NOVEMBER 26, 2018

By Dr G Gokul Kishore

CONSUMPTION taxes like GST are regressive as the incidence is equal on consumers irrespective of their income. By providing differential rates, such taxes are given a semblance of progressiveness. Coupled with liberal credit scheme and less intrusive procedures, GST can claim to contain many progressive elements. We look at two issues in this thirteenth part which dents such claim.

Detaining goods for adopting different classification

E-way bill system is intended to strengthen the enforcement machinery of the tax administration by providing for preventive checks of vehicles and goods. Check posts were abolished with the rather noble objective of ending the harassment faced by the industry while transporting the goods. But considering the spate of writ petitions filed before various High Courts in the past few months, it seems that the change in law has not translated into change in mindset of the tax administration. A recent case before Kerala High Court substantiates the above statement wherein goods in transit were detained during inspection by State GST officials on the ground that the department entertained alternative view on classification of the goods. GST @ 5% was paid on the goods (betel nut) and the same was being transported with required documents including e-way bill. However, the said officer was of the view that betel nut was in fact "supari" and, therefore, it was classifiable under different heading attracting GST of 18% N.V.K. Mohammed Sulthan Rawther and Sons v. UOI - 2018-TIOL-2910-HC-KERALA-GST.

Section 129 of CGST Act/respective SGST Act contains the powers to detain and seize goods (including conveyance) when goods are transported in contravention of the provisions of Act or the Rules. Mis-classification of a product and non-payment of applicable rate of tax may well be contraventions but they fall under the jurisdiction of the assessing authorities. The inspecting officer has no jurisdiction to exercise of powers of detention and seizure for alleged mis-classification. The High Court, in a well-written order, held that the conduct of the petitioner was not mala fide as he paid tax on the goods declaring the HSN code which he believed was applicable. It further relied on its own judgment in another case Rams v. Sales Tax Officer - 1993 (91) STC 216 wherein it was held that detention was not the answer if the records truly reflected the transactions and inspecting authority can alert the assessing authority of the petitioner in such cases. According to the Court, detention of goods cannot be resorted to when dispute is bona fide, especially, concerning the exigibility of tax and more particularly, rate of such tax.

Section 129 is part of the CGST Act which along with Section 130 (on confiscation) is intended to prevent tax evasion and to pre-empt supply of goods on which tax is being evaded. These provisions infringe fundamental rights insofar as carrying on business is concerned and, therefore, invoking such powers calls for greater circumspection and caution by the departmental officers. In GST regime, time and again, taxpayers have been compelled to seek writ remedy before High Courts against arbitrary detention and seizure of goods and conveyances. If exercise of powers is not tempered with judiciousness and rationale, then taxpayers will lose confidence in the system and the same may even become counter-productive. Evasionary tendencies can be curbed only if the taxpayers perceive that the administration is reasonable and fair and the system is just and the taxes paid are, in fact, spent for the purpose for which they should be spent. It is time that the apex GST bodies at both at central and state levels appropriately educate the field formations so that the old saga of harassment does not continue.

Exemption to duty credit scrips - Case for amendment

Duty credit scrips classifiable under Heading 4907 are exempted as per Notification No. 12/2017-Central Tax (Rate). Foreign Trade Policy does not define the term 'duty credit scrip' but the same is used in Chapter 3. MEIS and SEIS are the two schemes which are referred also as 'reward schemes'. Based on net foreign exchange earnings i.e. export performance such scrip is provided which can be used for payment of customs duty, excise duty in case of domestic procurement, etc. The scrips are transferable and as per the above exemption, when they are sold and bought, GST is nil. 'Scrip' is defined as document that entitles the holder to receive something of value (Black's Law Dictionary).

FTP provides duty exemption schemes like DFIA and Advance Authorization. 'Exempt' means 'precluded from being chargeable', 'exemption is privilege to be free from certain services or appearances', 'exemption is to be defined as an immunity, freedom from any service, charge, burden, taxes.' (Advanced Law Lexicon). It, thus, appears that reward schemes (duty credit scrips) and duty exemption schemes are two different species though both are intended to achieve the same objective i.e. export promotion. While reward schemes operate on post-export basis, exemption schemes may operate in both pre-import and post-export scenarios. But schemes like Advance Authorization have actual user condition which is a distinguishing feature. The intention is not to discuss basics of FTP but to give a brief so as to discuss the ruling by Maharashtra Authority for Advance Ruling [In Re: Spaceage Syntex, Ruling dated 6-8-2018 - 2018-TIOL-269-AAR-GST. In this ruling, the question posed was whether DFIA is covered under the term 'duty credit schemes' and, therefore, eligible for exemption from GST.

The AAR answered in the negative holding that duty credit scheme and duty exemption schemes (to which DFIA belongs to) are two different things and only MEIS and SEIS are covered under the said exemption. Salient features of the two schemes have been highlighted even while the applicant has pleaded that when the exemption from GST was granted to duty credit scrips, the same included other schemes also. The exemption was given in the backdrop of GST causing lot of hardship to export community which was already suffering from blockage of refunds, etc. If the intention was to assist the exporters, then there is no reason why such exemption should not be re-phrased to include duty exemption schemes also. The line between the schemes under Chapter 3 and Chapter 4 of FTP is already getting blurred and the additional duty exemption which used to be there earlier under such schemes is now at the mercy of notifications issued from time to time for IGST exemption. All these schemes are being charged as WTO-incompatible and countries like United States are working overtime to pressurise the government to phase them out. At least, before the sun sets on these schemes, let the government grant exemption as discussed in this article.

(To be continued…)

See: Part XII

[The author is an Advocate and Joint Partner, Lakshmikumaran & Sridharan, New Delhi. The views expressed are strictly personal]