Tax Vista Your weekly tax recap Edn. 16 - 5 October, 2020 By Dr. G. Gokul Kishore

Commencement of investigation is 'proceeding' - Advance ruling not available

First proviso to Section 98(2) of CGST Act states that the Advance Rulings Authority shall not admit application if the question raised is already pending or decided in any proceedings in the case of the applicant under any of the provisions of the Act. The author of this column had, in one of the articles, analysed the scope of 'proceeding' and it was opined that proceedings under Section 98(2) are quasi-judicial in nature and not in the realm of administrative functions like investigation and therefore, proceedings cannot be said to have commenced till the time show cause notice is issued. The intention of the provision is to prevent a taxpayer from pursuing multiple remedies simultaneously and it cannot place a bar on AAR to determine a question which may be examined in future by an adjudicating authority after issuance of SCN.

This issue has come up before Appellate Authority for Advance Rulings (AAAR) now. It has been held that commencement of investigation under Section 67 (provision dealing with search, summons, etc.) can be said to be the start of a proceeding to safeguard government revenue. According to it, the term 'proceeding' is very comprehensive and it means a prescribed course of action for enforcing a legal right and it will involve requisite steps by which judicial action is invoked and the process of investigation is such a step towards the action of issuing show cause notice which culminates in a decision. As the GST intelligence officers had summoned the officials of the appellant-company and recorded statements, the AAAR held that the appellant was ineligible to apply for advance ruling and the ruling obtained from AAR was void ab initio as the appellant did not disclose the fact of investigations being conducted. It has been further held that the question of jurisdiction can be raised even in appeal or execution [ID Fresh Foods - 2020-VIL-61-AAAR]. It may require an authoritative pronouncement from the High Courts and Supreme Court so that the dispute over 'proceeding' does not proceed further.

TDR / FSI liable to GST - Land does not include benefits arising out of land

The issue of GST applicability on transferable development rights (TDR) and floor space index (FSI) continues to be contentious. Dispute is largely attributable to non-appreciation of the nuances of immovable property and transactions relating to such property by policy makers and the tax administration. The appellant had surrendered rights in land in favour of municipal corporation and the consideration received was in the form of TDR / FSI. Such TDR / FSI was later sold to another party and the Authority for Advance Rulings (AAR) had earlier held that the transaction was liable to GST. Appeal was filed with Appellate Authority for Advance Rulings (AAAR) and the decision can hardly be different. AAAR has also held that such sale would be liable to GST.

The appellant had relied on the usual landmark judgments on this issue whereby TDR / FSI was held as benefits arising out land and the same was covered under "immovable property". These judgments have been distinguished by the AAAR on the ground that the issue as to whether TDR can be classified as land as per Schedule - III of CGST Act was not before the High Court and it had no opportunity to examine TDR being covered under the definition of land or not. However, quite unsurprisingly, the AAAR has relied on ITAT's ruling in an income tax case wherein value of land alone to the exclusion of TDR / FSI was held as relevant. This ruling has been interpreted by AAAR that TDR is not land but right arising out of land which is an immovable property. It has been further noted that Clause of Schedule - III of CGST Act speaks only of land and building and the term 'land' has not been defined. The AAAR has also laid down new principle of statutory interpretation that Schedule - III of CGST Act is an exemption notification (may be like such notification) and it has to be interpreted strictly. It has been further held that TDR is immovable property and hence, not covered under goods but is in the nature of service. It has noted that such levy is not on land but the tax is on benefits out of land [Vilas Chandanmal Gandhi - 2020-VIL-55-AAAR].

Though advance rulings do not have jurisprudential value, it is interesting that even when TDR has been held to be immovable property, the same has been held to be liable to GST. As noted earlier in this column, these issues are weighty and they may have to wait for several years for an authoritative pronouncement from the Supreme Court. As the tax administration is intent on taxing such TDR passively through notifications on time of supply, reverse charge, etc., one can only be disappointed with the expectation of clarification on such issue.

Lifting lifts out ITC stigma - The battle continues

Lifts and elevators are helpful in innumerable ways but they carry a huge stigma when it comes to tax credit. A group housing society sought advance ruling on availability of input tax credit (ITC) of GST paid on installation charges paid for new lift. But the AAR held in the negative and they filed appeal with AAAR. It was contended by the society that lift is to be treated as plant and machinery and therefore, even if it is considered as immovable property, the same would not cast disentitlement to ITC. Another argument taken was that the society was charging GST on the same from the members also and therefore, when works contract service is received for installation and the same is in turn provided to members, the bar in Section 17(5) of CGST Act would not be applicable.

The AAAR held that lift is immovable property as per Supreme Court judgment under Central Excise and the same was not covered under 'plant and machinery' as they become integral part of the building. On the second argument of the appellant, it was held that the appellant is not a works contract service provider, lift is installed for common benefit of members and the benefit of ITC regarding works contract service is applicable to sub-contractors providing such service to principal and therefore, ITC is not available to the appellant-society [Las Palmas Co-op Housing Society - 2020-VIL-59-AAAR].

Despite GST law being liberal on ITC front as compared to its predecessors, the extreme and sometimes confiscatory nature of restrictions on ITC on services related to immovable property has been crippling taxpayers. If a housing society is providing common services to members and lift is essential for the same, then the logical question would be - why these hyper-technical arguments and interpretation to deny tax credit particularly when the same is recovered by charging GST from members?

Excavation is earth work - A reasoned ruling

A different and well-reasoned ruling from AAAR holds that excavation of earth and depositing it on the sides for tunnel construction is covered under 'earth work' as the relevant notification provides for 5% GST rate. This is applicable for works contracts where more than 75% of the value is towards earth work. Earlier, AAR had held the same is not covered and denied concessional rate to the taxpayer. The appellate ruling discusses whether full exemption is available to such contract related to irrigation works as the appellant's service is to a government entity. The AAAR has held that only minor irrigation works are covered as undertaken by Panchayats as per Article 243W read with Eleventh Schedule of the Constitution and in the present case, the work is a major project as per certain classification and therefore, such exemption would not be admissible. This ruling deserves a reading for the reasons provided by the AAAR [Soma Mohite Joint Venture - 2020-VIL-60-AAAR].

Tax paid as per intimation from department - Interest and specified penalty payable

Section 74 of CGST Act deals with demand of tax in cases involving suppression of facts, wilful misstatement or fraud. If tax and interest along with penalty of 15% of tax amount are paid either voluntarily or based on intimation from the department (DRC-01A), then show cause notice will not be issued. In a recent case before Kerala High Court, the petitioner had paid tax as per the intimation from the department but sought relief from interest and penalty. The Court did not accept the same. It held that the provision (Section 74) offers option of either paying the tax as intimated with interest and specified quantum of penalty or to deny the liability and contest the SCN and one cannot claim exemption from payment of interest and such penalty on exercising the first option of paying the tax. Once the option to avoid SCN is exercised, then the relevant terms should be complied with [Muhammad Kochukudiyil Ishabeevi v. State Tax Officer - 2020-VIL-477-KER].

GST notifications on e-invoicing and annual return

Last week, several notifications have been issued. Notification No. 69/2020-Central Tax dated 30-9-2020 amends earlier Notification No. 41/2020-Central Tax. As per this amendment, the last date for filing GST Annual Return (GSTR-9 and GSTR-9C) has been extended to 31st October, 2020. Notification No. 70/2020-Central Tax dated 30-9-2020 amends Notification No. 13/2020-Central Tax (which was amended later by Notification No. 61/2020-Central Tax) and this amendment pertains to issuance of tax invoice under GST electronically i.e. e-invoicing by taxpayers having turnover of more than Rs. 500 crores in any financial year.

Notification No. 71/2020-Central Tax dated 30-9-2020 pertains to the requirement of dynamic QR code in tax invoice issued by persons having turnover of more than Rs. 500 crores for which the date of implementation has been postponed to December, 2020. By Notification No. 72/2020-Central Tax dated 30-9-2020, CGST Rules have been amended to prescribe verification of invoices by electronic mode. E-invoicing for those with turnover of more than Rs. 500 crores has been implemented but those who are not able to comply with the same, may obtain Invoice Reference Number (IRN) within 30 days of issuance of invoice. Such facility is available only for the period from 1st October, 2020 to 31st October, 2020 as per Notification No. 73/2020-Central Tax dated 1-10-2020. Detailed analysis of these notifications has not been made in this column as most of the announcements are made by CBIC through Twitter and on issuance of notifications, within a few minutes they are shared all across the country through social media.

(The author is an Advocate practising independently. The views expressed are personal)