Tax Vista Your weekly tax recap Edn. 23 - 23 November, 2020 By Dr. G. Gokul Kishore

Covid-19 alone not a reason to seek recording of statement through video conferencing

Covid-19 pandemic has been exerting insurmountable pressure on GST revenues. GST intelligence agency is on hot pursuit of alleged cases of evasion. In one such case, in response to summons, the CFO of the company requested for recording of statement through video conferencing. Though health condition was cited, the Delhi High Court noted that no serious ailment was pleaded and travelling from Bangalore to Delhi was cited as a potential health risk in view of rising number of cases of Covid-19. This by itself has been held as not a ground for such request. Stage of investigation, conduct of petitioner, etc., have also been taken into account by the High Court. The Court also observed that questioning during investigation has to be based on examination of documents, apparently referring to the requirement of physical presence of the petitioner while recording of statement [P.V. Rao v. SIO, DGGSTI - 2020-VIL-566-DEL].

In the above case, the petitioner had relied on judgments where such plea has been allowed but they were distinguished by the High Court. Recording of statement by revenue intelligence agencies is integral to investigation itself as the statements are admissible as evidence even if they are self-incriminating. Therefore, presence of the person tendering statement is considered sine qua non by such agencies.

Service of order by e-mail not valid?

Section 169 of CGST Act prescribes various modes of service of notices, orders, summons or other communication and it includes communication by e-mail and uploading in the GST portal. Adjudication order passed under Section 74 of CGST Act was sent by e-mail to the taxpayer. The petitioner argued that Rule 142 of CGST Rules prescribes the mode of service of show cause notice and adjudication order and that the only prescribed mode is by uploading of such notice or order in the GST portal. In this case decided on 19-11-2020 by Madhya Pradesh High Court, it has been held that when the only statutorily prescribed mode for communicating show cause notice / order is by way of uploading in the GST portal, communication of order by e-mail by the department is not sustainable. The High Court held that when a particular mode is prescribed to perform an act, then all other procedures / modes (other than the prescribed one) are excluded [Shri Shyam Baba Edible Oils v. CC -2020-VIL-567-MP].

There have been cases where the department uploads in the portal but the taxpayer fails to notice the same and rushes to court. But, in this case, despite service by way of e-mail and apparently the taxpayer not being prejudiced in so far as service is concerned, non-compliance with statutorily prescribed mode of service as in the CGST Rules has been held against the department. It appears Section 169 of CGST Act was not brought to the notice of the High Court. The department may challenge the order in view of such express parent provision.

Bulk drug is also a drug - Lower rate of GST applicable

Pharmaceutical products have witnessed, in the pre-GST regime, pitched court-room battles either on classification or on admissibility of exemption. It seems the ghost is still lurking in GST regime. Notification No. 11/2017-Central Tax (Rate) provides for GST @ 5% for drugs or medicines including their salts and esters (and also diagnostic test kits) if the same is specified in List 1 under this notification. The taxpayer supplies the bulk drug "Micafungin Sodium" applying 5% GST. Advance Rulings Authority (AAR) had earlier held that bulk drugs are not covered under the relevant entry in the above notification. The taxpayer filed appeal before Appellate Authority for Advance Rulings (AAAR), Karnataka. The AAAR noted that the term "bulk drug" has not been defined in GST notification but in Drugs (Price Control) Order, 1995 and as per this definition drug includes bulk drugs and formulations. Further, the Appellate Authority observed that Micafungin Sodium is the sodium salt form of the antifungal drug Micafungin which is used in the treatment of internal fungal infections and it is the active pharmaceutical ingredient (API) used in the manufacture of the drug "Mycamine". Approval by regulatory authority for use of the drug only by way of injection was also taken into account. The AAAR overruled the AAR's ruling and held that it is the usage of the drug which will be the basis to determine applicability of concessional rate of GST and therefore, allowed the appeal in favour of the taxpayer [Biocon Ltd. - 2020-VIL-69-AAAR].

The AAAR has taken note of exemption under Customs and the relevant entries in the notification. In this notification, bulk drugs have been expressly mentioned as a subordinate entry after drugs thus making the scope of exemption clear. A similar amendment can be considered under GST also but it should be followed by a circular clarifying that the amendment is only clarificatory.

Appeal against seizure memo whether maintainable

Export goods were alleged to be over-valued based on local market enquiries and also finding mismatch between the quantity mentioned in shipping bill and invoices, they were seized. The exporter filed appeal before Commissioner (Appeals) against seizure memo and the appeal was allowed. The department went before CESTAT. The Tribunal noted that the appeal was filed on 8th June, 2020 and the same was allowed by Commissioner (Appeals) on 10th June, 2020. The Tribunal noted that goods can be seized under Section 110(1) of Customs Act if the officer entertains reasonable belief as to goods being liable for confiscation and for confiscation under Section 113, hearing is mandatory. It held that only in that stage, issues like quantity mismatch or over-valuation can be considered. The appeal by department was allowed setting aside Order-in-Appeal after observing "The Commissioner (Appeals) completely failed to appreciate the provisions of section 110(1) of the Customs Act and proceeded to examine the matter as if he was examining an order of confiscation under section 113(i) of the Customs Act and not an order of seizure of goods under section 110(1) of the Customs Act, where the proper officer should only have reason to believe that the goods are liable to confiscation." [CC (Prev.) v. Bushrah Export House - 2020-VIL-505-CESTAT-DEL-CU].

The entire dispute has been decided within six months in this case including a transfer petition before Supreme Court on the ground that the Bench in Allahabad (Prayagraj) is not functional. However, considering the present order, the dispute will get a fresh lease of life as proceedings for confiscation may commence which will set in motion the second round of litigation.

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal)