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Tax Vista Your weekly tax recap Edn. 201 - 22nd April 2024 By Dr. G. Gokul Kishore |
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Recovery action against ex-director - High Court quashes order as illegal
When it comes to recovery, SGST authorities not only mention in the adjudication order that the amount confirmed should be paid within a week or 10 days, they also threaten and further implement such threat of recovery action. For companies, it may be a long and avoidable legal battle but when the recovery is initiated from the Director of the company, the issue becomes very serious. In a recent case reported last week by VIL, the petitioner was Director for some time but later his DIN was disqualified, he did not participate and then finally resigned. Later, GST authorities issued SCN and passed order confirmed demand of tax against the company. Recovery action was initiated against the said ex-director by attaching his personal property and also bank account.
The High Court held that Section 79 of CGST Act could not have been invoked as the petitioner was not a "registered person" and principal liability was not on the petitioner. Subjective satisfaction was sine qua non before proceeding under Section 89 and the same was also absent in the case before it. The basis for attachment of property was stated by the High Court as not known since the order was sans any reason. The order was held as illegal and set aside and attachment was ordered to be lifted. The petitioner must have spent sleepless nights since FIR was lodged by SGST authorities with local police also. SGST authorities are not aware of prosecution provisions to the extent that they file FIR with police. The petitioner had to obtain anticipatory bail also. It may sound pessimistic but considering the capacity of bureaucracy, GST is bound to fail [2024-VIL-358-BOM].
IGST on ocean freight - Precedent applicable to both FOB and CIF contracts
SGST officers can alone distinguish the judgments of the Supreme Court and High Courts even when they are squarely applicable to a particular case. In Mohit Minerals [2020-VIL-36-GUJ], relevant entry in Notification No. 8/2017-Integrated Tax (Rate) attempting to cast liability on importer in India in respect of ocean freight was held as ultra vires the IGST Act and such judgment was upheld by the Supreme Court. However, SGST authorities in Maharashtra felt that the judgment would be applicable only in case of CIF contracts / imports and not to FOB contracts. The taxpayer had to challenge the notice and the High Court held that such argument is not acceptable and both types of cases - CIF and FOB were involved in the said case before Gujarat High Court. The Bombay High Court also relied on Supreme Court order in Kusum Ingots & Alloys [2004-VIL-59-SC] to drive the point that once the Central notification has been set aside, the same could not be used by SGST authorities in Maharashtra. The amount paid by the petitioner was ordered to be refunded with interest. It may be an exception to have FOB contract for imports as CIF is the Incoterms India adopts. However, when the notification entry has been set aside, nature of contract or contract terms hardly matter so long as the importer is not the recipient of service [2024-VIL-356-BOM].
Advance tax paid and lying unutilised can be transitioned into GST
Though we find the vestige of earlier tax regime in the orders, SCNs, interpretation of ITC admissibility in GST regime having been transitioned smoothly, the department would like to completely quarantine transition credit from the earlier regime. According to the department, advance tax of VAT paid and lying unutilised in the books was not capable of being transitioned into GST. The department argued that ITC alone can be transitioned and advance tax could have been obtained as refund. However, the Madras High Court held that the expression "any amount of Value Added Tax and Entry Tax remaining unutilized in the return" in Section 140 (1) of the TNGST Act, 2017 cannot be restricted to input tax credit alone and even advance tax paid and lying unutilised can be transitioned [2024-VIL-354-MAD].
Orders sans reasoning and with errors - High Court remands matter
It appears that the reasoning in the interpretation of the department is restricted to stating that documents were examined and opinion was formed. In a recent case before Madras High Court, one of the issues was demand on account of "blocked" ITC merely stating that it cannot be availed in respect of certain items under Section 17(5) CGST Act without any discussion on how it fell within the ambit of blocked credit. Apparently, the officer was also of the view that a table with some details would suffice without lengthy discussions. Also, GST was held to be payable under reverse charge mechanism on professional fees though no such provision exists in the statute. The High Court held that the order sans reasoning and without examination of documents on tax paid on professional charges was not sustainable and remanded the matter. It may be a case of natural justice galore, but no one gains in the successive rounds of adjudication when issues could have been decided in the first instance when documents, details etc., were available. The kind of demands being raised by SGST authorities will ensure that such officers will be divested of quasi-judicial powers in future [2024-VIL-360-MAD].
The above common heading may appear general but it is the fact. In yet another case of order without reasoning, the assessee's explanation and CA certificate submitted in compliance with Circular No.183 were not found to be acceptable by the officer and demand ensued. The issue was mismatch in ITC between GSTR 2A and GSTR 3B and credit notes were erroneously reported as ITC. The High Court held that there was no effort to find out whether such error led to revenue loss and why documents were not acceptable and the authority was directed to adjudicate afresh [2024-VIL-352-MAD].
GST on trade receivables and income received elicited from accounts not sustainable
Supply has been defined widely and perhaps wide enough to include trade receivables, any amount declared as income in the books of the assessee or any sum for which no information is provided by the assessee. As per the impugned order in a recent case, the assessee did not provide trial balance of Tamil Nadu and hence all India figures formed the basis of demand of GST. Also, the current favourite of trade receivables was included but the High Court held that "imposition of tax liability on the total value of trade receivables flies in the face of reason" and that imposition of tax at 36% on total turnover though turnover figures were available in GSTR-9C reconciliation statement of the assessee was unsustainable. It directed passing of a fresh order. GST Council may have to consider thorough examination of implementation of GST provisions and those relating to assessment / adjudication, in particular so that remedial measures can be taken before GST becomes a grand failure [2024-VIL-355-MAD].
Ice cream is not an item of luxury - High Court directs GST Council to consider plea
Delhi High Court had passed an order in Del Small Ice Cream Manufacturers Welfare Association case [2021-VIL-96-DEL] to consider the plea of small manufacturers against exclusion from composition scheme. A similar petition has been disposed by Chhattisgarh High Court with similar direction to GST Council. The Court has said that ice cream is consumed widely and it is not an item of luxury and GST Council ought to have taken into consideration socio-economic effect. The petitioners had contended that ice cream has been treated on par with pan masala and tobacco products without any reason. The government argued that 70 to 80% of ice cream is being manufactured by such small-scale manufacturers and the decision has been taken by the GST Council after considering all aspects. With summer at its peak in the country, the direction should at least have some cooling effect for the petitioners [2024-VIL-347-CHG].
Denial of credit though net tax payable is minus figure not sustainable
A tax officer can at the minimum be expected to put two and two together even if massive legal interpretation may be a challenge. However, though the net tax payable was shown as a minus figure meaning that advance tax had been paid in excess, because the column for ITC was filled incorrectly as 0.00, credit was denied. It appears the case relates to transitional credit and carry forward of ITC of earlier regime. Unsurprisingly the credit of ITC carried forward by the assessee was denied, without proper hearing opportunity of course unsurprisingly. The Division Bench held that credit cannot be denied based on mere erroneous entry in one column when it was possible to discern facts if the documents were examined completely and remanded the matter. It set aside the order of the Single Judge wherein it was held that since assessee had entered 0.00, credit could be denied [2024-VIL-353-MAD].
Multiple re-assessments by Customs before granting clearance is permissible
Multiple re-assessments are permissible as per the Tribunal. The appellant contended that assessing officer resorted to multiple assessments of two bills of entry contrary to Section 17 of Customs Act and no SCN was issued before finalizing assessment. It was argued that merely because clearance was not given, it does not mean that assessment was not completed. The department said assessment is a dynamic process and it will end once the customs officer clears the goods for home consumption and till such time, re-assessment can be done multiple times. The CESTAT agreed and held that Section 17 does not say that officer can re-assess only once and after goods are cleared and duty is paid, based on examination, assessment may have to be revised. According to the order, assessment is not one-shot affair as it has be revised on receiving additional inputs from examining officer or based on intelligence relating to non-declared items. The Tribunal has pointed to the benefit for the importer since even after re-assessment but before out of charge, if the importer realises some exemption has been missed out, he requests and bill of entry is recalled and re-assessed again.
It has pointed out to certain "absurd consequences" if contention of appellant on re-assessment being one-time exercise is accepted - if goods are found to be different on examination, assessment cannot be changed, bill of entry cannot be recalled if exemption is omitted to be claimed, etc. It further held that provisional assessment can be made after initial re-assessment because the same is based on declarations. On absence of SCN, the Tribunal noted neither Section 17 nor Section 18 provides for the same. The only relief the appellant got was rejection of enhancement of value based on their own previous import on the ground that the quantities were significantly different though classification was decided against them [2024-VIL-375-CESTAT-DEL-CU].
Cash refund of CVD and SAD paid after implementation of GST is admissible
CESTAT has held that cash refund of CVD and SAD deposited after implementation of GST for regularisation of Advance Authorisation (for shortfall in export obligation) in respect of imports made before 1-7-2017 would be admissible. Cenvat credit of said taxes could not be taken due to advent of GST and therefore, refund claim seeking cash refund was filed under Section 142(3) of CGST Act. The claim was rejected citing absence of provision in Central Excise law allowing cash refund. The Tribunal after analysing Section 142 of CGST Act held that refund of CVD and SAD paid after 1-7-2017 under the existing law (pre-GST law) was available since Cenvat credit was no longer available. It appears that the department seeks to reject refund in such cases only because it is refund. The provisions are unambiguous and they have been drafted to specifically cater to such situations where amounts under pre-GST laws become payable after GST but credit of the same could not be taken as availing the same as ITC in electronic credit ledger in GST is not allowed. Cash refund has been provided only to tackle such a scenario but the tax administration interprets the provision to mean that there was no cash refund facility in the pre-GST law in such situations [2024-VIL-383-CESTAT-HYD-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)