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Tax Vista Your weekly tax recap Edn. 230 - 18th November 2024 By Dr. G. Gokul Kishore |
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Frivolous litigation - GST Council should issue advisory
GST Council should consider issuing advisory to all GST officers to restrain them from issuing show cause notices and orders on mismatch between GSTR-1 and GSTR-3B, mismatch between GSTR-3B and P&L account, mismatch between GSTR-1 and GSTR-9, etc. These are basically arithmetic exercises which can be sorted out with minimal reconciliation. By inflating the demands on such trivial and unproductive issues, the revenue figures may be temporarily shown in internal statements but ultimately nobody gains. Taxpayers are harassed to go to writ court for such issues and constitutional courts are not meant for such purpose. VIL has reported a few orders last week where litigation could have been well avoided had the officer concerned bothered to apply some mind. In P&L account, certain realisation was not shown as income as the goods were defective but fetched scrap value. Because they were sold as scrap, turnover reflected in GSTR-3B was more. The taxpayer tried to explain but in vain. The matter was remanded for fresh decision by the Madras High Court but the issue is too trivial to compel not only the taxpayer but also the High Court spend valuable time [2024-VIL-1224-MAD].
In another case, despite having invoice and e-way bill, penalty of around Rs. 12 lakhs was imposed under Section 129 of CGST Act citing absence of e-invoice (IRN was not generated). The Kerala High Court directed the officer to impose penalty under Section 122 (much lower quantum) and refund the amount already collected [2024-VIL-1228-KER].
Before the Delhi High Court, mismatch between GSTR-1 and GSTR-3B was the issue but the SCN was issued under Section 74 of CGST Act relating fraud, suppression etc. The High Court doubted applicability of such provision in this case and gave interim directions. For such routine matters, like in the earlier regime of Central Excise, provision relating to fraud / extended time-limit is invoked only to cover-up for the delay in issuing SCN under normal period of limitation. Law is new but the age-old practices hardly change [2024-VIL-1227-DEL].
Interest on delayed refund - Section 56 does not exclude period spent in investigation
Interest on delayed payment of refund was sought but the delay was sought to be justified by the department on the ground that the petitioner was in "risky exporter" list. The petitioner challenged the same as such red-flagging was not informed and the department ought to have completed investigation within 30 days and beyond such period, interest was payable. The High Court held that there was no adverse material or defect found against the petitioner and the delay was attributable to the department alone and therefore, interest should be paid. Taking into account CBIC circulars issued on the subject, it said - "In the instant case, there is no adverse comment against the Petitioner insofar as non-compliance of any information sought by the Respondent is concerned or deficiency in any documents to be produced for the grant of refund. The delay is squarely attributable to the inaction of the Respondents in not completing the investigation within the time frame specified in the Circular, nor is any explanation given as to why the time limit specified in the Circular could not be complied with or same attributable to the Petitioner. In our view, the Petitioner cannot be made to suffer because of inaction or delay in the Respondent's action in completing the investigation after the Petitioner has been red flagged. Therefore, there is no reason why the Petitioner should be denied the interest under Section 56 of the CGST Act for the period of delay attributable to the Respondents."
The Court also said that Section 56 of CGST Act providing for such interest does not provide for excluding the period spent in investigation by the department. The period in this case pertains to 2019 while refund was granted in 2020. Now, interest has to be paid for almost 4 years only because the issue was taken in a casual manner by the offices concerned. It is taxpayers' money which is now used to pay the price for inaction by a few [2024-VIL-1218-BOM].
Supply includes "future supplies" also - GST on advances valid and ITC on future supplies eligible
The petitioner was a consortium for construction of a trans-harbour link and as per contract received an advance payment termed interest free loan as a back to back payment. As per the contract the loan was to be repaid through percentage deduction from the interim payment to be made to the contractor. The government body (MMRDA) paid the advance/mobilisation fee to the consortium along with GST and the appropriate share was paid to the constituent-member. In the second instance also, GST was paid on the amount received by the member from the consortium. The consortium as well as the member provided a receipt voucher (RV) for the amounts. Since the supply was one of works contract, invoices were raised only at a later date on various stages of completion of work. As per Section 13 of the CGST Act, the consortium and member discharged GST on time of supply - receipt of payment but were unable to utilise input tax credit (ITC).
The petitioner challenged the constitutional validity of levy and collection of GST on loan/advances that is on services that have not yet been supplied under Section 9 read with Sections 12 and 13 of the CGST Act. It was argued the loan is specifically exempted from supply and also that Article 246A read with Article 366(12-A) permits levy only on "supply of goods or service or both" and not on "supply to be made of goods or services or both". According to the petitioner the levy of GST on supplies which had not been effected yet - future supplies was invalid. The High Court rejected the contention and upheld the constitutional validity by holding that on reading together all elements of supply for a consideration and being in the course or furtherance of business, the advance received was actually part of consideration and received towards supplies which were intended to be effected and with a fair level of certainty.
As regards availment of ITC, though the fact of payment of GST was not disputed, the department denied the same referring to the provisions of Section 16(2)(b) of the CGST Act and stated that receipt voucher, namely the document being issued by the petitioner for receipt of the advance, has not been specified as per Section 31(3)(d) read with Rule 36 of the CGST Rules as a document, based on which ITC can be claimed. In view of the nature of business, no invoice could be issued at the stage of advance.
The High Court emphasized the rule of purposive interpretation and held that legal fiction created by the Explanation to Section 13(2)(b) being deeming service to have been provided to the extent of advance payment, applies to Section 16(2)(b), thereby enabling the taking of ITC concurrently with the payment of tax. Opining that Rule 36 of CGST Rules cannot control the operation of Section 31 being the substantive statutory provision it was held that "Advance Receipt Voucher (ARV)" of the nature issued by the petitioner to the government body (MMRDA), as also the "Receipt Voucher" are valid documents. The Court mainly relied on "intended to be used" appearing in Section 16(1) to drive home the point that it will include deferred receipt of goods or services and therefore, ITC would be available. Interestingly counsel for GST Council also agreed that GST Council that the "Receipt Voucher" is a tax paying document. It was also held that once tax had been deposited on the intended supply of goods or services merely on an interpretation that the goods or services are in the process of being received and which are certainly to be received under the contract, the benefit of the input tax credit cannot be denied [2024-VIL-1219-BOM].
Refund cannot be withheld when untainted by illegality or improper sanction
The road to success, particularly actual receipt of refund is filled with many hurdles, fuelled by the general opinion of the department that all refunds are erroneous and prejudicial to revenue. The taxpayer successfully navigated Section 54 of CGST Act, 2017 but faced an order under Section 108 of the CGST Act, 2017, which placed in abeyance an order of refund. The said section empowers the Commissioner to revise orders which are erroneous, prejudicial to the interest of the revenue, illegal or improper. The trigger was intelligence received about wrongful availment of ITC, post sanction of refund. The taxpayer's argument that no restraint on withdrawal of sums in the electronic cash ledger could be placed under the provisions of the CGST Act did not find favour with the High Court which held that the power to restrain implementation of an order of refund would apply equally to sums standing to the credit of either in the electronic credit ledger or the electronic cash ledger. However it accepted the second argument and held that the Commissioner exercised revisionary power on the issue of ITC which was unconnected with refund and therefore such power could not have been invoked. It also noted that there was no finding in this regard in the order. The order was keeping refund in abeyance was quashed [2024-VIL-1208-DEL].
Rejecting appeal on trivial grounds - High Court quashes order
We are in a digital era - pre-filled forms, auto-populated returns, email alerts. and yet the department seeks proof of payment of pre-deposit. It perhaps has more faith in the physical copy, scan of physical copy rather than its systems. The taxpayers are, however, required to trust the system and reconcile themselves to it. The petitioner's appeal was dismissed stating that proof of payment was not filed though system-generated provisional acknowledgement of the appeal showed that pre-deposit had been made. The other grievance of the department was that board resolution evidencing authorised signatory had not been attached. The taxpayer argued that he had not been asked to produce the same and in any event the GST portal had this information. The High Court noted that if the department had checked the GST portal, it would have found out information about the authorized signatory. It set aside the order and directed fresh hearing to be given and thereafter passing of a reasoned order [2024-VIL-1210-BOM].
SCN on issues clarified by Circular, quashed
A pro-active GST Council and circulars issued post meetings are proving to be helpful in a few cases. Without going into other contentions, the High Court quashed the SCN issued on issues covered by Circular No. 204/16/2023-GST dated 27-10-2023 and also by Circular No. 218/12/2024-GST dated 26-6-2024. The issues were whether GST is payable on reverse charge basis on supply of services by the Managing Director of the company by way of providing personal guarantee on loans taken by the company and whether any GST is payable on supply of services by way of extending loans by the petitioner-company to its subsidiary company. It was held that the clarification issued by the Board is binding on the authorities and SCN could not be issued [2024-VIL-1225-KER].
Speaking order in every BOE required - Order passed in one BOE cannot be applied to all
Customs authorities entertained the view that concessional rate of customs duty was not admissible. The importer requested for speaking order. Out of several bills of entry, in respect of one BOE, the adjudicating authority denied the benefit holding that the goods (massager) was not meant for medical use. The Commissioner (Appeals) refused to remand the matter by holding that the views of the adjudicating authority was known and therefore, there was no need for passing speaking order in respect of other BOEs. The CESTAT noted that the relevant entry in the notification uses "only" to refer to medical instrument and apparatus only and not to parts or spares and the word "only" cannot be read before the word "for medical use". It also took note of the argument that "exclusively", "wholly" or "entirely" or "only" have not been used before the words "for medical use". The Tribunal also held that the adjudicating authority ought to have passed speaking order in respect of each of the BOEs. Appeals were allowed based on the interpretation of the entry in the notification. Tax department will adopt that interpretation "only" which "entirely" favours revenue and this case is no exception [2024-VIL-1472-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. E-mail - advgokulsubha@gmail.com)