Tax Vista Your weekly tax recap Edn. 172 - 2nd Oct. 2023 By Dr. G. Gokul Kishore

 

 

Refund of GST - Time-limit not applicable for amount paid under mistake of law

The Delhi High Court has held that limitation of two years prescribed for refund under Section 54 of CGST Act will not be applicable to amount paid under mistake of law. It is an "amount" and not "tax" paid and the State cannot retain such amount paid by the taxpayer erroneously as tax. In this case, the taxpayer had paid GST on preparation of project report for metro rail service and the service recipient - municipal corporation - pointed out that exemption under Notification No. 12/2017-Central Tax (Rate) would be admissible. The amount towards GST was paid in 2017 while refund of the same was claimed in 2022. The department obviously rejected the claim as hit by time-bar - the claim having been filed after almost 4 years.

 

The Delhi High Court relied on the judgment of Gujarat High Court in Comsol Energy Pvt. Ltd. v. State of Gujarat [2021-VIL-477-GUJ] wherein it was held that Section 54 would not be applicable to amount collected without authority of law which is not considered as tax. Finding that the department did not carry this issue on appeal before Supreme Court, the High Court held that tax paid on erroneous belief as payable cannot be retained by the government. It directed the GST department to process the refund claim [2023-VIL-644-DEL]. The amount involved in this case was not much, but the precedential value is significant. Such jurisprudence in GST will help taxpayers not merely by enriching them with due amounts but also confidently face audit objections or DGGI investigations in similar matters.

 

ITC and mis-match issues - High Court directs authority to undertake reconciliation

Input tax credit (ITC) was denied on the grounds that GSTIN of buyer was not mentioned in the tax invoice and sale was shown as B2C instead of B2B. The taxpayer contended that reconciliation could have been done by the GST department. In this case, the High Court noticed that the taxpayer was unrepresented in hearings i.e., not attended the hearings and order was passed ex-parte. The Court held that fairness is not a one-way street, and the taxpayer cannot complain of violation of principles of natural justice even while refusing to attend hearings. However, the High Court observed that reconciliation was not undertaken in the impugned order and reason as to absence of documents was not acceptable. It said that mismatch ought to have been ascertained from records and online portal. CBIC Circular on this issue was not considered in the order and therefore, the Court set aside the same. The taxpayer was directed to pre-deposit 20% of tax in dispute and the authority was directed to hear and pass order afresh [2023-VIL-646-CAL].

 

The errors for denying ITC are trivial and the litigation can be stemmed at the beginning itself if jurisdictional officer diligently verifies and satisfies himself as to the bona fide nature of the ITC claimed. Otherwise, for a non-issue like absence of GSTIN number of one of the parties, High Court's time in writ proceedings is used up which is a drain on taxpayer's money.

 

Appeal cannot be rejected for keeping pre-deposit in cash ledger

In a brief order without the benefit of underlying facts, the J&K High Court has held that the amount deposited in electronic cash ledger towards pre-deposit for filing appeal can be taken and utilised by the GST department for the purpose of pre-deposit. It directed the appeal to be considered afresh which was dismissed by the appellate authority earlier for non-payment of pre-deposit. This order is significant because in many cases, for various reasons, taxpayers transfer funds from their bank account to electronic cash ledger but the same is not debited towards tax or pre-deposit. The department takes the usual argument that unless the amount is debited in the ledger, the same is not appropriated to government account and mere maintenance of balance in cash ledger does not amount to payment of tax or interest or pre-deposit. To the extent the amount is in cash ledger, it does not generate any interest for the taxpayer and he does not have access to such funds for his business, the amount is with the government but the same does not actually go into the coffers till the time it is appropriated. There should be some solution for such issues like the one now provided - interest not being payable when sufficient balance is maintained in credit ledger [2023-VIL-639-J&K].

 

Recovery through garnishee proceedings cannot be initiated without issuing prior notice under Section 73

Next to cancellation of registration, initiation of recovery proceedings under Section 79 of CGST Act is resorted to, by GST authorities indiscriminately. In the past few issues of Tax Vista, orders of High Courts on non-sustainability of such proceedings even before expiry of appeal period were analysed. Last week VIL has reported an order of Telangana High Court wherein it has been held that garnishee proceedings under Section 79 cannot be initiated without issuing notice under Section 73 and obtaining reply from the taxpayer. In this case, there was delay in payment of tax and interest was payable. The department issued garnishee notices to banks for recovery of dues under Section 79. The taxpayer requested for time to make payment citing financial difficulties besides disputing the amount quantified by the department which was not granted. The taxpayer had to rush to High Court.

 

The Court held that before initiating garnishee / recovery proceedings under Section 79, notice under Section 73 is required to be issued and in the present case, SCN was not issued seeking explanation for delayed payment but the department proceeded straightaway with recovery. Such action was held to be in violation of principles of natural justice. As per the Court, the taxpayer was entitled to prior notice before proceeding with garnishee notice and the proceedings in the case before it were set aside. The department was given liberty to issue SCN under Section 73. As highlighted in the previous issues of Tax Vista, unless Sections 78 and 79 are completely overhauled and the wide discretion is curtailed, arbitrary exercise of such power cannot be curbed and taxpayers have to undergo immense pain [2023-VIL-640-TEL].

 

SGST reimbursement - High Court quashes amendment and orders refund

In a major relief to the industry, Jharkhand High Court has directed refund of SGST amount as per industrial policy to the tune of Rs. 117 crores. Amendment in the policy intended for industrial development was challenged by the taxpayer which provided for reimbursement of 75% of net SGST paid subject to realization by the government. The amendment placed an additional condition that if input tax credit (ITC) has been claimed by subsequent buyer, such SGST refund will not be available. The taxpayer besides assailing it as arbitrary and illegal, advanced arguments on legitimate expectation, promissory estoppel and absence of supervening public interest. The High Court held that such additional condition or restriction imposed by the government purportedly based on the power conferred under the relevant clause of the policy was wholly without jurisdiction and beyond its powers. It held that what has been promised by the State Government cannot be taken away by a department of the State Government by laying down guidelines for implementation of the policy. It held that the end user condition within the State rendered the policy illusory. The Court directed release of the amounts due.

 

Generally, withdrawal or restriction of scope of exemption is something which the judiciary considers as within the powers of the government and the plea of promissory estoppel is not accepted in majority of such cases. In this case, placing of condition subsequently which had the effect of taking away of the benefit completely citing some unreliable clause rendered the position of the tax department legally vulnerable [2023-VIL-645-JHR].

 

Manual filing of appeal to be accepted when order not uploaded in GST portal

In these days of artificial intelligence, the simplest things become complicated. Absence of clarity on filing of appeals manually particularly when alternative modes of filing have not been notified by Commissioner, continues to cause immense hardship to taxpayers. In a recent case, the taxpayer filed the appeal manually since the assessment order was not uploaded in the portal. He also paid pre-deposit of 10% of disputed amount. Later he was offered personal hearing, but the taxpayer received the same after the date of hearing. In between the taxpayer managed to e-file the appeal and communicated the fact of appeal being filed. The appellate authority rejected the e-appeal as having been filed after the time limit and pre-deposit not being paid. The High Court held that the appellate authority ought to have admitted the appeal filed in electronic form instead of rejecting the same, since manual filing was to be permitted under the circumstances [2023-VIL-654-AP].

 

Interest not payable for credit blocked by department

With digitisation, the assessee has many modules/fora to register his grievance but beyond that there is no change from earlier regimes. ITC was blocked in 2018 and unblocked in 2022. All along the taxpayer tried to ascertain the reason for blocking by writing to the department, complaining on the portal etc., but did not receive any response. It received an SCN proposing recovery of the exact amount of blocked (now unblocked) credit. The taxpayer approached the High Court to set aside the SCN and also prayed for interest to be paid by the department for the years of blocked credit. The High Court held that the SCN merely quoted the circular which laid down the procedure to be followed for blocking, unblocking of ITC ledger and recovery without any allegation or mention of the infraction by the taxpayer which called for blocking of ITC and was liable to be set aside. However, given that the department put forth certain allegation (though not substantiated) and lack of provision in the statute for grant of interest, the High Court did not direct payment of interest for the period of blocked credit. [2023-VIL-658-DEL]

 

Failure to file return will call for cancellation of registration despite payment of tax

The order is against the taxpayer but in the absence of crucial details, detailed analysis could not be made. The petitioner whose registration had been cancelled contended that so long as tax and interest had been paid, he could not be termed as a defaulter and the GST portal ought to allow filing of return. In other words, cancellation of registration for non-filing of returns was incorrect. The petitioner had not responded to the show cause notice prior to cancellation nor availed personal hearing. The High Court held that there is no contradiction between Section 50 or Section 29 of CGST Act and since the petitioner did not file returns for a period of six months consecutively, the authority had no option but to cancel registration. Also, the argument of GST portal not being viable was not accepted since all taxpayers were using the same to file returns. It is not clear as to how the taxpayer filed return even while registration was not active as the order notes the claim of taxpayer that tax with interest was paid and return for the same was submitted [2023-VIL-666-KER]

 

Seizure of goods & freezing of bank account of bonafide purchaser not valid - Customs invokes provisions without applicability

Goods (allegedly undervalued) had been cleared for home consumption and thereafter acquired by the petitioner in the open market and then sold further. Customs authorities in course of investigating the original importer reached the premises of the petitioner, ordered freezing of his cash credit account and sealed the godown. The source of their power to do this was traced to Section 135 of Customs Act, 1962 which deals with evasion of duty and for prosecution, Section 110 providing for seizure besides Section 28 providing for recovery of dues. As held by the High Court none of the provisions quoted provide any ground for the actions undertaken by the authorities. There being no duty of customs or any dues under the Customs Act, authorities could not attach the bank account. The goods had been already cleared for home consumption and hence they could not be seized or detained. The authorities themselves agreed that the goods in the petitioner's godown were not the same (imported) goods but similar goods. Moreover, the imported goods were CRGO Strips / Sheets and seized goods were CRGO-Slit Coil and CRGO-Steel Scrap. It was held that unless there was some connivance or wrong-doing on part of the purchaser, the customs authorities cannot proceed against him. The High Court declared the detention of goods to be illegal and also ordered unfreezing of the bank account. This case again shows exercise of powers without proper appreciation of facts and without ascertaining whether the action is sanctioned by law. But Customs and revenue intelligence authorities have scant regard for law as the abuse of powers in this case show [2023-VIL-662-BOM-CU].

 

Discarding certificate of origin without verification at supplier's end, is not valid

CESTAT has disapproved the practice of discarding certificates of origin without verifying at the end of supplier in the exporting country. The appellants had imported gold jewellery and diamond studded gold jewellery from Thailand and preferential rate of duty claimed under Notification No. 85/2004-Cus. The goods were assessed by customs authorities and cleared routinely. As usual, after some time, DRI investigated and suspected certificates of origin. Local value addition (in Thailand) was alleged as less than the threshold prescribed and validity of certificates itself was questioned.

 

The CESTAT was unambiguous in holding that statements recorded from various parties and documents have no evidentiary value for ascertaining origin when there was no investigation made at the end of the supplier. The bald allegation of the department that respective authority in Thailand has generally not authenticated most of the certificates was held as not acceptable. The rules of origin were found to be complied with in this case except value addition criterion. The edifice of DRI case was brought down by holding that value of non-originating material was absent in this case and ascertainment through domestic agencies or admission by way of statements cannot be accepted. Based on precedent decisions, the Tribunal held against discarding of the certificates of origin and allowed the appeals. The period in this case is pre-CAROTAR. After the new regime, the latitude available for detention and verification of certificate of origin has become very wide [2023-VIL-937-CESTAT-MUM-CU].

 

Inflatable party decoration item is not a toy - Classifiable under CTH 9505

In a very interesting order involving classification of inflatable party item and the requirement of BIS certificate which the importer did not produce, the CESTAT held that the item used for decoration and not as a plaything/toy would be outside the purview of Indian Standards and had been correctly classified under CTH 9505. The imported item did not find a place in the Toy Quality Control Order, 2020 and it was not product or material designed or clearly intended for use in play by children under 14 years of age and therefore BIS certificate was not required. The department contended that the item was classifiable under CTH 9503 and not under CTH 3926 as declared by the importer [2023-VIL-959-CESTAT-KOL-CU].

 

 

(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)