Goods & Services Tax (GST) in IndiaConsistency Sacrosanct in Taxation Matters

The  Allahabad High Court, in the case of Samsung India Electronics Private Limited V. State Of U.P. And Ors, [Writ Tax No.660 Of 2023] decided on March 12, 2024, held that maintaining consistency is crucial in the tax regime, particularly when dealing with similar factual scenarios across different tax periods, categorically stating that the Department should adopt uniform positions in such cases.

FACTS OF THE CASE  

Samsung India Electronics Private Limited ( hereinafter referred to as “Petitioner”) was engaged in the export of Information Technology design and software development services pertaining to mobile devices to Samsung Electronics Company Limited, Korea, under a Letter of Undertaking, without payment of IGST qualifying as zero-rated supply under as per Section 16 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as “IGST Act”).

The Petitioner had filed the refund claim of unutilized  Input Tax Credit (hereinafter referred to as “ITC”) for CGST, SGST, and IGST paid on inputs, input services, and capital goods for the period of April 2019 to June 2019.

The Respondent approved a refund for April to June 2019 amounting to Rs. 6,36,69,447/-. However,  withheld a small amount of Rs. 7500/- on the ground of claiming refund of utilized ITC on invoices missing in the GSTR- 2A returns.

Further, the Petitioner filed for the refund claim of unutilized  ITC for CGST, SGST, and IGST paid on inputs, input services, and capital goods for the period of July  2019 to September 2019 amounting to Rs. 7,49,52,231/- and for October 2019 to December 2019 amounting to Rs. 8,20,59,875/-. The Respondent, however, partially rejected the refund claims of the Petitioner for July to September 2019 and October to December 2019  on the ground that the goods were classified as inputs however they were capital goods.

The Respondent issued deficiency memos using FORM GST-RFD-03 and later issued show cause notices, intending to reject the refund for the mentioned periods. Eventually, the Respondent approved a partial refund while rejecting a portion of the demand vide orders dated April 28, 2021 and November 8, 2021    stating that certain goods were categorised as capital goods rather than inputs. The Petitioner’s appeals against these decisions were dismissed vide orders dated October 25,2021 and February 24, 2023 (hereinafter referred to as “impugned orders”) .

Being aggrieved by the impugned orders, the Petitioner preferred the present Petition.

ISSUES BEFORE THE HIGH COURT

1. Whether the Respondent’s inconsistent approach towards refund claims for different tax periods was justified ?

2. Whether the Respondent’s denial of refunds for specific tax periods, despite granting them for others without material changes in circumstances, was fair and equitable ?

3. Whether the Respondent’s classification of certain goods as capital goods instead of inputs, leading to the denial of refunds, was appropriate ?

4. Whether the Petitioner’s appeals against the Respondent’s decisions regarding refund claims should be upheld ?

CONTENTION OF THE PARTIES

The Petitioner’s  contended that the Respondent’s  handling of the Petitioner’s refund claims varied inconsistently across different assessment periods.

The Petitioner further argued that any failure to adhere to Accounting Standards could be addressed under the Companies Act,2013 suggesting that determining the applicability and accuracy of Accounting Standards falls outside the jurisdiction of GST Authorities.

The Respondent argued that the principle of  “Res judicata” does not apply in tax cases, implying that a previous refund approval does not automatically guarantee a refund for the disputed period.

Furthermore, it was contended that the Petitioner’s failure to adhere to Accounting Standards disqualifies them from receiving a refund.

FINDINGS OF THE COURT

The Hon’ble High Court emphasized the importance of consistency to uphold transparency, fairness, and predictability in the tax system. The Court  stated that the Respondent must maintain consistent interpretations of the law for similar factual situations across different tax periods to prevent arbitrary decision-making.

The High Court noted a significant contrast between the Respondent’s position in previous tax periods and the current dispute, which it deemed irrational and inconsistent.

The Court held that “the principle of consistency is sacrosanct in taxation matters. and  concluded that the Respondent’s varying stances on similar facts across different periods lacked a coherent rationale.

The High Court further held “consistency” as the fundamental principle in tax matters and held that the Department cannot deny a refund for a particular tax period when it has consistently allowed it for other periods without any substantial change in circumstances. Such denial was deemed contrary to principles of fairness and equity. Consequently, the writ petitions filed by Petitioner were granted.

AMLEGALS REMARK

This case serves as an important reminder to the critical role “consistency” plays in maintaining integrity within the tax system. The Hon’ble High Court’s decision underscores the principle that tax authorities must adhere to consistent interpretations of the law and equitable treatment of taxpayers, regardless of the specific tax periods involved.

By scrutinizing the Department’s actions, particularly its arbitrary denial of refunds and inconsistent classification of goods, the High Court has reinforced the importance of fairness and transparency in tax administration. Such clarity not only fosters trust between taxpayers and authorities but also promotes a level playing field in compliance and enforcement.

Moving forward, this ruling sets a precedent for ensuring that tax decisions are guided by objective criteria and grounded in legal principles, ultimately contributing to a more robust and equitable tax environment for all stakeholders involved.

– Team AMLEGALS