Tax Vista Your weekly tax recap Edn. 156 - 12th June 2023 By Dr. G. Gokul Kishore

 

 

GST officers empowered to conduct search in SEZ units - Plea of unit being outside India not correct

Deciding a batch of petitions assailing the jurisdiction of GST officer to conduct search and seizure and issue of show cause notice under Section 73 of CGST Act, in respect of SEZ units, the High Court held that SEZ cannot be said to be outside the territory of India. As per the allegations, the units had engaged in illegal availment of input tax credit, some were fictitious and so on. The petitioner contended GST officers did not have jurisdiction over SEZ units to conduct search and seizure operations and due process had not been followed. The High court held that Central Government has already authorized those officers laying down the functions of proper officers under CGST Act, hence there is no conflict with Section 22 of the SEZ Act which requires authorisation by Central Government. Also the Development Commissioner, SEZ had already been duly intimated before search and seizure by departmental officer. It relied on Essar Steel Limited v. UOI [2009-VIL-67-GUJ-CU] to hold that entire SEZ Act, extending to whole of India would be redundant if the units were held to be beyond jurisdiction of any law. Also a legal fiction is to be restricted to the statute which creates it and SEZ zone would be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations and it cannot be extended to hold that CGST officers cannot exercise authority over the units. The Court took note of GST registration obtained by SEZ units in this case.

 

The Court imposed costs on the taxpayer / petitioner as it was not apparently convinced over the intention behind filing the petition considering the allegations levelled against them.  The Court felt that such proceedings have been initiated to delay the investigation and other proceedings. Argument on jurisdiction appears to be weak and writ petition to stall investigations is generally frowned upon by High Courts unless high-handedness and abuse of power by officers are evidenced and this order is not an exception [2023-VIL-352-GUJ]

 

Deposit during investigation retained for 2 years - High Court orders refund with interest

Collection of amounts during investigations by GST authorities is common despite instructions to the contrary. Taxpayers knocking the doors of High Court to get back such "voluntarily paid" amounts is also not uncommon. However, in most of these cases, at least show cause notice is issued after a few months and once adjudication order is passed appropriating the amounts paid, the issue (of amount paid) attains finality. But, in a recent case, the taxpayer had paid such amounts during investigations more than two years ago through DRC-03 form. Acknowledgement in DRC-04 was not issued and show cause notice has also not been issued. The High Court after taking exception to non-compliance by officers with CBIC's instructions on this issue, directed return of such amount with interest [2023-VIL-345-P&H].

 

The practice of compelling taxpayers to pay amounts with the threat of arrest is too well known. CBIC does not reprimand such officers because such collection is seen as helping in revenue figures. When the law prescribes issuance of notice and passing of order determining tax and other liabilities, and such law itself provides for voluntary payment, officers should advise the taxpayers to pay only after some cooling period after the investigations and before issuance of SCN. Because the law provides for resolution of the dispute at the initial stage itself, voluntary payment facility has been provided and the same is not for proliferation of disputes.

 

Budgetary Support Scheme - HC imposes costs for delay in disbursement

Last week in Tax Vista, two orders of High Court relating to refund under Budgetary Support Scheme to units in J&K were discussed. One more order has been reported on this issue by VIL. In this case, the district authorities had found fault with the unit that certain conditions on substantial expansion, production capacity, etc., were not satisfied and therefore, despite Central Excise authorities accepting the claim for area-based exemption and refund under Budgetary Support Scheme, the amount was not released. The High Court has strongly condemned such conduct of the Union Territory officers and directed refund along with penal interest of 9% from 18-5-2017 till date of payment. Such interest, it appears, would be the costs imposed on UT officers responsible for delay.

 

The order states -"We are pained by the delay of almost five years on account of the intransigence of the Union Territory due to which, the Budgetary Support could not be made available to the petitioner. Thus, while holding that the petitioner is entitled to receive the budgetary support as already arrived at forthwith and the same should be released without any further delay. At the same time on account of the delay caused by the Union territory of almost five years we impose a penalty of 9% interest on the total amount due to the petitioner from18.05.2017, till the date of payment which shall be paid by the Union Territory. The costs so imposed be recovered by the Union Territory from the Officers so identified on account of whose indolence, delay in disbursing the reimbursement of GST has occurred." [2023-VIL-343-J&K].

 

Pre show cause notice intimation in DRC-01A is not mandatory when liability is contested

The taxpayer argued that proceedings initiated through show cause notice were pre-mature since liability intimation in DRC-01A was not issued and opportunity to pay the amount was denied. The SCN was also not reportedly uploaded in GST portal. The department countered by stating that no real prejudice was caused to the petitioner since entire liability is being disputed. The High Court took note of the fact of non-issuance of DRC-01A but held the objection as hyper-technical and not real. After finding out that the tax liability is being contested, it held that DRC-01A intimation would not have served any benefit to the taxpayer and it would be futile for the Court to direct the GST authorities to comply with the same. The petition was disposed of by providing additional time to file reply to SCN and by directing the department to upload all the documents in the GST portal [2023-VIL-348-ALH].

 

DRC-01A itself is not mandatory as the rules were amended to this effect. Certain taxpayers are compelled to approach writ courts while some feel the same can be simply explored. It is not known as to exact relief that the taxpayer wanted in the above case. If quashing of entire proceedings only for non-issuance of DRC-01A was the wish, then it could not have certainly materialised. Generally, courts hold department as rejecting refund on hyper-technical arguments but in this case, taxpayer has to listen to such words.

 

Delay in disbursement despite sanction - High Court orders time-bound refund

Refund is always elusive. Denial, delay or deficiency - somehow a ground should be found to reject the refund claim. However, in a recent case before Madras High Court, the assessee-petitioner sought refund of input tax credit accumulated due to exports which had been sanctioned. Unlike other assessees plagued by deficiency memos and cryptic orders, this assessee was granted refund both under provisional and final orders but despite follow up did not receive 90% of CGST and IGST even though orders were passed in 2019. The revenue department did not offer any reason for such delay and denial. The High Court ordered the money rightfully due to the assessee to be paid within 4 weeks. However, no costs were imposed.

 

The period pertains to exports made in 2017. The writ petition has been filed in 2023. It appears the taxpayer waited initially for almost two years and then after sanction order, for disbursement waited for another 4 years before filing writ petition. It is not known why interest was not claimed or argued as the order is silent about the same. If it has not been expressly claimed, another writ petition may have to be filed. Though interest for delay is statutorily provided for, when refund itself is not disbursed for years without going to High Court, interest can hardly be expected to be granted by the department without such direction [2023-VIL-350-MAD]

 

Customs Valuation - Importer has to prove absence of influence when parties are related

Though customs valuation may appear to be a settled issue with well laid out rules and jurisprudence, the importer urged a relook at the same contending that loading of 23% value in the goods imported from its foreign parent, was not called for. The adjudication order was passed under de-novo proceedings and the customs department contended that the orders were well-reasoned and other than questioning the method, the assessee had not produced any evidence that the declared value was at arm's length. In fact, the importer suggested that deductive method was to be used and that adoption of prices at which goods were supplied by the principal to third countries could not be the basis. However, the High Court held that the adjudicating authority has rightly followed the sequence of rules and adopted Rule 5 of Customs Valuation Rules and the assessee cannot seek overlooking the same and proceeding to Rule 7 for deductive value and since despite opportunities, the assessee failed to produce evidence, the order did not warrant any interference [2023-VIL-507-CESTAT-CHE-CU].

 

While Customs Valuation Rules places the burden on the importer to demonstrate that price adopted between related parties is uninfluenced by relationship, inability to produce documents to discharge such onus has resulted in such outcome in this case. At the time of entering into the transaction, due diligence is generally not made and the long-term consequences of such lapse erode the margins at a much later date.

 

Earth moving equipment are not automobiles

The dispute is almost of legacy value without any major consequences in GST. Readers may refer to CESTAT Larger Bench order reported by VIL. The issue related to whether backhoe loaders (hydraulic excavators), cranes, forklifts, etc., can be termed as automobiles or not. The dispute related to levy of excise duty as per Third Schedule to Central Excise Tariff whereby packing, repacking, etc., amounted to manufacture. The relevant amendment was whether retrospective or not - this was another issue. The Larger Bench held that earth-moving construction equipment are not covered by the term "automobile" as the latter refers to vehicles used for conveyance of passengers or goods and there are various factors which differentiate such equipment from automobiles.

 

The Larger Bench also cautioned against borrowing definition from other statutes instead of placing reliance on common parlance understanding by stating - "It would not be appropriate to borrow the meaning of the word 'automobile' or 'motor vehicle' under the Motor Vehicles Act, 1988 or the Air (Prevention and Control of Pollution) Act, 1981 merely because the word 'automobile' has not been defined in the Central Excise Act, Central Excise Tariff Act or the Notifications issued by the Central Government. In such a situation, it would be appropriate to refer to the dictionaries to find out a general sense in which the word 'automobile' is understood in common parlance. Automobiles, therefore, are conveyances for transportation of passengers and goods on road as also been understood by the department in the various Circulars issued from time to time." The relevant amendment has also been held as prospective [2023-VIL-514-CESTAT-MUM-CE].

 

Delivery incidental to sale is not a service

When it comes to revenue protection, the department sometimes builds a case brick by brick but of course the effort is wasted if it does not satisfy the law. In the case of the assessee supplying Ready Mix Concrete (RMC) at the construction site as per requirements of customers, the department contended that service tax ought to have been paid on "Commercial or Industrial Construction Service" in terms of Section 65 (25b) of Finance Act, 1994. According to the department, delivery of RMC by pumping to higher floor was a service and though VAT was paid on sale of RMC, service tax would be due on service portion. The assessee argued that the contract was only for sale and not service. Relying, inter alia, on Tribunal order in GMK Concrete Mixing [2011-VIL-26-CESTAT-DEL-ST], upheld by Supreme Court [2015-VIL-01-SC-ST-LB] it was held that the transaction was sale of RMC and delivery was incidental to the sale and the transaction cannot be vivisected into two. Post the judgement of Supreme Court in Commissioner v. Larsen & Toubro Ltd. [2015-VIL-88-SC-ST], the assessee paid service tax on business auxiliary services. The CESTAT held that payment of tax though not payable does not amount to acceptance of liability under a different head by the assessee [2023-VIL-508-CESTAT-CHD-ST]

 

The above decision may not be directly relevant in GST regime as invoice price / amount charged from customer will be taken as the basis irrespective of classification as sale or service. However, based on pumping charges included in the price of RMC and not separately shown, GST authorities should not seek to add notional charges in taxable value for GST purpose.

 

 

(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)