Tax Vista Your weekly tax recap Edn. 142 - 6th March 2023 By Dr. G. Gokul Kishore

 

 

Input tax credit on purchase of vouchers not available

Vouchers are something that everyone struggles to understand. GST law describes it is an instrument, High Court equates it with money, some taxpayers claim it is actionable claim while some claim it is a service. But the Appellate Authority for Advance Ruling (AAAR) did not labour much to understand the nature or character of voucher because it was asked to rule as to whether input tax credit of GST paid on purchase of vouchers can be availed or not. The answer is obvious as it comes from AAAR. The reasoning is surprising. The advance ruling authorities (including appellate authorities) have scant regard for High Court or even Supreme Court orders and every attempt is made to distinguish them to hold that none of the binding precedents relied on by the taxpayer are applicable in any given case. However, when it comes to ITC on vouchers, the AAAR has opted to follow jurisdictional High Court's ruling in Premier Sales Promotion case [2023-VIL-67-KAR] holding that vouchers are neither goods nor services. This means question of availing ITC does not arise. The Appellate AAR has upheld the advance ruling but modified it as the AAR had earlier held vouchers were given as gifts and hence ITC was not available [2023-VIL-13-AAAR].

 

The ruling by AAAR following High Court order is understandable. However, the ruling appears to be controversial - the AAAR has elaborately discussed based on precedent High Court decisions that High Court has no jurisdiction to consider such issue on merit and writ petition could not have been entertained in such case. The ruling reads - "Under the writ proceedings, the Court can examine the order of the Appellate Authority by applying the principles of judicial review and not the principles which apply in case of an appeal. Any attempt by the Court to examine the orders of the Appellate Authority for Advance Ruling on their substantive merits or demerits will amount to enlarging the supervisory power of the High Court under Article 226/227 of the Constitution into an appellate power. Any challenge to the order passed by the Appellate Authority for Advance Ruling before the High Court in writ proceedings will have to be confined to a judicial review which will inter alia include the issue as to whether there has been a failure of natural justice at the appeal stage thereby vitiating the decision-making process leading to the making of the order by the Appellate Authority for Advance Ruling."

 

Authors like us may express views on scope of judicial review in a subtle but respectful manner (see Tax Vista dated 6th February, 2023). But, the AAAR being a creature of statute cannot comment on High Court's jurisdiction on a relied upon judgment. If the department is aggrieved over High Court's order entertaining writ petition against AAAR's order, the remedy lies in challenging such order before the Supreme Court and not by expressing its views through another ruling particularly when the question before it was not whether High Court ought to have entertained writ petition or not. Such orders are manifestations of the fact that training in justice dispensation is woefully absent in the tax department. As always advocated, creation of separate hierarchy of officers for quasi-judicial work may be the workable solution as divesting them of such powers or responsibilities will only clog the courts further.

 

Lease agreement terminated under Resolution Plan - Whether supply continues

In a case before Delhi High Court, the petitioner had sought refund of GST paid on the ground that the lessee company had filed for insolvency and the lease agreement stood terminated. The company of the petitioner was a related party to the lessee since employees of the lessee were directors of the petitioner at the material time. The GST authorities had rejected the refund claim stating that the fact the petitioner-assessee had not realised lease rentals was at best a case of bad debt for which there was no provision in GST law for claiming refund.

 

However, the High Court remanded the matter directing the authority to examine the contention of the petitioner that since in terms of the Resolution Plan, all agreements with related parties stood terminated, there was no liability to the lessee-company to make any payment while that of the petitioner will remain outstanding. Though the fact that the service recipient/corporate debtor continued to occupy the space may be seen as supply, a pertinent question would be whether an insolvent person has the capacity to contract and receive services under a lease agreement. Further, liability under GST law is not contingent on receipt of payment from the service recipient / buyer and refund is admissible if supply itself is not made. These are questions which may require an answer in the de novo proceedings, to the extent GST authority is empowered to decide [2023-VIL-151-DEL]

 

E-way bill cannot be used 10 days after generation

In many instances of e-way bill generation, portal issue, accident or mechanical application of law have been noticed. However, in a recent case the assessee generated the e-way bill and issued tax invoice but the vehicle started movement 10 days after generation and on detention by authorities and imposition of penalty, he was before the High Court. Noting that the statute provided by cancellation of e-way bill if it was not used within 24 hours, it was held that the action of authorities cannot be faulted with, more so when the vehicle had been used for transportation of other goods during the 10 days. In this case, the same vehicle has been recorded as used multiple times before the actual movement as per e-way bill and buyer in one of the trips was found to be non-existent. The Court held this to be complete misuse of statutory provisions. While indiscriminate detention of vehicles and goods is often criticized in this column, it should be highlighted that taxpayers who misuse the provisions deserve treatment under Section 129 [2023-VIL-147-ALH]

 

Uploading of DRC-01A and SCN simultaneously - High Court disapproves

Assessees are used to mechanical confirmation of demands in the earlier regime but continue to place their trust in the process of natural justice. The facts in the matter are not new but there is a shade of difference. Intimation in DRC-01A as well as SCN were uploaded simultaneously by the department and order was passed shortly thereafter. The taxpayer approached the High Court assailing the order. The High Court held that the assessee ought to have been given an opportunity to respond to the intimation under DRC-01A and set aside the impugned order. It may be relevant to note that DRC-01A intimation is not mandatory but if the department decides to issue the same, then it cannot be issued perfunctorily as this order indicates. There are hundreds of cases where notice itself is not issued but this case shows the urge to expeditiously dispose cases by the authorities [2023-VIL-142-UTR]

 

Revocation of cancellation - Appeal cannot be filed?

The last mile issues in complying with natural justice continue to plague assessees. In a case before Bombay High Court, the assessee had filed appeal against cancellation of registration and the Appellate Authority rejected the appeal. The order-in-appeal noted that though the appeal was filed within time limit as extended by the Supreme Court, the taxpayer had failed to seek revocation of cancellation under Section 30 of CGST Act and he was not entitled to relief. Following earlier orders, the High Court held that an opportunity to the petitioner to file an application to the authority under Section 30 seeking revocation of cancellation should be granted. It is not known why appellate authorities insist that taxpayers should go through the route of Section 30 when the cancellation order is an appealable order. The law provides both the options and there is no hierarchy among the options [2023-VIL-154-BOM]

 

Supply of ice cream along with food items is classifiable as restaurant service

Sale of ice cream in restaurant is covered under restaurant service if the same is consumed along with food items in a hotel but when ice cream alone is sold, it will be sale of goods liable to GST of 18%. This is the advance ruling. Supply of ice cream by ice cream parlours is liable to 18% GST as per CBIC Circular No. 164. Drawing a conclusion from such clarification that readily available food items which are not prepared or cooked but supplied over the counter will not be covered under restaurant service but will be treated as supply of goods. Therefore, ice cream sold by hotel chain through outlets will be taxable at 18% GST. However, when ice cream is ordered as part of consumption of food items in hotel, it will be considered as composite supply. Supply of ice cream is naturally bundled with supply of restaurant service in this case and the entire supply will be treatable as restaurant service which is the principal supply. The ruling means that if ice cream is consumed in a restaurant without ordering any other food item, then it will be a costly affair with GST of 18%. This is an issue which is not beyond doubt [2023-VIL-41-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)