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Tax Vista Your weekly tax recap Edn. 117 - 12th Sep 2022 By Dr. G. Gokul Kishore |
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Transitional credit window from 1st October - CBIC issues guidelines
Following Supreme Court's order to open GST portal to allow taxpayers to file TRAN-1 / TRAN-2 form or revise the form filed earlier [2022-VIL-38-SC], CBIC has issued Circular No. 180/12/2022-GST dated 9-9-2022 providing guidelines for filing/processing transitional credit claims when the GST portal opens on 1st October to accept such forms. Taxpayers will be given the facility to download the form filed earlier and they shall upload Annexure A with details filled up when they file TRAN-1 form now. For TRAN-2, one consolidated form is sufficient. Being a one-time opportunity, CBIC states that utmost care be taken before pressing the "Submit" button as the form cannot be revised subsequently. After such "Submit", "File" button should be used to file the same. It is not known why such two processes are prescribed. This time, the credit will be subject to verification, hearing and passing of order.
GST Portal will issue detailed advisory on filing / revising process separately. A circular without providing ground for further dispute is not a circular at all. This circular states that if transitional credit has been already rejected fully or partially, then appeal process should be followed and not file fresh TRAN-1 form. There is no clarity as to whether this will cover cases where appeal has not been filed against rejection and where notices are pending adjudication. There is a huge number of such cases where notices are pending. If the intention is to give finality to the dispute, then all such cases should be covered.
Refund due to inverted tax structure - High Court directs retrospective application of circular
Tax department takes every effort to ensure that law is interpreted in a manner that refund claims are rejected. One such issue is refund arising out of inverted tax structure when the inward supply and outward supply are same i.e. the goods are traded. CBIC had, without legal basis, clarified by circular dated 31-3-2020 that refund in such cases would not be available. The legal vulnerability of this clarification pertained to emphasis on time factor - if the goods bought are sold after some time, then because of change in tax rate, the situation may become inverted but the same would not afford the taxpayer to claim any refund. To partially rectify the defect, the relevant para of this circular was substituted recently by Circular No. 173 dated 6-7-2022 and the clarification now states that refund will be available if the outward supply of the same goods is made under concessional rate of tax as provided in exemption notification.
The circular as issued earlier was faithfully applied by GST authorities to reject refund - both adjudicating and appellate authorities and the taxpayer was before the High Court. In the High Court, the above position was brought to the notice of the Court. The department argued that the clarification was not retrospectively applicable. The Court did not agree. It held that the circular being clarificatory, will have effect from the date when the previous circular came into effect. This means, taxpayer can rely on the amendment for the refund claims of the earlier periods. The Court directed the authorities to reconsider the refund claim taking into account the amended circular. High Courts are rendering great service to taxpayers by admitting writ petitions in such cases and also providing relief [2022-VIL-622-TEL].
Detention without issuing order and notice within time is not sustainable
If taxpayers wish that the goods sent by road should not be intercepted by roving squad of SGST officers, then they should pray God. Their prayer may be answered through High Courts and therefore, they should keep writ petition also ready so that the same is filed, advocate is engaged, the matter is got listed and the goods are got released when the patent illegality of the action of officers is brought to the attention of the Court.
In a recent order, the Madras High Court clearly brings out the various lapses in detaining the conveyance containing life-saving drugs cleared from Customs. The action is by ever-vigilant roving squad and neither detention order nor show cause notice was issued. CBIC's circular was stated by the department as not having statutory force and the timelines indicated in such circular need not be followed. The High Court rejected all such contentions and ordered release of the detained goods. The cruel part of this detention is the basis - the officer suspected that the goods might be unloaded in an unregistered place. Unleashing such officers on the road at midnight and detaining life-saving drugs are avoidable in the least. The statutory provisions conferring such powers should be re-visited and amended to provide sufficient safeguards to taxpayers as the experience shows gross misuse, hampering business [2022-VIL-614-MAD].
Detention of goods and vehicle - Transporter can seek release of vehicle only and not goods
As detention of goods and vehicle is the order of the day in GST, such disputes dominate in High Courts also. Interpretation of Section 129 of CGST Act comes into picture very often. In a probably first of its kind argument and decision, the transporter pleaded that along with vehicle, he is entitled to seek release of goods also. The High Court held that Section 129(1) and Section 129(6) deal with owner or person transporting the goods which means owner's agent or representative and it does not refer to transporter. The proviso confers the right on the transporter to seek release of conveyance only and not the goods detained / seized. It is not clear why the transporter was interested in release of goods also in this case. Placing reliance on precedent judgment, the High Court further held that appellate authority may consider release request though there is no power expressly provided to such authority to grant interim relief. Another question posed was whether goods get automatically released on payment of pre-deposit of 25% of penalty and the same was not agreed with by the Court [2022-VIL-618-MAD].
The above case points to certain possible changes in commercial terms between consignor / consignee and the transporter. If the vehicle gets detained and the transporter suffers loss of business, then he may seek to indemnify himself. The consignor booking the carriage may have to bear more risk in future.
Transition of credit by ISD - High Court permits filing revised TRAN-1
The Supreme Court's order directing opening of GST portal to allow taxpayers to file Form TRAN-1 / TRAN-2 for claiming transitional credit has given a new lease of life to many pending issues. In a recent case, the Bombay High Court was dealing with challenge to show cause notice seeking reversal of credit on the ground that it was transitioned by input service distributor (ISD) under service tax regime to ISD under GST regime. It is not clear whether this is the fact but such objection by the department has been recorded by the Court. The department further argued that migration of ISD from earlier law to GST regime is not allowed. The amount involved is more than Rs. 13 crores. The High Court noted that there is no dispute as to eligibility to credit and the issue is with respect to procedure for transition. It held that such issues arose because of ambiguity prevalent in the initial years. Following Supreme Court's order on opening of GST portal [UOI v. Filco Trade Centre - 2022-VIL-38-SC], the High Court directed the department to open the portal and allow filing of revised TRAN-1 form to regularize the credit distributed already. It appears that the disputes relating to transitional credit will not vanish soon and will linger on for a few more years [2022-VIL-611-BOM].
VAT department is secured creditor under IBC - Tax dues rank on par with dues of other such creditors
The NCLAT had held that the VAT department is not a secured creditor and it cannot claim first charge over property of the taxpayer (corporate debtor) as the provision in Gujarat VAT Act providing for such first charge will not prevail over the provisions of Insolvency and Bankruptcy Code (IBC). The department was in appeal before the Supreme Court and the Court accepted that the statutory charge created under VAT Act is covered under "security interest" and the State will be treated as secured creditor. Based on such view, it held that there was no question of VAT Act overriding IBC or vice versa as the State being a secured creditor will rank with other specified dues like workmen's dues. Though there are several observations on the method by which resolution plan was approved / finalized, the above finding is set to create fresh demands from tax department when the company is under resolution / liquidation. It is fairly settled by now that there is no concept of priority of Crown debt or sovereign debt now and the government stands last in the queue for collecting its dues as per IBC provisions. This position seems to have been altered now [2022-VIL-66-SC].
Appeal against advance ruling - Interpreting SC order on extension of time to reject appeal
Appeal against advance ruling can be filed within 30 days and the Appellate Authority is empowered to condone delay of 30 more days. An appeal filed beyond such time was not accepted by the Appellate Authority for Advance Ruling after rejecting the plea to apply Supreme Court's order on extension of time-limit due to Covid-19. The AAAR held that the extension of 90 days granted by the Apex Court is applicable to only in cases where the time-limit had expired between 15-3-2020 and 28-2-2022. It held that in the case before it, the time-limit for filing appeal was over on 21-3-2022 which is after the period covered by the SC order. Interpreting the SC order, the AAAR observed that the Supreme Court cannot render a provision otiose and therefore, the time-limit as per CGST Act will continue to prevail with the exception that the 30 days time will be computed from 1-3-2022. It refused to apply the 90 days time granted by the Apex Court. It needs to be seen whether this order will stand if challenged in the High Court. In several cases, departmental authorities are placing different interpretation on the SC order to reject its applicability and CBIC may well issue a clarification which will be legally well-grounded before the disputes on such procedural issue flood the High Courts [2022-VIL-74-AAAR].
(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 Ed. (Feb 2022) and 16th Ed. (Aug 2022). E-mail: gokulkishore@gmail.com)