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Tax Vista Your weekly tax recap Edn. 227 - 28th October 2024 By Dr. G. Gokul Kishore |
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Export of service by branch - Refund not deniable for receipt of payment in account of head office
At times the taxpayer is troubled by incomplete reading of the statute but a combined reading with hyper technical view also yields the same result. The taxpayer was denied refund of unutilized ITC due to export of services since remittance was received in bank account of Bangalore head office though services were rendered by branch office in Delhi. The fact of export, supplier being outside India, recipient being outside India and receipt of remittance was not disputed. the department contended that since Delhi and Bangalore offices had separate registration, they were distinct persons and receipt in account of Bangalore office would not count as receipt by supplier - Delhi office. The High Court held that IGST Act while defining the expression "export of service" in Section 2(6) lays emphasis on the payment for such service being received by the "supplier of service" and Section 2(6)(iv) does not tie the receipt of payment to a particular bank account. It held that an overly technical reading of the provisions cannot be carried out to deny refund. It also stated that Section 2(71) in unambiguous terms prescribes that the location of the supplier would be determined with reference to the situs of the place of business for which registration has been obtained and the statute accords importance to registered place of business and bank account was not so relevant so long as there was receipt by and other conditions were satisfied [2024-VIL-1113-DEL].
Safari effect - High Court directs AAR to consider pipeline ITC afresh
The Supreme Court judgment in Safari Retreats has a retreating effect in certain cases. In a petition before Bombay High Court, constitutional validity of exclusion of pipelines laid outside the factory in Section 17(5) of CGST Act was involved. As validity of the provisions was upheld by the Apex Court recently, the High Court did not answer the same. The exclusion of pipelines is part of the explanation defining "plant and machinery" and since the same was held as applicable to only Section 17(5)(c) and not to Section 17(5)(d) and functionality test was directed to be considered in such cases, the High Court set aside the advance ruling and appellate advance ruling. It directed the Authority for Advance Ruling (AAR) to consider the issue afresh in the light of the Apex Court's observations. It is not clear from the limited facts available as to involvement of Section 17(5)(c) or Section 17(5)(d) in this case. Till the time, the exclusion relating to pipelines is omitted, the dispute on this issue at least will continue as pipelines and buildings or civil structures are generally perceived as different [2024-VIL-1145-BOM].
Notification extending time-limit for passing order valid
Extension of time-limit for issuing SCN / passing orders under CGST Act was granted by Notification No. 9/2023-Central Tax. The same was challenged as arbitrary and the proceedings initiated were contended as hit by time-bar as originally prescribed in law. The petitioner relied on Supreme Court ruling in Mohit Minerals [2022-VIL-30-SC] to argue that the recommendations of the GST Council are not binding on the government. Further, minutes of the GST Council meeting were shown to stress that there was no unanimity on extension of time. However, Karnataka High Court was not impressed. Taking note of Section 168A of CGST Act, force majeure includes epidemic, GST Council's recommendations in the backdrop of Covid, the High Court said that there was a recommendation and the same was accepted by the government and the taxpayer cannot now question the binding nature. The notification was held as not invalid. In Gauhati High Court [Barkataki Print and Media Services - 2024-VIL-1027-GAU], Notification No. 56/2023-Central Tax was challenged which was held as ultra vires by the Court when the department could not produce evidence on existence of recommendation of the GST Council. However, in this case, it appears the recommendation was made as the minutes produced show. The Gauhati High Court specifically noted that Notification No. 9/2023-CT was not considered by it. Only in tax law, drafting and re-drafting are eternal and routine processes as otherwise, laws are amended rarely when there is a dire need [2024-VIL-1137-KAR].
Higher power consumption, suppression of sales and GST demand
Electricity consumption used to be one of the factors to check if there is any diversion and clandestine removal of manufactured goods without payment of excise duty. Somehow, State GST officers have adopted this test in GST regime to allege suppression of turnover of outward supplies. In a case before the Madras High Court, the issue was demand based on electricity consumption alone which according to the SGST officers, was much higher and not proportionate to the outward supplies reported by the taxpayer. The taxpayer argued that the period involved was during Covid and due to business stagnation, they were acting as job work using their deep freezer running 24x7 for the principals (the taxpayer is in dairy business) resulting in higher power consumption. As usual, the adjudicating authority ignored such explanation and confirmed the demand under Section 74 of TNGST Act imposing equivalent penalty as well. The High Court agreed with the reasoning by the taxpayer that electricity units are not directly linked to sales and held that the authority failed to consider such vital aspect while passing order. Absence of evidence on suppression of sale was also noted. The order was set aside and the authority was directed to consider the matter afresh. God alone can save industry and business in this country (for the believers) and no one can save them (for the non-believers) [2024-VIL-1123-MAD].
Manual filing of GST ITC 02 to be accepted - Right cannot be denied on technicalities, technical failure
GST is One India One Tax and hence even if the taxpayer faces problem with one portal but across states, he is constrained to approach each High Court. The issue was manual filing of GST ITC 02 for transfer of credit which could not be done electronically due to portal being non-functional. The taxpayer had taken over the business of transferor as going concern. The taxpayer took it up with the department and sought leave to file the form manually. About 6 years later it received show cause notice from the department for wrong availment of ITC by alleged breach of the provisions of Section 18(3) of the CGST Act read with Rule 41 of the CGST Rules. The taxpayer relied on the impossibility of compliance with electronic filing and also relief obtained from other High Courts. Noting that when the law imposes an obligation with which a person is disabled from complying for no fault attributable to it or has no remedy over it, the law would generally excuse the performance, the Bombay High Court quashed and set aside the impugned show cause notice with directions to the department to consider the manually filed forms. [2024-VIL-1109-BOM]
Withdrawal of budgetary support scheme is not arbitrary
Withdrawal of exemption or incentives is within the policy domain of the government but quite often, doctrine of promissory estoppel is raised assailing the act of reneging on its promise by the State when entrepreneurs set up industry based on the availability of exemption / tax concessions till a particular period. While in a majority of cases, members of industry could not succeed, in a few, the same has come to their rescue. A recent case before J&K High Court belongs to the former category wherein withdrawal of Budgetary Support Scheme (BSS) before the last date in 2026 was challenged on the grounds of promissory estoppel and legitimate expectation. BSS came after GST was implemented and to replace the tax incentives existing then. BSS was withdrawn in 2021 when new industrial policy was announced whereby certain incentives were announced. he High Court noted that as per BSS, it was clearly made it known to the industrial units that though it was for a period ending 31-03-2026 but the same was subject to review at the end of every financial year to find out its viability and the representation made to the industrial units was, therefore, conditional and not unequivocal. It also observed that the new incentive scheme was overlapping with BSS and therefore, the latter was withdrawn. The petitioners did not take the stand that they changed their position acting based on the BSS.
According to the Court, the petitioners were not deprived of the incentives but the same were extended in a different form in the new policy. The case was found to be neither covered by promissory estoppel nor legitimate expectations. Industry should eschew the practice of relying solely on tax exemptions or incentives while taking business decisions. What is granted can always be taken back and when governments change, global situation changes, policies and incentives do change and there is no guarantee on retention or continuation [2024-VIL-1108-J&K].
SGST authority not barred from initiating proceeding under Section 74 because CGST officer issued summons earlier
The petitioner received summons under Section 70 from CGST officers, statement was recorded and subsequently SGST officers initiated proceedings under Section 74 read with Section 122(1) of the CGST Act / SGST Act and also passed orders. Relying on Section 6(2)(b) the petitioner contended that when proceedings were already initiated by CGST authorities, SGST officers could not issue notice for same subject matter of non-filing of returns. The High Court held that the initiation of an enquiry or the issuance of summons under Section 70 of the CGST Act / SGST Act cannot be deemed to be initiation of proceedings for the purpose of Section 6(2)(b) and that the orders passed by SGST officers cannot be interfered with. According to the Court, "initiation of any proceedings" refers to issuance of notice. It directed petitioner to file appeal and the authorities to hear the same expeditiously. There is no unanimity on the true import of Section 6(2)(b) though in certain judgments finer interpretation has been adopted. As noted earlier in this column, this provision though heavily litigated, remains immune from any amendment. An amendment is over-due [2024-VIL-1130-KER].
Issue of SCN by SGST post issuance of SCN by CGST - Parallel proceedings cannot be conducted
In a slight variation from the above case, the petitioner was successful in the argument that both CGST and SGST authorities could not pursue the same subject matter in tandem. The petitioner had received show cause notice proposing denial of input tax credit from CGST authorities. In the meanwhile, SGST authorities also issued notice. The High Court held that Section 6(2)(b) of the KGST Act, 2017 contemplates a complete bar / embargo on the State GST Authorities to initiate proceedings in a situation where the Central GST Authorities had already initiated proceedings and quashed the same with directions to CGST authorities to consider the reply of the petitioner. It appears the subject matter was same in this case and the same worked in favour of the taxpayer [2024-VIL-1138-KAR].
FTA benefit cannot be denied on mere procedural violation - Substantial compliance sufficient
The importer initially paid 5% basic customs duty in terms of Notification No. 21/2002-Cus (Sl. No. 70) on coal imported from Indonesia and later claimed benefit of concessional rate of BCD at 3% in terms of Notification No. 153/2009-Cus., as amended by Notification No. 135/2010-Cus., under the India-ASEAN PTA. The Country of Origin Certificate (COO) was issued 5 days after shipment and produced subsequent to import. It was later amended with stamp 'issued retroactively'. The customs officer denied benefit under the ASEAN PTA stating that COO produced initially was without endorsement stamp / seal 'issued retroactively" and later produced COO with such an endorsement stamp / seal amounted to an erasure or super-imposition which has to be counter-signed by issuing authority. The CESTAT held that the law of substantial compliance would hold good and since the source of goods nor authenticity of COO was not disputed, mere doubt without concrete evidence could not invalidate the COO and the eligibility to FTA benefit. Moreover, the officer has not followed the procedure mentioned in the Rules to check any doubt regarding the COO certificate by referring back to issuing authority etc. This issue is not uncommon as Customs authorities routinely deny FTA / PTA benefit when COO is amended with retrospective effect. Not taking recourse to the procedure prescribed and arbitrary denial are the norms [2024-VIL-1360-CESTAT-CHE-CU].
Declared value can be rejected based on reasonable doubt - Importer to provide data on contemporaneous imports
The inquiry into the self-assessed value of imported goods commenced based on alert issued by DGoV (Directorate General of Valuation) and based on prices declared at London Metal Exchange (LME). The importer argued that this was not sufficient to disturb transaction value and no flow back or payment of extra consideration had been proved, nor was the value tainted by closeness between exporter-importer etc. However, the CESTAT held that at the stage of rejection of the transaction value, the Deputy Commissioner was not required to determine the actual value and since the importer had been confronted with data of prices of various grades of imports categorised appropriately, the exercise was not one of mere doubt but reasonable doubt. It noted that the importer had not replied to the questions put forth in the letter and had not denied the said categorisation/prices and did not produce any data relating to contemporaneous imports at or about the same time.
The Deputy Commissioner had determined value based on Rule 9 of Customs Valuation Rules, 2007 (CVR) which is a residual rule and hence it was not necessary that goods (whose price was adopted) should have been imported from the same country. It also held that absence of any additional consideration having been paid by the importers to the sellers was not relevant in view of the facts of the case and no such provision was there in the statute. The order passed by Commissioner (Appeals) setting aside the adjudication order was set aside by the Tribunal. Customs valuation cases do not always go in favour of importers and the onus on importers to be armed with data cannot be understated [2024-VIL-1365-CESTAT-DEL-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)