"Justice cannot be for one side alone, but must be for both."
Introduction
The initial journey of the new Good and Services Tax (‘GST’) regime has been compliance oriented with the major concern of businesses being to understand the new online returns and their timely filings. The first set of statutory audit was finally over around a month ago after a gap of almost 1.5 years from the original due date. Just as the real legal battles were about to begin, in a bizarre turn of events the COVID-19 brought the entire world to a standstill. Nevertheless, it is not too far-fetched to expect a surge in departmental audits in the forthcoming future with an extra pressure on the revenue to augment tax collections. It is times such as these that bring out the ‘inner Picasso’of revenue authorities who put forward out-of-the box legal interpretations to try and tax everything under the sun. A bigger question is why is this approach needed?
Often the stakeholders tend to grumble about the approach of revenue to raise an issue just for the sake of raising an issue which hampers one’s expectations of a simpler tax regime and less litigation. However, a fundamental issue lies beyond these two parties- which is the law and its tools to tackle the disputes- or rather lack of it! An attempt to explore this point of view is discussed in the subsequent paragraphs.
The Lack of 'Interest': A Practical Experience
As of now, erroneous refunds have been one of the disputed issues that have often cropped up in the GST regime before the audits. In one such case, an application for refund of accumulated input tax credit was filed on the online portal. The applicable refund provision allowed for a full refund. However, due to unavailability of an option on the portal to file an application under the corresponding provision; the taxpayer filed the application using a different option. The applicable provision for the second option did not allow a full refund but the taxpayer was legally entitled to a full refund. Consequently, due to technical constraints, the application was filed making some mathematical adjustments and full refund was claimed.
The department granted a full refund subject to verification. Subsequently, a demand was raised by the revenue to pay back a partial amount of the refund as the assessee had invoked the wrong provision. Apparently, the assessee was also asked to pay interest for an erroneous refund of credit.
Prima facie, a general reading of Section 73 of Central Goods and Services Tax Act (‘CGST Act’) clearly brings out that a proper officer has the power to issue notice in the following scenarios:
When tax has not been paid or short paid or erroneously refunded
Where Input Tax Credit (ITC) has been wrongly availed or utilised for any reason
Thus, the CGST Act does not contain a provision to issue an order to recover credit that has been erroneously refunded or demand interest thereon. As far as erroneous refund is concerned, the CGST Act restricts itself to tax only. While there are specific provisions for recovery of tax erroneously refunded but such provisions are explicitly missing for erroneous refund of ITC.
Interestingly, Section 50 of the CGST Act (provision to levy interest) also does not envisage a situation which allows a levy of interest in case of an erroneous refund of credit. Reading down the provisions of Section 50 of the CGST Act, it can be inferred that the first provision covers all cases where there is a shortfall in payment of tax which inter alia may be on account of payment of tax using irregularly availed credit. The second provision provides for levy of interest where undue or excess claim of ITC has been made because of mismatch in the returns. Pertinent to note that a case of erroneous refund is not covered by any of the above provisions. That interest cannot be levied without a substantive provision is a settled legal principle.
What the above example elucidates is that the law itself in various situations does not allow the revenue to create a demand and even if, a demand is created there is further absence of provisions to levy such demand. Thus, a dispute need not be argued on merits as the law itself is lacklustre!
Further Learning and Beyond
A well read professional always sharpen its axes to be ready for the legal adventures ahead. Absence of a substantive provision to back-up a demand is often the first and foremost argument put forward by lawyers to get the demand dropped. While there are genuine taxpayers in the system but the opposite is also true as recent experiences have shown.[i] Thus, while the interest of the taxpayers needs to be protected, so does the interest of the revenue.
Mr. Arvind Datar, a renowned tax advocate often quotes that the country does not need a new law but law that needs to be executed well. A law which requires amendments every quarter definitely puts forward a fundamental error. A good execution is plausible only if one legislates well. Often in the pursuit of more work, we tend to forget that the country requires a good law. That a plethora of amendments in the law are needed at every juncture shows that a reactive approach of law-making is followed than a proactive approach. Periodic overhauls such as new returns, e-invoicing etc. do not help much. A total lack of anticipation of future events within the law is quite evident. While the laws framed in the colonial times have often stood the test of times, the same does not hold true for new tax laws.
The tool of retrospective application is like a Brahmastra for the legislature to over write all its mistakes. The tax landscape has been a victim of this tool more often than not. The Vodafone case is a prime example. From a GST perspective. Amendment to Rule 61(5) of the Central Goods and Services Tax Rules, 2017 to replace GSTR-3 with GSTR-3B as the return under Section 39 has already created an avalanche among the businesses. To top it off, this was to nullify another judgment of the Gujarat High Court which laid down a principal to the contrary. Such actions not only disrupt the trust in the system but also create instability among businesses which are not sure of its plans ahead due to a topsy-turvy tax regime.
For the ‘other’ side, the legislature often does not leave many options to meet the target but to go out of the line to interpret laws to create demands out of nowhere. While a target based approach to taxes should be condemned; the absent provisions for execution of demands do not help either. A fundamental miss in the provisions to create a demand or levy an interest often leaves the department handicapped. The example discussed above is only one amongst a few basic misses in the new statute. Unfortunately, such misses have been a part and parcel of tax statutes historically. A simple count of frequency of amendment in the erstwhile as well as the new law would make the point unambiguous. Recovery and demand provisions are the elementary tools for the department in a tax dispute and loopholes in such provisions terminates the dispute with a fight. A legal battle without the legal provisions can never be a fair fight!
There is a philosophical thought which states that if one side does not agree with the point of view of the other; it does not make the other side evil. It only means it is different and not evil. In the present circumstances, it is effortless to blame the revenue for its hostile approach. But it is also imperative to understand the real evil behind it. It is without doubt that the law-making is in a dismal state. A discussion on an interpretative issue is typical for any other day. However, it is also important to understand and obliterate the elemental sources which disrupt the execution of the law. A win for a taxpayer is good to hear but a fair chance to the ‘other side’ is ‘just’ for the country. The cat fights needs to be subsided and the monkey should be put in order for a change!
[i] Samrat Sharma, GST fake invoices more than double in one year; these states see maximum cases of fraud, Financial Express (Mar 17, 2020), https://www.financialexpress.com/economy/gst-fake-invoices-more-than-double-in-one-year-these-states-see-maximum-cases-of-fraud/1900767/.
Authored by Mr. Ashutosh Mishra, Advocate and GST Consultant, New Delhi. Co-authored by Ms. Shreetama Ghosh, Student, V Year, Rajiv Gandhi National University of Law, Punjab.