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Tax Vista Your weekly tax recap Edn. 203 - 6th May 2024 By Dr. G. Gokul Kishore |
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Exemption to services by examination board - High Court passes detailed order
In an elaborate order, in this season of entrance exams, Delhi High Court has held that accreditation service and screening test conducted by examination board are not exempted while NEET (PG) and certain courses conducted are exempted and GST is not payable. In this case, the board paid GST but sought refund which was rejected. CBIC Circular No. 151 was assailed as contrary to notification. The High Court noted that the board provides four services - conduct of NEET exam, grant of certain qualifications, conducting test on receipt of fee and accreditation services on receipt of fee. The board contended that GST is not payable on all such services as it is an educational institution but the Court did not agree. It held that even if the petitioner is an educational institution, the fee charged for screening test and accreditation fee from medical institutions would not be covered by the entry in the exemption notification on services provided to students, faculty and staff. The screening test conducted has been held as not an entrance test nor would be covered as services provided to students.
On NEET (PG), fees collected being for conduct of exam, it has been held that GST is not payable and exemption would be available as per the entry inserted in 2018. In respect of courses conducted, they are part of curriculum and therefore exempted. The circular was held as merely clarifying the GST rate of 18% being applicable to accreditation service and is in conformity with the notification. Several issues relating to educational institutions like universities, examination or testing boards or agencies need clarification as the institutions or agencies entertain the belief that all their services are exempt while the department considers otherwise [2024-VIL-428-DEL].
Refund admissible on export of services to foreign subsidiary
The petitioner rendered services to its subsidiary in Australia and claimed refund of taxes paid. It was denied on the ground that the petitioner-assessee and the subsidiary were mere establishments of the same person. According to the impugned order, as related persons - holding and subsidiary, dealing was not at arm's length and relevant provision of IGST Act, 2017 was not satisfied. However, the petitioner drew support from CBIC Circular No.161/17/2021-GST dated 20-9-2021 wherein it was clarified that company incorporated in India and a body corporate incorporated by or under the laws of a country outside India, which is also referred to as foreign company under Companies Act, are separate persons under CGST Act and contended that two distinct legal entities are not merely establishments of the same person. The High Court held in favour of the petitioner and passed directions for the refund to be processed with interest. The circular was not available when the orders were passed but the department has still argued that the orders were sustainable. Such matters should be conceded instead of contesting the same [2024-VIL-426-MAD].
Interest on delayed payment of erroneous refund is automatic
The taxpayer had obtained refund of credit transitioned by him though it pertained to basic customs duty and was as such not admissible as Cenvat credit. The department paid the refund and later demanded the same along with interest and penalty. Though the taxpayer was successful in obtaining relief as regards penalty, demand of interest was upheld. The High Court also held the same since initially the refund had been obtained erroneously and there has to be a restitution of the unjust benefit gained. It did not accept the argument that Section 50 of CGST Act, was applicable only in case of non-payment of tax since Section 50(3) also talks of undue or excess claim of input tax credit had upheld the demand of interest. It is not clear how refund was granted at the first place and how the taxpayer availed credit of BCD. More surprisingly, the impugned order was in favour of the taxpayer wherein penalty was not imposed under Section 74 of CGST Act [2024-VIL-429-MAD].
ITC cannot be denied without enquiry at supplier's end for his default
The denial of ITC for the fault of the supplier to pay taxes was once again before the High Court. Apparently, the tax authorities find it easier to penalise the disciplined child rather than investigate the errant one. Oddly the order itself stated that though the buyer/assessee paid tax, the supplier failed to remit the same to the exchequer and hence ITC was denied. The High Court held that the elementary principle to be adopted is to cause enquiry with the supplier and without doing so to penalise the appellant would be arbitrary, illegal and without jurisdiction. The impugned order as well as the show cause notice were set aside. This issue will be litigated for at least a decade till the time policymakers have the vision to draft law to contain the same [2024-VIL-432-CAL].
GST paid on goods not supplied liable to be refunded
Heading may appear very elementary but for taxpayers, every trivial matter involves a big fight and labour. The GST department insisted that in order to be eligible for refund the taxpayer (recipient) ought to have obtained a credit note from the supplier and only then he could claim refund. The taxpayer had paid advance for goods but when it was learnt that it would not be supplied, he encashed the bank guarantees to recover value of goods. For the GST paid, he applied for refund which was of course rejected. The High Court held that applying doctrine/principles of unjust enrichment and restitution, the department could not retain the GST which was in fact not payable as supply had not taken place. The issue of credit note has been misunderstood by majority in the tax administration - either they insist it should be issued where it was not issued or where it has been issued, the same is held as not relevant for claiming adjustment [2024-VIL-434-KAR].
Customs Valuation - Discount offered to related person not includible when extended to all customers
While there are certain well-made out Customs Valuation cases by the department, a few others portray a poor picture of the understanding of law and the urge to somehow confirm the demand. In a transaction between related persons, special discount of 22% was offered to the importer in India by the foreign parent company and further, prompt payment discount of 3% was also offered. The adjudicating authority held that offering of such discount uniformly to other customers was not proved and therefore, 22% discount was to be loaded to the declared transaction value. This is despite the fact that the parent company filed evidence to prove that such discounts are offered globally as a policy to all customers. On appeal, Commissioner (Appeals) not only upheld the loading, but also directed the lower authority to consider whether 3% can also be added to transaction value.
The Tribunal's task became easier as it noted that there was no reason given for rejecting the discount policy document produced by the appellant. It noted that though not contemporaneous, even before the appellant had office in India, the foreign parent had extended similar discount to unrelated parties. Though deductive method was used for revising the value, the Tribunal held that determination of value does not arise in such cases where the order was based on surmises without any reasons to discard the declared value. In respect of 3% cash discount, it said the Commissioner (Appeals) became investigator and travelled beyond the scope of appeal [2024-VIL-439-CESTAT-CHE-CU].
EGM alone cannot be the basis for demanding customs duty
A recent order of CESTAT provides good insight on procedure to be followed for import of bunker, its warehousing and subsequent supply as ship stores. HSD and furnace oil were imported duty-free and warehoused for re-export including supply to foreign going vessels. In-bond supplies were made under the supervision of customs officers. Diversion and failure to export were alleged by DRI. The appellant pointed out that Customs officers in their statements have not said that certification was erroneous. Absence of Let Export Order was cited in the SCN while the adjudicating authority held that details were missing in EGM filed by the vessels.
Section 85 on warehousing of stores, consumption as ship stores under Section 87, Section 69 to show export as made in the shipping bills, etc., have been discussed by the Tribunal in the order. It held that the supplies were duly assessed by Customs and acknowledgment by Master of the vessel and by customs officers who escorted bunkers, etc., proved that supply was actually made to foreign going vessels. Lack of evidence produced by the department to level a serious allegation of diversion was also held against it after pointing to non-identification of any customer who received such goods and absence of transport document. EGM alone cannot be the basis for duty demand, as per the order [2024-VIL-429-CESTAT-AHM-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)