GST Daily

Dear Reader,

Welcome to Taxmann.com | Newsletter – Reporting the Facts with Taxmann's Analysis. Today's Edition Brings to You Comprehensive Coverage of GST Case Laws | Statutory Updates | Analysis.

Summary of SCN in Form GST DRC-01 can not substitute statutory requirement of SCN under CGST Act: HC

Construction Catalysers (P.) Ltd. v. State of Assam - [2024] 168 taxmann.com 183 (Gauhati)

The petitioner was issued a Summary of the Show Cause in GST DRC-01 along with an attachment of the determination of tax. It submitted a reply and requested for personal hearing but the reply was not considered and an order was passed. It filed writ petition and challenged the order by contending that proper show cause notice was not issued and opportunity of hearing was denied.

The Honorable High Court noted that in the instant case, the summary of Show Cause Notice in Form GST DRC-01 cannot substitute statutory requirement of show cause notice under Section 73(1) of GST Act. The statement of tax determination attached to DRC-01 would not be equivalent to show cause notice. Moreover, the authentication by proper officer is mandatory for show cause notices and orders.

Therefore, the Court held that the impugned order was liable to be quashed and the department would be at liberty to initiate de-novo proceedings. The Court also directed that period from issuance of summary show cause notices till service of judgment copy would be excluded for limitation under Section 73(10).

The ‘As Is Where Is’/‘As Is’ Enigma – An Analysis

Sahana R & Derlene Joshna - [2024] 168 taxmann.com 287 (Article)

The GST Council has been proactive in settling contentious issues under GST through recommendations to the Central Board of Indirect Taxes ("CBIC" or "Board") to issue circulars clarifying the tax treatment in respect of several transactions. Recently, the GST Council has recommended the Board to regularize a few common trade practices on an 'as is where is' or 'as is' basis. Pursuant to the Council's recommendations, the Board has issued few circulars which have clarified issues such as rate of tax paid on a supply for the past on an 'as is where is' basis.1 Few circulars have used the phrase 'as is' basis.2 These new catchphrases garnered widespread attention as the exact meaning of the same was not clear. The Hon'ble Gujarat High Court3 has clarified the scope of these phrases to a little extent. Subsequently, the Board has clarified the same through a recent Circular No. 236/30/2024-GST dated 11.10.2024 ("Circular dated 11.10.2024"). Through this article, the authors would delve into the meaning of regularization on 'as is where is'/'as is' basis and the confusions which still prevail for taxpayers.

Examples of issues clarified on 'As is where is'/'As is' basis

To better appreciate the meaning of the phrases 'as is where is'/'as is', it is important to take note of some of the issues clarified by the Board on an 'as is where is'/ 'as is' basis.

The circulars regularizing the past practices on 'as is where is'/'as is' basis have not always delved into the competing entries used by the taxpayers in the past.

Out of all the circulars issued for clarifying issues on 'as is where is'/'as is' basis, Circular No. 200/12/2023-GST dated 01.08.2024 has explicitly stipulated that refund is not eligible to taxpayers who have paid GST on goods in respect of which GST rate has been regularized on 'as is where is' basis.

While these circulars were issued to put to rest genuine confusion on applicable rates, the use of the phrases 'as is where is'/'as is' led to further confusion.

Gujarat High Court in J.K. Papad Industries v. Union of India

The scope of the phrase 'as is where is'/'as is' came up for consideration for the first time before the Gujarat High Court in J.K. Papad Industries (supra).

In this case, the petitioner was engaged in manufacture of un-fried or un-cooked snack pellets through the process of extrusion and supplying the same without payment of GST by treating the same to be exempt from GST. However, the Department had issued an SCN to demand 18% GST on the said supplies.

Despite Circular No. 200/12/2023-GST dated 01.08.2024 clarifying the rate of GST on said goods to be regularized for the past period on an 'as is' basis, the Department continued to pursue the issue against the Petitioner. The case of the Department was that petitioner is not entitled for the regularization of their past practice on 'as is' basis.

It can be inferred that the Department chose to pursue the demand of GST raised in the SCN even after the regularization of past practices on 'as is' basis as the taxpayer had opted for a GST exemption as opposed to paying GST at a lower rate on the supplies made. In this regard, Circular dated 01.08.2024 regularizing this issue did not explicitly recognize the different tax positions (i.e., competing tax entries) adopted by taxpayers for these goods.

In this case, the Gujarat High Court held that regularization of an issue for the past period on 'as is where is' basis means that whatever situation was prevailing with regard to the status of payment of GST by the petitioners shall continue to prevail.4 The Court also set aside the impugned SCN and directed the Respondents to regularize the past returns filed by the petitioners on 'as is' basis accepting the same as it was filed at Nil rate during the disputed period.

Circular No. 236/30/2024-GST dated 11.10.2024

Shortly after the Gujarat High Court's decision in J.K. Papad Industries (supra), the Board has issued Circular dated 11.10.2024 to clarify the meaning of 'as is where is'/'as is' basis. Said circular has explained what it means to regularise an issue on 'as is where is'/'as is' basis through three illustrations.

The points clarified by the Circular are noted and discussed below:

• The phrase 'regularized on as is where is' basis means that the payment made at lower rate or exemption claimed by the taxpayer shall be accepted and no refund shall be made if tax has been paid at the higher rate. The intention of the Council is to regularize payment at a lower rate including nil rate due to the tax position taken by taxable person, as full discharge of tax liability. [see Para 4].
• The tax position of a taxable person is reflected in the returns filed by the person where the applicable rate of tax (or relevant exemption entry) on a transaction/supply is declared [see Para 4].
• As per Illustration 3 of the Circular, it appears that the benefit of the regularization is restricted to taxpayers who have adopted tax rates which were part of the interpretational issue.
• Illustration 2 of the Circular also indicates that adopting a position that taxpayer is eligible for exemption would be regularized only in cases where there was a genuine doubt.
• All three illustrations stipulate that no refund would be allowed to a taxpayer who has paid GST at a higher rate.

Interpretation of Illustration 3

A reading of Illustration 3 with the recent decision of the Gujarat High Court raises a doubt on whether all tax positions adopted by the assessees would be regularised.

It is possible that the Department may take a stand that the regularization of past practices is intended to be extended only to the assessees who have taken tax positions recognized by the Board as 'the interpretational issue'.

To further elaborate, an example can be considered. The Board anticipates the genuine confusion in the industry to be between two rates (say 5% and 18%) and few taxpayers adopt a different tax position (say nil rate or exemption or 12%). As per the interpretation of illustration 3 discussed above, if 18% is clarified by the Board to be the correct rate and the past practice is regularized, only taxpayers who adopted 5% rate may be free from tax disputes.

This interpretation would create difficulties since most of the circulars regularizing the past practices on 'as is where is' / 'as is' basis have not delved into the competing entries used by the Industry in the past. Further, litigation would continue even on settled issues if field formations choose to dispute a past treatment as not forming part of the interpretational issue settled by the Board.

In the considered view of the authors, when circulars are issued to settle tax disputes due to genuine doubts and common trade practices, a restrictive interpretation of Illustration 3 would make such circulars redundant. It is imperative that the phrase 'the regularization would not apply to situations where no tax has been paid' used in Illustration 3 is interpreted to exclude only those taxpayers who have evaded tax by not adopting any tax treatment. For example, taxpayers who did not raise 'bills of supply' and report the turnover under 'exempt turnover' while taking a position that GST is exempt on their supply.

This interpretation is further buttressed by the fact that the Circular states that the intention of the Council is to regularize payment at a lower rate including nil rate due to the tax position taken by taxable person, as full discharge of tax liability. It has also clearly stated that a person can be said to be taking a tax position if disclosures are made in returns. Accordingly, it can be said that when a taxpayer does not make any disclosure in returns in respect of a particular transaction, such a position would not be regularized on 'as is where is'/'as is' basis.

It is pertinent to note that the Gujarat High Court also in J.K. Papad Industries (supra) rejected the Department's stand and held that regularization is also available to the assessee (Petitioner) who had taken a tax position in their returns that their goods were exempt from GST.

Status of pre-deposit and payments made under protest

While it is explicitly clear that no refund would be allowed to a taxpayer who has paid GST at a higher rate, the status of payments made under protest and pre-deposit payments has not yet been clarified.

Since the Circular dated 11.10.2024 has clarified that the tax position of a taxable person is reflected in the returns filed by the person, can it be stated that the restriction on refund does not apply to payments made under protest through Form GST DRC-03 and pre-deposit paid for maintaining an appeal?

There are many arguments and cases which support the claim to refund pre-deposit and such amounts paid under protest during investigation. However, a suitable clarification on the same in the context of 'as is where is'/ 'as is' regularizations would mitigate the possibility of protracted tax litigation.

Conclusion

While at first glance, the Circular dated 11.10.2024 appears to be a beneficial circular, few issues discussed above remain unaddressed. Since many interpretational issues do not entail merely two competing entries, it is hoped that the GST Council recommends to suitably clarify the ambit of Illustration 3 in Circular dated 11.10.2024 and restrict field formations from denying regularization of past practices.

It is also hoped that the GST Council clarifies the status of pre-deposit payments and protest payments, and the possibility of refund of the same in cases where issues are regularized on an 'as is where is'/'as is' basis.

That's it from us for today!

We're keen on enhancing Your Taxmann.com | Newsletter Experience and would greatly value your input. Your feedback is pivotal in guiding our improvements. Could you spare a few moments to share your thoughts in the comments on how we might better serve your needs?

Taxmann.com | Research | GST – Largest Database Redefined

About:

The GST repository features an AI-based search engine designed to recreate and simplify the way you conduct your research—a combination of features that are impeccably specified and tied by a common thread.

? 75,000+ Case Laws with Integration and Headnotes/Case-Digest

? Authentic, Amended & Updated 35+Acts/40+Rules with Annotations & Integration

? 345+ Forms Updated in real-time

? 27,800+ Circulars & Notifications

? 'Notifications in Force' tool for a list of currently effective Notifications

? 'Historical Tariff' tool for checking rates at different periods

? Expert Discourse Hub Featuring 10+ Commentaries and 3200+ Articles

? 29,950+ Answers to Your Practical GST Queries from V.S. Datey et al.

? Real-Time Intelligence Feed that Reports from 1,000+ Authentic Sources

Subscribe Now and Transform the Way You Work! https://taxmann.social/BuGXf