Tax Vista Your weekly tax recap Edn. 139 - 13th February 2023 By Dr. G. Gokul Kishore

 

 

Wrong encashment of bank guarantee - Interest payable by department

Data indicate that government is the biggest litigator. A recent order of Karnataka High Court can be cited as sample evidence. For release of goods, bank guarantees were furnished for more than Rs. 4 crores. Orders were passed confirming tax demand and penalty (it appears) against which appeals were filed. During this process, pre-deposit was paid besides certain amount of tax also as the present order of High Court notes. The department encashed the bank guarantees illegally in the meantime. The taxpayer had to go to High Court to undo such encashment. The High Court ordered refund along with interest and the review petition filed by department was also dismissed and the issue attained finality. However, refund was not granted and the taxpayer had to initiate contempt proceedings after which the taxpayer was compelled to file refund claim though the same was not required. While refund was granted, interest was not granted on the ground that there is no provision to pay interest when amount encashed under bank guarantee is required to be refunded. In the present round, the High Court took into account the earlier proceedings and order and held that interest was specifically directed to be paid. The High Court held that it has been held by the Supreme Court and High Courts that even in the absence of statutory provision, interest is payable when amounts are illegally retained by the department. The Court invoked the principle of restitution and compensation also to emphatically hold that interest is indeed payable. As per the order, interest is payable for almost three years [2023-VIL-99-KAR].

 

The departmental officers should be happy with the order. The High Court did not impose costs for such illegal action. The case shows the high-handedness of the State versus the taxpayer where the State uses its might to cause tremendous hardship to the taxpayer by depriving them of such huge funds for almost three years. When appeal has been filed on payment of pre-deposit, the department has no right to retain any amount over and above such pre-deposit till the time the appeal is decided and the taxpayer does not appeal further within the prescribed time.

 

IGST refund cannot be withheld when export has been permitted

Refund is a provision that exists mostly on paper. Tax authorities try to reject refund claims to the extent possible. In an otherwise simple transaction of export of mobile phones where the goods are transported directly from the premises of vendor to the airport, the department objected to refund on e-way bill issue. The phones were purchased through sister-concern by the exporter. CGST officers contended that e-way bill was not produced at the time of search of the premises and address in the e-way bill was different. When the vendor generated e-way bill, it was bound to be so - but this appears to be clear of harassment. GST authority insisted and Customs authority detained the goods which were about to be exported. Fortunately, better sense prevailed and the Customs authorities later cleared the goods for export. But in the drama, IGST refund was withheld and the exporter had to invoke the jurisdiction of High Court by arguing that the proper officer for export refund is Customs authority though proceedings for scrutiny of refund of IGST paid on export made were initiated by CGST officers.

 

The High Court could not find any ambiguity in respect of the export except the wrong declaration of address in export invoice / shipping bill. It accepted the contention and held that Customs authority is the proper authority for taking up the issue in case of doubt regarding export goods. Petitioner was held as entitled to refund along with interest. However, the order also directs completion of investigation early and refund to be credited to petitioner's account if no violation is found. There can hardly be any solution to man's avarice as most of these cases have genesis in corruption [2023-VIL-80-GUJ]

 

Single-line SCN not served but registration cancelled - High Court orders restoration

Number of registrations cancelled may exceed the number of registrations granted. The pace at which and the reasons (or absence of) for which cancellation is undertaken, are shocking. In a typical case of cryptic single line show cause notice, High Court has ordered show cause notice be re-issued even while directing restoration of registration. The dispute was over non-receipt of SCN. The department argued that it was sent by registered post but acknowledgment receipt was not on the record. The High Court further noted that at the time of spot visit by the officers the business premises was stated as closed but the authorities did not upload the report along with photo as required under the provisions within the prescribed period. In this case, before passing order on cancellation, personal hearing was not granted. The order did not mention any reason for cancellation. According to the High Court, orders should be served by two modes - e-mail and RPAD. Not satisfied with the proof of service of SCN, the impugned order was quashed. Issuing one-line notice is a mistake. Failure to properly serve the notice on the taxpayer is another mistake. Cancelling registration without even hearing the taxpayer is a blunder surpassing the above mistakes. It is not known where officers get trained to work so inefficiently [2023-VIL-79-GUJ].

 

Readers may see another order where only based on summary of SCN, order was passed. This has not been approved by the High Court holding that summary of SCN is not sufficient and order passed without proper SCN is not sustainable. This is despite the taxpayer filing reply to such summary of SCN [2023-VIL-86-JHR].

 

Provisional attachment is harsh and not to be used as a tool to harass the assessee

The title is something used by authors in columns like the present one. However, this is from a recent order of High Court. In a case of provisional attachment of bank account, the High Court held that power under Section 83 of CGST Act is serious and harsh in nature and it should not be used as a tool to harass the assessee nor should be used in any manner that it may have irresistible detrimental effect on the business and the authority must ensure that the action does not affect the business activities of the taxable person. The case related to purchase of goods from a person who was under the scanner for availing ITC without receipt of goods - this means he could not have supplied goods but only invoice to his customer (petitioner) as well. While taking note of the facts on attachment of bank account to protect the interest of revenue as the petitioner could not offer any other security and ITC availed was based on fake invoices, it directed lifting of attachment but instructed the bank to restrict operation of the account to the extent of tax amount and after getting bond for the balance amount [2023-VIL-83-GUJ].

 

The order is reasonable as it seeks to balance the interest of both the taxman and taxpayer. Section 83 may be considered for an amendment so that freezing of bank account or attaching any other property should be restricted to estimated or alleged liability and encumbrance should not be placed on the entire value of the property. It is fashionable to use terms like "decriminalization" but the provisions provide ample scope for misuse leaving the taxpayers vulnerable to authoritarian action of the tax authorities.

 

Transitioning VAT TDS to GST - High Court upholds taxpayer's right

Transition to GST regime was hailed as a Herculean task but transitioning credit into GST may defy all description. The department is quite clear that assessees have no such right and summarily denied that same through a non-speaking order. The High Court, in yet another case, has stepped in to reiterate that the issue has been decided in DMR Constructions v. Assistant Commissioner reported in 2021-VIL-208-MAD and TDS credit under TNVAT Act was eligible to be transitioned to GST once it was available as credit under the earlier regime. The judgment referred elaborately discuss that a sum deducted as tax gets such character and if so, credit cannot be denied in the new regime [2023-VIL-95-MAD].

 

When it comes to safeguarding revenue, the department is undaunted as it sought review of the order passed by the Single Judge Bench holding that credit of VAT TDS would be available for transition to GST. The review petitions were dismissed stating that the department was trying to re-agitate the same issue which was raised and considered in the original round of litigation and if the department is aggrieved, then review is not the appropriate remedy. It referred to jurisprudence on the scope of review proceedings and could not see any merit in the applications before it [2023-VIL-90-MAD]. In various High Courts, this issue is now being repeatedly raised and the GST Council may recommend issue of clarification in favour of taxpayers sooner.

 

Mechanical defect, presumptions and automatic penalty

E-way bills expire but tax issues arising out of e-way bills may never expire. In yet another case of mechanical break down and expiry of e-way bill, the High Court held that since the assessee did not produce proof of breakdown and did not make any effort to extend the e-way bill, the authorities were entitled to impose tax and penalty. The taxpayer contended that the destination was Guwahati (in Assam) and just because the vehicle broke down in Jalpaiguri(in West Bengal), tax cannot be collected by a State which was not the destination State. However, the tax department argued that the State in which the vehicle was found led to the presumption that it was the destination State and tax and penalty was to be collected by West Bengal [2023-VIL-91-CAL]. Last week, in Tax Vista, an order of the same High Court holding that the department is required to inform the taxpayer about the right to extend validity of e-way bill was mentioned [2023-VIL-72-CAL]. Unfortunately, in the present case, the petitioner could not succeed. Absence of intent to evade payment of tax has been argued but the Court has not accepted the same.

 

Refund of EDD - Strange arguments by Department before High Court

If related party transactions, SVB investigations, etc., are painful, even more painful is obtaining refund of amounts paid in excess after finalization of such assessment. Refund of extra-duty deposit (EDD) was sought by the importer after such finalization. While refund was granted, part amount was rejected on the ground of unjust enrichment. Commissioner (Appeals) allowed the appeal by the importer accepting the contention that unjust enrichment is not applicable to refund of such deposit. The department went into slumber and the importer requested for refund as per the appellate order. Because the department woke up from slumber, it said the request for refund would be treated as new application and the same was hit by time-bar. The department argued before the High Court that the importer has appellate remedy and further, they did not cite or rely on the Supreme Court's order extending time-limit for various compliances due to Covid. The High Court held that the request was to implement the order and the same was not an application for refund under Section 27 of Customs Act and therefore, question of limitation did not arise. After observing that the Apex Court order extending time-limit was not applicable in the present case, it said that the authorities are bound to follow such order even if the same is not referred by the party. Refund along with interest was ordered by the Court [2023-VIL-87-DEL-CU].

 

The practice of not following Court orders is rampant in the tax department. The contempt of the authorities in ignoring binding judgments by artificially distinguishing them or without even distinguishing them has to be reined in. CBIC should issue instructions that disciplinary action would be initiated against officers who determine issues and decide disputes ignoring binding precedents. But, CBIC will be more interested in taking action against officers who pass orders favourable to taxpayers.

 

 

(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. He edits R.K. Jain's GST Law Manual. E-mail - gokulkishore@gmail.com)