Himanshu SinhaPartner
Samyak JainSenior Associate
Shreetama GhoshAssociate
Key Developments
-
Supreme Court affirms imposition of penalty under Section 112(a) of the Customs Act, 1962 on foreign exporter for abetting improper import of goods into India
The Supreme Court dismissed the Special Leave Petition filed against a recent decision of the Delhi High Court1 and affirmed the High Court’s ruling that foreign exporters can be implicated for abetment under Section 112(a) of the Customs Act, 1962 (Customs Act) (i.e., penalty for improper importation of goods), and penalty may be imposed on them in cases where the nexus of the offence with Indian territory is established.
The Delhi High Court had ruled that penalty was imposable on the petitioner, an entity located in Dubai, since the petitioner:
- was complicit in the clearance of goods into India on the basis of false invoices issued by it,
- collected a part of the consideration in the territory of India through hawala, and
- was present in India, through its representative.
The Delhi High Court found no merit in the petitioner’s contention that the Customs Act did not have extra-territorial operation during the relevant time period, since the petitioner clearly had a connection to India and had actively colluded with the importers for committing offences.
Notably, the Finance Act, 2018 amended the extent of the Customs Act to include the whole of India, and also to any offence or contravention committed outside India by any person. While neither the Supreme Court nor the Delhi High Court has analysed the implications of the amendment brought about in 2018, presumably since the matter pertained to a period before the amendment came into force, the Supreme Court’s affirmation of the Delhi High Court’s decision reaffirms the law on this issue.
-
Madras High Court holds that input tax credit cannot be denied merely because the registration of the supplier was cancelled with retrospective effect
The Madras High Court has held that input tax credit (ITC) claims of a taxpayer cannot be rejected solely on the ground that the supplier's Goods and Services Tax (GST) registration was cancelled with retrospective effect.2 The High Court ruled that, in such a case, the recipient can be asked to produce evidence of the existence of the supplier at the relevant point of time (through documents such as tax invoices, delivery challans, proof for payment, etc.) and if such evidence has been produced, the authorities cannot disregard them and direct taxpayers to reverse the ITC availed by them.
This ruling will provide relief to taxpayers who may be facing ITC reversal due to the cancellation of GST registrations of their inward suppliers, and who can produce evidence of the purchases made from these suppliers and payments made by them prior to such cancellation.
-
Madras High Court quashes interest demand where tax has been deposited in the electronic cash ledger within the prescribed time but GSTR-3B return has not been filed
The Madras High Court has held that where the GST was deposited by the taxpayer in the electronic cash ledger (ECL) before the due date for payment of tax, but the GSTR-3B return was not filed within such due date, no interest demand could be made since the amount was credited to the government’s treasury account within the prescribed timeline for payment of tax under the Central Goods and Services Tax Act, 2017 (CGST Act).3
The Madras High Court has distinguished its decision from the decisions of the division bench of the Jharkhand High Court4 and of the Telangana High Court5 on this issue, while following the decision of the Gujarat High Court.6
Given the divergent views adopted by various high courts, this issue is expected to travel to the Supreme Court for final determination. The taxpayers may expect a favourable ruling from the Supreme Court, given that the issue is limited to cases where the entire tax payable by the concerned taxpayer has been credited to the government treasury account within the prescribed timeline for payment of tax and thus, should not be considered to be an instance of non-payment of tax, triggering the obligation to pay interest.
-
Madras High Court holds that export status is not affected due to receipt of consideration through a payment intermediary
The Madras High Court has held that merely because consideration for an export was received through a payment intermediary (Paypal, in this case), and the consideration received in convertible foreign currency was converted by Paypal to Indian currency prior to deposit in the Indian exporter’s account, the export status under the GST laws does not get invalidated.7 Thus, payment of consideration received through such a payment intermediary qualifies as payment received by the exporter in convertible foreign currency.
In a time when digital payments through payment intermediaries are on the rise, this ruling is welcome as it allows Indian exporters to receive consideration through such payment intermediaries, as long as the payment is initiated by their clients in freely convertible foreign currency and the intermediary complies with the applicable laws in India.
-
Karnataka High Court holds that service tax is not leviable on expenses incurred by venture capital funds
The Karnataka High Court has ruled against the levy of service tax on expenses incurred by venture capital funds (VCF), overturning the decision of the Customs, Excise and Service Tax Appellate Tribunal, Bangalore (CESTAT).8 (To read our detailed update on this ruling, click here).
While the ruling by the Karnataka High Court comes as a major relief to the funds industry, it remains to be seen if the reasoning adopted by the Court will be followed in the GST regime, given that the definition of ‘person’, which determines whether an entity is liable to pay tax, is now very wide, and the doctrine of mutuality, which was held to be applicable to VCFs and their contributors, has been significantly diluted under the GST regime.
-
Guidelines for GST field formations to maintain ease of doing business while engaging in investigation with regular taxpayers
In a move to facilitate the ease of doing business, the Central Board of Indirect Taxes and Customs (CBIC) has issued guidelines to be followed by GST field formations while undertaking investigations involving entities like listed companies, public sector undertakings, or government departments (Guidelines). The Guidelines streamline the process of investigation by requiring investigations to be concluded within one year and any information/documents to be initially sought through letters to taxpayers, and not through summons. Moreover, such letters must specify the reasons for the investigation and cite relevant legal provisions. Any deviation from this practice at the initial stage must be supported by written justification.
The Guidelines further provide that:
- inquiry letters addressed to regular taxpayers must clearly state the nature of the inquiry, avoiding vague expressions such as “GST enquiry” or “GST evasion”;
- summons should be issued with prior reasoned approval of an officer not below Deputy/Assistant Commissioner level as a norm;
- digital information already available on the GST portal should not be summoned via letter or summons;
- letters or summons should not be used to request information in specified formats or proformas; and
- summons must adhere strictly to the scope delineated under the CGST Act and any context resembling a fishing inquiry will be deemed unacceptable.
The Guidelines also clarify that the taxpayers can approach the jurisdictional Additional/Joint Commissioner, who serves as the Grievance Officer, through letter, email, or appointment for grievance redressal. If grievances persist, the taxpayers may seek a meeting with the jurisdictional Principal Commissioner.
These Guidelines are likely to help in regulating how tax officers conduct investigation proceedings going forward.
[1] Seville Products Limited v Commissioner of Customs (Exports), New Delhi
[2] M/s. Engineering Tools Corporation v Assistant Commissioner (ST), Chennai
[3] Eicher Motors Ltd. v Superintendent of GST and Central Excise
[4] RSB Transmission India Limited v Union of India & Ors.
[5] Megha Engineering and Infrastructure Ltd. v Commissioner of Central Tax, Hyderabad & Ors.
[6] Vishnu Aroma Pouching Private Limited v Union of India
[7] Afortune Trading Research Lab LLP v Additional Commissioner (Appeals I) & Anr.
[8] India Advantage Fund c/o ICICI Venture Funds Management Co. Ltd. v The Commissioner of Central Tax
