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Tax Vista Your weekly tax recap Edn. 116 - 5th Sep 2022 By Dr. G. Gokul Kishore |
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Transitional credit - Supreme Court grants more time to open portal
The Supreme Court had directed the government to open the GST portal to enable all taxpayers to file TRAN-1 form and TRAN-2 form for claiming or revising transitional credit, by its order in Filco Trade case [2022-VIL-38-SC] and the department was directed to verify the same within 90 days and pass orders. Such one-time opportunity having the effect of resolving numerous disputes on transitional credit claims was to be available from 1st September to 31st October, 2022. The Apex Court has, by Order dated 2-9-2022, granted four weeks additional time to open the GST portal for this purpose. This means, the portal will be opened from 1st October. The time granted for making changes in the portal to enable taxpayers to file such form will be useful to taxpayers also to recompute and ready their form. It is better to take extra time than bring the functionality which runs into bugs or issues with taxpayers having grievance of not being able to file the form [2022-VIL-63-SC].
Refund of service tax paid in GST regime - Needless litigation by department
In Tax Vista dated 14 March, 2022, an order of Madras High Court was discussed [2022-VIL-176-MAD]. The issue pertains to payment of service tax after expiry of period for filing TRAN-1 form. The taxpayer could not transition credit of such tax paid and therefore, sought refund of the same. A Single Judge Bench of the Madras High Court held that doctrine of necessity is invocable and Section 142(3) of CGST Act would be applicable. This provision provides for refund of tax paid under pre-GST law after implementation of GST. It was remarked in the column that the argument on applicability of Section 142(3) when Section 140(1) is not available, needs to be tested and the department may appeal before Division Bench. The department has appealed before DB and the same was disposed of recently.
Earlier the Single Judge Bench had remanded the matter to the department to consider whether the tax paid can be transitioned to GST as ITC as refund of the same could not be claimed when Cenvat Credit Rules did not permit the same. This order is modified by DB now by directing the department to consider the application under Section 142(3). It appears that the difference between the earlier order and the present order lies in direction on considering the claim for transition of credit (earlier order) as against applying Section 142(3) which means transition is ruled out but admissibility of refund is to be considered. It seems the issue is entangled due to rejection of refund at the first place by the department. The above provision is specifically drafted to cater to such situations as transition of credit of pre-GST tax paid now is not possible and cash refund is the only option [2022-VIL-596-MAD].
E-way bill infractions - Jurisdictional officer to issue orders and not roving squad officers
In yet another case involving e-way bill related infraction and highway interception, detention, etc., in respect of bill-to-ship-to transaction, the Madras High Court has accepted the argument of the taxpayer that it is the jurisdictional officer who is competent to adjudicate the issue including imposition of penalty and not the roving squad officer. In this case, the Court held that there was no evasion of GST and the only mistake committed was omission to mention consignee's name in the ship-to column in the invoice while the address was correctly mentioned. The Court also noted that the items are for a large project and are customized and there is no possibility of diversion of goods. It took note of the fact that several vehicles carrying such goods have already reached the destination. The Court directed the jurisdictional officer to pass appropriate orders [2022-VIL-606-MAD].
CBIC has been actively issuing clarification on various issues including the instructions on summons, prosecution, etc. Though a circular was issued on imposing minor penalty for typographical errors, etc., the same needs to be re-visited and a comprehensive circular is required taking into account the large-scale harassment of taxpayers by detaining vehicles and goods and disrupting business.
Interest on net cash liability - High Court rejects plea
While several large taxpayers took every effort to file returns without any error from day one, a few could not ensure error-free filing of GSTR-3B from July, 2017. One such taxpayer did not file returns till October, 2017 and pay tax on the ground that opportunity to revise / rectify the error in July, 2017 return was not provided. The result was substantial interest demand on delayed payment of tax subsequently. The taxpayer was before High Court and argued that they had sufficient ITC and also sufficient balance in cash ledger and there was no revenue loss to the government. The High Court had directed the department to consider the plea of the taxpayer. The Commissioner took note of the retrospective amendment to Section 50 of CGST Act to restrict interest on net cash liability alone and reduced the amount demanded. In the second round, arguments made to set aside demand of interest even on net cash liability were not accepted by the High Court [2022-VIL-605-MAD].
Though the reasoning in the order is not clear as it refers to both electronic credit ledger and electronic cash ledger in relevant portions, the conclusion is unambiguous. Size of the organizations sometimes becomes irrelevant when mistakes not normally expected of them are committed and huge liabilities have to be met along with litigation cost and use of time. While all possible disputes cannot be anticipated, at least error-free compliance can be optimized with appropriate internal and external support.
Hearing date and time marked "NA" - High Court quashes proceedings
Justice, natural justice and principles of natural justice - if one were to hold a quiz for SGST officers on the meaning or their understanding of these terms, the quiz master will quit his profession. Countless orders are being reported where the GST authorities issue summary of show cause notice and pass order without issuing actual show cause notice. In many cases, hearing is not conducted but order is passed. In a few cases, the taxpayer comes to know of the fact that adjudication order has been passed when the bank informs them about attachment of their account by GST authorities. In this glorious series of despicable orders, Jharkhand High Court has set aside the orders and directed issuance of fresh SCN as only summary of SCN was issued and then, adjudication order was issued without hearing and this fact came to light after attachment of bank account. The summary of SCN showed "NA" i.e. not applicable for date and time of hearing. This is termed as negligence by the High Court.
The departmental officer is fortunate that the Court did not impose costs. It is an experiment in vain to confer adjudication powers on departmental officers as either procedural blunders are unleashed or orders are pro-revenue in almost all the cases. Serious thought is required so that effective alternative mechanism is devised [2022-VIL-592-JHR].
Value of non-cash consideration also included in taxable value of composite supply
While determining taxable value of a composite supply, value of non-cash consideration is also required to be taken into account. This may appear telling the obvious. However, Authority for Advance Ruling (AAR) did not agree or rather was not in a mood to agree and therefore, rejected such inclusion on the ground that documents were not produced. But, in appeal, the Appellate AAR has held that non-cash consideration is includible as the same is part of the total price arrived at between the parties. The context is exemption and one of the conditions for availment of exemption is the cap of 25% in respect of value of goods - value of goods should not exceed 25% in the composite supply. The case is with respect to miller of wheat working for State Government for eventual supply through PDS. The miller retained bran, gunny bags, etc., which constituted non-cash consideration as the government paid an amount after deducting value of such goods retained by the miller from the total price settled for the transaction. Such transaction is covered under exemption under Notification No. 12/2017-Central Tax (Rate). The AAR had earlier held that two other conditions for exemption were satisfied and only the third hurdle was not crossed [2022-VIL-70-AAAR].
Canteen service - GST not payable on recovery from employees but ITC available - GST applicable on amount collected from contract labour without ITC benefit
The Authority for Advance Ruling (AAR) has held that GST is not payable on amount recovered from employees towards canteen facility while the same is payable in respect of contract labour. In this case, canteen service is procured by the applicant in their factory and the facility is subsidized for employees as only part of the cost is recovered from salary. For workers on contract like security personnel, the canteen service provider raises bill on the applicant for 50% and balance amount is paid by such personnel directly to the service provider. The AAR held that GST is not payable on the amount collected from employees placing reliance on CBIC Circular No. 172/04/2022-GST dated 6-7-2022 which clarified that perquisites provided by employer to employees in terms of contract / agreement will not attract GST. However, it said that contract workers are not employees of the company as they are not in the pay roll and Section 46 of Factories Act (mandatory provision of canteen when more than 250 employees work) is applicable only to employees and not to contractual workers. Based on this reasoning, it held that Schedule-III of CGST Act relating to services provided by employee to employer is not applicable. Supply of food to such contractual workers is a transaction incidental or ancillary to main business and therefore, the same would be a taxable supply and the applicant is liable to pay GST on such recoveries.
The same circular as noted above was relied on to hold that input tax credit of GST paid on canteen charges is available since providing canteen is obligatory / mandatory under law for the employer. But ITC will not be available in respect of service related to contractual workers since Contract Labour (Regulation and Abolition) Act, 1970 casts such obligation on labour contractor and not the applicant in this case. Further, applicant and such contractual workers are not covered under employer-employee relationship and entry in Schedule-III and therefore, providing canteen to contract labour is not mandatory for the applicant which means ITC is not available [2022-VIL-231-AAR].
The ruling seems to be reasonable and legally sustainable but presents a paradox - in respect of recovery from employee, GST is not payable but ITC would be available on the GST charged by canteen service provider whereas GST would be payable on recovery from contract labour but ITC would not be admissible. These are the kind of paradoxes that make the law interesting and also litigative.
Healthcare services - Exemption admissible for services provided at residence of patient
In another taxpayer-friendly ruling, the AAR has held that exemption relating to healthcare services would be available to services provided to patients at their residence through nurses and other qualified personnel. The ruling holds that the services are covered under healthcare services as per the definition contained in Notification No. 12/2017-Central Tax (Rate) and the entity (applicant) is a clinical establishment as the term covers institutions providing services by way of diagnosis or treatment or care for illness, etc. Though there is no discussion on the place where such service is provided, it appears that the same was considered as not necessary since the notification does not prescribe any such requirement. The services should be covered under healthcare and should be provided by clinical establishment and it is immaterial whether they are provided in the premises of such establishment or at a different place - in this case, residence of the patient [2022-VIL-228-AAR].
Prosecution by GST authorities - CBIC issues guidelines / instructions
Arrests and prosecution for tax offences used to be lesser heard and least used provisions in pre-GST regime. In GST regime, may be aided by data, instances of arrests and launching criminal prosecution are reported frequently. Therefore, CBIC has issued guidelines in the form of instructions to its officers on do's and don'ts of launching prosecution in court of law for alleged offences under CGST Act [Instruction No. 04/2022-23 (GST - Investigation) dated 1-9-2022]. It reiterates the obvious - standard of proof required for criminal prosecution is higher than what is required in adjudication proceedings. Prosecution should not be launched in cases of technical nature or where demand is based on difference of opinion / interpretation. It details the processes of sanction for prosecution, authority to sanction, procedure, etc. Notable points contained in the communication pertain to withdrawal of prosecution where new facts have come to light (not requiring trial), avoiding delay in filing complaint, compounding option to be given to the person concerned, etc. Name of those who are convicted should be published in "deserving cases". CBIC should mention date of these instructions in English also as the present one uses only Hindi.
(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 Ed. (Feb 2022) and 16th Ed. (Aug 2022). E-mail: gokulkishore@gmail.com)