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Tax Vista Your weekly tax recap Edn. 213 - 15th July 2024 By Dr. G. Gokul Kishore |
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No service is provided by receiving discount - High Court holds order to the contrary as erroneous
Section 15 of CGST Act provides for exclusion of discount from taxable value if the same is shown in the tax invoice. In the case of post-supply (post-sale) discounts, such exclusion is available if the same can be correlated with the invoices and if there is an agreement before the transaction that such discount will be extended. Input tax credit (ITC) attributable to the difference between the original value and the reduced value should be reversed by the recipient. All these are applicable if the taxpayer wishes to adjust GST paid through credit notes issued under GST law. Otherwise, in the case of commercial or financial credit notes where GST adjustment is not availed, the provision is inapplicable i.e., ITC reversal is not required. However, in a particular case, the GST authority was of the view that such extension of discount was construed as service. The High Court considered this as erroneous by holding - "The above extract discloses that the assessing officer concluded that the taxable person is providing a service to the supplier while taking the benefit of a discount by facilitating an increase in the volume of sales of such supplier. This conclusion is ex facie erroneous and contrary to the fundamental tenets of GST law."
The matter has been remanded for fresh consideration. The issue of discounts being seen as consideration for sales promotion is not new. However, it was thought with GST in place, such issue will not be raked up again. Though circulars have been issued on this issue, another clarification may be required to categorically say that this is not a service. The Madras High Court in this case holding it as erroneous will help taxpayers [2024-VIL-677-MAD].
GST authorities should provide evidence while alleging supplier as non-existent
The allegation of suppliers being fake or non-existent is as common as denial of input tax credit adopting various grounds. In such cases, supplier is generally considered as non-existent or whose GST registration has been cancelled. The department hardly bothers about sharing any evidence with the taxpayer while levelling such allegations. In a case of this nature, the Madras High Court has directed the GST department to share documents / evidence for arriving at the conclusion on non-existence of suppliers. The same were requested by the taxpayer but the adjudicating authority refused to share and had held that it was meaningless for the recipient (petitioner) to state that they valid documents. The Court observed that without stating the basis for such conclusion, the taxpayer cannot respond to such allegation.
The taxpayer had submitted tax invoice, e-way bill and bank statement and GSTR-2A to show suppliers had filed returns. The Court, however, was of the view that the taxpayer was at fault as lorry receipts and weighment slips were not provided to prove movement of goods. The matter was remanded. Such cases indicate certain action points for taxpayers - having all possible documents for every purchase and wherever feasible, having a live check on supplier leading a happy life with good business [2024-VIL-680-MAD].
Order passed against deceased person is a nullity
The urge to collect revenue does not stop with this world and it extends to the other world beyond one's life, it seems. If a person liable to tax dies, Section 93 of CGST Act makes legal representative or any other person who continues the business liable to pay tax, etc. In a case before Kerala High Court, it appears even before show cause notice was issued, information that the taxpayer had expired was shared with the department and yet, order has also been passed against such deceased person. The department relied on Section 93. The legal heir of the taxpayer contended that such order is a nullity which the High Court agreed. It said that such provision does not authorize continuation and culmination of proceedings against a deceased person. After quashing the order, the Court gave liberty to the department to issue notice to legal heirs and continue the proceedings afresh. It is not clear as to why the department was bent on passing the order even when the information was provided by the legal heirs of taxpayer. It is not clear whether the SCN or order relied on Section 93. The department could have invoked Section 93 to issue SCN to legal heirs but this was not done, may be, because time-limit was getting over [2024-VIL-683-KER].
Issue of SCN to non-existent entity post amalgamation not valid
GST department does not stop with proceeding against departed souls but also pursues entities which are non-existent. The petitioner company was formed after amalgamation of two group entities effective 2017 and the amalgamating entity applied for cancellation of registration which was granted. The department later issued notice in DRC-01 to the non-existent entity. Also, despite intimation of amalgamation in written reply in 2022, further notices were issued in 2023. The High Court held following Principal Commissioner of Income Tax, New Delhi v. Maruti Suzuki (India) Limited reported in (2020) 18 SCC 331 that once an amalgamating entity ceases to exist upon approved Scheme of Amalgamation, proceedings as regards the non-existent company cannot be permitted and set aside the notices [2024-VIL-685-KAR].
Non-filing of return even after best judgement assessment - Assessee not entitled to relief
Ignorance of law particularly laxity in making amends is no excuse. In yet another order by Division Bench, the petitioner seeking cancellation of assessment order passed on best judgement basis under Section 62 of CGST Act, 2017 on assessment of non-filers of returns did not succeed. The petitioner did not file return for more than six months, his registration was cancelled and assessment order was passed under Section 62. It appears that the cancellation of registration was not assailed and no return was furnished in terms of Section 62(2) within 30 days of the assessment order. The High Court noted that the department did not issue formal notice as required under the provisions. However, it held that the statute grants sufficient opportunities to an assessee to ensure that an assessment is completed, as far as possible, based on the returns filed by the assessee and having failed to avail the same, the assessee was not entitled to any relief. Receipt of order was not disputed and this became fatal for the assessee. The argument of the assessee was that it was a new business and not aware of filing and other requirements [2024-VIL-682-KER].
Orders can be uploaded on the GST portal and constitutes service to assessee
The petitioner was aggrieved by the order of the Single Judge holding that uploading of order on the GST portal was valid, rejecting the contention that since the same is not specifically mentioned in Section 146 of the CGST Act, 2017, orders could not be uploaded. The petitioner had accessed the portal belatedly. The Division Bench agreed with the Single Judge order that conjoint reading of Section 146 enabling the government to notify the portal for registration, payment of tax, furnishing of returns besides for carrying out such other functions and for such purposes as may be prescribed and Section 169 on service of notice, orders, other communication, uploading of orders in the portal was permissible. It is not known why the petitioner persisted with the argument particularly when Section 146 is quite clear. Filing writ petition is still not an affordable option for many MSMEs, however in this case, the taxpayer has gone for writ appeal as well on such apparently meritless ground [2024-VIL-681-KER].
Recovery of retention bonus, joining bonus etc., on exit before stipulated period not exigible to GST
In a well-reasoned ruling accepting the various arguments of the applicant and following CBIC Circular No. 178/10/2022-GST dated 3-8-2022, the Authority for Advance Ruling held that recovery of joining bonus, retention bonus, work from home allowance, Tuition Assistance Program (to upskill employees) which were paid as per employment contract but liable to be recovered in case the employee did not serve the agreed period, was not exigible to GST. The basic argument of the applicant was that the employer is not rendering any service to the employee and the said recovery cannot be a consideration for any supply. It emphasised on co-existence of 'activity' and 'consideration' and the reciprocal relationship between the employer and employee is necessary to treat an event as supply under Section 7 of CGST Act, 2017. The recovery was only a cost imposed to incentivise employees to stay employed and to enable the employer to lessen the burden of expenditure on taking new persons, training etc.
The reliance on exposition of Circular 178 on forfeiture of salary or payment of bond amount in the event of the employee leaving the employment before the minimum agreed period being outside purview of GST was well made. The ruling leads to the conclusion that once the joining bonus etc., made in course of employment as perquisite was not taxable, recovery at a later date is also not taxable [2024-VIL-105-AAR].
CGST Rules amended - GSTR-1A gets statutory basis
As recommended by GST Council in the last meeting, CGST Rules have been amended. Several amendments relate to inclusion of reference to GSTR-1A which is being introduced so that taxpayers can amend GSTR-1. This new facility is being provided statutory basis by amending Rule 59 and such GSTR-1 can be filed after filing GSTR-1 but before filing GSTR-3B to amend or to include additional details of outward supplies. In respect of corporate guarantee, Rule 28 (2) is being retrospectively amended to state that the recipient should be located in India and the 1% of the amount of guarantee as taxable value will be calculated per annum. ISD-related rule is being substituted with many of the provisions from Section 20 of the CGST Act being included. Rule 88B has been amended to provide for not charging interest if sufficient balance is available in electronic cash ledger before due date of filing return but the same is debited after delay in filing return. Rule 110 dealing with procedure for filing appeal with GST Appellate Tribunal has been amended in line with filing of appeals with first appellate authority in so far submission of certified copy of order is concerned - if the order is available online, then no need to submit and if such order is not available in GST portal, then self-certified copy should be submitted. From day one, except where Registrar allows, it will be only online filing and everyone should sincerely pray that the portal supports the filing process without major hitch.
CBIC issue another round of circulars
A few more circulars have been issued by CBIC. Superintendents (instead of Asst. Commissioner) have been empowered to revoke cancellation of registration as per Circular No. 223. GST Appellate Tribunal is yet to become functional and only where pre-deposit is paid, balance is deemed as stayed as otherwise, department can initiate recovery action. Circular No. 224 clarifies that separate functionality in GST portal has been created to enable taxpayers to pay the pre-deposit required for prospective filing of appeal with the Tribunal and an undertaking to the GST authorities that they are willing to file appeal. In the absence of such compliances, recovery action can be initiated. Several issues relating to corporate guarantee have been clarified by Circular No 225. Refund related clarifications have also been issued in respect of increase in price of exported goods and supplies by defence canteen stores.
Customs valuation - MRP of retail sale cannot be used for valuation of goods imported for wholesale
Rule 4(1)(b) of Customs Valuation Rules, 2007 mandating use of transaction value of identical goods in a sale at the same commercial level and in substantially the same quantity seems clear enough. It is elementary that when the officer wants to determine assessable value, first the value declared by the importer must be rejected if conditions provided in Rule 3 exist and there must be sequential application of Valuation Rules. In the case before CESTAT, the importer had imported perfume - 44 consignments from foreign supplier for sale on wholesale basis and also 3 consignments for sale on retail basis by the Indian arm of the supplier. Since the MRP of the retail products was substantially higher than goods imported for wholesale, the department alleged undervaluation as also collusion with the foreign supplier. There was no payment other than the invoice price and no finding by the department that excess consideration had been paid for the alleged undervalued goods. According to the department the MRP (of retail sale) was the value of imported goods and it raised demand for differential customs duty.
The importer argued and the CESTAT agreed that so long as the price at which foreign supplier (unrelated party) sold the goods was not tainted as per Rule 3, transaction value had to be accepted. The price at which the retail sales were made did not satisfy Rule 4 since commercial levels as well as quantity imported were different and on facts the MRP adopted was an inflated price which was a policy decision of the foreign supplier uninfluenced by the importer. The CESTAT set aside the order holding that that the rejection of transaction value, confiscation of goods, and demand of differential duty, interest, penalty was not legally sustainable. It opined that adopting deemed value based on MRP for arriving at the transaction value was not in accordance with Section 14(1) of Customs Act, 1962. On the alleged contravention of the Legal Metrology Act, 2009, it was held that as the importer/wholesaler of perfumes and deodorants, the appellants were governed under the provisions of Drugs and Cosmetics, 1940 and there was no violation. The order is detailed one on customs valuation where DRI case has not able to defend itself on all counts [2024-VIL-757-CESTAT-MUM-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)