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Tax Vista Your weekly tax recap Edn. 216 - 5th August 2024 By Dr. G. Gokul Kishore |
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Order passed without considering reply - High Court quashes but imposes costs on taxpayer
In GST regime, mostly in cases where SGST officers are involved in adjudication, hearing date is communicated and another subsequent date is mentioned for filing reply. The general practice of adjudication is to obtain the reply and then offer hearing to the taxpayer which will enable the adjudicating authority to appreciate the issue and contentions better. In most of such cases, orders are also passed either without waiting for the reply to be filed or even if filed, orders are passed either without considering the reply by simply ignoring the same. A case of this nature came up before Karnataka High Court. The taxpayer sought time to file reply but filed reply after lapse of such time sought. The order was passed much later without taking into account the reply and without offering personal hearing despite request for the same in the reply. It is surprising that such orders are defended by Revenue Counsels. The High Court held that Section 75(4) of CGST Act requires providing of opportunity of hearing if a written request is received or if adverse order is contemplated and such provision is mandatory in nature.
The High Court noted that the taxpayer did not utilize the opportunities initially and therefore, while quashing the order and remanding the matter for de novo decision, imposed costs of Rs. 50,000 on the taxpayer. This is unusual since the reply was submitted after a delay of around two weeks even when there is no statutory time-limit prescribed for filing such reply to show cause notice. Costs are imposed to punish laxity which is patent but, in this case, when reply has been filed well before passing of order, normal expectation is directing the authority to decide afresh without involvement of costs [2024-VIL-752-KAR].
Interest not payable when ITC availed wrongly was debited without utilisation
Apparently due to clerical mistake, input tax credit (ITC) was availed in excess but the same was reversed by DRC-03. Adjudication order confirming and interest and penalty was upheld by appellate authority. The taxpayer was before the High Court contending that at no point of time, ITC balance went below the amount involved and interest would be payable only if ITC was availed and utilised. On receipt of DRC-01A initiation, credit ledger was debited in this case. GST authorities argued that only ITC was reversed and interest and penalty were not paid.
The High Court noted that Section 50 of CGST Act was retrospectively amended from 1-7-2017 by Finance Act, 2022 to provide for interest only when ITC has been wrongly availed and utilized - The department tried to argue that the taxpayer's advocate had agreed to pay interest during hearing but such contention was termed as 'made in desperation' and the orders did not proceed on such 'admission'. Another weak argument of the department was that on issuance of DRC-01A intimation, proceedings shall be considered as having commenced. The Court said that proceedings can be said to have commenced only issuance of show cause notice and not before that. The petition has been filed in the year 2022. It would have been advisable for the department to concede such matters and close the litigation when the amendment squarely covers the issue [2024-VIL-754-CAL].
Appeal filed beyond condonable period - High Court condones delay
The High Court held that the power of appellate authority to condone delay in filing of appeal is certainly restricted by the statute and the authority cannot go beyond the same. However, it held that the High Court can entertain writ petition in this regard and held that right to appeal as provided under the statute must be decided on merits irrespective of some laches or delay on the part of the assessee and cannot be frustrated by technicalities. The order has been passed after taking note of Supreme Court's order in Glaxo Smith Kline case [2020-VIL-18-SC] holding writ petition should not be entertained when statutory appeal has not been filed even within condonable period. This order was interpreted as reflecting the position that the Court has ample powers to condone delay in filing appeal [2024-VIL-784-RAJ].
AP Reorganization - ITC not being excess tax, can be transferred from VAT regime to GST
Citing Section 56 of the Andhra Pradesh Reorganisation Act, 2014 which only permits a refund of tax or duty collected in excess, the authorities reversed the tax credit available in the ledgers of the petitioners under the AP VAT Act as on 02.06.2014 which had been transferred to GST regime. It was contended that credit balance at the time of the bifurcation of the State, cannot be transferred from the AP VAT regime to the AP GST regime. The High Court held that tax credit available in the ledgers of the petitioners is input tax credit, which is not tax paid in excess and said Section 56 pertains only to tax, duty or land revenue collected in excess and there was no bar on transfer of credit balances. The issue arose based on GST audit objection. It seems there is no end to imagination of audit parties in coming up with fictitious demands [2024-VIL-779-AP]
Limitation for refund - Period from date of claim till issue of deficiency memo to be excluded
The petitioner filed claim for refund of accumulated input tax credit due to inverted duty / tax structure from July 2017 within the period of limitation. Since the module was not available on the portal, the claim was filed manually based on Circular No. 24/24/2017-GST dated 21.12.2017. Almost a year later, he got to know that the application was to be filed before a different authority and requested for transfer of the application. While processing the application, the petitioner was issued a deficiency memo and filed all documents sought but the application was rejected on ground of time bar. The High Court granted relief to the petitioner agreeing with the argument that fresh refund application filed pursuant to the deficiency memo, would be considered as in continuation of first refund application and for purpose of limitation, date of filing the original claim would be relevant and in the case before it, the period from date of filing claim and issuance of deficiency memo shall stand excluded and therefore the claim was within the time-limit [2024-VIL-760-GUJ].
Rectification of mistake - High Court notes limited scope but grants part relief
The writ petition assailed the order of rejection of rectification application as well as the original order both of which the petitioner contended were without proper reasons and adequate hearing opportunity. The department argued that out of seven tax proposals, five had been dropped based on assessee's reply but others were confirmed due to non-production of documents. At the time of rectification application, additional documents were produced but the department contended that it was not a case of "error apparent on the face of the record." The High Court held that in view of the additional documents, re-consideration is necessary in the interest of justice and granted limited remand of the matter after deposit of 20% of the disputed tax demand. The limited scope of the remedy was noted - "These additional documents and information would not justify rectification of the order in original given the limited scope of Section 161 of applicable GST enactments."
In GST regime, quite a lot of rectification applications are being filed without appreciating the applicability of the remedy being restricted only to error apparent on the face of the records. In several cases, an order against the taxpayer is assailed as erroneous requiring rectification. Because such misdirected remedy is pursued, appeal remedy is also lost [2024-VIL-771-MAD].
Difference in PIN codes is a minor error not warranting heavy penalty
The taxpayer relied on Circular No.64/38/2018-GST dated 14.09.2018 and argued the minor discrepancy in PIN code in the tax invoices and in the e-way bill did not warrant imposition of penalty more than Rs.500. Penalty as imposed in the order was paid to get the goods released. The department argued that as per Section 129(5) of the respective GST enactments once penalty was paid, it is to be deemed that all proceedings had been concluded and also that the petitioner had approached the Court long after the order had been passed. The High Court was of the view that the "philosophy under the respective GST enactments is not to levy unjust tax and burden on assessee, who is otherwise regular in paying tax and complies with the law" and that the difference in address (also PIN) in tax invoice and e-way bill on account of head office and place of despatch being different was a minor error. It directed the authorities to either refund the amount paid by the petitioner or allow the petitioner to take credit for adjustment towards future tax liability.
E-way bill is a document which is certain to be abolished and earlier, the better. Not just harassment on the road and detention or imposition of heavy penalties, the document itself is an electronic dinosaur which has no role in so-called modern tax regime of GST [2024-VIL-776-MAD].
Stay on recovery and pre-deposit for appeal before Tribunal
Taxpayers urge their advocates to file writ petitions to challenge everything and advocates try to convince them as to such course of action not being advisable. However, in a strange case before Calcutta High Court, the order-in-appeal was not challenged on merits but the taxpayer sought writ in the nature of prohibition and not certiorari. The ground was that there is no GST Appellate Tribunal and therefore, the appellate order cannot be appealed against and therefore, there should be a bar / injunction on recovery proceedings till the time appeal is filed before the Tribunal. The High Court noted that when the order of the appellate authority was not challenged, such writ cannot be issued. It observed that in the precedent cases, interim relief was granted as the main issue was pending adjudication. The writ petition seeking prohibition was not accepted by the Court. This litigation is now infructuous as provision has been made in the GST portal for accepting pre-deposit in respect of appeal to be filed with the Tribunal as and when it becomes functional. CBIC has also clarified the same in Circular No. 224/18/2024-GST dated 11-7-2024. However, this circular can be challenged on the ground that pre-deposit cannot be insisted for refraining from recovery action based on such administrative instructions [2024-VIL-753-CAL].
Penalties imposed by RBI not liable to GST
GST law does not spare anyone. Reserve Bank of India is considered as a mighty and all-powerful institution with so much of regulatory powers and functions. It was before Authority for Advance Ruling (AAR) seeking clarity on GST applicability on various penalties imposed by it on banks and financial institutions and also on those penalties levied on vendors. The AAR held that penalties levied and collected by RBI for contravention of various laws administered by RBI are for the purpose of maintaining discipline and deterrence in the regulatee banks, non-banking financial institutions and other bodies. These are not liable to GST as per CBIC Circular No. 178. Generally, circulars of CBIC in favour of taxpayers are artificially distinguished. However, in this case, the AAR said it is bound by the circular and ruled that penalty is not in the nature of consideration for an activity and hence, would not constitute a supply of service. Similar ruling was given on penalties recovered from third party vendors holding them as in the nature of liquidated damages for non-performance or under-performance as per contractual agreement. The ruling gives a list of penalties imposed by RBI like those for non-maintenance of SLR / CRR, accepting deposits when there is a prohibition, penalty for ATM cash out, penalties under FEMA, SARFAESI Act, etc. [2024-VIL-130-AAR]
Motor vehicles for FTP purposes does not include vehicles in CKD form - Import can be through any port
Whether the glass is half full or half empty is a matter of perspective. Whether motor cycle imported in completely knocked down form (CKD) is a new (complete) vehicle or will it be treated as parts. Though the question has been answered in various fora, the customs authorities took a view that a vehicle in CKD classified under Chapter 87, ITC HS 87115000 by the importer is incorrect, and it was not eligible for exemption under Notification No. 12/2012-Cus. [S. No. 443 (1) (b)] as amended. It also opined that the goods were imported in violation of the conditions. Condition no. 2(II) (d) of Chapter 87 of ITC (HS) of the Foreign Trade Policy restricts the import of new vehicles which can only be through designated ports. Also, as per condition no. 2(I)(a), for the purpose of FTP, 'new vehicle' means a vehicle that is not manufactured/ assembled in India.
The importer contended that since by applying Rule 2(a) of General Rules of Interpretation of Import Tariff (GIR) a semi-finished or incomplete vehicle could be classified as a complete one if it satisfied the essential character of the complete article, the imported goods for purposes of Customs Tariff were correctly classified under Chapter 87. It was argued that the deeming fiction for classification under Customs Tariff cannot be extended to FTP. The importer argued that the imported goods could not be treated as new vehicle under FTP since it had to undergo manufacture/assembling in India and that the term 'motor vehicle' used in various clauses of Policy Note II to Chapter 87 can only apply to complete vehicles and cannot apply to vehicles in CKD condition or to incomplete vehicles. The CESTAT held that the term 'motor vehicles' in FTP did not apply to goods in CKD condition and can only mean completely built vehicles and that the importer had not violated any prohibition and the imported goods were not liable for confiscation [2024-VIL-854-CESTAT-DEL-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)