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Tax Vista Your weekly tax recap Edn. 171 - 25th Sept 2023 By Dr. G. Gokul Kishore |
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ITC cannot be denied for mere non-reflection in GSTR 2A
The Kerala High Court has reiterated that input tax credit (ITC) which is otherwise eligible as per the statute cannot be denied on account of the supply / tax not being reflected in GSTR-2A based on GSTR-1 filed by the supplier. It also referred to CBIC press release dated 18-10-2018 that furnishing of outward details in Form GSTR-1 by the corresponding supplier(s) and the facility to view the same in Form GSTR-2A by the recipient is in the nature of taxpayer facilitation and does not impact the ability of the taxpayer to avail ITC on self-assessment basis in consonance with the provisions of Section 16 of CGST Act. The High Court remanded the matter and directed that the assessee should be given an opportunity to produce evidence of having earned valid credit as per Supreme Court judgement in State of Karnataka v. Ecom Gill Coffee Trading Private Limited - 2023-VIL-20-SC, such as name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgment of taking delivery of goods, tax invoices and payment particulars to prove genuineness of the transaction. Though GSTR-2A has been effectively replaced with GSTR-2B which has got statutory basis now, the issue of compelling someone to do an act which is not within his control, needs to be addressed for a permanent solution. Otherwise, in ITC, such issue will be litigated repeatedly wasting the resources of all concerned [2023-VIL-629-KER].
Non-issue of notice within 6 months of search does not make SCN invalid
Petitioner's goods were seized on 21-9-2022 pursuant to search on 5-5-2022 and 26-8-2022 under sub-section (2) of Section 67 of CGST Act. Order dated 26-8-2022 was passed prohibiting the petitioner from dealing with the said goods and show cause notice was issued on 1-3-2023. The petitioner contended that the show cause notice was not valid. The department contended that order of prohibition was issued, and seizure was made after in September. However, the High Court held that the order of prohibition is not a stop gap arrangement for the department to take an informed decision whether to seize the goods or not and an order of prohibition, is for all intents and purposes, an order of seizure. Though show cause notice was issued beyond six months from such order, as per Section 67(7), goods alone are liable to be returned and the notice as such would not become invalid. The High Court held that since goods had been confiscated and separate proceedings were pending, no order to return the goods could be passed. It is a pyrrhic victory for the petitioner-taxpayer - though the Court ruled in favour of the plea on return of goods, due to confiscation proceedings, it could not get back the same [2023-VIL-632-DEL].
Words "always meant to be" in Circular cannot have prospective effect
Mango is a seasonal fruit but to be savoured throughout the year. Similarly, issue of Circulars may be cyclical, routine but the flavour of prospective/retrospective permeates eternally. The petitioner-assessee challenged the assessment order confirming the levy of tax on fruit pulp manufactured as 18% as against 12%. CBIC Circular dated 3-8-2022 was issued to clarify that GST rate on mangoes sliced, dried, falling under heading 0804, was reduced from 12% to 5% and GST rate on all forms of dried mangoes (other than sliced and dried mangoes), falling under heading 0804, including mango pulp, was always meant to be at the rate of 12%. According to the department the rate of 12 % would apply prospectively and for the period 2017-18 to 2020-21 the rate should be 18%. The High Court found this argument / interpretation unacceptable and set aside the impugned assessment order [2023-VIL-625-AP].
Refund - Unjust enrichment not applicable to PSUs?
Rejection of refund is the rule. When refund is available after a favourable court order, rejection of refund citing unjust enrichment by deliberately pushing the taxpayer into second round of litigation is one of the sub-rules. Adding to the numerous such cases, recently, Customs authorities were before Karnataka High Court arguing against refund of excess paid amount consequent to finalisation of provisional assessment. The appeal by department before High Court is the second round of litigation as refund was initially sanctioned by adjudicating authority but appellate authority felt unjust enrichment should be verified. In the de novo order, the adjudicating authority again held refund as admissible after verifying that duty burden was not passed on to any other person. Appeal by department was rejected by appellate authority and Tribunal also did not accept such appeal. In the High Court, the department argued that unjust enrichment was held as not applicable to PSU in the impugned order and such proposition was not correct. The High Court has upheld reliance placed by Tribunal on the landmark judgment of Mafatlal Industries [1996-VIL-01-SC-CE] on inapplicability of unjust enrichment to PSUs. The appeal by department has been dismissed only on this ground. CESTAT had in its order had also noted that duty incidence was substantiated as not passed on [2023-VIL-637-KAR-CU].
In Mafatlal judgment, the Apex Court had held that the doctrine of unjust enrichment is not applicable to State. Whether PSUs are covered under the term "State" is a question which is answered only in terms of public function or public nature of the activities performed as otherwise, it may not be treated as "State". In particular, in contractual and commercial matters, PSUs may not get such blanket immunity from unjust enrichment. These are arguments which, if taken, could have made the judgment more enlightening.
Keeping uncertainty intact through remand
Findings by Special Valuation Branch (SVB) are not binding on proper officer of customs, according to CESTAT. This has been held in the backdrop of a customs valuation case pending in litigation for around 15 years. The department was aggrieved over SVB order which held that value declared by importer for import of vaccines from related person abroad was acceptable. The matter travelled upto Tribunal which remanded the case to Commissioner (Appeals) who in turn, remanded it to original authority. The importer must have felt harassed and he challenged such order-in-appeal as travelling beyond remand directions of the Tribunal. The Tribunal did not find merit in such challenge. It has observed that mere ascertainment of details from balance sheet for deductions claimed for adopting deductive value will not cause any prejudice to the appellant-importer. It is not clear whether after checking the balance sheet, the department will come up with third round of litigation. Remanding a matter may be helpful to taxpayers in certain cases but the uncertainty and lack of finality are great dampeners for any business [2023-VIL-921-CESTAT-MUM-CU].
E-commerce operator not liable to collect GST for allowing use of app merely linking supplier and user
IT services always pose challenges in taxation. The applicant provided an app and offered ride hailing SaaS/MaaS (Software as a Service, Mobility as a Service) to the auto-rickshaw community which includes a driver-side software and customer-side software. As per the applicant the business model of the applicant is neither in the nature of "market place electronic commerce" or "fulfillment electronic commerce" nor "hybrid electronic commerce" models. A subscriber of the app (auto-rickshaw operator) would enter into business deals/transactions on their own with their clients (passengers) and business associates for supply of services, the terms and conditions governing such contracts of supply, such as quality, price, etc., are as mutually agreed upon by them and the applicant neither has no role as regards the charges or their collection by the auto-driver. According to the applicant, GST was payable on the consideration received/receivable of "registration fee and monthly subscription" that the applicant collects from the subscribers of their app alone. It was not liable to pay tax under Section 9(5) of CGST Act since the services are only initiated by the applicant's app and not provided "through" it and the condition "supply of services through an e-commerce operator" is not satisfied.
The Authority for Advance Ruling (AAR) held that though the applicant qualified as an Electronic Commerce Operator being the owner of a digital platform for e-commerce (supply of transportation service) since supply of services was independent of it, there was no requirement to collect GST in terms of Section 9(5) of CGST Act. The applicant should be glad to have received a ruling in their favour from a body which is generally perceived as pro-revenue [2023-VIL-187-AAR].
Destruction of goods - ITC not available even if such goods sold as scrap
In contrast to the above ruling, which is well-reasoned, this ruling on admissibility of ITC on goods - raw materials and finished goods which were destroyed by fire in the factory engulfed the entire scheme of ITC, resting solely on words destroyed, written off etc., used in Section 17(5)(h) of CGST Act. According to the AAR, (i) the raw materials purchased are already used in the manufacture of finished goods, (ii) raw materials procured lost in the fire accident before use in manufacture of finished goods (iii) destroyed finished goods sold as steel scrap in the open market are all the same and ITC on inputs used in manufacture as well as those destroyed are hit by the bar in Section 17(5)(h). The reasoning is that the scheme of the CGST Act is that input tax credit is available only when the person makes taxable supplies and hence ITC cannot be availed in respect of (i) and (ii) and since the finished goods sold (supplied with payment of GST) are destroyed goods, ITC is not available.
A plain reading of Section 16(1) of CGST Act along with Section 17(5)(h) shows that even if goods are used/intended to be used in the course or in furtherance of business, credit is not available if they fall under clause (h) of Section 17(5). It belies reason why goods sold as scrap are hit by the bar on ITC, since a taxable supply has been made, even if it is scrap. Section 17(5)(h) covers involuntary (stolen, lost, destroyed) and voluntary (written off, disposed as gift, sample) events but a calamity like fire or natural disaster strictly not in the course of business may need a different consideration [2023-VIL-185-AAR].
Subsidy from government passed on to supplier not liable to be excluded
Ruling on the applicability of GST/ exclusion from value on subsidy received by the recipient of supply and passed on to the supplier (the applicant, a manufacturer of machineries and industrial boilers), the AAR held that only those subsidies which are part of the transaction value can be excluded. In the instant case, the recipient, a manufacturer of silk was eligible for subsidy of 90% of the price which would be transferred from an escrow account to the supplier-applicant. The recipient claimed that GST was payable only on 10% of value which could appear in the invoice. However, referring to Section 15(2)(e) of CGST Act which stipulates that the value of supply shall include subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments the AAR opined that since the subsidy is not directly received by the supplier and the recipient is liable to pay the full price without the subsidy being added separately to the transaction value, the value of subsidy cannot be excluded from value of supply. The applicant has elaborately explained how the subsidy scheme operates and the intention behind the escrow method but as always, with little innovation, a pro-revenue ruling has been delivered without considering such arguments [2023-VIL-189-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 edits R.K. Jain's GST Law Manual. E-mail - gokulkishore@gmail.com)