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Tax Vista Your weekly tax recap Edn. 184 - 25th Dec. 2023 By Dr. G. Gokul Kishore |
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ITC admissible when delay in filing return is not attributable to taxpayer
Despite statutory forms being elusive or unreliable, the department continues to deny input tax credit (ITC) based on delayed filing/manual filing of return. The petitioner received show cause notice seeking to deny ITC since GSTR-3B had been filed belatedly (manually) and order was also passed against him. The taxpayer argued that GSTR-3B is not meant for claim of input tax credit and relied on Hans Raj Sons Vs. Union of India and others - 2019-VIL-607-P&H to contend that return can be filing manually in case of difficulty in online filing and on Adfert Technologies Private Limited Vs. Union of India and others - 2019-VIL-537-P&H, in support of the contention that in absence of an enabling mechanism to correct filed return, ITC which is eligible cannot be denied. The petitioner also argued that there was no provision to self-assess ITC or option of filing an incomplete GSTR-3B in which case ITC can be availed easily. The High Court set aside the impugned order with a direction to permit filing of manual return, accept the belated returns and if the returns are otherwise in order and accordance to law, to permit the claim of ITC. This order contains argument on GSTR-2 being not notified and High Court's observations on the same. These are not discussed for obvious reasons. But such order is liable to be appealed before Division Bench and the taxpayer may have to wait before he can rejoice [2023-VIL-896-MAD].
Reasons to believe should precede sanction of search - High Court quashes search
Section 67 of CGST Act dealing with powers to inspect, search and seize begins with "where the proper officer .has reason to believe". The case before the High Court was quite simple, the officer had reason to believe, only when it was signed on 1 September, 2022 though search was sanctioned on 31 August, 2022. The High Court held that entire authorisation is vitiated and search and seizure carried out is illegal. The authorities were directed to return the goods and documents. The section is apparently a safeguard against fishing expedition and requires application of mind by a high-ranking officer before search is undertaken. However, as this case shows, even compliance with the procedure is superficial [2023-VIL-886-ALH].
Seeking bank guarantee instead of solvent security to block refund - High Court quashes order
IQ - Innovation Quotient is maximum when it comes to blocking refunds due to taxpayers. Sadly, this was a case where after appeal, certain amounts were ordered to be refunded to the taxpayer. But merits of the case and good orders are not enough for obtaining refund of demands paid. The Appellate Authority ordered refund in one of the two matters but the department contested the same. Of course, all refunds affect revenue adversely but the higher authority ordered refund after obtaining solvent security - possession of some asset and not being declared non-bankrupt to satisfy the officer that the taxpayer is solvent. The officer coined a new phrase - bank guarantee in the form of solvent security and continued to withhold the refund. The High Court granted relief stating that the terms were contradictory and solvent security is provided by person self and bank guarantee is provided by the bank and it was not open to the officer to go beyond the order of his superior and equate a solvent security to bank guarantee [2023-VIL-907-RAJ].
Delivery challan as prescribed must accompany goods in movement
The petitioner whose goods - gold ornaments were intercepted during transit contended that he had been forced to pay tax and penalty and that the delivery note which accompanied the goods sent for sale on approval basis was a valid document. The department argued and the same was accepted that the said delivery note did not provide for all particulars as mentioned in Rule 55 of CGST Rules. Though the petitioner claimed that there was a letter from the consignor vouching for sale on approval basis, the same was claimed to be lost. Taking into account the difference between a delivery note which is a mere document that accompanies a shipment of goods and a delivery challan which is issued while making delivery of goods to the buyer and have an impact on the inventory levels since it decreases the inventory stock, the High Court held that movement of goods without prescribed delivery challan was not in accordance with law. Imposition of penalty was upheld. Absence of complying with documentary requirements as prescribed can be very expensive as this case reveals [2023-VIL-902-J&K].
CESTAT has no jurisdiction to entertain appeal on recovery of drawback
The Delhi High Court has held that proviso in Section 129A of Customs Act barring CESTAT from entertaining appeals on "payment" of drawback includes "recovery" also was both require adjudication of claim on merits. Drawback was sanctioned in the case before it but notice was issued for recovery and notice for annulling refund order was also issued which were challenged in in the High Court. The department filed appeal against CESTAT order in the Hight Court as refund was granted as per the order of the Tribunal on the ground that Tribunal has no jurisdiction to admit appeal in drawback cases. Drawback was initially disputed on the ground that the petitioner-firm was an EOU and not eligible for such benefit. The Tribunal had held in favour of the petitioner-firm on limitation and the order was understood by the department as direction for refund. The petitioner argued that the appeal before the Tribunal was related to recovery of drawback and therefore, it had the jurisdiction and even if CESTAT had no jurisdiction, the department had waived its right to object before the Tribunal. Consent or waiver cannot confer jurisdiction which is otherwise barred by statute, as per the order. The Court pointed to the remedy of revision available for the petitioner and granted liberty to file revision application. The order reveals lot of hits and misses as the department has blundered all the way but was fortunate to get all of them condoned [2023-VIL-889-DEL-CU].
Testing of sample after considerable delay - Report is not reliable
Customs authorities rely on flimsy evidence like their own CRCL's test reports in many cases and such reports do not provide results after testing of parameters as per prescribed standards. Such cases are bound to fail. In a case of this nature, iron ore fines were exported on which export duty was based on iron content. The exporter contended that both load port and discharge port reported iron content below prescribed limit, attracting NIL rate of duty, However, the department denied such benefit based on CRCL report wherein iron content was determined as above the prescribed limit. The exporter argued that the test report was never shared and results were never disclosed and the test was not conducted as per applicable standards. The Tribunal held that non-supply of test report itself can be fatal and the report was cryptic and was without adhering to BIS standards. Testing of samples after two months from drawal and not stored in prescribed condition were also noted to conclude the report as unreliable. Realisation of export proceeds in proportion to the quantity as per discharge port report was also noted by the Tribunal. The exporter got relief from the Tribunal but this is how exporters are treated - in this case, this is the second round of litigation [2023-VIL-1343-CESTAT-KOL-CU].
Prepayment of loan whether additional interest or penalty not taxable
Relying on CBIC Circular No. 102/21/2019-GST dated 28-6-2019, the Authority for Advance Ruling (AAR) has held that the sum charged from the borrower for exercise of option of pre-payment of loan is not exigible to GST. The ruling is fairly well-reasoned and follows the basic premise that where main supply is not taxable those ancillary to it cannot be taxable. The order does not dwell on Circular No. 178/10/2022-GST dated 3rd August, 2022 regarding taxability of liquidated damages, penalty etc arising from breach of contract. According to the AAR the interest chargeable on loan extended by the financial institution is exempt in terms of S. No. 27 of Notification No. 12/2017-Central Tax (Rate). The prepayment charges whether nomenclatured as interest or penalty are related/ancillary to the principal supply of extending loan and the consideration namely interest is exempt. Hence if additional interest is charged for prepayment of loan, it would not be exigible to GST. It was also held that in case the sum is in nature of penalty as per para 7.1.6. of the said Circular 102, it would be on the same footing as the consideration for principal supply and the same being exempt, prepayment penalty is also not taxable [2023-VIL-221-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)