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Tax Vista Your weekly tax recap Edn. 209 - 17th June 2024 By Dr. G. Gokul Kishore |
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Penalty not imposable when ITC is availed but reversed without utilization
In a dispute relating to transitional credit, the taxpayer admitted some portion of the credit as ineligible and reversed it. The appellate authority granted relief from interest but upheld imposition of penalty against which writ petition was filed. Before the High Court, the taxpayer argued that when interest demand has been dropped and when input tax credit has not been availed or utilized, penalty ought to have not been imposed. The department countered by contending that whether the credit was utilized or not, the petitioner was liable to penalty under Section 74 of CGST Act.
The High Court opted to follow its earlier order on similar issue holding that penalty under Section 74 would be imposable only when the credit is not merely availed but also utilized and a penalty under Section 122 would be the proper method. The Court further said that in the case before it, the taxpayer had availed ineligible credit which could have resulted in wrong utilization, token penalty of Rs. 10,000 is imposable. While amendment made subsequently has taken care of interest element in such cases, imposition of penalty is not expressly covered by such relaxation as to "mere availment and not utilization of ITC". Such judgments will be helpful in this context [2024-VIL-577-MAD].
Rebate on export to be paid in cash - High Court disapproves credit to Cenvat account
Rebate was held as admissible by the Revisional Authority (Govt. of India) but by way of re-credit to Cenvat credit account on the ground that amount paid in excess was not duty and on own volition and re-credit was to be made to such credit account as it was this account which was used by the petitioner initially to pay the same. The petitioner argued before the High Court that refund would be payable in cash as per Section 142(3) of CGST Act as Cenvat credit is not in existence consequent to implementation of GST.
The High Court held that Section 142(3) is very widely worded as it uses both "Cenvat credit" and "any other amount paid" and even if the amount paid was taken as voluntary deposit, the same was required to be shown as Cenvat credit and alternatively, it would be covered under "or any other amount paid". In any case, the amount is liable to be refunded. The Court took note of the words "any amount eventually accruing shall be paid cash" and said RA should have directed sanction of cash refund instead of credit in Cenvat account. Interest on the refund amount was also ordered by the Court. There are a good number of cases coming up before High Courts on interpretation of Section 142 only because tax authorities are not comfortable with the concept of cash refund. The grounds range from academically innovative to hollow [2024-VIL-570-BOM].
Failure to discharge GST - Technical plea is not a defence
The assessee who exported about 80% of cotton, raised all possible pleas including revenue neutrality and assailed the order confirming demand of tax as well as imposing penalty for failure to pay tax under reverse charge mechanism (RCM) on purchase of raw cotton from agriculturists/unregistered dealers. The High Court held that as per Notification No.43/2017-Central Tax (Rate) with effect from 15-11-2017, there was an obligation to pay GST and the non-mention of specific section or invocation of extended period under Section 74 of CGST Act though first notice was issued under Section 73 did not impart any illegality to the proceedings.
The High Court held that on comparison of notice in Form GST DRC-01A issued under Section 73 and notice issued under Section 74, it was evident that further suppression had been discovered by the department and extended period could be invoked. As regards revenue neutrality it held that since the assessee was not a 100% EOU but exporting 80% of its product on payment of IGST on exports and getting refund, they cannot be absolved from the liability to pay GST on RCM basis [2024-VIL-566-GUJ].
Cancelled GSTIN, incomplete documents are not innocuous mistakes in e-way bill
Goods were declared to have been transported from Rajasthan to Andhra Pradesh though documents showed place of loading to be in Gujarat and the vehicle number was also different in the e-way bill. The department confronted the assessee with the details of cancelled registration and its suppliers being non-existent besides the discrepancies in the e-way bill. The assesee tried to explain the same as innocuous minor mistakes and further assailed the jurisdiction of the officers.
The High Court held that it was evident from the incomplete documents furnished by the assessee and the investigation of the department that the assessee's explanation did not meet the departments allegation and dismissed the petition. The order subtly reveals the fury of the Court as it refused to permit the taxpayer to withdraw the writ petition after commenting on "modus operandi" and "misuse of provisions of CGST Act" by them. It held that the petitioner was not having registration while making inter-State supply and the department was justified in creating temporary registration. The department was directed to conduct thorough inquiry against the taxpayer [2024-VIL-569-GUJ].
Service of copy of relied upon documents has to be effective
While the allegation of concealment and mis-statement is levelled easily against the assessee, it seems the department can invent new explanation all the way. Order was passed against the assessee holding that maize oil reported to be transported was actually fatty acid as per a lab report. However, the copy of the same was not provided to the assessee. The department initially stated that it was given to a driver and then claimed that fee was not paid. It is not known what is the fee the department was referring to. The purported service of lab report to driver was devoid of any details of time, place or nature of document provided. The department also stated that due to inadvertence, the officer failed to provide a copy. The High Court refrained from any adverse comments or strictures but set aside the order with directions to supply a copy of the report and passing of fresh order.
The Court said - "While we may not prescribe by way of law - the exact words in which such receipt may be obtained, at the same time, the receipt must itself be self-speaking both as to description of the document supplied as also number of pages supplied, together with the date and time when such receipt was issued... In the present facts, we are not convinced that the document described as lab report was supplied to Jeet Ram at the relevant time inasmuch as that claim of the revenue authorities is not wholly consistent with the conduct of the petitioner in having applied for another copy on 30.04.2024 through Web-portal itself. If such copy had already been supplied, the revenue authorities may also have informed the petitioner of the same. Rather than that, objection of lack payment of fee has been raised." [2024-VIL-567-ALH].
Royalty not includible in assessable value on inclusion of imported goods to compute such royalty
The CESTAT reiterated that for royalty to be included in assessable value in terms of Rule 10(1)(c) of the Customs Valuation Rules, it must relate to imported goods and it must be payable (or paid) as a condition for such import. In the impugned order the department demanded differential customs duty based on its calculation of royalty at a percentage of value of imported goods because the formula for such computation as per the agreement with the foreign (related party) supplier included the same.
Though the transaction had passed though SVB and been accepted in the assessment orders, the department invoked extended period and demanded differential duty. The importer had earlier erroneously omitted to include the value of imported raw material and pay royalty but on finding out the error changed the computation. The foreign supplier waived the differential royalty for past period. On scrutiny of agreements, it was held that the royalty did not relate entirely to imported goods and was on sale of finished goods (post import activity) and covered technical knowhow, use of trademark etc., also. The Tribunal held that when royalty was not a condition of sale, use of value of imported goods in computation would not render it includible in assessable value [2024-VIL-634-CESTAT-CHE-CU].
Undervaluation based on amalgam of data without concrete proof not sustainable
It appears that the department believes that quoting provisions on misstatement and suppression is sufficient and despite the mandate of sequential application of Customs Valuation Rules, resort can be made to any rule which is convenient. The importer received show cause notice beyond period of limitation with the department's contention being the existence of different higher prices of imports (contemporaneous or otherwise, identical goods or otherwise!) was sufficient to attribute wilful misstatement of facts. The department did not share the relied upon documents and it appeared that the show cause notice has been issued only because there were other investigations into (similar) imported goods. Also, despite alleging that there were higher value contemporaneous imports, valuation was completed as per Rule 8 (residual method) under Customs Valuation Rules, 1988.
One of the reasons adduced by the department for not providing relied upon documents was non-appearance of the importer. The CESTAT held that the department must have concrete evidence of contemporaneous imports, which are comparable in all respects like the quantity, size, description, country of origin, etc., in order to allege undervaluation/reject declared value. As regards mis-statement it held that the same should be proved in the importer's case independently, by referring to exactly gained tax evasion, etc. not just going by the so-called comparables. The impugned order was set aside [2024-VIL-633-CESTAT-CHE-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)