Legal Updates from the Judiciary – Nov 2020

02-12-2020 CA Ravi Kumar Somani

1) Input tax credit of CGST & SGST is availed instead of IGST – A judicial view on how to Rectify:

To err is human and to make human err are the tax laws. CGST & SGST credit wrongly availed as IGST or vice-versa has been a common error by many taxpayers (Thanks to GST Common portal). Now, the law when read literally puts taxpayer in a fix in so much so that the incorrectly availed ITC is required to be reversed with no recourse of availing back the correct ITC due to time restriction for taking credits. The moot question is whether denial of rectifying credits under the guise of artificial time restrictions justified? Recently, it was held by Madras High Court that the error committed by the petitioner is an inadvertent human error and the petitioner should be in a position to rectify the same, more particularly in the absence of an effective, enabling mechanism under statute. [M/s SUN DYE CHEM V/s THE COMMISSIONER OF STATE TAX (Mad HC) WP No.29676 of 2019]


2) Correct methodology of quantifying ‘Arrears’ under ‘Sabka Vishwas scheme’

Can a remedy available in law further aggravate the situation for the person who avails the remedy. The scheme of Sabka Vishwas was supposed to win the taxpayers confidence and trust. Now the scheme which intended to resolve the disputes is creating one. This happens when the intent & implementation are not as fancy as the name. The issue in question is where an order is passed by CESTAT to decide the whole issue afresh on merit without interfering into its quantification, then whether the higher quantification as mentioned in the original SCN must be considered or the reduced beneficial quantification as granted during the first appeal must be considered for calculating the benefit under the scheme. Hon’ble Bombay High Court held that once the demand is reduced at the stage of first appeal, then the benefit of this scheme cannot be denied to be computed on the original SCN merely because the matter is to be heard afresh on merits i.e. a declarant who seeks benefit under the scheme cannot be put in a worse off condition than he was before making declaration under the scheme. [JYOTI PLASTIC WORKS PVT LTD Vs UOI & Ors WP No. No.818 Of 2020 2020-TIOL-1874-HC-MUM-CX]


3) Taxability in case of transaction between Cinema distributor and theatre owner:

‘Supply’ covers all forms of supply, such forms can be anything & everything, but can anything also cover nothing or whether there must be something. Any flow of money from one person to another cannot by itself imply a presence of ‘supply’. To be taxable, the flow back must be on account of an action which invariably must be a transaction in the nature of ‘supply’. Transfer of remittances by one JV partner to another agreed under the revenue sharing deal can at the most be an apportionment or distribution of monies and cannot be called as ‘consideration’ for supply. It is for the transaction to decide the taxability and not for the taxability to decide transaction. Old school tactics by revenue, lessons from excise not learnt. Recently, it was held by CESTAT Delhi that a transaction between a cinema distributor and a theatre owner is that of a joint venture and there is no element of renting of immovable property by the theatre owner to the distributor. A mere flow of money cannot give birth to a fictitious taxability. [M/s REGAL THEATRE V/s PRINCIPAL COMMISSIONER OF SERVICE TAX Service Tax Appeal No. 51683 of 2016 2020-TIOL-1598-CESTAT-DEL]


4) Validity of summons when issued by way of a delegation of authority:

Issuance of summons has become a matter of routine, more so in the GST regime, Such a quasi-judicial activity is being exercised as a matter of routine administrative action without first calling for the taxpayers records and verifying the same in detail. In a mimicry of a judicial proceedings, it so happened that an officer who opined for issuing summons has delegated this authority to another officer and finally the taxpayer was summoned before a third officer who neither opined for the summon nor issued the summon himself. The moot question that arises is, whether such a mechanical approach be followed while performing a quasi judicial function. In this case, Hon’ble Calcutta High Court stated that in the matters and proceedings that are quasi-judicial in nature, subordinate authority cannot act as per dictation of their superiors. The person issuing summons must satisfy the qualitative ingredients of a need to issue the same. Officer who has not formed an opinion cannot be an inquiry officer. More so, when a statute provides for a power for issuing summons to be exercised in a particular manner, then such power must be exercised in that manner. [Menka Gambhir v/s UOI W.P. No. 7865 (W) of 2019 Dated 17.06.2020 - 2020 (373) ELT 604 (Cal)]


5) Principles to be considered while admitting or denying ‘Bail’ petition in case of fraud matters:

“Bail is the rule and Jail is the exception”, this is a settled legal jurisprudence in the context of arrests, however whether this principle needs to be applied strictly or it need amends based on factual circumstances of each case. The important question which arises is whether an economic offence, any less than a Murder, which is a bigger offence? Hon’ble Supreme Court well stated long back that “A murder may be committed in the heat of moment but an economic offence is committed with cool calculations and deliberate design with an eye on personal profit regardless of consequence to the community”. In a recent case, where assessee colluded in floating and controlling 21 fictitious firms/ shell companies spearheading the tax fraud of a massive Rs. 98.91 Crores, the Hon’ble Orissa High Court took the defaulters to the task by rejecting their bail petition stating that there is no hard and fast rule regarding granting or refusal to grant bail and each case has to be considered on the touchstone of is own generic facts and individual merits more so when the offence is large, shameful and purports to bring down the entire economy on its knees. [Amit Beriwal Vs. State of Odisha BLAPL No. 2217 of 2020 (40) GSTL (451)]


6) Taxability on employee Canteen / transportation recoveries:

Whether recovery from employees become a separate transaction beyond the domain of employment contract or is an integrated part of a larger employment contract. The moot question that arises is whether any adjustment, debit or recovery from a ‘transaction’ gives rise to another transaction or it would constitute a mere adjustment in the original transaction. Each transaction constitutes a ‘supply’ being taxable at ‘transaction value’, however if each action in a ‘supply’ is treated as a separate transaction, then it would only lead to absurd results in as much as the entire concept of credit notes in a tax law gets defeated, with each party to the contract raising tax invoice on one another for their piece of action. While this seems silly in commercial sense, but this is exactly how the tax treatment is being accorded to employee recoveries. Recently, the advance ruling authority of Maharashtra rightly stated that the transaction between the employer and employee is due to their employment relationship and but for the said relationship, no facilities would have been offered to the employees in so much so that the facilities automatically terminate once the said relationship ceases. [Tata Motors LTD GST-ARA-23/2019-20/B-46 2020 (41) GSTL 35 AAR-GST-MAH]

- CA Ravi Kumar Somani

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