Tax Vista Your weekly tax recap Edn. 83 - 17th January 2022 By Dr. G. Gokul Kishore

Covid - 19 - Limitation extension order of SC applicable to GST refund claims

Covid-19 is raging - wave after wave crippling businesses and causing considerable damage to taxpayers. However, GST department is of the view that time-limit of 2 years prescribed for refund cannot be extended and the Supreme Court's order extending time-limit for all actions under all laws due to Covid-19 is not applicable to GST refunds. The Bombay High Court has held that such view is incorrect. According to it the GST department is bound by the order of Supreme Court and is required to exclude the period covered by such order while computing the time-limit. In this case, the taxpayer had filed refund claims which was found to be defective twice and the third application was rejected on the ground of time-bar. Quashing the impugned order, the Court directed the application to be considered afresh [2022-VIL-29-BOM].

CBIC should issue a fresh circular in line with such Court's order which can provide great relief to taxpayers. Instead of adopting hyper-technical interpretation of the Supreme Court order and trying to find out cases where such order will not be applicable, the Board should categorically say that it respects the Apex Court's order and the same will be applicable to all applications, claims, petitions, requests, etc., except returns for which the dates are periodically extended separately by the GST Council.

Tax credit cannot lapse - High Court on transitional credit

VIL has reported an otherwise routine order on transitional credit - the taxpayer had entered the amount in wrong column in TRAN-1 form, filed petition in High Court, later withdrew it as the GST authorities were considering the issue and later came to High Court again as the issue was not decided favourably by the department. The High Court held that credit once availed cannot lapse. The observations are worth taking note - "The procedure prescribed under the provisions of Central Goods and Services Tax Act, 2017 and the respective State Enactments and the Rules made thereunder should not come in the legitimate way of transitional credits as such credits were already available for being utilized for discharging the tax liability. These amounts cannot lapse. The difficulty in amending the TRAN-1 is on account of the architecture of the web portal which did not permit the petitioner to make such amendments....Input tax credit once availed are indefeasible and cannot lapse." It has directed the authorities to verify the claim afresh [2022-VIL-25-MAD].

Readers may also see another order reported this week wherein the High Court has held that taxpayers are entitled to carry forward the Cenvat credit and it is a substantive right which should not be permitted to be extinguished on technicalities [2022-VIL-28-TEL].

The number of court cases filed or pending on transitional credit may be more than the credit amount itself. This one issue shows how narrow-minded policy makers can be when it comes to tax credits. A new tax system is brought without taxpayers asking for it, a new form is devised for claiming what is already available, the claim is required to be lodged in a portal which is eternally in development stage and the form is so sacrosanct that it can never be amended or revised. Above all, a new time-limit to claim what is already available is provided and to take the litigation to new heights, retrospective amendments are made to transitional credit provisions. One bad provision has failed GST in India and the blame squarely lies on the policy makers and top echelons of tax administration.

Multiple proceedings and transfer to DGGI - High Court refuses writ petitions

Section 6 of CGST Act deals with cross-empowerment of officers whereby SGST officers are also deemed as CGST officers. Similar provision in SGST Acts provide for the vice versa. CBIC circular / instructions provide for taking intelligence-based enforcement action by any authority irrespective of administrative jurisdiction over taxpayers and once such action is initiated, it should be taken to logical conclusion without transferring proceedings to another authority. All these provisions have been interpreted by Delhi High Court in a recent case where the petitioners assailed initiation of investigations by multiple authorities including DGGI. According to the High Court, the statutory provisions and CBIC's instructions are not intended to answer situations where due to complexity of inquiry involving number of persons, one authority cedes the jurisdiction to another. In this case, DGGI in a particular region sought to transfer proceedings / investigations pending with all other authorities. It pointed out that different authorities may conduct investigations independently and compel the petitioners to face multiple proceedings whereas a particular unit of DGGI has been vested with investigations now. CBIC's circular has been held as not applicable to the present case [2022-VIL-31-DEL].

It seems that during the pendency of writ petitions, the issue of multiplicity of proceedings has been addressed by the department by transferring the investigations to a single authority. The basis of the petitions thus became somewhat tenuous. Probably, not to face the generally perceived strong-arm tactics of DGGI, the petitioners insisted that respective authority should proceed with the investigations. The High Court in this case has added new dimension to the issue of cross-empowerment by holding that CBIC's circular is not applicable in such cases.

Refund and technical glitches - The inseparable twins

Refund and technical glitches or software limitations in the GST portal are inseparable twins as many judgements indicate. Sometimes, the glitches are apparent than real, it seems. Refund was credited in the bank account of another taxpayer due to mistake by consultant while filing refund claim. The other taxpayer promptly paid back such refund through DRC-03. Refund application was filed again with correct bank account number but the same was rejected citing technical glitches. Before the High Court, the authorities have also stated that the issue was escalated to higher level for resolution. The Court has directed refund as it is not the fault of the petitioner [2022-VIL-22-GUJ].

The issue is so simple but it is not known why the GST portal will not permit refund when the same is applied second time. When the system can recognize return of amount wrongly refunded, it should logically provide for refund to the correct bank account. Either the departmental officers are not aware of using the application at their end or GST portal is deficient to this extent. There are several other issues at the field level. GST Council Secretariat and CBIC should seek report from field formations on the types of glitches experienced or shortcomings noticed and instead of pushing taxpayers to High Courts, the software should be updated immediately.

Appeal before wrong authority - High Court directs GST authorities to inform by mail

It is not known whether the backend of GST portal providing access to officers is different for State GST officers and Central GST officers. But it seems this is the fact. A taxpayer had filed appeal online but the appeal got lodged with the CGST officers. Unaware of such fact, the taxpayer sent hard copy of the appeal to SGST authority who rejected as no appeal was found online at their backend. The High Court had to intervene, condone delay, direct filing of fresh appeal and also direct both Central and State GST authorities to inform taxpayers by email about such errors as the system is fairly new [2022-VIL-23-TRI].

When taxpayers are assigned to either Central or State jurisdiction and the GST portal has been mapped accordingly, the appeal filed online cannot go to a different authority. If it goes, then it is a serious system fault and taxpayer has nothing to do with it. A system audit of GST portal is due - so many taxpayers are denied legitimate benefits or rights and driven to High Courts only because the software is faulty. Statutory rights and benefits cannot be made contingent on software limitations. Unless costs are imposed and taxpayers are compensated appropriately, such issues can hardly be resolved.

Refund claim filed after two years - High Court adopts strict interpretation

Refund of tax paid for the second time without making any supply was claimed but the application was filed beyond the prescribed period of two years. The High Court did not accept the plea on the ground of limitation. The petitioner had relied on CBIC's circular but the same was held as not applicable to the present case. However, the Court said that the petitioner should have requested the recipient to issue credit notes to neutralize the excess tax paid. In GST law, it is the supplier who issues credit notes if tax effect is to be given by reducing the liability. Further, the period pertains to 2017 when there was all round chaos of reporting in GSTR-3B, seeking adjustment in subsequent return instead of filing separate refund claim, etc. Added to this is the fact of amalgamation of another company with the petitioner and system created issues when ERP system had to be customized for GST. May be, absence of proper guidance or advice during such critical phase has resulted in the petitioner losing out on refund [2022-VIL-37-MAD].

ISD and cross-charge - Avoidable confusion

It is quite surprising that large companies seem to lack proper advice on common issues like adoption of cross-charge and input service distributor. More surprising is the fact that they seek clarity through advance rulings. The result is obvious. This is a case where the issue is simple but got complicated through arguments and findings and therefore, readers are cautioned to go through the appellate ruling with discretion.

The appellant is having head office where invoices for certain common input services received (and used) by branch offices / units in other States are received and payment is made by such HO. Without adopting input service distributor route, the appellant has been reckoning all such expenses as part of cross-charge and therefore, charging GST on such supply by HO to branch offices and ITC of the same is availed by such receiving units. The AAAR has not accepted the contention that ISD is an option, and it has been held that the appellant is required to obtain ISD registration as they cannot use the ITC on common input services at HO since these services are received by units. The issue has taken a detour with discussion on pure agent also. Rule 28 providing for open market value is to be adopted for cross-charge and inclusion of salary cost of employees of HO for such cross-charge are other obvious conclusions in the appellate ruling. There is another difficult to understand conclusion in the ruling and the same is not discussed here [2022-VIL-03-AAAR].

Goods subjected to export duty - Can ruling be rectified?

Refund of unutilized input tax credit is not available if the goods exported are subjected to export duty. An appellate advance ruling passed in early 2020 holds that when export duty is exempted, then also such restriction on refund of ITC would apply. The appellant was importing iron ore and after conversion, pellets were exported. Iron ore pellets are covered under Second Schedule to Customs Tariff Act as subjected to export duty but by way of exemption notification, no such duty is payable. The Appellate AAR had relied on landmark judgment of Supreme Court in Vazir Sultan Tobacco [1996-VIL-28-SC-CE] wherein it was held that NIL of duty is also a rate of duty. Later, CBIC has, by Circular No. 160 dated 20-9-2021, clarified that goods which are exempted from export duty are not to be considered as "subjected to export duty" and therefore, such bar on refund of ITC will not apply.

There is no change in law or no error apparent on the face of record but only the interpretation adopted by CBIC is different from that of AAAR. If the appellant applies for refund now based on CBIC Circular, the departmental authority will be bound by such circular. But, as per law, the ruling is binding on him. Which one will prevail when two contrary things are binding on the officer - the ruling or later clarification of the Board' If refund is rejected, then the appellant may have to invoke writ remedy highlighting such stalemate [2022-VIL-05-AAAR].

(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))