APRIL 09, 2018

By Shailesh Sheth, Advocate & Founder of M/s SPS Legal

IT is not an exaggeration to say that the 'Financial Year 2017-18' will go down in the history of Indirect Taxation of India as a 'watershed year'! The year witnessed a hasty but a determined introduction of the fundamental tax reform in the form of 'Goods and Services Tax' from July 1, 2017, marking an opening of a new chapter in the Indirect Tax history of the country. Unfortunately, for varied reasons (no need for its discussion here), the implementation of the new tax system soon ran into rough weather and for the rest of the year, the taxpayers, the tax officers, the Government, the GST Council and all other stakeholders witnessed turmoil, turbulence and trepidation on GST front….! This led to a frequent statutory amendments in the CGST Rules, extension of deadlines set for various purposes, clarifications, suspension of certain crucial provisions, etc. As if this was not enough, there were challenges, in different High Courts, to various provisions of the CGST Act on constitutional grounds and even challenges to the inadequacies of the GSTN Portal resulting into severe hardship and adverse financial consequences for the taxpayers. In sum, the short span of nine months post-introduction of GST presented a picture of chaos, confusion and consternation!

Amidst this, the Government was fighting its own battle on two important turfs, one, the rising backlog of the exporters' refunds and another, the mass-scale evasion of tax being apprehended under GST regime as was observed from the data analytics based on the GST Returns filed by the taxpayers. Both these challenges were taken up seriously by the Government which set in motion a series of steps to expedite the refunds and at the same time, firmly decided to introduce E-way Bill System across the country for inter-state movement of goods from April 1, 2018 as an anti-evasion measure.

Against the above backdrop and considering the fact that how turbulent the previous financial year 2017-18 turned out to be, one must acknowledge that the new financial year 2018-19 has started with a bang, going by significant positive developments which have taken place in just first week of the new year!

These important developments are briefly explained below:

A. E-Way Bill system - "Heaving a big sigh of relief…!"

After initial exercise of the rationalisation of the rates of GST and subsequent ironing out of the procedural/technical glitches marring the GST implementation coupled with the announcement of the significant procedural relaxations, the GST Council had set for itself the important task of putting the anti-evasion mechanism in place. This was considered inevitable as the filing of GSTR-2 and GSTR-3 providing for the verification of invoice mismatch is put on backburner for the time being. "E-way Bill System" was seen to be the only effective measure to curb the evasion of tax, feared to be quite massive. The Council, accordingly had announced the introduction of E-way Bill System for the Inter-state movement of goods across the country from April 1, 2018 to be followed by the introduction of the system in case of intra-state movement of goods in a phased manner from April 15, 2018 in all the States /UTs, but not later than June 1, 2018.

Finally, true to its word, Government implemented the E-way Bill System on April 1, 2018 which, going by the initial experience, apparently had a 'flying start'! Reportedly, about 11.20 lakhs taxpayers and 20,000 transporters have enrolled themselves on the E-way Bill Portal in the first two days. On the first day of roll out, 2,59,484 E-way Bills were generated throughout the country and the figure climbed to more than 5,00,000 till 7.00 p.m. on the second day. [Interestingly, the No. of E-way Bills generated till 2.00 p.m. on second day was 2,04,563 and thus, in another five hours, almost 3,00,000 E-way Bills were generated. This is something akin to the voting trend witnessed during election which gathers momentum as the day progresses…!]. It may be noted that the system is prepared to handle 75,00,000 E-way Bills daily. What has, however, come as a big relief for the Government, GSTN Portal and the taxpayers/tax professionals is the smooth rollout of the system with not much difficulties being experienced by anyone in the generation of E-way Bills. Consequently, the apprehension of the disruption of the trade stood belied. No doubt, the real test will lie when the traffic picks up in coming days with the increasing volume of E-way Bills.One can certainly hope that the system will not fail anyone this time!

The initial successful roll out of the system is also crucial for the Government which considers the system as:

•  a key anti-evasion measure under GST;

•  an effective tool to check under-invoicing; and

•  a measure which would boost the revenue.

It will be interesting to watch how the system meets the challenges of implementation and achieves its objectives in coming days.

B. CBEC becomes CBIC - "What is in the name? Everything!"

The 'Central Board of Excise and Customs' (CBEC) has become the 'Central Board of Indirect Taxes and Customs' (CBIC) w.e.f. 29.03.2018 i.e. the date on which the Finance Bill, 2018 received the assent of the Hon'ble President. The name-change, as such is not mere cosmetic as it acknowledges and signifies the paradigm shift that has taken place in the country with the introduction of GST from July 1, 2017 subsuming almost all major Central, State and Local Indirect Taxes and with only two major Indirect Tax in the form of GST and Customs, now in place, since then.

Interestingly, the Board itself is yet to "come to terms" with its name change and continues to use its earlier name while addressing its communications to the field formations. To begin with, its website still is called www.cbec.gov.in, the home page reflects its old name, the first GST Circular for this FY viz. 39/13/2018-GST dt. 03.04.2018 and the Instruction dated 4 April 2018 proudly proclaims it to be Central Board of Excise & Customs. Hopefully, all would get used to the acronym CBIC, in the days to come.

C. Customs and Pre-notice consultation - "'Samvad' may solve it all…!"

The readers may recall that vide Clause 61 of the Finance Bill 2018, substantial amendments were proposed in Section 28 of the Customs Act, 1962. The proposed amendments included an insertion of a proviso in clause (a) of sub-section (1) of Section 28 that reads as under:

"Provided that before issuing notice, the proper officer shall hold pre-notice consultation with the person chargeable with duty or interest in such manner as may be prescribed."

The objective behind this is to avoid the unnecessary litigation. Such pre-notice consultation is expected to enable the authority to not proceed with the issue of the show cause notice after hearing the party or provide an opportunity to the party to settle the issue in accordance with law without seeking the show cause notice, accepting the claim of the department. The amendments have come into effect with the enactment of the Finance Bill on March 29, 2018.

Immediately thereafter, CBIC has notified the 'Pre-notice consultation Regulations, 2018' vide Notification No. 29/2018-Customs (NT) dated 2nd April, 2018. The salient features of the Regulations are briefly summarised below:

a) The proper officer must inform the person chargeable with duty and interest of the intention to issue the notice specifying the grounds known to the proper officer on which such notice is proposed to be issued;

b) The process of Pre-notice consultation shall be initiated as far as possible at least two months before the expiry of the time limit mentioned in Section 28(3) of the Act (i.e. two years);

c) The person concerned shall make his submissions, within 15 days from the date of communication of the above intimation, on the grounds communicated to him and also clearly indicate whether he desires to be heard in person or not. If the person fails to respond within the stipulated period, the proper officer shall proceed to issue the notice without any further communication;

d) Upon request made by the person concerned, the proper officer may hear him within 10 days of receipt of submissions and decide whether any notice is required to be issued or not, but no adjournment for any reason shall be granted of such hearing;

e) Consultation process shall be concluded within 60 days from the date of communication of the grounds;

f) If the proper officer decides, not to proceed with the notice with reference to the grounds communicated, he shall intimate the same to the person concerned;

g) If the proposed show cause notice is in respect of a person to whom a notice on the same issue but for different periods or documents has been issued after such consultation, proper officer may proceed to issue the notice for subsequent period without any further consultation.

In the respectful view of the author, the word 'after' used in clause (6) of para 3 of Notification No. 29/2018-Cus (NT) ibid may be a misnomer and that the correct word shall be 'before'. The purpose behind clause (6) appears to be that if a show cause notice has already been served upon a person on the same issue earlier but for a different periods or documents, such 'pre-notice consultation' in respect of the subsequent period may be an exercise in futility and that the proper officer may have to compulsorily proceed with the issue of the notice for the subsequent period.

D. Refunds to exporters - Further solutions - "removing the roadblocks & potholes….!"

Recently, the CBEC (now, CBIC) has taken numerous steps to smoothen and streamline the procedural aspects of the refund claims with a view to expedite the process of sanction of the claims to the exporters. The Board has also been issuing various instructions with regard to the errors generally observed in the refund claims and suitably advising the tax payers on the remedial measures.

It is observed that many refund claims have remained stuck up due to non-transmission of data by GSTN to Customs EDI. The Board is of the view that such refund claims have not come to Customs system due to incorrect or insufficient information filled by the exporters on the GST portal.

The Board has now issued an Advisory on the "problems in sanction of IGST refund - non-transmission of data from GSTN to Customs" vide Circular F.No.450/35/2018-Cus IV dtd. 28.03.2018 (made available on the site only on 4th April, 2018) providing detailed instructions/clarifications to the tax payers while addressing the various issues.

E. GST IT Grievance Redressal Mechanism - "lending a sympathetic ear…!"

CBIC has issued a Circular No. 39/13/2018-GST (F.No.267/7/2018-CX.8) dtd. 03.04.2018 announcing the setting up of an IT Grievance Redressal Mechanism to address the grievances of taxpayers arising due to technical glitches on GST portal. The Circular clarifies that the relief could be in the nature of allowing filing of any Form or Return prescribed in law or amending any Form or Return already filed.

Vide the same Circular, the Board has also sought to resolve the issue of stuck TRAN-1 and GSTR-3B. It has been clarified that the taxpayer shall complete the process of filing of TRAN-1 stuck due to IT glitches by 30th April, 2018 and the process of completing the filling of GSTR-3B which could not be filed for such TRAN-1 shall be completed by 31st May, 2018.

F. Reduction of litigation - "Cleaning the 'Augean Stables'…!"

In a very significant and pragmatic view, the Board has sought to withdraw/streamline the instructions relating to the pending litigation vis-à-vis monetary limits with a view to reduce the litigation in Central Excise and Service Tax for legacy matters. The Board has issued an instruction F.No. 390/Misc/116/2017 - JC dtd. 04.04.2018 in the matter providing as under:

•  Earlier, vide Instructions dtd. 17.08.2011 (F.No. 390/Misc/163/2010-JC) had been amended vide Instruction dtd. 17.12.2015 issued from the same File number, inter alia, introducing, vide para 2 of the amending Instruction, a subclause 'c' in the Instruction dtd. 17.08.2011. This clause operated as an exception to the general monetary limits Instruction. By this exception, adverse judgements pertaining to "classifications and refund issues which are legal and/or recurring nature" were to be contested irrespective of the amount involved.

The Board has, vide the latest Instruction dtd. 04.04.2018, decided to omit Para 2 of the Instruction dtd. 17.12.2015. Consequently, the sub clause 'c' also stands withdrawn w.e.f. 4th April, 2018. This will pave the way for the withdrawal of cases involving even the issues of classifications and refunds which are of legal and/or recurring nature, in light of the existing monetary limit Instructions.

•  The Board has also decided to withdraw the Department's cases with Commissioner (Appeals) where the Supreme Court has decided an identical matter and the decision has been accepted by the Department. Earlier, the Instruction dtd. 18.12.2015 (F.No.390/Misc/67/2014-JC) provided for the withdrawal of the Department's cases in such a situation only which were pending in High Court/CESTAT.

The Board has further clarified that the first Instruction shall be applicable to legacy matters only. Further, both the Instructions would be applicable to pending matters as well.

G. Customs - Need to issue speaking order - "Ces-sante Ratione Legis Cessat Ipsa Lex …!"

Sub-section (5) and (6) of Section 17 of the Customs Act, 1962, prior to the date of enactment of the Finance Bill, 2018, read as under:

"(5) Where any re-assessment done under sub-section (4) is contrary to the self-assessment done by the importer or exporter regarding valuation of goods, classification, exemption or concessions of duty availed consequent to any notification issued therefore under this Act and in cases other than those where the importer or exporter, as the case may be, confirms his acceptance of the said re-assessment in writing, the proper officer shall pass a speaking order on the re-assessment, within fifteen days from the date of re-assessment of the bill of entry or the shipping bill, as the case may be.

(6) Where re-assessment has not been done or a speaking order has not been passed on re-assessment, the proper officer may audit the assessment of duty of the imported goods or export goods at his office or at the premises of the importer or exporter, as may be expedient, in such manner as may be prescribed."

(Emphasis provided)

It is observed by the CBIC that the officers exercising the powers under Section 17(5) are not issuing a speaking order in each and every case, particularly where the importer or exporter, as the case may be, does not confirm his acceptance of the re-assessment. The Board is apparently not pleased with this practice and issued an Instruction No. 07/2018 dated 5th April, 2018 emphasising on the need to issue speaking order in terms of Section 17(5) of the Act. The relevant portion of the Instruction is reproduced below:

"1. .. .. It may be appreciated that an importer or an exporter has an inalienable right to know the reasons for loading of value, change of classification, any decision regarding entitlement to an exemption notification, etc. Omission to issue speaking orders in matters of re-assessment may not prejudicially affect the right of the importer or exporter to appeal as such, but nevertheless deprives him of knowing the grounds of such re-assessment. At the same time, any such re-assessment without the support of a speaking order could be perceived as legally questionable. Time and again, Courts have frowned upon the instances of non-issuance of speaking orders under the said sub-section.

2. In view of the above, all Chief Commissioners are requested to take stock of the prevailing practice in their zones so as to ensure compliance with the provisions of the Act."

Though the Instruction issued by the Board are commendable in itself, it is indeed regrettable that even after all these years, such elementary Instructions are required to be issued by the Board! The principles of natural justice recognises three principles:

i. Nemo debet essc judex in propria causa ('nobody shall be a judge in his own cause or in a cause in which he is interested, popularly known as 'Doctrine of Bias');

ii. Audi alterem partem ('to hear the other side');

iii. Speaking orders or reasoned decisions.

It will be interesting to note that in the Training Material for Departmental Use titled "E-Book on Principles of Natural Justice" issued by the NACEN, RTI, Kanpur and updated as on 31.03.2015, the above principles have been duly recognised and explained in detail. On the aspect of the need for the 'speaking orders', the Manual quotes the judgement of the Constitution Bench of the Hon'ble Supreme Court in Shri Swamiji of Shri Admar Mutt, etc. etc. vs. The Commissioner, Hindu Religious and Charitable Endowments Dept. & Ors - AIR 1980 SC 1 and quotes the following English version of this principle as given by the Hon'ble Chief Justice Y. V. Chandrachud in the judgement:

"Reason is the soul of the law, and when the reason of any particular law ceases, so does the Law itself."

It is equally interesting to note that the Manual also elaborately discusses the 'Useless Formality Theory' in the light of various judicial pronouncements of the Hon'ble Supreme Court as well as that rendered by the English Courts, New Zealand Court and other Courts of the Foreign Nations.

One can only hope that the Instruction issued by the Board will be scrupulously followed by the Assessing Officers!

Here, it may be pointed out that vide Section 58 of the Finance Act, 2018, the highlighted words of sub-section (5) of Section 17 above commencing with 'regarding' and ending with 'this Act' as well as sub-section (6) stood omitted w.e.f. 29.03.2018. Despite this, the Instruction issued by the Board on 5th April, 2018, that is much after the enactment of the Finance Bill, 2018, continuous to refer to the un-amended Section 17(5) of the Act therein! It seems that the Board appears to be oblivious to the amendments made by the Finance Act, 2018! On the side lines, the non-omission of the word 'and' immediately following the words 'the Act' in amended sub-section (5) appears to be superfluous and also tends to break the natural flow of the sentence.

H. Exports - Submission of Bond/LUT - "Manual labour is not warranted..!"

The Board has, on 06.04.2018, issued a Circular No. 40/14/2018 - GST (F.No. 349/82/207- GST) clarifying certain issues relating to furnishing of Bond/LUT. The Circular, issued in partial modification of Circular No. 8/8/2017 - GST dtd. 04.10.2017, clarifies and provides as under:

•  The registered person (exporters) shall fill and submit Form GST RFD - 11 on the common portal. An LUT shall be deemed to be accepted as soon as an acknowledgement bearing the Application Reference Number (ARN) is generated online.

•  No documents need to be physically submitted to the jurisdictional office for acceptance of LUT.

•  If it is discovered that an exporter whose LUT has been so accepted was ineligible to furnish an LUT in place of Bond as per Notification No. 37/2017- Central Tax, then the exporter's LUT will be liable for rejection and in case of such rejection, the LUT shall be deemed to have been rejected ab initio.

The modifications/clarifications had become necessary as the LUTs being submitted online in the prescribed form in the common portal were not visible to the jurisdictional officers of CBIC and a few States. There were, therefore, various communications from the exporters and the field formations to the Board seeking a clarification in the matter. It is heartening to note that the Board has acted swiftly in the matter and resolved the issue. Importantly, the exporters shall feel relieved as the manual filing of documents with the jurisdictional office is avoided.

(The views expressed are strictly personal.)