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Tax Vista Your weekly tax recap Edn. 138 - 6th February 2023 By Dr. G. Gokul Kishore |
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Existence of alternative remedy cannot be mechanically construed as ground for dismissing writ petition - SC
Taxpayers file writ petition before High Courts with the great hope of some relief when quasi-judicial authorities act like a prosecuting agency. In several cases, their hopes are dashed when it is held that such taxpayers should have filed appeal before appellate authority or body as per the applicable tax statute and writ petition is not maintainable. In a salutary judgment, the Supreme Court has explained the scope of powers of High Courts under Article 226 of the Constitution of India and has held that refraining from exercising writ power is a self-imposed restriction when an alternative remedy which is efficacious is available but the same would not oust the jurisdiction of High Court and render a writ petition as "not maintainable". It reminded that High Courts have discretion in entertaining writ petition and the mere fact that the petitioner has not pursued alternative remedy (appellate remedy) cannot be mechanically construed as a ground for dismissal of writ petition.
Holding that "maintainability" and "entertainability" are distinct concepts, the top court said -"The objection as to "maintainability" goes to the root of the matter and if such objection were found to be of substance, the courts would be rendered incapable of even receiving the lis for adjudication. On the other hand, the question of "entertainability" is entirely within the realm of discretion of the high courts, writ remedy being discretionary. A writ petition despite being maintainable may not be entertained by a high court for very many reasons or relief could even be refused to the petitioner, despite setting up a sound legal point, if grant of the claimed relief would not further public interest. Hence, dismissal of a writ petition by a high court on the ground that the petitioner has not availed the alternative remedy without, however, examining whether an exceptional case has been made out for such entertainment would not be proper."
In the case before it, it held that the question of jurisdiction of Revisional Authority was involved and therefore, the High Court ought to have not rejected the writ petition as not maintainable. The issue pertained to applicable VAT rate on mosquito repellant under Haryana VAT Act where the assessing authority had held concessional rate of 4% would be applicable which was eventually sought to be revised after Tribunal's order. This, it appears, was not legally permissible as per the relevant provisions [2023-VIL-10-SC].
The order of the Supreme Court will be helpful to many taxpayers who are now litigating before High Courts on various issues under GST like cancellation of registration, rejection of refund, etc. When GST Tribunal has not been established so far, High Courts have sufficient ground to entertain writ petitions. While certain High Courts are taking note of absence of GST Tribunal and decide writ petitions, some others are not.
Vouchers qualify as money and are not exigible to GST
Many a time we wonder whether vouchers are indeed a gift and about its worth. On a slightly different note, High Court of Karnataka examined the question of what a voucher is. The petitioner argued that vouchers being accepted as a means of payment qualify as "other instruments" mentioned in the definition of money in GST law and hence the activity of procuring pre-paid payment instruments (PPIs) of gift vouchers, cash back vouchers and e-vouchers from the issuers and supplying them to its clients for specified face value is not exigible to GST. The High Court held that vouchers qualify neither as supply of goods nor as supply of services since vouchers do not have any intrinsic value and they represent the value of future goods or services to be redeemed. Further, issuance of vouchers is similar to pre-deposit and not in the nature of supply of goods or services [2023-VIL-67-KAR].
While the ruling on merits in GST regime contributes to jurisprudence and is in favour of the assessee who could not succeed upto level of AAAR, there is no discussion on how the particular transaction of procuring voucher is similar to issuance of or dealing in vouchers. The exact nature of activities performed by the petitioner is not clear. The department is likely to challenge the ruling as there are multiple actors involved in such transaction and tax implications vary accordingly. There is no discussion on maintainability / entertainability of writ petition against an advance ruling particularly when the method adopted to arrive at the ruling by AAAR was not questioned.
Refund under GST regime for area-based exemption units - Litigating for 13 years
Budgetary Support Scheme provides for refund of specified percentage of CGST and IGST paid by cash after using ITC to taxpayers who were availing area-based excise exemption which was discontinued after introduction of GST but period for which such exemption was earlier available was not yet over. The unit should be an "eligible unit" for availing refund - the unit should be eligible for availing excise exemption before GST and it should have availed such benefit. A taxpayer has to fight throughout to first get the benefit of excise exemption and then trek to the High Court to validate their claim to refund under the new scheme. The taxpayer had filed intimation as required under excise exemption but the department denied having received any intimation and hence, the claim to exemption was rejected. At Commissioner (Appeals) level, the taxpayer was successful even before GST was implemented but the department carried the matter to CESTAT. When the Tribunal pronounced its decision upholding the taxpayer's claim, GST was in place. The department finally granted refund under excise exemption but credited the same in Consumer Welfare Fund and the litigation on this issue is being pursued separately.
Before the High Court, the department argued that refund under Budgetary Support Scheme is not available as the taxpayer was an eligible unit under excise exemption but it did not avail the same. This was emphatically rejected by the High Court holding that because the petitioner was denied the benefit during material period, it cannot be interpreted that they were not availing the exemption at all as they were pursuing the legal challenge to such denial throughout. It further held that payment of excise duty under protest even while keeping the battle alive cannot be construed to hold they were not availing excise exemption before GST. It ordered payment of refund under the new scheme [2023-VIL-70-DEL].
If a taxpayer can be denied exemption on the trivial ground of non-filing of intimation which was a fact verifiable easily and if the department can file appeal in Tribunal against the taxpayer in such case and finally take technical argument of taxpayer not being an eligible unit - all these in the past 13 years - no amount of reform can improve the system or processes. This may sound pessimistic but unfortunately along with tax regime, litigation is also migrated to the new regime. Factories are established to manufacture goods while department manufactures litigation at far greater pace. Finally, established taxpayers may succeed after a prolonged battle, others wither away with mounting debts and IBC proceedings.
Risky exporter tag - Risky to export when refunds are withheld eternally
Risky exporter tag is mostly used to deny genuine IGST refund where bona fide taxpayers are branded as fraudulent persons and subjected to harassment of indefinite verification and eternal suspense without actually lifting the tag and sanctioning the refund due. In a typical case of this nature, the department scaled new heights by denying IGST refund to the petitioner-exporter on the ground that his supplier's supplier was categorized as risky exporter. The High Court was shocked. It said -"none of the provisions of the CGST Act and the IGST Act mandate the petitioner to verify the genuineness of the suppliers of the supplier, even though safeguards is provided to recover the taxes, if not paid or wrongly availed by the petitioner's supplier or supplier's supplier. In this case, the supplier's supplier is placed in the list of L2 risky supplier and even then, with a hope to get the IGST refund, the petitioner has paid the ITC, but still the refund is not processed and given to the petitioner."
It held that the department ought to have granted 90% provisional refund. It took note of the fact that even after receipt of positive verification report, NOC was not issued and the petitioner was not prosecuted for any offence. The petitioner went beyond and reversed ITC with interest as well. The High Court directed grant of refund [2023-VIL-78-GUJ]. It is time to examine the risky exporter tagging so that adequate safeguards are placed and genuine exporters are not unnecessarily harassed by denial of refund and making them wait for years.
E-way bill expiry - Department required to inform right to extend validity
Digitisation brought precision, transparency and clarity in functioning of tax law but has infused mechanical and rule by book orders. A delay of 40 minutes in reaching the destination in Darjeeling and failure to renew the e-way bill went against the assessee who could not convince the lower authorities. The High Court had to intervene and held that where a statute provides extension of time to a transporter, the adjudicating authority before imposition of tax and penalty ought to have communicated to the transporter about his right to extend the period. It did not accept the argument of the department that the assessee ought to have extended that period by itself - [2023-VIL-72-CAL]
Tax dues prior to date of finalisation of Resolution Plan cannot be demanded later
The issue of tax dues versus creditors of a sick company and sanctity of the resolution plan under IBC appears to be evergreen. Adding a newer shade, the tax department issued notices to the company-petitioner seeking explanation to wrong availment of ITC and confirmed the demands. This was despite the averments by the petitioner that all dues stood extinguished or settled as per the resolution plan as agreed by the department also and that the department could not seek to reopen issue prior to the date of resolution. The Rajasthan High Court relied on Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [2019 (16) SCALE 319] and set aside the orders demanding tax.
The High Court had certain strong words for the Deputy Commissioner (SGST) who passed the order -"The Deputy Commissioner, State GST Department exercises quasi-judicial functions while acting under the provisions of the GST Act and thus, it is expected from such officer to act judiciously, consider the reply of the party, apply mind to the facts and law and pass a reasoned order. However, a bare perusal of the impugned orders dated 22.04.2020 is sufficient to satisfy us that the officer acted in gross defiance of the settled legal position as expounded by Hon'ble Supreme Court in the case of Committee of Creditors of Essar Steel India Ltd. and this Court in the case of Ultra Tech Nathdwara Cement Ltd. Such laconic approach of the authority exercising quasi-judicial powers reflects sheer incompetency and pedantic approach and adds to the evergrowing dockets of cases in the courts. The reply of the petitioner was incorporated in the order dated 22.04.2020 by using the procedure of cut-copy-paste but without making the slightest consideration of the averments made therein, the demand orders were issued in a sheerly perfunctory manner. While passing the impugned orders, the Deputy Commissioner failed to consider the replies of the party and acted with sheer non-application of mind. His conduct deserves to be deprecated." [2023-VIL-68-RAJ]
Budget 2023 - A sober affair
Budget 2023 was widely speculated to bring big bang announcements as it is the last regular budget before the general elections next year. However, it turned out to be somewhat sober as the changes were moderate and understandable. On the Customs side, duty rate structure has been modified ("rationalized") by reducing the number of rates and therefore, BCD, AIDC and SWS rates have been revised for certain goods. This issue of Tax Vista comes almost after week after presentation of the Budget and therefore, commodity-wise changes are not highlighted. As exemptions are subject to sunset date these days, review of exemption notifications have been made and some of them have been extended while some will lapse from 31-3-2023. A corresponding amendment proposed in Section 25 of Customs Act seeks to keep FTAs and other exemptions based on bilateral agreements out of the sunset clause of two years. Central Excise which used to occupy the top spot in yesteryears, finds a mention in Budget even today with upward revision of NCCD on cigarettes.
On GST front, recommendations are made by GST Council on amendments to GST law and even after amendments are made through Finance Bill, 2023 to CGST Act and IGST Act, till the time corresponding changes are made in SGST Acts, they do not come into force. These facts dampen the spirit of Budget in so far as GST is concerned. While prescription of three years as per the amendments proposed in the Finance Bill, 2023 as the outer time-period for returns like GSTR-1 and GSTR-3B (beyond which filing would not be allowed) is known as per GST Council's recommendations, the amendment contemplated in Section 17(5) of CGST Act to restrict input tax credit on goods and services used or intended to be used for CSR activities was not largely known before. This is a retrograde amendment as genuine and statutory business expenditure is being deliberately kept out of credit system only for revenue purpose. As the amendment is not retrospective, ITC can be availed till the time the law stands amended and effective date is notified. Interest on delayed refund will be subject to conditions to be prescribed and an enabling provision has been proposed in Section 56 of CGST Act. This means, interest may not be automatic or absolute after expiry of sixty days. A few amendments have been proposed in respect of OIDAR service under IGST Act and it seems, they are not significant in terms of implication.
(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)