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Tax Authorities cannot retain the tax deposited under the cancelled GST registration

editor — Wed, 10 Apr 2024 05:38:08 +0000

Introduction:

In the case of Yogesh Rajendra Mehra v. Principal Commissioner of Central Goods and Services Tax [Writ Petition No. 1632 of 2024 dated February 20, 2024], the Hon’ble Bombay High Court addressed the issue of whether tax authorities can retain tax deposited under a cancelled GST registration. The court provided significant observations and rulings on this matter.

Facts of the Case:

Mr. Yogesh Rajendra Mehra, a scriptwriter, obtained GST registration on July 19, 2018. However, his registration was cancelled on January 01, 2019, due to non-filing of subsequent returns. Subsequently, Mr. Mehra applied for and obtained a fresh GST registration on March 26, 2022. During the first quarter of 2022, his chartered accountant mistakenly deposited Rs. 1,22,220/- as tax under the cancelled registration instead of the new one. Mr. Mehra then applied for a refund of the erroneously deposited tax.

Issue:

The central issue revolves around whether tax authorities can retain tax deposited under a cancelled GST registration.

Held:

The Bombay High Court held that tax authorities cannot retain tax deposited under a cancelled GST registration. The court emphasized that taxpayers cannot be expected to file returns and deposit tax under an invalid registration number. It was noted that the tax deposited under the cancelled registration was not valid as the registration itself was non-existent. The court also criticized the tax authorities’ rejection of the refund application on technical grounds, ruling that any deficiency in filing an appeal within the prescribed limitation period does not render the appeal barred by limitation. Therefore, the court ordered the refund of the erroneously deposited tax amount of Rs. 1,22,220/- along with permissible interest to Mr. Mehra within four weeks.

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High Court Advocates Direct Communication, Urges Tax Department to Inform Taxpayers Prior to Action

editor — Wed, 10 Apr 2024 05:01:01 +0000

Introduction:

Certain demographics, including senior citizens, technologically hesitant individuals, Non-Resident Indians (NRIs), and those prone to forgetfulness, might be unaware of the Income Tax Department’s actions against them. The department initiates proceedings by uploading show-cause notices or summons to its online portal, without directly notifying these taxpayers via email or letter. Consequently, individuals who infrequently check the tax portal, as is common, may face unforeseen penalties and complications. This operational method by the tax authorities has raised concerns about its fairness.

High Court’s Critique:

Recently, the High Court criticized the tax authorities’ approach, highlighting the unreasonableness of expecting taxpayers to constantly monitor the e-portal for updates. In a case concerning the Munjal BCU Centre of Innovation and Entrepreneurship, the Punjab and Haryana High Court quashed a show-cause notice from November 2022. The court emphasized that legal provisions dictate the manner in which notices and orders must be served, rejecting the notion of notices being “presumed” received solely by placement on the e-portal.

Importance of Natural Justice:

An expert underscored the significance of natural justice in legal proceedings, emphasizing the principle of “audi alteram partem,” which requires both parties to be heard. Lack of communication regarding assessments, penalties, or other actions could result in hardships for taxpayers, missed deadlines, and ignorance of their right to respond, thereby increasing burdens for all parties involved.

Case Example: Munjal BCU:

Munjal BCU, dedicated to fostering innovation and startups in Ludhiana, received initial notices and reminders solely through the online tax portal. The court deemed this insufficient opportunity for the organization to present its case.

Historical Context:

Before 2009, the tax department primarily relied on physical mail for communication, transitioning to electronic means later. Placing communications solely on the income tax portal can pose tracking challenges, especially for certain demographics uncomfortable with technology. While portal accessibility is convenient, supplementary notifications via email and/or physical mail are necessary.

Expected Changes:

The court’s decision is expected to prompt the department to communicate through emails for various matters, including notices and summons.

Practitioners’ Concerns:

Tax practitioners have noted issues with recent proceedings, including notices not being visible on the portal and unreasonable response timeframes.

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Employees get ₹3,731 crore GST penalty demand; Bombay HC strikes it down

editor — Thu, 04 Apr 2024 05:43:47 +0000

Should an employee of a company be held responsible for forking out penalties related to tax demands raised on the company by revenue authorities? Goods and Services Tax (GST) enforcement officials believed so when they slapped a demand last September for a ₹3,731 crore penalty on a taxation manager and other employees of global logistics major Maersk for alleged tax evasion of the same amount by the company.

In a judgment that could bring relief to other employees at firms in the midst of GST disputes, the Bombay High Court last week struck down the demand and show cause notices issued by the Directorate General of Goods and Service Tax Intelligence in the case, terming them bad and illegal.

Terming it “highly unconscionable and disproportionate” for revenue officers to hold employees responsible for liabilities of the company, a division bench of Justice GS Kulkarni and Justice Firdosh P Pooniwalla held it would not be incorrect to contend that the purpose of issuing the show cause notice to the petitioner who is merely an employee, was designed to threaten and pressurize them.

GST officials had alleged that a sum of ₹1561 crore was wrongly utilized as Input Tax Credit by Maersk and those credits were wrongfully distributed. While Maersk is a foreign company which does not have any employee or fixed establishment in India, solely for the purpose of representing and acting on its behalf before the Indian tax authorities, the firm had given the power of attorney to some employees of its steamer agent in India, incorporated as Maersk Line India Pvt. Ltd.

“This ruling is significant for employees of large-sized businesses, where potentially interpretative GST positions are adopted by employees without any malafide intention. Such imposition of substantial penalties in recent investigations had caused lot of unrest amongst such employees,” an expert said.

Source: https://www.thehindu.com/business/employee-gets-3731-crore-gst-penalty-demand-bombay-hc-strikes-it-down/article68025394.ece

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High Court of Gujarat Rules on GST Case

editor — Thu, 04 Apr 2024 04:44:00 +0000

In a significant legal development, the High Court of Gujarat has recently issued a noteworthy ruling in the case of OTSUKA PHARMACEUTICAL INDIA PVT LTD versus UNION OF INDIA. This ruling addresses a crucial aspect pertaining to the Goods and Services Tax (GST) regime, particularly focusing on the retrospective application of amendments to Rule 108 of the CGST Rules, 2017. The case, denoted as R/SPECIAL CIVIL APPLICATION NO. 13209/210/212/213/215 of 2023, reached its culmination on 27th March 2024.

Facts of the Case:

The petitioner, OTSUKA PHARMACEUTICAL INDIA PVT LTD, contested against the UNION OF INDIA, asserting that Rule 108(3) of the CGST Rules should not be applicable in their situation. They contended that their online appeals were based on the Order-in-Original made available by the adjudicating authority.
The crux of the issue revolved around the requirement for the petitioner to submit the decision or order being appealed against within seven days of filing the appeal under sub-rule (1) of Rule 108, and the subsequent issuance of a final acknowledgment by the appellate authority indicating the appeal number.

Held:

The High Court determined that the petitioner was indeed obligated to adhere to the stipulated timeline for submitting the decision or order appealed against, as outlined in Rule 108.
While acknowledging the justifiability of the appellate authority's rejection of appeals due to delays, the Court referenced the Minutes of the 48th Meeting of the GST Council. This documented the Council's acceptance of recommendations put forth by the Law Committee.
According to these recommendations, when an order subject to appeal is issued or uploaded on the common portal and is accessible to the appellate authority, the necessity for the appellant to furnish a certified copy of such an uploaded order becomes inconsequential due to its online availability.
Consequently, the retrospective effect of the amendment to Rule 108, effective from 26th December 2022, was affirmed by the Court as being clarificatory in nature.
In light of this clarification, the impugned order passed by the appellate authority rejecting the appeal on grounds of delay was deemed untenable. Therefore, the High Court proceeded to quash and set aside the impugned order.

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Bombay HC Invalidates Tax Order Without Personal Hearing

editor — Wed, 03 Apr 2024 09:35:47 +0000

In the case of Cowtown Software Design Pvt. Ltd. versus Union of India, heard in the Bombay High Court under Writ Petition (L) No. 31152 of 2023, the court addressed the crucial issue of whether the denial of a personal hearing to the petitioner by tax authorities was in compliance with Section 75(4) of the GST Laws.

Facts of the Case & Timelines:

Issue:

Petitioner’s Argument:

Respondent’s Argument:

Held:

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Madras High Court Strikes Down Excessive GST Demand on Trade Payables

editor — Sat, 30 Mar 2024 04:41:27 +0000

Introduction:

The Madras High Court invalidated the order demanding payment concerning all trade payables, asserting that it exceeded the boundaries outlined in the original show cause notice. This ruling is significant in the realm of audit cases and is poised to have widespread benefits.

Facts of the case:

The petitioner contested an order dated 31.12.2023, arguing its overreach beyond the purview of a preceding show cause notice by subjecting all trade payables to GST.
Following an audit report on 26.09.2023, the petitioner received a notice on 30.09.2023 proposing a tax of Rs. 43,66,708.14. However, the final order imposed a tax exceeding Rs. 90 crores, markedly surpassing the initial estimate.
Despite compliance with statutory Input Tax Credit (ITC) requirements, the petitioner faced penalties.
The crux of the matter lies in the imposition of GST on the entirety of the petitioner's trade payables, a move perceived by the petitioner as beyond the notice's scope and contrary to legal provisions.

Petitioner’s Argument:

The petitioner contends that the order unjustly expanded the taxable amount well beyond the initial estimation, unfairly taxing trade payables as a taxable supply despite adhering to ITC regulations.

Held:

The Madras High Court deemed the imposition of GST on trade payables, as reflected in financial statements, prima facie unsustainable.

The court nullified the order, instructing the petitioner to remit 10% of the disputed amount, excluding trade payables, and mandated a fresh review with adequate opportunity for the petitioner to present their case.

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