Tax Vista Your weekly tax recap Edn. 144 - 20th March 2023 By Dr. G. Gokul Kishore

 

 

Summons cannot be issued to direct stop payment to taxpayer

Exceeding the powers conferred is equally routine as misuse of powers. Section 70 of CGST Act empowers the GST officer to issue summons to compel attendance of any person or for production of documents. Summons are issued a number of times, issued to CEO and MD, issued without indicating the purpose, etc. However, in a particular case, summons issued to the customer of the taxpayer contained a direction to stop payment to the taxpayers till the summon-issuing officer gave clearance. The taxpayer went to High Court. The department argued that though such power to stop payment is not available under Section 70, such power to attach property provisionally is given under Section 83. But the High Court held that the summons have been issued under Section 70 and not under Section 83 and the officer cannot direct the party to stop payment through such summons. It held that the officer has exceeded his powers and the same was set aside [2023-VIL-165-AP].

 

It appears that SGST officer was involved in this case. For several SGST officers, issuance of summons, arrest, prosecution, bail, etc., are new and they are clueless on how to exercise such powers. It is common to see SGST officers lodging FIR in GST cases instead of filing complaint directly in the court. E-way bill related detention of goods and vehicles is misuse of power but the above can be attributed to lack of exposure. By the time such officers are trained, many in business would have already completed their career.

 

Delinking Section 129 from Section 130 - Taxpayers face the consequences

Section 129 and Section 130 of CGST Act have been delinked. Both can be invoked against a taxpayer. Two orders were passed - one on seizure of goods and after two days notice proposing confiscation was issued. While seized goods can be released as per Section 129, Section 130 contemplates adjudication route. The taxpayer assailed proceedings under Section 130 as the same was never invoked. The High Court ordered release of goods and vehicle on payment of interest and penalty and furnishing of bond. However, in respect of confiscation, it held that it would be pre-mature to interfere and the petitioner has to face adjudication. It relied on Apex Court ruling holding that show cause notice proposing confiscation cannot be interfered with by High Court while release of goods is sustainable [2023-VIL-172-GUJ].

 

Both Section 129 and Section 130 have severe consequences for taxpayers. Both involve deprivation of property and imposition of liabilities. While Section 129 appears to provide a coat of reasonableness by enabling the taxpayer to get the goods and vehicle released on payment of hefty sums as penalty, Section 130 simply appropriates it. These are powers normally vested with Customs officers to prevent smuggling. Whether such draconian powers are required to threaten domestic industry, whether normal penalty provisions would serve the purpose, whether separate provisions for seizure are required or Section 67 itself can be amended - these are questions that policy makers and law makers have to consider.

 

GST on lottery - SC accepts Goa's plea to delete its name from petitions before Sikkim High Court

The assessees engaged in sale of lottery tickets and online gaming products challenged the GST rate-notifications issued by the States of Goa, Maharashtra, Punjab and Sikkim and, in particular, Notification No.01/2017 dated 30th June, 2017 issued by the Government of Goa levying 14% tax on lottery authorised by State Governments. The tax department - one of the respondents before High Court (appellant in the present case before the Supreme Court) contended that the appropriate forum was not High Court of Sikkim and the assessees ought to approach High Court of Bombay at Goa. It therefore sought deletion if its name from the list of respondents in the proceedings pending before Sikkim High Court. The Sikkim High Court had dismissed the application holding that event if part of cause of action arose in Sikkim and the writ petition could be entertained by it and that the tax department would be a respondent. In their averments the petitioners had stated that both the petitioner and the respondent were in the territorial jurisdiction of the High Court.

 

The Supreme Court held that no cause of action arose in Sikkim merely because the petitioner had an office there. Tax had been levied by the Government of Goa in respect of a business that the petitioning company is carrying on within the territory of Goa and not in Sikkim. The liability arises for the specific nature of business carried on by the petitioning company within the territory of Goa and hence no legal wrong had been committed within the territory of Sikkim. The Supreme Court also said that even assuming slender part of action arose in Sikkim the same by itself could not have been a determinative factor compelling the High Court to keep the writ petitions alive against the appellant to decide the matter qua the impugned notification, on merit. It directed deletion of the appellant from the list of respondents as mentioned in the petitions before High Court [2023-VIL-21-SC].

 

Renting of residence for use as guest house by company - GST payable under RCM

Issues which are apparently simple are not that simple in GST. Whether GST is liable to be paid under forward charge or reverse charge mechanism in respect of renting of residential dwelling for use as guest house by recipient registered under GST law - this was the question before Authority for Advance Ruling (AAR). The AAR noted that the amendment made in 2022 does not prescribe condition on use i.e., whether used as residence or not and therefore, if residential dwelling is rented to registered person, then such registered person is liable to pay GST under reverse charge. The taxpayer got the doubt due to CBIC's service tax guide wherein it was clarified that residential dwelling would not include guest house. The amendment was intended to tax companies who take houses on rent for use as accommodation by their employees and guest houses are no exception. An exemption accorded to the priority sector of housing cannot be used by corporates - this must have been the rationale. The present ruling may not say these in so many words but by emphasizing on absence of condition on use, it has reached the same conclusion [2023-VIL-44-AAR].

 

Printing name of manufacturer on gunny bag amounts to branding 

The applicant was engaged in procuring raw tobacco from farmers and consequent sale of unmanufactured tobacco. It sold some portion of leaves as bhukko and also carried out cutting and grading of the leaves and proposed to carry out a coating process primarily to retain the colour and flavour of the tobacco leaves for longer period of time. Such coated tobacco is meant for chewing tobacco manufacturers for manufacture of scented/zarda. It was proposed to supply coated tobacco, to the customers in gunny bag without any brand name but with their name being put up on the gunny bags so as to identify the lot.  Examining the taxability of sale of bhukko - which is the dried and cured tobacco leaf procured from farmers, the AAR held that GST would be applicable on reverse charge basis at 5%. On trading of bhukko forward charge would apply at 5% if it is sold without undertaking any other process. As regards the coated leaves it was held that GST would apply at 28% along with compensation cess of 71% if the gunny bags carry name of the taxpayer to identify the lot. Also if the process of coating is carried out on another person's goods, GST at 12% is payable on service of job work. Brand name issue still rules - putting the name of the manufacturer on gunny bags only to identify the same amounts to affixing brand name as per the ruling. Taxation is complex and still more complex is tobacco taxation. But the consequences they have on human health are obvious [2023-VIL-45-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)