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Tax Vista Your weekly tax recap Edn. 96 - 18th April 2022 By Dr. G. Gokul Kishore |
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ITC refund not deniable when drawback rates are same for credit availment or otherwise
The GST department refuses to believe that when two numbers are same, there is no difference. According to it, one of these two numbers is greater which may defy primary class arithmetic but adoption of such view will amount to statutory violation. The numbers are drawback rates when Cenvat credit is availed and when Cenvat credit is not availed. When the drawback rates are same in both the situations, the departmental officers adopt the stand that drawback is not admissible at all if credit is availed. Before GST, drawback notification provided that if the rates were same, it would mean it pertained to customs component only and availment of credit was not relevant. Post-GST, drawback rates are based on customs duty component only as the policy makers believe that everything else is available as credit and there is no need to refund input taxes through drawback route in respect of GST. All these and more have been discussed in a recent Madras High Court order where the department has been directed to grant refund of unutilised input tax credit along with interest for delay [2022-VIL-262-MAD].
While Courts have been consistently mitigating taxpayer's difficulties, CBIC should step in and issue a circular on this issue. There is a good number of litigation on this issue as it appears from various judgments. This litigation is completely avoidable as one need not use Constitutional Courts' time to order refund in respect of such simple issues.
ITC to be restored when erroneous refund returned
If goods are imported without payment of duty under Advance Authorization, then at the time of export, refund of IGST is not available as per Rule 96(10) of CGST Rules. Inadvertently such benefit was availed by a taxpayer. The system automatically credited refund and therefore, the taxpayer returned the amount erroneously refunded along with interest. The department accepted the same but did not accept the claim for restoring ITC which was utilized for payment of IGST on export goods. The High Court ordered restoration / re-credit of the amount on the ground that it would amount to double taxation. It highlighted the distinction between restoration of credit and refund of credit.
The department objected to refund of ITC citing Rule 96(10) but the Court said this is not an issue in this case. It said - "Here, the simple issue is one of restoration of the ITC, which was erroneously refunded and subsequently recovered. If the authorities have accepted that there was an error and resultantly, accepted repayment of the erroneous refund, as a corollary, the credit of the ITC must be restored. It cannot be that for the purpose of repayment, there was an error, and for the purpose of restoration of the ITC, there was no error. There is no question of any refund of the ITC at all. The question is one of restoration of the ITC in the electronic credit ledger and not a refund thereof. Hence, any reference to sub-rule (10) of rule 96 of the CGST Rules is completely misconceived and not tenable." [2022-VIL-259-GUJ].
SCNs and orders to be served by post - HC calls for improving GST portal
A detailed order has been passed by Gujarat High Court on the issue of cancellation of registration using vague show cause notices and vague orders. The Court was so annoyed that it has given detailed instructions. It has directed service of show cause notices and orders by post (RPAD) till the time department is able to develop the GST portal to the extent that all necessary particulars can be uploaded. This is in the backdrop of templates available in the portal for everything and which restricts provision of detailed information. The Court has also noted that orders travel beyond SCN and therefore, the taxpayer should be first put to notice on the evidence relied on. Technical glitches in the portal should be attended at the earliest, as per the order. Very clearly it notes -"The aforesaid may appear to be very trivial issues but, it assumes importance in reducing the unnecessary litigation. Our concern is that on account of procedural lapses, the High Court should not be flooded with writ applications. The procedural aspects should be looked into by the authority concerned very scrupulously and deligently. Why unnecessarily give any dealer a chance to make a complaint before this Court when it could have been easily avoided by the department." [2022-VIL-261-GUJ].
In this column similar sentiments have been expressed whenever such orders are analysed. But, the tax administration needs to travel a long way before it attains such maturity where taxpayers are not forced to travel to High Courts for resolution of trivial disputes.
Incorrect forms and department's confusion - High Court clears
Implementation of GST law is system-driven where every process is required to be undertaken electronically through the GST portal. Therefore, for every step there is a form prescribed so that templates can be frozen in the system. GST authorities are apparently confused over the forms. From intimation of liability to recovery, the route is through SCN, adjudication order, etc. with prescribed forms along with hearing before passing order if the adjudicator opts to follow principles of natural justice. DRC-01A is the form meant for intimation of liability and if the taxpayer does not accept, then show cause notice will follow in DRC-01. In a particular case, the department issued the form DRC-01 but titled as intimation. It also threatened recovery action if the amounts are not paid. Obviously, the High Court was not pleased and it was constrained to point out the difference between these two forms and the blunder in using incorrect form. The Court directed the department to correct itself not only regarding the procedure but also the contents of the forms. While issuing intimation in DRC-01A, the department should not threaten the taxpayer with recovery action. The petition was allowed by setting aside DRC-01 issued in this case [2022-VIL-260-GUJ]. Though good number of training programmes are constantly organized for departmental officers, it appears there is still a gap between the courses and the requirement.
Inherent lack of jurisdiction v. Contributory error of jurisdiction
The harmonised law of GST has created peculiar issues. When taxpayers are assigned to the jurisdiction of Central or State GST officers and provisions are made for cross-empowerment so that CGST officer is able to demand SGST as well, the issue appears to be apparently less complicated. But in a case, the taxpayer allotted to Central GST jurisdiction participated in the proceedings initiated by SGST officer without raising any objection regarding jurisdiction. Later, when such plea was taken before High Court, it was not accepted.
The High Court held that the notice / order does not suffer from inherent lack of jurisdiction when assessee submitted to the jurisdiction and assignment of taxpayer to particular officer is for administrative convenience. As per the order, SGST officer being the proper officer under the CGST Act / SGST Act having territorial jurisdiction over petitioner is competent to exercise powers conferred under the Act. It held that the case was not that the SGST officer lacked inherent jurisdiction but it was a case where jurisdiction has been exercised by such officer in the absence of any objection by the taxpayer. It held that the proceedings are the result of contributory error of jurisdiction by the SGST officer and the position would have been different, if the taxpayer had objected it at the initial stage or during the course of assessment proceedings. The order is eloquent on jurisprudence relating jurisdiction and readers may find the same useful [2022-VIL-256-ALH].
Seizure not valid when registration amended subsequently
It is surprising that the GST authorities consider R&D labs as persons attempting to evade tax. An equipment for such purpose was bought by the petitioner engaged in R&D but there was a minor issue with the consignee's address. The address was not mentioned in registration profile of the petitioner. The equipment was seized though tax invoice and e-way bill were available. The High Court granted relief after taking into account amendment to registration subsequently by including the address [2022-VIL-263-MAD].
Appellate authorities are empowered to condone delay for specified period if sufficient cause is shown. Similarly, law provides for exercising discretion in certain circumstances. In respect of e-way bill and other procedural compliances, there should be discretion to condone trivial or bona fide mistakes. But this may be seen as an avenue for breeding corruption as discretion is more often misused than put to use for intended purpose.
Natural justice - Violation is the norm
Vesting quasi-judicial powers with administrative authorities is a failure at least in so far as indirect taxes are concerned. In pre-GST regime, taxpayers had the grievance that most of the orders passed by departmental officers are against them i.e. in favour of Revenue though hearing used to be held and submissions of taxpayers are shown as considered in the orders. In GST regime, it appears that the authorities are of the view that hearing is not required when order is anyway against the taxpayer. Whether taxpayer submits a legal treatise as reply to the notice, whether a senior counsel is engaged to argue extensively - all these are irrelevant for the GST authorities as orders are mostly pre-determined.
In yet another case, order was passed under VAT law denying transfer of input tax credit from a particular firm to the same but reconstituted firm with new registration. The taxpayer sought to transition the same to GST regime but was unsuccessful. Transitioning such credit was not accepted on the ground that the credit amount was not reflected in the return for June, 2017 and required documents were not submitted. The High Court held that if VAT credit was eligible for transition from old firm to new firm in the earlier regime, then such credit should be allowed to be transitioned. Finding that hearing was not offered before passing the order, it quashed such order and directed the department to consider the claim afresh. [2022-VIL-264-MAD].
E-way bill not required but goods seized - High Court imposes costs
In Tax Vista dated 11th April, 2022, it was observed that imposing costs is becoming routine rather than exception as the Courts are not at all convinced of the bona fides of the department while invoking powers like seizure. In an order reported last week by VIL, Allahabad High Court has imposed costs on the department for seizure, demand of tax and imposition of penalty for failure to generate e-way bill since during the relevant period, e-way bill requirement was not applicable to the impugned transactions [2022-VIL-258-ALH].
All these events happened in 2018 and the relief has come in 2022. For sheer ignorance of such officers, taxpayers have to endure significant loss for fairly longer time. Statutory provisions have far outpaced competence of implementing machinery. Either the provisions should be pruned by taking away such powers and give only those powers to the officers which leave little room for misunderstanding or raise the competence level of officers. Columns like the present ones are useful for highlighting the plight of taxpayers but the authorities hardly bother to go through them and even if they read, action is rarely taken.
(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)