Tax Vista Your weekly tax recap Edn. 84 - 24th January 2022 By Dr. G. Gokul Kishore

E-way bill harassment - Supreme Court imposes additional costs on department

Government contributes to proliferation of litigation - this statement gets vindicated by a recent order of the Supreme Court. The amount involved is Rs. 69,000 and the issue is expiry of e-way bill. The GST department came to the top court primarily against the costs of Rs. 10,000 imposed on the officer by the Telangana High Court after taking note of abuse of power. The Apex Court's order opens with the statement that error, if any, committed by High Court was imposition of nominal costs. The conduct of the officer in keeping the goods in the house of a relative for 16 days was viewed seriously by the High Court and the same has been noted by the Supreme Court as well. It has held that the inference by the officer that the taxpayer was attempting to evade tax was baseless, rather the intent in keeping goods in private place was questionable. Upholding the High Court's order as correct, it said that the goods could not be taken to the destination within time for reasons beyond the control of the taxpayer like traffic blockage due to agitation on that particular day. After taking specific note of the conduct of the department and the consequent harassment faced by taxpayer, additional costs of Rs. 59,000 has been imposed by the Apex Court. The department would be entitled to recover such amount from the officer concerned who is responsible for "this entirely unnecessary litigation" [2022-VIL-06-SC].

In this column, almost every alternative week, an order of High Court on e-way bill related dispute is discussed. The issue of harassment by way of detention of vehicle, forcing taxpayers to fork out tax and penalties only to get the goods released to keep buyers happy and then filing writ petitions seeking either the money back or to set aside the confiscation - the woes are endless. Amending Section 129 of CGST Act to provide appropriate safeguard to taxpayers, providing proper training to officers, issuance of instructions from time to time to ensure that the powers are not misused - these are suggestions often made but those who should listen maintain silence and indifference. Unless some major reform is implemented, taxpayers will continue to suffer.

Investigations continuing for more than 2 years - High Court grants bail

These days bail pleas before High Courts are not very successful. In an exceptional case, the petitioner was granted bail after the High Court noted that the petitioner was a local resident (of a particular town) and unlikely to flee, investigations / inquiry has been going on for two years, premises have been searched and evidence gathered, petitioner being in custody for five months and fake business entities from whom bills alone were received have been identified. The amount involved was Rs. 7 crores and the allegation was availment of input tax credit without receipt of goods. The Court held that no hard and fast rule or straight jacket formula exists for considering bail plea and the same is discretionary [2022-VIL-48-ORI].

One of the factors which went in favour of the petitioner is the long-drawn process of investigation which commenced in 2018 but the arrest was made in August, 2021. If prosecution is intended to be launched by the GST authorities, arrest is almost simultaneous to inquiry / investigations when business premises is visited and search is conducted. Arresting a person after more than two years seems to be an after thought.

Provisional attachment of cash credit account not valid

Gujarat High Court had earlier held that cash credit account cannot be attached provisionally under Section 83 of CGST Act since it is in the nature of loan / borrowing and as such it is not a property of the person concerned. However, in the present case, the Principal Commissioner distinguished such binding precedents on the ground that the officer who passed provisional attachment order in those cases was either Assistant Commissioner or Additional Commissioner and not Principal Commissioner. Such tendency of judicial indiscipline has been censured by the High Court calling for explanation from the officer. In the recent order, the Government Counsel has accepted that such order was erroneous. Officers of the rank of Principal Commissioner should be more cautious in future, according to the High Court [2022-VIL-53-GUJ].

In the indirect tax department, orders are generally drafted by Inspectors and Superintendents and then they are reviewed / revised by the adjudicating / appellate authority. Great efforts go into finding out grounds to distinguish case law relied on by the taxpayers and since such exercise is sometimes impossible, specious and ridiculous reasons are cited for not following a precedent. A popular joke in the corridors of the tax department used to be - a particular judgment is not binding because the party name is different.

Stamp duty not payable on bill of entry

In 2011, Gujarat High Court had held that stamp duty under Bombay Stamp Act is not payable on bill of entry filed for import of goods as bill of entry is not an instrument relating to transfer of goods and such BOE cannot be termed as an order of delivery in the absence of bill of lading or order of delivery. Ignoring such judicial precedent, an importer has been compelled to pay more than Rs. 2 crores as stamp duty on bills of entry. The High Court was not happy and has directed refund of the same along with interest. In the relied upon case, it was held that delivery order is in the nature of document of title to the goods, bill of lading entitles a person delivery of goods as per relevant regulations also whereas bill of entry enables the Customs officer to assess duty on the goods declared. It was further held that "by presentation of bill of entry merely on clearance of goods is given for home consumption or for warehousing, and is distinct and different from that of delivery of goods." [2022-VIL-56-GUJ].

Discounts without GST effect - Proportionate ITC reversal not required

If commercial credit notes are issued by supplier after sale towards discounts which means GST adjustment is not made, then recipient need not reverse any proportionate input tax credit. This is the ruling by AAR in a case where the supplier has been stated as offering early payment discount (prompt payment) and target incentive (discount) to applicant-dealer and commercial credit notes are issued later without seeking adjustment of reduction in GST liability. The reasoning adopted by AAR is that since the supplier does not reduce original tax liability, applicant can avail ITC of the tax paid as per the invoice. This is subject to payment of value of supply as reduced by commercial credit notes plus the original tax amount charged in the invoice. For target incentive also, the AAR has held that the same does not affect the sale price of goods already sold.

In this apparently beneficial ruling, the AAR has put the onus on the recipient to ensure that the supplier does not reduce output tax liability subsequently at the time of filing annual return and if the supplies reduces, then proportionate ITC reversal would be required. This means recipients should check annual return of suppliers which is not provided in law. Another divergent view taken is that by receiving such incentive / discount, the applicant is not providing any service to the supplier and GST is not leviable on such discounts. There is a view that discount is a consideration for sales promotion and therefore, the same should be subject to GST [2022-VIL-16-AAR].

Sale of plot along with amenities like road and drainage not liable to GST

In a very nuanced and well-reasoned ruling, Goa AAR has held that sale of plots where amenities like roads, electric poles and drainage are also present is sale of land only and not liable to GST. This ruling comes amidst various rulings holding that such transaction would be considered as sale of developed plots and the same is not sale of land simplicitor and therefore, GST implications will arise. The AAR in this case has held that roads, electric poles and drainage are never transferred when developer sells plot to buyers and these amenities are available to all plot holders without title to the same. Later, such amenities will be gifted to local authority which will be the owner of the same. Plot owners cannot sell such amenities but can only sell their plot. Since no structure is put up, the object is to sell land only. The entry relating to construction service cannot be applied as roads, poles and drainages are not for sale to probable buyers of plot. Principal transaction is sale of land and amenities do not change the nature of the transaction - one of sale of land. The above sentences are from the ruling itself [2022-VIL-10-AAR].

The ruling should gladden the hearts of similarly placed developers also though State-wise rulings differ. A favourable ruling can provide some defence to the developers when the same is litigated before courts. The tax administration may not leave this issue without indulging in major litigation and forcing taxpayers to undergo long phase of uncertainty. CBIC is selectively pro-active and this issue may not be clarified till GST Council steps in.

ITC of GST on obtaining leasehold rights of land not available

In Tax Vista dated 23rd August, 2021, an advance ruling was discussed with the same title as above and with the hope that an appeal may result in a different outcome. This has been belied as the Appellate AAR has confirmed the ruling. The case relates to the question as to whether input tax credit of GST paid on obtaining leasehold rights of industrial land will be available. While this appears to be the fact, it has been taken in a different tangent in the ruling - construction is also involved and the Air Separation Unit which is also put up in the land gets transferred and such unit is immovable and therefore, it may be plant and machinery but since land is excluded from the definition, ITC on services related to land received for construction will not be admissible.

The efforts of the drafting officer to somehow deny ITC is palpable in this ruling as otherwise what is posed as question, what is presented as fact and what is arrived at as conclusion are contradictory. As noted in the earlier column, if a person obtains leasehold rights of a land, GST paid on such transfer of rights should be available ITC since GST is not paid on land per se but on a supply of service relating to land. It was also pointed out that ITC is not claimed in this case on plant and machinery but on the services received and therefore, definition of plant and machinery is not relevant [2022-VIL-07-AAAR].

Dental surgery items - AAR rules on classification

Classification of zirconium oxide ceramic dental blanks which is the base material for manufacturing artificial teeth, crown and bridge was involved in a recent advance ruling. The applicant was classifying the same under tariff item 69091200 which covers specified ceramic ware. The applicant sought to know whether it can be classified under heading 9021 as artificial teeth and dental fillings. The Authority for Advance Rulings (AAR) has held that the product as it leaves the factory is not in the shape of teeth and not ready to be used as artificial teeth and therefore, it is not covered under heading 9021. The item has been held as classifiable under heading 6909 attracting 18% GST. Dental services of fixing artificial teeth, crown, bridges, etc., by dentists would be covered under healthcare service and eligible for exemption as per Notification No. 12/2017-Central Tax (Rate). This is with the caveat that such exemption will be not admissible if it is part of cosmetic treatment. Bleaching of teeth i.e., restoring natural whiteness after removing stains and dental veneer treatment to improve smile are treatable as cosmetic surgery liable to 18% GST. The ruling could not have brought smile on the face of the applicant like most of the other rulings [2022-VIL-17-AAR].

Last week VIL has reported a few more rulings on classification - one involving fusible interlining fabrics of cotton (FIFC) held as classifiable under heading 5903 and not under chapter 52 [2022-VIL-11-AAR] and the second one on interactive flat panels comprising CPU, memory and output display unit as automatic data processing machine under heading 8471 [2022-VIL-14-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))