Tax Vista Your weekly tax recap Edn. 17 - 12 October, 2020 By Dr. G. Gokul Kishore

TRAN-1 issue - Madras HC imposes costs on department for filing frivolous appeal

Transitional credit hardly gets transited through TRAN-1 mostly due to department's obduracy. A single judge Bench of Madras High Court had directed the authorities to open the portal to upload TRAN-1 form after taking note of the technical difficulties faced and the efforts taken by the petitioner. The department filed appeal before the Division Bench. The DB termed it is frivolous appeal and imposed costs. The Court said that the asseessee had taken bona fide efforts to upload the form and because of technical glitches, he was redirected to contact Help Desk and instead of solving the problem of own infrastructure, the authorities created all kinds of problems. According to the DB, the order of Single Judge was "straight, correct and innocuous. Instead of complying with the same, the Department is seeking to raise all kinds of technical and hyper technical issues." The Court had to use such strong words "We strongly deprecate such practices of Revenue Authorities in wasting the time of the Court as well as wasting the resources of the State in filing such frivolous litigation." [Commissioner v. Checkpoint Apparel Labeling Solutions - 2020-VIL-490-MAD].

This order should be an eye-opener to CBIC and the Secretariat of GST Council. Instead of reactionary retrospective amendments to deny credit on "hyper-technical issues", an amendment to unambiguously provide for transitioning credits in pending cases will prove that the government is indeed taxpayer friendly.

Seizure & reasonable belief in times of pandemic - HC orders provisional release

If the proper officer has reasons to believe that goods liable to confiscation or documents or things or books which may be useful in proceedings, the same can be seized as per Section 67 of CGST Act. The statute also provides for provisional release. The petitioner, an importer, was investigated for alleged evasion of IGST on imported goods. The business had to be suspended due to Covid-19 pandemic and post-relaxations, they started operating but then the department launched the proceedings of seizure, etc. Before the High Court, the taxpayer argued that the investigation was only a fishing inquiry and there was no reason to believe that they indulged in suppression and mere non-maintenance of stock register in the place of business cannot be a ground for seizure of goods.

The High Court took note of the present pandemic situation and observed "laws speak the same language during normal as well as in pandemic times. But, contemporary imperatives demand that courts, whenever possible, ought to adopt that approach which will kickstart the economy. Salaried classes may not be bearing the brunt. The position of the farmer, manufacturer and the trader is different. This Court is mindful of the pain and suffering experienced by them." After discussing precedent judgments on reasonable belief, the Court held that not a scrap of material was produced before it regarding the allegation of evasion of GST. It noted that the department may not be in a hurry and it can afford to wait but "Officials who get their salaries in the first week of every month may not be conscious of the cost of delays in such cases. Adjudication proceedings may go on for months. That is why, the statute provides for provisional release of the detained goods." Directing the petitioner to furnish a personal bond, the Court ordered release of the seized goods [Rising International Co. v. Commissioner - 2020-VIL-487-MAD].

Show cause notice is as vague as possible - HC quashes notice and order

Strict adherence to due process is sine qua non when extreme power of cancellation of registration is exercised. But one finds a lot of writ petitions being filed against such cancellation made in a perfunctory manner. In one such case, the Gujarat High Court has quashed both the show cause notice and the cancellation of registration order because "the show cause notice is as vague as possible and does not refer to any particular facts.". It has observed that no response can be given by any assessee against such notice. The order reproduces the SCN and it makes a mockery of vesting of quasi-judicial powers with such officers. Even more disturbing fact is that in the next 11 days of notice, cancellation order was passed without waiting for reply from the petitioner or offering any hearing though reply by petitioner and hearing find a mention in the order. There is no merit in claiming that the GST system is modern or sophisticated when ignorance of statutory procedures and lack of training of tax administration cause irreparable damage to business [Mahavir Traders v. UOI - 2020-VIL-480-GUJ].

No e-way bill facility for return defaulters

If GSTR-3B returns are not filed for two consecutive months, then generation of e-way bill can be blocked as per Rule 138E of CGST Rules. An update in the GST portal states that such embargo will be placed from 15-10-2020 and reminds taxpayers to file returns for the months till August without fail. It also notes that GST Council has recommended that such restriction should be applied only on taxpayers with annual turnover of more than Rs. 5 crores. As e-way bill is the license to transport the goods, those who default in filing returns may have to fall in line. The rules provide for blocking and then the remedy of approaching the Commissioner with request along with sufficient reasons to lift the restriction and passing of order. Such new category of dispute demands dispute resolution on real-time basis as business comes to a halt if e-way bill is halted [GSTN update dated 10-10-2020].

ITC restriction - CBIC explains cumulative effect

Input tax credit in respect of invoices which have not been uploaded by the supplier is restricted to 10% of the ITC as per the invoices uploaded. Rule 36(4) of CGST Rules placing such restriction was postponed temporarily due to Covid-19 by providing for cumulative application of the bar for the months from February to August, 2020. This meant that the cumulative adjustment of ITC shall be undertaken by taxpayers in the GSTR-3B for September, 2020.

CBIC has now clarified that taxpayers should ascertain details of invoices uploaded by their suppliers for the above months till due date for filing GSTR-1 for September the details of which will get reflected in GSTR-2A and the total ITC availed should not exceed 110% of the cumulative eligible ITC (100% eligible credit as per uploaded invoices and debit notes plus 10% in respect of non-uploaded invoices). Because the above restriction was not applied in the earlier months, excess credit availed (ITC availed even when invoice was not uploaded by supplier) should be reversed while filing GSTR-3B for September. The circular contains illustration as well. In pre-GST regime, whether credit was admissible dominated litigation but now, even procedural issues have come to occupy the centre-stage of disputes due to such complexities in implementing the system [CBIC Circular No. 142/12/2020-GST dated 9-10-2020].

Annual Returns - No adverse view on wrongly auto-populated data

Annual Return in Form GSTR-9 for the financial year 2018-19 is due for filing by the extended date of 31-10-2020. A press release issued by the government states that auto-populated figures in certain tables in GSTR-9 made available for FY 2018-19 contain data pertaining to the previous financial year 2017-18 also and adverse view will not be taken where there is variation in respect of returns already filed by including such previous year's figures. The communique further notes that there is no mechanism to split the figures of two financial years. If the system misguides a taxpayer by auto-populating incorrect figures, adverse view should be taken in respect of those designing and implementing the system instead of projecting a liberal treatment of taxpayers [Ministry of Finance, Press Release dated 9-10-2020].

Manufacture gets resurrected in GST regime

Central Excise regime was throughout marked by epic battles on whether a particular activity amounts to manufacture or not. GST law has carried forward such concept to cater to a situation like job work. Therefore, both 'manufacture' and 'job work' are defined in CGST Act. The tax rate may vary since job work is treated as supply of service while processes which are treated as not covered under job work may be treated as 'manufacture' and the transaction will then get categorised as supply of goods. Faced with such issue, an engineering cluster applied for advance ruling as to whether adoption of processes (like heating) on waste / used sand received from various foundries and then supplying the reclaimed / usable sand to such foundries will render the activity as one of job work or supply of goods.

According to the Authority for Advance Rulings (AAR), chemical properties of sand get changed due to processes like heating and quality gets improved which are then bought by foundry owners while the waste / used sand received for processing had no commercial / market value. Based on such facts, the AAR has held that the applicant uses own consumables during the course of various processes to bring into existence a new finished usable product and it would get covered under 'manufacture' as per Section 2(72) of CGST Act. This definition covers processing of raw material or inputs in any manner so as to result in emergence of a new product with distinct name, character and use. It has been further held that the resultant sand is 'goods' as it is a movable property without any apparent reason as no one could have entertained a different view.

To fortify its view that the activity is not covered under 'job work', the AAR states that the intention of foundries is not to treat waste sand as semi-finished goods, reclaimed sand is not sold to foundries based on any fixed ratio vis-à-vis sand received, no processing charge is received for such activity and there is no big difference in price of reclaimed sand and freshly mined sand. But, the AAR has ventured into a greatly disputed territory of pre-GST regime by holding that the supplied material (by the foundries) is only waste and not by-product or outcome of any manufacturing process. The landmark judgment on job work in Prestige Engineering [1994-VIL-03-SC-CE] finds a mention when the AAR concludes that the process is not covered under job work but supply of goods. Though reasoning of AAR can be perceived as tangential at certain places, the conclusion in this case appears to be plausible [Kolhapur Foundry and Engineering Cluster - 2020-VIL-280-AAR].

(The author is an Advocate practising independently. The views expressed are personal)