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Tax Vista Your weekly tax recap Edn. 198 - 01st April 2024 By Dr. G. Gokul Kishore |
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Proceedings without cross-empowerment notification, not valid
To avoid duplication of litigation, cross-empowerment was provided but such cross-empowerment itself is now subject of major litigation. Petitions were filed challenging investigation and passing of orders by CGST officers in respect of taxpayers who are administratively under the jurisdiction of SGST officers and vice versa. The argument was that notification under Section 6 of CGST Act / respective SGST Act was not issued and therefore, action taken by officers was without jurisdiction. The High Court noted that model notifications were circulated earlier but they were never issued. The only notification issued pertains to refund and for other purposes, no notifications have been issued for cross-empowerment and therefore, the proceedings initiated were held as without jurisdiction.
The Court categorically held that if a taxpayer has been assigned administratively to CGST authorities, then SGST authorities have no jurisdiction to interfere with the assessment proceedings in the absence of notification under Section 6 and vice versa. It said - "Officers under the State or Central Tax Administration as the case may be cannot usurp the power of investigation or adjudication of an assessee who is not assigned to them." However, it gave direction to the Central / State GST authorities to initiate proceedings afresh and the time spent in the writ proceedings would be excluded. Another set of notifications can be expected with retrospective effect as and when the GST Council convenes after the elections [2024-VIL-272-MAD].
Penalty - Section 122(1A) is not applicable when benefit not enjoyed by employee
Normally Courts are reluctant to quash show cause notices but in the case before Bombay High Court, the petition contained all ingredients - absence of jurisdiction, misplaced demand of crores of penalty from an employee who was not in a position to control the affairs of the company and of course absence of any evidence suggesting that the individual was solely responsible for depriving the State of tax dues. In the proceedings against a foreign shipping line for alleged wrongful availment of ITC, three of its employees including taxation manager were issued SCN which "foisted" penalty of about INR 3000 crores for their contribution and enjoyment of the gains from improper availment of ITC by the shipping line. The employees prayed for quashing of the SCN since none of the ingredients of Section 122(1A) of the CGST Act namely offence by a taxable person; enjoying benefit of such infraction nor act being carried out at the instance of the person was satisfied.
The High Court held that the notice had been issued without jurisdiction and the applicability of Section 137 of the CGST Act was also ruled out since it could not be made answerable in a demand cum show cause notice issued under Section 74, as such proceedings would be in the nature of a prosecution necessarily involving the applicability of Section 134. While the ruling is welcome, it is certainly disconcerting as noted by the Court for revenue officers to demand dues of the company from an employee who is not even a director, secretary etc. The SCN relied heavily on the fact of power of attorney issued to the said employee though it was only for purpose of representing the company to tax administration and carry out compliances. From the extract of the SCN it appears mere knowledge of compliance or access to the portal itself is connivance by the employee [2024-VIL-283-BOM]
Irrational demands and illegal orders by SGST officers
SGST Officers, particularly in Tamil Nadu, are going beyond all norms of a civilized tax administration. Notices are issued with astronomical figures without any semblance of rationality, demands are raised merely based on books of accounts without quoting any statutory provision, questions are raised on alleged discrepancy between compliance with accounting standards and GST forms, orders are passed confirming huge demands by merely stating that either replies were not filed even when they are filed or replies were considered but not acceptable - the blunders are endless. The number of writ petitions filed before Madras High Court speaks louder than the above statement which may be seen as biased. Several orders have been reported by VIL last week on issues which have been raised without any standards of a decent-looking quasi-judicial dispensation.
One of the templated demands is discrepancy alleged between Form 26AS and GSTR-1 or any other GST return. In a case of this nature, the taxpayer argued that expenses in respect of which TDS was deducted as per 26AS did not form part of revenue and reconciliation statement was submitted to the department. The officer passing the order held that the reply submitted by the taxpayer was only descriptive and reconciliation statement was not filed / uploaded. Based on such grounds, the demand was confirmed. The High Court, after taking note of such facts, has quashed the order and remanded the matter for reconsideration [2024-VIL-273-MAD].
In many places, SGST officers are openly informing taxpayers to go to writ court if they have any grievance over the manner of handling assessment, issuing notices or passing of orders. Most of the appellate authorities in the department hardly have any idea of legal nuances or interpretation of law. Majority of tax bureaucracy is in VAT mindset flogging accounts, books, accountants, reconciliations, etc., without understanding that the issues have arisen out of implementation of tax law and the exercise of justice dispensation is not a mere arithmetic exercise.
Hostel services for working women exempted from GST
Providing residential accommodation (hostel) to girl students and working women is exempted from GST. The exemption to renting of residential dwelling for used as residence would cover such hostels / renting of such accommodation and therefore, GST payment would not be required on the rent / charges collected from the inmates by such hostels. The Madras High Court allowed petitions filed against advance ruling holding otherwise. It relied on Karnataka High Court's order in Taghar Vasudeva Ambrish [2022-VIL-110-KAR] after independently and exhaustively analyzing the terms used based on jurisprudence.
The Court held that the words 'residence' and 'dwelling' are generally understood in the same sense in common parlance and therefore, no different meaning can be assigned to the expression 'residential dwelling'. Based on such reasoning, it held that it includes hostel which is used for residential purposes by students and working women. It faulted the advance ruling as having directed itself to the building or premises and compared it with hotels rather than looking at the fact whether the occupants are using the premises as residential dwelling or for commercial purpose. The lack of commercial activity, presence of common kitchen and such other factors were taken note of by the High Court while observing - "Merely because the persons are staying in hostel rooms due to their financial condition, the same will not take away the status of the said hostel room as residential dwelling for the inmates of the room, because after their avocation, they have been staying, sleeping, eating, washing, etc., in the hostel rooms alone." The argument against entertaining writ petition when appellate remedy was not exhausted was rejected by the High Court holding that filing an appeal would be an empty formality as the Karnataka High Court's order on this issue was not followed by the AAR [2024-VIL-261-MAD].
CGST offices not lagging behind SGST officers in passing unreasoned orders
GST is a new law getting older of course, but it is destined to go through the same path in laying down jurisprudence. If in another case discussed in this column, the Section was invoked without necessary ingredients, in the instant case, the all too familiar passing of order without discussing the taxpayer's reply made the taxpayer seek intervention of the High Court. It appears that the CGST authorities are not lagging behind their SGST counterparts in issuing SCN without grounds and passing orders without any reasoning. The taxpayer contended that the audit report which formed the basis of SCN and assessment, had been issued beyond the period prescribed in Section 65(4) of the CGST Act. However, the order did not address this issue and merely recorded that a reply was received. The High Court remanded the matter for fresh assessment [2024-VIL-291-MAD].
GST demanded on total trade payables on operations across India, not tenable
Long ago there used to be income tax notices to salaried class based on TDS returns since there would be no coordination between TDS wing and Assessment wing. In the electronic age where data is available at touch of a button, it appears there is excess of information. The taxpayer was faced with a huge demand based on determining the entire trade payables in the financial statement as taxable supply. It appears that the taxpayer had also paid tax under RCM on certain inward supplies and availed ITC. However, despite explanations, the demand was raised. The High Court quashed the order and remanded the same subject to paying 10% of the disputed demand. However, the tax demanded on trade payable was not to be included for the payment of 10%. This is another demand which can hardly be understood since trade payables are amounts owed to vendors for purchases and they can never be outward supply. It may because the tax authorities sought to thrust a case of demand under RCM when documents are not produced but the same is not known [2024-VIL-287-MAD].
Demand confirmed on a non-legal ground - High remands order
The officer confirmed demand of GST on turnover reported thrice - erroneously and corrected later stating that the taxpayer was lethargic in maintaining accounts and having admitted that he made mistakes, the reply could not accepted. The taxpayer also submitted that there was no provision to rectify till annual return is filed. There were other issues also on which the taxpayer contended that his reply had not been considered. The High Court held that the alleged laxity was not sufficient to impose liability and directed that the taxpayer be heard afresh on deposit of 10% of disputed tax barring the amount linked to so-called lethargy. The demand in this case is mind-boggling - Rs. 117 crores. Such inflated demands will ensure that GST becomes a massive failure [2024-VIL-269-MAD].
GST order is without jurisdiction when company has gone into liquidation
The Telangana High Court quashed orders issued against the corporate debtor holding that once the Resolution Plan has been approved and all claims settled as per plan, no further claims can arise. It held following Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited [2021-VIL-55-SC] that once the plan had been approved, the acquirer company cannot be visited with new claims. The issue was demand under Section 73 of CGST Act against the company which went into liquidation and the order of NCLT was passed much before the proceedings initiated by GST authorities. The order passed by GST authority was set aside as without jurisdiction. It appears that the acquirer-company was also part of the proceedings and the department sought to proceed against such company [2024-VIL-282-TEL].
Concurrent proceedings confusing taxpayer - High Court directs one more hearing
In a case of cross-purpose rather than the famed cross-empowerment, the taxpayer was blessed with two proceedings on the same issue wherein in one they had obtained a rectification order since tax demanded was paid but in another a much higher demand was raised. The rectification order without any reasons indicated that proceedings were withdrawn. The High Court quashed the impugned order (second proceeding) and directed a fresh hearing subject to deposit of 10% of disputed amount. The issue is the routine mismatch in ITC between GSTR-2A and GSTR-3B and the assessment period was the same [2024-VIL-274-MAD].
(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)