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Tax Vista Your weekly tax recap Edn. 195 - 11th March 2024 By Dr. G. Gokul Kishore |
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Proceedings under Section 74 cannot be initiated when tax paid with interest before notice
Certain tasks which no man of reasonable prudence can even think of, can be done only by tax authorities. Audit was conducted by GST officers and the taxpayer accepted the findings of audit officers and paid the tax along with interest. Audit report was subsequently issued accepting the payment made. After this, show cause notice under Section 74 of CGST Act was issued alleging suppression, misstatement, intent to evade, etc. The department justified such action before the High Court stating that the case was not a simple wrong availment of input tax credit.
The High Court noted that as per Section 73, if tax with interest is paid before issuance of SCN, then further liability does not arise. It said that Section 73(5) includes even payments towards ITC termed as wrongly availed and Section 74 would be applicable only if the conditions stipulated in Section 73(5) are not met by the taxpayer even when the liability is brought to his knowledge. Issuance of SCN and passing of order in this case were held as in excess of jurisdiction and both were set aside. The department took the usual argument of availability of alternative remedy of appeal but the Court said that when the SCN itself is invalid, the petitioner cannot be forced to undergo the entire process of litigation. It appears in this case, the department contemplated imposing equivalent penalty. But, for such intention, the law needs to be amended so that officers can impose penalty even if there is total compliance [2024-VIL-202-TEL].
SGST officers demanding tax based on all-India turnover - High Court directs fresh consideration
Like the notices being issued based on difference between value of sales and value of purchases, another issue on which mindless SCNs are issued pertains to all-India data of taxpayers in a particular State. The SGST officer has no jurisdiction to demand GST based on the data of the company as a whole with units / offices across the country. In a case of this nature, order has also been passed by SGST authority demanding tax based on all-India turnover and further, tax under reverse charge has also been demanded taking expenditure of the entire company. The High Court found merit in the arguments after noticing that consolidated figures from the P&L account were taken as the basis for demanding tax which reflected non-application of mind. As the petitioner did not file reply and was found to be negligent, the Court imposed the condition of deposit of 5% of the disputed tax demand as the condition for remand and passing fresh assessment order. There used to be a talk in the corridors of indirect tax offices that the officers are not trained to look into P&L account and balance sheet. It appears that SGST officers have been trained to look into such commercial documents but have not been trained on the items to be considered while raising demand [2024-VIL-217-MAD].
Refund of unutilized ITC - High Court quashes deficiency memos and orders interest
Refund claim relating to unutilised input tax credit was rejected by issuing deficiency memo on the ground that CA's certificate on non-passing of incidence of tax was not produced. The department cited CBIC Circular No. 125 dated 18-11-2019 on filing self-declaration if the amount is less than Rs. 2 lakhs and CA's certificate to be produced if the claim is for more than Rs. 2 lakhs. The High Court noted that as per relevant provisions (provisos in Rule 89(2) of CGST Rules), such certificate is waived / not required in certain cases. One such exempted category is refund of unutilized ITC. Section 54(8)(b) of CGST Act excludes the requirement to prove that unjust enrichment is not attracted for this category of refund. The deficiency memo issued to petitioner was held as not sustainable and were set aside.
The Court ordered payment of interest in this case since refund was granted already. To avoid another round of frivolous litigation by the department, the High Court further directed physical filing of claims consequent to order of the Court as portal was not accepting the same online. The officer who issued such deficiency memo should be taken to task as the law is absolutely unambiguous and rejection of claim only on such ground is unadulterated harassment [2024-VIL-211-DEL].
Show cause notice asking taxpayer to pay indicates pre-judgement
From the point of view of the officer a highly debatable case of product being classifiable under heading 8708 and not under 8512 did not merit lengthy arguments and sleepless nights of research. The show cause notice informed the taxpayer that as a member of the automobile industry, it ought to have been aware of correct classification and that it had indulged in suppression and concluded with a request to pay the tax along with interest upto date of payment. The taxpayer did produce material in support of the classification adopted but in the writ petition it urged that the impugned show cause notices are in the nature of a demand for payment and hence it could not hope for a fair adjudication.
The High Court found the SCN as indicative of pre-judgment since the taxpayer was not called upon show cause as to why the amounts were not payable but was called upon to pay the sum. The Court also opined while ordinarily it would not interfere at the stage of SCN, the same was warranted in this case and directed the officer to adjudicate the issue after taking into consideration the submissions of the taxpayer [2024-VIL-199-MAD].
GST registration not per se affected by default under Companies Act
It appears that cancellation of registration is attractive not only to GST authorities but also parties to corporate disputes. One of the directors of a company sought cancellation of registration obtained under GST stating that another director started a partnership firm with his wife and leased the property of the company to such firm without having passed the resolution for the same. The High Court examined Section 29 of CGST Act and held that fraud, wilful misrepresentation or suppression as provided in Section 29(4) has to be determined by the officer or Registering Authority on their own motion and this action cannot be taken based on a dispute between third parties. Moreover, there were no proceedings under the Companies Act, 2013 for the alleged contravention of contract with related person without a resolution. The writ petition filed seeking cancellation of registration was dismissed [2024-VIL-210-P&H].
Refund when levy is held unconstitutional - GST Authority advises taxpayer to file suit or writ petition
Tax authorities are not bound by Court orders, as they believe. Levy of IGST under reverse charge on importer in respect of ocean freight was held as ultra vires by the Gujarat High Court and affirmed by the Supreme Court. The taxpayer sough refund of the amount paid under protest. The GST officer rejected the refund claim on the ground that when levy is held as unconstitutional, then refund can be claimed only by filing a suit or writ petition and the claim cannot be filed under Section 54 of CGST Act. The High Court held that when the Apex Court declares something, it is the law of the land and the authorities are liable to follow without any objection and refund could not have been rejected in this case. The Court used certain strong words - "Such a stand of the respondent is deprecated as the respondent is bound by the law declared by the Supreme Court and the same is required to be implemented in letter and spirit. The respondent No.2, therefore, could not have rejected the refund claim of the petitioner on the ground that the same is outside the scope of Section 54 of the CGST Act, 2017 inasmuch as when the Notification for levy of IGST on ocean freight is held to be unconstitutional, the petitioner is entitled to the refund of such IGST on ocean freight paid under protest."
In this case, certificate was also produced to prove that the tax burden was not passed on and unjust enrichment is not attracted. Only tax authorities can openly defy the highest court in this country and still get away without having to face any proceeding or costs [2024-VIL-193-GUJ].
Limitation in Section 129 is definite - High Court sets aside order as time-barred
Section 129 of CGST Act is the most misused provision in the GST regime. The provisions require issuance of notice within 7 days of detention or seizure and thereafter, pass order within 7 days from date of service of notice. The Patna High Court was requested to decide a dispute where the department waited for the driver of the vehicle to file an application for verification and then issued notice beyond the time-limit and order was also passed after expiry of the limitation of 7 days. The High Court expressed surprise as to why the department should wait for an application from the driver.
The department argued that the petitioner had sought adjournment and therefore, the order was passed after some delay. But the High Court said that if the proceedings are going to be time-barred, the authority ought not to have granted adjournment. Release of vehicle with goods was ordered after clearly holding that limitation is clear and definite and the officers did not act as per the provisions. The case pertained to difference in two digits in vehicle number as recorded in e-way bill and the High Court said the same would be covered by CBIC Circular on ignoring such minor defects. As repeatedly written in this column, Section 129 needs drastic overhaul and quantum of penalty should be drastically reduced from 200% of the tax at present. The discretion provided to officers should also be curtailed as the provision is an open license for highway harassment and extortion [2024-VIL-214-PAT].
Mere production of documents after interception of vehicle does not prove bonafide
There may be a catena of case laws for any proposition but when it comes to using the same shield, facts of every case are important. The Allahabad High Court held that e-way bill downloaded after movement of vehicle commenced without e-way bill and invoice, could not escape the rigours of Section 129 of CGST Act. The taxpayer contended that no intention to evade was present in as much as the e-way bill was generated and downloaded before the vehicle was intercepted and tax had been paid. It relied on a number of orders to support its claim that penalty was not attracted in this case.
However, the High Court held that mere furnishing of the documents subsequent to the interception cannot be a valid ground to show that there was no intention to evade tax and there must be some reasonable grounds to justify the non-production of documents at the proper time. This burden was not discharged by the taxpayer, as pe the order. It noted that goods not being accompanied by both invoice and e-way bill cannot be treated as a common mistake. The judgments relied on were held as belonging to an era when difficulties in generation of e-way bill were there, but they have been resolved now. As pointed out every week, Section 129 is draconian with onerous consequences and needs drastic amendment [2024-VIL-195-ALH].
Refund, recovery, limitation - High Court stays firm
In certain cases, even minimal facts are head-spinning. Refund due to inverted tax structure claimed beyond time-limit was proposed to be rejected and the taxpayer replied stating that since they did not succumb to the officer's claim for bribe, the demand was wrongly raised. It appears that tax was also demanded on other grounds which was adjudicated and the demand amount was set off against the ITC available in the credit ledger. The appellate authority allowed appeal and the recovered amounts were credited back in the ledger. The taxpayer claimed that limitation for filing refund would be counted from date of receipt of the order-in-appeal and time for claiming refund was also extended by CBIC.
The High Court observed that even before expiry of time-limit for filing appeal, the amount was set off against demand and therefore, no amount was available in the credit ledger for refund. According to the Court, the character of the amount set off changed and it acquired the nature of tax recovered. When refund becomes due as a consequence of judgment, the date of communication of such judgment will be the relevant date and therefore, the claim was to be honoured. It directed refund of the amount. As in the above case, in this case also, the Court directed the department to process the refund claim filed physically due to issues in online process [2024-VIL-207-PAT].
Duty not payable on imported inputs used in in-bond manufacture
Imported raw materials / inputs used in the manufacture of final products under a Customs bonded warehouse in terms of Section 58 and 65 of the Customs Act, 1962 are not liable for payment of import duties at the time of clearance of such final products manufactured in the said customs bonded warehouse. This is the conclusion of CESTAT in a recent case. The dispute arose due to the adjudicating authority demanding duty on raw materials used in the manufacture of boat in private bonded warehouse which was cleared availing exemption as admissible to such boats under Notification No. 50/2017-Cus. The main ground adopted in the impugned order was clarification by CBIC in the Circular No. 34/2019-Cus., on payment of IGST on finished goods cleared from such warehouse for home consumption. This circular stated that import duties payable on imported goods contained in the resultant final product shall be paid at the time of supply of such final product from the warehouse.
The Tribunal noted that there was no legal basis for such conclusion (as arrived by the adjudicating authority) since the provisions are clear to relieve the importer from duty burden in respect of the raw materials used. The Tribunal noted that the procedures were fully complied with - execution of triple duty bond, transit bond and transit insurance and re-warehousing certificate, etc. The order is very detailed with elaborate analysis and readers may find it quite useful [2024-VIL-227-CESTAT-MUM-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)