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Tax Vista Your weekly tax recap Edn. 122 - 17th Oct 2022 By Dr. G. Gokul Kishore |
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No provision to charge interest & impose penalty in respect of CVD and SAD - HC sets aside demand
Customs Act, 1962 cannot be invoked to demand interest and impose penalty with respect to demand of additional customs duty (CVD) or SAD in the absence of charging section for such interest and penalty. In an order having significant legal implications, the Bombay High Court has held that Section 3 and Section 3A of Customs Tariff Act, 1975 are merely charging sections for creating liability of CVD and SAD and they are not the charging sections for imposing penalty. According to the Court, the fact that machinery provisions of Customs Act are made applicable to assessment, collection and enforcement of tax and penalty under Customs Act does not mean that provision for penalty and interest under Customs Act is applicable for penalty and interest under Customs Tariff Act. The Court was relying on the difference between substantive provisions and machinery provisions while arriving at this decision.
The Court further took note of the amendment to Section 9A of Customs Tariff Act made in the year 2004 relating to anti-dumping duties whereby the words "relating to non-levy, short levy, refunds and appeals" were substituted with "relating to determination of rate of duty, non-levy, short levy, refunds, interest, appeals, offences and penalties." Similar amendment was not made in respect of CVD and SAD and therefore, the legislative intention was not to include the same. Order of Settlement Commission regarding requirement to pay interest and penalty was set aside [2022-VIL-690-BOM-CU].
The department may challenge the above order in appeal and an authoritative pronouncement from the Apex Court will contribute to jurisprudence on this issue. The potential implication on other statutes which merely adopt the provisions of the main statute which is commonly referred as legislation by reference is also huge. GST law may escape the impact as IGST Act refers to provisions relating to interest and penalty under CGST Act as also applicable to IGST.
Issues in scrutiny notice, SCN and order are different - High Court quashes
Scrutiny under Section 61 of CGST Act / relevant SGST Act and issuance of notice in Form ASMT-10 has become the order of the day. In particular, SGST authorities prefer this route whereby reply in ASMT-11 is sought and then show cause notice under Section 73 is issued along with intimation of liability in DRC-01A. The Madras High Court has held that, if pursuant to scrutiny under Section 61, SCN and order are issued, then notice in ASMT-10 ought to have been issued when such proceedings commence. In the case before it, while ASMT-10 notice was issued pointing out certain discrepancies in data between various returns, the SCN was issued and order was passed dealing with different issues and therefore, the proceedings were held as not sustainable. The department requested for issuance of fresh ASMT-10 notice and the same was accepted by the Court after setting aside the impugned order. In this case, another lapse on the part of the department pertained to SCN and order not being served on the taxpayer who came to know about the same only through the portal [2022-VIL-701-MAD].
For issuance of SCN under Section 73 or Section 74, there is no mandatory requirement that it should be preceded by ASMT-10 notice as such notice is required only if the proceedings commence by way of scrutiny initiated under Section 61. The above order highlights the usual casual manner of working of the authorities - scrutiny notice dealing with certain issues whereas as SCN under Section 73 / 74 and order pertain to different issues. It is the writ remedy which is effective - this means it is the Constitution that ensures justice is delivered and GST law fares poorly in this regard mostly attributable to bad implementation by the department.
Amending bill of entry - Department persists with obdurate stand
The taxpayer had mentioned GSTIN of plant in different State in the bills of entry whereas input tax credit of IGST paid was availed in the importing State. Amendment under Section 149 of Customs Act was sought which according to the taxpayer was allowed in certain Commissionerates but not in Mumbai. The same issue was agitated earlier and the High Court had ordered the authority to consider the request for amendment. As usual, the Customs authority did not bother about High Court order and the Court in the second round of litigation notes that the authority had gone in a tangent and rejected the request on untenable grounds. The department had taken the stand that GST law does not permit such amendment post clearance of goods from Customs. The Court has held that if the goods have been cleared for home consumption, the officer has to only consider the documentary evidence which was in existence at the time of clearance of goods. The Court directed the Customs authority to permit amendment to bills of entry [2022-VIL-695-BOM-CU].
If, for merely changing a number in bill of entry, two rounds of litigation are required for an FMCG major, the plight of SMEs and other small time importers can well be imagined. It is not known as to why amending bill of entry is such a litigious issue for so long.
Revocation of cancelled GST registration - High Court passes elaborate order
An elaborate order has been passed by Orissa High Court on the issue of restoring cancelled registration under GST. There are numerous writ petitions filed in various High Courts and many of them being allowed providing relief to the taxpayers. In this recent order, the High Court after observing that remanding the matter to appellate authority who had dismissed the appeal on limitation would further delay the process, had directed the proper officer to revoke registration on payment of the amounts involved. The Court has particularly observed that the matter is pending since 2019 and involves right to carry business. The order highlights the amnesty scheme for restoration of cancelled registration, Supreme Court order on extension of limitation due to Covid, various orders of other High Courts on similar issue and in particular, the judgment of Madras High Court in Tvl. Suguna Cutpiece Centre [2022-VIL-119-MAD]. The Court has held that refusal to allow such petition would be counterproductive as taxable person would be deprived of right to carry on business and would ultimately affect recovery of tax and the authority would be working against the interest of revenue.
Though the Court has felt that authorities should take pragmatic view on such cases, quasi-judicial authorities do not enjoy the latitude to enter into the realm of equity and justice which the writ courts enjoy. To strike a balance, there should be a standard instruction and SOP for revocation of cancelled registration providing some window for payment of taxes due. The instructions should first provide for more safeguards by prescribing restrictions on routine use of such powers [2022-VIL-700-ORI]
GST registration is required where project is executed when size & scale of works do not permit supply from a different State
Infrastructure projects involving multiple entities located in different States is quite common. From the day GST was introduced, the question as to whether a works contract service provider having office in a particular State is required to take GST registration in the State or States where the project is executed, has been raised and answered. A major government railway entity has sought advance ruling on such obvious question apparently because of the stakes involved and uncertainty and disputes raised by the department will be very costly. The Authority for Advance Ruling has observed that though GST is destination based tax, for registration, origin of supply is required to be taken note of. It has held that location of supplier is relevant for registration and not the place of supply which in this case is in a different State where where construction / works contract is undertaken.
The crux of the ruling is that when the applicant is required to maintain suitable structure in terms of human and technical resources with sufficient degree of permanence in the State where the project is executed, then it is this State from where supply is made and therefore, registration would be required in such State. This is what the law provides if one has to apply the definition of location of supplier. But the applicant had contended that they would be sub-contracting a major portion of the work and it is the recipient's engineers who would be visiting the site and engineers or personnel from applicant's side will not be frequently or regularly visiting such site. The fact which went against the applicant is the sheer size of the project costing more than Rs. 300 crores. The AAR has held that the contract requires huge quantity of materials, engineers and labour and it not feasible to source / supply everything from the State where the applicant is located. Another fact which operated against the applicant is the term in the contract requiring applicant to maintain sheds, store houses and yards and also maintain suitable mortar mills, soaking vats and other equipment for executing the works. Though the ruling is based on facts, it is worth reading considering the reasonable discussion the ruling has on the concept of location of supplier and registration [2022-VIL-263-AAR]
(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)