Tax Vista Your weekly tax recap Edn. 222 - 16th September 2024 By Dr. G. Gokul Kishore

 

 

GST on unfried fryums - High Court grants relief based on "as is" basis clarification

The Good & Simple Tax is as intricate and mind-boggling as its predecessors. The taxpayer secured advance ruling for classification of papad /unfried fryums and applied nil rate of GST. Post recommendation of the GST Council and in terms of Circular No.200/12/2023-GST dated 1-8-2023, the position changed. Snack pellets manufactured through the process of extrusion, were to be classified under tariff item 1905 90 30 with GST 18% and un-cooked/unfried extruded snack pellets falling under CTH 1905 would attract 5% GST. The Circular also stated that "in view of the prevailing genuine doubts regarding the applicability of GST rate on the un-fried or un-cooked snack pellets, by whatever name called, manufactured through process of extrusion, the issue for past period upto 27.7.2023 is hereby regularized on "as is" basis. According to the department, GST was therefore leviable at 18% on the goods for the past period despite the ruling of the Gujarat Appellate Authority for Advance Ruling to the contrary.

 

The High Court held that the advance ruling would hold field for the relevant period and that "as is" basis used in the CBIC circular meant the legal position as applicable in that period. Since the petitioner was covered by the advance ruling and the circular, the department was directed to regularise the past returns filed by the petitioners on "as is" basis accepting the same as they were filed at Nil rate upto 22-7-2023. These days, CBIC circulars after GST Council meeting use "as is basis" though the same ["as is where is"] is used for property put up for sale / lease on the same condition and same place. Someone started using such contractual terms without properly understanding the implications and the department itself is at the receiving end for such faux pas [2024-VIL-987-GUJ].

 

Pre-deposit for GST appeals - High Court allows payment using credit ledger

In Tax Vista dated 1st January, 2024, Patna High Court order in Flikpart International Ltd. v. State of Bihar [2023-VIL-927-PAT] was discussed. In this case, the High Court had held that pre-deposit for filing appeal is required to be paid from electronic cash ledger only and electronic credit ledger cannot be used for this purpose. In this column, Notification No. 53/2023-Central Tax dated 2-11-2023 extending the date for filing appeal in certain cases (limited amnesty) provided for payment of at least 20% of pre-deposit from electronic cash ledger which meant credit ledger can be used for the balance amount. The above order of High Court was stayed by the Supreme Court [2023-VIL-113-SC].

 

Taking note of the said notification on amnesty scheme for filing delayed appeals and the Supreme Court order staying operation of the earlier order, Patna High Court has in a recent case set aside order rejecting appeal for payment of pre-deposit through credit ledger. It has directed that payment from cash ledger need not be insisted and the appeal should be reconsidered on merits. As pointed out frequently in this column, this issue is yet to be categorically clarified or the provisions amended to unambiguously state that pre-deposit can be paid from electronic credit ledger also [2024-VIL-978-PAT].

 

Power in statute is not reason to block or not unblock ITC

The petitioner had approached the High Court in relentless pursuit to get access to his electronic credit ledger. In the previous round ITC ledger was blocked without furnishing reasons but his writ petition was dismissed, and reasons were provided. The petitioner applied to the Commissioner in terms of Rule 86A(2) of Odisha GST Rules but the same was rejected stating that since the earlier petition had failed there was no occasion to unblock the ledger. The GST authorities also argued that the writ petition should not be entertained. The High Court noted that redressal mechanism in terms of application to unblock the ledger/automatic unblocking after 1 year is inbuilt in the provisions, but no hearing opportunity is provided on the decision to block. It opined that the writ petition was to be entertained and since the rejection order indicated non-application of mind, it was set aside. Stating the intention of the legislature appears to be that after the dealer is made known reasons for blocking, he may apply to satisfy the authority, during the blocking period of maximum one year, that there is no reason to continue to block, the High Court directed fresh order to be passed considering the hardship faced by the petitioner [2024-VIL-988-ORI].

 

Education cess, SHE Cess & KKC - Credit can neither be transitioned nor refunded

The taxpayer transitioned to GST, credit of cesses like education cess, higher education cess and KKC paid under service tax regime. Based on Madras High Court order in Asst. Commissioner v. Sutherland Global Services [2020-VIL-44-MAD] holding that such cesses were not eligible for transition from pre-GST to GST regime, the taxpayer reversed such credit and refund of the same was sought. Such request was rejected as time-barred and the taxpayer was before High Court. The taxpayer argued that only based on retrospective amendment to Section 140 of CGST Act, cesses became ineligible for transition and during the relevant period, such restriction was not in the statute and refund under Section 142 was admissible. The Kerala High Court held that as per Cenvat Credit Rules, cesses could be utilized for payment of such cesses only and as per Madras High Court judgment in the above case, such cesses cannot be transitioned. It further held that there was no provision for grant of refund of such cesses when they stood abolished in 2015. The view taken by Tribunal in certain cases on this issue was pointed out but the High Court said the same not as per law. The plea for a direction to consider refund under Section 54 was also not accepted by the Court [2024-VIL-993-KER].

 

Pre-deposit paid for appeal during VAT regime can be transitioned as GST ITC

In a very interesting twist to transitional credit, the GST authorities objected to the transitioning of amount of pre-deposit paid under VAT law stating that it was not "input tax credit" and could not be transitioned. The petitioner had been successful in appeal and part of the demand was dropped resulting in a balance of the sum from pre-deposit on which the department had no claim and was liable to be refunded. The petitioner transitioned the amount pre-deposited at the time of filing of appeal as unutilized input tax credit under Section 140 of the TNGST Act, 2017. The High Court held that though the procedure was irregular, the issue was revenue-neutral and quashed the order denying such credit.

 

The GST department may appeal before the Division Bench and the decision may be different as only eligible duties can be transitioned and pre-deposit which was refundable could have been covered under Section 142 and not under Section 140 of CGST Act / TNGST Act [2024-VIL-986-MAD].

 

ITC availed through delayed filing of GSTR -3B - Amendments come to the rescue

The taxpayer was visited with demand, interest and penalty based on Section 16(4) of CGST Act in terms of which ITC shall be claimed in GSTR-3B on or before filing of such return for September of the following financial year, whereas ITC was claimed through GSTR-3B filed in November. This GSTR-3B was for the month of March, 2019 but filed in November, 2019. Though the High Court states that the petitioner relied on Amendment Act No.2 of 2024 which extended the time up to 30.11.2021 for any of these forms filed for the periods 2017-18, 2018-19, 2019-20 & 2020-21 (for claiming ITC), it appears the reference is to the recent amendments made through Finance (No. 2) Act, 2024 to cover belated availment of ITC for the initial years. The High Court did grant relief holding that the petitioner would be entitled to claim the said input tax credit. Though the High Court has held in favour of the taxpayer, the amended provision could have provided the same relief but the taxpayer could not have foreseen the same at the time of filing the petition [2024-VIL-979-AP].

 

Refund of CGST delayed though SGST refunded - Applicable interest to be paid

In a case of disconnect between CGST and SGST authorities unlike instances where both may pursue different units of the same taxpayer, while SGST authorities duly granted refund, the CGST portion was not received. The petitioner contended that State authorities are required to take steps for ensuring that the order is communicated to the CGST authorities and the despite representation, refund was not received. The CGST authority was not represented in the first hearing and in the second hearing, the High Court held that once refund sanction order was issued on 25th April, 2018 in Form GST RFD-06 as also payment advice, CGST authorities could not retain the amount. It directed refund along with applicable interest to the petitioner. The period is 2018 and it could have been due to issues during the initial period of GST. But the legal remedy pursued by the petitioner is around Rs. 9000 (CGST) and Rs. 37,000 (IGST). It is not known how legal expenses were met or it was a "principles fight" [2024-VIL-984-CAL].

 

CBIC issues a few trade-friendly clarifications

Based on GST Council's recommendations, CBIC has issued a few circulars. As place of supply for intermediary service is one of the revenue-friendly provisions and therefore invoked often, Circular No. 230/24/2024-GST dated 10-9-2024 clarifies that the advertising company in India involved in main supply of advertising services to foreign client including resale of media space client on principal-to-principal basis is not covered under intermediary and therefore, place of supply will be as per location of recipient. This means, export of service benefit will be available. An important clarification pertains to availability of input tax credit on demo vehicles used for trial run by potential buyers. Circular No. 231/25/2024-GST clarifies that ITC is not blocked under Section 17(5) of CGST Act as "such motor vehicles" has been used instead of "said motor vehicles" and therefore, for similar type of motor vehicles, ITC is not blocked. As per the circular, as demo vehicles promote sale of similar type of motor vehicles, they can be considered to be used by the dealer for making "further supply of such motor vehicles". It goes on to clarify that availability of ITC on demo vehicles is not affected by capitalization of such vehicles in the books of account of the authorized dealers. The clarifications are timely and trade-friendly and should help the taxpayers.

 

Hazardous goods are not hazardous waste - CESTAT sets aside confiscation

According to DRI / Customs authorities, hazardous means hazardous waste. Therefore, if containers laden with imported goods have warning like "Hazardous" or "Dangerous", then such goods are hazardous waste and import of such goods is prohibited when prior permission was not obtained as per Hazardous and Other Waste (Management of Transboundary Movement) Rules, 2016. A case of this nature landed in CESTAT. The importer argued and the Tribunal accepted that "hazardous goods" cannot be considered as "hazardous waste" when analysis was not undertaken, samples were not tested, expert who gave opinion was not allowed be cross-examined and gave such opinion merely based on visual examination. It appears that the matter was referred to CPCB and based on DRI's reference, CPCB said the goods were hazardous waste without testing the same. The very same goods were stated as imported through other ports and no such objection was ever raised which the Tribunal found favouring the importer. The order confiscating the goods was set aside and appeal by importer was allowed by the Tribunal. This is a typical case where the department plays safe. Any little suspicion - proceedings are not only initiated but also adversely concluded against the trade with the refrain - Let them go to any court. The pain of doing business cannot be more acute even in Africa [2024-VIL-1088-CESTAT-CHD-CU].

 

Customs valuation - Management fee being related to services, not includible in value

Inclusion of license fee and management fee in assessable value was the issue before the Tribunal. Goods were imported from related parties and based on cost allocation by parent company on all group companies, amount was paid by the importer as management fee. Customs authorities were of the view that management fee and trademark license fee were liable to be included in the transaction value of imported goods. The importer contended that license fee was for use on manufactured goods based on lumpsum basis on sales made to third parties (excluding group companies) and not in relation to imported goods. The Tribunal after reading the agreement noted that as per Rule 10(1)(c ) of Customs Valuation Rules, royalty and license fee related to imported goods are includible in AV if they are paid as condition of sale of the goods and in this case, such payments were neither related to imported goods nor can be said as condition of sale. License fee was payable only when there is a sale of finished goods and has no bearing on imported goods.

 

Management fee was held as payable for services as reimbursement of costs to various administrative services received from group companies and the same was not related to imported goods. It took note of the submission that group companies are required to pay such fee even if import is absent. Both the items were held as not includible in AV and appeal was allowed. The case proceeds on textbook lines - Customs booking case on the usual items paid by Indian subsidiary to parent abroad without properly appreciating the terms of the agreement. While compulsion of revenue is obvious, attempt to include even those amounts which are meant for services (on which service tax might have been paid under RCM) becomes the spoiler for the Customs when the case comes before the Tribunal and Courts [2024-VIL-1068-CESTAT-KOL-CU].

 

Aircraft imported for company use - CESTAT allows lower rate of IGST

Aircraft imported for personal use attracts 28% IGST while the rate of tax applicable is 5% if the aircraft is imported for other than personal use. The adjudicating Customs Commissioner held that lower rate of tax was applicable only to aircraft used for public transport, payment of lower rate by the company (importer) was not correct and differential tax was demandable. The appellant argued before CESTAT that the helicopters imported were for commercial use and merely because they are used by employees, it cannot be categorized as personal use. The CESTAT has referred to the issue of jurisdiction of Customs officers to demand IGST on imported goods but has not answered the same categorically. It has, however, held that the burden on appropriate classification was not discharged by the Customs authorities and therefore, the impugned order was set aside and appeal was allowed [2024-VIL-1104-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)