Tax Vista Your weekly tax recap Edn. 178 - 13th Nov. 2023 By Dr. G. Gokul Kishore

 

 

GST Council not empowered to determine classification - Flavoured milk classification is wrong

GST Council is not empowered give recommendation determining classification and the recommendation on classification of flavoured milk is wrong, as per Madras High Court. Flavoured milk is classifiable under heading 0402 only, according to the judgment. The item is not classifiable under heading 2202 as recommended by the GST Council since "beverages containing milk" covers only those which are seed based, plant based or fruit based and it does not cover such product obtained from milch cattle. However, the Court has given liberty to the government to change the GST rate stating that "in taxing matter latitude can be given to the authorities while fixing the rate of tax."

 

GST Council's recommendation on classifying flavoured milk under heading 2202 attracting 12% GST was challenged through writ petition where the taxpayer argued the goods are classifiable under heading 0402 liable to 5% GST. The debate was over whether the product should be seen as a beverage containing milk or dairy product. The taxpayer argued that the GST Council can only recommend but is not empowered to determine classification of goods or services. For classification, the taxpayer relied on FSSAI license. The High Court noted Supreme Court's observation in Mohit Mineral case [2022-VIL-30-SC] to the effect that the recommendations of the GST Council are not binding. Reliance by petitioner on the judgment of the Supreme Court in Commissioner v. Amrit Food [2015-VIL-217-SC-CE] and host of other cases (most of them following it) have been held as in applicable as they were based on entries in Central Excise Tariff, particularly before amendment. The High Court exhaustively discusses all such judgments before distinguishing them.

 

The High Court noted that Chapter 22 is titled "Beverages, Spirits and Vinegar" and Chapter Note 3 states that for heading 2202, "non-alcoholic beverages" means beverages of an alcoholic strength by volume.." and therefore, "Beverages containing milk" has to necessarily contain alcohol of specified strength and therefore, flavoured milk made out of dairy milk cannot come within the purview of Chapter 22 of Customs Tariff Act. It applied the principle of Nosciter-a-sociis" to understand the meaning of the terms. Food Safety statutory provisions were relied on to emphasise the product is made from milk and the same may be enriched.

 

While the judgment is detailed and reasoned, it is likely that the GST department will file appeal before Division Bench. Further, the deliberations surrounding the recommendation of the GST Council indicate that the government may opt for appropriate amendments so that it can continue to levy 12% GST on such products based on the view that they are value-added and constitute a different class altogether. More than the product, this is probably the first time that the Supreme Court's ruling on GST Council's recommendation being not binding has been applied in another judgment. The field is wide open now [2023-VIL-789-MAD].

 

GST dues - Recovery from Director when company is under liquidation

GST authorities are tax authorities and therefore, a company being wound up is of no concern to them and the tax dues should be recovered somehow. NCLT had passed order on liquidation in 2019 while GST officers visited the company's premises, recovered documents and issued show cause notice in 2020. The director of the company responded by stating that she has no locus standi to represent the company since liquidation order has been passed already. It appears the GST department asked the Official Liquidator to respond which was not "complied with". Order was passed ex parte demanding tax with interest and imposing penalty. The Director filed writ petition before High Court apprehending recovery from her.

 

Section 88 of CGST Act deals with recovery of dues from a company under liquidation. Sub-section (3) of Section 88 states that when a private company is wound up, dues under GST law (before, during or after liquidation) cannot be recovered from such company, then Director will be liable for payment of such dues. The Director can save himself / herself if non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on his / her part in relation to the affairs of the company. The High Court has held that GST department should lodge claim before Official Liquidator and if funds are not sufficient and dues cannot be recovered from the company, then new cause of action for recovery from ex-directors would arise. Based on such reasoning, it has held that the impugned order demanding GST from the company and served on the Director, is not sustainable. However, the Court said the GST authorities are at liberty to approach Official Liquidator and if funds are not available with the company, it may proceed against ex-Directors [2023-VIL-775-MAD].

 

If a company goes into liquidation, it means it is beyond resolution and cannot be revived. In such extreme situations, government seeking its pound of flesh from the Directors is something which may be painful and long-drawn since the law provides safeguard in the form of reasons like gross neglect or breach by the Director of his duty to save himself from such recovery. If the person concerned attempts to transfer his assets before the GST authority approaches, then Section 81 making transfers void may come into operation.

 

Customs authority empowered to deny exemption and demand IGST

The tremors arising from the issue of IGST being a customs duty or otherwise are felt far and wide. The importer had claimed IGST exemption dates. However, such exemption was sought to be denied and tax was demanded on the ground that exemption was applicable to fresh dates and not wet / processed dates. The issue was not as such about admissibility of exemption. The dispute was over the powers of Customs authorities because the order denying exemption and demanding IGST was passed under Section 28 of Customs Act. Writ petition was filed assailing the order having been passed by Customs authority and it was argued that the authority under IGST Act should be the proper officer and Customs authority was not the empowered assessing authority. The High Court noted that Section 2(2) of Customs Act defines assessment and it covers determination of tax payable under "any other law" besides Customs Act or Customs Tariff Act and Section 28 not only covers customs duty but also other duties applicable on imported goods. It held that Customs authority is empowered to make assessment regarding exemption claim from IGST under Section 28 of Customs Act. This may essentially become an issue of turf-war between Customs and GST officers and the taxpayer need not necessarily be concerned with. Jurisdiction dispute among officers of the same Board (CBIC) is something that GST will bring to the table and this also adds as another unique feature of the landmark tax reform [2023-VIL-768-KER].

 

Illegal detention of imported goods by mis-interpreting BIS requirement - HC orders release

Customs authorities administer very many laws besides Customs Act. BIS related regulations have come to occupy an important position considering the emphasis on standards and compliance with such regulations in respect of imported goods are now routinely looked into. Lithium-ion cells were imported for use in manufacture of electric vehicles. Consignments were being cleared without any issue but in respect of two bills of entry, SCN was issued alleging non-compliance with labelling requirements as per BIS (Conformity Assessment) Regulations, 2018 and order was passed confiscating the goods. The importer argued before the High Court that the goods had BIS marking as required under the regulations. The department contended that the mark was not affixed on the actual product but the same was only made on the package. The High Court noted that the relevant regulations permitted affixing of mark either on the product or on the package and the same was complied with by the petitioner. The Court said the Commissioner had deviated from the regulations by issuing public notice as labelling was mentioned as compulsory on both the product and the package and the Requirement for Compulsory Registration Order (RCR) was not applicable to the imported goods in the present case since RCR was applicable to only electronic and IT goods which stipulated marking on both. A major point highlighted by the Court is that such mark could be affixed by liaison office in India after import of goods as per subsequent public notice.

 

The Court expressed surprise that in this case goods were not even seized and it is a case of mere detention and therefore, Section 110A on provisional release of seized goods will not be applicable. It ordered release of the goods holding them as illegally detained for long. This order will be helpful to importers whose consignments are being simply detained and proceedings are initiated, particularly citing requirements derived by misinterpretation of provisions [2023-VIL-769-BOM-CU].

 

GST portal to be verified before issuing SCN

The taxpayer was working under composition scheme. No input tax credit can be availed and therefore, was not availed. Proceedings demanding tax were initiated and order was also passed on the ground that a particular supplier was non-existent. The petitioner argued that the supplier had filed GSTR-1 and GSTR-3B returns and further, no ITC was availed by them. The department contended that mere fact of working under composition scheme does not mean Section 74 of CGST Act is not invocable.

 

The High Court noted that there was no whisper in the order that returns have been filed by the supplier and in GST regime, all details are available in the GST portal which can very well be verified but the authorities failed to do such verification in the present case. The order was set aside and the appellate authority was directed to pass order afresh. Such orders of writ courts will provide much needed relief to harassed taxpayers. When the GST portal has all the data and information, issuing show cause notices and then passing orders, without verifying such information in the portal should be viewed seriously. When the department has access to information of selling dealers also, asking the purchasing dealers to prove tax payment by sellers is atrocious [2023-VIL-767-ALH].

 

Violating justice naturally

Violation of natural justice is quite natural for GST authorities. Numerous orders are getting reported daily where order is passed based on template, hearing is not proper, order is passed without considering the reply filed, etc. In a case of this nature, hearing was held and the fact of filing of reply by the taxpayer was recorded but when adjudication order was passed, reply was not taken into account. The taxpayer successfully argued that though they have right to file appeal against such order and the appellate authority may make assessment afresh, they would lose the opinion of the Assessing Authority in respect of their reply to the SCN. It was also argued that if the assessment order is set aside by the High Court, then there will be revenue loss to the government. The High Court held that the objections / reply was not considered by the adjudicating authority and the order contained certain portions of SCN reproduced as such and failure to pass speaking order would vitiate the proceedings. The adjudication order was set aside with the direction to pass order afresh taking into consideration the reply filed by the taxpayer. Compelling taxpayers to file writ petitions to make the assessing / adjudicating authorities decide properly will deprive High Courts of their valuable time besides draining resources of taxpayers [2023-VIL-773-MAD].

 

 

(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)