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Tax Vista Your weekly tax recap Edn. 236 - 30th December 2024 By Dr. G. Gokul Kishore |
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GST Appellate Tribunal - Dispute settlement body faces multiple disputes
After several hiccups, establishment of GST Appellate Tribunal is now seen as a reality waiting to happen shortly. But, disputes over dispute resolution body is not uncommon in India and GST Appellate Tribunal is no exception. The provisions on dominance of Technical Members were struck down by Madras High Court and therefore, the same were amended recently. Now, Himachal Pradesh Government has notified that for appointment as Technical Member (State), the qualification will be minimum 25 years of experience as gazetted officer in the Commercial Tax department. As per Section 110(1)(d) of CGST Act / relevant SGST Act, such criterion is 25 years of experience as Group A officer or equivalent. The provision empowers the State to relax such condition if no such officer is available. The State Government represented to the GST Council that no such officer as prescribed in Section 110 was available in the State and therefore, sough relaxation. The GST Council also recommended the same whereby instead of "Group A", any gazetted officer became eligible subject to number of years of experience. It appears that the petitioner had completed 25 years of service in Group A and therefore, writ petition was filed challenging such relaxation. The High Court noted that the relaxation was based on incorrect facts and the petitioner had prima facie case in his favour. Interim order has been passed. Final order, once received, will be analysed in this column.
This issue may be faced by a few other States also. Once again, on appointment of Members and their qualification, establishment of GSTAT may get delayed. From the day of initial drafting of the provisions in GST law, bureaucracy has kept vested interest above everything else and therefore, the appellate remedy has remained a non-starter so far [2024-VIL-1399-HP].
Repeated harassment over refund claim - Taxpayer approaches High Court 3 times
A very sad story of refund was reported by VIL last week. Refund applications were filed and deficiency memos were issued by the department as usual which were also, as usual, responded to and documents submitted by the taxpayer. As there was no response, the taxpayer filed representation and then writ petition was filed. Later first appellate authority held in favour of the taxpayer. However, as usual, refund was not sanctioned despite such order and second time, writ petition was filed. The High Court directed the department to grant refund. Refund was granted but interest was not paid for delay in granting refund. Third time writ petition was filed. The department (Commissioner) reviewed the refund order and appeal was filed by the department which was allowed.
The High Court noted that the order-in-appeal passed earlier in favour of the taxpayer was not challenged further in appeal by the department and held that the Commissioner cannot sit over the order passed by an appellate authority while seeking to review the order. It pointed out that Section 107(2) of CGST Act speaks about examination of proceedings of adjudicating authority and not that of appellate authority. The power exercised by Commissioner was held as not correct and the order as not sustainable. It appears that interest issue is part of another proceedings (writ petition) and the High Court did not deal with the same in this order. The order reveals the very sorry state of affairs where taxpayers are made to run to writ court for every step in refund claim. If a taxpayer has to approach High Court two or three times to get a refund, then compliance has no reward under the present system and it will encourage delinquency more. It is not known how appeal was filed by the department against an order much later when the appellate authority had already decided taxpayer's appeal. Incapacity, arrogance, harassment and corruption - all hallmarks of tyrannical tax administration are in full display in GST regime [2024-VIL-1390-DEL].
Cross-examination opportunity essential and flows from right of hearing
Show cause notice was issued, and order was passed in the case of the petitioner on allegations of indulging in fake registrations and suppression of sales for the purpose of deriving undue benefit from the input tax credit. The petitioner had specifically requested for an opportunity for cross-examination of those persons about 20 in number from whom the statements were allegedly obtained and also stated that those statements were all retracted and were even obtained by coercion. It also furnished proof of retraction. However, the department denied the request for cross-examination stating it would not affect the validity of the evidence gathered. The High Court held that such a conclusion pointed to a predilection by noting - "The aforesaid observations indicate that the Adjudicating Authority went on a wrong tangent in assuming that cross-examination will not affect the credibility of the statement. Such a foregone conclusion is legally impermissible as it reflects a predilection. The Adjudicating Authority cannot presuppose or presume what could be the subject matter of the cross-examination, or what benefit would be derived by the person proceeded against, through such cross-examination."
The Court held that the requirement for granting cross-examination flows from the opportunity of hearing required to be given as per Section 75(4) of the CGST Act and opined that unilateral statements behind the back of a person cannot, under any circumstances, be justified under the rule of law, even if the proceedings are quasi-judicial in nature. The Court set aside the order and directed fresh decision after granting opportunity to cross-examine the witnesses from whom statements were recorded during investigation. Generally, adjudicating authorities are averse to the request for cross-examination for the simple reason that most of them are not trained on judicial function of hearing, examination of witnesses, cross, etc. Even otherwise, as most of the orders are pre-decided in favour of revenue, they see no point in granting such request [2024-VIL-1414-KER].
Delay in physical filing when online filing is within limitation is not fatal to appeal
The taxpayer had filed appeal against the order of the original authority online within the period of limitation except in one case and there was delay in filing copy of order physically which was beyond the limit of 4 months (including condonable period). The appellate authority held that the appeals were barred by limitation considering the date of physical filing as the official filing date, disregarding the date of online filing, which was within the prescribed limitation period. Examining Rule 108 of CGST Rules, 2017 (both pre and post amendment) providing for the appeal to be filed in FORM GST APL-01 along with the relevant documents either electronically or otherwise, the High Court held that filing of physical copy of order was a procedural requirement and the date of electronic filing was to be considered for purposes of limitation. All appeals filed electronically within limitation were directed to be considered but a nominal cost was imposed on the taxpayer for delay. It is not clear as to why costs were imposed for delay in physical filing when it has been that online filing is to be taken into account for limitation [2024-VIL-1409-DEL].
Erroneous payment of tax not covered by limitation for refund application
The petitioner was zealous in paying tax which appeared to be due but later realised his mistake and sought refund of tax. With equal vigour, the department denied refund stating that the refund claim had been filed beyond period of limitation. The error occurred on account of the mismatch between the figures of ITC relatable to IGST paid on imports, auto- populated figures in GSTR-2A and the figures used in monthly returns filed in Form GSTR-3B returns and at that time it appeared that excess credit of Rs.40,00,000/- was reflected in GSTR-2A return. The taxpayer then paid such amount and then found out it was paid in excess. In fact, the department during verification found out that there was no corresponding liability for such payment. Refund claim was rejected on the ground of limitation. The High Court held that refund of voluntary payment could not be seen through the prism of limitation under Section 54 of the CGST Act, 2017. It was tax collected without authority of law and merited refund. However, there was no direction to pay interest [2024-VIL-1391-GUJ].
Audit by department and adherence to time-limit
Show cause notice was challenged as the same was issued based on audit report where audit was not completed within the prescribed period. The department contended that time-limit should be considered from the date of sharing of documents by the taxpayer. Section 65 of CGST Act requires audit shall be completed within three months from the date of commencement of audit. As per explanation in Section 65, commencement of audit means the date on which records and other documents, called for by tax authorities, are made available by the registered person or the actual institution of audit at the place of business (whichever is later).
The High Court said that the issue as to whether use of "shall" would mean the provision is mandatory or directory may be considered in a different matter. As there was no evidence for receipt of documents on a particular date, the Court did not accept the contention of the department. Based on the facts, it held that final audit report was filed within three months in this case and therefore, the plea on limitation was not acceptable. The petition was dismissed. Though in this case, the taxpayer took pains to go to High Court, in several cases, petitions are not filed though such time-limits are not adhered to. Most of the taxpayers opt to concentrate on business instead of raising such procedural issues. The department does not generally follow timelines for audit as it gets prolonged for several months in most cases [2024-VIL-1403-KER].
Sensitive information can be withheld - SCN not invalid, not lacking transparency
The petitioner urged that certain relied upon documents had not been provided to it and hence the show cause notice issued without adherence to principles of natural justice was liable to be set aside. The department stated that all documents except the inter-departmental intelligence reports which contained sensitive information were not provided and hence no prejudice was caused to the petitioner in as much as the proceedings would be based on documents provided to him. The investigation report was effectively the SCN itself, as per the department. Relying on various precedents, it was held that principles of natural justice do not entail a right to indiscriminate or unrelated disclosures, particularly where sensitive third-party interests are involved and the relied upon documents have been provided to the petitioner. The High Court declined to interfere in the matter [2024-VIL-1393-CAL].
Non-issuance of DRC-01A does not invalidate SCN, "findings" noted in SCN is not pre-judgement
The High Court declined to interfere with the show cause notice issued to the writ petitioner-taxpayer stating that no prejudice had been caused by issuance of SCN and taxpayer had ample opportunity to present its case before the adjudicating authority. The allegations pertained to wrongfully availing the benefit of an exemption on the supply of "Kulcha" by misclassifying it as "bread" under S. No. 97 of Notification No. 2/2017 - Central Tax (Rate), wrongful availment of ITC, not furnishing proof of ITC reversal by the recipient and so on. The taxpayer contended that absence of pre-SCN intimation in Form GST DRC-01A renders the proceedings procedurally defective since Rule 142(1A) of the CGST Rules mandates issuance of DRC-01A before initiating proceedings under Section 74. It also contended that the portion "Discussion and findings" indicated pre-judging of the issue, invocation of extended time period alleging suppression etc. which was without basis. The High Court however held the on examination of documents, the issue appeared to be mixed questions of fact and law and should be dealt with by the adjudicating authority and there was no case of SCN being without jurisdiction or not providing opportunity to the taxpayer to present his case. The writ petition was dismissed [2024-VIL-1404-CAL].
Delay in adjudication - High Court quashes SCN consigned to call book twice
In respect of goods imported value was enhanced and duty was demanded by show cause notice issued in 2015. The SCN was transferred to call book in 2016, hearing was later held in 2017 and then the SCN had the misfortune of being consigned to call book in 2021. After being finally retrieved, hearing was held in 2023. The importer challenged the SCN on the ground of delay as Section 28(9) of Customs Act provides for time-limit of 6 months for passing order in normal cases and one year in cases involving extended time-limit. The provision had the words "where it is possible to do so" which were later omitted. The department sought to justify the delay citing certain reasons. The High Court relied on Swatch Group case [2023-VIL-543-DEL-CU] and other precedents holding that placing cases in call book and taking them out of it after several years was not permissible. The Court pointed out that in this case, when it was first taken out of call book in 2017, there was no reason for not adjudicating the same till 2023. The SCN was quashed.
Most of these cases involve DRI where the investigation itself stretches for months and years involving multiple locations. Then certain other issues are added to the initial issue and the inquiry gets prolonged. Finally, SCN itself is issued after much delay involving huge amounts. When the amounts are huge, adjudicating authorities generally conduct hearing but gift the matter for the successor to decide and this process goes on resulting in inordinate delay. Where the goods are provisionally released, importers are better-off relatively as otherwise, the situation is even worse [2024-VIL-1410-DEL-CU].
Food safety standards in India and not exporting country, applicable to imported goods
Cocoa beans were imported for use in the manufacture of chocolates. Quality and test reports from the foreign suppliers were produced to prove that the goods met standards of the exporting country. On import, the goods were subjected to testing under relevant Food Safety and Standards Regulations. As per the test report, the goods did not meet the prescribed standards. Recall order was also issued by the Food Safety Authority. In the Customs proceedings, goods were confiscated, and penalty was imposed. Subsequently, it appears that the goods were re-exported on payment of redemption fine and penalty. However, such order was challenged in CESTAT. The importer argued that the goods were not covered by Food Safety Regulations but under BIS and no standards were prescribed under BIS for such goods. Another argument raised was that the tests were conducted much after import and such delay would have caused deterioration and they met the standards at the time of export from the foreign supplier. The Tribunal held that such standards were for import into Indonesia (and hence, not applicable) and two consignments were tested within tested without delay and the test report could not be discarded on the ground of delay. The order assumes significance as the action taken by the Customs authorities based on Food Safety law has been upheld by the Tribunal though penalty and fine amount has been reduced [2024-VIL-1751-CESTAT-BLR-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. He edits R.K. Jain's GST Law Manual. E-mail - gokulkishore@gmail.com)