|
Tax Vista Your weekly tax recap Edn. 182 - 11th Dec. 2023 By Dr. G. Gokul Kishore |
|
Amount deposited during investigation to be returned when circumstances indicate coercion
In a series of orders, the Delhi High Court has directed the GST department to return the amount deposited by the taxpayer during investigation. The taxpayer was directed to reverse ITC by the authorities on the ground that the supplier's registration was cancelled retrospectively. In the statement, the taxpayer said that there was no mismatch between various returns and reconciliation would be furnished. Search authorization was contended as vague and search was argued as illegal. The GST authorities had issued Form INS-01 wherein all the listed reasons were selected. The Court said that though no specific reason was mentioned, the reasons were connected and did not accept the taxpayer's argument. The taxpayer argued that the amount reversed was under duress and coercion and was not voluntary and this was accepted by the Court as the search operation was conducted beyond normal business hours and the amount was deposited at 2.06 am. The High Court said - "It is not necessary to examine in detail any controversy whether such payments were made voluntarily. Clearly, where a taxpayer turns around and states that the payments had not been made involuntarily and the circumstances prima facie indicate so, the taxpayer must be granted the benefit of withdrawing such payments. Obviously, in such cases, the taxpayer would forfeit immunity from levy of any penalty and the concerned authorities are not precluded from proceeding against the taxpayer in respect of any default and to the full extent as permissible under law."
The High Court held that the taxpayer had disputed liability and there has been no determination of liability to tax by the department and therefore, amount deposited cannot be considered as voluntary. It also found fault with the department not issuing acknowledgement and not following the procedure as per rules. Though there are numerous orders on this issue of coercive payments and departmental instructions, the issue continues to be raised frequently and it seems there is or there cannot be any end to this [2023-VIL-845-DEL].
ITC reversal made during late hours of search not voluntary
In Tax Vista last week, certain cases under customs were covered where assessees claimed that payment/acceptance of duty was not voluntary but was not successful. However, the taxpayer who made GST ITC reversal late in the night and later contended that it was involuntary was successful before the Delhi High Court. As in the order discussed above, in this case also, the taxpayer's first contention that since authorization for the search in FORM GST INS-01 was issued without mentioning any specific reason for the same, it was not valid failed since the High Court held that the department was not bound to provide detailed reasons and it was enough if it had reasons to believe that search was necessitated. The department stated that the taxpayer had availed of the ITC from suppliers whose registrations were cancelled. But in a textbook case of coercion, the taxpayer was required to reverse ITC while recording that it was voluntary. The High Court held that, there were no circumstances which would, in normal course, lead a taxpayer reverse the ITC late at night and this pointed to the coercion during search [2023-VIL-848-DEL].
In yet another case, the tax department did not issue any acknowledgement accepting the said payment in form GST DRC-04 for the "voluntary" payment by reversal which was made by the person searched in the late hours of the night. The assessee relied on Vallabh Textiles v. Senior Intelligence Officer & Ors., 2022-VIL-840-DEL, to contend that not following the stipulated procedure would also lead to the conclusion that the payments were not voluntary. The issue was mismatch between GSTR-3B and GSTR-2A which the taxpayer acknowledged but did not accept that ITC had been wrongly availed. In the show cause notice issued subsequently, no mention was made of the payment already made by the assessee. The High Court held that the amount deposited had to be refunded along with interest [2023-VIL-849-DEL].
ITC refund - Rate of tax on inputs not to be confined to one input
If it is a case of refund creativity of arguments for its denial would be at its peak. The taxpayer processed LPG procured in bulk at 5% GST to supply bottled LPG also taxable at 5%. Hence department denied refund of ITC on inputs used in the process like safety caps, dry chemicals etc., taxed at 18%, stating that since rate of tax on input bulk LPG and output bottled LPG is the same refund could not be granted. Reliance was placed in Circular No.135/5/2020-GST. It was held relying on various cases that said Circular 135 cannot be read in a manner to contravene the statute and that "inputs" used in Section 54 of the CGST Act in plural clearly indicates that the refund of accumulated ITC is not confined to ITC accumulated on a singular input [2023-VIL-847-DEL].
The circular should be withdrawn as the intention with which it was issued may be to clarify issues but the departmental authorities are using it to deny refund by interpreting the same in a manner adversely impacting the taxpayers.
Specific SCN under Section 73 not required for demanding interest
In an order wherein the department had allowed refund but certain amount adjusted against interest liability, facts are confusing to the say the least. Readers should go through the order twice at least to get hold of the facts. There were multiple impugned orders and multiple issues. The High Court has held that the appeal filed by the department before appellate authority was time-barred on the ground that there was no explanation as to how the officer concerned became aware of the adjudication order. Copy of the order was received in Review Section for initiating the process of filing appeal later, as per the department but the intra-departmental communication has been dealt with in great detail. For the department, date of communication of order must be construed as date of issue of order, as per High Court. The Court also held that remanding by appellate authority was not correct when admissibility of refund was upheld but the adjudicating authority was directed to examine the provisions applicable for adjustment of interest from the refund. Based on reading of Section 73(12) of CGST Act which provides for recovery of unpaid amount or interest as per self-assessment, the Court held that notice under Section 73 was not necessary for recovery of interest on self-assessed tax. The taxpayer should be put to notice on demand of interest but specific notice under Sectio 73 is not required - The kind of advice that companies get can be gauged by these words - "It is evident that the petitioner has been mulcted with the huge interest liability on delayed payment of IGST, which in one sense is unwarranted, however, that is the consequence of the course adopted by the petitioner." [2023-VIL-843-DEL].
Penalty under Section 129 is not automatic, mitigating factors to be considered
Division Bench of the Calcutta High Court has held that imposition of penalty under Section 129 of CGST Act is not automatic and that absence of requirement to establish mens rea by the department cannot be equated with an automatic imposition of penalty under the scheme of Section 129 in view of the provisions of Section 129 (3) and (4) thereof. The taxpayer was aggrieved by the order of the Single Judge upholding penalty imposed on account of mismatch in e-way bill and vehicle carrying the goods. The taxpayer's explanation that since the first vehicle developed mechanical failure, goods were loaded on to another vehicle and that at such time the e-way bill was valid was not examined by the department and penalty was imposed. The High Court held that compliance of principles of natural justice are inherent in any adjudicating proceedings unless specifically ousted by a statute and since penalty was imposed without evaluation of the explanation, it was not valid. The adjudicating authority was directed to consider the matter afresh [2023-VIL-853-CAL]. The issue of penalty under Section 129 and the quantum of 200% need to be addressed to contain frivolous litigation. The provision can be made less stringent and tagged with Section 73.
Filing of GST appeal - Limitation Act to be considered for condoning delay
The taxpayer argued that the period of limitation prescribed under Section 107 of CGST Act for filing appeal before appellate authority is subject to Limitation Act, 1963 and that the appellate authority cannot reject the appeal merely stating that it did not have power to condone delay without considering the circumstances of the individual case. The High Court held that provisions of Section 5 of Limitation Act have not been expressly or impliedly excluded by Section 107 of CGST Act by virtue of Section 29 (2) of Limitation Act and Section 5 of Limitation Act stands attracted. The order requests the appellate authority to consider the condonation application and to condone the same if explanation is accepted as sufficient. The order mentions certain period but they are not understandable from the provisions. It is well settled that special enactment prevails over general law and Limitation Act has no role while considering statutory limitation prescribed under tax laws. The department may appeal this order in the Supreme Court and the verdict could be different [2023-VIL-855-CAL].
Supply of aircrafts and related services like post sale support is composite supply - Cost of free issue material to be included for valuation
The classification dispute on whether activity is sale or service, services are naturally bundled is not new. The AAR ruled on the issue of supply of aircrafts along with certain post sale services, support etc., by the Indian applicant to the foreign entity which had a contract to supply the same to the Ministry of Defence. According to the applicant since the main object of the contract was supply of aircraft, it was the principal supply and together with the allied services, the entire supply was in the nature of composite supply. As per the terms of the contract, risk and ownership passed to the buyer only after he issued a certificate of acceptance. The AAR agreed and held that the said supply would attract GST at 5% as the aircrafts are classifiable under CTH 8802 in terms of Notification No. 1/2017-Central Tax (Rate).
Certain parts were imported by the applicant since it was not possible to indigenise the same and it was the contractual obligation of the supplier to provide the same. Based on this reasoning the applicant contended that the value of such free issue materials should not be included for valuation under GST since it has not been incurred by the buyer (applicant) on behalf of the supplier and no consideration other than the contract price has been provided. However, the AAR held that though buyer and seller were not related, transaction value/contract price alone cannot be accepted and the cost of materials provided free has to be added. It relied on judgement of the Chattisgarh High Court in the case of Jeet Corporation, pertaining to inclusion of fuel cost incurred by service recipient. Drawing an analogy it was reasoned that since the free materials were critical components of the aircraft, cost of the same has to be included [2023-VIL-207-AAR].
The amount involved in such cases is generally substantial. The dispute over inclusion of FOC items in value for GST purpose has been raising its head and this may become a major litigating point in the years to come. The law may not be amended leaving the ambiguity wide open for litigation to thrive.
Remission of customs duty not deniable for non-inclusion of duty in insurance value
Section 23 of Customs Act provides for remission of duty on goods destroyed. The EOU which had lost capital goods which were procured without payment of duty in fire accident. It sought remission of duty. The department rejected the claim on the ground that the taxpayer took insurance only for value of the goods and duty portion was not included in the sum insured. This was based on CBIC Circular No. 99/1995-Customs wherein it was instructed that the goods deposited in warehouses are fully insured against theft, pilferage, fire accidents, other natural calamities, risks against rioting, etc. at least for a value equal to the customs duty by a comprehensive insurance policy and drawn in favour of the Commissioner of Customs. The Tribunal was not satisfied with such argument and held that remission is admissible in such cases. CBIC should revisit such outdated circulars. If duty amount is to be included in insurance amount and that too, the policy in favour of Commissioner, then Section 23 on remission is rendered redundant [2023-VIL-1285-CESTAT-BLR-CU].
(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)