Tax Vista Your weekly tax recap Edn. 176 - 30th Oct. 2023 By Dr. G. Gokul Kishore

 

 

Tax collected but not paid - No relaxation from penalty

The petitioner-taxpayer had paid tax and interest within 30 days of issue of show cause notice and sought relief from penalty citing sub-section (8) of Section 73 of CGST Act, 2017. However, the department pointed out the crucial element of Section 73(11) which states that where any amount of self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax, penalty would be payable even if tax and interest was paid. Thus, where tax is collected but not paid to the government, the argument on absence of penal liability or payment before issuance of SCN will not hold good. Section 73(11) starts with "Notwithstanding anything contained in sub-section (6) or sub-section (8)", effectively depriving waiver of penalty benefit in such cases. The order of the High Court is brief and it does not interpret the provisions in detail but the conclusion is clear. The petitioner could not succeed. It appears that Section 73(11) should be confined to cases of tax collected but not paid but it includes self-assessed tax not paid within due date as well. But the question mark would be over the cases where self-assessment is made i.e., liability declared in GSTR-3B return but tax not being paid as this is not possible [2023-VIL-754-KER].

 

ITC blockage - High Court restricts to pre-deposit amount

Blocking of electronic credit ledger (ITC) is verily a blockade and the petitioner in a recent case offered a solution so that he could get back to primary business of business. Tax authorities passed orders to block the credit ledger of the petitioner in course of investigation against his suppliers though adjudication of show cause notice issued to the petitioner was pending. The petitioner argued that blocking of ITC ledger would lead to non-filing of return and cancellation of registration and hence he prayed that a maximum of 10% of the demand amount (mentioned as penalty in the order) which may be assessed could alone be blocked. This 10% represents that pre-deposit to be made while appealing against the adjudication order to be passed. Perhaps the petitioner was certain that appeal would lie. The High Court allowed this plea. This order will be useful to similarly placed taxpayers as a complete bar on using ITC can be relaxed in certain cases (depending on facts) and the quantum can be pegged at pre-deposit amount prescribed for filing appeal against the order to be passed [2023-VIL-746-P&H].

 

Coaching for entrance examination also exempt under GST?

What is true education is a matter of debate among high intellectuals and the layman and well as the taxman understand it as leading to a degree. The Karnataka High Court had occasion to examine whether fee collected by an educational institution for coaching for entrance examination was exempt. The petitioner was aggrieved by the order of the department in terms of which such fee would not be exempt. Referring to a particular para of circular dated 3-8-2022, it was held that all services provided by an educational institution to its students are exempt from GST and that the adjudicating authority had not considered the same. Another issue was exemption for fees towards courses organised with help of external agency and Gujarat High Court decision in Educational Initiatives v. Union of India [2022-VIL-214-GUJ] was directed to be considered by the authority [2023-VIL-752-KAR].

 

The petitioner is stated as providing higher secondary education which means schools are being run. However, the issue arises when schools provide extra coaching which are not recognized in law like coaching for ITT-JEE exam in the evenings apart from regular academic curriculum. While the emphasis of taxpayer would be on the status of educational institution, the department would point to recognition under law, leading to degree, etc. The issue is bound to snowball into a major controversy unless there is some amendment either way.

 

Parallel proceedings - Section 6 is not applicable when issues dealt with by CGST and SGST authorities are different

Cross-empowerment is a good issue for litigation because it depends on interpretation as to whether the proceeding initiated by CGST officer is the same as the one initiated by SGST officer. While certain cases are borderline, there are other cases which are fairly different i.e., the action of CGST authority and that of SGST authority is in respect of different issues. In a case belong to the latter category, the taxpayer could not convince the High Court. Proceedings initiated through show cause notice issued by CGST officers were dropped on the issue of ITC mismatch between GSTR-2A and GSTR-3B (and a few other issues) after the reply by the taxpayer was found to be satisfactory. Subsequently, intelligence wing of SGST authorities alleged that ineligible transitional credit was availed and summons were issued to produce documents. The investigation culminated in SCN issued under Section 74 of CGST Act alleging that CST paid on inter-State purchases was also claimed as credit through TRAN-1 form. The taxpayer sought to invoke Section 6 of CGST Act arguing that when CGST officer did not find any irregularity, SGST officer cannot allege discrepancies. The High Court held that the issue of transitional credit was not before the CGST officer and the same came to light after investigation by SGST officers and therefore, the issue before the Central and State GST authorities was not one and the same. Section 6 was held as inapplicable in this case. There were other arguments raised but they are not important from the point of view of discussion [2023-VIL-743-KER].

 

However, in the adjudication proceedings, the taxpayer can well raise doubt over invocation of Section 74 by SGST authorities when the records have been scrutinised by CGST authorities. The general argument which was also accepted in pre-GST regime was that when the departmental officers had conducted audit of the taxpayer's records, they cannot allege suppression and invoke extended period for issuance of SCN at a later date when the period covered by audit and the one covered by the SCN are one and the same. It is not known how more than Rs. 1 crore availed as transitional credit was not verified in 2017 or 2018 itself when the departmental officers were under instructions to conduct such verification.

 

Authorisation to search under GST law cannot be goods-specific

During search in the premises of a business partner of the petitioner, gold kept in a bag was seized. The goods were accompanied by a delivery challan but certain discrepancies were noted in the quantity. The petitioner argued that the search authorisation cannot extend to the goods of the petitioner as there was no authorization from Joint Commissioner for conducting search and seize gold ornaments and such seizure was invalid. It was also argued that the goods were not secreted. However, it was held that since the authorisation was issued by a Joint Commissioner and gold items, which the petitioner had later on claimed ownership, was found in a bag in the premises, the seizure was valid. The High Court opined that there cannot be authorisation in respect of each and every person and each and every article, goods, books, and documents which may be discovered during the search operation [2023-VIL-753-KER].

 

It could have been better to explain the difference of around 300 grams before the adjudicating authority or appellate authority instead of engaging in litigation through writ petition without any convincing ground. Section 67(2) of CGST Act requires that the proper officer should have reasons to believe that goods liable to confiscation or any documents or books or things which may be useful in proceedings are secreted in any place. This is the basis for authorisation to inspect and search. The officer cannot foresee the goods which may be available.

 

Dash in Customs exemption notification does not mean NIL rate

Though precedent decision has been followed, a recent order of Tribunal in a customs matter is briefly analysed to highlight the age-old or classic issue of meaning of NIL rate of duty. In this case, imported Aviation Turbine Fuel (ATF) remained unutilised in aircraft and it was subsequently used for domestic run. The demand of customs duties on remnant ATF was confirmed by adjudicating authority after holding that liability was accepted by the importer and the dispute was regarding valuation. It was held in the impugned order that cost of transport, insurance and handling charges were liable to be included as per Rule 10 of Customs Valuation Rules. The importer argued that the fuel was never unloaded nor transportation charged incurred in respect of such fuel. Tribunal's Larger Bench decision in Jet Airways case was relied in this case wherein it was held that no amount was required to be included towards transportation cost in respect of remnant ATF. The Tribunal noted that the LB had held no notional value towards transportation was required to be included in transaction value and based on such reasoning, the LB had further held that none of the items were liable for inclusion. The matter was remanded to Commissioner to pass order after taking into account such precedent.

 

The interesting issue is about Notification No. 119/2008-Cus., which mentions rate of additional duty (CVD) as "-" and whether such dash should be read as NIL and no CVD is required to be paid. The Tribunal noted that dash "-" does not mean NIL as the exemption notification itself uses both dash and NIL. The explanation inserted subsequently to clarify the effect of dash would be applicable retrospectively wherein it was clarified that dash means BCD as per First Schedule of Customs Tariff Act would apply and for CVD, as per Excise Tariff, the duty rate would be applicable. The order is reminiscent of legacy litigation where meaning of NIL rate of duty used to be fought over [2023-VIL-1063-CESTAT-BLR-CU].

 

CBIC issues circulars on various issues including corporate guarantee

As recommended by the GST Council, CBIC has issued three circulars to clarify various issues. Circular No. 202/14/2023-GST dated 27-10-2023 seeks to clarify the issue of admissibility of export of service benefit under IGST Act when proceeds are received in INR through Special Vostro Account. The circular explains that RBI has issued circular in 2022 wherein additional arrangements like Rupee Vostro Accounts have been put in place to permit international trade settlement in Indian Rupee. Circular No. 203/15/2023-GST clarifies place of supply in certain cases like transportation service for goods consequent to omission of specific provision in Section 13(9) of IGST Act from 1-10-2023. Default rule of reckoning location of recipient as place of supply instead of destination will be applicable. On advertising service undertaken across States, place of supply will be where the immovable property is situated in the case of hoarding erected in structure / building belonging to the service provider. In other cases, it will be covered by default rule (location of recipient) as it will not be considered as property based service. The issue of place of supply in respect of co-location service has been clarified in greater detail. Since such services provided by data centers include IT hardware and infrastructure, it is not a mere case of immovable property based service and therefore, POS will be location of the recipient. If the agreement is merely for renting of property, then it will be based on the location of the property.

 

The last one - Circular No. 204/16/2023-GST is of wider ramification and has been much debated by now. Personal guarantee given by Director to company for securing credit facilities from financial institutions is supply of service but the taxable value will be zero and no GST would be payable. The basis for such conclusion is RBI's circular dated 9-11-2021 instructing banks to ensure that undertaking is obtained from Directors to the effect that no consideration is involved in giving guarantee as the same should not be used as source of income. Corporate guarantee between related entities has been hanging fire and the same has been doused in time. As per the circular, because the entities are related persons, even without consideration, it would be treated as supply and new Rule 28(2) of CGST Rules will govern valuation. As per the new rule, taxable value is deemed to be 1% of the amount for which guarantee is offered or the actual consideration, whichever is higher. Voices are being raised against the quantum of 1% as the same is considered too high if not exorbitant. For now, at least, some clarity has been provided to such vexed issues litigated since service tax regime.

 

(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)