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Tax Vista Your weekly tax recap Edn. 193 - 26th February 2024 By Dr. G. Gokul Kishore |
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Sales v. purchases - High Court quashes notice alleging short payment of GST
A very strange ground is being adopted in several States particularly by SGST authorities to allege short payment of GST. Value of outward supply should be more than the value of inward supply for a particular period, as per the department. If the value of sales (outward supply) is less than value of purchases (inward supply), show cause notice is being issued demanding tax after adding 10% towards notional profit. While such notices are meaningless in respect of service providers rendering construction / works contract with long duration for completion of a particular project, for traders, such SCNs do not take into account discounts, business promotion, market strategy, etc.
In a case of this nature, the Karnataka High Court quashed the SCN. The GST authorities had alleged that outward supply was short reported and ITC was claimed in excess since sales figure was lesser than the value of inward supply and therefore, value of outward supply should be taken by adding 10% profit. The petitioner argued that uniform prices are not maintained and customers are unrelated buyers which means transaction value should be taken without any inflation / addition. The Court noted that when reply was filed in response to pre-SCN intimation in DRC-01A, the same should be considered before issuing SCN under Section 73 of KGST Act / CGST Act Court and since the argument on valuation contained in the reply to DRC-01A was not considered, the SCN was quashed and the authority was directed to to examine the materials and then issue SCN, if required [2024-VIL-164-KAR].
Online regime of GST - Department directed to allow ITC after verifying electronic records
Premises (factory) of the taxpayer was taken over by lending bank under SARFAESI Act. Subsequently, after the bank agreed, GST authorities conducted inspection in such premises and found that the records were not available. Based on this reason, input tax credit availed was sought to be reversed through adjudication orders. The taxpayer-petitioner sought cross-examination of bank officials but the same was not allowed. The High Court observed that the orders passed were in violation of principles of natural justice and remanded the matter for fresh decision after directing the adjudicating authority to allow cross-examination. The Court expressed the view that though documents are not available with the taxpayer now, credit can be allowed as the supplier would have filed GSTR-1 and the same would have got reflected in GSTR-2A of the taxpayer.
Regarding payment to be made within 180 days to the supplier, the Court has held that the taxpayer can prove the same from bank accounts on proof of payment. Verification of electronic records and electronic returns was made as the basis for direction to allow credit. When almost everything is online, insisting on physical documents has little impact on the entitlement to ITC. However, it is not clear how possession of invoices which is sine qua non for availing ITC, has been dispensed with [2024-VIL-158-MAD].
Levy of good and simple tax (GST) at 36% - SGST Authority "notifies" new rate
GST was hailed as a good and simple tax far away from the classification and exemption battles of excise era but it appears that GST assessments will make taxpayers yearn for the yesteryears. A taxpayer, amidst struggles with new statute and technical glitches is expected to file perfect returns and pay tax appropriately but an officer may seek to collect tax at 36% instead of 18%. Fortunately, though such non-application of mind and orders may be rare, one taxpayer was made to approach the High Court to have the same set aside.
Another patent fact of difference between all India turnover appearing in the books and State-wise turnover which is relevant for the jurisdictional officer, also could not be understood by the officer and the difference was made an issue. Tax was sought to be collected on the very same amount on which tax had been duly discharged at 18%. The High Court set aside the order on account of both non-application of mind and a hallow reason of State turnover not appearing in CA certificate which formed the basis for assessment, and remanded the matter [2024-VIL-161-MAD].
Stock not available - Registration cannot be cancelled
Another order on cancellation of registration was reported by VIL last week which was solely based on absence of stock at the registered premises. The taxpayer's application for restoration of registration was rejected stating that the signatures of landlord in the lease agreement did not match with those in the inspection report and that since no stock had been found at time of inspection, it was evident that no business was being conducted. The GST adage is all registrations are largely for ITC fraud and then also for other minor reasons such as doing genuine business. The taxpayer also submitted that he had been filing returns and had paid tax but that was not sufficient to establish that he continued to be a genuine businessman.
The High Court held that a presumption does exist as to registration was granted upon due verification of necessary facts. Stating that no law mandates a businessman to always retain stock at the place of business, it was held that cancellation of registration based on an insufficient exercise of checking stock alone to exclusion of returns filed, etc., the impugned orders were set aside [2024-VIL-166-ALH].
GST concession for person with disability - Entitlement certificate not required prior to purchase
When it comes to GST refund or concession, all applicants are equal before law. The petitioner, a person with disability, had applied under policy in force in 2018 for concessional rate of GST for purchase of four wheeler in terms of notification dated 1-5-2018 but the same was rejected stating that seal of the certifying doctor was not clear and the signature of the Ortho was also required on the supporting documents. Undaunted the person continued to apply after purchase of vehicle and this time he was enlightened on the new policy in force in 2019 and a fresh application was required. Amendment to the Schedule by the Ministry of Finance was notified on 30-9-2019 and the policy was thereafter amended on 24-10-2019 in terms of which such application was required to be made prior to purchase of the vehicle. The High Court held that application of the petitioner which was submitted before the amendment in the notification or the policy was liable to be considered only in terms of the policy that was in force on the date when application was submitted [2024-VIL-171-DEL].
Receipt by payment gateway in foreign exchange and credit in INR also imparts eligibility for refund
While the concept of intermediary or agent is well-established when it comes to place of supply - receipt of export proceeds in foreign currency is not to be treated as receipt by the principal/exporter. This is the reasoning in a recent order rejecting refund of an exporter of services online where payment was received in foreign currency by the intermediary and credited to the account of the taxpayer-exporter in rupees. The department contended that this violated in Section 2(6)(iv) - the payment for such service has been received by the supplier of service in convertible foreign exchange. The taxpayer argued that the payment has been received in compliance with RBI regulations and credited in INR to his account.
The High Court opined that merely because the receipts are routed through the intermediary and received in Indian currency would not mean that the petitioner has not exported services within the meaning of Section 2(6) of the IGST Act, 2017. The order on rejection was set aside holding that the petitioner is entitled to refund [2024-VIL-175-MAD].
Delay in filing GST appeal - No condonation beyond period provided in statute
Emphasising that taxing statutes like the CGST Act embody a comprehensive framework with specific limitation provisions tailored to expedite the resolution of tax-related matters, the Allahabad High Court held that the order of rejecting appeal filed after 66 days subsequent to the expiry of one month that was condonable under Section 107(4) was valid. It held that the appellate authority could not condone the delay even if there was sufficient cause since Section 107 of CGST Act is a complete code and there can be no relaxation. It opined that Section 5 of the Limitation Act prescribing condonation in certain exceptional circumstances cannot be pressed into service since tax laws are often characterized by strict procedural requirements and time-bound deadlines, reflecting the need for expeditious resolution of tax disputes to ensure revenue certainty and fiscal stability.
The High Court disagreed with Calcutta High Court's decision in S.K. Chakraborty & Sons [2023-VIL-855-CAL] which was discussed in Tax Vista dated 11-12-2023 as against settled law [2024-VIL-173-ALH].
Notices and orders in additional tab - High Court directs fresh adjudication
It is not known why GST authorities in all the States conduct themselves in the same manner in creating hurdles for taxpayers. Show cause notices are being issued in large numbers to a huge number of taxpayers. Initially, such notices and the orders passed thereafter used to be uploaded in the GST portal and could be accessed using the tab "View notices and orders". Now, most of the orders are uploaded in "View Additional Notices and Orders". Many taxpayers do not check this tab and are not aware of the SCN or order passed against them. After at least two cases before Madras High Court granting relief to taxpayers on this issue, Delhi High Court has also followed the same by setting aside the order and directing the authorities to adjudicate the case afresh. The reason for creating additional notices tab is also not known as there is no such thing called supplementary SCN or supplementary order. In several cases, orders are not uploaded online compelling the taxpayer to pay pre-deposit through DRC-03 and file the papers manually. Even in case of appeals filed online, all papers are required to be filed manually as per instructions not backed by law [2024-VIL-176-DEL].
Merger does not mean extinguishment of liability - High Court declines to quash SCN demanding customs duties from transferee
Show cause notice was issued demanding customs duty in respect of imports made using Advance License. The SCN was issued to an entity which ceased to exist due to merger and therefore, the petitioner (transferee company) argued that such notice is not sustainable. The department argued that IEC code has not been cancelled and therefore, the entity continued to exist as per DGFT. The High Court held that liability of noticee-company would not stand extinguished merely because it merged with petitioner company and as per scheme of amalgamation, transferee not only takes over assets but liabilities as well of the transferor. The Court dismissed the writ petition and directed the Customs authorities to adjudicate after observing that the petitioner as transferee has to discharge liabilities as successor of the transferor-company.
All these issues (pending export obligation etc) should have been taken into account during due diligence exercise and accordingly the deal would have been concluded. Existence of advance authorisation and non-fulfilment of EO are something which could not have been overlooked during merger [2024-VIL-163-MAD-CU].
Venture capital trust not liable to service tax vis-à-vis contributors / investors
Certain important questions of law were considered by Karnataka High Court in a recent judgment relating to service tax. Institutional investors contribute money to trust fund of the appellant, a venture capital trust. The funds are managed by investment manager. Service tax authorities took the view that the appellant-trust retained certain portion of income distributable to contributors and this was service charge for managing the asset of the trust and therefore, service tax was payable under banking and other financial services.
The High Court went into the first question of law - whether the trust can be considered as a juridical person. The department argued that appellant was registered under SEBI Act and therefore, it was a juridical person as held by CESTAT also in the impugned order but the High Court did not accept it. According to the Court, since Finance Act, 1994 does not recognize 'trust' as a person, the investment trust was held as not a juridical person for service tax purpose. It held that the appellant acted as a "pass through" holding money belonging to contributors without providing any service and therefore, service tax was not leviable. It further held that contributors and trust cannot be dissected as two different entities and doctrine of mutuality would be applicable. Mutuality used to be a good argument in pre-GST regime but in GST regime, such doctrine has been nullified by amendments though validity of the same will be tested later by the judiciary [2024-VIL-156-KAR-ST].
(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)