Tax Vista Your weekly tax recap Edn. 119 - 26th Sep 2022 By Dr. G. Gokul Kishore

 

 

Record of adjudication proceedings not maintained by GST authorities

SGST authorities generally do not maintain proper records of assessment / adjudication proceedings. Such failure considerably weakens the case of the department. Added to this is failure to offer hearing and failure to supply copy of relied upon documents, etc. This results in unnecessary duplication of work as High Courts direct the authorities to redo the entire exercise. For authorities redoing is not an issue but for the taxpayers it is a great pain.

 

In a recent case, the taxpayer was issued with intimation of liability in DRC-01A invoking Section 74 of CGST Act on the ground that input tax credit was availed based on invoices issued by non-existent supplier. The supplier was very much in existence during the relevant period as his registration was cancelled subsequently. The taxpayer produced copy of GSTR-1 and GSTR-3B filed by such "non-existent supplier". The department had also blocked credit ledger, converted the proceedings into those under Section 73 (indicating absence of evasion) and then passed order without offering hearing. The counsel for the department argued that opportunities were provided to the taxpayer but the records did not show anything - in fact, there was no record of such proceedings. The High Court noted that adjudication order has been passed in "utter violation" of natural justice and also in "utter defiance" of the relevant statutory provisions. It set aside the order and directed the authority to issue notice for personal hearing, provide copy of relied upon documents and then decide afresh [2022-VIL-648-JHR].

 

Anti-evasion inquiry after departmental audit - High Court declines to interfere

Multiplicity of tax laws was often blamed for complexities and non-compliance and GST was publicized as the tax law to end the same by subsuming several tax laws. However, even within a single law of GST, multiple proceedings abound. Readers are well aware of judgments on parallel proceedings by State and Central GST authorities. In recent times, it is seen that the same SGST or CGST authorities initiate multiple proceedings. After conduct of audit by CGST officers, the taxpayer received letter from anti-evasion wing / section of CGST office and the same was challenged by way of writ petition. The High Court did not consider the same to be lacking in jurisdiction or against any statutory provisions and the petition was not accepted [2022-VIL-647-CAL].

 

It is widely believed that conduct of departmental audit acts as an insurance against potential demands in future. This may be true only for the limited purpose of assailing invocation of extended period but cannot provide complete cover or protection against any action of the department. Further, audit is an exercise which is restricted to part of the records and documents and therefore, can always be claimed by the department as not a comprehensive exercise and therefore, what could not be found out during audit can be unearthed by investigating sleuths. The added agony for the taxpayer in such cases will be preparation and submission of information and documents - first time in the format provided by audit officers and second time in the format as sought by anti-evasion officers. The department does not accept the data and information as available in GSTR-1, GSTR-2B, GSTR-3 and GSTR-9 besides those in annual financial statements, contracts, invoices, purchase orders, etc. This tendency of seeking information in a new format consumes enormous time and efforts of taxpayers and the same should be avoided.

 

Bench strength is determinative of binding nature of precedent and not numerical strength of Judges - Supreme Court

A major judgment of the Supreme Court is very briefly covered here as it is on the judicial principle of binding precedents and may not directly impact / interest taxpayers. Tax authorities are anyway immune to such judgments.. The issue involved was whether Bench strength will prevail or number of judges taking a particular view will prevail. This is better explained by - if a Bench of 5 Judges hold a particular view, in a subsequent Larger Bench of 7 Judges, if 4 Judges hold a view against the earlier view / judgment, then the subsequent Larger Bench view will prevail and will be considered as binding precedent. The Court held that the majority decision of a Bench of larger strength would prevail over the decision of a Bench of lesser strength, irrespective of the number of Judges constituting the majority. The numerical strength of the Judges taking a particular view is not relevant, but the Bench strength is determinative of the binding nature of the judgment [2022-VIL-71-SC].

 

Export of electricity - Amendment to rules is retrospective

For claiming refund of unutilized input tax credit due to exports, copy of shipping bill is required as per CGST Rules. This was amended in July this year for exporters of electricity as shipping bill is not / cannot be generated for electricity. A relevant agency's certificate (Regional Power Committee Secretariat) is sufficient as per the amendment. For a power producer involved in export of power to Bangladesh, refund of unutilized ITC was denied on the grounds that shipping bill was not produced and the place of transmission was in India because of which there was no proof for export of electricity out of India. Subsequently, the department conceded the second ground but stuck to the shipping bill issue. For the taxpayer, the amendment was very timely and the same was relied on by the High Court to grant relief. As there was circular no. 175 dated 6-7-2022 explaining the issue and rationale for amendment, the Court held that same to be clarificatory and retrospective i.e. it will apply for the refund pertaining to period before amendment also. The issue may not be impacting majority of taxpayers but it highlights the gaps in drafting, the time taken to realise the gap, amendments to bridge the gap and leaving open the question of retrospectivity to courts though the amendment itself is based on past experience [2022-VIL-643-AP].

 

Mango pulp attracts 12% GST 

Mango is often referred as king of fruits but a king need not necessarily be benevolent. Mango pulp and puree are items which add taste not only to the culinary items but also to the world of GST. As classification disputes cannot become nil when there are multiple rates, this item also had its own share in litigation till GST Council recently intervened. The taxpayer had an advance ruling and appellate advance ruling - both adverse holding mango pulp would attract 18% GST. Fortunately, with the recent clarification, the item has been held as liable to 12% GST by the High Court. Though there was no whisper from the department as to maintainability of writ petition in such cases, it appears that with the GST Appellate Tribunal still a work-in-progress, High Courts are adopting a taxpayer-friendly approach [2022-VIL-652-AP]. Classification issues / disputes are not discussed in this column as they are product-specific but this time, a break from the practice by serving something sweet was thought as desirable.

 

Sale of developed house site is not liable to GST 

CBIC clarified by circular no. 177 dated 3-8-2022 that sale of land after levelling, laying of drainage lines, etc., is not liable to GST. The circular said sale of developed land is also sale of land and the same would be covered under Schedule-III of CGST Act. For the taxpayer who filed the application seeking advance ruling in May, 2022, the circular is God-sent. The Authority for Advance Ruling (AAR), left with no option, ruled that sale of plots after laying of road, rain water drains, construction of water tank and sewerage lines, setting up of power sub-station, etc., will be covered by Schedule-III and not liable to GST. As the transaction is outside the ambit of GST, advance received towards sale of such house sites will not attract GST [2022-VIL-256-AAR]. This advance ruling is mentioned in this column to highlight that circulars which have the effect of containing unnecessary litigation should be issued more frequently.

 

Mobile machines used for heavy lifting - CBIC tries heavy lifting in classification

CBIC has issued Circular No. 20/22-Customs dated 22-9-2022 clarifying classification of "goods that undertake lifting and handling functions and have mobility as a function" under Customs Tariff. If this is how the item requires to be described, one can image the classification / tariff headings which will be applicable. The item is truck crane or all terrain crane which are meant for lifting heavy loads and have mobility but not for transportation of goods. The circular describes the item in clear terms as all such cranes are seen everywhere on national highways and metro rail projects these days. The contending entries for classification are heading 8426 and heading 8705 and Supreme Court judgments holding both are referred.

 

After an exhaustive analysis, the circular "clarifies" - mobile machines that can move under load are classifiable under heading 8705; if they do not move or movement is subsidiary, heading 8426; heading 8426 is applicable if propelling or control elements are located in the cab of crane; presence of more than one engine is not determining factor for classification; heading 8705 is the correct entry if the item is merely mounted on the chassis and not integrally connected and if otherwise, heading 8426 will apply. The circular at the end includes the usual line - difficulties faced may be brought to the notice of CBIC. If CBIC finds it so difficult to determine the classification of such goods, the plight of field formations needs no speculation.

 

 

(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 Ed. (Feb 2022) and 16th Ed. (Aug 2022). E-mail: gokulkishore@gmail.com)