Tax Vista Your weekly tax recap Edn. 141 - 27th February 2023 By Dr. G. Gokul Kishore

 

 

GST Tribunal not in sight - High Court suggests measures to reduce inflow of writ petitions

GST Tribunal is stuck deeply in controversies and contradictions. One of the key provisions has been struck down long ago. GST Council's Group of Ministers has recommended certain amendments but the same could not be finalized in the last meeting. All over the country, taxpayers are compelled to convert writ court into appellate body by filing writ petitions in various High Courts. Being discretionary, such remedy is not available uniformly everywhere. While time-limit for filing appeals before GST Tribunal stands extended with the date when it is constituted and the President assumes office, recovery of dues is another itching factor for the department. In Maharashtra, taxpayers have been told to give a declaration that they would be filing appeal in the GST Tribunal in the near (or distant) future and if such declaration is absent, action for recovery of dues can be initiated. Bombay High Court has instructed inclusion of availability of time till constitution of Tribunal and filing of declaration on intention to file appeal in the preamble of the orders. This, according to the Court, will reduce the inflow of writ petitions [2023-VIL-132-BOM]. However, this may have limited impact as writ petitions filed mostly relate to cancellation of registration, blocking of credit ledger, provisional attachment beyond time-limit, etc. These are cases where writ petition is the only remedy and such disputes are not amenable to appellate remedy.

 

In another similar order, the High Court has reproduced the affidavit filed CBIC Chairman in a related matter wherein it has been stated that no hardship is caused to taxpayers due to non-constitution of GST Tribunal as the time-limit has been extended till the same is formed. A similar direction as noted in the above para / case has been given by the High Court in this case also [2023-VIL-127-BOM].

 

Transfer of developed land - Department files appeal ignoring CBIC circular

The department is rooted to its opinion on land and sale of plots. Despite issue of circular by CBIC, it was before the Appellate Authority for Advance Ruling (AAAR). The applicant proposed to convert the land for residential usage and form small plots and sell them to individuals after obtaining necessary permission from the government authorities for which it had to undertake development work such as  formation of roads, formation of rain water drains, laying of electricity cables, water pipes, sewerage lines etc,.  The AAR had held that GST is not leviable on the sale of such developed land. However the department appealed contending that Circular No 177/09/2022 dated 3rd August 2022 will not apply in this case when land is not sold on "as is" basis and there is an element of service in the development work undertaken.

 

The AAAR however upheld the ruling and stated that consideration received from prospective buyers whether as advances or full consideration is only towards obtaining transfer of title in the plot of land and hence not taxable. It held -"The consideration that the buyer pays is with the intention of purchasing the plot. The consideration is not for receiving a service of development of land. The activity of developing the land is only incidental to the sale of land. The dominant intention here is the sale of land and not the provision of service of development." It also reiterated that department circulars are binding on the officers. As regards the department's contention that the price charged by the seller was composed of a charge towards development work, it held that no evidence of collection of such separate charges was put forth by the department. Only any services procured by the owner from third parties for undertaking the development activity will be subject to GST at the applicable rates. In case the owner of land provides services over and above what is mandated by the town planning authorities, it would be eligible to GST. [2023-VIL-11-AAAR]. CBIC circulars are perceived as panacea to many ills but the obstinate department always attempts to either argue circular is not applicable or disown the same. The authority who gave the approval to file appeal should be held responsible for filing such frivolous appeal.

 

Adjudication of SCN after 29 years - High Court grants relief to assessee

Excise is now referred to as the erstwhile regime, but the department is still transitioning all pending demands. The assessee was aggrieved by hearing notices issued in respect of show cause notice issued in 1993 on alleged misclassification of crane/crane parts cleared on payment of duty at lesser rate of duty.  SCNs had been issued subsequently and in 2004 the Supreme Court had decided the issue in favour of the assessee based on civil appeal pertaining to a different year. However, the department did not rush to close the issue and resorted to the pretext (since there was no substantiation) of SCN being revived from the call book. The High Court was not convinced and held there was no justification for not proceeding with the show cause notice for 18 years even if the explanation regarding pendency of an appeal till 2004 was accepted. It held that adjudication of SCN after 29 years would lead to unreasonable and arbitrary results and because of such inordinate delay, the SCN along with hearing notices were quashed [2023-VIL-130-JHR-CE].

 

The system and processes in government departments are so strange that even after one generation of officers, a notice is kept pending and is live in the files while in several cases, records are reported as "being traced". There are quite a few judgments granting relief to assessees only on the ground of delay in deciding the SCN. May be, it is time to provide for abatement of notices in GST law (assuming Central Excise will get fully absorbed in due course) if they are not decided for a specified period.

 

Sale of pre-processed food items in bulk is not restaurant service - Tax rate is 18%

The applicant sought and was given a ruling that the supplies undertaken by him would not qualify as restaurant services and hence lower rate of tax 5% without ITC cannot be availed. The applicant is registered as a factory and provides frozen food in institutional packs to companies in aviation industry, quick service restaurants, hotels etc., in Ready To Eat (RTE)/ Ready To Cook (RTC)/ processed and semi-processed categories. According to the applicant most of the food items manufactured by them are classifiable either under the heading 2007 or under tariff item 2106 90 99 - other food preparation not elsewhere specified or included and is liable to GST at the rate of 12% or at the rate of 18%.  The applicant's products are not available to the consumer for direct consumption and require processing like thawing, cooking, etc., before they are served. This process was undertaken by the institutional buyers or hotels who served the ultimate consumer. The Authority for Advance Ruling (AAR) held that the goods manufactured by the applicant are classifiable under heading 2106 and exigible to GST at 18% [2023-VIL-36-AAR]. The applicant, it appears was more concerned over any restriction that might have been placed by the department on ITC. Once the activity involving food items is held as not in the nature of restaurant service, the ITC bar also gets lifted.

 

GST on wastage retained by job worker in jewellery sector - AAR disallows extra wastage

Jewellery business has its own particular practices. Making charges and wastage are two items with which almost every Indian family may be familiar with when it comes to gold jewellery. While buyers are generally aggrieved over claim of higher wastage by sellers, by adopting methods like calling wastage itself as "VA" (value addition), the industry has tried to mollify the tempers. In a particular case, the applicant before AAR sought to know whether 10 grams of pure gold retained by him out of 1000 grams of gold give to him for job work of making jewellery when the principal has allowed 40 grams to be the wastage, would be liable to GST. The answer is obvious that it would be liable to GST. The AAR has reasoned that as per norms of wastage prescribed by DGFT (Handbook of Procedures), the percentage of wastage claimed is more than normal loss and further, 10 grams of gold were retained before manufacture and the same cannot be held as loss. To add to the misery of the applicant, it has also been held that such value will be includible in the value of job work service and liable to 5% GST. One silver lining in this ruling is that normal loss is allowed and on such loss GST is not demanded but DGFT's prescription may not be accepted by tax authorities in all jurisdictions [2023-VIL-31-AAR].

 

AAR hands over exemption bouquet

The applicant supplied "Bouquets" made with dry parts of plants, foliage, flower buds, grasses and branches of plant which are dried, bleached, dyed and coloured for decorative and ornamental purposes and sold with plastic foil packaging. It sought classification of the goods which are all parts of plants undergoing dyeing, bleaching, etc., before it is packaged.  The AAR held that the goods would be covered under Tariff Item Nos. 0603 90 00 or 0604 99 00, depending on its constituents and that as per S. No. 34 of Notification No.2/2017-Central Tax (Rate), it would be "Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage", and therefore, supply is exempt. It appears because of the processes adopted like colouring, etc., the applicant entertained the doubt. However, the tariff entries are clear and in favour of the applicant [2023-VIL-32-AAR].

 

 

(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)