Tax Vista Your weekly tax recap Edn. 55 - 5 July 2021 By Dr. G. Gokul Kishore

Input tax credit when electricity used in township - HC grants interim relief

There may be disputes over transitional credit but there cannot be any dispute that disputes of pre-GST regime have been transitioned to GST regime as well. Input tax credit in respect of coal attributable to electricity produced in captive power plant by the taxpayer and used in township (residential area) adjacent to factory is now under litigation. The petitioner argued that activities in furtherance of business are covered under Section 16 of CGST Act and township is integral part of the factory in remote area which cannot be operated without the support of such township. It was further argued that activity incidental or ancillary to primary business is also covered for the purpose of ITC. The High Court held that prima facie, Section 16 takes within its sweep township attached to factory in furtherance of business but this being a fact will be considered later. The Court ordered part amount to be deposited and recovery of balance amount was stayed [2021-VIL-492-CHG]

Factory being operated 24x7, location of factory in remote area, indispensability of employees to reside near the factory considering the continuous production process, etc., are facts which are not new to CBIC. These very same facts were involved in similar disputes in the earlier regime. Drafting Section 16 in such a manner to give an impression that credit is available on anything related to business activity and, in reality, snatching away the same through Section 17 with a lengthy negative list barring credit, is a serious issue in the design of GST law itself. Unless this fundamental flaw is addressed, taxpayers have to seek relief from the tribunal and courts without any certainty which is one of the canons of taxation.

Detaining vehicles on e-way bill expiry - Question of bread and butter

For many mid-size dealers, e-way bill is a major issue. Break down of vehicles is quite common and e-way bill validity expires while the vehicle is in transit. Though check-posts are stated as abolished, vehicles are detained along with the goods. The problem gets compounded when perishable goods or goods having short shelf life are transported. In one such case, butter was being transported. It is not clear whether the truck was refrigerated or not. The party was before High Court seeking release as tax was paid, there was no evasion and it was a case of break down of vehicle. The goods being perishable was also highlighted. The High Court directed release after imposing conditions relating to bank guarantee and bond. E-way bill was proclaimed as a major taxpayer friendly measure. Re-visiting such systems and processes and re-engineering them may ensure they remain truly friendly [2021-VIL-500-TRI].

CBIC Circular on initiation of action under CAROTAR for release of goods is bad in law

The Madras High Court has held that CBIC Circular No.42/2020-Customs directing officers to take recourse to the procedure for reference under Customs (Administration on Rules of Origin under Trade Agreements) Rules [CAROTAR] only if the importer furnishes 100% of the differential duty as a security transgresses the statutory scheme under Section 28DA of Customs Act and has been issued in excess of authority and is bad in law. According to the Court, Section 28DA(5) requiring the importer to furnish security for 100% differential duty is only a pre-condition for release of the goods and Section 28DA does not permit raising of a demand for security for initiation of verification but only for release of the consignment.

In this case, the importer had obtained NOC from agency appointed under FSSAI and later value declared was disputed and the same was accepted by the importer. Certificate of Origin (COO) was produced which was defaced and physical examination was waived but suddenly, authenticity of COO was questioned and the Customs authorities raised objections like date stamping was not clear, COO could not have been issued with retrospective effect, etc. The High Court noted that the order denying exemption / preferential rate did not detail COO related objections and the same contained no reasons and was a non-speaking order. Quashing the impugned order, it directed the authorities to release the goods.

In another port, the importer was not subjected to such harassment but the department contended that such action would not bind the authorities in another location. This was not accepted by the High Court. It said - "This position is not appreciated as authorities under a Central enactment are expected to adopt consistent views in regard to similar/identical transactions, especially when they relate similar/identical fact and legal patterns. Diametrically opposite conclusions are not expected to be drawn on identical questions of fact and law by statutory authorities." [2021-VIL-488-MAD-CU].

While existing laws provide fertile ground for raising objections and disputes, new law / provisions like CAROTAR will take years to settle before being used and misused by the department and interpreted and re-interpreted by courts.

Refractory cement is not cement as understood generally - HC orders Customs clearance

Generally, in Central Excise, disputes involving classification are commodity-specific but facts used to be interesting as one gets to know more about particular products. In a recent Customs case, High Alumina Refractory Cement (HARC) was imported and Customs authorities denied clearance in the absence of BIS certification. The importers contended that BIS certification is not required for such item since HARC is not a cement but a refractory material and the same has not been notified by the government as cement under Cement Quality Control Order, 2003 (CQC Order). The Customs authorities were of the view that the definition of cement CQC Order included "any other variety of cement" and therefore, HARC was very much covered for BIS requirement.

The High Court noted that Section 2(d) of CQC Order defines cement in an inclusive manner by mentioning names of several types of cement and also contains the expression "any other variety of cement" but HARC has not been mentioned by name or specifically notified under "any other variety of cement". It held that notification in official gazette is sine qua non for bringing HARC within the scope of the above expression. A notification issued for HARC was cited by the department but as per the rule under which the same was issued, establishment of standard was only voluntary and compliance with the same was held by the Court as not mandatory unless the same was referred to in a legislation or stipulated by a specific order. Supreme Court's precedent judgments placing reliance on common parlance understanding of cement as against refractory material meant to withstand high temperature in kilns and furnaces was relied on to distinguish cement and refractory material. It held that demand of BIS certification was illegal and without jurisdiction and directed Customs authorities to grant clearance [2021-VIL-498-AP-CU].

Intermediary service - Another ruling on same lines

Considering the title, readers may wonder why an advance ruling should be discussed if it is on the same lines as other rulings on this issue. The eternal hope is to find out a line or two which may be different. In this case, the applicant argued that he is only identifying buyers for overseas customers for which he is getting paid in foreign exchange. Otherwise, there is no agreement and he is not acting as agent because he has not been appointed as one. The Authority for Advance Rulings (AAR) has held that the crux of the definition of intermediary is arrangement or facilitation of supply of goods or services which gets satisfied in the present case because the applicant is paid commission as a percentage of volume of sales made by overseas parties. The applicant undertakes the business at his own risk which means supply of goods is not made on own account. Based on such reasoning, it has been held that the activity does not amount to export of service.

The AAR has held that place of supply being in West Bengal, the supply of service will be treated as intra-State supply. This means CGST and SGST will be applicable. This issue is not free from controversy and it was discussed in Tax Vista 11th January, 2021 in the backdrop of an advance ruling reported in 2021-VIL-06-AAR. The validity of place of supply provision in respect of intermediary service itself is under challenge as per the difference of opinion of Bombay High Court as per a recent order [2021-VIL-239-AAR].

Training provided under State-funded schemes - GST not payable

Training or coaching to students based on schemes implemented by Department of Welfare of Scheduled Caste and Backward Class, Government of Haryana is an activity exempt from GST as per relevant notification. The entry relates to services provided to Central Government or State Government or UT administration. This question was answered by AAR in favour of the applicant who was engaged by the government for providing such training / coaching. The AAR has also held that the applicant is not liable to take registration. Full facts are not known in this case as the applicant appears to be conducting several courses from various campuses and the ruling on absence of liability to take registration after examining the above course alone is not clear [2021-VIL-240-AAR].

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