Tax Vista Your weekly tax recap Edn. 150 - 1st May 2023 By Dr. G. Gokul Kishore

 

 

Provisional attachment for 4 years is not provisional - High Court orders lifting

It is common that provisional attachment continues beyond one year contrary to Section 83 of CGST Act. There have been instances of multiple invocation of Section 83 only to keep the provisional attachment eternal. In a recent case of this type, the Madras High Court has held that attachment is provisional and cannot continue for 3 - 4 years. In the case before it, inspection was undertaken by intelligence officers in 2019 and the attachment orders were made every year till January, 2023. Show cause notice was issued in 2022 and the delay has been taken note of the High Court. The order reads - "The time lines as seen aforesaid would persuade me to arrive at a conclusion that the purpose of Section 83 which is stated to be 'provisional attachment to protect revenue in certain cases' cannot be deployed so as to work against the assessee continuously for several years as has happened in the present case." The Court said that notice should be issued and proceedings should be finalized in a time-bound manner. It directed the GST authorities to inform the bank to permit operation of bank account by the petitioner [2023-VIL-265-MAD].

 

Draconian provisions when used by the State without discretion become the biggest threat to compliance. Instead of deterrence, use of such powers become counter-productive when the person concerned is not allowed to resume normal business. Tackling evasion without crossing the Lakshman Rekha has always been a challenge and subject to judicial scrutiny and even well-intentioned efforts of authorities go in vain when excesses are censured by the judiciary.

 

Pre-import condition for exemption from IGST under AA valid

The Supreme Court has held that the pre-import condition for availing exemption from IGST and compensation cess in respect of duty-free imports under Advance Authorization scheme is valid and not arbitrary. The Gujarat High Court judgment holding the opposite view on the ground that the same was arbitrary and unreasonable, has been set aside. The department was of the view that goods had to be imported first and then using such inputs, manufactured goods were to be exported under Advance Authorisation and once export obligation was satisfied, the pre-import condition was also complied with. However, the High Court had taken note of continuous cycle of operations of manufacturers and also the fact that such condition was not continued later and the amendment imposing condition was contrary to Foreign Trade Policy (FTP).

 

The Apex Court noted that pre-import condition was not alien as the same was prescribed for certain specified goods and the FTP provided for such power and discretion to impose condition. As per the order, the pre-import condition could have resulted in hardship to exporters but the same was not a ground to hold it as arbitrary. On the ground of discrimination, the Court has given leeway to the government by reiterating from precedent judgment -"This court has held, on previous occasions, that when reform by way of new legislation is introduced, the doctrine of classification cannot be applied strictly, and that some allowance for experimentation, to observe the effect of the law, is available to the executive or legislature....Therefore, there is no constitutional compulsion that whilst framing a new law, or policies under a new legislation - particularly when an entirely different set of fiscal norms are created, overhauling the taxation structure, concessions hitherto granted or given should necessarily be continued in the same fashion as they were in the past." [2023-VIL-47-SC].

 

Construction service - One-third deduction towards land value not applicable when actual value available

The Madras High Court has held that one third abatement / deduction towards land value in respect of construction of apartments as per Notification No. 11/2017 - Central Tax (Rate) is applicable only in cases where bifurcation of construction and sale of land is not possible. As per the Court, the deeming fiction (of taking one third of the value as towards sale of land / undivided share of land / UDS) will not be applicable where the taxpayer is in a position to provide the actual amount of consideration received towards construction service and land cost. Setting aside the assessment order, the Court has directed production of evidence / particulars before the authority for decision afresh. If the attribution adopted is not supported by evidence, then deeming fiction as per the notification can be adopted. It is not clear as to the arguments of the department as the authorities are of the view that in all cases, deeming fiction will apply and actual cost of land is not relevant. The department may appeal before Division Bench and the issue may see a different outcome later. In this order, fortunately, assessment made under Section 62 of CGST Act (relating to non-filers of returns) has been noted as "deemed as withdrawn" as per Notification No. 06/2023 - Central Tax dated 31-3-2023 as returns have been filed during the pendency of the writ petitions [2023-VIL-264-MAD].

 

Readers may see another order relating to application of Notification No. 03/2023 - Central Tax wherein appeal against cancellation of registration was rejected as time-barred. The Court taking note of the beneficial notification has directed the petitioner to seek revocation of cancellation as per the above notification. These are part of amnesty scheme as per the decision of the GST Council in its last meeting (along with annual return related relaxation) [2023-VIL-262-JHR].

 

GST payment in instalment not permissible when return filed without tax payment

Section 80 of CGST Act is a beneficial provision empowering Commissioner to permit a taxpayer to pay tax dues in instalments. However, it does not cover admitting liability as the words "other than the amount due as per the liability self-assessed in any return" indicate. The situation when amounts will be due to the exchequer other than those due while filing return is post adjudication or assessment orders where tax, interest and penalty are generally held as payable. In a recent case, the taxpayer accepted short-payment and requested the Commissioner to allow payment of dues in instalments but it was refused on the ground that Section 80 does not cover admitted liabilities. Before the High Court, the taxpayer was not successful. The High Court held that Section 80 is a beneficial provision for payment in instalments but the sole exception is in respect of admitted tax. Because the provision uses the words "in any return", the petitioner argued that GSTR-1 deals with details only and it is not a return and therefore, their case is not covered by such exclusion for instalment facility. The Court held that GSTR-1 is a return and the argument is contrary to the CGST Act. Another contention that order rejecting instalment request was passed even before assessment has also been rejected on the ground that Section 80 does not refer to assessment. According to the Court, the petitioner is barred from getting the benefit of Section 80 since returns have been filed but tax was not paid [2023-VIL-267-MAD].

 

Section 80 is a provision which is not being put to use in more number of cases. While repressive provisions like cancellation of registration, detention and seizure of goods and vehicles are routinely used, beneficial provisions always take a backseat. Taxpayers generally avoid seeking benefit of Section 80 on the firm belief that it will not be accepted by the department. If GST as a tax system is indeed progressive, then such beneficial provisions need to be fine-tuned, publicized and used more.

 

Amount deposited during search is not voluntary - High Court orders refund with interest

During investigations, it is not surprising that taxpayers voluntarily pay certain amounts without any threat or coercion, as the usual story line goes. In a similar case of this nature, the amounts paid were being retained by the department without show cause notice or passing any order for two years. The taxpayer sought the intervention of the High Court to return such amounts. The High Court noted that from the date of search and deposit of amount, proceedings under Section 74 have not been initiated and the department cannot retain such amount since what is paid during search is not voluntary. After holding that adjudication may take more time, the High Court directed return of Rs. 2.54 crores along with interest [2023-VIL-256-P&H].

 

Once inspection or search operation commences, business itself gets adversely impacted. To add insult, records are not returned and the amounts forcibly obtained through statements coercively extracted using the word "voluntarily" are retained till the time orders are issued for appropriation. Due process is simply forgotten and recovery by all means becomes the sole objective. Despite all this, taxpayers are able to do business and make some profits.

 

Recipient of supply eligible to seek advance ruling

In a brief order, Calcutta High Court has held that recipient of supply (under GST law) is also eligible for seeking advance ruling. The predominant view of Authority for Advance Ruling in various States is that only suppliers can seek such ruling. The Court has held that the definition of "applicant" is very wide and it covers persons registered or those desirous of obtaining registration under CGST / SGST Act. It has relied on another order passed by it while arriving at such conclusion. Most of the advance rulings rejecting application by recipients rely on the definition of "advance ruling" which uses the words "in relation to supply of goods or services or both being undertaken or proposed to be undertaken by the applicant." Since applicant is the person who supplies goods or services as per this definition, recipients of supply are generally shown the door at the threshold by the AARs. If advance ruling is a beneficial provision (as it covers current transactions also), then restricting the same to suppliers alone does not advance the mechanism further and an amendment may be required [2023-VIL-251-CAL].

 

Refund to flat buyer cancelling the booking - High Court orders considering favourable amendments

Recently CGST Rules were amended to enable flat purchasers to claim refund of GST paid to the builder when they cancel the booking at much later stage when the time-limit for taking GST adjustment is not available (to the builder). Such refund to unregistered persons has become a blessing to a petitioner whose refund claim was rejected and the same was taken to High Court. During the pendency of the petition, such amendment came which has been submitted before the Court as change in policy of the government to grant refund to unregistered persons. The Court has directed the authority to consider the claim afresh. The petitioner had originally filed the petition on the ground that natural justice was violated apparently referring to order having been passed without hearing [2023-VIL-263-BOM]. Such orders should gladden the hearts of many flat buyers though cancellation may not be the norm but an exception.

 

ITC on purchase of motor vehicle, modified and sold as ambulance available

Purchase of motor vehicle from automobile manufacturer / dealer and then modifying it as ambulance and further supply is a transaction which will be covered under the exceptions to the restriction on input tax credit to motor vehicles. This means the supplier of ambulance is entitled to avail ITC of the GST paid on purchase of the motor vehicles. This is the advance ruling. Fortunately, the AAR did not deliberate on use of the word "such" when Section 17(5) of CGST Act deals with further supply. Had this interpretation been adopted, then ambulances not being such motor vehicles which were purchased, ITC would have been in jeopardy. The order for purchase is by Tripura Government. Availability of ITC would translate into lesser price for the government and in particular, in respect of an item which will be useful in health sector. The tax rate has been held as 28%. It is not clear whether the concession rate of 12% GST on ambulances made during Covid (till September, 2021) was discontinued. Ideally, for such goods, a lower rate is always desirable though ambulance services provided by corporate hospitals may be cited as a contra argument [2023-VIL-81-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)