Bench also, it has not been successful. For e-way bill related minor issues, the department files appeal in High Court - this should be taken note of by the GST Council so that time and resources of all concerned are not wasted. In this case, the vehicle carrying the goods had reached the destination when validity of e-way bill had not expired. Section 129 is applicable only when the vehicle is in transit and when the fact of vehicle having reached the destination is on record, invocation of the provision itself may not be legally sustainable [2021-VIL-758-KAR].

Tax payment in installments - High Court order not a precedent

In Tax Vista dated 19 October, 2020, Kerala High Court's order permitting the petitioner to pay GST in installments in view of Covid-19 induced business stagnation was briefly analysed [2020-VIL-714-KER]. The department has gone on appeal seeking clarification from the Court that the above judgment shall not be cited / used as precedent in other cases. The Court has agreed and has held that if the earlier judgment was cited as precedent, it may result in payment of installments contrary to statutory provisions. While both the earlier and present orders are understandable, we had pointed out earlier that amendment to Section 80 of CGST Act is required to include self-assessed liabilities since Section 80 empowers the Commissioner to permit payment of tax in installments where the same arises for reasons other than self-assessment. The department should show the same zeal in proposing the amendment as shown in filing this appeal to restrict others from using an order favourable to taxpayers as a precedent [2021-VIL-759-KER].

Opportunity of hearing - High Courts differ

If sufficient and effective opportunity of hearing is not provided, High Courts generally allow writ petitions filed against the impugned orders. Allahabad High Court has set aside an adjudication order on such ground and directed de novo consideration of the matter. Facts like supply of copy of relied upon documents, service of notice of hearing, etc., are disputed in this case but the High Court was not convinced of the arguments by the department. The Court has said - "Rules of natural justice are not hollow words to be given a formal compliance to validate the conclusions that may either be tentative or in the shape of a strong opinion or reasonable belief, in the mind of the quasi-judicial authority. Those rules must be enforced so that the decisions that are taken by the quasi-judicial authority upon the compliance of those rules are informed with reason and reached upon due consideration of the defence set up by the noticee i.e. upon due application of mind." [2021-VIL-754-ALH].

However, in another case before Madhya Pradesh High Court, the taxpayer could not succeed wherein it was argued that appeal was dismissed without providing adequate hearing opportunity. The appeal before first appellate authority was dismissed apparently on account of delay in filing. First wave of Covid-19 intervened and physical hearing could not be conducted. The High Court was convinced that the impugned order was passed after taking into account written submissions and the order being based on limitation, the authority could not have waited for normalcy to return. It appears that the appellate authority had considered the issue on merits as well [2021-VIL-750-MP].

Sales promotion - ITC not available even if expenses factored in cost of final product

Sales promotion is a no-go zone for input tax credit as it appears from the majority of advance rulings rendered so far. As per the latest one on this issue, the applicant floated "Buy n Fly" scheme to reward retailers who achieve certain sales target. The scheme has been stated as not mandatory and retailers were free to participate or otherwise. A trip to Dubai, gold voucher, TV and air-cooler were the rewards for high-performing retailers. As per the applicant, such rewards cannot be equated with gifts which are restricted for ITC under Section 17(5)(h) of CGST Act. The arguments appear to be centered around Section 16 on use of such goods and services in business and considering the difficulties caused by Covid-19 and time-limit for availing credit, ITC was availed by the applicant.

Inclusion of sales promotion expenses in costing of the product and therefore, in the price paid by the retailer, was also highlighted but was not accepted by the Authority for Advance Rulings (AAR) by relying on Section 17(5)(g) to emphasize the ITC restriction on goods and services meant for personal consumption. Non-issuance of any tax invoice, scheme being voluntary, absence of consideration, etc., have been held out as covered under vice of Section 17(5)(h). The reasoning by AAR on use for personal consumption may not be legally sustainable as such provision is qua the taxable person availing ITC and not the recipient [2021-VIL-391-AAR].

The reward scheme was floated in 2019 and the present advance ruling application has been filed in October, 2020. By this time, the adverse views of the authorities (both in the department and ARA) were known. Though the applicant was constrained by pandemic pains, seeking advance ruling appears to be not the best option in such a situation. If such companies are intent on availing ITC on sales promotion expenses, it may be prudent to wait for show cause notice so that the issue is properly litigated in the tribunal (as and when formed), High Court and Supreme Court. While outcome of litigation cannot be predicted or speculated, at least, the interpretation of judiciary can be expected to be balanced and tempered with reasons.

Transporting Covid patients is not exempted from GST

Adoption of literal interpretation to the complete exclusion of the objective of the provision is the norm in advance rulings. In a ruling of this nature, the AAR appears to have even inserted condition in an exemption notification. It has held that providing of vehicles by tour operators / such entities to municipal corporation for transporting Covid-19 patients would not be eligible for GST exemption. S. No. 3 in Notification No. 12/2017-Central Tax (Rate) provides exemption to pure services provided to government / local authority in relation to municipal or panchayat functions. Public health is a municipal function as per the Constitution of India and therefore, transporting Covid-19 patients is related to public health and such exemption should be admissible. However, the AAR has imported a condition in the notification that the vehicle should be registered as ambulance for being entitled to exemption. This importation is based on a CBIC circular which clarifies exemption to ambulance service under S. No. 74 and exemption to other services under S. No. 3. An appeal to Appellate AAR may yield a different result. Very likely, such issue will be deliberated in the GST Council so as to recommend issuance of clarification on such exemption when the pandemic still rages and wave after wave is impacting adversely the life of almost everyone [2021-VIL-392-AAR].

Second-hand goods dealer not entitled to ITC when availing concessional rate of GST

Compared to the above discussed legally non-sustainable ruling, the one discussed in this portion may leave an impression of absolute ignorance of the officers who draft the ruling. The applicant is a dealer of second-hand cars, paying concessional rate of GST as per Notification No. 8/2018-Central Tax (Rate). This notification prescribes taxable value and condition as provided in Rule 32(5) of CGST Rules relating to margin scheme for dealers of second-hand goods. As per this rule (as also this notification), taxable value shall be the difference between the selling price and the purchase price. This rule stipulates two conditions - processing undertaken by the dealer should not result in changing the nature of the goods and ITC should not be availed on purchase of such goods. The above notification also mandates non-availment of ITC on "such goods". The ruling does not refer to the relevant rule at all. In respect of the notification, it completely misses the words "such goods" and holds that ITC will not be available on various input services like rent, commission, professional fees and telephone. It is the credit pertaining to purchase of such vehicles which is restricted and there is no blanket embargo on ITC availment by such dealers. As noted above, if appeal is filed, Appellate AAR may provide the ruling as per the provisions [2021-VIL-393-AAR].

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