Tax Vista Your weekly tax recap Edn. 146 - 3rd April 2023 By Dr. G. Gokul Kishore

 

 

Seizure of cash by GST authorities - Kerala HC draws the line

Amidst decisions of various High Courts on whether cash can be seized during inspection / search under Section 67 of CGST Act, Kerala High Court's order in a recent case has drawn the distinction with clear interpretation. It held that while cash be seized under Section 67 as "thing", in the present case it was not necessary since the cash did not form part of stock in trade in respect of business of the taxpayer and the reasoning of GST department suspecting the licit nature of source was flawed as it would have been justified for Income Tax Department to entertain such belief but such findings are irrelevant under GST law. It further held that more than six months had elapsed without issuance of SCN but cash has been retained. The Court directed return of the cash [2023-VIL-197-KER].

 

The trend of GST officers seizing cash is more seen in GST regime compared to excise /service tax regime. In certain cases, it shows the ignorance of the present generation of GST officers on irrelevance of cash seized for investigations under GST law as pointed out by the High Court above. A thing is seized if it can serve as evidence in the proceedings in future and cash can hardly perform such role in GST cases. As rightly said by the Court, it is for Income Tax authorities to be concerned with such cash if the same is suspected as unaccounted.

 

Opportunity for return non-filers and registration cancellation cases and time-limit for issuing SCN - Notifications issued

A good number of GST notifications were issued on the last day of last financial year. Finance Act, 2023 has also become part of the statute book. Finance Act gets discussed as Bill and then Bill as passed by Lok Sabha earlier. A major relief is for those whose registration has been cancelled and who could not apply for revocation. It covers all past cases and one time opportunity has been provided till 30-6-2023 for seeking revocation. A welcome feature is inclusion of those who had filed appeal against cancellation of registration or who had filed appeal against rejection of revocation but such appeal was rejected on limitation. Payment of dues and filing returns are the usual pre-conditions for availing this facility. This should be given wide publicity and huge number of writ petitions on this issue before various High Courts will get withdrawn. For composition taxpayers also, one-time relief for filing of all pending returns has been extended. A major relaxation is for non-filers of annual returns - all defaulted returns can be filed with minimal late fee of Rs. 20,000 (CGST plus SGST). Along with taxpayer friendly measures, tax officer friendly measure of extending the time-limit for issuing normal period show cause notices has been notified. For FY 2017-18, the department has time till 30-9-2023 to issue SCN, for FY 2018-19, till 31-12-2023 and for FY 2019-20, the extended time for issuing normal period SCN is 31-3-2024.

 

Refund of ITC-High Court holds amendment ultra vires

Rule 89(4)(C) of CGST Rules was amended from 23-3-2020 whereby the words "turnover of zero-rated supply of goods" were substituted. Before the amendment, refund of unutilized input tax credit was to be given by identifying proportionate ITC utilized in export of goods to total supplies. After amendment, lesser of two - value of zero-rated supply of goods or value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed supplier as declared by the supplier - whichever is less - is to be considered. Indirectly, the law has cast a burden on the exporter claiming refund to prove that the value adopted for export is at least 1.5. times higher than the value of similar supplies made in the domestic market. What if the exporter is unable to find such similar domestic supplies' There is no answer.

 

Because of such vagueness and arbitrary nature of fixing the limit, validity of such provision was challenged in Karnataka High Court. The Court held that the amendment is illegal, arbitrary, unreasonable, irrational, unfair, unjust and ultra vires Section 16 of IGST Act and Section 54 of CGST Act. Rule reducing the refund as against the parent Act providing for refund in case of zero-rated supplies is ultra vires. The provision was held as discriminatory because it covered only those who exported under LUT / bond and those who export on payment of tax are not covered. The classification is not based on any intelligible differentia and it bears no nexus with the object sought to be achieve by the Act in incentivizing exports. It further held that inclusion of domestic supplies in zero-rated turnover is arbitrary and unreasonable. The terms "like goods" and "same or similarly placed supplied" are open-ended without being defined and the amendment suffers from the vice of vagueness. It took note of the reason for the amendment as possible misuse but the same has been held as not backed by data. The Court directed processing of refund with interest [2023-VIL-198-KAR].

 

Funds presumed to be owned by taxable persons cannot be subject to provisional attachment

The Delhi High Court has held that attachment of bank accounts is a draconian step and such action can only be taken if conditions specified in Section 83 of CGST Act, are fully satisfied and Section 83 covering property or bank accounts is limited to attaching the bank accounts and assets of taxable persons and persons specified under Section 122(1A) of CGST Act. Hence the action of the department in the instant case attaching the accounts to relatives of the taxable person on the conclusion that the funds transferred to them were in fact owned by the taxable persons and that it was a device to not pay tax, was held as not sustainable. The taxable person had issued a cheque to the department but the same was returned due to insufficiency of funds which was raised before the Court but the same was held as not relevant [2023-VIL-201-DEL]. This is not the first time as in the past also, bank accounts of other family members were attached in another case and the Court had to intervene to release them. If one percent of the enthusiasm shown for recovery is shown in proper implementation of laws, compliance percentage will go up by x times.

 

Assessment of tax has to be under Section 73 or 74 only

The indirect tax regime has seen mammoth battles on valuation but it seems a mere eye estimate was sufficient for GST authorities who proceeded to assess tax payable on goods which appeared to be in excess of recorded quantity. The assessee got partial relief at appellate level but assailed that order as well relying on Metenere Limited v. UOI [2020-VIL-641-ALH]. The High Court reiterated that proceeding under Section 130 on confiscation cannot be used to assess tax which is mandated only under Section 73 or 74 and the entire exercise of assessment was invalid. Further service on SCN on accountant was not proper service and, on this count, also, the proceedings were not sound. Another interesting observation is that even if goods are in excess, the liability to pay the tax arises at the time of point of supply, and not at any point earlier than that and hence tax could not be assessed at that point. Also, the department has to establish intent to evade tax to allege contraventions envisaged in Section 130 [2023-VIL-202-ALH]. Using Section 129 and Section 130 without proper proceedings under Section 73 or 74 is a routine feature. The sphere of operation of such provisions should be clearly explained to tax officers through routine training sessions.

 

Services relating to and sale of redeveloped plots / built-up space liable to GST

The AAR had earlier held that a government enterprise developing and selling dwelling spaces, offices in terms of contract with the Ministry of Housing and Urban Affairs (MoHUA) is liable to pay GST and that such function was not covered under Article 243W of the Constitution. Though the appellant argued that it was not an agent of MoHUA and was not engaged in acting on its behalf, the Appellate AAR held that appellant is an agent of MoHUA as they are in the business of supply of commercial built-up space on behalf of later and it earned income as project management charges, agency charges and a consideration for expenditure towards appointment of real estate consultant, publicity, e-auction etc., of commercial and residential areas. The appellant tried to contend that it is the government which is the service provider and therefore, they are not liable to GST. This was not accepted and the AAAR held that construction of commercial built-up space in the redevelopment projects would not fall under functions of Municipalities given in Twelfth Schedule of the Constitution. It also reasoned that the buyers would be using the built-up areas for commercial purposes and it was not a facility meant for use of common public [2023-VIL-16-AAAR]. Considering the project cost of over Rs. 20,000 crores, it is not known why the company went for ruling instead of making it an inter-departmental issue seeking clarification from CBIC internally. The project itself is spearheaded by Ministry of Housing and Urban Affairs. If tax cost is required to be factored in, then it should have been made long ago.

 

Healthcare exemption - Notification needs proper treatment

Two enterprises run hospitals and one of them provides medical professionals to the second enterprise for treatment of the latter's patients. For the services provided to patients, the second enterprise charges fees and shares the same with the first one which provided the expert. The question before Authority for Advance Ruling (AAR) applicability of healthcare exemption to the amount charged by the enterprise providing doctors to another. The applicant was of the view that the services remain healthcare and therefore, exempt. The AAR noted that the applicant will enter into contract for providing human resources like doctors, nurses and other staff to the other hospital and they will be in-charge of a particular department in the other hospital (recipient of service). It held that the second enterprise does not treat the patients and exemption would be available when the clinical establishment itself provides healthcare services and such exemption is not available when the services are procured from third party under contract. It appears that healthcare services directly provided to patients would be exempt but the charges paid for outsourcing the same will not get the benefit of exemption.

 

GST law does not recognize multiple business scenarios - these days exchange or flow of professionals across institutions is common. Ultimately, the amount received by one hospital from another is for providing healthcare service and only because of the presence of third party, nature of service will not change. The above ruling is not clear whether it perceives the arrangement as one of pure supply of resources [2023-VIL-60-AAR]

 

Sugarcane juice is not an agricultural produce

Sugarcane juice is produced by crushing sugarcane and hence it is not produced by farmer. The form and character get so changed that it become raw material for production of sugar, molasses, etc. As the conditions prescribed in the definition of "agricultural produce" in Notification No. 11/2017-Central Tax (Rate) are not satisfied, it will not be considered as one. This is the advance ruling. There is no surprise in this conclusion as even in cases where there is no change, rulings have held agricultural items as not agricultural produce. This ruling has certain interesting observations when it comes to classification of sugarcane juice - "sugarcane is neither a fruit nor a vegetable. Sugarcane is usually a type of grass/plant, sugarcane is not the result of flowering plant nor does it develop through seeding. So sugarcane cannot be considered as fruit. Sugarcane fiber and stalks cannot be eaten or digested, so it does not qualify as a vegetable either. In GST Tariff, goods under chapter 20 is preparation of vegetables, fruits, nuts or other parts of plants Sugarcane as neither fruit nor vegetable nor nuts but it is covered under other parts of plants. Chapter heading 2009 is as follows - "Fruit juices (including grape must) and vegetable juices, unfermented and not containing added spirit, whether or not containing added sugar or other Sweetening matter." Since sugarcane is not fruit or vegetable. Hence it shall fall into tariff item 20098990 "others"." The GST rate applicable is 12% as per the ruling [2023-VIL-50-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)