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Tax Vista Your weekly tax recap Edn. 231 - 25th November 2024 By Dr. G. Gokul Kishore |
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Cenvat credit on mobile tower is available - Can GST law lag behind?
Last week, the Supreme Court delivered a major judgment holding Cenvat credit of excise duty paid on parts which go into installation of telecom towers / towers as such used by telecom / mobile service providers and infrastructure providers and pre-fabricated building (PFB housing the equipment) as available under the Cenvat Credit Rules. While Bombay High Court had held against the service providers, Delhi High Court had held in their favour and both the service providers and the department were before the Apex Court. The Court exhaustively analysed the issue as to whether the items are movable or immovable property and whether they can be covered under "goods". It went through the landmark judgments under Central Excise on this subject. It noted that if the said mobile tower is to be shifted to another location, it has to be dismantled and restored to its SKD or CKD condition (in which it was initially brought) and thereafter re-erected which would not entail any damage to it and therefore, mobility / marketability test stood satisfied.
Though the case is under Central Excise Act / Cenvat Credit Rules and though CGST Act expressly restricts ITC on telecom towers, the observation of the Court may be relevant in GST regime as well -"..we are of the opinion that merely because certain articles are attached to the earth, it does not ipso facto render these immovable properties. If such attachment to earth is not intended to be permanent but for providing support to the goods concerned and make their functioning more effective, and if such items can still be dismantled without any damage or without bringing any change in the nature of the goods and can be moved to market and sold, such goods cannot be considered immovable." Considering the fact that ITC is a no-go in GST regime if something is related to immovable property, such observation is important. In particular, emphatic holding of the items as not immovable by applying the tests of permanency, intendment, functionality and marketability enriches the jurisprudence in this regard. As antenna cannot be hoisted at a required height without the tower, the tower will be considered as accessory and hence, capital goods eligible for Cenvat credit. Since use of such towers and PFBs is proximate or close to providing of output service, they are also covered under "inputs".
The provision relating to bar on ITC on telecom towers or pipelines laid outside the factory in CGST Act is clearly out of sync with the so-called modern GST system providing seamless credit. If the so-called restricted system of credit in pre-GST regime can provide credit to such towers, then the progressive system of GST cannot lag behind. It is time to lift such restriction as otherwise ITC being a reliever of cascading effect of taxes will remain a hollow slogan [2024-VIL-49-SC-CE].
Pre-deposit for appeal can be made from electronic credit ledger
The taxpayer opted to pay the pre-deposit by debiting their Electronic Credit Ledger but received a deficiency memo since the department was of the opinion that pre-deposit of disputed tax could be made only through Electronic Cash Ledger. The taxpayer relied on CBIC Circular No.172/04/2022-GST, dated 6-7-2022, in terms of which the Electronic Credit Ledger can be utilized for payment of 10% of tax in dispute with the only restriction being on tax payable under reverse charge mechanism. It was also submitted that the statutory appeal form APL-01 permits the same. The department contended that disputed tax is not the same as output tax liability and in terms of Section 49(4) of TNGST Act the Electronic Credit Ledger can be used only for discharge of output tax liability. It quoted Section 49(3) of TNGST Act, in terms of which the payments from the Electronic Cash Ledger are for the payment towards tax, interest, penalty, fees or any other amount payable under the provisions of the Act or the Rules.
The Madras High Court held that input tax credit can be utilized not only for payment of the self-assessed output tax but also payable as a consequence of the proceeding instituted under the provisions of GST Laws and that the said disputed tax was also output tax only. It accepted the reliance placed in CBIC Circular. The Court directed that appeals to be taken up if the sole ground of rejection was the payment of pre-deposit using Electronic Credit Ledger. This issue is repeatedly litigated across the country with most of the High Courts holding in favour of taxpayers. The relevant CBIC Circular is of no use in several cases as it is ambiguous. In this column, it has been reiterated that a fresh circular should be issued clearly stating that credit ledger can be used for payment of pre-deposit [2024-VIL-1262-MAD].
Belated filing of appeal - High Court can condone delay in appropriate cases
The High Court held that in appropriate cases, a person can claim the right of appeal by seeking intervention of the High Court since a strict reading of the provisions may render the person remediless. The taxpayer's appeal was filed beyond the statutory condonable period but it appears that there was some justifiable cause. Noting that the cancellation of registration had a cascading effect of many businesses, the High Court held that an efficacious remedy should be available to the taxpayer. It held that where the petitioner had already paid the pre-deposit and no response had been received from the department, the delay was to be condoned and directed the appellate authority to hear the same. This order may help taxpayers who are faced with mostly adverse decisions on this issue - even writ court cannot condone delay beyond the condonable period though writ jurisdiction itself is discretionary and not bound by such fetters [2024-VIL-1239-P&H].
Sum collected from defaulting chit subscribers not exigible to GST
Interpreting "consideration" and "supply", the Kerala High Court granted relief to the petitioner at the stage of show cause notice. The petitioner - a government company primarily engaged in the business of conducting chits challenged the show cause notice issued with proposal to collect GST on interest received/interest collected by it from defaulting subscribers to a chit. The petitioner contended that the rate of GST for commission received in terms of the provisions contained in Section 21(1)(b) of the Chit Funds Act, 1982 would be nil since the relationship between a chit subscriber and a chit foreman is a contractual obligation which creates a debt on the day of subscription. Hence, as per entry at Sl.No.27 of Notification No.12/2017-Central Tax (Rate), the rate of tax on transactions by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount would be nil. The department questioned the maintainability of the petition and argued that the act of refraining from removing a subscriber or permitting him to continue after paying interest on the defaulted subscription is an act of service or forbearance on receipt of some payment and was exigible to GST.
The High Court followed the judgement of the Apex Court in Oriental Kuries Limited. v. Lissa and Others; (2019) 19 SCC 732 that drawing of chit amount is in the nature of loan from common funds and held that the amount received from defaulting subscriber would be in nature of interest and not exigible to GST. It did not accept the argument of the department that the sum would be taxable as consideration for a service by pointing to Section 15(2)(d) of the CGST Act which pertains to interest, late fee or penalty for delayed payment of consideration since the subscription by itself is not payment for services of the foreman and interest would take colour of the principal amount and has no independent existence. It held that in order to charge GST on any sum, it must be shown as having been received as consideration for a service. On maintainability, it opined that a pure question of law can be decided and the petition can be maintained since the show cause notice was issued without jurisdiction. The SCN was quashed [2024-VIL-1234-KER].
Rectification of GSTR-1 beyond prescribed time-limit not permissible
It is quite common for taxpayers to approach High Court with the plea to allow rectification of outward supply return (GSTR-1). In a case of this nature, GSTIN of purchaser in GSTR-1 was incorrectly mentioned and the High Court was petitioned to decide whether the same can be corrected after the time period specified in Section 37 of CGST Act. It appears that place of supply was also not correctly mentioned. The buyer faced difficulty in availing input tax credit (ITC). The department argued that even if rectification is allowed now, ITC will not be available to the buyer as it was beyond 30th November of the next FY and hence, time-barred. The High Court held that the time-limit (of 30th November of subsequent FY) provided in respect of rectification of errors in GSTR-1 is directly linked to the time-limit prescribed for availing ITC under Section 16(4) of CGST Act. Based on such reasoning, it held that rectification cannot be permitted beyond the statutory time-limit prescribed. The Court was of the view that the person who is engaged in business is required to be well-versed in legal provisions including time-limit. The request for rectification was not accepted by the Court. GST law has very few provisions permitting correction or rectification of errors and Section 37 is one such provision. If the taxpayer is not alert and take action within the time provided, then consequences are substantial in terms of business as the purchaser will not reimburse tax amount citing loss of ITC [2024-VIL-1242-P&H].
Transitional credit not deniable on mere issuance of SCN
Transitional credit issues, as noted in this column before, will be eternal. An interesting question was answered by Andhra High Court wherein the department contended that "eligible duties carried forward" used in Section 140(1) of CGST Act would mean only such duty / credit which is not disputed or under cloud. The High Court noted that on the date of transition of Cenvat credit from Central Excise to GST as ITC, there was no show cause notice or doubt raised on the claim of the petitioner and they were entitled to utilize the credit even during pendency of proceedings initiated under show cause notice issued later. The Court held that mere issuance of SCN (which was later kept in abeyance) cannot disentitle the taxpayer from claiming transitional credit of Cenvat credit available before introduction of GST. While eligibility to credit was not decided by the Court, the impugned order was set aside. Since the SCN was noted as pending, the Court directed the authority to decide without being influenced by this order. It is not clear as to why another proceeding was initiated and order was passed in this case. The ratio which will be useful to other taxpayers is that only because SCN has been issued disputing credit, such credit as such is not required to be reversed [2024-VIL-1260-AP].
Audit can be conducted for period prior to cancellation of registration
Having obtained cancellation of registration on 2 May 2023, the petitioner challenged the notice intimating audit which was issued in November 2023. The period for audit was April 2021 to April 2022. The petitioner contended that provisions of Section 65 of the SGST Act would apply only to a registered person and not to a person whose registration has been cancelled. It also stated that the tax authorities were empowered to initiate proceedings under Section 73 or 74 of SGST Act in case of any shortfall and hence audit proceeding was unwarranted. The High Court held that registered person under Section 65 would include a person who at any point in time was granted registration certificate though subsequently registration might have been cancelled. Since audit is not concurrent audit for events/transactions for a past period there was no bar in conducting audit on a person who has deregistered at a later point. It also emphasised on a holistic reading of provisions to hold that since person is liable for tax or other dues determined before or after the date of cancellation as per Section 29(3), authorities could conduct audit to satisfy themselves if there were any dues before issuing show cause notice. Also, in the case of a person who has subsequently de-registered himself, an audit can be conducted at the place of the tax authorities to examine records etc., which are supposed to be "furnished"/ "maintained" by a registered person [2024-VIL-1241-BOM].
ITC admissible on demo vehicles - High Court sets aside advance ruling
Relying on CBIC Circular No. 231/25/2024-GST dated 10-9-2024, on availability of input tax credit in respect of demo vehicles, the taxpayer assailed the advance ruling holding that input tax credit would not be available. The High Court held that once the clarification extending credit had been issued by CBIC and similar clarification had also been issued by State authorities, the advance ruling could not hold good and set aside the same and held that the petitioner would be entitled to ITC in terms of the Circulars. The taxpayer should thank the GST Council for recommending such timely clarification. On all such issues where advance rulings have been rendered against taxpayers which are patently incorrect, CBIC should step in and include the same in the agenda for decision by the GST Council and issue appropriate clarification [2024-VIL-1233-P&H].
(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)