Tax Vista Your weekly tax recap Edn. 226 - 14th October 2024 By Dr. G. Gokul Kishore

 

 

Provisional beyond one year is not permissible under GST law

In Tax Vista dated 23 September, 2024, an order of Allahabad High Court [2024-VIL-999-ALH] was briefly analysed. In this order the Court had held that provisional attachment cannot be extended by another notice after one year. The Kerala High Court has emphatically held so in a recent judgment by stating that an order of provisional attachment under Section 83 will cease to have effect after the expiry of one year from the date of the order and the same is distinct from the provisions of Section 281B of the Income Tax Act, 1961 since Section 83(2) of the CGST Act / SGST Act does not provide for extension of the period of provisional attachment. It also pointed to Rule 159 to reiterate that such attachment cannot go beyond one year and such period is mandatory. As per the order, if contrary interpretation is adopted then attachment can be continued as long as the department decides which was not the legislative intention.

 

The issue related to DGGI case on alleged evasion where in the first round of litigation, the Court had allowed operation of bank accounts while attachment of properties was not interfered with. In this second round, the Court also said that the orders reveal non-application of mind as they are verbatim reproduction of the earlier attachment orders. The Court is so unequivocal that the judgment concludes with - "It is declared that the provisions of Section 83 of the CGST/SGST Acts do not contemplate or authorise the issuance of a fresh order of attachment after the period specified in Section 83(2) of the CGST/SGST Acts." An amendment to incorporate such judicial view is required so that arbitrariness can be contained to an extent [2024-VIL-1091-KER].

 

E-way bill infraction - Penalty not imposable under Section 129 but under Section 122

There are numerous judgments on e-way bill expiry or mistake in such documents while transporting the goods. The logical fallout is detention and seizure of both the goods and the vehicle followed by demand of tax and imposition of huge penalties. A judgment which stands out on this issue was passed by Kerala High Court in T.P. Metals & Roofings [WP (C) No. 26643 of 2021 dated 30-7-2021]. In this order, the Court laid down that Section 129 of CGST Act does not authorize imposition of tax / penalty in cases where only minor discrepancies are noticed and such penalty is imposable only for violations which may lead to evasion of tax / intent to evade tax. It specifically held that authorities should consider Section 122 / 126 for imposing penalty in such cases. This proposition has been reiterated by the same High Court in a similar case recently. In this case, e-way bill did not contain details of all delivery challans and the same was on account of difficulty in entering it in the relevant column. The Court set aside the order and directed the authority to consider Section 122 for imposing penalty and refund the excess amount paid. This case saw a strange argument by the taxpayer that they were not required to raise tax invoice as per Rule 55 of CGST Rules but the Court found that acetylene gas is not covered under such rule. It appears the taxpayer intended to be covered under the exception carved out for liquid gas [2024-VIL-1104-KER].

 

Blocking credit ledger without hearing prima facie not correct

ITC ledger was blocked by Deputy Commissioner through an order without giving notice or hearing while the decision to block was taken by the Joint Commissioner. The High Court noted that Joint Commissioner was not competent to exercise power under Rule 86A of CGST Rules as it empowers Commissioner or an authorised by him to block the credit ledger. The order was held as "in utter violation of principles of natural justice". Though the order has been passed at the interim stage by keeping the blockage in abeyance, the misuse or abuse of such draconian provisions is rampant as this order shows. In most of the cases handled by SGST officers, even during hearing, a retired officer sits along with the adjudicating authority and hears the matter in complete disregard of the essentials of quasi-judicial dispensation. Either the officers to not bother about notices and hearings or they are contemptuous when such issues are pointed out [2024-VIL-1105-RAJ].

 

Fly ash bricks and GST rate - Erroneous drafting and compelling industry to litigate

The manner of drafting of entries in notifications and then amending them needs a lot of improvement in GST regime. Fly ash bricks which are manufactured out of the waste generated in power plants attracted 12% GST initially and later 5% GST. However, the notification had the condition of 90% or more of fly ash content. The department interpreted it literally - if ash content was less than such percentage, then GST of 18% was sought to be applied. The matter was taken up with the GST Council and later CBIC issued circular (No. 179) to clarify that such ash content is only for aggregates and not for fly ash bricks. Advance ruling went in favour of the department as usual and the taxpayer was before the High Court. As it happens in quite a few cases in GST, by the time the matter reaches the High Court, the issue gets clarified, in this case too, based on the said clarification, the High Court extended relief to the taxpayer. The item is currently under 12% (it seems) and the condition of 90% has also been omitted. When waste is getting converted into a value added product, introducing a condition to frustrate the objective, compelling the industry to litigate, approach GST Council for clarification and also High Court with a petition - these are not hallmarks of a mature tax administration [2024-VIL-1102-GUJ].

 

Circular clarifying "as is where is basis" issued

CBIC has issued three circulars to clarify the issues as recommended by the GST Council and as per the amendments made through notifications last week. In Tax Vista dated 16 September, 2024, while analysing Gujarat High Court order relating to GST rate on unfried fryums, it was commented "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". Now Circular No. 236/30/2024-GST dated 11-10-2024 has been issued to clarify the meaning of "as is where is basis" used in CBIC Circulars issued based on the recommendations of the GST Council drawing the same understanding as in property law. As some taxpayers pay lower rate of tax (or entertain bona fide belief of availability of exemption) and some others pay GST at a higher rate, "as is where is basis" regularisation seeks to deem the former as having discharged full tax liability and for the latter, no refund is provided.  Illustrations have been provided and the third one is noteworthy - the third class of taxpayers who do not pay tax (first pays lower rate, second class pays higher rate), is not covered by such regularisation exercise. Other two circulars clarify the GST rates on certain goods and services.

 

SCN to be served on legal representative of deceased person

Taxes - liability to pay atleast is more certain than death but the enforcers still struggle with recovery. The Delhi High Court quashed show cause notice issued in the name of the deceased person holding that while Section 93 of the CGST Act provides for recovery of tax dues from a person who carries on the business of the deceased (legal representative or other), notice should be issued to legal representative of the deceased taxpayer and in this case, it was issued to the deceased taxpayer. The Court said that identity of sole proprietorship concern is not different from that of a sole proprietor and the SCN having been issued to non-existent person was not valid [2024-VIL-1102-DEL].

 

Merely pointing out flaws in order without discussion insufficient

The assessee was granted refund but on appeal by the department, the appellate authority held that the order was erroneous and not legally maintainable since it did not discuss the reconciliation statement provided by the petitioner. Though the order stated that reliance on the reconciliation statement without verification was non-application of mind, the appellate authority did not go beyond to verify or record independent findings to reject the refund. The High Court remanded the matter to the appellate authority for fresh consideration noting that merely faulting the adjudication order was not sufficient. The order indicates refund of ITC but the issues sought to be verified pertained to mismatch of ITC between GSTR-2B and GSTR-3B and also between GSTR-1 and GSTR-3B. It is not clear as to how such mismatches became fatal for refund claim [2024-VIL-1103-DEL].

 

Rejection of declared value cannot be based only on invoice of similar goods

The importer assailed the order of the appellate authority rejecting declared value of camera stands / stabilizers and imposition of equivalent penalty. The contention was that merely because reassessed value of similar goods imported in different bill of entry as well as one under dispute had attained finality, impugned order adopting the same invoice price was incorrect. The CESTAT agreed that the authority's order was on a shaky foundation and missed the larger picture in as much as the goods imported were similar but there was no analysis as to features of the goods imported and those whose value was imputed. It effectively reiterated that in order to reject declared value, the Customs must establish that comparable goods had been imported at higher value. The CESTAT set aside the order (partly) of re-determination of the value, demand of differential duty and interest and equivalent mandatory penalty under Section 114A penalty imposed and also reduced penalty under Section 114AA of Customs Act, 1962 [2024-VIL-1275-CESTAT-DEL-CU].

 

Transaction value cannot be rejected on the basis of materials which are not admissible in evidence

It is the revenue department which usually alleges suppression, fabrication of documents, fraud, insufficient evidence, etc. However, in a case before CESTAT, Kolkata, the department was found to have initiated and adjudicated a case based on documents which were not proved to be genuine. The assessee had imported 129 consignments of sewing machines in 2012-2014 and parts and had been assessed/reassessed to duty. Based on certain documents held to be incriminating documents, intelligence on under-valuation, search was conducted in the assessee's premises and order was passed demanding differential duty, interest and penalty. The said documents were email purported to be sent by the assessee suggesting under invoicing and enhancement of value was based on a price list typed on plain paper said to have been obtained from a person engaged in similar business. The assessee argued that without challenging the order of earlier assessment, the proceedings could not be initiated. It also challenged the veracity of documents relying on Section 138C of the Customs Act, 1962 on admissibility of microfilms, facsimile copies of documents and computer print outs as documents and as evidence, since no details like PAN of the person (Addressee of the email), place from which documents were seized was provided and no authentication was shown.

The CESTAT held that the transaction value cannot be rejected on the basis of materials which are not admissible in evidence. It also noted that adjudicating authority had not followed the valuation rules in a systemic manner to re-determine the assessable value, by stating that it will be in conflict with the intelligence about the rampant under-invoicing. This ruling on law versus intelligence is significant since it underlines the basic tenet that the conclusion of the authority has to be based on facts obtained in the case of the assessee and intelligence by itself is not sufficient [2024-VIL-1275-CESTAT-KOL-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)