Rectification of GST orders

*Rectification of GST orders*

On the lines of section 154 of Income tax Act for rectification of Mistakes apparent from record, GST law also contains provisions of rectification of any decision or order or notice or certificate. 

*RECTIFIABLE ORDERS*

As per section 161 of the act ANY

(a) Decision

(b) Order

(c) Notice

(d) Certificate or

(e) any otherdocuments

issued or passed by any authority can be rectified. Such as 

(a) Assessment order issued to registered person for non-filing of returns u/s 62.

(b) Assessment order issued to unregistered person for non-filing of returns u/s 63.

(c) Assessment order in certain special cases u/s 64

(d) Notice or assessment order issued u/s 73 or u/s 74.

(e) Notice issued to the person who collected tax but not deposited to government u/s76.

(f) Penalty order issued u/s 122, u/s 123, u/s 125, u/s 127.

(g) Order of detention or seizure on the person transporting the goods u/s 129.

(h) Order of confiscation u/s 130.

(i) Refund order u/s 54

(j) Errors in particulars registration certificate issued by department.

(k) Provisional assessment order passed u/s 60.

A rectification is done when there is an error which is apparent on the face of record in such decision or order or notice or certificate or any other document. Thus, errors which involves question of law cannot be rectified. However Mistake which can be established by a long-drawn process of reasoning on a decision on a debatable point of law is not a mistake apparent from the record - T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 (SC).

*RECTIFIABLE AUTHORITY*

As per section 161 of the act rectification can be done by

(a) Officers (who passed original order) appointed under this Act, or (i.e., Sui moto)

(b) On application for rectification by officer appointed under the SGST Act or under UTGST Act, or

(c) On application for rectification by person who has been affected by such decision, order, notice etc.

Thus , authority who passes order / notice etc. can only rectify it.

Authority mentioned u/s 161 not defined in the act however as its only adjudicating authority who can issue/pass any order and notices under this act section 2(4) of the act defines "adjudicating authority" as any authority, appointed or authorised to pass any order or decision under this Act, but does not include the Central Board of Indirect Taxes and Customs, the Revisional Authority, the Authority for Advance Ruling, the Appellate Authority for Advance Ruling, the Appellate Authority, the Appellate Tribunal and the Authority referred to in sub-section (2) of section 171.

As per section 102 of the act any order of AAR or AAAR may also be rectified.

*NONRECTIFIABLE ORDERS*

Orders notice etc. of following authorities cannot be rectified:

(a) Central Board of Indirect Taxes and Customs,

(b) the Revisional Authority appointed or authorised for revision of decision or orders as referred to in section 108.

(c) the Appellate Tribunal and the Authority

Further orders passed by an officer appointed  order passed by officers appointed under CGST act cannot be rectified by officers appointed under SGST Act or UTCGST Act.

*TIMELINE*

There is a time limit within which application for rectification should be made and rectification order should be passed. As per section 161 (1) of the act application for rectification shall be made with a period of three months from the date of issue/pass of such decision or order or notices or certificate or any other documents.

Rectification should be done with in six months from the date of issue of such decision or order or notice or certificate or any other document. thus, rectification order should be passed with six months of original order passed. Thus, if original order passed on January 01, 2021 than application for rectification must be made on or before March 31,2021 and rectification should be done within six months of original order i.e., June 30,2021 or before.

However as per second proviso to section 161 of the act time limit of six month will not apply in case of cases where the rectification is purely in the nature of correction of a clerical or arithmetical error, arising from any accidental slip or omission. Thus, in these cases rectification can be done anytime, and time limit of six months will not apply here.

As per rule 142 (8) of CGST Rules, 2017 Where a rectification of the order has been passed in accordance with the provisions of section 161 or where an order uploaded on the system has been withdrawn, a summary of the rectification order or of the withdrawal order shall be uploaded electronically by the proper officer in FORM GST DRC-08 It is imperative to note that there is no standardized form of application in which request can be made for rectification.

Section 161 imposes a duty upon the authority to make an order on an application for rectification within six months from the date of the receipt of the application. It, thus, enjoins a duty upon the authority; at the same time, it does not provide for consequences, in case the authority fails to perform his duty as envisaged by section 161. This provision enjoins upon the authority to act within the specified time (six months from date of receipt of application) and is directory. It cannot be construed to be a mandatory provision to defeat or frustrate the remedy available to a person on account of failure of the tax authority to perform his duty within the specified time.

As per third proviso of section 161 of the Act where such rectification adversely affects any person, the principles of natural justice shall be followed by the authority carrying out such rectification. Therefore, if rectification order passed by authority adversely affecting to the concerned person (such increase in output liability, disallowance of ITC, cancellation of registration, etc) than authority must follow principles of natural justice.

*Rectification Vis a vis-à-vis Revision by revisional Authority*

As per section 108 Revisional authority (RA) has power to revise the order or decisions passed by adjudicating authority. Its is important to note that RA revise orders passed by adjudicating authority only and only if is order passed is so far as it is prejudicial to the interest of revenue and is illegal or improper or has not considered certain material facts, whether available at the time of issuance of the said order or not or in consequence of an observation by the Comptroller and Auditor General of India. However, on the other hand rectification of an order, notices etc. can be done even when it is in favor of taxpayers.

*Rectification Vis a vis-à-vis Appeal*

Any person aggrieved by any decision or order passed by an adjudicating authority may appeal to such Appellate Authority within three months from the date said decision or order is communicated to such person. When issue is not error which is apparent on the face of record and involve question of law then remedy of rectification u/s 161 is not available and person will have to adopt appeal route to correct the impugned order. Here it also important to note that appeal can be made against order passed whereas under rectification not only order but other matters such as decision, notice, certificate issued, or any other documents issued can also be rectified.

*IMPORTANT SC ORDER*

 it is important to note that in the case of Hind Wire Industries Ltd. v. CIT [1995] 212 ITR 639/80 Taxman 79 (SC)supreme court held "'Order' includes amended rectified order also", thus application can be made for rectified order as well. Therefore, once an order is amended to give effect to original order, period of limitation under section 161 would commence from amended order and not from original order.

Ca Amresh Vashisht

*Budget proposals on goodwill:*

1. Whether goodwill is a depreciable asset or not has been a matter of litigation. Supreme Court in the case of Smiff securities has ruled that depreciation could be provided on acquired goodwill. 

2. Sec 32(1) does not explicitly say that the term asset excludes goodwill for calculating depreciation. 

3. So now in this context, Finance Act 2021 has put to rest this controversy by introducing provisions making goodwill a non depreciable asset. 

4. Following amendments have been proposed:

a. Sec 2(11) defining block of assets has now excluded goodwill from the same. 

b. Sec 32(1)(ii) now provides that goodwill is not an asset for providing depreciation. 

c. Sec 50 provides that where goodwill is already a part of block of assets, WDV and capital gains shall be determined as prescribed. 

d. Sec 55 now provides that in case goodwill has been purchased from a previous owner, the cost of acquisition shall be the purchase price less depreciation already provided, if any

Best judgment’ assessment awaits GST return non-filers

NEW DELHI: Thousands of GST non-filers, or those who did not file returns, have received an auto-generated letter from the authorities, asking them to file their returns or face the prospect of the tax department assessing their liability and asking them to pay. Although the GST law provided for use of “best judgment” assessment, it’s a provision that is only being used now to coax those who have not filed their returns, and paid up GST, to clear dues to the government. Sources said GST authorities have stepped up their drive to maximise collections weeks ahead of close of the financial year. This has been a particularly difficult year for the tax department as lockdown resulted in a massive drop in collections and forced officials to go slow on acting against non-filers and wrong doers. Since October, authorities have swung back into action, launching an offensive against those issuing or dealing in fake invoices and prodding others to file returns, resulting in a record 90 lakh filings in January, when collections also touched an all-time high of nearly Rs 1.2 lakh crore.

A tax consultant with a global firm said that GST Network has developed several tools to enable the tax department to chase those who are non-compliant. “When non-filers do not file GST returns within 15 days of notice for filing returns, the assessing authority on 16th day is empowered under section 62 of CGST Act to pass best judgment assessment order, assessing the tax liability on the basis of available material. This assessment order is deemed withdrawn if tax is paid and a return is filed within 30 days, failing which recovery proceedings can be initiated by authorities unless the order is challenged in appeal after payment of 100% of admitted tax and 10% of the disputed amount, which is the precondition,” tax lawyer R S Sharma explained. Already, tools have been deployed to detect and act against tax filers with a divergence in sales reported in the initial and final returns. Besides, the department has also released the standard operating procedure (SOP) for the immediate suspension of registration of a person, as a measure to safeguard interest of revenue department in case discrepancies or anomalies are observed, indicating a violation of the law and the rules.

No ITC on Demo vehicles purchased even though in the course of business

The Hon’ble AAR Madhya Pradesh in M/s. Khatwani Sales and Services LLP [Order No. 13/2020 dated July 23, 2020] held that since the demo vehicles do not comply to any of the conditions prescribed in Clause (A), (B) and (C) of Section 17(5)(a) of the Central Goods and Service Tax Act, 2017 (“CGST Act”), therefore no Input Tax Credit (“ITC”) can be claimed on the demo vehicles purchased by the authorized dealer of KIA. Facts:- M/s. Khatwani Sales and Services LLP (“Applicant”) are authorized dealer of KIA for sales and services of vehicles. The Applicant purchases the vehicles from the supplier against tax invoices after paying tax and capitalizes the demo vehicles in the books of accounts. Applicants contentions:- The demo vehicles are used for imparting training about the features of the car andtraining on driving such vehicles to the prospective buyer and same would be used for test drive of the similar vehicle model which will generate taxable revenue and helps in furtherance of business raising sales of the vehicles. That ITC should be allowed as it satisfies the criteria mentioned in Clause A of Section 17(5)(a) of the CGST Act, as demo vehicles are used for furtherance of business by increasing the salesof similar vehicles and of Clause C of Section 17(5)(a) ibid as demo vehicles are used for imparting training about the features of the car, training on driving such vehicles to the prospective buyer and used for test drive after which sales can be generated easily. The Applicant cited the following advance rulings which endorses the view that ITC is allowed on capital goods being demo cars: M/s. A.M. Motors (AAR Kerala) [Order No. KER/10/28 dated September 26, 2018] M/s. Chowgule Industries Private Limited (AAR Goa) [Order No. GOA/GAAR/07 of 2018-19/4796 dated March 29, 2019] M/s. Chowgule Industries Private Limited (AAR Maharashtra) [Advance Ruling No. GST-ARA-18/2019-20/B-121 decided on December 26, 2019] That the vehicles used for demo purpose are sold in subsequent year at Written Down Value (WDV). It was also submitted that they will abide with the provisions of Section 18(6) of CGST Act at the time of sale of the demo v It was declared that they will not claim depreciation on tax component of the capitalized demo vehicles. Issue:- Whether ITC is available to the Applicant on purchase of demo vehicles? Held:- The Hon’ble AAR Madhya Pradesh in Case No. 02/2020 Order No. 13/2020 order dated July 23, 2020 has held that: As per Section 17(5)(a) of the CGST Act, ITC shall be available in respect of motor vehicles which are further supplied as such, used for transportation of passengers or which are used for imparting training of driving of such vehicles. It cannot be said that the demo vehicles is for further supply by subsequent sale of demo vehicle after one or two years. The sale of demo vehicle in the subsequent year on which depreciation has been charged is to be treated as a sale of used second-hand vehicle andnot sale of a new vehicle. Found that, demo vehicles used for demo andtrial to the customers are not covered in the exception of Section 17(5)(a) of the CGST Act: Clause (A) i.e. for further supply of such vehicle as such. Clause (B) i.e. for transportation of passengers. Clause (C) i.e. for imparting training on driving of such vehicles. Hence, though the Demo vehicles are for furtherance of business of the Applicant but they are not eligible for ITC in view of provisions of Section 17(5)(a) of CGST Act. Further, the eligibility of ITC on demo vehicles cannot be decided on the basis of their capitalization or payment of GST at the time of their sale in the subsequent year. Held that, there is clear provision in law for admissibility of ITC on motor vehicles in any of the three conditions prescribed in Clause (A), (B) and(C) of Section 17(5)(a) of the CGST Act. Since the Applicant does not qualifies any of the above conditions hence, he is not eligible for ITC on demo vehicles in view of provisions of Section 17(5)(a) ibid. Our comments:- It is to be noted that in the cases M/s. Chowgule Industries Private Limited (AAR Maharashtra) (supra) wherein it was ruled that since the demo vehicles were being used for a specified period and then sold at after paying the applicable taxes on sale value at that point of time. Therefore, it amounted as for making further supply and no time limit prescribed in the CGST Act for making such further supplies. Thus, the applicant is eligible to avail ITC. Similar stand was taken in M/s. Chowgule Industries Private Limited (AAR Goa) and M/s. A.M. Motors (AAR Kerala) (supra) to hold that the capital goods which are used in the course or furtherance of business, is entitled for ITC and as the purchase of demo car is in the furtherance of business, the applicant is eligible for ITC. Furthermore, this activity does not come under Section 17(5) of the CGST Act, as after a limited period of use as demo car, the vehicles are sold at the written down book value. Thus, the above rulings have allowed ITC stating that selling of demo cars amounts to further supply as enumerated under clause (A) of Section 17(5)(a) of the CGST Act. Hence, we are of the view that demo vehicles or goods certainly used in the course or furtherance of business and credit is eligible to the suppliers of goods but, such divergent rulings are only creating hurdles in making GST law as Good and Simple Tax. Relevant Provisions:- Section 17(5)(a) of the CGST Act: “(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:- (a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:- (A) further supply of such motor vehicles; or (B) transportation of passengers; or (C) imparting training on driving such motor vehicles;”