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Tax Vista Your weekly tax recap Edn. 155 - 5th June 2023 By Dr. G. Gokul Kishore |
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Refund under Budgetary Support Scheme available only if goods are same before and after GST
Litigation under GST is sometimes peculiar. Certain issues span across pre-GST and post-GST periods involving interpretation of both pre-GST and GST laws. In an unfortunate case for the taxpayer / petitioner, refund under Budgetary Support Scheme was denied on the ground that such benefit is available only for goods manufactured under 8 digit tariff heading and cleared before 1-7-2017. The petitioner was availing excise duty exemption under area-based exemption notification before GST and the same was available till 2026. Goods manufactured were classifiable under Tariff Item 3808 10 99 when excise exemption was availed but the goods manufactured were different after the new scheme was implemented after GST and therefore, are not covered. The petitioner argued that "specified goods" under the scheme meant all goods under Chapter 38 are eligible for refund of GST under the new scheme.
The High Court noted that the area-based exemption notification referred to "each category of goods" and the same pointed to goods with reference to 8-digit tariff heading and not to 4 or 6 digit headings. The Court took note of the absence of rate of duty against 4 or 6 digit tariff headings in the Central Excise Tariff. It was held that "specified goods" has been defined in the budgetary support scheme as those which were being manufactured and cleared by eligible unit by availing excise duty exemption and therefore, for availing benefit of the new scheme, the unit should continue to manufacture the goods in GST regime which were being manufactured before GST and such goods were cleared under excise exemption before GST. This means, according to the Court, if the unit was not manufacturing particular goods and was not enjoying exemption for such product, the same cannot be covered under budgetary support scheme. The order rejecting refund was thus upheld [2023-VIL-325-J&K].
The order places strict interpretation on the language used in the notifications. It is not sufficient for the unit to be eligible unit for availing GST refund but the goods manufactured should be the same as they were being manufactured in excise regime availing area-based exemption. Both the conditions need to be satisfied. Exemption is something which is always discretionary, liable to strict interpretation and denial while operationalizing the same comes as a surprise to the industry.
Budgetary Support Scheme - No provision for interest for delay in disbursement
In yet another case involving refund of GST under Budgetary Support Scheme, the petitioner sought direction to disburse the refund on time and also pay interest for delay in sanctioning the same. In this case, refund was sanctioned but not disbursed since DIPP had not made the funds available to GST authorities. The figures submitted by the department are startling - for the FY 2019-20, for J&K, the total amount allocated was Rs. 14.66 crores whereas the petitioner's claim alone was to the tune of Rs. 46 crores. The High Court noted that during the pendency of the petition, refund was granted and the benefit under the scheme was in the nature of concession / incentive and the same cannot be claimed as a matter of right. However, the Court was clear in saying that this does not mean government can refuse to release such benefit even when the unit is fully eligible. In so far claim for interest is concerned, the Court agreed with the department that there was no provision for the same in the scheme and further, there was no deliberate delay by the department and therefore, not granting the same in time was not arbitrary. In a pyrrhic victory to the petitioner, the Court directed that pending claims should be processed without delay [2023-VIL-326-J&K].
While absence of interest provision is not surprising, the amount allocated appears to be paltry when compared to the requirement of the industry. There is no estimate or projection of the requirement for such funds and amounts are allocated on ad hoc basis. While industry went all the way to industrially backward States to set up the unit, the government has been less sincere in honouring its commitment. For industry, funds are crucial and timely availability of the same is even more crucial. Denial and delay are generally part of disposal strategy of bureaucracy.
Bank account of aggregator cannot be attached for proceedings against users
Most of the readers are familiar with RCM, garnishee proceedings, etc., which try to hold the person who is easier to trace or act against rather than the actual defaulter. In the digital era, the aggregators who provide the facility to transact over the website seem to be a good option for the department when proceeding against the merchants / suppliers using the portal alleged to fake transactions, engage in defaulting on tax etc. In a case before the High Court of Delhi, the aggregator whose bank account had been attached contended that he had carried out due diligence and so long as there was no case of default by him, attachment of bank account cannot be resorted to. The High Court agreed that since he was not the taxable person, and where there was no evidence that he had abetted such evasion, the aggregator cannot be made to suffer. The fact that there were proceedings for violation of FEMA Regulations by the aggregator was held to be irrelevant for action under GST law. It was specifically noted by the Court that there was no case pending against the petitioner under CGST Act. The aggregator also agreed to remit the funds due to the merchants as per directed by the revenue department. The Court directed lifting of attachment of bank account of the petitioner [2023-VIL-327-DEL].
Provisional release - Scope of Customs authority under Section 110A
Litigation in Customs is multi-pronged - an importer has to visit multiple fora for various types of relief. For provisional release of goods, writ petition is the solution in most cases. Assessment or appeal against the same proceeds with the quasi-judicial machinery. Meanwhile claims of custodians and carriers have to be settled or contested through litigation. Despite all these, importers continue to import and sell and this in itself bears testimony to the trading spirit or entrepreneurial zeal.
In a recent case, provisional release of seized goods was rejected by Customs authorities. The ground, it appears, is that betel nuts are unfit for human consumption and public health will be impacted if they are allowed to be released. The usual story of lab tests, conflicting claims as to parameters used for testing, etc., followed. Based on lab test stating that the goods were unfit for human consumption and relying on Food Safety and Standards Act besides taking note of condition under FTP classifying the goods as prohibited based on CIF value, the Commissioner had rejected the request for provisional release. Mumbai Bench of CESTAT held that Section 110A of Customs Act is limited to determination of bond and surety amounts and if the goods are prohibited, then show cause notice under Section 124 is the only method to be adopted. In the absence of such procedure being followed, provisional release cannot be refused. The Tribunal went into "prohibition under other laws" as contained in Section 111 which can be invoked by Customs authorities only based on the decision of designated authority under the special enactment - Food Act in this case. The Tribunal also took exception to ignoring of advance ruling on classification of the impugned goods which had a bearing on the dispute. The Tribunal ordered provisional release of the goods subject to conditions [2023-VIL-476-CESTAT-MUM-CU].
Officer empowered to seize and search can also levy penalty and fine
Agitating against the order of fine and penalty imposed by the officer under Section 130 of CGST Act, it was contended that the same officer who had carried out seize and search operations in the premises of the petitioner-assessee could not have done so and the order was without jurisdiction. The High Court noted that authorization to search and seize was granted by Joint Commissioner to the officer concerned and after carrying out the same, he passed the impugned order. It held that it was not the case of the officer being a judge in his own cause since the order was not passed under Section 73 or Section 74 of CGST Act and moreover since the remedy of appeal was available to the assessee, the writ petition could not be entertained [2023-VIL-334-ORI]. In the tax department, jurisdictions overlap to a great extent and there is hardly any line distinguishing the same. The arguments on lack of jurisdiction are mostly legally appealing but not sufficient to convince the writ courts.
Hearing to be provided based on written request even if filed after delay
There is a prescribed time limit to file reply but no limit when it comes to the department's indifference in complying with natural justice. The taxpayer had filed belated reply in Form DRC 06, and he had sought personal hearing. The reply was not considered since it was filed beyond time limit and the department contended that the request of hearing would meet the same fate and order was passed. The High Court held that mandate under Section 75(4) of CGST Act is clear that, when a written request is made by the person chargeable with tax or penalty seeking personal hearing, the same is required to be considered and rejection based on time limit was hyper technical. The department was directed to consider the reply and also afford opportunity of hearing, though costs were imposed on the petitioner for lapse in filing belated reply [2023-VIL-339-KAR]. Very rarely one comes across an order where costs are imposed on taxpayer for delay in filing reply. Natural justice cannot come at a cost as one would normally expect.
Appellate AAR is empowered to remand case back to AAR
Appellate Authority for Advance Rulings (AAAR) is empowered to remand the matter back to Authority for Advance Rulings (AAR) - this is the conclusion of an appellate advance ruling. The taxpayer had filed appeal against the advance ruling but the AAAR framed the question of power to remand and answered the same. The AAAR took note of provisions under Central Excise Act and Finance Act, 1994 (service tax provisions) and also the landmark judgments on this issue wherein it was held that power to annul essentially meant power to remand the case back and such position is unaltered even after amendments to relevant provisions. While advance ruling authorities generally discard judgments rendered under Central Excise or Service Tax when they are relied on by the taxpayers, in this case, to send the case back to AAR, such jurisprudence of pre-GST laws have been used. Leaving this issue aside, an interesting question involved in this case pertained to applicability of Rule 42 of CGST Rules on reversal of ITC on common inputs / input services used in taxable and exempted supplies when the goods are not taxed on ad valorem basis but on specific rate basis [2023-VIL-23-AAAR].
(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)