Tax Vista Your weekly tax recap Edn. 244 - 24th February 2025 Dr. G. Gokul Kishore

 

 

Refund cannot be withheld because of decision to file appeal

Every refund claim comes with the sovereign guarantee of litigation i.e., litigation by the government / department. In most cases, the guarantee is double - first time, taxpayer has to go to court to get on order on merits and then second time, for implementation of court's order as the tax department generally does not bother about court orders. In a case of this nature, Delhi High Court had directed disposal of refund claim earlier which was not implemented because the Commissioner had decided to file an appeal against the order passed by departmental officer granting refund. This departmental officer is referred as "Objection Hearing Authority (OHA)" which is unheard of. It seems it is the appellate authority. The department, before the High Court, relied on Section 54(11) of CGST Act which states that where an order forming the basis for refund is subject matter of appeal and Commissioner is of the opinion that granting refund may adversely affect revenue, refund can be withheld.

 

The High Court said that mere decision to file appeal is not covered by the said provision as the order giving rise to refund should be the subject matter of appeal. It emphasized that the decision to assail an order will not automatically result in the order being kept in abeyance. The Court ordered grant of refund with interest in this case [2025-VIL-164-DEL].

 

Best judgment assessment - GST authority can condone delay

GSTR-3B returns were not filed by the taxpayer for two months. The GST authority passed order based on best judgment assessment demanding GST. The relevant provision viz., Section 62(2) of CGST Act was later amended providing time of 60 days to file returns in such cases but the taxpayer filed the returns with interest / late fee much later. The department insisted that the taxpayer shall pay tax as per the order only. The taxpayer sought the intervention of High Court on the ground that due to ill-health, returns could not be filed within 60 days and requested the Court to condone the delay.

 

The High Court held that the limitation of 60 days appeared to be directory in nature and if the taxpayer was not able to file the returns for the reasons, which are beyond his/her control, such delay can be condoned and the taxpayer can be permitted to file the returns after payment of interest, etc. It specifically said that the right to file the returns cannot be taken away stating that the petitioner has not filed any returns within a period of 60 days from the date of best judgment assessment order. It further held that if application is filed before the authority with sufficient reasons, the same shall be considered on merits. It directed the taxpayer to file such application for condoning delay and the authority to consider the same. In this case, another reasoning adopted by the Court is worth taking note. It said that time-limit for passing order under Section 62 is 5 years and in this case, the time was available till the year 2030 and only because the authority passed the order at the earliest point of time, the legal right of the taxpayer cannot be taken away. The order may be useful to similarly placed taxpayers who have received best judgment assessment orders but filed returns later [2025-VIL-176-MAD].

 

Delay in filing appeal condonable under GST when pre-deposit paid

Condonation of delay by appellate authority in GST is an issue being litigated in various High Courts. In this column, the orders have been analysed as majority view has been holding that the appellate authority is not empowered to condone delay beyond the permitted period as per Section 107 of CGST Act while Calcutta High Court along has been consistently ruling that delay beyond one month is condonable. Now Madras High Court has joined the latter by holding that delay of 35 days in filing appeal (5 days beyond condonable period) is condonable particularly when the appeal was filed with pre-deposit.

 

The order reads - "However, it is the opinion of this Court that the delay of 35 days in filing the appeal, while significant, could be condoned in the interests of justice, considering the circumstances surrounding the delay and the actions already taken by the petitioner to discharge a substantial portion of the disputed tax liability. In view of the above, this Court is of the view that the appeal should not be dismissed merely due to a procedural delay, especially when the petitioner has made an effort to comply with the statutory requirements, including the pre-deposit of 10% of the tax liability and additional payments towards the disputed tax amount." Though brief, the order is well-reasoned as the writ court is the forum where taxpayers seek justice by proving bona fides instead of strict interpretation of law rendering such taxpayers remediless [2025-VIL-177-MAD].

 

Purchase of holographic stickers from State Excise not part of composite supply and not liable to GST under RCM

The taxpayer initially paid GST under reverse charge mechanism on excise labels supplied by the State Prohibition Department but later claimed refund of tax paid. The GST department however denied refund stating that the supply of such label to be affixed on liquor bottles manufactured by the taxpayer appeared to be in the nature of composite supply as the labels are supplied by the State Excise Department for affixing on the liquor bottles manufactured based on license and such license to manufacture liquor was a service. It further stated that supply of labels by the State Excise Department is 'not' goods as contended by the taxpayer but only part of a composite supply where service is the principal supply and the consideration is collected in the form of fee. The taxpayer argued that since the main activity of grant of licence by the State Government to manufacture alcoholic liquor itself is not a taxable supply, the supply of holograms cannot become either part of composite supply or remain as an independent activity.

 

The High Court noted Section 2(30) of the CGST Act on composite supply as such supply should consist of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. It held that supply of holographic sticker was not naturally bundled and therefore, the transaction was not covered under composite supply. It further held that as grant of excise license is exempted ("neither supply of good nor supply of service") under Notification No.25/2019-Central Tax (Rate) dated 30.09.2019 and supply of such labels cannot be treated as supply of service, the orders rejecting refund were not sustainable. It specifically noted that once the supply of label is treated as not a service, there is no question of payment of tax under RCM and such tax paid by mistake was liable to be refunded [2025-VIL-167-MAD].

 

Adjudication in part is not permissible - High Court rejects plea against inclusion of turnover of different taxable person in the SCN

Show cause notice issued under Section 74 of CGST Act was challenged by the taxpayer before Single Judge Bench. Based on inspection, the GST authorities alleged suppression of outward supply and demanded around Rs. 4.88 crores as tax along with flood cess. The Single Judge had directed the authorities to consider the preliminary issue on invocation of Section 74 particularly regarding part of the turnover being attributable to separate registration belonging to another person (husband of the taxpayer). The department was in appeal before the Division Bench.

 

The Division Bench agreed and held that the taxpayer cannot seek direction on adjudication in part on the ground that there is no provision for the same and the officer has no power to adjudicate a case in stages. The Court also went into the question of jurisdiction in such cases but modified the earlier order and directed the taxpayer to attend the hearing before the adjudicating authority and the authority to pass composite order. It seems the prayer was primarily on lack of jurisdiction to the extent the SCN sought to club turnover of another taxable person. To this extent, the Single Judge order seems to be reasonable but the Division Bench's direction to the adjudicating authority can result in exclusion of such turnover while passing order leaving the question as to whether such authority has the power/ jurisdiction to do so when the SCN is defective. It is the writ court which can quash the SCN and direct the authority to issue SCN afresh [2025-VIL-162-KER].

 

Import under various bills of entry cannot be clubbed for purpose of classification

The CESTAT held that there is no provision under the Customs Act under which several bills of entry filed by an importer can be assessed together to determine classification because, as per Section 2(2) of the Customs Act, assessment includes classification and each bill of entry has to be assessed. It, therefore, held that the import of various parts of e-Scooty which were classified under CTI 8708 9900 with BCD at the rate of 15% was correct and the contention of the department that spare parts of e-Scooty are correctly classifiable under CTH 8704 and they are classifiable under CTI 8711 6020 as e-Scooty in disassembled condition was not tenable. The CESTAT also opined that the department cannot invoke Rule 2(a) of the GIR to classify import of various sets of goods without substantiating how the imported goods are sufficient to attract the said Rule. It was also held that even if the said import was classifiable as complete goods it would be open to the importer to claim exemption under the relevant notification though it was not claimed earlier.

 

This order is important as divergent views are emerging on classification of such goods - whether they should be viewed as imported in CKD / SKD condition or otherwise. The revenue sleuths are also creating astronomical demands based on such issue(s) and it is time for the CBIC to be pro-active and issue clarification to allay the fears of the trade - the e-vehicle and automobile industry [2025-VIL-245-CESTAT-DEL-CU].

 

Value of imported goods considered to compute royalty does not mean royalty is related to import of goods

The assessee imported goods - bushings, glass fiber and other materials and manufactured reinforcement glass fiber products and composite products using the technology provided by the related party. There was no stipulation in the licensing agreement that the assessee had to import the raw materials, machineries or equipment from the know-how provider, i.e. from the group company only and major input materials like quartz, dynamite, clay, limestone, soda ash and sodium sulphate were obtained locally. The assessee also stated that the running royalty was in respect of manufactured goods and on the net sales value wherein the value of imported goods was deducted. Also, the royalty was continued to be paid irrespective of whether goods were imported or not as the same was dependent on sale of the products manufactured by them using the know-how.

 

The Tribunal held that just because the value of imported goods was taken into account in the net sales price for the purposes of payment of royalty, would not mean that the payment of royalty was related to the imported goods. In order to include royalty in assessable value, it must be related to the imported goods and paid as a condition for sale of the imported goods and both these conditions have to be satisfied cumulatively and simultaneously [2025-VIL-254-CESTAT-CHE-CU].

 

Finished goods using more of non-imported components - Royalty not includible

The dispute was not new but the matter was decided by a third Member. The issue was whether the royalty paid by the importer to the overseas Licensors/foreign suppliers is includible in the value of imported goods for assessment as per Rule 10(1)(c) of the Customs Valuation Rules, 2007. Imports were from related party and royalty was payable in relation to finished goods which are manufactured using licensed technology. The importer stated that for determination of sale value while computing the royalty, the value of imported goods is deducted and that the royalty had been paid on net value addition taking place in India after importation and not on value of goods imported into India. From the contract, it was established that the payment of royalty was not a condition for sale of imported components. Also the importer was free to import the components from any other person and it imported only 22% from the licensor whereas the remaining 78% was procured from the other suppliers. Reference was made to the definition of "Condition of Sale" as per Oxford Dictionary which means "Stipulation or something on fulfilment of which something else depend" and in the facts of the case there was no such dependence.

 

The Technical Member opined that since as per the terms of the agreement, goods which are not undergoing change, processing or treatment in the factory of the licensee and physically removable from the assembled final product, the cost of imported components was part of the royalty computation. He held against the exclusion of royalty from assessable value. However, noting that as per the details submitted, cost of imported components was not part of royalty computation and since the importer was free to import from other suppliers, it was not a condition of sale, the impugned order was directed to be set aside [2025-VIL-257-CESTAT-MUM-CU].

 

Previous edition, dated 17th 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)