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Tax Vista Edn. 254 - 19th May 2025 Dr. G. Gokul Kishore |
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Recovery before expiry of 3 months is not valid under GST law
In GST, there are multiple litigations but within a single petition, there were more than one dispute as a recent order reveals. The issue was availment of input tax credit beyond the due date but the amendment inserting sub-section (5) in Section 16 of CGST Act came to the rescue of the taxpayer (contractor). However, because there was an order confirming the demand, the departmental officer (as many do), recovered the amount from the amount payable by the employer / principal to the taxpayer. Such recovery was made within 28 days of passing of the order. The Patna High Court read Sections 78 and 79 and observed that recovery before expiry of 3 months is not correct. It asked the counsel for the department to explain his stand as an officer of the Court and he fairly said that taxing authority has to wait for 3 months before initiating recovery proceedings. The High Court directed return of the amount along with interest. Taking note of the apology tendered by the GST officer, costs were not imposed.
The proviso to Section 78 making Section 78(1) redundant by empowering the officer to initiate recovery action even before expiry of 3 months in certain cases needs to be omitted as pointed out earlier also in this column. Till the time such proviso remains in the statute book, the temptation to use the same without discretion will continue forcing taxpayers to run to High Courts [2025-VIL-429-PAT].
High Court issues contempt notice to GST Appellate Authority - Seeks explanation from Adjudicating Authority for passing illegal order
Section 62 of CGST Act provides for best judgment assessment by the GST officer if returns are not filed. If the return (GSTR-3B) is filed and tax is paid within 30 days of passing of assessment order, then the provision states that such order shall be deemed as withdrawn. The taxpayer paid within 30 days but the department recovered the amount by taking the amounts from cash and credit ledgers. The order in this regard was passed after 5 years from the initial date and without mentioning anything about filing of return. The High Court was very much annoyed as it said that when the officer has referred to backend of the GST portal in the order but without referring to the return filed, ARN generated, etc., order for recovery has been passed. It held that the officer had acted in complete violation of established procedure of law and had misused her power and passed an illegal order for recovery. It also faulted the adjudicating authority for not issuing even a notice before such action.
The Court was furious over the appellate authority's conduct in rejecting the appeal since the jurisdictional Court's binding precedent was ignored in this regard. The Court had earlier held that appeal filed against order passed under Section 62 were also covered under the limited amnesty provided and the same was not considered by the appellate authority. It held the act as contempt of Court. After setting aside the order on recovery, it directed issuance of notice to adjudicating Assistant Commissioner to show cause as to why interest and costs should not be recovered from her. It also directed Additional Commissioner (Appellate Authority) to show cause as to why proceeding for contempt should not be initiated. Such orders are required in large numbers to bring some decency and decorum to the manner in which GST is being implemented [2025-VIL-447-PAT].
Section 75(12) on direct recovery not applicable when GSTR-3B includes GSTR-1 figures
Recovery is something which is supreme in GST for tax administration. No notice, no order - nothing is required if the officer gets into recovery mood (mode). The provisions are also drafted to help such over-zealous officers. Section 75(12) of CGST Act states that if any amount of self-assessed tax as per GSTR-3B (return furnished under Section 39) remains unpaid, then recovery can be made as per Section 79. However, as per the explanation under this provision, self-assessed tax includes tax payable as per GSTR-1 return but not included in GSTR-3B. The provision excludes operation of Section 73 / 74 i.e., in such cases and this makes it draconian. In a particular case, show cause notice was not issued. Based on ASMT-10 notice (assessment notice) issued before SCN, order itself was passed confirming the tax demand and recovery action was initiated relying on Section 75(12).
The High Court was not pleased. It noted that in the case before it, the self-assessed tax as reported in GSTR-1 was included in the figures in GSTR-3B also and therefore, Section 75(12) for direct recovery was not applicable. It further held that demand could not have been confirmed also based on admission by the taxpayer. It specifically noted that if the explanation to such assessment notice is unacceptable, then the officer is required to initiate action under Section 65 or 66 or 67 or 73 or 74 of CGST Act and not Section 75(12). The order was directed to be treated as SCN and the taxpayer was told to file reply [2025-VIL-460-CAL].
Section 61 not invocable citing transaction value is lesser than market price
Several GST officers are yet to learn even transaction value though the concept is now decades-old. Valuation of goods is governed by transaction value under Customs law and Central Excise Act for years now. May be, SGST officers do not have grounding in such concept. ASMT-10 notices were issued asking the taxpayers to explain the reason for adoption of sale price lesser than market price of goods sold by them. The taxpayers assailed such notices on the ground of lack of jurisdiction as Section 61 of CGST Act / relevant SGST Act is confined to scrutiny of returns and discrepancy in such returns. The department contended that the notice is only procedural having no adverse civil consequences and taxpayers could have filed reply instead of rushing to writ court.
After going through Section 61, the High Court held that the provision is to enable the assessing officer to point out discrepancies and errors in the returns filed vis-à-vis the relevant particulars / information and if action is not taken despite being pointed out, action may be initiated under various provisions including Section 73 / 74. It noted that using such provision the officer has compared the price of goods sold by taxpayers with the prevalent market price and sought to know why differential tax should not be demanded. The Court held that such exercise is wholly without jurisdiction and beyond the scope of Section 61. It said - "In fact, it is settled law that unless transactions of sale are shown to be sham transactions or the mere fact that the goods were sold at a concessional rate/rate less than market price would not entitle the Revenue to assess the difference between the market price and the price paid by the purchaser as transaction value." The notices were quashed and the department was directed not to take action merely because of difference in transaction value and market price of the goods [2025-VIL-457-JHR].
High Court directs Commissioner to conduct classes for GST officers
In Tax Vista, the need for capacity building and proper training of the GST officers has been repeatedly emphasised. The extent of ignorance exhibited by some of the officers cannot be described in words. It was yet another routine matter of seizure of goods while they were being transported. It was a case under Section 129 of CGST Act but no notice was issued within 7 days as prescribed. The department instead issued a notice proposing to confiscate the goods under Section 130. The seizure order was a printed form where in one box, tick mark was put and there was no reason for seizure. The High Court was appalled at all these. It noted that there were no legible reasons for seizure mentioned in the seizure memo and it was not willing to look into the reasons to justify seizure. It directed the officer to issue notice within two days and order to be passed within 3 days. It also ordered release of goods as per law thereafter and confiscation proceedings should be initiated only after completion of proceedings under Section 129.
The Court said that the Commissioner should conduct coaching classes to train the officers to follow the law and the procedural safeguards and to sensitize them about the manner in which such confiscation is carried out. As pointed out before in this column, Section 129 should be omitted and made part of Section 130 itself. Detention, seizure and confiscation are all part of the same proceedings and to provide for 200% penalty in the interim stage of seizure is collection of ransom by the State and this has no place in law [2025-VIL-446-AP].
GST Compensation cess on supply to merchant exporters - High Court urges GST Council to recommend exemption
Notification No. 41/2017-Integrated Tax (Rate) provides concessional rate of 0.1% IGST when goods are supplied to merchant exporter. The notification prescribes conditions to ensure export actually takes place in such transactions since the exemption is meant for export. On goods attracting GST compensation cess, there is no corresponding exemption when they are supplied to merchant exporters. This became the point of dispute based on DGGI investigation since the taxpayer paid 0.1% GST but no compensation cess was paid. Chewing tobacco was the product involved attracting 160% compensation cess. SCN was issued and adjudication order was passed demanding around Rs. 18 crores towards compensation cess. The taxpayer argued before the High Court that on export, no compensation cess was payable and hence, the same was not paid since the goods were supplied to merchant exporter. The department contended that the taxpayer was not the exporter and in the absence of similar notification exempting compensation cess, the same is payable.
The High Court held that as per CBIC Circular No. 37, supply of goods to merchant exporters is also considered as export and the present case involving more than one supply will also qualify as export. It noted that payment of GST compensation cess would mean merchant exporter can get refund of the same and the exercise will be revenue-neutral. The Court said GST authorities are justified in demanding cess in this case as notification exemption the same is absent but notification issued under CGST and IGST are also applicable for GST compensation cess as per Section 11 of Compensation Cess Act providing for applicability of provisions of CGST Act and IGST Act for levy of such cess. It accepted the contention that there is no revenue loss to the government in this case as merchant exporter would get refund. The Court held that similar notification is required to be issued granting exemption from such cess in the case of supplies to merchant exporters. The Court requested the GST Council to consider the same and the demand / matter was directed to be kept in abeyance till such decision comes [2025-VIL-456-GUJ].
GST compensation cess - Explanation on ground clearance is prospective
For luxury cars also, tax and litigation are luxuries as an order shows. The car manufacturer was before Bombay High Court assailing the order demanding 22% compensation cess whereas according to them, applicable cess was 20% only. The department sought to argue that as per cess rate notification, the condition on ground clearance should be considered in unladen state but the taxpayer pointed out such criterion is always taken into account in laden state only as industry practice and since pre-GST regime. The issue was clarified by issuance of amending notification inserting explanation that for ground clearance condition, unladen state should be considered but such amendment came in 2023 while the period involved in this case was before such date. Armed with the minutes of the GST Council's meeting, recommendations, notification and CBIC Circular No. 247 explaining the prospective nature of such amendment, the taxpayer assailed the order.
The High Court took note of all the above and held in favour of the taxpayer. The Court held that the Board has clarified the amendment as prospective in nature and the same is binding on the GST authorities. While the show cause notice was issued in the year 2022 when such amendment was not in place, the adjudicating authority ought to have considered it when he passed the order in January, 2025 and rectification order in March, 2025. Refusal to follow own circulars and that too, applying an amendment retrospectively are traditional hallmarks of tax bureaucracy soaked in revenue bias [2025-VIL-452-BOM].
Confiscation and redemption fine under GST valid even if goods are not physically available
Inspection and search were carried out by GST authorities and shortage of goods was noticed. The taxpayer paid the demanded amount along with penalty and redemption fine and then filed appeal after two years which was rejected on the ground of limitation. The taxpayer was before High Court and argued, primarily relying on similar Customs cases that confiscation under Section 130 of CGST Act could not have been made when the goods were not available and in particular, imposition of redemption fine was not sustainable. The High Court was not pleased primarily because it felt that the route of writ petition has been adopted using confiscation related argument to indirectly question the rejection of appeal on limitation. This rejection on such reason was upheld. On confiscation, the High Court elaborately considered the precedents under Customs law to note that if goods are released on bond and subsequently held as liable to confiscation, then authorities are not barred from confiscating and imposing redemption fine. It that the power to confiscate is available under GST law and exercise of such power cannot be said to be fundamentally flawed or lack of jurisdiction. The taxpayer had argued that the entire exercise undertaken by the authorities was a nullity and therefore, writ court can go into this question.
The Court said - "Section 130 of the Act contains an exhaustive provision relating to the confiscation of goods or a conveyance and a levy of penalty which imbibes within itself the eventuality of supplying or receiving any goods in contravention to any provisions of the Act or the Rules made thereunder with intend to evade payment of tax. Sub-section (2) of Section 130 of the Act postulates an option to pay a redemption fine in lieu of the confiscation. The conjoint reading of the provision as aforesaid are the expositions of the powers and the jurisdiction conferred upon the proper authorities not only to the inspection, search and seizure, but also the confiscation the goods and the payment of redemption fine in lieu of such confiscation. It is thus not a case of a complete lack of jurisdiction or powers, but hovers around the exercise of such powers or jurisdiction in relation to goods liable to confiscation and the meaning to be assigned to the word 'goods'." The High Court also noted there was no protest payment anywhere in this case [2025-VIL-475-ORI].
Provisional attachment of bank account before SCN not valid under Customs Act
Provisional attachment of bank account is something which is a routine affair in GST. However, in Customs, the provision is not used in almost every case though use in a few cases also raises correctness of the same. The Madhya Pradesh High Court dealing with this issue has held that provisional attachment can be made only when the proceedings are pending and for this purpose, proceedings should be pending under Section 28 or Section 28AAA or Section 28B of Customs Act and in the case before it, order attaching bank account was held as invalid as no show cause notice was issued under Section 28 nor proceedings were pending under other two provisions. This is an important judgment since the High Court has interpreted pendency of proceedings as pointing to SCN and not mere investigations. In this case, attachment was made during investigations and the petitioner argued that the same cannot be considered as "proceedings". Though sub-section (5) was inserted in Section 110 of Customs Act providing for provisional attachment of bank account in the year 2019 (which does not refer to Section 28 or other provisions), Section 28BA provides for the same even before and this has been unambiguously interpreted in this order. The High Court also relied on CBIC instruction in this regard.
It held - "Pertinently, Section 110(5) has been introduced vide Finance (No. 2) Act, 2019(23 of 2019), dated 01.08.2019, prior to which the relevant provision for provisional attachment was Section 28 BA. In Section 25 BA, the word "proceedings" has been used in reference to proceedings under "Section 28, or Section 28AAA or Section 28B". Hence, in the considered opinion of this court, the word "proceedings" which finds mention in Section 110(5) of Customs Act, 1962 is referrable to proceedings initiated under "Section 28, or Section 28AAA or Section 28B".
The Court held that when no SCN has been issued and therefore, no proceeding is pending, Customs authorities did not have jurisdiction to order provisional attachment under Section 110(5) based on pendency of investigation. Section 110A on provisional release has also been held as not applicable in this case since such remedy would be available only after initiation of "proceedings". During the stage of investigation, Section 110A is not available as per the order. Order on provisional attachment was quashed and the bank was directed to defreeze the account. This order will be helpful to similarly placed importers who are facing the wrath of DRI / Customs authorities as instances of provisional attachment are increasing in Customs also now [2025-VIL-400-MP-CU].
Disposal of goods clandestinely before passing order - CESTAT orders payment to importer
Customs cases are sometimes deliberately booked and it is so obvious. Goods were imported as replacement as those imported earlier were defective. The declared value for the earlier consignment was accepted by the Customs authorities. At the time of import of replacement goods, declared value was rejected, value was enhanced citing import of similar goods at a higher price. The importer provided evidence on substantial discount also but the same was not considered. All this is usual but what is unusual is disposal of the goods through auction while the proceedings were pending. The importer contended and the Tribunal accepted that goods were auctioned without their knowledge clandestinely and even before order on confiscation was passed. The Tribunal ordered payment of sale value of the goods though it relied on precedents wherein it was held that the value indicated in seizure memo should be paid and not the sale proceeds in such cases of hasty disposal. Penalty and confiscation were held as not applicable in respect of replacement goods. Disposal of goods without the knowledge of the importer and arguing that it was made after confiscation order amount to fraud and the officers concerned should be taken to task. Allowing the appeal may provide some relief to the importer but will not have any deterrent effect [2025-VIL-690-CESTAT-BLR-CU].
Previous edition, dated 5th May, 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)