Tax Vista Your weekly tax recap Edn. 168 - 4th Sept 2023 By Dr. G. Gokul Kishore

 

 

Errors in Tran-1 and revised Tran-1 – Credit not deniable
Input tax credit, transitional credit are items with litigation in their DNA largely due to the monumental reluctance of the department as seen in many orders and partly due to errors/lapses committed by taxpayers. However, in a case before Madras High Court, the petitioner was fortunate enough to get another chance to validate his claim. He had earlier recorded transitional credit in the wrong column and post Filco Trade Centre [2022-VIL-38-SC & 2022-VIL-63-SC], he filed a revised TRAN-1 also with errors. The GST authority held that the amount transitioned has been wrongly utilised and the taxpayer should pay back such wrongly utilised amount since his actual claim was nil. However, the High Court held, relying on CCE v. Dai Ich Karkaria Limited [1999-VIL-02-SC-CE] and Unichem Laboratories v. Commissioner of Central Excise [2002-VIL-31-SC-CE] that credit that was validly availed cannot be denied and benefit that was otherwise legitimately available to an assessee should be granted in as much as the amount in dispute has been reflected in the last return and the department has not raised any objection when first return was filed by the petitioner 

The court directed the authority to consider the claim afresh and noted “in case such credit was available, even if there was any discrepancy while filing Form TRAN-1, the mistakes committed by the petitioner may be overlooked and the credit that availed and utilized can be condoned and regularized” [2023-VIL-594-MAD].

 

Pre-deposit can be paid from credit ledger for GST appeals

Last week, in Tax Vista, an order of Orissa High Court was analysed wherein it was 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. While there are judgments holding contra views i.e., pre-deposit can only be paid through cash ledger and credit ledger is a taboo for such purpose, yet another order in favour of taxpayer has been passed by Madras High Court. The order is very frugal in terms of discussion, and it appears that at the time of admission itself, the Court has held that the appellate authority shall take up the appeal by permitting the taxpayer to debit electronic credit ledger for payment of pre-deposit. It was pointed out before in this column that the issue is not doubt-free and CBIC Circular dated 6-7-2022 on this issue does not actually clarify anything. It is time for the CBIC to use the word "pre-deposit" and categorically clarify that credit ledger can well be used for paying pre-deposit [2023-VIL-589-MAD].

 

Audit under GST cannot be undertaken after cancellation of registration

If registration of a taxpayer has been cancelled under GST law, then audit of such taxpayer cannot be conducted. This is the judgment of Madras High Court in a recent case. GST authorities cancel registration indiscriminately and taxpayers suffer in silence. However, in this case, registration was cancelled based on taxpayer's request as the business was closed. It appears amount collected as tax remained unpaid though this fact is not clear. The department initiated audit proceedings under Section 65 of CGST Act / TNGST Act. The provision deals with "audit of any registered person" and the High Court held that the provision should be construed as audit of existing concern and an unregistered person is out of the purview of Section 65 i.e., audit by GST officers. The department argued that for the period covered under audit, the taxpayer was a registered person. But the Court said that when Section 65 provides for periodical audit, the department having failed to conduct audit all these years, cannot suddenly wake up and conduct audit now. It clarified that demand under Section 73 / 74 can be initiated in such cases i.e., even if registration is not subsisting, for the demand pertaining to the period when the person was registered, assessment /adjudication proceedings can be initiated. This order reveals the typical story of bureaucracy - left hand does not know what right hand does. The officer who cancelled registration did not have any idea of impending audit by his colleagues in another section / wing within the department [2023-VIL-582-MAD].

 

Refund claim filed within time-limit cannot be rejected on limitation for providing clarification later

Rejection of refund using the route of deficiency memos has not been approved by judiciary. The Delhi High Court has held that when the refund application was complete in terms of documents / information at the time of issuing deficiency memo, then limitation would stop running even if the department seeks documents to satisfy itself on the admissibility of refund. In this case, refund of IGST on exports was sought and the claim was filed within the time-limit of two years. However, the department issued notice proposing to reject it on time-bar. The taxpayer argued that additional time was spent in removing / clarifying deficiencies pointed out GST authorities though the refund claim was filed within the time-limit. Deficiency memo was issued thrice in this case and refund claim was filed four times. The authorities sought to rely on CBIC circular clarifying that time-limit will be computed from the date of re-filing of claim again after rectifying deficiencies.

 

The High Court did not agree. It relied on an order passed earlier [2023-VIL-229-DEL] wherein it was held that refund application would not be treated as non est merely because documents or clarification are sought by officers and if the claim is accompanied by documentary evidence, then it cannot be said that it would be complete only after furnishing of documents as required by the officer. The Court directed the authority to decide the matter afresh on merits [2023-VIL-571-DEL].

 

Adjudication after 25 years - High Court quashes SCN and order

Customs and Central Excise offices are digging graves to find if any skeletal remains of old SCNs are alive. It has become a matter of routine now that show cause notices of yesteryears are adjudicated and taxpayers challenge the same on the ground of extraordinary delay. The Courts in most cases quash the notices and / or orders accepting the challenge. In a case of this nature, the Bombay High Court has quashed both the adjudication order and the show cause notice on the ground of delay in adjudication. The period of delay is 25 years as the SCN was issued in 1997 and the order has been passed in 2022. The Court held that though time-limit for passing order was not prescribed in Customs Act during the relevant period, adjudication ought to have been completed within reasonable time and 25 years cannot be treated as reasonable period. The amount involved is around Rs. 26 lakhs.

 

It is plainly incomprehensible that the adjudication order provides for redemption fine to redeem confiscated goods - it is not known whether the goods are actually available. If the goods are indeed available after seizure by the department, no useful purpose would be served by releasing them now considering the fact that the goods were imported 30 years ago. EDI system, Turrant Customs, modernisation, digital governance or e-governance - all these are empty slogans as the Customs administration works in the same fashion for decades now [2023-VIL-572-BOM-CU].

 

Claimant has to prove bonafide mistake to overcome limitation for refund application

In this column number of refund rejection orders sans merit have been discussed. However, in a recent case, the taxpayer was left remediless by his own negligence as it were. There was excess payment of duty (IGST) wherein instead of paying differential duty the entire amount was paid again. The error came to light, as per the taxpayer two years later and he immediately pursued a refund claim. Covid intervened in between and the taxpayer also claimed that the period excluded by Supreme Court in its suo motu order - 15 March 2020 to 28 February 2022 should be excluded for computing limitation and limitation would commence only from date of knowledge of the taxpayer. It was further argued that Section 27 of Customs Act, 1962 would not apply to the sums paid in error as it was neither duty nor interest and the State could not retain such amounts in view of Article 265 of the Constitution. However, on facts, it was established that the limitation including condonable period for appeal against order of rejection expired on 16-2-2020 and the benefit of limitation of extension could not be given. As regards erroneous excess payment, it was held that refund could be granted, and limitation could be overcome only if the payment was on account of bonafide mistake and the petitioner being a multinational with different business verticals was expected to be diligent and vigilant and could not claim bonafide mistake. Various decisions cited were distinguished on the basis as in the case of the assessee, though excess amount was paid even by mistake, it did not qualify as bonafide mistake [2023-VIL-588-BOM-CU].

 

Adopting lower of shipping bill value and tax invoice value for refund, not retrospective

The petitioner-taxpayer was aggrieved by refund order in which the lower of the values between shipping bill and tax invoice was used for determination of refund. It contended that GST law permitted correction/amendment of the actual value of exports since the actual value of zero rated supply was not available at time of filing GSTR-1. The department following CBIC Circular No. 26/26/2017-GST which was later incorporated into law by notification with reference to amendment in Rule 89(4) of CGST Rules, 2017, by Notification No. 14/2022-Central Tax, sanctioned a lesser amount. The taxpayer further argued that even if the said notification is to be pressed into effect, the period of claims (January to February 2019) which pertained to the period when the said circular was in force, cannot be covered by it. In other words, the amendment that came in the year 2022 by way of said notification could not have retrospective effect. The High Court held that the notification which brought a substantive change in law could only have prospective effect unless it was specifically given retrospective effect and mere use of the word explanation would not impart the same. The impugned order was set aside [2023-VIL-593-JHR].

 

E-way bill - Penalty for exempted goods cannot exceed prescribed amount

Consignment of frozen shrimps intended for export was detained for lack of e-way bill and letter of undertaking. Despite the taxpayer providing explanation for the same as technical glitches and the number of letter of undertaking in the tax invoice, the authorities proceeded to confiscate the vehicle and goods besides demanding tax and penalty and fine in lieu of confiscation of goods and conveyance. The tax authorities also argued that the goods were taxable since the HSN code adopted by the taxpayer was incorrect. The High Court held that petitioner cannot be relegated to appellate remedy and that since the goods were described correctly as well as the flaw noted by the department has been explained, levy of higher penalty and confiscation were not valid. The High Court directed that all proceedings would be dropped after payment of Rs. 25000/- as penalty [2023-VIL-592-KER].

 

No presumption against evasion when e-way bill is not generated

In yet another case, where the taxpayer, a reputed corporate entity failed to comply with the requirement of law was before the High Court and, among other things, it advanced the argument that being a reputed entity it would not indulge in evasion. It relied on a Notification issued by Bihar as per which consignment of value less than Rs 2 lakhs in intra-State sale would not require e-way bill. However, the said conveyance also carried goods pertaining to an inter-State sale and the invoices pertaining to sale of less than Rs. 2 lakhs were intended for the same purchaser and hence it was argued that the impugned notification would not apply. The High Court refused to interfere with the order passed under Section 68(1) read with Section 129(1) of the Bihar Goods and Services Tax Act, 2017 and dismissed the writ petition [2023-VIL-584-PAT].

 

Royalty is not includible when pricing is not influenced by relationship and royalty is not related to imported goods

Though customs valuation appears to be fairly settled with voluminous jurisprudence, the department appealed against the order-in-appeal in the second round of proceedings. The price at which the Indian subsidiary imported goods - components required for manufacture of induction heating equipment - from the parent had been subject to litigation (SVB) and the importer established that the royalty and fee for technical knowhow paid to the parent was not includible in terms of Rule 9(1)(c) of Customs Valuation Rules, 1998 [presently Rule 10(1) (c) of Customs Valuation Rules, 2007). The order-in-original was passed in 2006 accepting the transaction value since the importer was not under obligation to buy all components from the parent itself, technical know-how was in respect of post importation activity and royalty of 5% on 90% of net sales price of domestic sales and export sales of the finished products were not dependent on the imported goods and the sums paid was not a condition of sale. Relying on various cases it was held that royalty and fee for technical knowhow paid by the importer are not includible in assessable value for customs purposes [2023-VIL-829-CESTAT-CHE-CU].

 

ITC on leasing of land - AAR toes the familiar line

In a typically biased ruling, the Authority for Advance Ruling (AAR) has held that GST paid on obtaining leasehold rights transferred to applicant will not be available as the same is hit by Section 17(5) of CGST Act. The reason attributed is the prospective use of the leasehold land for construction of factory. The applicant has marshalled several arguments but they have been brushed as not legally tenable. The industrial plot was leased to a party which wanted to exit and transfer the leasehold rights for the remaining term to the applicant. The AAR has tried to draft the law by inserting new words in Section 17(5)(d) - service received as precursor to construction will also be treated as construction and services in question are to be used subsequently for construction of immovable property. It is unfortunate that the AAR has ignored the fact that transfer of leasehold right is akin to renting of immovable property. If the rationale of AAR is accepted, then all commercial renting will be hit by bar on ITC. The parties may also restructure the transaction by making another person as lessee of the land to whom lease rentals can be paid while putting the land to use as factory. This will become a pure case of commercial renting. It is time for the GST Council / CBIC to step in and stem such negative interpretation adopted in AAR and the department [2023-VIL-177-AAR].

 

ITC on sales promotion items available

It is not known why, after 6 years of implementation of GST, the query on admissibility of ITC on items such gold coins and white goods given as incentives to dealers has been raised by the taxpayer. The additional query raised is whether giving away such items would be treated as supply. The AAR has held that the items given as incentive for achieving targets would be treated as inducement which is a non-monetary consideration paid by dealers for supply of gold coins and white goods. As the transfer is made for a consideration, it would be supply. The AAR has also referred to Schedule I of CGST Act to hold that permanent transfer of business assets would be treated as supply even if the above is not treated as consideration. On ITC eligibility, there is no discussion but a statement that since the invoices issued to the applicant contains tax and the same is given to dealers only based on conditions, it would not be "gift" and not covered by Section 17(5)(h) of CGST Act. Therefore, ITC would be admissible. The ruling apparently takes achievement of target by dealers as consideration for obtaining the incentive and therefore, what is distributed to dealer is not free gift. This rationale insulates the incentives from being hit by credit restriction by terming it as supply [2023-VIL-170-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)