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Tax Vista Your weekly tax recap Edn. 110 - 25th July 2022 By Dr. G. Gokul Kishore |
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Transitional credit can be claimed by all taxpayers - Supreme Court directs opening of portal for two months
The Supreme Court has directed GSTN to open the GST portal to enable taxpayers to file TRAN-1 and TRAN-2 forms for claiming transitional credit. The window will be available for two months from 1st September to 31st October, 2022. It has further directed that any aggrieved taxpayer may file or revise the already filed form whether or not he / she has filed writ petition before High Court and whether or not the case has been decided by IT Grievance Redressal Committee. The department has been given time of 90 days to verify the claim and pass orders on merits after granting reasonable opportunity to taxpayers. The Apex Court has not expressly stated the opportunity to be a hearing but it may include the same. After verification and passing of order, the transitional credit is to be reflected in the electronic credit ledger of respective taxpayers [2022-VIL-38-SC].
This author, in this column and in other articles, has repeatedly appealed for one time opportunity to all taxpayers considering the huge litigation and mis-trust that the issue of transitional credit has created so far. Prescribing time-limit of a few months when the GST portal was trying to crawl and when taxpayers were struggling to come to grips with the new tax system was not at all the proper manner of implementing such scheme. The credits which were available in the ledgers / books in the pre-GST regime cannot disappear only because the decision to implement GST was taken. The provision on transitional credit is salutary but the manner of implementation has been chaotic. Present order of the Apex Court should provide a great relief to harassed taxpayers and put an end to several pending litigation.
HC sets aside CBIC Circular negating GST exemption to annuity paid for road construction
GST is exempted in respect of service provided by way of access to road or bridge where consideration received is toll charges from users. When private parties take up such projects, instead of toll charges, the highways authority pays them in the form of annuity which is deferred payment for construction and maintenance. CBIC issued Circular No.150/06/2021-GST dated 17-6-2021 clarifying that annuity paid in such cases is not exempted since what is exempted is the service of access to road or bridge and not service of construction. The Karnataka High Court has set aside this circular on the ground that it overrides exemption granted through notifications treating annuity on par with toll charges and exempting both.
The Court took note of the fact that GST Council in its 22nd meeting had recommended exemption to annuity received as consideration for construction and maintenance of road and notifications were issued to implement the same. However, "for reasons best known to it", the GST Council in the 43rd meeting recommended issuance of clarification that exemption would not be available to annuity payments as is admissible to toll charges. The circular was issued consequent to such recommendation of the GST Council. The High Court held that annuity is paid to concessionaires in lieu of toll charges and the circular is contrary to notifications and cannot stand. The way to deny exemption would be to issue fresh notification and it cannot be done through a circular [2022-VIL-500-KAR].
It is not known as to why such note was placed before GST Council to deny exemption only based on difference in mode of payment when the project and purpose remain the same. Whether the government pays the concessionaire or allows it to recoup from users, the project remains highway construction and maintenance and purpose is to encourage private participation where resources are hard to come by and the gestation period is fairly long. All exemption entries intended to provide impetus to infrastructure sector should be examined for refining them so that the objectives are not lost. These are days of pruning exemptions and levying tax on basic necessities like rice and pulses. The government will consider infra sector as not deserving any tax concession - this is evident from hike in the GST rate for works contract services in several cases.
CBIC Circular prescribing time-limit for amendment to shipping bills is illegal
The last week saw a portion of another circular being held as illegal. Drawback shipping bills was sought to be converted into Advance Authorization shipping bills. Amendment was sought under Section 149 of Customs Act but the request rejected on the ground of time-bar in respect of five shipping bills and one on the ground of absence of evidence. CBIC's Circular No. 36/2010-Customs dated 23-9-2010 empowering the Commissioner to allow conversion and the same to be made within three months from the date of LEO was relied on by the department. The Bombay High Court held that when Section 149 does not prescribe any time-limit, such a circular could not have been issued by CBIC prescribing three months time to request for amending shipping bills. It held that the act of laying down time-limit was without jurisdiction and illegal. The Court directed the Customs authorities to consider the request without raising the issue of time-limit [2022-VIL-504-BOM-HC].
Amendments to documents and interpretation of Section 149 have been subject of intense controversy and litigation. As the changes sought have revenue implications, the provisions are interpreted in a rigid manner by the department. In this process, genuine pleas also get the same treatment as suspicious ones.
Rejection of registration request without reason is not sustainable
Obtaining registration under GST is not so simple at least in certain cases as a recent order of Madras High Court reveals. If the documents submitted online for registration are not sufficient or if there is any further verification required, GST authorities may conduct physical verification by visiting the premises. In this case, after such physical verification, proof of principal place of business was stated as not uploaded which was then submitted online. However, as usual, without assigning any reason, the application for registration was rejected. The applicant had to seek the intervention of the High Court. Before the Court, the department argued that the rule uses "may" and therefore, discretion is with the authority to assign reasons. The High Court rejected such argument and held that "may" refers to discretion to reject and "not to blatantly violate the principles of natural justice." Assigning reasons in case of rejection is a must, as per the order. The Court directed the authority to hear the petitioner and then take action on application for registration [2022-VIL-502-MAD].
Generally, taxpayers adopt a view and practice which may be different from that of the department. This gives rise to dispute and litigation. But in this case, even before the person concerned became the "taxpayer", they had to unfortunately face dispute. In tax law, litigation starts even if a person is not an assessee.
Continuous interrogation without arrest - High Court directs issuance of directions
An elaborate order with copious details of facts, jurisprudence and arguments relating to arrest and alleged illegal detention by GST authorities on the charge of floating fictious firms and evading GST of enormous proportion has been reported by VIL last week. Such order does not lend itself to full-fledged discussion in a column of this nature. But the fact is disturbing - the person concerned (tax consultant) was interrogated and statement recorded for almost five days in GST office and family members were not allowed to meet him. Because the family members became suspicious, habeas corpus petition was filed in High Court so that the person concerned is produced in the Court. After five days, the person was formally arrested and remanded.
The High Court noted the lapses by the GST authorities as admitted by the departmental counsel and directed that "there be an inquiry conducted by the highest officer of the State under the GST regime, to pinpoint as to whether such defect of continuous interrogation is deliberate in any manner or is in complete ignorance of law and whether in that circumstance, is there a need of continuous education to strengthen the system." It also directed issuance of procedural guidelines to deal with persons who are suspected of evasion and eventually arrested. The petitioner did not challenge arrest as such in this petition and therefore, was relegated to appropriate court for remedy [2022-VIL-499-GUJ].
Social media posts as evidence of GST liability
Social media postings may lead to serious consequences as an order of Andhra High Court reveals. GST authorities gathered some information from Facebook and other social media postings by the petitioner and demanded tax of more than Rs. 70 lakhs. The petitioner who is engaged in event management argued that due to pandemic, events were not conducted and the media postings were given for publicity and business development. The High Court was not impressed and rejected the petition and directing them to advance their arguments before the Appellate Authority. The Court found prima facie merit in the contention of the department as the event date, event name, amount involved, etc., were provided which probably made it difficult to believe that no event was conducted. This order is not in favour of taxpayer and does not contain any ratio but it is mentioned in this column to highlight that sharing business details in social media should be resorted to only if it is absolutely necessary. Tax department relies on information posted in website of taxpayers also and it is for the taxpayers to disprove the claims made in their portal as not true. This is about private limited companies and the published financial reports are anyway relied on wherever they are available or sought from taxpayers [2022-VIL-493-AP].
Fuel supplied on FOC basis by recipient not includible in taxable value for GST
Advance rulings, sometimes, do provide good guidance. One of the most contentious issues relates to inclusions in taxable value as valuation is traditionally an area where tax authorities and taxpayers never have an agreement. In GST regime, inclusion of cost of fuel (diesel) provided by service recipient to the service provider who lends the vehicle, is not free from doubt and divergent rulings have been pronounced. But in a ruling with remarkable clarity, the AAR has held that value of diesel filled free of cost (FOC) by service recipient is not includible in the value of GTA service as provision of fuel is not within the scope of the service provider (GTA) in terms of the contract. The contract / agreement specifically made it clear that the responsibility of fuel will be that of the service recipient. The applicant also pointed out the legislative intention by comparing model GST law provision with the present Section 15 of CGST Act as the former had contemplated inclusion of FOC supplies while the latter seeks to include only those which the supplier is liable to pay but recipient has incurred / paid. Pre-GST jurisprudence has also been relied on to arrive at such conclusion. Surprisingly, the department had also concurred with the view of the applicant [2022-VIL-206-AAR].
Drafting of contracts is key as it is the document ultimately used to decipher the roles and responsibilities of parties. If the law seeks to cast liability in a particular situation and such situation is expressly excluded in the terms of the contract, then liability does not arise. In the above case, Section 15(2)(b) of CGST Act intends to include only those expenses which the supplier is liable to pay in relation to the supply but has been incurred by the recipient. If the supplier is not contractually liable to pay and the same is within the scope of service recipient, then this provision may not be attracted.
Covid vaccination is sale of goods liable to 5% GST
Administration of vaccine for Covid is liable to GST of 5% as per an advance ruling. The applicant argued that it is a composite supply involving both goods (vaccine and other consumables) and services and the same would be exempted when provided by hospitals under "healthcare services". According to the Authority for Advance Ruling (AAR), the supplies of goods and services are intrinsically connected with each other and it is viewed as a single package by the recipient but the main requirement is that of vaccine and therefore, supply of goods is the principal supply. Administration of vaccine by qualified personnel is the ancillary supply and the entire transaction will be subject to GST rate as applicable to sale of vaccine. Inpatient services are exempted under health care services while getting vaccinated cannot be considered as inpatient service, as per the ruling [2022-VIL-207-AAR]. Government is the largest purchaser of vaccine at this point of time and free supply to public is the predominant channel now. In so far as private hospitals are concerned, it seems the practice is not uniform.
Refund of PLA balance - Time-limit not applicable
It is fairly settled that unspent balance amount in personal ledger account (PLA) is liable to be refunded to the assessee. Relying on precedent decisions and Section 142(3) of CGST Act providing for refund in cash of amounts which become refundable under pre-GST laws, CESTAT has held that rejection of refund of unspent balance amount in PLA on the ground of refund claim having been filed beyond the prescribed time-limit under Section 11B of Central Excise Act, 1944 is not sustainable. The Tribunal had earlier held that PLA deposits are mere deposits in the nature of advance for utilization in future and the taxpayer is the owner entitled to refund if the amount could not be utilized and time-limit was not prescribed for such refund [2022-VIL-516-CESTAT-CHD-CE].
PLA is similar to the electronic cash ledger of GST regime and till the debit is made, the balance amount available in such account / ledger belongs to the taxpayer and he is fully entitled to get back the amount. The State has no right to retain such amounts. To set at rest such recurrent disputes under legacy laws, CBIC should issue instructions to field formations covering at least major issues which are settled long back but flogged by the department even today.
(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)