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Tax Vista Your weekly tax recap Edn. 123 - 24th Oct 2022 By Dr. G. Gokul Kishore |
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Refund due to SEZ supplies - High Court orders re-credit with interest
Claim of processes being online in GST regime and therefore, taxpayer friendly is hollow if the experiences of taxpayers in claiming refund are recounted. For re-credit of debited amount of input tax credit of around Rs. 3 lakhs, which was unfortunately made to comply with provisions on claiming refund in respect of supplies to SEZ, the taxpayer has been waiting for 4 years. Refund was rejected on the ground of time-bar i.e., the print copy along with supporting documents were filed almost one year after the claim was filed online which was acknowledged. The department relied on CBIC Circular dated 15-11-2017 which prescribed filing of print copy of claim, etc. The taxpayer filed writ petition and the High Court held that time-limit of two years will be computed as per statutory provisions and circular of the department cannot be to the detriment of the taxpayer and it cannot prescribe such limiting condition. It directed the department to allow re-credit in electronic credit ledger along with interest [2022-VIL-714-GUJ].
It is not clear what happened to the actual refund claim. The Court has allowed re-credit of the amount which was debited at the time of filing refund claim. By the above order, the taxpayer has got what was debited in the electronic credit ledger, again in the same ledger. The provisions on incentivizing exports remain only on paper as usual - they are misinterpreted so that taxpayers do not get any cash refund. The law can be simpler - omitting all refund related provisions by clearly stating that all excess paid amounts go to government coffers and the expenditure is meant for public good only. The government can also amend the law to keep itself out of unjust enrichment - enrichment of the State is in public interest and therefore, cannot be questioned.
Credit lost in transition is eternally lost
Despite the authoritative directions of the Supreme Court on transitional credit claims, issues of various hues continue to be agitated. In respect of area-based exemption prevalent before GST, Cenvat credit should be first exhausted and then the duty paid by cash was eligible as refund. It appears in June, 2017, certain amount was paid as service tax under reverse charge mechanism. Since, from July, 2017 GST regime was implemented, the tax paid could not be availed / utilized as Cenvat credit. The taxpayer sought to transition the same through TRAN-1 form but the department did not accept. The High Court has held that benefit of exemption is available only with the conditions and utilization of credit is one of the conditions and therefore, bringing the credit amount into GST regime through TRAN-1 is not correct. The facts are not as clear as we have attempted to decipher. The Court has said on principle of equity, the taxpayer may be entitled to the credit amount but the method adopted was not as per law. It, however, sympathized with the petitioner-assessee by holding that there cannot be mens rea in such cases and penalty, in particular equivalent penalty under Section 74 of CGST Act, cannot be imposed [2022-VIL-712-MEG].
Implementation of GST is not the decision of taxpayer nor does the government takes or need to take concurrence of taxpayers. But, such new system should not perform a vanishing act on the credits lying with the assessees under Central Excise / Service Tax laws. Arguments as to tax credit being a vested right or not may be academic but the loss to the business is real because it is based on tax exemptions, benefits like credits, etc., projections are made and plans are devised. By sovereign acts of introduction of new law, if business plans are compelled to be re-worked, then the confidence of the public in fairness of law-making process gets dented. Such technical talk is also not useful to assessees as it is confined to a column with which policy makers are hardly moved.
Linking of GSTINs on death of proprietor - High Court orders opening of portal
Tax laws are procedure-bound - the forms, number of copies, signatures, mode of delivery, etc., all these matter the most in determining a claim which is otherwise rightfully due to taxpayer as per the law. On death of proprietor, the relevant form REG-16 is required to be filed for cancellation of registration which CBIC has clarified as required to link the GSTIN of such proprietorship firm with the GSTIN of transferee who, in most cases, is the legal heir continuing the business. In a particular case, the information as to the expiry of proprietor was shared but the form was not uploaded. The department did not accept the contention of the taxpayer. The High Court held that such hyper-technical ground is not valid to deny linking of GSTINs - in this case GSTIN of father with that of the transferee-son. It has directed opening of GST portal to enable completion of such process by uploading the necessary form. Though the order speaks about paying off liabilities, credit transfer could also be the reason for insisting with such transfer as otherwise, clearing the dues in a proprietorship firm may not be an insurmountable issue [2022-VIL-710-RAJ].
Common credit - Rule 42 is mandatory even if one-to-one correlation is possible
When common inputs are used in taxable and exempt supplies, then proportionate input tax credit attributable to the inputs used in exempt supplies should be reversed as per the formula prescribed in Rule 42 / 43 of CGST Rules. When quantity of inputs used in exempt and taxable supplies are clearly identifiable, whether one needs to still go through the rule was the question before Authority for Advance Ruling (AAR). The product was coal as the applicant was getting the coal washed from job worker / washery and the coal rejects were sold by the applicant to the job worker. On purchase of raw coal, applicable GST and compensation cess were paid and on sale of such coal rejects also the same were paid. Since some quantity with high ash content remains as "coal rejects", the ITC attributable to electricity generation (exempted supply of the applicant) and the ITC relating to coal rejects can be segregated easily. The AAR did not accept the same as not provided in law and ruled that the prescribed formula is mandatory. It answered another question which was not raised - Rule 42 will also apply to ITC relating to compensation cess which is obvious as per the provisions [2022-VIL-282-AAR]. Right from Modvat credit days, the issue of common credit continues to dominate litigation and GST regime will be no exception.
Free diesel filled by service recipient liable to be included in value by GTA
Advance rulings are perceived as mostly pro-revenue and the same is not without reason. When diesel is supplied as FOC item by the service recipient to the service providing GTA, the AAR has held that value of such diesel should be included in the value of GTA service. While Section 15 of CGST Act requires inclusion of any amount that the supplier is liable to pay but has been incurred by the service recipient, the same cannot be interpreted excluding the words "liable to pay". Such liability to pay is as per the contract and in this case, the applicant had pointed out the diesel is not within the scope of GTA but the AAR did not agree and has viewed the same as an evasionary tactic. For arriving at the conclusion, normal business transactions requiring incurring of fuel cost by transporter, GTA service without fuel is not possible, etc., have been discussed. It goes off the curve by stating that the service may not be even that of GTA and it may be mere renting or leasing of vehicle. The ruling may be set aside if appealed to Appellate AAR. Rajasthan AAR had in the case of Sunil Giri [2022-VIL-206-AAR] held to the contrary - when the fuel is not within the scope of service provider, then it is not liable to be included in taxable value [2022-VIL-280-AAR].
Statutory character of amount collected is not relevant - Amount collected for afforestation is liable to GST
Statutory character of an amount does create an issue when it comes to tax liability. For use of forest land by various agencies like power transmission body, certain amounts are required to be paid to Forest Department under Compensatory Afforestation Act. There are various heads under this levy but the amount paid is as obligated by law. But the AAR has held that such character does not take the amount from the ambit of consideration as defined in GST law. After ruling out that the amount is neither a subsidy given by government nor a grant, it has held that is it "consideration" in the course of an obligation. It has further expressed the view that if the grantor receives something in return, then the grant will be treated as consideration. Assignment of value is based on loss of land due to non-forest use but it also includes other activities like regeneration, conservation and protection of forest, etc. It has concluded that GST law does not contain any provision to exclude an amount which is required be paid under law and being obligatory in nature. It has made short of the exercise of arriving at a finding on the activity undertaken by statutory authority (CAMPA) as business activity by stating that they are not philanthropic in nature.
AAR does not have any issue in classification of such statutory activity and levy as the residuary entry of "Other services nowhere else classified" is always helpful. The Forest Department in the demand letters has also taken into account GST under reverse charge basis while computing the amounts and this has been taken as a basis for concluding that GST is applicable on such activity. The issues raised cannot be settled by any body inferior to the Apex Court and for such answer, one has to wait for a few years [2022-VIL-281-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)