Tax Vista Your weekly tax recap Edn. 113 - 15th Aug 2022 By Dr. G. Gokul Kishore

 

 

Cancellation of registration by untrained officers - High Court imposes costs

In this column, the need for appropriate training in quasi-judicial functions for GST authorities is often emphasized. In particular, when orders relating to suspension and cancellation of registration are discussed, the incapacity of SGST officers is highlighted. The Allahabad High Court has noted such lack of training in a recent order relating to cancellation of GST registration. It has stressed that the government should give quasi-judicial functions to persons with judicially trained mind. The show cause notice issued has been criticized as evidencing lack of judicial training of quasi-judicial authorities under GST law.

 

The case relates to cancellation of registration on the allegation that no business activity was carried on in the specified premises but such charge was absent in the show cause notice. The SCN was vague and did not refer to any spot inspection either and merely said satisfactory explanation was not received from the taxpayer. The High Court held that cancellation of registration has serious consequence affecting the fundamental right to carry business. The order was equally lacking any reason. The taxpayer had requested for time due to marriage of his daughter but for no reason, the same was not considered and the authority proceeded to pass the order. The Court termed the order as height of arbitrariness and discloses non-application of mind by the authority. The appellate authority also did not consider the explanation offered / evidence produced. The Court ordered restoration of registration.

 

The High Court imposed costs of Rs. 50,000 on the State Government to be paid to the taxpayer for harassment. It has held - "In the present case, the arbitrary exercise of power cancelling the registration in the manner in which it has been done has not only adversely affected the petitioner, but has also adversely affected the revenues that could have flown to the coffers of GST in case the petitioner was permitted to carry out the commercial activities. The actions are clearly not in consonance with the ease of doing business, which is being promoted at all levels. For the manner in which the petitioner has been harassed since 20.05.2020, the State Government is liable to pay a cost of Rs.50,000/- to the petitioner." [2022-VIL-550-ALH].

 

Number of cases where the Courts are imposing costs is on the rise. The government may need to have separate budgetary allocation to fund such costs. It seems, in several States, the tax administration from top echelons to the field formations, has been high-handed, ignorant, arrogant and sometimes, nonchalant. One of the best reforms of recent times - GST - will be a failure only because the implementing machinery lacks the required skills and mindset.

 

Imposing penalty equal to tax under Section 73 - Non-application of mind by officer

Quasi-judicial proceedings have been reduced to mediocre administrative action. Like in several other reported cases, show cause notice was issued in the standard format without striking out the non-relevant portions and adjudication order was never uploaded / served. To cap it all, for show cause notice issued under normal period of limitation under Section 73 of CGST Act, 100% penalty has been imposed on the taxpayer. Section 73(9) provides for penalty upto 10% of tax amount only. The High Court has held that the infirmity shows non-application of mind by the Deputy Commissioner. The petition filed by the taxpayer was allowed by quashing the SCN and summary of order. The department has been given liberty to undertake fresh proceedings. Proceedings will certainly be initiated in this case as the issue involved is ITC mismatch between GSTR-2A and GSTR-3B [2022-VIL-555-JHR].

 

When an officer of the rank of Deputy Commissioner commits such blunders, he should be taken to task. First, he should not be assigned adjudication related responsibilities. Secondly, he should be issued with notice as part of disciplinary proceedings in the department proposing minor penalty for not issuing / ensuring service of adjudication order. Assuming the officer had passed an order, not uploading the same in the GST portal or not serving the same otherwise on the taxpayer indicates dereliction of duty. Unless some kind of threat of departmental action is perceived, the system will go unchecked adding to the mistrust and consequent non-compliance by even genuine taxpayers.

 

Power to search vehicle used for inspecting godown - HC directs inquiry against officers

If the department does not take action against erring officers, then the Court will step in. In another order reported by VIL last week, the High Court has held that the erring Assistant Commissioners are accountable and directed communication of the order to Commissioner to call for explanation and take appropriate action commensurate to misconduct (if any) and to take corrective action to avoid such occurrences in future. The blunder committed was that two Assistant Commissioners imposed penalty on the same transaction and passed two orders against which appeals were also dismissed. The orders were passed under Section 129(3) of UPGST Act which deals with issuance of notice and passing of order in respect of goods and / or vehicle detained / seized. The goods in this case were found in the godown for which powers under Section 67 on inspection and search should have been exercised and Section 129 is not invocable. The High Court noted that such illegality is apparent on the face of the record and the officers closed their eyes and description as to vehicle number was given by them deliberately. The orders were set aside and the department was directed to refund the amount paid along with interest [2022-VIL-559-ALH].

 

Interest on delayed refund - Supreme Court order on time extension is not applicable

High Courts are not only courts of equity and justice but also the Constitutional Courts to interpret law authoritatively. Section 56 of CGST Act mandates payment of interest if refund has been ordered but not granted within 60 days of receipt of application. Due to Covid, Supreme Court extended time-limits for various compliances and action to be taken by officers. This has been relied on by the department to argue that interest on delayed refund is not payable as the time for grant of refund stood extended by such directions of the Apex Court. The Delhi High Court did not agree. It held that such order (and another order of High Court cited by department) did not deal with grant of interest withheld beyond the period prescribed under CGST Act and therefore, they would not be applicable. It said that statutory interest provided in Section 56 is a compensation for use of money and the department could not have retained the money (refund) beyond 60 days [2022-VIL-561-DEL]. Obtaining refund is the first round of litigation generally and the dispute over interest is the second round and in most cases, third round of litigation pertains to unjust enrichment. May be, this is why some taxpayers opt not to pay - instead of allowing government to retain its money, enjoying tax money till the time they are caught is seen as a prudent option.

 

Penalty not imposable for mere e-way bill expiry when evasion is not alleged / proved

E-way bill expiry is seen as a major area of revenue leakage by GST authorities. Even when tax invoice and other documents including e-way bill are in order, mere expiry of validity of e-way bill by few hours is sufficient ground for imposing penalty, according to the department. It is now getting fairly settled in GST law that penalty is not imposable only because e-way bill had expired and the onus is on the GST authorities to prove there was fraudulent intent to evade. If the department is not able to substantiate such intent, then penalty cannot be imposed. This has been reiterated in a recent case by Madhya Pradesh High Court.

 

In this case, the vehicle reached the destination before expiry of e-way bill but when the same went to weigh bridge, at 4.35 am in the morning, GST authorities detained the vehicle and found that e-way bill had expired at 12 am midnight. The taxpayer was before the High Court assailing the order imposing penalty when evasion was not alleged and no defect was found in other documents. The High Court held that delay of few hours was bona fide and without establishing fraudulent intent and negligence, penalty could not have been imposed. It set aside the same. The taxpayer produced several documents including those to prove that the vehicle developed certain problem and it went for repair. The High Court also emphasized that for such minor breaches, doctrine of proportionality would be applicable. As repeatedly noted in this column, it is because of High Courts and the Supreme Court, taxpayers get justice as otherwise, it will be the anarchy of tax administration breathing down the neck of taxpayers [2022-VIL-562-MP].

 

Liquidated damages - Service tax liability can be decided based on GST Circular

Recently, on 3rd August, 2022, CBIC issued Circular No. 178/10/2022-GST clarifying GST inapplicability in respect of various types of compensation like liquidated damages recovered for breach of terms of contract. This clarification was issued interpreting entry in Schedule-II of CGST Act on agreeing to the obligation to tolerate an act or refrain from act or situation. CESTAT while passing order in a case relating to service tax demand on liquidated damages has directed the adjudicating authority to decide the case in the light of this circular. Though the circular is under GST law, the Tribunal has noted that the entry in both the laws are identical - declared services under Finance Act, 1994 and the entry in Schedule-II of CGST Act on agreeing to the obligation to tolerate. The Tribunal could have decided the issue based on precedent rulings where it has held that such damages are not liable to service tax. Nevertheless, this order will be useful to taxpayers facing service tax disputes to rely on GST circulars wherever the provisions are identical or similar. But then, there is no guarantee that the adjudicating authority will accept the same as the tendency is to somehow distinguish and hold them as inapplicable [2022-VIL-584-CESTAT-AHM-ST].

 

Airlines mandated to share PNR data with Customs authorities

Passenger Name Record Information Regulations, 2022 is the latest addition to the statute book in so far as Customs is concerned but it has evoked widespread media attention. Airlines are required to share PNR data of international passengers who depart from India at least twenty four hours before such departure. The regulation itself declares the objective as prevention, detection, investigation and prosecution for offences under Customs law and also to share such information with other law enforcement agencies / government departments. The latter objective is no surprise as these days, inter-departmental data sharing between government departments has become a norm.

 

Section 157 of Customs Act, 1962 empowering the government to frame rules was amended by Finance Act, 2017 to include such power to seek PNR data and the same has been implemented now. It appears that extensive consultation was the reason for the time taken to implement as bodies like IATA has also reportedly welcomed these regulations. PNR data includes credit card information used by the passenger to book the ticket, passport number, frequent flyer information, etc. The data can be retained by Customs for five years. Penalty upto Rs. 50,000 for non-compliance by airlines has been prescribed. Annual system audit and security audit will be conducted by senior officer to prevent misuse of PNR information. The regulations do not provide for any safeguard for the passenger or the airlines if there is any concern on their part.

 

 

(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)