JANUARY 07, 2019

By Dr G Gokul Kishore

BEFORE the avalanche of notifications and circulars issued to implement the decisions taken in the 31 st meeting of the GST Council subsided, a fresh clarification issued on amendment to transitional provisions has raised certain questions. In this 19 th part, these questions are highlighted along with the issue of interference by the CBIC in the exercise of quasi-judicial powers in a rather unabashed manner.

Credit is transitional but confusion is permanent

Section 140(1) of CGST Act contains transitional provisions to enable a taxpayer to carry forward the balance of tax credits from the pre-GST regime to GST regime. Being credit related which is perceived as a benefit extended out of generosity, the provision is crowded with several sub-sections, provisos and explanations. The CGST Amendment Act also added a few more to this provision. Section 140(1), as originally enacted, referred to Cenvat credit but did not use the words 'eligible duties'. After the amendments (with retrospective effect from 1st July, 2017), Cenvat credit of 'eligible duties' lying in balance under pre-GST law is eligible to be transitioned to GST regime as input tax credit. The words 'eligible duties' has been used in Section 140(3) and a few other sub-sections and the explanation provides the list of such 'eligible duties'. These words have company in the expression 'eligible duties and taxes' which has also been listed under another explanation.

These obvious facts are mentioned above as they form the basis for CBIC Circular No. 87/06/2019-GST dated 2 nd January, 2019. This circular has been issued to clarify the doubt as to whether Cenvat credit of service tax is eligible to be transitioned as 'eligible duties' alone as has been used in Section 140(1). It has been clarified that the intention was never to disallow such credit of service tax from being transitioned and the word 'duties' is used interchangeably with 'taxes' in tax statutes and these two words should not be read in a disharmonious manner. One would expect the draftsman to be extra cautious when an important transitional provision having significant revenue implication is drafted. Having not used the words 'eligible duties' in Section 140(1) initially and using amendments to insert such words and then to clarify that 'duties' also mean 'taxes, are exercises which manifest the drafting lacunae and the anxiety to plug the same through legislation and clarification.

It is rather surprising to find that even the present circular has a major drafting error. In para 5, it is stated that the amendment relating to restriction on transitioning credit of cesses will become effective from the date the same is notified giving it retrospective effect. This amendment is part of Section 28 of the amending Act and the same has been given retrospective effect from 1st July, 2017 as per the amending Act itself. Only those provisions which have not been provided with any such date will come into force from the date to be notified separately. No notification is required to bring into force a provision in an Act which has already come into force from a back date as per the Act itself. CBIC, it seems, is not aware of the fact that field formations have reportedly asked the taxpayers to pay back credit of such cesses. By the time this part is published, may be, an amendment to this circular would have come. GST is new but the methods of drafting and administering are hardly new. We retain our optimism and hope second year of GST will witness change in both.

Prescribing penalty through circulars

Interference by the higher echelons of tax administration in exercise of quasi-judicial powers by adjudicating authorities is an age-old habit as evidenced by judgments like Rewa Gases - 2003-TIOL-105-HC-MP-CX. The officer donning both the attires - that of administrator / tax collector and another dispensing justice as adjudicator may have dilemmas but the apex body should appreciate the need for impartial adjudication of cases. Instructing adjudicators to impose penalty in certain cases and prescribing quantum of such penalty is on the rise.

By Circular No. 64/38/2018-GST dated 14-9-2018, apparently field formations were instructed not to initiate precipitative action like detention and seizure of goods and conveyances only for minor mistakes like error in name of consignor / consignee, pin code, etc., in the e-way bill. In this circular, the officers were instructed to impose penalty of Rs. 500 under CGST Act and Rs. 1000 under IGST Act in such cases. The relevant provision viz., Section 125 of CGST Act provides for general penalty upto Rs. 25,000 (with equal amount under SGST Act, total penalty of Rs. 50,000) and the Board, by prescribing the quantum as Rs. 500 might have conveyed the message that such errors do not merit higher penalty. However, the officer concerned may choose not to impose any penalty for minor mistakes or errors and by prescribing such quantum of penalty and using the word 'shall', independence of quasi-judicial machinery has been negatively impacted.

In the recent Circular No. 76/50/2018-GST dated 31-12-2018, it has been clarified that penalty under Section 73(11) of CGST Act is not imposable in case of delayed filing of monthly return when tax with interest has been paid. To this extent, the circular is correct as sub-section (11) of Section 73 speaks about penalty in cases where self-assessed tax is not paid or amount collected as tax is not paid within thirty days from due date for payment of such tax. However, the circular instructs the officers that since tax has been paid late in contravention of the provisions, general penalty under Section 125 may be imposed. If tax is paid with interest, adjudicating authority should have unfettered discretion to waive penalty. To instruct such authority to impose penalty can be termed as encroachment in quasi-judicial jurisdiction by administrative machinery. Our optimism continues for a change in such methods in the second year of GST.

(...To be continued)

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

See Part XVIII