Tax Vista Your weekly tax recap Edn. 210 - 24th June 2024 By Dr. G. Gokul Kishore

 

 

GST Council meeting - Major recommendations including amnesty for specified cases

GST Council in the meeting held on 22nd June, 2024 has recommended an amnesty scheme for taxpayers who have been issued show cause notices under Section 73 of CGST Act for the period from July, 2017 to March, 2020. As per the press release, interest and penalty will be waived subject to payment of the tax demanded and for such payment, time has been granted till 31-3-2025. Erroneous refund cases are not covered under the scheme. This has been the main demand of taxpayers considering the fact that during these initial years, no one was clear about the law, system, procedures, etc., and the GST portal was also facing lot of issues. A new Section 128A is proposed to be inserted in the CGST Act. Generally, amnesty schemes are operationalized through Finance Act itself and the main statute is not tinkered with. The conditions to be fulfilled including those who will be eligible to avail the benefit will hold the key as to whether it will benefit a large number of taxpayers or not. For the first two years, time-limit for passing orders is also over and therefore, it appears the scheme may cover those who are in appeal as well or against whom recovery action is underway.

 

The next major decision pertains to reduction in the amount of pre-deposit required for filing appeal before GST Appellate Tribunal which is yet to be functional. From 20%, this is being reduced to 10%. This should help taxpayers as otherwise pre-deposit is seen as a source of revenue by a section in tax administration. E-commerce entities will have to collect lesser TCS - from 1% at present to 0.5%. Being a mechanism only for the purpose of monitoring suppliers, this makes sense. When President of the GST Appellate Tribunal took charge, it was widely expected that the time-limit tagged to his assumption of office would be delinked and the same has been recommended by the GST Council. Time-limit for filing appeal before the GST Appellate Tribunal will be notified separately now. As the Benches are yet to be constituted, one can expect a few more months' time if not one year.

 

Taxpayers who availed ITC belatedly till 2020-21 will be benefitted by the decision to deem 30-11-2021 as the end date for availing ITC for all the years from 2017-18 to 2020-21. Those who did not avail such ITC because of expiry of time may have curse their fate and those availed but facing SCNs can relax. An amendment in Rule 88B of CGST Rules has been highlighted to provide for non-charging of interest on the amount available in electronic cash ledger and the same is debited for tax payment while filing GSTR-3B. Those who maintain sufficient balance in cash ledger will gain from such move but in general, cash ledger is credited only when funds for tax payment are required.

 

A few clarifications have also been recommended and among them, valuation in respect of corporate guarantee provided between related persons, relevant date (financial year) for availing ITC in respect of supplies under reverse charge received from unregistered persons, reimbursement of shares / ESOPs provided by company to employees, warranty / extended warranty provided by manufacturers and taxability of loan transactions between related persons or between group companies are important. Option to amend GSTR-1 is being given by introducing new GSTR-1A and additional details can also be submitted using this form but before filing GSTR-3B. In many cases, where adjudication orders are not available in GST portal, appeals are being filed through manual mode only and pre-deposit is paid using DRC-03. This is now proposed to be clarified and also an amendment to rule is contemplated.

 

A very major amendment recommended relates to the proposal to provide a common time-limit for show cause notices involving suppression, fraud, etc., and those without such elements. This will be applicable from FY 2024-25 onwards. This may mean the department will get more time to issue notices even when the case does not involve any mala fide intention. This is based on the presumption that the common time-limit will be five years.

 

After the anti-profiteering cases went from National Anti-profiteering Authority to Competition Commission, it appears that the latter was not comfortable in handling such cases. The GST Council has now recommended making GST Appellate Tribunal as the body to hear anti-profiteering complaints / matters. A subset date of 1-4-2025 has been proposed for receipt of complaint - this means, Section 171 will cease to be an operational provision from such date and anti-profiteering as such will come to an end in future even if rate reduction is made or increased ITC is allowed. Actual amendments, notifications and circulars may tell a slightly different story of the proposed changes.

 

Confiscation proceedings when address of seller absent in documents

Many taxpayers are of the view that GST authorities invoke Section 129 on detention of vehicles and seizure of goods indiscriminately. In Andhra Pradesh, the authority initiated proceedings under Section 130 proposing to confiscate the goods. However, without giving 15 days' time, the taxpayer was directed to file response by the authority and the High Court felt that there is some force in the contention of the taxpayer. However, the High Court held that proceedings can be initiated under Section 30 when the address of the unregistered dealer from whom the goods were purchased by the petitioner was not mentioned in the documents. The Court said it was the duty of the petitioner to establish the bona fide of the transaction. It also noted that Section 129 and Section 130 are independent as the provisions are mutually exclusive and this was in response to the contention that the authorities ought to have invoked Section 129 and not Section 130 directly. The Court ordered release of goods subject to conditions and also initiation of proceedings under Section 129. The power to confiscate in tax law has genesis in Customs Act where smuggling or import of prohibited goods are involved and they need to be appropriated by the State. In other tax cases, there is no use of such provision as it is generally difficult to undertake auction process. It will be advisable to have a system of redemption fine in all such cases with a reduced quantum [2024-VIL-591-AP].

 

VAT TDS cannot be transitioned as ITC under GST

On the issue of transition of unadjusted TDS credit under VAT to GST regime as ITC through TRAN-1 form, Division Bench of Kerala High Court has upheld the order of Single Judge Bench whereby such transition was held as not valid. It noted that such unadjusted TDS is essentially a component of output tax and therefore cannot be transitioned to GST as unutilized ITC. Taking a very pragmatic view tempered with good reasoning, the High Court said considering the time lapsed, it would not be correct to direct reversal of such ITC when the department is obliged to refund the said TDS amount. It, therefore, set aside the demand of tax and interest while confirming the penalties imposed. As the amount transitioned and TDS refund eligible were different, the Court granted liberty to the taxpayer to claim refund of the balance amount. The Court has also expressly said that directions issued shall not be considered as precedent since the revenue-neutral situation in the case before it was taken into account while arriving at such decision [2024-VIL-590-KER].

 

VAT ITC transitioned through GSTR-3B is valid

Instead of transitioning VAT ITC balance, the taxpayer took credit in GSTR-3B of such amount and the same was also utilized subsequently which was not agreed by the GST authorities. The counsel for the department objected to bypassing of the provisions on transitioning of tax credit from pre-GST laws to GST law. The High Court held that credit availed under the VAT law was indefeasible in nature and for this purpose it relied on the landmark judgment of Dai Ichi Karkaria [1999-VIL-02-SC-CE]. It said that such credit should be refunded it the same is not allowed to be utilized under the GST law unless the provisions provide for lapsing of such credit. Section 54 of CGST Act was taken note of to point out that refund of such unutilized credit has also not been provided for. It directed the authorities to verify whether the credit availed was valid as per VAT law and pass orders [2024-VIL-604-MAD].

 

Order raising demand on issues dropped earlier, not sustainable

Though the assessee contributed his share of lacunae in not responding to Form GST DRC-01A and the show cause notice, the department did its bit to result in a relief for the assessee. The issue was discrepancy in returns filed - GSTR-1 and GSTR-3B and GSTR-2A/9. After the reconciliation the department found that there was no tax liability but sought compliance with Circular No.183/15/2022- GST dated 27.12.2022. The assessee failed to do this and DRC-01A and a show cause notice were issued including the amounts which had earlier been set aside. The High Court held that confirming demand on amounts dropped earlier indicates non-application of mind and matter was remanded for fresh order on merits.

 

Numerous orders on such issues are being passed by various High Courts and Madras High Court, in particular. Most of such orders are passed by SGST authorities. Orders passed are completely non-speaking, cryptic and indicates complete non-application of mind. The day is not far when quasi-judicial powers of GST authorities will become constricted and circumscribed [2024-VIL-607-MAD].

 

Statutory right of appeal cannot be defeated by technical glitches

The assessee's appeal against order passed under Section 129 was rejected by the system since the penalty amount was not shown in disputed tax amount column in the Form APL-01. This was on account of a technical glitch. The assessee tried to file a second appeal which was rejected since there was no provision in Section 107 of CGST for this. It was also beyond period of limitation. Since the assessee had already paid 200% of the tax/penalty, he insisted that no pre-deposit was required to be paid. The High Court held that in the facts of the case, technical glitches could not deprive an assessee of the right to appeal and that no pre-deposit may be insisted upon. The appellate authority was directed to consider both the appeals by treating them as composite appeal. As long as GST is system-dependent, such issues will keep cropping up. There should be an SOP or solution to tackle them instead of compelling taxpayers to file writ petitions for routine system errors [2024-VIL-610-CAL].

 

Manual filing for GST refund claim is to be accepted

It would appear that in addition to the rule book of statute - CGST Rules, the officer needs directions from the Court for granting refund. In rejecting the refund application for GST, where credit had been transferred post acquisition of undertaking, the department stated that application should have been filed electronically and that the applicant's GST registration was not effective on the said date. The High Court held that Rule 97A of CGST Rules specifically permitted such manual filing of applications and Rule 41 which deals with instances of transfer of credit on amalgamation/ merger etc. of businesses/companies should have been considered. As regards the objection that petitioner not being a registered person was not entitled to seek refund under Section 54(3) of the CGST Act, it was held that sub section (1) of Section 54, permits any person to make an application for refund of tax and refund could not be denied on this ground [2024-VIL-595-HP].

 

Refund denial by questioning classification not sustainable

The assessee filed claim for refund of GST on account of inverted duty structure since the primary raw material comprised PP granules classified under tariff item 3902 1000 (PP Granules) and taxable at 18%, with the resulting output consisting of non-woven fabric under tariff item 5603 9100 to 9400 taxable at 12%, and PPSB bed sheet under tariff item 6304 1930 was taxable at 5%. It was contended that non-woven fabrics and Spunbonded Polypropylene Bed Sheets PPSB Bed Sheet are classifiable under the chapter headings 5603 and 6304 of the Customs Tariff Act, 1975.

 

According to the assessee, PPSB Bed Sheets are a derivative form of the non-woven fabrics, undergoing shaping and finishing processes such as stitching to achieve the final product and Polypropylene Non-Woven Fabrics are textile materials and are not plastics or plastic articles. The department opined that the goods being manufactured from PP granules would be classifiable as plastic goods and not textiles. The High Court held that the department had not discharged the onus proving why the classification adopted by the assessee was wrong and further no material had been provided in support of the classification proposed by it. The impugned order was held to be vitiated by the inadequate consideration various factual elements in the decision-making process by the department and quashed. The appellate authority was directed to re-assess the same. Refund has to be denied and for such denial, classification is one of the weapons when there is rate differential based on the same [2024-VIL-600-CAL].

 

Writ petition can be entertained at SCN stage

The High Court of Jharkhand held that though normally at the stage of issue of show cause notice, High Courts would not interfere, in case where question of law was involved and where officers acted without jurisdiction, writ petition can be entertained. The petitioner-assessee was engaged in composite supply principally for transportation of power plant ash up to distances of 50 km which the department opined was taxable as other services under SAC 99671 - cargo handling service. The SCN had been issued under Section 74 of the CGST Act invoking extended period of limitation. The High Court held that on an issue of interpretation, extended period cannot be invoked and also issued notice for listing the matter on merits [2024-VIL-609-JHR].

 

Assessable value cannot be determined in the basis of local market enquiry

Provisions for rejection of declared value and sequential application of Customs Valuation Rules do not apply to the department. It is left to the importer and Tribunal to remind them of these provisions. The transaction value as declared by the importer was rejected on the basis of prices ascertained through local market enquiry/survey with the department citing Standing Order No. 40/2012-Gr. 6 dated 18.8.2013. The appellate authority enhanced the value of sofa set imported without such issue being raised in the reassessment order. The assessee argued that the import of same goods at the same price from the same supplier had not been questioned by the department earlier. The CESTAT reiterated that the onus to prove that the declared price did not reflect the true transaction value is always on the department and assessable value cannot be determined based on local survey or department circulars. It held that only when the conditions like relationship of buyer and seller influencing price, price not being sole consideration are present, declared value may be rejected and even then valuation has to be in terms of sequential application of the Customs Valuation Rules. [2024-VIL-657-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)