|
Tax Vista Your weekly tax recap Edn. 235 - 23rd December 2024 By Dr. G. Gokul Kishore |
|
GST Council Meeting - Retro amendments and other changes
As expected, GST Council has recommended amendment with retrospective effect in Section 17(5)(d) of CGST Act to bring "plant or machinery" on par with "plant and machinery" used in other places in the provision so as to effectively overcome the judgment of the Supreme Court in Safari Retreats case [2024-VIL-45-SC] and to deny input tax credit on inward supplies used for construction of immovable property even when they are used for outward taxable supplies. This will be given retrospective effect from 1 July 2017. It appears that pre-deposit of 10% is proposed to be prescribed in cases where penalty alone is involved though the proviso in Section 107 of CGST Act relating to Section 129 (detention) cases is referred to highlight such pre-deposit quantum is being reduced from 25% to 10%. According to the Press Release issued after the meeting of the GST Council held on 21st December, 2024, amendments are also proposed to provide legal backup to generation of GSTR-2B based on action taken by taxpayers in the invoice management system (IMS). GSTR-3B shall be filed only after GSTR-2B is made available in the portal once the amendment recommended in this regard comes into force.
It is not clear as to the exact reason for proposed omission of provisions relating to vouchers which is stated as not to tax vouchers. There is no ambiguity for taxpayers on this issue and it is the GST authorities who are perplexed. On rates, declared tariff definition is being omitted from rate and exemption notifications relating to hotel accommodation and value of per unit in the preceding financial year will be the determinant of GST rate of 18%. One of the most publicized issues relates to 3 different GST rates on popcorn stated as clarification. If, for one edible item, three different tax rates can be justified, GST is all set for reenactment of classification disputes in future.
Specific exclusion of telecommunication towers from "plant" does not make them immovable property - ITC admissible
The department is generally unmovable when it comes to credit. The taxpayer assailed the orders denying input tax credit on inputs and input services used for setting up passive telecom infrastructure on the ground that the same were used in the construction of telecommunication towers and consequently falling within the ambit of clause (d) of Section 17(5) of the CGST Act. Other petitioners assailed the show cause notice issued on same issue. Relying on Bharti Airtel Ltd vs. Commissioner of Central Excise, Pune. 2024-VIL-49-SC-CE, it argued that telecommunication towers were not immovable property which would be hit by the bar in Section 17(5), that the towers are moveable items of essential equipment used in telecommunications which can be dismantled at site and thus capable of being moved and only the concrete structure on which those telecommunication towers are placed is immovable. The department argued that the specific exclusion of telecommunication towers from the scope of the phrase "plant and machinery" meant that ITC would not be admissible.
The High Court held that telecommunication towers being movable items could not be termed as immovable property and the exclusion would not lead one to conclude that the statute contemplates or envisages telecommunication towers to be immovable property. The order reads - "The decision in Vodafone Mobile Services as well as Bharti Airtel, though rendered in the context of the 2004 Rules, have on application of the generic principles which would apply to the concept of immovable property, have in explicit terms come to conclude that telecommunication towers are liable to be treated as movable. In view of the aforesaid, we have no hesitation in coming to the conclusion that telecommunication towers would not fall within the ambit of Section 17(5)(d) of the CGST Act. The denial of input tax credit, consequently, would not sustain." The impugned order as also show cause notices in case of other petitioners were quashed [2024-VIL-1356-DEL].
Invoking Rule 86A to block credit ledger even when there is no balance, is valid
Electronic credit ledger was blocked under Rule 86A of CGST Rules on the ground that input tax credit was availed based on ghost supplies or supplies received from non-existent or fake suppliers. The taxpayer challenged it on the ground that ITC was not available on the date of blocking and therefore, Rule 86A could not have been invoked. It was further argued that the authorization from Commissioner obtained in this case was a general one which included several other persons. On the issue of the so-called negative blocking, both the taxpayer and the department relied on High Court orders in their favour. The High Court said that it would take its own view in view of conflicting opinions on this issue. It held that Rule 86A would come into play when ITC is available in the electronic credit ledger, such credit has been availed and it has been availed fraudulently or the credit so availed was ineligible. It noted that the rule permits the authority to block "such credit" and the words "such credit which is available" have not been used and therefore, credit availed wrongfully would be covered. This means blocking of ledger even when there is no balance, is valid.
The order reads - "To sum up, the scheme of this Rule is to put aside such amount of input tax credit, which has been wrongfully utilized, whether it is actually available in the credit ledger or not, and to await an appropriate order of assessment and penalty, if any, either under Section 73 or Section 74 of the GST Act, read with Section 122 of the GST Act. In view of this interpretation, we are unable, with all due respect, to agree with the view taken by the Hon'ble High Court of Gujarat or the Hon'ble High Court of Telangana. We respectfully agree with the view taken by the Hon'ble High Court of Allahabad and the Hon'ble High Court of Calcutta." This issue needs resolution by amending Rule 86A so as to make the intention clear whether to block credit suspected as accrued due to fraudulent or fake receipts but utilized at the time of blocking or block only such credit as is available on the date of blocking [2024-VIL-1355-AP]
Order communicated beyond prescribed time-limit is not valid
High Court orders are sometimes enjoyable to read. An order placing reliance on contract law to deal with a case on detention of goods belongs to a different genre. The issue was challenge to the order under Section 129 of CGST Act on detention and seizure of goods and vehicle (the order mentions only vehicle) on the ground that it was passed beyond the prescribed time of 7 days from the date of issue of notice. The department argued that e-mail was sent on the 7th day though the order was uploaded on the 8th day. The High Court held that the seven days period is to be reckoned from date of service of the notice, specifying the penalty payable and mere passing of order is not sufficient but communication of the same cannot be made any time later as it would enlarge the limitation.
The Court said - "Indian Contract Act, 1872 provides for communication. Communication of a proposal is said to be complete, under section 4, in said Act, when it comes to knowledge of the person to whom it is made. Here the order is to be taken to be the proposal and communication of it can only be complete, when it comes to knowledge of the person against whom it is made. Revenue has not been able to satisfy us about the communication made on 26th September, 2024, by mail sent to e-mail address of petitioner on fulfilling the requirement under section 169(1)(c). Communication of the order was complete the next day, when it was uploaded in the portal as in compliance with requirement under section 169(1)(d)."
Based on this reasoning, the order was set aside. In so far as detention proceedings under Section 129 are concerned, the time-limits are generally not adhered to and the entire proceedings are concluded in a day or two. Considering the business exigencies, taxpayers pay up and prefer to either close the issue or file appeal later [2024-VIL-1376-ORI].
IGST paid using TR-6 challan by SEZ unit on DTA clearances - Order sans reason saves the taxpayer
IGST was paid by unit in SEZ in respect of DTA clearances using TR-6 challan which is not reflected in GST portal and therefore, there was a mismatch between GSTR-1 and GSTR-3B. Tax is required to be paid either through electronic cash ledger or credit ledger which alone is recognised for payment of tax in GSTR-3B. As usual, all steps were taken mechanically from ASMT-10 till adjudication order confirming the demand by ignoring the payment of tax made through TR-6 challan. GSTN submitted before the Court that the DTA unit was liable to pay customs duty and IGST and the Court observed that the SEZ unit was not required to pay such duties. It said that such fact was not considered while passing order which lacked reasoning. The order was set aside for not considering the explanation and reply and for passing the same by merely referring to the statutory provisions. The amount involved was over Rs. 1 crore and therefore, the taxpayer should be greatly relieved. It is not clear as to why the DTA unit opted not to pay the applicable taxes at the time of filing bill of entry. Passing of non-speaking and unreasoned order is also sometimes helpful it seems [2024-VIL-1382-GUJ].
Requirement to communicate the grounds of arrest in writing is sacrosanct
The taxpayer was detained by the GST authorities on 28th November 2024 at 1600 hours and produced before the Magistrate on 30th November 2024. He was not allowed to leave the premises of the department and his phone was also cloned without his consent. The allegation was procuring fake invoices without actual supply of goods through the firms operated by co-accused. It appears to be a case where the arrest procedure was totally mismanaged as noted by the High Court. The grounds for arrest were not communicated in writing and definitely not before detention. The department issued summons in the meanwhile, requiring attendance by the petitioner. Two summonses were issued in a span of 3 minutes on 28th November but purported to be issued on 27th November. The petitioner urged that the guidelines in CBIC Circular No. 122/41/2019-GST dated 5th November 2019 were totally disregarded and that the arrest was not valid. The taxpayer also relied on Section 69(1) of CGST Act which states that grounds of arrest must be communicated in writing to the arrested person at the time of arrest and only then he shall be produced before the Magistrate within 24 hours. The department's countered this with an argument that subsequent DIN amounted to "regularisation" and that arrestee had been "effectively" informed about the grounds of arrest.
Without much specifics, the grounds of arrest were shared as part of the remand application before the taxpayer was produced before the Magistrate about 48 hours after detention. The High Court held that it was a specious argument to state such time would be enough for the arrestee to formulate their arguments during the remand. It also reiterated based on various Supreme Court rulings that restriction of mobility amounted to arrest. The Court declared the arrest as illegal and the petitioner was directed to be released [2024-VIL-1365-DEL].
Show cause notice based on invalid search is not valid
In an investigation pertaining to purchase of arecanut from several persons and supplying the same to various gutkha manufacturers without payment of applicable GST, the premises of the taxpayer was searched, statements recorded and payment of RS. 50 lakhs was collected towards probable GST liability. It appears then the question of jurisdiction seized the officer and the matter was transferred to a proper officer for issue of notice under Section 74 of the CGST Act, 2017. The issue raised by the petitioner was whether when the investigation, inspection, search and seizure have been substantially completed by an improper officer, is the show cause notice issued by a proper officer under Section 74 of the CGST Act and KGST Act liable to be set aside. The show cause notice had been issued without any fresh investigation or formation of opinion as contended by the taxpayer. The High Court held that since investigation, inspection, search and seizure was not by proper officer, it was to be considered ab initio void and quashed the show cause notice.
The Court said - "If respondent no.2 after investigation has transferred the case to respondent no.3, for issuance of notice under Section 74, respondent no.3 was required to redo the investigation and come to an independent conclusion as contemplated under Section 74 of the CGST Act and only thereafter a fresh notice requires to be issued. Respondent no.1 cannot issue a notice under Section 74 on the 'borrowed satisfaction'. Under the said circumstances, the impugned notice is liable to be set aside." It also directed refund of the amount collected and materials seized [2024-VIL-1346-KAR].
Refund of unblocked ITC not available
Taxpayers should thank God or stars when writ petitions are rejected without imposing costs when the issue involved is apparently trivial or without substance. Electronic credit ledger was blocked and the taxpayer was forced to pay tax using cash ledger. Later it was unblocked and the taxpayer sought refund of ITC accumulated due to blockage of the ledger for a particular period. The department rejected the claim on the ground that there was no provision for the same - to refund unblocked ITC. Before the High Court, the taxpayer cited accumulation of ITC due to absence of business and filing of nil returns. The High Court noted that there was no payment of tax twice i.e., tax was paid by debiting credit ledger and also by using cash ledger and the accumulated ITC can be used against future liability and refund sought was not covered under Section 54 of CGST Act. The writ petition was dismissed by the Court [2024-VIL-1381-TRI].
Penalty levied in private contract - Not a supply, GST cannot be collected
GST is described as one nation, one tax and it appears that business entities are equally rigorous in collecting it. A distributor of LPG (petitioner in this case) was adjudged to have violated the Marketing Discipline Guidelines, 2018 and penalty was imposed for the same. The respondent oil marketing company also sought to collect GST on the same contending that the sum was being paid for toleration of an act and would qualify as supply. The High Court held that there was no agreement between the respondent and the petitioner to tolerate any such act and there was no consideration fixed for the same and Clause (e) of serial No.5 of Schedule II to CGST Act, 2017 was not attracted in this case. It was held that the amounts are sought to be recovered as a deterrent against future breach of contract and was not exigible to GST [2024-VIL-1368-KER].
Audit, disclosures during audit per se cannot quell charge of suppression
The High Court declined to interfere with the show cause based on findings of investigations that were ordered regarding wrongful availment of ITC. The taxpayer, a payment aggregator argued that audit had been carried out for the period mentioned in the SCN, he had made full disclosures and hence no suppression could be alleged to invoke extended period under Section 74 of CGST Act, 2017. However, on examining the documents, the High Court found that the SCN had been issued on the prima facie conclusion that the taxpayer was not entitled to ITC, exemption as a merchant banker and the SCN was not based only on the audit report. It held that at the stage of SCN, the writ petition could not be entertained and taxpayer would get opportunity while defending himself in reply to show cause notice [2024-VIL-1362-BOM].
Templates of quasi-judicial administration
In GST, quality of issues and orders leave a lot to be desired. While the issues are mostly reconciliation or arithmetic based involving hardly any interpretation of provisions, the show cause notices and orders are just pieces of paper showing the absolute ignorance to the basics of quasi-judicial function or rather contempt to such function. In Delhi, most of the orders passed by Delhi GST officers follow a template with the paragraphs containing general statements ending with the standard sentence "The reply filed by the taxpayer is not comprehensible, conceivable, not perspicuous and is ambiguous." After this line, the demand is confirmed. The Delhi High Court was apparently frustrated over such orders coming up in writ petitions before it with the same template. In a previous order, it had directed marking of copy of such order to senior officers for necessary action. In an order reported by VIL last week, the High Court has extracted such previous order and has set aside the order challenged in this case as well. While quashing of the order and remanding the case for fresh decision provide some relief to the taxpayers, such officers should be reprimanded by imposing costs as some other High Courts do. Imposing costs in all such cases may bring some semblance of discipline and seriousness in quasi-judicial proceedings [2024-VIL-1354-DEL].
(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)