Tax Vista Your weekly tax recap Edn. 11 - 31 August, 2020 By Dr. G. Gokul Kishore

Interesting tale of interest - Amendment, Notification, Recommendation & Clarification

By Finance (No. 2) Act, 2019, Section 50 of CGST Act was amended for charging of interest on delay in tax payment on the portion of tax paid by debiting electronic cash ledger. This is commonly referred as interest on net cash tax liability after adjusting available input tax credit in the electronic credit ledger. If a taxpayer pays the entire tax amount from credit ledger, then no interest will be payable in case of such delay. If tax is paid using part amount from cash ledger and part amount from credit ledger, then only on the amount of tax paid from cash ledger, interest will be computed. This relaxation will not be applicable to cases if return is filed after issuance of show cause notice by the department. For inexplicable reasons, this amendment was not brought into force. This is about the amendment.

Now the notification and the recommendation. On 25-8-2020, CBIC issued Notification No. 63/2020-Central Tax to bring the above amendment into effect from 1st September, 2020. Till last week, since the amendment was not notified, the department has been issuing missives to taxpayers demanding interest and many have paid too. Even while the tax administration was preparing the above mentioned two-line notification for several months, GST Council in its 39th meeting held in March this year, recommended that such amendment be made retrospective i.e. it should be given effect from 1st July, 2017 itself. However, the amendment as passed by the Parliament last year does not provide such retrospective effect. This means Section 50 may have to be amended again and such process is bound to take time.

It is time to issue a clarification. CBIC issued a press release on 26-8-2020 informing the industry that the above notification has been given prospective effect due to technical limitations and recovery action will not be taken by the department for the past period. Though this clarification has no legal basis, the officers have been temporarily reined in.

In a recent case, the High Court, by order dated 21-8-2020, directed the departmental officer to consider the representation of the taxpayer who had argued against demand of interest by relying on the GST Council's recommendation [Prasanna Kumar Bisoi v UOI - 2020-VIL-402-ORI]. The latest clarification on non-recovery should be helpful for the officer to consign the case to call book for now. But it is not clear whether call book system of Central Excise has been brought forward to GST regime also.

Seizure of money covered under Section 67(2) of CGST Act

Section 67(2) of CGST Act empowers the department / investigating agency to search and seize goods which are liable to confiscation and which have been concealed in any place. Along with goods, "documents or books or things" are also covered under this provision of search and seizure. For seizure of documents, books or things, the opinion of the proper officer is sufficient that they will be useful or relevant for any proceedings.

In a typical investigation, money, suspected to be sale proceeds from goods supplied evading payment of GST, was also seized by the investigating officers. Writ petition was filed in the High Court contending that "money" is not covered under "things" as used in Section 67(2) and therefore, such seizure of cash is not valid.

In the order passed on 26-8-2020, the Madhya Pradesh High Court examined the definition of terms like consideration and money as provided in CGST Act and Section 67(2) and held that money can also be seized by the authorized officer. It was held that in the case before, it, money has been rightly seized based on the circumstances and material available at the investigation stage. It held that the CGST Act as a whole should be seen and "definition clauses are the keys to unlock the intent and purpose" of the provisions and that the word "things" should be given wider meaning. It placed reliance on Black's Law Dictionary wherein "thing" has been defined to cover any subject matter of ownership within the sphere of proprietary or valuable right. Wharton's Law Lexicon has also been relied on where "thing" has been defined as including money [Kanishka Matta v. UOI - 2020-VIL-411-MP].

Generally, in cases of income tax raids (sensational term used for search and seizure operation), one comes across concealment and seizure of unaccounted cash. In GST (earlier Central Excise / Service Tax), the department is more concerned with seizure of goods suspected of being part of tax evasion and incriminating documents. Opportunity to seize cash hardly arises as the modus operandi adopted for alleged evasion is complicated in indirect taxes.

Summons issued but could not appear - Provisional attachment of factory and residence ordered

Implementation of GST has been draconian from day one, it seems. Summons were issued to a textile manufacturer to appear before the departmental officer. The manufacturer explained that considering his advanced age, he has been medically advised not to venture out of home. This is understandable in the present pandemic situation. However, the officer apparently became restless and in the next one month's time, an intimation in DRC-01A was sent to him quantifying huge amount of tax as payable. To show the strong arm of law, the taxpayer's factory and residence were provisionally attached. The taxpayer had to rush to High Court.

The Gujarat High Court, by order dated 20-8-2020, held that the petitioner got no opportunity to explain his case / transactions and he has also been advised not to go out. It quashed the intimation in DRC-01A, directed the officer to afford hearing and then pass fresh order. It, however, did not interfere with provisional attachment [Formative Tex Fab v. State of Gujarat - 2020-VIL-406-GUJ].

The case reveals more than what meets the eye. If a mid-size textile manufacturer at an advanced age can be threatened with such coercive action for mere failure to appear for the first summon during the present Covid-19 crisis, then GST implementation is certainly not headed in the right direction. Taxpayers will not lose trust in the tax administration because they hardly had any, before. Instead of pro-actively taking measures to regain the lost trust, the bureaucracy appears to be working in the opposite direction.

Place of investigation - Taxpayer cannot choose

Investigations were launched against the taxpayer having branches in various cities. Writ petition was filed in High Court seeking directions to the department to furnish copy of seized documents. The petitioner also sought order from the Court to transfer the investigations being conducted in multiple places to a particular city considering the inconvenience in carrying the documents to each such place.

The department argued that the taxpayer is bound to maintain accounts at each of the place of business whenever more than one such place is mentioned in the registration certificate and therefore, maintenance of books of accounts in the head office is not a ground for transfer of files / investigation to a particular office. The Kerala High Court, by order dated 24-8-2020, held that it will not interfere in writ jurisdiction in administrative matters like the place at which investigation should be conducted and the manner in which it should proceed. It, however, directed furnishing of copies of seized documents whenever they are relied on in notice or proceedings and return those which are not relied upon by the department [Rajive and Company v. Asst. Commissioner - 2020-VIL-403-KER].

Project implementing agency owned by government - GST not payable

For implementation of major infrastructure projects, special purpose vehicles are created by the Central and State Governments and they are mostly registered as government company. They engage various contractors to execute the project and they are entrusted with the responsibility of maintenance as well. In a project of such nature, the applicant was a joint venture company formed with equal participation by the Central and State Governments. The JV was in charge of metro rail project and it was also assigned the task of projection execution for water transport system in the port city. The tripartite arrangement involved Government of India, the German financing entity through Govt. of Germany and the State Government for loan agreement and it involved the applicant for the project implementation part.

The Authority for Advance Rulings (AAR) held that the applicant being controlled by State Government, as per definition in CGST Act, is a related person vis-à-vis the State Government. It noted that the State Government is the de jure owner of the assets. According to the AAR, because the applicant and the government are related persons, supply by the applicant to the government in terms of project execution would be a supply as per GST law even when consideration is absent. However, it held that the applicant being government-owned would be covered under 'governmental authority' as per Notification No. 12/2017-Central Tax (Rate) and the supply would be one of pure service of project management and related to municipal / panchayat function as per the Constitution of India and therefore, would be exempted from GST [Kochi Metro Rail Ltd. - 2020-VIL-244-AAR].

This ruling should provide some guidance to various infra projects executed through special purpose vehicles created for the sole purpose of implementing and maintaining the project for urban development. Even for the government, the tax efficiency angle has to be examined at the time of creating such bodies and entrusting them with work normally performed by the governmental authorities.

Hostel facility along with training / coaching is a composite supply

Training / coaching institutes organizing classes to prepare students for exams conducted by Institute of Chartered Accountants of India and similar institutes provide hostel facility in certain places. Charges for accommodation less than Rs. 1000 per day are exempted under Notification No. 12/2017-Central Tax (Rate). The hostel facility is extended to both students undergoing coaching in the institute as well as other students. In this factual backdrop, the applicant sought advance ruling on various issues.

Ruling out exemption for coaching as such on the ground that the applicant is not a recognised institution and not covered under "educational institution" as per Notification No. 12/2017-Central Tax (Rate), the AAR held that coaching being the principal supply, the accommodation / hostel service would be treated as composite supply and therefore, the same would be liable to GST as the principal supply. It further held that for outside students, exemption would be available. On the question of payment of exam fees on behalf of students, it held that if the conditions of "pure agent" are satisfied as per Rule 33 of CGST Rules, then the fee amount would be excludible from the value of service. Sale of textbooks has been held to be taxable as per schedule of rates under Notification No. 1/2017-Central Tax (Rate) [Logic Management Training Institutes Pvt. Ltd. - 2020-VIL-250-AAR].

Though there are multiple advance rulings on this issue, right from service tax period, taxability of services provided by institutes organising coaching classes for educational programmes which are recognised as per law, has been repeatedly raised. The entries in Notification No. 12/2017-Central Tax (Rate) providing exemption to typically schools and colleges, should be appropriately re-phrased so that the intention of the government in taxing private coaching institutes is made clear.

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