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Tax Vista Your weekly tax recap Edn. 220 - 2nd September 2024 By Dr. G. Gokul Kishore |
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Parallel proceedings - High Court quashes transfer by SGST authorities to DGGI
On the issue of availment of input tax credit, inquiry was initiated by SGST authorities and also by multiple zonal units of DGGI. In the first round, High Court had directed that inquiry should be conducted by one agency alone. SGST authorities undertook the same but later, DGGI also started investigations and SGST authorities transferred to the proceedings to DGGI. The taxpayer was before the High Court challenging such transfer on the ground that as per Section 6(2)(b) of Haryana GST Act, proper officer was the one who initiated the proceedings under such Act and he is not empowered to transfer the proceedings. It was specifically argued that there is no provision in GST law for transfer of proceedings between Central and State GST authorities. Based on period involved and the issue having ramifications beyond Haryana, the department sought to justify the action taken.
The High Court held that the provisions of CGST Act / HGST Act do not provide for transferring proceedings from one proper officer to another rather it bars the same. It said -"In the circumstances, neither any authority has the power to transfer the case from its own jurisdiction to another nor any other authority can direct for transferring an investigation/ proceeding already undergoing before the proper officer in terms of Section 6(2)(b) of the Act." It took note of orders of other High Courts holding the same view.
On the argument of DGGI being better placed to conduct investigation pan-India, the Court said -"Merely because the DGGI has information relating to similar fraudulent availment of ITC by other firms who may be related to the firm against which the proceedings have been initiated under Section 74 of the HGST Act by the State authority itself would not be a sufficient ground to presume that the State GST authority would not be able to conduct the proceedings or examine the culpability of the firm against whom proceedings under Section 74 of the HGST Act have been initiated. Merely because there may be other firm also against whom proceedings are initiated, there is no concept of joint proceedings." CBIC Circular dated 5-10-2018 was stated as having acknowledged that once the State Tax Officer has initiated action, he would be the proper officer to conduct the proceedings.
The High Court also interpreted the term "subject matter" as meaning "nature of proceedings" and in the case before it, availment of ITC by fraudulent means. It directed the SGST officer to proceed and conclude the proceedings. Considering the issues involved, the department may take this issue to the Supreme Court and readers may get to see an authoritative pronounce on Section 6, if and when such matter is agitated before it [2024-VIL-920-P&H].
Parallel proceedings - High Court quashes SCN and order
VIL has reported another order on parallel proceedings last week. Section 6 of CGST Act intended to restrict parallel proceedings by both CGST and SGST authorities on the same subject matter even while cross-empowering such officers to adjudicate cases involving both types of taxes has remained immune to amendments so far, as noted in this column before. This provision has been coming up before writ courts frequently as the CGST and SGST authorities do not want to cede their jurisdiction once they commence certain proceedings. In a recent case before Calcutta High Court, the taxpayer assailed show cause notice and order passed by SGST authorities when the same subject matter was covered under proceedings initiated earlier by CGST authorities. The High Court agreed and quashed both the SCN and the order after taking note of Section 6. However, it gave liberty to SGST authorities to proceed if the issue / subject matter dealt with by the CGST authorities is different. This part of the order is not clear since on the one hand, the SCN and order have been set aside but on the other hand, department is permitted to proceed further. May be, the subject matter is composite and one or more issues are in common and the rest are different [2024-VIL-905-CAL].
Refund of ITC to SEZ unit - High Court allows
Refund of accumulated input tax credit (ITC) was granted to SEZ unit but later the department filed appeal against such order on the ground that supplier alone can claim such refund and SEZ developer / unit is not allowed to file such refund claim. The appellate authority set aside the order granting refund. The taxpayer filed writ petition arguing that the issue of entitlement to refund of unutilized ITC by SEZ unit has been settled in favour of taxpayers by the High Court in Britannia Industries case [2020-VIL-427-GUJ]. It was further pointed out that SLP against such order is pending in the Supreme Court but there is no stay of operation of the High Court order. In the case before it, the High Court agreed with the petitioner on the issue being covered by precedent judgment and held that the appellate authority could not have ignored such precedent when there is no stay. The order passed by the appellate authority was quashed.
It appears that this issue has not been addressed through amendments to the provisions. Rule 89 of CGST Rules does not categorically include SEZ developers / units while dealing with filing of refund claim. Probably this has led to the GST authorities raking up this issue time and again. Rule 89 speaks about "supplier of goods" and "supplier of services" in respect of supplies to SEZ. In respect of deemed exports, recipient can claim refund but in GST, supplies to SEZ are not included in this category. An amendment and an unambiguous clarification may be required on this issue [2024-VIL-911-GUJ].
Notice/communication sent to old address despite intimation is not valid service
The assessee shifted to a new premises in GST regime and had intimated the same to the department. For service tax matters, it had appointed its auditor as authorised representative but he was not authorised representative for GST matters. Show cause notice was served on the auditor who did not intimate the assessee. The matter came to the knowledge of the assessee only when order was passed and bank account was attached. The plea of the petitioner was that owing to no fault of his, there was no proper service of notice, hearing opportunity etc., and the bank account had been attached. The High Court granted relief by setting aside the order and remanding the matter for fresh consideration and also defreezing of the account. The petitioner agreed to pay 7.5% of the disputed tax as condition for the remand. It is not known how such pre-deposit quantum was arrived at as the statutorily prescribed quantum is 10% in respect of appeal [2024-VIL-916-MAD].
GST on holding equity in, and lending to subsidiary - High Court quashes SCN
It appears that neither law/interpretation nor circular can swerve the revenue officer from proposals to tax. Assessees have long given up on plain explanations and logic. However, in response to intimation under Section 73(5) of the CGST Act / KGST Act, 2017 which was issued pursuant to audit report, the assessee pointed out that the demand of GST on the activity of holding equity capital by the parent company in the petitioner company was not sustainable in view of Notification No. 9/2017-Integrated Tax (Rate) and that interest on ECB cannot be subject to GST in view of Circular dated 26.06.2024 clarifying that interest or discount on loan by an overseas affiliate to its Indian affiliate or by a person to a related person was not a taxable event. The SCN was issued and the assessee approached the High Court seeking setting aside of the same. Discussing various precedents as well as the Notification and Circulars, the High Court set aside the proposals in the SCN pertaining to demand of GST on holding equity but directed the petitioner to file reply where service fee was involved in granting loan. The petitioner was fortunate that the issue was clarified by circular recently. It takes extraordinary creativity at the first place to come up with idea of taxing holding of shares by treating the same as supply [2024-VIL-910-KAR].
One day cricket matches are commercial or not - Tribunal answers
Using adhoc exemption order, cricket association imported flood lighting system at nil rate of customs duty. One of the conditions of the exemption was that the goods shall not be used for commercial purpose. Customs authorities came to know that cricket stadium where such flood lights are installed is used for playing one day matches which was commercial in nature and therefore, exemption conditions were violated. The exemption was initially granted based on the request in the nineties that day/night matches of World Cup are to be played. The CESTAT observed that "commercial purpose" has not been defined in the exemption order and the exemption order does not restrict use of flood lights for World Cup matches alone. Such distinction was found to be absent in the exemption order and the SCN was based on presumption.
The Tribunal allowed the appeal not only on merits but also on limitation as the SCN was issued after collecting documents from the cricket association. It is not known whether such exemption would be denied as T20 matches are played in the same stadium and T20 matches based on auction of players, etc., can possibly be treated as commercial in nature. Cricket is something which is considered as high-paying careerwise in this country and the exemption order of nineties though ad hoc can hardly be perceived as relevant today [2024-VIL-1017-CESTAT-CHE-CU].
Royalty on retail sale paid to different entity cannot be included in customs value when not condition of sale
Customs duty was paid on transaction value as per the agreement between the importer and supplier in Thailand. On retail sale of imported goods - Monosodium glutamate or MSG royalty was paid to the group entity in Japan for use of trademark. As per the agreement terms MSG supplied to industrial consumers was outside the purview of royalty payments. The Appellate Authority held that in terms of Rule 10(1)(c) & (e) of the Customs Valuation Rules, 2007, royalty was includible for purposes of customs valuation since the goods underwent processing in India and the royalty was a condition of sale of imported MSG. The CESTAT held that goods had to be valued at time and place of importation and as such at time of import, royalty payment was not a condition of sale and there was no disguised pricing arrangement to enhance payment to the supplier in Thailand. The CESTAT held that postponing the collection of duty to the time of domestic sale of the goods after being repacked under a trademark, amounting to manufacture, was far too remote to retain the character of a Customs impost. According to the customs authorities, the payment to the Japanese entity was an indirect payment to the exporter in Thailand. The ruling reiterates that "condition of sale" means that without such payment import is not possible and additions to transaction value cannot be made merely because there is a payment to a group entity [2024-VIL-988-CESTAT-CHE-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)