Tax Vista Your weekly tax recap Edn. 102 - 30th May 2022 By Dr. G. Gokul Kishore

 

 

Interest payment in instalments after demand notice not permissible?

Section 80 of CGST Act empowers the Commissioner to permit a taxpayer to pay tax and other amounts due in instalments. The provision excludes amount due as per liability self-assessed in return. Application seeking permission to pay interest in instalments on belated payment of tax was rejected by Commissioner and writ petition was filed assailing the same. The High Court held that, in this case, the petitioner has sought to invoke Section 80 when demand notice has been issued and such situation is not covered under this beneficial provision. It appears that as per this order, only amounts payable on voluntary basis i.e. on self-ascertainment basis by the taxpayer are covered under instalment facility and payment of interest after creation of demand / passing order for such interest will not be covered. The primary reason is that interest is part of the tax demand and tax having been paid after delay on self-assessment basis, instalment payment facility would not be available. The Court sought to lay emphasis on literal interpretation when there is no ambiguity in the provisions and individual hardship cannot have an impact to reject natural construction by attributing normal meaning to words used "since hard cases do not make bad laws" [2022-VIL-365-ORI].

 

It is not clear whether the provision actually excludes all demand cases. The general perception is that Section 80 seeks to provide relief to taxpayers when the tax demanded and payable are huge and the burden is onerous. If it covers only voluntary payments and excludes payment triggered by any other method, the provision may not serve any purpose. If the legislative intention is to provide relief in such cases also, then the same may have to be made clear by way of an explanation.

 

Retrospective amendment to composition under VAT law valid - Madras HC

The Madras High Court has held that retrospective amendment to Section 6 of Tamil Nadu VAT Act whereby dealers who make inter-State purchases or import goods into India were barred from availing composition scheme for works contract, is valid. The amendment was challenged as discriminatory as it created two classes of works contractors but the department argued that this is to curb tax diversion and prevent loss of revenue to the State which was accepted by the High Court.

 

The Court took note of purchases under Form C for the purpose of concessional CST rates - "It is to be noted that when the goods are purchased locally, tax at 4 % or 5% or 12.5% or 14.5% is paid. When the goods are purchased locally, the dealer pays the taxes as per the schedule and in addition thereto, tax is paid on the value of the works contract. Whereas, in the absence of such a stipulation, when a dealer purchases goods from dealers in other State, he pays tax at concessional rate and also lesser rate of tax under the composition scheme. For instance, if a dealer purchases goods @ 2% on interstate transactions upon production of "C" Form and pays 2% on works contract, it will be less than or equal to tax paid on local purchases by a dealer depending upon the rate of tax on goods. This cannot be a level playing field. In fact, such a situation would amount to arbitrary treatment of local dealers. There is a substantial difference and loss to the State, against which the State is entitled to take remedial action to protect its interest, which obviously is for the welfare of the people of the State. It is known that the levy of tax itself is in public interest as the tax so levied and collected is utilized in various schemes and projects of which the public is the beneficiary. Similarly, the dealers who purchase goods from local dealers, are deprived of fair competition."

 

The Court held that the object sought to be achieved is not illegal and is within the legislative competence of the State. The judgment also took into account presumption as to constitutionality of a provision. The often-forgotten social angle to taxation was emphasized by stating that the purpose of taxation is not just to raise revenue, but also to reduce inequalities. It said that the dealers, who purchase goods locally and who bring in goods by inter-State purchase from other State or by import, are not equals, despite being works contractors. "They are different species of the same genus. The classification is based on intelligible differentia and the same is not unreasonable."

 

Though this judgment is under VAT law and pertains to past period, the same is briefly covered here as it is very exhaustive running to hundreds of pages discussing all landmark judgments and settled jurisprudence including the greater latitude enjoyed by the legislature in fiscal matters, absence of equity in taxes and harsh results or higher tax burden cannot be a ground for interference. Considering the object and the nature of the amendment, the duration of the time within which it has been brought into effect, the State is well within its power to give retrospective effect and that it is neither arbitrary or violative of Article 19 (1) (g) of the Constitution, as per the judgment [2022-VIL-367-MAD].

 

E-way bill infractions - Arbitrary action continues

GST law should be amended on priority to expressly bar initiation of demand and recovery proceedings when mistake in e-way bill is trivial, due to bona fide reasons or when fresh e-way bill is generated to rectify the error. Such issues have come to occupy the time of writ courts to a great extent for the past three years. GST authorities, particularly SGST officers invariably detain the vehicle and goods, initiate further proceedings and compel payment of tax and penalty for release - all these when the mistake in the e-way bill does not involve any mala fide intention to evade payment of tax. This point is highlighted in the backdrop of High Court order in a recent case where name of the supplier and buyer got swapped in the e-way bill. After detention, fresh e-way bill rectifying the error was generated but the department did not release the vehicle and goods. The High Court had to intervene to quash the notice and order release after emphasizing the role of tax officers. When the transaction itself is not questioned or doubted, retaining the goods in their custody is without any reason and is arbitrary. Arbitrary actions cause great prejudice to taxpayers and therefore, law should have sufficient provisions to keep such actions under check [2022-VIL-360-TRI].

 

VIL has reported another order on e-way bill related issue wherein the department did not consider fresh e-way bills which were generated when certain goods had to be taken back but e-way bill was not initially prepared. In this case also, the High Court granted relief by ordering release of the vehicle and the goods under detention [2022-VIL-361-TRI].

 

Refund of tax paid by mistake on exports - Strict application of procedure not required

Denial of refund needs hardly any reason for the tax authorities. But when the claimant has committed a mistake, then it has to be categorized as a great sin and refund should be rejected. During the initial months of GST, instead of showing exports under the relevant column, the taxpayer had declared the same under outward supply column in GSTR-3B and tax was paid. Such details were correctly declared in GSTR-1. Recognizing such issues CBIC had issued circular in 2018. However, refund was rejected by the department arguing that there was no message from Customs on the goods having been exported and the system was not showing the required message. The High Court was not pleased and it directed the GST authorities to verify based on the data from the exporter and with the Customs counterpart. It held that refund cannot be denied on such procedural grounds. It noted that the rules should not be applied strictly to deny legitimate export incentives and technicalities in the system should not come in the way. It is not known why the Court did not order interest as the claims pertain to 2017 [2022-VIL-352-MAD].

 

Resolution under IBC - CBIC asks officers to pursue arrears recovery

Tax department is one of the operational creditors and tax dues are considered as operational debt as per Insolvency and Bankruptcy Code (IBC). In respect of Customs and GST dues payable by taxpayers who are going through Corporate Insolvency Resolution Process (CIRP) under IBC, the tax department is required to file a claim with the Resolution Professional. As IBC is being invoked in increasing number of cases, CBIC has issued SOP so that claim as per IBC is made in respect of tax dues in a timely manner as claims get extinguished due to delay in filing the same. But the SOP is a typical official communication with the usual bureaucratic methods being prescribed - there will be a nodal officer, monthly report will have to be sent by field formations, etc. The reason for SOP is lack of information with field formations regarding the fact that a particular taxpayer is under CIRP. IBBI will feed CBIC which in turn will disseminate the information with jurisdictional officers so that claims are filed. CBIC's present instruction directs officers to be in touch with the Resolution Professional regarding finalization of resolution plan [CBIC Instruction No. 1083/04/2022-CX9 dated 23-5-2022].

 

When many in the tax administration have difficulty in understanding GST law, realizing the rights of operational creditors under IBC does not arise. CBIC may have to educate officers (both CGST and SGST officers) on how IBC operates in resolution and in case of failure, in liquidation. The fact that government dues are not accorded priority should not come in the way of knowing the law and whatever it offers or action it expects the tax department to take.

 

GST investigations and voluntary payments - Pretence and practice

Tax administration at the top level is adversarial to taxpayers as can be seen from the tenor of the recent instructions dated 25-5-2022 relating the investigations under GST. The first para states that sometimes taxpayers opt for deposit of GST liability arising out of issues pointed during search, inspection or investigation and after such "voluntary" deposit, use of force and coercion is alleged. Government instructions can also be humorous as the second para mentions that voluntary payments are initiated only by taxpayers using their login id and password. The present communication advises senior officers to inquire into complaint received regarding use of force during investigations and also take action against erring officers. While search and investigations are never or can never be cordial, at least such purposeless instructions can be avoided. There are numerous such instructions which are issued only for the sake of record without the real intention of addressing such sensitive issues. There are several High Court orders, in the past and now in GST regime, on coercive payments and CBIC has opted to simply ignore them without highlighting even one or two.

 

Government bodies seeking advance ruling - Level-playing field under GST

Whether it is ocean freight issue (discussed last week) or composition scheme under works contract (covered this week), level-playing field is considered as a factor now. GST can be credited with creating level-playing field as government bodies make beeline before advance ruling bodies and most of them have got themselves registered under GST as well. The Gujarat Appellate AAR considered the issue of exemption in respect of Teacher Eligibility Test and similar tests for stenography / typing, departmental examinations for government employees and various diploma courses - all conducted by State Examination Board, established as a society but functioning under the government. The Board argued that it is an educational institution and covered under exemption provided to educational institutions in Notification No. 12/2017-Central Tax (Rate). Explanation stating that Central and State Educational Boards will be treated as educational institutions for the purpose of providing services of conducting exams to students was also pointed out. It was also argued that Circular No. 151 dated 17-6-2021 issued by CBIC clarifying that National Board of Examination is an educational institution in so far services of conducting exams including entrance exams would be applicable to State Examination Board also.

 

The AAAR held that the criteria like curriculum, qualification recognized by law, etc., are fulfilled and therefore, exemption would be available for most of the exams. However, diploma courses and steno exam have been held as not exempted as they are not recognized by law. The ruling goes off the track when it holds that exemption is not available to departmental exams for government officers. It is understandable as it may be difficult to cover under respective entries but the argument of the Board (appellant in this case) was that it is not a supply under Section 7 of CGST Act. This question has not been addressed at all. The AAAR is bound to consider such argument instead of going by the question framed alone. A writ petition in High Court may enable the Board to get the right answer [2022-VIL-55-AAAR]

 

Pre-school education - Books, sports goods and food items sold separately, not exempted

Services provided by an educational institution to its students, faculty and staff are exempted from GST as per Notification No. 12/2017-Central Tax (Rate). Such exemption is, however, restricted to only those institutions which are providing services by way of pre-school education and education upto higher secondary school. The entry seeks to convey that school education has been effectively kept out of GST. Advance ruling was sought by the applicant in respect of pre-school education and the Authority for Advance Ruling (AAR) had no hesitation in ruling in applicant's favour. The applicant sought answers for various combinations like when services like transportation or canteen are provided or books are supplied without separately charging for the same. For all the services provided, the ruling holds exemption would be available. The applicant is very fortunate as supply of goods like books, stationery, sports goods, food items, etc., have also been held as exempted as they form part of composite supply where principal supply is that of education. However, if such goods are sold separately, then applicable GST would be required to be paid.

 

Though the ruling is sans elaborate reasoning, it can be considered as reasonable one. Once the AAR says that separate supply of goods would attract GST, the applicant can consider other options as schools generally do - charging lumpsum amount towards tuition fee and other items / services though break-up is provided [2022-VIL-146-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 has edited R.K. Jain's GST Law Manual - 15th Edition - Feb., 2022. E-mail - gokulkishore@gmail.com)