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Tax Vista Your weekly tax recap Edn. 196 - 18th March 2024 By Dr. G. Gokul Kishore |
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Original tax invoice need not accompany goods in movement
GST is a new law and hence every word calls for deep reflection and interpretation. The conveyance carrying heat-insulated container was intercepted and for absence of original tax invoice accompanying the same, penalty was sought to be imposed. Like all his predecessors and in all probability successors, though tax was paid prior to movement of goods, tax was again demanded and penalty was imposed by the officer and the taxpayer paid the same again along with penalty. The taxpayer assailed the order contending that there was no requirement under the statute that original tax invoice had to be carried by the transporter. Reliance was placed on Rule 48 of CGST Rules which requires preparation of invoice in triplicate - original for the recipient, duplicate for the transporter and triplicate for the supplier. The High Court held that neither Section 68 of CGST Act nor Rule 138-A of CGST Rules impose any requirement for original tax invoice to be carried by the transporter. The order was quashed and tax and penalty ordered to be refunded.
In Modvat credit days, credit used to be denied for absence of duplicate copy of invoice and for taking credit based on original invoice, permission was to be obtained from Asst. Commissioner. Good number of litigation was fought where department denied credit only based on the copy used for availing Modvat credit / Cenvat credit. GST is no different from its parent at least in so far resurrecting disputes is concerned [2024-VIL-237-KAR].
Rejection of refund when earlier sanctioned under similar facts, is arbitrary
When it comes to refund rejection, the department leaves no stone unturned. The petitioner engaged in export of IT services had been sanctioned refunds earlier but suddenly the department found that the application is to be rejected since goods had not been capitalised in books appropriately and of course despite the show cause notice being based on specific goods not being inputs since they were not consumed in the process of provision of output service, orders were passed based on non-adherence to Accounting Standard 10. The petitioner succeeded both on account of merits and on order travelling beyond SCN. The High Court held that orders passed by the authority have to be consistent and in similar facts and legal circumstances, there was no ground to reject refund. As regards the argument of the department that the specific goods procured by the petitioner for R & D software development ought to have been capitalised, it was held that the goods deemed redundant after the completion and validation of software projects were inputs since any goods used in the course or furtherance of business are covered as per CGST Act and that they could not be capitalised since no long term use was made [2024-VIL-239-ALH].
Time-limit for recording transitional credit invoices - July 1, 2017 to be excluded
It was alleged that the taxpayer had availed excess transitional credit on account of certain invoices, which were entered in the recipients' books on 31-7-2017 that is one day after 30-7-2017. According to the department the period of thirty days under sub-section (5) of Section 140 of CGST Act was to be counted from the appointed day namely 1-7-2017. The taxpayer argued that for the purpose of calculating thirty days, 1-7-2017 was to be excluded i.e., in the absence of any specific provision in CGST Act regarding calculation of time, the provisions of Section 9 of the General Clauses Act, 1897 would be applicable. The High Court held that TRAN invoices, which were entered in the books on 31-7-2017 were within the period of thirty days from the appointed day [1-7-2017], as required in sub-section (5) of Section 140 of the CGST Act and set aside the impugned orders. It agreed with the contention that General Clauses Act would be applicable in this case. As always said, credit is transitional but dispute pertaining to such credit is eternal and such cases substantiate this statement [2024-VIL-234-GAU].
Assessment order is not sustainable when proceedings concluded on scrutiny of returns
Section 61 of CGST Act deals with scrutiny of returns for verification. Notice for scrutiny is required to be issued and if the taxpayer's explanation on discrepancies pointed out is found to be satisfactory, no further action "shall" be taken as per Section 61(2). GST authorities cannot get peaceful sleep without invoking Section 73 of Section 74 to demand tax as it comes with interest and penalty. In a case of this nature, ASMT-10 notice was issued pointing out discrepancies based on returns filed but proceedings were dropped on being satisfied with the explanation offered by the taxpayer and order in ASMT-12 was issued. However, show cause notice was issued a few days before closure of such scrutiny-based proceedings. The department sought to justify the assessment order on the ground of difference in amounts specified.
The High Court compared the order passed after scrutiny and the SCN and assessment order and noted that the period and tax amounts were same and the only difference was interest charged and penalty imposed in the assessment order. The Court held that once scrutiny assessment was concluded, no further action was required and continuation of proceedings and passing of adjudication order (noted as assessment order as is the practice with SGST authorities) were unsustainable. Such cases point to the necessity of an amendment to Section 61 to unambiguously state that notice under Section 73 or Section 74 shall not be issued once order under Section 61(2) is issued [2024-VIL-238-MAD].
Provisional release v. release on failure to issue notice within time
Goods were seized and show cause notice was issued after six months. The taxpayer contended that the department is liable to return the goods as per Section 67(7) of CGST Act. The department contended that the taxpayer did not seek provisional release by executing bond and furnishing bank guarantee. The High Court relied on precedent decision of the Supreme Court to hold that the taxpayer should invoke Section 67(6) of CGST Act and seek provisional release subject to conditions. The Court directed the department to consider if such request is made by the taxpayer.
The order is as per the provisions which confer a right on the taxpayer to seek provisional release of seized goods. However, it would have been helpful if the Court had gone into the issue as to the effect of not issuing any notice within six months from the date of seizure. As per Section 67(7), if such notice is not issued within the prescribed period, the seized goods shall be returned to the person concerned. If the department fails to issue notice and shifts the blame on the taxpayer, then Section 67(7) becomes redundant. There is no hierarchical application of sub-sections - the taxpayer can well challenge non-issue of notice within time without seeking provisional release of goods [2024-VIL-236-CAL].
Enhanced value accepted and SCN waived - Importer cannot challenge in appeal
The urge whether based on commercial reasons or otherwise to get the imported goods cleared out of Customs compel the importers to accept rejection of declared value and enhancement of transaction value by the Customs authorities. Such urge is manifest when show cause notice is waived and hearing is stated as not required. Subsequently, realisation dawns and enhancement of value is challenged in appeal. The result is obvious - appeal gets rejected when enhancement was accepted and SCN itself was waived. The importer cannot argue that the Customs authorities ought to have shown bills of entry of contemporaneous imports or they should have applied Customs Valuation Rules sequentially. This position was reiterated in a recent case by CESTAT.
The declared value was enhanced based on similar goods as available in e-commerce portal which the importer accepted initially but tried to contest at appellate stage. The Tribunal culled out from the precedent decisions - Customs authorities need not establish the valuation when consented value becomes the transaction value; importer cannot deny correctness when enhanced value is accepted by importer without objection and burden stands discharged by the department when enhanced value is voluntarily accepted. In this case, the Tribunal further noted that the importer did not produce manufacturer's invoice since the goods were procured from overseas trader. The argument on protest payment was also not accepted on the ground that duty was voluntarily paid without objection. Importers waiving SCN and hearing should know that the short-term gain of getting goods cleared gets defeated by long term consequences of fine and penalty [2024-VIL-241-CESTAT-DEL-CU].
Taxing use of water for hydropower generation - State Act declared invalid
Himachal Pradesh Water Cess on Hydropower Generation Act, 2023 has been held as ultra vires the Constitution by the Himachal Pradesh High Court and the related rules have been quashed. Legislative competence of the State Legislature besides constitutional validity was challenged but the State argued that water is State subject as per List II and therefore, State had the competence to enact such law. It further said that cess is not levied on generation of electricity but on usage of water for hydropower generation.
The High Court held that the levy has not been imposed on "water" as such but on single inextricable event of "water drawn for hydropower generation". On measure of levy, the Court notes "It is clearly evident from the aforesaid Notification that the State Government has calibrated the cess keeping in view potentiality of the water i.e. the greater the height from which the water falls on the turbine, the greater the momentum resulting in electromagnetic field causing the generation of electricity. Therefore, it is not essentially the quantum of water but rather it is the head-height, which has been taken into consideration by the State while fixing the rate of levy." Based on such reasoning it held that the power to tax is on generation of electricity and use of water is only incidental and in fact, use of water for generation of electricity is sought to be taxed. The taxable event is hydropower generation and not usage of water because if there is no generation, there is no tax. It agreed with the petitioners that it is a misnomer that tax is levied on water and not on generation of electricity.
The Court went through various entries in the State List and in particular, Entry 50 on taxes on mineral rights and held that such entry does not cover the impugned levy. The Court further held that the impugned statute also imposes an inter-State tax on inter- State supply of electricity for which the State is not competent to do so. The entire field of legislation concerning water-power / hydropower projects, declared as such by Parliament under the Electricity Act, 2003, is occupied by Parliament. The judgment also discusses whether the levy is a tax or cess or fee. Considering the high-profile nature, the matter is certain to be litigated before the Apex Court and another round of interesting and important arguments and observations are in store [2024-VIL-221-HP].
(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)