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Tax Vista Your weekly tax recap Edn. 166 - 21st Aug. 2023 By Dr. G. Gokul Kishore |
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Cash cannot be seized under GST law
The Delhi High Court has held that currency cannot be seized under Section 67 of CGST Act. It has ordered return of currency, silver bars and mobile phones seized by the GST authorities. The Court held that Section 67(1) is not a recovery provision, but the power is given to unearth evasion or attempt to evade tax. Dealing with finer interpretation of the provisions, it was observed that only those goods can be seized which the proper officer has reasons to believe are liable to confiscation. After examining the definitions, it rejected the argument of the department that silver bars are "securities" and noted that cash is clearly excluded from the definition of goods. Drawing the much-needed distinction between "goods" and "things", the Court said that goods as used in Section 67(2) essentially relates to goods which are subject matter of supplies taxable under CGST Act and such goods are those which the proper officer believes, are liable to confiscation.
Taking the interpretation to a minute point, the order says that during search, the department may come across furniture, AC, communication equipment, etc., but such assets are not "goods" if the officer has no reasons to believe that they are liable to confiscation. Because seized goods can be returned, it is the notice in respect of those goods where tax interest or penalty has not been paid. As per the order, seizure of documents or books is contemplated only because they may contain information which may be useful in investigations. In particular, the order holds that documents, books or things cannot be confiscated but have to be returned once the purpose is served. The word "things" should be interpreted applying ejusdem generis with the preceding words "documents" and "things" and in this context, "things" would cover pen-drives, computers, hard disks, mobiles, etc., which may contain information useful for proceedings. Power of search and seizure being a drastic power, the same is circumscribed by guidelines that qualify exercise of the same. The order contains a precedent judgment of British era which is so relevant to the case on hand and interpretation of Section 67.
It rejected the argument on seizure of silver bars holding that Section 67 is not for the purpose of seizing unaccounted income or assets or ensuring the same are taxed as it is a field covered by Income Tax Act. A major ratio laid down in this order is that power to seize under Section 67 does not extend to seizing valuable assets only because they are unaccounted or may be liable to confiscation under some other law. This order now belongs to the majority of such orders holding currency / cash cannot be seized under Section 67 of CGST Act. One of these decisions will certainly be carried to the Supreme Court and till the final word is out, divergence at lower level cannot be ruled out [2023-VIL-544-DEL].
Purchaser at receiving end of supplier's default - ITC denied
There are judgements which have held that the purchasing dealer (recipient) who has paid tax cannot be denied input tax credit (ITC) for default by the supplier to pay it into government account. However, Patna High Court has held that the term "input tax credit" means that a credit had to be available in the ledger of the claimant and hence, if the supplier does not deposit the tax collected, the conditions of Section 16 of CGST Act are violated and credit is not available. It was reasoned that ITC is a benefit conferred by the GST statute to avoid cascading effect of taxes and hence the conditions laid down in the statute have to be satisfied. Production of proof of payment, invoice etc., would not be sufficient to claim such credit. The Court rejected the contention on double taxation as liability has not been discharged. The order surprisingly holds that if the amount is recovered from the seller / supplier later, then purchaser can seek refund. The only remedy available to purchaser is to proceed for recovery against the seller, if there is a default in payment of tax to government. This judgement strengthens the hands of the department and makes it more onerous for the recipient to claim ITC. It is not known why the taxpayer did not argue on Section 16(2)(c) being subject to Section 41 of CGST Act [2023-VIL-546-PAT].
Manual filing of appeal on account of technical glitches - Technicalities not a hurdle
It would appear that convincing the department of the taxpayer's bonafide is an uphill task beginning with the attempt to admit appeal. Faced with a non-cooperative website which did not accept the number of assessment order, the petitioner filed the appeal manually. Unfortunately for him, Rule 108 of A.P. GST Rules lays down that an appeal to the appellate authority under sub-section (1) of Section 107 shall be filed in FORM GST APL 01, along with the relevant documents, either electronically or otherwise as may be notified by the Commissioner. But no notification has been issued yet prescribing other modes of filing appeal. Fortunately for the petitioner the High Court reiterated that "when substantial justice is pitted against technical considerations, it would be always necessary to prefer the ends of justice" and held that the appeal filed by manual mode was to be accepted. The petitioner had been quite diligent and also presented screen shot of his travails with the portal [2023-VIL-540-AP].
There are several instances where orders / summary of orders are not uploaded but only sent by email. At the time of filing appeal online, the taxpayer is left directionless since the portal would only select the order to be appealed against and the same cannot be given as input by the taxpayer / appellant. When the appeal is filed manually, payment of pre-deposit is the next challenge as cash ledger cannot be debited when appeal is not filed online. GST law and procedures will become a major irritant for the industry in the near future. GST Council and CBIC should intervene and allow filing of appeal by permitting taxpayer to enter order details and also provide facility to pay pre-deposit in such cases also.
Manual filing of refund claim permissible - Online application cannot be insisted upon
A recent case before Allahabad High Court revealed the long arm of law and longer waiting period for it but the ending was fairly happy. The petitioner's goods were seized on account of insufficient documents and before he could appeal against the order, bank guarantees were encashed (the long arm of law). The petitioner subsequently appealed and was granted refund of the amount. However, getting the refund took four long years (the long wait) culminating in the petition for a writ of mandamus. The department argued that the petitioner ought to have filed the application RFD-01 electronically, technical glitches notwithstanding. The High Court held that Rule 97-A has been clearly read to permit a physical application to be filed in Savista Global Solutions [2021-VIL-713-ALH] and Circular dated 18-11-2019 cannot override it. The High Court directed the department to refund the amount along with applicable interest. It is really unfortunate that the department can keep a refund claim pending without any decision for full four years. The officers should feel fortunate as the High Court did not impose costs on such callous behaviour [2023-VIL-526-ALH].
Delay in adjudication is fatal - Amended law applicable to SCN issued before amendment
Section 28 of Customs Act, 1962 was amended in 2018 to make the time-limit for passing adjudication order rigid by omitting the words "where it is possible to do so". By such amendment, one year time period became mandatory for passing orders involving extended time-limit where suppression or misstatement is alleged in the show cause notice. The petitioner contended before the High Court that the SCN issued in February, 2018 has not been adjudicated so far and therefore, the same would be hit by time bar in so far as passing order is concerned. However, the department argued that the SCN was issued before the amendment took effect. The explanation to Finance Act, 2018 specifically provided that unamended provisions would apply in such cases. The High Court held that the words "where it is possible to do so" would mean where it is not practicable / possible to do certain act and the period cannot be endless without justification. It noted that there was no material to show that it was not possible for the officer to adjudicate and indifference of the officer to complete adjudication to the detriment of assessee is not condonable. The SCN was held as "lapsed" and "cannot be adjudicated". While this case may be helpful in case of delay in adjudication of SCNs, in this case, the departmental instruction to keep notices issued by DRI pending in view of the matter being sub judice was brought to the attention but the High Court did not agree. Introduction of time-limit for adjudication and passing order should not be implemented in letter but in spirit as well by the department. But, there are several cases where particular officer does not want to decide. The issue is more complex than it appears [2023-VIL-543-DEL-CU].
Drawback and classification of sanitaryware
The Delhi High Court had certain strong observations while dealing with impugned orders rejecting claim of drawback as applicable to sanitaryware- made predominantly of brass for use in bathroom and kitchen. The goods were classified by the exporter under heading 7419 02 of Customs Tariff while the department felt they are classifiable under heading 8481 80. Order was passed for recovery of excess drawback amount and by Revisionary Authority's order, exporter's contention was rejected. The High Court held that the consignment was verified and found to be sanitaryware and use of brass is for taps and knobs is a well-known phenomenon. Chapter 84 is for nuclear reactors and parts and therefore, the Court held the same as inapplicable. Common parlance test was also given a go-by. The Court also took exception to the claim of the petition in opting for particular serial number in Drawback Schedule which pertained to artware / handicraft by holding that merely because sanitaryware was having premium aesthetic and sleek design, the same would not fall under such heading. The impugned order was quashed and the department was directed to consider the claim under a particular heading - 7418 02.
Classification by the department is sometimes way off the mark and it is because, revenue considerations rule primarily. The heading which will attract higher duty if it is a demand of duty and a heading which provides for lower incentive if is under export promotion scheme is the general rule adopted by Customs authorities for classification [2023-VIL-541-DEL-CU].
Training to attend statutory examination is not exempted from GST
Exemption to education is an area which is often disputed from service tax regime. In GST regime, advance ruling is sought to know the availability of exemption based on the criteria of qualification recognized by law, curriculum-based programme, etc. In a ruling with reasonable interpretation of both facts and law, the Appellate Authority for Advance Ruling (AAAR) has held that the training provided to enable the trainee to attend examination conducted by statutory body does not make the training as recognised by law or leading to any qualification. The issue related to additional training required for pilots to fly certain types of aircraft called "Approval Type Rating" or ATR. They are required to qualify in the exam conducted by DGCA and post such exam, their license will be endorsed with additional type of aircraft also.
The AAAR has held that DGCA does not endorse licenses based on course completion certificate provided by appellant and DGCA examiner taking into account such certificate will not make the same statutory in character. The AAAR has acknowledged that the certificate is a pre-requisite while submitting application but such training itself does not result in recognized qualification. After such training, the person concerned cannot directly take up employment also as only after endorsement of license, the same would be possible. The advance ruling holding exemption was not admissible has been upheld by AAAR. The case falls within the zone of an activity leading to some qualification and employment but there is an exam in between and therefore, the activity per se gets excluded from exemption. Instead of knocking the doors of AAR and AAARs, the industry should represent to GST Council if there is a case in their favour [2023-VIL-32-AAAR].
(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)