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Tax Vista Your weekly tax recap Edn. 217 - 12th August 2024 By Dr. G. Gokul Kishore |
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ITC not deniable when recipient cannot verify compliance by supplier
The petitioners challenged the validity of Sections 16(2)(c) and 16(2)(d) of the Assam Goods and Services Tax Act, 2017 as well as the validity of Sections 16(2)(c) and 16(2)(d) of the Central Goods and Services Tax Act, 2017. The High Court granted relief by setting aside show cause notices and consequential orders by relying on On Quest Merchandising India Private Limited v. Government of NCT of Delhi - 2017-VIL-544-DEL in which Section 9(2)(g) of the Delhi VAT Act, 2004 was read down to hold that the provision did not cover bona fide dealers. Noting that Section 9(2)(g) of the Delhi VAT Act, 2004 was analogous to the sections under GST law which were challenged, the Guahati High Court opined that requiring a recipient to ensure compliance of the supplier was to place an onerous burden on the former. The provision should go from the statute book and it will go one day but by that time heavy price would have been paid by the taxpayers [2024-VIL-804-GAU].
IGST not applicable on immovable property constructed outside India through establishments outside India by Indian companies
Based on MOU between the Indian Government and Maldives Government, an institution was established with the support of India in Maldives. Construction of such institution building was given on contract to an Indian entity which in turn sub-contracted the work to another Indian entity. Both Authority for Advance Ruling (AAR) and the Appellate AAR held that as per Section 13(2) of IGST Act, if immovable property is located outside India, then place of supply will be the location of the recipient in India when both the supplier of service (sub-contractor) and service recipient (contractor) are in India. This order was challenged through writ petition. The High Court noted that for execution of the contract, the sub-contractor (petitioner before the Court) had re-registered as per Maldivian laws, established an office in Maldives and employed good number of personnel there. The main contractor also set up an office in Maldives and employed people there to supervise and monitor the work. In India, both the parties have registered office, contract was signed in India and payment was made in INR. The Court noted the definition of location of recipient of service and it points to fixed establishment elsewhere and the supply was received in this case by the fixed establishment in Maldives. The re-registration under Maldivian laws was apparently considered as a procedural requirement and no new company as such came into existence and the same should be considered as fixed establishment only.
The High Court also read the two explanations in Section 8 of IGST Act and said - "A combined reading of Explanations 1 and 2 shows that if the petitioner had any 'establishment' in Maldives, it must be treated to be his 'establishment' in that territory and such establishment shall be treated as 'establishment' of distinct person. Once such 'fixed establishment' is treated to be as establishment of distinct person and treated as his 'representational office' in other territory, it will be clear that the 'work contract services' performed by the petitioner are relating with the 'establishment' of the petitioner in India and his 'fixed establishment' in Maldives is his other establishment or 'representational office."
While the above was in the context of Section 12 (when both supplier and recipient are in India), the High Court further held that in this case both supplier and recipient were outside India and therefore, question of IGST levy itself does not arise. The Appellate AAR's ruling was noted as - "Hence, we are constrained to hold that the learned Appellate Authority has taken a view which no reasonable man well-versed with the subject can take upon reading the relevant provisions of the Acts." The Court directed refund of amounts paid as GST, interest and penalty. The order lays down good amount of jurisprudence on certain provisions of IGST Act which are yet to be interpreted by judiciary in multiple cases. The provisions involved in this case are mostly ambiguously drafted and the consequences are being slowly felt now [2024-VIL-813-TEL].
Interest, penalty, redemption fine on IGST - No statutory mandate under Customs Tariff Act
In a very interesting case on whether customs authorities could demand interest, impose penalty, redemption fine in respect of IGST which was later adjudged payable, it was held that there is no specific provision is made for recovery or charging of interest, fine and penalty under Section 3(7) or 3(12) of Customs Tariff Act 1975. The SCN was issued on account of alleged violation of pre-import condition in connection with imports made under Advance Authorization scheme. Pursuant to a judgement of the Supreme Court, IGST was held to be payable along with ITC availability. The importer paid IGST along with interest since the portal did not permit payment at the later date without interest but contended that imposing additional financial liability by imposing undue interest, redemption fine and penalty are not sustainable in law, particularly when there is no statutory provision for imposing the same. It was contended that provisions of the Customs Act 1962 are not made applicable for interest, penalty and fine in respect of IGST levied under Section 3(7) of the Customs Tariff Act. It was held that IGST is independent of the customs duty which is levied under Section 12 of the Customs Act. The other argument of the assessee was revenue neutrality since tax even if paid initially would have been available for set off.
The CESTAT held that for demanding interest and imposition of penalty, specific provisions must exist in the statute and as also provisions regarding confiscation of goods and redemption fine, and the same cannot be invoked from Customs Act when it has not been made specifically applicable to IGST. This is a major lacuna in drafting and the same has been rectified through Finance (No. 2) Bill, 2024 as passed by Lok Sabha. The amendment was not part of the Bill as presented in the Parliament but subsequent to this order of the Tribunal, it appears that damage control exercise has been undertaken [2024-VIL-876-CESTAT-AHM-CU].
Furnishing of BRC not required to claim refund on export of goods
Perhaps no one takes duty (to safeguard revenue) as seriously as the officer processing refund. The assessee was asked to provide explanation on invoices not reflecting in GSTR-2A beside E-way bills, Bank Realization Certificates (BRC) and the bank statements and the ledger accounts of the suppliers. Refund was rejected stating that BRC was not furnished and that ledger accounts of suppliers was incomplete. No deficiency memo as provided under Rule 90(3) of the CGST Rules was issued. On appeal, the assessee provided all documents sought but appellate authority upheld rejection, refusing to accept the BRC provided at stage of appeal and also referred to Section 16(2) of the CGST Act indicating that it was not clear whether suppliers had paid the GST into government account. The High Court held that Rule 92(3) of the CGST Rules does not contemplate a general enquiry for eliciting documents or examining the returns. It opined that the officer must form an opinion that refund is not admissible either in whole or in part and merely seeking documents does not evidence that he has formed such an opinion. It referred to definition of export of goods in Section 2(6) of IGST Act where no condition of receipt of payment exists unlike 'export of services' as defined Section 2(5) to mean supplies of services where the payment of the services has been received by the supplier of services in convertible foreign exchange or in Indian rupees as permitted by the Reserve Bank of India. It also referred to Circular No. 125/44/2019-GST dated 18.11.2019 which expressly provides that furnishing of BRCs is not a necessary condition for claiming refund in case of export of goods. The High Court held that the officer cannot insist on provision of BRC and reject refund application.
As regards invocation of Section 16(2), it was held that the same is out of context for refund application. But since it appeared that there was an apprehension that the assessee may not have paid the supplier and accumulated credit does not arise, it directed a limited remand for examination as to whether payment was made for inward supply. The order is eloquent but for the remand direction as the Court has considered verification on payment of tax as irrelevant and yet, directed such examination [2024-VIL-798-DEL].
PSF and UDF not liable to GST at the hands of airlines
The assessee uploaded his replies in google drive and dispensed with personal hearing. The issue was GST on User Development Fee and Passenger Services Fee collected by it as agent of Airport Authority of India and it claimed relying on Circular No.115/34/2019-GST dated 11.10.2019 that no tax was payable. SCN was issued for various years and orders were passed recording that no reply had been provided by the assessee since it could not access the files in google drive. The High Court agreed that Circular 115 may be applicable and prima facie both PSF and UDF are not liable to GST but noted that there was lack of clarity in both the SCN and orders since it did not state whether the assessee was not in fact a pure agent, whether separate fee was being collected by it for such services from AAI. The High Court quashed the orders and stated that they would be treated as addendum to the SCN and directed issue of detailed corrigendum and providing fresh opportunity to the assessee to file proper reply. Procedural issues like uploading of documents, sharing through link in drive or by email, etc., continue to play a major role in GST causing avoidable hardship to taxpayers [2024-VIL-800-MAD].
Orders sans reason just to overcome limitation bar are a fraud on the statute
The issue is not new, neither the issue of show cause notice nor passing of order just before the finish line of limitation. In the case before Delhi High Court, demand was raised on availment of ineligible credit on motor vehicle services and airlines travel though the assessee had submitted tabular statement setting out the parties from whom the petitioner had availed input service and the adjustments and stated that it had not availed ineligible credit. But GST authorities are bound by duty and order was passed without considering the same.
The High Court voiced its anger on the orders which are passed on the last few days of the extended period of limitation and stated that it was a fraud on the statute. The High Court was severe in its comment that orders are passed fully conscious of the fact that the same are not legally sustainable. It stated that the Court was flooded with writ petitioners assailing such orders. While permitting filing of counter-affidavit it directed that the affidavit shall indicate the number of such orders passed officer-wise indicating the number of orders passed by the respective officers during the last three days of the extended period of limitation. Similar directions can be considered by other High Courts as well since the situation is similar everywhere. Numerous SCNs and orders without any head or tail are being dished out only to beat the deadline compelling the taxpayers to knock the doors of writ courts with an avalanche of petitions. GST will be remembered in future for worst implementation [2024-VIL-815-DEL].
Extension of time-limit - High Court grants interim protection
Notification No. 56/2023-Central Tax was challenged as ultra vires the CGST Act on the ground that there was no recommendation of the GST Council for extension of time-limit as per Section 168A while Notification No. 9/2023-Central Tax was issued based on such recommendation for extension of date for passing order under Section 73 for specified period. Terming the reasons like lack of manpower and inability to complete audit as not sustainable, the petitioner contended the same would not be "force majeure" circumstances. The Government Counsel pointed to the Implementation Committee's recommendation and GST Council's ratification is being pursued. The High Court said prima facie Notification No. 56/2023-Central Tax is not in consonance with Section 168A and granted interim protection against coercive measures based on assessment order. The matter has been heard at interim stage but has been highlighted in this column as this issue is being litigated in various High Courts with Kerala High Court holding in favour of the department [2024-VIL-797-GAU].
Contradictory rulings by Advance Ruling Authority - High Court quashes
The issue as such is not important as it relates to a particular product - whether the goods are classifiable as cultures of micro-organisms under heading 3002 attracting 12% GST or to be considered as bio-fertilizers under heading 3101 liable to 5% GST. The Authority for Advance Ruling and Appellate AAR held the goods are classifiable under heading 3002 attracting 12% GST. The taxpayer was before High Court assailing the contradictory stand adopted by the AAR / Appellate AAR as the goods were held as classifiable under heading 3105 as bio-fertilizer in respect of another company. The High Court agreed that the rulings were indeed contradictory and it noted that petitioner is at a loss when his product has been held as liable to 12% GST while the same in respect of another company has been ruled as taxable at 5%. The High Court quashed the ruling and directed consideration of the matter de novo. The general perception about advance rulings is that they are biased towards the department. But this case stands out - the same authority adopting divergent positions on the same issue. Except certain officers in the tax administration, it is not clear as to who benefitted by advance ruling mechanism [2024-VIL-817-GUJ].
(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)