Tax Vista Your weekly tax recap Edn. 162 - 24th July 2023 By Dr. G. Gokul Kishore

 

 

Refund short claimed - Rejection of supplementary claim is not sustainable

GST poses a completely illegal and unsustainable challenge - technical glitches or issues or simply the portal determines substantive rights of taxpayers. For example, ITC is dependent on GSTR-2B which is system generated but the same is now part of the statutory conditions. For no fault at their end, recipient may well be denied credit only because there is some technical issue in generation of GSTR-2B. All these need to be litigated with evidences like screen shot, etc. Before the Gujarat High Court, the taxpayer sought direction on refund of ITC due to exports which was sanctioned but because of clerical error, the claim was filed for a lesser amount and the department rejected the supplementary claim made for the differential amount. The taxpayer pointed out that the GST portal does not allow claiming of refund for the second time for the same period and therefore, the differential amount was claimed using the category "Any other". The department needs some reason to reject refunds and in this case, the reason cited as "Any other" was held as not correct.

 

The High Court held that the benefit a taxpayer is entitled to, on fulfilment of substantive conditions, cannot be denied due to technical error or lacunae in the electronic system. It noted that there was no other option for the taxpayer to file the supplementary claim. The Court ordered manual filing of such claim and directed the department to consider the same. The amount involved was around Rs. 10 crores and it is obvious that such a huge amount cannot be sanctioned without a fight [2023-VIL-439-GUJ].

 

Ownership of goods to be determined first before imposing penalty

GST authorities have great affection towards truck drivers. In a few cases, it overflows where show cause notice is issued to the driver instead of the consignor or consignee of the goods. In a case of this type, notice was issued to the driver and later order was also passed imposing penalty twice the value of goods on the ground that consignee had not accepted the goods. The goods were arecanut and may be, such natural produce is so valuable for the department. The petitioner argued that as per departmental circular, if the goods are accompanied by tax invoice, then either consignor or consignee should be deemed to be the owner of the goods and if such document is not available, then the proper officer should determine who should be declared as the owner of the goods. The petitioner had brought such argument before the department but the same was not considered. The High Court rejected the stand adopted by the department that the goods did not belong to the consignee without dealing with ownership issue. Ownership should be determined before imposing penalty, as per the High Court order. The order was set aside and the department was directed to proceed afresh.

 

Tax authorities are not able to identify the owner of goods when the consignee has taken pains to file writ petition in the High Court. It appears the case is one of plain harassment. Tax authorities, in most cases, know very well the taxpayers in their jurisdiction. Imposing 200% penalty when documents were available is misuse of powers [2023-VIL-454-ALH].

 

SCN to reagitate proceeding settled by Appellate Authority is bad in law

One should sometimes be careful of what he wishes for. The proceedings in respect of delayed filing of return culminated in the order of the First Appellate Authority (FAA). The taxpayer assailed the adjudication order which was passed without issuing SCN but had paid taxes due though it contended that the interest demand of about Rs 6 lakhs was erroneous. The department issued two SCNs - one by Deputy Commissioner and another by Assistant Commissioner for the same period, same issue decided by the FAA. The taxpayer sought quashing of the notices urging that it was an attempt to reagitate settled issues and the interest demanded could only be about Rs. 12000 after taking into account benefit of the Notification No. 13/2017-Central Tax dated 28-06-2017 as amended by Notification No.31/2020-CT dated 03-04-2020 as part of COVID-19 relaxation measures. The department argued that issuance of 2 SCNs was necessitated due to transfer of the matter from Assistant Commissioner to Joint Commissioner and proceedings were being conducted only under one SCN. The High Court granted relief to the taxpayer holding that the department could not reagitate settled matter. As per statutory provisions, the department ought to have appealed against the order within 6 months but did not take such action. It held that issuing SCN after more than a year on the same issue was bad in law, without jurisdiction and barred also by principles of res judicata [2023-VIL-455-JHR].

 

Penalty for shortage in goods cannot be levied on value of entire consignment

An error in mentioning purchase order number and the insistence of GST authorities in levy of 'full' penalty pushed the taxpayer whose goods had been detained to the High Court, once before a Single Judge and then to a Division Bench where he obtained relief. The goods were detained on account of shortfall in quantity of goods transported and "discrepancy" of mentioning license number instead of purchase order in the export invoice. The High Court held that since sales order and purchase order number was quite clear in the purchase order of the buyer from Bhutan, the mistake by the taxpayer could not be treated as a discrepancy warranting detention of goods. As regards imposition of penalty on the total value of goods, it was held that this was erroneous and penalty could be levied on the said shortfall - quantity of the boxes being lesser than the quantity shown in the document. The remaining portion of penalty was ordered to be refunded to the taxpayer. It is quite disturbing that High Court's time is used to verify facts and even a simple computation of penalty which obviously cannot be on entire value of goods has to be secured through litigation [2023-VIL-459-CAL].

 

Speedy assessment sans personal hearing or considering reply - Order set aside

GST law provides ample time to issuance of SCN and passing of order, yet an assessment order was passed in record time, offering hearing before expiry of time for reply to be furnished and as is wont in haste, the order did not consider the submissions of the taxpayer. It is also mentioned that the SCN was quite vague without specifying the allegation and merely furnished a computation of demand. The taxpayer must be complimented for replying to this notice - as response to observations in the audit report. The department argued that a date of hearing was fixed but no one attended. The High Court held that the purpose of eliciting a reply to the show cause notice is to enable the noticee to place his stand on record and opportunity of hearing cannot be a mere formality. Moreover, the taxpayer had sought hearing in his reply. The High Court set aside the order though it was of the opinion that the SCN also deserved to be set aside. Since the taxpayer had responded to the SCN, it appeared that he was aware of the grounds for the demand. It is unfortunate that a determination of liability has to be based on guess work and deduction on part of the taxpayer rather than a real opportunity for the taxpayer to discuss the issues [2023-VIL-458-DEL]

 

Refund not deniable on ground of excess tax paid erroneously

Lapse in paying taxes is a costly mistake, paying more tax appears to be a graver mistake. The taxpayer supplied goods to merchant-exporter and instead of paying 0.1% in terms of Notification No. 41/2017 - Integrated Tax (Rate), it paid 18%. Later realising the mistake, it issued a credit note to the buyer and sought refund of excess tax. The department of course denied refund stating that the taxpayer was not eligible since the conditions in the notification were not fulfilled and various documents had not been submitted. The taxpayer contended that as the supplier, only the conditions of supply based on a tax invoice and export by the recipient within 90 days from date of issue of invoice had to be complied with and other conditions were obligations of the recipient. Also, letter from the recipient-exporter was produced regarding raising of purchase order by them. Based on various precedent decisions it was held that erroneous payment of tax will not make the transaction (goods) taxable and a substantive benefit cannot be denied on mere technicalities [2023-VIL-460-GUJ]

 

Appeal against DRC-05 permitted to be filed manually

Unlike assessees who struggle with denial of natural justice, the taxpayer had to appeal to authorities, to the High Court to be permitted to file appeal against an intimation in DRC-05 on conclusion of proceedings. The taxpayer paid the tax though under protest and wanted to appeal against the conclusion and contended that DRC-05 was in itself an appealable order. However, the portal was not equipped to permit filing of the appeal and the department was unmoved stating that appeals can be filed only electronically. Finally, the High Court intervened and held that the statutory right of appeal cannot be denied and till an appropriate provision is made for acceptance of such appeal electronically, the filing of such appeal is required to be permitted by the manual method [2023-VIL-457-BOM].

 

Refund of GST in contractual disputes

In GST regime, quite a few contractual disputes relating to tax claims are brought to High Courts. In a recent case involving refund of GST, license was cancelled / contract was terminated based on mutual agreement between the licensor and licensee. The petitioner-licensee had sought refund of GST component from the licensor which was not acted upon. The licensor took the stand that refund will be given subject to sanction of refund of GST by the tax authorities to it. The licensee sought an undertaking on non-availment of input tax credit by the licensee which was complied with. The High Court held that it cannot approve the licensor's approach in rejecting the claim of the licensee and directed it to pay the GST amount to the licensee. It further held that the refund claim filed by the licensor is required to be considered as per law by the department but sanction of refund by department should not be a condition to pay back the GST component to the licensee. Though the facts are not mentioned in the order, it appears that the tax portion was recovered in advance and licensor being liable to pay tax, had to return the amount consequent to cancellation of license. Contractual disputes are mostly factual and the position adopted by the High Courts in entertaining writ petition varies and no general proposition can be drawn from such orders [2023-VIL-452-CAL].

 

Renting of PG accommodation is not exempted from GST

Paying guest accommodation is not covered under "residential dwelling" and exemption from GST on renting of such place is not available. This is the advance ruling. As per facts, the rooms are shared and there is no provision for kitchen / cooking by persons staying in such facility and these have been highlighted to arrive at the above conclusion. Residential accommodation is meant for permanent stay and places like guest house used for temporary stay are not covered. The Authority for Advance Ruling (AAR) has also relied on CBIC's service tax education guide to understand this term. Additional services like food, house-keeping, washing machine, etc., have been held as not naturally bundled as they are optional and they do not affect the main supply even if one or more of such services are not provided and therefore, they need to be taxed separately. On the recent amendment, it has ruled that the applicant who takes premises from land-owners on rent for further use as renting of PG accommodation, would be required to take GST registration and pay tax under reverse charge. Paying guests will have to be pay more with the advent of GST, as it appears [2023-VIL-149-AAR].

 

Sharing of test report with foreign recipient using protype developed by service provider is export of service

If testing on protypes developed by service provider in India using a few materials provided by service recipient is undertaken, then such supply would not be covered under Section 13(3) of IGST Act. This sub-rule provides for place of supply to be the location of service provider when the service is provided on the goods physically made available. The exception is when the goods are exported back to the service recipient. In the case before the AAR, the goods get consumed and therefore, it has been held that such services would be export as they fall under Section 13(2) of IGST Act. In these cases, the test reports are sent by the service provider in India to the foreign company. The AAR has ruled that export of service benefit would not be available when testing is undertaken on the goods provided by foreign service recipient (as they are not apparently sent back). Readers may refer to the ruling as various types of activities are involved and the AAR has reproduced several portions from the agreement between the parties and also the IGST provisions [2023-VIL-144-AAR].

 

Supply of electricity to charging stations is taxable

The applicant engaged in supply and distribution of electricity sought to know whether supply of electricity to public charging stations (PCS) for both two-wheelers and four-wheelers would be taxable. It stated that it would issue tax invoices and collect "Electric Vehicle Charging Fee", which had two components - (a) Energy Charges and (b) Service Charges. Energy charge refers to the number of units of energy consumed and service charge refers to the services provided by the charging station, i.e. the cost of setting up the service station and running the same. The Power Ministry had earlier clarified that since the supply of electricity to the charging station did not involve sale of electricity or distribution, it would be taxable. The AAR also held that the only sale of electricity as such to a consumer, under a license would be exempt and in the impugned transaction electricity was only converted into chemical energy and as such there was no sale of electricity and the transaction was one of service. It also held that SAC 998714 which covers maintenance and repair of transport machinery and equipment, which includes electrical system repair and battery charging services for motorcars would be the SAC code for the same [2023-VIL-147-AAR]

 

Cross-charge - Clarification after 6 years

From the day when GST was implemented, the issue of cross-charge has been agitating the minds of all stake-holders. Various advance rulings have been issued to not only hold GST is required to be charged when corporate support services are provided by head office of a company to its own units or branch offices in other States but also to include salary cost of HO employees in the taxable value. Schedule-I of CGST Act treating transactions between distinct persons as supply even when consideration is absent has been relied on by the department to issue SCNs. Valuation became the most complex issue as employees are treated as employees of the company as a whole and not that of HO or branch office. However, the departmental view was that salary cost of HO employees should be included in taxable value. The ultimate justification of recipient being eligible for ITC has been standard defence for such practice. While the author of this column highlighted absence of authoritative clarification from CBIC in many columns/ articles, industry had also represented this issue. After six long years, CBIC has issued Circular No. 199/11/2023-GST dated 17-7-2023 clarifying this issue. The crux of the clarification is that value declared in the invoice by HO is deemed as open market value as per Rule 28 of CGST Rules whether or not employee cost is included. While Rule 28 prescribes a condition of recipient being eligible for "full ITC", the circular states that even if this condition is not met, salary cost of employees of HO need not be included. The circular uses the term "internally generated services" and conspicuously avoids "cross-charge". The circular slightly confuses the otherwise clear issue of distribution of credit through ISD mechanism by HO.

 

A few more circulars were also issued last week like Circular No. 192 on taking total ITC balance for computation of interest (even if IGST credit is fully exhausted) in case of irregularly availed ITC and such clarification not being applicable to credit of compensation cess and Circular No. 195 stating GST payment as not required on warranty replacements and non-reversal of ITC as well.

 

 

(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)