Tax Vista Your weekly tax recap Edn. 51 - 7 June 2021 By Dr. G. Gokul Kishore

Prosecution under GST - IPC may also be invocable if ingredients are satisfied

Collection of an amount as tax and non-payment of the same to government is an offence under Section 132 of CGST Act. For such alleged offence, criminal prosecution can be launched in court after obtaining previous sanction from Commissioner. In an alleged case of this nature, the GST department filed a complaint before Magistrate under Section 132 of CGST Act and also under Sections 406 and 409 of Indian Penal Code (IPC). It is well-known that certain offences specified under special statute like CGST Act may also have elements which constitute separate offence under IPC. Section 406 of IPC provides punishment for criminal breach of trust and such expression has been defined in Section 405. Section 409 of IPC deals with criminal breach of trust by public servant, or by banker, merchant or agent. Applicability of such provisions in the present case may be doubtful if one reads them but, in the present case, such objection was not taken by the petitioner. However, the taxpayer-petitioner against whom complaint was lodged was before the High Court on certain other grounds.

The Magistrate having taken cognizance already as per Section 190 of Cr. P. C. read with Section 200, the order directing investigation by police under Section 156(3) of Cr. P. C. was held as not sustainable and the same has been quashed by the High Court. The High Court has further held that such order quashing the direction for police investigation will not affect the complaint and the Magistrate shall proceed as per law. This order should be seen in the background of this observation of the Court - "It can thus be seen that the offences punishable under Section 132 of CGST Act and those under Sections 406 and 409 of IPC operate in different fields. In a given case an act or omission on part of the dealer may form offence only under Section 132 of CGST Act. But in a given case where the ingredients of Section 405 of IPC are satisfied, the action can as well amount to offences punishable under Sections 406 and 409 of IPC." A word of caution was also given that the tax administration should not invoke IPC provisions without application of mind in every case. This is only an observation while the crux of the discussions may point to something which the taxpayers may not want to hear.

The High Court has relied on certain judgments of the Supreme Court judgments to come up with the above decision. This may set a precedent for the GST department. If ingredients of an offence under IPC get satisfied in an alleged GST offence, then provisions under IPC can also be invoked along with GST provisions when prosecution is launched in GST cases. The onus becomes heavy on the persons prosecuted when more offences are alleged. Case of the department whether gets sustained or not, trial itself is a sort of punishment [2021-VIL-440-TRI].

CGST Rule making race club liable to GST on entire amount instead of only commission, is ultra vires the CGST Act

The Karnataka High Court has held that Rule 31A(3) of CGST Rules is ultra vires the CGST Act and the petitioners (race clubs) are not liable to pay GST on the entire amount collected in totalizator but only on their commission. Rule 31A (3) provides that value of supply of actionable claim in the form of chance to win in betting, gambling or horse racing in a race club shall be 100% of the face value of the bet or the amount paid into the totalizator. The race clubs challenged taxing 100% of the face value of the bet / amount paid into the totalizator. As majority of the population does not take part in such races, the word "totalizator" may be alien to many and para 21 of this judgment may be seen. Precedent judgment of the Supreme Court has been relied on to the effect that the race club earns only commission.

The High Court held that the petitioners hold the money in the totalizator for a brief period in fiduciary capacity and after the race, the money is distributed to winners and for holding money for such period i.e., for providing totalizator service, the petitioners receive commission. Rule 31A makes the petitioners supplier of bets which is not the fact and the consideration for supply of service is commission only. After discussing various provisions under CGST Act, the Court held that making the entire bet amount received by the totalizator liable for payment of GST would be against the principle of consideration being the basis for GST. On this basis, it held that Rule 31A(3) prescribing that the value of actionable claim in the form of chance to win in a horse race of a race club to be 100% of the face value of the bet is beyond the scope of the CGST Act [2021-VIL-445-KAR]. It appears that the arguments were advanced before the present second wave of the pandemic and order was reserved earlier. Otherwise, Courts are hearing only cases of very urgent nature and categorizing this case (involving a few race clubs) as one is doubtful.

Transitional credit - High Court allows batch of petitions

Last week, several orders have been passed by Delhi High Court allowing several petitions filed seeking relief in respect of transitional credit / TRAN-1 issue. This comes in the backdrop of retrospective amendment made in Section 140 of CGST Act and filing of appeal against judgments in favour of taxpayers by the department in the Supreme Court. The number of petitions disposed and pending in various High Courts and now appeals being filed in the Supreme Court, certainly point to stubborn refusal of CBIC / GST Secretariat to acknowledge accumulated Cenvat credit as a right which cannot be denied citing trivial reasons and by backdating amendment after drafting law vulnerable to legal challenge. TRAN-1 dispute is becoming similar to GTA or rather GTO dispute of service tax era.

By a common order, the High Court has allowed batch of petitions relating to transitional credit. It categorized the petitions into three. The first batch pertaining to those taxpayers having evidence of having attempted to file TRAN-1 (screen shots, communication sent to department, etc.) was held as standing on better footing as compared to earlier cases wherein the Court had allowed transitional credit where electronic record / evidence for attempt to file was not available. The second batch comprised of those who attempted to file TRAN-1 before the due date but no proof was available. Relying on its own judgment in Triveni Needles [2019-VIL-618-DEL] and National Internet Exchange of India [2021-VIL-427-DEL], it held that benefit of such orders should be extended to the second category of petitioners as well.

The third category of petitioners had filed TRAN-1 form within the prescribed time but were aggrieved over their inability to revise / rectify the same. The High Court held that there was no effective mechanism provided for revision and genuine mistake should not result in losing the accumulated credit which is protected by Article 300A of the Constitution. It specifically noted that lack of revision mechanism would leave taxpayers without remedy which could not have been the intention of law and there was no provision to extinguish the right of the taxpayers. Based on such reasoning, it allowed this third batch of petitions also. The department was directed to reopen the portal to allow filing of TRAN-1 or accept manual filing of the same [2021-VIL-436-DEL].

In another case, the petitioner was allowed Cenvat credit by orders passed on 2018 and when appeal was filed with CESTAT, they requested for payment of pre-deposit from Cenvat credit but the same was objected by the department on the ground that it was not transitioned to GST regime. The petitioner sought permission to file TRAN-1. The High Court held that the petitioner could not have anticipated that he would be required to file TRAN-1 as the amount could not be shown in the returns filed before GST. Relying on its judgments wherein time-limit to file TRAN-1 was held as directory and not mandatory, the Court directed the authorities to open the portal to enable the petitioner to file the same or accept it manually [2021-VIL-433-DEL]. By another judgment, the High Court allowed the petitioner who had filed TRAN-1 but could not distribute the credit due to certain errors. The form manually filed already was directed to be processed [2021-VIL-435-DEL]. In yet another order, the High Court has allowed the petition involving TRAN-2 issue [2021-VIL-429-DEL].

Notifications issued to give effect to recommendations of GST Council

In last week's Tax Vista, major recommendations of GST Council after the meeting held on 28 May, 2021 were briefly discussed. CBIC has issued several notifications to implement the same. These days notifications are available in social media along with whatever analysis one can give within a few hours. No major decision was taken by the GST Council and therefore, all the notifications are not analysed in detail here. As per Notification No. 17/2021-Central Tax, due date for filing GSTR-1 return for May stands extended by 15 days and therefore, it can be filed till 26th June, 2021. Reduced interest rate of 9% for delayed payment of GST for 15 days from due date and thereafter, 18% rate would be applicable for taxpayers with turnover more than Rs. 5 crores for March, April and May, 2021 as per Notification No. 18/2021 - Central Tax. The typical extension of last date for all compliances and completion of action (by the department or taxpayers) except specified compliances has been made by Notification No. 24/2021 - Central Tax and it is applicable where the time-limit is between 15-4-2021 and 29-6-2021 and the extended due date will be 30-6-2021. CGST Rules have been amended by Notification No. 27/2021 - Central Tax to provide for cumulative application of the restriction in June, 2021 GSTR-3B return, in the case of invoice details not uploaded by suppliers, under Rule 36(4) on ITC for the months of April to June, 2021. Readers may refer to the notifications and articles available in this portal.

No service tax on take-way / parcel food

Tax department, at least in a few cases, pursues half-hearted litigation. Service tax as applicable to restaurant service does not cover food items which are delivered to buyers on take-away or parcel basis where the food is not consumed in the restaurant but at some other place. Such food is collected either through delivery agencies or by the person concerned. CBIC had also clarified such issue long ago. Departmental authorities themselves have taken the view that such parcel food would not attract service tax. However, certain restaurants had to file writ petition in High Court faced with demand of service tax on such take-away / parcel food. The High Court held that sale of food simplicitor would not attract the tax but only when services like seating, music, delivery on table, etc., are involved, the levy would arise and such attributes are absent in take-away food. It held that this is only sale of food not amenable to service tax [2021-VIL-442-MAD-ST].

Statue imported in CKD basis not classifiable under Heading 8311

Classification issues are not applicable to all the members of industry. However, in most cases, the facts are interesting. The appellant won the contract for installation of statue of Sardar Vallabhbhai Patel called as "Statue of Unity" in Gujarat and bronze cladding panels were imported from China, welded together after import so as to fabricate the huge sized statue. One may wonder why bronze should be imported from China for fabrication of statue of a great leader of our nation, but this is not relevant for Customs classification. The importer classified the same under Tariff Item 8306 21 10 of Customs Tariff and paid IGST of 12%. The adjudicating authority held that it would be classifiable under Heading 8311 with applicable IGST of 18%.

Heading 8311 covers wires, rods, plates, etc., of base metal coated with flux material of a kind used for soldering or welding. CESTAT was amused at department's stand because the imported goods were not welding material but part of bronze metal statue. It then came to light that the Customs department issued SCN based on CERA objection. To this, the Tribunal said - "It appears that merely on the Audit Objection which has no basis, the Show Cause Notice was issued without application of mind and the same was also confirmed by the adjudicating authority as if the Auditors who raised an objection without any basis is the supreme legal authority which was adopted verbatim without application of mind."

The Tribunal did not finally conclude on classification after holding that it is the burden cast on the department which was not discharged and therefore, the imported goods were not classifiable under Heading 8311 [2021-VIL-224-CESTAT-AHM-CU]. The fundamental question as to whether IGST on imported goods is a "duty of customs" is yet to be answered. If IGST on imported goods is ultimately held as not a "duty of customs", then CESTAT may not have jurisdiction to decide appeals relating to such levy. In case it is held as customs duty, then CESTAT will continue to exist for not only Customs disputes but also for such IGST issues while excise (after remaining products also get into GST fold) and service tax truly become part of history.

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