Consistency Sacrosanct In Taxation Matters, Department Can't Take Different Stand In Identical Situations: Allahabad HC Grants Relief To Samsung

The Allahabad High court has held that the Department must take consistent stands in identical fact situations for different tax periods as consistency is paramount in tax regime.

While observing that the facts of the tax periods under dispute were exactly identical to previous tax periods, Justice Shekhar B. Saraf held

“While the principle of res judicata does not apply to taxation matters, it is incumbent upon authorities to take a consistent approach when dealing with similar factual and legal circumstances. The principle of consistency states that when faced with analogous factual and legal circumstances, the treatment should remain uniform. Taxpayers have a legitimate expectation that similar factual and legal circumstances will be met with uniform treatment, and any deviations from this principle undermine the credibility and legitimacy of the actions taken by tax authorities.”

The Court held that no quasi-judicial or judicial authority can take different stands in identical fact situation in different assessment years.

Factual Background

Petitioner-Samsung India is engaged in the export of Information Technology design and software development services pertaining to mobile devices (“IT Services”) to its overseas holding company, namely, M/s Samsung Electronics Company Limited, Korea in terms of prevalent service agreement. Such export of IT services is made by the Petitioner under Letter of Undertaking without payment of IGST which constitutes zero rated supply as per Section 16 of the Integrated Goods and Services Tax Act, 2017.

Petitioner procures various inputs, input services, and capital goods and accordingly avails ITC of the CGST, SGST, and IGST paid thereon, in accordance with the applicable provisions of the GST laws. Petitioner filed a refund claim of unutilized ITC of CGST, SGST, and IGST paid on various inputs and input services for the period of April 2019 to June 2019. Refund claim of Rs.6,36,69,447/- was sanctioned by the Department barring for an amount of Rs.7,500/- on the ground of claiming refund of unutilized ITC on invoices missing in the GSTR-2A returns.

A refund claim was filed for the period of July–September, 2019 of Rs.7,46,52,231/- and October–December, 2019 of Rs.8,20,59,875/-. Against the aforesaid refund applications, deficiency memos under FORM GST-RFD-03 and later show cause notices were issued by the Department proposing to reject the refund for the aforesaid periods. Eventually a portion of refund was accepted, and some was denied on grounds that specific goods are capital goods, and not inputs. Appeals filed by the petitioner were rejected.

Counsel for petitioner argued that the department had adopted an inconsistent approach while dealing with the refund claims of the petitioner for different assessment periods. Further, it was submitted that failure, if any, in complying with Accounting Standards is actionable under the Companies Act. Accordingly, it was argued that testing the applicability and correctness of Accounting Standards is beyond the jurisdiction of GST Authorities.

Counsel for respondent submitted that res judicata does not apply in tax cases and merely because refund was granted in previous years does not entitle the assesee for refund for the disputed period. It was submitted that since the petitioner had not complied with the Accounting Standards, it was not entitled to refund.

High Court Verdict

“Taxation serves as the cornerstone of governmental revenue, facilitating the provision of public services and infrastructure. Essential to this system is consistency, ensuring that similar factual and legal circumstances are met with uniform treatment. Inconsistencies can erode public trust, undermine compliance, and ultimately compromise the integrity of the tax system,” observed the Court.

The Court held that consistency is necessary to maintain transparency, fairness and predictability in tax regime. The Court held that for similar set of facts in different tax periods, the Department must stick to consistent interpretations of law to avoid arbitrariness in decision making process.

The Court observed that there was a stark difference in the stand taken in previous tax periods to the one in dispute which was irrational and inconsistent. It was held that the different stand taken by the Department in similar facts for different periods was not based on any cogent rationale.

“The Department's failure to provide a valid justification for this disparate treatment further underscores the inconsistency and irrationality of its actions. Moreover, such inconsistencies create uncertainty and confusion among taxpayers, leading to potential disputes and litigation. In the absence of clear and consistent guidelines, taxpayers may find it challenging to navigate the tax system, resulting in increased compliance costs and administrative burdens.”

The Court relied on Birla Corpn. Ltd. v. CCE, Indian Oil Corporation Ltd. v. CCE and Bharat Sanchar Nigam Ltd. And Anr. v. Union of India and others where the Supreme Court held that Department cannot be permitted to take different stand in identical fact situation for different tax periods.

The Court held that “the principles of consistency is sacrosanct in taxation matters.”

It was held that the Department cannot arbitrarily without the refund for a tax period when it has consistently allowed the same for other tax periods in absence on any material change in circumstances. The Court held that such denial of refund “is contrary to the principles of fairness and equity.”

Accordingly, the writ petitions filed by Samsung India were allowed.

Case Title: M/S Samsung India Electronics Private Limited vs. State Of U.P. And Others 2024 LiveLaw (AB) 170 [Writ Tax No. 777 of 2022]

Case Citation: 2024 LiveLaw (AB) 170

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