Tax Vista Your weekly tax recap Edn. 169 - 11th Sept 2023 By Dr. G. Gokul Kishore

 

 

Recovery under Section 78 - Notice prescribing time-limit should be issued

In this column, the urge to invoke recovery provisions under Sections 78 and 79 of CGST Act before expiry of appeal period has been highlighted before. In a case of this nature, the High Court has held that the authorities cannot recover without even issuing a notice prescribing the time less than three months within which the amount should be paid. In this case, the petitioner providing cleaning and security services to government institutions entertained the belief that exemption under Notification No. 12/2017-Central Tax (Rate) was available. The adjudication order was against the taxpayer and the appellate authority also rejected the appeal, as expected. The very next day, the GST officers wrote to bank managers and recovered all the amounts involved. The High Court said that for merits, the taxpayer has appellate remedy but in writ jurisdiction, it was concerned with recovery made "peremptorily and surreptitiously from the bank accounts of the assessee on the very next day of rejection of appeal."

 

The High Court noted that as per proviso to Section 78, the officer is required to issue notice as it speaks about "reasons recorded in writing" to require the taxpayer to make payment of confirmed amounts "within such period" even before expiry of appeal period and in this case, no notice was issued. The Court expressed deep anguish after going through the records and found that the officer had recorded the fact of financial year coming to close and two days being bank holiday. It said -"The imminent bank holidays of 2 or 3 days and the close of the financial year, we are afraid, cannot be termed valid reasons to justify an expedient recovery under the proviso to Section 78 and it is not clear as to how the interest of the revenue would suffer, if the recovery is kept in abeyance for three months or at least a notice is issued to the assessee before the recovery is effectuated from the banks, behind the back of the assessee. The counter affidavit does not speak of any notice having been given to the assessee before recovery."

 

The order emphatically lays down that when reasons are recorded in writing, there is a duty on the Assessing Officer to specify the time within which the amounts are to be paid which intimation has to go to the assessee as per Section 78. Even if coercive action is to be taken, the officers can recovery additionally 20% over and above 10% which are the pre-deposits to be paid before Tribunal and appellate authority respectively. The action was termed as high-handed with the only motivation being achieving individual targets assigned by higher authorities. It ordered return of the amounts less pre-deposit amount and also imposed costs on the officer concerned. As noted in this column, Section 78 needs an urgent amendment as it is completely arbitrary and most vulnerable to misuse [2023-VIL-599-PAT].

 

Customs dues do not have priority over secured creditors

Time and again the debate on whether government dues i.e., tax dues will get priority over other debts when a company is liquidated continues to be raised. In a recent case, the Supreme Court held that Customs Act does not have provision for first charge to customs dues over other debts in certain cases. It held that enactment of Section 142A of the Customs Act confers or creates first charge on the dues payable under the Customs Act, notwithstanding provisions under any Central Act, but not in cases covered under Section 529A of the Companies Act, RDDBFI Act, SARFAESI Act and the IBC. The order is related to interpretation of provisions under Companies Act, 1956. In this case, imported machinery was mortgaged to bank for finance purpose and the goods were stored in private bonded warehouse, while warehousing period was extended, customs duty was not paid and therefore, adjudication order was passed and recovery proceedings for sale of goods to recover customs duty were initiated. In the meantime, the company (importer) was wound up. The Official Liquidator argued that Customs Authorities should hand over the imported goods to him as he was duty bound to take possession of all assets. Though Single Judge of High Court ruled in favour of Official Liquidator, appeal by Customs Authorities before Division Bench was allowed answering the question in the negative as to whether the claim of a secured creditor has precedence over the right of the customs authorities to recover customs duty.

 

Financing bank took the matter in appeal before the Apex Court. The Court noted that Section 529A of Companies Act, 1956 has non-obstante clause "Notwithstanding" and it provides priority to secured creditors whereas Section 530 talks about preferential payments where taxes are mentioned but since Section 529A overrides Section 530, therefore, payment has to be first made as per Section 529A to overriding preferential creditors, then to preferential creditors in terms of Section 530 of the Companies Act and lastly, payment has to be made and distributed among the ordinary or unsecured creditors. As per the order, debt due and payable within 12 months from the relevant date are covered under Section 530, otherwise, it will be ranked among unsecured creditors without preferential treatment. This was taken note of since in the present case, debts (Customs duties) became payable only after adjudication orders and therefore, it would rank along with unsecured creditors. According to it -"The common law doctrine giving preferential rights to the Crown debts confined to ordinary or unsecured creditors constitutes 'law in force' within the meaning of Article 372(1) of the Constitution of India, and accordingly, this law continues to be in force." Based on this reasoning, appeal was allowed setting aside the claim of the Customs Department [2023-VIL-84-SC-CU].

 

High Court directs provisional release after exhaustive observations

The Bombay High Court was very much disturbed over the conduct of Customs Authorities in not responding to repeated requests for provisional release of seized goods. The case pertained to alleged under-valuation. The importer (petitioner) repeatedly requested for provisional release of the goods but not a single letter elicited any response from the Customs authorities and neither show cause notice has been adjudicated nor provisional release granted. Before the High Court, the department referred to CBIC Circular providing guidelines on provisional release taking security, but the Court said such circular is for officers and it cannot bind the Court to pass orders only in terms of such circular. It held that the circular does not take away the discretion of the authorities under Section 110A Customs Act.

 

The Court had strong words over the indifference of the Customs Authorities in not responding to representations. It held that it was the duty of the Customs to respond to grievances and they could not have adopted the position of not responding at all. The Court directed provisional release subject to conditions. The order reads -"Before passing, we would be failing in our duty, if we do not observe that when the Customs Officers are in receipt of any application for provisional release, such applications are required to be decided with utmost expediency and without any delay considering the facts and circumstances of the case. We would, thus, expect the concerned officials to expeditiously decide the provisional release applications and, in the event for some reason the concerned officer is unable to grant/decide the provisional release application, reasons in that regard ought to be communicated to the importer so that the importer becomes aware as to why the provisional release application is not being decided and/or provisional release not granted. This would add to more transparency and effective working of the department and which would also be in the interest of the Revenue and conducive to the trade and ease of doing business. We, therefore, request that the Principal Chief Commissioner of Customs shall issue necessary directions to the Customs Officers." Numerous orders of this type have been passed but the tax administration is hardly concerned. Harassment and corruption are the rules of business particularly in Customs [2023-VIL-609-BOM-CU]

 

Supplementary notice is not valid in the absence of provision therefor

GST authorities keep writing and laying down the law as the practice indicates. Even if there is no provision for a particular action, without any qualms, such action is taken. In a case of detention and seizure when e-way bill was valid and invoice was also available, the department issued show cause notice followed by supplementary show cause notice with a different ground. The High Court said this is without authority of law as there is no provision which empowers the officers to issue supplementary notice taking a different view. The view was that the goods were different from what was declared - betel nut or processed betel nut. The Court noted that there is no reason or material relied on or expert opinion was obtained or lab test was undertaken. The Court also found fault with the quantum of penalty imposed which was applicable in cases where the owner does not come forward to pay the amount. Several other defects like appreciation of additional evidence without providing copy to the other party have also been highlighted in the order. While everyone wonders about the ignorance of tax authorities, the tax authorities wonder about the ignorance of all others about their own law and practices [2023-VIL-600-ALH].

 

Consumer Forum directed not to entertain petitions against SGST authorities

SGST department filed a writ petition seeking direction of High Court to forbear State Consumer Disputes Redressal Commission / District Consumer Forum from granting any relief to consumers who have filed petitions citing SGST department as the respondent. The SGST department argued that it was not doing any service to be covered under Consumer Protection Act, 1986. The order passed by High Court notes that someone filed a consumer case against charging GST on curd and the Consumer Forum awarded compensation to be paid by the hotel and the SGST department. The High Court held that the Consumer Forum does not have jurisdiction to pass orders against SGST (statutory) authorities in respect of their statutory functions. As per the order, if the hotel is collecting GST more than the rate prescribed under the law, SGST authorities will not be liable for the same. It held that the consumer may have right against the hotel but not against the SGST department. It directed the consumer forum not to entertain petition against such statutory authority. GST is not only controversial sometimes but also interesting in so far as types of litigation are concerned [2023-VIL-596-MAD].

 

Refund of ITC and absence of correlation

Refund of unutilized input tax credit due to export of agricultural commodities was rejected on the ground that the taxpayer was not able to correlate input supplies for which refund of ITC was claimed with the exported goods i.e., not able to distinguish inputs used for export of rice and export of sugar since refund was already granted in respect of export of rice. As usual, appeal was rejected by appellate authority. In writ court, evidence was produced to prima facie show that the refund claim was related to exported goods only. The Court noted that the materials / evidence were not considered in the impugned orders and directed the appellate authority to consider the claim afresh. Tax department keeps flogging dead horses - at this age, the ground of absence of correlation is being taken to deny refund of ITC [2023-VIL-604-DEL].

 

 

 

(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)