Tax Vista Your weekly tax recap Edn. 108 - 11th July 2022 By Dr. G. Gokul Kishore

 

 

Notifications and circulars issued to implement GST Council's decisions 

GST Council meeting was held on 28 and 29 June, 2022 and some of the major recommendations made were briefly analysed in Tax Vista last week. Within a week, the government has come out with some of the notifications also. On 6th July, CBIC has issued seven circulars intended to clarify various issues.

 

Taxpayers having turnover upto Rs. 2 Crores have been exempted from filing annual return for the financial year 2021-22 as per Notification No. 10/2022-Central Tax dated 5-7-2022. For composition taxpayers, the due date of filing CMP-08 for the quarter ending June, 2022 has been extended till 31-7-2022 by Notification No. 11/2022-Central Tax dated 5-7-2022. Also, for such taxpayers, by Notification No. 12/2022-Central Tax, late fee for delay in filing GSTR-4 for FY 2021-22 has been waived till 28-7-2022.

 

A significant change relates to retrospective extension of time-limit for issuing adjudication order under Section 73 in respect of FY 2017-18 till 30-9-2023 (and therefore, for SCN also as noted last week). Notification No. 13/2022-Central Tax issued for this purpose has been given effect from 1-3-2020. There are a few more notifications which are not mentioned here.

 

One of the most contentious issues relate to GST applicability on perquisites like canteen facility extended to employees by employer. Divergent practices, understanding, contradictory advance rulings, etc., rule the field now. It was expected that CBIC will issue a detailed clarification in this regard covering cases where recovery is made (nominal or otherwise), where recovery from salary is not made, where it is mandatory under any other law, etc., but Circular No. 172/04/2022-GST dated 6-7-2022 clarifies in a very miserly manner - perquisites provided as part of employment contract will not be liable to GST. While employers may ensure that the employment contract / offer letter / terms of engagement contain mention about all the facilities provided to employees, the issue of GST applicability on recoveries will remain an issue. A trade-friendly clarification is negation of the part of advance ruling in the case of Tata Motors [2021-VIL-316-AAR] which went into great interpretational expedition to restrict the applicability of clause relating to benefits being mandatory for employer to provide to employees for entitlement to ITC in respect of services like canteen. The circular clarifies that the proviso extending credit in such cases is applicable to all the services mentioned in the relevant clause. This circular contains certain other clarifications regarding deemed export refund, ITC restriction in respect of leasing of vehicles, etc. Without expressly clarifying that credit ledger can be used for payment of pre-deposit at the time of filing appeals, the circular clarifies that except for payment of output tax, credit ledger cannot be used for any other purpose.

 

A strange clarification is contained in Circular No. 171/03/2022-GST dated 6-7-2022. When a person merely issues invoice (fake invoice) without supplying goods, he will be liable to only penalty under Section 122 of CGST Act and no tax can be demanded under Section 74. In these cases, only if goods are involved, demand of tax can be made. However, the fine-print in this circular relates to launching of criminal prosecution in such cases.

 

Circular No. 173 clarifies that refund of accumulated ITC is available where the inputs and output goods are the same in a scenario where the output supplies are made under a notification providing for concessional rate of tax. In last week's Tax Vista, Rajasthan High Court judgment on this issue was analysed [2022-VIL-449-RAJ] and it was noted that CBIC should withdraw clarification to the contrary. Now, CBIC has amended the obnoxious para of the previous circular. Even now, the issue of claiming refund when input and output being the same remains.

 

Blocking of ITC - Reasons should be informed to taxpayer

Rule 86A of CGST Rules empowers the GST authorities to block credit ledger. If input tax credit is suspected as availed based on invoice from non-existent supplier or without receipt of goods, then such debit freeze can be ordered compelling the taxpayer to pay his liabilities using cash ledger alone. The Calcutta High Court has held that the taxpayer should be informed of the reasons based on which such action is taken and blocking ITC ledger without communicating the reasons is arbitrary and illegal. The Court has said that without knowing the reasons, the taxpayer cannot defend himself. This means such reasons can be shared after the order on blocking the credit ledger is passed. Rule 86A provides for recording of reasons in writing. However, it does not expressly provide for informing the taxpayer of such reasons. The provision is intended to be pre-emptive - to tackle evasion [2022-VIL-463-CAL].

 

ITC mismatch - High Court orders verification with both supplier and recipient

ITC related show cause notices based on scrutiny of returns are being issued by GST authorities. Mismatch between GSTR-1 and GSTR-3B and mismatch between GSTR-2B and GSTR-3B are being highlighted in these notices. A similar notice has been challenged in the Madras High Court but the Court did not interfere. However, it took note of circular / instructions issued under VAT on cross-checking with both the supplier and recipient in such cases. The Court then directed the GST department to take Section 42 of CGST Act into account and conduct inquiry with both the parties - seller and buyer and then pass order. Section 42 relates to matching of ITC - system-based matching which was not implemented. By Finance Act, 2022, this provision has been omitted as well. It is not clear why this was not pointed out to the Court [2022-VIL-453-MAD].

 

Taxpayers continue to bear the burden of incapacity of officers

Incapacity of some of the SGST officers is causing extreme hardship for the taxpayers. A simple case of refund of IGST paid on import of capital goods under EPCG Scheme was rejected citing poorly drafted grounds of claim having been filed beyond the prescribed period, incomplete documents, etc. The next day the taxpayer was called for personal hearing which could not be attended considering the short notice. A reply was filed by the taxpayer but the authority passed on order rejecting the claim on the ground of wrong availment of ITC. The High Court set aside the order for adopting a new ground not proposed in the show cause notice and directed the matter to be considered afresh. The refund amount is more than Rs. 1 crore and the claim pertained to the year 2017. Indian taxpayers should be awarded gallantry medals for bearing with such inefficient tax administration [2022-VIL-473-GUJ].

 

Another order proving the above has been reported by VIL last week. Summary of show cause notice was issued, reply was filed by taxpayer, order was passed without issuing proper show cause notice and surprisingly, rectification order was also passed. The Jharkhand High Court set aside such order following its own order on this issue holding that summary of SCN is not the show cause notice as mandated under Section 74 of JGST Act / CGST Act [2022-VIL-471-JHR].

 

Toll charges reimbursed to transport operator includible in taxable value

In this column, the need to amend Section 15 of CGST Act has been emphasized multiple times. Tax provision can be pro-revenue but it cannot be extremely anti-taxpayer. In an advance ruling, it has been held that toll charges reimbursed by the service recipient to the service provider giving vehicles for transport of employees of companies are liable to be included in the value of services of such renting of transport vehicles. The taxpayer argued in vain that as per Notification No. 12/2017-Central Tax (Rate), service by way of access to road / bridge on payment of toll charges is exempted and such entry should not be given narrow interpretation. The Authority for Advance Ruling (AAR) noted that the applicant is not providing service of giving access to road on payment of toll charges and this exemption is meant only when such service is provided. The AAR relied on Section 15 and held that incidental charges are includible in taxable value and toll charges are covered under such head. Unless statutory reimbursements are treated differently, all the taxes, levies, fees, charges, etc., will be liable to GST. The government may get more revenue by levying tax on tax but then it cannot call GST as a good tax [2022-VIL-180-AAR].

 

Input tax credit on demo vehicles available

The story of availability of input tax credit on vehicles which are used for demonstration purpose (demo cars) continues. Advance rulings on this issue have not been unanimous though a majority of them hold that ITC would be admissible. In a simple and straight forward ruling, the West Bengal AAR has held that ITC is barred on motor vehicles except when they are used for specified purpose of further supply of such vehicles, use for imparting training or transportation of passengers. While the demo cars are not covered under other exclusions, the AAR holds that such vehicles are purchased by the dealers with the specific condition that they will be used for test drive purpose for prescribed period after which they will be sold. The ruling holds that "such" used in this provision means the vehicles which were purchased. This is a benign interpretation as in certain other ruling, it was held that the vehicle sold after use is not "such vehicle". Though India may have a common GST law, taxpayers should count on their stars also when they go for such rulings [2022-VIL-176-AAR].

 

Non-mention of exact model of imported goods is not mis-declaration when capacity disclosed in documents

Customs department alleged that failure to mention the letter "E" or the word "Evolution" amounted to mis-declaration of imported goods and therefore, held the importer as guilty of under-valuation. CESTAT did not agree. It held that mere non-mentioning of such letter or word would not constitute suppression of material fact when the capacity of the motors was mentioned in the bill of entry. The goods involved was yacht in which the difference between the price quoted initially and the price at which it was imported was substantial and therefore, the Customs department alleged there was collusion between the foreign exporter and the importer in India. This too was rejected by the Tribunal. The inference drawn by the adjudicating authority that the value declared was based on the price of lower model whereas the goods imported was of higher model was held as incorrect by the Tribunal on the ground that the higher capacity of motors was mentioned in purchase order as well. Rejection of declared value was held as not sustainable when the price was the actual consideration paid through normal banking channel and parties were not related and application of Rule 12 of Customs Valuation Rules was not correct.

 

Discarding of oral negotiations cited as reason for discount / reduced price was also not approved. Slump in the yacht market as pointed out by the importer was accepted by the Tribunal. Despite the enormous body of jurisprudence on customs valuation, the department pursues cases diligently without any tangible evidence but based on strong suspicion. This eventually leads to loss of case and face before the courts [2022-VIL-494-CESTAT-MUM-CU]

 

Acceptance of value as enhanced by Customs forecloses opportunity to assail value later

The title is by the author and CESTAT did not say so in so many words. But the conclusion is obvious. It is now fairly settled that once the importer accepts rejection of declared value and accepts the value as enhanced by the Customs authorities and waives the right to notice and order, the enhanced value cannot be challenged later in appeal. This has been reiterated by CESTAT in a recent case after holding the finding of Commissioner (Appeals) while allowing appeals by the importers as perverse. The Commissioner (Appeals) had held in favour of importers holding that obligation cast on the department to pass speaking order disclosing grounds was not fulfilled in this case. The Tribunal set aside this order and allowed department's appeals. It noted that the importers wrote to Customs specifically requesting for waiver of personal hearing. It also took note of the rulings holding that consented value becomes the transaction value when the importer accepts loading and the department is not required to further investigate the value after such acceptance. The practice of getting the goods cleared and subsequently submitting letter seeking speaking order has been deprecated by the Tribunal in this order [2022-VIL-492-CESTAT-DEL-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)