DECEMBER 10, 2018

By Dr G Gokul Kishore

IN all GST liable transactions, Centre and States share the revenue accruing from GST. Both the layers of government get the revenue directly in respect of intra-State supplies in the form of CGST and SGST while IGST paid on inter-State transactions is shared through settlement mechanism. The significance that the terms CGST, SGST or IGST hold for the governments is immaterial for taxpayers. This fifteenth part seeks to analyse how the law seeks to thrust such significance on taxpayers along with the preference of the department for cash payment for tax dues.

Apportionment of revenue - Why taxpayers should suffer?

Constitution of India confers concurrent power on the Union and the States to levy GST on supply of goods or services or both. Therefore, on every supply, both the Central and State Governments get the right to its share of GST revenue. A single levy of GST could have been implemented and the Centre and States at the back-end could have devised mechanism to share the revenue instead of burdening the taxpayers to segregate and then pay tax towards Centre and to the State. This is not utopian as IGST levy operates on such principle. Such segregation has contributed to unique provisions like Section 77 of CGST Act. This provision, on the face, appears benign as CGST and SGST paid (by mistake) on an inter-State transaction liable to IGST shall be available as refund. The benevolence further flows as another sub-section waives off the interest payable on CGST and SGST payable in a transaction where IGST was paid (by mistake).

The above provision essentially means that the taxpayer is required to pay tax for the second time only because the type of tax was adopted incorrectly. Refund invariably means lodging a claim and sanction by the department thus adding to procedural rigidities. Ideally, in such cases, the law should provide for filing of an application online by the taxpayer to request for change in type of tax - from CGST and SGST to IGST and vice versa. Considering the fact that we have GST e-highway, based on an application with required details by taxpayer, automated change in the type of tax at the backend by the system cannot be as difficult as mission to Mars.

Recently, High Court of Kerala issued directions to transfer tax paid as SGST to IGST account in a writ petition [ Saji S., Prop. Adithya and Ambadi Traders, Judgment dated 12-11-2018 - 2018-TIOL-2902-HC-KERALA-GST]. This order is cryptic to an extent but Rule 92(1) of CGST Rules [referred as Rule 4(1) but corrected by way of footnote in the order] has been taken note of as the same provides for adjustment of outstanding demand (dues) from the amount refundable to the taxpayer. For recovery of dues, provisions have been made to appropriate refunds against any type of tax. If refund of CGST is sought to be adjusted, then dues may be of IGST or SGST and the same is no bar though the form RFD-06 appears to indicate otherwise.

The above High Court order is mentioned only to highlight that compelling taxpayers to try their luck in invoking writ jurisdiction on an issue which is purely an intra-governmental affair is neither fair nor confidence-inspiring in the GST system being progressive. Second year of GST should be used to amend Section 77 and attendant rules so as to provide automatic system-based adjustment between types of taxes. The IT system may require to be tweaked or back-end public accounting may need to be re-jigged.

Insistence on cash payment for tax in cashless economy

At a time when the government is on overdrive to usher in cashless economy with great thrust being given to digital transactions, the GST department piously retains its faith in cash and paper instruments. To seek payment of tax through electronic mode, one has to file writ petition in this era of e-payment of taxes. In one of the recent cases before Kerala High Court, the department objected to e-payment of tax when the goods were detained and sought the same in cash or demand draft [ Pioneer Polyleathers, Judgment dated 16-11-2018 - 2018-TIOL-2908-HC-KERALA-GST]. A registered taxpayer whose goods have been detained and who needs to get them released, is not a fugitive who cannot be trusted. The department's long arm can always reach the taxpayer and the statute has conferred ample powers on the department extending to attachment of property for recovery of dues. The High Court observed that GST regime has been ushered to ensure everything is made online with minimum manual intervention and yet strangely, authorities still insist that payment should be by physical means. It termed such insistence as archaic and out of tune with the very spirit of GST regime.

The above order follows / takes note of another judgment passed by the same High Court in Fashion Marble and Granite Company - Judgment dated 6-7-2018 - 2018-TIOL-2804-HC-KERALA-GST]. In this case also, the department insisted on payment of tax and penalty by cash or DD on the ground that input tax credit of amount paid under Section 129 (seizure) is not admissible as per Section 17(5) of the CGST Act. Credit restriction is in respect of amount paid as tax under Section 129 and not for using the electronic cash ledger or credit ledger for payment of tax. What is paid on seizure or confiscation of goods cannot be availed as credit. There is no bar in using cash or credit account for payment of tax in respect of proceedings under the above provisions.

Obsession with mode of payment is an old habit. In the Central Excise era, the department used to insist on similar payments in cash or DD, particularly during investigations and taxpayers used to comply as the system of online fund transfer through NEFT / RTGS was either not available or not well developed. In respect of payment of pre-deposit, taxpayers had to get directions from CESTAT to use their credit ledger because payment through PLA was considered as the norm in such cases. CBIC should issue unambiguous instructions to field formations or consider amending the provisions, if required, so that a procedural requirement like mode of payment is not elevated to substantive compliance.

(…To be continued)

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

See Part XIV