Tax Vista

Your weekly tax recap

Edn. 240 - 27th January 2025

Dr. G. Gokul Kishore

Khadi products are not exempted from GST - High Court rejects petition

An amount of around Rs. 2 crores was demanded as tax by an order passed against Khadi and Village Industries body. The body filed petition and argued that it is a statutory body and was exempted from VAT for sale of khadi and village products before introduction of GST. The High Court noted that there is no exemption provided under GST for the products of the petitioner and therefore, the exemption claim is without any statutory basis. It also observed that earlier (pre-GST) statutes will not have any bearing on the present issue. It appears that the petitioner had submitted representations to various authorities but the High Court said they were not filed with competent authorities and further, such representations are not statutory in character. The petitioner was advised to avail appellate remedy. The fact that such goods are not exempted under GST is a surprise as they are intended to support poor and small weavers and workers in rural areas. The body should approach GST Council by filing a representation with copy to the CBIC and it would have been advised on these lines before but the High Court order does not reveal much [2025-VIL-77-KER].

Appeal filed after delay of 246 days - High Court condones

Calcutta High Court has been holding, in cases considered as appropriate by it, that delay in filing appeal before the first appellate authority beyond the time-limit is condonable. In S.K. Chakraborty & Sons v. UOI [2023-VIL-855-CAL], Division Bench held that the appellate authority is empowered to condone delay beyond the statutory period of limitation as provided in Section 107 of CGST Act. Following the same, in a recent case, it has condoned delay of 246 days in filing appeal before first appellate authority and has directed the appellate authority to dispose the appeal on merits. Though the order follows precedent, it has been mentioned in this column as this issue is now open - most of other High Courts are of the view that delay cannot be condoned beyond what is provided in the law. In this case, the Court noted uploading of notices in "View additional notices and orders" tab and the taxpayer was not aware of the same and ex parte order was passed. Against such order appeal was filed after such delay. The matter may reach the Apex Court sooner and then clarity may emerge on this issue as the issue stands decided against the taxpayer today [2025-VIL-54-CAL].

SCN proposing penalty on co-noticee - High Court rejects plea on jurisdiction

Show cause notices proposing to impose penalty were challenged in writ petition on the grounds that the adjudicating authority was not having jurisdiction over the taxpayer, tax was not demanded under Section 73 / 74 of CGST Act, invocation of Section 122(1) instead of Section 122(3) relating to aiding / abetting was not correct and penalty equal to tax cannot be imposed under Section 122(3). The issue related to the charge that the taxpayer had supplied certain goods which were raw material to their buyers who were alleged to have clandestinely supplied to pan masala manufacturers without payment of tax. The taxpayers were co-noticees in the SCN issued to such buyers. The Gujarat High Court rejected the argument on lack of territorial jurisdiction as the main noticee was covered within the jurisdiction of the proper officer and therefore, petitioner-taxpayer as co-noticee was rightly asked to show cause to such officer. One set of parties had challenged jurisdiction before Allahabad High Court which had negatived such plea and this has been relied on by the Gujarat High Court in this case. It further noted that several disputed questions of fact have been raised and prima facie, the petitioner was involved in the transactions, the High Court did not deem to proper to go into other questions raised. The order is elaborate but the petition has been disposed in a crisp discussion [2025-VIL-79-GUJ].

Cross-empowerment - Notification not necessary

In Tax Vista dated 2 December, 2024, an order by Single Judge Bench of Kerala High Court was briefly analysed. It was mentioned - "...a Single Judge Bench of Kerala High Court expressed prima facie view that the opinion of CBIC as noted in circular dated 22-6-2020 was correct but the matter may impact several proceedings and therefore, directed placing the matter before Division Bench for authoritative pronouncement. CBIC had stated that if no notification has been issued under Section 6 of CGST Act, then CGST officers and SGST officers are proper officers for all purposes. The Kerala High Court took note of the contra view of Madras High Court in Vardhan Infrastructure [2024-VIL-272-MAD] while giving direction as above. As noted in this column before, Section 6 on cross-empowerment remains immune to amendments so far though it is one of the most litigation provisions. GST Council may have to consider appropriate amendments so that the divergent views are reconciled [2024-VIL-1265-KER]."

The Division Bench has now delivered its judgment upholding the Single Judge's view. It has held that the empowerment under Section 6 is unqualified and it will be qualified with conditions if the same are specified and non-issuance of notification does not mean cross-empowerment is not there. The Division Bench has also taken note of SLP being dismissed as withdrawn filed against an order of Delhi High Court on this issue. Till the time GST Council intervenes and recommends either amendment or clarification taking into account all the judgments on this issue so far, it will continue to be litigated [2025-VIL-60-KER].

Mall whether a plant is to be examined before denying ITC on works contract services

The petitioner had availed input tax credit on works contract services for the construction of an immovable property (mall) and the department held that it was ineligible to avail such ITC since the output supply was not works contract service. The petitioner relied on Chief Commissioner of Central Goods and Service Tax v. Safari Retreats Private Ltd., 2024-VIL-45-SC, and argued that the construction/building was plant and hence ITC could not be denied. The High Court held that the officer ought to examine the same in view of the decision of the Supreme Court though it was rendered subsequently and remanded the matter. It said - "Though the decision in Safari Retreat's case (supra) was rendered subsequent to the order of assessment, the said judgment is declaratory in nature. The impugned order having not considered the impact of the said proposition of law as declared in Safari Retreat's case (supra), renders it perverse warranting an interference by this Court."

The issue will continue to be litigated despite retrospective amendment to Section 17(5)(d) of CGST Act. The provision defeats the basic principle of seamless credit only because of revenue considerations. Till the time such artificial restrictions are removed, GST law will carry forward the inefficiencies of the earlier tax regime [2025-VIL-63-KER].

GST on goods not sold under trademark but with company label - HC grants stay

As per the show cause notice, the ayurvedic medicine - 'Chyawanprash Awaleha' classified under Entry No. 181-A in Schedule-I of the Notification No. 1/2017-CT (Rate) as amended by Notification No. 34/2017-CT (Rate) was incorrect and GST was applicable at 12% instead of 5%. The foundation of the show cause notice was the minutes of 22nd meeting of the GST Council (held on 6-10-2017) and the department referred to the product being sold under brand name though no evidence regarding the same being registered trade mark was adduced. The taxpayer argued that the said entry was similar to sub heading 3003.31 of the Central Excise Tariff Act, 1985 and relied on jurisprudence under the erstwhile law to contend that the product would be covered by the said entry (excise) even if the name of the company appears on the label without being used as prefix or suffix. The High Court admitted the writ petition and ordered interim stay on proceedings initiated invoking Section 74 of CGST Act. Though the order is interim in nature, this order has been mentioned in this column to highlight the fallacy of euphoria of classification disputes being consigned to history on introduction of GST [2025-VIL-69-ALH].

No penalty when e-way bill was generated after weighment and intent to evade absent

The Calcutta High Court has set aside imposition of penalty under Section 129 (1)(a) of the CGST Act, 2017 holding that that even though there was delay no intent to evade tax was present. The department had intercepted the vehicle when it was proceeding towards the weigh-bridge for weighment and e-way bill was raised after weighment in about one hour. Litigation under tax laws cannot go below such abyss - such a trivial issue is visited with huge penalty. Section 129 should be omitted as it contributes to not only harassment but also highly unproductive litigation wasting the resources of all concerned [2025-VIL-68-CAL].

Demand of tax without any legal basis - A new normal in GST

In response to notice ASMT-10 issued under Rule 99 of CGST Rules, 2017 the taxpayer submitted that it has not understood the basis of comparing taxes paid in GSTR-3B with e-way bill data as technically the base information of both the statements is different. It also explained that such comparison was not warranted. However, without any reference to the submissions, the order was passed stating that the reply was not satisfactory. The High Court held that purpose of issuing ASMT-10 is to invite a reply and the officer is bound to consider the same. This brief order is highlighted for the reason that thousands of such orders are passed mostly by SGST officers without citing any provision and without any legal backing. The only standard refrain is to advise taxpayers to go to High Court as if Constitutional Courts have no work but to go through such farcical orders. Unless quasi-judicial mechanism is completely overhauled by divesting tax officers of these powers, the system will never improve [2025-VIL-67-JHR].

Rejection of declared value - Confession by importer not sufficient

The declared value of goods imported during Covid-19 was rejected. Statements were recorded during assessment and, the partner of the firm (importer) apparently confessed to undervaluation. The value was enhanced and duty was paid. Subsequently a show cause notice was issued proposing to collect additional customs duty and the demand was confirmed by the appellate authority. The importer however argued that addition had been made merely on the basis of statement recorded without having any evidence to corroborate the said statement and to even support the re-determined value. It also pointed out the absence of any investigation by the department or data on contemporaneous imports. The CESTAT held that in order to reject declared value, the department must produce evidence on prices or data on contemporaneous imports to prove that the declared value was wrong. It also held that the price "in ordinary course of commerce" is relevant and unless it is shown that at the time of imports, the declared value was not the price ordinarily paid/payable, it has to be accepted. The evidentiary value of recorded statement was questioned since it was urged to have been recorded under coercion to hold that the burden was on the department to prove that no threat or coercion existed. A solitary statement with the urge to extract more revenue cannot stand legal scrutiny as this case proves. Rejection of transaction value casts far greater onus on the department which is often taken lightly despite decades of litigation on valuation [2025-VIL-94-CESTAT-DEL-CU].

Previous edition, dated 20th Jan, 2025

(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)