|
Tax Vista Your weekly tax recap Edn. 208 - 10th June 2024 By Dr. G. Gokul Kishore |
|
ITC - Time-limit to avail and condition on payment of tax are valid
Validity of Section 16(2)(c) and Section 16(4) of were challenged but the same was not accepted by the Kerala High Court. Section 16(2)(c) prescribes the condition that tax charged in respect of the particular supply (on which ITC is claimed) should have been actually paid to the government. Section 16(4) lays down the time-limit for availing input tax credit. In respect of invoices pertaining to a particular financial year, ITC cannot be availed beyond the date of filing return for September in the next FY which was amendment to 30th November. One of the arguments raised by the taxpayers was that GSTR-2A was only a facilitator and, for mere difference between GSTR-2A and GSTR-3B due to non-reflection of purchase in GSTR-2A should not disentitle a taxpayer of ITC. It was further argued that the recipient dealer cannot be burdened to ensure that the supplier has paid the tax and such a condition would be absolutely impossible for the recipient dealer to comply with. Though validity of the provision itself was challenged, alternatively, the taxpayers contended that the provision may read down. Use of the word "entitled to" was highlighted to argue that ITC is a matter of right. On time-limit, the contention was that filing of returns with late fee and interest cures the defect of late filing and therefore, substantive right to claim ITC cannot be defeated by procedural provision prescribing time-limit and the amendment would be applicable retrospectively.
The High Court relying on precedent judgments, sovereign power to tax, etc., held that limitation to such power should be explicit and when the same is not prohibited, the provisions in GST law are to be held as valid. Claim to ITC is not an absolute right but an entitlement subject to conditions and restrictions and for this purpose also, it opted to rely on precedent decisions. It noted that a taxpayer cannot be given credit when the government has not received the tax. Section 16(2)(c) was held as neither onerous and nor unconstitutional after observing that time-limit for availing ITC is not new as it was existing in VAT laws and Cenvat Credit Rules. Interpreting the provision, it said - "Thus, the non-obstante clause in the negative sentence in Section 16(2) restricts the eligibility under Section 16(1) for entitlement to claim ITC. Section16(2) is the restriction on eligibility and Section 16(4) is the restriction on the time for availing ITC. These provisions cannot be read to restrict other restrictive provisions, i.e. , Section 16(3) and 16(4). If Section 16(2) is read in the manner as contended by the learned counsel for the petitioners, i.e., once the conditions under Section 16(2) are met, the timeline provided for availing the input tax credit under Section 16(4) is arbitrary and unsustainable and cannot be accepted."
The only relief the petitioners got was a month's time to approach the GST authorities to claim the benefit of CBIC Circulars dealing with ITC mismatch between GSTR-2A and GSTR-3B and the amendment on time-limit extension to November will be retrospective i.e., for the period from 1-7-2017 it will be applicable. Therefore, if return for September was filed by November in those years, then ITC should not be denied. High Courts have been near-unanimous on this issue of time-limit. The only solution that taxpayers can expect is to impress upon the GST Council to amend Section 16(4) as this provision places a burden on the claimant which he cannot possibly discharge [2024-VIL-559-KER].
Extension of time-limit for passing order for 2017-18 is valid
In Tax Vista dated 27th May, 2024, judgment of the Kerala High Court holding extension of time-limit for passing orders under Section 73 of CGST Act for the period 2017-18 was valid, was discussed. Allahabad High Court has also adopted the same position in a recent judgment. Notification No. 09/2023-Central Tax issued exercising powers under Section 168A of CGST Act (along with corresponding UPGST notification) were under challenge and the High Court has kept the petitions challenging validity of Section 168A and those challenging notification on extension of time for passing order for 2018-19 separate, to be decided later. The petitioners assailed the extension on the ground that at the time of issuance of notification, there was no force majeure circumstance and Section 168A could not have been invoked and the Supreme Court's suo motu extension was also upto 28-2-2022 only and therefore, extension of time to pass adjudication order till 31-12-2023 was ultra vires the CGST Act. One of the important arguments raised was limitation is to be considered as a substantive right and it impacts the taxpayers as they are prejudicial to taxpayers.
The High Court took note of GST Council's discussions and representation regarding difficulties faced by tax administration due to Covid-19 and the Law Committee's recommendation on extension of time and held that prescribing time-limit is a legislative function but the argument on non-application of mind by the delegate i.e., the government could not be accepted. It said - "By way of principle it may not be doubted that the recommendations of the Council remained persuasive. The Central Government and the State Government were not duty bound to conform thereto. However, in absence of any fact shown to exist, the Central Government and the State Government have exercised their conditional legislative function in accordance with law. No palpable illegality or arbitrariness has been shown to exist as may warrant any deeper examination by the Court." The Court noted that it was not mere difficulty for audit and scrutiny but Covid-19 disrupted all human activities across the world and the same was a force majeure circumstance which was not of the making of revenue authorities. It rejected the argument on passing adjudication order being independent of scrutiny and audit as they are inherently linked. According to the Court, limitation, though statutory, is not a pre-existing vested right of any party and it gets created and extinguished in accordance with the statutory law.
The issue of either prescription of time-limit or extension of time-limit is perceived as a legislative function and exercised sometimes by the delegate as per the conditions prescribed and the same being within the realm of legislative prerogative are generally immune from the vulnerability of ultra vires. The arguments may be attractive but Courts are hardly swayed by them [2024-VIL-551-ALH].
Cash cannot be seized under GST law
It would appear that the merger of various taxes into GST has given new perspective to the idea of search, seizure and recovery. Search is understood by officers as the logical commencement of recovery and whether or not there were reasons to believe that search was warranted, anything that may be useful in investigation is to be seized. Cash and various electronic items were seized and not returned for over one and a half years and the petitioner assailed the entire search and seizure proceedings and argued that cash was not a "thing" which can be seized under Section 67 of the CGST Act. The department, perhaps wiser from various judgments on the issue, tried to argue that the cash and items would be useful in proceedings but beyond this there was no material to suggest either search or seizure was warranted. The Karnataka High Court held that cash could not be seized under GST law and object of Section 67(2) of the CGST Act is not unearth unaccounted wealth (as in income tax) and directed return of the same with interest. Despite several High Courts holding this view, GST authorities are bent on trying their luck in very High Court. It is better CBIC comes out with a clarification on this issue [2024-VIL-553-KAR].
Hearing means personal hearing and it is mandatory
Citing the absence of the word "personal hearing" or "hearing" in Section 74 of CGST Act, the department argued that at the stage of adjudication the officer is only required to consider representation by the assessee, if any. Opportunity of hearing is required to be given only when the matter comes to the officer after order of Tribunal or Court as provided in Section 75 which deals with general provisions relating to determination of tax. The department hence defended the order passed without providing any hearing and moreover the space to specify time and date of hearing was marked as "NA". The High Court held that Section 75 deals with all kinds of hearings for determining tax, both at the first instance and also on remand. It interpreted the use of word adjournment in Section 74(5) to mean that the legislature intended personal hearing and not just giving time extensions for giving written reply to the show cause notice. It held that omission of word personal was a drafting error and in view of the overall scheme of the statute, opportunity of personal hearing was to be provided at both stages. It requires so much of courage to defend such notices and orders by the counsels for the State - when hearing is not provided and when the column is marked NA, still an interpretation is artificially taken to somehow argue the case [2024-VIL-555-ALH].
Prior intimation to be given to assessee before inspection of premises
The statute provides for prior intimation to the assessee before inspection of premises (Rule 25 of CGST Rules, 2017). There are provisions for issue of show cause notice, hearing, restoration of cancelled registration, appeal and so on. The department acted as per all the provisions except prior intimation. The assessee's registration was cancelled since the place was found locked at time of inspection and after appeal, registration was restored. Again, a show cause notice - a vague one without signatures was issued and registration was cancelled retrospectively. It was beyond anyone's understanding as to how after restoration by the appellate authority, after perusing various documents and submissions, the officer found within 22 days that the business was non-existent. The affidavit from the landlord that the assessee was not a tenant did not weigh in with the High Court and it held that the order without following Rule 25 of CGST Rules could not sustain and premises being found locked at time of inspection does not lead to a conclusion that the business is non-existent. It appears that there were two rounds of litigation in this case seeking revocation, filing appeal, etc. This is height of harassment and the power to cancel registration should be amended to be applicable only extreme cases [2024-VIL-560-J&K].
Goods lost in fire in SEZ - Duty demand is not sustainable
Customs duty cannot be demanded in respect of goods destroyed in fire accident in SEZ. Though there are precedent decisions on this issue, the Tribunal reiterated the same and further held that deeming fiction of SEZ being foreign territory will come into play and no duty can be demanded on goods destroyed in foreign territory. While the appellant had also sought remission under Section 23 of Customs Act, in the impugned order duty was demanded based on alleged contravention of Rule 22 of SEZ Rules relating to non-compliance with bond conditions for availing duty exemption. The Tribunal noted that Section 58 and Section 60 are not applicable to SEZ Act and when SEZ Act does not specifically import such provisions and parallel provisions are available in SEZ Act, they will prevail. In this case, duty was demanded on the entire stock while only part goods were destroyed, and such demand was also noted as without basis. It is surprising that SEZ unit cannot be worse off as compared to DTA unit when it comes to remission of duty only because the goods imported were subject to conditions [2024-VIL-595-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)