Tax Vista Your weekly tax recap Edn. 27 - 21 December, 2020 By Dr. G. Gokul Kishore

Release of detained goods transported inter-State - Amount under CGST Act alone payable

In Tax Vista dated 9th November, 2020, order of Kerala High Court [2020-VIL-532-KER] holding that penalty of 5% of the value of goods or Rs. 25,000 (whichever is less) would be payable for release of detained goods under Section 129(1)(b) of CGST Act, 2017, was briefly discussed. Last week, the High Court disposed of a review petition filed by the department in this case. The department was of the view that Rs. 25,000 each would be imposable under CGST Act and SGST Act. The High Court noted that in cases of inter-State transportation, power to detain stems from Section 20 of IGST Act and as per the same, provisions of CGST Act relating to various subject matters including detention, offences and penalties are applicable in respect of IGST also. Penalty would be sum total of the penalties imposable under CGST Act and SGST Act as per the 4th proviso to Section 20.

The High Court did not agree with the department. It said - "In my view, the 4th proviso would be attracted only in a situation where, in respect of an inter-State transaction, there is a liability to pay tax under the IGST Act that includes components of tax under the CGST and SGST Acts or where a penalty based on tax liability is attracted under both of the said enactments." Interpreting Section 129 of CGST Act and Section 20 of IGST Act and applying the same to the case of inter-State transportation of exempted goods, the High Court held that there is no provision to deem provisions of SGST Act as applicable to IGST Act in such situation [State of Kerala v. Mohammed Shereef - 2020-VIL-638-KER].

The order has placed finer interpretation to the provisions of Section 20 of IGST Act. The tendency is to presume that whatever is payable under CGST Act, an equivalent amount is payable under SGST Act as well. Such automatic presumption and application have been halted for now at least in the situation as present in this case.

Natural justice - Quite unnatural for the quasi-judicial authorities

Numerous orders have been discussed in this column wherein notices are bereft of grounds, orders are denuded of reasons and reply of taxpayers are simply ignored. VIL has reported a few orders last week, whereby the impugned orders rival with one another in violation of all canons of justice.

The notices issued and orders passed by the authority concerned in Gujarat may well be termed by others as quasi-judicial blunder. Show cause notice (SCN-1) was issued proposing to cancel registration on the ground "Non-compliance of any specified provisions in the GST Act or the Rules made thereunder as may be prescribed." The Assistant Commissioner dropped the proceedings based on reply filed by the taxpayer. SCN-2 to the same taxpayer was issued two months later, again proposing to cancel registration and this time the ground was "In case, Registration has been obtained by means of fraud, wilful misstatement or suppression of facts." On 4-2-2020, order was passed dropping the proceedings. To the taxpayer's horror, on the very same day, SCN-3 was issued, again proposing to cancel registration on the ground "Offence under section 132(1)(b)(c) and (k) as specified attachment sheet." An order was also passed cancelling the registration disposing SCN-3.

Holding the order cancelling registration to be non-speaking passed without application of mind, the High Court quashed the same. The Court expressed its displeasure and said - "We fail to understand that having dropped the proceedings once, what prompted the authority to issue a second show-cause notice and even after discharging the second show-cause notice, what prompted the authority to issue a third show-cause notice and that too on the very same day and date of the discharge of the second show cause notice." [Vimal Yashwantgiri Goswami v. State of Gujarat - 2020-VIL-631-GUJ].

In another case, refund application was filed but SCN was issued proposing rejection. The reason mentioned was "Other" as the same was selected in the drop-down menu. Lockdown followed and the taxpayer could not file reply but without assigning any reason, order was passed later. The taxpayer was compelled to file appeal and appellate authority rejected the same on the ground that reply to SCN was not filed and documents were not submitted to justify the refund claim. The High Court observed that no prudent man could have given reply to the kind of silent show cause notice served on the petitioner. The authority was directed to pass fresh order [Sahibabad Printers v. Additional Commissioner (Appeals) - 2020-VIL-632-ALH].

In yet another case, the taxpayer has been so unfortunate that for some fault of supplier, his credit ledger was blocked by the department. He pleaded with the department to unblock the same but in vain. As usual, no reasons were assigned for blocking such credit facility and the High Court ordered the authority to pass detailed and reasoned order as required under Rule 86A of CGST Rules. It emphasized that blockage would lapse at the end of one year and in this case, the bar was effective from 21-1-2020. For almost one year, the taxpayer is running from pillar to post for getting the blockade lifted and it is incredible, in these difficult times of Covid-19, how business can be run without using ITC [Aryan Tradelink v. UOI - 2020-VIL-637-KAR].

Use of company name on product can land promoter in jail

Exemption to certain goods has been provided under GST if the taxpayer foregoes the right to use its brand name in relation to supply of such goods. Though facts are not clear, it appears, the taxpayer was using his company's name and claiming exemption as well. The department felt that this is a case of fraud and arrested the Managing Director. The MD was before the High Court seeking bail. While facts can come out clearly only during adjudication, the High Court granted bail as the taxpayer had communicated its intention of availing exemption in the year 2017 which was acknowledged by the department in the year 2020 and returns were being regularly filed [Idrish Yusufbhai Malvasi v. State of Gujarat - 2020-VIL-630-GUJ].

The issue of brand name and entitlement to exemption under Central Excise has a long history with good amount of jurisprudence. Questions like whether printing of name of manufacturer itself would amount to use of brand name when such printing is mandatory under other applicable law have been considered by the Supreme Court in the past. It appears that such issues will get a fresh lease of life under GST with the earlier judgments and principles evolved being put to examination again.

Rectification of mistake under GST - Limitation Act not applicable

In a case involving some mix-up in name of the recipient in the tax invoices and consequently demand of ITC availed erroneously, Section 161 of CGST Act has been discussed by the Tripura High Court. This provision provides for rectification of errors in orders which are apparent on the face of the record by the authority which passed such order. The time-limit available for such rectification is six months from the date of issue of the order. The second proviso to Section 161 states that such time-limit will not apply if the rectification is purely in the nature of correction of a clerical or arithmetical error, arising from any accidental slip or omission.

The petitioner filed a request for rectification, after almost one year but the authority concerned rejected the same as having been filed beyond the time-limit. The petitioner argued before the High Court that delay can be condoned as per the provisions of Limitation Act. The High Court did not accept such contention and held that Section 161 is a complete code in itself and it has impliedly excluded the Limitation Act. Rejecting the writ petition, the High Court held that Limitation Act will not apply automatically unless it is extended to special statute such as Tripura SGST Act [Kiran Enterprise v. State of Tripura - 2020-VIL-642-TRI].

Confiscation of goods for non-maintenance of records at principal place of business not sustainable when intent to evade absent

While facts appear to be heavily disputed, certain points of general interest can be culled out from the recent order of Allahabad High Court. The allegation and finding (in the order) of the department was that the taxpayer did not maintain records relating production, etc., at the principal place of business which was denied by the taxpayer. The factual confusion pertains to which of the premises was their principal place of business. However, the department had confiscated the goods, imposed redemption fine and penalties etc. The High Court took note of Section 35 of CGST Act on maintenance of records / accounts and in particular, sub-section (6) thereof which deems the goods as supplied which are unaccounted. In respect of such 'deemed supplies' tax needs to be determined as per Section 73 or Section 74. According to the Court, show cause notice should be issued before determination of tax leviable on such deemed supplies and in this case, no such SCN was issued. The Court held that in the impugned order, there were no findings regarding intent to evade payment of tax, non-accountal of goods for which tax was payable, supplies having been made without registration, use of conveyance, etc., and therefore, ingredients required for confiscation were not satisfied and such confiscation was illegal.

As the case was held to be not one of evasion, penalty of Rs. 10,000 alone was held as imposable as against around Rs. 19 crore imposed in the impugned order. Once confiscation has been set aside, redemption fine (of Rs. 12 crore) was also held as not imposable [Metenere Ltd. v. UOI - 2020-VIL-641-ALH].

Municipal function of waste collection by sub-contractor - Exemption under GST not available

Advance rulings are generally perceived as not favourable to taxpayers. In this column, a few rulings have been discussed before highlighting the literal interpretation adopted by the authority ignoring the object, intent and purpose behind the provisions. In a ruling, Tamil Nadu Authority for Advance Rulings (AAR) has held that the sub-contracted agency engaged for waste collection from city residents is not entitled to exemption under Notification No. 12/2017-Cenral Tax (Rate). According to the AAR, the entry on exemption to pure services not only specifies municipal functions but also class of recipients and in this case, the recipient is not the municipal corporation but the main contractor. On the argument of the work being undertaken on back-to-back contract basis, it has been held that only part of the services is provided by sub-contractor to the concessionaire while the concessionaires have been tasked with several other responsibilities [Sumeet Facilities - 2020-VIL-322-AAR].

It seems not only waste collection and cleaner environment are indispensable, but it is also equally important that such functions are performed only by concessionaires without involving sub-contractors, if exemption from tax is to be claimed. GST law is understood as made for business but now business has to change its model to be compliant with GST law. Whenever such rulings are rendered which are clearly against the intention / purpose of the exemption, the wordings in the relevant entries of provisions / notifications need to be amended. But tax administration will be smiling at such pro-revenue rulings and such amendments will be their last priority.

Affiliation services by University not exempt from GST

In another ruling, the Tamil Nadu AAR has held that services provided by University for affiliating colleges are not exempted from GST. The relevant entry in the Notification No. 12/2017-Central Tax (Rate) provides exemption to services relating to admission or conduct of examination. The AAR is, therefore, of the view that such exemption cannot be extended to affiliation granted to constituent colleges by the University and the fees collected for such purpose would be liable to tax. Because fees are collected for various items of work during affiliation process and other related tasks, the same has been held to be composite supply with affiliation being the principal supply. The ruling holds - "the affiliation services provided by the applicant enables the said institution to conduct the course / programme and do not relate to admission of students to such course / programme in the said institutions or conduct of examination for such admission in the said institution." [Bharathiyar University - 2020-VIL-323-AAR]

Affiliation is the statutory recognition of a college for admission of students and it is the starting point. If affiliation is considered as not related to admission, then the notification entry should be amended to remove such ambiguity. However, no amount of amendment can change revenue bias which cries for serious reforms in quasi-judicial administration.

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal)