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Tax Vista Your weekly tax recap Edn. 202 - 29th April 2024 By Dr. G. Gokul Kishore |
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Interest payable for delayed tax payment - ITC availability is not relevant
The Patna High Court has held that amendment to Section 50 of CGST Act whereby proviso was inserted to prescribe payment of interest in case of delay in payment of tax to the extent of electronic cash ledger does not mean the taxpayer is absolved of any interest liability if credit ledger is debited. Interest is payable when there is a delay in payment of tax and such payment is occasioned only on furnishing of returns and debit is made either electronic cash ledger or electronic credit ledger. Credit occurs in the case of input tax credit when the return is filed claiming such ITC. The amendment, according to the Court, is not to prohibit levy of interest in case of delayed return but to rectify the anomaly when deposit in cash ledger is claimed as payment of tax or interest or penalty by the taxpayer. Deposit in cash ledger does not mean payment of tax as it is similar to current account and after debit to such ledger, fund flows to government coffers when return is filed.
Based on the above reasoning, the High Court rejected the argument that interest is not liable to be paid if there is sufficient ITC balance i.e., only when tax is paid using cash ledger such interest would be payable. Availability of ITC in the electronic credit ledger has been held to be inconsequential since tax payment is only on furnishing of returns. It appears there was recovery action based on departmental audit and Monitoring Committee's direction which the Court faulted as no such direction can be given but the order does not stay or set aside such recovery. This order is one more in respect of ITC related disputes where clarity is still elusive [2024-VIL-366-PAT].
Tax dues stand extinguished when not included in resolution plan and such plan not challenged
The Patna High Court has held that when the GST authority has not challenged the resolution plan in respect of a company undergoing insolvency proceedings (CIRP) under IBC and when the GST dues have not been included in resolution plan, tax claims would stand extinguished and recovery of tax cannot be made. In this case, the SGST Authority did not apply to NCLT for inclusion of tax amount in resolution plan. The issue related to annuity receipts which the petitioner contended as exempted. The judgment of the Supreme Court in Rainbow Papers [2022-VIL-66-SC] holding that there was no obligation for the State to lodge a claim before Resolution Professional in respect of statutory dues for which recovery proceedings were initiated was distinguished on the ground that no recovery action was taken before resolution plan was approved in the case before it and no appeal was filed before NCLAT by the State and resolution plan was not challenged. The Court said it would follow the declaration of law made by the Apex Court in Ghanshyam Mishra case [2021-VIL-55-SC] and held that the tax claims would stand extinguished subject only to liquidation proceedings if resolution fails. The Court restrained the GST authorities from proceeding with recovery [2024-VIL-414-PAT].
Time-limit for claiming refund when incorrect type of tax paid
IGST was paid initially erroneously under the presumption of inter-State supply but later CGST and SGST was paid correctly as the transaction was found to be intra-State supply. Refund of IGST paid was sought but the same was rejected. Appeal was also not accepted on the ground that refund claim was filed after delay i.e., beyond two years. The appellate authority had taken date of payment of tax under the wrong head as the relevant date for computing the time-limit. The taxpayer petitioned the High Court and the Court noted that CBIC Circular dated 25-9-2021 clarified that relevant date would be the date of payment of tax under the correct head and for the past claims, further period of 2 years would be available from the date of circular. The Court held that claim was within time-limit and rejection was not sustainable. The appellate authority was directed to consider afresh. It appears that when the appeal was decided, the circular was not there and after the circular was issued, the petitioner filed refund claim for the second time. This is the good and simple tax of GST [2024-VIL-391-DEL].
Sweeping conclusion without discussion - High Court remands
An assessee engaged in managing and implementing various reward programmes and hence buying and selling gift vouchers on behalf of clients was assessed to have sold vouchers and that GST was payable. Despite the fact the assessee clearly summarised his case and argued that he is not a supplier of the goods underlying the vouchers and that he was only an intermediary, the department held that the arguments were not valid and that vouchers being actionable claims were goods. This one line dismissal of "sweeping conclusion" bereft of reason did not find favour with the High Court and the order was held as unsustainable. If orders are to result from such unreasonable process the entire exercise of show cause notice, calling for information in prescribed formats and hearing appears to be a farce. The impugned order states that the arguments of the assessee are not valid which is on a weaker footing than "have examined the arguments and not tenable" which is sometimes adopted for the inevitable confirmation of demand. It is beyond understanding what an assessee is expected to present as valid argument [2024-VIL-369-MAD].
Refund cannot be denied based on notice which is as vague as possible
While in the order on vouchers discussed in this issue, the argument was held invalid, an SCN issued in vaguest terms was defended as conveying reasons for denial of refund. The notice in FORM GST-RFD-08 stated that "According to Section 54 of RGST/CGST Act 2017 you are not fall in this category". From this the assessee-petitioner divined that refund was proposed to be denied on a cancelled booking on which GST had been paid at time of advance itself. The order merely reproduced Section 54(8)(e) of the CGST Act which states that refund cannot be given if the claimant has passed on the incidence of such tax and interest to any other person. The department did take that argument that having replied to the notice, the issue of reason not being provided could not be agitated by the assessee after order had been passed. The High Court held that the notice was as vague as it could be and directed fresh orders to be passed [2024-VIL-389-RAJ].
Denial of opportunity to cross examine faulting dealers - Order not sustainable
In many orders, it seen that the department does not have the heart to comply with principles of natural justice and the revenue bias is all too palpable. It appears that the department does not have time for the same and in a case before the Delhi High Court, the petitioner was aggrieved by denial of opportunity to cross examination of dealers whose registration had been cancelled. The ITC of GST pertaining to such dealers was proposed to be disallowed. The order was however candid enough to note that the officer too intended to call the dealers but there was paucity of time. The High Court held that denial of the right of cross-examination can cause grave and serious prejudice to the other party and remanded that matter. There was also an issue of forced payment during search on which the order was silent and stating that forced payment is not legal, the same was remanded for examination by the officer [2024-VIL-392-DEL].
Initiation of recovery proceedings before three-month period should be backed by sufficient reasons
The assessee is expected to do business, pay tax, struggle with portal, compliances but the officer cannot abide by even the statute. Recovery proceedings were initiated even prior to the expiry of the three-month period stipulated in Section 78 of TNGST Act and amounts were debited from the petitioner's electronic cash and credit ledgers. The proviso to Section 78 under which an officer may, in the interest of revenue, for reasons in writing require payment within a shorter time frame than 3 months was put forth as the defence for initiation of recovery proceedings without any explanation for the reason to invoke the proviso. The High Court ordered the department to either refund the recovered amount or recredit the same to the petitioner's electronic cash or credit ledgers within a month. While justice was done, there cannot be any amends for time lost or funds blocked on such a feeble ground for the petitioner [2024-VIL-396-MAD].
Amendment providing for supplementary SCN in Customs Act is retrospective
Amendment inserting proviso to Section 124 of Customs Act empowering customs officer to issue supplementary show cause notice proposing confiscation or penalty is declaratory of the earlier law and would be applicable retrospectively. This is the order of the Calcutta High Court. The amendment was made in 2018 while the supplementary SCN in this case was issued in 2017. According to the order, prior to the insertion of the second proviso the power to issue SCN, supplementary SCN and addendum was implicit and inbuilt in Section 124. It noted that supplementary SCN was issued when new facts came to light after investigation and, for all purposes, it should be treated as SCN and the word "supplementary" is to only indicate that it should be adjudicated along with the main SCN. It also upheld the finding of the adjudicating authority that supplementary SCN is also an independent SCN. Tribunal's order to the contrary was set aside and the question was answered in favour of the department [2024-VIL-411-CAL-CU].
Mango pulp is neither fresh, sliced mango nor dried mango and is taxable at 12%
Characteristic of the very many tastes and uses of mango, the petitioner-assessee who supplied "mango pulp" to 100% EOU obtained a bitter-sweet victory. Classifying mango pulp under relevant entry as "mangoes sliced, dried", which attracted tax rate at 5% GST, the assessee had paid 5% GST as arguably his product was not fresh mango which qualified for exemption. However, by way of Entry No.16 of Schedule - II of Notification No. 1/2017-Central Tax (Rate), after the word "guavas", the words and brackets "mangoes (other than mangoes sliced, dried)" were inserted and this attracted 12% GST. CBIC issued Circular dated 3rd August 2022 clarifying that "mango pulp" would be liable to GST at the rate of 12%. The assessee had sought clarification from CBEC Mitra Helpdesk according to which "mango pulp" (HS Code 0804) was exigible to GST rate of 5% (including 2.5% CGST and 2.5% SGST). However, the assessee received an SCN in terms of which "mango pulp" was classified under tariff item 0804 50 40 and GST was chargeable at 18% from 1st July 2017 to 17th July 2022 by virtue of residuary Entry No.453 of Schedule - III of Notification No.1/2017. In other words, mango pulp was not fresh, nor sliced, dried and was to be classified under a residuary head.
The petitioner sought quashing of the circular which according to him attempted give retrospective effect to the rate notification and also Section 9 of the CGST Act did not empower such amendment. The High Court held that the circular was only clarifying an issue and did not require to be struck down and also that the response of the help desk would not bind CBIC since it was not based on any deep analysis. It held that though mango pulp was certainly under the broad classification of fresh, sliced and initially taxed at 12%, the clarification by the GST Council that there was a third category attracting 12% could not be faulted. Of course, the department's stand that GST was payable at 18% was held to be without basis [2024-VIL-417-GUJ].
(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)