Tax Vista Your weekly tax recap 7th April 2025 Dr. G. Gokul Kishore 250th Edition

 

Rejection of refund on extraneous grounds not valid

Input tax credit (ITC) of compensation cess paid on purchase of coal was availed and accumulated ITC due to exports was sought as refund. Being a refund claim, it has to be rejected and the department faithfully rejected it on various grounds. Non-furnishing of proof for receipt of payment (export proceeds) was one of the grounds. The High Court held this as not sustainable since such requirement was applicable for export of services and not export of goods and CBIC itself clarified the same by a circular issued in 2019. The taxpayer produced evidence all payments were receiving within nine months of export as per RBI Master Direction relating to FEMA Regulations. The second ground for rejection was non-furnishing of proof of export for which the Court said reconciliation statement with EGM details show that export was made within 90 days. The Court held that insistence on declaration on non-prosecution was not prescribed in the law.

 

The next ground adopted by the department on non-furnishing of undertaking was also rejected by the Court holding that as per proviso to Section 11(2) of Compensation Cess Act, such undertaking was required only in case of export on payment of tax and not to those who use LUT route as in the case before it. The last ground was failure to file statement as per circular which the Court said applicable when there is a credit reversal. Production of certificate on claim not being hit by unjust enrichment was also taken into account by the High Court to hold that order rejecting refund on extraneous grounds was not sustainable and was quashed. Refund with interest was ordered. GST authorities do not discriminate - even a large company will be subjected to same kind of harassment as this order shows [2025-VIL-305-JHR].

 

Rule 96(10) omitted without saving clause - HC doubts validity of order and grants stay

Rule 96(10) of CGST Rules became infamous because of frequent amendments and huge number of litigation. The fear of the tax administration that refund of IGST paid on exports may confer windfall on taxpayers when raw material is sourced using exemption under specified export promotion schemes was finally found to be unfounded and the rule was omitted in October, 2024. Litigation related to this rule still lingers.

 

In a case before Calcutta High Court, the show cause notice was issued seeking recovery of refund granted on the ground of violation of Rule 96(10). By the time, order was passed confirming the demand, the rule was omitted. The High Court noted that the omission was without any saving clause to protect any pending proceeding and, based on precedent decision of the Apex Court, it held that all actions from the date of omission must stop and there was no scope for the department to pass order by invoking Rule 96(10). The order was stayed by the Court. The department sought to argue that when better part of the proceedings was undertaken, the rule was very much there in the statute book but it did not find acceptance. It is not known why department even after accepting the folly and omission of the provision, seeks to pursue such cases as ultimately, no revenue will come after such litigation [2025-VIL-288-CAL].

 

Proceedings dropped for one year but confirmed for another year - HC quashes

While there is no concept of financial year or assessment year in GST law, because limitation is computed with reference to due date for filing annual return, such concepts have made an indirect entry causing much confusion. The litigation on this issue - whether show cause notices should be issued financial year wise separately or single SCN for multiple years is valid - is now witnessing courtroom battles. Kerala High Court judgment in Joint Commissioner v. Lakshmi Mobile Accessories [2025-VIL-143-KER] discussed this issue elaborately as analysed in Tax Vista dated 17 February, 2025. A fallout of such practice is passing of orders in favour of the taxpayer in respect of SCN issued for a particular year and confirming the demand on the same issue as per SCN for another year. Karnataka High Court saw a petition assailing the order confirming the demand for the year 2019-20 when proceedings were dropped for the year 2020-21. It appears that same issue was involved in both the SCNs / years. The High Court set aside the order and directed the adjudicating authority to consider the matter afresh after taking into account the subsequent order.

 

In the adjudication sphere, SGST authorities hardly understand the entire mechanism and it is a charade. Issuing of multiple SCNs / orders for the same period / issue, issuing revised SCN, issuing supplementary order, rectifying an order to substitute the entire order, providing for appeal to be filed with officer of same rank as that of the adjudicating authority - the list is endless. As pointed out frequently in this column, quasi-judicial powers should be vested in a separate hierarchy and the executive set-up should not be involved in justice dispensation [2025-VIL-299-KAR].

 

Merely uploading of order/notice without using registered post or other methods not sufficient

Orders had been passed against the petitioners but they were aggrieved by lack of information as to notices and other communication which though received by their practitioners had not been communicated to them. They argued that even though the provisions under Section 169 (1) (a) to (f) of the CGST Act, 2017 are disjunctive, they should be read conjunctively as otherwise basic principles of natural justice would be violated. Reliance was placed on judgments pertaining to Rule 52 of the TNGST Rules, 1959 in which it had been held that various mode of service of notice etc, post to registered address, to legal practitioner, affixing in a conspicuous place - all of which were held as alternative and affixing in a conspicuous place was to be resorted to only of other methods failed. Taking note of Rule 142 of the CGST Rules limiting service of notice, order etc. through electronic modes, the High Court held that Rules are creature of statute and the rules cannot circumscribe the mode that had been provided under the statute particularly when Section 169 of the Act provides for various modes.

 

In Tax Vista dated 17 March, 2025, Patna High Court order in Lord Vishnu Construction [2025-VIL-239-PAT] was briefly analyzed involving the same issue - service of notices and orders. It was pointed out that this issue should be addressed by GST Council so that either appropriate amendment is made to Section 169 or clarification is issued. Time of constitutional Courts is invaluable and it should not be used for deciding such procedural issues which are invariably used by tax authorities to deny substantive benefits [2025-VIL-304-MAD].

 

GST deposited in wrong account by provider - HC directs reimbursement of GST demanded from recipient

The prayer wheels of person paying GST never stop spinning. The petitioner who had paid GST on lease rentals to NOIDA authority was handed with a notice of demand of tax and penalty by the GST department. The issue being that GST had been deposited in the wrong head by the said authorities and did not reflect in the GSTR-3B. The petitioner's prayer was two-fold - tax could not be demanded from him again and even if he was to pay the same, NOIDA authorities should compensate him for the same. The High Court, taking into account the facts, tax invoice issued by NOIDA authorities and their acceptance of the mistake in depositing under a wrong head directed compensation to be paid to the petitioner. It is not known why GST authorities went after service recipient - the petitioner in this case is lessee of land allotted by the said authority and was paying lease rental along with GST. If tax is not paid, then supplier / service provider - the NOIDA authority should have been issued an SCN instead of running after the service recipient [2025-VIL-296-ALH].

 

Customs authorities cannot interfere with private contract terms between shipper and importer

Public Notice No.5/2020 dated 03.02.2020 was issued by Cochin Customs to apparently address the issue of over-charging of terminal handling charges by shipping lines as raised by importers. Shipping lines pay such charges to the terminal operator (port) but the grievance was they are not collected on actuals. The above public notice said that the importers may pay the charges directly to the terminal operator instead of paying through shipping lines. Based on this, it appears, Commerce Ministry had mandated payment directly or on issued instructions on similar lines. All these were challenged before Kerala High Court by the shipping lines based on restrictions placed by the authorities.

 

The shipping lines felt they could not collect handling charges over and above the terminal handling charges prescribed by the Indian port under Major Port Trust Act. The petitioners urged that the terms of carriage fell into two categories (1) Container yard to Container yard (CYCY) wherein charges to be paid to the vessel would include all the incidental charges incurred in respect of the goods from the stage at which the goods are received at the container yard at the Port of shipping and upto the stage where they are delivered to the container yard at the Port of discharge and (2) Free In Free Out (FIFO) in terms of which the charges collected for carriage of the goods would not include the terminal handling charges and charges incidental thereto and would be at the option of the recipient/importer. It was argued that said public notice interfered with the terms of a private contract and was interpreted by the authorities as a bar on collecting handling charges over and above the terminal handling charges.

 

A Single Judge Bench had earlier held that the said public notice only intended to offer an option to importers to either approach the terminal operator directly for payment of terminal handling charges or pay the said charges through the shipping line at their discretion. However, the Division Bench held that the authorities could not point to any regulatory power on the basis of which public notice could be issued which interfered with private contracts. It held that the communication by Commerce Ministry inserted conditions in the public notice which were not there and set aside the same. It also held that the public notice shall not be interpreted in a manner that interferes with the terms of private contract entered into between the shipping lines and the shipper / recipient of goods. The order of the Division Bench is precise as the public notice has not been set aside but only directs a particular interpretation but the communication misinterpreting such notice have been set aside [2025-VIL-262-KER-CU].

 

Customs valuation - Residual method does not permit adoption of arbitrary value from untested statement

Customs Valuation Rules provide for sequential application of various methods to determine assessable value and a residual method is also provided in case other methods are not capable of being applied due to paucity of data etc. The value of residue wax imported by the assessee in February 2009 and November 2010 was enhanced using data of 2011 which was not contemporaneous and no opportunity was provided to cross-examine the person whose statement was relied upon to arrive at the value. The assessee assailed the order for lack of procedural fairness as well as not being in terms of Customs Valuation Rules, 2007. Holding that impugned order was vitiated by the vice of arbitrariness rendered by adopting a fictitious value, it was set aside. The CESTAT emphasized the two-step verification and examination exercise if declared value is doubted as per the Supreme Court ruling in Century Metal Recycling [2019-VIL-21-SC-CU] and the same was not complied with in this case. The department had alleged difference between invoice value and the actual value as shown in statement of accounts but mere reliance on a statement from one party is not sufficient to discard the transaction value [2025-VIL-469-CESTAT-CHE-CU].

 

Previous edition, dated 31st 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)