Tax Vista Your weekly tax recap Edn. 143 - 13th March 2023 By Dr. G. Gokul Kishore

 

 

Show cause notice only to prolong blocking credit ledger beyond one year is not valid

Blocking of electronic credit ledger beyond one year and attempt to issue show cause notice before lifting the blockage are known. The Delhi GST authorities went one step further - after SCN was issued, order was also passed and then the ITC was debited by the officer. In this case, the credit ledger was blocked by SGST officer apparently due to certain investigations by CGST officers. After prolonged interaction involving representations, meetings, etc., show cause notice was issued and within days, order was issued and thereafter credit ledger was debited by the department. The High Court said -"Blocking of the ITC effectively deprives the taxpayer of a valuable resource to discharge its liability and realise the value in monetary terms. Thus, undisputedly, the said action is a drastic step and it is necessary that all legislative checks and balances, enacted in respect of exercise of power to take such measures, are duly satisfied."

 

The order briefly discusses the need to prove existence of reasons to believe that ITC has been availed fraudulently or in violation of specified conditions as otherwise Rule 86A of CGST Rules cannot be invoked. The High Court noted that the SGST authority had no information on fake transactions but blocked the ledger only based on instructions from his Central counterpart. This means the authority had no tangible material to form any belief. It also held that SCN was issued mechanically only because the tenure of blocking of ledger will get over in one year and the department was aware that continuing the blockage was against law. Instructions issued by Delhi GST Department on issuance of SCN before unblocking ITC so as to continue blocking of credit ledger beyond one year was held as contrary to Rule 86A and therefore, not sustainable. The demand was set aside and the ITC amount was ordered to be restored to the taxpayer [2023-VIL-162-DEL]. Powers conferred in statute are prone to misuse and when the powers are draconian, the consequences of misuse are disastrous. To undo the illegal action of the authorities, the taxpayer had to fight for almost three years in the above case. Many smaller taxpayers cannot afford to engage in such battles and they simply wind up.

 

Condition of deposit of part amount cannot be imposed for grant of anticipatory bail

The Supreme Court reiterated that a person (assessee) cannot be asked to deposit any amount as a condition for grant of anticipatory bail. The assessee argued that custodial interrogation was not required in this case as the case was based on documentary and electronic evidence which are available on record. However, the department insisted that the assessee should be directed to deposit part amount - at least half the amount quantified as revenue loss due to fake invoicing. Following precedent decisions, the Apex Court held that the petitioner was entitled to be granted anticipatory bail without imposing any condition. However, in case the person was arrested, the trial court / investigating agency may impose conditions as deemed fit [2023-VIL-14-SC]. Condition of security and bond for bail is different from pre-deposit of part amount. The practice of compelling the persons against whom charges are levelled to deposit certain amount during investigations is rampant and it extends to even anticipatory bail. In the above case, summons issued in May, 2022 appear to be the trigger for seeking such bail but the investigation should have been completed by the time the matter reached the Apex Court.

 

Transportation after expiry of e-way bill - High Court upholds detention

In an order adhering to strict imposition of penalty, the Calcutta High Court held that GST officers cannot be expected to keep track of all goods and decide against imposition of penalty when admittedly the law had been violated. The vehicle used for transport by the petitioner-assessee suffered a break down and goods were shifted to another vehicle and transported without e-way bill. The assessee sought refund of penalty paid stating that his case was one of genuine impediment and there was no intention to evade tax and that the tax officer had not analysed the facts properly. Also, since the goods were custom made for the Arunachal Pradesh government, it could not be sold anywhere else and at best the tax department could have insisted on a bond for release of goods instead of collecting penalty. However, the High Court held that transport of goods without e-way bill is an infraction which invites penalty and that the tax officer need not examine mens rea etc., nor did he have any leeway in not imposing penalty [2023-VIL-157-CAL].

 

In yet another case. the petitioner contended that there had been undue delay in issuance of gate pass by the check post authorities despite all documents being presented which led to expiry of the e-way bill and as such penalty should not be imposed. However, the High Court held that there is no provision to transport goods with an e-way bill which stood expired on the date of transportation and it is the duty of the owner/transporter/consignor/consignee to keep track of the consignment. It also highlighted the provision on extending the validity of e-way bill. Tax authorities intercepting the vehicle are not supposed to appreciate the reasons for movement without e-way bill, as per this order [2023-VIL-155-CAL].It is understandable for the officers not to accept the reasons provided by the taxpayer for moving the vehicle with a lapsed e-way bill. However, the High Court is seen as better placed to appreciate the evidence so as to verify whether the power has been exercised arbitrarily or not.

 

Attachment by authority outside territorial jurisdiction - High Court grants interim relief

Business men are expected to take due diligence to higher levels - ensure that the supplier files returns, their business partners are above broad, etc. In a case before the Delhi High Court, the petitioner, based in Delhi was aggrieved by attachment of his bank account during investigation against one of his business partners because the latter had transferred certain amount to his account. The petitioner contended that the department had no extra territorial jurisdiction to pass such draconian order in respect of persons who are not taxpayers.  The department contended that the petitioner ought to be directed to pursue his remedy in Punjab and Haryana High Court because the attachment was made by Gurugram authorities. However, the Delhi High Court held that this was not a reason to decline interference and further suspended the order of attachment of the petitioner's bank account in question and directed that the petitioner be permitted to operate the same subject to conditions. It held that attachment of bank account is draconian measure and must be resorted to as a measure of last resort [2023-VIL-161-DEL].

 

Penalty under Section 129 on goods lying in godown is not sustainable

Goods were found in godown and seizure was effected under Section 67 of CGST Act but penalty was imposed under Section 129 on the ground that the goods were being stored while in transit. The High Court noted that initially Section 67 and Section 129 were invoked but later the authorities shifted their stand and invoked Section 68 and Section 129. It held that the goods were not in transit but were seized from godown two days after lapse of e-way bill. Relevant notices in MOV forms were not issued in this case and non-issuance of the same indicated that the authority knew the goods were not in transit. As per the Court, law does not require e-way bill to remain valid for the period when the goods remain in godown. The High Court held that though the quantity found in godown was less than the one mentioned in the documents, no case was made out on short payment of tax as the entire tax was paid. It said -"The authority was in a fix as to which provision to invoke for imposition of penalty. At one point of time the goods were held to be stored in the godown without the proper documents and without a valid e-way bill and immediately thereafter, the goods were held to be in transit. A single consignment of goods cannot be held to be stored in the godown and to be in transit, simultaneously, at the same time." The Court ordered refund of penalty paid after holding the same was imposed mechanically without application of mind [2023-VIL-164-CAL].

 

In the past also, the department had undertaken similar action when the goods were not in transit. While lack of awareness about provisions is sometimes the reason, the attempt to somehow book a case backfires even if the intention is genuine. The above case reflects lack of proper investigation and thorough knowledge of provisions besides appreciation of evidence.

 

ITC not available if seller has paid tax but not the preceding supplier

Section 16 of CGST Act prescribes that tax should have been actually paid to the government in respect of the particular supply on which input tax credit is sought to be availed. These are days when ITC is denied by the GST authorities on the ground that someone in the distribution chain is suspected of foul play and therefore, all persons down under are also not eligible to take ITC. Though High Courts have held against such unwritten law, Authority for Advance Ruling (AAR) prefers to adopt literal revenue interpretation (revenue interpretation means interpretation in favour of revenue - new rule of interpretation) and therefore, it has been held that if the seller or preceding sellers have not deposited tax with the government, purchaser will not be entitled to avail ITC. In the case before it, the immediately preceding supplier had paid tax but not the preceding supplier. This is the first round where Section 16 is being put to interpretational tests. In the years to come, as jurisprudence emerges, amendments will also be made and it will get a finer shape. Taxpayers have no option but to wait till such time and keep responding to notices adopting strange to weird interpretations and keep defending the credits availed [2023-VIL-42-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)