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Tax Vista Your weekly tax recap Edn. 228 - 4th November 2024 By Dr. G. Gokul Kishore |
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Pre-deposit for filing appeal can be paid using credit ledger
In GST, issues which are apparently perceived as settled are yet to be settled. Payment of pre-deposit using electronic credit ledger is one such issue. Pre-deposit for filing appeal can be paid by debit to electronic credit ledger i.e., input tax credit can be used, and cash payment is not mandatory. While certain High Courts have adopted this view, the contrary view has also been taken starting with Orissa High Court judgment in Jyoti Construction [2021-VIL-715-ORI]. The Gujarat High Court opted to follow its own order [Shiv Crackers - 2024-VIL-245-GUJ] which was passed relying on Bombay High Court judgment in Oasis Realty [2022-VIL-674-BOM] wherein payment of pre-deposit through credit ledger was allowed by interpreting the words "unless the appellant has paid" in Section 107(6) of CGST Act and by highlighting the fact that the words "not deposited" were not used and therefore, 10% of the tax in dispute can be paid using credit ledger. The Gujarat High Court in its earlier order had noted that when Orissa High Court rendered the judgment, CBIC Circular dated 6-7-2022 was not available wherein it was clarified that any amount towards output tax payable as a consequence of any proceeding can be paid by utilising amount available in credit ledger. The High Court in this case set aside the order rejecting the appeal for using credit ledger for pre-deposit purpose and directed the appellate authority to consider the appeal on merits.
This issue, despite CBIC's clarification, is not yet free from doubt at least in the minds of the tax authorities. In several States, taxpayers are cautious and pay pre-deposit only through cash ledger and avoid using credit ledger. CBIC's circular did not use the word "pre-deposit" and therefore, a circular clearly stating that pre-deposit of 10% payable for filing appeal can be paid using credit ledger. Till such time, litigation will continue on this issue [2024-VIL-1156-GUJ].
Rule 96(10) is ultra vires IGST Act and invalid
Rule 96(10) of CGST Rules is ultra vires Section 16 of the IGST Act, according to Kerala High Court. As the challenge to the vires was instituted in 2023, the High Court has expressly noted that though the rule stands omitted now prospectively, since past cases where IGST refund has been denied or proposed to be denied are involved, the Court had to decide on validity of the provision. One of the most amended provisions in CGST law is Rule 96(10) which prohibited refund if benefit of certain notifications has been availed. The High Court held that Section 16 of IGST Act does not restrict refund in respect of exports and the same is governed by Section 54 of CGST Act. The Court said the words "subject to such conditions, safeguards and procedure as may be prescribed" do not authorise imposition of conditions that would take away the rights granted under Section 16 of IGST Act and therefore, the same is "manifestly arbitrary". The Court restrained the department from proceedings to recover refund already granted and action taken based on SCNs and orders issued based on such provision have been quashed. If multiple issues are involved, then proceedings can be continued in respect of the issues other than Rule 96(10). There cannot be more eloquent example of typical flip flop of tax administration than this Rule 96(10) saga [2024-VIL-1160-KER].
Value of services deemed nil if no invoice is raised for secondment of employees
GST Council is pro-active and responsive and therefore, clarification through various circulars are issued though some of them are delayed. One of the issues which was clarified recently pertains to liability on secondment of employees. Before Delhi High Court, the issue was demand of GST on supply of services by way of placement of foreign expatriates to aid and assist in the functions being carried out by related domestic Indian entities. The assessees had been issued SCN(s) and relied on Circular No.210/4/2024-GST in which it was clarified that where no invoice is raised in respect of services rendered by its foreign affiliate, the value of such services would be "deemed" to have been declared as 'Nil' and that 'Nil' value liable to be treated as the market value for the purposes of the second proviso to Rule 28 of CGST Rules, 2017. The Indian entities had entered into individual employment agreements with the employees and no invoices had been raised. The High Court held that while the Circular may be questioned whether it would be consistent with the statutory provisions, once CBIC had clarified the issue, it would prevail and no tax liability arose. It also stated that in case of one petitioner who had deposited tax, no liability for interest and penalty would lie [2024-VIL-1161-DEL].
Predetermined tax liability in SCN violates PNJ
GST law provides for ASMT-10, DRC-01A, DRC-01 and so on. Opportunity of hearing is provided in most cases. However, law cannot help the assessee beyond this. The human element of application of mind and providing effective opportunity to effectuate ensuring just and fair collection of tax often misses its mark. In a case before Gujarat High Court, the petitioner assailed the show cause notice which was in nature of a final order and the resultant order which was passed without opportunity of hearing. For an earlier period, order had been passed on similar grounds of wrong availment of ITC /non-existent supplier and assessee had approached the Court and revisional proceedings were initiated. The High Court quashed the impugned orders and show cause notices with direction to initiate fresh proceedings as per law. This order may not bring out major ratio but the observation of the Court - "It is pertinent to note that in the grounds of show notice, there is no mention with regard to the word "show cause notice" except on the front page FORM DRC01 is printed" is relevant. If SCN does not mention even the word SCN, then it virtually amounts to order, and this is the quality of quasi-judicial dispensation everywhere in the country [2024-VIL-1165-GUJ]
Deciding on merits ignoring prayer of condonation of delay - High Court quashes order
In yet another case of GST proceedings concluded without bare minimum draping of a quasi judicial proceeding the taxpayer's application for revocation of cancellation of registration was rejected while stating that the cancellation was valid. The reason for cancellation was that registration had been obtained by fraud. Neither at the stage of original order, nor at appeal, core issues of absence of any detail in the show cause notice on fraud purportedly committed was discussed. The application seeking revocation was rejected citing time-bar but the order did not deal with reasons for condonation of delay. The High Court held that the appellate authority had failed to notice the bare minimum requirement of quasi-judicial proceeding mandated under Section 107 of the CGST Act, 2017 and proceeded to decide on merits though the prayer was for condonation of delay. The repeated efforts required by taxpayers to ensure a modest compliance with principles of natural justice as can be seen in this and other cases indicates that little has changed from the earlier regimes in terms of harassment. When COD is sought, not discussing the same leaves the taxpayers high and dry [2024-VIL-1166-BOM].
Import in CKD lacking essential character of finished goods - Rule 2(a) of GIR cannot be applied
The assessee imported parts of e-rickshaw in CKD (Completely Knocked Down) condition and was issued with SCN asking why goods should not be classified under heading 8703, as complete e-rickshaw. The department relied on Rule 2(a) of the General Rules for Interpretation (GIR) and claimed that the process of assembling of e-rickshaw involves simple screwdriver technology and was not a complicated process requiring high precision. It therefore assailed the order of the appellate authority who had held in favour of the assessee. Relying on jurisprudence including Twinkle Tradecom Pvt.Ltd., 2024-VIL-1388-CESTAT-KOL-CU, it was held that in order to have the essential characteristics of three wheeled vehicle the same has to be powered or there should be propulsion through a battery which provides the power to the motor in order to thrust a vehicle and since there is no battery available in the goods imported to provide power supply to the e-rickshaw, it lacked essential character of e-rickshaw. It also held that enhancement of value without providing proper reasons was not sustainable. The order reported now reproduces and follows earlier order but the same has been briefly covered in this column as this issue is being raised across different jurisdictions [2024-VIL-1394-CESTAT-KOL-CU].
Rejection of declared value between related party - Comparison of fraction of independent imports not sufficient
In a matter related to valuation of imports by a related party from his foreign supplier, the department proposed enhancement of value. It had compared the declared values of an independent buyer imported from the same supplier. However, the assessee argued that as compared to more than 100 items imported by it the order referred only to 22 and only 2 invoices of the independent buyer were available. It contended that for each of the items imported by it there ought to have been a proper determination based on independent values and it should have been provided an opportunity to defend itself. The Appellate Authority set aside the order but did not pass a speaking order of values to be adopted for the imported goods. Holding that absence of hearing, non-intimation of the grounds for enhancement and lack of detailed examination of values of all items vitiated the orders, the CESTAT remanded the same to the original authority [2024-VIL-1408-CESTAT-CHE-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)