Tax Vista Your weekly tax recap Edn. 131 - 19th Dec 2022 By Dr. G. Gokul Kishore

 

 

GST Council Meeting - Mix of taxpayer friendly and other recommendations

GST Council met on 17-12-2022 through video-conferencing mode and certain issues have been taken note of for amendment and issuance of clarification. The Council has recommended issuance of clarification to the effect that residential dwelling taken on rent by a registered person in his personal capacity for use as his own residence and on his account and not on account of his business is not subject to the levy of GST. This is consequent to the recent change to tax use of residential dwelling by companies for its employees which inadvertently fell on professionals who are registered under GST law and who take such flats / houses for personal use. Schedule III of CGST Act was amended from 1-2-2019 to effectively keep certain transactions out of GST viz., supply of goods from outside India to an place outside India, high sea sales and supply of warehoused goods before their home clearance. This amendment will be made effective from 1-7-2017 itself.

 

Decriminalization is a buzz word today. Minimum threshold of tax amount for launching prosecution has been recommended to be hiked to Rs. 2 crores from Rs. 1 crore. This will not be applicable to offence of issuance of invoice without actual supply of goods or services. Certain offences are to be decriminalized which means prosecution will not be launched in such cases and these are obstruction or preventing any officer in discharge of his duties, deliberate tampering of material evidence and failure to supply information. There was a huge expectation on this point as the limit was speculated to be increased to Rs. 20 crores. The present recommendation just touches the tip of the issue.

 

CGST Rules will be amended in order to prescribe the procedure for filing application of refund of tax paid by unregistered buyers in cases where the contract/ agreement for supply of services (like construction of flat/house and long-term insurance policy) is cancelled and the time period of issuance of credit note by the concerned supplier is also over. Unregistered suppliers and composition taxpayers can make intra-state supply of goods through E-Commerce Operators (ECOs) subject to certain conditions with effect from 1-10-2023. The sweep of e-commerce has taken into its fold small and tiny entrepreneurs also and such changes are inevitable.

 

Rule 37 of CGST Rules which deals with reversal of ITC in the case of non-payment of consideration will be amended to provide for reversal proportionate to the amount not paid to the supplier in respect of value of supply including tax payable which means the amount to the extent paid is not required to be reversed. Rule 37A in CGST Rules, 2017 will be inserted to prescribe the mechanism for reversal of ITC by registered person in the case of non-payment of tax by the supplier and mechanism for re-availment of such credit on subsequent payment in order to comply with Section 16(2)(c) of CGST Act. This provision needs to be omitted as making recipient bear the burden of proving tax compliance by his supplier shows incompetence of tax administration.

 

Rule 109C and FORM GST APL-01/03W have been recommended for insertion in CGST Rules for withdrawal of an application or appeal up to certain specified stage. It needs to be seen as to whether monetary limits are being contemplated for such purpose.

 

On a host of issues, circulars are proposed to be issued. Procedure for verification of ITC in case of difference in ITC availed in GSTR-3B and available in GSTR-2A during FY 2017-2018 and FY 2018-2019. This is a major issue with many taxpayers getting show cause notices. As this will only be a circular, the legal issues will still remain. Issues pertaining to place of supply of services of transportation of goods as per proviso to Section 12(8) of IGST Act, 2017 and availability of ITC to recipient of such supply will also be clarified.

 

Rule 88C and Form DRC-01B will be inserted in CGST Rules for intimating the difference between liability reported in Form GSTR-1 and Form GSTR-3B for a tax period if the difference exceeds a specified amount/percentage. Further, taxpayer will be restricted from filing GSTR-1 for a subsequent tax period if he has neither deposited the amount specified in the intimation nor has furnished a reply explaining the reasons for the amount remaining unpaid.

 

Return of seized documents v. seized goods - Time-limits are different

In a case of alleged fraudulent availment of IGST refund, laptops and other documents were seized by the authorities. The petitioner sought release of the laptops and documents on the ground that back-up of data had already been taken and that as per Section 67(7) of CGST Act, the seized items cannot be held for more than 6 months. However, the Delhi High Court noted the difference between provisos to Section 67(2) with one pertaining to goods and another to other items and Section 67(7). It held that only goods have to be returned within 6 months unless it is extended for another 6 months whereas documents and other things can be retained for a maximum period of four and half years, within which period the notice has to be issued, plus thirty days from the date of erroneous refund.

 

The statutory provisions are clear and it appears that the petitioner was trying to make a case for return relying on the time-limit prescribed for return of seized goods when SCN is not issued within six months. The shorter time prescribed for goods is understandable since it would hamper business but in the present day context, laptops are essential everyday tools and four and half years seems to be a long lock in period. The question whether laptops will be covered under "things" or "goods" may also be interesting to interpret and discuss [2022-VIL-821-DEL]

 

Summary of show cause notice cannot substitute SCN

The issue of input tax credit mismatch between the amount availed by taxpayer in GSTR-3B as against the figures reflected in GSTR-2A rivals GTA issue of Service Tax era where more than 20,000 SCNs were issued all over India. In GST regime, SCNs on GSTR 2A v. GSTR 3B is being issued to every second or third taxpayer. Such issue came up before High Court recently but the case was not decided on merits. In this case, only a summary of SCN and ASMT-10 notice were issued. The petitioner-assessee responded to it and prayed for time to carry out a full reconciliation of the auto-populated form GSTR 2A and Form GSTR 3B. Order was passed confirming demand of over Rs. 5 crores without issuing SCN and without offering hearing opportunity. The High Court reiterated that without issuance of SCN under Rule 142(1) and opportunity of hearing, the summary of SCN, the summary of order GST DRC-07 and the order cannot survive. If the department had issued SCN and offered hearing in this case, readers might have got an opportunity to know the judicial view on the hotly contested issue of GSTR-2A versus GSTR-3B [2022-VIL-818-JHR]

 

High Court rules against conjoint application of Section 16(2) and Rule 86A

Taxpayers are used to conjoint reading of provisions and, sometimes, misdirected application of the provisions by departmental officers in earlier regime also. However, every case of denial of input tax credit raises the temperature and the compulsion to rush to the High Court. In a particular case, ITC was blocked and unblocked and again blocked stating that he has not paid dues to the supplier within 180 days and as per Section 16(1) he was supposed to reverse credit with interest. Helping the taxpayer to comply better the department went ahead and blocked his credit ledger invoking Rule 86A pertaining to ineligible credits.

 

Fortunately for the taxpayer the High Court put things in correct perspective and held that requirement to reverse credit taken under Section 16(1) is different from conditions in Rule 86A which make credit ineligible like fraud etc. Moreover, the second and third provisos to Section 16(2) of CGST Act make it amply clear that a party is not disentitled to avail ITC in respect of goods/services prior to making payment to the supplier for such goods/services and tax thereon. It held that the department has misdirected itself by taking the position that unless the taxpayer makes payment to his supplier, he cannot avail any ITC. The High Court also agreed that the use of the expression "in as much as" in Rule 86A restricts the scope of ineligibility to the conditions as set out in sub-clauses of Rule 86A(1). It ordered unblocking of credit ledger. Readers may like to see the judgment on the analysis and interpretation of this expression "in as much as" which finds a place in several provisions [2022-VIL-823-DEL]

 

No charge on sale of old batteries without proper reasoning

Every truck containing taxable goods should move after prayers as more than policemen, SGST mobile squad officers are omnipresent 24x7 demanding everything from the driver except fitness certificate. By way of an order charged up by ingenuity rather than reason vehicle was detained and penalty was sought to be imposed stating that damaged old batteries were described as such and sold by piece rather than weight and tax was sought to be evaded by this master design. The High Court held that the order was bereft of any finding that goods bought on piece basis were sold by weight by the taxpayer or that damaged batteries are sold on weight basis as a trade practice or norm. It also stated that Rule 46 of CGST Rules only requires the person to give description of goods and so long as the same was provided correctly there is no violation of Rule 46 and penalty paid by the taxpayer was to be refunded. Impugned orders were quashed after holding the case as one of wrongful detention [2022-VIL-828-ALH].

 

Containers leased from abroad - Supply of goods or service?

GST is liable to be paid on leasing of tank containers taken from a supplier i.e., lessor who is located outside India and the tank containers do not reach India, as per Appellate Authority for Advance Rulings (AAAR). The appellant contended that it is finance lease and it is supply of goods and tank containers do not reach the Indian territory. The AAR had ruled that IGST is payable on import of leasing service. The appellant - a Non-vessel owner container carrier/ Operator (NVOCC), as per the agreement, will have the option to purchase the containers at the end of lease period. Relying on Apex Court ruling, the AAAR held that till the time option to purchase is exercised, ownership of goods remains with the financer / lessor and therefore, there is no transfer of title till the containers are purchased. The appellant relied on entry in Schedule II in CGST Act which covers hire purchase transactions but the same has been interpreted by the AAAR to the effect that the agreement should not leave option of purchase. The ruling also speaks about return of containers which are not purchased. Certain other factors like insurance claim, absence of right to lessee to change colour or identification marks, etc., have also been held against the appellant. Interpretation of Schedule II entry appears attractive but lacks substance. The entry is specifically created to cover hire purchase transaction and generally such transactions have the option to purchase. The ruling may be vulnerable if taken before the judiciary [2022-VIL-94-AAAR].

 

GST payable on transaction outside India if Indian offices are involved

When a building is constructed for Maldives Government on sub-contract basis through a project office in that country where main contractor in India has also created a fixed establishment in that country, GST is payable by the sub-contractor. This is the Appellate AAR ruling upholding the advance ruling. The consideration is received in INR in this case through the Indian head office of the contractor. The appellant argued in vain that the service is provided through fixed establishment in Maldives and hence, location of supplier is outside India. Location of service recipient is also outside India as per the contention of the appellant since the services are received by the contractor in their fixed establishment in Maldives. But the AAAR discarded the arguments on location outside India and held that both service provider and service recipient are in India and for such a situation, when immovable property is located outside India, place of supply being location of recipient, the same is in India. The conclusion is obvious - GST is payable. This is where law goes off tangent or interpretation of the law goes off the track [2022-VIL-95-AAAR].

 

 

(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 edits R.K. Jain's GST Law Manual. E-mail - gokulkishore@gmail.com)