About the Author A Jatin Christopher, is a Chartered Accountant, Cost Accountant and Law graduate. He qualified as a Chartered Accountant in 1996 and has been in practice since 2000 specializing in indirect tax advisory and litigation matters in, both, Central and State tax legislations. He is a resource person for ICAI and Government in the areas of Customs, Foreign Trade Policy and GST. His views and contributions are well published in several respected fora. He practices in a full-service firm based in Bangalore.
I-5
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 implemented 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-7
PREFACE
I-8
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 disservice 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 provisions 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. Taxpayers 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!
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 disappointment 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-9
Chapter-heads PAGE
About the Author
I-5
Preface
I-7
Acknowledgements and Dedication
I-9
Contents
I-15
DIVISION ONE
NOTICES UNDER GST CHAPTER 1
Background
3
CHAPTER 2
Notices under sections 25 and 29
18
CHAPTER 3
Notice under section 63
30
CHAPTER 4
Notice under section 73
40
CHAPTER 5
Notice under section 74
63
CHAPTER 6
Notice under section 76
78
CHAPTER 7
System Generated Notices I-11
85
CHAPTER-HEADS
I-12 PAGE
CHAPTER 8
Refund Notice
92
CHAPTER 9
Notice for e-way bill
104
CHAPTER 10
Notice for penalty
113
CHAPTER 11
1RWLFH IRU FRQÀVFDWLRQ
124
CHAPTER 12
Preparation to reply
130
CHAPTER 13
Jurisprudence of Adjudication
167
CHAPTER 14
Reply to notices
189
CHAPTER 15
Relief in Adjudication
234
CHAPTER 16
Outcome in Adjudication
250
CHAPTER 17
Remedy of Appeal
263
CHAPTER 18
‘Sequel Notice’ by Appellate Authority
274
CHAPTER 19
Relief in Appeal
288
CHAPTER 20
Revisionary Proceedings
306
I-13
CHAPTER-HEADS
PAGE
CHAPTER 21
Appellate Tribunal
331
CHAPTER 22
Applicable Jurisprudence
345
DIVISION TWO
PLEADINGS IN GST CHAPTER 23
Pleadings
389
Contents PAGE
About the Author
I-5
Preface
I-7
Acknowledgements and Dedication
I-9
Chapter-heads
I-11
DIVISION ONE
NOTICES UNDER GST
1 BACKGROUND 1.1
Introduction
3
1.2
Procedures established by law
4
1.3
Due process
4
1.4
Abuse of process
7
1.5
Spot recovery
8
1.6
Demand in GST
9
1.7
Principles of natural justice
10
1.8
Cause of action
11
1.9
Allegation and evidence
13
1.10
No Presumption flows from GSTN data
14
1.11
Effect of non-denial
14
1.12
Vagueness of denial
15
1.13
Rights, remedies and safeguards
16
I-15
CONTENTS
I-16 PAGE
2 NOTICES UNDER SECTIONS 25 AND 29 2.1
Overview
18
2.2
Anatomy of a notice
19
2.3
Limitations of scope
19
2.4
Rejection of application
20
2.5
Repeated applications without reply to notice
21
2.6
Option for composition
21
2.7
Option for provisional assessment
22
2.8
Suspension of registration
23
2.9
Suo Motu cancellation
25
2.10
Revocation of cancellation
26
2.11
Voluntary cancellation
28
2.12
Appealable orders
28
2.13
Circulars and instructions
29
3 NOTICE UNDER SECTION 63 3.1
Overview
30
3.2
Section 63 not competing with section 67
32
3.3
Taxable person not holding registration on date of notice
33
3.4
Authority to investigate absent
35
3.5
Registration ousts jurisdiction of proper officer
36
3.6
Best judgment is not wild guesswork
36
3.7
Basis of Best Judgment
37
3.8
Interest and Penalty Not imposable
38
3.9
Reply more onerous
38
3.10
Pre-emptive powers imperil taxpayers
39
I-17
CONTENTS
PAGE
4 NOTICE UNDER SECTION 73 4.1
Overview
40
4.2
Anatomy of a notice
40
4.3
Pre-notice consultations
43
4.4
Limitation
45
4.5
Statement of demand
46
4.6
Accompanying summary
48
4.7
Service of notice
49
4.8
Validity of service
50
4.9
Concessional penalty
52
4.10
Burden of proof
52
4.11
Deficiencies in notice
55
4.12
Discrepancies in notice
56
4.13
Omission to object
57
4.14
Non-denial implies admission
58
4.15
Post-adjudication penalty
60
4.16
Demand for interest or penalty only
61
5 NOTICE UNDER SECTION 74 5.1
Overview
63
5.2
Special circumstances
64
5.3
Anatomy of a notice
67
5.4
Exception to pre-notice consultations
69
5.5
Pre-notice penalty
69
5.6
Post-notice penalty
70
5.7
Post-adjudication penalty
71
5.8
Additional aspect about evasion
72
5.9
Disputed tax period
73
5.10
Implication of ‘cum tax’ demand
75
5.11
Circulars and instructions
76
CONTENTS
I-18 PAGE
6 NOTICE UNDER SECTION 76 6.1
Overview
78
6.2
Pre-requisites to notice
79
6.3
Composite demand notice
81
6.4
Absence of limitation
82
6.5
Recovery of credit loss
82
7 SYSTEM GENERATED NOTICES 7.1
Validity
85
7.2
Rule 88C and Rule 142B
85
7.3
Options for response 1
87
7.4
Rule 88D
88
7.5
Options for response 2
88
7.6
Validity of adverse inference
89
7.7
Service and belated response
90
7.8
Effective date and period of coverage
90
8 REFUND NOTICE 8.1
Overview
92
8.2
Pre-requisites to notice
92
8.3
Purpose of notice
93
8.4
Unjust Enrichment
95
8.5
Mischief of credit notes
96
8.6
Second round of refund proceedings
97
8.7
Composite refund notice
99
8.8
Protective action
100
8.9
Protective Notice
102
I-19
CONTENTS
PAGE
8.10
Refund to unregistered Persons
103
8.11
Circulars and instructions
103
9 NOTICE FOR E-WAY BILL 9.1
Overview
104
9.2
Binary verification
105
9.3
Alteration of scope by circular
106
9.4
Extra legislative enquiry
106
9.5
Cryptic notice
107
9.6
Misplaced responses
107
9.7
Pleading for lenience
108
9.8
Secure release immediately
109
9.9
Essential fact to be documented
110
9.10
Remediation in appeal
111
9.11
Risks of revisionary proceedings
111
9.12
Circulars and instructions issued
112
10 NOTICE FOR PENALTY 10.1
Overview
113
10.2
Pre-requisites to notice
114
10.3
Exception to pre-notice consultations
115
10.4
Accompanying summary
116
10.5
Notice under alternative sections
116
10.6
Statutory definition of infraction
117
10.7
Concept of animus
120
10.8
General discipline on penalty
121
10.9
Personal penalty to Director
121
10.10 Penalty under section 52
122
10.11 Waiver of penalty notice
122
10.12 Circulars and instructions issued
123
CONTENTS
I-20 PAGE
11 NOTICE FOR CONFISCATION 11.1
Overview
124
11.2
Seizure must for confiscation
124
11.3
Exigencies absent
125
11.4
Waiver of demand notice
126
11.5
Redemption fine
127
11.6
Provisional release
127
11.7
Appellate remedy
128
12 PREPARATION TO REPLY 12.1
Overview
130
12.2
Test the notice
132
12.3
Scrutinize allegation and supporting evidence
133
12.4
Construct of allegation
135
12.5
Allegations by presumption
136
12.6
Contradictory allegations
137
12.7
Rejection of taxpayer’s records
138
12.8
Merits of rejecting taxpayer’s books
139
12.9
Taxing ingredients
140
12.10 Acting under compulsion
142
12.11 Acting under dictation
143
12.12 Internal validation
144
12.13 External validation
145
12.14 Influence of allied laws
146
12.15 Post-notice continuation of enquiry
148
12.16 Fatal errors in pre-notice stage
149
12.17 Taxpayer’s statements recorded
150
12.18 Taxpayer’s assertions rejected
151
12.19 Cross-examination
152
12.20 Elaborate reply
154
I-21
CONTENTS
PAGE
12.21 Short reply
155
12.22 Benefits of ex parte orders
157
12.23 Reply other than on merits
158
12.24 Case laws overload
158
12.25 Case laws from earlier tax regime
159
12.26 Reliance on AARs
160
12.27 Case laws from overseas
160
12.28 Assumptions about GST
162
12.29 Fallacy about existence of basic features
162
12.30 Vague is not arbitrary
166
13 JURISPRUDENCE OF ADJUDICATION 13.1
Overview of section 75
167
13.2
Limitation on disposal
167
13.3
Impatience in adjudication
168
13.4
Belated adjudication
169
13.5
Wisdom in adjournment
170
13.6
Reasons for adjournment
171
13.7
Personal hearing
172
13.8
Authorized representative
173
13.9
Grounds in notice and order
174
13.10 Facts-in-issue
176
13.11 Irrefutable facts
177
13.12 Irrelevant facts
178
13.13 Grounds modified or withdrawn
179
13.14 Bar on improvement
180
13.15 Relief in absence of special circumstances
180
13.16 Remand sans power of remand
181
13.17 Orders to be ‘speaking’
182
13.18 Consequential demand order
185
13.19 Interest automatic, not penalty
185
CONTENTS
I-22 PAGE
13.20 Plurality of penalty barred
186
13.21 Limitation not to commence
187
13.22 Circulars and instructions issued
188
14 REPLY TO NOTICES 14.1
Overview
189
14.2
From strength to strength
190
14.3
Statutory provision dictates approach
192
14.4
Jurisdiction and Proper Officer
193
14.5
Illegal evidence
195
14.6
Bona fide demand in mala fide proceedings
196
14.7
Question-the-question
197
14.8
Revenue’s evidence
200
14.9
Impeaching Revenue’s evidence
201
14.10 Admissibility of evidence
203
14.11 Statements on oath
206
14.12 Probative value of evidence
207
14.13 Evidence impeached by denial
209
14.14 Rebuttal and evidence
209
14.15 Discussion on facts
213
14.16 Reply to restore facts
215
14.17 Reply to expose conjecture
215
14.18 Reply to summarize facts-in-issue
216
14.19 Discussion on law
217
14.20 Evidence via Affidavit
217
14.21 Binding nature of circulars
219
14.22 Binding nature of decisions
220
14.23 Prayer on findings to be reached in adjudication
221
14.24 Personal hearing
222
14.25 Readiness for later proceedings
222
I-23
CONTENTS
PAGE
14.26 Introducing new material
223
14.27 Relevance of circulars
225
14.28 Case law authorities - More
227
14.29 Case law authorities - Less
227
14.30 Essentials in a reply
229
14.31 ‘Without prejudice’ replies
230
14.32 ‘With prejudice’ replies
231
14.33 ‘Alternate pleas’ replies
232
14.34 Circulars and instructions issued
233
15 RELIEF IN ADJUDICATION 15.1
Relevance in replying to notices
234
15.2
Pleadings
235
15.3
No relief beyond pleadings
235
15.4
Moulding relief
236
15.5
Injustice inherent in ‘due process’
236
15.6
Creature-of-statute effect
237
15.7
Decisions distinguished
237
15.8
Non-binding circulars
238
15.9
Adjudication in offence cases
240
15.10 Perspective bias
241
15.11 Shortest route to favourable decision
243
15.12 Adverse Orders
245
15.13 Defective Orders
246
15.14 Non-speaking Orders
248
15.15 Consequential relief
248
16 OUTCOME IN ADJUDICATION 16.1
Relevance in replying to notices
250
16.2
Revised notice or fresh notice
251
CONTENTS
I-24 PAGE
16.3
Person aggrieved
251
16.4
Remedies to aggrieved persons
252
16.5
Taxpayer’s appeal
253
16.6
Restrictions under section 121
254
16.7
Maintainability of appeal
254
16.8
Payment under Protest
255
16.9
Direct writ petition
256
16.10 Perils of pre-deposit in court
261
17 REMEDY OF APPEAL 17.1
Relevance in replying to notices
263
17.2
Standard Operating Procedure
264
17.3
Purpose of appeal to Appellate Authority
265
17.4
Departmental appeal
266
17.5
Taxpayers exposure in counter
267
17.6
Condonation of delay
267
17.7
Defective appeal
268
17.8
Burden of Appellate Authority to verify evidence
269
17.9
Curative powers of Appellate Authority
270
17.10 Framing of facts-in-issue
271
17.11 Exclude irrelevant facts
271
17.12 Good reason to be confident
272
17.13 Withdrawal of appeal
272
18 ‘SEQUEL NOTICE’ BY APPELLATE AUTHORITY 18.1
Introduction
274
18.2
Fact-Finding via Further Inquiry
275
18.3
Update Original Demand
276
18.4
DRC1A Bypassed
277
18.5
Acquiescence not curative
278
I-25
CONTENTS
PAGE
18.6
First Proviso
279
18.7
Second Proviso
280
18.8
Calling of Books Barred
281
18.9
Update notice v. Upgrade notice
283
18.10 Altogether new notice barred
283
18.11 Sequel not free from defects
285
18.12 Safety of Limitation
285
18.13 Safety of Original Grounds
286
18.14 Readiness for Tribunal
286
19 RELIEF IN APPEAL 19.1
Standard Operating Procedure
288
19.2
Scope of permissible relief
288
19.3
Limitations in powers of Appellate Authority
289
19.4
Relief limited by pleadings and prayer
291
19.5
Inherent powers
292
19.6
Scope for review and appeal
293
19.7
Directions of Appellate Tribunal or Court
294
19.8
Consequential effects of relief in appeal
294
19.9
Dismissal, if appeal does not merit interference
295
19.10 Strict v. Beneficial interpretation
297
19.11 Interpretation of tariff v. Exemption notification
298
19.12 Time limits - Limitation or prescription
300
19.13 Suo motu Writ Petition by SC
301
19.14 Circulars - Distinguishable or binding
302
19.15 Case law authority - Distinguishable or binding
303
19.16 Questions about jurisdiction
304
19.17 Proceedings in appeal
304
19.18 Speaking Orders
305
CONTENTS
I-26 PAGE
20 REVISIONARY PROCEEDINGS 20.1
Relevance in replying to notices
306
20.2
Decision or order
306
20.3
Officer subordinate
307
20.4
Suo motu
308
20.5
Information received
309
20.6
Request from Commissioner of State Tax
310
20.7
Resolution of conflict with section 107(2)
310
20.8
Call for and examine
311
20.9
Prejudicial to interests of revenue
312
20.10 Illegal (decision or order)
314
20.11 Improper (decision or order)
315
20.12 Not taken into account pre-existing factors
316
20.13 Not taken into account post-arising factors
317
20.14 Adverse observation by CAG
318
20.15 Prerequisites to invoke powers
318
20.16 Doctrine of election
320
20.17 Stay operation (of such decision or order)
320
20.18 After making such further inquiry
321
20.19 Immediately ‘stay’ operation of Orders
322
20.20 Pass such new ‘substitutionary’ Orders
322
20.21 Enhance (said decision or order)
323
20.22 Modify (said decision or order)
323
20.23 Annul (said decision or order)
324
20.24 Bar on revisionary proceedings
324
20.25 Mischievous appeals
325
20.26 Limitation (time bar) for Revision
327
20.27 Appeal against Revision
327
20.28 Limitation ‘extension’ for Revision
327
20.29 Enhanced remedy for Revenue
328
20.30 Checklist
328
I-27
CONTENTS
PAGE
21 APPELLATE TRIBUNAL 21.1
Relevance in replying to notices
331
21.2
Creatures of the statute
331
21.3
Structure of GSTAT
332
21.4
Full bench or division bench
332
21.5
Single member bench
333
21.6
Reference to third member
334
21.7
Appealable orders
334
21.8
Appeal filed before erroneous bench
334
21.9
Types of appeals
335
21.10 Limitation
336
21.11 Pre-deposit
336
21.12 Statement of facts
337
21.13 Grounds of appeal
337
21.14 Paper-book
339
21.15 Departmental representative
340
21.16 Limitations in powers of appellate tribunal
340
21.17 Power of inquiry by appellate tribunal
340
21.18 Fruits of earlier preparations
342
21.19 Law of precedent
342
21.20 Conclusion
343
22 APPLICABLE JURISPRUDENCE 22.1
Justice v. Fairness
345
22.2
Power of moulding relief
345
22.3
Notice ends inquiry
346
22.4
Purposive construction
347
22.5
Doctrine of merger
349
22.6
Tax avoidance
350
22.7
Mandatory or Directory
351
CONTENTS
I-28 PAGE
22.8
Litigation in anticipation of amnesty
354
22.9
Appropriateness of forum selection
355
22.10 Understanding taxpayer’s business
356
22.11 Authorities that illuminate understanding
357
22.12 Illustrative formats
358
22.13 Index of decisions
358
DIVISION TWO
PLEADINGS IN GST
23 PLEADINGS 23.1
Replying to notices
389
23.2
Relief prayed
390
23.3
Burden of proof
390
23.4
Accept and discharge
391
23.5
Dispute and litigate
392
23.6
Reject allegations
393
23.7
Burden on taxpayer
394
23.8
Options to reply
394
23.9
Departmental observations
395
23.10 Payments made via DRC-3 1
396
23.11 Payments made via DRC-3 2
397
23.12 Mismatch of GSTR-2A with GSTR-3B 1
399
23.13 Mismatch of GSTR-2A with GSTR-3B 2
403
23.14 Interest on belated filing of GSTR-3B
405
23.15 URP-RCM unpaid in 2017-18
406
23.16 RCM unpaid 1
408
23.17 RCM unpaid 2
410
23.18 RCM unpaid 3
413
23.19 Invoice of earlier tax periods included in current GSTR-3B
415
23.20 Tax paid in excess and adjusted
416
I-29
CONTENTS
23.21 Credit notes (with GST) received
418
23.22 Credit notes (without GST) received 1
421
23.23 Credit notes (without GST) received 2
423
23.24 Debit notes issued
425
23.25 Output tax on debit notes discharged belatedly with credit
426
23.26 Credit notes issued for domestic sales
428
23.27 Credit notes issued for zero-rated supplies
430
23.28 Non-disclosure of exempt turnover
431
23.29 Mismatch of EWB and GSTR-1/3B
433
23.30 Mismatch of GSTR-1 with GSTR-3B
435
23.31 Mismatch of GSTR-7 with GSTR-1/3B
440
23.32 Mismatch of GSTR-8 with GSTR-1/3B
442
23.33 Non-reversal of common credits
444
23.34 Blocked credits availed
446
23.35 Matched credits from absconding Suppliers
448
23.36 Mismatch of TRAN-1 credit
450
23.37 Claim of TRAN-1 credit in GSTR-3B
451
23.38 Interest on TRAN-1 credit reversed
454
23.39 Composition taxpayer collecting tax
454
23.40 Composition taxpayer with service turnover
456
23.41 Composition taxpayer exceeding threshold
457
23.42 Composition taxpayer with credit balance
458
23.43 Disposal of capital goods
459
23.44 Write-off of inputs and capital goods
460
23.45 Refund of unmatched credits to exporter
461
23.46 Credit claimed after due date
462
23.47 Credit claimed when payment not made to Suppliers
465
23.48 Output tax payable on ‘other income’
467
23.49 Credit blocked under rule 86A
469
23.50 Output tax in cash under rule 86B
471
14 CHAPTER
REPLY TO NOTICES 14.1 OVERVIEW ‘Due process’ of adjudication is not a ‘friendly match’. It is adversarial litigation process, in every sense of the word. Neither side should assume quiet surrender or crude settlement of the dispute. Proper Officer is not the ‘last authority’ who will sit in judgment over the lis. In fact, notice and reply is just the beginning of proceedings that will conclude when a decisive ruling on the lis comes to be rendered by an authority named in the law or when one of the adversaries concedes at any interim stage. Taxpayers are generally averse to litigation. But taxpayer’s confidence to litigate is directly linked to the exuding confidence of the expert who is to advise, assist and offer representation in these proceedings. Reply to notice is not the last step. It is the place where defences are put forward with eyes set firmly on a ‘day in Court’ when findings reached by Proper Officer in adjudication will be put to the test. After all, adjudication is not the search for the truth but a trial of the interpretation canvassed by Revenue. Example Taxpayer urged in appeal that Proper Officer’s actions are without jurisdiction since SCN is issued by Officer of State GST department under section 73 when taxpayer is registered with Central GST department. No proceedings under section 67 were undertaken. Grounds urged was dismissed citing failure to put forward this objection in earlier proceedings and by replying to SCN on merits, taxpayer has acquiesced and rendered ‘valid’ the SCN (and consequent Adjudication Order) as per section 160(2). As such, appeal taken up for consideration on merits.
Outcome of litigation is unlikely to be final at the end of adjudication. Where a notice is issued, Revenue is barred from ‘giving up without a fight’, that is, no demand (in a notice) can attain finality unless every possible avenue 189
Para 14.2
REPLY TO NOTICES
190
to sustain that demand has been tested and by more than one authority. Revenue has the following avenues to wrestle with the demand: (a) Adjudication by a Proper Officer; (b) Departmental appeal before First Appellate Authority; (c) Revision of orders prejudicial to Revenue by Revisionary Authority; (d) Departmental appeal before Appellate Tribunal; and (e) Statutory appeal to High Court/Supreme Court on question of law. Taxpayer too has several avenues to follow. But taxpayer’s willingness is directly tied to awareness. And grounds to be urged in adjudication are vastly different from those to be urged in appeal. Like everything in business, reply to notice must be approached with a strategy. One that entertains the possibility of adverse outcome, at least, in early rounds in this process. Therefore, each round must be approached based on the relief that authority is empowered to allow. Examples Constitutional validity of the provisions, say, section 16(4) raised before Proper Officer demanding demand to be dropped in adjudication. Proper Officer being a ‘creature of the statute’, is barred from sitting in judgment over the vires of the law being administered. This ground - questioning vires of provision - is for High Court to entertain. And since this is the only ground urged before Proper Officer then, demand stands confirmed. Verification of computation of input tax credit reversal under rule 42 urged before Appellate Authority. Since the same has already received consideration by Proper Officer and there being no point of disagreement about the computation except to demand fresh consideration and verification of reversal computation, appeal is dismissed.
Taxpayers must understand the several rounds that nearly every notice will need to pass. And not even a favourable order in adjudication is anything to celebrate because Revenue is free to carry such order in departmental appeal within six (6) months from Order or upset it in revisionary proceeding up to three (3) years from Order. When no favourable order merits celebration unless the last avenue available for Revenue has lapsed, taxpayer cannot view any notice to conclude in ‘round one’ itself. And if it will be carried to ‘multiple rounds’, reply to notice must be approached with a strategy. If truth is all there is, experience will show that justice is loosely connected with truth and more firmly with facts in the notice and approach in the reply.
14.2 FROM STRENGTH TO STRENGTH Approach to reply involves carrying the case from ‘strength to strength’ as it passes through the entire process from adjudication to appeal. It needs to be
191
FROM STRENGTH TO STRENGTH
Para 14.2
nurtured and cared for, preserved and guarded even from taxpayers giving up midway and accepting a ‘compromise’. Care must be taken to guard the notice against private and parallel engagement of taxpayers with Proper Officers to secure a ‘short cut’ resolution that does not exist in this law. Adjudication is unlikely to procure favourable outcome for the simple reason that the interpretation canvassed in the notice is not without understanding tax position adopted by taxpayer. It is to challenge taxpayer’s interpretation. And unless adjudication confirms the interpretation of Revenue, it will not receive full consideration that it deserves. Taxpayers must embrace the fact that adjudication is the beginning. And those willing to contribute more than that lawfully due and reluctant to resist the error of this new interpretation, will not be turned away. After all, no one can force a taxpayer to avail rights, remedies and safeguards available in this law, at least in adversarial litigation. As the allegations are ‘chipped away’ at each stage in the entire process, the outcome will become clearer. Adjudication being trial of the interpretation canvassed in the notice, it requires perseverance and patience with the entire ‘due process’ to eventually establish validity of taxpayer’s own interpretation of this law. Taxpayer’s ’ assumption i n about b case progress s A
Reality of case e progress
B
Adjudication Stage
Appellate Stage
There is a mismatch between ‘assumption’ and ‘reality’. And taxpayers who are averse to litigation, will stop and even abandon further efforts along line A-B (in diagram above) due to alarm and disappointment at the outcome in adjudication, and failure to appreciate ‘reality’ of progress in the case. Therefore, questions that taxpayer’s need to address are: (a) Are the right objections placed on record at this stage? (b) Have the allegations and evidence in support put to test?
Para 14.3
REPLY TO NOTICES
192
(c) Is the scope of notice contained or expanded by new material? (d) Do the findings reached narrow down the facts-in-issue(s) involved? (e) Are grounds urged (in appeal) sharpen focus on findings to reach? (f) What avenues are still left open that may ‘save the demand’? (g) Does the record bear correct facts, eliminates irrelevant facts and revolve around the correct statutory provisions? (h) Is the correct relief prayed? And then consider, “what is the truth, what are the merits?”.
14.3 STATUTORY PROVISION DICTATES APPROACH “Which section?” is the most important question to be addressed because answer to this question reveals the approach to be followed in replying to the notice. Notice issued under section 63 requires one approach and this approach cannot be applied if the notice is issued under section 76. There are notices issued under section 35 alleging that books and records are not properly maintained. Right to question the validity of any notice will be lost by delay and by omitting to question its validity due to the embargo in section 160(2). Whether this embargo can really overcome the right to valid notice, is yet to be tested but as it stands today, acquiescence validates an otherwise invalid notice (and hence, rest of the proceedings). “Which section?” also dictates “which Officer?”. Not every Officer is the Proper Officer. When Officer is not ‘proper’, notice and everything that follows will be ‘improper’. And all this avails to a vigilant taxpayer and not one who is dormant about rights in law. Perhaps taxpayer does not want support of these rights in law and believes that merits alone are sufficient to secure justice. There is room in this law for taxpayer of every hue. But ‘due process’ of law demands, with the several rounds of adversarial litigation laid down in the law, that sights be set on the ‘next round’ while working on the reply in ‘this round’. Relief that can be easily allowed in appeal may be impossible in adjudication. Example SCN issued under section 74 rejecting books and estimating liability. Adjudication concluded on ex parte basis. Appeal allowed due to admission in SCN that estimates and guesswork used to arrive at demand. Use of estimates and guesswork compatible with SCN under section 63, not section 74.
Outcome in appeal can be favourable because it may be impossible to ‘save the demand’ within the confines of the grounds in the notice (discussed earlier). After all, adjudication is not a search for the truth, but a trial of ‘view’ canvassed in the notice.
193
Para 14.4
JURISDICTION AND PROPER OFFICER
14.4 JURISDICTION AND PROPER OFFICER Administrative demands on Proper Officers is complex. And to ensure swift and prompt action, specific Officers are empowered to invoke powers under specific provisions (sections and rules). In so doing, the entire population of taxable persons are allocated based on geographic territory also. Often ‘jurisdiction’ is misunderstood to be limited to ‘territorial jurisdiction’ only. Reference to section 6(2) shows that with respect of anti-evasion action under section 67, simultaneous jurisdiction is vested in officers of Central and State (or UT) GST departments. This opens the question of ‘jurisdiction qua each provision’ in the law. That is, Officer who has granted registration to taxpayer is designated as Proper Officer to initiate proceedings under section 61. Registered taxpayers who are ‘mapped’ to Central GST department must be subjected to audit proceedings under section 65 by Proper Officer in the Central GST Audit Commissionerate only. Officers from the State (or UT) GST department are NOT authorized to initiate audit proceedings in respect of registered taxpayers who are fall within the administrative jurisdiction of Central GST department. And the same is true of registered taxpayers who fall withing the administrative jurisdiction of State (or UT) GST department. This brings us to the question of “validity of jurisdiction” which must be tested and confirmed. And if there is any doubt, Proper Officer must explain exercise of jurisdiction when validity of notice is questioned in a plain-paper letter in view of the mandate in section 160(2). Uncertainty about ‘validity of jurisdiction’ goes to the heart of notice and any invalidity can impair and bring the entire proceedings to be grinding halt. And where jurisdiction is lacking, notice is incurable and must be dropped immediately (or eventually if pursued), to avoid vice of highhandedness, abuse of statutory powers and misapplication of law, even if there is merit in underlying demand which is not exposed by prematurely ‘entering into merits’ in the reply. Jurisdictional Table Notice issued
Registration of taxpayer
Underlying proceeding
Proper Officer
Note
Section 52
Centre
Section 61
Centre
1
Section 63
None
NIL
Either A
2
Sections 73-74
Centre
Sections 61-65
Centre
1
Sections 74-76
Centre
Section 67
Either B
3
Section 122
None
Section 67
Either B
2+3
Section 129
Either or none
Section 68
Either A
2
Para 14.4
194
REPLY TO NOTICES
Notice issued
Registration of taxpayer
Underlying proceeding
Proper Officer
Note
Section 130
Either or none
Section 67
Either B
2+3
Note 1: State and State Officer
Note 2: Within respective territory
Note 3: Authorized in INS1
Any good book on Administrative Law and Writ Remedies would help realize the importance of this question about ‘jurisdiction’ and ‘due process’ which are, all too often, glossed over. Taxpayers are gripped with fear that they fail to notice that Officer overcome by enthusiasm has omitted to secure specific authorization to initiate said proceedings. In addition, certain States (or UTs) have a further procedure to issue taxpayer-specific authorization to issue notices. Example Although ‘Deputy Commissioner’ is the rank of Officer empowered to issue SCN under sections 73 and 74, in the State Karnataka, there is an administrative procedure for Joint Commissioner to issue ‘Assignment’ to such Deputy Commissioner to issue such SCN (i) in respect of specific distinct person (ii) for specific tax period(s) (iii) either under section 73 or 74 and (iv) for pecuniary limit of demand to be raised, will all be specified in such authorization. Taxpayer must demand copy of said Assignment be test for correctness and completeness of the procedure followed, which is essential before SCN is entertained by way of replying, even if demand is disputed.
Unless every single step in the jurisdiction table is tested and satisfied, taxpayer is welcome not to enter into merits in reply to notice. And it would be most expeditious to include in the preliminary letter (discussed earlier) to demand copy of said authorization. Question of jurisdiction is not ‘simple’ jurisdiction but ‘compound’ jurisdiction as it touches “territory + administrative mapping + statutory provision + specific authorization”. Omission to be mindful of this jurisdictional pyramid can cause irreparable prejudice to taxpayer’s interest. Jurisdictional Pyramid Territorial jurisdiction Unregistered taxable person
Registered taxable person Administrative mapping (Centre or State/UT) Statutory jurisdiction under the relevant provision of law
Administrative authorization (i) qua taxable person and (ii) qua tax period
195
ILLEGAL EVIDENCE
Para 14.5
Just because statutory duties are being performed, even if there is strong suspicion of revenue leakage, except by following the due process of invoking specific powers conferred within specified boundaries to its exercised and with necessary checks and balances, passionately proceeding with enquiry or inquiry are as much illegal as are proceedings of a roving nature. It may be worthwhile to recount that what power is given to be a particular thing, that thing must be done in that particular manner or not at all. This is the mandate to the Executive by Legislature and the attendant possibilities of loss of revenue is inherently accepted in permitting (i) self-assessment to taxpayer and (ii) permitting authority to intervene but within the boundaries laid down in specified provisions.
14.5 ILLEGAL EVIDENCE Evidence obtained illegally are NOT barred from being relied upon to issue notice. Objections as to use of illegal means to collect evidence (to support allegations in notice to be issued later) must be objected right at the point when such illegal attempts are observed. ‘Illegal’ in this context does not refer to evidence collected in collusion, but evidence collected using ‘extra legislative’ methods due to misapplication of prescribed procedure for evidence collection. Most alarming provisions used to collect incriminating evidence are: (a) Inspection of books of account under section 71 without any ‘reasons to believe’ that there may be some outstanding liability; (b) Inspection of premises under section 67 and demanding ‘voluntary’ submission of books and records containing reference to some outstanding liability; (c) Summons issued under section 70 without any authorization under section 67 to conduct ‘inquiry’ in respect of any evasion of tax; (d) Letters of instruction issued under section 61 calling for books and records to be submitted in relation of ASMT10 issued; (e) Survey of unregistered persons conducted, and verbal instructions issued to ‘voluntarily’ submit books and records in respect of any outstanding liability to be used in proceedings to be issued under section 63; (f) Verbal instructions during proceedings for grant of registration in respect of outstanding liability for period prior to registration to be used in proceedings to be initiated under section 63; (g) Verbal instructions during ‘test purchase’ under section 67(12) to expose stocks for physical verification to unaccounted stock under section 35(6) and initiate proceedings under section 73 or 74; and
Para 14.6
196
REPLY TO NOTICES
(h) Notices are issued akin to summons calling for ‘information’ under section 150 and then initiate proceedings under section 74. ‘Information return’ under section 150 is applicable only to larger carriers of data such as Indian Railways, banks, statutory authorities, mobile operators, etc. And no such ‘information return’ has been notified as yet (discussed earlier) but still, section 150 is relied upon to call for elaborate information and records. ‘Outstanding liability’ referred above, includes any of the following areas that even registered taxpayers are likely to have missed since 2017-18: Output tax
Input tax credit
Interest
RCM under section 9(3)
Credit mismatch
RCM under section 9(4) (up to 13 Oct 2017)
Inward supplies not used Arrears discharged in business belatedly
Deemed supply
Time barred credits
(multi-GSTIN-holders)
Unpaid arrears
Tax discharged on debit notes via 3B
Staff recoveries (credits in Reversal of common Interest paid on ‘net tax’ expense accounts) credits basis (liability paid via DRC3) Other income in P&L
Blocked credits
Value adjustments
Where evidence is collected through such ‘extra legislative’ methods, followed by notice of demand, notices will not disclose the ‘source’ of said evidence. Example SCN contains preliminary recitals like “intelligence has been developed by the department that Noticee has indulged in……….” or “certain intelligence has been developed that indicates that Noticee has engaged in transactions that are mala fide and intended to evade payment of tax. As such, it is hereby proposed to……………..”.
Background to intelligence gathered by Revenue is not open for questioning (or disclosure in discovery) by taxpayer (Noticee). Excessive or erroneous detailed in these recitals can be valuable in preparation of defence.
14.6 BONA FIDE DEMAND IN MALA FIDE PROCEEDINGS When proceedings are ‘tainted’, it does not matter if the underlying demand is real and due. When it comes to ‘validity’ of proceedings, not even a bona fide demand can legitimize mala fide proceedings. While this is a rule of Administrative Law, there is yet another rule that relief NOT pleaded cannot be allowed, not even in the interests of justice. Justice, therefore, properly understood is not the eventual outcome, especially in taxation matters, but
197
QUESTION-THE-QUESTION
Para 14.7
the lawful process of getting to the outcome. And ‘lawfulness’ is not something that will be taken lightly by Revenue or but easily neglected by taxpayers. Taxpayers are overcome by the bona fides of the demand that they overlook the Legislative mandate that ‘no demand is permitted except by issuing a notice as per law’ and gladly pay up even when the demand cannot lawfully be made. Examples There are no statutory provisions in Central GST Act to issue SCN demanding interest on inadmissible transition credit availed, utilized and repaid. There are no statutory provisions for jurisdictional Proper Officer to call for books and records even if discrepancies in the returns are blatant or obvious. After a reply in ASMT11 from taxpayer, jurisdictional Proper Officer is permitted to refer the matter for audit under section 65 or 66 or for inspection under section 67 or proceed with issuing SCN under section 73 or 74. There are no statutory provisions in Central GST Act for Proper Officer conducting audit under section 65 to direct taxpayer to “submit detailed reply to observations in report issued under section 65(6)”. And taxpayer is not obliged to reply to such audit report in ASDT2 but await pre-notice consultations vide DRC1A because section 65(7) renders Proper Officer ‘functus officio’ once ADT2 is released.
It is seen that a report containing ‘observations’ are issued ‘under section 65(6)’ but not titled ADT2. Consequence in law remains the same once section 65(6) is invoked. Taxpayers remain hopelessly hopeful that ‘detailed reply’ will make the (imminent) notice ‘go away’. Taxpayer will have prejudiced their (future) defence by exposing the grounds available prematurely. Taxpayers must ensure that ‘facts’ are not misunderstood by Revenue and ‘interpretation of facts’ is beyond taxpayer’s control.
14.7 QUESTION-THE-QUESTION All the deliberations up to this point about reply to notices, lead to this inescapable truth that ‘before launching to answer the question, it is most prudent for taxpayer to question-the-question’ because ambiguity about the question will expose taxpayer to perils of: (a) Forfeiture of right to demand that Revenue satisfactorily discharge its ‘burden of proof’ about interpretation canvassed in the notice; (b) Implicit admission of allegation (in the notice) left undisputed; and (c) Shifting of ‘onus of proof’ onto taxpayer for introducing new or additional material and information. And questions will be answered overlooking invalidity of the notice or questions will be left unanswered exposing imputation of wrongdoing without
Para 14.7
REPLY TO NOTICES
198
properly bringing home the allegations or actionable causes. In either case, the question itself will limit any curative attempts in ensuing proceedings. It would help to recollect that adjudication is not the search for the truth but to put Revenue’s case on trial to examine if the view canvassed is more accurate and sustainable than that adopted in self-assessment. After all, determination that no tax is payable and hence no requirement to even obtain registration can be the result of self-assessment. And taxpayer may not be consciously aware that the result of examination of facts, taxability, exemption, if any, and decision to remain unregistered, need not be an elaborate and pointed exercise but one that was swiftly decided after a short conversation with someone who has already carried out a thorough exercise, whether an expert or a fellow-taxpayer, it still remains taxpayer’s own assessment of the implications of this law to that business. This is the result of authority in section 59, duly exercised. No prejudice will be caused to Revenue if taxpayers were to submit preliminary objections allowing Revenue opportunity to consider defects, deficiencies and discrepancies found in notice and either deny them or avail the last opportunity to clarify their position. Sometimes it is thought that no clarifications are warranted once notice is issued. Even then, request for clarification sought and turned down, places taxpayer in a position where the consequences of these defects, deficiencies and discrepancies (in the notice) become compelling grounds of defence. Examples Demand for CGST-SGST without specifying ‘place of supply’ and its basis, will result in demand being biased, arbitrary and erroneous, formed purely based on presumption and conjecture. Demand for output tax without specifying ‘HSN code’ is fatal to a well-reasoned confirmation of the demand in adjudication. Demand for RCM without specifying ‘time of supply’ is incurable and no demand for tax and certainly not for interest can be made. And to demand interest from 31 Mar 20XX would imply that ‘time of supply’ has been assumed to be on the last day of financial year.
It is important for taxpayer, not necessarily by way of defence, to be sure that the allegations in the notice are correctly and completely understood. Taxpayer’s exude so much confidence that they ‘already know the question’, but that is not the role of taxpayers. Taxpayer’s role is to ‘answer the question’. And to be able to do this right, taxpayers cannot be ‘imagine the question, and then proceed to answer’. Taxpayers might recognize the actionable cause. That will not do. Taxpayers must grasp exactly ‘what’ is the allegation and ‘how’ has it been supported in the notice.
How to Deal with GST Show Cause Notices with Pleadings AUTHOR
:
PUBLISHER
:
A JATIN CHRISTOPHER TAXMANN
DATE OF PUBLICATION
:
JANUARY 2024
EDITION
:
3RD EDITION
ISBN NO
:
9789357787970
NO. OF PAGES
:
504
BINDING TYPE
:
PAPERBACK
Rs. 1050 | USD 44
Description This book effectively demonstrates how to deal with various types of GST Show Cause Notices. It discusses the complexities of GST Show Cause Notice and its impact on taxpayers. The book addresses the divisive stance on GST’s implementation, categorizing tax litigants into those distressed by the law’s disregard for its foundational principles and those demanding strict adherence to the statute. With a focus on clarity and practicality, the book emphasizes using real-world examples over dense text, aiding readers in grasping the intricacies. The author showcases solutions to the mistakes committed over the years of his litigation practice. This book is divided into two divisions: u
Notices under GST
u
Pleadings in GST
The Present Publication is the 3rd Edition and has been amended up to 31st December 2023. This book is authored by A Jatin Christopher, with the following noteworthy features: u
[Do’s & Don’ts while Replying to Notices] that are extensively illustrated with hypothetical facts curated to suit the GST context and expose the nuances of replying to Notices
u
[Checklists, Visualizations & Templatized Answers] are included in this book to share experiences gathered in a short period since the introduction of GST
u
[Suggestions for Additional Reading & Reference] are made in this book to help
u
[Simplistic Language] that revolves in & around the statutory provisions, without
the reader extend their study of the subject matter repeating the bare provisions of the statute u
[Chapter on System-generated Notices] that have recently been enabled on Common Portal discusses the swift response that is required to keep aggressive action at bay
u
[50+ Draft Pleadings] on real-life issues with alternate answers in each instance that is relevant whether the occasion to provide a response is in the pre-notice stage– scrutiny or audit – or in the post-notice stage when notice of demand is issued
ORDER NOW