GST and Refund of Unutilised Input Tax Credit (ITC) : Law on Time Limit of 2 years under S.54

GST and Refund of unutilised Input Tax Credit (ITC) : Law on Time Limit of 2 years under S.54

In an important case it was held that "a plain reading of Sub-section (1) of Section 54 of the CGST Act, 2017 indicates that any person who is claiming a refund of tax or interest, if any, paid on the amount is entitled to make an application before the expiry of two years from the relevant date and in such form and manner as may be prescribed. The term “relevant date” has been defined in Explanation (2) to Section 54 of the CGST Act."

In terms of Rule 89(1) of Central Goods & Services Rules, 2017 any person claiming refund of tax was required to make an application electronically in FORM GST RFD-01 along with the requisite documents.

By Notification No. 55/2107-CT dated 15.11.2017, Rule 97A was introduced in the CGST Rules specifying that any reference to electronic filing of an application would also include manual filing. However, it is material to note that Rule 97A of the CGST Rules was introduced after the petitioner had exported some of its consignments.

It is also material to note that there were technical glitches in the electronic system of the GST authorities and taxpayers across the board were facing difficulties in electronic filing of returns. 

If the taxpayer has made a bona fide attempt to make an application but was prevented to do so on account of technical glitches or for any reason attributable to GST authorities, its claim for refund cannot be denied on account of delay.

Technical Glitches 

It was noted that there is no dispute that the petitioner had attempted to upload its application for refund but could not do so on account of technical glitches. Court held that it is difficult to accept that the petitioner’s legitimate right to seek refund could be foreclosed on account of such technical glitches. 

Case : Sethi Sons v. Assistant Commissioner [2023] GCtR 2537 (Delhi)

Section 132 of SGST Act, 2017 and Input Tax Credit : Are Arrests Essential ?

Section 132 of SGST Act, 2017 & Input Tax Credit: Are Arrests Essential ?

Introduction

"He who knows at the same time both Vidya and Avidya, crosses over death by Avidya and attains immortality through Vidya."

["The Upanishads", Translated by Swami Paramananda, 2nd Edition, 1919, The Plimpton Press, page 30]

GST Department acts through its employees. Sometime, the need for interpreting provisions of fiscal laws has to be done only when the employees of GST Department have acquired knowledge. Absent knowledge, anarchy prevails. Can GST Department employees ignore the principles that govern S.132 as laid down by Hon'ble Courts ? The question attains more importance because when a principle is laid down by Hon'ble High Courts / Supreme Court, can Department act in a way that the person has to again approach High Courts / Supreme Court because Department acted opposite to what the HCs/SC had directed ?

In one of the case, the effect of S.132 of SGST Act, 2017 has emerged and whether there is any need for effect arrests in all such cases ? While reaching its conclusion references were also made to Sushila Agarwal v. State NCTD [2020] GCtR 816 (SC) ; Nathu Singh v. State of UP [2021] GCtR 966 (SC) ; Arnab Manoranjan Goswami v. State of Maharashtra [2020] GCtR 956 (SC). 

Section 132 of SGST Act, 2017

S.132 of the Act provides for punishment ; the punishment can be imprisonment as well. This section therefore curtails liberty of a person. 

The Narration of Allegation

The facts were this : Chamunda Bullion availed the ITC which is matched with GSTR 2A and so also the payment of tax amount paid to the supplier.

On 16/04/2022 the Officers of the first Respondent [Tax Departmnt] visited the office of the Applicant and conducted search and enquiry and verified the stock of 13.2 kg of gold bullian. The Officers thereafter issued summons to the Applicant as per Section 70 of the MGST Act.

The crux of the allegation against the Applicant is that the Applicant has availed inadmissible input tax credit to the extent of Rs.11,34,98,066/- from two non-existent suppliers viz. M/s. Yash Bullion (ITC at Rs.4.37 Crores) and M/s. Malishka Gold and Jewellery Pvt. Ltd. (ITC at Rs.6.91 Crores) by issuing of invoices without actual supply of goods. 

The Categories under S.132 of SGST Act

Section 132 of the GST Act provides for punishment for certain offences identified in 12 categories. In this case, only Clauses (b) and (c) of Section 132 were discussed. Clause (b) of Section 132 provides for prosecution and punishment if any person issues any invoice or bill without actual supply of goods or services or both, leading to wrongful input tax credit or refund of tax. Clause (c) of Section 132 prescribes punishment if any person avails input tax credit using invoice or bill without the supply of goods or services or both, in violation of the GST Act, using invoice referred to in clause (b) of the Section.

The Power to Arrest

Section 69 of the GST Act empowers the Commissioner to authorise any officer to arrest any person where he has reason to believe that such person has committed an offence under Section 132 (1) Clauses (a), (b), (c) or (d) of the GST Act, which is punishable under Section 132(1) (i) (ii) or 132(2) of the CGST Act. It is well settled that power to arrest cannot be exercised arbitrarily or on mere suspicion or on purely subjective satisfaction of the concerned officer. Suffice it to say that satisfaction of the officer must be based on material on record.

Satisfaction and Reasons to Believe

When it comes to S.132, S.41 of Code of Criminal Procedure, 1973 was also discussed.  It is held that sub clause (1)(b)(i) of section 41 of Code of Criminal Procedure, 1973 has to be read along with sub-clause (ii) and therefore both the elements of ‘reason to believe’ and ‘satisfaction qua an arrest’ are mandated and accordingly are to be recorded by the police officer.

Tax Evasion and Pre-Arrest Bail

It is true that economic offences such as tax evasion affect the economy of the country and are considered to be grave in nature. However, the gravity of such offence cannot per se be a reason to decline pre-arrest bail and deprive a person of his personal liberty. 

Factors for Not Effecting Arrest

High Court noted that the investigation is based mainly on documents. All the documents are in custody of the Department. The Applicant who is on interim bail has co-operated with the investigation. Considering the fact that the offence is punishable with imprisonment for five years, discretion under S.438 of Code of Criminal Procedure, 1973 is exercised to grant protection. 

Case Reference is Chetankumar Jasraj Palgota v. Assistant Commissioner of State Tax [2023] GCtR 1673 (Bombay).

Law and its Breaches : The Illegality of GST Department

Law and its Breaches : The Illegality of GST Department 

by Vishal

Introduction 

Long ago it was written how kindness is to be shown : - 

"He shall regard with fatherly kindness those who have passed the period of remission of taxes." ["Kautilya's Arthashastra", Translated by R. Shamasastry] 

In an important Judgment, the action of GST Department was quashed. Had the action of GST Department been legal, the petition would have been dismissed. This reinforces that there is indeed a lack of respect for law by GST Department employees. Perhaps, the time is ripe for Hon'ble Courts to ensure that strong and timely disciplinary action against GST Department employees are initiated for acting in contravention of law. The controversy in this case revolved around attachment of bank account.

The Principles Which Were Violated by Tax Department

While allowing the writ petition, important legal principles were enunciated. 

Even if it is assumed that the allegations as levelled by the GST department are correct and the credits though not available were wrongly availed since the tax had been paid, though it was not payable having regard to the fact that there was no supply of goods, the availment of credits could be said to be justified on two counts: (1) it is a revenue neutral satisfaction and (2) payment of tax although not payable yet is to be treated if unavailable credits are reversed if they were wrongly paid. 

Section 83 of the State GST Act, 2017 empowers the Assessing Authority to make a provisional attachment of any property of the assessee during the pendency of any proceeding for the assessment or reassessment of any turnover, even though there is no demand outstanding against the assessee, if he is of the opinion that it is necessary to do so to protect the interest of the revenue. This provision has been made in order to protect the interest of the revenue in cases where the raising of demand is likely to take time because of the investigations and there is apprehension that the assessee may default the ultimate collection of the demand. In other words, Section 83 gives a power to be exercised during the pendency of any proceeding for assessment or reassessment, so that the assessee may not fritter away or secrete his resources out of the reach   of   the   Commercial   Tax   department   when   the   assessment   or reassessment is completed. 

Meaning of The Expression used in S. 83 of SGST Act, 2017

The expression "for the purpose of protecting the interest of the revenue" occurring in Section 83 of the SGST Act is very wide in its meaning. Further, the orders of provisional attachment must be in writing. There must be some material on record to indicate that the Assessing Authority had formed an opinion on the basis thereof that it was necessary to attach the property in order to protect the interest of the revenue. The provisional attachment provided under section 83 is more   like   an   attachment   before   judgment   under   the   Code   of   Civil Procedure. It is a liability on the property. However, the power conferred upon   the   Assessing   Authority   under   Section   83   is   very   drastic,   far reaching power and that power has to be used sparingly and only on substantive weighty grounds and for valid reasons. To ensure that this power is not misused, no safeguards have been provided in the Section 83.   

The Power and the Conditions

One   thing   is   clear   that   this   power   should   be   exercised   by  the Authority only if there is a reasonable apprehension that the assessee may default the ultimate collection of the demand that is likely to be raised   on   completion   of   the   assessment.   It   should,   therefore,   be exercised   with   extreme   care   and   circumspection.   It   should   not   be exercised   unless   there   is   sufficient   material   on   record   to   justify   the satisfaction that the assessee is about to dispose of the whole or any part of his property with a view to thwarting the ultimate collection of the demand. Moreover, attachment should be made of the properties and to the extent it is required to achieve the above object. 

The Invocation of Provisional Attachment & Its Legal Limits

It should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee. The attachment of bank accounts and trading assets should be resorted to only as a last resort because, the attachment of the bank accounts of the assessee would paralyse the functions and business of the assessee. 

The Authority, therefore, should exercise the power   conferred   upon   him   under   Section   83   of   the   SGST Act   with circumspection and fairly and reasonably. No hard and fast rule can be laid down as to how and under what circumstances the power under Section 83 can be invoked by the Authority. The discretion conferred on the Authority shall be brought to bear having regard to the facts and circumstances of each case. It is not permissible for the Authority to equate the provisional attachment envisaged under Section 83 of the Act with attachment in the course of the recovery proceedings. 

Case reference is Pranit Hem Desai v. Additional Director General [2019] GCtR 6512 (Gujarat).

Note : Use of Artificial intelligence has not been done at any stage of writing/research for this article.