Tax Vista Your weekly tax recap Edn. 188 - 22nd Jan. 2024 By Dr. G. Gokul Kishore

 

 

ITC denial for non-payment to suppliers - Order demanding tax pan-India by SGST officer, quashed

SGST authorities have become now (in)famous for issuing show cause notices which are mostly ridiculous and show them in poor light in terms of domain knowledge as far as GST law is concerned. Balance sheet, P&L Account and books of account are used as the basis for demanding staggering sums as tax without any thought. In one such case, input tax credit availed has been sought to be recovered on the ground that payment to suppliers was not made within 180 days as prescribed in Section 16 of CGST Act / TNGST Act. These days, orders (assessment order / adjudication order) are generally SCNs with the change in title as order and therefore, the order passed in this case also demanded the amount as mentioned in the SCN. The figures pertaining to trade payables was taken from the financial statements pertaining to pan-India operations of the taxpayer under the jurisdiction of SGST authorities. The petitioner argued that as per Companies Act, 2013, financial statements for entire operations of the company as a whole are required to be filed and there is no provision for filing any State-wise statements. CA's certificate was also submitted along with the assurance that all relevant invoices would be submitted. The High Court set aside the order and directed passing of fresh order after noting that there was non-application of mind by the assessing authority [2024-VIL-56-MAD].

 

The Secretary of Commercial Taxes Department in the States should seriously consider capacity-building (training) of officers and also issue instructions on exercising restraint while issuing high-pitched demands without substance. The practice of telling the taxpayers to approach High Court even while acknowledging illegality of demands should be curbed. Several High Courts have directed marking copy of such orders to such higher-level officers but the system hardly changes. GST will be certainly derailed only to be cursed by everyone if containment measures not taken in time.

 

Coercive recovery of entire demand at the stage of appeal to Tribunal invalid

Illegal recovery of dues is reaching alarming levels, particularly the extreme urgency and obsession of SGST officers breaching all norms of civilised tax administration. A recent order bears eloquent testimony to such downfall. The judgment begins on note of weariness recalling "problem of valiant tax executives clothed with judicial powers remembering their former capacity at the expense of the latter". The petitioner-taxpayer was aggrieved by the action of the GST authorities in recovering tax, interest and penalty from his bank account and that too without any notice. The taxpayer had paid 20% of the amount in dispute though appeal could not be filed since GST Tribunal has not been constituted. Relying on Sita Pandey v. State of Bihar and Ors. - 2023-VIL-599-PAT, the High Court held that the department's action in recovery of entire demand as well as the manner of recovery without any notice or hearing was without statutory sanction.

 

The High Court relied on its own order [2023-VIL-599-PAT] wherein it was held that recording of reasons as per Section 78 of CGST Act is not recording surreptitiously and keeping in the files, but to be informed to the taxpayer and that the said reason was the since bank holidays followed the close of the financial year, the entire demand was to be recovered. The High Court had held in the said case that imminent bank holidays of 2 or 3 days cannot be termed valid reasons to justify an expedient recovery under the proviso to Section 78 and it was 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 taxpayer. It opined that the legislature had, in the event of an appeal filed in the Tribunal, only intended 20% of the tax dues alone to be paid and imposed costs on the officer for acting in a high-handed manner contrary to legislative mandate [2024-VIL-59-PAT].

 

Refund of IGST - Denial by new officer inventing novel modus operandi

In another oft-repeated scenario but without the tone of weariness, the High Court held that IGST refund cannot be denied when the alert on the taxpayer has been lifted, merely because a new incumbent officer developed a new device to block refund. The taxpayer, in the earlier round had sought refund of IGST which was withheld stating that there was an alert issued against him. Subsequently the same was withdrawn and a major portion of the refund was credited. Then a new officer sought clarification from the State GST officials as to whether they require the alert against the taxpayer to continue. The High Court held that at least prima facie, the State GST officials would not have any role to play concerning the IGST refund on exports and there was no justification to delay the grant of refund. It said - "In times when efforts are on to promote the ease of doing business and to minimise official discretion, withholding refunds due to prima facie red tape should not be encouraged. Neither should the taxpayers nor the exchequer suffer for avoidable delays in such matters." If officers are not interested in granting refund, it will be advisable to omission of provisions relating to refund at least on exports and taxpayers can be told to export without payment of tax alone. It is better to tell taxpayers that government always wants to extort and is not in any manner interested in their welfare [2024-VIL-54-BOM].

 

Authority bound to examine whether appeal is within limitation before rejection

In GST litigation both officer and taxpayer must necessarily be aware of GST law as well as Limitation Act,1963 and General Clauses Act, 1897. But this is asking for the moon - GST law itself is always out of reach for most of the officers. The period of limitation - 3 months for filing appeal fell on a Sunday and the appeal was filed on Monday. The appeal was rejected being beyond the period of limitation. The taxpayer argued that as per the Limitation Act, prescribed period for filing of the appeal expires on the date when the Court is closed, the same can be preferred on the day when the Court reopens and in terms of provisions of Section 9 of the General Clauses Act, 1897, date of receipt of order was to be excluded. Hence the appeal had been filed within the prescribed period. The department countered this by contending that if the taxpayer sought condonation of delay a prayer to this effect ought to have been made in the appeal. The High Court held that in case of a delay of one day, as a matter of justice the taxpayer should have been given an opportunity to apply for condonation but on facts, the appeal was within the period of limitation and could not be rejected. As regards the absence of a specific prayer, it was held that it is the duty of the authority to examine the matter as to whether the same is within limitation [2024-VIL-39-RAJ].

 

Power of rectification cannot be used to rewrite order afresh

Review in the guise of rectification of "error apparent" on the face of the record is not a new phenomenon. In GST, officers go the extra mile in such misadventures. In the case before Calcutta High Court, it was quite apparent that there was no error - no fault on the part of the taxpayer to merit cancellation of registration. The taxpayer admittedly filed returns regularly, paid taxes and was licensed to carry out business and yet merely noting that these facts were not true, the order revoking cancellation of registration was rewritten. The High Court held that the purported rectification did not refer to any error and was effectively rewriting of the earlier order which was impermissible in exercise of powers under Section 161 of the CGST Act. It also noted that the powers are pari materia with Section 129B of the Customs Act and a power of rectification is not akin to a power of review. If an officer is of the view that an order should be revised, statutory provisions are not required - a junior officer and a computer are sufficient. [2024-VIL-37-CAL].

 

Delay of 128 days in filing appeal - High Court directs condonation of delay

Condonation of delay in filing appeal is becoming a major issue silently as the Supreme Court order in Asst. Commr. (CT) v. Glaxo Smith Kline Consumer Health Care Ltd. [2020-VIL-18-SC] is being widely followed by High Courts and petitions seeking direction on condonation of delay are being rejected. However, one or two orders in between have been issued in favour of taxpayers. One such order has been passed by Andhra Pradesh High Court recently. Appeal against cancellation of GST registration was rejected on the ground of delay of 128 days beyond condonable period. The High Court acknowledged that appellate authority has no power to condone such delay. It noted that the delay was due to ill-health of the petitioner and the same constituted sufficient cause. A similar order of the Court was also cited. The Court said appeal being a valuable statutory right, to do complete justice, directions are given to hear the appeal on merits. The Court followed an earlier order by imposing costs of Rs. 20,000 while allowing such petition. It is not known why costs are being imposed even after being satisfied as to sufficiency of the cause of delay. GST department should be appreciated for not highlighting precedent judgments including GSK order (as noted above). It is likely that during arguments it could have come up but the Court opted to exercise discretion. More such orders should be passed so that the issue of condonation of delay is considered based on facts of particular case instead of following a specific ratio [2024-VIL-53-AP].

 

Penalty not imposable for e-way bill expiry when intent to evade absent

The order is one of routine - expiry of e-way bill and imposition of penalty under Section 129 of CGST Act and this column is not being used now for such routine orders. However, the reason cited in the order by appellate authority is extraordinary and therefore, it is being briefly covered. The petitioner paid the amounts to get the goods and vehicle released detained on the charge of expiry of e-way bill. The reason adduced was traffic restrictions for Deepavali festival. The appellate authority held that festive season has not been mentioned in GST law relating to validity / expiry of e-way bill. Officers may involve themselves in several activities which are per se illegal but when a genuine reason is cited, then shelter in law is taken to drive out the taxpayer. The High Court noted that there was no discrepancy in goods or quantity in the invoices and the e-way bill. It posed the question - whether mere expiry of e-way bill calls for action under Section 129' It held that the truck was within 1 km of the destination and the vehicle was bound to stop due to festive season and the same cannot be considered as intent to evade. Penalty was held as not imposable and refund of penalty was ordered [2024-VIL-41-JHR].

 

Delay in filing returns within 30 days condonable - Time-limit in Section 62 is directory

An order on best judgment assessment and filing of returns beyond the 30 days' time as per Section 62 of CGST Act has been reported last week. The order may be useful to many taxpayers considering the interpretation placed on the provision. The taxpayer filed the return after the time period of 30 days from passing order as provided in Section 62. The High Court noted that the authority can pass order within 5 years from the due date for filing annual return but he chose to pass order in the present case at the earliest date. Because of such fact, the taxpayer lost the opportunity to file the returns within time. The Court further said that the limitation in Section 62 is directory in nature and if the taxpayer could not file return within the time-limit due to reasons beyond control, the delay can be condoned [2024-VIL-36-MAD].

 

Software license in paper form classifiable under chapter 49 and not as part of software under chapter 85.

The assessee classified "IT software" under CTH 85238020 with tariff rate of duty and "Software License" under CTH 49070030 seeking benefit of NIL rate of duties under Sl. No.157 of Notification No.21/2002-Cus., dated 1-3-2002. According to it the software and license were distinct products - one is a software and the other - license in paper form is a manual and they are specifically classified under different headings as per the Customs Tariff. The assessee pointed out that the description of tariff item CTH 4907 0030 was "Document of title conveying the right to use Information Technology Software", while CTH 8523 80 20 relates to "Information Technology Software". The department contended that license being an integral part of the software, the value was royalty / fee for use of software and therefore, it was to be included in the valuation of the software as per Rule 10(1)(c) of the Customs Valuation Rules, 2007. It was held by CESTAT that classification depends on the description of the product at the time of import and manuals which are meant to be the instructions to activate the software are to be classified under Chapter 49. Also, the mere fact that license has an intellectual value does not mean that the software and license would be considered as a set [2024-VIL-68-CESTAT-BLR-CU].

 

Importer entitled to seek retest of goods

Assessment orders at times are outcome of Dominoes effect. An allegation of mis-declaration sets off chain of charges, seizure, undervaluation, goods liable to confiscation, penalty and so on. Of course, to be sustainable, the first tile or card must be strong. The assessee imported GTL Light Paraffin classifiable under CTH 27101990 individually and so in comingled state with other importers. The department opined it was light diesel oil (LDO) which can be imported only by authorized agencies and so the flurry of show cause notices, testing of samples, confiscation, redemption etc., followed. Out of three consignments, in respect of two, the testing/retesting of goods showed the goods to be GTL Light Paraffin. The assessee sought retest of samples but did not receive any response. It also pointed out that in respect of other importers test reports of samples proved that the imported goods were liquid paraffin. Subsequently, other consignments were tested based on Court directions and as per reports the goods were in the nature of liquid paraffin and did not meet the specifications of LDO. Also, during cross examination, the chemical examiner could not explain the reason of difference in the report of CRCL Vadodara from the report of CRCL New Delhi, in respect of the product meeting the requirement of Paraffin diesel fuel as per the standards of DIN EN-15940:2019. The Assessee relied on York Exports - 2004-VIL-149-CESTAT-MUM-CU to contend that the denial of retest was a violation of principles of natural justice.

 

The High Court held that the assessee could rely on the test reports of the other co-importers and that failure to allow retest of samples creates a serious doubt in the original test reports. It was also held that the entire case having been built on the premise of misdeclaration which was not proved against the assessee, it was held that the demand as well as penalties on co-noticess must fail. [2024-VIL-53-CESTAT-AHM-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)