Tax Vista Your weekly tax recap Edn. 165 - 14th Aug. 2023 By Dr. G. Gokul Kishore

 

 

Tax deposited under protest to be counted towards pre-deposit for appeal

The Bombay High Court has held that amount paid under protest by the taxpayer should be counted towards pre-deposit for filing appeal under CGST Act. There have been instances of voluntary payment made in late hours of the day being held as 'not voluntary'. Tweaking slightly the issue, the department contended that the voluntary deposit of tax which taxpayers refer to as 'under protest' in terms of Section 73(5) of CGST Act cannot be adjusted towards pre-deposit for appeal against the order as per Section 107(6) of the CGST Act. The taxpayer sought intervention of the High Court to enable him to file appeal without additional payment. It urged that GST portal itself would not open in respect of such taxpayer who seek adjustment of the voluntary payment of tax already made and who intend to take benefit of such voluntary deposit for compliance of sub-section (6) of Section 107 of CGST Act. In the alternate it sought manual filing of appeal.

 

Relying on VVF (India) Ltd. v. State of Maharashtra [2021-VIL-92-SC], the High Court held that the pre-deposit 10% of 'tax in dispute' would cover the entire demand which is in dispute. It also held that the amount deposited by the appellant before the order of assessment cannot be excluded from consideration and technicalities/portal design cannot come in the way of statutory right of appeal. This order should be helpful to many taxpayers and the GST portal should be rejigged to allow for adjustment of such amounts at the time of filing appeal [2023-VIL-515-BOM].

 

Initiation of confiscation proceedings against seller without detention proceedings against purchaser is not valid

The story line is the same - goods in transit were detained along with vehicle and proceedings were initiated for confiscation of both. The allegation is that the supplier was not operating from the premisses shown in documents and the case lacked bona fides. The department went to the extent of arguing that even the purchaser who was before the High Court seeking release of goods, was also fake and he did not prove that he was indeed the owner of the goods. Tax invoice, e-way bill, etc., were available at the time of interception. The petitioner assailed initiation of proceedings against the supplier without taking him (buyer / owner of goods) into account. The High Court noted that the department may proceed against the seller for confiscation but goods being owned by buyer cannot be confiscated. The responsibility of purchaser is limited to establishing the fact that the purchase was bona fide and he had purchased the goods for valuable consideration. It held that the purchaser cannot be expected to speak about the business activities or credentials of the seller. As per the order, roping in the buyer in confiscation proceedings initiated under Section 130 of CGST Act against seller is not correct without initiating detention / seizure proceedings under Section 129 against the purchaser (petitioner).  It permitted the department to initiate proceedings under Section 129 against the petitioner but directed release of goods and vehicle subject to conditions like execution of bond [2023-VIL-497-AP].

 

The order seeks to strike a balance between the interests of the taxpayer and that of the State. While the GST department has been granted liberty to proceed against the taxpayer, confiscating goods owned by the taxpayer in proceedings initiated against supplier has been disapproved, thus giving some reprieve to the taxpayer. Such niceties can hardly be comprehended by the GST authorities as the unwritten rule is detain whatever is on the road and let the taxpayer fight. Unless costs are imposed in every case of harassment, orders or instructions may not have any deterrent effect on erring officers.

 

Delay in filing appeal due to attachment of bank account is condonable

Constitutional Courts safeguard the taxpayers from arbitrary actions of State authorities - this gets reiterated time and again when High Courts take the genuine plight of taxpayers to grant equitable relief. There was a delay of 25 days in filing appeal before the first appellate authority under GST. The taxpayer sought condonation of delay but the same was rejected. The taxpayer pleaded that his business had come to grinding halt due to provisional attachment of bank account and garnishee orders issued to dealers from whom payment was due and therefore, mobilizing fund for payment of pre-deposit became impossible. The High Court held that the view of the Commissioner that the reason given by appellant was not acceptable, was like forcing the horse to run after tying the legs. Since pre-deposit is mandatory, freezing of bank account is a relevant factor and the same would be a sufficient cause for delay in filing appeal. It said that length of delay is not important but cause for delay is of paramount consideration and if the cause is shown as sufficient, then such delay deserves to be condoned provided the same is within the condonable period. If the cause shown does not have nexus with the case or contrary to facts, then the same cannot be accepted. The order rejecting appeal was set aside by the High Court and the authority was directed to consider the appeal [2023-VIL-498-AP].

 

Opportunity of hearing to be provided afresh by succeeding officer

The petitioner had defaulted in filing of GST return and after issue of SCN in 2019, his registration was cancelled. The petitioner however was not aware of the notice which had been received by his accountant and filed appeal against order of cancellation. Since there was a change in the officer concerned 'proper officer' in the intervening period, the petitioner contended that the new officer ought to have extended a fresh opportunity of hearing before passing the order of cancellation. The Kerala High Court held that though there is no specific provision under GST law requiring succeeding officer to provide an opportunity, the use of the words 'proper officer' in Section 29(2) of CGST Act implies that the proper officer has to hear the person concerned before cancelling the registration, which would mean that the taxpayer is put on notice by the succeeding officer also. The Court quashed the order cancelling registration. Compared to many other GST cases, this one is a shade better. Hearing was given by an officer while order was passed by another in this case whereas in several other cases, hearing is not granted at all. In particular, when it comes to cancellation of registration, it is the template justice system that rules - notices in format without striking out inapplicable portions and orders also passed in the same fashion [2023-VIL-517-KER].

 

Amount paid during search or shortly thereof cannot be retained when department has not crystallised liability

The facts as narrated by the department indicated that it had material which showed fraudulent availment of input tax credit (ITC) but the department did not initiate any proceedings for determination of liability under Section 74 of CGST Act. The taxpayer had deposited a total of about INR 50 lakhs during and shortly after search operations at its premises in 2021. It sought refund of the amount on the ground that no SCN had been issued and recovery could not be effected by the department without following the procedure under the statute.  Reliance was placed on a number of important orders including Century Metal Recycling Pvt. Ltd. v. UOI [2008-VIL-97-P&H-CE] and Bhumi Associate v. UOI [2021-VIL-117-GUJ]. As per the order, no SCN had been issued till date and the High Court held that it was difficult to accept that the taxpayer's self-ascertainment was not contested and the so called self-assessment was correct.   The department contended that the payment in DRC-03 was a result of self-ascertainment and was not liable to be refunded.

 

The High Court held that that Section 74(5) cannot be considered as a statutory sanction for advance tax payment, pending final determination in the assessment and self-ascertainment which is contemplated under Section 74(5) should be unconditional. Therefore, sums paid during search and later contested by the taxpayer are not taxes collected under the CGST Act and are liable to be refunded. The Court directed refund with interest. Compelling the taxpayer to make payment during investigation itself is condemnable. To add to it, in this case, show cause notice was never issued and the department felt it was not necessary [2023-VIL-521-P&H].

 

No writ remedy when appeal is not filed within statutory period

A Division Bench of the Kerala High Court declined to interfere with the order of the Single Judge wherein it was held that the taxpayer who had not filed appeal within statutory limit of 4 months including condonable period could not seek intervention of the Court. The taxpayer stated that he had not received the assessment order though the department countered that both the notice and order had been uploaded on the portal. It was held that not being aware of the order was not an acceptable reason. Relying on certain precedent decisions including Assistant Commissioner (CT) LTU, Kakinada v. Glaxo Smith Kline Consumer Health Care Limited [2020-VIL-18-SC], the writ petition was dismissed. Technical difficulties of the portal notwithstanding, this case underlines the need for taxpayers to be alert. While not uploading notices and orders is seen in certain places, uploading without serving physical copy is another practice adopted by GST authorities [2023-VIL-523-KER]

 

Snow goggles are not sunglasses - CESTAT provides a clear view

A recent classification dispute was decided by CESTAT travelling a long route from high altitudes of snow and ice to every day driving on roads. The department held that the assessee who imported and sold snow goggles to the army, had misclassified the goods and the  Customs Tariff Heading (CTH) 90049090 used by it was incorrect. The department opined that the correct heading was 90041000 pertaining to sunglasses. Though the assessee spelt out various differences in use, price, features besides inability to use snow goggles while driving as well as the clear terms in the contract, the department 'reasoned' that since the object was used as protective eyewear, snow goggles and sunglasses were the same. One reason which can be discerned for the apparent fogging of view is that rate of duty for snow goggles is 10% and for sunglasses it is 20%.  The impugned order was creative enough to suggest that with a little change of fitting arms, goggles can be used as sunglasses. The CESTAT held that snow goggles cannot be classified as sunglasses since the use is different and the commonality of use as eyewear cannot place them under the same heading. The order of CESTAT also distinguishes snow goggles from passive night vision goggles and prismatic eyeglasses and holds that the correct heading is 90049090 - Other.

 

As regards the allegation of misclassification rendering the goods liable for confiscation, it was held that the imported goods do not become liable to confiscation on the ground that the importer classified the goods under a heading different from the opinion of the officer and filing of the bill of entry and self-assessment precede re-assessment by the proper officer and it is impossible for the importer to anticipate under which heading the officer is likely to classify the goods. It was reiterated that classification is a matter of opinion and it may differ  [2023-VIL-759-CESTAT-DEL-CU].

 

CGST Act and IGST Act set to be amended for taxing online money gaming

CGST Act is being amended and the Bill for this purpose has been presented in the Parliament. The amendments proposed are exclusively for taxing the online money gaming activity. Online money gaming is also being defined. One of the major amendments proposed is in Schedule- III which excludes actionable claims but includes lottery, betting and gambling. The words "lottery, betting and gambling" are being substituted with "specified actionable claims" and this new term is being defined to mean betting, casinos, gambling, horse racing, lottery and online money gaming. Because actionable claims are treated as goods in GST law and online money gaming supplied from overseas will be through virtual medium, charging section - Section 5(1) of IGST Act is being amended to provide for IGST levy not based on Customs Tariff Act but shall be levied and collected as inter-State supply. Special provision has been proposed to be inserted in IGST Act for taxing online money gaming supplied by person abroad to a person in India. The scheme is similar to special dispensation available for OIDAR service. Though tax and morality are completely unrelated subjects, the fact that GST Council has met twice to decide on taxing such gaming shows the State's avarice for revenue and the gaming lobby's lung power.

 

 

(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)