Tax Vista Your weekly tax recap Edn. 133 - 2nd Jan 2023 By Dr. G. Gokul Kishore

 

 

Time-limit extension by Apex Court due to Covid is not applicable to condonable period

Order rejecting refund on the ground of delay in filing appeal was assailed by the petitioner by relying on the Supreme Court order extending the period of limitation expiring between 15-3-2020 and 28-2-2022 granting additional 90 days. The High Court held that delay (by one day) after the 90 days period in filing the appeal is not saved by the order of the Supreme Court since it does not cover period upto which the delay can be condoned in exercise of discretion conferred by the statute. The department argued that the 90th day ended on 29-5-2022 which was a Sunday but the applicability of limitation to be taken as ending on the next working day would not be relevant for condonable period. The Court noted that impugned order had held the refund claim as admissible on merits but rejected the same only on limitation. The writ petition was rejected. This interpretation that Apex Court's order on extension of time-limit due to Covid is not applicable to condonable period appears to be plausible but one day delay cannot be so costly. [2022-VIL-861-MAD]

 

High Court disapproves use of wrong form for cancellation of GST registration

The perfect SCN in conformity with provisions of GST law continues to elude the taxpayer and the officer compelling the High Court to intervene time and again. In a recent case before Kerala High Court, notice for cancellation of registration was issued in Form GST REG-17 pertaining to suspension of registration rather than GST REG-31. Moreover, by not filling up particulars the said form was attempted to be shown as notice of cancellation rather than suspension. This ingenious move was not accepted by the High Court which stated that SCN with vague details is bad in law. The argument of the department that failure to file returns led to cancellation and such provisions are required to be interpreted strictly was also not accepted. According to the Court, notice in wrong form bereft of details cannot be accepted as notice for cancellation. Surprisingly, the department relied on binding precedents relating to strict interpretation of exemption provisions when there is a doubt and the High Court held that such judgments are not applicable to cases relating to cancellation of registration [2022-VIL-859-KER]

 

Marine paint is part of vessel? - High Court refuses to interfere with advance ruling

Appeal cannot get the shade of writ petition to seek intervention of High Court. The petitioner challenged the classification of anti-fouling paint used on ships which was held as not part of ship but as a standalone commodity. The High Court was not persuaded by the massive material before it and arguments since it first decided the essential question of scope of writ post advance ruling proceedings. It held that the AAR and AAAR have dealt with the issue extensively, have considered the submissions and the law cited and have taken a view in the matter which cannot be considered as suffering from fundamental error or absurd or perverse. It held that the authorities had correctly focused on the meaning of "part" with respect to classification and had held that to make vessel operative, marine paint was not necessary. It also said that ship can enter water and sail without marine / anti-fouling paint. Highlighting the limited scope of review of such advance rulings in writ jurisdiction, the Court has held that such limited enquiry cannot be converted into appellate enquiry [2022-VIL-855-BOM]. Very few taxpayers are successful in writ proceedings initiated against advance rulings though such orders sometimes focus on merits of the issue as well. Generally, the scope is very limited as the High Court is concerned with the procedure or method adopted to arrive at the finding and not the finding per se.

 

Refund of Cenvat credit - Taxpayer cannot be compelled to opt for TRAN-1 route

Refund and tax credit are by themselves standalone grounds for evergreen conflict between the taxpayer and the tax department. It is more so when they come together. The taxpayer sought refund of credit wrongly reversed in June 2017 and was granted provisional refund. Subsequently the department issued a notice asking the taxpayer to opt for carry forward the ITC consequent to reopening of the portal for availing credit through TRAN-1 or TRAN-2 from 1-9-2022 to 31-10-2022. The High Court held that once the taxpayer is entitled to refund and provisional order has been passed, he cannot be compelled to choose carrying forward the ITC as transitional credit [2022-VIL-864-MAD].

 

Certain facts are not clear in this case. The department has argued that impugned order was passed as the taxpayer had claimed credit was reversed by mistake. If this is the fact then the taxpayer should have been routed through Section 142(3) of CGST Act which has not been mentioned in the order. There are no two options in such case. If refund of any Cenvat credit is available, then the same is payable in cash as per the earlier law. This credit cannot be transitioned as ITC into GST regime.

 

ITC admissible on canteen services provided to employee but only to the extent of cost borne by employer

An advance ruling wrapped in surplusage of interpretation to deny credit of tax paid on canteen facility provided to employees has been modified by the Appellate AAR. Earlier the AAR held that proviso to Section 17(5)(b)(iii) which states that ITC will not be blocked in respect of goods and services provided to employees under any law for time being in force will not apply to the entire section and hence ITC will not be available on canteen services provided to employees even if the same is mandatory. However, relying on Circular No. 172/04/2022-GST, which clarified that the proviso applies to the entire section, AAAR held that input tax credit will be available in respect of such services provided by canteen facility as mandated under Factories Act, 1948 to its direct employees. However, where such facility is provided to visitors or contract workers, ITC will not be admissible.

 

Since the taxpayer recovered a sum from employees towards the same, it was held that ITC would be restricted to the amount actually borne by the taxpayer. This part is confusing - the appellant themselves had stated that they would reverse the ITC proportionate to the amount recovered from employees and they would avail ITC only in respect of the cost borne by them. In respect of the recovered amount, the company is not supplying any taxable service to employees and there is no GST liability on the same. However, the company makes payment to the service provider as per the invoice raised by him and the tax amount as shown in the invoice should be available as ITC if the service is held as eligible for ITC. Finding out the second leg of the transaction as to who were the person who bore the incidence of tax is not an inquiry provided for considering a claim of ITC [2022-VIL-100-AAAR].

 

ITC availment - GSTR-2A v. GSTR-3B - CBIC issues circular to resolve the dispute

To implement GST Council's recent recommendations, Circular No. 183/15/2022-GST dated 27-12-2022 has been issued to deal with difference in input tax credit (ITC) availed in Form GSTR-3B as compared to the figures reflected in GSTR-2A for FY 2017-18 & 2018-19. The circular covers four scenarios where ITC availed in GSTR-3B but not reflected in GSTR-2A will not be considered as ineligible like failure of supplier to file GSTR-1but GSTR-3B has been filed, failure to report a particular supply in GSTR-1, reporting of B2B transaction as B2C in GSTR-1 and use of incorrect GSTIN. The circular reiterates the conditions in Section 16 of CGST Act for credit availment and provides solution to this issue in the form of verification as to whether tax amount has been actually paid to the government. If the differential ITC availed is more than Rs. 5 lakh in respect of a particular supplier during that FY, recipient is required to produce a certificate for the supplier from the CA or CMA, certifying that supplies have actually been made and tax has been paid in GSTR-3B by the supplier. If such differential ITC availed is less than Rs. 5 lakh in respect of a particular supplier during that FY, certificate from the supplier is required to the effect that supplies have actually been made and tax has been paid in GSTR-3B by the supplier. The circular will apply only to ongoing / pending proceedings for FY 2017-18 & 2018-19 and not to completed proceedings. While the issue may not be entirely settled by this circular, it may at least prevent large-scale litigation.

 

CBIC has also issued Circulars No. 184 to 188 on 27-12-2022 clarifying other issues. One of the key points in Circular No. 184 is that ITC will be available to the recipient on transportation service supplied by provider in India to recipient in India when the goods are destined to a place outside India as the conditions to avail ITC in terms of Section 16 does not restrict a recipient in India to avail ITC where place of supply is outside India. Another trade-friendly clarification is Circular No. 188 prescribing the procedure for filing of refund claim by unregistered persons where time period to issue credit note has expired (Construction service / long-term insurance policy).

 

Budgetary support scheme not applicable to unit not availing area-based exemption before 1-7-2017

Area-based exemption under Central Excise was brought to an end on introduction of GST from 1-7-2017. As a measure of "goodwill" the Central Government implemented budgetary support scheme to provide for part refund of GST paid in cash in respect of CGST and IGST to those units which were availing such exemption and had residuary period as per such exemption notification. A major FMCG company argued before J&K High Court that though it had commenced commercial production in September, 2017, it should be given such budgetary support on the ground that they were availing such benefit in respect of other units and approvals were obtained before introduction of GST. The High Court did not agree as it upheld the department's contention that the taxpayer's unit is not an eligible unit as it was not availing any excise exemption before 1-7-2017 which had to be continued in the form of budgetary support providing for GST refund as prescribed. It appears that the company had made initial investment before GST and lost out in the uncertainty surrounding continuation of exemption in some form or the other after GST.

 

 

(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)