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Tax Vista Your weekly tax recap Edn. 10 - 24 August, 2020 By Dr. G. Gokul Kishore |
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Preferential rate of customs duty under trade agreements - Rules on "Rules of Origin" notified
This year, by Finance Act, 2020, new Section 28DA was inserted in Customs Act, 1962. The new chapter is titled "Administration of Rules of Origin under Trade Agreement". The statutory regime governing claim of preferential rate of customs duty when goods are imported from specified countries as per Preferential Trade Agreement(s) has been made stringent by such specific and elaborate provision. To supplement this, relevant rules called Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR, 2020) have been notified now by Notification No. 81/2020-Customs (N.T.) dated 21-8-2020 which will come into force from 21-9-2020, providing time for transition.
CBIC Circular No. 38/2020-Customs dated 21-8-2020 informs that these rules aim to supplement the operational certification procedures related to implementation of rules of origin as notified under respective PTA / FTA/ CEPA. CAROTAR specify mode of claiming preferential rate, possession of origin related information by the importer, calling for information and documents by Customs authorities from the importer, request for verification of certificate of origin by Customs authorities and the like. As global economy is passing through a rough phase, implementation of such rules is also expected to be equally stringent since Section 28DA itself states that mere submission of certificate of origin will not absolve the importer of the responsibility to exercise reasonable care (regarding truth and accuracy).
Deferred payment of customs duty - Authorized PSUs eligible
Authorized public sector undertakings will be entitled to the benefit of payment of customs duty on deferred basis as provided under Deferred Payment of Import Duty Rules, 2016. Notification No. 78/2020-Customs (N.T.) dated 19-8-2020 issued to amend the rules inserts "Authorized Public Undertaking" in the list of eligible class of importers for such facility. Already, importers covered under AEO (Tier-Two) and AEO (Tier-Three) enjoy this facility. Circular No. 37/2020-Customs dated 19-8-2020 issued by CBIC covers government companies for this facility and it prescribes conditions but the same refers to permission from specified Principal Commissioner / Commissioner even as Rule 4 on furnishing intimation with jurisdictional Commissioner to avail such facility in the port of import has been omitted.
Anti-profiteering - No penalty in cases before introduction of penalty provision
The National Anti-profiteering Authority (NAA) has held that during the period when the taxpayer violated Section 171(1) of CGST Act (i.e. not passed on the benefit of tax rate reduction or increased ITC), penalty provisions were not in existence in CGST Act since Section 171(3A) providing for penalty was inserted later with effect from 1-1-2020, penalty proceedings were not maintainable. It is almost routine in all the notices issued by DGAP / NAA, penalty is proposed under Section 122(1) which pertains to not issuing invoice or issuing incorrect invoice so as to evade tax. The reasoning adopted by NAA is that profiteered amount is not "tax" and therefore, such provision is not applicable to anti-profiteering cases [Varun Goel v. Eldeco Infrastructure - 2020-VIL-63-NAA].
Generally, NAA's orders are perceived as not taking into account business or commercial realities and strict interpretation of law is adopted and therefore, in majority of orders, no relief is provided. The present order on penalty is a departure and should provide some relief to taxpayers.
Detaining same goods and vehicle twice - High Court takes strong note
Detention and seizure of goods and vehicles frequently and without discretion, is being mentioned in this column almost every week. Every case discussed highlights the manner in which such powers should not be used. In a recent case, for carrying wrong documents i.e. e-way bill and invoice of another vehicle and consignment, a particular lorry and goods were detained. The mistake was explained by producing the correct documents and the tax and penalty were also paid when the vehicle and goods were detained. The proceedings should have got concluded at this point. However, the department started investigating the genuineness of the transactions undertaken by the supplier and entertained doubts. The very same lorry and goods were again detained.
The High Court was not impressed by the elaborate submissions on the investigation made and suspicion of the department that fictitious supplies were being made to facilitate availment of fraudulent input tax credit. It held that the department had initiated action under Section 67 of CGST Act which mandated authorisation in the form GST INS-01 by an officer of particular rank for inspection and search (GST INS-02) but the same were absent in this case. The goods were perishable in nature and the Court noted that Rule 141 of CGST Rules provided for immediate release of such goods on payment of market price or tax, interest and penalty. The High Court allowed the petition and ordered release of the vehicle and goods after observing that the conduct indicated lackadaisical attitude of the department and it has to put its house in order [Shri Venkateshvara Logistics Fleet Owners v. Asst. Commissioner - 2020-VIL-393-KAR]. The High Court has also rejected the department's argument on absence of locus standi for the transporter to file the writ petition since the vehicle is that of the transporter, such carrier is the bailee and is also empowered to generate e-way bill and recover demurrage and other expenses.
The enthusiasm exhibited in curbing evasion should be channelised so that extreme powers are exercised with great caution and only to the extent they are absolutely necessary. Meticulous strategizing is requiring right from cultivation of source (informer) to appropriately developing the intelligence if the departmental sleuths wish to book a strong case against an alleged evader. Otherwise, the officers have to cut a sorry figure before the Courts as this case reveals.
An elaborate order dealing with Section 67 and other provisions relating to simultaneous conduct of audit and investigation, power of the department to obtain cheque during investigation, attachment of bank account, etc., may be seen in the case of Suresh Kumar P.P. v. Deputy Director, DGGI - 2020-VIL-383-KER. The Court did not accept the petition alleging high-handed action and extortion by the department.
Natural justice - Quite unnatural for adjudicating authorities
In Tax Vista dated 10-8-2020, order passed by Patna High Court setting aside adjudication order passed even before the time provided for filing reply to show cause notice and without hearing the taxpayer was mentioned. Certain measures including training of officers vested with adjudication responsibilities were highlighted.
In yet another instance, Karnataka High Court has quashed adjudication order passed without hearing the taxpayer. The order was passed under Section 129(3) of CGST Act which is consequent to seizure of goods and / or vehicles. This provision itself requires affording opportunity of hearing before passing order. But the adjudicating authority appears to have acted with the same speed of detention and seizure in imposing penalty also. In this case, the High Court has also noted that documents not mentioned in the notice have been relied in the order and the taxpayer was not provided opportunity to cross-examine witnesses or produce additional documents. The High Court has directed the authority to consider the matter afresh after providing sufficient and reasonable opportunity to the taxpayer [Thoppil Agencies v. Asst. Commissioner - 2020-VIL-391-KAR]. Similar order can be seen in the case of CSK Realtors Ltd. v. Asst. Commissioner [2020-VIL-382-TEL] wherein the adjudicating authority passed the order without hearing even though the same was specifically requested by the taxpayer.
While the first lesson in justice delivery process is following the principles of natural justice, it is quite unnatural for many officers passing orders. If a basic rule like providing opportunity of hearing to the person concerned before imposing penalty is not understood or followed, the expenses incurred in litigating the matter in High Court should be recovered from such authority passing the order and paid to the harassed taxpayer.
Assessment order - Deemed withdrawal not available when return not filed in 30 days
Section 62 of CGST Act / SGST Act provides for best judgment assessment by the departmental officer if returns have not been filed by the taxpayer even after service of notice. If the return is filed within 30 days of receipt of such assessment order, it is deemed as withdrawn. The taxpayer filed the return beyond 30 days and contended that there was delay in receipt of assessment order and sought High Court's intervention to provide deemed withdrawal benefit. However, the High Court noted that service of order through the portal is one of the statutorily prescribed modes and the date of filing of return was beyond 30 days of the order being placed in the portal and therefore, such benefit of withdrawal of the order cannot be granted. It held that remedy can only be filing of appeal and directed the appellate authority to consider the appeal within two weeks [Pee Bee Enterprises v. Asst. Commissioner - 2020-VIL-384-KER].
While in this case the order was also sent through post and e-mail, in several cases, department initiates action based on placing of order or notice in the portal. In many such instances, taxpayers are not aware of service of notice or order by this mode. The department should invariably send the notice or order by speed post with acknowledgement due besides sending the same to registered e-mail address also.
Residential renting in industrial area - Exemption not available
Renting of residential dwelling for use as residence is exempted from GST under Notification No. 12/2017-Central Tax (Rate). The notification does not define the term "residential dwelling" and therefore, common parlance is taken into account. There is a view that permission under municipal / local laws or the development authority at the time of construction of building will be relevant to determine whether a building is covered under "residential dwelling" or otherwise. Considering the grey area, the taxpayer had sought advance ruling in the case of building taken on lease from the owner and given on sub-lease for use by employees of the company as residential quarters. The ruling was not in their favour and appeal was filed with Appellate Authority for Advance Rulings (AAAR).
Before the AAAR, the appellant sought to distinguish short term guest house accommodation vis-à-vis relatively longer term renting as residential quarters as in the former case, it would be like hotel accommodation whereas in the latter, monthly rent along with charges for certain amenities were recovered and food or housekeeping facilities were not provided. It was further argued that the use of the flat is only for use as residence by staff and cannot be used for office or seminars or other commercial activity.
The AAAR noted that the agreement between the owner and the appellant did not mention the type of building given on rent. Based on this fact, it presumed that the building was not suitable for use as residence but the fact that the building stood on land allotted by industrial development board and such allotment is for industrial projects only was further relied on. The sub-lease agreement between the appellant and the sub-lessee mentioned sub-leasing of flats for residential purposes. However, it noted that non-residential premises taken on lease continued to be non-residential on sub-lease also and therefore for this leg also, the AAAR held that exemption would not be available as residential dwelling [Sri DMS Hospitality Pvt. Ltd. - 2020-VIL-45-AAAR].
Till the time the term "residential dwelling" is defined in the notification, this issue is likely to be agitated before various fora. Many of the premises taken on lease by companies and given to employees for use as residence are perceived as not eligible for such exemption by the department. While taxpayers lay emphasis on use of the premises as residence, the authorities adopt some ground or the other to exclude the transaction from exemption.
Intermediary - The eternal battle
Intermediary service is mostly controversial from GST perspective. The stand of the department has been to consider market research or similar activity as promotional in nature. When the person undertaking such activity is in India and the recipient is located outside India, by classifying the same under intermediary service, place of supply being in India, benefit of export of service is denied.
The appellant before the Appellate Authority for Advance Rulings (AAAR) contested the advance ruling and argued that he was providing market research service to the US company and the same amounted to export of service as the prescribed conditions were satisfied. However, the AAAR held that the appellant was giving sales presentations to prospective customers and was facilitating sale of goods by the US company and he was not engaged in sale of the goods on his own account and therefore, his service was one of intermediary.
In this case, the appellant was providing services as independent sales manager but receiving compensation on monthly basis from the US company and he was also reporting to another sales manager overseas. It is not clear as to the terms of engagement. Had the appellant been engaged as employee, this transaction might have been tax efficient [Rajendran Santhosh - 2020-VIL-41-AAAR].
Land related passbook - AAAR upholds classification under Heading 4820
Heading (HSN) 4820 of Customs Tariff (as applicable to GST) pertains to accounts books, note books, registers and other articles of stationery. Heading 4907 covers cheque books, stamp papers and other documents of title. Documents of title have far higher fiduciary value than their intrinsic value. The appellant was before Appellate Authority for Advance Rulings (AAAR) being aggrieved by advance ruling that "Pattadar Passbook cum Title Deed" would be classifiable under Heading 4820. The AAAR upheld the advance ruling.
The item in question is issued under Telangana Record of Rights in Land Pattadar Passbooks Act, 1971 (as amended). The appellant is a service provider who prints such passbooks based on the content provided by the State authorities. It is stated that such printing is secured one i.e. it seems the passbook contains security features. The appellant contended that such passbook is a document of title as every transaction of transfer like purchase, sale, mortgage, etc., is required to be entered in this passbook mandatorily by the respective officer and it evidences all transactions in respect of a particular land since even loans granted, repaid, etc., are required to be recorded. Based on certain judgments, the appellant argued that document of title is presumptive in nature and such pattadar passbook provides the presumption as to title and therefore, the same would be document of title. Chapter Notes to Heading 4820 excludes those goods where printing is not merely incidental to primary use of the goods and it was contended that in the case of passbook, printing cannot be considered as incidental.
The AAAR held that the passbook is a document containing details of land owned by a person and the entries in such passbook are based on Record of Rights and the objective was to treat it as evidence of ownership for loans. Such passbook has only evidentiary value and does not have fiduciary value and therefore, it is not document of title. But the conclusion on classification under Heading 4820 is rather abrupt. Though mentioned in the initial portion, there is no discussion as to whether such printing by the appellant using own materials based on the content supplied by the principal will be considered as job work service and applicable classification and rate in respect of service would be applicable [Manipal Technologies - 2020-VIL-47-AAAR].
If blank cheque books are classifiable under Heading 4907, it is not understandable as to why the passbook in this case would not be covered under the same. May be, both the appellant and the AAAR laid more emphasis on "document of title" instead of throwing light on the entries in 4907. Heading 4820 pertains only blank stationery which can be used by anybody and it does not require validation / execution and does not contain any security feature either unlike cheque books.
(The author is an Advocate practising independently. The views expressed are personal)