Weekly Round-up on Tax and Corporate Laws | 04th October to 09th October

This weekly newsletter analytically summarizes the key stories reported at taxmann.com during the previous week from 04th October to 09th October 2021, namely:

(a) Allahabad High Court quashes re-assessment notice issued under old regime; not convinced with the views of Chhattisgarh High Court;

(b) Govt. allows 100% FDI in Telecom Sector under automatic route;

(c) GST officers are not required to submit a final report under CRPC after arrest;

(d) Other agencies are not excluded from conducting investigations into offences mentioned in the schedule of PMLA;

(e) Detention of vehicle in the absence of e-way bill is not justified if it was purchased for personal use and temporary vehicle registration was obtained;

(f) CBDT considering modification in faceless appeal scheme, 2020; and

(g) NFRA’s response on Approach Paper issued by ICAI for revision of existing Accounting Standards.

1. Allahabad HC quashes re-assessment notice issued under old regime; unconvinced with views of Chhattisgarh HC

In a recent ruling, the Allahabad High Court has said that it cannot persuade itself to the view taken by the Chhattisgarh High Court in Palak Khatuja v. UOI [2021] 130 taxmann.com 44 (Chhattisgarh) justifying the issue of re-assessment notice issued under old provisions. After enforcement of the Finance Act, 2021, revenue is not empowered to issue a notice under the old provisions of Section 147/148.

Facts

The instant writ petition was filed before the Allahabad High Court to challenge the initiation of re-assessment proceedings for different assessment years. All the re-assessment proceedings were initiated upon notices issued after 01-04-2021.

The assessee challenged the validity of the Explanation appended to clause (A)(a) of Notification No. 20 of 2021, dated 31-03-2021, and Explanation to clause (A)(b) of Notification No. 38 of 2021, dated 27-04-2021. Those notifications had been issued under the powers vested under Section 3(1) of the Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020 (TLA, 2020). These notifications gave power to revenue to issue a re-assessment notice under Section 147 after the expiry of 31-03-2021 under old provisions. However, the provisions related to re-assessment have been amended w.e.f 01-04-2021 by the Finance Act, 2021.

Ruling

The Allahabad Court said that Section 3(1) of the TLA 2020 does not itself speak of re-assessment proceeding or Section 147 or Section 148 as it existed before 01-04-2021. It only provides a general relaxation of limitation granted on account of general hardship existing upon the spread of pandemic COVID -19. After enforcement of the Finance Act, 2021, it applies to the substituted provisions rather than pre-existing ones.

Further, the Allahabad Court said we could not persuade ourselves to view taken by the Chhattisgarh High Court in the case of Palak Khatuja v. UOI (Supra).

The Finance Act, 2021 does not enable the Central Government to issue any notification to reactivate the pre-existing law (which that principle legislature had substituted). The exercise made by the delegate/Central Government would be dehors any statutory basis.

Consequently, the re-assessment notices were liable to be quashed. However, the revenue may initiate re-assessment proceedings in accordance with the new provisions.

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2. Govt. allows 100% FDI in Telecom Sector under automatic route

The Government vide Press Note No. 4 (2021 Series) has reviewed the extant FDI policy on Telecom Sector and has increased the FDI limit from 49% to 100% under automatic route. However, the FDI in the Telecom sector shall be subject to restrictions envisaged in Para 3.1.1 of the FDI policy (as amended vide Press Note No. 3 dated 17-04-2020), which requires prior Government approval. As per Press Note 3, an entity of a country, which shares a land border with India, or where the beneficial owner of investment is situated in or is a citizen of such country, can invest only under the Government route.

Earlier, FDI of up to 49% was allowed under the automatic route, and any investment above this was subject to the approval route. Currently, India is the world’s second-largest telecommunications market with a subscriber base of 1.16 billion and has registered strong growth in the last decade. An increase in FDI limits would ease the cash flow issues some telecom players face in the industry.

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3. GST officers are not required to submit a final report under CRPC after arrest: HC

The Kerala High Court has recently held that since GST officers are not police officers, they are not required to submit the final report as envisaged in Section 173 of CRPC. Thus, petitioners are not entitled to bail for non-furnishing the final report by GST officers after arrest. This High Court of Chhattisgarh gave this ruling in the case of Paritosh Kumar Singh Alias Diwakar Choudhary v. State of Chhattisgarh.

Facts

The petitioners were arrested for offences committed under sections 132(1) (b) of the CGST Act, 2017. They were produced before Judicial Magistrate, from where they were sent to judicial custody. They submitted an application before the Chief Judicial Magistrate, Raipur, because as the GST officer has not submitted the final report, they were entitled to get the benefit of default bail under Section 167(2) CRPC. The application was denied, and the revision was also preferred, which was also dismissed. They filed a writ petition against the same.

High Court

The High Court observed that an officer of the Central Tax authorized under Section 69(1) of the CGST Act to arrest a person is not a police officer. Since GST officers were not police officers, they were not required to submit the final report as envisaged in Section 173 of CRPC. Thus, it was held that petitioners’ contention for grant of default bail under Section 167(2) for non-furnishing of the final report was rejected. Thus, petitioners were not entitled to get default bail.

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4. PMLA doesn’t exclude other agencies from conducting investigations into offences mentioned in the schedule of PMLA: HC

An FIR was registered at Police Station – Economic Offences Wing (EOW) against the petitioner for an offence under Section 420/406/120B of IPC, and an investigation was carried out. The petitioner filed an instant writ stating that the Adjudicating Authority was already undertaking the matter being investigated by the EOW. Thus, conducting a parallel investigation would amount to infringement of his fundamental rights under Article 20 of the Constitution of India.

The High Court observed that the purpose of enacting the PMLA was to prevent money laundering and to prevent the confiscation of property derived from or involved in money laundering. The purpose of investigation under the PMLA is to unearth the proceeds of crime and attach the same and punish the offenders involved in committing the offence of money laundering.

“Section 45(1A) mandates that no Police Officer shall investigate into an offence under the PMLA unless specifically authorised by a general or special order issued by the Central Government. Just because an investigation for an offence under the PMLA has to be conducted by an officer, unless specifically authorized, it cannot be said that no investigation can be conducted for offences which are mentioned in the schedule of the PMLA by other investigating agencies and that they are precluded from investigating those offences.

The offences are distinct, and a person can be convicted and sentenced to punishment under the IPC as well as under the PMLA. This Court, at this juncture, is not entering into the debate as to whether an offence under the PMLA is a “standalone” offence or not, and as to whether a person, even if he is acquitted of an offence mentioned in the first schedule, can still be convicted for an offence under the PMLA.” said, the Delhi High Court.

The High Court held that prosecution for offences under IPC and offences mentioned in the schedule of PMLA, under which the petitioner was charged, were entirely different and mutually exclusive. It could not be said that by conducting a parallel investigation, the rights of the petitioner under Article 20 would be infringed. Therefore, the instant writ filed by the petitioner was to be dismissed.

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5. Detention of vehicle in the absence of e-way bill not justified if purchased for personal use and temporary vehicle registration obtained: HC Kerala

The Honorable Kerala High Court has held that used vehicles, even if they are run only negligible distances, are to be categorized as ‘used personal effects’. There is no requirement for the generation of e-way bills for these goods. Thus, those vehicles can’t be detained in the absence of an e-way bill. The High Court of Kerala gives this ruling in the case of Assistant State Tax Officer (Intelligence), Alappuzha v. VST AND Sons (P.) Ltd.

Facts

The assessee was located in Thiruvananthapuram (Kerala). It purchased a vehicle for personal use from Coimbatore (Tamil Nadu). The proper officer detained the vehicle while being transported from Coimbatore to Thiruvananthapuram for the reason that it was transported without an e-way bill. The assessee filed a writ petition challenging the detention of the motor vehicle. The learned Single Judge allowed the writ petition and quashed the detention order. The Department filed an appeal against it.

High Court

The Honorable High Court observed that the goods classifiable as used personal and household effect fall under Rule 138(14)(a) of the CGST Rules, 2017 and exempted from the e-way bill requirement. In the present case, the assessee had purchased the vehicle after payment of IGST. A temporary registration was also taken apart from the motor vehicle insurance, and the vehicle had run 43 Kms. The Court relied upon the decision in KUN Motor Co. (P.) Ltd. v. Asstt. STO [2018] 100 taxmann.com 271 (Ker.) wherein it was held that used vehicles, even if it has run only negligible distances are to be categorized as ‘used personal effects’. Therefore, it was held that there was no merit in this appeal and liable to be dismissed.

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6. CBDT considering modification in faceless appeal scheme, 2020

The assessee challenged the Faceless Appeal Scheme, 2020, alleging that the scheme was discriminatory, arbitrary, and illegal to the extent it provided a virtual hearing as per circumstances to be approved by administrative authorities under Income-tax Act, 1961.

The instant petition was filed to transfer cases challenging Faceless Appeal Scheme, 2020, from High Courts to the instant Supreme Court.

The Additional Solicitor General submitted before the Supreme Court that the Department is having a second look at the matter on the issue of Faceless Appeal Scheme, 2020. He may be granted a period of three months as it may require changing the law.

Considering the submission, the Supreme Court has deferred the matter for three months as sought by the learned Additional Solicitor General.

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7. NFRA’s response on Approach Paper issued by ICAI for revision of existing Accounting Standards

The ICAI issued its Approach Paper to revise existing Accounting Standards in June 2021 and August 2021. The ICAI has proposed text of 18 revised ASs out of 32 revised ASs which are expected to be prescribed upon completion of this AS revision project.

NFRA’s response

As per preliminary analysis conducted by NFRA, approx 96% of companies have a net worth below Rs. 25 crores, 96% have turnover below Rs. 50 crores, 52% have indebtedness below Rs. 25 crores and 44% have reported nil indebtedness. These companies are private limited companies that are owned by small families or a small circle of friends or relatives. Therefore, public interest in the General-Purpose Financial Statements (GPFSs) of these companies would be minimal. Moreover, there are 5,99,847 companies with a net worth below Rs. 250 crores. NFRA has defined these companies as MSMC’s in its recently issued consultation paper.

NFRA has stated that the revised ASs issued by ICAI are complex and may burden the growth in business and economic activities for a large number of MSMC’s. Due to the significant role of MSMC’s in the economic growth and development of the Nation, the regulatory environment should be conducive to support.

Further, NFRA has recommended to the ICAI that a Regulatory Impact Assessment be conducted for this revision proposal, duly including all the standard features of such a process, and, in particular, to take action as follows:

The Approach Paper should be developed in a transparent manner after an extensive nationwide consultation with the primary stakeholders, i.e., the Preparers – MSMCs and Auditors MSMPs. ICAI is requested to send NFRA the analysis of the public comments on the Approach Paper if the ICAI had performed any such public consultation.

Comprehensive study and research should be undertaken after a cost-benefit analysis. The costs to the preparers while complying with revised ASs and their technical resource capacity should be evaluated against the potential benefits to all stakeholders of AS-based companies.

ICAI should reconsider the structure, form, and content of Revised ASs for AS-based companies and align the same to the nature, size, and complexity of the ASs, to their commercial needs, business size, capacity to comply with the prescribed standards, and relevance to their primary users.

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