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Tax Vista Your weekly tax recap Edn. 205 - 20th May 2024 By Dr. G. Gokul Kishore |
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Proceedings cannot be initiated against dissolved company or its erstwhile directors
The department was well and truly on the wrong foot in the case before Karnataka High Court wherein show cause notice was issued after the company had been dissolved / liquidated. Under the shelter of Section 88 of CGST Act, the department also contended that it was within powers to proceed against the directors of the erstwhile company. The petitioner argued that the department cannot initiate tax assessment proceedings under the provisions of CGST Act against a company which is dissolved under Section 59(8) of the IBC Act. The registration of the company has also been cancelled.
The High Court held that sub-rule (1) Regulation 4 of the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 clearly provides that the company shall cease to exist except as far as required for the beneficial winding up of its business and hence the GST department could not have proceeded against the company. On application of Section 88(3) of CGST Act, it held that if the Commissioner has not issued any notice to the liquidator under Section 88(2), it may not be permissible for the Commissioner to seek to adjudicate the tax liability against the directors of the company by issuing a demand to the company which is non-existent in the eyes of law. Generally, orders where GST department has proceeded against corporate debtor when resolution process is underway under IBC, are seen. This order on dissolution and effect of the same on tax dues and also liability of directors is a rarity and may be useful as precedent for similarly placed entities [2024-VIL-480-KAR].
Penalty not imposable for mentioning wrong vehicle number
When it comes to enforcement, officers are strict and cannot brook mistake even if it is all too apparent that there is no malafide. The goods of the petitioner which were being moved on stock transfer were detained and penalty was imposed on the ground that vehicle number mentioned in e-way bill was not correct. The assessee-petitioner argued that his case was covered by CBIC Circulars No.41/15/2018-GST dated 13-4-2018 and 49/23/2018-GST dated 21-6-2018 since there was no intention to evade tax, this human error deserved to be treated leniently. The High Court held that wrong mention of the vehicle number did not attract rigours of Section 129 of CGST Act as it was a minor discrepancy and the transaction was also one of stock transfer and set aside both the orders, levying and confirming tax and penalty. It is time for the CBIC to come up with a fresh circular considering the orders issued by various High Courts on variety of issues relating to e-way bill errors [2024-VIL-492-ALH].
GST demand based on all-India turnover and comparing GSTR-3B with Form 26AS
In an all too familiar case of assessee approaching the writ court since GST Tribunal is not functional yet, the orders confirming tax based on all India turnover were challenged by the assessee. Both parties claimed that the other was at fault with assessee relying on his submissions and response and the officer stating that proper documents and separate trial balance etc., were not provided to reconcile the figures of GSTR-3B with Form 26AS and so on. The High Court directed a fresh hearing with assessee providing requisite documents and the officer considering the same. A pre-deposit of 10% of tax was also ordered after excluding certain items of demand and release of attachment of bank account was also directed.
Raising objection based on comparison of GSTR-3B or GSTR-1 with Form 26AS is becoming a routine now though the forms / returns are under different laws with different fields or reasons. The SGST authorities invariably harass taxpayers citing such differences and even when documents are produced, orders are passed confirming sky-high demands with the statement that records were not produced [2024-VIL-485-MAD].
Appellate authority empowered to reduce redemption fine
This time the department was the petitioner, aggrieved by the order of the appellate authority which reduced the fine on goods confiscated to four times the tax whereas the adjudicating authority passed an order imposing penalty based on market value of goods. According to the department, only the adjudicating authority is empowered to decide quantum of fine and the same cannot be modified on appeal. The premise of the appellate authority that the assessee being a registered taxpayer was entitled to this lighter fine was also assailed. The High Court held referring to Section 107(11) of the CGST Act that there is no fetter on the power of the adjudicating authority and that the issue of redemption fine involved both question of law and facts and the appellate authority was empowered to reduce the fine after taking into account relevant facts and applying his mind. The order reads - "From the reading of sub-section (11), it is evident that the appellate authority has ample power to decide the issue afresh and make enquiry to decide the issue in appeal. In view of the provisions of the Act, it would be difficult to say that the appellate authority has no jurisdiction to interfere with the discretion exercised by the adjudicating authority in imposing the fine in lieu of the confiscation of the goods other than the market value of the goods." It declined to interfere with the order stating that there was no unreasonableness or arbitrariness. It is this type of dispute that earns the revenue department the honor of being litigation-minded. Fine or penalty is not revenue per se and challenging the same in writ court is ill-advised [2024-VIL-484-KER].
GST audit can be conducted even after cancellation of registration
On a combined reading of Section 65 of CGST Act on audit and Section 29 (3) of the CGST Act which states that even after cancellation, if any tax liability subsists, the registered person is required to pay the tax, it was held that audit of a person whose registration had been cancelled and subsequent tax demand would be valid. The petitioner contended that audit can be conducted only on registered taxpayers and since his registration was cancelled in 2020, subsequent audit in 2023, show cause notice and order were all invalid. However, the High Court held that Section 65 of the CGST Act would include those who were registered for the period for which audit was undertaken. As per the department, the assessee had availed credit fraudulently and then applied for cancellation and as such tax liability which arose during the period he was registered was payable. Costs were also imposed on the petitioner in this case [2024-VIL-488-RAJ].
Royalty and license fee not includible when imported goods mixed with domestic goods and not separately identifiable
Inclusion of royalty and lumpsum fee paid under license agreements was the dispute - the issue and the decision were as per the template except for the variation in certain facts. Commissioner (Appeals) had held that the amounts paid for import of technology and technical knowhow were not related to imported goods and were not condition of sale and therefore, they cannot be added to transaction value. The department was in appeal before CESTAT on the ground that royalty was based on agreed percentage of net selling price and the same was dependent not only on the price of domestic components but also on the imported components used.
The Tribunal went through the agreements and held the amounts were not "condition of sale" of the imported components as the agreement did not make it mandatory for sale of goods by the foreign party, importer was free to source the goods from non-related parties, absence of condition as to use of technology of supplier alone and importer was not under obligation to purchase raw materials only from the licensor. It noted that royalty was payable only on the value addition by the importer using technical knowhow of the licensor and the same was not related to imported goods. Fact like imported goods constituted a fraction only while the importer sourced mostly from the domestic market was also taken note of. The order relied on Interpretative Notes to Customs Valuation Rules - "From the Interpretative Notes to Rule 10(3) cited above, we observe that when the imported goods are mixed with domestic ingredients and are no longer separately identifiable, or when the royalty cannot be distinguished from special financial arrangements between the buyer and the seller, in those circumstances, royalty is not addable to the transaction value of the imported parts and components."
Customs department doubts every transaction of payment of royalty and puts the same to the test of appeal before the Tribunal only to be dismissed in most of the cases. The terms of the agreement between the parties are generally alluring for the Customs to somehow agitate the issue [2024-VIL-489-CESTAT-KOL-CU].
Amending bill of entry for changing classification - Section 149 applicable
Amendment to bill of entry was sought under Section 149 of Customs Act on the ground that classification was incorrectly adopted compared to earlier imports and duty was paid at higher rate. However, the request was rejected primarily holding that reassessment was not possible after goods have been granted out of charge and cleared and also such reassessment was not covered under Section 149. The Tribunal held that amending classification means calculation of duty payable afresh which may include importability as per FTP, admissibility of various benefits, etc., along with consequential refund and the administrative action of amending classification would result in reassessment which is not permissible. While the Tribunal noted that as per settled jurisprudence, request for change in classification only through appeal, placing reliance on certain other judgments wherein Section 149 was held as a method available for altering assessment, it directed de novo consideration of the matter by the adjudicating authority. The order may be challenged by the department as the issue is not free from doubt eternally [2024-VIL-497-CESTAT-CHE-CU].
Exhibition services outside India - Vista stands corrected
In last week's Tax Vista, an order of Rajasthan High Court [2024-VIL-469-RAJ] on liability of Indian company participating in exhibition abroad was covered but the analysis was not exactly correct. The author had faulted the taxpayer for moving the petition but it appears that the provision on place of supply being outside India was not properly brought to the notice of the High Court. This meant that one of the conditions for the transaction to be covered under import of service for which place of supply should be in India, was not satisfied. The Court opted to apply RCM notification for fastening liability on service recipient in India for receiving exhibition services abroad but such notification can come into place only when the statutory requirements for import of service are fulfilled.
(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)