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Tax Vista Your weekly tax recap Edn. 221 - 9th September 2024 By Dr. G. Gokul Kishore |
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GST Council Meeting - A few major decisions
In the meeting held on 9 September, 2024, GST Council has recommended that limited amnesty providing for waiver of interest and penalty for the period 2017-18 to 2019-20 if tax is paid as per new Section 128A inserted in CGST Act this year be implemented from 1st November, 2024. Payment of tax should be made before 31st March, 2025 to avail this benefit. ITC related limited relief for those who availed it belatedly during the initial period has also been recommended for early implementation. Exemption will be granted in respect of ancillary services relating to electricity supply like application fees, testing fees, labour charges for shifting, etc., which has been under dispute for some time. The recent controversy over GST notices on grants for R&D is sought to be doused by exempting the same. Renting of commercial property by unregistered persons to registered person has been recommended for levy under RCM.
Quite a few issues are proposed to be clarified which includes ITC on demo vehicles which has been held against the dealers in advance rulings. New ledgers like RCM ledger and ITC Reclaim ledger will be introduced. E-invoicing for B2C transactions is proposed to be introduced on pilot basis. A major negative proposal relates to proposed clarification on affiliation services (both Universities and education boards) as taxable at 18% GST. Preferential Location Charges (PLC) will be subjected to same tax treatment as that of construction service.
GST offence - Prosecution under IPC without invoking GST law is not valid
SGST Authorities are not used to prosecution, arrest, etc., and therefore, most of them go to police station, file FIR and invoke IPC provisions also while investigating an alleged offence relating to GST. In a case of this nature, the High Court framed these questions - Whether GST authorities can launch prosecution involving the provisions of IPC without invoking penalty provisions of GST law for offences under GST law? Whether such prosecution can be initiated without sanction of Commissioner as per Section 132 of CGST Act? The case related to allegation of availment of input tax credit (ITC) on purchases from a bogus firm. The High Court noted that there was no allegation against the petitioner on his role in forming bogus firm and even if it is true, the same would constitute an offence under Section 132 of CGST Act. Mandatory sanction for launching prosecution was also not obtained in this case. The Court said invoking IPC ignoring GST law and bypassing procedures under GST law is not correct.
The Court said -"In the considered opinion of this court, GST Act, 2017 is a special legislation which holistically deals with procedure, penalties and offences relating GST and at the cost of repetition this court cannot emphasise more that the GST Authorities cannot be permitted to bypass procedure for launching prosecution under GST Act, 2017 and invoke provisions of Indian Penal Code only without pressing into service penal provisions from GST Act and that too without obtaining sanction from commissioner under Section 132(6) of GST Act especially when the alleged actions squarely fall within the precincts of offence as enumerated under GST Act, 2017. This would defeat the very purpose of enacting a special statute such as GST Act, 2017, as the GST Authorities instead of conducting search and seizure and conducting proceedings as prescribed under GST Act, 2017 themselves would be delegating the same to local police authorities which cannot be said to be the intent of the legislature while enacting GST Act, 2017."
The Court termed the action of GST authorities as abuse of process of law and quashed the proceedings initiated by them. SGST authorities need very intensive, periodical and thorough training on search, seizure, arrest, prosecution, audit, adjudication and appeals. These are areas where they end up cutting a sorry figure before writ courts [2024-VIL-937-MP].
Original documents lost in GST investigation - High Court rejects review petition
GST authorities found themselves in a tight spot as the situation after filing review petition in the High Court. In the first round of litigation, the High Court had directed the department to return originals of documents which are not relied on. The department came back to the High Court with a review petition on the ground that originals were lost and could not be traced and therefore, scanned copy of the documents can be provided to the taxpayer. The taxpayer did not budge and argued that integrity and evidentiary value are doubtful in such scanned copies and as per the Court order, only originals are to be returned. Several gaps in taking scanned copies were also pointed out. The High Court noted that the scope of review under Order XLVII of CPC is very limited - discovery of new matter or evidence which was not within the knowledge of the petitioner or error apparent on the face of the record. After relying on precedents relating to limited applicability of review, it held that there was no error apparent in the impugned order and therefore, directions given before on return of original documents were "just and fair" and did not interfere with the same. The review petition was dismissed.
It is not known what course of action is left for the department as it was stated that FIR was registered on loss of documents with the police. Whether police will be able to locate the documents and if they are not able to, whether taxpayer will initiate contempt proceedings against the GST authorities - a routine GST investigation has become really complicated [2024-VIL-941-MP].
No provision for hearing at pre-SCN intimation stage under GST law
Pre-show cause notice intimation is a farce in GST. The provision in Rule 142 of CGST Rules was initially mandatory but later made optional. GST authorities issue such initiation invariably but the reply to such intimation is never considered and show cause notice is immediately issued. A taxpayer was aggrieved over such action rather inaction - non-consideration of reply to pre-SCN intimation and failure to provide opportunity of hearing before SCN. The department pointed to the absence of provision in this regard. The High Court agreed and noted that it was discretionary for the proper officer to issue such intimation or not and there is no provision for adjudication in respect of the submissions made in response to such intimation. The taxpayer relied on other High Court's orders but, in this case, the Court differed and said that rules do not provide any hearing opportunity and right of the taxpayer arises only after issuance of SCN. The writ petition filed by the taxpayer was dismissed. Certain taxpayers have the luxury of filing writ petitions even when the provisions are clear and even when the conclusion is well-known - if after adjudication, order will be in favour of Revenue, it cannot be any different at any stage before [2024-VIL-928-RAJ].
Service of notice on driver is valid - 7 days period in Section 129(3) begins from the next day of seizure
Post-detention and seizure of goods on 7-8-2024, notice in GST Mov-07 was served on the driver of the vehicle on 14-8-2024. The taxpayer and owner of the goods informed the authorities on 14th August that he was the owner. The taxpayer assailed the proceedings and that order of demand of penalty dated 21-8-2024 stating that the notice was issued beyond the period of 7 days mandated in Section 129(3) of the CGST Act and that service of notice on the driver was invalid. The High Court held that Section 129(3) requires issue of notice within 7 days from detention/seizure which is to be counted from the succeeding day and hence the notice was valid. As per Section 129(1) which commences with non-obstante clause, to include any person transporting goods or storing them while in transit and therefore, service of notice on driver was held as valid. The petitioner contended that issuance of DRC-01 to the driver made it difficult for him to avail remedy of appeal but it the same was disposed with certain observations.
It is not clear whether penalty was imposed under Section 129(1)(a) when owner comes forward to pay or under Section 129(1)(b) when owner does not come forward to pay. While person transporting the goods is mentioned in Section 129(1) and therefore, service of notice on driver may be seen as contemplated in the law, there is no specific mention in Section 129(3) for issue of notice of penalty and order to the transporter, but it has been held that such service is valid. While, in this column, amendments to Section 129 are frequently highlighted, this issue also needs to be addressed - whether service of notice on driver is a valid service. [2024-VIL-952-ORI].
Multiple audit memos & demand letter does not invalidate SCN based on such memos / letter
The taxpayer's pain was accepted, the department appeared to have acted without complete backing of law, but it was not enough to set aside the SCN. The taxpayer received multiple audit memos, two of them after almost 2 years of notice of audit. It also received demand notices for tax, interest and penalty from the audit officers and made payment of certain amounts. Later SCN was issued for the same issues. The taxpayer also contended that some of the audit notices were time barred, there was not provision to issue multiple memos and the SCN was not valid. The department could not point out any statutory provision which provides for issuance of demand letters based on audit objections. The High Court held that though the CGST Act / DGST Act does not provide for issuance of the multiple audit memos determining the liability of a taxpayer, irregularities in issuing the audit memos did not impact the validity of the impugned SCN. The officer was directed to pass order after considering reply filed including the various contentions advanced by the taxpayer on audit memos.
Audit under GST by SGST authorities is a big drama and sham. Huge number of issues with sky-high demands are made without any logic, law or rationale and every year is taken as assessment year and audit memos are issued in bits and pieces though such concepts / documents are absent in GST law. Many demands are challenged in writ petitions only to be remanded back for fresh consideration. The audit officers are poorly equipped in terms of knowledge to decipher the documents produced by the taxpayers and even if they have some idea, interest in examination is hardly seen [2024-VIL-926-DEL].
Provisional attachment - Objections not to be kept pending but to be decided in 3 months
Provisional attachment is draconian as it deprives someone of his property temporarily even when nothing is certain regarding alleged lapses or violations of GST law. Coupled with such obnoxious provision, GST authorities try to evergreen the proceedings by resorting to extension for multiple years when the law had prescribed one year as the time limit and never inform the taxpayer who gets to know only from the bank or others about such attachment. Rule 159 of CGST Rules provides for filing of objection by the person whose property is attached, and Commissioner may release the same after personal hearing. In a particular case, the taxpayer filed such objection but the same was kept pending by the department and therefore, they approached the High Court.
The Court noted that the said provision does not provide for any time-limit within which the objections have to be decided by the Commissioner but the same ought to be within reasonable period and it cannot be kept pending indefinitely. The objective would be lost if the same is kept pending for a long time. It said, when time-limit is absent, the authorities should decide the objections within three months. It also directed the department to issue circular to provide for such time-limit [2024-VIL-951-RAJ].
Refund due to inverted tax structure admissible even if tax rate incorrectly applied by supplier
Readers may see Tax Vista published on 27 November, 2023 wherein Madras High Court's order on the above issue was briefly analysed [2023-VIL-810-MAD]. This order was based on the petition filed by the GST department. Aggrieved by the order of Single Judge Bench, the department filed appeal and Division Bench has now upheld the order of Single Judge Bench. The Court, however, reduced the interest payable from 9% as ordered earlier to 6%. Tax department has the luxury of engaging in multiple litigation while taxpayers have to stretch their resources to defend themselves. One can only hope that the matter is not further litigated in the Supreme Court [2024-VIL-957-MAD].
Variation in import price based on change in commercial parameters explained - Transaction value to be accepted
Customs Valuation Rules are quite clear and interpreted time and again as regards contemporaneous imports, comparable etc., and commercial factors are understandably important. Stating that no supporting documents from any regulating / governing international price agency/ institute, weekly / quarterly price bulletins were provided, the department sought to enhance value based on import prices 4 months prior to the date. The importer explained that the price of main raw material O-chloro benzonitrile (OCBN) for the imported goods Benzisothiazolin-3-ONE 85% (BIT PASTE 85%) faced a sudden surge due to explosion in the manufacturing facility and for a brief period between 2019-20 prices increased but when it came down, the cost of imports also came down. News reports of the explosion and data on prices for the period prior to and after the price surge were furnished. The CESTAT held that once the importer has established the reason for variation and also provided data on varying import price, the authority ought to have considered the same and set aside the impugned order [2024-VIL-1051-CESTAT-AHM-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)