Tax Vista Your weekly tax recap Edn. 121 - 10th October 2022 By Dr. G. Gokul Kishore

 

 

Anti-evasion investigation not permissible when audit conducted for same period

In Tax Vista dated 26 September, 2022, an order passed by Single Judge Bench of Calcutta High Court [2022-VIL-647-CAL] was briefly analysed. In this order, the Bench had declined to interfere with the writ petition filed assailing conduct of proceedings by Anti-Evasion Branch of CGST Commissionerate while Audit Commissionerate had concluded audit for the same period. Now, in appeal, Division Bench has set aside this order providing relief to the taxpayer from such multiple / parallel proceedings. It appears from this order that the Range Office has also issued notice for the very same period. Before the Court, it has been stated that the other wings were not aware that audit has been conducted already. The High Court has expressed surprise over such statement in this era of electronic communication and has restrained the Anti-Evasion Branch and the Range Office from taking any action for the same financial years. It has also directed taking the proceedings initiated by Audit to logical conclusion [2022-VIL-682-CAL].

 

While those who evade are caught after several years and some of them are never traced, certain taxpayers have the misfortune of having repeated visits, inspection, scrutiny, audit, etc., by departmental officers. Filing of returns and refund claims may be online but the kind of physical verification right from registration to routine audit and DGGI investigations undertaken by officers not to speak of SGST officers on highways for midnight seizure for e-way bill infractions, has exposed the claim of least interface of tax administration with the taxpayers.

 

Pre-deposit through DRC-03 in Central Excise & Service Tax cases - HC directs CBIC to clear the confusion

Pre-deposit issue continues to occupy headlines for the second consecutive week. Last week, Bombay High Court's order directing acceptance of pre-deposit paid by way of debit to electronic credit ledger instead of compelling taxpayers to pay by cash was analysed in Tax Vista. This week, the same High Court, in another order, has directed CBIC to step in and issue instructions / guidelines on the issue of payment of pre-deposit for appeals in Central Excise or Service Tax cases. The Court has noted that some of the appellants are paying pre-deposit using DRC-03 form under CGST Act while some others are using challans as applicable to service tax payments. The confusion, according to the Court, seems to be because of absence of proper legal provision for pre-deposit through DRC-03 form in excise / service tax cases. It has directed the Commissioner (Appeals) to pass order afresh who had rejected the appeal on the ground of manner of making pre-deposit through DRC-03 form as not proper [2022-VIL-686-BOM-CE].

 

The order reveals that the Commissioner (Appeals) had written internally regarding lack of clarity on this issue and the Pr. Chief Commissioner has also addressed CBIC. While CBIC will issue a circular in compliance with the directions of the Court, it should also put in place mechanism so that appeals rejected on such minor procedural ground are restored and taxpayers are not compelled to approach High Courts. There is a good amount of confusion among the departmental officers also. While investigating agencies like DGGI accept payment of service tax dues through DRC-03 form, regular Commissionerates are forcing taxpayers to use challans. The issue becomes complicated when non-assessees are pushed to take registration under service tax only for payment of such pre-deposit and to keep their right to contest alive.

 

Providing assistance to destitute women is not supply and not liable to GST

In Tax Vista dated 22-11-2021, an advance ruling holding GST as liable to be paid for providing shelter to orphaned children and divorced women was discussed [2021-VIL-417-AAR] and we had faulted the exemption entry in Notification No. 12/2017-Central Tax (Rate) relating to charitable activities for poor drafting. In appeal, the Appellate Authority for Advance Ruling (AAAR) has set aside this ruling. The AAAR has held that the reimbursement received by the applicant-trust from government for running "One Stop Crises Centre" is not liable to GST as the activity of providing food, shelter, legal assistance, medical assistance, etc., to destitute women is not covered under supply. The appellate ruling holds that the amount received is in the form of subsidy and it is excluded from consideration as per GST law. Taking note of the activities, the ruling states -"the Appellant are being granted a fixed amount of money from the Government of Maharashtra under the "One stop crises Centre Scheme" for taking overall care of the destitute women who are litigating divorce, or homeless, or the victims of domestic violence. The said activities undertaken by the Appellant are clearly for the welfare of these destitute women, and thereby, serving the mankind in general. Hence, we are of the opinion that the said amount of money reimbursed by the government to the Appellant is nothing but subsidy as the entire money is being spent in the activities which are advantageous to the public."

 

As the AAAR ruled on the basis of the activity not satisfying the definition of supply, it opted to ignore applicability of exemption under Notification No. 12/2017-Central Tax (Rate). It has been consistently pleaded in this column that such exemption entries should be re-visited based on the experience gained in five years of implementation. The objective of the exemption is lost if the same does not reach the intended parties [2022-VIL-75-AAAR].

 

Canteen recovery as part of employment terms - AAR follows CBIC circular

Certain taxpayers are fortunate even in the legal sense. Application seeking advance ruling was filed in May, 2022 while CBIC issued Circular No. 172 on 6-7-2022 clarifying the issue of non-applicability of GST in respect of perquisites provided in terms of "contractual agreement" by employer to employee. The applicant had sought ruling on whether subsidized deduction made from employee's salary towards supply of food in factory canteen / corporate office would be treated as supply under CGST Act. Department's clarification was relied on by the Authority for Advance Ruling (AAR) to hold that the activity of deduction of a portion from employees and payment of the same to the canteen service provider is not supply as per GST law. Entry in Schedule-III on services provided by employee to employer in the course of employment being not a supply, has also been relied on. The ruling erroneously mentions transportation service also though the same is not part of the question raised. Though such rulings following CBIC circular are being routinely delivered now, this ruling has been mentioned only because of absence of artificially distinguishing such clarification to take a contrary stand [2022-VIL-260-AAR].

 

ITC on solar panels used by lessor of immovable property is not available  

Input tax credit (ITC) in respect of solar panels installed in solar power plant will not be available to lessor providing maintenance services like electricity and water to lessees. The AAR has held that electrical energy is goods classified under HSN 2706 and the same is exempted and therefore, electricity generated by solar panels being supplied to tenants is exempted. Therefore, ITC of GST paid on solar panels would not be available as such capital goods are used exclusively for effecting exempted supply. In this case, the applicant as lessor provides maintenance service for immovable property and electricity charges, water charges, etc., are paid by applicant first and then got reimbursed from tenants. Solar power plant has been installed in additional place of business and the power is wheeled to the State electricity grid and electricity charges to distribution company are paid after netting off the power wheeled out. The applicant has marshalled several arguments on solar power plant being covered under plant and machinery and the same being not an immovable property. However, as per the advance ruling, these arguments are not relevant [2022-VIL-257-AAR].

 

While the ruling against taxpayer is no surprise, the finding of AAR that power from solar plant is used exclusively for exempted supply is peculiar. The lessor provides bundle of services like leasing of property, providing electricity, making available water, etc., but unlike use of electricity commonly for production of taxable and non-taxable goods, in services, common use of electricity is difficult to substantiate.

 

Metropolitan area covers multiple districts - Ruling on affordable housing under GST

Residential apartments under affordable housing project attract lesser rate of GST and the definition of such affordable housing depends on area and location as to whether the project is in metropolitan city or otherwise. Advance ruling was sought as to whether a particular location outside the metropolitan city corporation's limits and covered by different municipality would be considered as non-metropolitan area. In this case, all permits were issued by local municipality but certain development charges were paid to the metropolitan development authority also. The AAR has referred to definition of metropolitan city as per Census Commission and the definition of metropolitan area as per Indian Constitution which covers area having specified population in one or more districts or one or more municipalities or panchayats.

 

The ruling notes that the metropolitan development authority in this case has jurisdiction over multiple districts including the district in which the applicant's project is located. Based on such reasoning, the ruling holds the project as located in metropolitan area / city which means carpet area criterion will be 60 sq mtrs (and not 90 sq mtrs) for coverage under affordable housing segment. The ruling appears to be well-reasoned but the notification uses "metropolitan city" while the ruling seeks to cover the project under "metropolitan area". The definitions referred / relied on by AAR are not for the same expression [2022-VIL-258-AAR].

 

Gujarat announces full reimbursement of SGST paid on purchase of capital goods by mega industries

Gujarat Government has announced various incentives to promote industry and growth under "Aatma Nirbhar Gujarat Schemes for Assistance to Industries". The package includes net SGST reimbursement to MSMEs upto 75% of fixed capital investment over 10 years and such reimbursement to large industries covered under thrust sectors. For mega industries in thrust sectors, net SGST reimbursement upto 18% of fixed capital investment over 20 years has been announced. For such mega industries, a major relief will be 100% reimbursement of input SGST paid on capital goods over 20 years. Use of "net SGST" in the announcement indicates that reimbursement will be restricted to the tax paid by cash after utilizing ITC. However, SGST paid on capital goods will be fully refunded is something which will cost the government dearly. Though the period is staggered i.e. spread over 20 years, such move will trigger similar announcements by a few other State Governments to lure the industry to their place.

 

The economic rationale of tax concessions to large and mega industries, who are predominantly engaged in inter-State and export sales, is questionable particularly when tax rates are uniform across the nation and the impact of ultimate revenue loss the State has to bear with. The latter may be countered by arguing that such loss will be offset by more than corresponding growth but in the medium term, pressures will be felt. The notifications implementing such announcement need to be seen as the conditions prescribed may have a dampening effect.

 

 

(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)