|
Tax Vista Your weekly tax recap Edn. 192 - 19th Feb. 2024 By Dr. G. Gokul Kishore |
|
Transfer of development right is liable to GST
Transfer of development right in land was argued as treatable as sale of land and not liable to GST. Notification No.4 of 2018-Central Tax (Rate) on GST on transfer of such rights under Joint Development Agreement (JDA) was sought to be declared as unconstitutional. However, the High Court held that mere execution of JDA by itself would not mean transfer of right, title and ownership of the property and conditions / milestones are required to be fulfilled / crossed to have certain element of right. Landowners have bundle of rights attached to their immovable property and one of the rights is to get it developed by engaging an agency - the developer is the agency. The right to enter the property to develop, default in completing obligation by developer where entire rights would remain with land-owners, transfer taking place only after execution of conveyance deed after completion of development, etc., have been highlighted by the High Court to hold that transfer of development rights is a service and not an outright sale of immovable property.
As per the order - "The transfer of ownership from the landowner goes directly to the purchaser of the constructed property and not in favour of the petitioner unless and until the land stands transferred in the name of the petitioner. The same cannot be brought within the ambit of sale. Transferring of the development rights does not result in transfer of ownership rights. That the sale of land/transfer of land or undivided share of land would get executed only after issuance of completion certificate of the project. This itself would give a clear indication that the services rendered by the petitioner in execution of JDA was supplied prior to the issuance of completion certificate and would thus be amenable to GST."
The issue is quite contentious. Though GST law has made it somewhat less complicated, anything attached to land is bound to be controversial. The apparently sustainable view of GST levy on transfer of development rights may get shaky when the matter is considered in detail by the Supreme Court in a appropriate case in future [2024-VIL-152-TEL].
Intent to evade must for imposing penalty under Section 129
The Allahabad High Court has emphatically held that intent to evade must be present to impose penalty under Section 129 of CGST Act. In the case before it, stock transfer of raw materials was made and e-way bills were generated by supplying location but place of supply was wrongly mentioned in certain cases. The petitioner argued that the system uses principal place of business as default and if the place is different, user has to choose which was not done and the same would be a clerical mistake. The High Court noted that invoices, transporter's documents and four e-way bills were correct and the mistake was in only 4 e-way bills and the mistake in the address was not something of an anonymous address but the address of registered officer of petitioner. Explanation given by the petitioner was accepted to hold that there was no intention to evade tax and harsh penalty was not imposable for mere technical error. Order imposing penalty was set aside.
Section 129 is draconian in nature. It empowers officers to impose penalty of 200% of tax amount for minor breaches also. In certain cases, even for non-statutory procedural violations, penalty is imposed. Intent to evade is not expressly mentioned also. The provision needs drastic amendment to reduce the disproportionate impact. A penalty provision cannot remain by providing unguided discretion to the extent of power to impose twice the tax amount even when intent to evade is absent [2024-VIL-146-ALH].
GST on cess - Multiplying the burden
One of the pending items in GST is continuation of cesses or certain levies outside GST. Section 15 of CGST Act, 2017 seeks include all levies other than GST in valuation for applying GST. Taxpayers may well pay such cesses but the issue is demand of GST on such cesses or levies. This results in phenomenal increase in liabilities which cannot be withstood by books of companies. One such cess is Infrastructure Development Cess and Environment Cess levied under the relevant law in Chhattisgarh. Though huge sums were paid as cess, the taxpayer was blessed with an order from GST authorities demanding GST under reverse charge along with interest and penalty on such cess. The petitioner argued there was no nexus between the cess and GST but the High Court felt that such legal issues can also be raised before appellate authority. Writ petition was not entertained and the taxpayer was directed to seek appellate remedy. The petitioner is a major company and if tax uncertainties bother such big companies even after six years of GST, then the GST Council / CBIC should take note of these issues for appropriate redressal [2024-VIL-143-CHG].
Bizarre orders from SGST authorities - High Court remands
Several orders passed by SGST authorities reveal complete non-application of mind as they are mechanical, abrupt and without any statutory backing. In a case of this nature, GST was demanded on remuneration paid to Managing Director. While the department argued that there was no clarity as to whether the director is whole-time person or otherwise, the petitioner had submitted it was MD. Based on financials of the company, demand of GST was raised on miscellaneous expenses on the presumption that services were received from unregistered persons. The High Court held that the conclusion reached based on financial statement was without application of mind. It termed as bizarre the finding of the authorities on exemption to training or coaching in art being not available since the petitioner was engaged in sale of painting and art works. The High Court was remanded the case for fresh decision. There are crores of rupees demand raised by SGST authorities without even quoting the provision and without having even basic understanding of issues. Misuse of powers beyond a point will result in abridging of such powers [2024-VIL-135-MAD].
Proper officer appointment under GST by CBIC is valid
VIL has reported an elaborate order of Bombay High Court last week and readers may refer to the same. The order pertains to challenge to CBIC circulars on appointment of proper officers for specified functions or exercise of powers. The background was audit report and consequent show cause notices which were assailed as not having any basis when the circulars themselves are not valid. The petitioner had heavily relied on Canon India case [2021-VIL-34-SC-CU] which was distinguished by the Court on ground that the said case involved DRI officer being an officer of customs or not and in the case before it, such dispute was not raised as to whether Audit Commissionerate officers are officers of central tax or not. The Court referred to the provisions under which the said circular were issued and therefore, declined to hold them as not valid. The challenge to entrustment of powers and functions after Canon case has become more attractive but not very appealing as this order reveals [2024-VIL-153-BOM].
GST notices in regional languages, SMS and registered post - High Court directions
A typical case of cancellation of GST registration was before Madras High Court. The petitioner was a government contractor and the words of the Court speak for itself - "The petitioner in this case is engaged in the business of executing contract works for Government and its agencies. Most of the small-scale entrepreneurs like carpenters, electricians, fabricators etc... are almost uneducated and they are not accustomed with handling of e-mails and other advance technologies. Though they are providing e-mail IDs at the time of Registration, the applications are prepared by some agents by creating an e-mail IDs, however, on reality most of the Traders are not accustomed with handling of e-mails. They are also not aware about the consequences of not paying the Returns in Time. The department shall workout the possibilities of issuing these notices in the respective regional languages and also by SMS and registered post. So that, the uneducated traders can also respond to these notices to some extent, otherwise, these notices will be an empty formality and will not serve any purpose for which it has been issued." The Court said that cancellation is like capital punishment and ordered restoration of registration subject to filing of returns [2024-VIL-150-MAD].
Confiscation cannot be made for adopting different classification
In a Customs case relating to classification of certain parts of mobile phones, two or three important questions have been answered by CESTAT. Letters or other communication by Ministry of Information Technology (MeITY) or other Ministries cannot determine classification of goods under Customs Tariff. Judgments like those in ITC, Flock India, Canon India, etc., are not applicable in a case involving demand under Section 28 of Customs Act as those cases were pertaining to refund under Section 27 and therefore, argument that SCN under Section 28 cannot be issued without first challenging the bills of entry is not correct. Issuse or withdrawal or modification of a notification cannot determine classification and proposal to reclassify based on a notification is not correct. Confiscation under Section 111(m) of Customs Act cannot be resorted to merely for adopting different classification. The order reads - "If the classification and exemption notifications in the Bill of Entry do not match the views which the proper officer may during re-assessment or an audit party may take or later the adjudicating authority may take in any other proceedings, goods cannot be confiscated under Section111(m)." [2024-VIL-156-CESTAT-DEL-CU].
Transaction value cannot be rejected based on DRI's suspicion
DRI suspected readymade garments meant for export as of sub-standard quality but over-valued for availing higher drawback. As usual, after bond and BG, goods were allowed to be exported. DRI felt that as per Rule 8 of Export Valuation Rules, transaction value as declared by the exporter was liable to be rejected. Then like goods could not be found in the market. Therefore, Rule 5 and Rule 6 were applied together and value was re-determined based on cost of manufacture. The sole basis for rejection of transaction value was "visual examination of sample goods by DRI officers" and there was no other material to doubt the truth and accuracy of declared value. The CESTAT held that neither Customs Act nor Export Valuation Rules provide for rejection of transaction value based on intelligence received by DRI officers or their subjective opinion. The impugned order was set aside. This is how exporting community is encouraged and incentivized by the government. Loud announcements aside, at the ground level, plain harassment continues. Without a shred of evidence, declared value can be rejected and the exporter can be compelled to litigate for years [2024-VIL-152-CESTAT-DEL-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)