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Role of Intention for claiming exemption under section 54 of Income tax act

Role of Intention for claiming exemption under section 54 of Income tax act

Introduction

To understand the benefits of Section 54, it is essential to understand the key essentials of the same. A Long term capital asset is that which is held for more than 36 months or 24 months or 12 months, as the case may be, immediately preceding the date of transfer is treated as long-term capital asset. The current applicability  of tax under Long term Capital gain on all transactions except on sale of equity shares/ units of equity oriented fund is 20%.Exemption from using the word 'Limited' or 'Ltd' in a company name

Factual Matrix

I had sold a house on April 4 2019 and had LTCG of 38 lakhs by the sale of this property. I had deposited an amount  in the Capital Gains Account of the State Bank of India by following proper documentation. I had purchased a new house and had made a payment of  40lakhs by Demand Drafts part of the payments on 30th March 2019 to the owner. I have an agreement with the owner. The owner has informed me today that he did not encash the DD as yet due to Covid Situation.  I have evidence that a DD is prepared but I do not have the receipt.

Available provisions under Income Tax Act?

[Section 54] -Profit on sale of property used for residence

What is the amount of capital gain exemption available under section 54?

The Section 54 of the Income Tax Act allows the lower of the two as exemption amount for a taxpayer:

  1. Amount of capital gains on transfer of residential property, or
  2. Investment made for constructing or purchasing a new residential property.

The balance amount (if any) will be taxable as per the income tax act.

Conditions for claiming exemptions under 54.

  1. Assessee: individual or HuF
  2. Which asset to transfer: residential house(buildings or lands appurtenant thereto)
  3. It must be a long-term capital asset
  4. Income from such house should be chargeable to tax under the head “Income from House Property”

Where during any assessment year, the assessee has exercised the option to purchase or construct two residential houses in India, he shall not be subsequently entitled to exercise the option for the same or any other assessment year.

This implies that if an assessee has availed the option of claiming benefit of section 54 in respect of purchase of two residential houses in Jaipur and Jodhpur, say, in respect of capital gains of rs. 1.50 crores arising from transfer of residential house at Bombay in the P.Y.2020-21 then, he will not be entitled to avail the benefit of section 54 again in respect of purchase of two residential houses in future even though the capital gains arising on transfer of the residential house does not exceed rs. 2 crore.

Amount of Exemption under section 54 will be lower of:

1 long term capital gains arising on transfer of residential house; or

2 amount invested in purchase/construction of new residential house or houses. (including the amount deposited in CGAS before due date of filing of return

If till the date of filing the return of income, the LTCG on such transfer of the house is not utilised (in whole or in part) to purchase or construct another house, then the benefit of exemption can be availed by depositing the unutilised amount into Capital Gains deposit account Scheme (CGAS) with any scheduled bank.

If the amount deposited in the Capital Gains account Scheme in respect of which the assessee has claimed exemption under section 54 is not utilised within the specified period for purchase/construction of the residential house, then the unutilised amount (for which exemption is claimed) will be taxed as income by way of long- term capital gains of the year in which the specified period of 2 years/3 years gets over. 

If the new house is also transferred within 3 years from date of acquisition or construction, the cost of the new house would be reduced by the capital gains exempted earlier under section 54.

Case Laws

Various tribunals and courts have taken into account the intention of the assessee to repurchase another residential house as a very essential component for sufficing the essentials of seeking exemption under Section 54 of the Income Tax act.

Where assessee had substantially complied with provisions of section 54(1) by purchasing new house property within prescribed time period, a mere non-compliance of procedural requirement under section 54(2) i.e. some delay in depositing amount in CGAS, could not stand in way of assessee in getting benefit under section 54.

Where assessee had executed an agreement to sell in respect of a house property and purchased a new residential property within one year from date of agreement to sell, even though sale deed could not be executed within time, section 54F relief was to be granted to assessee in respect of purchase of new residential property.

There are cases that allow that even if the new property is not bought in your own name, but in the name of some relatives, then it is allowed to claim the deduction.

If at all we have paid any advance in form of consideration in the light of the agreement to purchase, then the same can be allowed as a claiming the exemption of section 54 of IT Act.  Where advance was paid by assessee to purchase residential flat prior to sale of capital asset, such advance was to be considered as part of purchase for purpose of section 54

If we say that the encashment was beyond our control, yet we had our intentions to purchase the property, then we can claim it in light of;

Where assessee sold residential property and entered into an agreement with a builder for purchasing flat for which he invested sale proceeds within prescribed period of two years, merely because assessee got occupancy certificate after 4 years and such delay was beyond control of assessee, assessee’s claim for deduction under section 54 was to be allowed.“

Few more judgements, bringing in liberal interpretation to the term purchase and the strict compliance of conditions. 

In our view, the question whether the above agreement was finally fructified is a different matter altogether. Assessee had in our opinion for all purposes satisfied the conditions u/s 54 of the IT Act, 1961, and earnestly demonstrated his intention to invest the capital gain in a residential house. We are therefore, of the considered opinion, that the assessee ought not have been denied the claim u/s 54 of the IT Act, 1961.

The court in the case of CIT v. Kuldip allowed a broader view of interpretation.- “It was observed that the word “purchase” used in Section 54 of the Act should be interpreted pragmatically in a practical manner and legalism shall not be allowed to play and create confusion or linguistic distortion. The argument that “purchase” primarily meant acquisition for money paid and not adjustment, was rejected observing that it need not be restricted to conveyance of land for a price consisting wholly or partly of money’s worth. The word “purchase”, it was observed, was of a plural semantic shade and would include buying for a price or equivalent of price by payment of kind or adjustment of old debt or other monetary considerations. It was observed that if you sell a house and make profit, pay Caesar (State) but if you buy a house or build another and thereby satisfy the conditions of Section 54, you are exempt. The purpose was plain; the symmetry was simple; the language was plain.”

Conclusion

Therefore in the light of the above stated case laws, a position can be derived that mere compliance necessities do not allow the taxing officers to withdraw the benefits of exemption provided under Section 54 of Income tax act. The inception of the section was brought in order to help the strive and achieve the goal of home for all and affordable housing facilities. With a liberal interpretation done as in Kuldeep Singh, only the aims and objectives of the legislature can be said to have been achieved. Thus if the assessee truly aims to and wishes without any malafide intention to purchase a single residential house for the purpose of residing, then that should be sufficient to claim the exemption under section 54 of Income tax act. 

Available remedies for reporting Tax Evasion in India : A comparative analysis

Available remedies for reporting Tax Evasion in India : A comparative analysis

Introduction 

The growing instances of tax evasion has created a huge nuisance for the revenue and treasury of India, causing a deficit for the government in spending into much needed portfolios such as infrastructure and education. Keeping these problems in mind, the government has time and again brought in force multiple schemes in order to curb such menace, creating an opportunity for individuals to come forward and disclose such wrongful evasions. In 2018, one such scheme was brought by the finance ministry, by enticing informants with a reward upto 5 Crores when the disclosures are related to foreign assets and upto 1 crore, when the disclosures are related to income tax and benami assets. Additionally the department of Income tax also maintains a e-portal for reporting such evasions in form of a tax Evasion Petition. Detailed analysis of the procedure is dealt into this article. What Is Tax Evasion? | The Motley Fool

 

Informant Reward Scheme 2018. 

‘Guidelines for grant of rewards to Informants, 2007’, as was issued in 2007 vide Board’s letter referred above, has been revised and “Income Tax Informants Rewards Scheme, 2018” has been issued in supersession of it with effect from date of issue. 

 

Informant under this scheme

A person will be considered an informant for the purposes of this Scheme only if he has furnished specific information of substantial tax evasion in a written statement in the prescribed form (Annexure – A to this Scheme) and, based upon which, an Informant Code has been allotted to him by the prescribed authority. No claim for reward shall be entertained from a person who is not an informant under this Scheme, even if such person has furnished some information in any manner.

“Explanation: A person cannot claim any reward under the scheme if he is not an informant under the scheme, even if such person has furnished specific information of income or assets in any other manner, e.g., through letter, e-mail, CD, WhatsApp, SMS, phone, posting in social networking site or publishing letter in newspaper or any other media.“

Procedure of furnishing information by Informant 

How application to be filed  

  • A person who wants to give information of substantial tax evasion in expectation of reward under this scheme may contact the DGIT (Inv.) (Directorate General of Income Tax Investigation )/PDIT (Inv.) ( Principal Director of Income Tax) /JDIT (Inv.) concerned. 
  • If he appears before DGIT (Inv.)/PDIT (Inv.), they will direct him to appear before JDIT (Inv.) concerned to furnish the information in the prescribed form (Annexure-A). If the jurisdictional JDIT (Inv) considers the information prima facie actionable, the person shall have to submit the information in prescribed format in Annexure – A by appearing in person before the JDIT (Inv), when called. In case of any difficulty, the person desirous of giving specific information may contact the PDIT (Inv) of the area. 
  • Where a person gives information to an Income Tax Authority other than DGIT (Inv.)/PDIT (Inv.)/JDIT (Inv.), such person should be asked to contact the DGIT (Inv.)/PDIT (Inv.)/JDIT (Inv.) concerned, and thereafter, the aforesaid procedure, as the case may be, for receiving the information is to be followed by these authorities. 

Finality of Decision

The decision of PDIT (Inv) will be final in the matter of allotment of Informant Code under this Scheme. 

For foreign persons

Where a foreign person wants to give information of undisclosed foreign income/assets of a person liable to tax in India, he may contact the Member (Investigation), CBDT, North Block, New Delhi-110001 either in person or by post or by a communication at email id memher.inv@incometax.gov.in with a copy to citinv-cbdt@nic.in for further action. 

Group Informants

If the information is furnished by a group of informants (more than one informant working together), the prescribed form, statements, etc. must be filled and signed by all such informants, jointly and Informant code will be allotted to each of them separately. The reward payable in such cases shall be disbursed in equal proportion, unless specified otherwise by such informants at the time of furnishing information in the prescribed form (Annexure-A). 

If an informant furnishes information in respect of more than one group of cases, the prescribed form at Annexure-A shall be filled and signed separately for each such group. However, in such a situation the Informant Code for such informant shall remain one and the same. 

The informant shall be liable to render assistance as may be required by the JDIT (Inv.) or any other investigating officer to whom the JDIT (Inv.) concerned may assign the investigation in the matter of information given by the informant. 

DsIT (Inv) are presently posted at Ahmedabad Name and address of offices from where contact details of JDsIT (Inv) can be obtained are given in Annexure B

The informant shall be given a unique Informant Code and the person will always be identified on the basis of that Informant Code. 

Liability for false evidence

It should be noted that furnishing false information/evidence is an offence and a person giving false information/evidence/statement will be liable to be prosecuted for such offence. 

Reward

 

Reward under this scheme can be granted in two stages : 

 

 

  • Interim Reward

 

 

 

  • Under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015 

 

  • Interim reward up to 3% of the additional taxes levied (which is directly attributable to the information furnished by him), under the Black Money (Undisclosed Foreign Income and Assets), Act, 2015, may be granted on statutory determination of undisclosed foreign asset/income following completion of assessment proceedings under sub-section (3) or (4) of section 10 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, subject to a ceiling of the Indian Rupees 50,00,000 (Rupees Fifty Lakh or five million) to an informant for the information given at a time in a single Annexure – A form when the authority competent is satisfied that assessment made is likely to be sustained in appeal and taxes levied are likely to be recovered. 

 

 

  • Under the Income Tax Act, 1961 ( fixed rate 1%, variable ceiling limit depending upon amt of cash seized)

 

  • Interim reward up to 1% of the additional taxes realizable, which is directly attributable to the information furnished by the informant, on the undisclosed income detected by the Investigation Directorate under the Income-tax Act, 1961, may be granted subject to a ceiling of Indian Rupees 10,00,000 (Rupees Ten Lakh or one million) to an informant for the information given at a time in a single Annexure – A form when the competent authority is satisfied that the additional taxes on the income detected are likely to be recovered. 
  • Where specific information of unaccounted/undisclosed cash is given by informant which leads to seizure of the cash exceeding Rupees 1,00,00,000 (Rupees one crore or Ten million) as undisclosed income/asset during search & seizure action u/s 132 of the Income-tax Act, 1961, the ceiling of interim reward shall be Indian Rupees 15,00,000 (Rupees Fifteen Lakh or One and half million) even though the rate will be same at 1% as above. 

Timeline for payment of interim reward

 

  • Under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015 

 

Within four months of completion of the relevant assessments under sub section (3) or (4) of Section 10 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 

  1. Under the Income Tax Act, 1961

Within four months of forwarding of final investigation report by the Investigation Directorate concerned to the Assessing Officer in cases where information of undisclosed income/assets liable under the Income-tax Act.

  1. Final reward 

For information of undisclosed income/assets liable under the Income Tax Act, 1961

(i)  The maximum amount of reward payable to an informant shall not exceed 5% of the additional taxes levied and realized, which are directly attributable to the information furnished by him, under the Income-tax Act, 1961 subject to a ceiling of Indian Rupees 50,00,000 (Rupees Fifty Lakh or Five nullum) after the assessment has become final on the issues relevant for determination of reward by appeals, revision etc. .

(ii)  If the informant has claimed reward for giving information of evasion of tax payable under Income Tax Act, 1961, as well as benami properties based upon substantially the same facts and has been found eligible for grant of reward under the Benami Transactions Informants Reward Scheme, 2018 as also the Income Tax Informants Reward Scheme, 2018, the total amount of reward under both the schemes taken together shall not exceed Rupees 1,00,00,000 (Rupees one crore or Ten million)

Timeline for final reward

All reward granting authorities shall endeavor to pay final reward to an informant eligible for such reward, within six months of fulfillment of the conditions mentioned in this scheme.

Factors relevant for determination of interim or final reward

The following factors may be considered for grant and payment of interim or final reward:

(i)  Fulfillment of conditions for grant of interim or final reward, as the case may be, mentioned in this scheme.
(ii)  Accuracy and precision of the information furnished by the informant.
(iii)  Extent of usefulness of information including supporting documents etc. provided by the informant.
(iv)  Extent and nature of assistance rendered by the informant in detection of undisclosed income/asset.,
(v)  In case of final reward, the amount of additional taxes levied and realised on the undisclosed income/asset detected, which is directly attributable to the information received from the informant.
(vi)  Risk and trouble undertaken and expenses incurred by the informant in securing and furnishing the information

Circumstances under which an informant will not be eligible to get any reward

No reward shall be granted to an informant under certain circumstances which may include the following:
(i)  Where the information is not provided in accordance with the Scheme
(ii)  If terms and conditions of the scheme are not fulfilled; or
(iii)  Where the information given is not of substantial tax evasion; or
(iv)  Where the information given is vague/non-specific and/or of general nature; or
(v)  Where the information given is already available with the Income Tax Department; or
(vi)  Where the information is not received directly from the informant but through any organization other than Income Tax Department; or
(vii)  Where additional taxes on the undisclosed income detected are not directly attributable to the information given by the informant; or
(viii)  Where Income Tax Department has evidence that the information given by the Informant has been shared by him or any other person authorized by him, with any other entity/agency including media; or
(ix)  In respect of incidental or collateral benefit which may arise to revenue in any other case as a result of the information furnished by the informant.

Nature of reward and prohibition on litigation/representation

Reward in accordance with this scheme shall be ex-gratia payment, which subject to this scheme, may be granted in the absolute discretion of the authority competent to grant reward. The decision of the authority shall be final and it shall not be subject to any litigation, appeal, adjudication and arbitration except review as provided below in this Schem 

  1. Tax Evasion Petition- to be filed under the E-Portal

Brief Introduction

The Central Board of Direct Taxes has launched an automated dedicated e-portal on the e-filing website of the Department to receive and process complaints of tax evasion, foreign undisclosed assets as well as complaints regarding benami properties.

Procedure for filing a tax evasion petition.

File complaint under the ‘Submit Tax Evasion Petition or Benami Property holding’ through a link on the e-filing website of the Department https://www.incometaxindiaefiling.gov.in/  under the head “Submit Tax Evasion Petition or Benami Property holding “. 

The complainants are required to choose whether:

(i) If they want to file a simple complaint regarding tax evasion, foreign undisclosed income/asset, benami property without claim for reward or

(ii) If they want to become informer and claim reward

The facility allows for filing of complaints by persons who are existing PAN/Aadhaar holders as well as for persons having no PAN /Aadhaar.

 

After an OTP based validation process (mobile and/or email), the complainant can file complaints in respect of violations of :

(i) the Income- tax Act, 1961,

(ii) Black Money (Undisclosed Foreign Assets and Income) Imposition of Tax Act, 1961 and

(iii) Prevention of Benami Transactions Act (as amended)

 

There are three separate forms designed for the above purpose”

(i) Form-1 Complaint regarding Tax Evasion

(ii) Form-2 Complaint regarding Undisclosed Foreign Assets, and

(iii) Form-3 Complaint regarding Benami Properties/Transactions

 

Upon successful filing of the complaint, the Department will allot a unique number to each complaint and the complainant would be able to view the status of the complaint on the Department’s website.

Note – The existing portal of the Department at www.incometaxindiaefiling.gov.in would not be available to taxpayers as well as other external stakeholders for a brief period of 6 days i.e. from 1st June, 2021 to 6th June, 2021.

Analysis

Upon a stark analysis of the various formats of disclosing tax evasion. The above mentioned two broad procedure formulates the exhaustive list.

  1. Tax evasion petition filed through the e-portal of the Income tax department
  2. Submission of complaint under the INCOME TAX INFORMANTS REWARDS SCHEME, 2018.

Procedural explanation

For ease and convenience the tax evasion petition is filed in the income tax e-portal. Where the option is availed to the informer, whether he/she wants to get rewarded for the information they are providing. Following few other procedural steps such as providing PAN/Aadhar details. The informer is then asked to fill Form 1 ‘Complaint Regarding Tax Evasion’. Upon successful filing of the complaint, the Department will allot a unique number to each complaint and the complainant would be able to view the status of the complaint on the Department’s website.

 

However in the case of the Informant Reward Scheme 2018. The procedure is described as above, the relevant difference between the scheme and petition is that the disclosure is made to the JDIT/DGIT/PDIT(Investigating) of the Income tax and the matter is then referred to the JDIT(inv) who inturn would admit the matter or reject the matter. The decision of PDIT (Inv) will be final in the matter of allotment of Informant Code under this Scheme.

 

Applicability of RTI on scheme and petition

Information in respect of investigation carried out by office of Directorate General of Income Tax (Investigation) in respect of TEP is not required to be intimated to complainant as said office is outside purview of RTI Act, 2005; only broad outcomes after completion of investigation could be communicated only when directed by High Court[1]

 

Even in the case of Shri Brij Ballabh Singh vs. DGIT (Investigation), Lucknow that complete disclosure of the outcome of a certain TEP can be misused and thus only a broad outcome can be provided as information to the initiator of the TEP. Thus, in case of information requested on the status of a TEP, the broad outcome can be provided without disclosing the details of the investigation and any other data that could hamper the process of investigation.

 

Therefore whether RTI can be filed for seeking status of Tax Evasion petition – Yes. Whether the RTI can be filed for seeking the status of the reward amount.[2]

 

However the same is not the case with the Informant Rewards Scheme 2018. The Central Board of Direct Taxes or the Income Tax Department does not provide feedback and/or update on the information received or subsequent actions taken thereon. Disclosure of information regarding specific taxpayers is prohibited except as provided under Section 138 of the Income-tax Act, 1961 and under Section 84 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, read with Section 138 of the Income-tax Act 1961 Directorates General of Income Tax (Investigation) are exempt from providing information under Section 24 of the Right to Information Act, 2005 read with Second Schedule thereof.

Efficiency of the systems? Possibility of willfully sitting on Information by authorities

In case of any grievance in the Informant Rewards Scheme 2018, the informant may contact the PDI1 (Inv) concerned who shall take necessary steps to redress the grievance expeditiously.

“In case it is found that the antecedents of the informant, nature of the information furnished by him in past and his conduct justify not taking cognizance of the information furnished by him, the matter shall be referred by the JDIT (Inv) to the PDIT (Inv) concerned and, if approved by the PDIT (Inv), it would be open to the JDIT (Inv) to ignore the information furnished by the informant.”[3]

Therefore it can be said that there lies a certain amount of discretion with the PDIT to sit on the information and not take any actions upon the said information to reopen the assessment or conduct any raid or search & seizure against the assessee in question, which may cause imparity to justice. Furthermore on non-application of the RTI act, the same cannot be brought in check by the informant and the tax evader can be left untaxed.

Thus on a comparative note, the Tax Evasion petition stands as a more proactive and vigilant form of mechanism in order to curb the tax evasion practises.

[1] Principal Director, Income Tax, v. Rajiv Yaduvansh [2021] 125 taxmann.com 100 (Delhi)/[2020] 429 ITR 369 

[2]https://itatonline.org/articles_new/wp-content/files/How_To_Use_The_RTI_Act_For_Maximum_Benefit_In_Income_Tax_Matters.pdf

[3] INCOME TAX INFORMANTS REWARDS SCHEME, 2018, LETTER [F.NO.292/62/2012-IT (INV.III)/26]., DATED 23-4-2018 

Author: Dhruv Chhajed

EditorAdv. Aditya Bhatt & Adv. Chandni Joshi

Advance ruling mechanisms under GST

Advance ruling mechanisms under GST

INTRODUCTION

An advance tax ruling is a written interpretation of tax laws. An advance ruling is often requested when the taxpayer is confused and uncertain about certain provisions. It is issued by tax authorities to corporations and individuals who request for clarification of certain tax matters. Advance tax ruling is applied before starting the proposed activity. By means of advance ruling a written interpretation is received on the basis of the companies or individuals as the case may be. This article discusses the nitty-gritties of the “Advance Ruling” mechanism of GST like, its purpose and objective and procedure. In addition to this, the effectiveness of the complete system is alsoSynopsis of the Entire Mechanism of Advance Ruling under GST - Corpbiz discussed. 

OBJECTIVES OF ADVANCE RULING

The advance ruling can be obtained by a registered taxpayer (i.e. who has a GST Registration certificate) on a current transaction, i.e. The transaction that has already been undertaken or a proposed transaction.

The objective of any advance ruling, including under GST is to-

  • Provide certainty for tax liability in advance in relation to a future activity to be undertaken by the applicant.
  • Attract Foreign Direct Investment (FDI) – By clarifying taxation and showing a clear picture of the future tax liability of the FDI. The clarity and clean taxation will attract non-residents who do not want to get involved in messy tax disputes.
  • Reduce litigation and costly legal disputes.
  • Give decisions in a timely, transparent and inexpensive manner.

 

PROVISIONS UNDER CGST ACT

“Advance ruling” means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in sub-section (2) of section 97 or subsection (1) of section 100 of the CGST Act, 2017, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.

 

Matters or questions specified in Section 97(2) & Section 100(1) of the CGST Act, 2017:

  1. Classification of any goods or services or both 
  2. Applicability of a notification issued under the provisions of CGST Act 
  3. Determination of time and value of supply of goods or services or both 
  4. Admissibility of input tax credit of tax paid or deemed to have been paid 
  5. Determination of the liability to pay tax on any goods or services or both 
  6. Whether applicant is required to be registered  
  7. Whether any particular thing done by the applicant with respect to any goods or services or  both amounts to or results in a supply of goods or services or both, within the meaning of that term. 

 

Section 100(1) of the CGST Act, 2017 provides that the concerned officer, the jurisdictional officer or an applicant aggrieved by any advance ruling pronounced by the Authority for Advance Ruling, may appeal to the Appellate Authority. Thus it can be seen that a decision of the Appellate authority is also treated as an advance ruling.

PROCEDURE OF OBTAINING ADVANCE RULING

Both the Authority for Advance Ruling (AAR) & the Appellate Authority for Advance Ruling (AAAR) is constituted under the respective State/Union Territory Act and not the Central Act. This would mean that the ruling given by the AAR & AAAR will be applicable only within the jurisdiction of the concerned state or union territory. It is also for this reason that questions on determination of place of supply cannot be raised with the AAR or AAAR.

(Section 97 Application for Advance Ruling) If applicant has doubts/problems w.r.t. classification, applicability of notifications, input tax credit, registration, liability of tax, time and value of supply or determination of supply of goods or services or both then he may apply for the advance ruling to advance ruling authority in form AAR 1 along with Fees of Rs 5000. for removing the doubts. 

(Section 98 Procedure on receipt of application) AAR may accept or reject the application after calling the records from the concerned officer. AAR shall before reject the application give opportunity of being heard and reasons of rejecting the application to the party. There may be a case if matter is pending or decided in the proceeding then application related to such matter shall not be admitted by the AAR. If AAR accepts the application, the ruling shall be pronounced within 90 days from the date of application. 

If on any point the opinion of members of AAR differ, then it states the point of difference and refers to AAAR for final discussion and ruling shall be pronounced by AAAR within 90 days. If on any point the opinion of members of AAAR is differ then no ruling can be pronounced further. 

Section 100 Appeal to Appellate Authority If any party, is aggrieved by the pronouncement of ruling of AAR, may appeal to the AAAR within 30 days from the date of receipt of ruling (extension 30 days if sufficient cause of delay) in FORM AAR 2 along with Fees Rs 10,000.

Section 101 Order of the Appellate authority Opportunity of being heard is given to the parties before passing the order by AAAR. Order shall be passed within 90 days from the date of filing of appeal and appellate order shall be communicated to parties. 

Section 102 Rectification of Advance Ruling If there is any mistake apparent on record found by the AAR itself or brought to its notice by jurisdictional officer or applicant, application for rectification can be made within 6 months from the date of order.

If rectification results in an increase in tax liability or reduction in input tax credit, OBH must be given by the AAR. 

Section 103 Binding effect of Advance Ruling Once the advance ruling is pronounced, binding on the applicant and jurisdictional officer unless there is change in law/facts/circumstances on the basis of which advance ruling had been pronounced by the AAR. 

Section 104 Advance Ruling to void in certain circumstances Advance ruling is declared void ab initio if it is found by the AAR/AAAR that ruling has been obtained by misrepresentation of facts or suppression of facts by the party and provision of the Act will be applied as if advance ruling had not been pronounced. Before passing the order opportunity of being heard shall be given to the party and order shall be communicated to the applicant and concerned officer.

 

 

CHALLENGING THE AAR ORDER

Since AAR is not the final authority, a pronouncement by AAR is prone to litigation. The Supreme Court has, in the case of Columbia Sports Wear held that the orders of AAR can be challenged by filing a Writ Petition before the High Court.

Moreover, SLP against an advance ruling could also be considered by the Supreme Court if it involves a question of principle of great importance or if a similar question is already pending before the Supreme Court.

EFFECTIVENESS OF ADVANCE RULING MECHANISM

The taxpayers preferred to resort to the AAR mechanism to know the GST implications beforehand instead of facing litigation to decide the matter at a future point of time. A taxpayer can make an application to AAR for ruling in respect of specified matters and obtain an advance ruling in respect of such matters within a relatively shorter span of time.

However, looking at the past rulings by AAR and Appellate Authority for Advance Ruling (‘AAAR’), the majority of rulings have been decided in favour of revenue. This may be because of the fact that the AAR & AAAR is constituted of the Central & State revenue officers without inducting any judicial members.

Further, different AARs have pronounced different rulings on similar issues. This results in compliance challenges for the taxpayers. Due to such divergent rulings, the same taxpayer may be compelled to follow different legal positions in different States for a specific transaction. Though the GST Council has proposed to establish a central-level appellate authority to deal with such cases which can lend some uniformity to such rulings but to expect a judicial approach in such rulings would still be a distant dream.

CONCLUSION

The whole intent behind establishing the AAR was to reduce litigation and to provide certainty to the taxpayers. However, with revenue favored rulings and divergent rulings in case of the same transaction, it appears that the purpose of establishing AAR is not met by the Government. Instead of reducing litigation, the rulings are likely to increase the litigation because of pro-revenue rulings and divergent views on the same transaction.

Additionally, there are divergent views by the High Courts on allowing the writ petition filed against the orders passed by the advance ruling authorities. The legal position with respect to challenging the correctness of orders passed by AAAR before Courts is yet to be crystalized. The view of the Government is that the advance ruling mechanism is beneficial to the assessed as it reduces litigation, however, what would be the benefits to an assessed if the matters are always held in favor of the revenue by AAR/AAAR.

OFFENCES/PENAL PROVISIONS UNDER CENTRAL GOODS AND SERVICES TAX ACT (CGST), 2017

OFFENCES/PENAL PROVISIONS CENTRAL GOODS AND SERVICES TAX ACT (CGST), 2017

The Act, declares the offences that attract penalty as a consequence, apart from the requirement to pay the tax and applicable interest. Some of the offences listed under this Act, may also attract prosecution but that depends on the gravity of the offence defined in that section.

Surat CGST arrested two for fraud through non existing and bogus firms

 

OFFENCES/PENAL PROVISIONS

S.132(1)(i): Amount exceeding five hundred lakh rupees:

SR. NO.OFFENCEPUNISHMENTCOGNIZABLE AND NON-BAILABLE

OR

NON-COGNIZABLE AND BAILABLE

1.Supply without invoice:

Supplies any goods or services or both without issuing any invoice with the intention of evading tax amount exceeding five hundred lakh rupees(S.132(1)(a)(i))

Imprisonment for a term which may extend to 5 years + fine Cognizable and Non-bailable

S.132(5)

2.Invoice or bill without supply:

Issues any invoice or bill without supplying goods or services or both leading to wrongful availment or utilisation of input tax credit or refund of tax amount exceeding the amount of five hundred lakh rupees(S.132(1)(b)(i))

Imprisonment for a term which may extend to 5 years + fine Cognizable and Non-bailable

S.132(5)

3.Input tax credit from an invoice aforementioned:

Availing input tax credit amount exceeding five hundred lakh rupees using an invoice or bill for which the goods or services or both has not been supplied. (S.132(1)(c)(i))

Imprisonment for a term which may extend to 5 years + fine Cognizable and Non-bailable

S.132(5)

4.Failing to pay collected tax:

Collects any amount exceeding five hundred lakh rupees as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment is due. (S.132(1)(d)(i))

Imprisonment for a term which may extend to 5 years + fine Cognizable and Non-bailable

S.132(5)

5.Evasion/fraudulent availment/fraudulent refund:

Evasion of tax, fraudulently availing input tax credit or fraudulently obtains refund for an amount exceeding five hundred lakh rupees and such offence is not covered under s.132(1)(a)-(d) (S.132(1)(e)(i))

Imprisonment for a term which may extend to 5 years + fine Non-cognizable and bailable

S.132(4)

6.Goods liable to be Confiscated:

Acquiring possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he knows or has reasons to believe are liable to confiscation under CGST Act and uses it for tax evasion/wrongfully availing or utilising input tax credit/ wrongfully taking refund of amount exceeding five hundred lakh rupees.  (S.132(1)(h)(i))

Imprisonment for a term which may extend to 5 years + fine Non-cognizable and bailable

S.132(4)

7.Contravened Services:

Receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of CGST Act and uses it for tax evasion/wrongfully availing or utilising input tax credit/ wrongfully taking refund of amount exceeding five hundred lakh rupees (S.132(1)(i)(ii))

Imprisonment for a term which may extend to 5 years + fine Non-cognizable and bailable

S.132(4)

8.Failed Information Supply/False Information:

Fails to supply any information which he is required to supply under CGST Act or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information which makes it a case of tax evasion/wrongfully availing or utilising input tax credit/ wrongfully taking refund of amount exceeding five hundred lakh rupees (S.132(1)(k)(i))

Imprisonment for a term which may extend to 5 years + fine Non-cognizable and bailable

S.132(4)

9.Attempt/abet to commit: Anyone who attempts to commit or abets to commit the aforementioned offences for purposes of tax evasion wrongfully availing or utilising input tax credit/ wrongfully taking refund of amount exceeding five hundred lakh rupees. (S.132(1)(l)(i))Imprisonment for a term which may extend to 5 years + fine Non-cognizable and bailable

S.132(4)

 

S.132(1)(ii):Amount exceeding two hundred lakh rupees but less than five hundred lakh rupees

SR. NO.OFFENCEPUNISHMENTCOGNIZABLE AND NON-BAILABLE

OR

NON-COGNIZABLE AND BAILABLE

1.Supply without invoice:

Supplies any goods or services or both without issuing any invoice with the intention of evading tax amount exceeding two hundred lakh rupees but less than five hundred lakh rupees (S.132(1)(a)(ii))

Imprisonment for a term which may extend to 3 years + fine Non-cognizable and bailable

S.132(4)

2.Invoice or bill without supply:

Issues any invoice or bill without supplying goods or services or both leading to wrongful availment or utilisation of input tax credit or refund of tax amount exceeding two hundred lakh rupees but less than five hundred lakh rupees (S.132(1)(b)(ii))

Imprisonment for a term which may extend to 3 years + fine Non-cognizable and bailable

S.132(4)

3.Input tax credit from an invoice aforementioned:

Availing input tax credit of an amount exceeding two hundred lakh rupees but less than five hundred lakh rupees, using an invoice or bill for which the goods or services or both has not been supplied. (S.132(1)(c)(ii))

Imprisonment for a term which may extend to 3 years + fine Non-cognizable and bailable

S.132(4)

4.Failing to pay collected tax:

Collects any amount exceeding two hundred lakh rupees but less than five hundred lakh rupees as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment is due. (S.132(1)(d)(ii))

Imprisonment for a term which may extend to 3 years + fine Non-cognizable and bailable

S.132(4)

5.Evasion/fraudulent availment/fraudulent refund:

Evasion of tax, fraudulently availing input tax credit or fraudulently obtains refund for an amount exceeding two hundred lakh rupees but less than five hundred lakh rupees and such offence is not covered under s.132(1)(a)-(d) (S.132(1)(e)(ii))

Imprisonment for a term which may extend to 3 years + fine Non-cognizable and bailable

S.132(4)

6.Goods liable to be Confiscated:

Acquiring possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he knows or has reasons to believe are liable to confiscation under CGST Act and uses it for tax evasion/wrongfully availing or utilising input tax credit/ wrongfully taking refund of amount exceeding two hundred lakh rupees but less than five hundred lakh rupees.  (S.132(1)(h)(ii))

Imprisonment for a term which may extend to 3 years + fine Non-cognizable and bailable

S.132(4)

7.Contravened Services:

Receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of CGST Act and uses it for tax evasion/wrongfully availing or utilising input tax credit/ wrongfully taking refund of amount exceeding two hundred lakh rupees but less than five hundred lakh rupees.  (S.132(1)(i)(ii))

Imprisonment for a term which may extend to 3 years + fine Non-cognizable and bailable

S.132(4)

8.Failed Information Supply/False Information:

Fails to supply any information which he is required to supply under CGST Act or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information which makes it a case of tax evasion/wrongfully availing or utilising input tax credit/ wrongfully taking refund of an amount exceeding two hundred lakh rupees but less than five hundred lakh rupees. (S.132(1)(k)(ii))

Imprisonment for a term which may extend to 3 years + fine Non-cognizable and bailable

S.132(4)

9.Attempt/abet to commit: Anyone who attempts to commit or abets to commit the aforementioned offences for purposes of tax evasion wrongfully availing or utilising input tax credit/ wrongfully taking refund of amount exceeding two hundred lakh rupees but less than five hundred lakh rupees. (S.132(1)(l)(ii))Imprisonment for a term which may extend to 3 years + fineNon-cognizable and bailable

S.132(4)

 

S.132(1)(iii):Amount ranging from one hundred lakh rupees to two hundred lakh rupees

SR. NO.OFFENCEPUNISHMENTCOGNIZABLE AND NON-BAILABLE

OR

NON-COGNIZABLE AND BAILABLE

1.Supply without invoice:

Supplies any goods or services or both without issuing any invoice with the intention of evading tax amount ranging from one hundred lakh rupees to two hundred lakh rupees(S.132(1)(a)(iii))

Imprisonment for a term which may extend to 1 year + fine Non-cognizable and bailable

S.132(4)

2.Invoice or bill without supply:

Issues any invoice or bill without supplying goods or services or both leading to wrongful availment or utilisation of input tax credit or refund of tax amount ranging from one hundred lakh rupees to two hundred lakh rupees(S.132(1)(b)(iii))

Imprisonment for a term which may extend to 1 year + fine Non-cognizable and bailable

S.132(4)

3.Input tax credit from an invoice aforementioned:

Availing input tax credit amount ranging from one hundred lakh rupees to two hundred lakh rupees using an invoice or bill for which the goods or services or both has not been supplied. (S.132(1)(c)(iii))

Imprisonment for a term which may extend to 1 year + fine Non-cognizable and bailable

S.132(4)

4.Failing to pay collected tax:

Collects any amount ranging from one hundred lakh rupees to two hundred lakh rupees as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment is due. (S.132(1)(d)(iii))

Imprisonment for a term which may extend to 1 year + fine Non-cognizable and bailable

S.132(4)

5.Evasion/fraudulent availment/fraudulent refund:

Evasion of tax, fraudulently availing input tax credit or fraudulently obtains refund for an amount ranging from one hundred lakh rupees to two hundred lakh rupees and such offence is not covered under s.132(1)(a)-(d) (S.132(1)(e)(iii))

Imprisonment for a term which may extend to 1 year + fine Non-cognizable and bailable

S.132(4)

6.Goods liable to be Confiscated:

Acquiring possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he knows or has reasons to believe are liable to confiscation under CGST Act and uses it for tax evasion/wrongfully availing or utilising input tax credit/ wrongfully taking refund of amount ranging from one hundred lakh rupees to two hundred lakh rupees.  (S.132(1)(h)(iii))

Imprisonment for a term which may extend to 1 year + fine Non-cognizable and bailable

S.132(4)

7.Contravened Services:

Receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of CGST Act and uses it for tax evasion/wrongfully availing or utilising input tax credit/ wrongfully taking refund of amount ranging from one hundred lakh rupees to two hundred lakh rupees (S.132(1)(i)(iii))

Imprisonment for a term which may extend to 1 year + fine Non-cognizable and bailable

S.132(4)

8.Failed Information Supply/False Information:

Fails to supply any information which he is required to supply under CGST Act or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information which makes it a case of tax evasion/wrongfully availing or utilising input tax credit/ wrongfully taking refund of amount ranging from one hundred lakh rupees to two hundred lakh rupees. (S.132(1)(k)(iii))

Imprisonment for a term which may extend to 1 year + fine Non-cognizable and bailable

S.132(4)

9.Attempt/abet to commit: Anyone who attempts to commit or abets to commit the aforementioned offences for purposes of tax evasion wrongfully availing or utilising input tax credit/ wrongfully taking refund of amount ranging from one hundred lakh rupees to two hundred lakh rupees(S.132(1)(l)(iii))Imprisonment for a term which may extend to 1 year + fine Non-cognizable and bailable

S.132(4)

 

S.132(1)(iv): Commission or abets commission of three particular offences

SR. NO.OFFENCEPUNISHMENTCOGNIZABLE AND NON-BAILABLE

OR

NON-COGNIZABLE AND BAILABLE

1.False/fake documents:

Anyone who falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information with an intention to evade payment of tax due under CGST Act

Imprisonment for a term which may extend to 6 months or/and with fineNon-cognizable and bailable

S.132(4)

2.Obstructing/preventing officer:

Anyone who obstructs or prevents any officer in the discharge of his duties under CGST Act

Imprisonment for a term which may extend to 6 months or/and with fineNon-cognizable and bailable

           S.132(4)

3.Tamper/destroy evidence: Anyone who tampers or destroys material evidence or documentsImprisonment for a term which may extend to 6 months or/and with fineNon-cognizable and bailable

           S.132(4)