JULY 11, 2019

By Narendra Kumar Singhvi, Joint Partner, Lakshmikumaran & Sridharan

INTRODUCTION of Goods and Services Tax (GST) has been a major structural reform of the current Government. GST was introduced with the objective of keeping it a good and simple tax and the Government is stated to have initiated several measures to keep the GST compliances easier for taxpayers. However, implementation of GST has witnessed a sudden increase in litigation, mostly before High Courts, particularly given the nature of such litigation and the otherwise absent appellate mechanism beyond the First Appellate Authority.

In this background, this article focuses on the two recent decisions of Gujarat High Court in AAP & Company v. Union of India, - 2019-TIOL-1422-HC-AHM-GST and Amit Cotton Industries v. Principal Commissioner of Customs, - 2019-TIOL-1443-HC-AHM-GST.

AAP & Company (supra)

The genesis of introduction of GST in India was to have uniformity in taxation of supply of goods and services across the country. To serve this purpose, the Government intended to support the administration of GST with a robust IT system and assigned this task to the Goods and Service Tax Network (GSTN). The development and implementation of the IT system, however, could not keep its pace with the implementation of GST, requiring the Government to make certain interim arrangements by way of amendments in GST law.

One of the important illustrations of this situation was introduction of return in Form GSTR-3B in terms of Rule 61(5) of the Central Goods & Services Tax Rules, 2017. As introduced, the GST law intended to have three monthly returns/statements in place: (a) Form GSTR-1 for furnishing details of outward supplies, (b) Form GSTR-2 for furnishing details of inward supplies, and (c) Form GSTR-3 being a combined return for the month. Witnessing the technical glitches in the GSTN portal and resultant difficulties faced by tax-payers, it was decided to keep the filing of GSTR-2 and GSTR-3 in abeyance, for which purpose, the last date for filing thereof was extended from time to time. As an alternative, the Government introduced furnishing of summary details in Form GSTR-3B. Even with the introduction of GSTR-3B, the requirement to file monthly return in Form GSTR-3, however, was not done away with, except to the extent of extension of last date for its filing.

The time-limit for availing Input Tax Credit (ITC) is governed by Section 16(4) of the Central Goods & Services Tax Act, 2017. The last date for availing ITC in respect of any invoice or debit note pertaining to a financial year is due date of furnishing of the return under Section 39 for the month of September following the end of financial year or furnishing of the relevant annual return, whichever is earlier. On a plain reading of this provision, the last date shall be the due date of furnishing of GSTR-3 for the month of September in the next year or that of the annual return for the relevant financial year.

Contrary to above, the CBIC issued a Press Release on 18.10.2018, bearing No. 62/2018, clarifying that in terms of Section 16(4), the last date for availing ITC on invoices issued during July, 2017 to March, 2018 is the last date for the filing of return in form GSTR-3B for the month of September, 2018 i.e. 20th October 2018. Needless to say, this clarification was based on the presumption that GSTR-3B is the monthly return referred to in Section 16(4), through which the taxpayers self-assess their ITC.

The validity of this clarification was challenged before Gujarat HC in AAP & Company (supra) - 2019-TIOL-1422-HC-AHM-GST and challenged successfully. It has been held that GSTR-3B was introduced only as a stop gap arrangement till the actual due date for filing of GSTR-3 is notified and that GSTR-3B is not in lieu of GSTR-3. In accepting the challenge, the Court also took note of the original amendment in Rule 61 bringing in the requirement of filing GSTR-3B vide Notification No. 10/2017-CT, dated 28.06.2017 and its retrospective amendment vide Notification No. 17/2017-CT, dated 27.07.2017. While the original amendment brought in the requirement of GSTR-3B in Rule 61(5) being in lieu of GSTR-3, the same was retrospectively amended to keep GSTR-3B as a separate return, without affecting the requirement of filing GSTR-3.

Amit Cotton Industries (supra)

One of the largely followed aspect of the GST laws has been refund mechanism for exporters, governed by Section 54 of the CGST Act read with Section 16 of the IGST Act. As a major facilitative initiative for exporters, the Government enabled crediting of 90% of the refund claim on provisional basis to exporters under Section 54(6) of the CGST Act. For an exporter of goods, no separate application is required to be filed for claiming refund of IGST paid on supply of goods exported and the shipping bill itself is deemed to be an application in that regard under Rule 96(1).

The exporter of goods is also allowed to claim drawback under the Customs Act, 1962, the rates of which, on introduction of GST, were governed by Notification No. 131/2016-Cus(NT), dated 31.10.2016. On introduction of GST, this notification was amended vide Notification No. 59/2017-Cus(NT), dated 29.06.2017 to exclude the availability of higher rate of drawback on export of goods, where such goods are exported claiming refund of IGST paid on such exports. While the inapplicability of higher rate of drawback to cases involving refund of IGST was effectuated, no corresponding amendment was brought by the Government under the GST laws to that effect, i.e. to exclude the availability of IGST refunds in cases where the exporter avails higher rate of drawback.

The grant of drawback at higher rates was, inter-alia, subject to the condition of giving an undertaking that no refund of IGST shall be claimed by the exporter. However, in the absence of a corresponding restriction under the GST laws, the exporters also claimed refund of IGST under the above provisions. As the whole procedure of dealing with these refund claims is governed by the system, the IGST refunds were not sanctioned to such exporters claiming drawback at higher rates. The CBIC also issued a circular on 09.10.2018, bearing No. 37/2018-Cus, clarifying that it would not be justified in allowing exporters to avail IGST refund after initially claiming the benefit of higher drawback.

In this background, the matter came up for consideration of Gujarat High Court in Amit Cotton Industries (supra). The Court held that the restriction for availing IGST refund under Rule 96 of the CGST Rules are very specific and do not include cases, where higher drawback is claimed. In the absence of any restriction under the scheme of GST law, the Court ordered sanction of IGST refund to the petitioner therein, holding the circular to be beyond the scheme of Rule 96 of the CGST Rules.

Both the above decisions are classic illustrations of gaps in legislative drafting of GST laws and amendments therein, which are inadequate to incorporate the legislative intention in statutory words. For illustration, there were specific restrictions under both the refund notifications and the Drawback Rules under the pre-GST regime, to keep both benefits exclusive of each other. Such restrictions, however, are absent under the scheme of GST laws.

As a settled principle of statutory interpretation, the legislative intention has to be gathered from the language used in the statute, i.e. attention should be paid to what has been said as also to what has not been said. This principle, though not stated, has correctly been applied in the above decisions to interpret the GST laws, as they stand. In its hurry of dealing with interim arrangements, the Government is missing on proper amendments in legal provisions, a problem aggravated by the structural flaws of GST laws as introduced.

(The views expressed are strictly personal.)