Tax Vista Your weekly tax recap Edn. 100 - 16th May 2022 By Dr. G. Gokul Kishore

 

 

100th edition / issue of Tax Vista

This is the 100th edition / issue of Tax Vista. This weekly column was started on 22nd June, 2020. These days there is an avalanche of updates particularly those shared through social media. Tax Vista is not an update but a column. The latest developments in terms of judgments, rulings, amendments, notifications and circulars provide the essential content for analysis and discussion. However, the objective is to highlight the difficulties faced by taxpayers by analysing the gaps in the provisions, focusing on judicial view on important issues and pleading for the reforms required in the indirect tax law, procedures and administration. We hope both the information as well as the brief analysis provided in Tax Vista are useful.

 

Appeal - Time-limit to start from date of resolution of technical glitch in GST portal

Order cancelling registration was passed in 2019 and the taxpayer attempted to file appeal electronically. Due to technical issues in the GST portal, the same could not be filed. Eventually, the issue was resolved in 2021 and appeal was filed much after the time-limit prescribed for filing appeal and obviously, the appeal was dismissed on limitation. The taxpayer had to approach High Court and the Court held that the taxpayer was disabled from filing appeal electronically only due to reasons attributable to GSTN. It further held that the time-limit in this case would start from the date when the technical issue was resolved in the GST portal and the period of limitation should be deemed as suspended when forum for filing appeal through prescribed mode was not available to the taxpayer. The appellate authority was directed to consider the matter afresh.

 

Appeal is a statutory right but very important and valuable. To drive home this point, the order says -"The statutory right of appeal is not an illusory remedy given to the assessee or a person aggrieved. It is an effective and real remedy granted within the structure of the statute to allow for redressal of genuine grievances. Therefore, the appeal forum (wherever provided) must be seen to exist and be freely available to the person seeking to approach it. There must exist no obstruction to access it within time and opportunity granted by the statute, to institute the appeal, before that authority." In this case, two factors can be said as helpful to the taxpayer. Screen shots of attempt to file appeal were taken and the same were filed before the High Court. Secondly, GSTN / department appears to have accepted the fact of technical glitches and the date of resolution of such issues [2022-VIL-325-ALH].

 

Service tax paid under RCM after GST - Cash refund of credit admissible

The issue as to refund of Cenvat credit, if found admissible, is to be granted in cash as per Section 142(6) of CGST Act, is not very controversial. However, when such matters are taken to CESTAT, jurisdiction of the Tribunal becomes doubtful at least for the department. In a case of this nature, service tax was paid under reverse charge after introduction of GST and could not be taken as credit and transitioned to GST regime. Cash refund was sought but the adjudicating authority, it appears, based on time of supply, took the stand that GST was payable in this case and rejected the refund. While the order stated that appeal would be maintainable under Finance Act, 1994, the Commissioner (Appeals) also held that GST was payable. This has been rejected by CESTAT as the refund application itself was filed under Finance Act, 1994 and as per the provisions of CGST Act, cash refund is to be granted along with interest. The relief sought is under the pre-GST law and therefore, it has to be dealt with under such law. But, when it comes to refund, department cannot accept such position [2022-VIL-328-CESTAT-MUM-ST].

 

Service tax refund based on revised return after GST - No time-limit prescribed

Section 142(9)(b) of CGST Act provides that if return is revised under "existing law" (Central Excise / Service Tax) after 1st July, 2017 and if any amount is found to be refundable, it shall be refunded in cash. As mentioned in the case above, refund in cash is something the department cannot simply let go. The refund claim was rejected on the ground that it was filed after one year from date of filing revised return and therefore, hit by time-bar. The matter was carried in appeal to CESTAT which held that no time limit has been prescribed under the above-mentioned transition provision of Section 142(9)(b) for filing refund claim. The silver lining in such decisions is that the Tribunal takes into account specific facts like service tax having been paid after implementation of GST, absence of scope of taking credit when the time-limit for filing TRAN-1 has long been over, etc. The unfortunate part of this order is the appellant is a PSU bank and the amount involved is Rs. 1.18 lakh [2022-VIL-330-CESTAT-DEL-ST]

 

Refund of IGST and drawback when rates are equal - High Court grants relief with interest

It is time for CBIC to come out with clear-cut instructions on the issue of claim of drawback and also refund of tax paid on export goods during the transition period between date of implementation of GST and notification of new drawback rates. Out of numerous cases on this issue, VIL has reported an order of Delhi High Court last week. The taxpayer had mentioned the drawback code incorrectly but later the same was rectified and yet, refund was not granted for 4 years. As in other cases, drawback rate was same in both the situations - credit availed and credit not availed. Relying on precedent judgments, the High Court has ordered refund along with interest after observing that the argument of the department that higher rate of drawback was availed was factually incorrect and CBIC circular on this issue would not be applicable. Interest was ordered from the date when correction of the drawback code was permitted by the department. This order is briefly mentioned in this column as this issue is being raised by GST Audit Teams and all these objections follow the same template though the same is legally not sustainable [2022-VIL-331-DEL].

 

Royalty not part of agreement on technical assistance is not includible

A typical case of inclusion of royalty / license fee in the value of imported goods was litigated before CESTAT recently. Though cases relating to customs valuation when parties are related tend to revolve around the issue of whether relationship has influenced the price or not, in this case, both the importer and the department accepted that relationship has not affected the transaction value. Rule 10(1)(c) of Customs Valuation Rules mandates inclusion of royalty or license fee if the same is required to be paid by the buyer as a condition of sale of imported goods. In this case, the amount payable was based on the turnover of final products manufactured as per technical assistance provided by the exporter. The Tribunal perused the agreement and concluded that import of goods was not mentioned in it and therefore, there was no condition on sale of imported goods vis-à-vis technological assistance and license fee paid for the same. It reiterated the proposition that calculation of royalty on turnover which includes imported components and value addition on the same, by itself is not sufficient to include the same in assessable value [2022-VIL-334-CESTAT-DEL-CU].

 

Even after landmark judgments on customs valuation and in particular, on inclusion or otherwise of royalty / license fee, litigation continues. One of the reasons could be that the basis of the dispute is factual - whether the agreement makes it conditional that technical assistance on payment of royalty is subject to purchase of goods from the foreign party. However, when such transactions between related persons are handled by Special Valuation Branch (SVB), it is expected that such agreement is analysed threadbare. If some officer files appeal even after such examination or departmental officer passes order seeking inclusion, then he should be dealt with appropriately for vexatious litigation.

 

Margin scheme - Purchase price is relevant and not purchase cost

Notification No. 8/2018 - Central Tax (Rate) provides for an alternative scheme for applying GST on sale of second-hand vehicles. Taxable value, as pe this notification, is based on margin i.e. difference between purchase price and sale price and if the same is negative, no tax is payable. In most cases, old / used motor vehicles are sold after refurbishment. The taxpayer had sought advance ruling as to whether cost of refurbishment was to be included in purchase price or not. The AAR answered in the negative on the ground that purchase price is used in the notification and not purchase cost and therefore, cost of refurbishment cannot be included in purchase price. On appeal, the Appellate AAR has affirmed the same by holding that only the amount paid at the time of purchase of used cars can be considered as purchase price. It also rejected the appellant's reliance on Section 15 on transaction value by holding that when value is specifically defined in the notification itself, then value as per Section 15 of CGST Act cannot be taken. The ruling goes off the track by stating that benefit of the above notification will not be available if ITC is availed and if the appellant wishes to avail ITC on cost of refurbishment, the same can be availed without enjoying the benefit of this notification. The appellant had submitted lengthy arguments and in particular, was aggrieved by non-consideration of all such points by AAR but the AAAR has also passed a very brief ruling without discussing a few of these arguments, if not all of them. When ambiguity is patent in the notification, advance rulings which are generally pro-revenue, are not expected to resolve them in favour of taxpayers [2022-VIL-45-AAAR].

 

Single line SCNs to be avoided - Haryana GST instructions

In this column, while analysing High Court orders, it has been often said that SGST officers need to be trained in execution of quasi-judicial responsibilities like issuance of show cause notice and passing adjudication orders. In a welcome move, Haryana GST department has released return scrutiny manual containing detailed instructions on various aspects including the powers relating to demand and adjudication. Though this is meant for officers, taxpayers can get some reassurance if some of the points are implemented by the officers.

 

Observing that many officers issue single line notices leading to confusion and harassment of taxpayers, the manual instructs that all officers shall issue clear and speaking notices and they should strive to issue high quality notices. As the thrust is on making all the processes online, the manual says even if the taxpayer submits physical reply, it should be ensured that the same is filed online compulsorily. In scrutiny cases, in general, proceedings under Section 73 of HGST Act / CGST Act should be invoked. Proposal to impose penalty under Section 73 or Section 74 should be mandatorily included in the SCNs. Taking an idealistic position, the manual calls for SCNs to be of such quality that they stand judicial scrutiny. More importantly, it clearly points out that DRC-01 or DRC-07 is not a notice or order in itself and it is only a summary and speaking notice / speaking order should be issued detailing the justification / reasoning. A table serving as a ready reckoner for timelines from 2017-18 to 2021-22 for issuing SCN and passing orders has been provided - for 2017-18, normal period SCNs can be issued till 5-11-2022 and extended period notices till 5-8-2024 [Haryana GST Returns Scrutiny Manual].

 

 

(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 Edition - Feb., 2022. E-mail - gokulkishore@gmail.com)