Tax Vista Your weekly tax recap Edn. 9 - 17 August, 2020 By Dr. G. Gokul Kishore

Appeal against adjudication order under GST - Court fee payable in Kerala

A contentious issue has been decided by Kerala High Court whereby petition challenging return of the appeal filed against adjudication (assessment) order for deficiency in payment of court fee has been rejected. The appeal was filed as per Rule 107 of Kerala SGST Rules. The petitioner argued that as per GST provisions, no such court fee is payable for filing appeal before departmental appellate authorities and Section 76(1) of Kerala Court Fees Act would not be applicable to GST. The court fee payable is 1% of the disputed amount and the petitioner contended that such levy is discriminatory as they have been assigned to State officers' jurisdiction and further, the same is not based on any reasonable classification.

The High Court held that there was no violation of Article 14 of the Constitution and the levy was not in the nature of tax and the writ petition was dismissed. It relied on Supreme Court judgement in Jindal Stainless Steel Ltd. v. State of Haryana [2016-VIL-66-SC-CB] which was on constitutional validity of entry tax [Akay Flavours and Aromatics Pvt. Ltd. v. Asst. Commissioner - 2020-VIL-377-KER].

The Kerala Court Fees Act, it appears, is applicable to appellate authorities also as constituted under any special or local law. SGST Act is a special Act and it may be difficult to contest inapplicability of such court fees to GST appeals. But the same will be applicable only if the appeal is filed before appellate authority under SGST. If a taxpayer is under the jurisdiction of CGST Commissionerate, the appellate authority may not insist on such payment even in Kerala. However, the intention of GST being uniform law and uniform tax across the nation, the GST Council should recommend issuance of Removal of Difficulty Order so that such statute on court fee is made inapplicable to GST appeals wherever such court fee is payable as per State laws.

Payment of dues in instalments - High Court directs Commissioner

Section 29(2)(c) of CGST Act empowers the departmental officer to cancel GST registration if returns have not been filed for six consecutive months. Exercising this power, registration was cancelled but the petitioner challenged the same before High Court. The department argued that tax dues were also pending and cancellation of registration was as per law. The petitioner contested the same on the ground that dues related to interest on tax.

The High Court directed the petitioner to pay certain amount and file application before Commissioner under Section 80 of CGST Act for payment of dues in instalments. The Commissioner was directed to consider the request for revocation of cancellation of registration also. Because the order was passed during first phase of lockdown, the Court had directed restoration of registration after the lockdown [Shreya Life Sciences Pvt. Ltd. v. Superintendent - 2020-VIL-367-UTR].

In GST regime, cancellation of registration is frequently resorted to, may be to compel the taxpayer cough up the dues as otherwise business comes to a halt when there is no registration. But when such extreme power has been given, it is the bounden duty of the authorities to exercise the same with circumspection. On payment of dues in instalments, in Tax Vista dated 27th July, 2020, it was urged that considering the Covid-19 induced difficulties, GST Council may consider recommending issuance of removal of difficulty order to extend such facility of payment in instalments to all taxpayers and Section 80 permitting payment of tax and other dues in maximum of 24 instalments along with interest was highlighted.

Goods cannot be detained when tax amount not required to be mentioned in e-way bill

In this column, frequent detention of goods and vehicles, particularly by State GST officials in Kerala, is highlighted as the taxpayers are compelled to seek relief from the High Court in such cases. Most of these cases reveal either misuse of powers by the authorities or their ignorance. In a recent case, the petitioner sought High Court's intervention as the goods were detained on the ground that tax amount was not mentioned in e-way bill.

The High Court allowed the writ petition and ordered release of goods and vehicle after holding that there was no contravention of the provisions since there is no field for mentioning tax amount in the format of e-way bill. It further took note of the fact that the transportation was made under proper tax invoice along with the e-way bill. According to the Court, Section 129 of CGST Act providing the power to detain shall be exercised only in cases of violation of the provisions and not because a document does not carry tax details [M.S. Steel and Pipes v. Asst. State Officer - 2020-VIL-372-KER].

If the officers who stop vehicles and exercise power to detain and seize goods are not aware of the format of document for transportation i.e. e-way bill, then the Commissioner concerned should take them to task and not post them for enforcement duties. May be, when the High Court imposes costs on the authorities in an appropriate case, such spike in instances of detention may slow down.

Assignment of leasehold right in immovable property - AAR says liable to GST

Before entering into the complex issue of taxing rights in immovable property, facts and the advance ruling are mentioned in brief. The applicant, under Corporate Insolvency Resolution Process (CIRP), tried for resolution through the Resolution Professional but being unsuccessful, went for liquidation and the RP became the liquidator. The applicant was operating in a premises taken from the industrial development corporation on lease (sub-lease) for ninety nine years and as per the lease deed, they were entitled to assign the leasehold right in such premises for the unexpired lease period. The RP / Liquidator approached Authority for Advance Rulings under GST (West Bengal) to know whether GST is liable to be paid on the consideration receivable for assignment of leasehold right. Another question posed was whether transfer fee charged by the corporation for agreeing to such assignment to another party would be liable to GST and if yes, whether input tax credit of the same would be available to the company under liquidation.

On the first question, the applicant relied on precedent judgments wherein development right in land was held as immovable property and argued that such assignment of leasehold right would be a benefit to arise out of land and therefore, not liable to GST. However, the AAR held that the judgments were not under GST law and Schedule - II of CGST Act excludes certain benefits arising out of land from the ambit of immovable property and the same are treated as services. It pointed to lease of land being treated as a supply of service as per this schedule and held that such assignment is liable to GST.

The discussions are not in-depth as may be required for addressing this issue. Transfer of Property Act, 1882 covers five types of transfers and lease is one among them. Mere leasing is different from transfer of leasehold rights as while the former is a service, the latter needs closer examination. When rights are involved, the term 'sale' is not used but 'assignment' is used and this can be understood in the context of intellectual property rights (IPR). Permanent transfer of IPR is termed as assignment and it is akin to sale. Therefore, assignment of leasehold rights in immovable property will be akin to transfer of immovable property. Assignment of right in land is not a service and Schedule - II does not cover the same. To read leasing service as covering assignment also may not be the correct interpretation. Such issues need to wait till the time higher judiciary examines the same and jurisprudence is evolved.

On the second issue of liability of transfer fee, AAR has held that the same would be subject to GST and ITC of the same can be availed. The only concern is AAR's holding that the same would be treated as tolerating an act which is treated as supply of service under Schedule - II of CGST Act. If the lease deed between the lessor and lessee provides for assignment of leasehold rights to second lessee by the first lessee and a fee is charged by the lessor from the first lessee for permitting the same as provided in the deed, it may be a miscellaneous service but it is not known as to what is being tolerated. When the deed itself permits some activity and identifies a consideration for permitting the same which is assignment and transfer fee respectively in this case, classification under entry relating to toleration is not understandable [Enfield Apparels Ltd. - 2020-VIL-233-AAR].

Works contract with dominant earth work - GST rate of 5% applicable

Among the maze of entries in Notification No. 8/2017-Integrated Tax (Rate) providing rate of GST for various services, 5% rate is applicable for works contract involving earth work as predominant element. The prescribed minimum percentage to determine dominance is 75%. This concessional rate is available only if the services are supplied to government or governmental authority or government entity.

The applicant was contracted for dredging and strengthening of embankments of lake as per the work awarded by the lake conservation authority. Excavation related activity was stated as constituting major portion of the value of the works contract. The lake conservation authority informed the Authority for Advance Rulings (AAR) that value of material was less than 1% of the work order. The lake conservation authority is under the full control of the government and is engaged in municipal function as per Article 243W of the Constitution and therefore, it is a governmental authority as per the notification. The work being related to lake (immovable property) and the conditions of the notification having been satisfied, the AAR held that such supply of works contract service would attract 5% GST [Reach Dredging Ltd. - 2020-VIL-236-AAR].

In advance rulings, the department is provided opportunity to both provide its views and also appear before the AAR. In this case, the GST authorities have stated that information was not sufficient in the application and therefore, they could not offer their views. Though they could have ascertained the relevant information from the taxpayer himself, not taking such effort is also a blessing for the taxpayer. Otherwise, views contrary to facts if presented by the department, had to be countered by the taxpayer.

E-rickshaws - Classification for GST purpose

E-rickshaws are common these days as they provide pollution-free last mile connectivity to interior areas from places like metro stations, railways stations and bus terminals. With a view to provide great push to the policy of incentivising use of electric vehicles, GST rate on all such vehicles was reduced to 5% from August, 2019. Entry No. 242A was inserted in Schedule - I in Notification No. 1/2017 - Central Tax (Rate) by amending Notification No. 12/2019 - Central Tax (Rate) dated 31-7-2019. This entry covers "Electrically operated vehicles, including two and three wheeled electric vehicles" classifiable under Chapter 87. The expression "electrically operated vehicles" has also been defined to mean those which run solely on electrical energy derived from batteries or external source.

Even though all the above appear to be fairly clear, the taxpayer sought advance ruling on classification of such vehicles with battery packs and also those without battery packs. The Authority for Advance Rulings (AAR) took note of the above entries and definition of e-rickshaw in Motor Vehicles Act, 1988 and concluded that electrically operated three-wheeled vehicles or e-rickshaws would be classifiable under sub-heading 8703 90 (under 8703 90 10 for 8-digit purpose). It further held that those vehicles without battery packs will not have the essential character of electrically operated vehicle and they would be classifiable under Tariff Item 8706 00 31 [Hooghly Motors Pvt. Ltd. - 2020-VIL-235-AAR]. Heading 8706 covers chassis fitted with engines for specified vehicles. It not clear as to whether the goods for which classification has been ruled are those which the applicant was dealing with or sought answer from the AAR.

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