Tax Vista Your weekly tax recap Edn. 12 - 7 September, 2020 By Dr. G. Gokul Kishore

MEIS guillotined with sunset date and cap

Merchandise Exports from India (MEIS) Scheme has become the first export promotion scheme to become the victim of Covid-19 induced financial crisis of the Central Government. By DGFT Notification No. 30/2015-2020 dated 1-9-2020, the scheme itself is being axed from next year. This means MEIS benefit will not be available for exports made after 1-1-2021. For exports made between 1-9-2020 and 31-12-2020, the benefit has been capped at INR 2 crore per IEC holder. Exporters who have not made any export between 1-9-2019 and 31-8-2020 (LEO date) and those who have obtained new IEC after 1-9-2020 will not be eligible for MEIS benefit.

Exporters are not generally bothered about allocation of funds for a particular scheme but the present notification warns them that even the ceiling of INR 2 crore may be reduced so that total claims do not exceed INR 5000 crore allotted by the government. MEIS scheme has been on the chopping block being held as WTO-incompatible and for textile sector (garments and made-ups), alternative scheme of RoSCTL (Rebate of State and Central Taxes & Levies) has been implemented. But, the migration to new scheme of rebating the embedded taxes and levies was to happen in a phased manner. It appears there is a major resource crunch and hence, the agony has been passed on to the exporting community.

Accumulated cess credit - Tribunal allows cash refund

On implementation of GST, credit of Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess which remained unutilized could not be transitioned and the assessee filed a claim seeking refund of the same. Refund claim was rejected on the ground that there was no provision to carry forward these cesses to GST regime, there was no provision to refund such credits and therefore, they would lapse. Appeal was filed by the taxpayer with CESTAT.

Relying on Supreme Court judgment in Eicher Motors v. UOI [1999-VIL-04-SC-CE], the Tribunal held that credit earned was a vested right and it will not get extinguished unless there was a specific provision for lapsing of credit. It held that in GST law, there is no provision for lapsing of such credit and appellant will not lose valuable right on sudden change in law. It chose to follow the much-followed Karnataka High Court judgment in Slovak India Trading [2006-VIL-53-KAR-CE] and held that cash refund of cesses lying as credit balance as on 30-6-2017 will be available. The High Court judgment was on grant of refund of unutilised Cenvat credit when factory was closed [Bharat Heavy Electricals Ltd. v. Commissioner - 2020-VIL-402-CESTAT-DEL-CE].

The reasoning of the Tribunal to order cash refund appears to be three-folded: (1) there is no provision in CGST Act to lapse pre-GST credits; (2) there is no provision to bar such refund and (3) impossibility of use of credit in the nature of vested right. First ground and the third are plausible but the second one seems to be weaker. For granting of refund of unutilised credit, there should be a statutory backing at the first place. The relevant notification issued under Rule 5 of Cenvat Credit Rules, 2004 does not cover the present situation as it catered to only accumulation arising out of exports and the same was governed by the formula prescribed. In the CGST Act, Section 142(3) provides for cash refund arising out of pre-GST laws if the same is held as eligible and it overrides effect of any provision to the contrary in the pre-GST laws except Section 11B(2) of Central Excise Act. This provision of Central Excise Act covers refund of credit as per rules and notification issued and therefore, such notification issued under Rule 5 of CCR, 2004 would prevail in such a scenario. The issue is certain to be carried to High Court by the department and we need to wait for an authoritative pronouncement. High Courts are courts of equity and justice and they may grant relief like cash refund even in the absence of provisions or by adopting purposive interpretation of available provisions.

Appeal under GST - Time-limit starts from date of uploading of order in portal

As GST law mandates service of notices and orders through electronic mode, the department uploads notices and orders in the GST portal and many taxpayers are not aware of the same and later get this surprise when subsequent action is taken. In a case before Gujarat High Court, the department was at the receiving end in case of electronic service of orders. Refund was claimed on supplies to SEZ and the same was granted in part. In respect of the portion rejected on the ground of absence of endorsement on invoices, appeal was filed manually. This appeal was rejected by the appellate authority as hit by time-bar. The taxpayer argued before the High Court that the impugned order was not made available electronically in the GST portal and therefore, appeal could not be filed electronically. In the absence of prescription of any other mode, the appeal was filed manually.

The department contended that non-uploading of impugned order in the portal and electronic filing of appeal were different processes and the petitioner had details of adjudication order for filing appeal. The High Court noted that mode other than electronic has not been prescribed for filing appeal and though physical copy of adjudication order was handed over to petitioner, the time period for filing appeal would start only when the order has been uploaded in the GST portal. It held that filing of appeal and uploading of order are inter-twined and impugned order is required to be uploaded online for filing of appeal electronically. The impugned order was set aside and the appellate authority was directed to consider the matter afresh [Gujarat State Petronet Ltd. v. UOI - 2020-VIL-426-GUJ].

In November, 2017, new rules were inserted in CGST Rules for manual filing of refund claims, advance ruling applications, etc. But no such rule was inserted in respect of appeals and therefore, the e-filing of appeal appears to be the only prescribed mode. But the order of High Court is surprising as it appears the petitioner had copy of impugned order and yet the appeal was filed after delay. It seems that the delay in filing of appeal was due to technical glitches in the portal in accepting e-appeals but the order does not contain such fact. Considering the technological hiccups in the initial years and efforts taken by the petitioner, the High Court order should provide some relief.

Refund of unutilised ITC available to SEZ unit

Refund of unutilized input tax credit was claimed by SEZ unit but the same was rejected by the department. The credit was stated as received based on invoices issued by Input Service Distributor (ISD) and such ISD was under obligation to distribute credit to SEZ unit also. Aggrieved over rejection of refund, writ petition was filed in High Court. The Gujarat High Court held that though the rules provided for claim of refund to be filed by supplier only, refund of such ITC would be admissible to the recipient-SEZ unit in this case since there is no supplier but only ISD is involved. It followed earlier judgment in Amit Cotton Industries [2019-VIL-315-GUJ] after taking note that in that case Rule 96 was involved whereas in the present case, Rule 89 of CGST Rules is involved whereby refund claim shall be filed by supplier of goods or services to SEZ unit [Britannia Industries Ltd. v UOI - 2020-VIL-427-GUJ].

Obtaining refund from the government is difficult and when the provision is either absent or not clear, refund can be considered as ruled out. An appeal by the department and / or amendment to the provisions may provide clarity to such issues as Rule 89 refers to refund claim by supplier in respect of supplies to SEZ unit or SEZ developer and does not expressly cover refund claims by SEZ units.

Provisional attachment - High Court expresses strong displeasure

One of the draconian provisions carried forward to GST law relates to the power to attach property including bank account of the taxpayer on provisional basis pending any proceeding. Even before a person is adjudged guilty, punishment in the nature of attachment (though provisional) can be imposed as per Section 83 of CGST Act. Section 83(2) states that provisional attachment shall cease to have effect after expiry of one year from the date of such order. The intention of the lawmakers is to ensure that the taxpayers do not suffer endlessly and the proceedings are completed within one year in such cases.

In a case before Allahabad High Court, the petitioner argued that provisional attachment order was passed on 6-9-2019 restricting use of bank account but the same has not been lifted after almost one year and no order demanding tax has been passed. There was certain dispute over registration and subsequently, cancellation of registration was also revoked by the department but the attachment was not lifted. After taking note that provisional attachment survives for one year only as per Section 83(2), the High Court, by order dated 1-9-2020, ordered the department to pass order fresh order. But such order was passed after expressing strong displeasure over the conduct of the department. The Court observed that absence of instructions to the departmental counsel reflected poorly on the functioning of the department and failure to assist court delayed adjudication and harassment of assessee [Jackpot Exim Pvt. Ltd. v. UOI - 2020-VIL-422-ALH]. Ease of doing business is a meaningless jargon when taxpayers are prevented from doing business due to inaction of the tax authorities.

A similar order revealing disappointment of the Court can be seen in the case of Vishnu Enterprises v. Joint Commissioner [2020-VIL-419-BOM]. In this order dated 31-8-2020, Bombay High Court noted that by its order passed in February, 2019, the taxpayer was permitted to file return but the same not accepted by the system and the department did not seek modification of earlier order but has now sought time. It observed that filing of return is not a one-way affair and department has to accept the same. It directed the department to amend the system to accept the return or otherwise allow manual filing.

Prosecution - Onerous bail condition not sustainable

As one comes across several instances of arrest of certain persons for alleged GST evasion, bail petitions are also on the rise. But in a rather sober case, the alleged evader has been in jail for almost one year only because the conditions imposed for grant of bail were onerous. In an order providing some relief, the Punjab & Haryana High Court, by order dated 21-8-2020, allowed the petition and modified the lower court's order. The lower court had ordered furnishing of bail bonds of Rs 50 lakhs with surety and also payment of the amount of tax alleged as evaded along with interest. The tax amount was around Rs. 1.94 crores.

The High Court noted that the judgments relied upon by the lower court were modified by the same Bench on subsequent occasions The Court took note of the Supreme Court judgment in Sreenivasulu Reddy v. State of Tamil Nadu [2000 (2) CCR 96] wherein it was held that direction to deposit Rs. 35 crores out of Rs. 50 crores by bail order should not be a condition which would lead to effecting recovery from the accused. The High Court further observed that GST law contains provisions whereby sufficient remedies are available to the department to recover the dues by other modes. It held that order placing condition to pay the alleged tax amount would amount to recovery of the amount and the same was not sustainable [Ranjit Singh v. State of Haryana - 2020-VIL-420-P&H].

Prosecution is intended to punish the offender and not, per se, recover the dues from such offender. This is the reason that adjudication /assessment proceedings and prosecution proceedings are considered as separate and independent as the former is intended to recover the tax dues with attendant interest and penalty while the latter is meant to meet out punishment by way of imprisonment with fine. The above said order, in effect, reiterates that criminal prosecution in tax evasion cases cannot be considered as a mode to recover the tax dues.

(The author is an Advocate practising independently. The views expressed are personal)