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Tax Vista Your weekly tax recap Edn. 206 - 27th May 2024 By Dr. G. Gokul Kishore |
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Extension of time for passing GST orders valid
The Kerala High Court has rejected the challenge to notifications extending time-limit for passing orders under Section 73 of CGST Act for 2017-18. Input tax credit for the period July, 2017 to September, 2017 was omitted to be claimed in GSTR-3B but claimed through GSTR-9 was denied and tax was demanded from the petitioner-taxpayer. The taxpayer contended that the order was hit by limitation and the notifications extended the time-limit for passing orders under Section 73 for 2017-18 were challenged as ultra vires Section 168A of CGST Act since force majeure was absent for extending such period. Section 168A provides for extension of time-limit when action could not be taken due to force majeure which has been defined as war, epidemic, flood, etc., but the notifications [No.13/2022-Central Tax and No. 9/2023-Central Tax] do not mention any such calamity.
The High Court did not agree. It held that because of initial period of GST implementation, various actions like scrutiny, audit, etc., by GST authorities could not be undertaken and that Covid-19 pandemic came after the due date for filing annual return for 2017-18 was 7-2-2020 because of which audit and scrutiny could not be undertaken due to restrictions. It said that taking into account these facts, due date for filing annual return was extended till 30-9-2023 and the period of extension due to such pandemic is within the discretion of the government. Based on such reasoning, it held that the notifications are not ultra vires Section 168A. The operative portion of the order reads - "The Government is well within the power to extend the limitation for completing the proceedings and taking action under Section 73 of the Act by issuing notification under Section 168A of the GST Act if there is force majeure. COVID-19 was a force majeure, and taking into account the various factors, the time limit has been extended. Therefore, I find no substance in the challenge to the said notifications, and the writ petition is dismissed to that extent." But the petitioner got relief in the form of direction for passing fresh order taking CBIC Circular No.183 on verification of ITC between GSTR-2A and GSTR-3B into account [2024-VIL-527-KER].
VIL has reported another order [2024-VIL-497-GAU] wherein Gauhati High Court has directed stay of recovery proceedings till disposal of the petitions after taking note of similar interim orders passed by other High Courts. It appears that the above order is the first one on this issue disposing the petition and holding extension of time-limit as valid.
GST on transfer of development right - Supreme Court issues notice
In Tax Vista dated 19th February, 2024, order of Telangana High Court in Prahitha Construction Pvt. Ltd. v. UOI [2024-VIL-152-TEL] was discussed. The High Court had held that transfer of development right under Joint Development Agreement (JDA) would be liable to GST and it could not be treated as sale of land. In this case, further appeal has been filed in the Supreme Court and notice has been ordered to be issued. The Apex Court has specifically held that operation of the High Court order has not been stayed and taxes will have to be paid. The issue is fairly settled now though GST applicability on TDR is being contested in certain quarters. An authoritative pronouncement from the Supreme Court laying down the jurisprudence will be helpful to everyone [2024-VIL-17-SC].
Non-uploading of summary when order was served does not vitiate proceedings
The petitioner's grievance was that summary of show cause notice and order were not uploaded in the portal and this vitiated the entire proceedings on account of failure to follow procedure laid down for officers as well as denial of natural justice. It was also contended that issuance of notice and passing of order were by two different authorities and hence proper hearing has not been given. The High Court however examined whether any injury was caused to the petitioner by non-uploading of summary since order had been duly served. It held that the non-issuance of summary did not cause any disadvantage to the petitioner since the conclusion would remain unaltered and no fresh information would be available in the summary. It noted that the petitioner by not raising anything about non-uploading of the summary of the SCN in the GST portal in reply to the SCB, had clearly waived the right to urge about non-compliance as regards uploading on the common portal. The Court considered the issue as to waiver of a right by the person concerned for whom the beneficial provision has been created. It specifically pointed to the case being not one of non-service of SCN or order and no prejudice has been brought out due to non-uploading of the same in the portal. The writ petition was held as not entertainable but the Court clarified that the petitioner could raise all issued in the appellate proceedings [2024-VIL-497-GAU].
Many petitions are filed on such issues like summary not available in portal or order was only sent by e-mail but not uploaded, etc. These procedural provisions are sometimes taken to be fatal to the entire proceedings while in certain cases like the one above, fine distinction is drawn to reject the petition while sustaining the proceedings. Due to multiple modes of service and over-reliance on GST portal, the issue of service of notices and orders has become hazy in GST regime and it is time GST Council recommends issuance of circular to clarify the issues dealt with by the Courts so far.
Over-dimensional cargo - Penalty cannot be result of surmises
The assessee in this case could not allege non-application of mind though it was a contrived application. The department concluded that the goods declared as over dimensional cargo (ODC) were not so since the vehicle reached its destination quickly and the speed at which it has been transported was not possible in the case of ODC. This despite being shown the circular issued by the Commissioner, State Tax dated January 17, 2024 which laid down the parameter for ODC as the vehicle height exceeding 3.8 meters from the ground. No intention to evade tax was alleged or proved but penalty was sought to be imposed. The High Court held that the entire proceedings were on a shaky ground and the officer could not introduce new parameter for ODC nor impose penalty without establishing mens rea. It is surprising that SGST authorities book cases on detention and e-way bill when the vehicle reaches the destination well before expiry - both are offences according to them - vehicle reaching the destination after delay and reaching before time [2024-VIL-517-ALH].
Mere mention of sub-rule without details of default not sufficient to cancel registration
Probably a fall out to today's app or menu-driven age, officers appear to think that merely ticking boxes is sufficient. The petitioner's registration was cancelled stating that no business was being conducted though the petitioner explained that he did have a godown and on the date of inspection he had been away. His request for re-inspection was rejected as was his appeal against cancellation. The appellate authority upheld the cancellation citing that appeal memo was absent. Photographs of business premises produced by the petitioner were not considered. The High Court held that merely mentioning violation of Rule 21(b) and 21(a) of CGST Rules in the show cause notice is not sufficient, the adjudicating authority ought to have put forth valid reasons for cancellation and the appellate authority ought to have examined the issue properly. The orders were set aside.
The High Court had an interesting observation on the appellate order - "The Appellate Authority has rejected the petitioner's appeal on the ground that the petitioner has not filed any memo of appeal and the grounds on which he is seeking restoration of registration are not clear. The Appellate Authority ought to have adopted the same yardstick while judging the validity of the impugned cancellation order passed by Assistant Commissioner, which also does not disclose any reason for cancellation of petitioner's registration." [2024-VIL-520-ALH].
Limitation for appeal under GST - General Clauses Act applicable to exclude the first day
Appeal against order on revocation of cancellation of registration was rejected on the ground of time-bar. The High Court provided relief to the taxpayer after applying Section 9 of General Clauses Act which provides for exclusion of the day on which the order was communicated while calculating limitation. The Court said that legislative intent behind such provision is to provide full three months to the aggrieved party so that such party has a clear and fair understanding of the order before limitation starts. As Section 107 of CGST Act uses the words "within" and "month" while dealing with limitation, the Court explained -"The term "within" in legal terminology typically denotes the inclusion of the entire period specified, up until the last possible moment of the specified time frame. When a statue prescribes an action to be taken "within" a certain period, it generally means that the action can be performed any time from the beginning of the period until the end of the last day of the period. For instance, if a law states that an appeal must be filed "within three months", it implies that the appeal can be filed at any point during the three-month period, right up until the end of the last day of the three-month period."
On "month", the Court said -"The term "month" can be interpreted in various ways, but in modern statutory contexts, it primarily refers to a calendar month. A calendar month is defined as the period from a given date in one month to the corresponding date in the following month. For example, a period of one calendar month from January 15 would end on February 14 and the next month in this context would begin from February 15. With the standardization of the Gregorian calendar, a month is commonly understood to mean a calendar month."
In the case before it, the Court held that limitation was not correctly calculated by the GST authorities and directed the appellate authority to condone delay and hear the appeal afresh. The order has an epilogue stressing the importance of time-limit particularly in tax laws [2024-VIL-506-ALH].
Right to cross-examine witnesses whose evidence relied on, inviolable
A high-stakes case cannot proceed without knocking the doors of the High Court. Clandestine supply of cigarettes without invoice and payment of tax was alleged in the show cause notice demanding GST (including cess) of over Rs. 1900 crores. The petitioner contended that copy of relied upon documents were not provided and non-relied upon documents were not returned. Right to cross-examine witnesses was also argued. The High Court noted that as per the statutory provisions, non-relied documents ought to be returned within 30 days of SCN and for preparing effective reply / defence, certified copy of relied upon documents shall also be provided. Fair hearing requires that the petitioner should be given opportunity to cross-examine witnesses whose evidence is relied on. The adjudicating authority was directed to allow cross-examination at the appropriate stage of the proceedings [2024-VIL-508-MP].
Cross-examination is something that the adjudicating authorities are not generally used to - rather they are not trained because of absence in training law, particularly in taking evidence or appreciating evidence. The general response is to first reject such request. Though adjudication orders in a vast majority of cases are against taxpayers and cross-examination hardly impacts such orders, taxpayers have never-say-die attitude and they hope such process may help them at least in appellate proceedings.
Order demanding differential ADD passed beyond time-limit not valid
The case revolved around many issues, question over transaction value for customs, demand of differential anti-dumping duty (ADD), selective reliance on documents, etc., but just the ground of time bar was sufficient to set aside the order. The show cause notice was issued in 2021 and order was passed in 2023 beyond the specified time limit. Section 28(9) of Customs Act, 1962 provides time limit for passing order - 6 months or one year in case of extended period unless extension provided by an officer senior in rank for another 6 months or one year as the case may be. The department innovatively argued though no specific extension was obtained, adjudication of the case by an officer senior to proper officer (for assessing bills of entry) would amount to granting of deemed extension. However, the CESTAT held that the order was not sustainable as the provision was clear on formal extension being mandatory. It also proceeded to examine the order on merits.
As regards the letter from the supplier denying export of flax yarn, it was held that the discrepancy in the letter - mention of September and November 2019 invoices in letter dated March 2019 rendered it unacceptable and demand could not be raised based on such evidence. The demand based on undervaluation was set aside since it was based on third party data which was not authentic and reasons like invoices being different between various suppliers etc. No data establishing that the contemporaneous imports were similar or identical was furnished by the department and as such it was held that transaction value adopted by the assessee based on invoice could not be questioned [2024-VIL-509-CESTAT-KOL-CU].
COO cannot be rejected without checking with issuing overseas authority
Goods imported from Malaysia were alleged to have been imported from China and attracting ADD based on Bills of Lading and certain third-party statements. However, no discrepancy was pointed out in certificate of Country of Origin issued by Malaysian authority. It was held that the investigating agency had not complied with the of Customs Tariff (Determination of Origin of Goods under the Preferential Trade agreement between the Government of Republic of India and Malaysia) Rules, 2011 and failed to check with the Malaysian authority seeking clarification over any doubts it had. Accordingly, the entire proceedings were held to be vitiated and order unsustainable. Though the order relies heavily on precedent decision and reproduces a large portion from such order, this issue being recurrent these days, this order has been mentioned in this column [2024-VIL-514-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)