Tax Vista Your weekly tax recap Edn. 218 - 19th August 2024 By Dr. G. Gokul Kishore

 

 

SCN after audit and payment of dues is not correct 

Issuance of second show cause notice for the same period or issue is not something new under legacy laws or GST. However, issuing SCN after conclusion of audit by GST authorities and after payment of tax, interest and penalty by the taxpayer, is yet to be seen on a large scale. The period covered by audit was from July, 2017 to March, 2022. After conclusion of audit, in March, 2024, the taxpayer paid all the amounts and the audit party was apparently happy and a final audit report was also issued. In May, 2024, show cause notice was issued demanding GST on certain issues covering the period 2019-20, 2020-21 and 2023-24. The High Court held that ordinarily, no proceeding can be initiated in respect of the period for which audit has been already conducted, audit report issued and matter got settled on payment of the dues. Observing that prima facie case was made out and overlap, in part, of the period covered in audit and the present SCN, the Court directed the officer to proceed with adjudication without communicating the order for which Court's permission would be required. Many taxpayers are of the view that conclusion of audit by the GST authorities is insurance against future demands. It may act as one, but cannot offer complete protection as this case reveals [2024-VIL-853-CAL].

 

Proof of actual transaction to be furnished to claim ITC

GST and unrestricted credit chain means that the recipient should be capable enough to run two businesses - his and the suppliers. It is a difficult situation if the weak link in this chain is one's supplier. Section 16(2) of CGST Act definitely vies for top position as compared to Section 17(5), for tax officers to deny credit. The petitioner dealing with paddy, peanuts etc., was denied input tax credit on the allegation of forged invoices and for not having furnished proof of actual transaction having taken place. While the petitioner provided tax invoice, proof of payment through banking channel, etc., he was negligent in not having ensured that the supplier had shown such sales in GST returns and paid the tax into the government's account. The petitioner further pleaded that having already paid tax, denial of ITC would amount to double taxation. However, the department largely relied on State of Karnataka v. Ecom Gill Coffee Trading Private Limited - 2023-VIL-20-SC and quite successfully contended that the petitioner had not discharged the burden of proving his eligibility to ITC and that he ought to have further provided vehicle number, details of freight charges, proof of receipt of goods and so on.

 

It is not clear from the judgement whether the department in fact proved that the dealer was bogus but the High Court has held that the petitioner has not discharged the onus. Section 70 of Karnataka Value Added Tax Act, 2003 is a little more elaborate than Section 155 of CGST Act which states that where any person claims that he is eligible for input tax credit under the CGST Act, the burden of proving such claim shall lie on such person. It is not clear if the burden extends to furnishing lorry receipts and ensuring that supplier remains compliant. But it appears that the Apex Court judgement in Ecom (Supra) has not been distinguished and the ratio continues to be applied for cases under Section 16(2) also [2024-VIL-861-ALH].

 

Refund - Period of supply relevant for continuous supply and not date of invoice

The refund on export of electricity to Bangladesh was denied on the ground that Regional Energy Account (REA) for the month for which refund was being sought was not provided. The assessee argued that relevant period in terms of Rule 89 of the CGST Rules would be the period of supply and not date of invoice. The assessee had raised invoices in the succeeding month and hence for refund relating to export in December 2021, application was filed January 2022. The GST authority held that since the REA pertaining to January 2022 was not filed, refund could not be granted.

 

Referring to Section 12(2) of the CGST Act providing for time of supply and Section 31(4) on raising of invoice, it was held that that though supply of electricity was done in the month of December, the time of supply, by legal fiction, would be the date on which the bill was presented in the month of January and furnishing of the REA for the preceding month, while making an application for refund in the succeeding month would be in accordance with the statute. It set aside the orders of rejection and directed fresh consideration of the claim while permitting the assessee to file REA of the previous month as the proof of export for the refund applications made in the succeeding month. An account of supply made for the past month can be filed only in the succeeding month and it is impossible to provide in the same month. Law apart, refund granting authorities can also act without any logic [2024-VIL-830-AP].

 

Rectification of return is allowed till specified period - High Court quashes order

Input tax credit pertaining to July, 2017 was availed but later the same was reversed in July, 2018. The reason cited by the taxpayer was availment of ITC during the first month of GST was by mistake. GST authorities took the view that the taxpayer ought to have appeared before the officer and explained the issue with documents to prove that ITC was not utilized. The High Court agreed with the department that opportunity to respond to SCN was not utilized but went on to hold that the ITC availed was reversed subsequently and was not utilized and such reversal was made before any SCN. Based on these facts, it held that the petitioner is a honest taxpayer who took steps to rectify the mistake on his own. It noted that Section 39(9) of CGST Act permitted taxpayer to revise the return till 30th November of the following year while the petitioner reversed the ITC in this case in August, 2018 itself. The order was set aside, and the matter was remanded for fresh consideration.

 

During the relevant period, the time-limit to rectify under the said provision was till due date for filing return for September in the following FY and even by this unamended provision, the taxpayer rectified before the due date. While the taxpayer did not appear or file reply as the order indicates, whether a reply would have satisfied the authorities is a question with the obvious answer [2024-VIL-854-KER].

 

"Shall" in Section 54(7) is directory - Delay in passing order on refund not fatal

The refund application of the petitioner was acknowledged belatedly and order denying the same was also passed beyond the time limit of 60 days provided in Section 54(7) of the CGST Act. The petitioner contended that the officer was bound to pass order within 60 days and he could not engage in further verification, withhold refund and so on. According to the GST authorities, the business premises seemed to be not suited for the business of the petitioner and there was mismatch in invoices. The High Court held that the word "shall" in Section 54(7) of the CGST Act was directory and not mandatory since the statute itself provided remedy by way of granting interest for delayed refunds. It also noted that the period was covered by order of the Supreme Court excluding the period from 15 March 2020 till 28 February 2022 for the purposes of the laws of limitation and there was no delay. Also, the petitioner had not responded to the show cause notice in time and sought an extension to file reply on the last day. It was held that Rule 92 of the CGST Rules is mandatory and the authority had no power to extend the same [2024-VIL-818-CAL].

Limitation Act cannot extend time prescribed in Section 107 of CGST Act

The Jammu & Kashmir High Court held that Limitation Act cannot be invoked to seek condonation of delay in filing appeal beyond time prescribed in Section 107(4) of CGST Act since the latter is a special enactment and expressly provides for a specific time frame. Though it opined that a High Court can intervene in special circumstances and cannot be limited by the statute, it held that in the case(s) before it, such interference was not warranted. One of the petitioners, had stated in appeal memo that due to ill health of self, there was a delay while in another case it was stated that the assessee's father had to be taken outside the state for treatment. The High Court held that statements without any accompanying documents like medical record etc., would not call for any relief from the High Court [2024-VIL-850-J&K].

 

Refund alleged as sanctioned without verifying e-way bill - Suspension order quashed

GST authorities insist on several documents and reject refund claims on various grounds, mostly imaginary and non-statutory. In a matter where the State Tax Officer sanctioned export related refund, he was suspended on the ground that the exporter was fraudulent, exports were fake as the goods did not leave India, e-way bills to show movement of goods to port of export were not verified and refund was sanctioned in haste. The officer in his writ petition contended that he was bound to sanction such refund within the timelines prescribed and he had verified ICEGATE and various documents like shipping bills. He contested that verifying e-way bill for such export refund was not prescribed anywhere in the departmental circular. The High Court held that as a quasi-judicial authority, the officer (petitioner before the Court) had complied with the statutory requirements and the departmental circular and the petitioner-officer cannot be suspended if the exporter turns out to be a fraudster. For suspension, it said that strong prima facie material should be present which was not the case and therefore, it quashed the suspension order. However, it directed posting of the officer in insensitive post in a different location.

 

Refund not sanctioned is generally challenged by taxpayers and refund sanctioned is mostly assailed by the department but proceeding against the officer is very rare. This order brings to mind the landmark judgment of the Supreme Court in Z.B. Nagarkar v. UOI [1999-VIL-106-SC-CE] wherein the disciplinary proceedings were quashed by an elaborate order. The charge was that the as adjudicating authority, the officer did not impose penalty. The observations of the Apex Court are worth reading as the order is so eloquent [2024-VIL-840-MAD].

 

Re-export of container - Inaction to apply for extension of time invites duty demand and penalty

The issue was non-re-export of containers within 6 months in terms of Notification No. 104/94-Cus., dated 16-3-1994 which provides for exemption from duty if the imported containers are re-exported, subject to conditions. The importer had re-exported 231 out of 236 containers and contended that containers in custody of the department could not be re-exported and in any case the matter could not be adjudicated after 10 years of issuance of SCN demanding duty, redemption fine and penalty on all containers. The CESTAT held that in case of the containers which had been exported and the continuous correspondence with the department, no violation of Notification No. 104/94-Cus., could be alleged and no confiscation or penalty was warranted. However, as regards the 5 containers which remained un-exported, it held that the importer had not made any effort to seek extension or re-export the containers and was liable to pay duty and penalty [2024-VIL-923-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. E-mail - advgokulsubha@gmail.com)