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Tax Vista Your weekly tax recap Edn. 229 - 11th November 2024 By Dr. G. Gokul Kishore |
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DRI officers have jurisdiction to issue SCN under Customs Act
The Supreme Court's order allowing review petition by the department in Canon India [2021-VIL-34-SC-CU] has been widely reported and discussed last week. In the judgment under review, the Apex Court had earlier held that DRI officers were not proper officers under Section 28 of the Customs Act as they were not involved in the assessment or re-assessment of the goods under Section 17. In the review proceedings, the Apex Court has held that the said judgment was rendered without considering Notification No. 44/2011-Cus (NT) assigning the functions of proper officers under Sections 17 and 28 to the DRI officers, and the amendments made to Section 17 by the Finance Act, 2011 and CBIC Circular No. 4/99-Cus dated 15-2-1999. It held that linking Section 17 and Section 28 in the previous judgments was erroneous. The judgment holds -"...the officers of Directorate of Revenue Intelligence, Commissionerates of Customs (Preventive), Directorate General of Central Excise Intelligence and Commissionerates of Central Excise and other similarly situated officers are proper officers for the purposes of Section 28 and are competent to issue show cause notice thereunder."
Constitutional validity of Section 28(11) of the Customs Act and Section 97 of the Finance Act, 2022, the latter retrospectively validating the SCNs issued by the DRI and other officers were also upheld. The challenge to jurisdiction or validity of provisions is generally arduous and the relief, if in favour of taxpayers, is mostly temporary as the executive can go back to the legislature to make any number of back-dated amendments to convey and do what it wanted or wants to do. Now all the proceedings in this case which were paused have been revived and the taxpayers have to engage in another legal battle on merits [2024-VIL-48-SC-CU].
Press release on classification of hand sanitizer is not valid
The Madras High Court held that GST Council does not have the power to determine classification of goods and services though it may recommend tax rates [Parle Agro Products - 2023-VIL-789-MAD]. Delhi High Court in Assn. of Technical Textiles Manufacturers [2023-VIL-795-DEL] held that TRU in CBIC is not empowered to issue circular to clarify on classification. Joining this line of case law is the latest from Bombay High Court quashing the press release issued by government on hand sanitizer being classifiable as disinfectant and liable to 18% GST. It held that the press release urges authorities to levy 18% GST on such goods as disinfectants and not treat the same as medicaments and the same constituted interference in judicial and quasi-judicial functions relating to determination of classification. It said that such issues should be decided by the said authorities independently without being influenced by the press release.
The Court said - "The issue of whether a product falls within a particular class after the law is already enacted and the classification is already made falls within the province of the judicial and quasi-judicial authorities created under the Act. Such powers must be exercised by the judicial and quasi-judicial authorities independently and without any goading from any party, including the executive. Any press release or executive instruction meant to influence or, worse still, require the judicial or quasi-judicial authorities under the Act to exercise judicial or quasi-judicial functions in a particular manner would interfere with their judicial or quasi-judicial functions. This cannot be allowed. The executive powers of the Union do not extend to this."
While such litigation is intended to keep arbitrary exercise of powers by the government (executive) under check, for taxpayers, they do not result in any tangible benefit. In the above case, the High Court has clearly held that show cause notice has not been quashed and the authority has been directed to decide on merits. The taxpayer in such cases have to go back to the authority who invents some ground to somehow confirm the demand with interest and penalties. Then appeal has to be filed and the litigation has to be pursued for a long time. The consolation of quashing of press release or circular becomes pyrrhic [2024-VIL-1197-BOM].
Refund of ITC cannot be claimed when exempt supply along provided
The assessee was providing exempted education services, paid GST for various taxable inputs, capital goods and input services procured and sought to claim refund of input tax credit as "inverted tax structure". Challenge to constitutional validity of Section 17(2) of the CGST Act was mounted which restricts the refund under the inverted duty structure and it was urged that right to avail input tax credit is an indefeasible right under Article 300A of the Constitution and that Section 54(3)(ii) of the CGST Act cannot deny refund of ITC in case of exempt supplies. However, the High Court relied on precedents holding that legislature can adopt reasonable classification and decide quantum of tax, object to be taxed etc., and that denial of refund in cases such as the assessee's was a policy decision. It held that there is no constitutional entitlement to seek a refund which would be as per statute only. The petition was dismissed. The taxpayer prayed for direction similar to the one given by the Supreme Court in VKC case [2021-VIL-81-SC] to the GST Council to look into the anomaly in the formula for calculating refund in such cases but the High Court was not impressed. While exempting education sector is a policy decision, seeking refund of GST paid on all purchases used by this sector is asking for the moon and the outcome is no surprise [2024-VIL-1177-GUJ].
"Month" in Section 107 of CGST Act refers to calendar month and not 30 days
Order served on the petitioner on 6-7-2023 and appeal was filed on 6-11-2023 but was rejected by the First Appellate Authority who proceeded on the basis that the term 'month' in Section 107 of the CGST Act / SGST Act referred to a period of 30 days and rejected the appeal as having been filed beyond statutorily permissible period. The High Court held following State of Himachal Pradesh and another v. Himachal Techno Engineers and Another - 2010-VIL-107-SC that month would mean British Calendar month and the appeal filed by the assessee along with condonation of delay was restored for passing fresh order. In the above case, the Apex Court had noted that taking 3 months as 90 days was erroneous as "month" in the relevant statute referred to actual period of a calendar month and not 30 days and depending upon months, three months period may mean 90 days or 91 days or 92 days or 89 days [2024-VIL-1180-KER].
Letter advising "voluntary payment" without issuance of SCN invalid
Perhaps with the best of intentions of reducing litigation, the tax authority issued a letter advising the taxpayer to "continue voluntary payment" of demand along with interest part of which had been paid during investigation. The High Court held that this procedure of payment without issuing a show cause notice was unknown to law and set aside the letter with a direction upon the authorities to be cautious in future and not issue such letters that tantamount to pressure tactics by the Department. The order is brief and it is not known whether the letter was subsequent to coercion which did not result in immediate payment by the taxpayer. The letter reproduced in the order is far more polite compared to actual threat, coercion and pressure mounted without any letter or evidence during investigations to extract the so-called "voluntary" payments and most of such payments in the mid-night [2024-VIL-1182-ALH].
Mere mismatch in documents not sufficient for absolute confiscation
The first grievance of the importer was that they had not been put on notice of intent to convert 'conditional' confiscation into 'absolute' along with change of the cause for confiscation under Section 111 of Customs Act, 1962. The cause for absolute confiscation was mentioned as the mismatch in the Kimberley Process Certificate, a mechanism to suppress trade in 'conflict diamonds' since the certificate was submitted for entire consignment but referred to only one invoice. The CESTAT held that lack of match in the certificate is not a ground for absolute confiscation of the impugned goods and also noted that conversion of conflict diamond into government property would only regularise the goods rather than be destroyed/cease to exist. It held that the ground of mis-declaration of value which was the original cause for confiscation subject to redemption fine would be limited to portion of the goods that were mis-declared with the rest of the goods eligible for clearance for home consumption. [2024-VIL-1440-CESTAT-MUM-CU].
Export declaration /Foreign documents without proper signature - Enhancement of customs value not permissible
Despite the clear mandate for rejection of declared value and sequential application of Customs Valuation Rules, tax authorities seek to rely on export declaration value, documents from foreign countries without proper attestation and public ledgers. The appeal by the department against order rejecting enhancement of value of poppy seeds imported from Turkey was dismissed for relying on such documents. The CESTAT held following earlier orders that without any finding on contemporaneous imports, relied upon documents not being signed by Turkish customs authorities and use of data from databases like comtrade or UK public ledger cannot be resorted to for enhancing assessable value [2024-VIL-1431-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)