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Tax Vista Your weekly tax recap Edn. 181 - 4th Dec. 2023 By Dr. G. Gokul Kishore |
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Refund cannot be denied for procedural irregularities within the department
Refund of accumulated input tax credit due to exports was initially sanctioned but the department reviewed such order and filed appeal on the ground that shipping bills were not acceptable as valid proof of export since some of them were cleared by Inspector who was held as not an authorized officer and some by Superintendent without getting approval of AC / DC of Customs and therefore not valid. Turnover of zero-rated supply was also sought to be revised downwards. The appeal was allowed by the first appellate authority. The High Court held that the department did not verify whether the goods were actually exported, whether the shipping bills were genuine or not and the GST officers did not cross check with Customs officers. The questions raised were internal to the Customs department which is not within the domain of the taxpayer and for such internal irregularities, taxpayer cannot be penalised. The Court took note of the fact that though defective document was filed online, proper documents were submitted physically. Order passed by the appellate authority was set aside with the direction to consider the matter afresh [2023-VIL-827-CAL].
There is only one rule for refund - it has to be denied somehow. The taxpayer may go to High Court and get relief but at the departmental level, officers have to save their skin by rejecting all claims. It is surprising that even C&AG audit which finds fault with many of the omissions of the department, does not raise objections when eligible refunds are rejected.
Affiliation services provided by university to colleges are not exempted from GST
The issue of exemption to educational services is being litigated from service tax period. By keeping the entries in the exemption notification ambiguous vis-à-vis the objectives of thrust being accorded to the sector, the dispute has been kept alive being carried forward to GST regime as well. The recent case is about exemption to affiliation services provided by university to colleges. Certain petitioners challenged advance ruling while others assailed the adjudication order. The department argued affiliation as principal supply and sale of application, registration, inspection, etc., are part of such composite supply and are not exempted.
The High Court compared the entries in mega exemption Notification No. 25/2012-ST relating to service tax on services provided to educational institutions relating to admission and conduct of exam with the entry in S. No. 66 of Notification No. 12/2017-Central Tax (Rate) on GST exemption to similar services. It noted that the proviso in GST notification restricting the exemption to institutions providing education upto higher secondary education was not there in service tax notification. Based on this reasoning, it held that the services provided by the University to affiliating colleges are not covered by exemption. Amendment to the entry whereby certain relevant words were omitted was held as not leading to the conclusion of exemption being available after amendment - The order holds -"It is therefore held that Entry (b) (iv) to Entry 66 to Notification No.12/2017- CT (Rate) dated 28.06.2017 as amended by Notification No.2/2018-CT dated 25.01.2018 is confined only to services relating to admission to, or conduct of examination by educational institution and not to services relating to affiliation of constituent colleges." [2023-VIL-823-MAD].
Services of loading & unloading of wheat used at port are exempted as "in relation to agricultural produce"
In a matter reminiscent of classic excise cases on marketability/marketable etc., the petitioner engaged in processing imported wheat to atta, sooji etc., assailed the ruling of AAR. The impugned ruling pertained to whether services used by port authorities for loading, unloading, packing, storage or warehousing of the imported wheat and its further clearance to the factory of the petitioner would be exempt from GST in terms of S. No. 54(e) Notification No.12/2017-Central Tax (Rate). Initially the petitioner applied for advance ruling which was declined stating that only supplier on whom incidence of tax lies can seek an advance ruling. Since the petitioner was not the recipient of services from various agencies, subsequently the port authority applied for a ruling and it was held that services are not entitled to exemption on the ground that the imported wheat with regard to which the services were rendered was not meant for the primary market but used in the factory of the petitioner.
Stating that in view of the adverse civil consequences on the petitioner inasmuch as the tax burden would ultimately be passed on to the petitioner, it was held by the High Court that the petition was maintainable. As regards exemption, the reasoning of the AAR that since the imported wheat was not directly put on the primary market but used in factory for processing it did not qualify as agricultural produce, was held to be arbitrary. It was held that actual marketing/sale of the produce was not a condition imposed by the notification but it was sufficient if it was capable of being sold in the market relying on a number of judgement including Indian Cable Co. Ltd. vs. Collector C.Ex, Calcutta - 1994-VIL-04-SC-CE. It was held that examining the use to which the commodity / agricultural produce viz., wheat imported would be put to in the hands of the petitioner to determine the entitlement of the services to exemption or otherwise was erroneous. It held that on applying the definition of agricultural produce to the wheat that is imported and if it qualifies as an agricultural produce, the mere fact that the buyer of agricultural produce intended to subject it to various other processes subsequently resulting in conversion of wheat into maida, atta and sooji would not take the services of loading, unloading, packing, storage and warehousing of the agricultural produce out of the relevant entry in the exemption notification. Reliance was placed on precedents like CCE v. Favourite Industries, 2012-VIL-05-SC-CE to hold that additional conditions like examining use of agricultural produce cannot be introduced into the notification [2023-VIL-833-MAD].
The issue of exemption relating to agricultural produce is being litigated frequently and it would be prudent for the authorities to come out with proper clarification or an amendment in favour of the taxpayer. The terms used in the exemption entry are prone to divergent interpretation and capable of fuelling litigation.
Limitation for filing refund application is only directory in nature
Refund of IGST paid on ocean freight had been declined to the petitioner once on account of limitation and prior to the judgement of the Supreme Court in Union of India v. Mohit Minerals Pvt Ltd., 2022-VIL-30-SC and second time post the judgement also. The High Court held that the law as laid down by the Supreme Court would apply in the instant case and limitation being directory as held in Lenovo (India) Pvt. Ltd. v. The Joint Commissioner of GST (Appeals-1) - 2023-VIL-799-MAD, ordered that the refund application of the petitioner must be considered afresh [2023-VIL-830-MAD].
Acceptance of reassessed value fatal to subsequent challenge to valuation by Customs authorities
The importer-appellant challenged the orders of customs authorities as regards enhancement in valuation of motors imported as well as reassessment of past bills of entry alleging suppression. The importer had waived issue of show cause notice and accepted the valuation made by the customs officer based on data from NIDB as well as evaluation by a chartered engineer. The CESTAT held that since at the time of inquiry, the importer had not produced any document other than the invoices, the officer had reason to doubt the valuation and was correct in determining the values as per provisions. It was held that having accepted the value as being fair, the importer could not later assail the same for failure by the department to substantiate it. Reliance was placed on precedents like Commissioner of Customs v. Hanuman Prasad and Sons - 2020-VIL-520-CESTAT-DEL-CU to hold that once valuation has been accepted it need not be proved. It was also reasoned that as per the statements signed by the importer, there seemed to be no element of coercion and it had been signed voluntarily and had not been retracted later. However as regards the demand of differential customs duty on past consignments, the Tribunal held that since already value had been enhanced by 25% under assessment proceedings before clearing the goods, it cannot be reopened / reassessed on the charge of suppression [2023-VIL-1226-CESTAT-DEL-CU].
In a similar matter the importer relied on decision in the matter of Ajex & Turner Wire Dies Co. - 2011-VIL-564-CESTAT-DEL-CU where it was held that when importer has cleared goods at enhanced value to save demurrage charges or otherwise, it does not mean that he has consented for enhancement of value. The value in this case had been determined based on prices available on the internet and the importer had accepted the values determined by the authorities. The Tribunal held that value of contemporaneous import of similar goods as produced by the department was accepted by the importer and statements were not retracted. The appeals by the importer against enhancement of value were dismissed [2023-VIL-1234-CESTAT-DEL-CU].
The pressure in getting the goods released to avoid demurrage or for other reasons always has a telling effect later and importers generally do not realise it initially. Opting not to challenge reassessment and waiving SCN are suicidal when litigation reaches higher level. Statement is another issue where retraction is sometimes feared by importers and therefore, the same is belated or not made at all.
ITC on supplies used for solar panels is not available as electricity is exempted
Input tax credit on goods and services used for installation of solar power panels was held as not available by Authority for Advance Ruling by invoking Section 17(2) of CGST Act and this ruling was challenged before Appellate AAR as the question was whether the same was blocked under Section 17(5)(c) / Section 17(5)(d) of CGST Act. The appellant sought to use the ITC for outward supply of renting of immovable property. The Appellate AAR held that ITC is ab initio not available as per Section 17(2) and inapplicability of Section 17(5)(c) and Section 17(5)(d) does not mean that ITC is not blocked. These two provisions were related to construction, the appellant was not involved in providing works contract service and therefore, not applicable. The reason for invoking Section 17(2) for denying credit is that electricity is exempted from GST. The AAAR also noted that the appellant was not liable to provide electricity as per the agreement as they are only maintenance service providers and not the lessor or owner of the property. The issue is not as simple as it appears because the appellant was supplying to electricity grid and then draws power at a different location and these are treated as two different supplies by the AAAR which may be incorrect. Despite the numerous case law on electricity generated at intermediate stage or for captive consumption does not disentitle credit on the inputs, the AAAR chose to confirm the advance ruling. If challenged in High Court, the outcome in this matter may be different [2023-VIL-39-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)