Tax Vista Your weekly tax recap Edn. 107 - 4 July 2022 By Dr. G. Gokul Kishore

 

 

GST Council meeting - A few major decisions

Significant recommendations have been made in the meeting of the GST Council held on 28th and 29th June, 2022. Increasing the tax rate of all the goods to a higher rate is perceived as a solution to correct inverted tax structure. Therefore, GST rate on several goods have been recommended for a hike to 18% from 18th July, 2022. These unfortunate items are printing, writing or drawing ink, machines for cleaning, sorting or grading seeds, grains and pulses, drawing and marking instruments, LED lamps, lights and fixture including their metal printed circuits board, power driven pumps primarily designed for handling water such as centrifugal pumps, deep tube-well turbine pumps, submersible pumps and bicycle pumps. Most of these items are either used in agriculture or education and therefore, the tax rate was deliberately kept lower owing to policy objectives. But these are days of solitary policy - revenue maximization.

 

A major shock to be felt is in the infrastructure sector where most of the works contract services provided for roads, bridges, railways, metro, effluent treatment plant, crematorium, etc., will attract higher GST of 18% from 18th July. Further works contract supplied to Central and State governments, local authorities for historical monuments, canals, dams, pipelines, plants for water supply, educational institutions, hospitals etc. (including sub-contracts) will also be blessed with such higher rate. Unless contracts have change-in-law clause or price revision based on tax rate change, contractors will have to take a big hit. For certain job work, GST rate is being hiked to 12%. An important change that may benefit the industry is reduction of GST rate to 12% on renting of trucks where cost of fuel is included.

 

GST Tribunal is eternally on the wait. After five years, a GOM is being constituted to look into the amendments required for constitution of the tribunal. Period from 1-3-2020 to 28-2-2022 has been recommended to be excluded from calculation of limitation for filing refund claim and issuance of demand/order in respect of erroneous refunds. For FY 2017-2018, the time-limit for issuance of order in respect of demands linked with the due date of annual return will be extended till 20-9-2023. This automatically increases the time available for issuance of show cause notices for the FY 2017-18 as such time-limit is computed from the period provided for passing order. Taxpayers may well maintain all records for 10 to 15 years as extension of period for issuing notices along with extraordinary delay in constituting GST Tribunal would mean litigation will be a very long drawn affair under GST. A significant recommendation pertains to GST Council's acceptance of the request of the Supreme Court to rectify the anomaly in the formula pertaining to refund of ITC as pointed out in the case of VKC Footsteps [2021-VIL-81-SC].

 

Certain minor changes proposed include automatic revocation of suspension of registration in cases where registration has been suspended due to differences found based on comparison of GSTR-3B and GSTR-1 or where returns were not filed for 6 months. Mandatory registration will not be required for suppliers/dealers supplying intra-State goods or services or both through e-commerce operators. Exemption is proposed to be granted from filing annual return for FY 2021-22 to those suppliers having turnover up to Rs. 2 Crores. A major trade-facilitation measure pertains to cases where IGST refund is blocked on exporters being labelled as "risky exporters". These refund claims shall be transferred to jurisdictional GST officers for verification and processing which may mean the delay in getting such refund will reduce. A host of issues will be clarified through circulars and only when they are issued, the kind of surprises that taxpayers will get, will be clear.

 

Refund of ITC on inverted tax structure not deniable when input & output are same

Refund claims should be rejected generally. Only in exceptional cases, refund may be granted. Based on such belief, tax department functions and CBIC issues circulars. In respect of inverted tax structure, CBIC issued a circular dated 31-3-2020 which opined that refund of unutilized input tax credit due to inverted tax structure will not be admissible when input and output supplies are same. This is law as manufactured by CBIC because Section 54 of CGST Act does not place any such restriction.

 

Recently, refund was rejected relying on this circular where the taxpayer had procured various goods attracting different rates of tax but supplied to the other party at concessional rate of 5% as the services pertained to oil exploration activities. The taxpayer had accumulated ITC but the department felt that what is purchased is the same item which is sold further and therefore, refund will not be available. The High Court held that Section 54 is "absolutely" unambiguous and does not carve out any such exception. It noted that CBIC had clarified in 2019 that when goods are supplied at concessional rate, refund would be admissible. It held that the circular dated 31-3-2020 is conflicting with the legal provision and the same cannot be applied to deny refund. The fact that period pertained to before issuance of such circular was also taken note of. The High Court directed the GST authorities to grant refund [2022-VIL-449-RAJ].

 

CBIC is fortunate as the arbitrary circular was not quashed by the High Court. The same circular was considered by two other High Courts (Calcutta and Guwahati) but in both the cases, it appears, the circular was not quashed. CBIC should withdraw such clarification so that taxpayers are not harassed without any statutory basis.

 

Merit of appeal cannot be sacrificed for mere non-filing of certified copy of order

GST law, like any other tax law, prescribes host of procedures because it is a tax law and it seeks to confer certain benefits. However, dispute often arises when procedures become so sacrosanct that the benefit is sought to be denied by the authorities even for minor infraction. When the procedure itself serves no purpose, it becomes all the more controversial.

 

Attaching certified copy of the adjudication order when appeal is filed under Section 107 of CGST Act is something which the GST authorities religiously insist and if such copy is absent, then appeals are dismissed by First Appellate Authorities. In a case of this nature, for almost one year from date of filing appeal, objection was not raised. Much later, notice was issued to the taxpayer to submit certified copy of the impugned order. The taxpayer immediately complied with the same but on the same day, order was passed rejecting the appeal. It seems the order was prepared already and the department did not expect the taxpayer to bring certified copy immediately. Therefore, it was dutifully issued without accepting the certified copy also.

 

The High Court took note of extension for filing appeals, etc., due to Covid, as ordered by the Supreme Court and also departmental instructions and held that the taxpayer (petitioner) was entitled to exclusion of time for furnishing certified copy. More importantly, the Court said that Rule 108 does not provide for condonation of delay in furnishing certified copy and application of Limitation Act has not been restricted. It held -"The requirement to furnish certified copy of the impugned order within seven days of filing of appeal is provided as a procedural requirement. On the altar of default in compliance of such a procedural requirement, merit of the matter in appeal should not have been sacrificed. Since the Petitioner has enclosed the copy of impugned order as made available to it in the GST portal while filing the Memo of Appeal, non-submission of certified copy, as has rightly been conceded by the Additional Standing Counsel appearing on behalf of CT&GST Organisation, is to be treated as mere technical defect." The appeal was restored and the petitioner was directed to appear before the appellate authority [2022-VIL-451-ORI].

 

The provision on production of certified copy of the order at the time of filing appeal requires deletion. In these days of electronic filing and downloads, GST authorities can well see the orders as uploaded by adjudicating authorities. It is absurd to doubt the copy of the order produced by the appellant and to call for an attested or certified copy when every empowered officer can himself / herself can access the notices and orders in the GST portal. If there is any issue, then GST portal should be appropriately redesigned. If the tax department trusts the taxpayers then such measures should be implemented immediately instead of harassing them on procedural trivialities.

 

Cancellation of registration - Writ petition maintainable

Cancellation of registration is assuming alarming proportions. The frequency, indiscriminate application, non-compliance with procedures, etc., while cancelling registration under GST law are causing irreparable injury to practice profession or undertake business. A mason / painter's GST number was cancelled as he did not file returns for six months. Appeal was filed but it was dismissed on the ground of delay. As GST Tribunal is eternally confined to statute book only, writ petition was filed before High Court. A Single Judge Bench dismissed the petition on the ground of existence of alternative appellate remedy. An appeal was filed before Division Bench. The Division Bench has held that cancellation of registration affects right to livelihood which is part of right to life, fundamental right guaranteed under Article 21 of the Constitution. Based on such reasoning, writ petition was held as maintainable. The matter was remanded to Single Judge Bench to decide the case on merits.

 

An important but strange conclusion arrived at by the High Court which may not be entirely correct relates to discussion and conclusion on "adjudicating authority". It held that the Assistant Commissioner (who passed the order cancelling registration) acts under control of Commissioner and he has not been provided powers to act independently and therefore, as per the judgment of Supreme Court in Radha Krishan Industries [2021-VIL-50-SC], Commissioner is not an adjudicating authority and hence, appeal will not lie against orders passed by such Asst. Commissioner also under Section 107. More than this point, the discussion on invocation of writ jurisdiction in such cases provides ratio and principles that can be sought to be applied in other cases [2022-VIL-441-UTR].

 

Adjustment of incorrect type of tax not permissible 

Tax paid under wrong head i.e. IGST instead of CGST plus SGST cannot be adjusted - the correct type of tax has to be paid and the wrongly paid tax can be claimed as refund. A recent High Court reiterates the above while dealing with applicability of Section 77 of CGST Act. The Court has differed from Kerala High Court [2018-VIL-508-KER] on this issue which directed such adjustment by transferring the tax paid under wrong heads to the correct heads. However, the Court opted to follow Jharkhand High Court order in Shree Nanak Ferro Alloys [2020-VIL-30-JHR]. It held that issuing direction to adjust such tax paid would amount to adopting procedure which is not provided under the statute and it would be going beyond the law. It directed the petitioner to comply with notice and pay the right type of tax (CGST plus SGST in this case) and then claim refund of tax paid as IGST [2022-VIL-434-TEL].

 

The above case has been mentioned to highlight the need to be cautious while feeding data in ERP or other software used for GST. The petitioner is a major taxi aggregator and the issue appears to have arisen from keying in incorrect data resulting in payment of around Rs. 6 crores under the wrong head of tax.

 

Interest on loan based on credit card - GST is not exempted

GST was included along with interest collected on EMIs relating to loan obtained using credit card. The borrower was before High Court arguing that exemption under Notification No. 9/2017-Integrated Tax (Rate) would be admissible and sought direction to refund IGST collected by the bank. While services by way of extending loans where consideration is interest is exempted, it was contended that granting loan cannot be considered as credit card service only because EMI is indicated in card statement. The High Court noted that the loan offer was extended to only those holding credit card and various factors like criteria for processing the loan, manner of reflecting EMI in credit card statement, charging of interest in case of shortfall in payment of amount due and mode of payment proved that the service pertains to credit card. The Court pointed out that the relevant exemption entry excludes interest on credit card services. It held that extending loan in this case is covered under credit card service and the interest component is, therefore, not covered under exemption [2022-VIL-432-CAL]. The general perception is interest on loan against credit card is much higher but there are card holders who are prepared to spend even more by entering into litigation when the exemption entry is unambiguous.

 

Recovery in excess of pre-deposit is not sustainable

Tax department is famed for providing surprises to taxpayers. Adjudication order was passed in 2012 but order was not served on the taxpayer. In 2014, the taxpayer voluntarily enquired as to the status of the case for which they attended personal hearing in 2012. The department informed them that the order had already been passed in 2012. Then, from 2014 to 2021, for seven years, there was no action but in 2021, the department sanctioned refund and adjusted the same from the dues as claimed as pending since 2012. The taxpayer had no option but to knock the doors of the High Court. Before the High Court, the department could not produce any proof for dispatch of the adjudication order of 2012. The Court held that the department cannot advantage of its own wrong and failure to produce document for proof of service of order and for sleeping over the demand for over 7 years. It took note of the attempts by the taxpayer to get copy of the order in 2014 which did not yield any result. In the meanwhile appeal was filed by making statutory pre-deposit and therefore, the High Court held that recovery of amount over and above such pre-deposit is not sustainable. It ordered the department to lift attachment of bank account and also directed that the appeal be decided expeditiously [2022-VIL-448-CAL-CE].

 

The above case reveals a very sorry state of affairs. The taxpayer is stated as paying duty / tax of Rs. 700 crore to Rs. 1000 crore per annum and the treatment given by the tax department to such taxpayer is as above. It needs no imagination about the treatment smaller and medium size taxpayers will get in the hands of the department. While lack of accountability is generally perceived as a reason for shortcomings in public administration, fixing accountability is sometimes selective and the exercise is finding out scapegoats as those in higher echelons always come out without any blemish.

 

Time-limit not applicable to refund of service tax claimed after GST implementation

CESTAT has held that refund of service tax claimed is not hit by limitation under Section 11B of Central Excise Act, 1944 as per Section 142(5) of CGST Act. Tax was paid under reverse charge in this case on import of service but the contract was cancelled and services were not received and therefore, service tax paid was claimed as refund. Refund claim filed in January, 2019 was rejected by the department on the ground that the same was filed beyond the time period prescribed. The Tribunal held that the contract was cancelled in August, 2018 and the appellant could not be expected to claim refund within one year from the date of payment of tax in June, 2017 [2022-VIL-469-CESTAT-CHE-ST]. A similar order has been reported by VIL which pertains to consequential refund of amount paid as excise duty based on order in favour of the taxpayer. In this case also, refund was rejected on time-bar but the Tribunal ordered refund along with interest [2022-VIL-471-CESTAT-DEL-CE].

 

Section 142(5) of CGST Act is clear in so far as refund claims pertaining to the earlier period are concerned - they shall be paid in cash, disposal will be as per the earlier law and limitation shall not be applicable. It seems only because refund is involved, such claims are being rejected and department ventures into avoidable litigation. The officer can play safe at the time of sanctioning refund that the same is being granted to comply with Tribunal / Court's order.

 

First appellate authority not competent to change classification at appellate stage

An order on Customs classification of imported fertilizer reiterates the proposition that the first appellate authority is not competent to change the classification at the appellate stage by proposing an altogether new heading. In this case, fertilizer was imported after obtaining necessary permission and classifying it as "other fertilizer" under tariff item 3105 90 90. But the department based on zinc being predominant as micronutrient classified it as plant growth regulator under tariff item 3808 93 40. However, the first appellate authority held that the goods were not classifiable under either of the above but under tariff item 3824 90 90 as "chemical products not elsewhere defined". The Tribunal held that both the authorities who passed the orders went by quantum of nitrogen present without ascertaining whether it conforms to "products of a kind used as fertilizers" as provided in relevant chapter notes whereby use is emphasized. The appellate authority was directed to decide the issue afresh. This order is briefly mentioned in this column as in GST regime also, customs classification is adopted as the basis and all such decisions will be directly applicable if same products are involved under GST [2022-VIL-472-CESTAT-MUM-CU]

 

 

(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)