The Apex Court vide order dated 02 September 2022 has extended the time for opening GST Common Portal for a further period of 1 month. It has also been clarified that all questions of law decided by the respective High Courts concerning Section 140 of the CGST Act read with the corresponding Rule/Notification or direction are kept open
The CBIC vide instruction No. 04/2022-23 [GST – Investigation] dated 01 September 2022 has issued guidelines for initiating prosecution under the CGST Act. The Instructions inter alia provide that any person who violates the provision of section 132 of the CGST Act, may be subjected to criminal proceedings and prosecution. Following are the key highlights of the Instructions.
Sanction of prosecution
SC’s observations in RE: Radheshyam Kejriwal [(2011)3SCC 581]
Monetary limits
Authority to sanction prosecution
Procedure for sanction of prosecution
Appeal against Court order in case of inadequate punishment/acquittal
Procedure for withdrawal of prosecution
General guidelines
Publication of names of persons convicted
Monitoring of prosecution
Compounding of offence
Transitional Provisions
A global e-tender was floated by M/s. Diesel Locomotive Works in April 2019, to procure turbo wheel impeller balance assembly under the Make in India scheme. Bharat Forge Ltd., one of the bidders, had approached the Allahabad High Court, inter alia, assailing that neither the Notice Inviting Tender (‘NIT’) nor the bid documents mentioned the relevant Harmonised System of Nomenclature (‘HSN’), which is adopted by the GST Council to indicate the GST rates. It was contended that they had quoted the correct GST rate of 18%, whereas the top three tenderers quoted at 5%, accordingly their overall prices were lower in comparison. Due to the non-disclosure of the HSN Code in the bid document, the correct tax rate for all bidders was not disclosed, and thus the public tender violated Article 19(1)(g) of the Constitution. The High Court allowed the petition, and directed the Central Government to verify the HSN Code from taxing authorities and indicate the same on bid documents.
Aggrieved, the Central Government challenged the HC’s order before the Apex Court. The main contention argued was the maintainability of the writ of mandamus as there was no breach of statutory duty by the Government. Further, it was argued that the bid documents clearly stated that the Government would not be responsible for misclassification taxes and duties, therefore mandating the Government to seek HSN Code clarification was not feasible.
The Supreme Court upheld the writ, and consequently quashed the mandamus issued by the HC. The Apex Court ruled that the State is not duty bound to mention HSN Codes in public tender documents. The court was of view that there should be a 'public duty' for invoking mandamus, and not necessarily a statutory duty. It can be imposed by common charter, common law, custom or even contract. Referring to a catena of judgments, the Court noted that the writ of mandamus has a wide scope and should be invoked whenever a public duty is breached. It was further held that judicial review is limited for state contracts and they can only intervene when the state acts arbitrarily, or whimsically against public interest. The court noted that it was Bharat Forge’s duty to enquire about the HSN code and other tax rates.
Union of India vs. Bharat Forge Limited and Anr. [2022-TIOL-67-SC-GST]
GLS Comments:
The HSN classi¬fication of railway products has been a perpetual issue right from the Excise days, which has re-ignited under the GST regime as well. Where inconsistencies and scope for multiple interpretations in the applicability of HSN codes to products sold in the same industry will exists, possibility of different price bids will remain. While the Allahabad HC had intended to provide a level playing field to the bidders, ensuring no misclassification, it would not have been feasible. The responsibility of classifying the goods and charging the tax correctly, always rests upon the seller. Shifting such grave responsibility on the shoulders of the buyers would have created a havoc in the industry.
Moreover, the Apex Court has rightly held that the State is not duty-bound to mention the HSN Codes on the tender. This would amount to shifting the responsibility of correct tariff classification on the State. Further, non-mentioning of HSN Codes does not amount to any action against the public interest at large.
The Petitioner had generated an E-Way Bill for inter-State transport of his goods. During the interception of the consignment, it was observed that the E-Way Bill had been expired while the vehicle was in transit. Consequently, the vehicle had been detained for the alleged violation of section 129 of the CGST Act r/w. Rule 68 of the CGST Rules. The entire proceedings, including the vehicle detention, show-cause notice, and the adjudication order, were passed on the same date. The Petitioner had paid the entire demand of tax along with interest and got the vehicle released on the same date. Thereafter, the Petitioner had preferred an appeal which came to be rejected. Aggrieved, the Petitioner preferred a Writ before the Jharkhand HC.
The Petitioner submitted that the entire proceedings was held ex parte and no proper opportunity of furnishing a reply or hearing was given to them. The Petitioner further stated that it was a bona fide error and there was no intention to evade tax. The Revenue on the other hand contented that the provisions of sec 129 does not contemplate the requirement of an intention to evade tax in order to impose tax liability, interest, and penalty hence, the order passed against the Petitioner did not suffer from any legal infirmity. The Revenue further contended that on the request of the Petitioner itself, the vehicle was released after the payment of tax and interest as they did not want to submit anything on the issue, therefore the case was adjudicated ex parte.
The HC observed, that the proceedings against the Petitioner were initiated and concluded on the same date. Therefore, the HC held that the adjudication order and the appellate order both suffered from procedural infirmities and deprived the Petitioner/Driver an adequate opportunity to defend themselves. Accordingly, the HC allowed the writ, dismissing the adjudication and the appellate orders.
AMI Enterprises Private Limited [W.P. (T) No. 2312 of 2022 dated 10 August 2022]
GLS Comments:
It would be pertinent to note that in a similar matter, the Apex Court in RE: Satyam Shivam Papers Private Limited [Special Leave to Appeal (C) No(s). 21132 of 2021] had affirmed the judgement of the Telangana HC holding that tax evasion cannot be presumed on mere non-extension of validity of e-way bill by the Assessee.
The Petitioner had filled a GST refund claim during July 2021, which had been granted in tranches in January and March 2022, without interest despite substantial delay. Aggrieved, the Petitioner preferred a Writ before the Delhi HC. The Revenue contended that delay in processing the refund owing to the COVID-19 outbreak. The Revenue further relied on the Supreme Court's Suo moto extension order and the judgement of the Madras HC in RE: GNC Infra LLP [2022-TIOL-55-HC-MAD-GST], wherein had been held that Suo moto extension order by the SC would apply to refund u/s. 54 of the CGST Act.
The HC observed that the statutory rate of interest is pegged at 6% u/s. 56 of the CGST Act. The said interest gets triggered after the expiry of 60 days from the date of receipt of application for refund, which is compensation for use of money. It was further observed that neither the SC’s limitation order, nor the Madras HC’s judgement in RE: GNC Infra [supra] concern the point in issue i.e., grant of interest on refund withheld beyond the period prescribed under the Act. Thus, the submissions of the Revenue are not sustainable.
In view of the above observations, the Delhi HC held that the Revenue could not have retained the money beyond the period stipulated under Section 56 of the CGST Act. The HC further directed the Revenue to grant the applicable interest on delayed refund.
Ankush Auto Deals [2022-TIOL-1098-HC-DEL-GST]
The Petitioner, a partnership firm, engaged in manufacturing and trading veneer had been duly registered under the CGST Act. While trying to upload an E-way Bill, the Petitioner realised that the registration had been cancelled. Aggrieved, the Petitioner filed an application for revocation of the cancellation order. In response, the Revenue stated the cancellation was the ground that as per the inspection report no business activity, stock, or employees was found at the Petitioner's principal place of business during the investigation. Thereafter, an SCN had been issued proposing rejection of revocation application. Aggrieved, the Petitioner had filed an Appeal, which came to be rejected. Thus, the Petitioner preferred a Writ before the Allahabad HC.
The HC observed that cancellation of GST registration has serious consequences as it takes away the fundamental right to engage in business activity. The HC further highlighted certain lacunas in the SCN, such as opaqueness of the allegations and also no relevant report or inquiry conducted to form the opinion was relied upon in the SCN. In view of the above, it was held that a vague show-cause notice without any allegation or proposed evidence against the petitioner is violative of principles of administrative justice. The HC further held that the harassment caused to Petitioner since 2020 was due to the Department's arbitrary actions, Consequently, the Court ruled that the registration of the Petitioner be renewed.
DRS Wood Products [TS-405-HC(ALL)-2022-GST dated 12 August 2022]
GLS Comments:
The Allahabad HC in the instant case has rightly set aside the order upholding the rejection of revocation application of GST registration cancellation, on the basis of a vague SCN, which did not record the allegations / alleged contraventions of the assessee. It would be pertinent to note that as a settled principle of law, a vague SCN is void ab initio. The Bombay HC in RE: Royal Oil Field Private Limited [2006 (194) ELT 385 Bom] had held that a notice which does not disclose the material based on which the consequent adverse action is proposed to be taken, is vague and unsustainable.
When the SCN, which is the foundation on which the department has to build up its case, is vague and lack details, it has to be held that the impugned order based on such an SCN is bad in law and cannot be sustained.
With a slew of critical Notifications and Circulars issued in the month of July 2022, the CBIC has indeed regularized and clarified many burning issues in GST. Further, with the judgement of the Apex Court, directing the Revenue to reopen the GSTN portal for availing transitional credit, the spirits are high among the taxpayers. Add to this, the JNCH has also issued a Standing Order, allowing re-assessment of Bills of Entry without an appealable order. These moves by the Board, Courts and Departments, will collectively go a long way in easing the tax compliances and procedures. Apart from this, following are the key developments covered in this Newsletter:
Compiling all such developments, we are glad to bring to you the 23rd Edition of our ‘Vision 360’ Newsletter in association with TIOL. We have covered the key judicial and legislative developments in Direct, Indirect Tax other regulatory areas in the month of June 2022. We hope that reading of the newsletter would bring an enriching experience to you! Your valuable feedback is always welcome at consult@gstlegal.co.in or updates@gstlegal.co.in
The DGFT vide Notification No. 26/2015-2020 dated 10 August 2022 has done away with the requirement of advance registration of minimum 5 days from the expected date of arrival of import consignment under NFMIMS ('Non-Ferrous Metal Import Monitoring System') under the Foreign Trade Policy 2015-2020
The DGFT, vide Public Notice No. 21/2015-2020 dated 05.08.2022, has extended the validity of Status Certificates granted in the FY 2015-16 and 2016-17 under the current Foreign Trade Policy 2015-2020 till 30 September 2022.
The CBIC vide Circular No. 178/10/2022 dated 03.08.2022 has clarified issued relating to GST applicability on payments in the nature of liquidated damages, compensation, penalty, cancellation charges, late payment surcharge etc. arising out of breach of contract. Following are the key highlights of the Circular:
Sr. No |
GST Applicability on |
Clarification |
1. |
Liquidated Damages |
Liquidated damages are not a compensation for contract breach or non-performance. They are payments for not tolerating contract breaches. Such payments are essentially a movement of money and not taxed. However, amounts paid for acceptance of late payment, early lease termination, pre-payment of loan, or amounts forfeited on cancellation of service by the customer as contemplated by the contract as part of commercial terms agreed to by the parties, constitute consideration for the supply of a facility, namely acceptance of late payment, early lease termination, pre-payment of loan, and making arrangements for the intended supply by the supplier. Such payments, even if called a fine or penalty, are essentially consideration for a supply and are liable to GST if the supply is taxable. |
2. |
Compensation for cancellation of coal blocks |
There was no agreement between previous coal block allotees and the Government that they would consent to or permit cancellation if they were compensated. No such promise or offer was made by the prior allottees to the Government. Therefore, compensation paid for cancellation of coal blocks is not taxable |
3. |
Cheque dishonour fine/ penalty |
The fee or penalty that a supplier or banker levies for dishonouring a check is a penalty imposed not for tolerating the behaviour or situation, and thereby discouraging such an act or situation. Therefore, a check dishonour fine or penalty is also not taxable. |
4. |
Penalty imposed for violation of laws |
Penalties for violation of laws cannot be considered as the Government or local authority's compensation for tolerating violation. They stipulate penalties for not tolerating, penalising, and discouraging violations. Hence these amounts are not leviable to GST. |
5. |
Forfeiture of salary or payment of bond amount in the event of the employee leaving the employment before the minimum agreed period |
These amounts are recovered by the employer not as a consideration for perpetuating early resignation, but as penalty to prevent and deter non-serious employees from taking up employment. Therefore, employer-recovered funds are not taxable. |
6. |
Late payment surcharge or fee |
The supplier's facility of accepting late payments with interest, or a fine is merged with the main supply. Since it is ancillary to and bundled with the principal supply, it should be assessed at the same rate as the principal supply. |
7.
|
Fixed Capacity charges for Power |
Electricity is excluded from GST therefore; both the minimum fixed/capacity costs and the variable/energy charges are not taxable. |
8. |
Cancellation charges |
Facilitating cancellation of an anticipated supply for a charge or retention or forfeiture of the consideration or security deposit is the principle supply. Forfeiture of earnest money by a seller in case of breach of 'an agreement to sell' an immovable property by the buyer or by Government or local authority in case of a successful bidder failing to act after winning the bid for allotment of natural resources is a mere flow of money, as the buyer or successful bidder gets nothing in return for such forfeiture. Such payments are essentially a cash flow and are not taxable. |
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