Tax Vista Your weekly tax recap Edn. 247 - 17th March 2025 Dr. G. Gokul Kishore

 

 

Cross examination to be allowed even if GST law does not have specific provision

The department assailed the order of Single Judge holding that the assessee ought to have been given an opportunity to cross-examination of persons, whose statements were obtained during investigation. Order had been passed against the assessee without providing such opportunity and it was contended that proceedings were void. The department contended before the Division Bench that reliance on Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II, 2015-VIL-102-SC-CE. incorrect since Kanungo & Co. v. Collector of Customs, Calcutta and Others, 1972-VIL-32-SC-CU was not taken notice of in the said judgement. However, the High Court held that Kanungo (supra) was decided based on law and facts of that case, and since Sea Customs Act, 1878 stood repealed on promulgation of Customs Act, 1962, it was not applicable in the present case. It held that there was no requirement that principle of natural justice is to be specifically extended under plenary legislation or the rules framed under it and that in order to prefer an effective representation against the proposals in the notice the assessee had to know the basis of the allegations against him and test the evidence used against him.

 

According to the Court, the assessee was fully justified in making a request for cross-examination of the witnesses whose statement formed the basis of the impugned order and non-extension of such an opportunity erodes the efficacy of the order. However, it opined that the request for cross-examination of the co-noticees cannot be accepted. Request for cross-examination is denied by adjudicating authorities not because of any contempt for principles of natural justice but merely because most of them do not how to conduct such examination. When quasi-judicial authorities are not trained in law and legal procedures / processes, even if cross-examination opportunity is provided, effectiveness of the same cannot be guaranteed [2025-VIL-224-KER].

 

Refund of CVD and SAD paid in GST regime - High Court directs department to consider

Export obligation could not be fulfilled against Advance Authorization and EPCG Authorisation and therefore, customs duties including CVD and SAD were paid by the taxpayer. Since the period fell under GST and the period for revising TRAN-1 form was over by that time, Cenvat credit of CVD and SAD could not be taken and refund was sought. SCN was issued and order rejecting such claim was passed under Section 142(8)(a) of CGST Act. Subsequently, based on Filco judgment [2022-VIL-38-SC], GST portal was opened for submitting TRAN-1 again and such window was used by the taxpayer after withdrawing the challenge to the order rejecting refund since the duties paid were sought to be transitioned as ITC. This was also rejected by the department much later on the ground that CVD and SAD were not admissible as ITC and the tax was paid as arrears.

 

The High Court held that rejection of TRAN-1 form was correct as there was no credit to be carried forward from the earlier regime since the duties were paid after GST was implemented. In respect of refund, the High Court held that reliance placed by the department on Section 142(8)(a) was not correct since the amount was not paid consequent to recovery proceedings but the taxpayer voluntarily deposited the same. It held that the refund claim would be covered by Section 142(3) which deals with cash refund of Cenvat credit where claim has been filed before or after GST came into force. It relied on Principal Commissioner v. Granules India [2024-VIL-1326-TEL-CE] wherein department had filed appeal against CESTAT order holding refund of CVD and SAD as admissible when EO could not be fulfilled and such appeal was not accepted. The High Court directed the authorities to consider the refund claim on merits as per Central Excise provisions. It further said that refund shall be paid in cash if the same is found to be eligible.

 

This issue has been witnessing litigation in a few cases and GST Council may recommend issuance of clarification. The grey area is prescription of law [Section 142(3)] that such refund claim shall be considered as per Central Excise law and Central Excise Act / Cenvat Credit Rules do not provide cash refund of Cenvat credit except in case of export though there is a overriding provision apparently to take care of such a situation [2025-VIL-227-GUJ].

 

Disputed Cenvat credit transitioned to GST - SCN under CGST Act invalid

Even if Cenvat credit is transitioned to GST as input tax credit (ITC), if the department intends to question the eligibility of such credit, then Central Excise Act and Cenvat Credit Rules should be invoked. Invocation of Section 73 of CGST Act to demand such credit is not valid. Holding on these lines, Calcutta High Court has quashed the show cause notice itself. The dispute related to Cenvat credit availed in 2016-17 as the taxpayer requested the department to allow the same which was unavailed credit at that time (before GST). The department "under the guise" of verification, sought documents after documents but the issue never attained finality. After almost 4 years, show cause notice was issued under Section 73 of CGST Act proposing to deny the credit. Based on precedent judgment in Usha Martin [2022-VIL-779-JHR], the High Court posed the question - whether the initiation of proceedings under Section 73 of the CGST Act for alleged contravention of the Central Excise Act and Finance Act, 1994 read with Ccenvat Credit Rules by filing TRAN-1 for transition of Cenvat credit as being inadmissible under the existing law is correct or beyond jurisdiction. It held such exercise is beyond the jurisdiction and quashed the SCN [2025-VIL-241-CAL].

 

Service of notices under GST law - Using time of High Court procedural issues

After all these years, a purposeless litigation being fought by the GST department pertains to service of notices and orders. Most of them are uploaded only in the portal without supplementing it with any other alternative mode like registered post. In several cases, they are uploaded in "Additional Notices" tab and the taxpayers claim they did not notice the same. Substantial time of constitutional courts is used up in such frivolous litigation. In a case of this nature, Patna High Court has held that the purpose behind service of notice is to make an assessee aware of the notice/summons/orders/decisions or any communication issued by the department and this aspect is required to be looked into by the department to ensure that notices are duly served. The Court analyzed Section 169 of CGST Act but did not pass any order on mode of service per se. During the arguments, the often-raised points as to whether a taxpayer should check the GST portal daily to find out if any notice has been issued and whether besides uploading, e-mail should also be sent were also raised. The taxpayer produced screen shot and the Court was satisfied that there was no proper notice / service and directed them to file reply to the SCN. This issue should be addressed by the GST Council by either amending Section 169 mandating physical service along with electronic mode of service or by recommending suitable clarification [2025-VIL-239-PAT].

 

Deviation of route coupled with diversion of goods without invoice - High Court declines to interfere with confiscation proceedings

According the petitioner while the goods were in transit, he received an order from a shop at a place different from the destination and therefore the driver of the vehicle was directed to divert the vehicle to such place for unloading part of the consignment. Goods were destined for Kayamkulam (Kerala) from Shencottah (Tamil Nadu). E-way bill and invoice were generated on inception of the vehicle. The petitioner challenged notice for confiscation of goods issued under Section 130 of the CGST Act, 2017 and also argued that the statement of the driver could not indicate malafide. The driver happened to be the petitioner's brother. The department also contended that there had been many instances of such transactions by the petitioner. The High Court opined that while mere deviation in route is permissible, goods unaccompanied by invoice may be a device adopted to evade tax by artificial splitting up of transactions and consignments. It declined to entertain the writ petition. [2025-VIL-229-KER].

 

Incomplete challan for despatch of goods to job worker insufficient to escape rigours of Section 129

A show cause notice was issued in Form MOV 07 by the GST officer on finding that there was a mismatch in the place of unloading. The assessee contended that the goods were sent to the place of job worker and challan had been issued as such there is no contravention of the provisions of the CGST Act. However, on perusal of the challan it was found that various details as required under Rule 55 of the CGST Rules were absent and the same was incomplete. The High Court held that proceeding under Section 129 of the CGST Act cannot be said to be arbitrary since Rules 45 and 55 of CGST Rules had been contravened. Such orders indicate that mere possession of documents is not a safeguard against detention and seizure under Section 129 but such documents should also be compliant as per the provisions [2025-VIL-233-ALH].

 

Customs officer cannot modify FOB value and compute export benefit

Exporters must be complimented for persevering with the systems as must the quasi-judicial authority in this case for passing orders without fear, favour or confusion. Based on communication from the income tax department that there was a surge in export benefit claimed - drawback, MEIS and ROSL, DRI investigated the appellant-exporters, seized consignments, BG was obtained and there was allegation of over-valuation. The exporters waived show cause notice and attended hearing resulting in passing of orders dropping all proceedings by the Joint Commissioner. The shipping bills, invoices were found to be in order as was bank realisation certificate (BRC). However the department continued its endeavour to safeguard revenue and appealed against the order contending that there was no proof of movement of goods from the suppliers mentioned, the income tax investigations showed companies being engaged in money laundering activities etc., and Commissioner(Appeals) passed an order accepting the valuation in respect of all the shipping bills and releasing the bonds and bank guarantees pertaining to redemption fine and penalty but directing re-computation of export benefits.

 

The CESTAT examined whether the Joint Commissioner, Commissioner (Appeals) or any other officer of Customs has the power to re-determine the FOB value of the goods and held that Section 14 of Customs Act, 1962 provides for acceptance of transaction value and determination in case of rejection. However, the officer is not empowered to re-compute the FOB value and if as per the export schemes benefit was to be paid on FOB value, there cannot be any tinkering with the same by customs officers. Also, the exporter in this case had submitted BRC. It also noted "One of the strange grounds taken in the appeals filed by the Revenue before Commissioner (Appeals) was that DRI had directed the Joint Commissioner to take an no objection certificate (NOC) from it before releasing the export incentives" and termed it is a blatant interference in the adjudication process by the Joint Commissioner.

 

While such interference is not new, the order raises an important question. If export benefit is based on FOB value and such FOB value cannot be questioned, consequently, export benefit claimed cannot be disputed by Customs authorities. The Tribunal order is emphatic in holding that Customs authorities can only question assessable value and not the transaction value / FOB value. If so, it is not clear how undue export benefit, if obtained by overvaluation, can be recovered. In such cases, FOB value is not actually increased to demand duty but for recovery of benefit which was not due and such decrease is only notional since it is the refund / drawback which is reduced. The order leaves such questions unanswered [2025-VIL-361-CESTAT-DEL-CU].

 

Payment of customs duty, under compulsion is not acceptance of enhancement in value

While the customs officer chased even FOB value in a bid to deny export benefits, the assessee it appears gets one chance to accept or contest duty and he has to forgo his rights. It was argued that the importer paid the enhanced duty out of compulsion to clear the goods and he had not accepted the enhancement of the transaction value. The assesee appealed against the order of Commissioner (Appeals) citing lack of application of mind besides being unsustainable on merits. The department however contended that once duty was paid, there cannot be any challenge to the assessment. The assessee argued that enhancement cannot be on the basis of NIDB data and if the department alleged under-valuation of goods onus to prove the same was on the department. It also relied on earlier order of Commissioner (Appeals) holding that there was no basis for rejection of the declared value. No such evidence had been adduced by the department proving undervaluation and it relied on the guidelines issued by the Directorate of Valuation which flagged imports of iron and steel scrap as potentially under-valued. The CESTAT set aside the impugned order [2025-VIL-370-CESTAT-CHD-CU].

 

Previous edition, dated 10th Mar, 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)