Tax Vista

Your weekly tax recap

Edn. 237 - 6th January 2025

By Dr. G. Gokul Kishore

Member of society not personally liable for GST dues of society

Recovery provisions in GST law are draconian and the invocation of such provisions is even more draconian as the experience of the past 7 years with GST show. In a recent case, the Andhra Pradesh High Court examined Section 94 of the CGST Act and granted relief to the petitioner - Secretary of a welfare society who was restrained from mortgaging his land and house to fund his daughter's education. The tax department had intimated the Registration Authorities that the property had been attached for realisation of dues from the society. Notice under Section 79 of the Central / State Goods and Services Tax Act, 2017, had been issued for recovery of the dues to the petitioner who was the secretary. Section 94 of the CGST Act provides that in case of discontinuance of business, where a taxable person is a firm or an association of persons (AOP) or a Hindu Undivided Family (HUF), every person who, at the time of such discontinuance, was a partner of such firm, or a member of such association or family would be liable jointly and severally for the dues - tax, interest, penalty from the firm, AOP of HUF.

The High Court noted that "person" defined under Section 2(84) of the CGST Act makes distinction between AOP and society. The subject society had been registered under the relevant statute (of 2001) and the essential test for society was pari materia to the Societies Registration Act, 1860. An AOP could not be registered as a society under the 2001 Act. The High Court therefore held that the petitioner was free to deal with his property as per his desire and set aside Form GST DRC-16, and the communication to the Registration Authorities to not to permit alienation of the properties of the petitioner [2024-VIL-1426-AP].

GST Order subject to outcome in another State - High Court quashes

In this column, the need to either impart training in or divest quasi-judicial powers of GST officers and in particular, SGST officers is frequently highlighted. Most of the orders passed display complete ignorance of everything connected to law - whether substantive or procedural. A brief order of Telangana High Court has been reported by VIL last week. The order shows that the adjudicating authority has confirmed tax demand of Rs. 35 crores but subject to communication to be received from Maharashtra SGST office. The taxpayer was obviously startled and argued that the proper officer in Telangana is an independent statutory authority and was not under obligation to wait for the decision to be taken by his Maharashtra counterpart. The order was also assailed on the ground that when there is no determination of liability, order could not have been passed. The SGST Counsel was fair in requesting for setting aside the order and remand of the same to which the High Court agreed. As the order is brief, full facts are not available. The adjudicating authority had referred to remand by Bombay High Court to Maharashtra SGST officer but it is not clear how Telangana SGST officer is bound by the same. If the officer wanted to wait, he ought to have not passed order. But, time-limit for about to lapse and hence, he proceeded to pass the order. Confirming a demand of Rs. 35 crores in this manner cannot happen in African tax administration which is generally seen as backward [2024-VIL-1423-TEL].

Levy of State Excise after GST - High Court provides part relief

J&K State levied excise duty (under State Excise Act) on rectified spirit/alcohol and denatured spirit used in medicinal and toiletry preparations, other than in manufacture of liquor. This was challenged by various companies on the ground of lack of legislative competence and also because rectified spirit is subject to GST and therefore, levy of excise duty would amount to double taxation. The High Court noted that validity of the State Excise Act or relevant provisions under the same were not challenged in the petitions and therefore, assailing prescription of rate of excise duty alone could not be accepted. The period involved both before and after re-organisation of J&K and abrogation of Article 370. There was no State List for J&K as the residuary powers vested in the State legislature. Taking note of such facts, the High Court said that the State Excise Act was framed under such residuary powers of both Indian Constitution and the then State Constitution. Entry 84 of Union List of the Constitution of India pertains to goods manufactured in India and not those imported into or exported from any particular State and therefore, even after amendment to Entry 84 to coincide with introduction of GST, the State was empowered to levy excise duty on such goods.

The State Excise Act was neither repealed nor subsumed on introduction of GST and tax under the CGST Act and the IGST Act and the duty of excise under the State Excise Act are legally distinct and address separate stages of economic activity and therefore, the argument on double taxation was not acceptable, as per the Court. The order reads - "May be it is true that rectified spirit, alcohol, or denatured spirit supplied in the State of Jammu and Kashmir (now UT of J&K) from other State/States is exigible to tax under Section 7 of IGST Act, 2017, except when used for the manufacture of liquor fit for human consumption. However, that does not take away the power of the State to levy a duty of excise under Section 16 of the State Excise Act when such goods are imported by a unit for use in medicinal and toilet preparations. The IGST is charged by the Center on inter-State supply of goods and services, as per nature of such goods or services, as the case may be. The duty of excise impugned is on the quantity of goods imported for a particular use. The two levies, being legally distinct, can be levied simultaneously, and such a levy is not hit by the double taxation, as urged by learned counsel appearing for the petitioners."

The only relief the petitioners got pertains to levy of such duty on rectified spirit / alcohol / denatured spirit used as raw material for manufacture of goods, including liquor other than medicinal and toiletry preparations which was held as not permissible. The order seems to indicate that advent of GST may have reduced multiple levies but not the disputes involving non-GST levies [2025-VIL-01-J&K].

Mismatch between SCN and order - High Court sets aside order

Demand of GST, interest and penalty on account of mismatch in GSTR 3B and GSTR 2A/2B is department's standard practice. However, the taxpayer assailed the order on account of mismatch between proposal to tax and actual tax dues determined. The order was passed quantifying demand - an excess of Rs 200 crores (approximately) whereas the show cause notice contained proposal for about Rs. 10 crores. It relied on sub-section (7) to Section 75 of the CGST Act which provides that the amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice. The order demanded tax on transactions of supply effected at pan-India level i.e., levy of tax in respect of supplies effected outside the State of Tamil Nadu and the taxpayer urged that such demand was without jurisdiction. The department's only contention was that taxpayer had failed to reply and hence it could not assail the order. The taxpayer had sought adjournment(s) to collate information which had been denied. The High Court held that opportunity to reply becomes illusory and the notice would be an empty formality if the order is made on new / different grounds from the notice and set aside the order with direction to hear the assessee afresh but ordered a deposit of 10% of disputed amount.

The adjudicating authority should be proceeded against by initiating disciplinary proceedings. When the demand is Rs. 10 crores in the SCN, passing an order for Rs. 200 crores clearly demonstrates not only ignorance but also arrogance and contempt [2025-VIL-07-MAD].

Penalty of 200% not imposable for not registering additional place of business

The department detained the goods of the taxpayer citing violation of Rule 10 of CGST Rules, 2017, failure to register additional place of business and also imposed penalty under Section 129(3) of CGST Act, 2017. The taxpayer pleaded that it had been constrained to store goods at the unregistered premises but there was not] malafide and relied on State Circular No.10/2019/Q1/17253/2019 dated 31-5-2019 to assail penalty. On facts, it was found that E-way bill had been generated prior to movement of goods and the only lapse was that of additional place of business, there was no difference in quantity, value etc. The High Court held that since there was no variance between quantity in the invoice and the E-way bill and the actual seizure made, imposing penalty under Section 129(3) of CGST Act, 2017 would be harsh. It held that the non-registration of the additional place of business was a only a technical and venial breach, not warranting penalty. Unless e-way bill provision is abolished and Section 129 is totally recast, harassment on this issue will continue [2025-VIL-08-MAD].

No statutory sanction to "determine" state turnover from total turnover

Imparting a whole new meaning to "one nation one tax", cross empowerment and so on the taxpayer's taxable turnover from Bihar was computed as 40% of his total turnover including those of States other than Bihar. This was despite the gross turnover within the State of Bihar being specifically shown in the annual return. The High Court held that such computation was without statutory sanction and directed a fresh finalisation of assessment. The taxpayer was directed to provide all substantiating documents. The only counter offered by the department was that the taxpayer did not provide details of copies of GSTR-9, GSTIN, debit notes, trial balance or books of account relating to the other States and hence its application for rectification was to be rejected. GST regime is not only chaotic but also mindless in SCNs and orders [2024-VIL-1435-PAT].

ITC not deniable for availing IGST credit as CGST and SGST credit

Input tax credit of IGST was taken by mistake as credit of CGST and SGST and the consequence was obvious - order was passed demanding / seeking reversal of the same and appellate authority dutifully upheld the same. Fortunately, for the taxpayer, recent judgment of Kerala High Court in Rejimon Padickapparambil Alex v. UOI [2024-VIL-1284-KER] came to rescue. In this precedent order, the same High Court had held that ITC available should be seen as a pool of funds and the credit ledger represents a wallet with IGST, CGST and SGST compartments and the entire wallet should be taken into consideration. Section 73 of CGST Act to demand tax was also held as applicable when there is irregular availment of ITC and in cases where IGST credit has been taken as CGST and SGST credit, the same cannot be considered as wrongly availed credit.

The Court held that since the GST system treats electronic credit ledger as a unified source, the present case is not one of wrongful availment of ITC. It also noted that there is no revenue loss in such cases. The order demanding tax was set aside and the adjudicating authority was directed to consider the matter afresh after taking into account the precedent order. Except for the bar on use of CGST credit for payment of SGST liability and vice versa, ITC is largely available for cross-utilisation. Considering the trivial nature of such objections, appropriate clarification can be issued so that petty litigation is avoided [2025-VIL-10-KER].

Appeal against provisional assessment by department not valid

In a transaction of import between related parties, the original authority held that 'royalty' was not to be included in the transaction value as that payment was not attributable to 'condition of sale' as set out in Rule 10 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. This order of provisional assessment was appealed against by the department which was successful at the level of first appellate authority. However, the Tribunal noted that no particulars of the bills, valuation of which were in dispute, were provided. It held that the order of provisional assessment where assessment had not attained finality could not have been challenged in appeal and the order by the first appellate authority was without jurisdiction. Not only in GST, but also in Customs, quasi-judicial officers at the level of Commissioner (Appeals) lack the basic knowledge - when assessment has not attained finality, he had proceeded to admit, hear and decide the appeal itself [2025-VIL-06-CESTAT-MUM-CU].

CBIC bids adieu to 2024 with trade-friendly clarifications

CBIC has issued various circulars to clarify issues as recommended by the GST Council. Circular No. 240/34/2024-GST dated 31-12-2024 has been issued to clarify ITC availability for e-commerce operators where restaurant service is supplied through them but they are liable to pay GST [as notified under Section 9(5) of CGST Act]. E-commerce operators are not required to reverse proportionate ITC on inputs and input services which is attributable to the services supplied under Section 9(5). Since the liability under reverse charge, they should pay GST only using cash ledger and not credit ledger. Taking note of the practice prevalent in automobile sector, Circular No. 241 clarifies that goods should be treated as "received" by the recipient for the purpose of availing ITC when the sale is on ex-works basis i.e. sale takes place at factory gate and goods are handed over to the transporter for delivery to the buyer / recipient. Being a circular issued by the revenue board, it hastens to mention about the action that will be taken if the goods are diverted later or ITC being not available if the goods have been lost or destroyed. As revenue issue is involved i.e., the destination or consuming State should get the IGST revenue, proper mentioning of the State name in the tax invoice for place of supply purpose in respect of online money gaming has been emphasized in Circular No. 242. Transaction in vouchers is treated as neither supply of goods nor service, vouchers are instruments and actionable claims, pure trading in vouchers is not exigible to GST and applicability of GST on commission / fee when vouchers are distributed using distribution chain are part of the clarification contained in Circular No. 243. GST not being payable on unredeemed vouchers is a welcome clarification.

Previous edition, dated 30th Dec, 2024

(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)