Your weekly tax recap
Edn. 105 - 20th June 2022
By Dr. G. Gokul Kishore
Amount paid more than pre-deposit and appeal period not over - HC bars recovery
GST authorities have the pious duty to recover government dues at all times and at any cost, irrespective of the provisions or jurisprudence. In a recent case, it appears even before the period for filing appeal against an order got over, the department debited taxpayer's electronic credit ledger by certain amount. This is despite the fact that the taxpayer had made voluntary payment of an amount. The High Court held that such recovery does not have sanction of law as it would make the appellate remedy infructuous. The taxpayer-petitioner argued that, for filing appeal, 10% amount is the pre-deposit required whereas almost 20% amount has already been paid. The High Court took note of the same and directed that no further recovery shall be made. Such order has been passed by Division Bench since Single Judge Bench did not grant interim relief to the taxpayer [2022-VIL-408-CAL].
When amount equal to or exceeding the amount of pre-deposit required for filing appeal has been paid and the time-limit for filing appeal is not yet over, GST authorities cannot get into revenue recovery mode. This is the law laid down by the High Court. However, leaving aside appeal period, even without notice, sometimes recovery action is initiated. Many do not comprehend the situation or time when Section 79 of CGST Act can be invoked. GST is new and apparently progressive law but the tax administration is neither new in its methods nor reveals any strand of reform.
GST on ocean freight - High Court orders refund with interest
Gujarat High Court has ordered refund of IGST paid on ocean freight along with interest. This is consequent to dismissal of appeal by the Supreme Court [2022-VIL-30-SC] which was filed by the GST department against the High Court judgment in Mohit Minerals [2020-VIL-36-GUJ]. This order, though is very brief, is mentioned in this column so that similarly placed taxpayers may consider the modalities of obtaining refund, if the same has been paid. Those who did not pay and are defending notices, without appearing before the authorities, can obtain even ex parte order in their favour. Wherever petitions were filed against notices in the High Court, taxpayers will be glad to get relief though rejection of most of the arguments of the taxpayers by the Supreme Court does not matter as long as the final verdict is in their favour [2022-VIL-410-GUJ].
Advance ruling not available once notice is issued
The title conveys the obvious as readers may think. However, when taxpayers go to High Court seeking relief on obvious questions, the answers are bound to be equally obvious. DGCEI had investigated alleged evasion of tax and it appears notice has also been issued or at least communication sent to pay the applicable tax with interest. The taxpayer's application on rate of tax applicable to sub-contractor providing works contract service in respect of irrigation project was rejected by the Authority for Advance Ruling (AAR) on the ground that the issue is pending before departmental authority since Section 98(2) of CGST Act bars entertaining such applications. An appeal filed before Appellate AAR also yielded the same result. Before the High Court, the taxpayer sought to contend that on the question raised for advance ruling, investigations were not pending. However, the High Court was not impressed as it opted to interpret the provision strictly and held that rejection of advance ruling application was correct [2022-VIL-409-MP].
The provision is bound to come up for interpretation in more number of cases in future. Taxpayers often find themselves being subjected to some inquiry or the other while they seek clarity on certain issues before the AARs. Being subjected to roving inquiry cannot be equated with investigation. In particular, the question as to whether what is being investigated is the same as the question raised by AAR is difficult to answer because at the investigation stage, entire business of the taxpayer comes under scrutiny. This means, the moment summons are issued or inquiry is made, the taxpayer becomes ineligible for seeking advance ruling itself. This could not obviously be the intention of the provisions which tend to lend themselves to divergent interpretation.
Detention of vehicle and goods without notice is illegal
Numerous orders are being reported on detention of vehicle and seizure of goods for defects in e-way bill or expiry of e-way bill. Immediately, all possible actions are taken including a notice proposing confiscation and at the first opportunity, order is also passed. In a recent case, the department detained the lorry when it was stationed in service station for addressing mechanical issue / defect on the ground that the goods were being re-routed without proper e-way bill. The alleged re-routing became necessary as the vehicle developed some problem. But the department was in no hurry to issue any notice or pass order on seizure. The taxpayer was before the High Court and the Court ordered release of the vehicle and goods as such detention without issuance of notice as per Section 129 of CGST Act was in gross violation of law. When the authorities are in slumber despite putting business in jeopardy, it is the writ court which has rescued the taxpayer within two weeks [2022-VIL-405-MAD].
It is not clear whether the authorities are on the roads at midnight. This order mentions that the vehicle was intercepted at 12.30 am by the officers. GST regime has converted physical check-posts into mobile mode with surprises all the way to taxpayers.
Order being cryptic does not mean it is non-speaking
Refund is a right only when it is claimed as per law. In many cases, refund claim gets rejected when one or the other condition is not satisfied. In a particular case, refund of unutilized compensation cess was rejected on the grounds of time-bar, failure to claim ITC of such cess in the returns during the relevant period and inadmissibility of the claim as per departmental instructions. The taxpayer assailed the order as non-speaking but the High Court found that the reasons are listed in a cryptic manner but the same are sufficient for the taxpayer to know the cause for rejection. It held that reasons assigned could have been more elaborate but this alone cannot render the order unsustainable. The Court further said that the impugned order cannot be categorized as non-speaking in view of the reasons assigned. The only relief that the taxpayer got was the liberty to file appeal though limitation had expired [2022-VIL-400-MP].
Natural justice is something which occupies the numero uno position in so far as jurisprudence is concerned. Landmark judgments discuss elaborately when an order can be said to be speaking and when the same can be treated as non-speaking rendering it vulnerable. The above order belongs to an exceptional category as it holds the impugned order as cryptic but not non-speaking. This may appear to some as contradictory because speaking order should contain the reasoning in so many words as to the justification or rationale for arriving at the particular decision. Reasoned order is treated as part of principles of natural justice and order sans reasons is generally considered as non-speaking. Whether mere listing of grounds will make an order speaking one is a question which needs to be answered.
Cancellation of registration without proper inquiry is not sustainable
Next to detention and e-way bill issue, cancellation and revocation of registration have become the order of the day. In a particular case, the taxpayer had to undergo such trial twice - registration was cancelled, later revoked after being satisfied with taxpayer's reply and then again another notice was issued, registration was cancelled and revocation application was also rejected. All this drama has a strange dimension - when inquiry was conducted with the receptionist in the building where the taxpayer was operating, she could not recognize the taxpayer from the photograph shown by the department though she accepted that the power of attorney used to come and operate from the premises. This was the sole reason for cancellation of registration. The High Court did not accept such modus operandi and it held that the procedure adopted was "thoroughly flawed". It held that the proper course of action should have been to call all the parties involved and then ascertain the correct facts. It directed the taxpayer to appear before the authority with documents and the landlord was also ordered to be present during such meeting with the officer to enable him to decide afresh [2022-VIL-399-CAL].
GST not payable on services received from overseas commission agent
A taxpayer friendly advance ruling should gladden the hearts of many, particularly when the ruling relates to intermediary service. The taxpayer who sought advance ruling uses the services of overseas commission agent who facilitates export by getting orders from abroad. The question posed was whether on receipt of such services, GST is liable to be paid under reverse charge. The Authority for Advance Ruling (AAR) has held that tax is not payable under RCM since the transaction is not covered under import of service. The agent provides intermediary service and for such service, place of supply being the location of the supplier, the same is outside India and therefore, one of the conditions for import of service i.e. place of supply should be in India is not satisfied in this case. When the transaction is not treatable as import of service, question of payment of GST under reverse charge does not arise [2022-VIL-167-AAR]. The department should not file appeal by seeking re-classification of the service by adopting some specious grounds.
Taxable value excludes stipend when entire amount is paid by facilitator acting as intermediary
While reading advance rulings dealing with exclusion of certain amounts on the ground of the applicant acting as pure agent, curiosity to know the reasoning is natural. However, when the ruling ends in anti-climax by reaching the conclusion adopting a different route, disappointment cannot be avoided. Under a government programme / welfare scheme, employment related on the job training is provided and stipend is paid by the institution which provides such training. The facilitator who connects trainees and such institutions went for advance ruling to know whether stipend is excludible from taxable value as the entire amount received from the institution is passed on to trainees while GST is paid on their own service charges. By way of abundant caution, the terms of agreement specifically indicated that the applicant would be acting as pure agent under Rule 33 of CGST Rules. The AAR held that such stipend is not liable to be included in taxable value because the applicant is acting as an intermediary or conduit in disbursement of stipend without retaining any portion. Surprisingly, the ruling portion states that the question as to whether applicant is acting as pure agent is not answered. The applicant should be satisfied so long as the ruling is in his favour though the reasoning is not obvious [2022-VIL-164-AAR]
Forest permit fee liable to GST - Tolerating the intolerable
Question regarding GST liability on statutory levies will take a longer time to get settled. There are several enactments under which various amounts are compulsorily payable by different industries for particular activities. As the provisions of GST law do not go far enough to provide a clear-cut answer on taxability of such amounts, the authorities adopt the safe approach in favour of revenue. As per applicable rules, when goods are transported through forest area, certain amount is levied as fee based on which permit is granted by Forest Department. The AAR has held that such forest permit fee levied by the government is liable to GST and tax would be payable by recipient under reverse charge mechanism. The obvious classification is toleration of an act or situation because the government tolerates use of forest land when such movement takes place. The entry on toleration is slowly becoming intolerable as it is the NES (Not Elsewhere Specified) of today's services classification. Whenever there is a doubt, then this heading is preferred [2022-VIL-163-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 has edited R.K. Jain's GST Law Manual - 15th Edition - Feb., 2022. E-mail - firstname.lastname@example.org)