Tax Vista Your weekly tax recap Edn. 76 - 29 November 2021 By Dr. G. Gokul Kishore

Budgetary support scheme - Inventing grounds to deny legitimate benefits

Companies invested in hilly and remote regions to avail the tax breaks given as per industrial policy to promote growth. When GST was introduced, such area-based exemptions under Central Excise were replaced with budgetary support scheme. As per this scheme implemented in GST regime, units availing exemption before GST are eligible to get refund of tax paid by cash after utilizing ITC for the remaining period of the period of exemption. Those who intend to avail the benefit are required to apply online and get unique ID (UID) and submit claims on quarterly basis. In a recent case before Sikkim High Court, the petitioner had assailed denial of benefit on the ground that the claim was filed before obtaining UID which was a pre-condition. The petitioner had filed the claims for the initial period manually as per CBIC circular and the department did not take any action on the application filed for UID manually. Later, the same was filed electronically as well.

The High Court accepted the contention that not registering and not providing UID was department's failure and the application received manually was neither registered nor rejected compelling the petitioner to submit the same again online later. Grant of UID later showed that the petitioner was eligible for the benefit and denial on such technical ground was held as illegal. It directed the department to process and sanction the refund after holding - "The impugned orders rejected the petitioner claim for budgetary support on that sole ground without examining the application as to how much of the amount claimed was liable to be sanctioned as admissible amount of budgetary support. The stand of the department is fallacious. It is not only without substance but clearly illegal in as much as it sought to take advantage of its own wrong and deprive the petitioner of its rights under the scheme." [2021-VIL-821-SIK].

While the issue is simple and the order is clear, the fact that the government having withdrawn the area-based exemption riding on the back of jurisprudence on absence of promissory estoppel in their favour, is expected to issue appropriate instructions to its officers so that eligible units are not harassed to enter into litigation for obtaining even the truncated benefits than what was originally envisaged.

Transitional credit cannot be denied for inadvertent clerical errors

In Tax Vista dated 12th July 2021, order of Single Judge of Madras High Court [2021-VIL-510-MAD] on extending transitional credit overruling the objection of the department on clerical error was analysed. Now, the Division Bench has disposed the appeal by the department by upholding the Singe Judge order. In this case, the taxpayer had filed TRAN-1 form and there was a mistake in filling up the figures in a column though it was mentioned correctly in another column. The form was revised but such mistake was not taken into account. The department took the stand that credits from pre-GST laws cannot be transitioned in view of the lapses in the form. The Single Judge had held that transitional credit cannot be denied on such ground. This has been upheld by Division Bench placing reliance on doctrine of substantial compliance as enunciated by the Supreme Court in the case of Dilip Kumar [2018-VIL-23-SC-CU-CB]. This was on interpretation of exemption notification and the High Court has held that it will be applicable to ITC as well. As per the order, inadvertent mistake in filling figures cannot be fatal to transitional credit as otherwise it would frustrate the very objective of extending the benefit of ITC from earlier regime to GST. ITC is a beneficial scheme framed in larger public interest of removing cascading effect of taxes and denial of such transitional credit for clerical mistake is not necessary as per the order [2021-VIL-816-MAD].

The requirement to fill up a form within a particular time-limit, faulty design of the form initially and perpetual extension of time-limits due to technical glitches - all these have made the entire exercise of transitional credit a cruel drama played to push the industry from the brink to the abyss. Added to this is the above act of denial of credit on finding fault with clerical errors. The taxpayer is a major PSU and all the forms and returns are verifiable and if the department had any suspicion, it should have examined the same instead of pushing the taxpayer to court and also file an appeal.

Voluntary payment of dues and conclusion of proceedings - Petition dismissed with costs

Generally, taxpayers allege that mahazar / panchnama / statements were obtained and payments were made due to coercion and the same were not voluntary. In a case involving such charges, the Delhi High Court has dismissed the writ petition with costs after accepting the department's submission on concealment of facts by the petitioner. The order reveals that year-wise liabilities were computed after search and the same were paid. Later, cash seized was also released and bank was directed to release such amount for payment of government dues. Based on all such payments, the department concluded the proceedings. The petitioner alleged copy of panchnama was not provided and payments were not voluntary. However, submission of letter by the petitioner to the department to release and adjust such amount against dues, acknowledgement in panchnama for receipt of copy, taking the plea of coercion after delay etc., were held as against the petitioner by the High Court. When proceedings were concluded after payment of amounts, it is not known why a writ petition was filed seeking return of the same. Either the representing counsel was not property briefed or the facts were not properly presented, if the case is actually one of "coercively volunteered" [2021-VIL-820-DEL].

Railway items - Composite supply and mixed supply

Advance rulings cannot be blamed for absence of reasons at least in certain cases. In two rulings reported last week by VIL, there is some reasoning but the discussions do not go full length before arriving at the conclusions. Both of them involve the same applicant and recipient is also railways. The items are train collision avoidance system and electronic equipment (not clear from the ruling as abbreviation of IGBT is mentioned). The former has been held as composite supply where various goods work in unison to ensure safety of trains and therefore, naturally bundled. The latter has been held to be a mixed supply. They are not parts without which the whole cannot function - so goes the reasoning. Readers may read and get benefitted from these rulings, if they can. The applications for advance ruling were filed in 2018 but are being decided now after three years and the rulings do not contain any reason for such delay [2021-VIL-423-AAR and 2021-VIL-425-AAR].

ITC on construction service not available when used for providing leasing service

The Authority for Advance Rulings (AAR) has held that input tax credit of GST paid on purchase of flat (under-construction) will not be available to the recipient who uses the property for providing leasing service. Both the questions framed by the applicant and the discussions may not be enlightening to address this weighty issue. However, the ruling is clear when it says that Section 17 of CGST Act is a complete code in itself and Schedule-II operates in a field different from that of Section 17. It further holds that the prohibition from taking ITC under Section 17(5) does not distinguish any particular species of works contract. Therefore, in the present case, ITC will not be available to the applicant [2021-VIL-424-AAR].

It is surprising to see the questions like whether the reference to "goods or services received" in Section 17(5)(d) refers to output supply or input supply and when the builder had taken ITC of GST paid by the applicant (buyer), where is the prohibition on the applicant to do the same. Though the matter is pending before the Supreme Court, it is not known why reliance was not placed on Odisha High Court decision on Safari Retreats [2019-VIL-223-ORI] in this case.

Telecom services supplied to municipal corporation are not exempt

As against the above ruling, in another case, the reason for seeking advance ruling is not clear as the applicant is a telecom major with apparently in-house and external legal teams to advise them. May be, the option of advance ruling is not very expensive. The question was whether telecom services (mobile / data) provided to employees of municipal corporation are exempt. The applicant had stated that the services would be used for general office / administrative purpose. However, they sought to know about availability of exemption. The AAR has held that the relevant entry in the exemption Notification No. 12/2017-Central Tax (Rate) covers pure services provided to municipality in relation to municipal functions under Article 243W of the Constitution and in the present case, there is no direct relationship with the services provided by the applicant with the functions discharged by the municipality under Article 243W [2021-VIL-420-AAR].

Printing of OMR sheet & exam materials is exempt but cheque printing is not

Services provided to an educational institution relating to admission or conduct of examination are exempt from GST as per Notification No. 12/2017-Central Tax (Rate). Therefore, printing of OMR answer sheets, question papers, hall tickets, etc., will be exempt as per a recent advance ruling. Printing of cheque book for banks will attract 18% GST if the materials (physical input) like paper is used from own account by the printer and it will be 12% if it is provided by the service recipient. This portion of the ruling is based on CBIC circular clarifying such issues. The applicant had relied on a ruling passed by the same authority earlier on the same issue. However, the AAR has held that such rulings are not binding on them as they are binding only on the applicant concerned and the jurisdictional officer. Consistency is one of the hallmarks of justice dispensation and unless there is a change in law, except for eminent reasons, decision or stand taken earlier should not be altered by the same forum on the same issue in respect of same facts [2021-VIL-422-AAR].

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal. Two books authored by him have been published - Cross-border Transactions under Tax Laws & FEMA (July 2021) and GST - Investigation, Demands, Appeals & Prosecution (August 2021))