Tax Vista Your weekly tax recap Edn. 173 - 9th Oct. 2023 By Dr. G. Gokul Kishore

 

 

GST Council Meeting - Certain major recommendations

GST Council in its meeting held on 7th October, 2023 has recommended extension of time-limit for filing appeal before first appellate authority till 31-1-2014 for taxpayers whose appeal was dismissed only on time-bar through order passed on or before 31-3-2023 or those who did not file appeal. The exact reason behind such so-called amnesty scheme is not known and is subject to presumptions like orders not being uploaded in portal and lack of familiarity with the procedures on both sides. The benefit comes with extra cost - instead of usual 10% pre-deposit, 12.5% pre-deposit will be required for this facility. A major takeaway which will help all taxpayers is that 2.5% of such pre-deposit will be required to be paid by cash - this means 10% can be paid by using electronic credit ledger. While High Courts have held divergent views on this issue of payment pre-deposit from credit ledger, there has been no categorical clarification on this issue since the circular issued on this subject is completely vague.

 

Another important recommendation pertains to taxability of corporate guarantee between related persons based on special valuation provision taking 1% as of the amount guaranteed as the taxable value (or the actual consideration, whichever is higher). Though this should put at rest the controversy on this subject, the mood of the industry is not in favour of such tax. The only silver lining is clarification on absence of GST liability on personal guarantee by director to company where no consideration is involved. Another major recommendation relates to receipt in Special INR Vostro account as satisfying the condition on receipt of foreign exchange for treatment as export of service. Even as the challenge on exclusion of Advocates from GST Tribunal is pending in the Supreme Court, the GST Council has recommended amendments to include Advocates with minimum of 10 years' experience for being appointed as Member of GST Tribunal.

 

Refund of ITC - Amendment to rule on export turnover is not retrospective

Amendment to Rule 89(4)(c) of CGST Rules whereby value of zero-rated supplies (export turnover or turnover of zero-rated supplies) for the purpose of refund of accumulated input tax credit due to exports was restricted, is not retrospective, as per Delhi High Court. As per the amendment, lower of the two values - actual export turnover or 1.5 times the value of export of similar goods - should be taken. This effectively means that even if actual export turnover is higher, the same is capped by reference to similar goods at 1.5 times the value. In the case before the Court, refund was rejected on the ground of non-production of FIRC and also computation being not as per amended rules. The appellate authority upheld taxpayer's contention on FIRC but rejected the appeals on computation issue. The amendment came into force in March, 2020 and the department argued that it would be applicable retrospectively as it is procedural provision only but this was not accepted by the High Court.

 

The Court said that right to refund stands crystallized on the date of export. It held that the appellate authority was not correct in applying amended rule for the period before amendment. Refund as claimed by the petitioner for the past period was upheld. The Court did not consider it necessary to deal with the challenge to constitutional validity of the provision by taking note of the fact that the said amendment was struck down by Karnataka High Court in Tonbo Imaging [2023-VIL-198-KAR]. The order should be helpful to similarly placed taxpayers not only under the jurisdiction of Delhi High Court but in other places as well. The amendment itself is ill-conceived because over-invoicing for exports is not a regular commercial practice. In cases of suspicious claim of export benefits, investigating agencies always play their part [2023-VIL-687-DEL].

 

Parallel proceedings - No bar in transfer of investigations by one to another

The issue of multiple proceedings or parallel proceedings come up before High Courts multiple times. In a recent case, jurisdictional officers issued summons and demanded documents and certain amount was paid during investigation. Thereafter, DGGI started investigation and sealed the business premises. After Court's directions, premises was de-sealed and searched. DGGI alleged goods were unaccounted and therefore, seized. The jurisdictional Commissionerate informed the Court that they have no objection to DGGI taking up further investigation, but taxpayer objected to it assailing the jurisdiction of DGGI as summons were already issued by jurisdictional Commissionerate. DGGI alleged diversion of agricultural grade urea and sale as technical grade urea and reflecting purchases through fake invoices while the jurisdictional Commissionerate had focussed on alleged availment of ineligible ITC. The Court noted that ITC availed is the common issue under scrutiny by both the bodies but the focus is slightly different. It held that cross-empowerment of officers should not result in parallel proceedings and transfer of proceedings / investigations is not barred. CBIC instruction on this issue was also discussed by the Court. Since the original grievance pertained to multiple proceedings which was resolved subsequently when DGGI alone took over, the Court did not approve taxpayer's insistence on the authority which should pursue the investigation [2023-VIL-684-DEL]. More than the issue involved, the authority who should investigate itself has become a litigative issue and this is taxpayer friendly GST.

 

Cancellation of registration discovered after generation of e-way bill - Goods cannot be detained

It appears that technical glitches in the GST portal work both ways, though taxpayers are usually at the receiving end. After the petitioner had generated e-way bill and goods were being transported, tax authorities seized the same and levied penalty. The reason - the registration of the petitioner had been cancelled prior to the generation of the e-waybill. The cancelled registration number had in fact been allotted to the petitioner since the registration number allotted initially could not be accessed due to technical glitches. Be that as it may, according to the authorities, seizure was valid though the petitioner contended that without a valid registration number, e-way bill could not be generated and the transaction was a genuine transaction. The High Court set aside the order of seizure. Another important aspect in this case was that the taxpayer had opted for composition scheme and hence it was also held that there can be no case of tax evasion, no availment of ITC and on this count also seizure was not warranted [2023-VIL-679-ALH].

 

Premises shared by parent and subsidiary is not indication of irregular registration

The petitioner company obtained a second registration in the State of its parent company, taking a part of the premises on lease. This single fact was sufficient for the officer to hold that the registration had been obtained by fraud and the registration was cancelled. The petitioner-taxpayer could not get relief at the appellate level also, and the impugned order held that the premises of the parent were not suitable for the taxpayer's business and that the taxpayer had indulged in bill trading without receipt of goods. The taxpayer offered to prove genuineness through the records of import, purchase, sale of iron scrap and billets but this was not done by the authorities. The High Court held that mere commonality of the location of the petitioner and parent company itself is not sufficient to hold that the petitioner has committed fraud in obtaining registration and without the logical and legal exercise of verification, the conjecture of the inspecting authority have been upheld by the lower authority. It also opined that even if the place of business of the petitioner for argument sake was not conducive for its business, it does not indicate that registration was obtained by fraud. The impugned order was set aside and the authorities were directed to restore registration. The argument that the premises is unsuitable takes GST taxpayers to Central Excise regime when factory location and facilities were considered so important [2023-VIL-673-AP].

 

Personal guarantee provided by director is a taxable supply

The GST Council in the meeting on 7-10-2023 has decided that personal guarantee provided by Director without consideration will not be taxable under GST. However, taxpayers have been suffering from lack of clarification on this issue till such decision. The Telangana High Court refused to interfere with the appellate authority's order that GST was payable by the petitioner-company on reverse charge basis on personal guarantee provided by the director. It referred to Notification No. 13/2017- Central Tax (Rate) wherein services supplied by a director of a company or a body corporate to the said company or the body corporate have been made subject to GST on reverse charge basis. The order is very brief and readers may not have the benefit of arguments made by the parties particularly the precedent judgments on this issue [2023-VIL-683-TEL].

 

E-way bill - Goods cannot be detained for non-mention of route

Unlike the earlier VAT regime, there is no requirement in GST regime to mention the route which is to be taken to reach the destination in so far as transportation / e-way bill is concerned. The petitioner's goods were detained by the tax officers stating that the goods had already been unloaded at a different destination and the route in which the vehicle was proceeding appeared incorrect. It was also contended that the driver of the vehicle had accepted such unloading of goods though the recorded statement read differently. The High Court held that when genuineness of documents was not in doubt, goods could not have been detained or seized. The Court was not happy and imposed costs on the tax authorities for such unlawful detention and also quashed the order [2023-VIL-680-ALH].

 

Person aggrieved can file appeal though dues paid by a different person

In an interesting case with a twist of commercial dispute weighing in on GST, the petitioner who had transported goods and against whom the order was passed in respect of detained goods agitated against rejection of his appeal. The transporter had loaded goods in a different vehicle due to breakdown and GST authorities intercepted the same. The tax and penalty were paid by the owner of the goods and later recovered from the petitioner. The transporter's appeal against the order was rejected stating that since the tax and penalty were paid by a different person, no appeal could be filed by him. The High Court held that when there was no provision in CGST Act which disentitled a person against whom the Order-in-Original is passed, but the tax and penalty has been paid on his behalf by somebody else from filing an appeal challenging the Order-in-Original, the appeal cannot be rejected. It is pertinent to note that Section 107 provides that a "person aggrieved" by an order of an adjudicating authority may appeal to the appellate authority. Though there is no discussion on the term, it is clear that a person against whom order is passed cannot be precluded for filing appeal [2023-VIL-671-BOM].

 

SWS is not payable when BCD is exempted

When basic customs duty (BCD) is exempted, social welfare charge (SWS) is not required to be paid, as per CESTAT. The importer was compelled to pay social welfare surcharge (SWS) on the notional value of BCD to clear the goods in the case before it. The importer argued that since BCD was exempted, SWS could not have been collected with reference to BCD on notional basis. The CESTAT noted that as per Finance Act, 2018, SWS shall be calculated at 10% of aggregate of duties which are levied and collected by the Central Government and therefore, not only the duties should be "levied" but also "collected". The department argued that BCD is by way of debit to MEIS scrip, but this was not accepted by the Tribunal since BCD was indicated as zero in bills of entry. Based on precedent judgment, it said that collection means physical collection of tax and when BCD is not collected, SWS is not required to be paid. Lot of judgments have been discussed and importantly, Supreme Court judgment in Unicorn [2019-VIL-42-SC-CE] has been distinguished [2023-VIL-1000-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)