Tax Vista Your weekly tax recap Edn. 120 - 3rd October 2022 By Dr. G. Gokul Kishore

 

 

Pre-deposit for filing appeal can be paid using ITC ledger

Section 107(6) of CGST Act prescribes mandatory pre-deposit of 10% of tax as confirmed in the impugned order for admission of appeal by first appellate authority. The provision uses the word "paid" and not deposited and it pertains to "tax". This has been highlighted by Bombay High Court to hold that such pre-deposit can be paid from electronic credit ledger also i.e., using ITC balance instead of paying through cash ledger. Provisions permit payment of tax using electronic credit ledger and therefore, for payment of pre-deposit of 10% of tax, such ledger can be used. Section 49 speaks about use of such credit ledger for payment of output tax and this provision has been relied on by the department. The High Court did not agree on the ground that Rule 86(2) permits debiting credit ledger for payment of any liability and for payment of output tax whether self-assessed or payable consequent to any proceedings, credit ledger can be used. On this issue, Orissa High Court had held to the contrary but the Bombay High Court, in this case, has pointed to the issue of circular by CBIC subsequently whereby it was clarified that credit ledger can be used for payment of tax arising out of proceedings. The Court set aside the order-in-appeal by which appeal was rejected for non-payment of pre-deposit in cash. It directed restoration of appeal subject to payment of pre-deposit by debiting credit ledger [2022-VIL-674-BOM].

 

The issue is stale to say the least. It is not known why the tax department is flogging dead issues of pre-GST regime. It is too late in the day to adopt such interpretation on utilization of ITC. The mind-set of the authorities in perceiving pre-deposit as a source of revenue should change. Till the time a dispute attains finality, the taxpayer can challenge the liabilities as confirmed in the orders and the tax amount in dispute is not revenue in the real sense. GST Council may have to consider recommending clarification to be issued in favour of taxpayer on this issue as the circular relied on in this case is subject to contrary interpretation by the department.

 

Order cancelling GST registration without digital signature is not valid

Order cancelling registration should be contain digital signature of the authority passing the order. This is the requirement as per Rule 26(3) of CGST Rules which mandates all notices, certificates and orders relating to registration shall be digitally signed. As such orders are uploaded in GST portal, departmental authorities in many cases hardly consider signature as necessary. In a recent case, such cancellation order without digital signature was assailed and the High Court accepted the argument. The taxpayer had filed appeal before first appellate authority who had rejected the same on limitation. The taxpayer argued that limitation would start only from the date of uploading digitally signed order and in this case, they obtained attestation at a later date and such date should be taken into account. The High Court quashed the order-in-appeal and directed the appellate authority to consider the matter afresh [2022-VIL-658-BOM].

 

The issue mentioned is procedural but points to a significant lacuna in the provisions. While the chapter on registration has a provision compelling authority to affix digital signature, the chapter on demands does not have the same. This issue was discussed by Delhi High Court in Railsys Engineers v. Additional Commissioner [2022-VIL-523-DEL] which was briefly analysed in Tax Vista dated 1st August, 2022. Such requirement is fundamental and should be applicable to all the communication emanating from the tax authorities. The statutory provisions whether it is CGST Act or CGST Rules need to be amended so that such requirement is prescribed for all kinds of notices, orders, etc.

 

Provisional attachment ignoring precedent - HC imposes costs

Departmental officers often incur the wrath of the judiciary by ignoring the orders or directions. When the order on provisional attachment was quashed by the High Court, the Commissioner passed another provisional attachment order the very next day. The Court was furious and set aside the order besides imposing Rs. 50,000 as costs on the department. The landmark judgment of the Supreme Court in Radha Krishan Industries [2021-VIL-50-SC] explaining the scope of the power of provisional attachment under Section 83 of CGST Act, the requirements for exercise of the same, etc., is generally ignored while issuing order on provisional attachment of bank account or other property. The High Court held that Commissioner has deliberately and completely ignored the binding decision of the Apex Court and the order was passed in most arbitrary and illegal manner.

 

In this case, Section 83 was closely examined by Allahabad High Court recently by highlighting the expressions used in Section 83 and to emphasise that Commissioner should form an opinion and the same is for the purpose of protecting revenue. The Court has held that the provision has not left the formation of opinion to "an unguided subjective discretion" of the Commissioner since such opinion should have proximate and live nexus to protection of revenue. In the case before it, the Court noted that proceedings under Section 74 were not yet initiated, opinion was not recorded and no material was referred by the Commissioner.

 

The order contains a fine analysis as can be seen in these words -"The word "necessary" postulates that the interest of the revenue can be protected only by a provisional attachment without which the interest of the revenue would stand defeated. Thus, a more stringent requirement than a mere expediency, has been provided in Section 83.The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue. This necessarily requires existence of tangible material before the Commissioner so as to enable him to form his opinion for provisional attachment of the property." [2022-VIL-659-ALH].

 

Finance Act, 2022 - More provisions come into force

CBIC has issued Notification No. 18/2022 - Central Tax dated 28-9-2022 to bring certain amendments made to CGST Act by Finance Act, 2022 into force from 1-10-2022. These amendments are contained in Sections 100 to 114 of Finance Act, 2022. CGST Rules have also been amended by Notification No. 19/2022 - Central Tax dated 28-9-2022. Major amendments having large-scale implications pertains to increase in the time-limit for availing input tax credit (ITC). Before amendment, ITC of the previous financial year (if left out or not taken for any reason) can be taken till 20th October (date of filing GSTR-3B return for September). Now, after amendment, credit can be taken till 30th November or actual date of filing annual return. This means at the time of filing GSTR-3B return for October - on 20th November - missed out credits can be availed. Credit notes / debit notes with GST adjustment for previous financial year have the same time limit as above and such credit notes / debit notes can be issued till 30th November. One of the conditions recently introduced for availing credit (ITC) is - filing of outward supply return (GSTR-1) by seller and reflection of such data in auto-populated GSTR-2B form. Now, this has been further amended to state that ITC restricted under law shall not be availed. This may mean even if there is some fault at the supplier's end, if the data is appearing in recipient's GSTR-2B, ITC can be availed unless the same is expressly restricted under law. For rectification of mistakes in GSTR-1 and GSTR-3B also, the above time limit has been extended.

 

GST exemption on residential renting - Department clarifies before Court

Recently, amendments have been made to exclude from exemption residential renting when the recipient is registered under GST. This became a controversy subject to active debate in articles and social media as professionals who are registered under GST sought to know about exemption when they take residential premises on rent for personal use. The issue was agitated before High Court. Before the Court, the department clarified that residential dwelling taken on rent by proprietor of registered firm for personal use as own residence and not in the course of business will continue to be covered under exemption under Notification No. 4/2022-Central Tax (Rate) dated 13-7-2022. Such submission before the Court should be clarified by way of proper circular by CBIC. The amendments point to the usual manner of casual drafting without foreseeing consequences in various scenarios [2022-VIL-671-DEL].

 

Imposing penalty in case of best judgment assessment

Litigation means pendency i.e. it will take a long time to get the dispute settled. However, GST authorities have reversed this trend. In some cases, order is passed without wasting time to issue show cause notice. In certain other cases, without SCN or order, recovery proceedings commence and the taxpayer gets information from third parties like banks. In a few cases, orders are passed immediately after notice without the formality of hearing. In respect of non-filers of returns, as per Section 46 of CGST Act, after issuing notice, 15 days time is to be given. But the assessing authority passed order the very next day of notice. The taxpayer challenged this order in respect of imposition of penalty on the ground that for such penalty under Section 122, show cause notice under Section 73 or 74 should have been issued. The High Court following an earlier order on similar facts, set aside the order imposing penalty and directed the authority to follow the procedure as per law [2022-VIL-669-AP].

 

Cancellation of registration - Dragging taxpayer for two years

Taxpayers may do business if time is left after tackling the tax authorities when cancellation of registration, change of premises, etc., are contemplated. An order reported by VIL last week reveals a very sad story. The taxpayer was harassed multiple times when registration was first cancelled, then restored, then taxpayer sought cancellation due to change in business, then notice was issued for cancellation, order was passed on cancellation again at midnight, etc. The High Court noted that the order did not contain any reason and it is not clear why the department has been dragging the taxpayer for such a long period. It directed the Commissioner of Commercial Taxes to take note of manner of disposal by officers and conduct training programme on exercising functions on initiation of proceedings and passing speaking orders. The Court directed the authority to issue afresh comprehensive show cause notice. For two years, the taxpayer has been fighting this issue of cancellation of registration. This is covered by ease of doing business under the good and simple tax called GST [2022-VIL-663-CAL].

 

Physical verification and detention after release of goods

A typically cryptic and order sans reasons passed by first appellate authority has been set aside by the High Court. This may not need any mention but the order-in-original appears to be peculiar. The goods involved were released by the department but later physical verification report with back-date along with detention order was issued. The facts are not clear. The taxpayer argued that verification or detention does not arise when goods have already been released. The taxpayer had to knock the doors of High Court when the tax involved is Rs. 80,000. Officers with quasi-judicial powers, in most cases, neither understand their role nor are they interested in such understanding. The entire structure is heavily prejudiced as orders favouring taxpayers are seen with suspicion. Such suspicion gets strengthened when a few officers get caught for allegedly seeking favours for favourable orders [2022-VIL-662-P&H].

 

 

(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)