Tax Vista Your weekly tax recap Edn. 167 - 28th Aug. 2023 By Dr. G. Gokul Kishore

 

 

Pre-deposit can be paid from credit ledger while filing appeal under GST

The Orissa High Court has held that pre-deposit for filing appeal before the first appellate authority under Section 107 of CGST Act, 2017 can be made by debiting electronic credit ledger. CBIC Circular dated 6-7-2022 has been taken note of in this regard to observe that it has been clarified in this circular that pre-deposit can be paid using credit ledger. The order of the appellate authority rejecting the appeal on the ground that pre-deposit was paid using input tax credit account was set aside and the appeal was restored with the direction that pre-deposit made using credit ledger will have to be accepted by the department. The order is brief and therefore, readers may not have the benefit of knowing the arguments presented by both sides [2023-VIL-569-ORI].

 

This issue is not free from doubt because the above said circular is ambivalent. The question posed in this circular was incorrect as the word "pre-deposit" has not been used. The question is whether credit ledger can be used for making payment of any tax under GST law. The answer is any output tax whether self-assessed or payable as a consequence of any proceeding can be paid by using credit ledger. CBIC never bothered to clarify that what they meant was actually pre-deposit. In fact, tax administration is of the view that credit ledger cannot be used for making payment towards pre-deposit though there are judgments for and against such practice. CBIC is well aware of such stand taken by field formations which means it has tacit approval of the Board. One of the interpretations adopted is what is paid as pre-deposit under Section 107 is part of the tax amount in dispute and therefore, as per this circular, credit ledger can well be used. The issue was raised and settled in pre-GST regime and the same drama is being enacted to the detriment of taxpayers. Huge amounts are being confirmed by GST authorities and insisting on cash payment for pre-deposit has impacted very adversely the working of many entities.

 

Denial of refund - Intermediary route is not foolproof for GST department

In yet another case relating to department's claim that the services rendered would be covered under "intermediary service" and export of service benefit would not be available, the Delhi High Court has set aside order rejecting refund and directed the claims to be considered. Unlike certain other cases, this one reveals feeble attempt by the department to somehow deny the refund. The Indian entity was provided investment advisory to overseas group company which was, in turn, advising its clients for potential target companies for investment. The contention of the GST department was that the services were provided to clients of the overseas entity and therefore, the petitioner acted as liaison between such overseas entity and the clients / customers. However, the show cause notice for one year did not even contain such allegation. In respect of another year, there was no mention about place of supply being in India. In a particular year, it was alleged that the services were provided in relation to immovable property as the group concern was involved in construction and operation of highways and toll plazas. The adjudicating authority also recorded such conclusion based on information available in the internet to hold that services were rendered in respect of such projects. The terms of the agreement were relied on by the High Court to point out that the overseas service recipient was not bound by the advisory provided by the petitioner. The orders challenged before the Court reveal the urge to somehow deny refund and the only blade of grass that the GST authorities can latch on is intermediary service having the infamous rule of place of supply being in India. Till the time the provision is amended, the issue will be repeatedly litigated [2023-VIL-547-DEL].

 

Investigation by multiple agencies - High Court draws fine distinction

Multiple investigations by multiple agencies were assailed before High Court but the Court did not interfere after finding factually the investigations were not multiple or parallel though more than one agency was involved. The petitioner's registration was cancelled and bank account was attached by State GST authority based on DGGI's (Chennai unit) investigation against another entity with which the petitioner was related both in terms of structure and functions. Later, the State authority restored registration after relevant documents were submitted by the petitioner and attachment of bank account came to be lifted on expiry of one year. The petitioner challenged investigation by DGGI of another State citing involvement of several agencies. The Court noted that there was no investigation initiated by the State authorities and the action sought to be taken by DGGI was in respect of another entity and there was no investigation against the petitioner firm. The Court refused to stop DGGI (Jaipur unit) from proceeding with investigations. CBIC instructions on taking investigation to logical conclusion by the agency ("intelligence-based enforcement action") which investigates were found to be not applicable. Section 6(2)(b) of CGST Act was also held as not applicable in this case. The order indicates that different tax authorities are not prevented from carrying out investigations against the same company if the role is different - first when it is targeted against the company as the principal actor and secondly, when it is perceived as having abetted contraventions [2023-VIL-548-DEL].

 

Tax dues not part of resolution plan get extinguished under IBC

In a significant ruling, Bombay High Court has held that indirect tax authority (Central Excise in this case) cannot proceed with recovery of adjudged tax dues / tax credit if the same is not part of the approved resolution plan under Insolvency & Bankruptcy Code (IBC) and such claims would stand extinguished. The Supreme Court had clearly laid down in Ghanashyam Mishra and Sons [2021-VIL-55-SC] that dues including statutory dues owed to Central Government would stand extinguished in such cases and no proceedings in respect of such dues could be continued for the period prior to date of approval granted by NCLT. The High Court noted that claim relating to Cenvat credit involved in the present case did not find mention in the list of claimants and the petition filed by the Central Excise / CGST authorities before High Court was not accepted earlier. An important point delineated by the Court was that the impugned order was not merely a case of credit reversal but it ordered recovery as well and therefore, the bar on recovery would be applicable. The Court further held that writ petition was entertainable in this case without pushing the taxpayer to appellate remedy since jurisdictional aspects were challenged without getting into merits of the case. The adjudication orders were set aside with the direction to refund amounts if paid as pre-deposit, along with interest. This order will be quite useful to taxpayers who are connected with IBC proceedings and faced with orders on recovery of disputed tax amounts. This is subject to applicability of the ratio of Apex Court judgment in respect of particular facts [2023-VIL-562-BOM-CE].

 

Notice uploaded under wrong heading in portal is not proper service

To err is human, even in the digital world. The petitioner was aggrieved by orders passed without proper communication of notices. The said show cause notices were placed under the button "Additional notices and orders" and not under "View orders and notices". The department contended that since it was available in the portal the taxpayer had been put to notice and there was no violation of the principles of natural justice. It was also contended that since time for filing appeal had not ended, the petitioner could avail remedy of appeal. However, observing that the portal architecture was complex and did not facilitate easy access, the High Court held that the notices ought to have been available under the correct heading and directed the department to pass fresh order after allowing the taxpayer to file reply to the SCN.  The order was directed to be treated as corrigendum to the notice. Justice prevailed but it belies understanding as to how the option of appeal can be counter to absence of natural justice - notice and hearing, as suggested by the department. [2023-VIL-565-MAD]

 

Reply through portal not required if manual copy accepted

The petitioner-taxpayer did not avail opportunity of personal hearing but submitted his reply manually. The reply was accepted by the officer. However, the order was passed noting that no reply was received and no one appeared for hearing. The High Court held that if department wanted to insist on electronic reply, it should have been specific and having accepted the manual reply, it ought to have considered that same. The High Court directed proceedings to be conducted afresh and also giving the taxpayer opportunity to file additional submissions and appear for personal hearing. All officers empowered to decide cases in the SGST offices should be either thoroughly trained or should not be given such powers. Without understanding the basics of justice dispensation, huge drama is played out on the taxpayers [2023-VIL-564-MAD].

 

E-way bill accompanying goods where delivery was declined - Non-issue of credit note is not a violation

The facts have all ingredients of high drama - goods spoiled in rain, buyer refused to take delivery, goods were taken back mentioning same invoice number on fresh e-way bills, tax authorities intercepted the vehicle and raised a question - why credit note was not issued. Since goods were not accompanied by proper documents, they were detained, "voluntary" payment of tax was made and petitioner was before the High Court. It is heart tugging to imagine officers protecting interest of revenue standing in bad weather perhaps checking vehicles at the fag end of the year. However, the enthusiasm was quite misplaced since the taxpayer contended successfully that since delivery was not accepted, no credit note could be raised. As per Section 34 of CGST Act, the supplier has to issue credit note for adjustment of tax liability on account of difference in value, return of goods etc., and goods being returned need not necessarily be accompanied by a credit note when adjustment of tax is not taken. The Court noted that since the portal records all payments as made voluntarily, no other option is available to an assessee/dealer to take the goods back by paying the amount under protest such system and the procedure cannot be used against the petitioner. The High Court quashed the notice issued under Section 129(3) of CGST Act stating that detention of the goods was per se illegal and unwarranted [2023-VIL-558-MAD].

 

Communication, provision of output files through electronic media is not OIDAR

The best time to celebrate grant of refund is perhaps after limitation for recovery is over. In a case before the Bombay High Court, the petitioner was aggrieved by the order of the first appellate authority holding the refund has been granted erroneously as provision of 3D models based on satellite images to recipient in UAE did not qualify as export of services. The petitioner was before the High Court since GST Tribunal has not been constituted yet. The contention of the department was that the consideration has been paid by a person other than the said recipient of service/contractee and the service delivery involved electronic network with minimal human intervention and was therefore OIDAR service. The High Court, after perusing the contract and the transaction held that the service provided by the petitioner was not mere retrieval of data but value-added services and it could be provided to the contractee or its representatives. Also, so long as the recipient was in non-taxable territory and consideration had been received (through a representative) in foreign exchange, export of services was satisfied.  It held that the order setting aside grant of refund was erroneous and quashed the same. [2023-VIL-567-BOM].

 

Customs Valuation - Compelling importers to litigate repeatedly

Two rounds of litigation forced on the importer by the Customs Authorities resulted in relief to the importer after having to wait for almost 20 years. The case is a typical customs valuation matter with the department alleging under-valuation by way of abnormal discounts and non-examination of evidence on contemporaneous imports produced by the importer. The Tribunal in this second round held that the authority did not take effort to verify the evidence, no attempt was made to find out extra remittance through any other mode and value declared by the importer was higher than the value of contemporaneous imports. If there is no evidence on repatriation of extra payment or through contemporaneous imports, case of under-valuation has to fail and precisely on this ground, the Tribunal has allowed the appeal by the importer. It has taken note of jurisprudence on higher discount extended by foreign supplier as not unusual when the quantity is higher. The case is rather routine one but mentioned in this column to highlight the callous method of treating issues by adjudicating authorities and pushing taxpayers to litigate repeatedly [2023-VIL-794-CESTAT-BLR-CU].

 

ITC of GST on JCB including spares used inside factory premises is admissible

In a reasoned order relying inter alia on the interpretation of motor vehicle, "adapted for roads"  in Goodyear India v. UOI [1997-VIL-09-SC-CE], the AAR held that GST paid by the applicant - a manufacturer of sago, at the time of purchase or repairs including spares with respect to vehicles - JCB used in the business for movement of goods in its place of business can be claimed as input tax credit subject to conditions stipulated in section 17(5)(a)(ii) and Section 17(2) of CGST Act,2017. Referring to Clause (28) of Section 2 of the Motor Vehicles Act, 1988, which does not include mining equipment viz., JCB, tippers, dumpers it stated that the bar in Section 17(5)(a) on motor vehicles other than those used for specified taxable supplies would not apply to JCBs. It opined that in as much as the JCB excavator which fixed with rails and not road on wheels just like a motor vehicle, and not coming under the purview of motor vehicle under the Motor Vehicle Act for registration as a motor vehicle, it is not at all a motor vehicle while pointing out that the HSN code for motor vehicle is 8702, 8704 & 8705, whereas the HSN of JCB / Excavator is 8429 & 8430 [2023-VIL-160-AAR]

 

Promoting public awareness on COVID receiving part funding is an exempted supply

The applicant was registered as a charitable entity under Section 12AA of Income Tax Act, 1961 with the object of to give medical relief to the poor and the needy, to establish run, mange, support educational institutions and training centers, hostels, stadium and other centers, research institutions, orphanages, carry out other activities of general public utility and also participate in activities of other charitable organisations. It partnered with UNICEF and received funding (83%) for a project to create public awareness on COVID appropriate behaviour, infection prevention and control and community control besides building the capacities of local committees and strengthening systems to contain COVID pandemic and supporting alternative livelihood options to strengthen local economy at gram panchayat level. According to the department, the applicant received consideration and the activity undertaken was a supply. The AAR held that as per Notification No. 12/2017-Central Tax (Rate), "charitable activities" is defined to include public awareness of preventive health, family planning or prevention of HIV infection and hence the activity of creating awareness in partnership with UNICEF was a supply but exempted from GST and the applicant was not required to take registration. [2023-VIL-162-AAR]

 

 

(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)