Tax Vista Your weekly tax recap Edn. 52 - 14 June 2021 By Dr. G. Gokul Kishore

GST Council recommends rate cut on Covid-19 related items

Hand sanitizers will attract reduced GST rate of 5% and ambulances will be under 12% rate till 30 September, 2021. This comes after the GST Council in its meeting held on 12 June, 2021 decided to accept the report of the Group of Ministers. Certain drugs have been exempted or brought under 5% rate. Medical grade oxygen, oxygen concentrator, ventilators and similar goods besides testing kits for Covid-19 will also attract 5% GST. Pulse oximeters, temperature checking instruments, gas / electric / other furnaces for crematorium including installation have also been provided with reduced rate of 5%. All such relief will be till 30 September as of now. Vaccines are not mentioned in the press release and this means they will continue to attract 5% GST. Inverted tax structure and ITC refund, optimism about ending Covid by September, not granting full exemption to certain items and anti-profiteering are some of the issues which will be debated for some time [Press Release dated 12-6-2021].

Composition scheme under GST - Turnover under VAT relevant for 2017-18

Section 10 of CGST Act / relevant State GST Act provides for composition scheme. The scheme can be availed if the turnover in the preceding financial year has not exceeded the prescribed limit. A furniture dealer opted for composition scheme on introduction of GST from 1-7-2017 and filed returns for a few quarters. Later, the department found that the turnover of the dealer under VAT regime in 2016-17 was more than the prescribed limit for composition scheme under GST. The benefit was denied and tax at normal rate was demanded. The dealer contended that turnover of VAT regime should not be taken into account and the option exercised for composition scheme was accepted by the department. The High Court did not agree. It held that the legislature has used the expression "preceding financial year" at two places in Section 10 and therefore, there was no error in drafting and, as on 1-7-2017, turnover of previous year under VAT regime should be considered. According to it, if the interpretation of the dealer was to be accepted, then many would be paying minimum GST though turnover would be on the higher side. An important reasoning of the Court is that GST was not in addition to VAT but as substitute to VAT [2021-VIL-460-AP].

CBIC's FAQ on composition levy issued in 2017 neither raised nor answered this question on the meaning of preceding financial year for 2017-18, may be for the reason that it is such a simple expression not requiring any explanation. But, the tax administration should have anticipated such issues and used the FAQ route / circulars to clarify the same instead of providing surprises by way of demand notice seeking 28% GST.

Time-limit for filing appeal - Condonation of delay in times of pandemic

Retention of archaic procedures is one of the irritants of appellate remedies under GST. One such procedure is furnishing of certified copy of the order against which appeal is filed. In these days of biometrics, digital signature, e-filing, e-assessment, etc., insistence of certified copy defies logic or reason. Rule 108 of CGST Rules / State GST Rules further confuses the time-limit for filing appeal to first appellate authority by mentioning provisional acknowledgement, filing certified copy within 7 days of filing appeal or later, final acknowledgement, etc.

A taxpayer filed appeal within three months as prescribed in Section 107 of CGST Act / SGST Act along with downloaded copy of the impugned order and the certified copy of order was submitted much later. The first appellate authority rejected the appeal as beyond the period available for condonation of delay. The High Court took note of the difficulties faced by lawyers and litigants in applying for and obtaining certified copies particularly during the time of Covid-19. It held that the authority should have condoned delay. As per the Court, mere delay in enclosing certified copy should not be a reason to reject the appeal on the ground of delay in filing. It was of the view that this is a case of substantial compliance and hyper technical view should not be adopted. It directed the appellate authority to pass order on merits [2021-VIL-454-ORI].

E-way bill not extended - No presumption on evasion of tax

In a scathing order, the Telangana High Court has deprecated the conduct of the State GST Officer in not considering the explanation offered by the petitioner when the goods and vehicle were detained and the deliberate intention to treat expiry of e-way bill as evasion and imposed costs of Rs. 10,000 on such officer. The department has been ordered to refund the amounts collected as tax and penalty along with interest to the petitioner.

This case contains all hallmarks of abuse of power. The vehicle was caught in traffic jam due to political agitation and the driver took the vehicle to his home as the consignee / buyer would have closed his premises due to delay. The following two days were Saturday and Sunday and on Monday, when the goods were being transported, the vehicle was detained. The officer took the vehicle to his relative's house instead of his office premises. Some of the goods were reportedly lost when they were in custody. The officer asked his junior, who was not empowered, to pass the release order after pressurizing the petitioner to pay the amounts involved. The release order passed by such junior staff noted that the payments were made voluntarily and there was no mention about the representations / replies filed by the petitioner. The High Court held that presumption cannot be drawn as to intention to evade tax for non-extension of validity of e-way bill. Compelling mid-size dealers to file writ petitions in High Courts to get the vehicles and goods released or for return of illegally collected amounts is a routine feature now. CBIC does not consider such issues as a priority warranting instruction nor will State GST authorities rein in its over-zealous officers. High Courts are the only solace to such harassed taxpayers [2021-VIL-448-TEL]

Blocking of ITC ledger beyond one year not sustainable

In a very brief order, Karnataka High Court has held that blocking of electronic credit ledger under Rule 86A(3) of CGST Rules beyond one year is not impermissible in law. The restriction was set aside by the Court. Rule 86A empowers the department to bar debit from credit ledger if there is a reasonable belief that credit has been availed fraudulently or ineligible due to invoices issued by ghost taxpayers or without receipt of goods, etc. There have been several instances where taxpayers had to approach High Court to lift provisional attachment continuing indefinitely. Now, for using credit ledger too, taxpayers are compelled to approach High Court. With extreme powers comes great responsibility but tax administration invokes such powers only to forget revocation when it is due [2021-VIL-447-KAR].

Classification of agricultural machinery - Rate difference without rationale

In columns, the content is usually selected based on applicability to majority of readers. Therefore, classification issues which pertain to particular goods, are not generally highlighted. However, when an order throws up an issue for which rationale has to be searched, it warrants a mention. In an advance ruling, the issue involved was machinery used for cleaning and sorting fruits - raisins and grapes. Heading 8433 attracting 12% GST covers machines for cleaning, sorting or grading of eggs, fruits or other agricultural produce other than machinery of Heading 8437. It appears that Heading 8433 is intended to cover machinery related to agricultural produce. Heading 8437 covers machines used to clean, sort or grade seeds, grains and dried leguminous vegetables and GST @ 5% is applicable. If the machinery is related to seeds and grains, GST rate is 5% and if it pertains to fruits or other agricultural produce, the rate is 12%. There is no rationale for such difference in tax rates when all the machines are used for same or similar activity related to food or agricultural items. In this case, the AAR has held that the goods would be classifiable under Heading 8433.

Weighing machinery is also involved for classification and here again, electrical machinery attracts 18% whereas non-electrical item is under 12%. Use of power used to be a criterion under excise exemptions as possession of power-operated machinery was seen as indication of size of the manufacturer. All these vestiges are still retained in the modern-tax system of GST as well [2021-VIL-230-AAR].

TDS applicability when contract is absent

Section 51 of CGST Act mandates tax deduction at source (TDS) by specified persons like government departments and governmental agencies. Such GST-TDS is applicable where total value of supply under a contract is more than Rs. 2.5 lakhs. A particular entity sought advance ruling on applicability of TDS provisions in various scenarios. One of the important questions posed was whether in the absence of contract, invoice can be treated as contract. The AAR did not answer the same categorically but said that an invoice may cover a contract fully or part of the contract. This apparently means, invoice is not treated as a contract. Taking note of the applicant's mentioning of procurement under the terms and conditions of agreement of continuous supply in two of the scenarios, the AAR has ruled that in such cases, if the amount involved exceeds Rs. 2.5 lakhs, then TDS would be applicable. In other scenarios also, the ruling relies on value exceeding Rs. 2.5 lakhs for determination of applicability of TDS sidelining the relevance of existence of contract. The question itself was based on absence of contract but the same has not been answered unequivocally [2021-VIL-229-AAR].

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