Tax Vista Your weekly tax recap Edn. 189 - 29th Jan. 2024 By Dr. G. Gokul Kishore

 

 

Anti-profiteering provision in GST law is constitutionally valid

Section 171 of CGST Act on anti-profiteering and all related rules (Rules 122, 124, 126 and others) are constitutionally valid. This is the judgment of Delhi High Court in batch of petitions (more than 100) challenging the validity of the said provisions. The challenge was mounted based on the argument that mandating price reduction as the only way to pass commensurate benefit is arbitrary and unreasonable. According to the petitioners, Section 171 empowers price fixing which is violative of the Constitution. In respect of real estate projects, it was contended that the methodology adopted by National Anti-profiteering Authority (NAA) comparing input tax credit (ITC) to turnover ratio has yielded different results based on certain factors. Absence of methodology was assailed and definition of profiteering was argued as vague even as the word "commensurate" has not been defined. Excessive delegation was another ground taken. Indefinite obligation being imposed as no time period has been fixed as to how long benefit should be passed thus violating Article 19(1)(g) on right to trade and commerce was also raised. The petitioners pointed out that increase in weight or volume is not accepted as the method of passing on benefit of rate reduction. Further contentions included Legal Metrology Act requires rounding off and in certain cases, reduction in prices being miniscule, this is not possible and no appeal against orders passed by NAA has been provided and absence of judicial member in NAA.

 

The High Court begins the rather exhaustive judgment with the objective of introducing GST - reduction in overall tax rates and mitigating cascading effect. Recipient has been read as consumer by the Court, may be because GST is highlighted as consumption-based tax, and it is the consumer who ultimately pays the price. The High Court reiterates what NAA has been stating - amounts foregone by public exchequer cannot be appropriated by manufacturers, traders, etc., and it should go to consumer. As per the Court, Section 171 has been enacted in public interest with consumer welfare objective to ensure that benefit of rate reduction or ITC is passed on to consumers. Argument of the respondent (NAA / Government) that the objective is directly relatable to Directive Principles of State Policy (DPSP) has been accepted. In the words of the Court - "Section 171 of the Act, 2017 mandates that whatever is saved in tax must be reduced in price. Section 171 of the Act, 2017 incorporates the principle of unjust enrichment. Accordingly, it has a flavor of consumer welfare regulatory measure, as it seeks to achieve the primary objective behind the Goods and Services Tax regime i.e. to overcome the cascading effect of indirect taxes and to reduce the tax burden on the final consumer".

 

Repelling the challenge on legislative competence to enact Section 171, the High Court has held that "with respect to" is wider and therefore, Parliament has power to enact Section 171 under Article 246A of the Constitution. It further held that essential legislative function has not been delegated and the provision is not violative of Article 14. However, acknowledging the variance in approach in identical cases by NAA, the Court has said this may make the order bad but not invalidate Section 171 or rules. The provision does not violate Article 19(1)(g) as it is not a price fixing mechanism as it deals with only indirect tax component of price and does not interfere in freedom of suppliers to fix price and the supplier is at liberty to vary the base price considering cost and other factors. A small relief that the petitioners got was the observation that if other factors necessitate increase in price and setting off of reduction in price (due to rate cut), the same is required to be proved by supplier and the passing of benefit only through price reduction is a rebuttable presumption.

 

One methodology cannot be fixed and NAA has to determine appropriate methodology on case to case basis, as per the order. However, the Court accepted that the methodology adopted for real estate sector is flawed as expenses are not uniform throughout the lifecycle of a project and while hearing the petitions on merits, the Court will decide such issue. While concluding the Court was emphatic that reduction can only be through price and this cannot be tampered with any other form by suppliers (increase in weight etc) and the benefit has to be computed at SKU level for each buyer. On lack of right to appeal, the Court said this is not a ground to declare provision as unconstitutional since such right is a creature of statute and the parties can approach High Court under Article 226. NAA is a fact-finding body and therefore, judicial member is not required and inclusion of GST in profiteered amount is correct, as per the order.

 

The order may be challenged in the Supreme Court and therefore, the final word on this issue is yet to be said and heard. Also, when the individual petitions are heard on merits, the orders of NAA may be vulnerable to an extent considering the acknowledgement of vagaries in methodology adopted in the case of realty sector. The point on considering other factors to offset the price reduction and the same being a rebuttable one (not reducing the price due to GST rate reduction) is a ray of hope for the petitioners but the overall weight and tenor of the order may be too onerous to overcome [2024-VIL-84-DEL].

 

Readers may go through another order reported by VIL wherein Bombay High Court has upheld the validity of Goa Rural Improvement and Welfare Cess which was challenged on the ground that the same got subsumed in GST. There were other grounds, but this may be of interest as far as GST is concerned. The Court pointed out that records did not indicate GST Council had recommended such cess to be included in GST [2024-VIL-67-BOM].

 

Interest not payable when GST is deposited through challan but returns filed later

Tax is deemed as paid into government account when the amount is transferred through GST PMT-06 challan by the taxpayer to electronic cash ledger, as per the Madras High Court and therefore, interest is not payable when returns are filed later. In this ruling which is likely to be perceived as controversial, transitional credit was not reflected though TRAN-1 form was filed and therefore, GSTR-3B for July, 2017 was not filed. However, tax was paid into cash ledger within due dates though returns for subsequent months (till December, 2017) could not be filed. Subsequently, TRAN-1 was revised, credit got reflected and pending returns were filed. After all these years, recovery notice for interest was issued alleging delay in payment of GST in 2017. The High Court posed the question - whether interest is payable when tax amount was deposited routinely in electronic cash ledger. The department contended that this would not amount to payment of tax as the same would arise only when the amount is transferred to government account from cash ledger by debiting the same at the time of filing GSTR-3B return. It was specifically argued that the amount available in such cash ledger is not government money.

 

The High Court said that GSTR-3B return seeks details of "tax paid" which means tax should have been paid before filing returns. Extracting the challan (PMT-06), the Court said that name of the beneficiary has been mentioned as RBI and therefore, amount deposited by taxpayer would go to RBI (government) and date of deposit through such challan is the date of credit of GST to government account. Reading Section 39 of CGST Act, the Court held that GST should be remitted before the last date for filing monthly return. Further, point to Section 49 and the explanation under it, the Court states - "A reading of the above explanation makes it clear that the date of credit to the account of Government in an authorised bank shall be deemed to be the date of deposit in the Electronic Cash Ledger. Therefore, once the Form GST PMT-06 is generated and if any amount is paid through the said form in the authorised bank, the same will be credited to the account of the Government and thereafter only, it will be deemed to be credited to the Electronic Cash Ledger." The Court also relied on provision relating to refund from such cash ledger for which refund claim is required.

 

The order will be appealed against by the department before Division Bench and this issue may become clearer. The entire set of provisions relating to credit on ledgers and then debiting the same need lot of clarity though this order seems to be reasonable but apparently, not in line with the policy or objective behind the provisions [2024-VIL-72-MAD].

 

Refund on inverted tax structure available even if input and output supplies are same

It is unfortunate that the assessee has to litigate for securing refund even in a situation where law and jurisprudence are clear. On the bulk supply of LPG received from various refineries, the petitioner was required to pay GST @ 18% and on sale of bottled LPG to commercial and domestic consumers, the GST payable was 18% and 5% respectively. It applied for refund of accumulated ITC in respect of the LPG supplied to domestic customers after bottling in cylinders. Order was passed rejecting the claims for refund of accumulated input tax credit relying on CBIC Circular No.135/05/2020-GST dated 31.3.2020. However, the petitioner argued that clause 3.2 of the Circular has been held as not applicable since it is not legally correct relying on precedent judgments. The Kerala High Court held that on a bare reading of Section 54 of the CGST Act, it was clear that if the supplies are not coming within the exceptional clause and credit had accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies, a dealer shall be entitled for refund of the credit accumulated in such a situation, irrespective of the fact whether the input and output supplies are one and the same or not. The order rejecting refund was set aside [2024-VIL-79-KER].

 

Personal hearing to be granted even without request, particularly when adverse order is contemplated

GST department alone can invent arguments which can instantly bring laugher. According to the department 'opportunity of hearing' under Section 75(4) of CGST Act, 2017 does not include the opportunity of 'personal hearing'. It was argued that the assessee-petitioner had furnished a reply and did not make a specific request for personal hearing and hence there was no violation of the statute or principles of natural justice. The argument of the assessee that law makers while prescribing the statutory form has visualized different stages for the purpose of 'personal hearing' - one stage being when the reply is submitted and the other stage being date, venue and time of the personal hearing was accepted. The High Court held that particularly when an adverse order is contemplated, personal hearing is to be granted. It issued directions to provide opportunity of hearing to the petitioners by some other officer than the officer who had issued the show cause notice [2024-VIL-77-MP].

 

Technical lapse like delayed production of e-way bill not liable to be penalised

Goods were detained and penalty was imposed alleging violation of Rule 138(a) of UPGST Rules, 2017 since the movement of goods was not accompanied by e-way bill. The petitioner explained that there were technical glitches and movement itself was delayed due to local festival. The details were present in tax invoice issued by supplier and tax had been paid. Both the e-way bills were presented before passing of the penalty order, though one was presented after detention. The petitioner contended that if e-way bill is generated and produced before the passing of the order under Section 129(3) of the CGST Act, 2017 penal action could not lie. The High Court opined that mere technical errors, without having any potential financial implications, should not be grounds for imposition of penalties and that "intent to evade" must be established. Since in the instant case, there was neither intent or any allegation or finding of any malafide, the order was liable to be set aside. It was observed that the reasoning in the impugned order that prior intent to evade tax need not be established under GST law was palpably erroneous [2024-VIL-78-ALH].

 

Not displaying board due to renovation - HC sets aside cancellation of GST registration

What seems ordinarily plausible and reasonable appears to be a maze of faults to the department. The petitioner's GST registration was cancelled on account of discrepancy during physical verification of the principal place of business. It was explained by the petitioner - a civil contractor, that he has carried out business from his brother's premises and after the completion of contract, he had been filing nil returns. Due to renovation at the place which was a residential house, the GST board had been removed. The department refused to see it in this light and asked why renovation expenses of the bother's residential house did not appear in the books of account of the petitioner/partnership firm. Of course, the High Court was convinced of the facts and explanation and held that the cancellation of registration was not valid. It held that since it was not the case that the petitioner was not conducting any business and cancellation with high civil consequences of withholding of refund subsequently was not correct. It ordered restoration of registration [2024-VIL-68-P&H].

 

Reliance on pre-shipment certificate acceptable since importer cannot physically verify goods

The appellant had imported Heavy Melting Scrap and as per the pre-shipment documents, it was subject to 100% visual inspection during loading process, from the port of export. However, it was found to be of assorted sizes and the customs department alleged violation of import policy for import of scrap and also denied the request for mutilation. The Tribunal held relying on precedent decisions that the importer could rely on the documents issued by the accredited agency and that it was sufficient compliance with the import policy. The order of confiscation and redemption fine was set aside with direction to permit mutilation under customs supervision and payment of duty at values declared by the importer [2024-VIL-90-CESTAT-BLR-CU].

 

Short delivery of goods qualify for remission of customs duty

The importer found that out of the total shipment of 10 containers, one contained 150 bags of coffee beans instead of stated quantity of 300 bags. Apparently the goods were not weighed at port of import before clearance. Subsequently the same was inspected by the insurance surveyor and claim was processed. The importer claimed remission of customs duty paid on the consignment, understandably since goods (150 bags) did not reach the importer. The importer had claimed the benefit of Notification No. 52/2003-Cus. dated 31.03.2003 and the requirement of the above notification was that the coffee beans so imported have to be used in the manufacture of export product. The request for remission was rejected and while appeal against the order was pending, to show cause notices were issued proposing confiscation in terms of Section 111 (o) of the Customs Act, 1962 since goods imported were not used for the purpose for which duty exemption was availed besides invoking extended period of limitation alleging suppression etc. The Tribunal held that Section 23 of the Customs Act provides for remission in case any imported goods have been lost (otherwise than as a result of pilferage) or destroyed, at any time before clearance for home consumption and since in the instant case of short delivery, they goods assume the characteristic of 'lost'. However, the Tribunal allowed the appeal on limitation as nothing was suppressed considering the exchange of communication with the department [2024-VIL-85-CESTAT-CHE-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)