Skip to main content

When GST heads to the courtroom

When GST heads to the courtroom
Compliance requirements, valuation, classification, transfer of input tax credit are likely to lead to tax litigation, say experts. SAYAN GHOSAL writes

Two months after coming into effect, India’s new indirect tax has already begun making its rounds in the courtrooms. Tax professionals and corporate lawyers are gearing up for a swathe of increased litigation, given the large influence that the goods and services tax (GST) has on economic participants.

“The GST has caused and continues to have some teething problems as to its applicability and compliance requirements. The concerns arising from these issues are reflected in the various writ petitions filed in high courts across the country,” says Nishant Shah, partner, Economic Laws Practice.

According to experts, several issues related to enhanced compliance requirements, valuation, classification and the availability and transfer of input tax credit are expected to take centrestage in tax litigation in the days to come.

A recently filed case in the Rajasthan High Court (Rajasthan Tax Consultants Association v Union of India) exemplified some of these issues of compliance, considering the GST’s digitised framework and India’s challenges in adapting to technology. The association’s plea has highlighted several technical glitches faced by taxpayers in meeting these new requirements, as well as other concerns on incomplete utility forms, charging of interest, penalties, composition windows and the retrospective effect of waiver of late fees.

The classification, applicable rate and valuation of supplies for the purposes of taxation are expected to be other contentious issues. Experts say the multi-slab nature of the Indian GST system will undoubtedly have the potential for rate arbitrage and differences in opinions between assessees and the tax authorities. The availability of transition and input tax credits, considered to be key to the effective functioning of the indirect tax system, is also likely to be taken to court.

“Different slab rates have been fixed for supply of goods and services. Valuation of goods is mostly on the basis of Customs valuation rules. Both are prone to litigation. The truncated grant of transition credit (that can be used as input tax credit under the new system) is another issue that is likely to be challenged in the courts,” says V Lakshmikumaran, managing partner, Lakshmikumaran & Sridharan.

The Delhi HC and Hyderabad HC are already hearing petitions on the applicable rates set on sanitary napkins (12 per cent) and limestone (28 per cent). “The mere fixation of rates may be viewed by the courts as an economic policy decision. However, when other fundamentals come into play, the judiciary could take a more proactive role,” says N Meyyappan, partner, Nishith Desai Associates.

Another pending case in the Delhi HC is on the issue of availability of transition credits for the clean energy cess paid for stocks of coal under the earlier system (vide Finance Act, 2010) and the requirement for re-payment of compensation cess (under GST rules) on the same stock. A similar issue on the validity of the government’s move to recover previously provided CenVAT credit on stocks of imported gold dore bars (Rule 44A of the Central GST Rules) is also being challenged in the same high court.

After finding prima facie merit in both the petitions, the court has given the affected parties interim relief while listing the matters for further consideration. “Even interim orders staying adverse actions by the department may have larger implications. There are still many issues that are yet to reach the courts,” notes Meyyappan.

Yet another petition in the Delhi HC involves issues of cross-applicability of input credits within the integrated GST, central GST and state GST laws. There are concerns that digital transactions that are charged Integrated GST, yet provide supplies which attract Central GST and state GST, will be unable to claim these input tax credits to offset their total tax burden, leading to double taxation.

Experts also feel certain supplies, especially in the digital space, are also likely to be marred by litigation and differences of opinion. Digital assignments, cloud-to-cloud transactions and the categorisation of such transactions as goods or services may eventually reach the courts, once the tax department takes a more concrete stance. “There is still significant ambiguity with the classification and the rate of taxation of some supplies,” adds Meyyappan.

According to Shah, the GST regime is also likely to see some amount of commercial litigation between business entities. “This will be novel to the taxation arena and will be on account of the requirement for invoice to invoice matching in order to ensure availability of credit as required by the GST law,” notes Shah. Transition credit on gold dore bars: Kundan Care Products Ltd vs Union of India

Challenge to Rule 44A of the CGST Act reversing 5/6th previously provided CenVAT credit on imported gold dore bars as on July 1

Interim relief by the Delhi HC — No coercive steps to be taken to recover CenVAT credit already availed

The multi-slab nature of the Indian GST system has the potential for rate arbitrage and differences in opinions between assessees and the tax authorities

Reverse charge mechanism for legal services: J K Mittal & Company vs Union of India

Action against notification allowing GST on reverse charge mechanism only for representational legal services

Ad-interim relief by the Delhi HC – No coercive steps against legal entities – Reverse charge mechanism for all legal services till further orders Compensation cess on previously purchased coal stock: Mohit Minerals Pvt. Ltd v Union of India

Challenge to constitutional validity of the Goods and Services (Compensation to States) Act

Ad-interim relief by the Delhi HC — No payment of compensation cess under

Petition against double taxation of interstate supplies due to ambiguous interpretation of the CGST and SGST Acts in the Delhi HC

Levy of state entertainment tax; GNG Enterprises vs Uttar Pradesh

Petition against levy of state entertainment tax under the UP Entertainments and Betting Tax Act after the GST regime in the Allahabad HC

Since no notification repealing the tax, court has allowed state to collect tax up to March 31, 2020 Requirement of bond and bank guarantee on zero-rated supplies; Aphro Ecommerce Solutions Pvt Ltd vs Union of India

Challenge to requirement of furnishing bond and bank guarantee under Rule 96A of CGST Rules (read with CBEC Circular 4/4/2017) for exports of zero-rated supplies in Delhi HC

The Business Standard, New Delhi, 11th September 2017

Comments

Popular posts from this blog

At 18%, GST Rate to be Less Taxing for Most Goods

About 70% of all goods and some consumer durables likely to cost less

A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.

India is likely to rely on the effective tax rate currently applicable on a commodity to get a fix on the GST slab, said a government official, allowing most goods to make it to the lower bracket.

For instance, if an item comes within the 12% excise slab but the effective tax is 8% due to abatement, then the latter will be considered for GST fitment.

Going by this formulation, about 70% of all goods could fall in the 18% bracket.

The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%. A committee of officials will work out the fitment and the council…

Coffee-Toffee, the GST Debate Continues

Hundreds of crores of rupees in the form of taxes ride on the exact categorisation of products Is Parachute hair oil or edible oil? Is KitKat a chocolate or a biscuit? Is a Vicks tablet medicament or confectionery? For the taxpayer and the tax collector, this is much more than an exercise in semantics -hundreds of crores of rupees ride on the exact categorisation.
As the government moves closer to rolling out the goods and services tax (GST) on July 1, many such distinctions are being debated so that no ambiguity remains. Not just that, the government is revisiting old tax cases that were lost over product categorisation, according to people with knowledge of the matter, presumably with a view to making sure that revenue collections can be maximised. “In the past, several tax officers had challenged some of the product categorisations, including those in the retail segment, but lost out in court or at appellate level,“ said one of the persons. “Now we have a chance to go ahead with speci…

Deposit gush:-CA Institute Bats for Special Audit