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Update

Indirect Tax Monthly Updates – September 2021

15 Sep 2021

This update covers key judicial decisions relating to GST, service tax, customs, central & state excise and also some important indirect tax related notifications and circulars.

Goods and Services Tax (GST)

  • Telangana High Court: Demand of GST cannot be made unless liability of GST is determined under Section 74 of the CGST Act

    The Telangana High Court in Deem Distributors Pvt. Ltd. v. UOI has directed the tax department to refund the amount collected during the stage of investigation along with interest from the date of payment of the amount till the date of refund.

    The tax department alleged that the petitioner had availed Input Tax Credit (ITC) on the basis of fake invoices issued by fictitious suppliers. The tax department was still carrying out the investigation during which it issued letters to the petitioner to reverse ITC/pay GST. To buy peace with the tax department, the petitioner had deposited certain amount of money, however the letters issued by the tax department and recovery of tax was challenged by the petitioner before the High Court.

    The Court held that without following the process under Section 74 of the Central Goods and Services Tax Act (CGST Act), i.e., determination of liability of tax, interest and penalty, there cannot be any demand of tax, interest and penalty. The Court further held that no tax demand can be raised when the investigation is still in progress.

    This is an important judgment in the context of the practice of recovery of alleged tax amounts being made by the tax department during the course of investigation itself.

  • Delhi High Court: Search and Seizure to be authorised by the proper officer if there is a ‘reason to believe’ that a person has contravened provisions of GST law

    The Delhi High Court in RJ Trading v. Commissioner of CGST has declared that search and seizure of documents by the CGST, Delhi Commissionerate was unlawful and directed them to release such documents at the earliest. The decision follows a search and seizure exercise conducted by the CGST, Delhi Commissionerate based on a communication received from CGST officer of a different Commissionerate. While the communication requested the CGST, Delhi Commissionerate to confirm whether the petitioner was an actual entity which existed the CGST, Delhi Commissionerate conducted a search and seizure at the premises of the petitioner.

    The High Court held that the CGST officers should bear in mind that the power to conduct search and seizure is an intrusive power, which is ring-fenced with the insertion of a controlling provision, i.e., ‘reason to believe’. Therefore, before authorising the search and seizure, the concerned jurisdictional officer should investigate and satisfy itself that there is a ‘reason to believe’ that a person has contravened provisions of GST law and/or has secreted documents/books etc.

Service Tax

CESTAT, Chennai holds that service tax is not leviable on liquidated damages

The Customs Excise and Service Tax Appellate Tribunal (CESTAT), Chennai in M/s Steel Authority of India Vs. Commissioner of GST & C. Excise has set aside an appellate order confirming service tax on liquidated damages. The service tax demand was confirmed and upheld against the appellant on the ground that (1) the appellant had agreed to tolerate breach of timelines stipulated in the contract and that (2) the amount imposed as liquidated damages was consideration for the act of tolerating the contractual default and amounted to a declared service under Section 66E of the Finance Act, 1994.

The CESTAT relied upon an earlier decision in M/s South Eastern Coalfields Ltd. vs. Commissioner of Central Excise and Service Tax, Raipur and held that (1) agreements have to be read as a whole so as to gather the intention of the parties and that (2) the recovery of liquidated damages from other party cannot be said to be towards any service per se. The purpose of compensation/liquidated damages is to ensure that the defaulting act is not undertaken or repeated and not for tolerating the default of the party.

Customs

Telangana High Court allows amendment of bill of entry under Section 149 of the Customs Act, 1962 to claim the benefit of exemption notification

The Telangana High Court, in M/s Sony India Pvt. Ltd. Vs. UOI & Anr., has set aside the order of the Assistant Commissioner of Customs whereby the request of the petitioner to amend the bills of entry was denied on the grounds that the assessment of bills of entry was an appealable order and in the absence of the same being challenged by the petitioner/importer, the same had attained finality.

The petitioner had imported mobile phones in India for trading purposes but had not claimed any exemption from countervailing duty under Notification No.12/2012-CE dated 17 August 2012 (Exemption Notification) at the time of import. However, the petitioner sought amendment of the bills of entry under Section 149 of the Customs Act in order to avail the benefit of the Exemption Notification at a later stage, which was rejected by the tax department which led to the writ petition before the Telangana High Court.

The High Court held that the Customs Act, apart from the remedy of appeal under Section 128 against any order, also enables the assessee to seek amendment of bill of entry under Section 149, subject to the condition that such amendment is sought on the basis of documentary evidence which was in existence at the time when the goods were cleared. Further, the High Court held that the Supreme Court in ITC Ltd. vs. Commissioner of Central Excise had nowhere said that such amendment or modification of an assessment order can only be done in an appeal under Section 128 of the Customs Act and in fact, had clearly indicated that the modification of assessment order can be done either under Section 128 or under other relevant provisions of the Customs Act such as Section 149.

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