Tax Vista Your weekly tax recap Edn. 21 - 9 November, 2020 By Dr. G. Gokul Kishore

GST authorities not empowered to block IEC

Due to concern over possible evasion on suspicion of passing input tax credit without supply of goods, provisional attachment of bank account is frequently resorted to, by the department these days. In one such case, bank account of wife of the taxpayer was also attached provisionally under Section 83 of CGST Act. The Bombay High Court did not approve of provisional attachment of such account as she was not a "taxable person" and such attachment can only be with respect to bank account of the taxpayer ("taxable person").

In this case, investigations relating to claim of export benefits were underway and therefore, the GST authorities had blocked Importer-Exporter Code (IEC) of the petitioner. The High Court held that as per Section 8 of Foreign Trade (Development and Regulation) Act, 1992, DGFT or his authorized officer alone can suspend or cancel IEC and GST authorities are, prima facie, not empowered to undertake such action. It held that such blocking would be unauthorized and without jurisdiction. It is a tight-rope walk for both the taxpayers and the tax administration when it comes to suspicion, investigations and taking drastic measures like provisional attachment of property including bank account [Siddharth Mandavia v. UOI - 2020-VIL-525-BOM].

Erroneous mention of type of tax - High Court grants relief

The scheme of filing various returns under GST, as initially envisaged, has not been implemented. While Section 37 of CGST Act speaks about filing of return relating to outward supplies (sales), provisions like mismatch and consequential tax payment have not been operationalised. Section 38 on GSTR-2 (inward supply return) also shares the same status. Like many taxpayers, the petitioner had also shown intra-State supply attracting CGST and SGST as inter-State supply with IGST. This resulted in recipients being deprived of input tax credit. Though it seems date for amendment of GSTR-1 during relevant period was extended, the petitioner did not take action and therefore, the department pleaded helplessness in this case. The High Court took note of the fact that the statutory mechanism regarding return filing and availment of ITC is yet to be implemented fully and held that the error was not deliberate and the recipient-assessees should not be denied legitimate entitlement of ITC. The petitioner was permitted to re-submit the relevant return after corrections [Sun Dye Chem v. Asst. Commissioner - 2020-VIL-523-MAD].

The entire scheme should have been designed to provide for facility of filing revised return in all the cases. Having not provided the same, the policy makers have caused great prejudice to the taxpayers right from day one of implementation of GST. For rectification of minor errors, taxpayers have to seek relief from High Court thus using the time of writ courts also only because of such short-sighted approach.

Compensation to States is not mandatory

A writ petition in the nature of PIL was filed in Madras High Court seeking direction to the Central Government to release compensation to States as per GST (Compensation to States) Act, 2017. The primary ground of the petitioner was that Section 7 of this statute states that compensation "shall" be payable to any State and therefore, it is mandatory for the Centre to pay compensation amount. The High Court analysed Supreme Court judgments on use of "shall" and "may" wherein it has been held that they are not conclusive of mandatory or directory nature of the provision and legislative intent and purpose, absence of provision on consequence of non-compliance, etc., have to be taken into account for interpretation of such provision. Placing reliance on such Apex Court judgments, the High Court held that Section 7 is only directory in nature and not mandatory. It also observed that the Central Government may also be facing the same economic difficulties as faced by Tamil Nadu Government due to Covid-19 pandemic [G. Sundarrajan v. Union of India - 2020-VIL-529-MAD].

Non-anticipation of grave emergency or contingency like the present Covid-19 issue has impacted Centre-State fiscal relations to a great extent, eroding the bonhomie exhibited during GST Council meetings in the initial three years. While various options on loan, etc., are being considered, a visionary and parental approach from the Centre is required for not only restoring financial health of States but also for strengthening federal fabric.

Detention of agricultural produce - HC orders release

In terms of facts, strange cases are brought before Kerala High Court. Agriculturist is not required to obtain registration as per Section 23(2) of CGST Act. The provision on compulsory registration relating to inter-State supply is Section 24 which starts with "Notwithstanding anything contained in sub-section (1) of Section 22". Therefore, the provision on mandatory registration is not applicable to agriculturist even if inter-State supply is made. The petitioner in Kerala had bought turmeric from agriculturist in Karnataka and had generated e-way bill for inter-State movement of goods and contended that the goods were exempted. Both goods and vehicle were detained by the GST authorities on the ground that registration is compulsory when inter-State supply of goods is involved and the goods are also not exempted.

The High Court held that non-registration of consignor (agriculturist) or alleged misclassification of goods cannot be a ground for detention under Section 129. The Court also noted that for movement of exempted goods, delivery challan was required which was absent in the case before it. But, in an unambiguous order, the High Court said that in so far as petitioner-recipient is concerned, Section 129(1)(b) would be applicable as per which 5% of the value of goods or Rs. 25,000 (whichever is lower) is payable for release and it ordered release of goods and vehicle on payment of Rs. 25,000 in this case [Mohammed Shereef v. State of Kerala - 2020-VIL-532-KER].

Filing of appeal is proof of payment of duty under protest

The Supreme Court in the landmark judgment of Mafatlal Industries v. UOI [1996-VIL-01-SC-CE] had held "where a person proposes to contest his liability by way of appeal, revision or in the higher courts, he would naturally pay the duty, whenever he does, under protest. It is difficult to imagine that a manufacturer would pay the duty without protest even when he contests the levy of duty, its rate, classification or any other aspect." The ratio is that if a taxpayer files an appeal against an order fastening certain duty / tax demand, it is obvious that he is not accepting the liability rather he is disputing or contesting it and therefore, whatever duty is paid before filing appeal is to be treated as paid under protest. While Section 11B of Central Excise Act, 1944 was the provision involved in this case, the Apex Court held so even when there was Rule 233B of Central Excise Rules, 1944 providing for procedure for protest payment.

In a recent order, the above ratio was relied on to provide relief of refund to the appellant (importer) by CESTAT when the department argued that there was no documentary evidence to show that duty was paid under protest. The appellant relied on the above judgment of Supreme Court besides others. The Tribunal noted that relevant provisions of Central Excise Act are identical to Section 27 of Customs Act, 1962. It held that if an appeal is filed against an assessment order, then duty that is paid has to be treated as paid under protest with the effect that time-limit for claiming refund would not be applicable [Cisco Systems India Pvt. Ltd. v. CC (Appeals), Delhi - 2020-VIL-497-CESTAT-DEL-CU].

Probably conscious of the above precedents, lawmakers have avoided use of the situation of tax payment under protest under GST law in so far as time-limit under refund provision is concerned. However, when law of the land is that challenge to an order by way of filing appeal before an authority or court along with duty / tax payment is itself sufficient evidence that such duty / tax has been paid under protest, the same will be considered as applicable to GST law as well. However, when the scenario of protest payment itself is absent in CGST Act, the view that would be taken by the courts will impact the taxpayers depending on the position adopted vis-à-vis such precedent judgments.

IGST is not a duty of customs - Tribunal allows appeal by airlines operator

Airline operators routinely export defective parts, engines and even aircraft for repair and then re-import them. Basic customs duty is paid on the fair cost of repairs and the cost of freight and insurance charges as per partial exemption granted to such re-imports under Notification No. 45/2017-Cus. The Customs authorities entertained a view that IGST is also payable on such cost of repairs along with BCD while the airline operator contested the demand. The short but significant issue involved was whether the phrase "duty of customs" used in the exemption notification would cover IGST or not i.e. whether IGST is a "duty of customs" or not.

CESTAT noted that Section 2(15) of Customs Act, 1962 defines duty as duty of customs leviable under such Act and Section 12 defines "dutiable goods" indicating duties of customs to be levied as per rates specified in Customs Tariff Act or any other law in force. Based on this provision, the department had argued that duty of customs is not only levied under Customs Act and Customs Tariff Act but also those levied under any other law and therefore, IGST would be a duty of customs. However, the Tribunal did not agree. It held that it is only the rates which can be specified under Customs Tariff Act or any other law but the meaning of "duties of customs" does not get expanded. Therefore, "duty of customs" as provided in the exemption notification refers to the same in Section 2(15) of Customs Act.

According to it, even additional duty levied under Section 3 of Customs Tariff Act would not be duty of customs for the purpose of notifications under Customs Act. It relied on Bombay High Court judgment in CEAT Tyres [1991-VIL-14-BOM-CU] wherein it was held that the expression "duty of customs" covered only BCD and not additional duty. The Tribunal also noted that IGST is levied under Section 5 of IGST Act and this is the charging section but it is collected as per Section 3 of Customs Tariff Act and therefore, the levy is under IGST Act while procedure for collection has been provided as per said Section 3 of Customs Tariff Act. Exemption from IGST and compensation cess were held to be available on such re-imports in respect of the cost of repairs and BCD alone would be payable on such component [Interglobe Aviation Ltd. v. CC, New Delhi - 2020-VIL-495-CESTAT-DEL-CU].

The issue is certain to be contested till the Apex Court considers the interpretation of "duty of customs" in the light of an exemption notification, particularly when law of the land is that exemption notification is subject to strict interpretation as reiterated by the Supreme Court in various recent landmark rulings.

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