Preface
“Truth does not matter, facts do” – this divides the entire population of tax litigants and places them in two groups – those taxpayers who are distraught at the way GST has taken shape in the statute without any regard to the ‘basic features’ behind its implementation, and those taxpayers who are unmoved by the barrage of notices demanding only that this law be imple mented within the ‘four corners’ of the statute without any regard to extra legislative means of delivering justice.
Explanation of the deliberation under each head or topic is interesting but examples make for more efficient illustration of the point in the deliberations. This book relies on examples to illustrate than burden readers with elaborate textual deliberations wherever it may be more efficient to convey the point of deliberation.
Tax laws must be interpreted strictly. Only Courts are free to travel outside the express words of the statute and declare the interpretation. It would be perilous, especially for young professionals, to rely on purposive construction of the statute. And all too often they are heard saying “intention of Legislature is” as if they were secretly privy to some conversation with Legislature or had direct access into Legislature’s thoughts. With an Executive, willing to correct, with great humility and retrospectively even, any inept words used to express that intention, no taxpayer can claim to have an understanding beyond the express words in the statute.
Case law precedent is a bulwark against disparate treatment of identical facts. Judicial declaration of interpretation is considered ‘authority’ that must be followed by lower judiciary and all administrative functionaries responsible for adjudication. Taxpayers cite case law on a given topic as if to silence any further discussion on that topic. Unless the authority is from the Apex Court, interpretation must expose the ratio decidendi to find wider acceptance, not only for the superiority of the authority furnishing the interpretation but also the consensus that the ratio facilitates. ‘Obedience’ is adherence to a sovereign authority, but ‘observation’ is adherence is to a meritorious ratio. Unless a decision offers a clear ratio for the interpretation ascribed to the express words of the statute, it cannot be ‘case law’. Another
I-5
error while citing case law, is that arguments of either sides are cited as ‘authority’ without showing that it had the Court’s approval.
“When the answer is long, it is most likely wrong” is not a rule but it cautions against this common proclivity to submit reams of submissions without making a single clinching point. It may impress the taxpayer but only till it is summarily discarded in adjudication. Repetition and irrelevant case law citation are the hallmarks of a long and winded reply. Far more good can come from an ex parte order than elaborate submissions that may do disser vice to taxpayers case which could be got just by ‘rejecting’ the allegations and ‘disputing’ the demand. After all, undisputed arrears do not require any further investigation or proof to support the demand.
Decision to ‘accept and discharge’ or ‘dispute and litigate’ must be made by taxpayers and no one else. This decision is a commercial one, like all others in business and is taken, by weighing the pros and cons – likelihood of success, duration of litigation, potential interest and penalties, and cost of litigation. Another factor that is often not considered which can greatly alter the metrics to be weighed are – discrepancies and deficiencies in the notice – which are incurable and fatal to the demand. To know this, the decision (above) must be deferred until the notice is actually issued. And until the notice is issued, overenthusiastic response to preliminary enquiry can be counterintuitive, imparting more information than necessary to meet the ends of that enquiry. Remember, a question is often put not to be satisfied with the response but to collect the response and find fault with it.
Specific Officers are designated with specific authority under specific pro visions of the law. Just because all are ‘Officers of the law’ does not mean anyone can discharge anyone else’s duties. And when ‘who can do what’ is precisely stated in the law, it implies that ‘no one else but one, can do this’. It therefore demands to know ‘who’ can initiate enquiry about ‘what’. “Under which section?” is the key to knowing ‘who’, ‘what’ and therefore ‘how far’ does any enquiry go. Each provision of law lays down the extent of enquiry permitted and therefore indicates the extent of response merited. Taxpay ers have come to believe that parading their innocence will suffice until experience teaches otherwise. Knowledge is to know what to say, wisdom is to know when.
This is a work that draws from years of making mistakes so that no one needs to make the same old ones. Attempt is to prune these learnings and align them to the exacting standards of GST law in an attempt to ‘learn and share’ and not just explain the statutory provisions in simple language. And if the language is not simple enough, probably because the learning has not been so. Hope it helps!
PREFACE I-6
Acknowledgements and Dedication
This work is attempted as a responsibility to bare mistakes committed over several years and share the illumination that followed the initial disappoint ment when cases were lost. It has taken more years to learn from mistakes which could easily have been learned from a teacher. But mistakes have been the most-sincere teacher of all, in this field of tax litigation. And Revenue has made no small contribution in imparting knowledge and understanding about tax litigation, with innovative interpretation canvassed every time. Special thanks to Mahaveer, Srikanth (Shriky) and Srikanth (Balki) for all the support and encouragement over the years. Starting practice was because there was no firm then which saw the potential in indirect taxation, unlike today. And the need was to offer every area of expertise in one firm. Gratitude to everyone in JCSS for being there and quietly making invaluable contribution. There are too many friends to name all. Today, there are so many young professionals launching themselves into the deep-end of tax practice that they could do well with some pointers to take this ‘bull by the horns’ and locate the areas of deep study needed to develop mastery in the field of tax litigation.
Tax professionals often suffer from the burden of misplaced loyalties – to Client (taxpayer) or Revenue (tax Officers). Over the years, this one thing has become clear that loyalties must be to the ‘law’ and to the ‘craft’ that each professional exerts. There is a generation that has arrived who cannot be left to fault the ones before for failing them by not letting them in on these pointers, which can still be learnt by committing mistakes begrudgingly. This is generation is better, smarter and more motivated to serve society altruistically, with the field of tax litigation being their canvas. This work is dedicated to them. And if it was worthwhile, to pass it forward!
I-7
Chapter-heads
CHAPTER 1
u Background 1
CHAPTER 2
u Notices under sections 25 and 29 16
CHAPTER 3
u Notice under section 63 28
CHAPTER 4
u Notice under section 73 36
CHAPTER 5
u Notice under section 74 57
CHAPTER 6
u Notice under section 76 72
CHAPTER 7
u Refund Notice 79
CHAPTER 8
u Notice for e-way bill 89
CHAPTER 9
u Notice for penalty 98
PAGE
Preface I-5 Acknowledgements and dedication I-7 Contents I-11
I-9
CHAPTER 10
u Notice for confiscation 110
CHAPTER 11
u Preparation to reply 116
CHAPTER 12
u Jurisprudence of Adjudication 153
CHAPTER 13
u Reply to notices 175
CHAPTER 14
u Relief in Adjudication 220 CHAPTER 15
u Outcome in Adjudication 235
CHAPTER 16
u Remedy of Appeal 245
CHAPTER 17
u Relief in Appeal 255
CHAPTER 18
u Revisionary Proceedings 273
CHAPTER 19
u Applicable jurisprudence 298
PAGE
I-10
CHAPTER-HEADS
Preface I-5
Acknowledgements and dedication I-7 Chapter-heads I-9 1
BACKGROUND
1.1 Introduction 1
1.2 Procedures established by law 2
1.3 Due process 2
1.4 Abuse of process 5
1.5 Spot recovery 6
1.6 Demand in GST 7
1.7 Principles of natural justice 8
1.8 Cause of action 9
1.9 Allegation and evidence 11
1.10 No Presumption flows from GSTN data 12
1.11 Effect of non-denial 12
1.12 Vagueness of denial 13
1.13 Rights, remedies and safeguards 14 2
NOTICES UNDER SECTIONS 25 AND 29
2.1 Overview 16
2.2 Anatomy of a notice 17
PAGE
I-11
Contents
2.3 Limitations of scope 17
2.4 Rejection of application 18
2.5 Repeated applications without reply to notice 19
2.6 Option for composition 19
2.7 Option for provisional assessment 20
2.8 Suspension of registration 21 2.9 Suo Motu cancellation 23 2.10 Revocation of cancellation 24
2.11 Voluntary cancellation 26 2.12 Appealable orders 26 2.13 Circulars and instructions 27
3
NOTICE UNDER SECTION 63
3.1 Overview 28 3.2 Section 63 not competing with section 67 30 3.3 Taxable person not holding registration on 31 date of notice 3.4 Authority to investigate absent 33 3.5 Registration ousts jurisdiction of proper officer 34 3.6 Best judgment is not wild guesswork 34 3.7 Pre-emptive powers imperil taxpayers 35 4
I-12 PAGE
NOTICE UNDER SECTION 73 4.1 Overview 36 4.2 Anatomy of a notice 36 4.3 Pre-notice consultations 39 4.4 Limitation 41 4.5 Statement of demand 42 4.6 Accompanying summary 44 CONTENTS
I-13 CONTENTS
4.7 Service of notice 45
4.8 Concessional penalty 46
4.9 Burden of proof 46
4.10 Deficiencies in notice 49
4.11 Discrepancies in notice 50
4.12 Omission to object 51
4.13 Non-denial implies admission 52
4.14 Post-adjudication penalty 54
4.15 Demand for interest or penalty only 55
5
NOTICE UNDER SECTION 74
5.1 Overview 57
5.2 Special circumstances 58
5.3 Anatomy of a notice 61
5.4 Exception to pre-notice consultations 63
5.5 Pre-notice penalty 63
5.6 Post-notice penalty 64
5.7 Post-adjudication penalty 65
5.8 Additional aspect about evasion 66
5.9 Disputed tax period 67
5.10 Implication of ‘cum tax’ demand 69
5.11 Circulars and instructions 70
6
NOTICE UNDER SECTION 76
6.1 Overview 72
6.2 Pre-requisites to notice 73
6.3 Composite demand notice 75
6.4 Absence of limitation 76
6.5 Recovery of credit loss 76
PAGE
REFUND NOTICE
7.1 Overview 79
7.2 Pre-requisites to notice 79
7.3 Purpose of notice 80
7.4 Mischief of credit notes 82
7.5 Second round of refund proceedings 83
7.6 Composite refund notice 85
7.7 Protective action 86
7.8 Circulars and instructions 88
8
NOTICE FOR E-WAY BILL
8.1 Overview 89
8.2 Binary verification 90
8.3 Alteration of scope by circular 91
8.4 Extra legislative enquiry 91
8.5 Cryptic notice 92
8.6 Misplaced responses 92
8.7 Pleading for lenience 93
8.8 Secure release immediately 94
8.9 Essential fact to be documented 95
8.10 Remediation in appeal 96
8.11 Risks of revisionary proceedings 96
8.12 Circulars and instructions issued 97
9
NOTICE FOR PENALTY
9.1 Overview 98
9.2 Pre-requisites to notice 99
9.3 Exception to pre-notice consultations 100
7
I-14 PAGE
CONTENTS
I-15 CONTENTS
9.4 Accompanying summary 101
9.5 Notice under alternative sections 101
9.6 Statutory definition of infraction 102
9.7 Concept of animus 105
9.8 General discipline on penalty 106
9.9 Personal penalty to Director 106
9.10 Penalty under section 52 107
9.11 Waiver of penalty notice 107
9.12 Circulars and instructions issued 108 10
NOTICE FOR CONFISCATION
10.1 Overview 110
10.2 Seizure must for confiscation 110 10.3 Exigencies absent 111
10.4 Waiver of demand notice 112
10.5 Redemption fine 113
10.6 Provisional release 113
10.7 Appellate remedy 114
11
PREPARATION TO REPLY
11.1 Overview 116
11.2 Test the notice 118
11.3 Scrutinize allegation and supporting evidence 119
11.4 Construct of allegation 121
11.5 Allegations by presumption 122
11.6 Contradictory allegations 123
11.7 Rejection of taxpayer’s records 124
11.8 Merits of rejecting taxpayer’s books 125
11.9 Taxing ingredients 126
11.10 Acting under compulsion 128
PAGE
11.11 Acting under dictation 129
11.12 Internal validation 130
11.13 External validation 131
11.14 Influence of allied laws 132
11.15 Post-notice continuation of enquiry 134
11.16 Fatal errors in pre-notice stage 135 11.17 Taxpayer’s statements recorded 136 11.18 Taxpayer’s assertions rejected 137
11.19 Cross-examination 138 11.20 Elaborate reply 140 11.21 Short reply 141
11.22 Benefits of ex parte orders 143 11.23 Reply other than on merits 144 11.24 Case laws overload 144 11.25 Case laws from earlier tax regime 145 11.26 Reliance on AARs 146 11.27 Case laws from overseas 147 11.28 Assumptions about GST 148 11.29 Fallacy about existence of basic features 149
12
JURISPRUDENCE OF ADJUDICATION
12.1 Overview of section 75 153
12.2 Limitation on disposal 153
12.3 Impatience in adjudication 154
12.4 Belated adjudication 155
12.5 Wisdom in adjournment 156
12.6 Reasons for adjournment 157
12.7 Personal hearing 158
12.8 Authorized representative 159
12.9 Grounds in notice and order 160
12.10 Facts-in-issue 162
CONTENTS I-16 PAGE
I-17 CONTENTS
12.11 Irrefutable facts 163
12.12 Irrelevant facts 164
12.13 Grounds modified or withdrawn 165
12.14 Bar on improvement 166
12.15 Relief in absence of special circumstances 166
12.16 Remand sans power of remand 167
12.17 Orders to be ‘speaking’ 168 12.18 Consequential demand order 170
12.19 Interest automatic, not penalty 171
12.20 Recovery sans notice 172
12.21 Plurality of penalty barred 172 12.22 Limitation not to commence 173 12.23 Circulars and instructions issued 174 13
REPLY TO NOTICES
13.1 Overview 175 13.2 From strength to strength 176 13.3 Statutory provision dictates approach 178 13.4 Jurisdiction and Proper Officer 179 13.5 Illegal evidence 181 13.6 Bona fide demand in mala fide proceedings 182 13.7 Question-the-question 183
13.8 Revenue’s evidence 186
13.9 Impeaching Revenue’s evidence 187 13.10 Admissibility of evidence 189
13.11 Statements on oath 192
13.12 Probative value of evidence 193
13.13 Evidence impeached by denial 194 13.14 Rebuttal and evidence 195
13.15 Discussion on facts 199 13.16 Reply to restore facts 200
PAGE
13.17 Reply to expose conjecture 201
13.18 Reply to summarize facts-in-issue 202
13.19 Discussion on law 202
13.20 Evidence via Affidavit 203
13.21 Binding nature of circulars 205
13.22 Binding nature of decisions 206
13.23 Prayer on findings to be reached in adjudication 207 13.24 Personal hearing 207
13.25 Readiness for later proceedings 208 13.26 Introducing new material 209 13.27 Relevance of circulars 210
13.28 Case law authorities - More 212 13.29 Case law authorities - Less 212 13.30 Essentials in a reply 214
13.31 ‘Without prejudice’ replies 216 13.32 ‘With prejudice’ replies 216 13.33 ‘Alternate pleas’ replies 217 13.34 Circulars and instructions issued 218
RELIEF IN ADJUDICATION
14.1 Relevance in replying to notices 220
14.2 Pleadings 221
14.3 No relief beyond pleadings 221
14.4 Moulding relief 222
14.5 Injustice inherent in ‘due process’ 222
14.6 Decisions distinguished 223
14.7 Non-binding circulars 224
14.8 Adjudication in offence cases 225
14.9 Perspective bias 226
14.10 Shortest route to favourable decision 228
14.11 Adverse Orders 229
14
CONTENTS I-18 PAGE
14.12 Defective Orders 231
14.13 Non-speaking Orders 233
14.14 Consequential relief 233 15
OUTCOME IN ADJUDICATION
15.1 Relevance in replying to notices 235
15.2 Revised notice or fresh notice 236
15.3 Person aggrieved 236
15.4 Remedies to aggrieved persons 237
15.5 Taxpayer’s appeal 238
15.6 Restrictions under section 121 239
15.7 Maintainability of appeal 239
15.8 Direct writ petition 240
REMEDY OF APPEAL
16.1 Relevance in replying to notices 245
16.2 Standard Operating Procedure 246
16.3 Purpose of appeal to Appellate Authority 247
16.4 Departmental appeal 248
16.5 Taxpayers exposure in counter 249
16.6 Condonation of delay 249
16.7 Defective appeal 250
16.8 Burden of Appellate Authority to verify evidence 250
16.9 Curative powers of Appellate Authority 251
16.10 Framing of facts-in-issue 252
16.11 Exclude irrelevant facts 253
16.12 Good reason to be confident 253
16
I-19
PAGE
CONTENTS
RELIEF IN APPEAL
17.1 Standard Operating Procedure 255
17.2 Scope of permissible relief 255
17.3 Limitations in powers of Appellate Authority 256
17.4 Relief limited by pleadings and prayer 258
17.5 Inherent powers 258
17.6 Scope for review and appeal 259
17.7 Directions of Appellate Tribunal or Court 260
17.8 Consequential effects of relief in appeal 261
17.9 Dismissal, if appeal does not merit interference 262
17.10 Strict v. Beneficial interpretation 263
17.11 Interpretation of tariff v. Exemption notification 265
17.12 Time limits - Limitation or prescription 267
17.13 Suo motu Writ Petition by SC 267
17.14 Circulars - Distinguishable or binding 269
17.15 Case law authority - Distinguishable or binding 269
17.16 Questions about jurisdiction 270
17.17 Proceedings in appeal 271
17.18 Speaking Orders 271 18
REVISIONARY PROCEEDINGS
18.1 Relevance in replying to notices 273
18.2 Decision or order 273
18.3 Officer subordinate 274
18.4 Suo motu 275
18.5 Information received 276
18.6 Request from Commissioner of State Tax 277
18.7 Resolution of conflict with s.107(2) 277
18.8 Call for and examine 278
17
CONTENTS I-20 PAGE
I-21
CONTENTS
18.9 Prejudicial to interests of revenue 279
18.10 Illegal (decision or order) 281
18.11 Improper (decision or order) 282
18.12 Not taken into account pre-existing factors 283
18.13 Not taken into account post-arising factors 284
18.14 Adverse observation by CAG 285
18.15 Prerequisites to invoke powers 285
18.16 Doctrine of election 287
18.17 Stay operation (of such decision or order) 287
18.18 After making such further inquiry 288
18.19 Immediately ‘stay’ operation of Orders 289 18.20 Pass such new ‘substitutionary’ Orders 289
18.21 Enhance (said decision or order) 290
18.22 Modify (said decision or order) 290
18.23 Annul (said decision or order) 291
18.24 Bar on revisionary proceedings 291
18.25 Mischievous appeals 292
18.26 Limitation (time bar) for Revision 294 18.27 Appeal against Revision 294 18.28 Limitation ‘extension’ for Revision 295
18.29 Enhanced remedy for Revenue 295
18.30 Checklist 295 19
APPLICABLE JURISPRUDENCE
19.1 Justice v. Fairness 298
19.2 Power of moulding relief 298
19.3 Notice ends inquiry 299
19.4 Purposive construction 300
19.5 Doctrine of merger 302
19.6 Tax avoidance 303 PAGE
19.7 Litigation in anticipation of amnesty 303
19.8 Understanding taxpayer’s business 304
19.9 Authorities that illuminate understanding 306
19.10 Illustrative formats 306
19.11 Index of decisions 306
I-22 PAGE
CONTENTS
CHAPTER 2
NOTICES UNDER SECTIONS 25 AND 29
2.1 OVERVIEW
Registration (sections 25 and 27), suspension and cancellation (section 29), revocation (section 30) and appeal for restoration of registration (section 107)are a series of administrative actions that demand prompt response from taxpayers that involve complex ‘due process’ in Chapter VI of Central GST Act. While the rigours of notice issued in respect of any demand may not be applicable while issuing notices in relation to registration and related proceedings, but the requirement to ‘put at notice’ - the applicant or registered taxpayer - and ensure there is no miscarriage of justice is not all lost in these proceedings. Deliberation on notices in respect of registra tion matters is a precursor to deliberations on demand notices. And these deliberations are not an attempt at restating the statutory provisions but an invitation to consider the underlying principles and judicious analysis that notices warrant.
16
2.2 ANATOMY OF A NOTICE
Procedure for registration also affects rights of taxpayers and where there are any administrative or quasi-judicial action that can bring adverse con sequences, principles of natural justice (discussed later) must be followed even if no express provision is found in the law to do so. There are signifi cant adverse consequences of non-registration (by rejection or application or cancellation of registration) that valid registration avails.
Input tax credit is allowable to only to a ‘registered person’ but output tax may be demanded from any ‘taxable person’. Without registration, input tax credit cannot be claimed, e-waybill cannot be generated or issue tax invoice to collect GST from Customers, etc. Reference may be had to the decision of Uttarakhand High Court in Vinod Kumar v. CST (WP 1553/2021) where passionately speaking for the taxpayer, it was observed that: “So, if the petitioner is denied a GST registration number, it affects his chances of getting employment or executing works. Such denial of registration of GST number, therefore, affects his right to livelihood. If he is denied his right to livelihood because of the fact that his GST Registration number has been cancelled, and that he has no remedy to appeal, then it shall be violative of Article 21 of the Constitution as right to livelihood springs from the right to life as enshrined in Article 21 of the Constitution of India.”
Every application is assigned to Central or State (or UT) GST department for verification and grant of registration, concerned Proper Officer must discharge duties to prevent prejudice to Revenue while acting as a ‘trade facilitator’.
Applicant is required to be ‘put at notice’ in the following situations in respect of registration:
(a) Deficiencies in application for registration;
(b) Proposal to suspend or cancel registration; and
(c) Justification for revocation of suspended registration. Short point for consideration in these notices is to determine questions of fact that entail grant of registration by Proper Officer.
2.3 LIMITATIONS OF SCOPE
At the time of registration, it is nearly impossible to decisively show any prej udice to Revenue (by grant of registration) as business is yet to commence. Although experience under earlier laws points to certain misadventures by registered persons, but the role of Proper Officer under section 25 is not that of an investigator and such these cannot be sufficient reasons to reject taxpayer’s application for registration:
17 LIMITATIONS OF SCOPE Para 2.3
(
a) Applicants are benami and are acting for some other persons;
(b) Application is insufficient to clearly establish identity of Applicant and business premises;
(c) Registration threshold was already crossed earlier, and application made is to overcome investigation as ‘unregistered person’;
(d) Purpose of registration is to claim and transfer input tax credit;
(e) Incorrect category used - regular, casual, non-resident or ISD;
(f) Goods proposed to be dealt with are prone to evasion.
With this in mind, requirement to issue notice is to allow Applicant an opportunity to satisfy Proper Officer of correctness, completeness and reliability of documents submitted in support of the assertions made in the application. There is no investigative work involved. Applicants’ reply is to be binary, not involving complex questions of law. But it is important to recognise that notices in proceedings from section 25 are as much a ‘due process’ of law as a notice involving ‘demand’ under other provisions. Given the limited purpose for which requirement to issue notice is man dated, it is important for Applicant to be able to understand and respond. Time limits prescribed in the ‘due process’ involved in these notices are short in view of these very limitations. Extensive investigative work is NOT involved and enquiry into pre-registration activities of Applicant is NOT permitted in law.
2.4 REJECTION OF APPLICATION
This is also a ‘decision or order’ made by the Proper Officer and for that rea son, it is appealable even if it is unusual for an Applicant to pursue remedy in appeal than file a fresh application. In law, appeal against Order of Rejection is permitted under section 107(1) which demands that the grounds on which application is rejected be open for consideration by Appellate Authority. As any other proceeding involving application of mind to reach a finding on facts (or law), Order of Rejection in REG5 must be a Speaking Order (discussed later). It must state the reasons for the finding that application merits rejection, duly supported by documents or response from Applicant, which brings out the insufficiency of documentations required to establish identity or location of establishment and that of authorized persons. Extensive enquiry into correctness of aggregate turnover, classification and forecast of turnover and nature of supplies are not germane at this stage. Rejection must be confined to the objective of application for registration. Often it is reported that applications are being rejected due to doubts about bona fides of the Applicant. It would be remarkable that financial background or level of skill to engage in business or such other criteria are given consid eration to reject application. Short point for consideration in this process
Para 2.4 NOTICES UNDER SECTIONS 25 & 29 18
must not be lost sight of, and without straying from stated objective, needs to be explicit in the Order of Rejection.
2.5 REPEATED APPLICATIONS WITHOUT REPLY TO NOTICE
Application filed in REG1 Part A (within thirty (30) days on attracting liabil ity to register or up to five (5) days in advance in case of CTP and NRTP in REG9 and separate applications in case of ISD), will be assigned on Com mon Portal to a Proper Officer who may be in the Central GST department or State (or UT) GST department. And where deficiencies are observed and notice issued in REG3, Applicant is obliged to respond within 7 days in REG4. Omission to respond and allowing application to lapse under rule 9(4) and filing fresh application in REG1, presents good reason to consider the ‘application history’ by the Proper Officer to whom this application is assigned.
While it may not be necessary for Proper Officer to enquire into status of any REG3 previously issued, scrutiny of current application will point to the reasons for omission to respond in REG4 in that application.
Essential information in previous application may have been misstated or incongruous with supporting documents available. But unexplained and ‘re peat applications’ involve closer verification of such applications. And when notices are issued in such cases, response may be less likely to be accepted readily. It may not be out of place to exhibit transparency in responding to notices about the reason for repeat application.
2.6 OPTION FOR COMPOSITION
Section 10 permits the legislative mandate to opt for composition. Rules 3 to 7 contain the ‘due process’ in this regard. Composition under section 10 is an option to be availed by a ‘registered person’. As such, there is no difference in application for registration whether taxpayer proposes to opt for composition or not. After the registration is submitted in REG1 Part B (discussed earlier), ‘intimation’ of decision to avail option to pay tax on com position basis is to be made. It is interesting that composition is an option for taxpayer which is communicated to Proper Officer by way of ‘intimation’. Verification of application also involves limited review of ‘eligibility’ to composition and not about threshold limit of turnover, but the category of composition only, as declared by Applicant.
Example
Bakery is a manufacturer of cakes, trader in chocolates as well as service provider (eatery) in respect of items of food and soft-drinks served, which attract different rates of composition. Circular 27/1/2018-GST dated 4 Jan
19 OPTION
FOR COMPOSITION Para 2.6
2018 seems to clarify that bakery will be considered to be akin to a restaurant for purposes of composition of tax, referring to section 10(1)(b).
Notice of discrepancies in REG3 may extend to questions about Applicant’s eligibility to composition. Response to notice, even in the context of registra tion, entails the same level of responsibility and risk of adverse consequences as in the case of notice for demand. Clarity and transparency in response is to be maintained.
2.7 OPTION FOR PROVISIONAL ASSESSMENT
Section 60 permits registered persons to opt for ‘provisional assessment’ in carrying out self-assessment permitted as per section 59, soon after grant of registration or whenever the need for recourse to provisional assessment arises. Rule 98 contains the ‘due process’ in this regard. Registered Person is permitted to apply for ‘provisional assessment’ under section 60 when such person is “unable” to carry out self-assessment. Provisional assessment is not a substitute for Advance Ruling (in Chapter XVII) to redress taxpayers ‘doubts’ about interpretation of this law. Provisional assessment is a supple ment to self-assessment where material information having a bearing on the self-assessment is not available, registered persons are allowed this option to seek approval in ASMT1 under rule 98 from Proper Officer to carry out assessment on provisional basis, subject of conditions.
Proper Officer’s consideration of this application has limited scope:
(a) maintainability of application under section 60;
(b) satisfaction of conditions to the grant of approval; and
(c) conclusion of provisional assessment.
Notice in ASMT2 is prescribed for furnishing additional information. Taxpayer’s response in ASMT3 is to firmly establish that the application is ‘maintainable’ and provisional assessment is not due to any doubts about the interpretation of this law but due to the lack of material information that has a direct bearing on the outcome in self-assessment.
Examples
HSN 2306 states bran (when used as such) is animal feed, but HSN 2306 also states that bran may be put to other uses. Unless bran (residue from oil extraction) is tested in a lab, the identity of resultant product (bran) cannot be reliably known. This would be a fit case of provisional assessment, to determine if it would be exempt or taxable at 5%.
Ready-to-eat savouries sold in a sweet meat shop may be classified as supply of ‘goods’ or ‘services’. HSN code and credit restrictions are different for each. This is not a fit case for provisional assessment as the doubt is about
Para 2.7 NOTICES UNDER SECTIONS 25 & 29 20
SUSPENSION OF REGISTRATION
the interpretation and not about any material fact that is not available for completing self-assessment.
While provisional assessment is not optional for Proper Officer but for tax payer, Proper Officer is not barred from rejecting if the application is not support by good and sufficient reasons to allow the same as per law. After all, following questions involve application of mind to reach a finding on facts based on the law:
(a) maintainability - whether at all, the missing information as claimed by taxpayer is mere confusion about the interpretation of law or, in fact, information that cannot be readily procured to carry out self-assessment; and
(b) conditions - taxpayer is obliged to secure the interests of Revenue by executing a bond and suitable security for the differential amount of tax involved and undertake to pay such differential tax, if any, along with interest.
As approval or rejection of provisional assessment is a ‘decision or order’ it is appealable under section 107(1). Order in ASMT4 must be a Speaking Order, even if not elaborate, and must clearly state the findings and be supported by cogent reasons. Most of the information to reach this finding will flow from taxpayer’s application in ASMT1 and response in ASMT3 to notice in ASMT2.
2.8 SUSPENSION OF REGISTRATION
Section 29 permits suspension before cancellation of registration granted to taxpayers. Rules 21, 21A and 22 contain the due process in this regard. Cancellation of registration has some finality to it. Cancellation bars taxpayer from claiming input tax credit and issuing tax invoices. In view of the finality that cancellation involves, rule 21A permits suspension when there is delinquency by registered taxpayer in keeping all compliances current.
In view of the opportunity to reconsider and restore registration especially in an IT-based compliance environment, ‘suspension’ is now the first step in all instances whether it is due to any delinquencies or application for
21
Para 2.8
voluntary cancellation by taxpayer, as provided in section 29. Suspension is a pre-emptive step which DOES NOT require that a notice be issued before suspending the registration. There is no violation of principles of natural justice as there is no finality in suspension and full restitution is possible. Taxpayer will not be prejudiced either by lapse of credit or in any other manner, in case of suspension. But this exceptional and pre-emptive power cannot be exercised whimsically. It must be invoked only for good and sufficient reasons. And these reasons are expressly provided in section 29(1) and 29(2).
Section 29 confers jurisdiction to Proper Officer only when it can be shown that those ‘circumstances’ exist. And this is a question of fact and not one of mere guesswork. In the absence of any notice (prior to suspension of registration) it may not be possible to get full information of the reasons for suspension of registration. But the notice in REG31 will be issued ‘after’ suspension under rule 21A(2A). Such notices are ‘post decisional hearing’ notices and this is legally valid. Purpose of this notice is to put taxpayer at notice to answer the causes (for suspension and consequent cancellation) listed therein. It is important to note that the answers cannot be left without proper substantiation. And usually these answers will not entail detailed investigation and causes stated in REG31 will be self-explanatory.
Since registration is suspended and unresolved suspension can lead to cancellation, taxpayer must address causes for suspension swiftly. And this may not be the time to question jurisdiction or validity of those causes without providing material to redress delinquencies and establish need for withdrawal of suspension.
While taxpayers may have certain reasons for seeking voluntary cancella tion (discussed later) or certain extenuating circumstances for allowing the registration to become delinquent (also discussed later), Proper Officer is answerable for:
(a) outstanding tax, interest, late fee and penalties due;
(b) compliance with section 29(5) in respect of credits availed. Proper Officer is neither obliged to encourage continuation of registration nor rush to cancel registration without good reasons. Suspension may take effect from the date of application by taxpayer or as determined by Proper Officer. Suspension stops facility to issue tax invoice and collect tax, file returns, generate e-waybills, claim refund and avail other facilities on the Common Portal. Therefore, it is imperative for taxpayers to evaluate:
(a) need for restoration of registration;
(b) unsuitability of fresh registration.
In view of the relief of credit being allowed under section 18(1), there is generally no pressing need to continue the same GSTIN. There may be some
Para 2.8 NOTICES UNDER SECTIONS 25 & 29 22
‘vendor empanelment’ changes to be made with some Customers, but the key reason for taxpayer’s strife to restore registration is to salvage unclaimed credits on ‘services’, which are not secured by section 18(1). It is well-known that response from taxpayers against suspension of registration will generally be promptly tendered, when unclaimed credit on inward supplies of services remain to be salvaged. Response from taxpayers seeking withdrawal of sus pension should address all outstanding compliances of tax, interest and late fee. Where there are no further delinquencies and reason(s) for suspension properly removed, withdrawal request will not normally be denied. Grounds such as loss of livelihood due to suspension of registration, can cellation of Contracts from Customers due to invoices not appearing in GSTR2A/2B of those Customers, etc,. are consequences that taxpayers are responsible for and not good and sufficient reasons for withdrawal of suspension. Time allowed to respond in REG18 is extended to thirty (30) in case of suspension and this time limit also indicates the time by when Proper Officer may proceed to cancel registration in REG19.
2.9 SUO MOTU CANCELLATION
Section 29 permits registered taxpayers to cancel registration granted if they no longer attract the provisions of section 22 or 24, even if registration was voluntary under 25(3). Rule 21A contains the ‘due process’ in this regard. In certain specified instances, suo motu cancellation is directly permitted. Unlike suspension, cancellation is final; and for this reason, post-suspen sion notice in REG31 borrows from pre-cancellation notice in REG17 and response is to be furnished in REG18 within seven (7) days.
Given that Legislature has specified five (5) explicit delinquencies that tax payers are well-informed through section 29(2) itself, there should be no violation of principles of natural justice here too by cancelling registration without serving notice. Maxim vigilantibus non dormientibus jura subveniunt states that the law assists those who are vigilant about their rights and not those who are asleep over them. And when any of these five (5) delinquencies are permitted to occur and remain unresolved, taxpayer must not express surprise or complain about ‘inadequate notice’ when Proper Officer proceeds with cancellation as authorized by Legislature.
Proper Officer is not answerable if registrations are cancelled in all cases where these specified delinquencies exist. And existence of discretion does not militate against validity of actions of Proper Officer even if adverse con sequences befall taxpayers whose registrations are cancelled but no such action is taken against other taxpayers whose delinquencies are comparable. There is no right against discrimination between delinquents inter se.
Taxpayer who is issued notice in REG17 must not only reply in REG18 but more importantly redress and regularize outstanding delinquencies which
23 SUO MOTU CANCELLATION Para 2.9
formed basis for proposal to cancellation registration. And where the response and attendant redressal of all outstanding delinquencies (as mentioned in the notice) are found to be satisfactory, cancellation will be dropped by an Order in REG20. However, if the response is not satisfactory, Proper Offi cer is permitted to proceed with cancellation and pass a Speaking Order in REG19 and demand all dues, which extend to:
(a) outstanding tax, interest, late fee and penalties due;
(b) due under section 29(5) in respect of credits.
Very often liability under section 29(5) is lost sight of when registration is cancelled. Cancellation also entails responsibility to file final returns under section 45 within three (3) months. While these are matters to be consid ered by taxpayers for purposes of present deliberations, it would suffice to invite attention to these outstanding liabilities. Speaking Order in REG19 too, may omit demanding all these dues. Taxpayer’s liability on account of any of these omissions or incompleteness of demand in REG19, does not eclipse taxpayer’s liability under, say, section 29(5). The forethought in securing recovery action is evident in section 93(1) which permits recovery even from taxpayer’s estate. And even more insightful is the provision to take up determination of liability, if any, permitted long after cancellation (or even demise of taxpayer), subject only to limitation in section 74, as expressly provided in section 29(3). Cancellation does not bring down the curtains on taxpayer’s engagement with this law. Taxpayers must consider proper winding down of registration in order to be really free from liabili ties coming to light later and where limitation to seek redressal by way of rectification or even appeal, may have passed.
2.10 REVOCATION OF CANCELLATION
Not even cancellation is ‘final’ because section 30 and rule 23 provide a mechanism for ‘revocation’ of cancelled registration. Real finality will come when the time limit permitted for revocation passes. However, it is noticed that taxpayer’s appeals for restoration of registration are being entertained on equitable considerations, especially citing SMWP 3/2020 of Apex Court read with notifications issued under section 168A (discussed later).
Para 2.10 NOTICES UNDER SECTIONS 25 & 29 24
Where registration is cancelled by issuance of REG19, Proper Officer is empowered to consider application for revocation of cancellation. Although this ‘review’ appears to touch the line of violating the rule nemo judex in causa sua (discussed earlier), this power of review is express in the law (section 30) and the same is to allow relief to taxpayer, this question is unlikely to come up for consideration before Courts. Adverse outcome in violation of natural justice alone come up for consideration before Courts. Application for revocation (of cancellation) is quite straightforward and does not require elaborate pleadings as the essence of the pleading is evident in the title of the prescribed form - application for revocation of cancelled registration - to be filed. However, the justification to allow this application is important. Again here, emotional pleas for justice in view of loss of livelihood are unnecessary. Unless outstanding dues are only those that are ‘disputed and unpaid’ and outstanding compliances have been attended, a short statement would do that “said registration is still required in view of intention to continue said business”. No elaborate explanation will be required. And when it clearly shown that:
(a) REG21 is filed within time limit prescribed;
(b) all outstanding and undisputed dues have been discharged; and
(c) declaration that said registration is required is stated in REG24. There would be no reason to turn down application for revocation. Proper Officer may be in a position to verify compliances online and be satisfied that application is liable to be allowed by Order in REG22. If not satisfied, Proper Officer is required to issue notice in REG23 indicating proposal to deny the request made in the application. At this time, detailed justification will become necessary, keeping in mind the possibility that any rejection of application may need to be carried in appeal and at that time the question
25 REVOCATION OF CANCELLATION Para 2.10
of sufficiency of justification furnished (in adjudication proceedings) do not appear pale, deficient and impoverished. For this reason, justification in REG24 must be:
(a) provided within 7 days from date of service of notice in REG23;
(b) basis for dues left undischarged and reasons for ‘dispute’ as to the correctness of such dues; and
(c) declaration of the need for restoration of said registration.
Restoration of registration does not require extensive reasons to support the conclusion for application to be allowed in REG22. But to reject the application in REG5, it will require a Speaking Order. Speaking Order will furnish grounds for taxpayers to carry the matter in appeal and for Appellate Authority to see if unresolved delinquencies prevented (even a willing) Proper Officer from refusing to revoke cancellation or there were any extraneous considerations for such Order.
2.11 VOLUNTARY CANCELLATION
Section 29 permits taxpayer to apply for cancellation of registration that is no longer required. Rule 20 contains the ‘due process’ in this regard. Care must be taken to reconfirm the basis for this determination - registration is no longer required - because output tax with interest and penalty can be demanded, limitation permitting, long after registration is cancelled but input tax credit cannot be allowed if registration stands cancelled.
Possible liabilities on cancellation of registration to consider are:
(a) arrears of tax, interest and penalties, if any, due;
(b) late fee related to monthly or annual or final returns; and
(c) dues under section 29(5).
Once application for cancellation in REG16 is filed, proceedings skip to the post-suspension stage along with all attendant disabilities. And where any reason to reject the application is detected, notice in REG17 and the rest of the procedure (discussed earlier) will follow until such registration is cancelled. It is often considered that registration cancelled voluntarily does not qualify for revocation (of cancellation) proceedings. But, where this is not the case, revocation is a step in the direction for redressal of grievances.
2.12 APPEALABLE ORDERS
Para 2.12
25
29 26
NOTICES UNDER SECTIONS
&
CIRCULARS AND INSTRUCTIONS
Revocation does not entitle reversal of all payments made under section 29(5) except to the extent credit is admissible under section 18(1). Order rejecting cancellation of registration, being an adjudication order is an appealable order and aggrieved taxpayer may prefer appeal under section 107(1). Departmental appeal is not permissible as Revenue is not aggrieved by such Order. However, when revocation is allowed in REG22, Revenue may become aggrieved due to restoration going back in time to ‘date of sus pension’ and credits that had become time barred during this intervening period will become admissible with no saving provision in section 16(4). For this reason, Revenue which is aggrieved may either prefer departmental appeal under section 112(3) to Appellate Tribunal or more swiftly initiate revisionary proceedings under section 108 to set aside Appellate Authority’s Order restoring registration. Taxpayer’s rights will now be prejudiced when revisionary proceedings are initiated and effectively denying credit due to applicability of section 16(4) which was not a fact-in-issue in proceedings since suspension until revocation, before Proper Officer. Taxpayer would be able, with reasonable expectation of success, resist initiation of proceedings under section 108 due to the immediacy of prejudice to taxpayer.
2.13 CIRCULARS AND INSTRUCTIONS
Some important circulars and instructions with regard due the jurisprudence applicable to registrations are:
(a) Procedure for transition of registration on succession due to death of taxpayer is contained in circular 96/15/2019-GST dated 28 Mar 2019;
(b) Guidelines regarding revocation of cancelled registrations are contained in circular 148/4/2021-GST dated 18 May 2021; and
(c) Extension of time limit for revocation vide notification 34/2021-Central Tax dated 29 Aug 2021 and applicable procedures are contained in circular 158/14/2021-GST dated 6 Sept 2021.
27
Para 2.13
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