Tax Vista Your weekly tax recap Edn. 124 - 31st Oct 2022 By Dr. G. Gokul Kishore

 

 

Release of goods and conveyance cannot be refused when security is furnished

Section 129 of CGST Act confers the right on the taxpayer to get the goods and / or conveyance released on exercise of one of the options which includes furnishing of security. When the person concerned is willing to furnish bank guarantee, sometimes the GST authorities do not accept the same and refuse to release the goods / vehicle. This is how all laws are implemented and GST law is no exception. In a case of such nature, the petitioner knocked the doors of High Court. The Court held that if the petitioner complies with the provisions (furnishing bank guarantee) then the authority cannot refuse release of goods and vehicle pending adjudication. It directed release of goods and the vehicle on compliance with the condition by the taxpayer. The additional take-away in this order is the stay on operation of the adjudication order, if the same is adverse to the taxpayer, for thirty days so that relief can be obtained from appellate authority while filing appeal [2022-VIL-722-KER]. Readers may wonder whether appellate authority will provide any relief at the time of filing appeal when appeals themselves are generally decided against the taxpayers.

 

Confiscation proceedings initiated - Goods can be released provisionally

When confiscation proceedings are initiated under Section 130 of CGST Act, the department is required to provisionally release the same irrespective of the fact that the goods have been seized in the premises of the taxpayer or while they were in transit. The Gujarat High Court holding so has analyzed the interplay between Section 67 and Section 129 of CGST Act in so far as release of seized goods is concerned along with implications of Section 130 in a recent order. It has reiterated that confiscation has to be preceded by seizure because there cannot be confiscation without seizure. When goods in transit are proposed to be confiscated, seizure is to be effected first. Seizure under Section 129 becomes seizure under Section 67 so that confiscation under Section 130 can be contemplated. The order reads -"...once the notice in Form MOV-10 under Section 130 for confiscation of goods is issued, the goods in question stand seized under Section 67(2) of the GST Act, applicability of Section 129 of the GST Act comes to an end. In such circumstances, the respondent authorities are required to exercise powers to release goods and conveyance as provided in sub-section (6) of Section 67. It is immaterial whether for the purpose of confiscation, goods are seized at the premises or in transit. Section 130 of the GST Act is the only statutory provision providing for confiscation of goods irrespective of the fact that the goods are lying in the premises of the taxable person or whether the goods are in transit. Therefore, in order to proceed further under section 130 of the GST Act, the goods have to be under seizure of the authority. Under such circumstances, provisional release is permissible under Section 67(6) of the GST Act." [2022-VIL-728-GUJ].

 

Like Customs Act, the jurisprudence under GST law is becoming more dominated by seizure, confiscation, attachment, etc. GST authorities also function like Customs Preventive if one were to go by the huge number of detention and seizure. The only difference is that while in Customs, such cases involve high stakes, in GST, even in the absence of any tax implication, for typographical errors in e-way bill, such powers are routinely invoked.

 

Invoking Section 129 alone is not valid when owner is not prepared to pay penalty

If the owner of goods does not come forward to pay penalty as per Section 129 of CGST Act, then the department has to invoke Section 73 / 74 for determination of tax and penalty. The Allahabad High Court has held that in the case before it, the department had determined tax liability and imposed penalty only under Section 129 which is not contemplated or intended. The reason is that Section 129 does not contain provision to determine tax due and it can be undertaken only under Section 73 / 74. The High Court held that the orders assailed before it are not sustainable since the owner did not come forward to pay the penalty as imposed under Section 129. It further directed refund of the amount paid for release of goods. In this case, the proceedings were initiated as e-way bill was not generated when movement of the vehicle commenced but the same was complied with before passing of the detention order [2022-VIL-720-ALH].

 

Section 129 is a distinct piece of legislation in GST law. While the provision seeks to empower the GST authorities to tackle movement of goods in violation of provisions, which in most cases pertains to e-way bill issues, it does not refer to initiation of proper proceedings to demand tax and impose penalty in respect of such goods and conveyance under Section 73 or 74. In the absence of such reference or issuance of SCN and passing of order (determination of liabilities), in many cases, entire adjudication including demand of tax is made under Section 129 itself. From the above judgment, it appears that the action of the department in using Section 129 for demand of tax, particularly in a situation where the taxpayer wishes to contest the stand of the department, is not legally sound.

 

Filing appeal against cancellation of registration instead of seeking revocation - High Court directs GST authority to consider

In yet another order on cancellation of registration, this time, the Guwahati High Court has entertained writ petition and directed the GST authorities to consider application for revocation of cancellation. This order is mentioned in this column as it contains another important proposition. The taxpayer had filed appeal under Section 107 of CGST Act against cancellation of registration instead of filing application seeking revocation under Section 30. The High Court was of the view that action of the department cannot be faulted with as returns were not filed and tax was not paid for a long time by the taxpayer. However, it held that the taxpayer may have invoked the wrong provision of filing appeal and such act shows diligence to avail statutory remedy though not an appropriate one and this is a good cause for considering whether delay in filing application seeking revocation of cancellation is condonable. It also noted that the taxpayer was willing to pay tax, interest and penalty and file returns and therefore, directed the GST authority to consider the application [2022-VIL-721-GAU].

 

Though the law provides for two remedies in case of cancellation of registration, both are mostly not useful to taxpayers because the department is either biased by taking a stern view of default in filing returns or feels helpless to provide justice which is not within the scope of written law. The logical step is for the taxpayers to use the time of High Courts for such a procedural matter of revocation of cancelled registration. As the Courts find both the arguments on loss of livelihood and of revenue due to cancellation of registration as having merit, taxpayers get some relief.

 

Transitioning of credit by ISD - High Court grants relief to taxpayer

Delhi High Court has allowed petition filed by taxpayer on the issue of transitioning of credit by input service distributor (ISD) after the department conceded the same in view of the judgments referred in the earlier order of the Court. It is not known how the issue got entangled since the provisions are clear. The Court has also restrained the department from enforcing recovery of accumulated credit [2022-VIL-719-DEL]. For more clarity on this issue, readers may refer to the article "Transitional Credit under GST: Delhi High Court comes to the rescue of Input Service Distributors" published in VILGST.

 

No GST on notice pay, damages, forfeiture of bond amount / EMD / security deposit and deduction towards canteen and amount recovered for re-issuance of ID card

Advance rulings in favour of taxpayers are rare and therefore, such rulings deserve to be highlighted so that similarly placed taxpayers may try to persuade other Authorities for Advance Ruling (AARs) to take a consistent stand. After CBIC issued Circular No. 178/10/2022-GST dated 3-8-2022, non-taxability of amounts in the nature of compensation or damages has become clear to an extent. This circular is also being relied on by AARs now instead of artificially distinguishing them. In a recent ruling, the AAR has followed the same to provide relief to the taxpayer on taxability of several amounts. On notice pay and forfeiture of bond amount when the employee resigns without serving the notice period or the tenure as per employment agreement, the AAR has held that these amounts are compensation and not consideration and hence, not liable to GST. The ruling contains an erroneous reasoning - employee is the service provider in this case and service supplied by him in the course of employment is excluded from the definition of supply even when the ruling holds that the transaction is not covered under the entry in Schedule-III of CGST Act on agreeing to the obligation to tolerate an act. GST has also been held as not liable on the nominal amount deducted from employee's salary towards canteen facility when the same is mandatory as per Factories Act.

 

Taxability of amount charged for re-issuance of identity card and liquidated damages for delay in completion of work and forfeiture of earnest money / bank guarantee / security deposit have also been ruled in taxpayer's favour. Security deposit not claimed by contractors which is written back as income by taxpayers has also been held as not liable to GST [2022-VIL-283-AAR]. Similar clarification on several other pending issues will help taxpayers and contain disputes at this early stage of GST. Issuance of several circulars in the past five years has been of significant assistance to the members of trade and industry. If the tax administration is sensitive and pro-active, at least a few issues can be resolved before they become full-blown controversy.

 

Pre-deposit for filing appeal in Central Excise / Service Tax cases - DRC-03 cannot be used

In Tax Vista dated 10th October, 2022, Bombay High Court's judgment as reported in 2022-VIL-686-BOM-CE was analysed in which the Court had directed CBIC to issue instructions / guidelines on the issue of payment of pre-deposit at the time of filing appeal in Central Excise and Service Tax cases. The issue was whether DRC-03 form prescribed under GST law can be used for payment of such pre-deposit. The Court had noted that there was confusion prevalent among the officers on this issue. CBIC has issued instruction on 28th October, 2022 in compliance with the Court's directions but the same is not in favour of the taxpayer.

 

As per this instruction, DRC-03 form cannot be and should not be used for payment of pre-deposit in Central Excise / Service Tax appeals. According to CBIC, DRC-03 form is not the prescribed form / method for pre-deposit even in GST appeals as the form is meant for payment of tax and other dues and pre-deposit is neither tax nor arrears. The reasoning that pre-deposit is not arrears has been used to argue that transitional provisions in CGST Act providing for recovery of dues under pre-GST laws as arrears of GST, are not applicable to pre-deposit [CBIC Instruction dated 28-10-2022].

 

It appears to be trivial to quarrel over forms and mode or manner of payment when the same is a matter of simple procedure. Payment of pre-deposit by erstwhile service tax assessees or non-assessees is a pain as the procedure is cumbersome - either the credentials used in service tax regime are forgotten or the process of non-assessee registration has to be undertaken afresh. Drafting of appeal and fighting the case before the authority is sometimes easier than compliance with these outdated procedures. A simple debit to bank account through NEFT / RTGS by creating particular government account as beneficiary should be sufficient for pre-deposit compliance whether it is by assessee or non-assessee.

 

 

(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)