Tax Vista Your weekly tax recap Edn. 211 - 1st July 2024 By Dr. G. Gokul Kishore

 

 

Interest not payable when tax is deposited in electronic cash ledger

The Gujarat High Court reiterated that for charging interest is compensatory in nature and held that interest is payable in terms of Section 50 of the CGST Act only from the due date of payment of tax till the deposit of such tax in the electronic cash ledger. This means no interest is payable once electronic cash ledger is credited with the tax payable. The petitioner had difficulty in transitioning ITC owing change in constitution and in order to avoid interest deposited tax in electronic cash ledger from time to time after debit of such amount from the bank account. Later after transitioning ITC, it also paid interest from due date of filing of return in Form GSTR-3B till date of payment of tax in electronic cash ledger.

 

The department sought interest from the date of deposit of the tax up to the date of filing of the return the provisions of Section 50 of the CGST Act and Rule 88A and Rule 88B of the CGST Rules. However, the High Court held that debiting of electronic cash ledger is only adjustment of the amount of deposit made in the electronic cash ledger and that tax liability of such registered person stands discharged on the date of credit to government account. It set aside the notice demanding interest from the date of deposit in the account of the electronic cash ledger till the date of filing of the return. Relying on the amendment relating to interest to be charged only on net tax liability after giving allowance to ITC balance, the Court said - "Therefore the purpose of introduction of the proviso to Section 50 was only to clarify with regard to leviability of the interest on net tax liability and not on gross tax liability of the assessee. The proviso has therefore nothing to do with the period for which the interest is to be levied."

 

Relying on Madras High Court order in Eicher Motors [2024-VIL-72-MAD], the High Court held - "when the assessee petitioner deposited the amount which is credited into electronic cash ledger after actual deposit in the Government Treasury, there is no loss to the Government Revenue merely because such deposit gets adjusted against the actual liability at the later date at the time of filing of return." In the recent GST Council meeting, an amendment has been recommended to codify this position and taxpayers will benefit once law stands amended as the GST authorities may not accept judgments citing one reason or the other [2024-VIL-634-GUJ].

 

Refund of ITC on exports - Value of FOC item by supplier not to be deducted

A very brief but forthright order has been passed by Bombay High Court. The issue relates to refund of ITC on account of exports. As per the provisions / circular, in cases of refund of unutilized input tax credit on account of exports, where value declared in tax invoice is different from the value declared in the shipping bill, lower of the two values will be taken for the purpose of refund. In the case before the Court, the department said that the value indicated was "X" but the value of goods (gold in this case) supplied free by the buyer should be deducted from it and only the net realization "Y" should be taken as the actual value in the tax invoice for comparison with the value in the shipping bill. The Court gave an example of getting new jewellery after exchanging old jewellery and explained that merely because the value of old goods is deducted, the value of goods sold cannot be taken as the value after such deduction. The order granting refund of a meagre amount was quashed and the authority was directed to sanction refund obviously taking the order of the Court into account [2024-VIL-625-BOM].

 

Attachment and credit blockage cannot continue when SCN not issued

In March this year GST authority passed an order provisionally attaching bank account under Section 83 of CGST Act, 2017. In the same month, another order was passed blocking electronic credit ledger i.e., freezing utilization of ITC ledger. The taxpayer was successful in contesting the same in the High Court on the ground that show cause notice under Section 74 was not issued to them. The High Court did not accept the contention that the attachment was illegal but went on to hold that attachment proceedings are very serious and they have strong repercussions on the business and should be taken only as last resort. According to the Court, the department was bound to take the proceedings to logical end after search and seizure operation and it was required to issue SCN under Section 74 if fraud or concealment was found. In the case before it, petitioner had not committed such act as per the pleadings. The ratio of this case could be useful as the Court held that since SCN under Section 74 has not been issued, it would not be appropriate to continue the bank account attachment and also credit ledger freeze. It ordered release of both.

 

There are cases where investigation continues endlessly and no SCN is issued even beyond the period prescribed in the statute. Provisional attachment is sometimes "renewed" i.e., continued by issuing another fresh order when the previous one lapses after one year. While 1st July marks seven years of completion of GST and introduction of new criminal laws, it is time to re-visit all the provisions in GST law and to amend wherever penal nature of presupposes guilt and creates jeopardy [2024-VIL-624-P&H].

 

Deputy Commissioner under SGST empowered to block credit ledger

In a similar case of blocking of credit ledger, the taxpayer before Orissa High Court was not successful. The primary argument was that the credit freeze order was passed without considering CBIC guidelines issued on 02.11.2021. The High Court held that such circular issued by CBIC would be applicable to CGST officers only and not to SGST officers unless the State Government has adopted the same. The taxpayer questioned the jurisdiction of the order passed by Deputy Commissioner who, according to the Court was an officer higher in rank to Assistant Commissioner and Rule 86A of CGST Rules / OGST Rules empowered the Commissioner to authorize any officer not below the rank of Asst. Commissioner to exercise such power. The order does not cite any authorization granted by Commissioner while the CBIC had appointed officers as proper officers for such powers based on monetary limits.

 

Under SGST, generally there is no concept of monetary limit for adjudication, assessment or any other powers. For decades, in Customs and Excise, monetary limits based on the rank of the officer has been the norm and a lower-level officer in the hierarchy cannot demand or pass order where the amount involved runs into few crores. In SGST regime, one comes across notices and orders running to even more than Rs. 100 crores issued by State Tax Officer who are much lower in rank. It is time for Commissioner, State Tax (Commercial Tax Dept.) in the States to issue appropriate guidelines vesting powers based on monetary limits [2024-VIL-613-ORI].

 

Transitional credit - No time period for filing application seeking extension

As noted in this column a few times before, credit may be transitional under "transitional credit" but the dispute on such credit is eternal. A recent case on Section 140(5) of CGST Act came before the Bombay High Court. This section provides for availing credit of eligible duties and taxes on inputs and input services received on or after 1-7-2017 but duty / tax has been paid under pre-GST law with the condition that the invoice should be recorded in the books within 30 days from 1-7-2017. This time can be extended for 30 days by the Commissioner if sufficient cause is shown. The petitioner could not adhere to this time-limit due to cyber attack and recording of invoices got delayed but completed before August, 2017. The petitioner applied for extension of time but the GST department adopted the familiar course of SCN and rejection of such request. It seems the request for extension was made in December, 2017. The High Court posed the question as to time-limit for seeking such extension and held that rejection of application in the case taking December, 2017 as the filing date was incorrect. The authority was directed to pass order afresh [2024-VIL-633-BOM].

 

Automatic stay on recovery of balance amount once pre-deposit is paid

Section 106(7) of CGST Act seems simple - if the assessee has paid the sum mandated for appeal, recovery proceedings for balance amount will be stayed. The tax department imparted ingenuity by not accepting appeal, citing limitation and though pre-deposit of 10% of tax was paid, the attachment of bank account continued. The assessee relied on Notification No. 53/2023 - Central Tax which allowed assessees to file appeal upto 31-1-2024 after paying 12.5% of disputed tax and therefore, additional 2.5% pre-deposit was also paid. In an earlier motion (round one) the High Court directed the department to dispose the appeal on merits. However, the department kept the appeal pending and did not revoke the order of attachment. The High Court quashed the order of attachment and directed the appeal to be heard. The case seems to be one of plain harassment as the attachment was not provisional one under Section 83 but the same was part of recovery proceedings under Section 79. [2024-VIL-616-CAL].

 

Movement of exempt goods to factory without e-way bill - Penalty cannot be 100%

It was a case where both parties contributed to lacunae. The department's zeal in imposing penalty of 100% of value of goods was not matched in renewal of bank guarantees. The assessee who was vigilant about the statutory provisions did not worry about the lapse of bank guarantees given for release of goods and though penalty was reduced, he ended up donating to PM Cares Fund. The goods imported under EPCG scheme were not exigible to customs duty or IGST and after clearance goods were transported to the assessee's factory. The SGST officer, on checking found that e-way bill had not been generated and levied penalty. The petitioner argued successfully that the goods being exempt goods since they are not taxable under GST- penalty should have been Rs.25000/- at best since it was lesser than 2%of value of goods in terms of Section 129(1)(b) of the CGST Act.

 

The High Court interpreted "supply" as requiring two persons atleast and in transport to own factory, this requirement was not met. Also, since no consideration was paid there was no supply exigible to GST. It was held that penalty could be levied only under of Section 129(1)(b) of the CGST Act and the impugned order was erroneous. However, since the bank guarantees were not renewed on time and department also did not seek the same, the High Court directed action to be taken on erring officers and directed the assessee to donate Rs. 15 lakhs to PM Cares Fund [2024-VIL-639-BOM].

 

Payment of tax during search or before search cannot be voluntary

In a well-reasoned order, the High Court of Calcutta concluded that payment of tax during the course of search i.e. even before the search could be completed cannot be treated as voluntary payment and directed the sum paid to be refunded. This despite the discrepancies in the submissions of the assessee regarding issuance of INS-01, issue of validity of search and various factual aspects which they High Court declined to examine. It was held that from the corresponding facts and circumstances it could be inferred that the payment was not voluntary and instructions issued by the Commissioner (GST-Inv.), CBIC dated 25th May, 2022 were not adhered to nor DRC-04 was issued in terms of Rule 142(2) of the CGST Rules, 2017.

 

As per the said instructions there may not be any circumstances necessitating recovery of tax dues during the course of search or inspection or investigation proceedings though payment may be made voluntarily. The department contended that DRC-04 was not required to be issued since payment was voluntarily made vide Form DRC-03. The High Court held that in the absence of acknowledgement given in GST DRC-04, payment cannot be said to have been accepted and the same was not voluntary [2024-VIL-632-CAL].

 

Anti-profiteering - Rate reduction should be passed on immediately to end-user

While anti-profiteering provisions are in the process of being interpreted and is staring at sunset, the assessee is expected to comply with Section 171 of CGST Act and that too the Herculean task of immediate price reduction when tax rate is reduced. In the case before Telangana High Court, the points put forth by the assessee-petitioner assailing the charge of profiteering seemed plausible enough - it had to obtain government permission to vary prices of tickets, the delay of two months to effect the change and payment of higher taxes in such period in which the government also benefitted. But it was held that strict compliance with Section 171 was required and the order passed by the National Anti-Profiteering Authority to recompute profiteered amount was not illegal [2024-VIL-618-TEL].

 

Permission to re-export does not mean confiscation and redemption fine do not arise

Goods were imported but the importer could not produce relevant certificates required under certain statutory provisions. Because of such contravention, the goods were held as liable to confiscation and redemption fine was ordered. The importer's request for re-export was also allowed in the same order. The importer argued before CESTAT that once re-export has been allowed, the goods cannot be confiscated and therefore, payment of redemption fine does not arise. The Tribunal did not agree. It held that permission to export prohibited goods that have been confiscated and redeemed is an administrative order arising from the request to re-export the goods. It said that re-export comes into operation only after the importer gets back the title to the confiscated good on payment of redemption fine. The order reads - "That the permission for re-export has been bundled and passed in a quasi-judicial order pertaining to the confiscation and redemption of goods is only for administrative convenience. Further it gives certainty to the action the importer is permitted to take post redemption of the goods. It also makes it easier for the importer, who does not have to file a fresh application for export post redemption of the goods and await an uncertain outcome."

 

Rejection the contention that no redemption fine is imposable on goods that are to be re-exported, the Tribunal emphatically held that no court has laid down the law that prohibited goods, imported without authorization, are to be released for re-export without payment of redemption fine and confiscated goods can be redeemed either for home consumption /warehousing or for export only on payment of a fine [2024-VIL-707-CESTAT-CHE-CU].

 

CBIC issues circulars as recommended by GST Council

These are days of social media and information avalanche. CBIC issued a host of circulars last week as recommended by GST Council and by the time this column is written, they have been discussed, debated and digested. Circular No. 210/4/2024-GST dated 26-6-2024 on valuation of supply of import of services by related person where recipient is entitled to full input tax credit seeks to adopt the position as clarified in Circular No. 199 dated 17-7-2023. When a foreign affiliate provides services to related domestic entity, and where ITC is available to the domestic entity, the value of such supply of services declared in the invoice by the domestic entity will be deemed as open market value and where full ITC is available to the recipient, if the invoice is not issued by the domestic entity, the value of such services will be deemed to be declared as Nil, and may be deemed as open market value. Circular 199 was issued to clarify issues relating to cross-charge and in particular, inclusion of salary cost by HO on services provided to branch offices. While this may be eminently rational for distinct persons i.e., establishments of the same company in different States, it is not clear how this will apply to cross-border transactions.

 

Circular No. 211/5/2024-GST deals with time-limit for availing ITC under Section 16(4) of CGST Act in respect of supplies liable to reverse charge received from unregistered persons. The clarification essentially points out that self-invoice is required to be issued in such cases and relevant financial year for calculating time-limit for availing ITC will be the FY in which such invoice is issued. It reminds that if invoice is issued after time of supply, interest for delayed payment of tax will be liable to be paid and penalty may be imposable for delay in issuing invoice.

 

Circular No. 212/6/2024-GST provides mechanism to satisfy the condition of reversal of proportionate ITC on post-sale discount passed through credit notes. It notes that there is no facility or mechanism for such purpose now and therefore, CA certificate (from recipient's end) can be provided in cases involving more Rs. 5 lakhs and undertaking or self-certification by recipients themselves in other cases as proof of reversal of ITC. But this process seems to be not a routine one as the circular states that during audit, investigation, etc., if required, such certificate may be produced.

Another circular on warranty / extended warranty has been issued [Circular No. 216/10/2024-GST]. While it reiterates the previous circular on warranty, on extended warranty, it states that where agreement for extended warranty is made at the time of original supply of goods, and the supplier of extended warranty is different from the supplier of goods, the supply of extended warranty and supply of goods cannot be treated as composite supply. Extended warranty will be treated as a separate supply in such cases and it will be treated as supply of service with the requirement to pay applicable GST. In respect of inter-company loans, the circular (No. 218) seeks payment of GST on processing fee or administrative charges or service fee and when such fee is not charged and interest alone is charged (which is exempted), GST payment is not required.

 

ITC is not deniable on ducts and manholes used in network of optical fiber cables (OFCs) as the same is not blocked under Section 17(5) of CGST Act since they fall under "plant and machinery" exclusion as per Circular No 219. This should be helpful to not only telecom sector but also others as the definition of plant and machinery has been read purposefully by CBIC.

 

 

(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)