Tax Vista Your weekly tax recap Edn. 160 - 10th July 2023 By Dr. G. Gokul Kishore

 

 

Cash not part of stock-in-trade cannot be seized by GST authorities

Seizure of cash during investigations by GST authorities continues to be contentious. While certain High Courts have held that GST officers are empowered to seize cash under Section 67 of CGST Act / respective SGST Act, Kerala High Court has sought to appreciate the fine distinction between "things" which are part of stock-in-trade of the taxpayer and cash per se. In a recent judgment, it has relied on its earlier judgment on this issue [2023-VIL-197-KER] wherein it was held that cash which was not part of stock-in-trade cannot be seized under Section 67 and suspicion over large amounts being kept at the premises would be justified if the investigation is by Income Tax officers and the same would be irrelevant for GST officers. The High Court had noted the officers' lack of knowledge of powers and limits of jurisdiction. In the present case, the taxpayer being a manufacturer of idli / dosa batter and along with cash, a few pay-in slips were also found (indicating intention to deposit in bank), such cash is not a "thing" which can be seized. Seizure was made more than one year before and retention of the same was found to be unreasonable. It directed return of the cash [2023-VIL-414-KER].

 

An amendment to Section 67 will be made after a few years - after the issue is further litigated and the issue becomes a bigger controversy. CBIC should ideally take note of such orders as they are delivered and deliberate on possible amendments so that the law is made clear either way - if the authorities should be empowered to seize cash, let it be included expressly in Section 67. As held by Kerala High Court, GST authorities have nothing to do with proceeds of alleged evasion or they cannot suspect proceeds kept in the premises as attributable to supplies made without documents.

 

E-bill issue - SLP by GST department dismissed by Supreme Court

Tax department is litigative in nature - this is a statement which gets substantiated clearly in certain orders. In a "bill-to-ship-to" transaction, e-way bill was prepared by the actual seller to cover transportation of goods till destination but the GST authorities detained the vehicle in transit. As some of the officers do not understand such concepts, tax was demanded and penalty was imposed citing absence of e-way bill from taxpayer's premises to destination. The taxpayer filed writ petition and the High Court allowed the same imposing costs on the department condemning the unnecessary litigation. It noted that e-way bill was valid at the time of detention and there was no violation in this case [2022-VIL-340-ALH]. This order is being mentioned again because VIL has reported order passed by Supreme Court wherein the SLP filed by the GST department has been dismissed. The Apex Court has not discussed in detail but has noted the order of High Court was correct [2023-VIL-62-SC].

 

It is time for the GST Council Secretariat to sit with CBIC and find out some solution to arrest such frivolous litigation on e-way bill related issues. Most of them are trivial and are attributable to "check-post mentality" of officers - if the vehicle is stopped, something dispute should be manufactured. It is not clear how the above case was permitted to travel upto the Supreme Court. The officers who approved filing of SLP in this case should be taken to task.

 

Proceedings may continue under GST law as well as penal law

The petitioner, alleged to have indulged in issue of fake invoices, purchase from non-existent supplier and not engaging in actual supply of coal which was his stated business was proceeded against under GST law [Section 132] as well as IPC [Sections 120B/406/420/471]. It was pleaded that GST is a special enactment and it should prevail and a person cannot be punished twice under different laws for the same offence. However, the High Court held following Hon'ble Supreme Court in Jayant and others v. State of Madhya Pradesh [(2021) 2 SCC 670] that so long as the ingredients for proceeding under a law are satisfied, a person can be proceeded against under both laws and even if the person avails compounding etc., under one of the laws, it will not bar proceeding under the other law [2023-VIL-420-JHR]. This may become an issue in GST litigation as SGST officers often go to police station and register FIR unlike CGST officers who normally file complaint before the court. FIR route is not required if the offence is under CGST Act alone. Charging a taxpayer for alleged offences under IPC was rarely seen in Customs and Excise.

 

Goods returned for repairs - No intention to evade tax

A recent case before Calcutta High Court is equally interesting on the point of admissibility of writ petition and the relief provided. The High Court held that filing of writ petition after a delay of two years which was due to waiting for the GST Appellate Tribunal to be constituted is a condonable delay. The petitioner's consignment - goods being returned for repairs (damaged after being loaded in the vessel) was intercepted and detained for non-updation of e-way bill as it had expired. The petitioner had already paid tax and penalty but did not appeal against the order since the GST Tribunal is yet to be constituted. The writ petition was filed after two years and the High Court ordered relief stating that where there was no intention to evade tax, imposition of tax and penalty was not warranted [2023-VIL-421-CAL]. In this case, the interception was at 8.20 am while the e-way bill lapsed at 8.10 am. A ten-minute delay has made the taxpayer run to High Court besides paying tax and penalty and four-year wait for further relief. There cannot be a better way to celebrate 6 years of GST than making taxpayers wait eternally for the Tribunal to be constituted.

 

Use of ITC would not disentitle a person from reimbursement of tax component under contract

The Gauhati High Court had occasion to interpret and give a good exposition of the basic scheme of GST. The petitioner was aggrieved by the refusal of Railways to reimburse the GST component in the amount of price revision of steel supplied by him. The contract spanned across pre-GST and post-GST era. The contention of the Railways was that the petitioner had already availed input tax credit of tax paid by him on purchase of steel and used it to pay his output liability and hence reimbursement would provide him a double benefit. The High Court opined that "merely because the Petitioner uses the input tax credit which is credited to his electronic credit ledger for payment of the output tax, which is a permissible mode of payment as per Section 49, it would be completely contrary to the frame work of the GST Act to accept the contention of the Railways that the Petitioner would not be entitled to the reimbursement of the Input Tax Credit which the Petitioner used for payment of the Output Tax Credit". It held that contractually the Railways was bound to reimburse the amount and if  the tax component was not included in the computation, the petitioner may receive an amount less than what he had paid on purchases which was not permissible [2023-VIL-422-GAU].

 

Customs exemption not applicable to goods taken from FTWZ after temporary storage

Goods which are received from FTWZ in DTA are not "imported goods", as per Customs Advance Ruling. As the goods were originally imported and used in a contract (equipment) and for use in another contract in the future, they were deposited in a warehouse in FTWZ, the CAAR held that it would not be a case of "re-import" and the claim to duty exemption under Notification No. 45/2017-Cus., was not admissible. The issue involved a practical problem for the applicant - likelihood of equipment imported being required in the foreseeable future in a different contract and requirement to temporarily store in some place. The applicant thought warehousing in FTWZ will mean duty payment will not be required when they are taken out for the future work. The CAAR noted that the words "imported", "exported" and "procure" used in SEZ Act will have different meanings and cannot be used inter-changeably. As per Rule 18 of SEZ Rules, units in FTWZ can hold the goods for dispatch as per owner's instruction and they may export to DTA but re-imported goods which are exported by FTWZ unit to DTA are not covered under exemption notification. The ruling contains good amount of reasoning and interpretation [2023-VIL-21-AAR-CU].

 

Construction of warehouse for renting - ITC not admissible

The AAR is quite immovable when it comes to ruling on ITC. The applicant who was engaged in the manufacture of various products for construction industry sought to know whether ITC of input and input services would be admissible in respect of warehouse constructed by him. Rental income was earned from letting of such warehouse. The applicant also stated that the various input/services fell in various categories namely, services like those of contractor, goods like pre-fabricated steel used directly in construction, expenses towards repairs etc which were capitalised and certain others which were not capitalised. The applicant argued that denial of ITC under Section 17(5)(d) of the CGST Act would not be extended to the goods/services used by him for construction of the warehouse since it was not "on his own account" because it was intended to be and also used by the lessee. Also, since the entire structure could be dismantled without damage to the structure and moved to a different place it was per se not hit by the bar on immovable property for purposes of credit.

 

The interpretation of the words "on own account" as "for own use" was rejected by the AAR, and perhaps rightly so. As regards argument of immovable property, it held that the concept of movement without any damage would not apply since the floor would be damaged and the property was intended for permanent enjoyment/use and was immovable property. It held that the judgement in Safari Retreats [2019-VIL-223-ORI] was distinguishable on facts. However, the ruling concludes that ITC will be admissible if construction expenses are not  capitalised in the books [2023-VIL-115-AAR].

 

GST - Multiple registrations using same place of business by same taxpayer is not permissible

It is sometimes said that GST law is not very complicated and not many issues arise from the provisions. If the issues raised before Authority for Advance Ruling (AAR) are to be seen, this statement will stand disproved. GST law provided for single registration in a State initially with the only relaxation of separate registration within the same State for separate business verticals. In 2019, Section 25(2) of CGST Act was amended to provide for multiple registrations within the same State for multiple places of business. The taxpayer sought ruling before AAR on a slightly different fact-situation - whether multiple registrations can be obtained for manufacturing, dealership and service provision using the same place of business. The AAR adopted literal interpretation of the provisions to rule that separate registration would not be available in this case [2023-VIL-111-AAR].

 

Such issues can be resolved by the taxpayers themselves with minor re-structuring of the business by having different entities for multiple businesses and entering into rental agreement with the owner-entity for leasing of premises which would have ensured separate registration for each type of business using the same premises. However, if the taxpayer does not want multiple entities, then the issue becomes tricky. Some may say it is easier to suggest through articles and columns but in practice, these issues are difficult to navigate.

 

ED to share information with GSTN

Tax matters are rarely understood by general media. A classic example is the last week's issuance of amendment to notification under Prevention of Money Laundering Act (PMLA). As per this amendment, GSTN has been included in the list of agencies with whom Enforcement Directorate (ED) will be required to share information when it has information relating to violation of GST law. Section 66(1)(ii) of PMLA Act provides for "Director or any other authority" to furnish "to" any other officer, authority or body "any information received or obtained by such Director or any other authority" in the performance of functions under PMLA Act which is necessary for the "officer, authority or  body" to perform his functions under "that law" (meaning respective law). However, this has been (mis)reported that GSTN has been brought under PMLA and now GSTN would be required to share information with ED. Most of the tax and regulatory laws have provisions these days for mutual sharing of information. While taxpayers may be happy to do all compliances online, availability of information with the government and sharing of such data across agencies will be a major factor whenever there is any dispute.

 

 

(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)