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Tax Vista Your weekly tax recap Edn. 191 - 12th Feb. 2024 By Dr. G. Gokul Kishore |
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Appellate authority not empowered to remand for fresh decision under GST
Passing of an order is not tantamount to exercise of powers, as apparent from the recent case before Allahabad High Court. The First Appellate Authority allowed the appeal in part and remanded the matter to the original authority for fresh adjudication with adherence to natural justice. The taxpayer-petitioner objected stating that as per Section 107(11) of CGST Act, 2017, the appellate authority may confirm or modify or annul the impugned order/decision but cannot refer the case back to the adjudicating authority. As the taxpayer opted to file writ petition, the department argued on availability of remedy of further appeal but this was not accepted by the High Court since GST Tribunal has not been constituted.
The High Court held that there is no inherent power to remand proceedings to original authority and the statute has provided only three options - confirmation, modification or annulment. It specifically pointed to the express provision prohibiting the Appellate Authority from referring the case back to the adjudicating authority. The impugned order could not be sustained since the appellate authority had failed to exercise his jurisdiction. The Court directed the Appellate Authority to pass orders afresh. This issue as to the power of appellate authority regarding remanding the case for de novo consideration was a matter of much litigation in the pre-GST regime and it was sought to be plugged by providing for express bar on remand. However, there is still a view that the power to modify includes the power to remand [2024-VIL-106-ALH].
Volume discount not includible in value of supply
May be it is a question of perception. What appears to the dealer to be a volume discount which of course cannot be determined prior to effecting the supply, seems to be a subsidy/reduction in taxable value on which tax is to be recovered. The petitioner assailed the order of the First Appellate Authority which held that the amount of volume discount was to be added back to taxable value and GST was payable. The taxpayer contended that GST had been paid on the invoice value and in terms of Section 15 of the CGST Act, transaction value between two unrelated parties was to be accepted and that the said discount is not a subsidy. It also argued that the prevalent business practice where the manufacturer would direct the dealer to sell the mobile phones at a discounted price for a particular season had not been understood by the department and that such discount cannot be construed as subsidy as contemplated under Section 15(2)(e) of TNGST Act, 2017. Another argument was that incentive given by the manufacturer to the petitioner for achieving the sales target was not a consideration under Section 2(31)(b).
The High Court expressed the view that CBIC circulars clarifying certain valuation issues were not relevant to the case on hand and that a discounted price at which goods were sold by the petitioner to their customers was not to be confused with discount offered to the petitioner by the manufacturer / distributor. A discount by itself is not a subsidy unless such a discount is offered on account of the subsidy for such supplies by a third party. It opined that a discount offered by a distributor or a supplier or the manufacturer to buyer/recipient simplicitor cannot form part of the transaction value and tax could not be demanded from the petitioner by intermingling the transactions between the supplier and petitioner and the petitioner and his recipient.
The order is apparently clear but certain points are difficult to comprehend. The order mentions argument about payment of tax on value including volume discount, incentive being wrongly construed by authorities and observations on subsidy versus discount and subsidy disguised as discount. Valuation issues are bound to be complex and in GST, big litigation is waiting [2024-VIL-111-MAD].
Amendment to BOE under Section 149 not restricted to inadvertent errors
In yet another case of an officer choosing to exercise powers in a limited manner, amendment to bill of entry sought by the importer was denied stating that Section 149 of Customs Act provided only for correction of inadvertent or bonafide errors. Owing to delay in accepting the Certificate of Origin from Korea which entitled the importer to customs duty exemption, the goods were cleared on payment of duty. The importer then applied for amendment to documents and reassessment permitting him to avail the exemption. Reliance was placed on communication pertaining to CAROTAR wherein it has been stated that Rule 5 does not prescribe that the proper officer should ask for Form I in every case where a preferential duty claim is made. This was rejected and on remand after appeal, the impugned order was passed stating that ambit of Section 149 was restricted to rectifying inadvertent and/ or bonafide errors.
The High Court held that as per proviso to the said section, amendment is permissible only on the basis of documentary evidence that was in existence at the time the goods were cleared, deposited or exported but it is not necessary the documents must be presented at the time of clearance of goods. The view adopted by the Customs authorities curtailing the scope of the provision was rejected. The matter was remanded for considering whether documentary evidence in support of the claim for exemption from BCD was in existence at the time of clearance of goods and to process the application [2024-VIL-117-MAD-CU].
Mention of Section 149 not required if letter requesting rectification of BOE is clear
Tax jurisprudence may be replete with interpretation of reasoned order and reason per se but taxpayers continue to receive communication / orders / letters bereft of reason. In yet another order on rejection of request to amend bill of entry in respect of imports from Korea on which department denied exemption, the importer's request for amendment was rejected. The reason being the communication from the importer was in nature of a request for re-assessment and not rectification. Noting that no specific format has been prescribed for seeking amendment under Section 149 of Customs Act, and that the letter from the importer was quite clear as to seeking amendment, the High Court held that there is no reason to reject the application merely because it does not make reference to Section 149 or on the ground that the word rectification is not used therein. The department was directed to process the application for amendment. If power is given to officers, many tend to misuse not by acting beyond such powers but by refusing to exercise the same - all are dictated by mostly revenue consideration. Rent-seeking, of course, does not need any law for the officer to shower favours [2024-VIL-126-MAD-CU].
Need for personal hearing - High Court elaborates
In an elaborate order interpreting Section 75(4) of the UPGST Act, 2017, the Allahabad High Court held that the opportunity of personal hearing ought to be provided when adverse order is contemplated, or penalty or tax is determined as imposable. It held that the use of the word "or" in the section meant that in more than one situation - imposition or tax, imposition of penalty, adverse order or when the person requests for hearing, such opportunity is to be provided. The order states - "The inclusion of "or'' in Section 75(4) of the UPGST Act, 2017, emphasizes the dual nature of the obligation to provide a personal hearing, accommodating both proactive requests from individuals seeking to defend their interests and reactive responses to adverse orders contemplated by tax authorities." Another interesting conclusion by the High Court is that calling for a written reply alone will not meet the ends of natural justice. The word hearing in the section has been read as personal hearing. In the words of the High Court - "Personal hearing provides a forum for nuanced discussion and exploration of these complexities, enabling decision-makers to make well-informed and equitable decisions based on a comprehensive understanding of the circumstances at hand." The impugned order in which tax and penalty along with interest were held imposable without providing opportunity of personal hearing was quashed. Readers may go through the order to read more on disjunctive conjunction, conjunctive conjunction, when not to read "or" as "and" and the like [2024-VIL-125-ALH].
ITC relating to construction not available whether or not expenses are capitalised
Readers are familiar with the saying "faith can move mountains". Of course, exception has to be carved out for faith in Advance Ruling Authority (AAR) and ITC eligibility in relation to immovable property. The department is quite fixed on its opinion. The department was before the Appellate AAR arguing against the AAR order. The AAR had earlier held that input tax credit (ITC) on inputs inputs / input services used for construction of warehouse which was to be let out would not be available if the expenses are capitalised, as otherwise, it would be available. The taxpayer had relied on the explanation to Section 17(5) of CGST At which provides that bar on ITC will be limited to the extent of capitalisation.
The AAAR has committed a major faux pas by holding that the issue of capitalisation is applicable only as per explanation in the relevant provision - only when reconstruction, renovation, etc., are undertaken and therefore, if such expenses are not capitalized, then ITC may be available. However, in respect of construction, capitalisation criterion is not applicable - in all cases of construction whether or not expenses are capitalised, ITC will not be available. A further challenge in High Court will most likely yield an outcome rejecting such interpretation [2024-VIL-01-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)