Tax Vista Your weekly tax recap Edn. 140 - 20th February 2023 By Dr. G. Gokul Kishore

 

 

GST Council Meeting - Late fee cut for annual return but no clarity on GST Tribunal

The GST Council in its meeting held last week (19th February, 2023) did not make any major recommendation. Even the much-awaited recommendation on GST Appellate Tribunal is couched in bureaucratic language by stating that the Council adopted the GOM's report on this issue and the final draft will be circulated among the Members and the Chairperson has been authorized to finalize the same. If some of the Members have certain reservations with the final draft of the to-be-amended provisions on GST Tribunal, the Chairperson will have no choice but to postpone the same for discussion in the next meeting. It is also not clear as to what the GOM said in its report. While all along the draft laws made by bureaucracy were self-serving, the present round of dispute appears to be between Central bureaucracy versus State tax administration.

 

An important taxpayer friendly measure recommended in this meeting is reduction of late fee in respect of delay in filing annual return for taxpayers with turnover upto Rs. 5 crores and those with turnover more than Rs. 5 crores but less than Rs. 20 crores. Conditional waiver / reduction in late fee for pending annual returns is also mentioned in the press release and notifications need to be referred for details. Another significant decision relates to extension of time-limit to seek revocation of cancelled registration from the present 30 days to 90 days and extendable by Commissioner upto 180 days.

 

For certain tobacco products, like in the Central Excise regime, tax levy based on production capacity of machines was considered but the same was found to be not implementable (apparently provisions do not support). A major change will be shift from ad valorem rate to specific rate of compensation cess for such products.

 

Refund cannot be denied based on checks not mandated by law

For every refund claim, taxpayers have to be prepared for a long struggle. In a case apparently relating to export on payment of tax and refund of unutilized input tax credit, refund was granted by the adjudicating authority. But department filed appeal before first appellate authority on the ground that since vehicle numbers mentioned in two invoices were not found in e-vahan portal, other invoices were also not reliable. However, the appellate authority found the vehicle numbers in the portal but went off the track by holding that the taxpayer did not provide e-vahan details or other evidence for receipt of goods covered in other invoices. The order-in-appeal contains a classic statement -"Merely filing of returns, GSTR-2A, Statement-3, Shipping Bills date, EGM details, etc., for claiming refund of unutilized ITC is not enough to prove bona fide."

 

The taxpayer was before the High Court and the Court queried as to the provision in GST law which requires providing e-vahan details for claiming ITC / getting refund, the department had no answer. The High Court held that when the appellate authority found the review order of the department to file appeal was premised on erroneous finding, he should have rejected the appeal but without any tangible finding, rejection of refund was not correct. The Court ordered refund as originally sanctioned in 2019 but the order is silent on interest for making taxpayer wait for three years [2023-VIL-103-DEL].

 

The ground adopted to reject refund may appear to be innovative but when the same is not backed by law, the action is patently illegal and the officer should be taken to task for demanding something which is not provided in law. There is no harm in use of third party websites and other sources but when the same is used without legal sanction, it becomes a plain case of harassment.

 

GST under both RCM and FCM - Denial of refund on revenue loss is not correct

Right from early days of Service Tax to the present day GST, goods transportation service has been under reverse charge mechanism. In GST, to recognize large players in the logistics sector, forward charge option has also been provided. In a particular case, the taxpayer was using both RCM and FCM registrations and by mistake, certain amounts were paid in the electronic cash ledger pertaining RCM while the same was meant for FCM. Refund of such erroneously paid amount was sought after payment of the amount in FCM. It appears the adjudicating authority rejected the refund on the ground that the taxpayer had availed excess ITC by having two registrations with same PAN, same principal place of business for both the registrations and books were maintained commonly the same premises besides bank account being common. The High Court noted that show cause notice did not contain such charges and the adjudicating authority did not consider reply of the taxpayer but rejected the refund on grounds which were not part of the SCN. The Court held that proper SCN was not issued and hearing opportunity was also not granted. SCN and the orders were quashed. The department was granted liberty to proceed afresh but if the same is not done, refund was directed to be given [2023-VIL-113-JHR].

 

The above order clearly points to lack of understanding on how to conduct quasi-judicial proceedings by departmental officers. If the authority deciding SCN finds there is revenue loss due to certain practices adopted by the taxpayer, then he should instruct the officer concerned to look into separately and not decide the present SCN based on his fears and hallucinations. While vesting judicial functions with bureaucracy is indispensable, the shortcomings must be addressed by creating separate hierarchy within the tax administration for such quasi-judicial work as repeatedly highlighted in this column.

 

Demanding Rs. 10 crores without hearing - High Court directs fresh consideration

GST department believes that for demanding tax of Rs. 10 crores, show cause notice is sufficient and hearing the taxpayer is not necessary. While hundreds of orders are passed without hearing routinely, a recent order stands out - the taxpayer, at the time of filing reply to SCN online, had put a tick-mark against "No". The GST department is very responsive to taxpayers and therefore, it was thought that taxpayer himself had waived his right to be heard. The SCN uploaded online contained "NA" against date of personal hearing, time of hearing and venue. The High Court held that when an adverse order is contemplated, hearing is mandatory as per Section 75(4) of CGST Act and in particular, when the order creates huge civil liability, minimal opportunity of hearing must be given [2023-VIL-114-ALH].

 

Readers may get bored to see such litigation as most of the cases are fought on violation of principles of natural justice - no hearing before passing order, non-consideration of reply, order passed on a ground different from the one in SCN, etc. Till the time, GST Appellate Tribunal is established and jurisprudence on core issues emerges, one has to be content with such issues.

 

Limitation cannot limit right to seek revocation of registration

In a well-reasoned order tempered with justice-oriented approach, the Bombay High Court held that the petitioner cannot be denied a remedy just based on strict interpretation of law and inability of Commissioner to condone delay in filing appeal. It opined that small entrepreneurs like the petitioner deserved a chance to reengage in business in the background of Covid induced financial downturn and petitioner's own health issues. It held that denying revocation of registration would not be in ultimate interest of the State and interfered with the petitioner's right to carry on business [Article 19(1)(g) of the Constitution]. The GST department had cancelled registration since returns were not filed and also held that appeal had been filed beyond condonable period.

 

Regarding limitation in filing the appeal under Section 107 of Maharashtra GST Act, the High Court held that objective is to terminate the lis and not to divest a person of the right vested in the assessee (petitioner) by efflux of time. The Court said -"Since it is merely a matter of cancellation of registration, the question of limitation should not bother us since it cannot be said that any right has accrued to the State which would rather be adversely affected by cancellation." The Court restored the registration and directed payment of dues. It is because of such Constitutional Courts emphasizing Constitutional provisions over laws like CGST Act / MGST Act and coming to the rescue of small taxpayers, faith of public in judiciary remains intact despite pendency and other issues [2023-VIL-117-BOM].

 

E-way bill not generated by under-valuation - High Court takes a serious view

While many orders show highhandedness of the GST authorities, some highlight the ingenuity and innovative tactics of taxpayers. The petitioner claimed based on tax invoices that the value of consignment - pan masala and tobacco was below Rs.50,000 and hence e-way bill was not generated. Non-production of tax invoice was attributed to mistake of driver, and value being reported as hardly one-tenth of MRP (even after discount) was explained as a market penetration price offered by the assessee who was new in business. However, the High Court was not impressed and declined to interfere with the order detaining the goods and imposing tax and penalty. It said -"It is only to protect small trade where the value is minimal that the necessity of downloading E-Way bill is dispensed with by the Government. The purpose of dispensing E-Way bill for the goods below Rs.50,000/- does not allow the dealer to undervalue his goods so as to escape it from bringing to the notice of the Government and the Taxing Authorities by uploading the same on the Web-Portal." The Court took note of the fact that the taxpayer had, in the past also, never generated e-way bill (on the ground that value was less than Rs. 50,000) and held that such conduct of intentionally evading tax cannot be permitted. Such conclusion was fortified by the fact that one of the buyers of such tobacco products (consignees) was works contract provider [2023-VIL-105-ALH]

 

Lack of intention to evade is not a bar on application of Section 129

The assessee-petitioner agreed that he had erred in not filing up Part B of e-way bill and Section 129 of CGST Act was applicable in his case. However, he disputed the quantum of penalty contending that there was no intention to evade tax. The High Court held that intention to evade is not one of the ingredients for applicability of Section 129 and tax authorities are not required to prove intention to evade tax. According to the Court, Section 129 has been enacted to check evasion of tax. Surprisingly, the order says that the taxpayer did not deny payment has been made under Section 129 and since proceedings have been concluded, impugned order cannot be disturbed. Though Section 129 may not expressly contain the terms on intent to evade, the quantum of penalty certainly indicates that such requirement is required to be read into the provision. The presumption is that when such provision is not complied with fully, evasion is possible [2023-VIL-104-P&H]

 

 

(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)