Tax Vista

Your weekly tax recap

Edn. 239 - 20th January 2025

Dr. G. Gokul Kishore

Receipts of regulatory bodies with trappings of Court not exigible to GST

Does a regulatory body conduct business and can its roles be bifurcated into adjudicatory, administrative and so on? The GST department did attempt this and issued show cause notices to Central Electricity Regulatory Commission as well as the Delhi Electricity Regulatory Commission (the Commissions), which culminated in the order assailed by the petitioners. The department argued that tariff and license fee from various power utilities was amenable to GST since "services" is defined under sub-section (102) of Section 2 of CGST Act, 2017 read with Section 2 (24) of the IGST Act, 2017 which states that "services" means anything other than goods and the supply of services by CERC would fall within the ambit of the word "consideration". The entire income of the bodies was held as subject to GST as being towards support services to electricity transmission & distribution services with SAC 998631 and IGST chargeable thereon @18%. Since the petitioners did not provide bifurcation of income into adjudicatory and regulatory streams, it was held that entire fee was taxable. The petitioners argued that they essentially discharge statutory functions as per the mandate of Electricity Act, 2003, no commercial consideration is received by it from the power utilities for its activities, there is no business objective and since electricity regulatory commission acts as a "tribunal", it could claim exemption under Schedule III of the CGST Act, 2017.

The High Court held that the show cause notices were invalid as also the orders. It held that price fixation exercise is really legislative in character and the legislature can delegate that power to some other authority. The delegation and its exercise by the authority does not make it administrative power or adjudicatory power and the distinction sought to be made by the department between the adjudicatory and regulatory roles was without basis. Since the Commission(s) acted as Tribunals to settle disputes etc., they had the trappings of a Court and could claim exemption under Schedule III of the CGST Act, 2017. As regards "business" it was held that power of regulation which stands statutorily vested in a Commission is not activity akin to trade, commerce, manufacture, profession, vocation, adventure and even if the fee so received by such Commissions were to be assumed as being consideration received, it was clearly not one obtained in the course or furtherance of business. Activities carried out in extension of the statutory obligation would not be business. The case emanates from the misplaced enthusiasm of DGGI which has reached the doorsteps of bodies performing judicial functions. Unless effective measures are taken, such unwanted litigation will only proliferate [2025-VIL-46-DEL].

Recipient can also claim refund of tax paid in cancelled contract

The revenue department appealed against the order of Singe Judge holding that the taxpayer could claim refund of tax paid on advance the supplier who failed to deliver the goods. The department contended that supplier who was the taxpayer, was obligated to issue credit notes for the cancelled contract and declare these in their tax return and the recipient could not seek a refund of SGST & CGST as the tax paid on the advance was the supplier's responsibility. The High Court held following Oswal Chemicals and Fertilizers Limited v. Commissioner of Central Excise, Bolpur - 2015-VIL-24-SC-CE wherein it had been held that the term 'any person' employed in Section 11B of the Central Excise Act, 1944 to include even the purchaser of goods and therefore purchasers too can seek refund of Central Excise Duty. It held that in the context of GST also levy of tax is on the transaction and if transaction fails what is paid in advance needs to be refunded and the recipient was eligible to claim refund. The Court also warned that if refund is delayed, interest will be recovered from officers.

The order reads - "What prejudice would be caused to the State by making the refund as sought for by the Assessee, is not discernible. Caesar cannot retain monies of citizens without statutory justification. After all, the Assessee is not going to make his unjust enrichment by obtaining the refund, but will get back his own money. Article 265 of our Constitution states that tax not to be imposed save by authority of law." Refund has to be rejected and any reason is good reason for the department and in this case, the claimant is the purchaser and therefore, refund is not eligible [2025-VIL-39-KAR].

Penalty not imposable when demand not challenged in a case of bona fide belief

Penalty is not imposable in case of bona fide belief - this is the ratio of numerous judgments. In addition to bona fide belief, if the demand of tax is not challenged (and the same is paid), then also, penalty is not imposable. This is the ratio of a recent order of Gujarat High Court. The case relates to service tax return wherein certain invoices / transactions were not reported and the taxpayer revised the return but attempted to revise second time which could not materialise. Therefore, service tax credit was carried forward through TRAN-1 to GST regime. Obviously GST department objected to the same as such credit was not reflected in the last ST-3 return and proceedings were initiated. In the earlier round, High Court directed the department to manually allow reporting of invoices / transactions in ST-3. One portion of the credit was rejected in the fresh adjudication process as it pertained to invoices were raised in GST regime also for such invoices.

In the second round, the taxpayer challenged demand of interest and levy of equal amount of penalty. The petitioner argued that provisions of CGST Act could not have been invoked for interest and penalty as the case involved Cenvat credit and not input tax credit under CGST Act. The Court did not agree. It held that Cenvat credit carried forward is credited in electronic credit ledger and the same would fall under "input tax credit" under the CGST Act also. It held that since the amount was deposited after the order was passed, the taxpayer was liable to pay interest under Section 50 of CGST Act. It, however, set aside the penalty on the ground that the taxpayer was under bona fide belief that credit could be carried forward and confirmation of demand was not challenged by them. The taxpayer is fortunate - the High Court not only went deep into facts but also partly held in favour. The ratio mentioned in the opening sentence above should be useful to others also [2025-VIL-43-GUJ].

Penalty under Section 129 - High Court explains the scope

Part-B of e-way bill was incomplete or missing. The department contended that Section 129 of CGST Act is invocable even if mens rea or intent to evade tax is absent as it requires only transportation of goods in contravention of the provisions. E-way bill was rectified the next day of detention but tax was demanded and equal penalty was imposed. In another writ petition, the taxpayer argued that they had time to extend the validity of e-way bill but the authorities proceeded to take action.

The High Court dealt with in detail the various facets and interpreted the penalty provisions and held that the non-obstante clause in Section 129 cannot be interpreted as being intended to override what had been specifically provided in Section 126 providing for non-imposition of penalty for minor breaches and penalty imposed should be commensurate with the degree and severity of the breach. This order contains good discussion on interpretation of non-obstante clause of "notwithstanding". Section 129 covers detention, seizure and release of goods in transit which are not covered by Sections 122 to 124. The order explains the scope of the term "contravention of the provisions of this Act" used in Section 129. Orders demanding tax and imposing penalty which were challenged were set aside by the Court after calling for - "We are also of the firm opinion that the levy of penalties under the Act must be guided by the salutary principles which stand embodied in Section 126. That statutory provision is undoubtedly an embodiment of the legislative intent of levy of penalties being guided by principles of moderation, restraint and reasonableness."

In this column, however, a consistent position has been adopted that Section 129 should either go or should be amended drastically and till such time, harassment and litigation will continue [2025-VIL-52-DEL].

Challenging description of goods without sample - Detention of goods not valid

The taxpayer's goods were intercepted on the ground of different goods being transported other than mentioned in the accompanying documents i.e., it is was not R.B. oil but mustard oil. No notice was issued in MOV-07, samples were not drawn, genuineness of documents was not doubted, no intent to evade was mentioned but order was passed in DRC 07 raising demand and imposing penalty. The taxpayer contended that the entire proceedings were invalid while the department argued that since Form DRC-01 and DRC-07 had been issued under amended provisions, there was no flaw in the proceedings. The High Court held that without any observation of intent to evade tax, no proceedings could have been initiated under Section 129(3) of the CGST Act and goods could not be determined to be mustard oil without any testing of samples. The impugned order was quashed. It is in Customs the practice of drawing samples and getting test reports is generally adopted and SGST officers are hardly used to such requirement and this order is welcome in enriching the jurisprudence in GST [2025-VIL-40-ALH].

Certificate of Origin cannot be discarded without verification as per rules

Based on Export Declaration submitted by the freight forwarder, which was unsigned and not attested, the customs department held that goods did not originate from UAE as declared by the importer but from Pakistan. The importer had submitted commercial invoice, packing list, fumigation certificate, Certificate of Origin (COO) issued by Ajman Chamber of Commerce, UAE and the phytosanitary certificate issued by Plant Protection Organization, UAE. The CESTAT held that in case of any doubt about the COO, verification should have been carried out with the concerned UAE Authorities in terms of Rule 6 of the Customs (Administration of Rules of Origin) Rules 2020. It held that merely on the basis of documents from the freight forwarder which had other discrepancies also, the COO could not be rejected and set aside the impugned order [2025-VIL-61-CESTAT-DEL-CU].

Previous edition, dated 13th Jan, 2025

(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)