Tax Vista Your weekly tax recap Edn. 147 - 10th April 2023 By Dr. G. Gokul Kishore

 

 

"Voluntary payment" of tax during search - High Court orders refund with interest

Despite High Court decisions and departmental instructions, the practice of "coercive voluntary payment" continues and the taxpayer was before the Punjab & Haryana High Court seeking refund of tax paid at the time of search. The facts and arguments are similar to a multitude of cases including the department's reliance on the option "voluntary" chosen by the taxpayer in DRC-03. The High Court also referred to the judgment of High Court of Karnataka in Union of India v. Bundl Technologies [2022-VIL-165-KAR] in which it was held that if tax is collected without any authority of law, the same would amount to depriving person of his property without any authority of law and would infringe his right under Article 300A of the Constitution. The High Court held that no receipt was given by the officers after accepting payment of around Rs. 2 crores and therefore, the amount was deposited under protest and liable to be refunded with interest. It appears that the department officers interpret power to collect taxes as being bundled with the right to retain the same even without proper assessment. Investigating agencies have seldom refrained from adopting strong-arm tactics with the threat of arrest as the ultimate weapon. Because taxpayers have reputation and fear for the stigma attached to arrest, they are compelled to deposit huge amounts. The practice goes unabated and uncontrolled since the top echelons are mighty happy in boosting revenue by any means [2023-VIL-205-P&H].

 

Goods / vehicle in transit - Driver should possess physical copy of invoice

It appears the litigation was relating to detention of goods / conveyance while in transit on the ground that copy of invoice was not available with the driver. The taxpayer argued before the High Court that while Rule 138A of CGST Rules refers to e-way bill in physical form (or the e-way bill number in electronic form), there is no mention of physical form in respect of invoice and therefore, production of invoice in electronic form such as through mobile phone is also sufficient. However, this was not accepted by the Court. It held that the rule is titled "Documents and devices to be carried by a person-in-charge of a conveyance" and this means invoice shall be carried in physical form. But, true to the spirit of Court of Equity, it set aside the impugned order and directed the taxpayer to produce the invoice before the appellate authority so that the issue can be considered again [2023-VIL-213-CAL]. It appears taxpayers need to wait for some more time before system is put in place to accept electronic copies of documents. This essentially needs verification when the vehicle is intercepted and for this purpose, devices are required to be fitted in the vehicle and the tax officers should also be tech-savvy to check the documents digitally. Like the tags for highway toll collection, such development will soon be a reality.

 

Department should prove flow of consideration for taxability of corporate guarantee

While GST is yet to see authoritative pronouncements on what is consideration, taxability in the absence of consideration despite Schedule I of CGST Act, etc., the Supreme Court recently held in a brief judgement that in order to come within the ambit of service tax, there must be a flow of consideration. The department contended that extension of corporate guarantee to a group company was a taxable service under Banking and Other Financial Services. However it did not establish whether any consideration - monetary or non-monetary was received by the 'service provider' who had extended the guarantee. The assessee argued that as per Section 65B (44) of the Finance Act 1994, the definition of service would indicate that it relates to only such service which is rendered for valuable consideration and also relied upon the order of the Tribunal wherein it was held that while non-monetary benefits can be included in assessable value, consideration is the recompense for the 'contractual' undertaking that authorizes levy while 'assessable value' is a determination for computing the measure of the levy and the latter must follow the former [2023-VIL-34-SC-ST].

 

Interest need not be paid when ITC is not utilised

Numerous judgments have held that interest is automatic and follows any transgression of the law. The department follows this rule and sought to recover interest for ITC reversed by the taxpayer though the events of transitioned credit not appearing in electronic ledger and its subsequent appearance were attributable to the department. The taxpayer, in adherence to law, reversed the credit he had recorded in GSTR-3B return once it became available in the electronic ledger. The audit department assiduously traced the credit and there was a demand for interest. The Madras High Court held that by virtue of the amendment in 2022 that has retrospective effect from 2017, it is only when ITC has been wrongly availed and utilized with a revenue impact, that interest liability is attracted. It held that in this case, the error was attributable to the department and the credit was not utilized by the taxpayer and therefore, interest liability did not arise [2023-VIL-214-MAD].

 

Communication without DIN is invalid

Readers may go through the judgment for facts. The important factor based on which the impugned communication issued by Customs demanding duty was set aside by the High Court was that it did not have DIN (Document Identification Number). DIN is mandatory in all government communication as per CBIC's instructions. The department attempted to argue that such instructions do not bind Courts but only officers and that such instructions are merely to ensure smooth functioning but the same were seen as attempt to wriggle out and not accepted. The High Court held that non-generation of DIN is fatal and circulars issued by the CBIC are binding on officers and the present one is aimed at transparency and accountability. The other issue which is disturbing in this case is re-assessment of bills of entry based on DRI investigation without the importer being aware of such report [2023-VIL-207-MAD-CU].

 

Construction service - Tax rate applicable for various services  

In transactions of purchase of apartments, it is quite common for the promoter / builder to charge several amounts besides the cost of UDS and construction service. Treatment of such amounts to GST - whether they will be considered as part of construction service or stand-alone services is a question many builders face right from service tax days and preferential location charge (PLC) became the bone of contention. In a recent case, aggrieved over advance ruling, the taxpayer appealed to the Appellate AAR. In this case, as per sale agreement, the appellant had collected charges for electric meter installation, water connection, share of municipal taxes, legal fees, advance maintenance, development charges, share money, formation of society, club house maintenance and infrastructure charges. While the AAR in the advance ruling had earlier held all such amounts to be taxable at 18% and are not entitled to concessional rate applicable to construction service, the Appellate AAR has modified this ruling.

 

As per this ruling, charges for such services were collected separately and therefore, one of the conditions to be satisfied for considering services as bundled in the ordinary course of business i.e., single price or customer pays the same amount was not satisfied in respect of certain services. These are club house maintenance, advance maintenance, share of municipal taxes, formation and registration of organisation, share money and infrastructure which were held as not inextricably linked with construction services and were independent supplies attracting 18% GST. However, services relating to water connection, electric meter installation and deposit for meter, development and legal fees / charges have been held as inextricably linked with construction services and would be considered as naturally bundled attracting GST as applicable to construction service.  The ruling further directed the taxpayer to refund the excess tax collected on bundled services to the customers. The reasoning appears to be not very sound as the AAAR has held that the promoter has retained several rights like sale of TDR or FSI and flat purchasers have been excluded from having any right over benefits arising out of the building [2023-VIL-17-AAAR].

 

While the value taken as the basis for stamp duty purpose is considered for determining whether a particular charge / fee is treatable as part of construction service or not and the same was adopted by AAR in the above case, the appellant / taxpayer had argued that such basis should not be adopted. Dominant intention test has also been relied in the above case. The tests adopted in the ruling are very subjective and agreement-specific. The industry / sector is complex in types and nature of transactions and advance rulings can hardly scratch the surface.

 

Goods supplied in 1 Kg pack to specific buyer is not pre-packaged commodity - GST is not payable

In a well-reasoned ruling, AAR has held that dal supplied in 1 kg primary pack and in 50 kg PP bag as secondary packing to State Corporation for supply through PDS would not attract GST. The taxpayer had approached AAR with the apprehension that the quantity is only 1 kg pack and there are declarations made in the package as mandated by the buyer. The AAR noted that only goods which are pre-packaged and labelled as per declarations under Legal Metrology Act would attract GST and pre-packaged commodity requires placing pre-determined quantity without the purchaser being present. It emphasized that the prefix "pre" has been used to mean the packaging is not for specific buyer but for the buyer who may buy in future but when the packaging is for specific buyer, then it is not "pre-packaged".

 

The ruling holds - "While the commodity being placed in a package with a pre-determined quantity means that the commodity is packaged the attribute 'pre' had a specific connotation which means that is packaged not for any specific buyer but is packed in general for any buyer who may purchase it later. Thus any packaging made as per the specific request and at the behest of a specific buyer is not a 'pre-packaged' but is only packaged." The AAR felt that whether 1 kg pack or 50 kg pack is to be considered and whether sale for PDS is to be treated as institutional sale are not necessary when the first test of the commodity being pre-packaged is not satisfied in this case. This ruling should be accepted by the department. It is certain that it will bring relief to many suppliers of various essential commodities in several States for supply through PDS [2021-VIL-300-AAR].

 

Canteen service provided in corporate office is not exigible to GST

In yet another refreshing change from adverse rulings, the AAR held that subsidised canteen services provided to workers in the factory and corporate office as per the mandate of statute- Factories Act, 1948 and read with provisions of Gujarat Factory Rules, 1963 and Gujarat Shops and Establishment (Regulation of Employment and Condition of Service) Act, 2019 would not be exigible to GST. It agreed with the applicant that the services being provided by engaging a service provider was not a supply by the applicant and that Input Tax Credit (ITC) will be available to the applicant on GST charged by the service provider in respect of canteen facility provided to its direct employees working in their factory and the corporate office as per provisions of Section 17(5)(b) as amended effective from 1-2-2019 and Circular No. 172/04/2022-GST. However, ITC would be is restricted to the extent of the cost borne by the applicant for providing canteen services to its direct employees and proportionate credit to the extent embedded in the cost of goods recovered from such employees would be disallowed [2023-VIL-68-AAR].

 

This ruling is covered in this column for the reason that there is a doubt in certain quarters as to whether canteen facility extended to employees in corporate office would be subject to GST and whether ITC of such expenses can be availed. In this case, the AAR noted that corporate office is not within the factory but would be covered under 'establishment' and the relevant law mandated provision of canteen facility when the number of employees is more than 100. This ruling should help similarly placed taxpayers.

 

GST relief for movie-goers

When Kerala Government imposed Flood Cess, there was much noise as it was seen as unsettling the basic rule of GST being a single levy and States having agreed to levy of only GST through GST Council avoiding multiple levies. However, States providing incentives by way of refund of SGST for certain sectors escaped criticism of creating distorted competition. But, a recent SGST relief by Odisha is set to gladden the hearts of movie-goers. For the film "Zwigato", the State Government has announced tax relief whereby SGST will not be collected from viewers of the movie and the multiplexes / theatres will also pay the tax and then claim reimbursement as per procedure prescribed. The tax offer is for limited period only - till 30-6-2023. Similar demands may come from other quarters and politicians have always been successful in reconciling them. The reason for granting relief is subject matter of the film - life struggle of a delivery boy during post-pandemic period. GST is not all that bad it seems - similar relief to other movies by States will make the movies more enjoyable only to pinch when other taxes are increased to compensate for loss of revenue [Government of Odisha Order dated 4-4-2023].

 

Customs technical glitches - Interest waived for specified period

Teething troubles for government initiatives are routine particularly when electronic and digital systems are involved. Like GST, in Customs, electronic cash ledger has been made mandatory for specified categories of import for payment of duties and the system despite testing has not responded to importers' request for a few days. Therefore, interest for delayed payment of customs duty has been waived for the period from 1-4-2023 to 10-4-2023. If interest has been charged already, refund will be granted. Compared to GST with specific return filing and tax payment date being common for lakhs of taxpayers, Customs system interacts with importers on a routine basis from EDI / ICEGATE days and the transactions are fairly spread over a period of time. It is not clear as to the precise reason for the technical glitches. Taxpayers under GST without having anything to do with imports can have some relief that they are not alone in facing such suffering in the hands of portal [Order No. 01/2023-Customs (NT) dated 6-4-2023].

 

Damages are liable to GST - AAR misinterprets CBIC Circular

The revenue department will not tolerate loss of revenue. While officers may have fetters like duty to follow circulars and discharge burden of proving taxability, etc., the AAR has no such fetters. At issue was the taxability of liquidated damages to be paid by the logistics support provider in case of non-performance or poor performance leading to additional moisture content in coal transported, delay or short supply etc. Relying on CBIC Circular No. 178/10/2022-GST besides the arguments on damages not being consideration, the applicant argued that the sum received was not liable to GST. However, the AAR held that since the amounts are decided in advance and no prudent businessman would pay sum without having received a benefit, the damages were liable to GST. According to the AAR, the circular is not universal and absolute and the test has to be whether there is a supply. As per the definition when something is paid in response to or as an inducement to supply, it is covered within the ambit of GST and "It is inconsequential whether the payment is for tolerating the mistake or not-tolerating". While an appeal to Appellate AAR will reverse this patently erroneous ruling, such officers should not be posted in AAR [2023-VIL-64-AAR].

 

Lease of units for 90 years is not akin to sale - GST is payable on one time premium

The applicant was engaged in development of commercial units and allotted the completed units on long term basis to prospective buyers. The land was part of project of development of bus terminal. The applicant acquired development rights for a part of such land on assignment from the concessionaire who had originally received the development rights. The applicant argued that it was only selling commercial units/building and that one time premium received by the applicant on allotment of completed building was not taxable. It stated that being sale of building, the transaction was neither supply of goods nor services. However the AAR held that the transaction was one of lease since for sale there has to be transfer of ownership, but the applicant did not own the land.  The tenure of lease (90 years in this case) is not material, it could be in perpetuity and that the terms of the agreement which provided for upward revision of lease rental throughout the tenure showed that it was not a transaction of sale where consideration is paid only once and no right over the property remained with the payee/erstwhile owner. The issue of long-term lease being akin to sale and therefore, not subject to GST has to wait till the matter is finally settled by the Apex Court in future [2023-VIL-69-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)