Tax Vista Your weekly tax recap Edn. 243 - 17th February 2025 Dr. G. Gokul Kishore

 

 

Issuance of consolidated SCN for multiple years is not correct

The issue of issuing consolidated or single show cause notice covering multiple years has been witnessing litigation these days. A recent order of Division Bench of Kerala High Court discusses this issue in greater detail and with greater clarity and reason. Upholding the Single Judge Bench order, the DB order holds that as per Section 74 of CGST Act, the proper officer should ideally issue separate SCNs to cover different financial/assessment years since the period available for adjudication varies based on the due date for furnishing of annual return for that year. Pointing out that the scheme of CGST Act is different from Customs Act and Central Excise Act, the order states - "In our view, consolidated show cause notices covering multiple financial/assessment years can be issued only in circumstances where the statutory provision provides for a common period for initiation and completion of the adjudication. For instance, under Section 28 of the Customs Act, a show cause notice invoking the extended period of limitation of five years has to cover a prior period of five years ending with the date of issuance of the show cause notice. Similar was the provision under Section 11A of the erstwhile Central Excise Act. Under both of the above provisions, the show cause notices issued, irrespective of whether it covered a single financial/assessment year or multiple years, had to be adjudicated within a fixed period of one year from the date of the show cause notice. The scheme of adjudication is different under the CGST Act. Under Section 74 of the CGST Act, the end termini for adjudication varies for each financial/assessment year, since it is not pegged to the date of the show cause notice but to a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to."

 

The High Court was of the view that Issuing a consolidated SCN covering various financial/assessment years would cause prejudice to an assessee who would not get the full period envisaged for adjudication if that period is circumscribed by the limitation period prescribed in relation to an earlier financial/assessment year. The statutory period available for an assessee to put forth its contentions against the SCN cannot be curtailed by an "unnecessary act" in issuing a consolidated SCN notice that includes a financial/assessment year in relation to which the period for passing a final order expires earlier. It appears that the High Court was emphasizing the use of financial year to reckon the time-limit and also the time-limit for issuing SCN / passing order being used against the assessee if single SCN is issued for multiple years.

 

An interesting observation made by the Court relates to the implications of issuing single SCN. It says that this would result in consolidated adjudication order with the potential of increasing the tax and penal liability exponentially and at the time of filing appeal, the quantum of pre-deposit will increase significantly. Among the orders on this issue so far, this one from Kerala High Court is far more reasoned and it distinguishes the GST law from other tax laws by pointing to limitation being based on each financial year [2025-VIL-143-KER].

 

Summons by CGST authority where orders passed by SGST authority - High Court rejects plea on parallel proceedings

In a case of parallel proceedings, petition was filed to quash summons issued by CGST authorities and transfer the proceedings to SGST authority where proceedings are pending. The taxpayer argued that SGST authorities have already passed orders. The High Court held that the expression "any proceeding" used in Section 6(2)(b) of CGST Act cannot be extended to search or investigation since such investigation or summons may be precursor to proceedings that may be initiated by the CGST authorities. According to the Court, a search case would be distinct and separate form adjudication proceedings under Section 73 / 74 of the CGST Act.

 

The order reads - "In our considered opinion and as we read Section 6(2)(b), it becomes apparent that what the statute seeks to ensure and prohibit are parallel proceedings pertaining to assessment which may be drawn in exercise of powers conferred by Sections 73 and 74 or for that matter any other proceedings akin thereto by two separate sets of authorities." The Court was of the view that at the stage of summons, the authority is merely seeking to gather information and the action proposed to be taken was not known at that stage. It clearly held that summons issued pursuant to search has to be distinguished from an actual assessment. It seems that the plea of parallel proceedings was not strong enough in this case as Courts in general are averse to challenge to summons. In particular, in this case, assailing the summons only because another authority has issued SCN / passed order, failed to convince the Court that the proceedings were on the same subject matter which alone is the bar as per the provisions [2025-VIL-142-DEL].

 

Provisional attachment - High Court quashes holding non-application of mind

A fairly detailed order has been passed by Madras High Court on provisional attachment whereby such attachment has been set aside. In the case before it, bank accounts were attached. Earlier, the petitioner was arrested and later released on bail. DGGI was of the prima facie view that the petitioner was engaged in clandestine removal of gold bullion and also in availing input tax credit without receipt of goods. The department argued that the taxpayer did not file objection within 7 days as per Rule 159 of CGST Rules in respect of provisional attachment.

 

Based on the Supreme Court ruling in Radha Krishan Industries [2021-VIL-50-SC], the High Court held that two aspects need to be examined - existence of tangible material leading to formation of opinion that provisional attachment is necessary to protect interest of revenue and secondly disclosure of reasons in the order of attachment. The Court went through the order passed in this case and noted that the same did not disclose any tangible material leading to formation of such opinion. The order further stated that provisional attachment was necessary to protect interest of revenue which was termed by the Court as mere reproduction of Section 83. It also held that there was no application of mind by the authorities and the order does not point to inability to protect interest of revenue without attachment.

 

Section 83 does not provide for pre-decisional hearing but only post-decisional hearing but the same does not dispense with disclosure of reasons. In this background, the order is eloquent on reasons and reasoned order - "Exercise of power without disclosing reasons leave the party in the dark on the reasons which led the authority to initiating a proceeding. More important, permitting action without reasons is an open invitation to arbitrary action. Reasons must not be accompanied by obscure and unsatisfactory reasons. The need to give reasons cannot be discharged by the use of vague general words. What the decision-making authority must do is to state his reasons in sufficient detail to enable the reader to know the reasons which prompted the exercise of power. The extent and substance of the reasons must depend upon the circumstances. They need not be elaborate or lengthy. But they should be such as to tell the parties in broad terms why the power is exercised." The attempt by the department to justify non-furnishing of reasons as limitations in the portal was not accepted by the Court.

 

Section 6, Section 78, Section 79, Section 83 and Section 129 are some of the provisions of CGST Act which need either thorough overhaul or removal from the statute book. The provisions have been completely and without exception, misused by both CGST and SGST authorities leaving the taxpayers at the mercy of High Courts. The extent of business disruption, threat, recovery from third parties, etc., as resorted to in GST regime makes extortion by unlawful elements more palatable [2025-VIL-138-MAD].

 

Renewal of provisional attachment - No leniency in prima facie cases of fraud

It is now settled that the GST authorities cannot resort to evergreening of provisional attachment by extending the same after expiry of one year. However, in a rare case where the High Court took note of this potion, upheld fresh attachment for one more year mostly guided by facts of the case. During the course of investigation into supply of bogus bills and availing ITC by the petitioner and certain others, the department had provisionally attached the bank account of the petitioner and attached the same again (renewed) on expiry of one year. The petitioner assailed jurisdiction of the officer but the department countered the same stating that initiation of enforcement action by the Central tax officers in case of taxpayer assigned to the State tax authority and vice versa had already been clarified by Circular (s) dated 05.10.2018 and 22.06.2020. The petitioner contended that only one day was provided to him to reply to the notice but it was held that since the matter had already been contested at the time of initial attachment and in view of the allegation of fraud, the petitioner was not entitled to any relief and there is no bar in the statute to renew such provisional attachment order thereafter on recording the satisfaction (afresh) for the provisional attachment of the bank accounts [2025-VIL-150-GUJ].

 

Provisional attachment not valid in cases of legal dispute and assets not encumbered

The High Court emphasised that without any material available to Commissioner enabling him to form an opinion that the assessee is likely is to defeat the demand, if any, attaching the bank account of the assessee was a colourable exercise of power. The assessee was engaged in construction of projects worth crores, and the issue of ineligible availment of ITC was the basis on which the department decided that bank account ought to be attached to safeguard revenue. The assessee relied on Radha Krishan Industries v. State of Himachal Pradesh - 2021-VIL-50-SC. As per department since GST Council had recommended amendment to the words "plant and machinery" instead of "plant or machinery" in Section 17(5)(d) of CGST Act, the assessee could not claim ITC and since it may use the said ineligible ITC to pay tax, attachment was warranted. The High Court however held that no material was produced to show that the assessee may defraud revenue, and had encumbrance free assets. The order on attachment was set aside. This case provides the ratio that provisional attachment cannot be resorted to when the issue involved is a legal dispute (here admissibility of ITC) and when the assets are not encumbered and thus posing no threat to possible revenue recovery [2025-VIL-154-BOM].

 

Merely uploading of additional notice and hearing on next day not effective compliance of PNJ

In a case of quick disposal, the department uploaded notice on the "View Additional Notices" portal, called for manual filing of reply in 2 days as the reply was stated as not visible, hearing was scheduled on the very next day and passed order thereafter. The High Court held that assessees could not be expected to view the online portal every now and then and the department cannot argue that notice and reminder had been issued. It also stated that the department could adopt the practice of sending notice RPAD so that time could be saved without one side arguing against the other on proper service. The assessee ought to get sufficient time to comply with directions for manual filing, since department intimated that the online reply was not clear. The impugned order was set aside with directions for fresh, effective hearing. In such cases, costs should be imposed on the officer concerned and should be recovered from them. Only if, in 50% of the cases where orders are passed in favour of taxpayers on blatant violation of PNJ, costs are imposed and recovered, such mockery of quasi-judicial dispensation of justice can be contained [2025-VIL-139-MAD].

 

The rush to cancel registration - High Court restrains GST authority

Perhaps in the age of emojis and short messages, the GST officer believes that the assessee is completely aware of the statute, the reasoning in the mind of the officer and is adept at defending himself without any particulars as to how and where he is to appear. Show cause notice was issued to the petitioner proposing cancellation of registration as he had failed to furnish returns for a continuous period of six months. The show cause notice did not mention the name, designation or office of the person issuing the show cause notice and merely stated "Jurisdiction Officer". Even the period for which return has not been filed, was not mentioned in the show cause notice. The order of cancellation went one step further and mentioned only the effective date of cancellation without any specific direction on the cancellation of the registration. Undaunted the petitioner filed for revocation of cancellation, in which the department followed the same procedure of defective show cause notice without even the name of the officer. The High Court held that the entire proceedings were flawed, restored the registration and directed petitioner to complete the compliances. This is another area requiring imposition of costs on such officers who casually bring business to grinding halt [2025-VIL-144-MP].

 

Vague show cause notice without reason - HC directs issuance of revised SCN

After issuance of discrepancy memo and final audit report under Section 65(6) of the CGST Act, the assessee was given an opportunity to reply, though statutory Form in GST ADT 02, in terms of Rule 101(5) of the CGST Rules do not specifically state that a reply can be filed to the final audit report. However, after this the department proceeded to issue show cause notice on the sole issue of mismatch between GSTR 9 and GSTR 1 without any discussion on the issue or the reply of the assessee. The SCN, it seems, is a classic - extraction of reply of the assessee and then single line which should be deemed as the SCN. Opining that show cause notice should be specific as to the role of the assessee and as to what passes in the mind of the adjudicating authority the High Court set aside the defective show cause notice and remanded the matter for issuance of revised show cause with reasons [2025-VIL-148-CAL].

 

Import of components imparting essential character - To be classified as e-rickshaw

The appellant imported converter, charging socket, connection box, on-off switch, digital speedometer, alarm system, throttle with left grip, controller, left right switch, hand brake with wire, handle etc. being components of e-rickshaw and declared them as spare parts of e-rickshaw under tariff item 8708 9900 as parts & accessories of automobiles. The imports were made in sets though various bills of entry (BoEs). The department however determined the classification as 8703 9000 as electric motor vehicles. The appellant contended that some components were procured locally and only after using them, complete vehicle could emerge and as such the imported goods were only parts of the vehicle. However, relying inter alia on Office Order dated 12-3-2014, the department argued that if five major components components/assemblies such as transmissions motors axles, chassis and controller that provide essential characteristics to make a complete E-rickshaw in CKD SKD condition are present, it would be classifiable under heading 8703 as complete vehicle and not parts. Also applying Rule 2(a) of the GIR, it was argued that the imported goods when assembled, together constituted an incomplete rickshaw but with essential character since major components like connection box, controller and motor were imported.

 

The CESTAT held that correct classification of the impugned goods is tariff item 8703 9000 as a complete vehicle since major components were imported together. It was also held that since the exemption under Sl. No. 526A of Notification No. 55/2017-Cus., which was not claimed at time of import could not be sought at the stage of appeal. Classification of auto parts has been a perennial issue with different shades of litigation dominating at different points of time. As long as differential rates are there, such disputes cannot be avoided and minimal or single rate cannot be implemented due to various factors [2025-VIL-228-CESTAT-DEL-CU].

 

Classification of door handle assembly of cars - Test of commercial identity applicable

The CESTAT opined that the true test for classification is the test of commercial identity and held that Cap Sub Assembly for Door Outside Handle used principally for affixing to motor vehicles would be classifiable under tariff item 8708 29 00. As per the Tribunal, how the goods are referred to in the market by those who deal with them is the determining factor and in the present case, the imported goods are door-handles for the front door, rear door and commercially identifiable as such forming part of the body of the car. The importer had classified the same under tariff item 8708 99 00 under the category 'others' and availed concessional rate of 5% basic customs duty, as per Notification No.46/2011-Customs (as amended). It argued that the said product could not perform the function of the door handle on a standalone basis and only when a plastic base material is inserted through its circumference, a door handle comes into existence. It further contended that tariff item 8708 29 00 covers only those parts which are directly affixed on the body of the motor vehicle. However, the CESTAT held that the door handles are part of door as per Section Note 3 of Section XVII and HSN Explanatory Note B of CTH 87.08 and Rule 3(a) of the GIR and classification of door handles depends on whether they are designed for use primarily with motor vehicles. The importer's appeal was dismissed [2025-VIL-240-CESTAT-DEL-CU].

 

Previous edition, dated 10th 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)