Tax Vista Your weekly tax recap Edn. 200 - 15th April 2024 By Dr. G. Gokul Kishore

 

 

Tax Vista - 200th Edition

This is the 200th edition of Tax Vista. This weekly column has completed 200 weeks - uninterrupted since June, 2020. Hundreds of orders and judgments, notifications, statutory amendments, etc., have been highlighted, explained, discussed and commented upon with the only objective of sharing the pains of taxpayers and to bring them to the attention of those who can change the system. I am immensely grateful to Mr. Samir Singh of VILGST.COM for having given this opportunity and Mrs. Subhashree, my wife and Advocate for the excellent support in the form of internal discussions before Vista is prepared and finalized.

 

Parallel proceedings - High Court explains meaning of subject matter

As noted recently in Tax Vista, cross-empowerment and parallel proceedings continue to be embroiled in controversy. The taxpayer challenged summons issued by DGGI on the ground of initiation of parallel proceedings by the SGST officers. Invoking Section 6 of CGST Act and CBIC instructions on taking investigation to logical conclusion by CGST or SGST officers irrespective of jurisdictional allocation, the petitioner was of the view that the proceedings were on the same issue of 'suppression' as alleged. The department contended that summons issued were for a different issue and the period involved was also different. Investigation by SGST authority was in respect of purchase from one of the suppliers of the petitioner-taxpayer while that of the DGGI was clandestine supply.

 

The High Court held that "subject matter" is the key as per Section 6 and if the subject matter is different, then there is no bar on initiation of proceedings by different officers. Relying on precedent judgment, it held that cause of action and relief claimed are the determinants and if both are same in two suits (cases), then subject matter would be considered as same, otherwise not. Though it noted that the issues before SGST authority and DGGI were different, it did not decide the petition on merits. Because summons were assailed, it did not agree with the stand of the petitioner in not complying with the summons and since SCN was issued, it directed filing of reply. This order clarifies a major expression "subject matter" as this is the deciding factor as to whether the issues dealt with by SGST and CGST officers are one and the same and whether multiple or parallel proceedings are being undertaken [2024-VIL-321-ORI].

 

Interest demand without proper adjudication - High Court quashes

GSTR-3B return was filed after due date and therefore, interest on delayed payment of tax was sought through a notice warning the taxpayer that if interest is not paid, SCN would be issued. The taxpayer filed appeal against such "notice" which was rejected. The taxpayer was before High Court arguing that such demand / order could not been raised / passed without proper adjudication order. It appears that the summary of order - DRC-07 - was issued by the tax officer without following the adjudication procedure or there was not detailed order passed. The High Court accepted the plea and set aside the notice / order after noting that there was no adjudication before a demand for interest for delayed filing of returns was raised. While it is settled law that no separate notice is required for interest and interest levy is automatic, it appears that the department botched up the exercise by issuing a notice and then proceeded to pass summary of the order without full-fledged order. As repeatedly emphasized in this column, quasi-judicial powers should be divested from tax authorities who discharge executive functions also and a separate hierarchy with legally trained officers should be considered for such justice-dispensation function [2024-VIL-327-JHR].

 

Refund not deniable merely because government portals have compatibility issues

Refund of IGST on exports was denied on various grounds including the issue of shipping bill carrying date prior to date of invoice. The goods were sent on consignment basis and the petitioner argued that in such cases invoice for confirmed goods would be after date of shipping bill and GST portal does not provide for any solution to such transactions. Part of the consignment not accepted by the foreign party has been stated as reimported without customs duty. It appears the petitioner "updated" the shipping bill based on "rectified" GSTR-1 and GSTR-3B and followed up the refund application with prayers and petitions. CBIC issued circular on 18-7-2019 stating that goods exported on exhibition / consignment basis would not be considered as zero-rated supply and refund would not be admissible.

 

The High Court noted that such issues involve interplay between Customs and GST laws and verification indicated that reimported goods were examined by Customs authorities and in respect of both export and import, provisions of both Customs Act as well as GST law were followed and documentary evidence was available to prove eligibility to refund. It pointed out that as per the provisions, shipping bill itself would be treated as refund application. Merely because of compatibility issues in respect of data between Customs and GST authorities, refund was held as not deniable. The Court also said that petitioner could not be made to suffer only because the portals (GST and ICEGATE) did not have required functionality which was not attributable to the exporter-petitioner. Considering the fact that period involved was prior to issuance of the said circular, it held that such circular was not applicable and even otherwise, it could not override the provisions.

 

On intra-departmental issues, the Court said - "It is, hence, clear that both the authorities are disowning their obligation and/or authority to refund the IGST as paid by the petitioner while not denying that the petitioner was entitled to the refund. The position is something which is not only disturbing but a shocking state of affairs in the authorities inter se not resolving such issues. We also do not find that any attempt was made to resolve the issues by both the parties. Any internal or departmental conflicts cannot cause prejudice to the assessee. Such approach on the part of the authorities is certainly not conducive to international trade and commerce." The Court directed payment of refund with interest. The above reproduced portion speaks more than our comments about the state of affairs [2024-VIL-326-BOM].

 

Delay in filing appeal against refund rejection not covered under limited amnesty

The petitioner prayed that Clause 5 of Notification No.53/2023-Central Tax dated 2-11-2023 was arbitrary in as much as it denied the extension of time limit to file appeal in cases where no tax demand was involved. This notification provided for limited amnesty in respect of appeals not filed in respect of orders passed by specified date. The refund application of the petitioner was rejected but orders were not communicated to it and only uploaded on the portal. Post obtaining a physical copy after about one year, the petitioner filed appeal but it was rejected citing time bar since appeal has to be presented within a maximum of 4 months (including condonation) as per Section 107 of CGST Act. The High Court held that the petitioner had the option of filing appeal before the Tribunal or a Single Judge Bench and as such the writ petition was not maintainable. Regarding the prayer for declaring Clause 5 of the above notification as ultra vires since it discriminated against those who were appealing against a tax demand and others, it held that no cogent reason was advanced for the same.

 

It is surprising that even major companies have issues in checking the GST portal and are not able to ascertain whether orders have been uploaded in the portal. While the action of the department in not properly communicating orders cannot be defended, taxpayers may have to check the portal thrice a day to keep surprises in check [2024-VIL-337-CHG].

 

Part of interest disputed not required as pre-deposit for filing appeal

The petitioner was aggrieved by the direction of Single Judge to deposit 20% of interest in order to entertain the writ petition against order passed by the adjudicating authority. Since GST Tribunal has not been constituted, the taxpayer approached the High Court. The department contended that being a discretionary remedy, the requirement of pre-deposit of interest was fair. However, the petitioner argued that the statute in Section 107 of CGST Act as well as Section 112 of CGST Act mention only tax in dispute and not interest or penalty and the direction of the Single Judge cannot go beyond the legislative intent as discernible from the statute. The Division Bench agreed with this view and held that the order passed by the learned Single Bench directing the petitioners to pay 20% of the remaining interest is to be set aside. It said that discretion to be exercised by the Court should be as per the statute. While this may be applicable to a case involving pre-deposit, such ratio may not be applicable in cases where directions are given for deposit of particular amounts while quashing the impugned orders and matter is remanded for de novo consideration [2024-VIL-336-CAL].

 

Statement recorded under coercion, later retracted cannot be relied upon

The order of enhancement of value for customs purposes was wrong on more than one count including non-sequential application of Customs Valuation Rules and use of electronic record- disk extracted from a computer without recording year of manufacture of computer, model number, the exact location of premises etc., as per Section 138 C of Customs Act. The department had relied heavily on statements recorded from the directors which were stated to be extracted under coercion, the persons sustained injuries and later retracted the statement. A fresh statement recorded under the directions of Gujarat High Court proved to be ex-inculpatory. However, the department chose to rely on the original statement and orders were passed. The Tribunal set aside the orders holding that the original statement could not have been relied upon without discharge of burden by the department of same being voluntary by examination of the entire statement of director by the adjudicating authority.

 

The order speaks about use of third-degree methods during investigation to the extent of fracture in nasal bone. The adjudicating Commissioner had observed that delay of 5 days in retracting statement was an after-thought. On valuation, it seems proforma invoice was the basis for rejecting transaction value. The Tribunal specifically pointed to absence of any evidence of excess remittance to foreign party. [2024-VIL-351-CESTAT-AHM-CU].

 

Royalty and technical knowhow fee - Same issue, same grounds and same outcome

Casting a new angle to valuation under SVB and customs valuation in general, the importer was served an order rejecting transaction value and holding that royalty is to be included. The assessee imported goods for manufacture of aluminium casting and also entered into an agreement for use of "counter gravity casting technology" patented by the supplier. Royalty was payable as lump sum fee and also running royalty based on number of castings produced using the technology. The original authority directed addition of lump sum fee and royalty fees besides technical knowhow fee and rejected the transaction value. But there was no separate finding that the transaction value was being rejected before considering the additions and on appeal the matter was remanded by Commissioner (Appeals) for redetermination even while upholding the inclusions.

 

The importer appealed to CESTAT against the inclusion and also contended that transaction value cannot be rejected and, in any case, no new value had been determined. The Tribunal held that since on perusal of agreement it was evident that the royalty did not form part of the cost of goods imported i.e., it was not a condition of sale no inclusion was warranted in terms of Rule 10 (1) (c) of Customs Valuation Rules. Also, since no grounds were adduced for rejection of transaction value and the only issue was inclusion of royalty, the order was set aside and it was held that there was no requirement for remand. Customs authorities never get tired of disputing royalty and knowhow fee and in a majority of cases, the issue has been decided in favour of the importers. But for such importers, the success comes at a cost in terms of time and avoidable expenses [2024-VIL-338-CESTAT-CHE-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)