Tax Vista Your weekly tax recap Edn. 177 - 6th Nov. 2023 By Dr. G. Gokul Kishore

 

 

Value of FOC supply of fuel includible when service is supplied by GTA

Value of diesel provided free of cost (FOC item) by the recipient to the supplier would be liable for inclusion in taxable value as per Chhattisgarh High Court. The order is bound to create a controversy considering its ramifications. The petitioner, a GTA, was aggrieved by the ruling of Appellate AAR (on the issue of no ruling in view of divergence between members) and the AAR. The AAR had held that cost of fuel provided by the service recipient was liable to be included in taxable value. As per the contract terms, the petitioner was required to provide truck but fuel would be provided by the recipient and the cost of such fuel was not to be treated as consideration. Effectively, fuel was not within the scope and responsibility of the service providing GTA. The High Court held that in terms of Section 15(2)(b) of CGST Act, any amount which the supplier was liable to pay but paid by the recipient, would be includible and given that fuel was central to the business of the petitioner as a transport agency, it would form part of consideration for supply even if the terms of contract provided otherwise. Surprisingly, the Court has recorded observations to doubt the bona fide nature of the transaction which, on appeal, may not find favour with the Supreme Court.

 

The order reads - "The statutory provision of Section 15(2)(b) takes within its sweep to value, which is incurred by recipient. Therefore even by agreement in between the GTA and service recipient, this statutory liability cannot be sidelined and the merited attention of the statute sets a red line. Therefore, in the instant case, the value of service agreed to be provided necessarily will depend on the nature of service and the nature of business. The petitioner who can survive to run the business of goods transport on fuel therefore cannot claim that the diesel is supplied by the service recipient free of cost, as such, it cannot be included as the fuel is an integral part used in providing the Transportation Service and is essential for GTA provider. Without fuel the entire business of GTA cannot survive. Therefore, fuel being an integral part cannot be bifurcated to overcome a tax liability."

 

The order distinguishes GTA service from rest of the services throughout as even CBIC Circular has been held as relevant only to mould supply by car manufacturer / OEMs. Law is applicable to all services and to extricate GTA service to apply the law, particularly by emphasising on nature of business, seems to be novel raising question mark over validity. It appears that the term "liable to pay" has been given a meaning of "would have necessarily incurred/ would have been obliged to incur" which expands the scope of the section [2023-VIL-764-CHG].

 

Tax dues rank on par with dues of secured creditors - SC rejects review petition

In Tax Vista dated 12 September, 2022, judgment of the Supreme Court in State Tax Officer v. Rainbow Papers [2022-VIL-66-SC] was briefly analysed. This judgment is a landmark one since the Apex Court held that the statutory charge created under VAT Act would be covered under "security interest" and the State will be treated as secured creditor and therefore, there was no question of VAT Act overriding Insolvency and Bankruptcy Code (IBC) or vice versa as the State being a secured creditor, tax dues will rank with other specified dues like workmen's dues. Review petition filed against this judgment has not been accepted by the Supreme Court now. The parties attempted to argue that the waterfall mechanism under Section 53 of IBC was not considered in the judgment but the same has been held as factually incorrect in the present order. The proceedings being review, the scope for interference was also limited as the Court said there was no mistake or error apparent in the judgment.

 

The review petitioners sought to place reliance on the recent Supreme Court judgment dated 17-7-2023 in Paschimanchal Vidyut Vitaran case wherein it was observed that the fact of government dues being placed much below those of secured creditors and even unsecured and operational creditors was not either brought to the notice of the Court in Rainbow Papers case or "was missed altogether". For this, the present order notes that if another Coordinate Bench differs, then the question should be referred to Larger Bench, in an apparent reference to departure from Rainbow Papers case without referring to Larger Bench. Considering the divergent views, the issue as to whether government dues can be considered as on par with secured creditors can be said as far from having attained finality [2023-VIL-95-SC].

 

Cash is not a thing and cannot be seized under CGST Act

There are judgements by High Courts of Kerala, Delhi and Madhya Pradesh both for and against the power of GST officer to seize cash during search. In this case before Gujarat High Court, cash which was explained as pertaining to sale proceeds of silver bars was seized by the GST officer. It was also retained, without issuing notice beyond the period of six months prescribed in Section 67(7) of CGST Act. The Gujarat High Court held that cash is not goods and cannot be treated as a thing to be seized as it did not pertain to any unexplained transaction under the GST law. Also, where the cash did not form a part of stock in trade, it could not have been seized. This interpretation is certainly welcome in keeping with the larger perspective of provisions of Section 67(2). To make this point clear, the provision may need an amendment to expressly keep cash out of the provision. In this case, the seizure was made three years ago but the High Court has not given directions on interest to be paid to the petitioner [2023-VIL-763-GUJ].

 

Fair hearing opportunity includes ample notice and time for filing effective reply

This case had many ingredients on how not to comply with principles of natural justice including uploading of hearing notice at 9.52 pm, giving less than two days' notice, confirming demand with a vague statement that "mere written reply with tabular columns for discrepancies" could not be accepted. The taxpayer assailed the order stating that though technically three hearing opportunities were provided, the subsequent communication from the department did not refer to reply submitted by them and when time was sought to furnish documents the department stated that they had already used up time in hearing opportunities. The taxpayer received 14 days, 4 days and 3 days respectively for production of documents. At the time of hearing of the writ petition, the department was not ready and sought further time. The High Court held that the impugned orders raising demand in crores were unsustainable not only for violation of principles of natural justice but also for failure to pass speaking order and set aside the same with direction of remand. SGST Officers rival DGGI / DRI in raising high-pitched demands running into several crores and the grounds are, in most cases, absolutely meritless and even ridiculous. The urge to pass order immediately and to initiate recovery action needs to be contained before the situation goes out of hand [2023-VIL-759-MAD].

 

Provisional attachment after issue of SCN valid

In a case reminiscent of long rallies in tennis, the account of the petitioner was attached twice - the second time after he had secured release from the first attachment. Anyway, the argument of the petitioner was that the allegation being passing of ITC without receipt of goods, fake invoice etc, which fell under Section 122 and not Chapter XII (assessment), XIV (Search) or XV (demand), the second attachment invoking Section 83 of the CGST Act was not valid. However, the High Court held that search proceedings had culminated in a show cause notice and this was covered by Chapter XV and the provisional attachment was valid. Repeated attachments, longer time taken to issue SCN, summoning frequently and calling for various documents in different formats - these are more punishments by themselves and monetary penalty or attachment will seem to be less painful [2023-VIL-761-P&H].

 

Delay in taking credit leads to denial

Though generally a taxpayer vigilant about input tax credit would do his best to push the limits, the taxpayer in this case applied for extension of time to avail transitional credit after 5 years. The Commissioner declined stating that the application was beyond the time limit. As per Section 140(5) of CGST Act, a taxpayer may avail transitional credit on inputs received after 1-7-2017 but invoice has been received within 30 days thereafter. Such time-limit can be extended by another 30 days by the Commissioner. Transitional credit was claimed through TRAN-1 form after expiry of the said time-limit and without extension of the same by the Commissioner initially. Undaunted, the taxpayer also filed a petition assailing the denial by the Commissioner but could not succeed [2023-VIL-766-KER].

 

Customs valuation - Re-assessment can be challenged in appeal even if accepted initially

When Customs authorities reject the declared value and undertake re-assessment under Section 17 of Customs Act, speaking order is required even if the importer has consented to loading of value. If such order is not issued and the procedure for rejecting declared value as per Customs Valuation Rules is not followed, then re-determination is not valid. The importer has locus standi to file appeal against such enhancement of value and mere acceptance of re-assessment does not mean the same can never be challenged. This is the crux of a recent CESTAT decision on a typical customs valuation case.

 

In this case, goods were imported from China and the declared value was enhanced without assigning any reason. Re-assessment was not contested, and clearance of goods was obtained. Subsequently, appeal was filed but Commissioner (Appeals) rejected it on the ground that enhancement of value was initially accepted by the appellant and therefore, they cannot question the same later. The importer-appellant advanced arguments like there cannot be estoppel against law and fact of filing appeal indicated payment of duty was made under protest.

 

The Tribunal held that specific procedure has been prescribed for rejecting declared value under Customs Valuation Rules and if the same is not followed, then re-determination of value will not be valid. It said that re-determined value may be accepted by the importer to secure early release of goods to avoid business loss and mere acceptance of the same cannot justify re-determination which is unlawful to begin with. Even if the importer does not ask for speaking order under Section 17 of Customs Act for re-assessment, the officer is duty bound to issue the same. Importance of value of contemporaneous imports was emphasized to hold that while such value was considered by the Customs authorities, it was not clear whether identical goods or similar goods were taken. The importer had also disputed that the goods taken for comparison and the goods imported by them were different. The nail in the coffin was sole reliance placed on NIDB data which has been disapproved in several decisions.

 

The order points to certain fine distinction also - "Here we may add that there is difference between an acceptance by the importer to an undervaluation which is a part of any investigation and has been recorded in a statement under Section 108 of the Customs Act, 1962. Such a statement is admissible as evidence in any legal proceedings. But mere acceptance in a letter or on the bill of entry of the re-determined value to pay duty at the time of clearance has no statutory force and cannot act as an estoppel against the importer for further legal proceedings."

 

This decision will be helpful to importers who routinely face the pressure of getting the goods released to avoid demurrage, delivery commitment, etc., and therefore, duty is paid initially. The law also needs to evolve by codifying the judgments on this issue i.e., amending the provisions in line with the judgments of the Supreme Court [2023-VIL-1121-CESTAT-AHM-CU].

 

Transaction value cannot be rejected taking value of non-comparable imports

In another case of usual drama of DRI investigation ending in loss of case and face for the department, the Tribunal held that declared value cannot be rejected only based on NIDB data and when the comparable goods were imported in smaller quantities while the imported goods were meant for wholesale and quantity was huge. Adoption of arbitrary formula to load the value was also not approved. In this case, declared value was suspected as not reflecting the correct transaction value and DRI investigated. Imported goods lying in stock were seized. While statement was recorded as usual, the same was retracted by the importer. The goods were provisionally released after execution of bond and furnishing bank guarantee.

 

In the SCN, it was alleged that the goods were to be treated as branded because of embossing of certain logo / mark. But the Tribunal noted that at the time of assessment, there was no allegation on goods being branded. The contradictory stand adopted by Customs authorities was exposed by observing that the declared value in respect of another consignment was accepted but only in the case of subsequent lot, value was disputed. It held that there was no evidence to prove the goods as branded and mark and part number were mentioned for identification only since the goods were being sold in bulk without packing. Differential duty confirmed was set aside on merits and also on limitation since suppression cannot lie when goods were assessed and cleared by proper officer. Like the order mentioned above, this one will also be useful to importers when value is compared without providing copy of bill of entry of comparable goods, value is multiplied by two and half times to arrive at higher value and margin, non-comparable quantities are taken for comparison, etc. [2023-VIL-1110-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)