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Tax Vista Your weekly tax recap Edn. 111 - 1st Aug 2022 By Dr. G. Gokul Kishore |
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Taking money from taxpayer's bank account by GST officer is illegal
In GST, modes of recovery are far worse than those in pre-GST regime. The High Court had ordered lifting of freeze placed by the GST authorities on the bank account of the taxpayer. The order was not complied with by the bank. The bank was threatened with contempt and then it lifted the freeze. By then, the Superintendent of CGST transferred more than Rs. 62 lakhs from the bank account of the taxpayer to government account. The department's counsel sought to justify the same on the ground that the taxpayer did not cooperate. The High Court was obviously shocked at the abuse of power by the officer. It held - "We fail to understand, prima facie, as to how the authorities get this power to take away amount from anybody's account without account holder's permission or even after taking away the money, they would not even consider it necessary to inform the account-holder that money from their account has been debited. This is nothing but high handedness and gross abuse of power." It directed the department to deposit the amount with the Court Registry failing which notice for contempt was proposed.
The Court further directed the officer to explain the statutory provision under which he took the money from taxpayer's bank account and why he did not inform the taxpayer while giving such instructions to the bank. It also said that it will take action against the officer if the explanation is not satisfactory [2022-VIL-514-BOM].
In this column, while analysing judgments, certain comments or views are also expressed. In this case, it would be appropriate to reproduce Court's observations instead of stating personal views - "We are making these observations because there have been many matters where the taxpayers account is frozen and the taxpayers come to know only from the bank but after giving instructions to freeze the accounts, the authorities are not even bothering to inform the account-holders that it has given such instructions. This according to us is nothing but oppressing a taxpayer by misusing their position and amounts to harassment of all taxpayers." If CBIC does not take action to set its house in order, the judiciary will - this is clear from this order. In several orders, Courts are appalled at the department's ignorance or high-handedness and as more instances are brought before the Courts, it is natural that taking corrective action is also contemplated by the judiciary.
Religious pilgrimage - Supreme Court rejects plea on exemption
The Supreme Court has held that exemption from service tax / GST is not available for services provided by Haj Group Organizers / Private Tour Operators to Haj pilgrims on the ground that the entry in Notification No. 25/2012-ST and Notification No. 9/2017-Integrated Tax (Rate) provides exemption to services provided by specified organisations and the petitioners-organizations are not covered in such entry. While the petitions were filed under service tax regime, after implementation of GST, the Apex Court had directed the petitioners to submit representation to the GST Council. The GST Council accepted Fitment Committee's recommendation whereby the request to grant exemption was not accepted. The petitioners assailed such decision also in the present litigation.
As the notifications granted exemption to services by way of conduct of religious ceremony also, the Supreme Court held that the same was not for service provided to recipient to enable him to conduct religious ceremony. According to the Court, the petitioners provide facilitation service to pilgrims by way of arranging ticket to reach destination for performing religious ceremonies and such services cannot be bifurcated into service of conduct of religious ceremony and ticket booking and foreign exchange services for seeking exemption as all the services are provided as a single package for a single charge.
The Apex Court also rejected the argument on place of provision of service / place of supply on the ground that such place in Haj pilgrimage provided by the petitioners is India as the service recipients (pilgrims) are in India. It held that Rule 3 of Place of Provision of Services Rules, 2012 will be applicable and not Rule 4 on performance-based services. It further said that provisions of Section 13 of IGST Act are pari materia with POPS Rules and therefore, the same would apply in GST regime as well. The Court also rejected the argument on discrimination between Haj Committee and private organisations holding that Haj Committee is a statutory body working under control and supervision of Government and it works without profit motive while petitioners earn profit. Ruling that Haj Committee is not on par with petitioners-organisations, it said the Haj Committee constitutes a separate class and the same is based on rational classification having nexus with object sought to be achieved [2022-VIL-39-SC].
The order is detailed and well-reasoned and it treads the rather familiar path of not interfering in policy decisions of the government. Grant of exemption is within the realm of policy and discretion of the government and it is difficult to make out a case unless application of exemption is patently discriminatory. The order also reproduces Fitment Committee's recommendation which sufficiently indicates the type of legal counsel provided to it.
No bar on provisional release during pendency of confiscation proceedings
Sometimes, arguments of the department before the courts are innovative and overtly exhibit the enthusiasm to protect revenue. In the proceedings challenging notice proposing confiscation under Section 130 of CGST Act, the department argued that such proceedings are in rem and petitioner has no title to the goods and conveyance when they are pending and only on completion of the proceedings, the officer may consider allowing redemption of goods on payment of fine. It is fascinating to see the contention that even when proceedings for confiscation are underway, the taxpayer loses title and ownership to his goods. The precedent judgment relied on by the department was distinguished by the High Court on the ground that the case pertained to Customs Act which provides for absolute confiscation if the goods are prohibited. It noted that in the case of domestic transaction, GST law does not contemplate absolute confiscation and therefore, provisional release pending adjudication can be considered. Section 130 does not restrict such release but the same would be subject to conditions (like security etc). The Court directed release of goods and vehicle on payment of Rs. 1 lakh and furnishing of bond [2022-VIL-519-KER].
In the above case, the Court chose to follow its own decision in State Tax Officer v. Balakrishnan [2021-VIL-828-KER] which is very eloquent on the powers of confiscation and provisional release. In this case, the Court had interpreted Section 130 to hold that the officer is empowered to release subject to conditions and such release is neither provisional nor absolute. Even in these early days of GST, jurisprudence on confiscatory powers is getting established thanks to the trigger-happy authorities who propose confiscation treating e-way bill mistake as equal to smuggling.
Supreme Court order on extension of time not applicable to provisional attachment order
As in the above case, in another case also, the department raised an attractive contention - the Supreme Court's order on extension of time-limit due to Covid whereby the period from 15-3-2020 to 28-2-2022 was excluded for computing limitation, would be applicable to order on provisional attachment. This means though Section 83 of CGST Act provides for maximum period of one year for such attachment, it can continue beyond such period by excluding the above said period. In the case before the Court, the provisional attachment order was continuing for more than two years. For this, the department's counsel relied on provisions of Prevention of Money Laundering Act, 2022 (PMLA) on the ground that they are pari materia with Section 83 of CGST Act. The Court granted relief to the taxpayer after taking note of the fact that departmental communication did not refer to Section 83 thus restricting the taxpayer from seeking remedy under the provisions to file objections. Further, pendency of proceedings under specified provisions is a condition for invocation of Section 83 which was not fulfilled in this case. Section 83 provides a timeframe and not limitation, as per the order and the Supreme Court's order on extension of time-limit will not apply to such cases of provisional attachment. It ordered lifting of attachment of bank account of the taxpayer [2022-VIL-522-DEL].
GST law is being seen more as a statute to prevent economic offences by the department. That it is primarily a business law having necessary provisions to ensure compliance by way of penalty and punishment does not confer the character of penal law. If perception is not correct, then action that follows cannot be correct.
Supreme Court order on extension of time is applicable to condonable period also
If department is creative in contentions, counsels for taxpayers cannot lag behind. Cancellation of registration is a routine process in GST regime. In one such case, the taxpayer argued that the show cause notice proposing cancellation of registration and the order actually cancelling registration did not contain signature of the officer. Further, it was pointed out that before issuing notice on cancellation, notice should be issued for not filing returns. The department's counsel highlighted the provisions on cancellation getting triggered on failure to file returns for six months and Supreme Court's order extending time-limit would not be applicable as the default in filing returns pre-dated the start date of the extended period. The High Court held that the period for filing appeal expired on 24-2-2020 but the condonable period got over on 24-3-2020 which is within the relaxation granted by the Apex Court. The Court held that such extension of time is applicable to condonable period also and not restricted to the statutory time-limit for filing appeal as per Section 107 of CGST Act. Based on this reasoning, it set aside the impugned order-in-appeal by which the appeal was rejected as time barred.
Section 169 of CGST Act provides for uploading of notices and orders in the GST portal as one of the modes of service. The Court said that such provision does not suggest that orders need not be signed and the departmental officer should at least use digital signature. The matter was remanded for fresh consideration and the authority should give a finding on such issues [2022-VIL-523-DEL].
Instructions have been issued for assigning and quoting DIN in all communication, particularly in summons, etc. Similar instructions should be issued by CBIC on affixing digital signature when notices and orders are placed in the GST portal. If they are signed, scanned and uploaded, then digital signature is not necessary. The above order has an important take-away - Apex Court's order on relaxation of time includes the condonable period wherever law provides for the same. This should be helpful to aggrieved persons.
Money seized during investigation can be retained till conclusion of proceedings
Money seized during investigations, if mentioned in the show cause notice, can be retained till orders are passed. This is the interpretation placed on Section 67 of CGST Act by the High Court in a case where the petitioner sought return of money seized from the residence on the ground that the SCN did not contain proposal to appropriate such amount towards the demand of tax. The High Court accepted this fact of absence of proposal to appropriate in the SCN but held that it would be sufficient if the SCN mentions / refers to such money / amount and then it would be treated like "relied upon thing" which can be retained by the department till conclusion of the proceedings. There are precedents to hold money is covered under "things". But this judgment will give enormous power to the department to retain the cash found and seized during investigations till orders are passed. In this case, the only solace the petitioner got was direction of the Court to the officers to pay certain amount for delay in conduct of proceedings [2022-VIL-527-MAD]
The law should be amended so that money is excluded from Section 67. GST law is concerned with offending goods or vehicle used to transport such offending goods. It is not concerned with proceeds of the transactions as they are not "proceeds of crime". GST authorities are not Income Tax authorities to seize unaccounted money.
Cancellation of registration without referring the provision held as contravened, is not valid
It is the judiciary which is the saviour of citizens who are inflicted with punishment without adoption of due course of law by the State. This gets reaffirmed in orders relating to cancellation of registration. Generally, such orders are also templated and therefore, no reason or violation of exact provision is mentioned. The High Court has held that cancellation of registration means death of business and when such serious consequences follow, the person concerned has every right to know the exact provision held as violated for which such extreme action is taken. Section 29 of CGST Act provides for cancellation for non-compliance with the provisions but the Court held that as to the exact provision which is treated as not complied, should be mentioned in the notice. This order is similar to those passed under Central Excise Act and rules where courts / tribunal had held that the exact sub-rule (of Rule 173Q) should be mentioned which is alleged as contravened and absence of the same would render the notice invalid. In this order also, the High Court has held that unless exact violation is specified in the notice, it would remain completely vague. The cancellation order was set aside and registration was directed to be restored [2022-VIL-526-ALH].
Application seeking revocation of cancellation of registration or filing appeal - Taxpayer can choose
When order cancelling registration is challenged by way of filing appeal under Section 107 of CGST Act, then filing of application under Section 30 seeking revocation of such cancellation is not necessary. This is the judgment of the Bombay High Court in a recent case. The appellate authority even after holding that appeal was maintainable, rejected it on the ground that the taxpayer had the option to seek revocation by filing application under Section 30. The High Court held that Section 107 on appeals does not provide for such requirement. It directed the appellate authority to consider the appeal afresh and pass orders [2022-VIL-531-BOM].
If a minor portion of creativity shown in protecting revenue by the tax authorities is allotted to safeguarding genuine interests of taxpayers, it will go a long way in promoting trust and compliance. When law provides for two remedies - filing application to seek revocation of cancellation and filing appeal against cancellation order - it is the taxpayer's right to choose. Rewriting law by the authorities by inserting condition is something which is against the basic features of separation of powers under the Indian Constitution and will never be approved by the judiciary.
Blocking of credit leger - Presence of positive balance not necessary
Rule 86A of CGST Rules provides for placing restraint on utilization of electronic credit ledger - input tax credit cannot be used for payment of GST liability. This is invocable in specified situations like availment of ITC fraudulently. Interpretation of this provision is not uniform across the country. While Gujarat High Court in Samay Alloys [2022-VIL-125-GUJ] held that Rule 86A cannot be invoked when ITC balance is NIL, Allahabad High Court in R.M. Dairy Products [2021-VIL-553-ALH] held a contrary view. The Calcutta High Court, in a recent order, has concurred with the latter and differed from the former.
It has held that the word "available" used in the rule should not be read in isolation and should be read with "in the electronic credit ledger has been fraudulently availed or is ineligible" which denotes that credit available at the time when it has been fraudulently availed and not at the time when the rule is invoked. It has held that the provision can be invoked in situations where there is mismatch between data of supplier and data furnished in returns by taxpayer though it agreed that the rule is not intended to recover fraudulently availed credit. It disapproved use of "negative balance" or "negative blocking" as they are used in common parlance to justify existence of positive balance in credit ledger while the rule does not require the same. In this order, the Court also held that ITC is a concession and not a vested right or in the nature of property right [2022-VIL-529-CAL].
If provisions conferring draconian powers are interpreted in a manner which will provide scope and more opportunities for invocation of such powers, then a note of caution is required. Balancing public interest with private interest is sacrosanct but deprivation of statutory right or entitlement needs circumspection in both application and interpretation.
Writ jurisdiction invocable when tax paid twice on same transaction
The order is not very clear but there is a take-away. Generally, if statutory alternative appellate remedy is available, then except in certain cases, writ petitions are not entertainable. However, if tax has been paid twice on the same transaction, writ jurisdiction may be invocable and existence of appellate remedy may not be a bar. Based on such reasoning, the Karnataka High Court has directed the GST authorities to grant refund of tax paid inadvertently. The fact seems to be payment of IGST while the type of tax should have been CGST plus SGST as reference to Section 77 of CGST Act by one of the counsels indicates. It further appears that refund was rejected on the ground of time-bar since the payment was for the year 2017-18 but the Court noted that actual date of payment was in January, 2020 and the refund claim filed in July, 2020 was within the time-limit of two years. It directed the department to grant refund [2022-VIL-518-KAR].
(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 has edited R.K. Jain's GST Law Manual - 15th Edition - Feb., 2022. E-mail - gokulkishore@gmail.com)