There is a visible surge in Indirect Tax litigations in recent times. An effective litigation strategy is built not just on merits of the case but also on various other grounds. In this Insight, we have discussed such grounds that Taxpayers can consider evaluating.
Building a Strong Tax Appeal: Key Legal Grounds Beyond the Merits
Recent years have seen a significant rise in indirect tax disputes. Winning these cases often depends on more than just the facts. This article explains several legal grounds that taxpayers can use to challenge tax demands.
A. Time Limits (Limitation)
1. Improper Use of Extended Time Limits (Section 74)
When tax authorities issue a show cause notice, they frequently claim they can use a longer time limit. However, GST law only allows this extended period in specific situations, such as:
Fraud
Wilful misstatement
Intent to evade tax
Courts have consistently ruled that these are serious allegations. The tax department must prove them. Extended time limits cannot be used when:
The issue involves different interpretations of the law
Information was already available in public records
The taxpayer had been audited before
The transaction did not result in any tax loss
2. COVID-19 Time Extensions (Section 168A)
The government extended time limits for certain years using Section 168A. This section can only be used if:
There is a force majeure event (like a natural disaster)
The GST Council recommends it
Later extensions were issued without these conditions being met. Taxpayers can challenge notices and orders issued during these extended periods. Different High Courts have given conflicting decisions, and the Supreme Court will finally decide this issue.
3. When is a Notice Considered "Received"?
The law says uploading an order on the GST portal counts as valid service. But appeals must be filed from the date of "communication." Courts have held that a notice is only "communicated" when the taxpayer actually becomes aware of it through specified methods.
Several High Courts have ruled that if a taxpayer doesn't act on a notice uploaded on the portal for a long time, it can be presumed the notice was never properly communicated.
Practical Tip: Take screenshots of the "Notices and Orders" tab on the GST portal on the day after key deadlines. This can serve as evidence if the department uploads documents late.
4. Delayed Appellate Orders (Section 107(13))
Appellate authorities should decide appeals within one year where possible. Courts have interpreted similar provisions in older tax laws as mandatory, despite the phrase "where possible." This issue is also pending before the Supreme Court. If an appellate order is passed after one year, taxpayers can challenge its validity.
B. Correct Tax Calculation (Quantification)
1. Tax-Inclusive Pricing
When tax authorities demand additional output tax, taxpayers can argue they cannot collect extra tax from customers if their contracts don't allow it. Under GST rules, any amount collected is treated as tax-inclusive, and the demand must be reduced accordingly.
C. Who Has Authority (Jurisdiction)
1. Duplicate Proceedings by Central and State Officers
The law prevents both Central and State tax officers from starting proceedings on the same issue. The Supreme Court has clarified that "proceedings" begin only after a show cause notice is issued, not during initial inquiries. Taxpayers can challenge overlapping demands for the same period and issue.
2. Officers Exceeding Their Financial Limits
The tax department has issued guidelines on the maximum tax amounts that officers at different levels can handle. Some states have similar rules. Notices or orders issued by officers beyond their financial jurisdiction are invalid and can be challenged.
D. Validity of the Notice or Order
1. Single Notice Covering Multiple Years
Tax authorities sometimes issue one show cause notice covering several financial years. While GST law doesn't prohibit this, some High Courts have given conflicting rulings. The Supreme Court will ultimately decide this issue. Until then, taxpayers receiving such notices can raise this objection.
What Taxpayers Can Do Now
Taxpayers should review their ongoing cases against these points. Even if a case is already in progress, additional submissions can be filed if any of these grounds apply and haven't been raised yet.
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