Tax Vista

Your weekly tax recap

Edn. 242 - 10th February 2025

Dr. G. Gokul Kishore

Refund of pre-deposit under GST - Time-limit not applicable

GST is not new as the litigation in most cases show. Rejection of refund of pre-deposit on grounds like limitation was a drama of pre-GST regime being re-enacted now in GST regime also. The department issued deficiency memo on the ground that refund claim filed for such pre-deposit was beyond the time-limit prescribed in Section 54 of CGST Act. The taxpayer relied on Madras High Court order in Lenovo India [2023-VIL-799-MAD] wherein "may" used in Section 54 was interpreted as indicating non-mandatory nature of limitation. The Jharkhand High Court took note of Article 265 of the Constitution and said that such amount cannot be retained by the State. It also relied on precedent judgments to hold use of "may" means it is directory and not mandatory. It further noted there was no unjust enrichment also in the case of pre-deposit as the amount was paid from own pocket by the appellant. The Court also referred to Limitation Act providing for 3 years' time. Refund was directed to be granted to the taxpayer along with interest. Section 54 needs to be specifically amended to exclude refund of pre-deposit from limitation and such unproductive litigation will continue till such time the law is amended [2025-VIL-103-JHR].

Refund due to inverted duty structure - High Court quashes CBIC clarification

Refund was sought on the ground of inverted tax / duty structure by the taxpayer engaged in supply of edible oil and specialty fats attracting lesser rate of GST than the raw materials. As usual, the GST authorities rejected the refund claims. The reason for rejection was CBIC Circular No. 181 wherein it was clarified that refund in respect of the said products is not admissible after 18-7-2022. The High Court took note of Notification No. 5/2017-Central Tax (Rate) whereby for certain products, such refund was barred and the amendment made to this notification included the said products of the taxpayer and therefore, they became ineligible for refund from 18-7-2022. The taxpayer challenged rejection of refund primarily on the ground that for applications filed after the said date but in respect of input tax credit pertaining to the period before such date, refund cannot be denied. The Court held that since the notification barring refund for the said products came into effect from 18-7-2022 only, ITC accumulated before such date would be available as refund and the restriction would apply to ITC arising after such date. The Court faulted the CBIC circular for stating that refund claims cannot be filed after the said date and to this extent, struck down the same. It directed the authority to consider the refund claims.

A statutory provision or clarification is misinterpreted by the tax authorities in favour of revenue. When the clarification itself is erroneous so as to favour revenue, there is no surprise in applying the same with zeal by the department. Refund is presumed to be a taxpayer-friendly mechanism. However, in practice, majority of cases of refund are settled only with the intervention of courts [2025-VIL-113-AP].

SCN issued beyond time-limit - High Court quashes

For the financial year 2020-21, the last date for filing annual return was 28-2-2022. Based on the time-limit provided in Section 73 of CGST Act, the taxpayer contended that the show cause notice issued on 30-11-2024 was invalid as the last date expired on 28-11-2024. The department argued that "month" would mean calendar month and since 28th February being the end of the month, last date for issuance of SCN was 1-12-2022 and the SCN issued on 30-11-2022 was within limitation. Surprisingly, the department further argued that such provision is directory and not mandatory which was contested by the taxpayer by pointed to use of "shall" in the provision. Based on precedent judgment of the Supreme Court, the High Court held that when a period for certain action is defined in terms of months, it would mean that the corresponding date of the corresponding month would be the cutoff date. Based on such reasoning, it held that in the case before it, the cutoff date for issuing an order was 28-2-2025 and therefore, the three months period for issuance of SCN was 28-11-2024 and the SCN issued on 30-11-2024 was hit by time-bar.

The Court went on to consider whether the two days' delay is condonable and held that the time-limit is mandatory and not directory as the provision is intended to protect the taxpayers. The SCN was quashed. It is not known how many cases will be hit by such interpretation as huge number of SCNs were issued just before the due date or what was considered as the due date. Being a legal ground, it may be possible to take such plea in subsequent proceedings also if they are pending and litigation is continuing [2025-VIL-124-AP].

Payment during investigation under coercion after issue of summons and in presence of tax officer is not voluntary

The taxpayer after days of incessant investigation, recording of statements and presence of officers in the office throughout purportedly made a voluntary payment of crores of amount as tax. While the entire narration would indicate coercion, stress and recovery of tax without proper authority, the department assailed the order of the Single Judge, directing refund of the amount. The petitioner contended that recovery which commenced during the pendency of investigation and even prior to issuance of show cause notice at the stage of Sections 67 and 70 of CGST Act is not voluntary and it cannot be construed to be a part of self-ascertainment under Section 74(5) of the CGST Act. Also, as per facts, the department called debtors of the taxpayer, made them deposit money in the bank and provided access to the seized mobile phone of the taxpayer, for purpose of providing OTP. A case of department aiding the taxpayer to pay tax but on the wrong note. The department further tried to argue that mere late hours of investigation and belated affidavit of withdrawing statement cannot prove coercion! The High Court however held that it would look into the facts in totality to determine coercion and refused to interfere with the order of the Single Judge.

The case indicates the extent to which the department can misuse litigation machinery. When the Single Judge Bench clearly holds coercion, an appeal is filed to challenge the same despite the facts being completely against the department. The top echelons in the department should take action the officer who recommended filing of appeal but those at the top also subscribe to such methods and except courts, nowhere one can seek justice [2025-VIL-110-KAR].

Handing custody to income tax department cannot impart legality to seizure of cash

Perhaps influenced by various rulings on power of GST officers to seize cash, the department handed over the cash seized from premises of the taxpayer in the course of proceedings under Section 74 of the CGST Act to the income tax department based on a requisition under Section 132A of the Income Tax Act, 1961. The petitioner sought return of the sum contending that GST officers do not have power to seize cash. The High Court however held that initial seizure of cash from the premises of the appellant being illegal, the continued retention of it and the handing over of the cash to the Income Tax Department, cannot be seen as a legal act. It directed return of the seized cash. GST Council should recommend issuance of clarification so that such recurring episodes of seizure of cash by GST officers can be prevented [2025-VIL-108-KER].

SCN, assessment of deceased assessee invalid

The department cancelled the GST registration of the assessee/proprietor after his death based on application by the legal heir. However, it issued show cause notice and passed assessment order on ex-parte basis. The wife and legal heir who was continuing the business under fresh GSTIN sought for the order to be set aside and offered to respond to the notice being successor in law as well as proprietor. The department argued that since the present petitioner had accessed the portal at a later date, she was aware of the SCN and despite reminders, she had not responded. The High Court held that the show cause notice and reminders issued after effective date of cancellation were not valid and directed issue of fresh show cause notice in accordance with law [2025-VIL-123-ALH].

Registration cannot be refused for grounds not provided in law, based on mere apprehension

The apprehension that person who do not belong to the State may do business but evade GST led the AP GST authorities to refuse registration. The High Court held that even if the fact that none of the responsible persons being from Andhra Pradesh may provide scope for evasion, since there was no restriction for persons outside the State to come into the State of Andhra Pradesh and seek registration under the APGST Act, the order could not sustain. It also relied on Article 19 of the Constitution of India, which grants every citizen the right to set up and do business anywhere in the country. It is surprising that even the provisions of registration have not been properly understood by the GST authorities and after seven years of introduction of GST, application is being rejected on such illegal ground [2025-VIL-126-AP].

Delay in filing appeal beyond condonable period - High Court rejects petitions

Almost every week, in this column, orders of High Courts on condonation of delay in filing appeal beyond the condonable period are discussed as the facts or reasoning make them worthy of discussion. Some of the High Courts are of the view that appeal filed beyond condonable period under Section 107 of CGST Act and rejected by appellate authority cannot be revived by writ court also. Calcutta High Court has been holding a different view on this issue. Delhi High Court has disposed batch of writ petitions adopting the view of the majority of the Courts - delay beyond the condonable period cannot be condoned by appellate authority under the GST law. Many cases in this batch pertained to cancellation of registration for various reasons and appeal filed against such orders. The Delhi High Court has held that once the statute prescribes specific period of limitation, the Appellate Authority does not inherently hold any power to condone the delay in filing appeal by relying on Limitation Act, 1963. The Court relied on important precedent judgments on this issue while expressly disagreeing from the different view adopted by other Courts.

The Court noted - "A careful reading of the aforesaid decision would bring to the fore that the legislative intention to provide a specific period of limitation, thereby excluding the general applicability of the Limitation Act, 1963, must be respected. The Supreme Court has observed that the plenary powers of the High Court cannot in any case exceed the jurisdictional powers under Article 142 of the Constitution of India, 1950, and even the Supreme Court cannot extend the period of limitation de hors the provisions contained in any statutory enactment."

Delay is generally fatal when it comes to litigation as limitation stands at the door to deny any relief and even if one manages to cross this door, sufficient cause is another hurdle and crossing the same is very difficult. Taxpayers, in a few cases, take good amount of time to decide on further course of action whenever an order is received and this becomes costly later [2025-VIL-127-DEL].

Previous edition, dated 3rd Feb, 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)