Tax Vista Your weekly tax recap Edn. 92 - 21st March 2022 By Dr. G. Gokul Kishore

No intent to evade when differential tax payable is less than 1%

A judgment likely to be initially brushed aside as routine but having significant precedential value has been delivered by P&H High Court recently. The issue was difference in quantity mentioned in invoice / e-way bill and actual weighment during physical verification. The obvious course followed - Section 129 of CGST Act / SGST Act was invoked, vehicle was detained, etc., which was challenged by the taxpayer. The High Court noted that the difference is about 90 kgs involving tax of Rs. 11,000 whereas GST of Rs. 12 lakhs have been paid on the consignment. The High Court held that the difference in weight is less than 1% and, in such circumstances, the taxpayer cannot be said as having intent to evade tax or mismatch is of such nature to invoke Section 129 on detention. The High Court quashed the detention order and ordered refund of fine / penalty paid [2022-VIL-190-P&H].

In Central Excise, tribunal used to accept the argument of absence of mens rea when the assessee was a large taxpayer paying huge amount of taxes regularly and the dispute was over an issue involving minimum amount. For such minimum amount, the assessee could not have devised a strategy to avoid payment of tax or escape liability. In GST, the above order appears to be the first of this kind and it will be useful as a precedent.

GST Tribunal is elusive - High Court refers matter to Larger Bench

One of the most saddening stories of GST is the body meant for dispute settlement - GST Appellate Tribunal - is stuck in multiple disputes. Bureaucracy is famed for creating offices but when the attempt to populate GST Tribunal Benches with more of officers has been stopped by the High Court, the tax administration has become insensitive to taxpayers' concerns. Allahabad High Court has passed several orders relating to the issue of non-constitution of the GST Tribunal. In a recent case, it was argued that State Bench and Area Benches could not be constituted due to an interim order of the same High Court. The High Court has now observed - "Non-constitution of Tribunal has left remediless lacs and lacs (of)(sic) dealers under the Act, 2017 in the State of Uttar Pradesh since the year 2017, particularly small and medium class dealers who are not able to afford to file writ petitions against the orders of the First Appellate Authority for variety of reasons including high cost of litigation in High Court." The High Court has referred to Larger Bench as to whether interim order directing non-constitution of Benches of Tribunal be passed in conflict with final order of another Division Bench.

Orders of High Courts are not of any solace to taxpayers so long as the tax administration is unresponsive to the issue. There has been no news on GST law being amended or any other alternative method being brought on the agenda of GST Council meeting regarding constitution of GST Tribunal. Thousands of taxpayers whose refunds have been rejected upto the stage of first appellate authority and who are waiting to appeal before GST Tribunal will have to watch the grand celebration of five years of GST shortly [2022-VIL-192-ALH].

VIL has reported another order involving appeal by department against Single Judge Bench order directing release of goods and vehicle on payment of certain amount as deposit. The Division Bench has said that exercise of discretion by Single Judge was proper and interest of the department is safeguarded as almost 30% of the tax amount has been deposited. This order is briefly mentioned because in this case also, the High Court has held that writ petition was rightly entertained as GST Appellate Tribunal is yet to be constituted [2022-VIL-188-CAL]. One of the major achievements of policy makers is conversion of writ court into appellate court by passively obstructing the formation of Tribunal.

Passing order without SCN and initiating recovery - High Court restrains

Last week in Tax Vista, an order of Madras High Court was briefly analysed where intimation of tax liability in Form DRC-01A was given to the taxpayer and without issuing proper show cause notice in Form DRC-01, adjudication order was passed [2022-VIL-177-MAD]. It was pointed out that taxpayers suffer because of absence of training for SGST officers in quasi-judicial procedures. In yet another case of this nature and attributable to similar reason, Jharkhand High Court has passed an interim order recently. ASMT-10 was issued intimating discrepancies in the return filed and the taxpayer replied in the prescribed form ASMT-11. DRC-01A was also issued intimating tax, interest and penalty payable and the taxpayer filed response to the same. However, without issuing SCN as per provisions, adjudication order was passed and the taxpayer is now before the High Court. The department went one step further by issuing recovery notice to the bank also. The High Court has directed that coercive steps should not be taken based on the garnishee notice issued to the bank [2022-VIL-195-JHR].

Absence of SCN is a fundamental breach vitiating the entire proceedings. The height of department's urge for revenue coupled with ignorance of provisions has resulted in recovery action as well. If the facts as presented are true, the officers concerned should be posted to non-jurisdictional responsibilities so that further harassment of other taxpayers can be avoided.

Mere charge of firm being bogus not sufficient to cancel registration

Cancellation of registration under GST law has become a laughing affair for the authorities, it seems. Merely describing a firm as bogus, registration was cancelled. There was a site visit and at that time, the premises was locked. Though notice was issued, reply was not considered. Though revocation of cancellation was sought, the order was equally vague in rejecting such request. All the communication simply parroted that the firm is bogus. The High Court noted that mere charge of firm being bogus is not covered under the provisions for cancellation as it is vague and the orders are defective. It held that in the absence of specific charge, GST authorities cannot cancel registration of the taxpayer. The taxpayer has submitted before the Court that returns have been filed and tax has been paid. If this is the fact, then locking the business premises cannot lead to the conclusion that business is not being carried out at all and the entity itself is bogus [2022-VIL-193-ALH].

Copy-paste order - High Court quashes

It is not uncommon to see show cause notices reproducing taxpayer's submissions. It is also not uncommon to see adjudication orders reproducing verbatim the contents of show cause notice and reply of taxpayer with very little independent discussion. In fact, most of the authorities seek the submissions in pen drive so that they can be easily copied in the orders. But, after using such submissions, if findings are independently given, there may not be any issue. In a case of this nature, the High Court observes -"I have compared the reason annexed to the impugned show cause notice and the final adjudication order; and on comparison of the same, I find that the impugned final adjudication order is just a copy-paste of the reason recorded in the show cause notice, and it appears from the same that the officer concerned has not considered the judgments relied on and the issues raised by the petitioner in its objection to the aforesaid show cause notice." The order was set aside with directions for passing fresh order [2022-VIL-193-ALH].

EDC & IDC liable to GST

Section 15 of CGST Act deals with valuation and it has been drafted for optimizing revenues. It seeks to include everything except GST. "Everything" includes all statutory levies and taxes under other laws. In the construction sector, several statutory levies are paid to government authorities under various State enactments like external development charges (EDC) and infrastructure development charges (IDC). The Appellate Authority for Advance Rulings (AAAR) has affirmed the ruling of AAR holding that such charges are liable to be included in taxable value. The taxpayer sought to argue that recovery of such charges are mandatory and part of license conditions. The discussions in the appellate ruling are not clear as precedents relied on by taxpayer have been held as not applicable on some reason or the other and EDC and IDC have been held as contributing to the value of the flats and therefore includible in taxable value [2022-VIL-19-AAAR].

One of the views taken is that if such charges are included in the value for payment of stamp duty when UDS is sold, GST is not applicable. However, in general, such charges are not part of land value and are not included for such purpose exposing the same to GST levy. Notification No. 11/2017-Central Tax (Rate) does not differentiate but merely states that development charges are includible in gross amount.

E-goods received and stored in cloud server abroad - GST payable under reverse charge

Everything is e-way today. In a recent appellate advance ruling, as per facts, digital goods / e-goods are received from foreign parties (gaming companies) by e-mail and stored in cloud servers. The appellant provides access to such digital goods either through e-mail or downloads and it was argued they are not goods but services, stored in server outside India and therefore, not imported and not covered under IGST Act for levy under reverse charge. It was further contended that many buyers are from abroad and they pay in foreign exchange and services are provided from outside India and received outside India. However, AAR in the earlier advance ruling had held such online gaming service would be covered under OIDAR service. The Appellate AAR has now affirmed this ruling.

In the appellate ruling, it has been held that place of supply is the location of recipient for OIDAR service and appellant is the recipient and the transaction will be covered under import of service even if they are not downloaded but reside only in cloud servers. The ruling further notes that as the appellant pays the foreign supplier, there is a supply whereby the appellant gets the right to further supply and they are liable to pay GST under RCM. An interesting observation of AAAR is that place of supply for OIDAR does not mention about how and where the services related to OIDAR are received but only mentions the place of recipient. Regarding services supplied to foreign customers, the AAAR chose not to answer as, according to it, the same will be a factual exercise of analysing every transaction vis-à-vis the various conditions prescribed in Section 13(12) of IGST Act [2022-VIL-21-AAAR].

The issue relating electronic transactions are not as simple as made out in the rulings. OIDAR is not an answer to all things which are transacted through electronic medium over internet. OIDAR service itself is fairly old now and GST law has to catch with technological advancement where except receipt of money, nothing takes place in India as servers are remotely located and customers are also out of India.

Training provided in India using foreign funds is not export of service

Foreign holding companies support their Indian subsidiaries in very many ways. The Indian entity entered into service contract with foreign parent for providing training to apprentices, unskilled workers, students, etc., and financial assistance was received for the same. Clarification was sought from AAR on various questions including whether the transaction would be covered under export of service and can be undertaken without payment of GST. AAR had earlier held that the same would be covered under "agreeing to do act" and liable to GST. Now Appellate AAR has held that multiple activities are undertaken and the same would be a composite supply with training being the principal supply. As training sessions require physical presence of trainees, the same would a performance-based service supplied in the premises of the appellant. This means place of supply is in India and therefore, the transaction would not be covered under export of service [2022-VIL-20-AAAR].

MNCs and big companies seeking advance ruling on apparently non-complicated questions indicate that either they are too paranoid about compliance or the teams advising them seek to project the same as risk mitigation when in reality, no such risk exists. In the above case, training facility is constructed, and training sessions are undertaken in this facility in India. The only foreign element involved in receipt of funds from outside India. When the facts are unmistakably performance-based service provided in India, seeking clarity on export of service may be perceived as avoidable.

Relinquishment of lease right of forest land for irrigation project liable to GST

State Forest Development Corporation is given forest land on lease by State Government and such corporation plants trees like teak. A particular area was required for an irrigation project and the corporation has relinquished its lease right and issued NOC to the Irrigation Department besides receiving certain amount as compensation from such user agency. The applicant argued that right to occupy land provided by the corporation is for the irrigation project which is an activity covered under Article 243G / Article 243W of the Constitution (Panchayat / Municipal function) and hence, exempted under Notification No. 12/2017-Central Tax (Rate). Taking note of the fact that the applicant will not be leasing but relinquishing the lease right, the Authority for Advance Rulings (AAR) has, after a brief analysis, held that the applicant has agreed to do the act of relinquishing, covered by the clause on agreeing to the obligation to refrain from an act or to tolerate an act or situation or to do an act. GST is therefore payable on the compensation received by the applicant. The ruling is rather abrupt in concluding that service is provided to Forest Department and details have not been provided by the applicant and therefore, exemption admissibility could not be answered [2022-VIL-78-AAR].

State government bodies seeking advance rulings is surprising. They should refer the matter to Finance / Tax Department which in turn may request GST Council Secretariat to issue appropriate clarification on exemption if such transactions are viewed as liable to GST. However, it is also equally surprising that for returning the forest land to forest department, compensation will be paid to the corporation by irrigation department. May be, at the time of lease, the forest department would have charged lease rental from the corporation and therefore, it has sought to recoup the same now. All these transactions are revenue-neutral since ultimately tax amount goes from one department / government body to another without any real revenue receipt for the exchequer. Apparently nobody gains due to such requirement of GST law except certain compliances and such rulings.

Amount not reimbursed but received and disbursed - Pure agent not applicable

Rule 33 of CGST Rules providing for exclusion of expenses from taxable value when they are reimbursed on actuals to person acting as pure agent. The provision is an eye-wash drafted to provide a deceptive face of GST law being taxpayer-friendly. In this column, almost all the rulings discussed so far have held pure agent concept as not applicable in respective cases. As per a recent ruling belonging to this category, pure agent concept and exclusion of such amounts will not arise when, on facts, the amounts are first paid by the industry partner to the applicant who subsequently disburses the same to trainees since there is no reimbursement per se in such cases. Further, it has been held that information on procurement of supplies from third party was not provided [2022-VIL-76-AAR].

While drafting of terms of contract / agreement taking into account implications of tax laws is something which is emphasized, in real-life situations, one often finds taxpayers clueless when their own terms are relied on to rule against them. Pre-transaction impact analysis or due diligence based on proper legal advice is perceived as an avoidable expense by most of the companies and they end up incurring substantial amounts in damage-control later. The reason is also partly attributable to confidence in in-house capacity which, however, may not be in a position to take 360^o view of a transaction.

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal. The author has published books on cross-border taxation and investigations & appeals under GST. He has edited R.K. Jain's GST Law Manual - 15th Edition - Feb., 2022. E-mail - gokulkishore@gmail.com)