Tax Vista

Your weekly tax recap

Edn. 188 – 22nd Jan. 2024
By Dr. G. Gokul Kishore

ITC denial for non-payment to suppliers – Order demanding

tax pan-India by SGST officer, quashed
SGST authorities have become now (in)famous for issuing show
cause notices which are mostly ridiculous and show them in poor
light in terms of domain knowledge as far as GST law is concerned.
Balance sheet, P&L Account and books of account are used as the basis for
demanding staggering sums as tax without any thought. In one such case, input tax
credit availed has been sought to be recovered on the ground that payment to
suppliers was not made within 180 days as prescribed in Section 16 of CGST Act /
TNGST Act. These days, orders (assessment order / adjudication order) are
generally SCNs with the change in title as order and therefore, the order passed in
this case also demanded the amount as mentioned in the SCN. The figures
pertaining to trade payables was taken from the financial statements pertaining to
pan-India operations of the taxpayer under the jurisdiction of SGST authorities. The
petitioner argued that as per Companies Act, 2013, financial statements for entire
operations of the company as a whole are required to be filed and there is no
provision for filing any State-wise statements. CA’s certificate was also submitted
along with the assurance that all relevant invoices would be submitted. The High
Court set aside the order and directed passing of fresh order after noting that there
was non-application of mind by the assessing authority [2024-VIL-56-MAD].

The Secretary of Commercial Taxes Department in the States should seriously

consider capacity-building (training) of officers and also issue instructions on
exercising restraint while issuing high-pitched demands without substance. The
practice of telling the taxpayers to approach High Court even while acknowledging
illegality of demands should be curbed. Several High Courts have directed marking
copy of such orders to such higher-level officers but the system hardly changes.

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GST will be certainly derailed only to be cursed by everyone if containment measures
not taken in time.

Coercive recovery of entire demand at the stage of appeal to Tribunal

invalid
Illegal recovery of dues is reaching alarming levels, particularly the extreme urgency
and obsession of SGST officers breaching all norms of civilised tax administration.
A recent order bears eloquent testimony to such downfall. The judgment begins on
note of weariness recalling “problem of valiant tax executives clothed with judicial
powers remembering their former capacity at the expense of the latter”. The
petitioner-taxpayer was aggrieved by the action of the GST authorities in recovering
tax, interest and penalty from his bank account and that too without any notice. The
taxpayer had paid 20% of the amount in dispute though appeal could not be filed
since GST Tribunal has not been constituted. Relying on Sita Pandey v. State of
Bihar and Ors. - 2023-VIL-599-PAT, the High Court held that the department’s
action in recovery of entire demand as well as the manner of recovery without any
notice or hearing was without statutory sanction.

The High Court relied on its own order [2023-VIL-599-PAT] wherein it was held that
recording of reasons as per Section 78 of CGST Act is not recording surreptitiously
and keeping in the files, but to be informed to the taxpayer and that the said reason
was the since bank holidays followed the close of the financial year, the entire
demand was to be recovered. The High Court had held in the said case that imminent
bank holidays of 2 or 3 days cannot be termed valid reasons to justify an expedient
recovery under the proviso to Section 78 and it was not clear as to how the interest
of the revenue would suffer, if the recovery is kept in abeyance for three months or
at least a notice is issued to the taxpayer. It opined that the legislature had, in the
event of an appeal filed in the Tribunal, only intended 20% of the tax dues alone to
be paid and imposed costs on the officer for acting in a high-handed manner
contrary to legislative mandate [2024-VIL-59-PAT].

Refund of IGST – Denial by new officer inventing novel modus operandi

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In another oft-repeated scenario but without the tone of weariness, the High Court
held that IGST refund cannot be denied when the alert on the taxpayer has been
lifted, merely because a new incumbent officer developed a new device to block
refund. The taxpayer, in the earlier round had sought refund of IGST which was
withheld stating that there was an alert issued against him. Subsequently the same
was withdrawn and a major portion of the refund was credited. Then a new officer
sought clarification from the State GST officials as to whether they require the alert
against the taxpayer to continue. The High Court held that at least prima facie, the
State GST officials would not have any role to play concerning the IGST refund on
exports and there was no justification to delay the grant of refund. It said – “In
times when efforts are on to promote the ease of doing business and to minimise
official discretion, withholding refunds due to prima facie red tape should not be
encouraged. Neither should the taxpayers nor the exchequer suffer for avoidable
delays in such matters.” If officers are not interested in granting refund, it will be
advisable to omission of provisions relating to refund at least on exports and
taxpayers can be told to export without payment of tax alone. It is better to tell
taxpayers that government always wants to extort and is not in any manner
interested in their welfare [2024-VIL-54-BOM].

Authority bound to examine whether appeal is within limitation before

rejection
In GST litigation both officer and taxpayer must necessarily be aware of GST law as
well as Limitation Act,1963 and General Clauses Act, 1897. But this is asking for the
moon – GST law itself is always out of reach for most of the officers. The period of
limitation – 3 months for filing appeal fell on a Sunday and the appeal was filed on
Monday. The appeal was rejected being beyond the period of limitation. The
taxpayer argued that as per the Limitation Act, prescribed period for filing of the
appeal expires on the date when the Court is closed, the same can be preferred on
the day when the Court reopens and in terms of provisions of Section 9 of the
General Clauses Act, 1897, date of receipt of order was to be excluded. Hence the
appeal had been filed within the prescribed period. The department countered this
by contending that if the taxpayer sought condonation of delay a prayer to this effect
ought to have been made in the appeal. The High Court held that in case of a delay

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of one day, as a matter of justice the taxpayer should have been given an
opportunity to apply for condonation but on facts, the appeal was within the period
of limitation and could not be rejected. As regards the absence of a specific prayer,
it was held that it is the duty of the authority to examine the matter as to whether
the same is within limitation [2024-VIL-39-RAJ].

Power of rectification cannot be used to rewrite order afresh

Review in the guise of rectification of “error apparent” on the face of the record is
not a new phenomenon. In GST, officers go the extra mile in such misadventures.
In the case before Calcutta High Court, it was quite apparent that there was no error
- no fault on the part of the taxpayer to merit cancellation of registration. The
taxpayer admittedly filed returns regularly, paid taxes and was licensed to carry out
business and yet merely noting that these facts were not true, the order revoking
cancellation of registration was rewritten. The High Court held that the purported
rectification did not refer to any error and was effectively rewriting of the earlier
order which was impermissible in exercise of powers under Section 161 of the CGST
Act. It also noted that the powers are pari materia with Section 129B of the Customs
Act and a power of rectification is not akin to a power of review. If an officer is of
the view that an order should be revised, statutory provisions are not required – a
junior officer and a computer are sufficient. [2024-VIL-37-CAL].

Delay of 128 days in filing appeal – High Court directs condonation of delay
Condonation of delay in filing appeal is becoming a major issue silently as the
Supreme Court order in Asst. Commr. (CT) v. Glaxo Smith Kline Consumer Health
Care Ltd. [2020-VIL-18-SC] is being widely followed by High Courts and petitions
seeking direction on condonation of delay are being rejected. However, one or two
orders in between have been issued in favour of taxpayers. One such order has been
passed by Andhra Pradesh High Court recently. Appeal against cancellation of GST
registration was rejected on the ground of delay of 128 days beyond condonable
period. The High Court acknowledged that appellate authority has no power to
condone such delay. It noted that the delay was due to ill-health of the petitioner
and the same constituted sufficient cause. A similar order of the Court was also
cited. The Court said appeal being a valuable statutory right, to do complete justice,

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directions are given to hear the appeal on merits. The Court followed an earlier order
by imposing costs of Rs. 20,000 while allowing such petition. It is not known why
costs are being imposed even after being satisfied as to sufficiency of the cause of
delay. GST department should be appreciated for not highlighting precedent
judgments including GSK order (as noted above). It is likely that during arguments
it could have come up but the Court opted to exercise discretion. More such orders
should be passed so that the issue of condonation of delay is considered based on
facts of particular case instead of following a specific ratio [2024-VIL-53-AP].

Penalty not imposable for e-way bill expiry when intent to evade absent
The order is one of routine – expiry of e-way bill and imposition of penalty under
Section 129 of CGST Act and this column is not being used now for such routine
orders. However, the reason cited in the order by appellate authority is extraordinary
and therefore, it is being briefly covered. The petitioner paid the amounts to get the
goods and vehicle released detained on the charge of expiry of e-way bill. The reason
adduced was traffic restrictions for Deepavali festival. The appellate authority held
that festive season has not been mentioned in GST law relating to validity / expiry
of e-way bill. Officers may involve themselves in several activities which are per se
illegal but when a genuine reason is cited, then shelter in law is taken to drive out
the taxpayer. The High Court noted that there was no discrepancy in goods or
quantity in the invoices and the e-way bill. It posed the question – whether mere
expiry of e-way bill calls for action under Section 129? It held that the truck was
within 1 km of the destination and the vehicle was bound to stop due to festive
season and the same cannot be considered as intent to evade. Penalty was held as
not imposable and refund of penalty was ordered [2024-VIL-41-JHR].

Delay in filing returns within 30 days condonable – Time-limit in Section 62

is directory
An order on best judgment assessment and filing of returns beyond the 30 days’
time as per Section 62 of CGST Act has been reported last week. The order may be
useful to many taxpayers considering the interpretation placed on the provision. The
taxpayer filed the return after the time period of 30 days from passing order as
provided in Section 62. The High Court noted that the authority can pass order

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within 5 years from the due date for filing annual return but he chose to pass order
in the present case at the earliest date. Because of such fact, the taxpayer lost the
opportunity to file the returns within time. The Court further said that the limitation
in Section 62 is directory in nature and if the taxpayer could not file return within
the time-limit due to reasons beyond control, the delay can be condoned [2024-VIL-
36-MAD].

Software license in paper form classifiable under chapter 49 and not as part
of software under chapter 85.
The assessee classified “IT software” under CTH 85238020 with tariff rate of duty
and "Software License" under CTH 49070030 seeking benefit of NIL rate of duties
under Sl. No.157 of Notification No.21/2002-Cus., dated 1-3-2002. According to it
the software and license were distinct products – one is a software and the other –
license in paper form is a manual and they are specifically classified under different
headings as per the Customs Tariff. The assessee pointed out that the description
of tariff item CTH 4907 0030 was "Document of title conveying the right to use
Information Technology Software", while CTH 8523 80 20 relates to "Information
Technology Software". The department contended that license being an integral part
of the software, the value was royalty / fee for use of software and therefore, it was
to be included in the valuation of the software as per Rule 10(1)(c) of the Customs
Valuation Rules, 2007. It was held by CESTAT that classification depends on the
description of the product at the time of import and manuals which are meant to be
the instructions to activate the software are to be classified under Chapter 49. Also,
the mere fact that license has an intellectual value does not mean that the software
and license would be considered as a set [2024-VIL-68-CESTAT-BLR-CU].

Importer entitled to seek retest of goods

Assessment orders at times are outcome of Dominoes effect. An allegation of mis-
declaration sets off chain of charges, seizure, undervaluation, goods liable to
confiscation, penalty and so on. Of course, to be sustainable, the first tile or card
must be strong. The assessee imported GTL Light Paraffin classifiable under CTH
27101990 individually and so in comingled state with other importers. The
department opined it was light diesel oil (LDO) which can be imported only by

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authorized agencies and so the flurry of show cause notices, testing of samples,
confiscation, redemption etc., followed. Out of three consignments, in respect of
two, the testing/retesting of goods showed the goods to be GTL Light Paraffin. The
assessee sought retest of samples but did not receive any response. It also pointed
out that in respect of other importers test reports of samples proved that the
imported goods were liquid paraffin. Subsequently, other consignments were tested
based on Court directions and as per reports the goods were in the nature of liquid
paraffin and did not meet the specifications of LDO. Also, during cross examination,
the chemical examiner could not explain the reason of difference in the report of
CRCL Vadodara from the report of CRCL New Delhi, in respect of the product meeting
the requirement of Paraffin diesel fuel as per the standards of DIN EN-15940:2019.
The Assessee relied on York Exports - 2004-VIL-149-CESTAT-MUM-CU to contend
that the denial of retest was a violation of principles of natural justice.

The High Court held that the assessee could rely on the test reports of the other co-
importers and that failure to allow retest of samples creates a serious doubt in the
original test reports. It was also held that the entire case having been built on the
premise of misdeclaration which was not proved against the assessee, it was held
that the demand as well as penalties on co-noticess must fail. [2024-VIL-53-
CESTAT-AHM-CU].

Previous edition, dated 15th Jan 2024

(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)

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