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Tax Vista Your weekly tax recap Edn. 246 - 10th March 2025 Dr. G. Gokul Kishore |
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Disciplinary action against GST Appellate Authority - High Court quashes
Quasi-judicial administration is a farce as noted in this column time and again. Tax administration can never hide revenue bias and revenue bureaucracy does not take pro-assessee orders kindly. The officer passing such order is not only viewed with suspicion as if officers who confirm the demands are descendants of Harishchandra and rest are corrupt, but also in a few cases, disciplinary proceedings are initiated. Within 7 years of GST, such instance has now been taken to court.
The officer was Deputy Commissioner - GST Appeals and the charge against her was imposition of minor penalty under TNGST Act after setting aside adjudication order and after holding that cancelled e-way bills were produced by the dealer which were not found in the records. The department alleged that the officer was negligent. The petitioner-officer contended that the cancelled e-way bills were available in the master file and the High Court noted that this was not considered by the original authority in disciplinary proceedings. The appellate authority also did not consider such plea. It set aside the orders after holding - "Both the authorities have not recorded any finding that the petitioner should pass orders only based upon the appeal files presented by the dealer and should not look into the master file. Therefore, in such circumstances, it is clear that the findings recorded by both the authorities are clearly without any evidence and therefore, they are liable to be set aside."
More importantly, the High Court further noted that there was no allegation touching upon the integrity, good faith, or any act unbecoming of a government servant or that she had unduly favoured a party or any extraneous consideration was involved in passing the order. After relying on the landmark judgment on this issue - Z.B. Nagarkar v. UOI [(1999) 7 SCC 409] wherein the Supreme Court had held that to maintain any charge-sheet against a quasi-judicial authority something more has to be alleged than a mere mistake of law, e.g., in the nature of some extraneous consideration influencing the quasi-judicial order, the High Court set aside the disciplinary proceedings and the punishment (increment cut). The celebrated words in the above said case are - "The entire system of administrative adjudication whereunder quasi-judicial powers are conferred on administrative authorities, would fall into disrepute if officers performing such functions are inhibited in performing their functions without fear or favour because of the constant threat of disciplinary proceedings." Ignorance, revenue-bias and play-safe are the major ills of quasi-judicial dispensation and no wonder, taxpayers have great deal of mistrust [2025-VIL-217-MAD].
Amendment barring refund due to inverted tax structure is prospective - Circular to the contrary quashed
Refund under inverted duty structure was under dispute citing inclusion of edible oils in the list of goods ineligible for such refund by Notification No.9/2022-Central Tax (Rate) dated 13-7-2022. This notification was given effect from 18-7-2022. The claim pertained to the period February 2021 and March 2021 though it was filed in December, 2023. Refund was initially granted but later the department developed cold feet and initiated recovery action through an order. The taxpayer assailed the order on the ground that the same was not further challenged by the department and the same attained finality. CBIC Circular No. 181 dated 10-11-2022 was also challenged as it clarified that the restriction on refund would be applicable to all claims filed after the notification mentioned above.
One of the clarifications pertaining to effective date of amendment to Rule 89 contained in this circular was struck down by the Gujarat High Court in Ascent Meditech [2024-VIL-1273-GUJ] and this was discussed in Tax Vista dated 2nd December, 2024. The Court said that in the present case also the same logic applies and held that Para 2(2) of the impugned circular in so far as it provides that the restriction contained in the said notification would apply to all the refund applications filed after 13-7-2022, though pertaining to a period prior to the date of notification is arbitrary, discriminatory and ultra-vires Section 54 of the CGST Act. This para has also been struck down now through this order by the same High Court. It said that the amendment was effective 18-7-2022 and the circular itself said that it was prospective. The Court also held that the claim was not hit by time-bar as Covid-related extension was applicable. Taking note of the fact that the department had not filed appeal, the Court held that issuance of notice to deny refund was not correct and order was illegal. This is the state of affairs of any refund claim as repeatedly observed in this column and the only differentiator in this case is part of departmental clarification has faced the wrath of judiciary [2025-VIL-213-GUJ].
IGST paid treating re-import of goods after repair as supply of service is valid - High Court quashes notification on additional levy
Notification No. 36/2021-Customs dated 19.07.2021 was challenged by the petitioner. It contended that the export of aircraft engines and aircraft parts for repair outside India and their subsequent reimport would fall in the category of a supply of service and no further impost as envisaged under Section 3(7) of the Customs Tariff Act, 1975 (CT Act) would be applicable. Also. that integrated tax which is spoken of in the Customs Tariff Act can only be construed to be a reference to the tax imposed by the IGST Act and Section 3(7) is merely a collection mechanism placed at the point of reimport.
According to the department Section 3(7) of the CT Act is an independent charging provision levying an additional duty of customs. notwithstanding the levy of a tax under the principal provision of Section 5(1) of the IGST Act and the petitioner does not stand absolved of the liabilities created by Section 3(7) of the CT Act. While the petitioner was initially successful in the Tribunal and pending appeal by the department in the Supreme Court, Notification No. 45/2017-Cus., came to be amended on 19 July 2021 by Notification No. 36/2021-Cus. In the subsequent assessment and appeal, the petitioner was faced with demand for tax, interest and penalty. In terms of the said amendment the phrase 'duty of customs' came to be substituted with the phrase 'said duty, tax or cess' besides insertion of an explanation, which essentially held that IGST would be leviable on goods reimported post repairs. The petitioner discharged IGST liability to the fair cost of repairs actually incurred in the course of repair of aircrafts and aircraft parts. The petitioner was put in a situation where they were exempt from the payment of BCD in terms of Notification No. 50/2017-Cus., but liable to pay IGST.
The High Court held that Notification No. 36/2021-Cus., insofar as it purports to levy an additional levy over and above the IGST imposed under Section 5(1) by adding the words "tax and cess" is unconstitutional, ultra vires the IGST Act and quashed the same. It opined that once the transaction had come to be characterized as a supply of services and taxed as such under Section 5(1), the same transaction could not have been subjected to yet another levy on a perceived reading of Section 3(7) of the CT Act or by extension of the proviso to Section 5(1) and that conjoint reading of the proviso to Section 5(1) alongside Section 3(7) of the CT Act clearly establishes that they are a part of a composite and comprehensive machinery laid in place for collection of a goods and services tax. It also held that mere use of terms like 'Explanation' or 'removal of doubt' neither results in an automatic validation of an amendment nor does its mere labelling as such make it clarificatory. The impugned orders were also set aside [2025-VIL-210-DEL-CU].
Unilateral extension of period of retention without notice to assessee not valid
After unsigned orders, unreasoned orders, this case has a tinge of innovation in the interpretation of "sufficient cause" which as per the department needs to be known only to the officer and can be termed "sufficient" by him. The petitioner assailed the continued retention of goods/articles seized post search and contended that absence of any notice or opportunity having been provided prior to the extension being approved would itself constitute sufficient ground to invalidate the seizure of articles. The department argued that since Rule 140 of the CGST Rules provides for release on a provisional basis of seized goods assessee need not be provided any opportunity or informed of cause for extending the retention period. The High Court held that "sufficient cause will have to be shown" to the affected person. In the facts of the case, it also held that "sufficient cause" cannot mean a reason known only to the concerned officials for extending the period of seizure to the detriment of the affected person and that the shoddy performance by the concerned officers in valuing the goods despite the complete cooperation of the assessee cannot be "sufficient cause". It held that the mandate of Section 67(7) of the CGST Act was to be followed and goods seized without notice within 6 months of seizure the goods shall be returned and that extension of the period must be after giving notice to the assessee and on existence of sufficient cause [2025-VIL-214-DEL].
Refund of differential IGST on exports - High Court rejects department appeal
After seven years, several processes are yet to be implemented in GST. One such issue relates to claim of refund of additional IGST paid when price of exported goods is revised upwards i.e., increased at a later date. This should be a matter of joy for all concerned as the exporter is bringing even more foreign currency but the GST system presents a pathetic picture to deal with this situation. Only last year, Circular No. 226 dated 11-7-2024 was issued to provide for filing of additional refund claim till the time separate category of refund for such cases is developed in the portal. A recent order by Division Bench of Madras High Court tells this story though the issue is not new. Refund of such differential IGST paid on exports was rejected and the Single Judge Bench had ordered refund holding in favour of the taxpayer. The tax department is litigation-minded and it filed appeal before Division Bench.
The DB upheld the earlier order and said that procedural requirements should be interpreted liberally as export refund is a beneficial scheme and it relied on precedent orders on this issue particularly on denial of refund due to incompatibility of data exchanged between GSTN in GST portal and ICEGATE. CBIC Circular dated 24-10-2018 on this issue was also held as binding on the authorities. The order is silent on interest though the refund pertains to 2017 and 2018. If a clear case of refund of substantial amount to an industry major can be delayed for so many years citing non-issues, then the fate of millions of small and medium taxpayers under GST needs no guess and despite all this, they manage to do business [2025-VIL-203-MAD].
Notice and orders without digital signature invalid
Taxpayers struggle to validate income tax returns, renew digital signature etc, but it would appear that the tax officer is above all this. The petitioner assailed the order and show cause notices which did not contain physical or digital signatures of the Proper Officer (GST). One of the arguments by the department was that having replied to the show cause notice and orders being passed, no challenge could be made. The petitioner relied on Rule 142 of CGST Rules dealing with the procedure of issuing demand notice and Rule 142 (5) dealing with summary or order to be uploaded electronically in Form GST DRC-07. The department contended that the documents being computer generated upon the officers' command do not require digital signature and it also argued that the statute nowhere mentioned that summary of notice or order requires digital signature on it. However, the petitioner pointed out that Form DRC-01 and DRC-07 provide a column for signature of Proper Officer and unlike Form DRC-01B, which specifically stated that signature is not required. The department sought to rely on Section 160 (1) and (2) of the CGST Act to state that the technical defect, if any, about non-availability of signature would not invalidate the order. However, the High Court held that when a specific column is earmarked for signature, the said requirement becomes statutory and show cause notice and order issued without digital signature were set aside [2025-VIL-200-TEL].
Undervaluation of goods amounts to furnishing improper documents - Seizure under Section 129 valid
The assessee trading in pan masala and scented tobacco did not generate e-way bill since value of the goods was less than the prescribed limit. As per tax invoice the goods were transported from West Bengal/Assam to New Delhi and during its onward journey the same was transhipped at Kanpur where the same was intercepted. As per the statement of the driver, goods were loaded in Kanpur. The assessee's main contention was that in the proceedings under Section 129 of the CGST Act, the authority cannot seize the goods on the ground of undervaluation and it did not provide any documents to prove movement of goods from West Bengal/Assam. The High Court held that failing to declare the true value of the goods would result in the document being held as not proper and the seizure was valid. It opined that the assessee was required to complete the chain i.e. the truck / vehicle number on which the goods were transported from West Bengal / Assam, toll receipts of the toll plazas crossed during its journey up to Kanpur. Though on valuation issue, Section 129 cannot be invoked as such, in this case, it appears the Court was led by absence of proof for transport from the place stated to be the origin. Further the packets contained the place of manufacture as Kanpur which strengthened the suspicion of tax evasion [2025-VIL-201-ALH].
Fruit juice or carbonated drink - Test of ingredient imparting essential character and specific tariff heading relevant
The product is sweet but the department's attempt to make it sweeter for the exchequer did not succeed. It sought to classify the fruit juice manufactured by the assessee under tariff item 2202 10 90 with GST of 28% and compensation cess at the rate of 12%. The assessee had classified the same under tariff item 2202 99 20 and specified as serial No.48 under Schedule-II as "fruit pulp or fruit juice based drinks" in Notification No.1 of 2017 - Integrated Tax (Rate) dated 28.06.2017 taxable at the rate of 12%. The assessee argued that the goods comprise of fruit juice content more than 10% solids, sugar (sucrose) acidity regulators and synthetic food colors and it conforms to the specifications stipulated in regulations under FSSAI for carbonated beverage with fruit juice. However, the department reasoned that the use of carbonated water as an ingredient would take it out of category of fruit juice.
In an elaborate order, the High Court held that heading 2202 10 is meant for waters including mineral waters and aerated waters containing added sugar or other sweetening matter or flavors and 2202 99 is for items other than those classifiable under 2202 10. It held that mere presence of carbonated water does not make the product something other than fruit juice since the product contains soluble solids and fruit content as per the report of the State Food Laboratory. It was held that fruit juice essentially means a drink based on fruit pulp or fruit juice (with or without additional flavors and sweeteners), where fruit pulp/fruit juice gives overall essential character to the drink. The revenue department did not provide any alternate method of testing fruit content or independent test reports. It relied on Notification No. 8/2021-Central Tax (Rate) dated 30.09.2021 whereby a new entry was inserted as Serial No. 12A in Schedule - IV making Carbonated Beverages of Fruit Drink or Carbonated Beverages with Fruit Juice to be taxable @ 14% (CGST) and Notification 1/2021-Compensation Cess (Rate) dated 30.09.2021 whereby in the Schedule of the Goods and Services Tax (Compensation to States) Act, 2017 a new entry namely 4B was inserted levying 12% Cess on the said goods and the same was made effective from 01.10.2021. The High Court held that insertion of a new entry would operate only prospectively [2025-VIL-221-GAU].
Previous edition, dated 3rd March, 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)