Appellate Authority for Advance Ruling under GST

Appellate-Authority-for-Advance-Ruling-under-GST

In our previous blog, we went through the provisions of advance ruling under GST. We also understood that the first level of appeal for advance ruling is to be made to the Authority for Advance Ruling (AAR). However, a taxable person who is not satisfied by the advance ruling of the AAR can approach the second level i.e. the Appellate Authority for Advance Ruling i.e. the AAAR.

It is a good time to note, that appealing against the advance ruling is a new provision in GST. The previous tax regime did not have any scope for appeal against Advance Ruling at all, and the only way to contest the ruling was by going through the Division Bench of the High Court. However, this process has been made easy by the introduction of an appeal mechanism to the Appellate Authority for Advance Ruling under GST – which we will understand in this blog.

Appellate Authority for Advance Ruling Process

The following are the various provisions laid down pertaining to the procedure for advance ruling by the Appellate Authority for Advance Ruling, under GST:

Initiation of Advance Ruling Procedure by AAAR

  • The initiation of the appeal to Appellate Authority for Advance Ruling can be made by the applicant or the officer who is aggrieved by any advance ruling
  • Appeal against the advance ruling of the AAR, must be made within 30 days from the date of the advance ruling issued by the AAR. However, this limit is extendable by 30 days.

Advance Ruling Forms by AAAR

  • The application for appealing against the advance ruling of the AAR, has to be made in Form GST ARA-02, along with the payment of fees of INR 10,000
  • If the appeal is made by a GST tax officer, then Form GST ARA-03 needs to be filed. However, no fees will be applicable in this case.

Advance Ruling Purview by AAAR

The AAAR can, by order, either confirm or modify the advance ruling issued by the AAR, which is appealed against. However, if the members of the AAAR, differ in opinion on any point, then an advance ruling cannot be issued.

Post the decision of the AAAR, a copy of the advance ruling signed by the members will be sent to the applicant, the prescribed or the jurisdictional CGST / SGST officer and to the initial authority that passed the Advance Ruling i.e. the AAR.

Advance Ruling Time Limit by AAAR

An advance ruling decision by the AAAR will be given within 90 days from the date of the application.

Rectification of the Advance Ruling by AAAR

The AAAR can amend its own order to rectify any apparent mistake, if the same is noticed within 6 months from the date of the original order. The rectification of the order can be done by:

  • AAAR on its own
  • Prescribed or the Jurisdictional CGST / SGCT officer
  • Applicant

However, it is to be noted that any rectification which may result in increase in tax liability or decrease in input tax credit, will be allowed only after giving a notice and an opportunity to be heard to the applicant.

Scope of the Advance Ruling by AAAR

The advance ruling decision by the Appellate Authority for Advance Ruling will be binding only on the following entities:

  • Applicant
  • Jurisdictional Tax Authorities in respect of the Applicant

However, if the law or the facts of the original advance ruling change, then the advance ruling issued by the AAAR will not apply.

Nullification of the Advance Ruling by AAAR

If it is discovered, that the appellant has obtained the advance ruling by fraud or suppression of material facts, then the Authority for Advance Ruling (AAR) or the Appellate Authority for Advance Ruling (AAAR) will declare the ruling to be void ab initio (from the beginning). All the provisions of GST, will then be applicable to the applicant as normal without any advance ruling – however, an opportunity of being heard will be given to the applicant, in such as case, post which advance ruling nullification may take place.

In conclusion, it can be said that the provisions of advance ruling under GST are bound to make life simpler for a taxable person who wants to gain clarity on the tax arrangements to be made for a particular transaction. However, the only area where currently a clarity is not available is – that there is no defined level of appeal beyond the 2nd level i.e. the Appellate Authority for Advance ruling. However, it may be expected that the process to appeal further should be similar to that in the previous tax system, and a taxable person who is not satisfied with the decision of the AAAR, may appeal against it, via a special dispensation to the Division Bench of the High Court.

GST Appeals to High Court & Supreme Court

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In our previous blog, we went through the provisions in place for the second level of appeals under GST i.e. appeals to the Appellate Tribunal. In case a person is not satisfied by the decision or the order passed by the Appellate Tribunal, he can proceed to the last two levels of appeals under GST i.e. GST appeals to High Court & Supreme Court – which we will discuss in this blog.

GST Appeals to high court & supreme court

The following questions will give you more insight on the topic of GST appeals to High Court & Supreme Court:

Who can issue GST appeal to high court?

Any taxable person who is not satisfied with the order or decision passed by the Appellate Tribunal, can issue a GST appeal to High Court, within a period of 180 days i.e. 6 months from the date of the order. However, the High Court may entertain an appeal after the expiry of 6 months, if it is satisfied that there was sufficient cause for not filing the appeal within such period. The GST appeal form to High C0urt needs to be filled accordingly.

What appeals will be allowed in the high court?

The following provisions have been laid down to define the appeals, which may be allowed in the High Court:

  • Any person aggrieved by any order passed by the State Bench or Area Benches of the Appellate Tribunal may file an appeal to the High Court. The High Court may admit such an appeal, only if it is satisfied that the case involves a substantial question of law
  • Where the High Court is satisfied that a substantial question of law is involved, it shall formulate that question and the appeal shall be heard only on the basis of that question. However, the respondents will be allowed to argue that the case does not involve any such question, at the hearing of the appeal
  • The High Court can decide on any issue which –
  • Has not been determined by the State Bench or Area Benches
  • Has been wrongly determined by the State Bench or Area Benches, due to the question of law

However, appeals against orders passed by the National Bench or Regional Benches of the Tribunal will be aligned to the Supreme Court and not High Court. Also, appeals cannot be made to the High Court where two or more states OR when the State and the Centre have different views. Such cases too, will go straight to the Supreme Court. Thus the procedure of GST appeals to High Court have been well designed to account for the same.

Decisions of the high court – Points to note

As per the GST appeal procedure to High Court, the following are the provisions laid down with regards to the decisions taken:

  • The appeal will be heard by a bench of at least 2 High Court Judges, and shall be decided on the basis of majority
  • Where there is no majority, then one or more High Court Judges will be brought in to hear out the case. The original Judges shall state the point of law upon which they differ, and the case shall then be heard upon that point alone. Finally, the decision will be taken on a majority basis, by both the original and new set of Judges.

Who can issue GST appeal to supreme court?

Any taxable person who is not satisfied with the order or decision passed by the High Court, National Bench or Regional Benches of the Appellate Tribunal can issue a GST appeal to Supreme Court. However, as discussed above, cases where two States or State and Centre have different views, will be automatically appealed to the Supreme Court. The GST appeal form to Supreme Court needs to be filled accordingly, as per the procedure of GST appeals to Supreme Court laid down by the GST bodies.

Pre-Appeal conditions – Sums due to be paid

As per the GST appeal procedure to Supreme Court, a taxpayer who is planning to appeal to the Supreme Court must keep an important condition in mind, i.e. all sums due to the Government under order passed by the Appellate Tribunal or by the High Court need to be paid, prior to appealing to the Supreme Court. Thus GST appeals to High Court & Supreme Court are closely regulated as far as fees payable are concerned.

Thus, we have now covered all that you needed to know with regards to the 4 levels of appeals under GST, starting from First Appellate Authority, to Appellate Tribunal to GST appeals to High Court & Supreme Court. In our next blog, we will take you through the aspect of Advance Ruling – provisions for which have been laid down in the GST Act to make life simpler for the taxpayer involved in demand, recovery and appeals.

Mechanism for Advance Ruling in GST

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By definition, an advance ruling primarily means a decision provided by the adjudicating authority or the Appellate Authority to an applicant on specified matters or on specified questions, related to the supply of goods and / or services proposed to be undertaken or being undertaken by the applicant. In simple terms, an advance ruling is basically a written interpretation of tax laws, which is issued by tax authorities to corporations as well as individuals who request for clarifications related to tax. An advance ruling is mostly requested, when the taxpayer is confused about certain provisions. In this blog, we will learn in more detail about advance ruling in GST.

Why is Advance Ruling in GST necessary?

Advance Ruling in GST is deemed necessary primarily because of the following reasons:

  • To provide advance certainty for tax liability, in relation to a future activity to be undertaken by the applicant
  • To attract Foreign Direct Investment i.e. FDI, by clarifying taxation and showing a clearer picture of the future tax liability of the FDI. The clarity and clean taxation procedures will attract non-residents who would otherwise not want to get involved in messy tax disputes
  • To reduce litigation and to reduce the cost of legal disputes
  • To give decisions in a timely, transparent and inexpensive manner

When can one request for Advance Ruling?

As discussed above, any taxable person can request for an advance ruling in GST when he is confused about certain provisions. As per the provisions, advance ruling under GST is applicable on the following:

  • Classification of any goods and / or services
  • Applicability of a notification which affects the rate of tax
  • Determination of time and value of supply of goods and / or services
  • Whether ITC paid (or deemed to be paid) will be allowed
  • Determination of the liability to pay tax on any goods and / or services
  • Whether the applicant has to be registered under GST
  • Whether any particular activity done by the applicant regarding goods and / or services will result in a supply

What are the various levels of Advance Ruling?

There will be two levels of Advance Ruling in GST:

  • Authority for Advance Ruling (AAR)
  • Appellate Authority for Advance Ruling (AAAR)

An advance ruling under GST will first be sent to the Authority for Advance Ruling (AAR). Any taxable person who is not satisfied with the advance ruling can appeal to the Appellate Authority for Advance Ruling (AAAR)

Advance Ruling mechanism in GST – AAR

The advance ruling mechanism in GST is initiated with the intervention of the AAR i.e. the advance ruling authority. Let’s understand in detail.

What is the composition of the AAR?

The Authority for Advance Ruling (AAR) shall comprise 1 member from CGST and 1 member from SGST / UTGST, who will be appointed by the Central and State Governments respectively.

How to apply Advance Ruling in GST?

Generally, an application for advance ruling to the advance ruling authority under GST i.e. AAR, will be done, before the start of the proposed activity. On receipt of the application, a copy will be forwarded to the prescribed officer, who will then furnish the necessary relevant records

What are the forms required for Advance Ruling by AAR?

The application for advance ruling to the advance ruling authority, has to be made in Form GST ARA-01 along with payment of fees of INR 5000.

What is the purview of the Advance Ruling rules under GST?

The advance ruling authority under GST can, by order, either admit or reject the application. However, applications may be rejected only after giving the applicant an opportunity of being heard. Also, the reasons for rejection shall need to be provided in writing.

As per the provisions, the AAR will also not allow applications in the following cases:

  • When the same matter has already been decided in an earlier case for the applicant
  • When the same matter is already pending in any proceedings for the applicant

What is the time limit of the Advance Ruling by AAR?

An advance ruling decision will be given within 90 days by the AAR from the date of the application, as per the advance ruling system for GST.

What is the scope of the Advance Ruling by AAR?

As per the advance ruling system for GST, the decision of the AAR will be binding only on the following entities:

  • Applicant
  • Jurisdictional Tax Authorities in respect of the Applicant

If at any point in time, the members of the AAR differ in opinion on any point, they will refer the point to the Appellate Authority of Advance Ruling (AAAR). In any case, any person who is not satisfied with the ruling of the AAR, can appeal to the AAAR, more of which we will understand in our next blog.

Appeals to GST First Appellate Authority

GST-Appeals-to-First-Appellate-Authority

In our previous blog, we went through the provisions of appeals and revisions under GST, and we also understood about the 4 levels of appeals available to any taxable person, in case he is not satisfied by the decision or order passed by the Adjudicating Authority.

In this blog we will discuss about the first level i.e. appeals to GST First Appellate Authority.

Who can appeal to GST First Appellate Authority?

  • Any taxable person who is not satisfied with the order passed by an adjudicating authority or officer can appeal to the GST First Appellate Authority within 3 months from the date of the order. This period is extendable up to 1 month.
  • Even the Commissioner can appeal to the First Appellate Authority. To begin with, the officer will examine the order for its legality or propriety based on the appellant’s motion or on the Commissioner’s request. The Commissioner can then direct his subordinate officer to apply to the GST First Appellate Authority within 6 months from the date of the order.
  • Even the authorized officer can make an application to the First Appellate Authority. In such as case, the application will be treated as an appeal made against the order.

How to file GST appeals to First Appellate Authority?

  • All GST appeals to First Appellate Authority are to be made in Form GST APL-01
  • Irrespective of the appellant, the GST First Appellant Authority will issue a final acknowledgement, along with an appeal number in Form GST APL-02

Special Allowances in GST appeals to First Appellate Authority

  • Allowing Adjournment – The GST First Appellate Authority may adjourn the hearing of the appeal if there is sufficient cause, provided the reasons are recorded in writing. Adjournment will be allowed for a maximum of 3 times.
  • Allowing Additional Grounds – The First Appellate Authority can allow an appellant to go into any ground of appeal, which was not earlier specified. This will be allowed only if the First Appellate Authority feels that the omission was not wilful.

Decisions of the First Appellate Authority under GST– Points to Note

Purview of the Decision

The GST First Appellate Authority can confirm, modify or annul the original order or decision made by the adjudicating authority, but will not refer the case back to the adjudicating authority.

Communicating the Decision

The GST First Appellate Authority shall communicate the order passed to both the appellant and the adjudicating authority. A copy of the order will also be sent to the jurisdictional commissioners of CGST and SGST.

Time Limit of the Decision

The GST First Appellate Authority must pass the decision within 1 year from the date of filing the appeal. However, if the order is stayed by an order of a Court or Tribunal, the period of such stay shall be excluded from the 1 year period.

Potential Detrimental Impacts of the Decision

The GST First Appellant Authority is empowered to pass an order enhancing the fees or penalty or fine, or confiscating higher value goods, or decreasing the refund or input tax credit. However, this can be done only if the appellant has been issued a Show Cause Notice (SCN) i.e. a reasonable opportunity has been given to the appellant to show cause against the proposed detrimental order, within the specified time limits.

Revisional Authority under GST

Under GST, there is a provision kept open for revision of the orders passed by the authorities at each stage. For this purpose a special body called as the Revisional Authority is empowered. As per the rules, the Revisional Authority can, either on his own, or on the request of the Commissioner of SGST / CGST, examine the records of any proceedings.

When can revision in GST take place?

The examination for the purpose of revision can take place, if he considers that any decision taken by the subordinate officer is:

  • Prejudicial to the interest of revenue
  • Illegal
  • Improper
  • Being taken without taking into account certain material facts (whether available or not at the time of issuance of the order)
  • Not in line with an observation made by the Comptroller and Auditor General (C & AG) of India

Basis the examination, the Revisional Authority can stay the order for a time period as he deems fit. However, the person concerned will always be given an opportunity of being heard. Also, he may choose to conduct further examination as he deems fit, and can on the basis of such an examination, enhance, modify or annul the concerned decision or order.

When is revision under GST not allowed?

The Revisional Authority will not revise the order, under the following circumstances:

  • If the order was already under appeal
  • If 6 months have not passed from the date of the order i.e. there is still time left for an appeal
  • If more than 3 years have passed after the date of the order
  • If the order has already been taken for revision

In case the aggrieved tax payer is not happy with the decision of the First Appellate Authority under GST, he can progress to the next level of appeal which is the National Appellate Tribunal, which we will discuss in our next blog.

GST Appeals and Revisions

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In our previous blogs, we have taken you through the various provisions which cover the various provisions pertaining to demand, recovery and liability, when it comes to paying the unpaid tax, interest or penalty. However, any taxable person who is incorrectly facing any kind of a penalty, has an opportunity to appeal to a higher court in order to reversal the order given by a lower court, as per the GST law. If the appeal is successful, the relevant revisions are done.

In this series of blogs, we will study in detail about the various provisions related to GST appeals and revisions.

Appeals under GST – when are they invoked?

The GST law pertaining to GST appeals and revisions, primarily imposes two types of obligations – tax-related and procedure related. The taxpayers’ compliance with these obligations is verified by the proper tax officer, via audits, examinations etc. In certain cases, there are situations of actual or perceived non-compliance, which obviously leads to difference in opinion. If the difference persists, it results in a dispute, which then needs to be resolved.

To begin with, the dispute is initially resolved by a departmental officer resulting in the issue of an initial order. The order or decision is first passed by the Adjudicating Authority under GST, an entity which is considered competent to pass any order or decision under the GST Act, but does not include the Board, First Appellate Authority and the Appellate Tribunal.

However, if a taxable person is not satisfied by the decision or order passed by the Adjudicating Authority, then he can appeal to a higher court. The appeal, as discussed above will be an application to a higher court to reverse the decision of a lower court.

The following are the 4 levels of the appeal procedure in GST, as per the provisions for appeal and revision in GST:

Appeal Level Orders Passed By Can Appeal To
1st Adjudicating Authority First Appellate Authority
2nd First Appellate Authority Appellate Tribunal
3rd Appellate Tribunal High Court
4th High Court Supreme Court

Now, since India follows a dual GST structure, a natural question which arises is – should an appeal need to be made to both CGST as well as SGST / UTGST authorities. As per the provisions of GST appeals and revisions, both CGST as well as SGST / UTGST officers are empowered to pass orders, and an order passed under CGST will also be deemed to be applied to SGST / UTGST. However if an officer under CGST has passed any order, any GST appeal and revisions against that order, will lie only with the officers of CGST. The same will apply in the case or orders passed under SGST / UTGST.

Fees for filing GST appeals process

All appeals must be made by filling the prescribed GST appeal formats and by paying the required fees. The fee will be the full amount of tax, interest, fine, fee and penalty arising from the challenged order and a sum equal to 10% of the remaining amount of tax in dispute arising from the order, for which an appeal has been filed.

In cases, where an officer or the Commissioner is appealing, fees will not be applicable.

GST appeals and revisions – authorized representative

In case a person is not able to appear personally before the requisite GST appeal authority, he may assign an authorized authority to appear on his behalf. An authorized representative may be any one of the following:

  • A relative
  • A regular employee
  • A lawyer practising in any court in India
  • Any Chartered Accountant / Cost Accountant / Company Secretary, with a valid certificate of practice
  • A Retired Officer of the Tax Department of any State Government or of the Excise Department whose rank was at least that of a Group B gazetted officer*
  • Any tax return preparer

*Note: Retired officers cannot appear in place of the concerned person within 1 year from the date of their retirement, as per the provisions of GST appeals and revisions.

Scenarios when GST appeal cannot be filed

As per the provisions for appeals and revisions under GST, appeals cannot be made for the following decisions taken by a GST officer –

  • An order to transfer the proceedings from one officer to another officer
  • An order to seize or retain books of accounts and / or other documents
  • An order sanctioning prosecution under the GST Act
  • An order allowing payment of taxes and other amounts in instalments

Also, it may be noted that the Board or the State Government may, on the recommendation of the Council, fix minimum monetary limits for which a GST officer can approve and regulate the filing of appeals. This will avoid unnecessary litigation expenses, where the expense does not justify the amount of tax which is under dispute. In such cases also, an appeal will not be feasible.

When to Pay GST – Liability for Death, Dissolution & Other Cases

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In our previous blog, we had studied about various provisions which defined the liability to pay unpaid GST for certain business specific scenarios, such as transfers, mergers and liquidations. In this blog, we will go through some more company specific scenarios – such as when to pay GST and the associated liability in case of death, dissolution, partition, termination and reconstitution.

Liability in case of death

In case a taxable person who is liable to pay unpaid tax, interest or penalty dies, then the following provisions are to be followed to understand when to pay GST and by whom:

  • If business if continued – If the business is carried on after the death of a person, by his legal heir or legal representative or any other person, then the legal heir or legal representative will be held liable for the unpaid dues
  • If business is discontinued – If the business carried on by the person is discontinued, whether before or after his death, his legal heir or legal representative will be liable to pay the unpaid amount. However, the payment will be made out of the estate of the deceased, only to the extent up to which the estate is capable of meeting the unpaid tax, interest or penalty. At any point in time, the legal heir or legal representative will not be personally liable and needs to be aware about when to pay GST i.e. the pending dues.

Note: The liability in case of death will hold true if the unpaid tax, interest or penalty was determined before the death of the taxable person but is unpaid or undetermined after death.

Liability in case of partition of HUF / AOP

In case a taxable person who is liable to pay unpaid tax, interest or penalty is part of Hindu Undivided Family (HUF) or an Association of Persons (AOP), and the property of the HUF or AOP is partitioned amongst the various members or group of members, then each member or group of members, shall be jointly and severally, liable to pay the unpaid tax, interest or penalty, up to the time of the partition, and thus needs to be well informed about when to pay GST.

Note: The liability in case of partition of HUF / AOP holds true if the unpaid tax, interest or penalty was determined before the partition but is unpaid or undetermined after partition.

Liability in case of dissolution of firm

In case a taxable person who is liable to pay unpaid tax, interest or penalty is a partnership firm, and the firm is dissolved, then every person who was a partner shall be jointly and severally, liable to pay the unpaid tax, interest or penalty due from the firm, up to the time of dissolution. Such a person needs to understand the liability provisions in order to determine when to pay GST.

Note: The liability in case of dissolution of firm will hold true if the unpaid tax, interest or penalty was determined before the dissolution but is unpaid or undetermined after dissolution.

Liability in case of termination of guardianship or trust

In case a taxable person who is liable to pay unpaid tax, interest or penalty is either a guardian of a ward on whose behalf the business is carried out by him, or, is a trustee who carries on the business under a trust for a beneficiary, and the guardianship or trust is terminated, then the ward or the beneficiary shall be liable to pay the unpaid tax, interest or penalty due from the taxable person, up to the time of termination, post which the due date i.e. when to pay GST can be determined.

Note: The liability in case of termination of guardianship or trust holds true if the unpaid tax, interest or penalty was determined before the termination but is unpaid or undetermined after termination.

Liability in case of discontinuance of business by firm, HUF or AOP

In case a taxable person who is liable to pay unpaid tax, interest or penalty is either a firm or a HUF or an AOP, and the firm, HUF or AOP has decided to discontinue the business for some reason, then the following provisions are to be followed to estimate liability and understand when to pay GST:

  • Tax, interest or penalty payable by such a firm, HUF or AOP, up to the date of discontinuance may be determined, as if no discontinuance had taken place
  • Every person, who at the time of the discontinuance, was a partner of the firm or HUF or AOP, shall be jointly and severally, liable for the payment of unpaid tax, interest and penalty, as if he were himself a taxable person.

Note: The liability in case of discontinuance of business will hold true if the unpaid tax, interest or penalty was determined or imposed before or after the discontinuance.

Liability in case of reconstitution of firm or AOP

In certain cases, there are changes made to the constitution of a firm or an association of persons (AOP), which is known as a reconstitution. In such cases, all the partners of the firm or members of the association, who were there at the time of the reconstitution, shall be jointly and severally, liable to pay the unpaid tax, interest and penalty, as they exist either before or after the reconstitution. The liability in case of reconstitution of firm or AOP will hold true under all circumstances, and will need to be understood by all stakeholders who need to then become aware of when to pay GST.

Special GST Recovery Provisions

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Void transfer of property

As we have discussed in our previous blog, the department can seize properties belonging to the defaulter to recover the due tax amount. Sometimes, in order to avoid such seizures, the taxpayer transfers the property via sale, mortgage, exchange etc. after the amount has become due – the intention being to evade paying the tax amount which is due.

To handle such a scenario, the provisions have been laid down, which state that transfer of property will become void, whenever there is a tax amount due to be paid.

However, the transfer will not be held as void, provided:

  • Transfer has been made for an adequate consideration
  • Transfer has been made in good faith, i.e. without any intention to cause fraud
  • The taxpayer has not received any notice regarding pending tax dues or proceedings at the time of transfer
  • Prior permission of the proper officer has been obtained

Tax to be the first charge on property

As per the GST recovery provisions, any tax amount which is due, including interest and penalty, will be the first charge on the property of the defaulter, and will override all laws, except the Insolvency and Bankruptcy Code.

For example, Manjunatha Traders owes INR 20,000 as tax due amount as well as INR 1,00,000 as loan to the bank. Manjunatha Traders has a vehicle worth INR 80,000. However, the due tax amount of INR 20,000 will be the the tax first charge on property i.e. the vehicle, post which the remaining INR 60,000 may be taken by the bank against the loan.

Provisionally attaching property to protect revenue

If at any point in time, the commissioner is of the opinion, that the government revenue is at stake, then he has the authority to provisionally attach any property of the defaulting taxpayer. Such a provisional attachment will have a validity of 1 year.

Properties are generally treated as a temporary security for the purpose of provisional attachment, especially when there is a strong suspicion that the defaulter will abscond. That is the reason why the provision has been made to include bank accounts also into such property and include them as part of provisional attachment of property to protect revenue.

Appeal and Revisions

If the taxpayer files for an appeal or revision against the notice of demand received, then either of the following can occur, as far as the decision is concerned:

  • Due Amount is Increased – In this case, the commissioner will serve another notice of demand for the difference amount. The old amount will anyway be covered by the notice issued earlier.
  • Due Amount is Decreased – In this case, the commissioner will inform the taxpayer about the reduction, and also apprise the authority with whom the recovery proceeding under GST is pending. No new notice will be issued in this case.

Thus, it is important for businesses to not only be aware of the demand provisions, but also the GST recovery provisions, so that a clear clarity exists between what is deemed legal and what is deemed illegal. However, there are certain scenarios – such as transfer of business, mergers, demergers, liquidation etc., which can make recovery of GST a tricky situation for the department. In our next blog, we will go through the provisions in place to determine liability in the case of certain business cases.

Liability to Pay GST which is unpaid – For Stakeholders

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Liability to pay GST – For Agent and Principal

If an agent supplies or receives any taxable goods on behalf of his principal, then both the agent and the principal will be liable to pay unpaid GST, jointly and severally. This defines the liability to pay GST for both agents and principal.

Liability of Directors of Private Company

If a private company does not pay its dues, then the directors of the company will become jointly and severally liable for the dues, i.e. there will be some personal liability for directors. In this case, only the directors who were in office during the period when the tax was due, will have the liability to pay GST. However, if a director can prove to the tax commissioner that the non-payment was not due to any negligence or breach of duty due to his part, then he will not be held liable.

Note: Nothing has been specified as such in the GST Act with regards to conversion or transfer of a private company to a public company. However, a rule in this section states, that this provision does not apply when a private company is converted to a public company. Thus, it can be interpreted to mean that this provision does not apply to public limited companies.

Liability of Partners of a Partnership Firm

In a partnership firm, all the partners have unlimited liability. Similarly under GST, the partners of the firm are jointly and severally liable to pay unpaid GST which is due irrespective of any clause in the partnership deed or any other law.

In case of retirement of a partner, the commissioner must be informed of the same by the firm or the retiring partner. This is because, it could be possible that the retiring partner could have the liability to pay GST until the date of his retirement. If any intimation regarding the retirement is not given within 1 month, the retiring partner will continue to face liabilty for unpaid GST, till such an intimation is received by the commissioner.

Liability of Guardians, Trustees, Agents

Liability to pay GST comes into play when any business is conducted by a guardian or trustee or agent on behalf of and for the benefit of a minor or an incapacitated person. In case of any tax amount due, both the guardians or trustees or agents and the beneficiary will be liable to pay under the GST Act, and the due amount may be recovered from both parties. Thus, it is important to understand GST liability of guardians, GST liability of trustees and GST liability of agents, for such scenarios.

Liability of Court of Wards

This scenario is applicable, when the estate of a taxable person owning a business, is under the control of the Court of Wards or the Administrator General or the Official Trustee or any receiver or manager appointed by a court. In such a case, if the business owes any amount under GST, then all entities will be equally held liable, i.e. the Court of Wards, the Administrator General, the Official trustee, any receiver or manager along with the taxable person.

Liability for GST – Transfers, Mergers & Liquidation

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Liability for GST during transfer of business

If a taxable person transfers his business, either wholly or partly, to another person, then both the taxable person and the person to whom the business is transferred, will be having liability for GST – jointly and severally, wholly or to the extent of such a transfer, to pay the tax amount which is due, which will include tax, interest and penalties. It does not matter whether the due tax amount was determined before and after the transfer of business under GST, as long as it is unpaid.

All forms of transfer, ranging from sale, gift, lease, leave and license, hire etc. will be covered under GST liability in transfer of business.

Apart from the unpaid tax amounts, the new owner of the business will also have the liablity to pay GST from the date of transfer. If he carries on the business in a new name, which is different from the original, then he must apply for an amendment of his registration certificate, which will prevent any legal complications.

Liability in case of merger or amalgamation of companies

There could be situation where companies enter into an amalgamation or merger under GST. As per the GST provisions, if two or more companies merge or amalgamate, then they are individually have liability for GST, provided:

  • Under GST, merger or amalgamation has happened due to the order of a court or tribunal
  • Order is to take effect from a date earlier to the date of the order i.e. in retrospective effect
  • Both companies have supplied goods and / or services to each other during the period in between the order date to order effect date

It is to be noted that the merging companies will be treated as separate companies under GST till the date of the order and not the order effect date. Their registrations will stand cancelled on the date of the order.

Liability in case of company liquidation

When any company is being wound up, either under the orders of a court or Tribunal or otherwise, every person who is appointed as a receiver of any assets of that company, will need to inform the Commissioner of his appointment as a liquidator, within 30 days. Post this, the Commissioner may conduct enquiries to confirm the same, and then notify the final amount to the liquidator, which in his opinion, will be sufficient to provide for any tax, interest or penalty, which is payable by the company at that point in time. This amount will need to be communicated to the liquidator by the Commissioner within 3 months of receiving the appointment intimation.

When any private company is wound up, the scenario is little different. If, any tax, interest or penalty payable by the company for any period (whether before or in the course of or after its liquidation) cannot be recovered, then every person who was a director of the company at any time during the period for which the tax was due shall, jointly and severally, have liability for GST payment, interest or penalty. However, if he manages to prove to the Commissioner that such a non – recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company, then he may be excused from paying the due amount.

Recovery of Tax under GST

Recovery-of-Tax-under-GST

When to initiate proceedings for Recovery of Tax?

As per the recovery provisions under GST, if the amount payable by a taxable person, remains unpaid, even after 3 months from the date of issuing the Order for demand of tax, then the recovery of tax under GST will be initiated. However, if the proper officer considers it urgent in the interest of revenue, he may state reasons recording in writing, and direct the concerned taxpayer to make payment in a reduced period as well. In any case, if the demand is not paid in the time specified, then the department will initiate proceedings for tax recovery under GST.

What are the modes of recovery of tax?

The proper officer may recover the tax due in the following tax recovery modes:

  • Deduction of due amount from the tax amount payable to such person by the department
  • Recovery of tax by way of detaining and selling any goods belonging to such person
  • Recovery of tax from another person, from whom money is either due or may become due to such person
  • Recovery of tax from another person, who holds or may subsequently hold money for or on account of such person, to pay to the credit of the Central or a State Government
  • Detention of any movable or immovable property belonging to such person, until the amount payable is paid. If the dues are not paid within 30 days, the said property is to be sold and with the proceeds of such sale the amount payable and cost of sale is to be recovered
  • Recovery of tax through the collector of the district, in which such person owns any property or resides or carries on his business, as if it were an arrear of land revenue. The proper officer will need to prepare a certificate specifying the amount due from such person and hand it over to the concerned collector, for this purpose
  • Recovery of tax by way of application to the appropriate magistrate, who in turn shall proceed to recover the amount as if it were a fine imposed by him
  • Recovery of tax via enforcing the bond or instrument executed under the Act or any rules or regulations made under the Act
  • Recovery of tax done by the proper officer of the State Government or Union Territory Government, wherein, any CGST arrears will be recovered as if it were an SGST / UTGST arrear. Such an amount will be recovered, and then later credited to the account of the Central Government. In case the amount recovered by this means, is less than the amount due, then the amount will be apportioned among the Central Government and State / UT Government in proportion to the amount due to each authority

Provision for paying taxes in Instalments

If the taxpayer cannot pay all the GST dues i.e. tax, interest and penalty, in a lump sum or within the stipulated date, then he can file an application to the Commissioner requesting to pay in instalments. Basis this application, the commissioner can either extend the due date of payment, or, allow the taxpayer to pay the amount in instalments. In either case, the reasons for accepting and rejecting this request, have to be provided in writing.

When paying taxes in instalments however, the taxpayer has to remember the following conditions:

  • Instalments are payable every month
  • A maximum of 24 instalments are allowed i.e., the time of payment can be extended for a maximum of 2 years
  • Interest at 18% must be paid along with the instalment
  • All instalments must be paid on time. A single default will cause the instalments to cease and the entire outstanding balance will become due on that date, and will be recoverable, without any notice

However, please note that this option of paying in instalments is not available for dues under self-assessment. Any tax under self-assessment must be paid in one go.