Shailesh has over 30 years’ experience in Consulting, Advisory and Litigation practice in
the field of Indirect Tax Laws that include Central Excise, Service Tax, Customs, State
VAT Laws, CST & GST.
Shailesh is also one of the Partners in a legal firm, namely, M/s. RVS LEGAL having its
base in Chennai, Bangalore and Mumbai. Mr. V. Raghuraman, Advocate, Bangalore and
Mr. K. Vaitheeswaran, Advocate, Chennai are two other Partners in the firm. This
boutique firm specialises in Indirect Taxation, Direct Tax, International Taxation,
Arbitration, Corporate Laws (including IBC), Drafting/Vetting of Commercial Contracts,
amongst other fields.
Representative Industry Experience:
Shailesh has dealt extensively in the areas of Central Excise, Service Tax, Customs,
GST and CST/VAT across the entire trade and industry spectrum consisting of
Manufacturing, Service Sector and Distributive Trade representing diverse sectors
Shailesh has been a regular faculty at various professional bodies as well as Trade and
Industry Forums on his chosen field. He has already delivered more than 90 lectures
since April, 2017 on various aspects of GST all over India.
Shailesh is a regular columnist in ‘Vyapar’- a Bi-weekly Business Newspaper of
Janmabhoomi Group – on Service Tax, Central Excise & GST and has also contributed
number of articles to various magazines as well as Taxation Websites like TIOL, etc.
Membership/Association with professional/trade/industry bodies:
Besides professional bodies like Chamber of Tax Consultants and AIFTP, Shailesh is also
associated with various trade/industry bodies including Indian Merchants’ Chamber (Indirect Tax
Committee), ITAMMA, IDMA, AIRIA, BSE Brokers’ Forum, Builders Association of India (BAI),
NAREDCO, Brihanmumbai Developers Association (BDA) & other bodies guiding them in the
field of Indirect Tax.
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by Advocate Shailesh Sheth
June 23, 2021 in GST Compliances
In the previous article (see, “Tax Wire” Issue: 08 dated June 12, 2021), we briefly discussed the provisions of S. 83 of the CGST Act, 2017 („the Act‟) empowering the Commissioner to resort to the provisional attachment in the specified circumstances and the protective shield provided by the various High Courts by its judgments to the taxpayers against the arbitrary action of the authorities in terms of S. 83 of the Act. However, instead of learning a lesson from these judicial pronouncements, the government has amended the provisions of S. 83 by the Finance Act, 2021 substantially widening the scope thereof. But before we discuss these amendments, it will be advantageous to have a look at a few significant judicial rulings rendered in the context of S.83 in force as of date.
In the case of Valerius Industries vs. UOI – 2019-TIOL-2094-HC-AHM-GST, the Gujarat High Court, while examining the validity of the action of the Department in terms of S.83, observed and summarised its conclusions as under:
“52. Our final conclusions may be summarized as under:
 The order of provisional attachment before the assessment order is made may be justified if the assessing authority or any other authority empowered in law is of the opinion that it is necessary to protect the interest of revenue. However, the subjective satisfaction should be based on some credible materials or information and also should be supported by supervening factor. It is not any and every material, howsoever vague and indefinite or distant remote or far-fetching, which would warrant the formation of the belief.
 The power conferred upon the authority under Section 83 of the Act for provisional attachment could be termed as a very drastic and far-reaching power. Such power should be used sparingly and only on substantive weighty grounds and reasons.
 The power of provisional attachment under Section 83 of the Act should be exercised by the authority only if there is a reasonable apprehension that the assessee may default the ultimate collection of the demand that is likely to be raised on completion of the assessment. It should, therefore, be exercised with extreme care and caution.
 The power under Section 83 of the Act for provisional attachment should be exercised only if there is sufficient material on record to justify the satisfaction that the assessee is about to dispose of whole or any part of his / her property with a view to thwarting the ultimate collection of demand and in order to achieve the said objective, the attachment should be of the properties and to that extent, it is required to achieve this objective.
 The power under Section 83 of the Act should neither be used as a tool to harass the assessee nor should it be used in a manner that may have an irreversible detrimental effect on the business of the assessee.
 The attachment of bank account and trading assets should be resorted to only as a last resort or measure. The provisional attachment under Section 83 of the Act should not be equated with the attachment in the course of the recovery proceedings.
 The authority before exercising power under Section 83 of the Act for provisional attachment should take into consideration two things: (i) whether it is a revenue-neutral situation (ii) the statement of “output liability or input credit”. Having regard to the amount paid by reversing the input tax credit if the interest of the revenue is sufficiently secured, then the authority may not be justified in invoking its power under Section 83 of the Act for the purpose of provisional attachment.”
Provisional Attachment of Property including Bank Account
With the above observations, the High Court quashed and set aside the orders of provisional attachment and blockage of the Input Tax Credit under challenge before it. The conclusions of the Gujarat High Court in the aforesaid judgement were endorsed in the recent judgement delivered on April 20, 2021, by the Supreme Court in the case of M/s. Radha Krishna Industries vs. State of Himachal Pradesh and Ors. – 2021-L-179-SC-GST. In this case, the Apex Court was considering the validity of the departmental action of the provisional attachment under S. 83 against the Petitioner who had been charged with the involvement in an ITC fraud amounting to Rs. 5.03 crores during 2017-18 and 2018-19. The High Court of Himachal Pradesh had, by its Order dated January 1, 2021, dismissed the Writ Petition instituted by the Petitioner under Article 226 of the Constitution challenging the orders of provisional assessment on the ground that an alternate remedy was available. This order of the High Court was under challenge before the Supreme Court.
Provisional Attachment of Credit Ledger on account of Nonexistence of Supplier at their Registered Address
The Supreme court, after considering the facts of the case, the relevant statutory provisions and the rival submissions, allowed the Appeal of the Petitioner and set aside the impugned judgement of the High Court and the orders of the provisional attachment passed by the authorities. In its uniquely structured and scintillating judgement, the Apex Court has made the following significant observations:
“48. Now in this backdrop, it becomes necessary to emphasize that before the Commissioner can levy a provisional attachment, there must be a formation of “the opinion” and that it is necessary “so to do” for the purpose of protecting the interest of the government revenue. The power to levy a provisional attachment is draconian in nature. By the exercise of the power, a property belonging to the taxable person may be attached, including a bank account. The attachment is provisional and the statute has contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment that is contemplated in Section 83 is, in other words, at a stage that is anterior to the finalization of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components of the statute is integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory pre-conditions by the Commissioner. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that “for the purpose of protecting the interest of the government revenue, it is necessary so to do”, it is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue.”
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June 12, 2021 in GST Compliances
In terms of S.83 of the CGST Act, 2017, the Commissioner has the powers to provisionally attach the property, including a bank account belonging to a taxable person under certain specified circumstances. When any proceedings under the specified provisions are pending against a taxable person, the Commissioner, for the purpose of protecting the interest of the Government revenue, can resort to such drastic action of the provisional attachment of the property.
The powers of provisional attachment can be exercised by the Commissioner in terms of S. 83 (as in force on date) in cases where any proceedings are pending under any of the following provisions against a taxable person:
a. S.62 (Assessment of non-filers of returns);
b. S. 63 (Assessment of unregistered persons);
c. S.64 (Summary assessment in certain special cases);
d. S.67 (Power of inspection, search and seizure);
e. S. 73 (Determination of tax not paid, etc. for any reason other than fraud, etc.)
f. S.74 (Determination of tax not paid, etc. by reason of fraud, etc.)
From the careful perusal of the aforesaid specified provisions which may act as a trigger point for the action under S.83, it will be evident that the objective behind S. 83 is to ensure that a taxable person facing any proceedings under any of the said provisions will not dispose of or part with any property in any manner so as to escape the liability and thereby endangering the Government revenue. While the GST regime is hardly 4 years old, still, during this short period, innumerable cases of ‘bogus ITC’ involving substantial amounts are coming to the light with alarming regularity! It is, therefore, not surprising that the power available under S. 83 is being exercised by the Commissioner, more as a ‘rule’ rather than as an ‘exception’ and often, arbitrarily! Consequently, more often than not, the High Courts are compelled to step in and intervene in such cases of arbitrary action of the provisional assessment.
Recently, in the case of Sri Marg Human Resources Pvt. Ltd. vs. Principal ADG-2021-TIOL1281-HC-MAD-GST, the Madras High Court, by its judgement dated May 26, 2021, vacated the attachment Orders under challenge before it after considering the totality of the facts of the case. In this case, the Department had alleged the availment of the fraudulent ITC of Rs. 21 crores on the basis of the bogus invoices by the Company. During the investigation, the Department had already recovered Rs. 5.68 crores and taking note of this fact, the High Court, while ordering an additional deposit of Rs. 1.00 crore, vacated the Orders of attachment of the Bank Account of the Petitioner. The High Court, in this case, made the following significant observation:
“9. No doubt, vide powers have been vested with the Officers under Section 67 of the CGST Act, 2017. The said proceedings also entail a provisional attachment of assets during the pendency of the proceedings under Sections 62, 63, 64, 67, 73 and 74 of the said Act. However, such protection cannot be made against the future receivables.”
The High Court further observed:
“It is made clear that the attachment proceedings cannot be at the cost of provision (protection?) under Article 19 (1)(g) of the Constitution of India.”
In the case of Dharmesh Gandhi vs. Asst. Commissioner (Anti-Evasion) – 2021-TIOL-597-HCMUM-GST, the Bombay High Court, by its judgement dated March 10, 2021, had ordered the immediate release of the bank accounts of the family members of the taxable person from provisional attachment. The High Court further allowed the objection to be filed by other Petitioners i.e. the taxable persons before the Commissioner and directed the Commissioner to pass an appropriate order after hearing the parties within the specified period. The High Court followed its earlier judgement in the case of Siddarth Mandavia vs. UOI – 2020-TIOL-1861-HC-MUM-GST in which it was, inter alia, held that the bank account of only the taxable person can be provisionally attached under Section 83 of the CGST Act, 2017.
No Benefit No Arrest: Punjab & Haryana HC
In yet another recent judgement delivered on May 12, 2021, in the case of Roshni Sana Jaiswal vs. Commissioner of Central Taxes, GST Delhi (East) – 2021-TIOL-1126-HD-DEL-GST, the Delhi High Court quashed the provisional attachment orders passed against a person other than a taxable person, holding the same as unsustainable. The High Court very tersely observed: “In the zeal to protect the interest of the revenue, the respondent cannot attach any and every property, including bank accounts of persons, other than the taxable person.”
It may be noted that in terms of sub-section (2) of Section 83 (as in force on date), any Order of the provisional attachment made under sub-section (1) shall cease to have effect after the expiry of a period of one year from the date of the order. In the context of Section 83(2), the Punjab & Haryana High Court, in the case of Parvati Steel Re-Rolling Mills vs. Deputy Excise & Taxation Commissioner, Ludhiana – 2021-TIOL-115-HC-P&H-GST, by its judgement dated February 09, 2021, has held that the attachment over the Petitioner’s bank account lapsed and ceased to operate on expiry of one year from the date of order in terms of Section 83(2) of the Punjab GST Act, 2017. The High Court duly noted and followed the following judgements in this case:
1. M/s. A. P. Steel and Sri Sanjay Kumar Mishra vs. ADG, DGCI, Bangalore Zonal Unit – 2020 (4) GSTL 169 (Kar.)
2. M/s. Namaskar Enterprise vs. Commissioner of GST – 2020-TIOL-1383-HC-AHM-GST.
It will be evident from the aforesaid judgements and other judicial pronouncements that instead of exercising the unfettered power available under S. 83 only in the exceptional cases, the same is being exercised quite mindlessly and illegally by the Commissioners across the country forcing the High Courts to step in and control the authorities from pursuing such action. As a matter of fact, one gathers an impression that for the Department, the provision of S. 83 has become a handy ‘tool’ of recovery beyond the law. No doubt, there cannot be any sympathy for the ‘tax evaders’, but even while acting against them, the statutory provisions and the established principles of law cannot be thrown out of the window! Unfortunately, instead of taking a lesson from the various judgements of the High Courts, significant amendments reflecting the bureaucratic and dictatorial mindset have been carried out to S. 83 by the Finance Act, 2021. While the amendments have become part of the CGST Act, 2017 on the enactment of the Finance Bill, 2021 on March 28, 2021, they have yet not been notified and put into effect. We shall discuss the nature, scope and implications of these amendments in due course of time.
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June 5, 2021 in GST Compliances
For the past almost two years, Covid-19 Pandemic has gripped the world and the Indian Sub-Continent cannot be expected to remain immune to this life-threatening virus. In fact, the ‘second wave’ of this Pandemic has turned out to be much more lethal than the ‘first wave’! Particularly, the number of people who have succumbed to this virus due to the non-availability of oxygen is disturbingly high.
Amidst this crisis, the importance of “Oxygen Concentrator‟ as life-saving equipment has suddenly caught the attention of the entire nation! Admittedly, the country is not only facing a shortage of oxygen cylinders but also of oxygen concentrators and therefore, there is no alternative but to depend upon the imports of this equipment.
It is therefore not surprising that all eyes were on the Government’s tax policy, not only concerning the imports of lifesaving drugs but also of the lifesaving equipment like oxygen concentrators.
On April 24, 2021, Central Government issued notification no. 28/2021-Cus. granting full exemption from payment of customs duty and Health Cess to the oxygen concentrators imported into India. This notification shall remain in force till July 31, 2021.
However, at the same time, the imports of oxygen concentrators for personal use attracted IGST @ 28% as against its imports for commercial use that attracted the IGST @ 12%. Needless to say, this illogical and unjustified differential tax treatment led to wide-scale resentment and protests. Obviously, it was a sheer absurdity that a person who is desperately in the need of an oxygen concentrator and who somehow manages to arrange for one from abroad for his personal use would still end up coughing up 28% IGST on its import! Finally, sensing the growing discontentment amongst the people, the Central Government issued a notification no.30/2021-Cus on May 01, 2021, providing for a concessional rate of IGST at 12% on the oxygen concentrators imported for personal use. This was done ostensibly to bring parity between the import of this equipment for commercial use and personal use.
Refund For Exports With Payment of IGST
Close on the heels of the above notification, the Central Government issued an Exemption Order no.04/2021-Customs dated May 3, 2021, inter alia, granting full exemption from payment of IGST to the oxygen concentrators, when imported into India, by the specified agencies, subject to the conditions specified in the Order.
Here, it is necessary to point that the aforesaid customs notifications and exemption Order have been issued by the Central Government under S.25(1) or S.25(2), as the case may be, of the Customs Act,1962 and the same are not based on any recommendations of the GST Council.
However, there was a furore against this irrational and controversial policy of granting total exemption from IGST when the oxygen concentrator is imported by the canalising agencies and levying 12% IGST thereon when imported by a person (read “patient‟) who is fighting for his survival and has somehow managed to arrange for one by way of gift! Peeved at this discriminatory tax treatment, a Delhi based octogenarian Mr Gurcharan Singh, who has been fighting Covid-19 battle having been affected by it, knocked the doors of the Delhi High Court and challenged the constitutionality of the levy of IGST @ 12% on the import of the subject equipment and received as a gift from his nephew for his treatment. On May 21, 2021, the High Court delivered its judgement and with piercing observations and concise but critical and profound analysis, declared the aforesaid customs notification no.30/2021Cus. as unconstitutional. However, as was expected, the judgement was immediately challenged by the Government and the Supreme Court has, on June 1, 2021, stayed the said judgement of the High Court.
Basic Provisions of Customs Law and Taxability of Import of Goods
Whatever may be the ultimate judicial outcome of this dispute but isn’t it unfortunate that this controversy should arise in the first place? What is the rational and propriety in levying 12% IGST on the import of this life-saving equipment or device received from abroad by way of a gift for personal treatment? When the Government acknowledges the shortage of oxygen concentrators in the country, isn’t the levy of 12% IGST thereon when imported for personal use is like ‘rubbing salt into the wounds’? How can a person afford the levy of 12% IGST on import of this equipment which he may have either been lucky to get as a gift from abroad or has been able to get only after some herculean efforts? Isn’t this provision absolutely irrational, unjustified, inhuman and reflective of the bureaucratic mindset? No doubt, the grant of exemption from tax to any product lies within the full discretionary powers of the Central Government but isn’t the grant of exemption from IGST in this particular case in the ‘public interest’?
It may be noted here that that the power to grant exemption from IGST in respect of the import of the oxygen concentrator or any imported goods is vested in the Central Government under S. 25 of the Customs Act, 1962. The Central Government is neither dependent upon nor does it require the recommendation of the GST Council for exercising this power vested in it. As a matter of fact, if one were to closely and critically examine the relevant Constitutional provisions and the provisions of the IGST Act, 2017, the Customs Tariff Act, 1975 and the Customs Act,1962, then it would become clear that in the matter of the grant of exemption from any customs duty including IGST on the import of any goods, the GST Council has no role to play whatsoever nor any such role is envisaged by the lawmakers. One, therefore, fails to comprehend as to on what basis the GST Council is ‘deliberating’ the issue of grant of the IGST exemption to the Oxygen Concentrator, amongst other goods, and „constituting‟ the ‘Group of Ministers’ to look into this issue and make its recommendations?
And while this drama is being played out, ‘Gurcharan Singhs’ are screaming with pain from hospital beds: ‘We can’t breathe; give us oxygen concentrators!’
[The concluding comment of this article is inspired by the imaginary dialogue “I can’t breathe” written by Mr Vijay Kumar, Editor-in-Chief of Taxindiaonline.]
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May 29, 2021 in GST Compliances
Input Tax Credit’ (‘ITC’) is the ‘soul’ of the ‘Goods and Services Tax Act’ (‘GST’), an Indirect Tax policy. The mechanism of ITC plays a significant role in mitigating the adverse impact of ‘Tax on tax’ by enabling the taxpayers to pay the tax only on ‘Value Addition’.
In terms of Section 16 of the CGST Act, 2017, a registered person is entitled to take the credit of the ‘Input Tax’ charged on the input or input service or both used or intended to be used by him in the course or furtherance of business. No doubt, the benefit of ITC is subject to the prescribed conditions and restrictions. A registered taxpayer procures the taxable input or input service from a supplier under the cover of the tax invoice that contains the prescribed details like the value of supply, the applicable rate of tax and the total amount of tax charged on the supply, amongst other details. The recipient taxpayer claims the ITC on the basis of such details declared in the tax invoice by the supplier.
The question that arises here is that in case a supplier, after making the supply of the goods or service under the cover of tax invoice, reduces the price of the supply due to post-supply discount or for any other reason and extends the benefit of price reduction to his buyer, will it require the buyer to forgo the proportionate ITC and reverse the same?
A post-supply reduction in price as a result of the negotiation and agreement reached between the supplier and the buyer is a common occurrence in business relations. However, while making the ‘supply’, the supplier would have charged the tax on the basis of the original price of the ‘supply’ and declared the same in the tax invoice. The recipient taxpayer would also have claimed the ITC against such tax charged in the tax invoice by the supplier. Now, if a supplier, in respect of such supply, extends the benefit of price reduction due to discount or any other reason to the buyer then will it require the proportionate reversal of ITC by the recipient taxpayer?
Let us consider this frequently arising and troublesome issue, first, in light of the relevant statutory provisions. Section 15 of the CGST Act, 2017 contains the provisions relating to the determination of ‘value of taxable supply’. As per Section 15(1), the price charged by the supplier for the supply made by him and which is paid or payable by the buyer constitutes the ‘transaction value’ where the price is the sole consideration for the supply and dealing is between two unrelated parties. The ‘value’ so determined form the basis for the computation of the tax payable on the supply. Against the amount of tax (input tax)so ascertained as payable and charged by the supplier in the tax invoice, the recipient taxpayer can claim the benefit of ITC in accordance with the law. However, there is neither any statutory provision nor any legal obligation for the recipient taxpayer to reverse the proportionate ITC on account of the post-supply reduction in the price of this supply effected by the supplier. In case, a supplier offers the discount in the price post-supply and claims the refund of the tax to the extent of such discount, it is then only that the recipient taxpayer will be required to reverse the proportionate ITC in terms of Section 15(3)(b) of the Act but otherwise, is not legally obliged to reverse the proportionate ITC merely on account of the post-supply reduction in price.
As a matter of fact, the legal position as prevalent during the erstwhile Central Excise and Service Tax regime on this issue was not really different. It will therefore be advantageous to have a look at a few judgements of the Appellate Tribunal on this issue and which have been rendered in the context of the erstwhile tax regime.
As early as in 1996, in the case of Kerala State Electronic Corporation Ltd. vs. Collector – 1996 (84) ELT 44 (Tribunal), the Appellate Tribunal had held that a buyer is entitled to claim the Modvat Credit of the duty paid as reflected in the duty paying documents. In this case, the department had sought to deny the benefit of full Modvat Credit of the duty actually paid by the Company on the goods imported by it and restrict the same to the duty ‘payable’ in terms of the relevant exemption notification. However, deciding in favour of the Appellant, the Tribunal held that the buyer was to be allowed the Modvat Credit as per the amount of duty indicated in the duty paying documents. The Tribunal further held that the excise authorities have no jurisdiction to re-assess the duty on the inputs received by the buyer for the purpose of Modvat Credit and if the duty paid on the inputs is found to be short or in excess of what is payable under the law, the resort can be had at the supplier’s end under the provisions of Section 11A and Section 11B of the Central Excises and Salt Act, 1944, as the case may be, by way of demand by the authorities or refund claim by the supplier.
What is GST input tax credit, ITC in GST
The principle of law established in the above judgement was applied by the Tribunal in the case of Commissioner vs. Trinetra Texturisers Pvt. Ltd. – 2004 (166) ELT 384 (Tri-Mumbai). In this case, the Tribunal had declared the action of the department to deny the benefit of Modvat Credit to the extent of reduction in price effected by the supplier by way of issue of the credit note illegal and had dismissed the appeal filed by the department.
This principle of law has since then been followed consistently by the Tribunal in a catena of decisions including in its judgements in the case of Commissioner vs. Toyo Springs Ltd. – 2013 (294) ELT 639 (Tri-Delhi) and Lunia Brothers vs. Commissioner – 2014 (311) ELT 651 (TriAhmd.) rendered in the context of the provisions governing the Cenvat Credit. In fact, by its Circular No. 877/15/2008-CX (F. No. 267(54)/2008-CX-8) issued as early as on November 17, 2008, the CBEC had also recognised this established principle of law. On the issue of the reversal of Cenvat Credit in case of subsequent grant of trade discount or reduction in the price, without reduction of the duty paid by the supplier, the Board, by the captioned Circular, had clarified as under:
“2. The issue has been examined. Since, the discount in such cases are given in respect of the value of inputs and not in respect of the duty paid by the supplier, the effect of reduction of value of inputs may be that the duty required to be paid on the inputs was less than what has been actually paid by the inputs manufacturer. However, the fact remains that the inputs manufacturer had paid the higher duty. Rule 3 of Cenvat Credit Rules, 2004 allows a credit of duty “paid” by the inputs manufacturer and not duty “payable” by the said manufacturer. There are many judgements of the Hon’ble Tribunal in this regard that have confirmed this view.
3. In view of the above, it is clarified that in such cases, the entire amount of duty paid by the manufacturer, as shown in the invoice would be available as credit irrespective of the fact that subsequent to clearance of the goods, the price is reduced by way of discount or otherwise. However, if the duty paid is also reduced, along with the reduction in price, the reduced excise duty would only be available as credit. It may however be confirmed that the supplier, who has paid duty, has not filed/claimed the refund on account of reduction in price.”
Fresh Panel Appointed to Handle GST Litigation at Various Courts
It is therefore evident that the Board had acknowledged the legal position that even if the supplier has offered a post-supply discount to the buyer but not claimed the refund to the extent of discount, then the buyer is entitled to the credit of the duty (read ‘GST’ in the context of the present discussion) paid on the goods supplied by the supplier.
The above-established principle of law shall apply on all fours even under the GST laws since the relevant provisions of the GST law are not materially different from the corresponding provisions of the Excise or Service Tax laws. Actually, there is no substantial difference between the fundamental concepts and the provisions of the GST law and the parallel concepts and provisions of the Central Excise or Service Tax or VAT laws. The law is the same; the taxpayer is the same; the eyes are the same; the eyesight is the same; it is only that the people look at the GST law wearing different coloured glasses and therefore, everything looks so different!
[The article is published on “taxongo” on 28.05.2021 under the “Insight Column”]
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May 27, 2021 in GST Compliances
“Nobody has a more sacred obligation to obey the law than those who make the law.” [Sophocles]
The question posed in the title of the article may startle readers and some may even consider it outlandish, if not absurd! After all, who, in his right mind, can think of anything happening in the GST arena without ‘the recommendations of the GST Council’? The phrase ‘on the recommendation of the Council’ has been so liberally sprinkled across the GST laws that it has become an all-pervading, all-dominating phrase! Like an omnipresent God, the GST Council’s presence is felt by all stakeholders behind every decision on any matter concerning GST on account of this phrase!
Nevertheless, the author has raised (or dared to raise!) the above question in view of two recent developments viz.
For the uninitiated, it is in order to lay down a few bare facts as are relevant for the present discussion:
a) By notification no. 28/2021-Cus dated 24.04.2021, total exemption from the payment of customs duty and health cess leviable on the ‘Oxygen Concentrator’, amongst other goods specified in the notification, when imported into India, has been unconditionally granted by the Central Government. This notification shall remain in force up to July 31, 2021.
b) Close upon the heels of the above notification, the Central Government issued another notification no. 30/2021-Cus dated 01.05.2021, possibly to pacify agitated minds, providing for a concessional rate of IGST at 12% adv. on ‘oxygen concentrator’ imported for personal use. This notification shall remain in force up to June 30, 2021.
Advisory in relation to Invoicing related to Exports on payment of IGST
c) However, taking note of the ‘hue and cry’ over the levy of IGST on the imports of oxygen concentrator, the Central Government issued an Ad hoc Exemption Order No. 04/2021-Cus dated 03.05.2021, in terms of S. 25(2) of the Customs Act, 1962 (‘the CA’) granting total exemption from the payment of IGST leviable on the oxygen concentrator, amongst other specified goods, when imported into India, by the specified canalizing agencies, albeit, subject to the conditions prescribed therein. This exemption order shall remain in force up to June 30, 2021.
d) By a scintillating judgment delivered on May 21, 2021, in the case of Gurcharan Singh vs. Ministry of Finance – 2021-TIOL-1168-HC-DEL-CUS, the Hon’ble Delhi High Court has quashed Notification no. 30/2021-Cus ibid as being unconstitutional.
The question posed in the beginning of this article and which is the central point of this piece needs to be considered against the backdrop of the above developments and factual position.
Before we advert to the above issue, it will be necessary and advantageous to understand the legal framework relating to the levy of IGST on the imports.
The power to levy GST on the supply of goods and services is rooted in Art. 246A of the Constitution. Art. 246A (2) has vested Parliament with the exclusive power to make laws with respect to goods and services tax, where the supply of goods, or services, or both takes place in the course of inter-state trade or commerce. Art. 269A (1) empowers the Union to levy and collect the GST on the supplies in the course of inter-state trade or commerce. Explanation appended to Art. 269A (2) reads as under:
“Explanation.- For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce”.
Thus, the Explanation creates a deeming fiction by declaring the ‘supply of goods or of services, or both in the course of imports into India’ as ‘supply in the course of inter-state trade or commerce’. Art. 279A deals with the constitution of the GST Council and its powers to make recommendations to the Union and the States on the matters enumerated in sub-clauses (a) to (h) of clause (4) thereof. In pursuance of Art. 246A, several GST legislations have been enacted, one of them being ‘Integrated Goods and Services Tax Act, 2017‘ (‘IGST Act’). S. 5(1) of the IGST Act provides for the levy of integrated tax on all inter-state supplies of goods or services or both, except alcoholic liquor for human consumption. In terms of S. 7(2) of the IGST Act, the supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-state trade or commerce. However, proviso to S. 5(1) of the IGST Act states that the integrated tax on the goods imported into India shall be levied and collected in accordance with S.3 of the Customs Tariff Act, 1975 (‘the CTA’) on the value as determined under S.12 of the said Act at the point when the customs duties are levied on the said goods under S.12 of the CA. There is, thus, an interplay between the provisions of the CA, CTA and IGST Act, in so far as the imposition of levy of IGST on goods imported into India is concerned.
S.3 of the CTA was amended by the Taxation Laws (Amendment) Act, 2017 so as to substitute, inter alia, sub-section (7) and to provide for the levy of integrated tax at the rate not exceeding 40 per cent on the imported goods as is leviable under S.5 of the IGST Act on the like article on its supply in India, on the value of the imported article as determined under sub-section (8) or sub-section (8A). [Subsection (8A) was inserted in S.3 by S. 102 of Finance Act, 2018 w.e.f. 28.03.2018].
Thus, S.3 of the CTA read with the proviso to S. 5(1) of the IGST Act provides for the levy of IGST on the goods imported into India at the rate not exceeding 40% on the values determined under S. 3(8) and (8A) of the CTA and at the point when duties of customs are levied on the said goods under S.12 of the CA.
The power to grant exemption from IGST, on the recommendation of the Council, any goods or services or both, are vested in the Central Government under S. 6(1) of the IGST Act. The poor drafting of this provision apart, it does not provide for, nor can it be read as providing for the Central Government’s power to grant exemption from IGST to any goods imported in India.
On the other hand, sub-section (12) of S. 3 of the CTA makes the provisions of the CA and the rules and regulations made thereunder, including those relating to the exemption from duties, so far as may be, applicable, inter alia, to the tax chargeable under the said Section as they apply in relation to the duties under that Act. In other words, in terms of S. 3(12), the Central Government is empowered to grant exemption from IGST in respect of any goods imported in India, by exercising the powers vested in it under S. 25 of the CA.
It is against the above Constitutional and legal framework concerning the levy and collection of IGST on the goods imported into India and exemption from payment of IGST in respect thereof that one needs to consider the role, if any, of the GST Council insofar as the grant of exemption is concerned.
Even if one were to ignore the complete dichotomy and disconnect between the proviso to S.5(1) of the IGST Act and the provisions of S. 3(7) of the CTA and assume the validity of levy of IGST on imported goods, the levy and collection of the IGST on the goods imported into India is in terms of S. 3 of the CTA read with the proviso to S.5 of the IGST Act. IGST has in effect, replaced countervailing duty (‘CVD’) which was hitherto leviable under S. 3 of the CTA and was being traditionally levied on the imported goods to ensure a level playing field to the domestic manufacturers. Thus, CVD levied on imported goods was equivalent to the basic excise duty on a like product produced or manufactured in India. With the introduction of GST regime in the country w.e.f. July 01, 2017, the role hitherto played by CVD has been taken over by IGST which is levied on the goods imported into India under S. 3(7) of the CTA read with the proviso to S. 5(1) of the IGST Act. A careful perusal of S. 3(7) of the CTA would indicate that the provision only refers to the rate that is leviable under S.5 of the IGST Act. The power to levy IGST on the imported goods has to be searched and found essentially in S.3(7) of the CTA.
This being the legal position, the power to grant exemption from IGST also has to be searched in the provisions of CTA and/or CA only. Needless to say, S. 3 (12) of the CTA makes the provisions of the CA relating to exemption from customs duties i.e. the provisions of S. 25 of the CA applicable, so far as may be, to tax i.e. integrated tax or IGST chargeable under the said S.3 of the CTA. Consequently, the Central Government is empowered to grant exemption from IGST in respect of any goods imported into India by exercising its powers vested in it under S. 25 of the CA. As will be observed from a careful perusal of S. 25 of the CA, the power vested in the Central Government to grant exemption thereunder to any imported goods is not dependent on the recommendation of the GST Council. This, indeed, reflects the legislative wisdom inasmuch as the power to levy and collection of duties of customs and IGST on the goods imported into India is vested in the Parliament, and so also, the power to grant exemption from duties of customs and/or IGST is vested in the Central Government under delegated legislation. Any role of the GST Council that comprises members representing the Union and the States/Union Territories was never envisaged in so far as the levy and collection of IGST and the grant of exemption from IGST in respect of the imported goods is concerned. It is significant to note here that the matter relating to the ‘grant of exemption from integrated tax to any goods imported into India’ is conspicuous in its absence in clause (4) of Art. 279A of the Constitution.
It is further to be noted that under Art. 246A (2) of the Constitution, Parliament has exclusive power to make laws with respect to GST where the supply takes place in the course of inter-state trade or commerce. Art. 269A provides for the levy and collection of GST i.e. integrated tax on supplies in the course of inter-state trade or commerce. Explanation to Art. 269A(1) deems the supply of goods or services or both in the course of import into India as a supply in the course of inter-state trade or commerce. It therefore follows that the law governing the levy and collection of the integrated tax or IGST on the supply of goods or services or both imported into India lies within the exclusive domain of the Union and no role of the GST Council consisting of the members of Union and the States/UTs is envisaged here by the Legislature. It is therefore evident that S. 6 (1) of the IGST Act, inter alia, empowering the Central Government to grant, on the recommendation of the Council, exemption from the integrated tax to any goods or services, or both, has to be considered as being confined to domestic inter-state supplies and not extending to the supplies imported into India. To conclude, the power to grant exemption from IGST in respect of any goods imported into India remains vested in the Central Government under S. 25 of the CA and exercise of such power does not depend on the recommendation of the GST Council. This view is fortified by the fact that the Ad hoc Exemption Order No. 04/2021-Cus dated 03.05.2012 providing for the partial exemption from IGST, inter alia, in respect of the oxygen concentrator imported for personal use has been issued by the Central Government under S. 25 (2) of the CA and there is neither, nor can there be any mention of the ‘recommendation of the GST Council’. Readers may also refer to Notification no. 33/2017- Cus dated 30.06.2017 (effective from 01.07.2017) inter alia, granting exemption from the payment of IGST leviable under S. 3(7) of the CA in respect of the imported goods specified therein. This notification has been issued by the Central Government under S. 25 (1) of the CA.
Finally, Para 16.1 to 16.3 of the above referred Delhi High Court judgement dated May 21, 2021 (supra) fully supports the view that in the matter of the grant of exemption from IGST in respect of any supply of goods or services or both, imported into India, the GST Council has neither any say nor any role to play.
In view of the above discussion and clear and explicit Constitutional framework and the statutory provisions, one wonders as to the propriety of the GST Council undertaking any deliberations over the grant of IGST exemption to imports (oxygen concentrator is the ‘goods’ in question) at all, when it has not even been vested with the powers to make any recommendations on this count under the Art. 279A(4) of the Constitution? The power to grant IGST exemption to imported goods is vested with the Central Government (read ‘Union’) under S.25 of the CA and it may exercise this power or refrain from doing so. Why should the Council arrogate to itself this role and by implication, bring State Governments into the picture which is clearly not envisaged by the Legislature and is against the Constitutional scheme of things? Or is it that considering the sensitive nature of the issue of grant of IGST exemption to ‘oxygen concentrator imported for personal use’, the Central Government is reluctant to ‘bite the bullet’ and has considered it prudent to take the States/UT’s along in the decisionmaking process?
Be that as it may, the very fact that ‘grant of IGST exemption’ (and for that matter, even customs duty exemption) to any imported goods is being discussed by the GST Council shows that something is terribly amiss here!
“….even the fixing of a tariff rate must be moral.”
[Ida Tarbell, American Writer “The Tariff in Our Times, 1906]
[The article is published on “taxindiaonline” on 27.05.2021 under the “Guest Column”]
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May 26, 2021 in GST Compliances
[In Part I, we had a brief look at the 4 (four) conditions prescribed in clauses (a) to (d) of S. 16(2) of the CGST Act, 2017 which are in force as of the date and which a taxpayer is required to fulfill so as to be eligible to ITC.
In Part II, the statutory provisions relating to FORM GSTR-2A and their bearing on the entitlement of the taxpayer for availing ITC on the taxable supplies received by him were briefly analyzed.
In Part III, the scope and intent of sub-rule (4) inserted in R.36 by Not. No.49/2019-CT dt. 09.10.2019 w.e.f. 09.10.2019 and its Constitutionality and validity were discussed.]
While the controversy surrounding the departmental action of denying ITC to the taxpayer on the basis of Form GSTR-2A was gathering serious traction, the GST Council, in its 39th Meeting held on March 14, 2020, recommended yet another Form for the convenience (?) of the taxpayers. The proposed Form was issued as ‘Form GSTR-2B’ on an experimental basis in July 2020 and finally, in August 2020, it was put into operation on a regular basis. Unfortunately, Form GSTR-2B had no statutory support or basis inasmuch as neither in the CGST Act, 2017 nor in the CGST Rules, 2017, was there any mention of Form GSTR-2B at the time when it was operationalized in August 2020. Belatedly, the Central Government made an attempt to remedy this lacuna by the issue of Notification No. 82/2020- CT dated November 10, 2020. By this Notification, R. 59 and 60 have been substituted by a new set of rules which have been given effect from January 01, 2021. It will be interesting to note that the substituted R. 59 does not refer to ‘FORM GSTR-2A’ at all (unlike sub-rule (3) of the erstwhile R. 59 which was in force up to December 31, 2020.)
At the same time, the substituted Rule 60 now, inter alia, provides for the generation of both, ‘FORM GSTR-2A’ and ‘FORM GSTR-2B’. [For the sake of brevity, the relevant text of the substituted R. 60 is not reproduced]. Readers will observe that by the substituted provisions, the Central Government has attempted to lend credibility and validity to the ‘FORM GSTR-2B’ already put into operation by them in August 2020, in addition to the then existing ‘FORM GSTR-2A’.
In short, effective from January 01, 2021, two Forms viz. Form GSTR-2A and Form GSTR-2B are being made available on the GSTN Portal to every taxpayer. These Forms contain the specified details as prescribed under the substituted Rule 60 with effect from January 01, 2021. However, both these
Forms differ in many respects. Without delving deep into this, suffice it to say that Form GSTR-2A is a ‘Dynamic Form’, the details which may undergo constant change, whereas, Form GSTR-2B is a ‘Static Form’, the details in which remain unchanged. There are many other areas of differences between the two Forms but no discussion thereon is warranted here.
The question that is uppermost in the minds of all stakeholders is “which of FORM GSTR-2A or FORM GSTR-2B‘ is relevant for availing ITC?”. Let us make an attempt to answer this burning question.
The most crucial point to be noted here is that it is not the responsibility of the taxpayer to file either FORM GSTR-2A or FORM GSTR-2B nor does the substituted R. 60 provide so. The words ‘The details of outward supplies furnished by the supplier in FORM GSTR-1 or using the IFF shall be made available electronically to the concerned registered persons (recipients) in PART-A of FORM GSTR-2A…’ as used in sub-rule (1) of the substituted R. 60 and the words ” An auto-drafted statement containing the details of the input tax credit shall be made available to the registered person in FORM GSTR-2B, for every month, electronically through the common portal …” used in sub-rule (7) of the said Rule makes it clear that both, FORM GSTR-2A and FORM GSTR-2B are auto drafted statements generated by the system based on the details of the outward supplies furnished by suppliers through FORM GSTR-1 for the relevant period. These statements are to be made available electronically on the common portal for perusal and scrutiny by the recipient-taxpayer.
Under these circumstances, Departmental action to deny the benefit of ITC to the recipient-taxpayer merely on the basis of non-availability of the details of outward supplies made by the supplier-taxpayer in its Form GSTR-2A or the Form GSTR-2B is absolutely unjustified and illegal. In the detailed Advisory issued by the GSTN relating to Form GSTR-2B, it is clearly stated that the statement in Form GSTR-2B is intended for the convenience of the taxpayers who can undertake regular scrutiny as to the availability of ITC vis-à-vis outward supplies made by the supplier-taxpayer. In this Advisory, it is also stated that ‘the taxpayers are advised to refer FORM GSTR-2B for availing credit in FORM GSTR-3B’. Unfortunately, a large number of taxpayers and tax professionals and needless to say, tax officers are swayed by this Advisory and treat the same as a legal mandate. Accordingly, a view is expressed by all that for availing the ITC, Form GSTR-2A has now become irrelevant and that the ITC benefit shall be reckoned only on the basis of the details available in Form GSTR-2B. This interpretation and understanding are absolutely misconceived and erroneous. First, the Advisory has no statutory binding force whatsoever. Second, in the absence of any statutory provision in the Act or the Rules, the eligibility of a taxpayer to claim the benefit of ITC cannot be made dependent, nor can it be restricted on the basis of Form GSTR-2A or Form GSTR-2B. In case, the details of any outward supply of a supplier taxpayer are not available in these Forms, it may be a cause for undertaking an investigation or scrutiny by both the stakeholders, viz. the recipient-taxpayer and the department, but merely on that basis, the recipient taxpayer cannot be denied the benefit of ITC.
In the end, it is rather strange and equally unfortunate that provisions that are intended for the convenience and caution of the taxpayers have become, not only a cause for a legal dispute but also a matter of concern for taxpayers, considering the financial implications of this boiling issue.
As if the denying or restricting the ITC, albeit illegally or arbitrarily in the majority of the cases, on the basis of R. 36(1) and/or FORM GSTR-2A and/or FORM GSTR-2B and the disputes arising as a consequence thereof is not enough, yet another significant condition has been inserted in S. 16(2) by the Finance Act, 2021. A new clause (aa) inserted in S. 16(2) reads as under:
“(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified in Section 37.”
Before we proceed, it may be pointed out that though the aforesaid clause (aa) has become part of the CGST Act, 2017 with the enactment of the Finance Bill, 2021 on March 28, 2021, it has not come into force to date. This clause and all other amending provisions of the Finance Act, 2021 relating to GST shall come into force on the date to be appointed by the Central Government by notification in terms of S. 1 (2)(b) of the said Finance Act, 2021.
One look at clause (aa) and it will be evident that it now seeks to accord statutory recognition to the intent and purpose of R. 36(4) and in fact, goes much beyond that. As per this clause, before the recipient taxpayer avails ITC on any inward supply, he will have to ensure that the condition prescribed in the clause also stands fulfilled. However, a careful reading of clause (aa) will show that it postulates 3 (three) things, viz:
It is, therefore, clear that even the new clause (aa) does not impose any responsibility on the recipient taxpayer in any manner and he is only expected to be a passive recipient of the information via Common Portal. (It’s a different matter that later he may be made a victim having stood in the firing line!) It may be observed that the two players viz. the supplier and the Common Portal are only expected to act in the manner specified in S. 37. While the former shall file the statement in FORM GSTR-1, the latter shall communicate the details presumably in FORM GSTR-2A and/or FORM GSTR 2B or other prescribed forms, to the recipient taxpayer as provided under S.37. The questions that arise here are:
The aforesaid two questions will require answers and will need to be analyzed on a conjoint and harmonious reading of the various provisions of the CGST Act, 2017 and the CGST Rules, 2017. As the new clause (aa) is yet to become operational, a detailed discussion on these issues is avoided at this stage.
One may also feel that there is some sort of overlap between the new clause (aa) and the existing clause (c) of S.16(2) inasmuch as if they are perceived as pre-conditions for availing ITC, both are ‘supplier centric and seek to deny ITC to the recipient taxpayer on the basis of some fault or omission on the part of the supplier. Another significant aspect of clause (aa) is that when read, whether in isolation or in conjunction with clause (c), it seeks to deny the ITC in its entirety to the recipient taxpayer in case there is a failure or omission on part of the supplier to furnish the details of invoices/debit notes in the statement of outward supplies for any reason. The withdrawal/omission of sub-rule (4) [of rule 36] may, therefore, be on the cards once the new clause (aa) of S. 16(2) is notified and put into effect.
Insofar as the constitutionality and validity of clause (aa) are concerned, the same shall be discussed in the concluding part in the context of clause (c) of S. 16(2) of the Act. [To be continued…]
[The article is published on “taxindiaonline” on 25.05.2021 under the “Guest Column”]
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May 22, 2021 in GST Compliances
“No man ever reached to excellence in any one art or profession without having passed through the slow painful process of study and preparation.” – [Horace – Ancient Greek Poet, 65 BC- 8 BC]
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May 14, 2021 in GST Compliances
As discussed in this column earlier, the department cannot recover any amount of tax or interest or penalty or any other amount without first issuing a show-cause notice to the person concerned as mandated in law. The applicability of this established principle of law is not confined only to Excise, Service Tax, or Customs but also extends to the GST laws as well. However, unfortunately, the department is known to resort to arbitrary recovery action, often than not, in total disregard of this established principle. What is, indeed serious is the fact that the statutory provisions which are basically aimed at protecting the Government‟s revenue from the nefarious activities of the tax evaders are being only used by the department against the honest and compliant taxpayers in an unreasonable and unchecked manner.
The provisions relating to the various modes available to the department for the recovery of any amount payable by a person to the Government are contained in Section 79 of the CGST Act, 2017. When any amount is due and payable by a person to the Government, the proper officer may, for the recovery thereof, apply any of the modes prescribed under Section 79 and initiate action against the said person. These statutory provisions of Section 79 relating to the “Recovery of tax‟ also include the “Garnishee proceedings‟ vide clause (c) of subsection (1) thereof.
By initiating the Garnishee proceedings, the proper officer can issue a notice to a third party like the Bank or a debtor of a person concerned for the purpose of the recovery of tax or any other amount payable by such person to the Government and direct the third party to pay the specified amount to the Government which otherwise it owes or is required to pay to the said person. For instance, if any amount belonging to the person concerned is lying or being credited in the account of that person which he holds with the bank or a buyer (the debtor) is required to make a payment to such person against the supply obtained from him then, in that case, the proper officer can issue a notice in terms of Section 79 to the Bank or the buyer (the debtor) and direct them to not pay the specified amount to the person concerned but pay the amount to the Government treasury.
While the statute provides for such Garnishee action by the department for the purpose of recovery of tax, etc., many issues arise with regard to such action being taken by the department. The issues as to “Can the department initiate such recovery proceedings without completing the assessment of the amount of tax, etc. payable by a person? Can the department resort to Garnishee proceedings without first issuing a show-cause notice under Section 73 or Section 74 of the CGST Act, 2017 and its adjudication by the competent authority? Is the department obliged in law to follow the principles of natural justice before initiating any such action against any person? At which stage can the department initiate such action?” are but a few of the issues that require serious consideration. The provisions of Section 79 of the CGST Act, 2017 are pari materia with the provisions of erstwhile Section 11 of the Central Excise Act, 1944 and the erstwhile Section 87 of the Finance Act, 1994. It will, therefore, be advantageous to have a brief look at a few judgments rendered by the Courts in the context of these provisions relating to Excise or Service Tax and the principles of law established thereunder.
In the case of ICICI Bank Ltd. vs. UOI – 2015-TIOL-1164-HC-MUM-ST, the Hon’ble Bombay High Court has observed and held that an amount which is payable by a person can be said to be payable only after there is a determination under Section 72 or Section 73 of the Finance Act, 1994 and without there being any adjudication, coercive steps cannot be taken for recovery of service tax or penalty or interest.
In yet another judgement rendered by the same Court in the case of M/s. Quality Fabricators & Erectors vs. the Deputy Director, DGCEI – 2015-TIOL-2710-HC-MUM-ST, it has been held by the Hon’ble Court that unless and until there is a crystallization of demand by proper adjudication order and on hearing of the Petitioner therein, there was no question of any recovery. With these observations, the Hon’ble Court quashed and set aside the Notices issued by the department and addressed to the Bank to freeze the Current Accounts of the Petitioner before it.
Introduction to Power BI
Reaffirming the aforesaid principle of law as established in the above and another catena of judicial pronouncements, yet another judgement has recently been delivered by the Hon’ble Bombay High Court in the case of M/s. New India Civil Erectors Pvt. Ltd. vs. UOI – 2020-TIOL-1644-HC-MUM-ST, wherein it is held that before proceeding to recover the amount by issuing garnishee notice under Section 87(b) (i) of the Finance Act, 1994, the amount has to be first determined and quantified and thereafter not paid by the person required to make the payment as per law. The Hon’ble Court further held that the garnishee notice has to be preceded by a determination of the amount due and not paid and that the amount payable has to first crystallize. As regards the reliance placed by the Revenue on the statements of the Officials of the Petitioner, the Hon’ble Court observed as under:
“23. Reverting back to the facts of the present case, we notice that Respondents are relying on two statements made by officials of the Petitioner; one on 19.12.2019 and the other on 13.02.2020. The mere making of such statements by themselves cannot lead to any conclusion that a certain amount has been determined as due from the Petitioner. Finance Act, 1994 provides for various provisions for making an assessment for determining the amount of service tax required to be paid by the service provider, including best judgment assessment under Section 72 which provision can be invoked when there is failure to furnish the return or failure to assess the tax. Without there being an assessment, no conclusion can be reached that any amount has become due to be paid. In the absence of such determination of the tax due, recourse to Section 87 of the Finance Act, 1994 would certainly be premature and cannot be justified.”
With the above observations, the Hon’ble Court directed the Respondent to forthwith withdraw the restraint on the Petitioner’s bank account so that the same can be made functional for the Petitioner.
In the case of Tata Teleservices (Maharashtra) Ltd. vs. the Ministry of Finance – 2014-TIOL-147-HC-MUM-ST, the Hon’ble High Court deprecated the recovery proceedings initiated by the department even before the expiry of the time limit provided in law for filing an appeal against the Order vide which demand was confirmed against an Assessee. The Hon’ble High Court observed that the communication issued by the department insisting on the payment by the Petitioner of the amount adjudicated upon by the adjudication order without waiting for the statutory period of three months provided in law to enable the filing of an appeal and stay application to the Tribunal is over, is not only contrary to the provisions of the Finance Act, 1994, but also to the Circular dated January 01, 2013, issued by the CBEC. Castigating such communication as ‘high-handed’ the Hon’ble Court reminded the Revenue Officers that they would do well to realize that their job is much more than merely collecting the tax and that as the Officers of the State administering the Finance Act, 1994, fairness in approach to the taxpayer and acting in accordance with the Rule of Law is a sine-qua-non in the discharge of all its functions. The Hon’ble Court, accordingly, disposed of the Petition by quashing and setting aside the impugned communications of the department and restraining the Revenue authorities from adopting any coercive proceedings for the recovery of tax dues in terms of the adjudication order till the disposal of stay application by the Tribunal, in the event, the Petitioner files an appeal and a stay application within the statutory period as prescribed.
Various High Courts have, time and again, reiterated the aforesaid settled principles of law vide their judgments pronounced in various cases involving similar issues. Even in the context of such recovery via garnishee action in terms of Section 79 of the CGST Act, 2017, various High Courts have affirmed the same principles of law. The judgments of the Hon’ble Madras High Court in the case of M/s. V.M. Mehta and Company vs. Assistant Commissioner – 2019-TIOL-2594-HC-MAD-GST; by the Hon’ble Jharkhand High Court in the case of Mahadeo Construction Company vs. UOI – 2020-HCJHARKHAND-GST and by the Hon’ble Andhra Pradesh High Court in the case of Spy Agro Industries Ltd. vs. Asst. Commissioner of Central Tax – 2020- TIOL-2002-HC-AP-GST deserves special mention here.
It may be noted here that in terms of Section 78 of the CGST Act, 2017, the recovery proceedings can be initiated only if any amount payable by a taxable person in pursuance of an order passed under the Act is not paid by such person within a period of three months from the date of service of such order on him. The period of “three months‟ is provided for the purpose of filing an appeal by the person aggrieved by an order confirming the demand against him, before the Appellate Commissioner or the GST Appellate Tribunal (not yet established) in terms of Section 107 or Section 112, as the case may be, of the CGST Act, 2017. The provisions of Section 107 and 112 also, inter alia, require the predeposit of the disputed amount as specified therein by the Appellant while filing the appeal thereunder. Once the taxpayer has filed such an appeal and also made the pre-deposit of the specified amount, the department cannot take any recovery action against such taxpayer as is the settled law. The ratio of the principle laid down by the Hon’ble Bombay High Court in Tata Teleservices’ case (supra) squarely applies here even in the context of the GST laws.
There is nothing surprising about the arbitrary recovery action being undertaken by the Revenue officers in total disregard of the statutory provisions and the established principles of law when they continuously strive to achieve the unrealistic revenue targets! However, unfortunately, it is only the taxpayers who suffer due to such illegal action of the department even while there is no real gain for the Revenue due to such exercise! In the end, the (monetary) benefit of this state of affairs accrues only to the professionals like Advocates, Chartered Accountants, etc.!
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May 13, 2021 in GST Compliances
Ngakyaw ate it, but it was Ngakyi who had to pay.”
[From “Hill Proverbs of the Inhabitants of the Chitagong Hill Tracks’ by Capt. Thomas Herbert Lewin]
Before we discuss the provisions of S.16(2)(c) and (aa) of the CGST Act, 2017 and their implications as well as maintainability, it would be necessary and advantageous to have a comprehensive look at the provisions governing the FORM GSTR-2A, Rule 36(4) of the CGST Rules, 2017 and FORM GSTR2B.
In Part-I, we have already had a brief look at the 4 (four) conditions prescribed in clauses (a) to (d) of S.16(2) of the CGST Act, 2017 which a taxpayer is required to fulfill so as to be eligible to ITC. [A new condition prescribed by clause (aa) inserted in S.16(2) by the Finance Act, 2021 has not been referred to and will be separately discussed later.] It is in the context of the condition prescribed at clause (c) of S.16(2) that one needs to analyze the provisions relating to FORM GSTR-2A, Rule 36(4), and FORM GSTR-2B and understand their implications.
At the outset, it may be clarified that the present discussion relating to FORM GSTR-2A is in the context of Rule 59 of the CGST Rules, 2017 as was in existence during the period from July 1, 2017, to December 31, 2020. The said Rule 59 along with Rule 60 have been amended by Not. No. 82/2020- CT dt. November 10, 2020 w.e.f. January 01, 2021, and the nature and implications of these amendments will be discussed separately.
Every registered taxpayer [other than those excluded vide S. 37(1)] is required, in terms of S.37 of the CGST Act, 2017 read with R.59(1) of the CGST Rules, 2017, to file a return in FORM GSTR-1 containing the details of outward supplies of goods or services or both effected during a tax period on or before the due date. The (unamended) R.59(3), inter alia, provided that the details of outward supplies furnished by the supplier shall be made available electronically to the registered persons (recipients) concerned, in PART-A of FORM GSTR-2A, through the common portal after the due date of filing of FORM GSTR-1.
For the uninitiated, it may be pointed out here that contrary to the popular perception, ‘FORM GSTR2A’ was always in vogue from the beginning i.e. from July 01, 2017, in terms of R.59(3) of the CGST Rules, 2017. What is, however, important is that there never was any responsibility on the taxpayers to file FORM GSTR-2A nor was it even conceptually envisaged by the lawmakers. The details in the FORM GSTR-2A were being auto-populated on the basis of the FORM GSTR-1 filed by the taxpayers (suppliers) and through the GSTN Portal, which were being made available electronically to the recipients for their information and verification.
However, even though FORM GSTR-2A was always being generated on the Common Portal since the inception of GST law, it had hardly caught the attention of the taxpayers. Compared to the number of registered taxpayers, a very meager number of taxpayers was referring to FORM GSTR-2A and a large number of taxpayers were oblivious or indifferent to its existence. It was only with the introduction of sub-rule (4) in R.36 of the CGST Rules, 2017 vide Not. No. 49/2019-CT dt. 09.10.2019 w.e.f. 09.10.2019 that ‘FORM GSTR-2A’ suddenly became an all-important FORM and the ‘talk of the town’! The moot question that arises is “Whether the benefit of ITC can be denied to a taxpayer (recipient) in respect of any supplies, the details of which are not reflected in FORM GSTR-2A?”
Let us analyze the legal position concerning this issue.
As stated above, no responsibility whatsoever is cast upon the taxpayer to file FORM GSTR-2A nor has the same been envisaged by the lawmakers. The purpose of FORM GSTR-2A need not be spelled out in detail. It was merely a facilitating mechanism enabling the taxpayers (recipients) to verify whether the details of supplies obtained by them during the relevant tax period had been declared by the supplier via FORM GSTR-1 or not. In case the details of any outward supplies were not visible in FORM GSTR-2A, it only raised a presumption that the supplier concerned had not uploaded the details in FORM GSTR-1 and might not have discharged the tax liability thereon. The recipient taxpayer then could take up the matter with the supplier concerned so as to protect his right to ITC on the relevant supplies. Further, FORM GSTR-2A is not a ‘Return’ but merely a ‘Statement’ generated by the System based on the details of outward supplies declared in FORM GSTR-1 by the supplier. (In hindsight, one may even feel that ‘R’ that means ‘Return’ is a misnomer in the description of ‘ FORM GSTR-2A’ as it is not a ‘Return ‘ at all!)
Not only this, but on a closer examination of the statutory provisions, one will observe that ‘FORM GSTR-2A’ as such has no legal backing or recognition either under S. 37 or any other provisions of the CGST Act, 2017. Moreover, FORM GSTR-2A is admittedly a “Dynamic Form” and the details reflected therein are subject to change on a continuous basis.
The above being the legal position, it is absolutely illegal to deny the benefit of ITC to a taxpayer (Recipient) in respect of a supply received by him merely on the ground that the details of the said supply are not reflected in FORM GSTR-2A for the relevant period. Unfortunately, the Departmental officers, and in particular, the Audit Officers, are on the rampage and are raising the demands towards ITC availed by the taxpayers, solely on the basis of the non-availability of the details of outward supplies in FORM GSTR-2A! The demands so raised are undisputedly arbitrary and without the authority of law. It may be stated here that in case the details of any outward supplies made by a taxpayer (supplier) during the relevant tax period are not visible in FORM GSTR-2A, it can only be a ‘wake-up call’ for both, the tax officers and the taxpayers concerned and a valid reason for them to undertake an immediate verification of the factual position at the erring supplier’s end. However, without undertaking such verification and investigation, the Department cannot adopt a short and convenient route of denying ITC on the relevant supply to the recipient taxpayer, in total disregard of statutory provisions and all judicial norms.
To sum up, FORM GSTR-2A is a system-generated statement, the purpose of which is to keep the recipient-taxpayer on the vigil and facilitate verification by him, if the circumstances so necessitate, of the factual and legal position in respect of any supply received by him where the supplier concerned seems to have erred or defaulted.
This facilitating provision cannot and should not become a curse for the taxpayers!
[To be continued…]
[The article is published on “taxindiaonline” on 13.05.2021 under the “Guest Column”]
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May 8, 2021 in GST Compliances
“It is no doubt fair and in the national interest to check tax evasion with a firm hand, but it is neither fair nor in the national interest that the law should be made to bear hard on a large number of honest taxpayers merely in order to get at a new dishonest one. It is not right that so much should be inflicted on so many in order to rope in a few.
What is wrong with India is the pathological obsession displayed by the lawmakers who frame laws only with a tax evader in mind, regardless of the enormous inconvenience and harassment to the far larger section of hones taxpayers. A departmental store which is wholly preoccupied with prevention of shoplifting is a sure candidate for stagnation.”
There is no gainsaying the fact that a comprehensive and seamless “Input Tax Credit’ (‘ITC’) chain is the ‘soul’ of the GST tax system. However, the grant of ITC by the ‘Invoice Credit Method’ has its pitfalls and dangers. The Invoice Credit method remains susceptible to various types of malpractices and frauds.
As observed by Michael Keen and Stephen Smith (2007):
“The implementation of a VAT involves the same core elements as does any other self-assessed tax; the identification and registration of those required (or choosing) to pay the tax; collection and processing of amounts spontaneously remitted with periodical returns; audit to ensure accuracy of returns; and enforcement action on delinquent payers.”
Like any tax, VAT (or GST) is also vulnerable to evasion or fraud. At the heart of VAT/GST is the credit mechanism, with tax charged by a seller available to the buyer as a credit against his (buyer’s) liability on his own sales and, if in excess of the output tax due, refunded to him (buyer), [Keen and Smith (2007)]
This credit and refund mechanism does offer a unique opportunity for abuse and gives rise to several types of fraud characteristic of VAT/GST. Such frauds that can arise under VAT/GST include frauds like non-remittance of tax collected (a case of ‘missing dealer’ or ‘carousel fraud’; false claims for credit or refund; Bogus traders (‘Invoice Mills’), amongst other known frauds.
No doubt, advocates of VAT/GST suggest that the VAT is ‘self-enforcing in the sense that each trader has an incentive to ensure that his suppliers have properly paid VAT, in order that they themselves can claim appropriate credit. As VAT/GST is paid at each stage of production, in order to claim credit for the VAT/GST paid on its inputs against the VAT/GST received on its outputs, a taxpayer would need to show, if required, that the VAT/GST had been paid by its suppliers.
Step by step guide on Haryana VAT/CST registration online
[National Economic Development Office, Value Added Tax (2nd Ed.1971 HMSO, London)]
It is argued that there would be no incentive for two traders to fail to invoice a transaction between them since the purchaser’s liability for VAT would be increased by the amount the supplier had not been recorded as paid. With an indirect tax levied at only one stage of production, the whole of the tax is potentially at risk at that stage, whereas, with VAT, theoretically at least, it is only the tax added at that stage that is at risk.
[“VAT/GST: The UK Experience Revisited” – by Simon James]
It is further suggested that there is an important sense in which the VAT is self-correcting, if not self-enforcing: If for some reason a supply to some registered trader escapes VAT, that missing VAT will be recovered at the next stage in the VAT charged by that trader on their own sales, since there will, in that case, be no credit to offset against their liability.
However, critics point out that the case for this ‘ self-enforcing or ‘self-policing or ‘self-correcting features of the VAT cannot be overstated. It had been recognized that there was scope for evasion in spite of these intrinsic features of the VAT. For instance, while traders have an incentive to ensure that their suppliers provide them with invoices that the authorities will accept as establishing a right to refund or credit, they have no incentive – unless specific requirements of this end are imposed – to ensure that tax has actually been paid. As Hemming and Kay (1981) stress, the notion that the VAT is self-enforcing is ultimately ‘illusory’.
So far as India is concerned, the indirect tax evasion at the Centre and States level under the erstwhile CENVAT or VAT dispensation had been rampant. The frauds commonly witnessed were of the types described above i.e. carousal frauds (missing trader), bogus traders (invoice Mill’), and false claims for credit or refund.
As noted by Richard M. Bird in his Paper “Review of ‘Principles and Practice of Value Added Taxation: Lessons for Developing Countries (1993): “A VAT invoice is a check written on the Government.”
Needless to say, in a country like India, it is a cakewalk for the tax evaders to encash such checks (cheque) i.e. VAT invoice, and encashing they have been and how?!
Possibly stung by the frauds witnessed in the erstwhile tax regime, the lawmakers have, contrary to the claim of the expanded ITC regime under GST, subjected the availability of ITC to the various conditions and exclusions. As per S.16(1) of the CGST Act, 2017 (‘the Act’) every registered person is entitled to take the ITC on the inputs or input services used or intended to be used by him in the course or furtherance of the business. However, this entitlement to ITC is subject to various conditions, safeguards and restrictions. These conditions – a total 4 (four) – are specified in sub-section (2) of S.16 of the Act and the same are summarised below for ease of reference and understanding:
It must be kept in mind that sub-section (2) starts with a non-obstante clause “Notwithstanding anything contained in this section…” and is thus overriding in nature, as far as other provisions of S.16 are concerned.
However, despite the above stringent conditions and particularly the condition at clause (c) of S.16(2), the GST regime has, in a short span of less than 4 years, witnessed massive frauds mainly involving missing or vanishing traders, bogus/fake invoices and bogus ITC and/or refunds. The alarming frequency and sheer magnitude of these frauds have been a cause of serious concern for the GST Council. Alarmed with this gargantuan level of tax frauds/evasion practiced by some dishonest elements and with a view to put a clamp on these frauds, yet another stringent/strict condition has been prescribed for the availment of ITC vide clause (aa) inserted in S. 16(2) of the Act by the Finance Act, 2021. The said clause (aa) reads as under:
“(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;”.
While the condition relating to the payment of tax by the supplier so as to entitle the buyer to ITC [see clause (c) of S.16(2)] has already been a cause of concern for taxpayers and a bone of contention between them and the Department, the new condition inserted vide clause (aa) as above will certainly add fuel to the fire. Thankfully, this clause inserted by section 109 of the Finance Act, 2021 is yet to come into force in view of section 1(2)(b) of the Finance Act, 2021. Intertwined with these conditions are the restrictive provisions of Rule 36(4) of the CGST Rules, 2017 (‘the Rules’) and the provisions of Rules 59 and 60 of the Rules governing the FORM GSTR-2A and FORM GSTR-2B. The implications of the aforesaid conditions and other attendant provisions as well as their legality, validity, constitutionality, and maintainability are discussed hereinafter.
[The article is published on “taxindiaonline” on 06.05.2021 under the “Guest Column”]
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