Tax Vista Your weekly tax recap Edn. 232 - 2nd December 2024 By Dr. G. Gokul Kishore |
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Refund rule amendment is retrospective - Circular to the contrary quashed
Rule 89(5) of CGST Rules provides for formula for refund of unutilized ITC accumulated due to inverted tax / duty structure. This rule was amended with effect from 5-7-2022. CBIC issued Circular No. 181/13/2022-GST clarifying various points and the first one was - whether the amendment would apply to refund applications filed on or after 5-7-2022 i.e., after the amendment or it would apply to applications filed and pending on such date. It was clarified that the said amendment is not clarificatory and would apply prospectively only. This portion of the circular has been quashed by Gujarat High Court now. The Court has held that it would be applicable retrospectively as the same was curative and clarificatory in nature. The taxpayer had approached the High Court assailing grant of refund based on the amended formula by order passed in March, 2022 and the refund pertained to December, 2021. The amendment relates to the landmark judgment in VKC Footsteps [2021-VIL-81-SC] where the rule was held as valid but the Supreme Court urged the GST Council to look into the anomalies in the formula excluding input services [2024-VIL-1273-GUJ].
Time-limit to avail ITC - Provision is arbitrary
Time-limit to avail ITC under Section 16(4) of CGST Act has been under challenge in various High Courts. The Madhya Pradesh High Court in a recent order refrained from deciding on the constitutional validity of the provision in view of the amendment to relax the date for the first three years but gave some relief to taxpayers (or their lawyers) by observing that the provision restricting ITC when the return (GSTR-3B) is filed after the prescribed date is arbitrary and the taxpayer cannot be deprived of the right to claim ITC. It was of the view that when filing of return with late fee is allowed, disallowing ITC will amount to punishing the taxpayer twice.
The Court said - "The GST laws do not have any provision and scope for filing a revised return, taxpayers are extremely cautious to file the monthly return for March and may like to wait for a longer time to reconcile the entries and ensure that there is no unnecessary mismatch between the GST returns and the financial records. This exercise is generally taken when the financial audit goes on. They even pay huge late fees to delay the filing of such return and such late fees are paid on subsequent returns also as GST laws does not permit filing of monthly return in FORM 3B if return for earlier month has not been filed. Allowing a taxpayer to file returns with payment of late fees and then disallow him the ITC, because the return was filed belatedly, is punishing him twice for a single default so committed. Moreover, with the payment of late fee u/S 47 as well as payment of interest u/S 50, the treasury has been suitably compensated for the postponement of the tax. Payment of late fees and interest are already there as deterrent for the taxpayers forcing them to be disciplined. Under such circumstances, saddling with double payment of tax by way of Section 16(4) is arbitrary and capricious." [2024-VIL-1278-MP]
Belated availment of ITC - Recent amendment rescues taxpayers
Deciding on a batch of writ petitions where the taxpayers filed the returns in GSTR-1 in time but filed GSTR-3B returns belatedly due to Covid-19 rendering them unable to avail ITC within prescribed time, the High Court held that action of the department in disregarding genuine reasons for delay/issuing show cause notice and confirming demand was not sustainable. It referred to the recent amendment in Section 16 of CGST Act inserting sub-section (5) in terms of which "notwithstanding anything contained in sub-section 4", in respect of any invoice or debit note for supply of goods or services or both pertaining to the FYs 2017-18 to 2020-21, the registered persons shall be entitled to take ITC in any return under Section 39 which is filed upto the 30th day of November, 2021. It also directed that no recovery proceedings may be initiated based on the impugned orders, unfreezing of bank accounts refund of tax collected based on the orders. The petitioners should be grateful to their well-wishers as the recent amendment clinched the issue as otherwise the issue is litigative [2024-VIL-1271-MAD].
ITC debited twice - High Court directs restoration
Refund of unutilized input tax credit accumulated due to export was sought but DGGI intervened and apparently pressurized (summons were issued, etc.) and the taxpayer reversed the ITC. The refund claim was also rejected. Aggrieved over lack of SCN or order in seeking reversal of ITC, the taxpayer filed refund claim to restore the ITC. At the time of filing such refund claim, as per provisions, amount equal to refund should be debited and the same was also debited in by the taxpayer. Therefore, the same amount got debited / reversed twice - once during summons and later while filing refund claim. The High Court refrained from dealing with the merits of the case - whether ITC of GST paid on leasehold rights of immovable property which the taxpayer obtained, is eligible or not. It held that the same ITC cannot be debited twice and the first one debited during summons and without any adjudication is to be restored. The department was directed to restore such ITC. The taxpayer was fair enough to submit that rejection of refund was under appeal and merits will be litigated in appellate proceedings.
Though merit was not dealt with, this issue of ITC on leasehold rights of immovable property is being raised by the GST department in several places. It is surprising that when Section 17(5) of CGST Act bars credit only in respect of construction of immovable property, even mere leasing is seen as attracting such bar. This issue needs to be addressed by the GST Council as huge amounts are involved in commercial leasing of industrial property [2024-VIL-1288-GUJ].
Cross-empowerment - GST Council should intervene to reconcile divergences
Last week, VIL has reported two orders on cross-empowerment. The order by Division Bench of Orissa High Court dealt with the challenge to show cause notice on the ground of lack of jurisdiction. It seems the matter related to inter-State movement of goods and the SGST officer initiated proceedings. The High Court noted that as per Section 4 of IGST Act, SGST officers have been authorized to be proper officers under the IGST Act subject to exceptions and conditions and there has been no notification limiting the authority of such cross-authorized officers. The SGST officer, according to the Court, was empowered to take action under IGST Act as well [2024-VIL-1280-ORI].
However, in a similar case, a Single Judge Bench of Kerala High Court expressed prima facie view that the opinion of CBIC as noted in circular dated 22-6-2020 was correct but the matter may impact several proceedings and therefore, directed placing the matter before Division Bench for authoritative pronouncement. CBIC had stated that if no notification has been issued under Section 6 of CGST Act, then CGST officers and SGST officers are proper officers for all purposes. The Kerala High Court took note of the contra view of Madras High Court in Vardhan Infrastructure [2024-VIL-272-MAD] while giving direction as above. As noted in this column before, Section 6 on cross-empowerment remains immune to amendments so far though it is one of the most litigation provisions. GST Council may have to consider appropriate amendments so that the divergent views are reconciled [2024-VIL-1265-KER].
Use of IGST bifurcated into CGST/SGST to pay output liability not irregular availment of ITC
Instead of showing the IGST component in the eligible credit details in Form GSTR-3B, the taxpayer inadvertently showed the IGST component as nil and added the bifurcated CGST and SGST components of IGST to the existing figures showing eligible CGST and SGST credit resulting in a mismatch between Form GSTR 2A and Form GSTR 3B. According to the tax department this became a case of utilising "unavailable credit" towards payment of CGST and SGST on outward supplies. The taxpayer argued that there was no short payment of tax and even if tax has been paid under the wrong head it was eligible for refund. It further contended that such refund could again be adjusted against present demand and the entire issue besides being baseless was revenue neutral. It also produced the order of an Assistant Commissioner in an identical issue where proceedings had been dropped.
Interpreting proviso to Section 49(5) of the CGST Act, the Kerala High Court held that the actions of the taxpayer were not in violation of law and the error was insignificant and purely technical. The taxpayer did not have any IGST output liability and in any case, there was no case to invoke Section 73 of the CGST Act without non-payment or short payment of CGST and SGST liabilities. It also took note of CBIC vide Circular No.192/04/2023-GST dated 17th July 2023 on determining interest under Rule 88B of the CGST Rules, and opined that the entire wallet of credit has to be taken into consideration and not just individual compartments.
The order appreciates the Asst. Commissioner who had dropped the proceedings in another case - "We have deemed it appropriate to extract the above findings from the order of the Assistant Commissioner since we find that it not only represents the correct view of the procedural law in this regard, but more importantly, demonstrates that revenue officials, even at the level of Assistant Commissioner, who are often the first point of contact between an assessee and the revenue department, are capable of rendering timely and effective justice in our country which is known for its huge backlog of cases. At a time when the justice dispensation system is looking for ways and means to reduce litigation generally, and especially in the field of taxation where delays can affect the nation's economy, orders such as the one extracted above come as a welcome breath of fresh air, and are to be duly appreciated and encouraged. It needs no gainsaying that an expeditious disposal of cases, especially those involving procedural aspects of taxation, is the need of the hour so as to ensure fairness and certainty in tax administration." [2024-VIL-1284-KER].
Notice to and order passed on entity post its amalgamation is non-est
Tax authorities are armed with many provisions ensuring that the State does not lose its legitimate revenues. Section 160 of the CGST Act, 2017 provides that an order shall not be invalidated merely by reason on any mistake, defect or omission. It was sought to extend such "mistake or omission" as saving the notice, proceedings and assessment framed on the amalgamating (since non-existent) entity. The petitioner company contended that the department was well-informed of the amalgamation proceedings and hence issue of show cause notice to the company after it ceased to exist would not qualify as a mistake or omission. It relied on the various precedents under income tax law wherein in it has been held that that a notice or order framed in respect of a non-existent entity would not be rectifiable in terms of Section 292B of the Income Tax Act, 1961. The Delhi High Court held that Section 160 of CGST Act was pari materia to this.
The other contention of the tax department that since in respect of amalgamations, Section 87 of the CGST Act, 2017 provides that upto date of amalgamation the entities would be distinct ones, the impugned order would stand. It was held that in fact Section 87 of the CGST Act provides that the liabilities of the non-existent company would stand transposed to be borne by the amalgamated entity and it cannot be read as permitting the tax authorities to either continue to place a non-existent entity on notice or pass an order of assessment referable to Section 73 against such an entity [2024-VIL-1283-DEL].
GST on leasing of cars valid - Excise duty prior to 2017 cannot be refunded
The taxpayer too is creative at times and courageous. According to the taxpayer engaged in leasing of cars, since excise duty had already been paid on the cars, no GST could be levied on service/supply of lease rentals and it sought waiver of tax already paid and provisions for the extra taxes collected post July 2017 on the pre July 2017 leased cars to be adjusted/refunded with respect to forthcoming lease rentals on the pre July 2017 leased cars. The stand of the department was that the taxable event is not the signing of the lease agreement but the continuous supply of leasing service and levy of GST on ongoing lease of cars, which were purchased prior to GST and have suffered Central Excise Duty and VAT, is neither retrospective, nor without the authority of law. The department also stated that the taxpayer had not transitioned any input tax credit (Cenvat credit) since it had availed depreciation on the cars and it could not now seek refund of tax paid under erstwhile regime. The High Court dismissed the petition noting that there was no challenge to constitutional validity or legislative competence underlying the promulgation of GST law [2024-VIL-1267-DEL].
Refund of unutilized ITC and transitional credit - HC follows precedent
Refund of unutilized ITC due to exports was granted but the same was challenged by the department on the ground that there was no unutilized ITC and the credit that accrued was due to transitional credit and the same was not refundable. Commissioner (Appeals) agreed and set aside the order granting refund. The High Court followed earlier order in another case [Torrent Pharmaceuticals - 2024-VIL-648-GUJ] holding that hyper-technical approach could not have been adopted by the authorities by taking the stand that the transitional credit was available only in August, 2017 after processing of TRAN-1 form. It agreed with the argument that the credit would relate back to 1-7-2017 and therefore, the balance would be treated as standing on such date and subsequent utilization would have to be treated as having made from such balance and resultantly, the unutilized credit was liable to be refunded. The amount involved is around Rs. 50 crores and therefore, filing appeal with pre-deposit could have been a prohibitive proposition for the taxpayer who was already facing issues in India [2024-VIL-1272-GUJ].
(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)