GIST OF RECENT PRONOUNCEMENTS ON GST (PART-XXIII)

[Dr. Sanjiv Agarwal]

Goods and Services Tax (GST), introduced from July 1, 2017 is more than two years old now but has resulted in operational and implementation disruptions affecting all stakeholders.  GST law, as drafted and legislated, is not free from the interpretational hassles. GST Council is however, making regular changes to fix the anomalies and hardships faced by taxpayers.  36 meetings of GST Council have been held till 1^st August,  2019, two after the Budget-2019.

Taxpayers have already challenged various provisions of GST laws and rules framed thereunder with about 450 writs being filed in different courts. High courts and Supreme court have taken a liberal stand so far in view of the fact that law is new and is yet evolving. However, CBIC may move to Supreme court where the verdict is against the Government. In recent past, CBIC had issued directions to be officers to defend the writs. Further, we have over 500 rulings from Authority for Advance Ruling (AAR) and over 80 Orders from National Anti-profiteering Authority (NAA) out of which few Anti-profiteering cases have gone to Delhi High / Bombay Court. Even the orders from Appellate Authority for Advance Ruling have also started pouring in and we have over sixty Appellate Orders from AAAR.

Here are few more judicial pronouncements for information and guidance of various stakeholders. It is expected that the litigation by way of writs is bound to go up as time passes by unless the Government comes out with proactive approach and solutions.

• In Vishnu Aroma Pouching Pvt. Ltd. v. Union of India 2019 (5) TMI 784 - GUJARAT HIGH COURT;  following reliefs were sought  in the writ petition:

1. to permit the petitioners to file manually GSTR-3B for August 2017 with correct and true details and the respondents may be directed to accept and acknowledge such GSTR-3B manually filed by the petitioners for August 2017;
2. to direct the respondents to give effect to the details contained in GSTR-3B for August 2017 filed manually and be further pleased to direct the respondents to indicate discharge of the petitioner’s GST liability for August 2017 in the electronic liability register as contemplated under Rule 88(2) of the CGST Rules, 2017.

The assessee  filed GSTR-3B manually when return filed electronically through common portal for a particular month was showing details in all columns as ‘zero’ despite assessee having paid entire tax for that month.

The petitioner had been following diligently with the department. The petitioners were permitted to file manually GSTR-3B for August 2017 with correct and true details and the respondents are directed to accept and acknowledge such GSTR-3B manually filed by the petitioners for August 2017. The application stands disposed of accordingly.

• In Megha Engineering & Infrastructures Ltd. 2019 (4) TMI 1319 - TELANGANA AND ANDHRA PRADESH HIGH COURT;  the petitioner was engaged in the manufacture of MS Pipes and in the execution of infrastructure projects. After the enactment of the Central Goods and Services Tax Act, 2017, the petitioner registered itself as a dealer under the Act and it claimed to be regularly filing returns and paying taxes.

The case of the petitioner is that the GST portal is designed in such a manner that unless the entire tax liability is charged by the assessee, the system will not accept the return in GSTR-3B Form. As a result, even if an Assessee was entitled to set off, to the extent of 95%, by utilizing the ITC, the return cannot be filed unless the remaining 5% is also paid.

There was a delay on the part of the petitioner in filing the returns in GSTR-3B Forms, for the period from October, 2017 to May, 2018. This was due to the shortage of ITC, available to off-set the entire tax liability. According to the petitioner, the delay in filing the returns was also not huge. The returns for the months of October and November, 2017 and February and May, 2018 were filed with a delay of only one day. The return for December, 2017 was filed with a delay of three days. The return for January, 2018 was filed with a delay of seventeen days, the return for April, 2018 was filed with a delay of nineteen days and the return for March, 2018 was filed with a delay of twenty nine days.

There was a short fall to the extent of ₹ 45,44,03,252/-, which the petitioner was obliged to pay by way of cash. According to the petitioner, they could not make payment and file the return within time due to certain constraints. However, the entire liability was wiped out in May, 2018. The Department demanded interest on the total tax liability and hence the petitioner has filed the writ petition.

It was held that mere availability of credit without being brought in form of credit entry into electronic credit ledger does not tantamount  to payment. It held that in the entire scheme of the Act,following three things are of importance:

1. the entitlement of a person to take credit of eligible input tax, as assessed in his return;
2. the credit of such eligible input tax in his electronic credit ledger on a provisional basis under Section 41(1) and on a regular basis under Section 49(2); and
3. the utilization of credit so available in the electronic credit ledger for making payment of tax, interest and penalty, etc., under Section 49(3).

In other words, until a return is filed as self-assessed, no entitlement to credit and no actual entry of credit in the electronic credit ledger takes place. As a consequence, no payment can be made from out of such a credit entry. It is true that the tax paid on the inputs charged on any supply of goods and services, is always available. But, it is available in the air or cloud. Just as information is available in the server and it gets displayed on the screens of our computers only after connectivity is established, the tax already paid on the inputs, is available in the cloud. Such tax becomes an input tax credit only when a claim is made in the returns filed as self-assessed. It is only after a claim is made in the return that the same gets credited in the electronic credit ledger. It is only after a credit is entered in the electronic credit ledger that payment could be made, even though the payment is only by way of paper entries. The tax already paid on the inputs of supplies of goods or services, available somewhere in the air, should be tapped and bought in the form of a credit entry into the electronic credit ledger and payment has to be made from out of the same. If no payment is made, the mere availability of the same, there in the cloud, will not tantamount to actual payment.

It was further held that section 50 of the CGST Act can not be interpreted on the basis of recommendation of GST Council as they are still on paper.

On precedents, it was held that VAT regime and GST regime differ from each other substantially and decision given in matter arising out of Gujarat Value Added Tax  Act, 2003 can  not be applied to issues relating to Central Goods and Services Tax Act, 2017.

The petition was dismissed holding that the revenue’s demand was correct.

• In Jayachandran Alloys (P) Ltd. v. Superintendent of GST & Central Excise, Salem 2019 (5) TMI 895 - MADRAS HIGH COURT; , there was an investigation by the Department and seizure of documents and records was effected and further called upon to furnish records and explanations including recording of statements of various persons. Petitioner sought copies of the statements recorded from it as well other materials seized, with no response forthcoming from the department. Hence this writ petition, praying for a mandamus directing the respondents to provide copies of the documents and records seized during the inspection as well as copies of statements recorded by the inspecting authorities, to grant opportunity to the petitioner and to pass an order of assessment in accordance with law.

Further, a Miscellaneous Petition was filed seeking the grant of an interim injunction restraining the respondents from proceeding coercively against the petitioner and its staff including arresting them by invoking the provisions of Section 69 of the Act, pending disposal of the writ petition.

The Department filed a counter affidavit raising the following issues :

1. Whether the petitioner is entitled to a mandamus as prayed for in regard to supply of the documents and statements sought for by it in the light of the provisions of the Act?
2. Whether the interim protection sought for to prevent the respondents from invoking the powers under Section 69 of the Act read with Section 132 thereof in respect of the petitioner is liable to be granted?
3. Whether the petitioner's request for a direction to the respondents to complete adjudication and make an assessment after following the due process of law is liable to be accepted?

The court allowed the petition observing and holding the following :

1. If the Department was of the view that this prayer was not liable to be granted for reasons that the documents were sensitive or such production would prejudice its interests, it ought to have said so in counter. In the absence of any such averment, there is no such apprehension in the mind of the Department and the prayer of the petitioner is thus, liable to be accepted. Copies of the documents sought will be furnished within a period of two  weeks from the date of receipt of a copy of this order upon remittance of copying charges. As far as statements are concerned, there being no condition imposed/ restriction placed in statute, copies of the same will be furnished upon remittance of copying charges within two weeks from date of receipt of a copy of this order.
2. Determination of the excess credit by way of the procedure set out in Section 73 or 74, as the case may be is a prerequisite for the recovery thereof. Sections 73 and 74 deal with assessments and as such it is clear and unambiguous that such recovery can only be initiated once the amount of excess credit has been quantified and determined in an assessment. When recovery is made subject to ‘determination’ in an assessment, the argument of the department that punishment for the offence alleged can be imposed even prior to such assessment, is clearly incorrect and amounts to putting the cart before the horse.
3. In case of prosecution for determining contravention of Section 16(2) of Central Goods and Services Tax Act, 2017 and excess availment of Input Tax Credit on the basis of bogus and fictitious transactions, it was held that interests of revenue is paramount and ought to be protected. Action of Department draws power only from holistic interpretation of statutory provisions. Any excess, to vitiate legitimacy of exercise of  Section 132 imposes punishment upon assessee that 'commits' offence. Power to punish is set out in Section 132 and will stand triggered only once it is established that assessee 'committed' offence that needs to be necessarily be post­ determination of demand due from assessee. That itself has to necessarily follow process of assessment. Offences set out under Clauses (a) to (1) of Section 132(1) refer to items, that constitute matters of assessment and would form part of order of assessment, to be passed after process of adjudication is complete and taking into account submissions of assessee and careful weighing of evidence found and explanations offered by assessee. Manner of recovery of credit in cases of excess distribution of same is set out in section 21 of Central Goods and Services Tax Act, 2017 and 'determination' of excess credit by way of procedure is set out in Sections 73 and 74 as pre-requisite for recovery thereof. The argument that when recovery is made subject to 'determination' in assessment, department's arguments of punishment for offence alleged can be imposed even prior to such assessment is clearly incorrect. Only in cases where assessee is a habitual offender that authorities might be justified in proceedings to pre-empt assessment and initiate action against assessee in terms of Section 132 for reasons to be recorded in writing. In the instant case, there was no allegation, either oral or in writing that petitioner is habitual offender. Department intended to intimidate petitioner with possibility of punishment under Section 132 and action contrary to scheme of Act. While activities of assessee were contrary to scheme of Act, it was  liable to be addressed swiftly and effectively by Department, Officials cannot be seen to be acting in excess of authority vested under statute.
4. In Section 132, use of words 'commits' make it more than amply clear that the act of committal of the offence is to be fixed first before punishment is imposed.
5. Sections 73 and 74 of Central Goods and Services Tax Act, 2017 deal with assessments and as such it is clear and unambiguous that such recovery can only be initiated once the amount of excess credit has been quantified and determined in assessment.
6. Central Goods and Services Tax Act, 2017 enactment subsumes various enactments including Central Excise Act, 1944, Finance Act, 1994 providing for levy of Service Tax and State Value Added Tax Acts. Thus, interpretation given to provisions of statutes equally govern working of in present GST as well. The Central Goods and Services Tax Act, 2017, is a virgin enactment, born on 1-7-2017. The scheme of the Act is, however, not so different from the Indirect Tax Statutes that it has subsumed, the provisions of which it integrates, to provide a and single assessment for turnover from the sale of goods and provisions of services.

• In B. Banu Bee v. State of Karnataka  2019 (5) TMI 360 - KARNATAKA HIGH COURT   the petitioner filed the petition to release her on bail in the event of her arrest by Commissioner of CGST, Bangalore. The case was heard out of turn on the ground that the daughter of the petitioner/accused was intending to appear for NEET exam and the petitioner had to take her daughter to the tuition classes. If she goes out of the house, there is apprehension of arrest by the police.

There was an allegation of diversion and issuance of tax invoices without actual supply of goods and collusion with shell firms. It has been further alleged that the company of the accused has totally evaded GST of ₹ 57.60 Crores, and thereby deprive the Government and has caused loss. On the basis of the complaint, a case was registered and investigation is in progress.

The court observed that whether the petitioner/accused has committed the alleged offence or not is a matter which has been considered and appreciated only after investigation and the charge sheet is filed. It is the submission of the learned counsel for the petitioner/accused that already accused No.1 in similar facts and circumstances has been released on bail by the trial Court. Be that as it may, the Court in the case of Sri. Avainash Aradhya Vs. Commissioner of Central Tax in Criminal Petition No.497/2019 c/w Criminal Petition No.498/2019 by order dated 18.2.2019 [2019 (3) TMI 373 - KARNATAKA HIGH COURT] had elaborately discussed the provisions of law and other aspects as to under what circumstances the bail has to be considered and granted. Those facts and circumstances are also similar to the present facts of the case on hand and as such I feel that if by following the said precedent by imposing some stringent conditions, if petitioner/accused is ordered to be released on anticipatory bail, it is going to meet the ends of justice.

The court ordered the petitioner to be released on anticipatory bail in the event of arrest subject to some conditions, i.e.,

1. The petitioner shall execute a personal bond for a sum of Rs.  2,00,000/- (Rupees two lakhs only) with two sureties for the like sum to the satisfaction of the Investigating Officer.

2. She shall surrender before the Investigating Officer within 15 days from today.

3. She shall not tamper with the prosecution evidence directly or indirectly.

4. She shall mark her attendance in the jurisdictional police on 1st of every month between 10.00 A.M. and 5.00 P.M. till the trial is concluded.

5. She shall not leave the jurisdiction of the Court without prior permission. 

6. She shall not indulge in similar type of criminal activities.

 (Some more cases to follow)