Tax Vista Your weekly tax recap Edn. 37 - 1 March 2021 By Dr. G. Gokul Kishore

GST Annual Return for FY 2019-20 - Time extended till 31st March 2021

Another extension has been granted providing additional time till 31st March, 2021 for filing GST Annual Return for the financial year 2019-20. A last-minute press release on the otherwise last date followed by eleventh hour Notification No. 04/2021-Central Tax dated 28-2-2021 amending the earlier Notification No. 95/2020-Central Tax (issued on the penultimate day before original due date) should bring relief to many taxpayers. Pandemic pains have not yet subsided and with an increase in the number of Covid-19 cases being reported having adverse impact again on normal life, this extension was expected. GST regime has been marked with extension of due dates for various compliances from day one, either due to technical glitches or forms being amended or unforeseen circumstances like the present pandemic situation.

Bail condition as mode of revenue recovery - High Court says no

Prosecution is being launched with full vigour by GST authorities in cases of alleged evasion mostly involving fraudulent availment of input tax credit. The vigour is also shown in arresting the alleged offenders and opposing bail plea taken in courts. In one such case, out of around Rs. 9 crore alleged as fraudulently availed ITC, due to coercion (according to the petitioner), Rs. 5 crore was deposited but the lower court imposed the condition of payment of balance amount of around Rs. 4 crore for grant of bail. The petitioner was before the High Court. The High Court held that conditions for grant of bail should not be so strict as to be incapable of compliance, making grant of bail illusory. It said - "The conditions while granting bail should be reasonable, so that it may not frustrate the very object of granting bail. Discretion exercised by the Court while imposing conditions should not be arbitrary, but it should be keeping in mind to strike balance between the accused and prosecution."

The order notes that criminal complaint has not been filed (for prosecution), adjudication proceedings have not been initiated by the department, investigations are underway and provisional attachment under Section 83 of CGST Act has also not been resorted to. The lower court's order granting bail (though conditional) was also not challenged by the department. Taking into account all these factors including the conditions perceived as harsh and unreasonable, the High Court modified the bail order with directions for furnishing of security for the balance amount by any mode other than cash and bank guarantee. The order also reveals that the petitioner was ready to deposit documents relating to immovable property which was valued much more than the balance amount. Considering the frequency of launch of prosecution by GST department, clear-cut instructions to officers are immediately required as otherwise, the alleged offenders are put to pre-trial punishment by way of spot recovery, arrest, opposing bail, etc. [2021-VIL-151-ALH].

Provisional attachment - Maintenance of balance on date of attachment sufficient

The title may convey a general proposition or principle but in writ proceedings, the remedy being discretionary, it should be read in the context of the order. The contention of the petitioner before the High Court was that provisional attachment of bank account has affected business badly and they agreed to maintain the balance which was available on the date of attachment. The High Court accepted the plea and permitted the petitioner to operate the bank account subject to maintaining the said minimum balance. The High Court had earlier queried the petitioner whether they can offer any tangible security so that attachment can be lifted. It appears that attachment route is preferred by the department as it brings the taxpayer down to his knees by crippling business operations whereas security furnished does not affect routine business to a great extent [2021-VIL-137-GUJ].

Export promotion by withholding refund and blocking credit ledger

To incentivize exporters, Section 54(6) provides for provisional refund of 90% amount within seven days of acknowledgement of filing refund claim. However, Section 54(11) provides for withholding of refund if the Commissioner is of the opinion that grant of such refund will adversely affect the department in appeal against such refund order or in any other proceedings on account of malfeasance or fraud committed by the claimant. This provision casts heavy onus on the department as a recent High Court shows. The exporter was aggrieved over non-grant of provisional refund, withholding of refund and also blocking of electronic credit ledger on the ground that certain investigation is pending. The High Court after analyzing the statutory provisions held that assigning reason for withholding is mandatory and the opinion of the Commissioner should be based on some material indicating malfeasance or fraud committed by the taxpayer whereas in the case before it, the same was absent. It quashed the impugned order withholding refund and directed passing of fresh order.

The department's counsel offered to communicate the decision in Part B of Form GST RFD-07 (for withholding refund) but the Court said that such form requires reason to be mentioned and the case records produced before it do not evidence any reason. The High Court also directed the petitioner to file an application to unblock credit ledger to be considered by the department within 10 days [2021-VIL-134-ALH].

Parallel proceedings by CGST and SGST officers when permissible

Though taxpayers have been bifurcated for assignment of jurisdiction of CGST and SGST officers, it appears, intelligence-based enforcement action can be initiated by Central or State tax officers but once such action is taken, it should be taken to logical conclusion by such officer without transferring it to the officer having administrative jurisdiction over the taxpayer. This is the basis of CBIC's Circular dated 5-10-2018. Popularly known as cross-empowerment of officers, the taxpayers can be subjected to investigation, search and seizure by CGST officer or SGST officer while issuance of show cause notice for recovery can be undertaken by the jurisdictional tax officer. This has been upheld by the High Court in a recent case where CGST officers had initiated investigation and arrested the petitioner while the SGST officer had issued SCN under Section 74 and adjudicated the case also. The petitioner was aggrieved over such parallel or simultaneous proceeding but the High Court dismissed the writ petition holding that the two proceedings are independent.

Considering the emerging jurisprudence on this issue, it appears, taxpayers may have rough days ahead as various units of DGGI, jurisdictional CGST Commissionerate and SGST officers can simultaneously take action - whether investigation or prosecution or adjudication. Registration certificate may require amendment in such case to include additional business as cooperating with the department in such proceedings on full-time basis [2021-VIL-155-ALH].

Appeal against order on ROM application, not maintainable - AAAR

Karnataka Appellate Authority for Advance Rulings (AAAR) has held that appeal filed against order by AAR rejecting rectification of mistake (ROM) application is not maintainable as it is not an appealable order as per Section 100 of CGST Act. Appeal can be filed before AAAR against ruling / order passed by the AAR under Section 98(4) and the ROM rejection order is not an order under this provision. The ruling also holds that such ROM rejection order does not get merged with the advance ruling as such merger will apply only to review of orders and not rectification of orders as per precedent judgment. The appeal was held as filed beyond the condonable period and therefore, the same was dismissed. The appellant had argued that the time-limit for filing appeal should be reckoned from the date of ROM rejection order and not from the advance ruling itself. This has not been accepted by the AAAR.

Rectification of mistake is a remedy provided in most of the laws to rectify / correct any error apparent on the face of the record. In this case, the appellant had filed ROM application on the ground that the advance ruling adopted a different stand compared to an earlier ruling in another case though facts were same. It is surprising that adoption of different view or stand by the AAR was sought to be covered by the appellant under "error apparent on the face of record". It appears that the appellant was aggrieved over such change in view but by the time it was decided that appeal should be filed against the ruling, limitation was over and therefore, ROM route was adopted which also did not yield the desired result [2021-VIL-09-AAAR].

Renting of e-bikes and bicycles - AAAR overrules AAR

Renting, leasing, transfer of right to use goods - these are heavily litigated issues under various tax laws. Under GST also, plenty of entries are available in Notification No. 11/2017-Central Tax (Rate) along with criteria like with or without operator, in respect of goods or vehicles, etc. The taxpayer is in the business of renting e-bikes and bicycles. Certain amendments were made in the notification and annexure on classification based on which advance ruling was sought whether SAC 9973 on "leasing or rental services without operator" would be applicable to them instead of SAC 9966 which was amended to read "rental services of transport vehicles with operators". The AAR had held that SAC 9973 would not be applicable to them. On appeal, the Appellate AAR has now held that their supply of services is classifiable under SAC 9973 and S. No. (viia) on leasing or renting of goods with GST rate as applicable to supply of like goods involving transfer of title in goods, will be applicable. This means that for renting of e-bikes and bicycles, GST of 5% and 12% respectively will apply.

The Appellate Ruling is quite elaborate and reasoned particularly when it rules out classification under entry relating to transfer of right to use goods after discussing landmark judgment of Supreme Court in BSNL [2006-VIL-07-SC-LB] though it accepted that the e-bikes and bicycles are goods. According to it - "Getting access to use the vehicle does not tantamount putting the rider in possession of the vehicle. Except having access to the facility which the Appellant is providing by virtue of possessing such goods, no such right in the goods is transferred to the rider. Providing access does not amount to right to use goods." It said that the appellant retained effective control over the vehicles in all respects [2021-VIL-10-AAAR].

Liaison office is not liable to pay GST - Appellate AAR sets aside advance ruling

Liaison offices are established by foreign companies based on permission granted by Reserve Bank of India. The relevant FEMA regulations allow restricted activities to be undertaken by such LOs like acting as communication channel between the head office abroad and its customers in India, representing the parent company in India, promoting export from / import into India and promoting collaboration. LOs are prohibited from venturing into any commercial or industrial activity. All expenses are met from the inward remittances received from the head office. Despite such facts, Karnataka Authority for Advance Rulings (AAR) had earlier held that LOs are liable to get themselves registered and pay GST [Tax Vista dated 26-10-2020]. This ruling has been set aside in appeal by Appellate AAR now.

The AAAR has taken note of the conditions as contained in RBI's permission whereby LOs are not permitted to undertake any business activity in India or enter into any business contracts or earn income in India by way of fee or commission and it is allowed to act as communication channel only. It, therefore, held that the inward remittance received from head office for maintaining the office in India cannot be termed as consideration for liaison activity. Overruling the finding of AAR that LOs and parent company are related persons, the AAAR has held that as per Companies Act, 2013, LO is treated as foreign company and it is not a separate legal entity and it is only a geographical extension of the German parent. Both belong to the same legal entity and LO is not an artificial juridical person. Based on such reasoning, it has been held that LO and parent company in Germany cannot be deemed to be related persons and therefore, activities of LO will be service to self and not liable to GST.

The earlier advance ruling was patently incorrect adopting strange logic and the same has been set right now by this appellate ruling. Advance rulings rendered in other States have been consistent on this issue and only the Karnataka advance ruling chose to treat a divergent path. As long as the government does not amend the law retrospectively to deem LO and HO as separate persons as it happened to clubs and associations in Budget 2021, LOs can breathe easy [2021-VIL-11-AAAR].

Confiscation and penalty not sustainable when lower value declared due to clerical mistake

Goods were imported through courier and the Customs authorities felt that value of imported goods declared in the courier bill of entry was low. The importer submitted proforma invoice showing significantly higher value and accepted the same as the correct value. The department not only demanded differential duty but also sought to confiscate the goods and impose penalty. The Tribunal noted that the authorized courier had to mention the value as per information on the package and it was a case of clerical mistake of declaring lower value by the shipper. The appellant came forward at the first instance of query raised by the department with proforma invoice containing far higher value, the amount was remitted through banking channel and there was no collusion. Based on such reasoning, confiscation and penalty were set aside. The amount involved was not very high and it appears, there was no fraud or design in evading duty. Elaborate proceedings for confiscation and penalty pushing the importer upto CESTAT could have been avoided by the department [2021-VIL-76-CESTAT-DEL-CU].

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