Tax Vista Your weekly tax recap Edn. 6 - 27 July, 2020 By Dr. G. Gokul Kishore

Transitional Credit - Enduring the pain

Transitional credit continues to be a great pain point for taxpayers as the orders from various High Courts reveal. In a recent order, Chhattisgarh High Court has directed the Commissioner to consider the plea of the petitioner to allow transitional credit based on manually filed copy of Tran-1 form. The Court has further held that if Commissioner is of the view that GST Council's recommendation is required, then GST Council may consider such request as well. This may seem to be yet another order on such issue but in this case, directions have been given based on second writ petition filed by the taxpayer [Dhamtari Krishi Kendra v. UOI - 2020-VIL-318-CHG].

In this case, before the due date, filing of such form was attempted but being unsuccessful, complaint was lodged with jurisdictional authorities and subsequently the form was filed manually. When the request to accept such form was rejected, writ petition was filed in High Court. In this first round, High Court directed the Nodal Officer to consider the plea but it was rejected on the ground that proof of technical glitch was not produced. This compelled the taxpayer to again seek the intervention of High Court.

One of the negative terms used in relation to tax department is harassment. Denying credits due to no fault of the taxpayer and forcing them to run from one forum to another repeatedly is nothing but height of harassment. Leaving interpretation of Section 140 of CGST Act aside, the GST department should first understand the purpose of GST. Otherwise, such treatment of taxpayers will certainly derail even the best tax reform.

Covid-19 - Payment of tax/amount in instalments

Covid-19 pandemic has caused considerable distress to industry. In these difficult times, when National Anti-profiteering Authority (NAA) passes order holding a staggering amount as profiteered, in the absence of appellate remedy, hardly any option is left but to approach the High Court.

In one such case the petitioner sought permission to deposit the amount of Rs. 25.73 crores (including GST portion on profiteered amount), held as profiteered by NAA, in instalments. The High Court after considering the present pandemic situation has directed payment of the amount in instalments besides grating stay of interest and penalty [Samsonite South Asia Pvt. Ltd. v. UOI - 2020-VIL-312-DEL].

In another case, the petitioner has accepted his tax liability but approached Madras High Court seeking time to make the payment. The High Court also after taking note of the financial hardship faced during the present pandemic, continuous lockdown and loss of business has directed payment in six months. Since bank account was attached in this case, the High Court ordered de-freezing of the same [Shree M. Revathi Printers v. The Deputy Commissioner - 2020-VIL-322-MAD].

Section 80 of CGST Act empowers the Commissioner to permit payment of tax and other dues in maximum of 24 instalments along with interest. Considering the fact that Covid-19 induced difficulties will continue for a year or so, GST Council may consider recommending issuance of removal of difficulty order to extend such facility of payment in instalments to all taxpayers with the relaxation being proportionate to the amount involved.

Refund - Taking the fight from portal to court

Scores of writ petitions are filed in High Courts when taxpayers face unresponsive GST portal and equally unresponsive department. Refund was not initially allowed when the claim was spread across two financial years. In the first round the taxpayer challenged Circular No. 125 placing restriction in this regard. The High Court stayed the relevant paragraph of the circular and gave certain directions to CBIC [2020-VIL-45-DEL]. Subsequently, the Board modified the same.

The taxpayer again approached the High Court on the ground that the GST portal does not accept the refund claim spread over different financial years. The High Court has directed the authorities to accept the manually field refund claim [Pitambra Books Pvt. Ltd. v. UOI - 2020-VIL-313-DEL].

As the High Court gave time of only three days, refund has been sanctioned in this case as noted in the subsequent order dated 23-7-2020 [2020-VIL-329-DEL]. In this order, the government has stated that GSTN is on the job of making changes in GST portal to accept refund claims in such cases and it is likely to be deployed by September, 2020.

Relying on the above another petitioner was before the High Court but they were relegated to appellate remedy. The order is brief and the facts are not clear. Otherwise, there appears to be no reason to accord differential treatment [Sachin Enterprises v. Asst. Commissioner - 2020-VIL-319-DEL].

Refund - Claim by taxpayer versus claim by department

In Tax Vista dated 20th July, 2020, it was highlighted that despite claims of the department on refunds being sanctioned without delay, taxpayers are compelled to file writ petitions on such issues. This statement is sadly vindicated as the order passed by Delhi High Court on 22-7-2020 reveals.

The taxpayer had filed refund claim in November, 2019. Neither acknowledgement nor deficiency memo was issued within prescribed timeline as per CGST Rules. The claimant had to invoke writ jurisdiction of the High Court to pull the jurisdictional officer out of slumber. Before the High Court, the government has conceded that there has been some laxity on their part but it was informed that deficiency memo will be issued as some documents have not been uploaded. The High Court termed such stand as hyper-technical.

The Court said that if such memo is issued, the claimant will be forced to file another refund claim and time-limit will be computed from the date of filing such fresh claim, thus losing on interest payable by the department for delay in sanction of refund. The Court held that the department had lost the right to point out deficiency at this belated stage. It ordered sanction of refund with interest [Jian International v. Commissioner - 2020-VIL-328-DEL].

It is unfortunate that in this case also, the petitioner had stated that writ petition was filed for similar refund pertaining to earlier period also. Constitutional Courts have not been created to use their time to make the administration perform even routine tasks. Even if return filing becomes easier in GST, claiming refund may continue to be as difficult as it was in pre-GST regime.

Detention on suspicion - High Court grants relief

Goods were transported along with copy of invoices and e-way bills. The invoices were not in running serial numbers and there was a gap in the serial numbers. The GST authorities suspected that the invoices with missing serial numbers might have been used for supply of goods not reported. The vehicle and goods were detained based on such suspicion.

Kerala High Court has set aside the detention and ordered release of the vehicle and goods after holding that the detained goods were accompanied by tax invoices as per the rules and also e-way bills and the doubt of the department was over some other goods which might have been covered under invoices with missing serial numbers [Devices Distributors v. The Asst. State Tax Officer - 2020-VIL-330-KER].

Check posts have been abolished in GST era but routine road checks are conducted as the spate of writ petitions reveal. Such checks lead to arbitrary detention and seizure of vehicles and goods in many cases. GST Council should recommend issuance of instructions to officers so that such powers are exercised with discretion only if warranted.

Paver blocks - ITC not admissible

Taxpayers deserve to be commended for never-say-die attitude. Despite majority of advance rulings being not in their favour, applications are filed routinely. But the ruling discussed below is different as the applicant sought to (re)move the inadmissible tag from items used for construction for the purpose of input tax credit (ITC).

In an unusually detailed and well-reasoned order, the Authority for Advance Rulings (AAR) has held that paver blocks laid for creating parking area for vehicles will not be eligible for ITC. According to the AAR, it would be considered as immovable property and the restriction of ITC under Section 17(5)(d) of CGST Act on goods or services used for construction of immovable property will be applicable. It noted that such paver blocks have been erected as a permanent structure and are not simply arranged on land [Sundharams Pvt. Ltd. - 2020-VIL-224-AAR].

The applicant had contended that the blocks can be shifted and re-used elsewhere but this has been rejected by the AAR on the ground that flexibility to re-use does not mean the blocks will be removed and re-erected frequently and they are meant to be permanently fixed to earth. The applicant had argued that such laying of paver blocks was not capitalised in their books of accounts and it was treated as revenue expenditure thus entitling them to avail credit. The applicant, a provider of storage and warehousing services, relied on lease deed with land-owner to the effect that such blocks would be removed at the time of vacating the premises.

Tribunal orders continuation of anti-dumping duty

Anti-dumping duty on imports of ductile iron pipes from China has been in force in 2007. After the first sunset review in 2012, continuation of such levy was recommended and it remained in force till 2018. In the second sunset review, the Directorate General of Trade Remedies (DGTR) concluded that continuation of anti-dumping duty was not required. The domestic manufacturer approached Gujarat High Court twice and the levy continued to be in force for some time based on the directions of the Court.

The Tribunal has now set aside DGTR notification and has directed continued imposition of anti-dumping duty for five years. While arriving at this decision, the Tribunal has taken note of precedent rulings highlighting the difference between initial investigation and sunset review, price undercutting and dumping of such products in other markets by China, production capacity of China being four times more than that of India and the positive impact of the levy in preventing dumping and protecting the domestic industry [Jindal Saw Ltd. v. DGAD - 2020-VIL-328-CESTAT-DEL-CU].

These are days of China not being perceived as fair in trade. The Tribunal decision coming in this backdrop can be said as guided by policy preferences but the order contains sufficient reasons on merit.

Digital camera capable of capturing both still and moving images classifiable under 8525 80 20 and eligible for exemption

Camera necessarily involves action and Mumbai Bench of CESTAT recently witnessed action-packed dispute on classification. When it comes to classification under Customs Tariff due to availability of exemption, it is natural for the department to prefer a heading for which exemption is not available.

The importer had classified the camera under Tariff Item 8525 80 20 which covers digital cameras and claimed exemption from basic customs duty under Notification No. 50/2017-Cus. The Customs authorities classified it under Tariff Item 8525 80 90 as "Others" and denied exemption benefit. Based on ruling of US Court of International Trade, HSN explanatory notes and common parlance, the Tribunal upheld the classification adopted by the importer. One of the main grounds for the initial denial by the Customs authorities was that the goods were capable of capturing still as well as moving images and the description of the goods under exemption notification read as "Digital still image video camera".

The Tribunal noted that there is no specific definition for such item in the Customs Tariff and specific heading is to be preferred over the general heading and therefore, residuary heading adopted by department was not sustainable [Creative Peripherals & Distribution Ltd. v. CC - 2020-VIL-326-CESTAT-MUM-CU].

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