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Tax Vista Your weekly tax recap Edn. 223 - 23rd September 2024 By Dr. G. Gokul Kishore |
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Issuance of single SCN for multiple years is not valid under GST
Writ petition was filed in High Court by the taxpayer challenging issuance of single consolidated show cause notice clubbing multiple years / tax periods - 2019-20 to 2023-24. The argument was that Section 73 provides for specific time-limit for completion of particular action within the relevant year and the limitation period (three years) applies to each year separately. The High Court held that Section 73(10) of the CGST Act mandates a specific time limit from the due date for furnishing the annual return for the financial year to which the tax due relates and the precedent (Supreme Court decision) that when assessment covers multiple years, each assessment order can be separated, will be applicable. According to the Court, the practice of issuing single consolidated SCN for multiple assessment years violates CGST Act and precedents. SCN was quashed giving liberty to the department to issue separate SCN for each "assessment year".
Quotes have been used for "assessment year" to highlight the absence of concept of regular assessment in GST unlike income tax or earlier VAT. Adjudication is often confused with assessment merely because they are used inter-changeably without appreciating the difference between the two. Section 73 or Section 74 of CGST Act does not use the terms "assessment" or "adjudication" but "determination". However, Section 62, Section 63 and Section 64 uses the term "assessment" for specific situations. Therefore, assessment used in such provisions cannot be read into Section 73 or Section 74. In Central Excise and Service tax, SCNs were never year-wise but they were issue-based only. GST Council should consider either amendments to the provisions or issue suitable clarification [2024-VIL-1023-KAR].
Jurisdiction of GST authority to deal with transactions beyond the State
The issue is not very obvious from the order but it seems to be important. Proceedings were initiated under Section 74 of CGST Act based on audit by CGST officers in Chandigarh. The taxpayer did not file reply but challenged the jurisdiction before the High Court arguing that the demand has been raised in respect of vouchers issued where customer belongs to Chandigarh but redeemed in other States, customer belongs to other State but redeemed in Chandigarh and customer belongs to other State and redeemed in other State. The High Court did not agree. After taking note of Section 4 on appointment of officers, Section 5 on powers of officers and Section 6 on cross-empowerment, the Court held that once SCN has been issued by GST officer in a particular State, no other officer can initiate proceedings (in respect of the issue involved). Relying on its order on Section 6 in Stalwart Alloys [2024-VIL-920-P&H], it held that the GST authorities in Chandigarh are empowered to issue SCN under Section 74 even with regard to dealings of the company in other States and there was no error of jurisdiction.
If this order is interpreted to mean that GST authority in a State has jurisdiction to issue SCN covering supplies made from other States of the same company, it will not only raise serious issue of jurisdiction but also administratively impossible to undertake proceedings. If this order is otherwise meant to cover transactions of a GST registered person (not the entire company) in a State in respect of both inter-State and intra-State supplies, then it is a routine affair [2024-VIL-1025-P&H].
Readers may see another order reported by VIL last week on cross-empowerment wherein Himachal High Court has held that the word "subject matter" in Section 6(2)(b) would mean "nature of proceedings" and in the case before it, the proceedings initiated at an earlier point of time for the same subject matter. Summons issued by DGGI was quashed as SGST authorities had already issued summons and initiated investigations regarding bona fide nature of supplies received by the taxpayer [2024-VIL-1005-HP].
Seized documents not "necessary" post issue of SCN - High Court orders return
It appears that the tax officers developed quite an attachment to the documents seized from a taxpayer engaged in real estate business, during the search/seizure operations. Notwithstanding the issue of pre-show cause notice, show cause notice raising demand, payment of substantial sum of alleged demand, the authorities continued to retain the records, papers, documents as well as provisional attachment of bank accounts. The High Court held that once show cause notice had been issued based on the original records/documents, they were no longer necessary for the officer and ordered the return of documents. It also set aside the order of provisional attachment on which interim stay had been granted. This judgement on exhaustion of seizure order will help similarly placed taxpayers whose records are seized but never returned affecting business operations adversely [2024-VIL-1014-KAR].
Blocking of ITC ledger cannot be based on borrowed satisfaction - Pre-decisional hearing to be given
The electronic credit ledger (ITC ledger) of the taxpayer was blocked invoking Rule 86A of the CGST Rules and the petitioner assailed the same but was unsuccessful before the Single Judge Bench. The petitioner objected to the mechanical and arbitrary method adopted by the officer without having put up any material or finding which led to his "satisfaction" that such blocking was necessary. The petitioner contended that neither guidelines of relevant circular dated 2-11-2021 were followed nor was any pre-decisional hearing/opportunity given to him. Blocking of ITC ledger was based on borrowed satisfaction of the finding of some other officer without any proof that the taxpayer had committed infraction like reliance on fake invoice etc, and no hearing had been offered prior to the action. The High Court held that though no explicit provisions for hearing was provided in the statute the blocking would entail and result in serious civil consequences for the appellants (taxpayer) warranting compliance with the principles of natural justice and hence pre-decisional hearing ought to be given. As regards the "satisfaction" of the officer, it held that the existence of a legal mandatory pre-requirement and precondition of recording of formation of opinion was pari materia with "reasons to believe" and it was incumbent upon the officer to arrive at his own satisfaction and not borrowed satisfaction by proper application of mind. The impugned orders were set aside [2024-VIL-994-KAR].
Provisional attachment cannot be evergreened
Usually unscrupulous taxpayers are alleged to find creative means to circumvent the law. In the case of provisional attachment which automatically ceases after one year, the department came up with a solution - issue of fresh notice of attachment after the High Court vacated the first one. The second notice was without assigning any reason and without any indication that it was a second attachment. The High Court held that the department cannot be allowed simpliciter to issue a second notice and further notices and that Section 83 which provides for such attachment even before assessing the liability of the petitioner is in nature of preventive detention in criminal cases without any offence having been committed. It held that if the same was permitted sub-section (2) of Section 83 of the CGST Act would become otiose and set aside the order of provisional attachment. This case is not the first one as in a few other cases also, GST authorities have resorted to such evergreening of provisional attachment when the first year of attachment is over. No amount of strictures by Courts or clarification by CBIC will have any impact on misuse of such powers. The tax administration is not mature enough to use such provisions with discretion and therefore, they should be omitted [2024-VIL-999-ALH].
No stipulation that minimum three adjournments to be granted before passing order
PNJ or principles of natural justice is an eternal source of litigation in tax matters despite volumes of case law. CGST Act provides for maximum of three hearings to be given to the person to whom SCN is issued. The taxpayer contended that one hearing was given and he sought adjournment but order was passed later without granting further opportunity of hearing. The High Court expressed the view that Section 75(5) of CGST Act only places an outer limit on the number of adjournments that can be granted and it does not stipulate that minimum three hearings must be granted before passing any order. In this case, SCN was issued in December, 2019, adjournment was sought in January, 2020 and order was passed in September, 2020. The Court faulted the taxpayer for not approaching the GST authorities with request for further adjournment. However, the SCN provided opportunity of filing reply only and hearing was not granted. Based on this ground, the order was set aside by the Court. Such orders stress the need to be alert by sending adjournment requests if the same is required instead of keeping quiet only to be caught by surprise later [2024-VIL-1011-AP].
State bound by approved Resolution Plan - Tax dues cannot be claimed separately
Relying on Ghanshyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company, 2021-VIL-55-SC, the Andhra High Court held that State GST authorities cannot seek to collect tax demand from the taxpayer who transitioned to GST regime but underwent corporate insolvency proceedings, since tax dues were also part of the approved Resolution Plan. The State authorities argued that no notice in terms of Section 88 of the SGST Act had been served on them and that they were not bound by the Resolution Plan. The demand notice was set aside but for the period 05.09.2019 to 31.03.2020 which was not covered in the order of NCLT, department was given liberty to undertake fresh assessment. This part of the order is not clear since the entity has been taken over in resolution process and the new owner cannot be saddled with liabilities of the ex-owner as per precedent decision [2024-VIL-1013-AP].
Import into SEZ - Value cannot be enhanced on basis of NIDB data
The assessee assailed enhancement of customs value for goods cleared to SEZ based on para 4(iii) of Instruction No. 6 dated 03.08.2006 issued by Ministry of Commerce & Industry, according to which assessment of bill of entry shall be on the basis of the value declared by the SEZ units and that for goods cleared to domestic market assessment of the goods will be as in the case of import of goods for home consumption. The tax authorities claimed that there was undervaluation and assessed the goods on the basis of NIDB data pertaining to 2017 though goods were cleared in 2018. The CESTAT held that the impugned order was not sustainable [2024-VIL-1125-CESTAT-AHM-CU].
Actual price paid to be accepted for customs valuation - Notional addition without basis not warranted
Though the Customs Valuation Rules are clear, time and again the importer faces challenge to the declared value/transaction value due to various notions of the officer. The price paid for import of Benzene under High Sea Sale agreement was not accepted as transaction value and the customs authorities contended that sale price of a foreign seller was to be adopted. The importer placed reliance on CBIC Circular No. 32/2004-Cus., dated 11-5-2004, in terms of which actual High Sea Sale contract price paid by the last buyer would be construed as transaction value under Rule 4 of the Customs Valuation Rules (1988). Despite the importer providing documents regarding High Sea Sale and without any evidence of additional payments made, the department contended that the sale does not represent transaction value but bid value only. The CESTAT held that the value declared by the importer could not be disputed in face of evidence provided by it and allowed the appeal [2024-VIL-1156-CESTAT-BLR-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)