Tax Vista Your weekly tax recap Edn. 46 - 3 May 2021 By Dr. G. Gokul Kishore

Covid second wave - Customs duty exemptions and GST compliance relaxations

As second wave of Covid-19 causes havoc across the nation, Customs duty has been exempted on certain goods and GST relaxations have been granted for specified compliances. Various test kits have been exempted from basic customs duty as per Notification No. 29/2021 - Customs dated 30-4-2021 by inserting entry in Notification No. 27/2021 - Customs which was issued last week to exempt Remdesivir injection, API of Remdesivir and items used for manufacture of such injection till 31-10-2021. Covid-19 vaccine, oxygen concentrator including items like flow meter, connectors and tubings, medical oxygen, oxygen canister, ISO containers for shipping oxygen, oxygen cylinders and several other related items have been exempted from basic customs duty and health cess till 31-7-2021. IGST rate on oxygen concentrators imported for personal use has been reduced to 12% till 30-6-2021. It is not known why it has not been fully exempted. Providing different sunset dates for such exemptions is also inexplicable as all these are intended to serve the same objective. Had these exemptions been granted two weeks ago, more lives might have been saved. CBIC has also implemented system for expeditious clearance of such imported goods and the portal requires a simple form to be filed for this purpose.

Specified compliances have been relaxed on GST front. Late fee has been waived in respect of delayed filing of GSTR-3B returns for March and April, 2021. Such waiver will be available for 15 days from the due date of furnishing return for taxpayers with turnover more than Rs. 5 crores as per Notification No. 09/2021 - Central Tax. For taxpayers with turnover less than Rs. 5 crores, such waiver will be available for 30 days. Time has been granted till 26th of May for filing GSTR-1 for the period April, 2021 as per Notification No. 12/2021 - Central Tax. ITC-04 (Job work return) for January-March quarter can be filed till 31st May in terms of extension granted by Notification No. 11/2021 - Central Tax. Interest rate has been reduced for delay in payment of tax for 15 days for taxpayers with turnover of more than Rs. 5 crore and it will be Nil for those with lesser turnover for the tax periods of March and April, 2021 [Notification No. 08/2021 - Central Tax with effect from 18-4-2021]. Rule 36(4) of CGST Rules have been amended to provide for cumulative adjustment in the GSTR-3B return of May, 2021 for the month of April also. This provision pertains to restriction of input tax credit in respect of invoices details of which are not uploaded.

Time-limit for issuance of orders, notices, etc., from the department's side and for filing of appeal, application, reply, etc., from taxpayer's side has been extended till 31st May, 2021 where such limitation falls between 15th April and 30th May, 2021. This does not include compliances under provisions relating to time of supply, invoicing, GSTR-1, GSTR-3B, etc. [Notification No. 14/2021 - Central Tax]. The relaxations provided by all these notifications are ad hoc and too short. It appears, the government is confident of return of normalcy from June.

Seizure of imported goods alleged as stock-lot - HC orders release

A rather ill-advised DGFT clarification almost became the wrecker of petitioner's business but for the intervention of High Court. The petitioner had imported paper and after payment of duties, they were about to be cleared. The Customs authorities seized them on the ground they represented stock-lot. DGFT Notification No. 45/2015-2020 dated 31-1-2020 prohibits import of stock-lot. The term 'stock-lot' was clarified by DGFT by Trade Notice dated 4-5-2020 that if the imported paper consignment is without description for each category of paper, then it would be considered as 'stock-lot'. The DGFT further stated that importers should mention 8-digit classification and specify quantity against each of such code separately.

The High Court directed verification of the goods in this case, analysed dictionary meaning of stock-lot and held that if the imported consignment of paper is without description for each category or if paper of different descriptions is bundled together, then it would be stock-lot. Apparently, the Customs entertained the view that different GSM of paper constituted different description and bundling together of such paper rendered the imported consignment as stock-lot. The High Court noted that the relevant 8-digit code does not envisage any GSM variations and applying the yardstick of GSM variation in respect of the impugned goods will not arise. It held that the finding on stock-lot arrived at by Customs by introducing an impermissible yardstick of GSM variation is patently illegal. The goods were directed to be released [2021-VIL-327-MAD-CU].

Doing business in India may not be difficult but doing business despite such interpretation and clarification by various departments and proceedings initiated based on such communication is really difficult.

Excise dues not recoverable from auction purchaser of factory land

Crown debts or government dues have no priority and secured creditors will have priority over such unsecured government dues. This is the law of the land today in so far as tax dues are concerned. But tax department is undaunted in pursuing recovery measures from successors, third parties and others. A particular land (factory premises) was mortgaged with the bank and the company, it appears, was wound up. The bank initiated recovery proceedings under Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDDB Act). The land was purchased after being successful in the auction conducted consequent to proceedings before the Debt Recovery Tribunal. The Central Excise officer wrote to the purchaser of said land that excise duty dues were pending against the company (not in existence) and such arrears were recoverable from the said auction-purchaser.

The auction-purchaser had no other option but to seek relief from High Court. The High Court following precedent judgment of Supreme Court in Rana Girders [2013-VIL-18-SC-CE] held that the petitioner was not a successor to the business of the company and they were not in possession of the property as successor of previous owner against whom demand of excise duty was pending. It further noted that the entire business or manufacturing business was not purchased by the petitioner but land alone was purchased. It said - "Excise duty liability can be fastened only on that person who had purchased the entire unit as a going concern and not on a person who had purchased land and building or machinery of the erstwhile concern. It is only in such cases that the buyer would be responsible to discharge the liability of Central Excise."

In this case, as per order of DRT, confirmation of sale was subject to settlement of worker's liability and other existing liabilities. As per the Court, excise dues are not dues which arise out of land or building and the expression "other existing liabilities" could be property tax, municipal tax or other levies related to property but cannot relate to excise duty arising out of manufacture. Sale is with reference to liabilities with respect to the property and not with reference to the business of the borrower-company. The High Court quashed notices relating to recovery of excise dues and ordered refund if the same has been recovered.

This order may be relevant to GST as well because in quite a few cases, notices have been received from the department to the present-day owners of the property for the excise dues of the previous owner. In most cases of auction-sale, it is made on as is where is basis and therefore, it is presumed that all liabilities and charges created will also be required to be met by the purchaser. However, only when business is transferred along with factory premises, such recovery action may be sustainable. If the department is not diligent enough in recovery when the company was in operation but becomes diligent after the company has been wound up, chasing others who are either not connected with or remotely related to the defaulting entity may not yield any revenue [2021-VIL-330-BOM-CE].

Appeal under Customs - Time-limit to be counted from date of communication of order

An order of CESTAT is briefly covered in this column only to highlight two points. First, the Commissioner (Appeals) had dismissed appeal as time-barred taking date of dispatch as the starting date for computing the time-limit of 60 days. Section 128 of Customs Act speaks about date of communication and the Tribunal has held that the order has to be put to the knowledge of the aggrieved person and mere dispatch cannot be communication. Further Section 153 speaks about "service of order" and not "dispatch of order". Therefore, such rejection has been held as unsustainable. It is unbelievable that there is a Commissioner (Appeals) who can interpret the limitation under Customs law in such manner. Second point is very strange - as per the contention of the appellant, the appeal was heard on merits and they were never put to notice on delay in filing appeal whereas the order passed subsequently was on rejection for delayed filing. Though the Tribunal has directed the Commissioner (Appeals) to consider the matter afresh on merits, like Bombay High Court, it should have assigned the matter to a different Commissioner (Appeals) as otherwise, there is a likelihood of appeal being dismissed on merits this time [2021-VIL-166-CESTAT-CHE-CU].

Recovery from third parties when appeals filed and pre-deposit paid

If appeal is filed before Appellate Authority under Section 107 of CGST Act / respective SGST Act and pre-deposit as per sub-section (6) is paid, then recovery of balance amount of dues is automatically stayed as per sub-section (7). But GST authorities cannot wait for the taxpayer to file appeal. Garnishee notices seeking to recover tax dues as per the order from third parties - one bank and another company - were issued even when the taxpayer had filed appeals and paid pre-deposit. The High Court, after taking note of the above provisions, has granted interim protection to the taxpayer by staying such notices. This order is covered in this column to highlight the fact that, before the High Court, GSTN has stated that appeal has been filed while the department in its submission incorrectly stated that appeal was not filed. If the department is not able to even check with GST portal whether appeal has been filed and proceeds to issue notices on recovery from third parties, then the officers issuing such notices should be taken to task [2021-VIL-338-JHR].

License fee charged by Railways from contractors liable to GST - Parking charges collected by contractors from users also liable

Disposing a batch of petitions, the Madras High Court has held that Railways is liable to pay GST on the license fee charged / recovered from contractors who have taken the premises (parking land) on rent / lease. Further, the contractors are liable to GST in respect of parking charges recovered from the users. Though such position has been clarified by Railways to the contractors, apparently, due to lack of clarity at the ground level, writ petitions challenging such recovery of GST on license fee have been filed. A reading of the order indicates that the petitioners did not have strong grounds to argue on merits. These are issues which cropped up during the time of implementation of GST as many either participated in the tender before GST and did not factor GST cost in their bids or those who took part post-GST did not have clarity on GST implications [2021-VIL-343-MAD].

Advance ruling on landfilling pit - High Court orders de novo ruling

Optimism of taxpayers in certain cases should surprise everyone. Despite the general perception that most of the advance rulings are adverse to taxpayers, a taxpayer filed writ petition in High Court on the ground that the report of Principal Commissioner based on which advance ruling was given in their case, was not provided to them. The High Court held the same to be in violation of natural justice and directed the AAR to pass ruling afresh. The petitioner had obtained the said report in the meantime by filing application under RTI Act. The initial advance ruling [2020-VIL-274-AAR] answered the question in the negative when the taxpayer sought to know ITC availability for landfill pit as it was held to be not 'plant and machinery' but 'civil structure'. The opinion of jurisdictional officer as extracted in the said advance ruling also advanced such view of the department. It is not known, after having such copy of the department's opinion in hand now, whether the de novo advance ruling will be different [2021-VIL-324-KAR].

Electricity utilities - Fighting in courts v. representing before GST Council

After liberalization of power sector, State government owned electricity board was made into holding company and for generation and distribution of electricity, separate company and for transmission, another company was established in almost all the States. In Tamil Nadu also, such restructuring was implemented. Notification No. 12/2017 - Central Tax (Rate) provides exemption to transmission or distribution of electricity by an electricity transmission or distribution utility. Based on this entry and a statement by Secretary of GST Council, the generating company argued before Appellate Authority for Advance Rulings (AAAR) that all the activities between the generating and transmission companies are in relation to transmission or distribution of electricity forming the value chain and not liable to GST.

The AAAR rejected the contention of the appellant and held that as per Constitution of India, tax on consumption or sale of electricity alone has been kept out of GST and therefore, supply of materials for operation and maintenance and transfer of capital assets by the generating company to transmission company cannot be considered as outside the ambit of GST. Further, the above said notification relates to services and goods are not covered. Based on definitions in Electricity Act, it has also been held that the appellant is neither providing transmission service nor distribution service to the other entity. Salary paid by appellant when employees are deputed to another entity was held as liable to GST by AAR and the same has been upheld by AAAR with the modification that where salary for deputed employees is paid by the entity where such employees work, they are deemed to be employees of such company and GST would not be payable. On deposit contribution works, the AAR had held the same to be liable to 18% GST and the AAAR's ruling is non-speaking on this issue even while the earlier ruling is merely confirmed [2021-VIL-29-AAAR].

Electricity distribution and transmission entities are engaged in providing essential services to public and ideally, all their activities including inter-company transactions should be exempt. It is difficult to distinguish the activities of such entities as not having any nexus with transmission or distribution of electricity. The entry in exemption notification should be amended so as to include goods and services used in relation to such distribution and transmission of electricity. Considering the size / backing of such entities, it is surprising as to why they are fighting such issues before dispute settlement bodies instead of representing to the GST Council through their State Finance Minister.

Club and retrospective amendment - Conditional advance ruling

Clubs and associations are not liable to GST in respect of services provided to its members as per doctrine of mutuality as there are no two persons involved and the club and its members are one and the same person. This is the crux of landmark judgments on this issue and readers are well aware of the same. As part of this year's Budget amendments, Section 7 of CGST Act has been amended by Finance Act, 2021 to expressly include the activities or transactions of such clubs and associations to its members under supply and to keep out judgments to the contrary. In this backdrop, advance ruling has been sought on this issue. The AAR has held that the judgment of the Supreme Court in Calcutta Club [2019-VIL-34-SC-ST] is applicable which means the applicant is not liable to GST in respect of subscription fee and one time admission fee collected from members. It has noted that once the amendment mentioned above (retrospective from 1-7-2017) is notified, the position will change since the doctrine of mutuality has been countered by the said amendment. It has, therefore, held that the ruling is subject to notification of such amendment [2021-VIL-222-AAR].

The application for advance ruling was filed in 2020 when such retrospective amendment was not anticipated. An advance ruling holding GST is not payable now but will be payable later from a back-date is, unfortunately, a pyrrhic victory for the applicant.

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