Tax Vista Your weekly tax recap Edn. 43 - 12 April 2021 By Dr. G. Gokul Kishore

Amount paid during investigation - High Court orders refund

Taxpayers being asked to pay certain amounts during investigation by the tax authorities is a routine affair. Many of them cannot afford to fight and they submit. Some of them challenge such spot recovery. One such taxpayer contested the payment made by them during investigations and sought directions from the Madras High Court for refund of the amount paid. The department argued that only first payment can be treated as coerced or pressurized but in this case, the taxpayer made second payment as well and filed the necessary intimation of "voluntary payment" in Form DRC-03. The taxpayer had retracted the statement given. A table containing dates for various installments of so-called "voluntary payment" was also obtained from the taxpayer and the department wanted the taxpayer to honour such "commitment". The department further relied on Section 74(5) of CGST Act which provides for payment of tax with interest and 15% of tax amount as penalty on the ground that the amount paid is as per own ascertainment of tax liability by the taxpayer and therefore, question of refund does not arise.

The High Court rejected the arguments of the department. It agreed with the reliance placed by the petitioner on precedent judgments under the pre-GST laws on the proposition that no collection can be insisted before final determination (by way of order) of liability is made. On Section 74(5), the Court noted that as per this provision, the payment is based on either self-ascertainment or ascertainment by the proper officer whereas in the present case, the petitioner had contested the tax liability and there is no ascertainment of liability by the officer. In the words of the Court - "Merely because an assessee has, under the stress of investigation, signed a statement admitting tax liability and has also made a few payments as per the statement, cannot lead to self-assessment or self-ascertainment. The ascertainment contemplated under Section 74(5) is of the nature of self-assessment and amounts to a determination which is unconditional, and not one that is retracted as in the present case." Refund of the amount paid (Rs. 2 crores) was ordered [2021-VIL-271-MAD].

In this case, Gujarat High Court's directions in Bhumi Associate v. UOI [2021-VIL-117-GUJ] have been highlighted wherein CBIC was directed to issue guidelines on non-recovery of tax or ITC during the proceedings under Section 67 and even if the assessee makes voluntary payment, he should be asked to do so the next day. Though CBIC has issued guidelines on exercise of powers of provisional attachment and search, on the issue of spot recovery, instructions are yet to be issued. The concept of payment on the spot voluntarily is an invention by the department as experience shows. Neither the taxpayer accepts tax liability on the spot (except in cases of outright evasion) nor will the funds position generally allow a taxpayer to pay Rs. 1 crore or Rs. 2 crores immediately. The efforts taken by officers in investigations and preparing hundred-page show cause notice followed by equally bulky adjudication order go in vain when the case lacks intrinsic merit and falls apart in the Tribunal and High Court. At least the taxpayer can be spared of the harassment or intimidation when investigations are undertaken.

Appeal cannot be dismissed for failure to file online

A recent case in Andhra Pradesh High Court is the latest proof for the fact that government is the biggest litigator. For filing an appeal under GST manually and that too, when the GST portal was taking baby-steps, the departmental appellate authority rejected the appeal. For a disputed tax amount of around Rs 4 lakhs, the taxpayer had to go to High Court when appeal was rejected on such a trivial ground.

Rule 108(1) of APGST Rules provides that appeal before the departmental appellate authority shall be filed in Form GST APL-01 either electronically or otherwise as may be notified by the Chief Commissioner. Rule 108(2) states that the form shall be signed as per Rule 26. Rule 108(1) is a simple rule prescribing the form and mode of filing. Form is GST APL-01 and mode of filing is either electronically (online) or any other mode as may be stipulated by the specified officer. No other mode has been specified by the officer concerned. The department interpreted Rule 108 to say that "shall" has been used and when alternative mode has not been prescribed, online filing is the only mode allowed. The High Court rejected this argument by holding that the words "electronically" and "otherwise" used in Rule 108 are used along with conjunctions "either" and "or" which indicate choice and since notification prescribing any other mode for filing appeal has not been issued, appeal can be filed manually. Rule 26 on method of authentication was also relied on by the department which provides for digital signature or e-signature and the Court said that CBIC has prescribed Aadhar based verification etc., but there is a discrepancy between Rule 108(1) and Rule 108(2) and the benefit should go to the taxpayer. The order was set aside and the appellate authority was directed to consider the appeal again.

It has become an obsession to prescribe everything should be filed or conducted electronically. The endeavour to reduce interface with officers, to reduce scope for corruption, etc., is understandable but that should not come at the cost of justice. Moderation in such prescription of every compliance to be in electronic mode is required and wherever the taxpayer wishes to opt for manual filing of appeals or replies, it should be allowed [2021-VIL-262-AP].

Detention of vehicle transporting final product for suspicion on ITC availed on inputs - HC orders release

Everything is uncertain under GST regime and this has been aptly said by Rajasthan High Court. It says - "All stake holders are treading in the new GST regime with uncertainties as the path is comparatively unfamiliar, unmarked and unpaved. The parameters of the authorities' powers and dealers' duties / responsibilities / liabilities are yet to be demarcated." These observations come in the backdrop of the petitioner seeking relief from the Court when his vehicle laden with goods was detained and inspection report was prepared by the department. No discrepancy in documents was found but the detention was continued on the ground that inquiry into alleged wrong availment of input tax credit was required. The Court dismissed such ground holding that when the goods in transit are in conformity with the documents, scope of inquiry under Section 68 ends and the officer cannot start inquiry relating to genuineness of purchase and ITC availment. Taking a pragmatic view on loss of business owing to such endless detention, the Court ordered release of the vehicle on furnishing of sureties [2021-VIL-252-RAJ].

Even police authorities do not indefinitely stop vehicles when appropriate documents are produced during checks. Tax authorities in GST regime with professed abolition of check-posts cannot claim more powers by such indiscriminate detention of vehicles and inventing new grounds to justify detention once the documents are in order.

GST notice to lawyers - High Court directs department to issue instructions

Legal services provided by advocates are covered under reverse charge mechanism under GST law. GST department in Bhubaneshwar is of the view that the burden to prove that a particular person is actually a practicing lawyer is on such lawyer only. Therefore, it has issued notice to a lawyer who was before the Court, for arguing his own case. The High Court noted that despite full knowledge about non-liability of lawyers, notices are being issued. The Court said ". practising advocates should not have to face harassment on account of the Department issuing notices calling upon them to pay service tax/GST when they are exempted from doing so, and in the process also having to prove they are practising advocates." It directed the GST Commissioner to issue instructions so that notice is not issued to lawyers demanding payment of service tax / GST. It appears that the department treats taxpayers and their legal representatives equally when it comes to issuance of notices [2021-VIL-261-ORI].

Parallel proceedings - High Court quashes both SCN and order

Almost every week, an order on either permitting or restraining conduct of parallel proceedings by both Central GST officers and State GST officers is discussed. Last week, VIL has published an order of Odisha High Court in which the Court has quashed the show cause notice and the adjudication order passed by State GST authority as the proceedings were / are pending before Central GST authority. The Court has also noted that the period covered in both the proceedings is overlapping as well. The ground adduced by the department that the State GST authority was not aware of pendency of proceeding with Central GST authority was not accepted by the Court as the relevant departmental communication was cited by the taxpayer before it.

The dates mentioned in this order reveals a story. Summons were issued, premises was searched and documents were seized in October, 2018. The order of the High Court is dated 25-3-2021. There is no mention about SCN issued by the CGST officers. If, for more than two years, investigations are not completed and SCN has not been issued, then such uncertain and lengthy proceedings by themselves constitute an unwritten penalty. In Customs Act, 1962, as per amendments made by Finance Act, 2021 (Budget 2021), time-limit of two years has been prescribed for completion of investigations. Similar provision is required in CGST Act / SGST Acts also [2021-VIL-251-ORI].

Contract involving different supplies by various cost centres - AAR rules it as composite supply

The project is a mega one and the stakes involved are substantial. It is quite natural for the parties to the contract to entertain divergent views on tax applicability. The applicant, due to such difference, opted for advance ruling. The supply involved is metro coaches "intermediate cars" and services like installation, integration, commissioning, training and maintenance are also involved. The AAR held that the contract is a single contract for both supply of goods and also for services related to those goods supplied and splitting of the entire contract is for the purposes of milestone. It further noted that contract terms stated that it is a single contract which cannot be separated and awarded to different persons. The contract provided - "this contract is divided into various activities as detailed in Annexure FB-2 of the pricing document and the activities are conveniently named to enable cash flows to the contractor according to the several phases involved in the supply of the intermediate cars." This has been relied on by the AAR to hold that milestones / cost centres are for cash flow purpose only and supply under various cost centres would form a composite supply and the entire supply would amount to composite supply with supply of intermediate cars being the principal supply. As to the question whether there can be multiple supplies within the same contract, the AAR says the answer is yes, when the parties intend to treat them as different supplies. It notes that in the case before it, the intention of the parties is to make it an integral part of the same supply contract. On time of supply, the ruling is rather abrupt without any reasoning to hold that date of issue of invoice will be the time of supply.

Since introduction of GST, major infrastructure projects and other long-term contact-based work face lot of uncertainty on GST front. One of the reasons is due to the interpretation of composite supply, what is naturally bundled, etc. Whether parties have separate contracts or single contract, the issue has been uniformly entangled. While intention of the parties is a basic rule to determine the tax implications, the statutory provisions are not taxpayer friendly at least as far as such issues are concerned [2021-VIL-192-AAR].

Taxi aggregator service - GST of 5% on basic fare, other incomes subject to 18% GST

The business model of tax aggregator service may be complex and the stake-holders may be many with multiple income heads. However, a recent advance ruling has provided a simple ruling on all the questions posed. On the basic fare / pick-up charges paid to owner / driver by the aggregator, GST of 5% will apply as such pick-up is incidental to main service of transportation of passengers by radio taxi. In respect of services by associate partners who essentially market the services besides maintaining liaison with drivers, GST @ 18% will be payable. There is a peculiar transaction involved in the proposed model by the applicant - the drivers can participate in bidding when a passenger uses the app and offer their competitive rates. The applicant charges an amount towards bidding and the same will be liable to 18% GST as it is not related to the service provided by e-commerce operator. Services charges collected by the applicant on goodwill bonus that passengers may voluntarily give to drivers will be taxable @ 18% and the same rate will apply for cancellation charges as tolerating an act [2021-VIL-191-AAR]. Tax laws lag technology is a refrain used frequently and such rulings involving app, platform, bidding by drivers, etc., with reliance on IT prove this point.

Refund on goods cleared by SEZ to DTA - Customs authorities empowered to consider claim

In the portion discussing Andhra Pradesh High Court order, we have noted that government is the biggest litigator and an order of CESTAT reported by VIL again substantiates this statement. For refund of basic customs duty (BCD) of Rs. 2,79,024 and SAD of Rs. 54,733, the taxpayer had to come to CESTAT for the third time. Refund claim was rejected by the adjudicating and departmental appellate authority for one reason or the other. In the latest order, the Tribunal holds that rejection of refund on the ground that Customs authorities do not have power to consider refund claim of excess customs duty paid by SEZ unit on clearances to DTA, is not sustainable. As per this order, in terms of Section 30 of SEZ Act, goods removed from SEZ to DTA are chargeable to customs duties and therefore, excess duty paid can be claimed as refund only under Section 27 of Customs Act and Customs authorities have inherent power to consider such refund claims. It further takes note of amendment to SEZ Rules whereby Rule 47(5) was inserted to empower Central Excise and Customs authorities to deal with refund claims of SEZ units.

Turant Customs means "Immediate Customs" or "Faster Customs" and it is the mission launched by CBIC to speed up the processes under Customs. As always, catchy titles and lofty missions remain mostly on paper. For refund of such sum as involved in this case, if a person has to litigate thrice, then there is a serious issue with the revenue mindset of the tax administration [2021-VIL-134-CESTAT-AHM-CU].

Adjustment of rebate against interest for delayed payment of GST not permissible

When columns are written, authors take certain liberty. Though the CESTAT decision does not hold exactly as what has been used as title, the order proves the comment in the last portion of the para on refund to SEZ unit discussed above.

Section 79 of CGST Act provides for recovery of tax through various modes including by adjustment of refund amounts due to the person concerned. The appellant had claimed rebate of excise duty and after litigation, he was successful. However, such rebate was not sanctioned and the same was adjusted under Section 79 of CGST Act against interest which according to the department was payable on delayed payment of GST. The Tribunal rejected such withholding of rebate. Taking note of precedent judgments, it said that when the appellant had disputed the interest liability and the same has not been adjudicated, recovery of interest is not as per law. It also noted that show cause notice under Section 11A of Central Excise Act applicable for recovery of interest was missing in this case [2021-VIL-138-CESTAT-CHD-CE].

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