Tax Vista Your weekly tax recap Edn. 137 - 30th Jan 2023 By Dr. G. Gokul Kishore

 

 

Payment of tax for release of detained goods is by consent?

Argument by the department before courts sometimes go over the cliff. In a recent typical case of detention of goods for e-way bill related mistake, as usual, due to urgent need for the detained goods, the taxpayer paid the amounts demanded by the GST authorities. Though appeal was filed against such order which was dismissed, the department contended before the High Court that the payment was voluntary and it was a case of consent order. This consent theory was floated to argue that the authority need not give reasons in the order in such cases. The High Court did not agree. It held that the amounts were paid only because there was no other option for the taxpayer to get the goods released and the payment was not voluntary. Further, neither the SCN nor the order gave reasons for demanding tax and imposing penalty and therefore, the order was set aside directing the authority to issue fresh SCN. In these type of cases, the department's counsel should concede and accept for remanding the matter instead of trying to cause more pain to the taxpayer [2023-VIL-50-DEL].

 

Readers may see another order on detention of goods where the High Court has quashed the order on the ground that it was not passed within seven days of service of notice. In this case, the delay was marginal but the same went against the department. The High Court relied on earlier orders which were not appealed against by the department [2023-VIL-60-MAD].

 

Cash can be seized under GST law?

How investigations should not be conducted - this lesson should be taught to departmental officers. When a premises is visited as part of search operation, cash is found and the officers instead of seizing them, take them in their possession and put the same in a fixed deposit. The department's counsel has contended the currency was "merely resumed" and therefore, no seizure memo was prepared as they were not seized. The High Court has noted that there is no provision in GST law to resume assets without seizing them. It held that search and seizure powers are draconian and must be used only if the conditions are satisfied. It expressed the prima facie view that cash is not covered under "goods" and it cannot be treated as "thing" useful or relevant proceedings. Because there was no seizure, this question - whether cash can be seized as a thing relevant for proceedings could not be answered, as per the order. However, there is an order of Madhya Pradesh High Court in Kanishka Matta v. UOI [2020-VIL-411-MP] holding that money can be seized as a "thing" as per Section 67 of CGST Act.

 

In the above order, certain interesting contentions have also been raised. Officers were engaged in Whatsapp chats with the petitioners and they were asked to come to a park for meeting. The High Court has directed the officers to be present in the court during the next hearing. This is the reason, in the above para, the need for training on how not to conduct investigation has been highlighted [2023-VIL-62-DEL].

 

Online gaming - HC says SCN is abuse of process of law

Litigation relating to online gaming under GST regime is on the rise. The question whether such games are games of skill or of chance has witnessed many courtroom battles. In GST regime, this question will again see another round. Rajasthan High Court has taken note of its own decisions on this issue holding online gaming services as not in the nature of betting / gambling and dismissal of SLP filed against them by the Supreme Court. It has held that show cause notice issued proposing to demand GST alleging mis-classification of supply as one of service instead of actionable claim is abuse of process of law. The matter is yet to be finally decided and order is interim in nature.

 

Alcohol, tobacco products, horse racing, gaming, etc., are activities where the governments have always shown double standards and the legislation has either been not clear or the revenue consideration has ensured that the laws remain toothless. This is coupled with arguments on tax law being immune from considerations of ethics or morality [2023-VIL-57-RAJ].

 

Seamless ITC lost in online wilderness

Input tax credit is one of the pillars of GST as per official documents and speeches. The pillar is so weak from day one that whether it is transitional credit or other ITC, unless taxpayers approach jurisdictional High Court, no relief can be expected. ITC-01 is the form prescribed to enable a person to claim ITC of stock in hand when he migrates from being a composition taxpayer to a regular taxpayer. In a recent case before Jharkhand High Court, the taxpayer had attempted to file ITC-01 form but due to technical glitches, he was unsuccessful. GSTN has responded stating that there was no glitch in the portal as other had filed successfully during the relevant period. SGST authorities have informed the High Court that there was error message shown in the portal during the relevant time when ITC-01 was sought to be filed. In the backdrop of such factual contradictions, the High Court has held that the provisions empower the Commissioner to extend the time for filing such ITC-01 form and the petitioner should approach the Commissioner with request for extension of time. Based on the decision of Commissioner, the petitioner may avail ITC, as per the order. A simple step of taking credit based on stock available physically is being prolonged for 4 years only because of issues in filing of form online and even for such interim relief, the taxpayer has to lodge complaints, file representations and litigate in High Court. If this is the state of affairs, taxpayers will not bother about ITC or business but will be keen on renunciation [2023-VIL-47-JHR].

 

Supplies by SEZ Authority to SEZ unit are also zero-rated - GST not payable by recipient

It is well known that supplies to SEZ developer or unit are zero-rated i.e. they are considered as exports and consequently exemption or other benefits as available to exports are admissible. As the wording in the law is not unambiguous, the taxpayer sought advance ruling on whether such treatment would be available when services are not provided from DTA to SEZ but by SEZ developer to SEZ unit. Because it is advance ruling, the outcome was obvious - against the taxpayer. However, on appeal, the Appellate Authority for Advance Ruling (AAAR) has held that GST is not payable under reverse charge by the taxpayer / appellant as recipient on renting of immovable property by SEZ authority subject to the condition that LUT is furnished by the recipient of supply (appellant).

 

As per the ruling, provisions relating to zero-rated supplies only provide for supply of goods or services or both to SEZ developer / unit and does not refer to the type of supplier - whether the supplier is located in DTA or SEZ and location of supplier is not relevant and therefore, GST is not payable under reverse charge irrespective of location of the supplier. One of the issues answered by the AAAR is that provisions relating to zero-rated supply includes supply of services where GST is payable under reverse charge by the recipient of supply. The AAAR went to on hold that not only renting, but in respect of other services also, GST is not payable in such cases when the services are used for authorized operations. A rare ruling in favour of taxpayer adopting purposive interpretation (though not stated so in the ruling) is welcome [2023-VIL-09-AAAR].

 

Tool development is supply of goods

The same AAAR as noted in the above said case has held that designing and development of tools by the appellant as per the specifications provided by overseas customer and also getting the tools manufactured from third parties amounts to supply of goods. In this case, the appellant performed two tasks - design and development (and manufacture through third party) of tools and also manufacture of components using the same tools. Invoice was raised separately on the foreign customer for whom both the tasks were undertaken and the components were exported. By holding that tool development and supply work is not supply of service, the AAAR has effectively negated export of service benefit. The tools do not leave India though the charges are recovered from the foreign party and therefore, such activity gets taxed in India.

 

The AAAR took note of the purchase order by foreign customer to receive manufactured pattern/tools as per their specification from the appellant and there was back-to-back arrangement whereby appellant hired third party to manufacture such tools based on their drawing, design, modelling, simulation and documentation. Earlier, AAR in the advance ruling had held the activity to be supply of service but the taxpayer would be covered under intermediary and therefore, it would not amount to export of service. However, AAAR held that such tool supply was made by appellant on own account and they were not facilitating any supply and therefore, they would not be treated as intermediary. Though the tools were not physically exported, ownership was transferred to the foreign customer and it would be supply of goods only. The AAAR did not accept appellant's contention that the transaction would be composite supply. If purchase order, invoicing, etc., are the factors which worked against the appellant, then they may go back to the table to brainstorm on alternative strategies [2023-VIL-08-AAAR].

 

A ruling on jaggery packed in uneven lumps

In a ruling sans sweetness and sound reasoning, the AAR has held that jaggery wrapped in loose sheets or gunny bags and brought to APMC for quality check and sale is also exigible to 5% GST. The applicant argued that Notification No. 6/2022-Central Tax (Rate) dated 13-07-2022 covers jaggery of all types which are pre-packaged and labelled. Reliance was placed on provisions of Legal Metrology Act, 2009 (LM Act) which requires affixing of label and bearing declarations. Definition of "pre-packaged commodity" as to the commodity which without the purchaser being present is placed in a package of whatever nature, whether sealed or not, so that the product contained therein has a pre-determined quantity, was also highlighted. The applicant argued that none of these terms were satisfied in case sale of jaggery which was packed as non-uniform lumps and weighed only after purchaser agreed to buy the same. However, the AAR was not impressed and proceeded to pronounce a single line order stating that all types of jaggery are covered for the purpose of 5% GST. This is the precise issue with advance rulings. Contentions were not considered and the order is cryptic and non-speaking, particularly on the aspect of pre-packaged and labelled [2023-VIL-28-AAR].

 

Catering services provided to independent pre-university institution exempt

The applicant engaged in hotel business provided breakfast and lunch to students of school in terms of its contract with such educational institution. The AAR has held that catering service provided to institution providing education upto higher secondary is exempt and therefore, in the case before it, the said services would be eligible for exemption under entry No. 66 of Notification No. 12/2017-Central Tax (Rate). The ruling is on an obvious question but this is mentioned in this column to highlight the anxiety of taxpayers to approach AAR so that unnecessary litigation is avoided [2023-VIL-26-AAR]

 

 

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal. The author has published books on cross-border taxation and investigations & appeals under GST. He edits R.K. Jain's GST Law Manual. E-mail - gokulkishore@gmail.com)