Tax Vista Your weekly tax recap Edn. 134 - 9th Jan 2023 By Dr. G. Gokul Kishore

 

 

Show cause notice and hearing not mandatory before issuing order

The Madras High Court has held that post amendment of sub-rule (1A) of Rule 142 of TNGST Rules, wherein the expression "proper officer shall" has been amended to read as "proper officer may", it is not mandatory to issue summary of show cause notice and details of liability in Form DRC-01 and DRC-01A. Surprisingly (though one may be tempted to use "shockingly") the Court has also held that it is not imperative to issue show cause notice (SCN). It is judicially so well-settled that without notice, order passed is not sustainable. For arriving at the above decision, reliance has been placed on case law relating to revision under earlier VAT law. It did not accept that argument of the petitioner that no personal hearing was held though the order mentioned the same. For personal hearing also, the order states that it is not imperative. The order is certain to be overruled if appealed to Division Bench [2023-VIL-15-MAD].

 

GST registration - Authorities work tirelessly to reduce ease of doing business

Yet another case of cancellation of registration, with the monotonously same ingredients of notice in wrong form combining suspension and cancellation pushing the taxpayer to the High Court. The order of cancellation of registration was set aside by the High Court referring to earlier orders in similar matter and requiring the taxpayer to file all defaulted returns together with tax, late fee, interest, penalty etc., within a period of two weeks from the date of restoration of registration. Tax authorities argue that showing a figure in a different table in TRAN-1 form will disentitle the taxpayer from availing transitional credit. These authorities use completely different form when it comes to killing the business of taxpayers [2023-VIL-06-KER].

Recovery of refund of ITC - Interest chargeable and penalty imposable?

Major judgments have seismic effects. Based on Gujarat High Court judgment in VKC Footwear, the taxpayer had claimed and was granted refund of unutilized input tax credit (may be after including input services). Based on the judgment of the Supreme Court overruling HC order, the department sought to recover the refund. The issue contested in High Court in the present case was against demand of interest and penalty on the ground that the issue was not free from doubt and interest demand in such cases is not automatic. The High Court noted the issue of prevalence of ambiguity. For penalty, it notes that the impugned order had mentioned absence of suppression. The Court has directed the adjudicating authority to decide afresh after taking into consideration Section 50(3) of CGST Act on interest and absence of suppression. In tax cases, enjoyment is never permanent as every claim is capable of being overturned and the demand in future always comes in enormous proportions along with interest and penalty. When there is an order of the Apex Court, the department is bound to recover refund. It is settled law that interest demand is automatic. Penalty in such cases needs to be waived and CGST Act needs an amendment - in these types of cases, refund was claimed as per the law declared by the High Court at the relevant time and there cannot be an occasion to penalize such activity [2023-VIL-10-TEL].

 

Refund of ITC of cess - Supplementary claim and changing stand - HC rejects petition

Refund of unutilized input tax credit of compensation cess was claimed and later Supplementary refund claim filed manually as the refund obtained was found to be lesser than the amount eligible. Citing certain circulars holding that second claim on same ground would not be maintainable, such refund claim was held as inadmissible. But the High Court after grammatically analyzing the provisions held that all the three units of the taxpayer come under single registration / GSTIN and having applied for refund clubbing all the three units, they cannot turn around and seek refund unit-wise later. It also pointed out that the taxpayer himself computed and claimed refund initially as per formula taking the combined figure of all the units. It held that subsequently, filing of supplementary claim for refund treating individual unit as separate registered person is not correct and rejection of such claim by the department is sustainable. Argument of the taxpayer that CBIC circular barring filing of manual refund application as arbitrary was rejected by the Court holding that statute does not provide for supplementary refund claim and that too, by taking a different stand as compared to the original claim. Challenge to Rule 89(4) of CGST Rules has also not been accepted by the Court [2023-VIL-12-ORI]

 

Dispute over dispute settlement finally comes to rest

Tax department is infamous for creating disputes even in dispute settlement schemes. The primary reason is the refusal to understand the spirit of the scheme and adopting strict interpretation when it comes to such amnesty schemes. A taxpayer had to travel upto the Supreme Court when his case was not accepted under Sabka Viswas Legacy Dispute Resolution Scheme. The ground for rejection was that the company expressed its readiness to pay the dues after the due date for payment as per the scheme and as extended by the government. The reason for delay was attributed to the company being under CIRP initiated as per IBC and bar on payments during the moratorium period. But the High Court did not accept the petition and therefore, the company was before the Supreme Court. The Apex Court held in favour of the taxpayer and directed issuance of discharge certificate after holding that the taxpayer cannot be compelled to the impossible as they could not pay by due date because of legal mandate relating to moratorium period under IBC. There are press reports that, under both direct and indirect taxes, another amnesty scheme may be announced in the Union Budget to be presented on 1^st February, 2023. It will be prudent to issue clear-cut instructions to the officers to shun hyper-technical approach and facilitate closure of legacy cases once and for all [2023-VIL-01-SC-ST].

 

Covid vaccination is supply of goods - Health related service exemption not applicable

Issues in indirect taxation continue in the same as well as mutated versions. VAT dealt with sale in case of supply to outpatients, implanting of stents, Central Excise had the care or cure question for classification of medicaments vs. cosmetics and service tax battled with dominant intention. Examining whether administration of Covid vaccine can be exempt from GST as health services, the AAAR has upheld the ruling of AAR that activity of administering of COVID-19 vaccination by hospitals is a composite supply and is not exempt. It held that principal supply is the 'sale of vaccine' and the auxiliary supply is the service of 'administering the vaccine'. It reasoned that vaccination is not covered under the exemption since only diagnosis or treatment or care for illness, injury, etc., qualifies as "Health Care Services" and vaccination only prevents disease. Further there is a transfer of goods - vaccine to the recipient which is the dominant element and service of administering the same is incidental. Reliance was also placed on the government instruction as regards price which may be charged for the vaccine, GST @ 5% and separate charges mentioned as service charge. This question may become more complicated if nasal or oral methods are used in future for vaccination [2023-VIL-01-AAAR]

 

Entity acting as nodal agency for public health - Services are taxable but exempt

The applicant - a government body - procures and distributes drugs, medicines and other surgical equipment on behalf of government. Such distribution is made as per government policy without any value addition to public health centres and hospitals. It receives establishment charges from State Government at an agreed percentage. The applicant argued that it was only distributing medicine and not selling, transferring, exchanging or bartering, relinquishing anything so as to fall under "supply".

 

Overruling the AAR, the appellate authority held that procurement of medicines would qualify as supply since elements of supply of goods or services, consideration and taxable supply are satisfied though it is not in course or furtherance of business. The transaction of distribution of medicines was held to be one of pure agent. However, the activity is not exigible to GST since it is in relation to function entrusted to a Panchayat under Article 243G of the Constitution, namely health and sanitation, including hospitals, primary health centres and dispensaries. Though there is some discussion in terms of elements of supply, the order does not say how despite non-satisfaction of the terms "in course or furtherance of business" the transaction falls within supply. These officers should be directly sent to NACIN for two months training course when the fundamentals of supply are shaky [2023-VIL-02-AAAR].

 

Supply of pencil with sharpener and eraser is not composite supply

Supply of pencil with sharpener is not a composite supply but a mixed supply as per advance ruling. The ruling states that the applicant has used the word "accessory" along with sharpener and eraser which means they are not essential or integral to pencil but they are useful and therefore, they are not naturally bundled. The AAR notes that the argument of the applicant that these items are generally sold together in this industry is not acceptable because they are also sold independently and it is a marketing technique to increase sale of sharpener and eraser. In respect of kits where such items are supplied free, the ruling holds them as non-naturally bundled and they are not supplied in conjunction with each other in the ordinary course of business. To avoid such rulings, GST Council may have to revisit rates of such otherwise bundled items, particularly used by children and in the education sector. In GST regime, there is no independent test or instruction from CBIC regarding composite supplies and reliance is often placed on service tax clarification and EU provisions. The case mentioned here apparently belongs to the category where the view can well be divergent [2023-VIL-03-AAR].

 

 

(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)