Tax Vista Your weekly tax recap Edn. 159 - 3rd July 2023 By Dr. G. Gokul Kishore

 

 

Provisional attachment under GST through file noting and without order, is not valid

Attachment is an extreme action but GST authorities exercise such power in an absolutely casual manner. Provisional attachment as per Section 83 of CGST Act ceases to operate on expiry of one year. This is explicit in the provisions but needs order after order from High Court to tell the GST authorities. In the case before the High Court, the provisional attachment order was passed on 21 April, 2022 and the High Court held that it cannot operate beyond 21 April, 2023. The tragedy in this case is the submission of the department that the attachment was extended for one more year. The department could not produce any order to this effect but produced the file. The High Court could not find any order in the file. It held that mere file notings cannot constitute a formal order when the law mandates passing of order and sharing of the same with the taxpayer whose property (bank account) is attached. A letter was sent to the bank to continue attachment which was considered as invalid and to hold that there is no provisional attachment of the account. Relying on Supreme Court judgment in Radha Krishan Industries v. State of HP [2021-VIL-50-SC], the High Court further held that writ jurisdiction of High Court is invocable against provisional attachment of bank account. The order to this extent will be helpful to taxpayers who face the hardship of extended attachment and continued loss of business.

 

In the same order, dealing with another petition, the High Court held that since Section 83 uses the words "any person" along with "taxable person", Commissioner in Maharashtra is empowered to attach bank account in Tamil Nadu of the person in Tamil Nadu. On facts, the Court noted that the person concerned is the alleged beneficiary of refund obtained fraudulently and reading Section 122 with Section 83, it held that Commissioner can act against such person outside his territorial jurisdiction as well. The ratio of this portion of the order may have wider ramifications. If penal provisions are interpreted as not bound by territorial jurisdiction vis-à-vis the officer concerned, then the over-enthusiasm of tax authorities will cause great disruption for businesses [2023-VIL-408-BOM].

 

GST demand - Section 74 can be invoked directly without using Section 61

The department takes strict interpretation of law so seriously that it expects the taxpayer to divine that an SCN must have been issued and submit its reply before time limit expires though notice is received after the time limit for submitting objection has expired. The short point of that long sentence is that the salary account of the petitioner was provisionally attached. First, the petitioner argued that the entire proceedings were vitiated since proceedings under Section 74 of the CGST Act were undertaken without calling for explanation as to discrepancies under Section 61 on scrutiny of returns. However the High Court held that it was clear that Section 73 and 74 are not controlled by Section 61 alone and proceedings under Section 74 can be taken up by resorting to the audit of accounts under Section 65. Interpreting Section 74 which starts with the clause "where it appears to the proper officer that any tax has not been paid" it was held that it allows wide latitude to the officer and the source for the proper officer to proceed under this provision can be held to be either under Section 61 or 65 or some other information but cannot be constricted to Section 61 or 65 alone to reach Section 74. According to the department, the petitioner had filed a Nil return and there was information that ITC had been passed on fraudulently. Further the petitioner had not provided any response to the SCN. Though the petitioner did not get relief from provisional attachment, the High Court directed that he be given an opportunity of personal hearing and be permitted to produce documents and other evidence before passing of assessment order [2023-VIL-396-AP].

 

Summons on same subject matter cannot be simultaneously issued by both DGGI and SGST officers

Under GST, taxpayers get one nation, one tax, but two authorities or different wings of the same authority. In a case before Gujarat High Court, the taxpayer had provided various documents to DGGI officer pursuant to proceedings under Section 67 of CGST Act. The matter concerned five different firms including that of the petitioner. Subsequently the State GST officer also issued summons under Section 70 calling for various records of the one of the firms and despite the explanation of the taxpayer that the same were already with the department in view of proceedings under Section 67, the records were sought. The petitioner relied on Section 6(2)(b) of the CGST Act and submitted that when proceedings have already been initiated by CGST officer no proceedings can be initiated by SGST officer on the same subject matter. The High Court directed transfer the papers/documents to the DGGI officer [2023-VIL-401-GUJ].

 

Defective SCN, erroneous order and misdirected order-in-appeal - Taxpayers suffer

Taxpayers have no option but to tolerate the blunders of tax authorities. But for High Courts, such toleration would have led to closure of business in several cases. The taxpayer had claimed refund due to exports but the GST authorities chose to inspect the premises and various charges were made. While the taxpayer could not upload all the documents online due to file size, show cause notice was issued proposing to reject refund on the ground that additional place of business was never in the possession of the taxpayer. The High Court observed that the authority should have considered reply by taxpayer and documents submitted while issuing SCN but the SCN was silent on this aspect. Because of such silence, order passed also held that reply was not filed. To add to such list of blunders, the appellate authority rejected the appeal on a different ground that export of goods was not proved and refund would not be available. The High Court held that the appellate authority could not have travelled beyond the charges in the SCN even as the SCN itself was defective. All such orders were set aside and the adjudicating / original authority was directed to decide the issue afresh. The ignorance of law at the level of first appellate authority is appalling as most of the officers do not have basic knowledge of due process, procedures, natural justice, determination of rights and liabilities, etc. Taxpayers have to suffer and may seek relief from High Court if the suffering crosses the breaking point [2023-VIL-405-CAL].

 

Seeking reversal of ITC for cancellation of registration of supplier without sharing the basis, is not valid

In Tax Vista dated 19th June, 2023, an order of Calcutta High Court [2023-VIL-360-CAL] was briefly analysed. By this order it was held that input tax credit (ITC) cannot be denied on account of retrospective cancellation of supplier's registration. Another order by the same High Court has been reported by VIL last week. In this case, the question of retrospective cancellation was not involved but information / details as to cancellation of registration as found by the GST authorities was not shared with the taxpayer (recipient availing ITC). The High Court said that the taxpayer cannot be directed to reverse ITC through e-mail without sharing the basis for cancellation of registration of the selling dealer. The Court pointedly noted that the procedure adopted for seeking reversal of ITC is not legally sustainable. The department was directed to restore the ITC which was reversed by the taxpayer.

 

This issue of reversal of ITC based on cancellation of registration of supplier is being raised in many jurisdictions. The department may have the facility for data sharing on all-India basis but the taxpayers do not have any such facility. In fact, when the system permits the suppliers file returns, the recipient-taxpayers presume that registration is valid and effective. Even otherwise, the ground for seeking reversal of ITC could be the one of the conditions prescribed in Section 16 of CGST Act for availing credit and purported cancellation of registration is not one such condition though cancellation may result in non-payment of tax and non-filing of returns [2023-VIL-406-CAL].

 

Hearing notice served neither through portal nor by post - High Court sets aside order

It appears that despite all advancements in wireless, faceless communication, things remain the same. The petitioner assailed the order passed by the tax officer without providing opportunity of hearing though the department claimed that notice was served by post as well as online. However, no proof of such service was provided. The department is of course not on the same footing as taxpayers who are expected to provide screen shots and other evidence to substantiate their struggle with the portal and the error messages. The taxpayer argued that he had all documentary proof to substantiate claim of ITC. The department alleged irregular availment of ITC on supply from non-existent supplier. The High Court set aside the order and remanded the matter for fresh consideration [2023-VIL-400-MAD].

 

Taxpayer should avail opportunity of proper reply and personal hearing

The instances of cryptic show cause notices and lack of effective hearing generally find place in this column. However, in a particular case, the taxpayer appeared to have not applied mind to the issues and contentions before the adjudicating authority as well as the Court. The issue of illegal availment of ITC based on purchased from a non-existent supplier was alleged in DRC-01A though it was not specified in the SCN. However the High Court held that the SCN issued under Section 74 of CGST Act was a continuation of the earlier proceedings and the notice in DRC-01A contained threat of such proceedings. Also, from the replies submitted by the taxpayer it was clear that he was aware of the infraction. Holding that it was incumbent on the taxpayer to provide effective responses to the show cause notice as well as avail of the opportunity for personal hearing, the High Court dismissed the writ petition [2023-VIL-398-MAD].

 

Negotiated revision of arbitral award does not attract GST

In a fairly detailed ruling, the Authority for Advance Ruling (AAR) has held that GST will not be applicable on the sum received as arbitral award which was further negotiated and reduced by the parties. It also held that interest granted by the Arbitral Tribunal would not attract GST since the principal supply namely award is out of ambit of GST. The contract pertaining to thermal power station was executed and applicable service tax and VAT were paid. But there was delay in completion and some part of the work awarded to sub-contractor was descoped. Applicable GST was paid for supplies post 1-7-2017. However the sub-contractor invoked arbitration for payment of certain dues and the award was in his favour along with interest. The contractor appealed against the award but in the meanwhile the parties settled the issue amicably. Answering the application on applicability of GST, the AAR relied on CBIC Circular No.178 as well as transitional provisions in Section 142 of CGST to hold that GST is not payable [2023-VIL-105-AAR].

 

GST is not chargeable separately on warranty replacements

Even as the mechanism of advance ruling is perceived as avoidable in many quarters considering the revenue-bias, it appears that a few taxpayers feel compelled to seek such ruling for reasons known only to God. When the answer is so obvious and the issue is well-settled even through advance rulings, filing an application to get the same reiterated indicates the fear of uncertainty as the jurisdictional officer or audit officers may raise such settled issue any time. The issue is GST liability on warranty replacement - goods replaced during warranty period as per clause in the agreement / contract. The AAR noted that for free replacement, no consideration is payable and as such GST is not chargeable since the value of such replaced items is already included in the value of goods at the time of original supply. The AAR relied on similar ruling in 2022-VIL-98-AAR. It further relied on CBIC FAQs wherein it was also clarified that ITC reversal is not required on the parts / components replaced [2023-VIL-107-AAR].

 

Customs Cargo Service Provider stuck in eternal delay - Tribunal directs time-bound completion of process

Disputes in respect of imported goods and export goods are the traditional battlefields in Customs litigation. But the Customs Area itself becomes disputed sometimes. In a case before CESTAT, the issue involved was revocation of permission to operate Inland Container Depot (ICD) "abruptly" as per the contention of the appellant. Such facilities require huge investments (stated as Rs 120 plus crores) and long wait as several rounds of inspection were undertaken by the Customs authorities. Initially, the concern was presence of manufacturing facility in the ground floor but then based on demarcation and other factors, this was not raised. Later, the department felt that presence of DTA area within such Customs Area may pose issues in GST but then such ground was not communicated to the appellant. Handling of Cargo in Customs Area Regulations, 2009 lay down detailed procedure on suspension, inquiry, rights of the person concerned, etc., but it appears they were not strictly followed in this case. After so many years, the issue is back to the department as the Tribunal has remanded the matter for issuance of notice stating all the grounds and after hearing, Commissioner should decide in time-bound manner. The appellant has been waiting since 2016. Customs department highlights "Turrant Customs" (to denote expeditious disposal) and reduction of dwell time. When the facilitators of importers and exporters face such challenges, the travails of members of trade need not be elaborated [2023-VIL-584-CESTAT-BLR-CU].

 

Penalty cannot be imposed by DGFT as well as customs for same offence

In a case of alleged mis-classification of goods and claim of DEPB, the assessee argued against imposition of penalty under Section 114 and 114A of Customs Act. The assessee had obtained 20 DEPB scrips on export of Ferrosilicon and sold them to various importers. Later DGFT proceeded against the assessee for misdeclaration in so far as the raw material was imported from Bhutan and required value addition of 25% was not undertaken in India though some cutting and polishing was undertaken. The assessee failed to prove goods were of Indian origin and paid duty foregone due to import by subsequent buyers of the scrips. Penalty was also imposed. Before the Tribunal the assessee contended that in respect of violation of DEPB Scheme, DGFT is the proper authority to initiate action and Customs cannot seek to impose penalty for the same offence and this was accepted by the Tribunal. After amendments, subsequent buyers of scrips are also proceeded against seeking to impose penalty besides demanding duty from both the exporter (transferor or scrip) and importer (transferee). It needs to be seen as to the interpretation that may be adopted in such cases in future [2023-VIL-589-CESTAT-KOL-CU].

 

 

(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)