landmark Decisions of Gst

#landmark_decisions: In Faaborg-Gelting Linien A/S v. Finanzamt Flensburg, [2012] 22 taxmann.com 177 (ECJ),

In Faaborg-Gelting Linien A/S v. Finanzamt Flensburg, [2012] 22 taxmann.com 177 (ECJ), it was held that the perception of the recipient is relevant as it determines the purpose behind a particular supply. The main purpose for which the recipient is receiving the supply should be met, and without the fulfilment of this purpose, the whole supply is rendered meaningless to him. Hence, the predominant element of the supply is the one which is the most important to the recipient. For instance, the supply of service by a restaurant owner is a composite supply as it is characterised by multiple features and activities. However, the supply of service by a restaurant would be rendered purposeless if the most significant component, i.e. provision of food, is absent, even if all other ancillary services are being supplied. Hence, the provision of food largely pre-dominates the supply and is the principal component of the restaurant services.

Card Protection Plan v. Customs and Excise Commissioners, [2012] 22 taxmann.com 176 (ECJ)(hereinafter the “CPP case”), the European Court of Justice, while explaining the meaning of ancillary services, held that a service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied. Similar to this, the Court, in Commissioner of Customs & Excise v. Madgett& Baldwin, C-308/96 & C-94/97(1998), observed that an ancillary service is not an end in itself, it is merely a means to an end for better enjoyment of the principal service.

There may be a situation when more than one component of the supply possesses an essential character and hence, is equally predominant to any other component of that supply. However, both these components are still predominant over other components of the supply. This situation which is known as the table-top model of composite supply, confronted the Court in the case of Commissioner for Excise and Customs v. FDR, Case No: C/1999/0654 (2000). It was held that in such a scenario, “principal supply must be identified with a further re-look at the supplies”. It was further clarified that “unnecessary complexities” must be avoided and principal supply may be determined on the reference on the numerical domination. This case, though it pertains to European jurisprudence, has proved to be very helpful in view of the fact that the expression “composite supply” under the Indian GST regime does not recognise a situation where there may be more than one principal supply.

In CPP case, the ECJ envisioned that in determining, whether a supply constitutes composite or mixed supply, the view of a typical consumer is an important consideration. The ECJ while crystallising it in Everything Everywhere Ltd. v. HMRC, [2012] 28 taxmann.com 138 (ECJ), called this principle “from the point of view of a typical consumer”. The Court said that when a consumer procures a supply, he does it to satisfy a particular aim. This aim may be either a sole aim or manifold. If the consumer has only one aim to receive the supply and the other components of the supply are merely the means to achieve that aim, the supply can be said to be naturally bundled. Accordingly, the supply would be in the nature of a composite supply. It is clear that the aim of the consumer here would be derived out of the principle component of the composite supply i.e. the “principal supply” as defined by the CGST Act under section 2(90). But, a consumer can also have multiple aims while receiving a supply. Where the transaction involves multiple aims sought by the consumer, then it is an indicator that multiple different independent supplies are bundled together, artificially. A mixed supply can be said to be exist in such cases.

#landmark_decisions: 2021 (5) TMI 167 - MADRAS HIGH COURT RAMAKRISHNAN MAHALINGAM VERSUS STATE TAX OFFICER (CIRCLE)

#landmark_decisions

2021 (5) TMI 167 – MADRAS HIGH COURT

RAMAKRISHNAN MAHALINGAM VERSUS STATE TAX OFFICER (CIRCLE) , GOODS AND SERVICE TAX OFFICER, KOTAGIRI., DEPUTY COMMISSIONER (ST)

Cancellation of registration of petitioners – fake ITC – TNGST Act – HELD THAT:- The contention of the respondents herein that the revival of registration is conditional upon the petitioner satisfying tax dues and substantiating its claim of ITC, is misconceived. What is sought for by the petitioner is revocation/revival of registration only, and in the guise of considering the application for revocation, the authorities cannot embark upon the process of assessment – An assessment would have to be made by the authority in terms of Section 73 or other applicable provision after following the procedure set out therein, and it is only in the course thereof that the officer may consider and decide questions of leviability of tax and claim of input tax credit.

Thus to state that registration will not be revived since the petitioner has incorrectly availed of ITC would be putting the cart before the horse. In fact, it is seen that the petitioner has filed monthly returns as well as annual returns for the periods January 2017-18 to September 2019-20 and for financial years 2017-18 and 2018-19 and has also remitted late fee for filing of belated returns. Thus, and these being the only conditions that are to be satisfied by the petitioner for grant of revocation of registration, the cancellation of the registration in this case is incorrect and improper.

#landmark:_decisions R. Ramadas v. Joint Commissioner of C.Ex., Puducherry 2021 (44) G.S.T.L. 258 (Mad.)held:

#landmark_decisions

R. Ramadas v. Joint Commissioner of C.Ex., Puducherry 2021 (44) G.S.T.L. 258 (Mad.)held:

“The very purpose of the show cause notice issued is to enable the recipient to raise objections, if any, to the proposals made and the concerned Authority are (sick) required to address such objections raised. This is the basis of the fundamental Principles of Natural Justice. In cases where the consequential demand traverses beyond the scope of the show cause notice, it would be deemed that no show cause notice has been given for that particular demand for which a proposal has not been made.”

#Landmark: Ghanashym Mishra and Sons Vs. Edelweiss Asset Construction [2021] 126 taxmann.com 132 (SC),

#Landmark_decisions

Ghanashym Mishra and Sons Vs. Edelweiss Asset Construction [2021] 126 taxmann.com 132 (SC),

The SC in its recent decision dated 13.04.2021 held that once a resolution plan is duly approved by the Adjudicating Authority, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan

What are the most important ingredients to be mentioned in an agreement to give legal ownership even if the title is not transferred?

There must be a contract to transfer for consideration any immovable property;
The contract must be in writing, signed by the transferor, or by someone on his behalf;
The writing must be in such words, from which the terms necessary to construe the transfer can be ascertained;
The transferee must in part performance of the contract, take possession of the property, or of any part thereof;
The transferee must have done some act in furtherance of the contract; and
The transferee must have performed or be willing to perform his part of the contract.

It means that if the above ingredients are not there, the agreement can not be called having legal support. this there can not be called as transfer.

Detailed discussion:-

Landowners to Breathe Easy – No Tax on JDA until its Registration

By S.R. Patnaik on October 12, 2017

POSTED IN DIRECT TAX

The real estate industry has experienced unprecedented growth in the past couple of decades. This has led both landowners and developers to enter into several innovative business models to optimise their resources and maximise returns. The landowners try to ensure that they participate in the future substantial value accretion of the project being developed while developers try to avoid shelling out the entire consideration for the land before commencing any work, to avoid depletion of their resources.

Thus, entering into a joint development agreement (JDA) has become particularly common. This is where the landowner and developer collaborate on the basis that the landowner contributes his land to the project while the developer brings in his expertise in construction to develop the project and both parties share the income earned from the developed project in a pre-determined ratio. Of course, depending on the facts and circumstances of the case, multiple variations of this structure can be seen in the marketplace, with the broad contours of the arrangement remaining the same.

For a long time, litigation has arisen over the taxability of income accruing or arising from a JDA. Primarily, Indian tax authorities contend that the landowner should be liable to pay tax at the time of entering into the JDA, whereas taxpayers have been contending that the tax should be payable only at the time of registration of the JDA.

This contentious issue has hopefully been resolved with the Hon’ble Supreme Court (SC) delivering its verdict in the case of Balbir Singh Maini [CIT v. Balbir Singh Maini, Civil Appeal No. 15619 of 2017]. In the said case, the SC upheld the contentions of the taxpayers, by confirming the decision of the Hon’ble Punjab & Haryana High Court (HC).

Facts of the Case

The taxpayers were members of a housing society (Society) which owned certain land in a village. The Society entered into a tripartite JDA with certain developers (Developers). Under the JDA, it was agreed that the Developers would undertake the development of 21.2 acres of land owned and registered in the name of the Society and in respect of which it would give development rights in lieu of consideration. It is pertinent to note that although the JDA was executed, it was not registered and as per the terms of the JDA, possession of the property was to be handed over simultaneously with the registration of the JDA.

Further, the Developers made only part payment of consideration and, thus, the taxpayers offered to pay tax on the proportionate amount received. However, the JDA was subsequently abandoned as the necessary permissions for development were not granted.

The tax authorities and the Income Tax Appellate Tribunal (ITAT) held that since physical and vacant possession has been handed over under the JDA, the same would tantamount to “transfer” within the meaning of Section of 2(47)(v) of the Income-Tax Act (IT Act). They also concluded that the taxpayer was liable to pay capital gains tax in the assessment year during which the JDA was executed on the entire amount already received and/or receivable in future.

However, the High Court reversed the decision of the ITAT and held that since no possession of land was given by the transferor to the transferee of the entire land in part performance of the JDA, it did fall within the domain of Section 53A of the Transfer of Property Act, 1882 (TOPA). In the absence of the fulfilment of the ingredients of Section 53A, no ‘transfer’ under Section 2(47)(v) would take place. The High Court also observed that the possession delivered was as a licensee for the development of land and not as a transferee and in the absence of registration of JDA, the agreement would not fall under Section 53A of TOPA and consequently, Section 2(47)(v) of the IT Act would not apply.

Decision of the Supreme Court

Any ‘transfer’ of a capital asset would attract capital gains tax in the year in which the transfer of asset takes place. Further, the term ‘transfer’ has been defined inclusively under Section 2(47) of the IT Act. Traditionally, capital gains in relation to immoveable property were taxable in the year in which registered conveyance deed was executed between the parties. As a result, the purchaser would delay or not get the property registered and enjoy the possession of the property in his own right, without the seller paying the legitimate amount of capital gains tax payable by him. To overcome this, the IT Act was amended and the revised definition of ‘transfer’ now includes any transaction that allows the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of TOPA. In other words, those arrangements which confirmed the privileges of ownership without a corresponding transfer of title would now be covered under section 2(47)(v).

Section 53A of TOPA was incorporated to provide protection to a transferee to retain his possession where he had taken possession of the property, pursuant to part performance of the contract. But the following conditions have to be fulfilled, if a transferee wants to defend or protect his possession under Section 53A of TOPA:

There must be a contract to transfer for consideration any immovable property;

The contract must be in writing, signed by the transferor, or by someone on his behalf;

The writing must be in such words, from which the terms necessary to construe the transfer can be ascertained;

The transferee must in part performance of the contract, take possession of the property, or of any part thereof;

The transferee must have done some act in furtherance of the contract; and

The transferee must have performed or be willing to perform his part of the contract.

Section 53A of the TOPA was amended in 2001 and as per the revised provisions, documents containing contracts to transfer for consideration are required to be mandatorily registered. In other words, if a JDA is not registered, it would have no effect in law for the purposes of Section 53A of the TOPA. Thus, it provided an incentive to the parties to register the JDA since it granted them legally enforceable rights.

Given this background, the primary issue before the SC was whether an unregistered JDA, which granted access to the developers for the purposes of development in part performance of the JDA, would get covered within the extended definition of ‘transfer’ under Section 2(47)(v) of the IT Act.

After going through the facts and circumstances and contentions of the taxpayer as well as the tax authorities, the SC observed that under Section 2(47)(v) of the IT Act, the term ‘transfer’ includes any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in Section 53A of the TOPA.

Taking note of the amendment to Section 53A of the TOPA, the SC went on to hold that to qualify as a “transfer” of a capital asset under Section 2(47)(v) of the Act, there must be a “contract” which is enforceable under law (i.e. complies with the provisions of Section 53A of the TOPA). A perusal of Section 53A suggests that in the eyes of law, there was no contract which could be taken cognisance of, if it was not registered. Therefore, for the JDA to be considered for the purposes of section 53A of TOPA, it was required to be a registered instrument and since it was not registered in the instant case, the SC held that in the absence of registration of such an agreement, the same was not enforceable under general law and, thus, the transaction would not fall under Section 2(47)(v).

The SC also observed that the ITAT was not correct in its view that, since Section 2(47)(v) of the IT Act refers to “contract of the nature referred to in Section 53A of the TOPA”, the JDA was not required to be registered to attract Section 2(47)(v) as the requirement of registration was introduced only in 2001. The SC clarified that all that was meant by this expression was to refer to the ingredients of applicability of Section 53A of the TOPA to the contracts mentioned therein and only where the contract contained all the essential ingredients under Section 53A of the TOPA, it will be covered within the ambit of transfer, as provided under Section 2(47)(v) of the IT Act. Accordingly, it was held that such an expression could not be stretched so as to say that, though registration of a contract is required only after 2001, Section 2(47)(v) of the IT Act would include within its purview only such contracts mentioned in Section 53A of the TOPA, but without the requirement of registration.

At the same time, the SC rejected the view of the HC which had held that Section 2(47)(vi) of the IT Act would not apply in the absence of any change in membership of the Society. The SC clarified that under Section 2(47)(vi) of the IT Act, any transaction that has the effect of transferring or enabling the enjoyment of any immovable property would come within its purview. Such a transfer could be by way of becoming a member or acquiring shares in a co-operative society ‘or in any other manner whatsoever’. The SC further observed that the HC had erred by not adverting to the expression ‘or in any other manner whatsoever’, which expression shows that it was not necessary that the transaction must refer to the membership of a cooperative society. It held that a reading of the JDA in the present case would show that the Assessee continued to be the owner throughout its tenor, and at no stage purported to transfer ownership rights to the Developer. At the highest, possession alone was granted under the JDA for the specific purpose of the property development. Thus, the present case did not attract the provisions of Section 2(47)(vi) of the IT Act.

Lastly, it was also held that as the JDA was abandoned due to lack of required approvals/permissions, therefore, the income from capital gain on a transaction which never materialised was merely a hypothetical income and no capital gains tax could be levied on such notional income under Section 45, read with Section 48, of the IT Act. In other words, the SC expounded the principle of “real income” and followed the well-established precedents set up by the Indian judiciary to hold that, since no profit or gain was realised, no capital gains tax could be levied.

Conclusion

The SC has reiterated that for a transaction to be regarded as a ‘transfer’ under Section 2(47)(v) of the IT Act, all the conditions of Section 53A of TOPA should be satisfied and possession of the property should be obtained by the transferee in part performance of the contract. It also observed that only real income should be brought to tax and not notional income.

We have discussed here the taxability of income earned from a JDA in the light of the SC decision. It is pertinent to note that there could be several other forms of JDAs, which may raise several other issues regarding taxation of income accruing or arising therefrom, depending on the terms and conditions of such JDAs.

Transaction of unregistered development agreement not regarded as a ‘transfer’ under 2(47)(v); on subsequent cancellation of development agreement, expected income cannot be taxed on hypothetical basis

The Punjab and Haryana High Court (HC), in the taxpayer’s case, held that since the Joint Development Agreement (JDA) was not registered (one of the requirements for grant of possession under the JDA), possession of land could not be said to have been given under the JDA. Therefore, the transaction could not be said to be a ‘transfer’ as per section 2(47)(v) of the Income-tax Act, 1961 (Act) read with section 53A of Transfer of Property Act, 1882 (TOPA). Further, in view of the cancellation of the JDA, no further money was received by the taxpayer and no further actions were taken. Therefore, no income tax could be levied on any hypothetical income from the deal.

#Important Judgements:-2021 (3) TMI 707 - AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH IN RE: M/S. NORTH SHORE TECHNOLOGIES PRIVATE

Important Judgements:-

2021 (3) TMI 707 – AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH

IN RE: M/S. NORTH SHORE TECHNOLOGIES PRIVATE LIMITED

Classification of supply – supply of services or not – subsidized shared transport facility provided to employees in terms of employment contract through third party vendors – valuation of subsidized shared transport facility provided to employees under employment contract – classification of activity of arranging transport facility for employees – person liable to pay GST – Rate of GST.

HELD THAT:- The applicant is transferring the entire amount collected from their employees, to the third party vendor who is providing transport services to their employees. We also observe that the applicant, in his application, has informed that apart from subsidized amount collected from the employees, they are also adding up a considerable amount into it and then paying it to the third party vendor. The applicant is not retaining any amount collected from the employees towards said transportation charges. We further observe that the applicant is in the business of software development and staff augmentation services and not in the business of providing transport service. Rather, this is a facility provided to their employees under the obligation of Law of the Land. Moreover, this activity is not integrally connected to the functioning of their business. Also, the said activity is not a factor which will take their business activity forward.

Thus, providing transport facility to its employees cannot said to be in furtherance of business.

Thus, arranging the transport facility for the employees and recovery from employees towards such transport facility, under the terms of the employment contract, cannot be considered as supply of service in the course of furtherance of business. Providing transport facility to employees is no where connected with the business of the applicant – thus, we are in unison with the applicant that arranging the transport facility for the employees is definitely not an activity which is incidental or ancillary to the activity of software development, nor can it be called an activity done in the course of or in furtherance of development of software as it is not integrally connected to the business in such a way that without this the business will not function.

Further, coming to the subsequent questions, it is observed that the subsequent questions in the application apply only when the answer of first question is in affirmative. As we are of the view that arranging transport facility to its employee is not a supply of service, accordingly the remaining questions become redundant and merit no discussion.

GST: Classification of services – Leasing – Royalty – exploration of natural resources – This activity of payment of lease charge/ dead rent/ royalty is towards the supply of service i.e. Licensing service for the right to use minerals including exploration and evolution, wherein the Government of Uttar Pradesh is supplier and the applicant is recipient. The liability of payment of GST liability on the amount of royalty paid to the Government is on the Service recipient i.e. the applicant in the instant case – AAR

Some of Ease of doing provisions.. added by the honourable FM...

Some of Ease of doing provisions.. added by the honourable FM…

Do you often wonder that the Govt intends to simplify, rationalise and reduce disputes in the Business world?

I am sure that you will think otherwise after reading about these changes. Without any further ado, let’s understand the most stringent provisions made in Budget 2021.

The 1st Stringent Provision

Attachment of Property

Sec. 83

It has been proposed in Section 281B of the Income Tax and Section 83 (1) of the CGST that in cases of tax evasion due to bogus bill, non-existent vendor, circular trading etc., the tax officer now has the power to attach the assets of the company including the bank account.

Besides that, the officer can also provisionally attach property and bank accounts of company directors, partners, company secretary, employees, Managers, CA, CS, Cost Accountants, the associated Auditors, advisors and Advocates or any other person at whose instance such transaction is conducted.

It is critical because here, the department is being empowered to make decisions based on inference and not based on evidence. The further opportunity of personal hearing is being given after the issuance of the Order of Attachment.

Do you think this is a step forward in promoting ease of Business?

Can you justify this Law with any kind of explanation?

Is there any reason not to term this as an Anti-Business law?

The 2nd Stringent Provision

Name and Shame

Sec. 151 and 152

On one hand, the Govt. has proposed to decrease the time limit to open a case in the Income Tax Department from 6 years to 3 years (this does not apply to cases in which the accused tried to evade not more than Rs. 50 Lakhs in a year).

At the same time, under GST, the Law gives powers under section 151 of the CGST Act 2017 to the Commissioner or an Officer authorised by him to direct any person to furnish information relating to any matter in connection with this Act. No time limit is defined for exercising these powers.

Non-only that, but also such information may be published in the public domain if the Commissioner has an opinion that such publication is desirable in the public interest.

This will indirectly result in more number of cases, more number of disputes, businesses will get less time to represent themselves because everything will be based on third party documents.

The 3rd Stringent Provision

Retrospective Amendment

Sec. 7

Under Income Tax, only retired judges of the High Courts and Supreme Court of India were part of the Authority for Advance Ruling under Income Tax Act. The proposed changes allow the Department’s Chief Commissioner level officers to be members of the Authority for Advance Ruling. This will raise direct questions on the fairness of this body while pronouncing judgements in various cases as happened in GST.

Further, due to the proposed retrospective amendment in Section 7 of the CGST Act 2017, the fairness of the GST officer will also become a challenge as the Officer will issue notices largely to the club or association to pay tax on the amount collected from the member with effect from July 2017 by accusing them of willful tax evasion.

The 4th Stringent Provision

Adverse Consequences in case of Delay in Deposit of Tax

Sec. 129 and 130

As per the practice before the proposed changes, every Business had an option to deposit the PF of employees with some delay. After the PF was deposited, reduction in spending was allowed.

As per the proposed changes, not only will you be restricted from requesting for a reduction in spending, but the late submission of PF will be treated as extra income.

This is what you call double Taxation for Businesses.

Why are Businesses getting punished with extra taxes and recovery notice even in case of unavoidable circumstances of delaying the deposit of tax?

Similarly, in GST, in case the transporter or owner fails to pay the amount of penalty within 15 days of the issuance of MOV 6 / MOV 7, the goods or conveyance so detained or seized shall be liable to be sold or disposed of to recover the penalty.

The 5th Stringent Provision

Mismatch, in return, may lead to recovery or cancellation

Sec. 75

As per the proposed changes, committing a mistake in calculating excess tax under section 75 (12) of GST will result in the Department charging it as self-assessment tax without issuing any show cause tax notice.

Similarly, the tax officer can even cancel your registration if he/she finds out a difference between the figures of GSTR 1 and 3B.

You now have no scope for error and will be punished even if the mistake is caused by human error.

Are we heading toward a more straightforward Tax system or making them more complicated?

We are pondering over this question after reading through the proposed changes in the Budget.

The 6th Stringent Provision

ITC will be allowed to avail only if reflected in GSTR 2A

Sec. 16

Input Tax credit for buyers will now only be available after the supplier properly files the return and the same is reflected in his GSTR 2A.

This means that the Tax Invoice of Vendors is nothing more than pieces of paper.

This clearly shows the Govt’s intention, which only wishes to allow ITC only in case of matched and availed Invoices.

The 7th stringent provision

Minor ignorance will cause big trouble and expense.

Sec. 129

This proposed change states in cases of seizure of goods, the accused Business must deposit penalty equal to 200% instead of 100% of the tax payable in case of taxable goods.

As practised earlier, Businesses could get the refund of taxes paid at such times after it is proved that the due taxes were already paid. But, small offences like the E-way bill getting expired are considered big (in the eyes of officials). Businesses are penalised with fines for these offences also.

This happens even in cases where the seized truck has the appropriate documents and no indication of the intention of avoiding taxes. Now, facing this for Businesses will be as hard as it can get in any scenario!

What we see in Media VS the reality

The Finance Minister and the CBIC Chief promote ease of doing business in India in every meeting that we get to see.

The Finance Minister talks about making the Taxation processes simpler, but in actuality, we can see that efforts are being made by the Govt. to introduce stringent provisions which will make life difficult for Businessmen and women.

If the Finance Minister was hesitant to mention these provisions in the Budget speech, then how can we not doubt the intentions of the Govt.?

Toggle SCN for detention of goods can’t be issued on mere suspicion: Guj. HC

SCN for detention of goods can’t be issued on mere suspicion: Guj. HC
GST : Where Competent Authority detained goods of assessee under transport and thereafter issued a show cause notice under section 130 on suspicion, show cause notice under section 130 could not be issued on a mere suspicion and impugned notice deserved to be quashed

Section 130 of the Central Goods and Services Tax Act, 2017/Section 130 of the Gujarat Goods and Services Tax Act 2017 – Confiscation of goods or conveyances and levy of penalty – Competent Authority detained goods of assessee (purchasing trader) under transport from Ujjain (Madhya Pradesh) to Ahmedabad (Gujarat) on 13-9-2020 and thereafter issued a show cause notice under section 130 dated 15-9-2020 on assessee – In show cause notice it was stated that in said case purchasing trader had generated E-way Bill but had transported goods twice on very same Bill – Assessee filed writ petition challenging show cause notice issued under section 130 – Revenue, on inquired by High Court, pointed out that GST Authorities had grave suspicion that driver of vehicle might have entered Ahmedabad on same E-way Bill and might have succeeded in getting out thereafter without payment of any tax – Thus it was a case of evasion of tax for some transaction which was unknown – Whether show cause notice under section 130 could be issued on a mere suspicion – Held, no – Whether there has be some prima facie material on basis of which authority may arrive at satisfaction that goods were liable to be confiscated under section 130 – Held, yes – Whether impugned notice issued under section 130 deserved to be quashed – Held, yes [Paras 9 and 10] [In favour of assessee]
(NR)
Tushar Hemani, Sr. Counsel and Ms. Vaibhavi K. Parikh for the Petitioner. Chintan Dave, Asstt. Govt. Pleader for the Respondent.

No ITC allowed on goods procured for promotion/marketing events being gifts GST

No ITC allowed on goods procured for promotion/marketing events being gifts

GST : Applicant is a supplier of BMW cars and bikes. It organizes marketing and sales promotion events in course of furtherance of business and attendees are provided free of cost BMW branded accessories which are tailor made and expenditure incurred by company is recorded as sales promotion and marketing expenses

• Thus, goods procured by applicant and supplied during promotion/marketing events qualify as being used in course of furtherance of business and since items distributed in promotional events are gifts and section 17(5)(h) bars credit of input tax with respect to gifts made by a registered person, applicant is ineligible to avail Input Tax Credit for such goods supplied in marketing events.

[2021] 124 taxmann.com 55 (AAR – HARYANA)

AUTHORITY FOR ADVANCE RULINGS, HARYANA

BMW India (P.) Ltd., In re

SANGEETA KARMAKAR AND MADHUBALA, MEMBER

ADVANCE RULING NO. HAR/HAAR/R/2018-19/49

Supply of water

Supply of water : Where applicant, engaged in business of management and maintenance of various residential Project, is providing services to Residential Welfare Association (RWA) which was formed for common interest of all intending buyers in two parts viz. maintenance services and supply of water and it has been observed that as a general practice across trade and market, maintenance services is inclusive of supply of water and hence supply of water provided by applicant through a separate agreement i.e. MOU in instant case, raises a suspicion in its activity. In view of fact that, that supply of water in MOU and supply of maintenance services in maintenance agreement are to same RWA and relevant to each other, hence there is no case of direct supply of water by applicant to individual resident of society. Thus is to be held that maintenance agreement and MOU is directly linked with each other as there is no case of direct supply of water by applicant to individual resident of society. Supply of water to individual units is not different from supply of water for maintenance services. Therefore, applicant is required to pay GST as applicable on maintenance agreement – Ashiana Maintenance Services LLP, In re – [2021] 124 taxmann.com 54 (AAR – HARYANA)

SECTION 16 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 - INPUT TAX CREDIT

SECTION 16 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 – INPUT TAX CREDIT

Input tax credit cannot be disallowed on ground that seller has not paid tax to Government, when purchaser is able to prove that seller has collected tax and issued invoices to purchaser – Sri Ranganathar Valves (P.) Ltd. v. Assistant Commissioner (CT) (FAC) – [2020] 120 taxmann.com 345 (Madras)

Due date of GSTR9 & 9C of 18-19 extended to 31.12.20.

Due date of GSTR9 & 9C of 18-19 extended to 31.12.20. Due date of Tax Audit etc. & ITR for non audit cases extended to 31.12.20 & ITR of audit cases to 31.1.21.

SECTION 5(6) OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 - CORPORATE INSOLVENCY RESOLUTION PROCESS

SECTION 5(6) OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 – CORPORATE INSOLVENCY RESOLUTION PROCESS

Dispute : Dispute as to quantum of debt would not affect admission of CIRP petition so long as there is default on part of corporate debtor for more than Rs. 1 lakh – Andritz Hydro (P.) Ltd. v. Indira Priyadarshini Hydro Power (P.) Ltd. – [2020] 120 taxmann.com 98 (NCLT – Hyd.)

GST Changes Annual Return related relaxation for MSME for 2019-20 The Central Government vide

GST Changes

Annual Return related relaxation for MSME for 2019-20

The Central Government vide Notification No.77/2020-Central Tax dated 15th October, 2020 has made the filing of Annual return optional under section 44 (1) of CGST Act for F.Y. 2019-20 also for those registered persons whose aggregate turnover is less than Rs 2 crores.

[Notification No. 77/2020 -Central Tax dated 15th October,2020]

HSN Code related changes

The Central Board of Indirect Taxes & Customs vide Notification No.78/2020-Central Tax dated 15th October, 2020 and Notification No.06/2020-Integrated Tax dated 15th October, 2020 has amended Notification No.12/2017-Central Tax dated 28th July, 2017 and Notification No.5/2017-Integrated Tax dated 28th July, 2017 relating to HSN Code.

The revised requirement for mentioning HSN code, with effect from 1st day of April, 2021, shall be as follows: –

TABLE

Serial Number TO No. of Digits of HSN

1. Up to rupees five crores 4

2. >five crores 6

Provided that a registered person having aggregate turnover up to five crores rupees in the previous financial year may not mention the number of digits of HSN Code, as specified in the corresponding entry in column (3) of the said Table in a tax invoice issued by him under the said rules in respect of supplies made to unregistered persons.

[Notification No. 78/2020 -Central Tax dated 15th October,2020]

[Notification No. 06/2020 – Integrated Tax dated 15th October,2020]

Amendments in Central Goods & Services Tax Rules, 2017

The Central Government vide Notification No.79/2020-Central Tax dated 15th October, 2020 has made the following amendments in the Central Goods & Services Tax Rules, 2017 :-

Rule Amendments

Comment:- This amendment has been made to allow SMS Facility Rule 80:

(Annual Return) Substitution of Proviso in sub-rule (3)-

“Provided that for the financial year 2018-2019 and 2019-2020, every registered person whose aggregate turnover exceeds five crore rupees shall get his accounts audited as specified under sub-section (5) of section 35 and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C for the said financial year, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner.”

Comment:- This amendment has been made to extend the applicability of threshold of Rs.5 Crore for Fling GSTR-9C for the Financial Year 2019-20 also. Earlier the threshold of Rs. 5 Crore was applicable for F.Y. 2018-19 only.

Rule 138E :

(Restriction on furnishing of information in PART A of FORM GST EWB-01) Insertion of Proviso after the third proviso-

“Provided also that the said restriction shall not apply during the period from the 20th day of March, 2020 till the 15th day of October, 2020 in case where the return in FORM GSTR-3B or the statement of outward supplies in FORM GSTR-1 or the statement in FORM GST CMP-08, as the case may be, has not been furnished for the period February, 2020 to August, 2020”

Comment:- This amendment has been made to provide relaxation from the aforesaid restriction for the period specified.

Rule 142:

(Notice and order for demand of amounts payable under the Act) Amendment in sub-rule (1A)-

i. for the words “proper officer shall”, the words “proper officer may” shall be substituted;

ii. for the words “shall communicate”, the word “communicate” shall be substituted.

FORM GSTR-1: In the said rules, in FORM GSTR-1, against serial number 12, in the Table, in column 6, in the heading, for the words “Total value”, the words “Rate of Tax” shall be substituted.

Changes in Form i. Substitution of New Form GSTR-2A in place of earlier one.

ii. Further, changes have been made in the following form:

a. FORM GSTR-5,

b. FORM GSTR-5A,

c. FORM GSTR-9,

d. FORM GSTR-9C,

e. FORM GST RFD-01,

f. FORM GST ASMT-16,

g. FORM GST DRC-01,

h. FORM GST DRC-02,

i. FORM GST DRC-07,

j. FORM GST DRC-08,

k. FORM GST DRC-09,

l. FORM GST DRC-24,

m. FORM GST DRC-25:

Comment:- Amendments in few places in the above Forms. For details the notification may be referred.

[Notification No.79/2020-Central Tax dated 15th October,2020]

Blocking of E-Way Bill (EWB) generation facility for taxpayers with AATO over Rs 5 Cr., after 15th October, 2020

10/10/2020

• In terms of Rule 138E(b) of the CGST Rules, 2017, the E Way Bill generation facility of a person is liable to be restricted, in case the person fails to file their GSTR-3B returns, for a consecutive period of two months or more.

• As you might be aware that the GST Council in its last meeting has decided that this provision will be made applicable for the taxpayers whose Aggregate Annual Turn Over (AATO, PAN based) is more than Rs 5 Crores.

• Thus, if the GSTIN associated with the respective PAN (with AATO over Rs 5 Cr.) has failed to file their GSTR-3B Return for 02 or more tax periods, up to the month of tax period of August, 2020, their EWB generation facility will be blocked on the EWB Portal. Please note that the EWB generation facility for such GSTINs (whether as consignor or consignee or by transporter) will be blocked on EWB Portal after 15th October, 2020.

• To avail continuous EWB generation facility on EWB Portal, you are therefore advised to file your pending GSTR 3B returns immediately.

• Please ignore this update if:

• You are not registered on the EWB portal or

• You have already filed your GSTR-3B Return for August, 2020 or

• Your AATO (PAN based) is below Rs 5 Cr.

MCA eases private placement norms for qualified institutional buyers

Notification No. [F. No. 1/21/2013-CL-V-Part], Dated 16.10.2020

The Ministry of Corporate Affairs has notified the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2020 whereby rule 14 which prescribes ‘procedure for issue of private placement’ has been amended to include fourth proviso to Rule 14(1). Now, companies need not pass Special resolution over and over again in case of offer or invitation of any securities to qualified institutional buyers, it shall be sufficient if previous special resolution is passed only once in a year for all the allotment to such buyers.

Membership subscription & fees spent towards meeting

Membership subscription & fees spent towards meeting & admn. expenses by club is not a service, not liable to GST

Rotary Club of Mumbai Nariman Point, In re – [2020] 120 taxmann.com 51 (AAAR-MAHARASHTRA)

The applicant is a club and collects amount towards subscription and fee from members to meet meeting and administrative expenses. The applicant has sought an advance ruling to determine whether such contribution received from members amounts to supply under GST?

The Authority for Advance Ruling (‘AAR’) held that amount collected from members expended towards meetings and other administrative expense qualifies as a supply under GST. The applicant filed an appeal before the Appellate Authority for Advance Ruling (‘AAAR’).

The AAAR observed that as per Section 2(17) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) the term ‘business’ includes provision by a club, association, society or any such body (for a subscription or any other consideration) of the facilities or benefits to its members.

In the present case, the applicant is not providing any specific facility or benefits to its members against the membership subscription charged by it. Since the entire subscription amount is spent towards meeting and administrative expenses only, thus the applicant is not doing any business in terms of Section 2(17) of the CGST Act. Further, collection of membership fee and subscription is in the nature of reimbursement for meeting and administrative expenses incurred by the applicant and hence, would not be considered as a supply.

The AAAR set aside the ruling of AAR and held that collection of amount from members for meeting & administrative expenses by club is not a supply of service and hence, not liable to GST.

Sale of goods to Outbound Passengers by Duty Free Shop qualify as Exports;

Sale of goods to Outbound Passengers by Duty Free Shop qualify as Exports; ITC Refund is available: KER HC

High Court of Kerala, Cial Duty Free and Retail Services Ltd & Oth. Vs. Union of India & Oth.- WP(C).12274/2020 & Others

Various petitions have been filed by the petitioners running Duty Free Shop (‘DFS’) in international airports wherein the sale of goods made to Outbound Passengers were disqualified as exports and accordingly, refund of unutilized ITC was denied by the authorities.

The petitioners submitted that every sale at the DFS located at departure terminal is covered by sale voucher which is deemed to be a shipping bill under the Customs Act, 1962. These transactions are carried out as per the guidelines issued by the Department of Customs from time to time. As per Section 2(11) of the Customs Act, all duty free shops in India are in Customs Area, which include a warehouse and customs station. The products brought from foreign suppliers are kept in custom bonded warehouses and are transferred to DFSs situated at the airport as and when stocks are needed. In other words, products have not crossed the customs frontiers of India.

The Hon’ble High Court observed that invoices issued by DFSs at the time of sale of goods to the outgoing passengers are duly signed by both the passengers and the cashier which envisages a condition that the passenger will not consume the goods until he lands at the final destination outside India. In other words, the passenger shall become owner of the goods only upon reaching of final destination. All the goods which are sold at the DFSs are either imported or purchased from Indian market and are stored in a customs bonded warehouses. Such goods are removed from such warehouses only under the supervision of the Jurisdictional Commissioner and are not sold for domestic purposes. The goods which are brought from customs warehouses do not cross customs frontiers as before the goods are imported in the country, they had been sold at DFSs.

Therefore, if the transaction of sale or purchase takes place when the goods are imported in India or they are being exported from India, no State can impose any tax thereon. All the DFSs are situated at international airports, which are beyond the customs frontiers of India. When any transaction takes place outside the customs frontiers of India, the transaction is said to have taken place outside India.

GST: Period of limitation for filing an appeal

GST: Period of limitation for filing an appeal – whether the appellate authority was justified in rejecting the appeal on the ground of limitation or not? – there was no failure on part of the petitioner to file the appeal within the prescribed period of limitation as the period of limitation did not start till the order passed by the adjudicating authority was uploaded on the GST portal. – HC

No GST on amt. charged from employees for Transp. services

No GST on amt. charged from employees for Transp. services; ITC is available in proportion to amt. charged: MH AAR

September 10, 2020[2020] 119 taxmann.com 106 (AAR – MAHARASHTRA)

501 Views

GST : Input Tax Credit (ITC) shall be available to applicant – Employer on GST charged by service provider on hiring of bus/motor vehicle having seating capacity of more than 13 persons for transportation of employees to and from workplace with effect from 1-2-2019 as with effect from 1-2-2019, ITC has been allowed on leasing, renting or hiring of motor vehicles, for transportation of persons, having approved seating capacity of more than 13 perons (including driver)

Employer charges nominal amount from its employees on monthly basis. AAR held no services are provided by employer to its employees and in view of (Schedule III, Section 7) GST is not applicable on the nominal amounts recovered by employer from their employees in the subject case.

■■■

[2020] 119 taxmann.com 106 (AAR – MAHARASHTRA)

AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA

Tata Motors Ltd., In re

MS. P. VINITHA SEKHAR AND A.A. CHAHURE, MEMBER

ORDER NO. GST-ARA-23/2019-20/B-46

AUGUST 25, 2020

PROCEEDINGS

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services lax Act, 2017)

1. The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act. 2017 [hereinafter referred to as ‘”the CGST Act and MOST Act” respectively] by M/s. Tata Motors Limited, the applicant. seeking an advance ruling in respect of the following questions.

1. Whether input tax credit (ITC) available to Applicant on GST charged by service provider on hiring of bus/motor vehicle having seating capacity of more than thirteen person for transportation of employees to & from workplace?

2. Whether GST is applicable on nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air conditioned bus?

3. If ITC is available as per question no. (1) Above, whether it will be restricted to the extent of CGST borne by the Applicant (employer)?

1.1 At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this advance Ruling, the expression ‘GST Act* would mean CGST Act and MGST Act.

FACTS AND CONTENTION – AS PER THE APPLICANT

2. The submissions made by the applicant are as follows:-

2.1 Applicant has engaged service providers to provide transportation facility to its employees. in non-air conditioned buses having seating capacity of more than 13 person. Sr. No. 15(b) of Notification No. 12/2017-C.T. (Rate) dated 28-6-2017 exempts service provided for “transport of passengers, with or without accompanied belongings, by non-air-conditioned contract carriage other than radio taxi, for transportation of passengers, excluding tourism, conducted tour, charter or hire”. Service providers are having contract carriage permit issued by the relevant regulators authorities in respect of buses deployed for employee transportation service.

2.2 Section 17(5)(b)(i) of the CGST Act. 2017 has been amended, w.e.f. 1-2-2019, to block ITC on leasing, renting or hiring of motor vehicles having approved seating capacity of not more than 13 persons. Hence ETC is allowed on leasing, renting or hiring of motor vehicles having seating capacity of more than 13 person.

2.3 To ensure use of transportation facility only by authorized persons/employees, Applicant is issuing pass to employees and nominal amount is recovered on monthly basis. In other words, difference between amount paid to service provider and amount recovered from employees is CGST to company as salary CGST.

2.4 By Press release dated 10-7-2017, it was clarified that supply by employer to the employees in terms of contractual agreement of employment entered into between employer and employee (which are treated as a part of salary/CGST to company), will not be subject to GST and expenditure on employee bus transportation service borne by Applicant arc part and parcel of CGST to company. The employee transportation facility is open to all the employees desirous of availing the facility.

2.5 The applicant has submitted that, in similar transactions carried out in pre-GST regime, it was held by various courts that credit is not admissible to manufacturer on part of CGST borne by worker and thus ITC will be restricted to the extent of CGST borne by the employer.

2.6 Section 17(5)(b)(i) of the CGST Act as amended w.e.f. 1-2-2019. inter-alia specifies the supply of Roods and service which is blocked for credit. Relevant abstract of the same is reproduced as under:

” food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicle vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purpose specified therein, life insurance & health insurance.”

Clause (a) of Section 17(5) of CGST Act restricts ITC on ‘motor vehicles for transportation of persons having approved seating capacity of not more than thirteen person (including driver), except when used for specified purpose.

2.7 From the reading of clause (a) & clause (b) of Section 17(5) of the CGST Act, it is clear that, leasing, renting or hiring of motor vehicle having approved seating capacity of more than thirteen person is admissible for ITC. Hence Applicant would be entitled to avail ITC in the subject case.

2.9 As per para 2(1) of the exemption Notification No. 12/2017-C.T. (Rate) dated 28-6-2017, “contract carriage” has the same meaning as assigned to it in clause (7) of Section 2 of the Motor Vehicles Act, 1988 (59 of 1988) wherein “contract carriage” means a motor vehicle which carries a passenger or passengers for hire or reward and is engaged tinder a contract, whether express or implied, for the use of such vehicle as a whole for the carriage of passengers mentioned therein and entered into by a person with a holder of a permit in relation to such vehicle or any person authorized by him in this behalf on a fixed or an agreed rate or sum

(a) On a time basis, whether or not with reference to any route or distance, or

(b) from one point to another;

And in either case, without stopping to pick up or set down passengers not included in the contract anywhere during the journey, And includes

(i) a Maxicab; and

(ii) a motor cab notwithstanding that separate fares are charged for its passengers “

2.11 Thus, in order to lake benefit of SI. 15(b) of the exemption Notification No. 12/2017- Central Tax (Rate) dated 28-6-2017. a) Service is provided for transportation of passengers; b) By a non-air-conditioned contract carriage c) The vehicle should have a contract carriage permit under the Motor Vehicle Act; d) Requirements under section 2(7) of the Motor Vehicles Act should be fulfilled and e) The transportation should not be for the purpose of tourism, conducted tours, charter or hire; and 1) 11 should not be a radio taxi.

2.12 In subject case even though Applicant recovers nominal amount from its employees, it cannot be said that particular employee has obtained the bus an hire or charter from the Applicants. It is the Applicant who would be eligible for the aforesaid exemption provided to transport of passengers in a non-air conditioned contract carriage.

2.13 Citing the Order passed by Hon’ble High court of Bombay in the case of CCE. Nagpur v. Ultratech Cements Ltd. as reported in 2010 (260) EL.T 369 (Bom) wherein it was held that, credit is not admissible to manufacturer on part of CGST borne by worker and proportionate credit embedded in CGST of food recovered from employees, needs to be reversed. Applicant has submitted that credit is not admissible to them on part of CGST borne by worker and thus ITC will be restricted to the extent of CGST borne by the Applicant (Employer).

CONTENTION – AS PER THE CONCERNED OFFICER:

3. The comments of the jurisdictional officer are as under:-

3.1 Prior to its amendment made vide the Central Goods and Services fax (Amendment) Act. 2018 (No. 31 of 2018) dated 29-8-2018 made effective from 1-2-2019 vide Notification No. 02/2019 C.T., dated 29-1-2019. Section 17 (5) of the CGST Act. 2017. did not allow availment of input tax credit of the supply of goods or services as the same was allowed only to the supplier/provider under conditional circumstances and not to the service recipient like the applicants who are only recipient of the employee bus transportation service and not a provider.

3.2 After the above-mentioned amendment, inference can be made that the applicant, being a recipient of bus transportation service for their employees from service providers deploying buses with seating capacity of more than thirteen persons are eligible for the ITC of the GST paid on the services of bus transportation received |as hirers of motor vehicles -highlighted in clause (b) (i) of Sectionl7 (5) of the CGST Act. 2017]. The earlier blanket restriction on availment of credits under section 17(5) has been relaxed in case of large capacity motor vehicles (more than 13 persons carrying capacity) used mainly for commercial non-public transportation like used by industrial/commercial concerns for their employees and the applicant’s case is similar.

3.3 The following requirements should be met for availment of input tax credit.

(a) The Vehicle has approved seating capacity of more than 13 persons (including driver).

(b) The service of leasing, renting or hiring is used for furtherance of business as per Section 16(l) of the CGST Act. 217.

(c) The service provider furnishes invoice as per Section 3 1 and Rule 46 of the CGST Act & the CGST Rules, respectively.

(d) All other conditions as prescribed under section 16(2) arc complied.

3.4 The jurisdictional officer has cited various judicial decisions along with the decision made by the Hon’ble Court in Commr. of C. Ex., Chandigarh-II v. Federal Mogul Goetze (India) Ltd., 2015(39)S.T.R.735 (P&H), as well as the Karnataka High Court decision in Commr. of C. Ex., Bangalore-III v. Stanzen Toyotetsu India (P.) Ltd., 2011 (23) S.T.R. 444 (Kar.) and submitted that input tax credit is available to the applicant in the instant case.

3.7 In subject case of transaction between Applicant and its employees, where Applicant recovers nominal amount from its employees, it cannot be said that particular employee has obtained the bus on hire or charter from the Applicants. The applicant’s contentions that they are eligible for exemption from GST under SI. No. 15(b) of Notification. No. 12/2017-Central Tax (Rate) dated 28-6-2017 in respect of nominal amounts of recoveries made by the applicant (as employer) from their employees towards bus transportation service, is not correct for the following reasons:

(a) The transaction between the applicant & their employees due to “Employer-Employee” relation does not amount to supply of either goods or services and therefore GST cannot be applied on the same. In view of Schedule-III to CGST Act 2017. Services by an employee to the employer in the course of or in relation to his employment shall be treated neither as a supply of goods nor a supply of services.

(b) The applicant is not acting as a provider of bus transportation service to their employees but as recipient of such service provided by the bus transporters and the employees are users of the said receipted service. The restriction or allowance of credit in clause (b) of Section 17(5) is in relation to the motor vehicles of not more than 13 passenger capacity and the applicant uses motor vehicles (Buses) of higher capacities. Hence GST is not applicable on nominal amounts recovered by Applicants from their employees for usage of employee bus transportation facility in non-air conditioned bus.

3.8 On the question whether ITC, if allowable will be restricted to the extent of CGST borne by the Applicant (employer), the jurisdictional officer citing the decision of I Hon’ble High court of Bombay in the case of CCH. Nagpur v. Ultratech Cements Ltd. as reported in 2010 (260) l.LT 369 (Bom) submitted that, in view of scaled position of law in pre-GST regime in similar set of transaction, credit is not admissible to Applicants on part of CGST borne by the employees of the applicants and the ITC will be restricted to the extent of CGST borne by the Applicant (Employer).

4. HEARING

4.1 Preliminary hearing in the matter was held on 26-11-2019. Shri Rajesh Shukla, Head. Indirect Tax. appeared along with Shri Mukesh Dokania. Dy. General Manager (Indirect Taxation) and requested for admission of their application. Jurisdictional Officer was not present.

4.2 The application was admitted and called for final hearing on 17-12-2019. Shri Rajesh Shukla, Head, Indirect Tax, appeared along with Shri Mukesh Dokania, Dy. General Manager (Indirect Taxation). Authorized Representative, made oral and written submissions. Jurisdictional Officer was not present but made written submissions. We heard both the sides.

5. DISCUSSIONS AND FINDINGS:

5.1 We have gone through the facts of the case, documents on record and submissions made by both, the applicant as well as the jurisdictional office.

5.2 Applicant had submitted that they have engaged a service provider to provide bus transportation facility to its employees in non-air conditioned bus having seating capacity of more than 13 person. The first question raised by them is whether they are entitled to avail ITC of the GST paid to such service providers.

5.2.1 To answer the question whether applicant is entitled to avail Input lax credit (ITC) of GST charged pn such inward supply as in the subject case, we refer to the provisions of Chapter V of the CGST Act, 2017 comprising of Sections 16 to 21.

5.2.2 Section 16 of the CGST Act. 2017. contains provisions with respect to eligibility and conditions for taking ITC. As per Section 16(1). every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in Section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which arc used or intended to be used in the course or furtherance of his business. Hence, ITC in respect of receipt of services is available and can be taken. However, the credit is available subject to such conditions and restrictions and in the manner specified in Section 49 of the CGST Act.

5.2.3 We have no doubt that in the subject case, the supply of services received by the applicant is used in the course or furtherance of their business and therefore prima facie, they are eligible to take credit of GST charged by their suppliers.

5.2.4 However, while we find that the applicant is eligible to take ITC under the provisions of the CGST Act, it is to be seen whether Section 17 (5) of the said Act debars the applicant from taking credit. We find that, as rightly pointed out by the jurisdictional officer, Section 17 (5) has been amended by CGST (Amendment) Act. 2018 (No. 31 of 2018) dated 29-8-2018 made effective from 1-2-2019 vide Notification No. 02/2019 – C.T.- 2019 dated 29-1-2019. Prior to this date Section 17 of CGST Act, 2017 read as under:-

Section 17: (5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—

(a) motor vehicles and other conveyances except when the) are used

(i) for making the following taxable supplies, namely: –

(A) further supply of such vehicles or conveyances ; or

(

transportation of passengers: or

(ii) for transportation of goods:

(b) the following supply of goods or services or both

(i) food and beverages, outdoor catering, beauty treatment, healty services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a Particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply:

(ii) membership of a club, health and fitness centre:

(iii) rent-a-cab, life insurance and health insurance except where

(A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force: or

(

such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply.

5.2.5 Vide the aforesaid amendment, Clauses (a) and (b) have been replaced with Clauses (a), (aa), (ab) and (b) and the amended Section 17 (5) (d) reads as under:-

Section 17: (5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (I) of section 18. input lax credit shall not be available in respect of the following, namely:

(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely :—

(A) further supply of such motor vehicles; or

(

transportation of passengers; or

(aa) vessels and aircraft except when they are used—

(i) for making the following taxable supplies, namely:—

(A) further supply of such vessels or aircraft: or

(

transportation of passengers: or

(D) imparling training on flying such aircraft:

(ii) for transportation of goods;

(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) :

Provided that the input tax credit in respect of such services shall be available –

(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein:

(Ii) where received by a taxable person engaged

(I) in the manufacture of such motor vehicles, vessels or aircraft; or

(II) in the supply of general insurance services in respect of such motor vehicles,

vessels or aircraft insured by him;

(b) the following supply of goods or services or both —

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

(i) membership of a club, health and fitness centre; and

(ii) (iii) travel benefits extended to employees on vacation such as leave or home travel concession:

Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force. “

5.2.6 From the above, it is clear and apparent that Section 17(5) had clearly debarred Input Tax Credit on motor vehicles or conveyances used in transport of passengers till the date of the amendment i.e. 1-12-2019. However with effect from 1-12-2019, Input Tax Credit has been allowed on leasing, renting or hiring of motor vehicles, for transportation of persons, having approved seating capacity of more than thirteen persons (including the driver).

5.2.7 Therefore in the subject case, since the applicant has specifically submitted and as agreed by the jurisdictional officer, that they are using motor vehicles having approved seating capacity of more than thirteen persons (including the driver), the applicant shall be eligible for Input Tax Credit in this case. However we would like to make it very clear that if the motor vehicle hired by them does not have an approved seating capacity of more than thirteen persons (including the driver), then in that case the applicant will not be eligible for Input Tax Credit.

5.3 The second question raised by the applicant is whether GST is applicable on nominal amount recovered by Applicants from their employees for usage of employee bus transportation facility in non-air conditioned bus.

5.3.1 Applicant has submitted that they issue pass only to their employees, so that the transportation facility can be used by such employees, for which nominal amount is recovered on monthly basis. They have also submitted that once, employee ceases to be in employment with Applicant, he/she is not authorized to use the transportation facility. In other words, employer-employee relationship is must to avail this facility.

5.3.2 In the subject case we find that the applicant is not providing transportation facility to its employees, in fact the applicant is a receiver of such services in the instant case. The applicant’s contentions that they are eligible for exemption from GST under Sl. No. 15(b) of Notification No. 12/2017-Central Tax (Rate) dated 28-6-2017 in respect of nominal amounts of recoveries made from their employees towards bus transportation service, is not correct. The exemption under the said notification is available only when the supply is taxable in the first place. In the subject case, the transaction between the applicant & their employees, due to “Employer-Employee” relation as slated by the applicant in their submissions, is not a supply under GST Act.

5.3.3 To answer the second question we now refer to Schedule III to the CGST Act which lists activities which shall be treated neither as a supply of goods nor a supply of services. As per clause 1 of the said Schedule-Ill. Services by an employee to the employer in the course of or in relation to his employment shall he treated neither as a supply of goods nor a supply of services.

5.3.4 Since the applicant is not supplying any services to its employees, in view of Schedule III mentioned above, we arc of the opinion GST is not applicable on the nominal amounts recovered by Applicants from their employees in the subject case.

5.4 The last question raised by the applicant is if ITC is available to them, whether it will be restricted to the extent of CGST borne by the Applicant.

5.4.1 The applicant, citing the decision of the Hon’ble High court of Bombay in the case of CCE, Nagpur v. Ultratech Cements Ltd. as reported in 2010 (260) FLT 369 (Bom) has submitted that ITC is not admissible to Applicant on part of CGST borne by employee and thus ITC will be restricted to the extern of CGST borne by the Applicant.

5.4.2 The jurisdictional officer has also endorsed the view of the applicant and we have no reason to deviate from the view expressed by both, the applicant as well as the jurisdictional officer

6. In view of the extensive deliberations as held hereinabove, we pass an order as follows:

ORDER

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

No. GST-ARA-23/2019-20/B-46 Mumbai, dt. 25-8-2020

For reasons as discussed in the body of the order, the questions arc answered thus

Question: -1. Whether input tax credit (ITC) is available to Applicant on GST charged by service provider on hiring of bus/motor vehicle having seating capacity of more than thirteen person for transportation of employees to & from workplace?

Answer: – ITC is available to the applicant but only after 1-2-2019.

Question:-2. Whether GST is applicable on nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air conditioned bus?

Answer: – Answered in the negative.

Question: -3. If ITC is available as per question no. (1) above, whether it will be restricted to the extent of CGST borne by the Applicant (employer)?

Answer: – Answered in the affirmative.

No GST on amt. charged from employees for Transp

No GST on amt. charged from employees for Transp. services; ITC is available in proportion to amt. charged: MH AAR

September 10, 2020[2020] 119 taxmann.com 106 (AAR – MAHARASHTRA)

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[2020] 119 taxmann.com 106 (AAR – MAHARASHTRA)

AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA

Tata Motors Ltd., In re

MS. P. VINITHA SEKHAR AND A.A. CHAHURE, MEMBER

ORDER NO. GST-ARA-23/2019-20/B-46

AUGUST 25, 2020

PROCEEDINGS

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services lax Act, 2017)

2. Whether GST is applicable on nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air conditioned bus?

3. If ITC is available as per question no. (1) Above, whether it will be restricted to the extent of CGST borne by the Applicant (employer)?

FACTS AND CONTENTION – AS PER THE APPLICANT

2. The submissions made by the applicant are as follows:-

(a) On a time basis, whether or not with reference to any route or distance, or

(b) from one point to another;

And in either case, without stopping to pick up or set down passengers not included in the contract anywhere during the journey, And includes

(i) a Maxicab; and

(ii) a motor cab notwithstanding that separate fares are charged for its passengers “

CONTENTION – AS PER THE CONCERNED OFFICER:

3. The comments of the jurisdictional officer are as under:-

3.3 The following requirements should be met for availment of input tax credit.

(a) The Vehicle has approved seating capacity of more than 13 persons (including driver).

(b) The service of leasing, renting or hiring is used for furtherance of business as per Section 16(l) of the CGST Act. 217.

(c) The service provider furnishes invoice as per Section 3 1 and Rule 46 of the CGST Act & the CGST Rules, respectively.

(d) All other conditions as prescribed under section 16(2) arc complied.

4. HEARING

5. DISCUSSIONS AND FINDINGS:

5.1 We have gone through the facts of the case, documents on record and submissions made by both, the applicant as well as the jurisdictional office.

Section 17: (5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—

(a) motor vehicles and other conveyances except when the) are used

(i) for making the following taxable supplies, namely: –

(A) further supply of such vehicles or conveyances ; or

(

transportation of passengers: or

(ii) for transportation of goods:

(b) the following supply of goods or services or both

(ii) membership of a club, health and fitness centre:

(iii) rent-a-cab, life insurance and health insurance except where

(A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force: or

(

5.2.5 Vide the aforesaid amendment, Clauses (a) and (b) have been replaced with Clauses (a), (aa), (ab) and (b) and the amended Section 17 (5) (d) reads as under:-

Section 17: (5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (I) of section 18. input lax credit shall not be available in respect of the following, namely:

(A) further supply of such motor vehicles; or

(

transportation of passengers; or

(aa) vessels and aircraft except when they are used—

(i) for making the following taxable supplies, namely:—

(A) further supply of such vessels or aircraft: or

(

transportation of passengers: or

(D) imparling training on flying such aircraft:

(ii) for transportation of goods;

(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) :

Provided that the input tax credit in respect of such services shall be available –

(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein:

(Ii) where received by a taxable person engaged

(I) in the manufacture of such motor vehicles, vessels or aircraft; or

(II) in the supply of general insurance services in respect of such motor vehicles,

vessels or aircraft insured by him;

(b) the following supply of goods or services or both —

(i) membership of a club, health and fitness centre; and

(ii) (iii) travel benefits extended to employees on vacation such as leave or home travel concession:

5.4 The last question raised by the applicant is if ITC is available to them, whether it will be restricted to the extent of CGST borne by the Applicant.

5.4.2 The jurisdictional officer has also endorsed the view of the applicant and we have no reason to deviate from the view expressed by both, the applicant as well as the jurisdictional officer

6. In view of the extensive deliberations as held hereinabove, we pass an order as follows:

ORDER

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

No. GST-ARA-23/2019-20/B-46 Mumbai, dt. 25-8-2020

For reasons as discussed in the body of the order, the questions arc answered thus

Answer: – ITC is available to the applicant but only after 1-2-2019.

Question:-2. Whether GST is applicable on nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air conditioned bus?

Answer: – Answered in the negative.

Question: -3. If ITC is available as per question no. (1) above, whether it will be restricted to the extent of CGST borne by the Applicant (employer)?

Answer: – Answered in the affirmative.

We are of the clear opinion that once the

“17. We are of the clear opinion that once the property in question is used as business asset and the exclusive business of the assessee company or firm is to earn income by way of rental or lease money, then such rental income can be treated only as the “Business Income of the Assessee” and not as “Income from House Property”. The Heads of Income is divided in various six heads, including “Income from House Property”, which defines the specific source of earning such incomes. The income from house property is intended to be taxed under that head mainly if such income is earned out of idle property, which could earn the rental income by user thereof from the lessees. But, where the income from the same property in the form of lease rentals is the main source of business of the Assessee, which has its business exclusively or substantially in the form of earning of the rentals only from the Business Assets in the form of such landed properties, then, in our opinion, the more appropriate Head of Income applicable in such cases would be “Income from Business”.

M/s. PSTS Heavy Lift and Shift Ltd., Wavoo Mansion, 2nd Floor 48, (Old No. 39), Rajaji Salai v. M/s. CeeDeeYes IT Parks (P.) Ltd., decided on 30 January 2020, in Tax Case Appeal Nos.2193 to 2195 of 2008 & 979 of 2009

Update on Clarifications of certain issues under GST

(Circular No. 47/21/2018-GST)dated 08-06-2018

Update on Clarifications of certain issues under GST

This update intends to discuss about the certain clarifications issued vide circular No. 47/21/2018-GSTdated 08-06-2018.Let us analyze the following Clarifications issued by CBIC:-

Moulds and dies owned by Original Equipment Manufacturers(OEM) that are sent free of cost (FOC) to a component manufacturer (regarding liability of tax & reversal of credit)

Since in the service tax regime, the cost of free supply of material supplied by service recipient to service provider was to be added in the taxable value. This concept has generated a lot of litigation and ultimately, it has been decided by Apex Court in case of Bhayana Builders. But there is no such concept in the GST regime. Thus, the cost of free supply material is not to be added to arrive at taxable value. This is also clarified by CBIC in this circular.

However, circular further says that if the agreement between provider and recipient says that the material was to be supplied by provider only. But the recipient has supplied this material to provider then its value is to be added in the taxable value. Hence, the litigation of service tax regime does not end here and continued in the GST also.

Moreover, the problem arises when the moulds and dies are supplied free of charge by recipient. But the agreement says that the same is to be purchased by provider onhis own. But crux of problem is that the complete value of dies and moulds cannot be loaded in a single transaction. A example will clarify the same.

Suppose,a die of Rs, 10,000/-can be used to manufacture 10,00,000 pieces. But the recipient has ordered only 5000 pieces @ 10/- per piece. Now the complete cost of die comes to Rs. 10,000/- cannot be loaded to supply of 5000 pieces. Hence, the amortised value is to be arrived at and value is to be added. So, we will calculate the amortized value by dividing 10,000 by 10,00,000 and will add per unit cost in the GST value. This was concept

prevailing in service tax regime and now it has been added in GST regime also. Litigation will take place on this issue also.

Liability of tax in case of Servicing of cars involving both supply of goods (spare parts) and services (labour) –

This dispute was going on since long as to whether the service provided by authorized service stations will be termed as composite supply and it will be taxed accordingly. But most of the service providers, bill separately for material as well as for labour charges. Many representations have been sent to the Government in this regard. Hence, they were billing at the rates applicable on them.

Now it has been clarified that if assessee supply both goods and services and the value of such goods and services supplied are shown separately, then goods and services would be liable to tax at the rates as applicable to such goods and services separately.

Auction of tea, coffee, rubber etc. (regarding maintenance of books of accounts & eligibility to avail input tax credit)

Books of accounts will be maintained at the principal place of business and additional place(s) of business as follow-

The principal and the auctioneer may declare the warehouses, where such goods are stored, as their additional place of business.

The buyer is also required to disclose such warehouse as his additional place of business if he wants to store the goods purchased through auction in such warehouses.

(For the purpose of supply of tea through a private treaty, the principal and an auctioneer may also comply with the said provisions) The principal and the auctioneer are required to maintain the books of accounts relating to each and every place of business in that place it.

However, in case of any difficulty, they may maintain the books of accounts relating to the additional place(s) of business at their principal place of business. (Principal and the auctioneer are required to intimate their jurisdictional officer in writing about the same.)

Principal and the auctioneer shall be eligible to avail input tax credit subject to the fulfillment of other provisions of the CGST Act read with the rules made there under.

E-way Bill-Whether goods can be delivered without producing e-way bill at the time of delivery in case of transportation of goods by railways.

It has been clarified that Railways shall not deliver the goods unless the e-way bill is produced at the time of delivery.

Whether e-way bill is requiredin the following cases-

Where goods are sent in another State while moving from one area in a State to another area in the same State –

The circular states that, If the goods are sent in second State while moving from one place in a State to another place in the same State, an e-way bill is required to be generated.

Where goods move from a DTA unit to a SEZ unit or vice versa located in the same State-

Where goods move from a DTA unit to a SEZ unit or vice versa located in the same State, there is no requirement to generate an e-way bill (this exemption is applicable only if state has exempted the same.)

Means for Rajasthan E-way is required to be generated as there is no exemption regarding the same

GST: Refund of ITC in case of inverted duty structure

GST: Refund of ITC in case of inverted duty structure – Not allowing refund of unutilized input tax credit relatable to input services – Explanation (a) to Rule 89(5) which denies the refund of “unutilised input tax” paid on “input services” as part of “input tax credit” accumulated on account of inverted duty structure is ultra vires the provision of Section 54(3) of the CGST Act, 2017. – HC

ContentGST: The class of registered person

Toggle ContentGST: The class of registered person required to issue e-invoice – SEZ units excluded – Threshold limit of turnover enhanced from 100 crores to 500 crores.

[2020] 117 taxmann.com 537 (AAR - MAHARASHTRA) AUTHORITY FOR

[2020] 117 taxmann.com 537 (AAR – MAHARASHTRA)

AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA

Hitachi Power Europe GmbH, In re

A.A. CHAHURE AND MS. P. VINITHA SEKHAR, MEMBER

NO. GST-ARA-38/2019-20/B-27

MARCH 11, 2020

Section 8 of the Central Goods and Services Tax Act, 2017/section 8 of the Maharashtra Goods and Services Tax Act, 2017 – Composite and mixed supplies, tax liability on – HP GmbH is a company incorporated in Germany – It has been awarded a contract for supply of goods and supervisory services in relation to projects of NTPC – In order to execute said contracts, German company opens a project office in India i.e. applicant herein – Few employees of Head Office (expat employees) work in project office in India – Since most of those expat employees have their primary bank accounts in Germany, salary is paid to said employees from HO’s bank account located abroad for administrative convenience – However, in order to keep record of salary expenses of expat employees, project office makes an accounting entry in its financial books of accounts in India even though salary is paid by Head Office – Whether project office is an extension of Head Office and, thus, there is a relation of employer and employee between project office and expat employees – Held, yes – Whether, in such a case, Schedule III of Act comes into play as per which services by an employee to employer in course of or in relation to his employment will not be considered as a supply and therefore will not attract GST – Held, yes – Whether in view of aforesaid, it has to be ruled that GST is not applicable on accounting entry made for purpose of Indian accounting requirements in books of accounts of project office for salary cost of expat employees – Held, yes [Paras 5.7,5.9 and 6]

Taxation of services provided by Goods Transport Agency ('GTA') operators has

Taxation of services provided by Goods Transport Agency (‘GTA’) operators has always been a contentious and ambiguous issue under indirect tax statutes, whether service tax or the Goods & Services Tax (‘GST’). This ambiguity owes its origin to the differential taxation treatment conferred by statutes based on the nature of transportation services.

Under the GST regime, services of transportation of goods by road supplied by a GTA are taxable, similar to the erstwhile service tax regime. In this regard, the relevant extract of Notification No. 11/2017- Central Tax (Rate) dated 28th June, 2017 (‘Notification 11’) is reproduced below:

Heading Description of Service Rate Condition

9965 (Goods transport services)

(iii) Services of GTA in relation to transportation of goods (including used household goods for personal use)

Explanation – “goods transport agency” means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called.

2.5 Provided that credit of input tax charged on goods and services used in supplying the service has not been taken

6 Provided that the goods transport agency opting to pay central tax @ 6% under this entry shall, thenceforth, be liable to pay central tax @ 6% on all the services of GTA supplied by it.]22

On the other hand, other services of transportation of goods by road, other than GTA and courier services, are exempt from the levy of GST, as prescribed by Notification No. 12/2017- Central Tax (Rate) dated 28th June, 2017 (‘Notification 12’) as follows:

Heading Description of Service Rate Condition

9965

Services by way of transportation of goods-

(a) by road except the services of—

(i) a goods transportation agency;

(ii) a courier agency;

(b) by inland waterways.

Nil

By virtue of the above divergent entries, ambiguity prevails in relation to taxability of goods transportation services, since the said services would not be eligible for exemption from levy of tax in case they qualify as GTA services. This confusion prevailed even in the service tax regime, since the legal position in relation to transportation services was the same.

The critical factor in the taxation treatment discussed above lies in the distinction between a GTA vis-à-vis other transport operators. As may be seen, Explanation to Notification 11 identifies two essential criterion for qualification as a GTA – first, supply of services of transport of goods by road, and second, issuance of a consignment note. It is apposite to mention that the GST law does not define the term ‘consignment note’. However, in this direction, reliance may be placed on the definition provided in terms of Rule 4B of the Service Tax Rules, 1994, as given below:

‘a document, issued by a goods transport agency against the receipt of goods for the purpose of transport of goods by road in a goods carriage, which is serially numbered, and contains the name of the consignor and consignee, registration number of the goods carriage in which the goods are transported, details of the goods transported, details of the place of origin and destination, person liable for paying service tax whether consignor, consignee or the goods transport agency’.

In principle, it may be said that a consignment note is a document intended to establish accountability of the GTA provider for transportation and delivery of goods from the consignor to the consignee.

Issuance of consignment note or similar documents (contract of carriage, goods receipt note etc.) by the supplier, therefore seems to be the critical factor for coming within the ambit of GTA services. Where the supplier does not issue a consignment note or similar document, the services do not qualify as GTA services, and hence should not be taxable. This point has also been clarified by the CBIC in the FAQs issued for the transport sector as follows:

“Thus, it can be seen that issuance of a consignment note is the sine-qua-non for a supplier of service to be considered as a Goods Transport Agency. If such a consignment note is not issued by the transporter, the service provider will not come within the ambit of goods transport agency (‘GTA’). It is only the services of such GTA, who assumes agency functions, that is being brought into the GST net. Individual truck/tempo operators who do not issue any consignment note are not covered within the meaning of the term GTA. As a corollary, the services provided by such individual transporters who do not issue a consignment note will be covered by the entry at s.no.18 of notification no.12/2017-Central Tax (Rate), which is exempt from GST.”

From the above, it may be gathered that the intent of the authorities is to tax the services of large and organised transporters and provide exemption to small transporters and individual truck operators. This intent finds its background all the way back to the service tax era, as may be noted from the following extract from the Budget speech of the then Finance Minister Mr. P. Chidambaram, while introducing the Finance Bill, 2004:

“58 services have been brought under the net so far. I propose to add some more this year. These are business exhibition services; airport services; services provided by transport booking agents; transport of goods by air; survey and exploration services; opinion poll services; intellectual property services other than copy right; brokers of forward contracts; pandal and shamiana contractors; outdoor caterers; independent TV/radio programme producers; construction services in respect of commercial or industrial constructions; and life insurance services to the extent of the risk premium. I may clarify that there is no intention to levy service tax on truck owners or truck operators.”

However, the interpretation is certainly not as simple as suggested by the authorities at various stages, since the legal provisions are not directly in consonance with the stated intent. This was evinced in a recent ruling in the case of M/s KM Trans Logistics Pvt. Ltd. (‘appellant’) before the Rajasthan Appellate Authority for Advance Ruling (‘AAAR’). To give an overview of the case, the appellant provides transport services to manufacturers of motor vehicles to carry vehicles from their factories to various cities across the country. The appellant stated that the goods are transported through their own vehicles, however, no consignment note is issued by them in pursuance of the contract. The appellant reasoned that since no consignment note is issued in the given case, the transport services do not qualify as GTA services, and therefore, the same should be exempt from the levy of GST.

To counter the claim of the appellant, the AAAR observed that issuance of a consignment note simply implies that the lien on the goods has been transferred and the transporter becomes responsible for transportation of goods till safe delivery to the consignee. Therefore, the consignment note is simply intended to ascribe the contractual rights and responsibilities, and absence of the said document cannot impact the obligations of the respective parties. In the instant case therefore, since the appellant becomes responsible for the goods till their delivery to the consignee, the appellant qualifies as a GTA and the non-issuance of the consignment note has no impact on the nature of the activity. Further, the AAAR stressed on the fact that the appellant transporter has a vast transportation network spread all across India, with a considerable fleet size accompanied by multiple branch offices and service support centres. Considering this background, the AAAR inferred that the appellant cannot be considered as an unorganised transporter, and therefore not eligible for the exemption provided in terms of Notification 12.

It is pertinent to note that despite the appellant not qualifying as a GTA in terms of the laid down provisions, the AAAR held that the appellant cannot escape liability merely on account of non-issuance of a consignment note. The AAAR failed to appreciate that the law does not provide for any distinction between small and large transporters as the basis for availing exemption and the principal condition for qualification as a GTA and levy of tax is the issuance of a consignment note, which was absent in the appellant’s case. Hence, it may be an apparent case of surpass of legislative provisions by the Revenue authorities.

The aforesaid ruling, has only increased the prevailing ambiguity in relation to taxation of GTA services, since the essence of the contract and intent of the parties have taken precedence over the bare legal provisions, which could open doors to further litigations on this issue. It is essential that a suitable clarification be issued to provide the necessary relief to the transport sector.

Providing referral services to foreign banks/colleges is an export of service

July 2, 2019[2019] 106 taxmann.com 173 (Chandigarh – CESTAT)

139 Views

GST/Excise/ST/VAT : Where assessee provided referral service to foreign banks and foreign colleges and students who wished to get admission in foreign based colleges approached assessee who prepared their case and referred to foreign based colleges and further people who wished to settle in Canada approached assessee for investors borrow loan from foreign based banks and assessee referred their case to foreign bank and in return got commission from banks/colleges if deal was matured, assessee could not be called as intermediary

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[2019] 106 taxmann.com 173 (Chandigarh – CESTAT)

CESTAT, CHANDIGARH BENCH

Sunrise Immigration Consultants (P.) Ltd.

Commissioner of Central Excise & Service Tax, Chandigarh*

ASHOK JINDAL, JUDICIAL MEMBER

AND ANIL G. SHAKKARWAR, TECHNICAL MEMBER

ORDER NO. A/62221/2018 CU[DB]

APPEAL NO. ST/52205/2015

MARCH 16, 2018

Section 2(13) of the Integrated Goods and Services Tax Act, 2017/ Rule 2(f) of the Place of Provision of Services Rules, 2012 – Intermediary – Period 2009-10 to 2013-14 – Assessee provided referral service to foreign banks and foreign colleges – Students who wished to get admission in foreign based colleges approached assessee, who prepared their case and referred to foreign based colleges – In case college admitted student, said college paid commission/fee to assessee – Further people who wished to settle in Canada approached assessee for investors borrow loan from foreign based banks and assessee referred their case to foreign banks and in return got commission from bank if deal was matured – Adjudicating Authority held that assessee was intermediary and demanded service tax for period post 1-7-2012 – Whether since assessee did not arrange or facilitate main service, i.e., education or loan rendered by colleges/banks, assessee could not be called as intermediary – Held, yes [Para 11] [In favour of assessee]

Section 2(5) of the Integrated Goods and Services Tax Act, 2017/ Rule 3 of the Place of Provision of Services Rules, 2012 – Export of services – Period 2009-10 to 2013-14 – Assessee provided referral service to foreign banks and foreign colleges – Students who wished to get admission in foreign based colleges approached assessee, who prepared their case and referred to foreign based colleges – In case college admitted student, said college paid commission/fee to assessee – Further people who wished to settle in Canada approached assessee for investors borrow loan from foreign based banks and assessee referred their case to foreign banks and in return got commission from bank if deal was matured – Whether services rendered by assessee duly qualified as export of service – Held, yes [Para 12] [In favour of assessee]

Circulars and Notifications : Circular No. 136/6/2011 – ST, dated 20-4-2011

(OR)

FACTS

■ The assessee provided referral service to foreign banks and foreign colleges.

■ Students who wished to get admission in foreign based colleges/universities approached the assessee, who prepared their case and referred to foreign based colleges. In case college admitted the student, the said college paid commission/fee to the assessee.

■ Further the people who wished to settle in Canada approached the assessee for investors borrow loan from foreign based banks and the assessee referred their case to the foreign banks and in return got commission from banks if the deal was matured.

■ The Adjudicating Authority held that the assessee was intermediary in terms of rule 2(f) of the Place of provision of Services Rules, 2012 [POPS Rules, 2012] and demanded service tax for the period post 1-7-2012.

■ On appeal to Tribunal, the assessee submitted that it was not intermediary and was not liable to pay service tax post 1-7-2012.

HELD

■ In the instant case, the following issues emerge:

(A) Whether the assessee is intermediary in terms of rule 2(f) of the POPS Rules 2012 or not.

(

Whether the referral service in question rendered by the assessee amounts to export of service or not.

■ The definition of intermediary, as defined under rule 2(f) of the POPS Rules, 2012, is as follows:

‘Intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provisions of a service (hereinafter called the ‘main’ service) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account.’ [Para 9]

■ The assessee is nowhere providing services between two or more persons. In fact, it is providing services to its clients, namely, banks/colleges/university, who are paying commission/fees to it. It is only facilitating the aspirant students and introduced them to the college. If these students get admission to the college, the assessee gets certain commission which is in nature of promoting the business of the college. Further for referring investors borrow loan from foreign based bank to the people who wishes to settle in Canada and if the deal matures, the assessee is getting certain commission. So the nature of service provided by the assessee is the promotion of business of its client. In return it gets commission which is covered under business auxiliary service which is not the main service provided by the main service providers, namely, banks/university. As the assessee did not arrange or facilitate main service, i.e., education or loan rendered by colleges/banks, it cannot be called as intermediary. [Para 10]

■ In view of the aforesaid, the assessee is not intermediary. [Para 11]

■ As the assessee is not an intermediary and it is providing business auxiliary service to its clients, who are located outside India, the services rendered by the assessee duly qualified as export of service in terms of rule 3 of the POPS Rules, 2012. Therefore, the referral service in question provided by the assessee amounts to export of service. [Para 12]

■ As the issue in the instant case relates to the interpretation of the POPS Rules, 2012, the extended period of limitation is not invokable. [Para 13]

CASE REVIEW

Universal Services India (P.) Ltd. v. CST [Ruling No. AAR/ST/07/2016, dated 4-3-2016](para 10); Godaddy India Web Services (P.) Ltd., In re [2016] 67 taxmann.com 324/54 GST 681 (AAR – New Delhi) (para 10) and Association of Tour Operators v. Union of India 2017 (5) GSTL (4) (para 11) followed.

CASES REFERRED TO

Association of Tour Operators v. Union of India 2017(5) GSTL (4) (Delhi) (para 3), Universal Services India (P.) Ltd. v. CST [Ruling No. AAR/ST/07/2016, dated 4-3-2016](para 10) and Godaddy India Web Services (P.) Ltd., Inre [2016] 67 taxmann.com 324/54 GST 681 (AAR – New Delhi) (para 10).

Jagmohan Bansal, Adv. for the Appellant. Vijay Gupta, AR for the Respondent.

JUDGMENT

Ashok Jindal, Judicial Member – The appellant is in appeal against the impugned order wherein the demand of Service Tax of Rs. 89,34,080/-has been confirmed along with interest and various penalties imposed on the appellant.

2. The facts of the case are that the appellant is providing various services (A) Visa Facilitation Service and (

Referral Service. In the case of service provided by the appellant no service tax was payable in view of Export of Service Rules and Board Circular No. 136/6/2011-ST dated 20.04.2011. W.e.f. 01.07.2012, the introduction of negative list, the services rendered to visa applicants became taxable and of that there is no dispute by the appellant but for the referral services which are in nature of the services rendered to foreign banks and foreign colleges. students who wish to get admission in foreign based colleges/universities and they approach the appellant who prepare their case and refer to foreign based colleges. In case college admit the student, the said college pays commissioner/fee to the appellant. Further, the people wishes to settle in Canada as investors borrow loan from foreign based banks. The appellant refers their case to foreign banks and in return gets commission from bank if money is landed to such investment. The Revenue issued show cause notice to the appellant for the period to 2009-10 to 2013-14 on account of service rendered visa facilitation service and referral service. The demand was raised on account of visa services as well as referral services. The adjudicating authority dropped the demand for the period prior to 01.07.2012 but for the period post 01.07.2012 demands were confirmed. The appellant paid a sum of Rs. 48,77,602/- prior to issuance of the show cause notice and not disputing their service tax liability with respect to visa processing fee but the appellant is disputing demand of service tax on referral service to universities/colleges and banks, therefore, the appellant is in appeal before us.

3. The ld. Counsel for the appellant submits that as per Rule 2(f) of POPS Rules, 2012 intermediary means a broker, an agent or any other person who arranges or facilitates a provision of service (main service) between two or more persons but does not include a person who provides the ‘main service’ on his account. It is submissions that the service rendered by college to student is imparting of education and service between borrower and bank is money lending. The appellant has no concern with education imparted by colleges/universities and money lended by bank. The appellant was rendering service of promotion or marketing of services provided by the clients i.e. providing Business Auxiliary Service which means that the appellant was providing main service i.e. Business Auxiliary Service to his clients namely banks and universities. Therefore, the appellant did not arrange or facilitate main service i.e. education or loan rendered by colleges/banks. Therefore, the appellant is not intermediary and the appellant is not liable to pay service tax in terms of Rule 6A of the Rules, 1994 read with Rule 9 of the said Rules. He further submits that the Revenue has wrongly invoked Rule 9 of the POPS Rules, 2012, but he submitted the Rules 3 of the said Rules is applicable to the facts of this case. Accordingly, the appellant is complied with Rule 6A of the Rules and the services provided by the appellant amounts to export. He further submitted that the said issue was examined by the Hon’ble High Court of Delhi in the case of Association of Tour Operators v. Union of India 2017 (5) GSTL (4)and considered Rule 6A especially Clause (d) of Sub-rule 1 as well as Rule 9 of POPS Rules and held that Rule 6A is ultra virus of the Finance Act, the service tax cannot be demanded from the appellant.

4. He further submitted that as the Revenue has accepted that the services rendered by the appellant is export of service prior to July 2012 and as per clause (d) of Rule 6A (1) of the Rules which declares that place of provision of service should be outside India and Rule 9 of POPS Rules, declares that place of service provider would be place of service in case of intermediary. In that circumstance, it is an issue of interpretation, therefore, the extended period of limitation is not invokable, therefore, he prayed that the impugned order to be set aside. The appeal be allowed with consequential relief.

5. Heard the parties and considered the submissions.

6. On careful consideration of submissions made by both the sides, we find that on the visa facilitation service, the appellant has not disputed their service tax liability. Therefore, on that account liability of service tax is confirmed.

7. The appellant is only disputed their liability on referral service post 01.07.2012 and submits that the appellant is not intermediary, therefore, they are not liable to pay service tax post 01.07.2012.

8. In these set of facts, following issues emerges:

(A) Whether the appellant is intermediary in terms of Rule 2(f) of POPS Rules, 2012 or not?

(

Whether the referral service in question rendered by the appellant amount to export of service or not?

9. For better appreciation, the definition of intermediary has been defined under Rule 2(f) of POPS Rules, 2012 which is reproduced here as under:

“Intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provisions of a service (hereinafter called the “main” service) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account.”

10. We find that the appellant is nowhere providing services between two or more persons. In fact, the appellant is providing services to their clients namely banks/colleges/university who are paying commission/fees to the appellant. The appellant is only facilitating the aspirant student and introduced them to the college and if these students gets admission to the college, the appellant gets certain commission which is in nature of promoting the business of the college and for referring investors borrow loan from foreign based bank to the people who wishes settled in Canada on that if the deal matures, the appellant is getting certain commission. So the nature of service provided by the appellant is the promotion of business of their client, in terms, he gets commission which is covered under Business Auxiliary Service which is not the main service provided by the main service providers namely banks/university. As the appellant did not arrange or facilitate main service i.e. education or loan rendered by colleges/banks. In that circumstances, the appellant cannot be called as intermediary in the light of the judgment issued by the Advanced Ruling Authority in the case of Universal Services India (P.) Ltd. v. CST [Ruling No.AAR/ST/07/2016, dated 4-3-2016] and Godaddy India Web Services (P.) Ltd., Inre [2016] 67 taxmann.com 324/54 GST 681 (AAR – New Delhi) wherein it has been observed as under:

’10. The definition of “intermediary” as envisaged under Rule 2(f) of POS does not include a person who provides the main service on his own account. In the present case, applicant is providing main service, i.e. “business Support Service” to WWD US and on his account. Therefore, applicant is not an “intermediary” and the service provided by him is not intermediary service. Further, during arguments, applicant drew our attention to one of the illustration given under paragraph 5.9.6 of the Education Guide, 2012 issued by C.B.E. & C. Relevant is extracted as under;

Similarly, persons such as call canters, who provide services to their clients by dealing with the customers of the client on the client’s behalf, but actually provided these services on their own account’, will not be categorized as intermediaries.

Applicant relying on above paragraph submitted that call centres, by dealing with customers of their clients, on client’s behalf, are providing service to their client on their own account. Similarly, applicant is providing business support service such as marketing and other allied services like oversight of quality of third party customer care centre operated in India and payment processing services, on behalf of GoDaddy US. Therefore, these services provided by the applicant to GoDaddy US cannot be categorized as intermediary or services, as intermediary service.’

11. We further take note of the fact that the provisions of Rule 6A of the POPS Rules, 2012 has been declared ultra virus by the Hon’ble High Court of Delhi in the case of Association of Tour Operators (Supra). In that circumstance, also the appellant is not liable to pay services for referral service, therefore, the issue no. 1 is answered in favour of the appellant.

Issue No. B

Whether the referral services in question rendered by the appellant amount to export of service or not?

12. As discussed hereinabove in the proceedings paragraphs that the appellant is not an intermediary and the appellant is providing Business Auxiliary Service to their clients, who are located outside India, therefore, the services rendered by the appellant duly qualified as export of service in terms of Rule 3 of POPS Rules, 2012. Therefore, the issue no. 2 is also answered in favour of the appellant.

13. As in this case issue relates to the interpretation of the POPS Rules, 2012, therefore, the extended period of limitation is not invokable. Consequently, the demands pertain to extended period of limitation was also not sustainable.

14. In view of the above analysis, we hold that demands against the appellant are not sustainable with regard to the referral service, therefore, the impugned order is modified as under:

(A) The appellant is liable to pay service tax on visa facilitation service post 01.07.2012

(

The appellant is not liable to pay service tax on referral services.

(C) No penalty is imposable on the appellant in the facts and circumstances of the case. In these terms, the appeal is disposed off.

SECTION 9 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 - LEVY AND COLLECTION OF TAX - GENERAL

SECTION 9 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 – LEVY AND COLLECTION OF TAX – GENERAL

Where applicant-company, engaged in providing amusement facility services and running family entertainment center, have stationed various gaming equipment and machines for different age groups, consisting of kids, teenagers and adults and equipment and machines are either coin operated or card operated in its faculty, services/activities supplied by applicant by deploying gaming machines and equipments would not fall within the expression an ‘amusement park’, but fall under ‘amusement facilities’, since to be called as a park, it must have a large area of land whereas to be called a ‘facility’, it is sufficient if it has a place or a building or an equipment used for a particular purpose and the applicant having placed equipments in an area within the mall, it can be called ‘amusement facility’ rather than an ‘amusement park’ and GST rate on operating gaming zone in malls is at the rate of 28 per cent with effect from 25-1-2018 – Bandai Namco India (P.) Ltd. In re – [2019] 107 taxmann.com 42 (AAR – MAHARASHTRA)

Buyer eligible to avail full ITC even when tax rate charged by seller on goods is higher than the specified rate

Buyer eligible to avail full ITC even when tax rate charged by seller on goods is higher than the specified rate: HC

Visteon Automotive Systems (P.) Ltd. v. Deputy Commissioner – [2020] 117 taxmann.com 327 (Madras)

The petitioner registered under Tamil Nadu Value Added Tax Act, 2006 (the Act) had purchased “capital goods” for manufacturing purpose and availed input tax credit. As per the Act, the “capital goods” were liable to VAT at 4%. However, the dealer who sold the “capital goods” to the petitioner charged VAT at 12.5% and passed on the incidence of such tax to the petitioner. The petitioner therefore availed the tax paid and reflected in the invoice at 12.5%.

The department has issued show cause notice (SCN) contending that the “capital goods” were liable to VAT only at 4%, therefore, the petitioner was liable to reverse input tax credit in excess of 4% and accordingly the petitioner was required to reverse credit availed equivalent to 8.5% VAT paid in excess by the registered dealer who sold the capital goods to the petitioner.

The honorable Madras High Court observed that input tax credit can be availed on the strength of the invoice on the tax paid by the registered dealer who sells such capital goods or input. As a person availing input tax credit, the petitioner had to merely satisfy that the tax reflected in the invoice was paid by the registered dealer who sold the capital goods to it. The High Court relied on its own decision in case Sara Leathers v. Commercial Tax Officer, [2010] 30 VST 581 (Mad.) and held that credit availed by the petitioner could not be disallowed even if registered dealer had deliberately paid tax in excess and passed on incidence of such tax.

GST updates 1. Extension granted in period for revocation of cancellation for registrations cancelled

GST updates

1. Extension granted in period for revocation of cancellation for registrations cancelled till 12.6.2020

Order No. 01/2020-Central Tax, dated 25-6-2020

CBIC has allowed taxpayers to file application for revocation of cancellation of registration up to 30.09.2020, in all cases where registrations have been cancelled till 12.06.2020.

2. No bar to apply for anticipatory bail for GST offences: HC

Hanumanthappa Pathrera Lakshmana v. State – [2020] 117 taxmann.com 280 (Karnataka)

The assessee was a registered dealer dealing in both ferrous and non-ferrous scrap. The Competent Authority had received information from Intelligence authorities that assessee was engaged in availing input tax credit on the invoices received from the persons without actual supply of goods. Accordingly, the authority issued summon to the assessee to appear before the Authorised Officer. The assessee filed petition under section 438 of CrPC before the High Court of Karnataka seeking grant of anticipatory bail.

The assessee submitted that he was ready to appear before the authority and co-operate with the investigation. However, the authority had already completed their investigation and he apprehended his arrest for an offence punishable under GST. The department raised an objection that anticipatory bail sought by assesee is not maintainable. Assessee could only file a writ petition for seeking relief under GST Act and, hence, instant petition for grant of anticipatory bail under CrPC was not maintainable.

The Honourable High Court observed that where an assessee has reasons to believe that he may be arrested on accusation of having committed a non-bailable offence under GST Act, he could seek anticipatory bail by filing a petition under section 438 of CrPC. Therefore, the petition under section 438 of the Cr. P.C. is maintainable for the offences committed under the CGST Act and there was no statutory bar in the GST Act for invoking or exercising power under section 438 of the Cr. P.C. for the offence committed under the provisions of the CGST Act.

The Honourable High Court allowed the petition. The assessee was ordered to be enlarged on bail in the event of his arrest.

Assessee isn’t precluded from filing revised return though intimation under Sec.

Assessee isn’t precluded from filing revised return though intimation under Sec. 143(1) issued by the Dept.

ACIT v. Padma Logistics & Khanij (P.) Ltd. – [2020] 117 taxmann.com 210 (Kolkata – Trib.)

The Kolkata Tribunal held that the right to file a revised return of income does not lapse with the issuance of intimation under section 143(1) of the Income-tax Act, 1961. Intimation issued under section 143(1) cannot be said to be a ‘completion of assessment’ and more so when the assessment has subsequently been completed under section 143(3) of the Act.

The Tribunal has placed reliance on the judgment of the Hon’ble Supreme Court in the case CIT v Rajesh Jhaveri Stock Brokers Pvt. Ltd. [2007] 161 Taxman 316 (SC) wherein it was held that the expressions ‘intimation’ and ‘assessment order’ have been used at different places. The contextual difference between the two expressions has to be understood in the context the expressions are used.

The assessment is used as meaning sometimes ‘the computation of income’, sometimes ‘the determination of the amount of tax payable’ and sometimes ‘the whole procedure laid down in the Act for imposing liability upon the taxpayer’. In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an order of assessment.

In a recent ruling, the Gujarat Authority for Advance Ruling ('AAR') has ruled that GST shall be payable on goods sold

introduction

1. In a recent ruling, the Gujarat Authority for Advance Ruling (‘AAR’) has ruled that GST shall be payable on goods sold by a supplier located in India to a customer located outside India, where goods are shipped directly from vendor’s premises (located outside India) to the customer’s premises. This transactions in Industry commonly referred to as ‘Merchant Trade transactions. In this article, we have discussed the aforesaid AAR ruling and its validity considering the legal position on the subject.

Ruling of the Gujarat AAR

2. The Applicant, ‘M/s Sterlite Technologies Limited’ sought the advance ruling for following transaction:

2.1. Facts on which Ruling was sought

The applicant proposed to undertake transaction and supply of hardware, commercially known as ‘Merchant Trade Transaction’, wherein the applicant will receive an order from the customer located outside India and as per their instruction, Vendor would directly ship the goods to customer located outside India. Vendor would issue invoice on applicant against which payment would be made in foreign currency and applicant would raise invoice on customer and would receive consideration in foreign currency. In the above transaction, goods would not physically come into India, but would move from place outside India to another place outside India.”

2.2. Question before AAR

Whether GST is payable on goods sold to customer located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises?

2.3. Findings by AAR

Goods are being sold for a consideration in the course or furtherance of business hence such transaction fulfils the condition of supply

Supplier is located in India and the place of supply is outside India and as such the same would be Inter-state supply in terms of the provisions of Sec. 7(5) of IGST Act, 2017.

The act of taking goods out of India to a place outside India qualifies as export. The question of taking goods out of India does not arise in the present case since goods are not physically available in India at any point of time. Thus, the subject transaction does not qualify as export of goods.

The transaction is covered under the ambit of Inter-state supply and is neither exempted nor covered under export of services. Thus, the theory of elimination takes us to the conclusion that such supplies will be subject to levy of IGST.

2.4. Ruling

The Authority held that GST shall be payable on goods sold to customer located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises.

Our Comments

3. We have provided our Comments in the ensuing paragraphs.

3.1. Legal Provisions under the CGST Act

There was no specific provision providing taxability of Merchant Trading in the original CGST Act, 2017 however through CGST (Amendment) Act 2018 (‘the Amendment Act’), following clause was added in Schedule III of the CGST Act:

Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.

Notably, there is no specific mention in the Amendment Act regarding the retrospective effect of the amendments. However, Hon’ble Supreme Court in the case of CIT v. Vatika Township P. Ltd [(2014) 227 Taxman 121 (SC)] has held that if a legislation confers a benefit to the taxpayer without inflicting detriment to any other person or to the public in general and where the object of the legislation was to confer such benefit to the taxpayer, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect.

Therefore, this amendment regarding non- levy of IGST on the Merchant Trading transactions is in pursuance to the aim of the legislature to do away with the ambiguities in the statute. Though the amendment does not the mention these amendments to be ‘clarificatory’ but while determining the nature of the amendment, regard must be given to the substance of the amendment rather than to the form. This is precisely what the amendment is trying to convey when it declares that from now onwards the Merchant Trading transactions shall be included within Schedule III of the CGST Act, 2017.

3.2. Earlier Advance Rulings

Following AAR rulings were issued on the Merchant Trade Transaction earlier:

(a) AAR Kerala – M/s Synthite Industries Limited

(b) AAR Maharashtra – M/s INA Bearing India Private Limited

Both the AARs have ruled that the transaction of purchase and sale completed wholly outside India without the goods entering the custom frontiers of India would not be liable to GST. Though the ruling given by AAR Kerala has not discussed the reasoning in depth however the AAR Maharashtra has laid following rationale for the ruling:

Thus as per Section 7(2) and 7 (5)(a) of the IGST Act and proviso to section 5(1) of IGST Act it is very clear that in respect of imported goods into the territory of India there is no levy and collection except in accordance with the provisions of Section 12 of the Customs Act, 1962 and Section 3 of Custom Tariff Act, 1975. Section 12 of the Custom Act, 1962 provides that custom duties which includes integrated tax in respect of imported goods would be levied only at the time of import or export of goods.

Thus in case of goods supplied on an out and out basis as is in the present case, there is no levy till the time of their custom clearance in compliance with Section 12 of the Customs Act and Section 3 of Customs Tariff Act. In view of this the imported goods sold from and to a non-taxable territory, though they are clearly in the nature of inter-state supply would come in the category of “exempt supply” as no duty is leviable on them except in accordance with proviso to Section 5(1) of the IGST Act.

Thus it is very clear that the goods sold in the subject transaction are non-taxable supply as no tax is leviable on them till the time of custom clearance in accordance with and compliance of Section 12 of Customs Act 1962 and Section 3 of Customs Tariff Act, 1975.

Effectively, the AAR has held that since there is no levy of GST under Customs law till goods enter the customs frontiers of India, these transactions shall not attract tax under proviso to Section 5(1) of the IGST Act. The AAR also held that the transactions would be treated as an exempt supply.

It is pertinent to mention that Gujarat AAR has considered the Kerala AAR ruling while admitting that GST would not be leviable on purchase part as goods are not imported into India. However, it has not taken into consideration the AAR Kerala ruling in relation to the sale of goods.

3.3. Impact of Gujarat AAR Ruling on Applicant and Industry

AAR rulings are binding only on the applicant and jurisdictional GST officers. It does not hold binding force and at the most only have a persuasive value. However, in view of specific provision under law making the Merchant Trade Transaction as neither supply of goods nor supply of services, the ruling should not have any impact on other taxpayers.

3.4. Reversal of ITC on common supplies

There was no specific provision clarifying the requirement of reversal of common input tax credit on the value of Merchant Trading sales and following explanation was inserted under clause (3) of Section 17 of CGST Act, 2017 through CGST (Amendment) Act 2018:

‘Explanation.—For the purposes of this sub-section, the expression ”value of exempt supply” shall not include the value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule.’;

In view of the specific provision, the Merchant Trading sales are not to be treated as exempt supplies for reversal of ITC on common supplies.

Conclusion

4. The ruling by Gujarat AAR is apparently not correct in view of specific exclusion of such supplies from the definition of supply under Schedule III of Section 7 of Central Goods & Services Tax Act (CGST) apart from the fact that GST law should be applicable to supplies taking place in India and does not purport to have extraterritorial jurisdiction. In view of this, the ruling should either be reviewed by AAR considering the legal provisions or the applicant should file an appeal before Appellate Authority for advance rulings (AAAR).

2020 (6) TMI 485 - AUTHORITY FOR ADVANCE RULING, GUJARAT

2020 (6) TMI 485 – AUTHORITY FOR ADVANCE RULING, GUJARAT

IN RE: M/S. STERLITE TECHNOLOGIES LTD.

Levy of GST – cross border purchase and sale of goods – goods procured from vendor located outside India in a context where the goods so purchased are not brought into India – goods sold to customer located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises.

Whether GST is payable on goods procured from vendor located outside India in a context where the goods so purchased are not brought into India? – HELD THAT:- The integrated tax on goods imported into India shall be levied and collected at the point when duties of customs are levied on the said goods under Section 12 of the Customs Act, 1962 i.e.-on the date determined as per provisions of Section 15 of the Customs Act, 1962 – the issue has already been decided by IN RE : M/S SYNTHITE INDUSTRIES LTD., ERNAKULAM [2018 (4) TMI 583 – AUTHORITY FOR ADVANCE RULING – KERALA]. It was held that “the goods are liable to IGST when they are imported into India and the IGST is payable at the time of importation of goods into India; The applicant is neither liable to GST on the sale of goods procured from China and directly supplied to USA nor on the sale of goods stored in the warehouse in Netherlands, after being procured from China, to customers, in and around Netherlands as the goods are not imported into India at any point.

In the context of ‘High Sea Sales’, Circular No. 33/2017 Customs dated August 1, 2017 has been issued clarifying that sub section (12) of section 3 of the Customs Tariff Act, 1975 specifies that all duties, taxes, cesses etc shall be collected at the time of importation i.e. when the import declarations are filed before the customs authorities for the custom clearance purposes – The above circular is applicable in the present case – thus, where, Bill of Entry/import declarations are not being filed with respect to the goods so procured, GST would not be leviable.

Whether GST is payable on goods sold to customer located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises? – HELD THAT:- The thumb-rule for determining the taxability of any transaction is to ascertain whether the transaction tantamount to ‘supply’ in terms of the provisions of law – In the instant case, the applicant is selling goods for a consideration in the course or furtherance of business and as such the transaction tantamount to ‘supply’ in terms of the definition of ‘supply’.

In the instant case the applicant has not stated the nature of goods and has not declared that such goods are exempted under any notification issued under the powers of Sec. 11 of the CGST Act, 2017 and the corresponding State Act or Section 6 of the IGST Act. Thus, the only possibility of goods not subject to levy of IGST would be the circumstances where the goods are exported – definition of Export of Goods indicates that the act of taking goods out of India to a place outside India qualifies as export. In the instant case, the goods have not crossed the Indian customs frontier and as such it is clear that the goods are not physically available in the Indian territory. When the goods are not available in the Indian territory, the question of taking goods out of India does not arise. Thus, the subject transaction does not qualify as export of goods.

No.- GUJ/GAAR/R/04/2020, (In Application No. Advance Ruling/SGST&CGST/2018/AR/31)

GST: Computation of threshold limit for the purpose of GST registration - Interest

GST: Computation of threshold limit for the purpose of GST registration – Interest received on PPF Account / Saving Bank Account / Personal loan account should be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law.

2020 (6) TMI 162 - AUTHORITY FOR ADVANCE RULINGS, HYDERABAD TELANGANA

2020 (6) TMI 162 – AUTHORITY FOR ADVANCE RULINGS, HYDERABAD TELANGANA

IN RE : M/S. PENNA CEMENT INDUSTRIES LIMITED

Levy of GST – ex-factory inter-State supplies – What tax should be charged on ex-factory inter-State supplies? – HELD THAT:- In case of ex-factory inter-State sales affected by the applicant, the goods are made available by the supplier to the recipient at the factory gate, but this is not the point where movement terminates since the recipient subsequently assumes the charge for transportation of the goods up to the destination in another state. Thus, termination of the movement of goods evidently takes place at the location (in a different state) to which the goods are consigned/destined and such movement is effected by the recipient or by any other person such as transporter authorized by the recipient.

The place (in the other state) where the goods are destined turns out to be the ‘place of supply’ in terms of Sec. 10(1)(a) ibid. Consequently, the ‘location of supplier’ and the ‘place of supply’ fall under different states and the supply qualifies as inter-State supply – the supplier in the stated instance is liable to charge IGST in respect of ex-factory inter-State supplies made by them.

No.- A.R.Com/23/2018, TSAAR Order No.03/2020

Dated.- March 2, 2020

Sri J. Laxminarayana, Additional Commissioner(Grade-I) (State Tax) and Sri B. Raghu Kiran, IRS, Joint Commissioner (Central Tax)

TSAAR Order No.03/2020

(Under Section 100(1) of the CGST/TGST Act, 2017, any person aggrieved by this order can prefer an appeal before the Telangana State Appellate Authority for Advance Ruling, Hyderabad, within 30 days from the date of receipt of this Order)

1. M/s. Penna Cement Industries Limited, Lakshmi Nivas 705, Road No. 3, Banjara Hills, Hyderabad- 500 034, Telangana, (GSTIN No. 36AABCP2290D1ZP) have filed an application in FORM GST ARA-01 under Section 97(1) of TGST Act, 2017 read with Rule 104 of CGST/TGST Rules, seeking Advance Ruling seeking clarification as to what tax should be charged by them on ex-factory inter-State sales made by them.

2. At the outset, it is made clear that the provisions of both the CGST Act and the TGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the TGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression ‘GST Act’ would be a common reference to both CGST Act and TGST Act.

3. It is observed that the query raised by the applicant falls within the ambit of Section 97(2)(e) of the GST ACT read with 20(xviii) of the IGST Act, 2017. The Applicant enclosed copies of challans as proof of payment of ₹ 5,000/- for SGST and ₹ 5000/- for CGST towards the fee for Advance Ruling. The Applicant has declared that the questions raised in the application have neither been decided by nor are pending before any authority under any provisions of the GST Act. The application is therefore, admitted.

4. Brief facts:

The facts, in brief, that were reported by the applicant are as follows:

a. They are manufacturers of cement having two cement plants in Telangana;

b. They occasionally make inter-State sale of cement on exfactory/works basis from their plants in Telangana;

c. As per Sec. 10(1)(a) of IGST Act, 2017, place of supply shall be where movement of goods terminates; When they make ex-factory sales from their plant, delivery terminates at their factory gate itself and therefore, CGST and SGST should be charged on such type of supplies.

d. However, in the said section it is also mentioned that the movement of goods can be by supplier or the recipient or any other person and place of supply shall be location of recipient where delivery terminates to recipient. In respect of ex- factory sale, though for them supply terminates at factory gate, yet further movement is carried by the recipient or transporter (other person) of goods up to the billing address state. Thus, the delivery in such cases terminates in another that State and therefore they should charge IGST in respect of such supplies.

5. Questions raised:

With the above background, the applicant raised the following query:

i) What tax should be charged on ex-factory inter-State supplies made by them?

6. Contention of the concerned officer :

The concerned Officer opined that in the light of the provisions contained under Sec. 10(1)(a), IGST should be charged in respect of the supplies mentioned in the application.

7. Personal Hearing:

Mr. K. Raghava Reddy, DGM & M. Ramakrishna, AGM, authorized representative of M/s. Penna cement Industries Limited, appeared for the personal hearing held on 20.12.2019 and reiterated the facts mentioned above and sought for ruling in respect of the query raised in their application.

8. Discussion & Findings:

8.1 We have considered the submissions made by the applicant in their application for advance ruling as well as at the time of personal hearing. The applicant sought for advance ruling on the nature of tax chargeable on ex-factory inter-State supplies. To determine the said point, reference shall be made to the legal provisions concerning levy of IGST and CGST& SGST.

8.2 Sec. 9(1) of GST Act provides for levy of CGST and SGST on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption. Further, Sec. 5(1) of the IGST Act, 2017 prescribes the levy of IGST on all interState supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption.

8.3 ‘Inter-State’ and ‘intra-State’ supplies have explicitly been defined in Section 7(1), 7(2) and 8(1), 8(2) of the IGST Act respectively. These provisions in essence lay down that where the ‘location of the supplier’ and the ‘place of supply’ are in the same State or Union Territory, the supply shall be considered as intra-State supply and where they are in different States or in different Union Territories or in a State and a Union Territory, the supply shall be classified as inter-State supply. Thus, ‘place of supply’ and ‘location of supplier’ determine whether a supply can be treated as an intra-State supply or an inter-State supply. In the case on hand, the applicant has no uncertainty as regards to ‘the location of supplier’ and they sought clarity only with regard to the ‘place of supply’. This leads us to refer to Sec. 10(1)(a) of IGST Act, 2017 which contains provisions relating to determination of ‘place of supply’ of goods where the supply involves movement. The same is reproduced below:

“10. (1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under –

(a) where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time movement of goods terminates for delivery to the recipient.”

In terms of the above provision, it is apparent that place of supply in respect of goods (where supply involves movement of goods) shall be the location of goods at the time when movement of goods terminates for delivery to the recipient.

8.4 As stated by the applicant, there is a scope for inference that in case of ex-factory sales, since the delivery of goods to recipient takes place at factory gate so far as supplier is concerned, location of the supplier’s factory can be reckoned as place of supply. However a careful appraisal of the provisions of Sec. 10(1)(a) does not suppose such inference. We noted that the usage of the words ‘whether by the supplier or by recipient’ after the words ‘where the supply involves movement of goods’ under the said section perceptibly indicates that the movement can be effected by the supplier or by the recipient or by any other person authorized by the recipient. This leads to the conclusion that, in terms of Sec. 10(1)(a), movement of goods in case of ex-factory inter-State sales does not conclude at factory gate but terminates at the place of destination where the goods finally are destined as per the billing address. Accordingly, it can be inferred that the place of supply in respect of goods where the supply involves movement of goods whether by the supplier or by the recipient or by any other person authorized by him has to be determined with reference to the location where the movement of goods ultimately terminated.

8.5 What we perceive from the statement made by the applicant, is that,in case of ex-factory inter-State sales affected by the applicant, the goods are made available by the supplier to the recipient at the factory gate, but this is not the point where movement terminates since the recipient subsequently assumes the charge for transportation of the goods up to the destination in another state. Thus, termination of the movement of goods evidently takes place at the location (in a different state) to which the goods are consigned/destined and such movement is effected by the recipient or by any other person such as transporter authorized by the recipient. Applying the inference made by us in the preceding para to the facts of the case on hand, the place (in the other state) where the goods are destined turns out to be the ‘place of supply’ in terms of Sec. 10(1)(a) ibid. Consequently, the ‘location of supplier’ and the ‘place of supply’ fall under different states and the supply qualifies as inter-State supply. Accordingly, we hold that, the supplier in the stated instance is liable to charge IGST in respect of ex-factory inter-State supplies made by them. Advance Ruling

Advance Ruling

9. In view of the observations stated above, the following ruling is issued :

Q1. What tax should be charged on ex-factory inter-State supplies?

Ans: IGST is chargeable on exfactory inter-State supplies

ITC of IGST available on imported goods to importer which are

ITC of IGST available on imported goods to importer which are further supplied to industrial customers in India

Kardex India Storage Solution (P.) Ltd., In re, – [2020] 116 taxmann.com 865 (AAR – KARNATAKA)

The primary purpose of Advance Ruling Mechanism under taxation laws is to avoid long drawn and

The primary purpose of Advance Ruling Mechanism under taxation laws is to avoid long drawn and expensive litigation at a subsequent time period. Its setup helps an assessee in advance planning of its transactions or brings certainty in determination of its tax liability. With this objective, an AAR has also been setup under Goods and Services Tax (‘GST’) regime as well. The rulings given by an AAR can be appealed before an Appellate Authority for Advance Ruling (‘AAAR’). Interestingly, the statute does not provide any provision to appeal against the rulings of an AAAR.

A ruling given by an AAR / AAAR is binding on the Applicant as well as revenue authorities. The right to appeal is a statutory right. With no appeal provision being provided against a ruling of an AAAR, practically it creates a major hurdle for an assessee unhappy with the final verdict. This article intends to discuss the approach to be adopted in such cases and also provide clarifications on some key confusion that arise in this aspect.

Understanding difference between concepts of ‘Appeal’ and ‘Judicial Review’

An appeal allows an aggrieved party to ask over a higher court to review and reverse the order / judgment / ruling of the lower authority. The aggrieved party reargues the findings of the order / judgment / ruling of the lower authority on merits in such a case. At the cost of repetition, it is trite to note that the right to appeal is a statutory right and can be exercised only if a statute provides the power to do so.

On the other hand, a judicial review is the process to check the scope of powers exercised by Courts (delegated by Parliament). The Supreme Court / High Courts under the Constitution of India, 1950 (‘Constitution’) enjoy a position which entrusts it with the power of reviewing the statutes enacted by the Legislatures which grants the court a potent tool of judicial review under the Constitution. The Constitutional Provisions which guarantee judicial review inter alia include Articles 32, 136 and 226 (relevant for the purposes of present discussion).

Article 32 of the Constitution empowers the Supreme Court to issue directions or writs and gives the right to an individual to approach the court if a fundamental right has been infringed or violated. Article 226 of the Constitution vests similar powers to the High Courts. (Both the above fall under writ jurisdiction) Further, Article 136 of the Constitution gives a discretionary power to the Supreme Court to grant special leave to appeal from any judgment, order, decree, sentence or determination, in any case, which has been passed by any court or tribunal (This constitutes plenary jurisdiction). In case of a non-appealable order / judgment / ruling, the aggrieved party can file for a review. Since the powers of judicial review are vested both with the Supreme Court and High Court, an important question that arises is which forum to approach first.

Where to approach first?

In context of AAARs, this question has been adequately answered by the Supreme Court in the case of Columbia Sportswear Company v. Director of Income Tax1 (‘Columbia Case’). In this case, the assessee had filed an application for Advance Ruling before the AAR. Aggrieved by the final order and with no appeal provision present, the assessee approached the Apex Court directly under Article 136 of the Constitution.

The first and foremost question argued before the Court was vis-a-vis to the maintainability of such a petition. The Court pondered upon the question whether an advance ruling pronounced by the AAR can be challenged by an aggrieved party under Article 226 / 227 of the Constitution before the High Court or under Article 136 of the Constitution before the Supreme Court. Article 227 determines that every High Court shall have superintendence over all courts and tribunals throughout the territories in relation to which it exercises jurisdiction. In this regard, based on a jurisprudential analysis, the Court held that an AAR exercises a judicial power and thus, constitutes a ‘tribunal’ in terms of Article 136 and 226 of the Constitution. The Court further observed that an advance ruling is permitted to be challenged before a High Court as well. Although, the Court did provide that such challenge should be heard before a Division Bench of the High Court to expedite final disposals.

A key observation also provided by the Court was that Article 136 of the Constitution does provide a discretionary power to the Apex Court to grant special leave to appeal from any order. However, unless a Special Leave Petition raises substantial questions of general importance or a similar question is already pending before the Court, the Supreme Court does not entertain such petitions directly against an order of the tribunal. Thus, as a general practice High Courts should be approached first (under Article 226 and / or 227) for the purposes of a judicial review unless circumstances demand otherwise.

For clarification purposes it is important to note that the proceedings under Article 226 are in exercise of the original jurisdiction of the High Court while proceedings under Article 227 of the Constitution are not original but only supervisory. The power under Article 227 of the Constitution is used sparingly and only in appropriate cases for the purpose of keeping the subordinate courts and tribunals within the bounds of their authority. Under Article 226, the High Court may simply annul or quash the proceedings. However, in exercise of supervisory jurisdiction under Article 227 of the Constitution, the High Court apart from quashing of proceedings may also make such directions as the facts and circumstances of the case may warrant.

It is customary for lawyers to label petitions as common under Articles 226 and 227 of the Constitution, although such practice has been condemned by Courts. The distinction between the two has been laid down clearly by the Supreme Court as well2. Since the Authorities for Advance Ruling perform a similar function of AARs as enshrined under the Income Tax Act, 1961, the above principles shall apply squarely to AAR / AAAR under GST as well. Thus, the aggrieved party from a ruling of the AAAR may approach the High Court / Supreme Court for a judicial review in certain circumstances.

What shall be the nature of proceedings?

Once the forum to approach for judicial review has been finalized, the next question to ponder upon is when to approach and what kind of proceedings to expect. A judicial review enables a person to enforce his right that might have been overlooked by the administrative organs or the courts. While in case of an appeal, the entire proceedings are reheard, reargued and decided on merits; in the process of judicial review, the court does not look into the merits. This aspect can be better understood from the findings of the Bombay High Court in the case of JSW Energy Limited v. Union of India3. In this case, the assessee had filed for an Advance Ruling before the AAR under GST. Aggrieved by the Ruling, the assessee then approached the AAAR. Although the findings of the AAAR were similar to that of the lower authority, the grounds adopted for the reasoning were different. The assessee was aggrieved that it did not get the opportunity to refute the new grounds of the AAAR. Accordingly, it approached the High Court for a remedy.

The Petitioners raised two main grounds in this regard. The first argument was that since there was no provision of appeal in the statute, the petition should be heard on merits. In arguendo, the Petitioner pleaded that there was a violation of principle of natural justice as the opportunity to refute the ‘new grounds’ of AAAR was not provided to the petitioner. The Court accepted the latter contention while rejected the former. It clarified that the proceedings under process is for judicial review and is not an appellate proceeding. Thus, the case cannot be heard on merits. What need to be taken into consideration are the principles applicable to a judicial review and not that of an appeal.

A judicial review is generally preferred in cases such as discovery of new evidence, prima facie error on the face of record or other sufficient reasons such as violation of principles of natural justice (as in the present case). It is important to note that the fact that the Petitioners approached the High Court was not under challenge. The question raised was whether the entire petition should be reheard on merits or only the part that violates the principles of judicial review needs to be rectified. The Court went ahead with the latter and remanded the matter back to the lower authority. Thus, not all decisions of AAAR can be brought before the High Courts.

Conclusion

In common parlance, it is often quoted that an order from an AAAR can be ‘appealed’ in ‘writ’ jurisdiction. The article intends to clarify this misconception to an extent. A non-appealable may be taken up for a ‘judicial review’ and not an ‘appeal’. The concept of judicial review is an inherent part of the Constitutional Scheme based on the rule of law and separation of powers. It is a basic feature of the Constitution, which cannot be abrogated and is the most effective remedy available against the administrative/judicial overreach. As is often quoted, “No power is inherently unreviewable and in a constitutional democracy wedded to the rule of law, unfettered and unreviewable discretion is a contradiction in terms.” The essence of the entire discussion is that while law provides a remedy, it is also essential to understand the application and execution of such remedies for effective and unhindered legal functioning.

Action of AO seizing ‘Cocaine’ during search proceedings valid though he wasn’t

Action of AO seizing ‘Cocaine’ during search proceedings valid though he wasn’t authorised person under NDPS Act

Anant Vardhan Pathak v. Union of India – [2020] 116 taxmann.com 729 (Bombay)

Income-tax Dept. conducted search and seizure operation at a particular room in Taj Palace Hotel, Mumbai. The search was conducted in connection with affairs of Yash Birla Group Companies. Applicant, who was President of Corporate Affairs of said group was found in said room along with co-accused.

During search operation, the co-accused was found in possession of eight small self-knotted transparent polythene pouches containing white powdery substance kept in a white paper envelope. Income-tax officers collected said article and also informed Narcotics Control Bureau (NCB).

Empowered officers of NCB came on same day and said substance was checked and it transpired that said substance was cocaine weighing about 4.5 grams. After completion of investigation, charge- sheet was led against accused for offence punishable under Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act).

Applicant contended that seizure of contraband by Income-tax Officers didn’t constitute a legal seizure as same being done by officers neither armed with a warrant nor authorization and empowerment under provisions of the NDPS Act.

The Bombay High Court held that the phraseology of sections 41 and 42 of NDPS Act, indicates that powers under those sections can be exercised by an officer who is empowered or authorized. A search and seizure operation by an officer not empowered or authorized would be without mandate of law.

However, in case of accidental recovery of contraband in a totally different proceedings like, Income-tax search, different considerations ought to come into play. Thus, the action of Income-tax officers couldn’t be said to be inconceivable and unjustifiable. Taking over and keeping suspicious substance, in the instant case, couldn’t be clothed with character of ‘seizure’, in juristic sense.

Here, the requisite intent to carry on search to find out contraband substance could not have been attributed to officers of Income Tax Department. Further, officers also could not be attributed with competence and authority to draw a definitive inference, at that stage, that substance found was indeed contraband.

Accordingly, it was rightly held by the Special Judge that there was adequate material which justified a strong suspicion of accused/applicant having committed offence punishable under section 8(c) read with section 21(b) of NDPS Act.

Opinion: Scope of Rule 27 of ITAT Rules

D.C. AGRAWAL – [2020] 116 taxmann.com 691 (Article)

Whereas Section 253 provides right of appeal to the assessee/Department against the order of CIT(A), if they are so aggrieved, ITAT Rules provide procedure in respect of filing of such appeal and decision-making process by the Tribunal. Rule 27 of ITAT Rules is one of such Rules which provide additional right to the respondent to defend the order of CIT(A) decided in his favour by raising the issues in respect of those grounds which were decided against him by the CIT(A). Various interesting issues arise during the course of application of Rule 27 such as whether respondent can seek more relief than what is allowed to him by the CIT(A) even though no appeal/cross objection has been filed by him or whether jurisdictional issues can also be raised u/r 27 and if so then under what circumstances.

These issues and other such issues have been elaborately discussed and decided by Hon’ble Delhi High Court in Sanjay Sawhney v. PCIT [2020] 116 taxmann.com 701 (Delhi). The fact of the case, arguments of the parties, analysis and decision by Hon’ble High Court and comments thereon are briefly described in this article.

Assessee liable to pay service tax only on service component of works contract:

Assessee liable to pay service tax only on service component of works contract: HC

Waidhan Engineering & Industries (P.) Ltd. v. Commissioner of Customs, Central Excise & Service Tax – [2020] 116 taxmann.com 719 (Madhya Pradesh)

The assessee was registered under the service tax regime. It was engaged in the business of retreading of old and used tyres and reconditioning of conveyor belts under the rate contract for its customers. The retreading and reconditioning was a specialized remanufacturing process in which raw materials like tread rubber, vulcanized solution etc. were used after which the old tyres and conveyor belts become usable as new goods. The assessee had paid service tax ranging from 20% to 30% on the gross amount received by claiming exemption available under Notification No. 12/2003 dated 20-6-2003.

The department issued a show cause notice to the assessee arguing that there was no sale of material or goods to the customer on which the assessee had claimed exemption while calculating service tax. The service tax was to be levied on the total amount charged for retreading including the value of the materials or goods that have been used and sold in the execution of the contract or exemption to material component as the services provided by the assessee falls under the head ‘repair and maintenance’ as defined under the service tax. The Adjudicating Authority passed an order and, dropped the proceedings initiated against the assessee. The department filed appeal before the Tribunal against the order of Adjudicating Authority.

The Tribunal held that the entire gross value of the services rendered was liable to service tax and, raised a demand for recovery of Service tax along with penalty from the assessee. The assessee again filed appeal before the High Court of Madhya Pradesh against the order of Tribunal.

The Honourable High Court observed that the similar issue was considered by Apex Court in the case of Safety Retreading Company [2017] 77 taxmann.com 280 (SC). As per Apex Court, the valuation provisions under the service tax specifically excludes the costs of parts or other material, if any, sold to the customer while providing maintenance or repair service from the taxable value for charging service tax. Therefore, the component of gross turnover in respect of which assessee had paid taxes under local Act with which it was registered as works contractor was to be excluded from service tax.

The Honourable High Court set aside the order of Tribunal and, held that the assessee was liable to pay service tax only on service component of works contract.

Input Credit of Sanitizer, masks at workplace It is imperative for the businesses and industries to analyze the tax treatments from Goods

Input Credit of Sanitizer, masks at workplace

It is imperative for the businesses and industries to analyze the tax treatments from Goods and Service Tax perspective.

let’s examine the transactions from GST standpoint with a reference to the Input Tax Credit:

• Cash donation to PM-CARES Fund, Chief Minister Relief Funds or any other similar fund

In such types of transaction, no tax element would be involved and hence the question of taking Input Tax Credit (ITC) does not arise.

• Supply of essential items such as Masks, Sanitizers, Personal Protective Equipment (PPE), Ventilators – without recovering any consideration

When these items are procured by the registered person, GST at applicable rates is discharged. Subsequently, when these items are supplied without any consideration, no tax is charged/deposited.

As far as the question of ITC is concerned, section 16 of GST Act prescribes that a registered person shall be entitled to claim ITC of tax paid on the supplies, which are used in the course or furtherance of business. Further, section-17(5) restricts ITC in respect of certain supplies, which includes goods lost, written off, destroyed or disposed of by way of gift or free samples.

In addition to this, GST Circular No. 92/11/2019 dated 7th March 2019, has clarified that ITC shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration.

However, with respect to ITC of GST paid on the above items, following points merit consideration:

– The term ‘Gift’ has not been defined anywhere in GST laws. However, Transfer of Property Act defines ‘gift’ as below:

“Gift is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee”

In the present case, the Company incurs such expenses in pursuant to a statutory obligation, and not ‘voluntarily’, therefore supply of items cannot be termed as gift

– Samples are generally distributed to promote the product and the business, but in the instant case, these items are supplied pursuant to a statutory requirement, hence it cannot be termed as sample as well

With regard to the above expenditures, it can be stated that CSR expenses are a cost to the companies, failure to comply with the same would attract penal provisions, therefore, an inference can be drawn that these expenditures are incurred in the course or in furtherance of the business and accordingly, ITC should be allowed.

Further, the above has been upheld in one of the rulings of erstwhile regime, where Hon’ble Mumbai CESTAT, in the matter of Essel Propack Limited v. Commissioner of CGST 2018 (362) E.L.T.833 (Tri-Mumbai), held that the credit in respect of expenditure on CSR can be availed by the Company which discharges CSR obligations. Hon’ble CESTAT observed that CSR is not a charity but a mandatory requirement and unless the same is to be treated as input service in respect of activities relating to business, production and sustainability of the company itself would be at stake.

Though, in GST regime, AAR Kerala, in the matter of Polycab Wires Pvt Ltd. has taken a different view by disallowing the ITC in respect of goods distributed free of cost under CSR activities as per Section17(5)(h).

However, on the other side of the coin, first entry of Schedule-I states that permanent transfer/disposal of business assets would be treated as supply, even if made without consideration, provided ITC has been availed on such assets. In this regard, it is imperative to note that there are three limbs of this entry :

(a) Permanent disposal or transfer

(b) Business asset

With reference to the supply of essential items pursuant to CSR, it can be said that condition (a) & (c) may be satisfied as supply of such items is a permanent disposal or transfer and ITC has also been availed. Now let’s examine whether the goods transferred falls within the scope of ‘Business Assets’

The term ‘Business Asset’ has not been defined anywhere in GST laws. As per accounting concepts, if some future benefits are expected to flow from a tangible or intangible item, it can be treated as an ‘asset’. However, there is a slight difference between incurring expenditures and generating an asset. While generating the asset, the primary intention which exist is to obtain future benefits for multiple years, while at the time of incurring expenditures, such intention is for much shorter period, i.e. normally not more than one year.

The above view get further strengthens as the word used in this entry is “business assets”, instead of “goods”. Had it been ‘goods’, then transfer of every type of item would have got covered under this. But, legislature has intentionally kept this word as “Business Assets” so that only those items get covered here, where the element of future benefits exists.

Therefore, in our opinion, the supplies in question would not get covered under the term ‘Business Asset’ and therefore, would not fall under the deeming fiction of ‘Supply’ as per Schedule-I.

Though the unwarranted glare of the tax authorities can never be avoided, still, in principally, ITC of the expenditures incurred on CSR activities should be allowed in terms of the above discussion.

• ITC on expenditures incurred for ensuring compliance to SOP issued by MHA

In respect of ITC on expenditure incurred towards procurement of various items such as Temperature Measurement Equipment, sanitizers, masks, gloves etc. used or intended to be used while performing official duties, it may be concluded that these safety measures are required to be followed by every business as directed in MHA guidelines. Also, expenses incurred on such products would be counted towards furtherance or in the course of business, hence ITC on such supplies should be allowed.

Department may dispute the ITC on these supplies by saying that these goods would be used for personal consumption of the employees. However, in our opinion, it can be well argued in the court of law.

Conclusion

Considering the present economic disruption caused by COVID-19, it is very tough for the businesses to even survive. In this hour of exigency, it is expected that the Government would take a liberal view and would come up with some positive clarifications to clear the sky which is presently clouded due to the confusions related to availability of ITC. It will further ensure the active participation of trade and industry to further strengthen the fight against this pandemic.

Principal of Natural Justice Hon'ble Supreme Court of India in the matter of State Bank Of Patiala & Ors v.

Principal of Natural Justice

Hon’ble Supreme Court of India in the matter of State Bank Of Patiala & Ors v. S.K. Sharma [1996 AIR 1669] has held that the object of the principles of natural justice are synonymous with the obligation to provide a fair hearing. It ensures that justice is done, that there is no failure of justice and that every person whose rights are going to be affected by the proposed action gets a fair hearing. It further held that where the order is passed without giving any opportunity of being heard, then “the order passed would undoubtedly be invalid [one may call it “void” or a nullity if one chooses to].”

Key highlights of Fifth tranche of measures announced by the Finance Misinister The Finance Minister, Smt.

Key highlights of Fifth tranche of measures announced by the Finance Misinister

The Finance Minister, Smt. Nirmala Sitaraman in a press conference held on 17.05.2020 has announced

series of measures in order to get back the economy in track. Now, Finance Minister has come up with

Fifth trance of economic measures which are primarily focused on ease of doing business of companies

andmatters relating to Insolvency and Bankruptcy Code. The key highlights of the press conference are

summarized hereunder.

1. Hikes in threshold limit for default value: The Minimum threshold limit to initiate insolvency

proceedings has been proposed to be raised from 1 lakh to 1 crore. It would be the one of the

major decisions taken by the Govt. in order to reduce some burden from shoulders of NCLT and

NCLAT.

2. Insolvency Resolution framework for MSME: It has been decided to notify new special

insolvency resolution framework for MSME under section 240A of the Insolvency and

Bankruptcy Code, 2016.

3. Suspension of IBC proceedings: In order to deal with testing time arising from deadly virus, it

has decided for suspension of fresh initiation of Insolvency and Bankruptcy Code, 2016 up to

one year depending upon the pandemic situation.

4. Exclusion few debts from definition of default: COVID-19 related debt would be excluded from

the definition of default under the Insolvency and Bankruptcy Code for the purpose of triggering

insolvency proceedings.

5. Decriminalization of violation under Cos. Act: Violations involving minor technical and

procedural defaults such as shortcomings in CSR reporting, inadequacy in board report, filing

defaults and delay in holding AGMs will be decriminalized from Company Act. From now on, the

company shall face only monetary penalty on companies.

6. New provisions for producer companies: Provisions of old Companies Act, 1956 pertaining to

producer companies being included in the new Companies Act, 2013.

7. Internal Adjudication Mechanism: The various compoundable offences sections to be shifted to

internal adjudication mechanism of Companies Act, 2013 and enhancing the power of RD for

compounding of offences related to companies act.

8. Direct listing of securities: In order to ease of doing business, it has decided to direct listing of

securities by Indian public companies in permissible foreign jurisdictions.

9. Exemption to private Cos.:Private companies which list NCDs on stock exchanges will not be

regarded as listed companies.

10. Reduction in penalties: Lower penalties for all defaults for small companies, one person

companies, producer companies and start ups.

11. More funds for MGNREGA: The Govt. will allocate an additional Rs. 40,000 crore MGNRENA to

provide work for migrants returning homes.

12. Online Education: The education sector hit drastically due to COVID-19 pandemic, due to this,

parents are facing problems in order to provide education to their offspring. Therefore, the

Govt. has made provision for school education through technology driven system. In addition to

that, 200 new textbooks added to e-Paathshaala.

Re-opening after adoption the AGM The Board of Directors does not have the power to re-open the books

Re-opening after adoption the AGM

The Board of Directors does not have the power to re-open the books of accounts once it is adopted by the shareholders of the Company.

The National Company Law Tribunal (NCLT) is the only competent authority to order re-opening of books of accounts of the Company. This power is derived from the provisions of Section 130 of the Companies Act, 2013.

Who can apply for re-opening of books of accounts

In terms of the provisions of Section 130 of the Companies Act, 2013, any one of the following the competent authorities may apply for re-opening of books of accounts :-

a. the Central Government, which means the Ministry of Corporate Affairs (MCA);

b. the Income-tax authorities;

c. the Securities and Exchange Board of India (SEBI);

d. any other statutory regulatory body/authority, which could be as viz., Reserve Bank; IRDA;

e. any other concerned person, which could be an aggrieved shareholder or an aggrieved director.

Therefore, no other person excepting the above can make any application before the NCLT for re-opening of books of accounts.

Conditions precedent to be complied for Re-opening of Accounts

Any one of the following conditions are required to be satisfied as mentioned in the provisions of Section 130 of the Companies Act, 2013 while directing/permitting reopening of the books of accounts and recasting of the financial statements of the company, that :-

(a) the relevant accounts were prepared in a fraudulent manner; or

(b) the affairs of the company were mismanaged, casting a doubt on the reliability of financial statements.

In brief, fraudulent, mismanagement, doubt and reliability of the financial statements are the pre-requisites for ordering re-opening of accounts of the company for a particular period.

Further, the NCLT before passing any order shall take into consideration the representations, if any, made by the above-mentioned competent authorities or any other person concerned.

Recent Case Law

The issue of re-opening of books of accounts came up before the Hon’ble Supreme Court in a Civil Appeal No. 3747 OF 2019 in the matter of Hari Sankaran, appellant v. Union of India & Others, Respondents.

This case is popularly known as IL&FS matter.

This article has analysed the above order from the perspectives of academic understanding for the professionals in regard to Re-opening of Books of Accounts.

Facts of the Case

A brief facts of the case as relevant for this article, as it appears in the instant case is that Infrastructure Leasing & Financial Services Limited (IL&FS) is a company incorporated under the provisions of the Companies Act, 1956. That the said company IL&FS has 348 group companies, including IL&FS Financial Services Limited (“IFIN”) and IL&FS Transportation Networks Limited (“ITNL”). That the said IL&FS is a core investment company and systemically important Non-Banking Finance Company duly approved under the Reserve Bank of India Act, 1931.

Allegations in the instant case

Based on the report dated 3-12-2018 as submitted by the ICAI before the learned Tribunal, it was observed that IL&FS company has been presenting a rosy picture by camouflaging its financial statements, and concealing and suppressing severe mismatch between its cash flows and payment obligations, total lack of liquidity and adverse financial ratios.

It was also found that IL&FS company has first defaulted on commercial paper and then on short term borrowings i.e. inter corporate deposits, negative cash flows in operating activities etc. It was further observed that the consolidated balance sheet of IL&FS company indicated the extremely precarious financial position, and was virtually in deep red.

It was found that intangible assets of approximately Rs.18,540 crores as on 31-3-2017, has increased to approximately Rs. 20,004 crores as on 31-3-2018, thus creating a serious doubt about the correctness of the financial statements.

Impugned Order

The learned National Company Law Tribunal, Mumbai Bench vide it’s Order dated 1-1-2019 amongst others, allowed the application preferred by the Central Government under Section 130(1) & (2) of the Companies Act, 2013 and has permitted recasting and reopening of the accounts of IL&FS, IFIN and ITNL for the last five years viz., F.Y 2012-13 to 2017-18.

The order passed by the learned Tribunal has been affirmed by the learned National Company Law Appellate Tribunal (NCLAT) on 31-1-2019.

Earlier, the learned Tribunal vide Order dated 1-10-2018 suspended the Board of Directors of IL&FS and appointed the newly constituted Board to conduct the business as per the Memorandum and Articles of the companies.

Issue before the Hon’ble Supreme Court

The short question, which was posed for consideration before the Hon’ble Supreme Court, whether in the facts and circumstances of the case, can it be said that the order passed by the learned Tribunal is illegal and/or contrary to Section 130 of the Companies Act, 2013?

Arguments by the Appellant

It was argued amongst others, by the learned senior counsel appeared on behalf of the appellant that –

(a) impugned order is absolutely illegal and bad in law;

(b) the preconditions for reopening and recasting the statements of account of the company, namely (i) the relevant earlier accounts were prepared in a fraudulent manner; or (ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements, have not been satisfied;

(d) in the absence of any specific finding by the learned Tribunal on the aforesaid, it was not permissible for the learned Tribunal to pass the order permitting reopening of the books of accounts and recasting of financial statements;

(e) the order passed by the learned Tribunal is in breach of natural justice in as much as sufficient opportunity was not given to the appellant by the learned Tribunal before passing the order;

(f) before passing the order, not only the Income Tax Authorities and other authorities were required to be heard, even the “other persons concerned”, including the Directors/Ex-Directors of the company were required to be heard, which was not met; and

(g) the order passed by the learned Tribunal was in violation of the principles of natural justice.

Case laws relied on by the Appellant’s counsel

In support of the above submissions, learned senior counsel appearing on behalf of the appellant has heavily relied upon the decisions of this Court in the case of Mannalal Khetan v. Kedar Nath Khetan [1977] 2 SCC 424 and in the case of Swadeshi Cotton Mills v. Union of India [1981] 1 SCC 664. Relying upon the above decisions, it is submitted that when the Statute provides that things are required to be done in a particular manner, it ought to have been done in the same manner as provided under the Statute. It was further replied by the Senior Counsel appearing on behalf of the appellant based upon the decision of this Court in the case of Calcutta Discount Company v. Income Tax Officer AIR 1961 SC 372.

In support of submission, it was heavily relied upon the decisions of this Court in the cases of Mohinder Singh Gill v. Chief Election Commissioner, New Delhi [1978] 1 SCC 405 and T.P. Senkumar v. Union of India [2017] 6 SCC 801.

It was submitted that as observed and held by this Court in the case of Swadeshi Cotton Mills (supra), when the principles of natural justice are prescribed by the statutory provision, no prejudice is required to be shown for invoking the ground of violation of principles of natural justice.

Arguments by the Central Government/Union of India

The learned counsel appearing on behalf of the Union of India relied heavily on the arguments of ‘larger public interest’ and submitted amongst other that –

(a) the order passed by the learned Tribunal is absolutely in the larger public interest and absolutely in consonance with the provisions of Section 130 of the Companies Act;

(b) there were very serious allegations of preparing the earlier accounts in a fraudulent manner, and also with respect to the mismanagement of the affairs of the company during the relevant period;

(c) all the three provisions, namely Sections 211/212, Sections 241/242 and Section 130 of the Companies Act are required to be considered and read conjointly;

(d) the order passed under Section 130 of the Companies Act would be in the aid of the investigation going on by the SFIO under Section 212 of the Companies Act and the same shall be in the larger public interest;

(e) the reopening of the books of accounts and recasting the financial statements is very much required and necessary, since the same shall be in the larger public interest, to find out the real truth;

(f) the learned Tribunal has not received any objection from any regulatory body raising any concern for reopening/recasting books of accounts;

(g) the impugned cannot be said to be in violation of the principles of natural justice as alleged; and

(h) the report of the RBI dated 22-3-2019 demonstrates and establishes beyond any doubt about the complete correctness, validity and legality of the order under Section 130 of the Act.

Making the above submissions, it was prayed to dismiss the present appeal, more particularly, considering the larger public interest as, in the present case, thousands of crores of the public money is involved.

Observations by the Hon’ble Supreme Court

While considering the issue, the Hon’ble Supreme Court noted amongst others that –

(a) in the preliminary SFIO report, there are specific findings with respect to mismanagement of the affairs and also with respect to preparing fraudulent accounts;

(b) in the preliminary report, the ICAI has mentioned that “accounts for the post five years have been prepared in a fraudulent and negligent manner by the erstwhile auditors”; and

(c) the Registrar of Companies prima facie concluded that mismanagement and compromise in corporate governance norms and risk management has been perpetuated indiscriminately raising long term and short-term loans/borrowings through public sector banks and financial institutions.

It was observed by the Hon’ble Supreme Court that –

(a) on a fair reading of Section 130 of the Companies Act, if the Tribunal is satisfied that either of the conditions precedent is satisfied, the Tribunal would be justified in passing the order under Section 130 of the Companies Act;

(b) it cannot be said that the conditions precedent while invoking the powers under Section 130 of the Act are not satisfied;

(c) it was more than satisfied that in the facts and circumstances of the case, and also in the larger public interest and when thousands of crores of public money is involved, the Tribunal is justified in allowing the application under Section 130 of the Companies Act; and

(d) it cannot be said that the order passed by the learned Tribunal is per se in violation of the principle of natural justice as alleged.

Further it was observed that the order passed by the Tribunal under Section 130 of the Companies Act does not suffer from any illegality and the same is passed in the larger public interest.

Final Order of the Hon’ble Supreme Court

The Hon’ble Supreme Court relied heavily on the merits of ‘larger public interest’, for passing the Order.

It was ordered that the Hon’ble Supreme Court had no reason to interfere with the impugned order dated 1-1-2019 passed by the learned Tribunal under Section 130 of the Companies Act for reopening of the books of accounts and recasting the financial statements for the last five years, viz. from Financial Year 2012-13 to the Financial Year 2017-18.

Accordingly, the present appeal was dismissed and order of the learned Tribunal was upheld.

Consequences of re-opening and re-casting of books of accounts

The books of accounts once reopened and recasted are deemed to be final under the provisions of Section 130(2) of the Companies Act, 2013. It means recasted books of accounts are to be considered as final for the relevant period for all purposes.

Recovery of remuneration

Section 199 of the Companies Act, 2013 permits the Company to recover remuneration from any managing director/whole-time director/manager/Chief Executive Officer (by whatever name called) who has received the remuneration (including stock option) in excess of what would have been payable to him as per the restated financial statements. This would be applicable for all the period(s) for which financial statements were restated.

Conclusion – some unanswered questions

There are many frontiers opens when an order is passed to re-open/re-cast the books of accounts and the law does not answer to all such questions in the statues. For example, recovery of dividend which was distributed based on previous accounts and claim of damages by the investors who have suffered losses.

The Board of Directors, Auditors and professionals must take due care while finalising/approving books of accounts and must take into account ‘larger public interest’ than concerning only for limited group of people directly connected with the Company.

A greater responsibility is bestowed to the management in preparation of annual accounts and to the statutory auditor to give its true and fair view. Both the management and statutory audit is equally responsible for an account which is found to be not providing true and fair view. The power to re-open accounts should be carefully applied keeping in mind the broader interest of stakeholders and perhaps clarifying unanswered questions not dealt under the statute.

It is to be noted that ‘larger public interest’ is far more important that any technical provisions of the law.

Assessee arrested for offence committed under GST denied bail

2. Assessee arrested for offence committed under GST denied bail as no case of COVID-19 reported in jail’s premises: HC

Rajinder Bassi v. State of Punjab – [2020] 116 taxmann.com 398 (Punjab & Haryana)

The assessee was arrested for evading GST payment of Rs. 20 crores approx. He filed a writ petition before the High Court of Punjab and Haryana seeking grant of interim bail due to prevalent conditions of spread of COVID-19 virus.

Assessee submitted that the threat of spread of pandemic COVID-19 still prevailed. Moreover, policy had been framed by the State Government for release of the prisoners, the assessee deserved to be released on bail in terms of the policy.

The Hon’ble Supreme Court, vide its order dated 23.03.2020 had directed all the States or Union Territories to constitute High Powered Committees which would decide the prisoners who ‘may’ be released on interim bail or parole during the pandemic (COVID-19) to protect the health of the prisoners and to restrict transmission of COVID-19 by decongestion of prisons. The purpose was to prevent the overcrowding of prisons so that in case of an outbreak of corona virus in the prisons, the spread of the disease is manageable.

The High Court observed that in the given case there were allegations against the assessee for committing offence under GST which is punishable for a maximum sentence of 5 years. As per the policy cases of under trials charged with offences punishable for a sentence of up to 7 years could be considered. However, the offence committed by the assessee involve huge amount which need to be considered while releasing the assessee on bail. It was also noticed that jail was decongested and no case of COVID-19 was reported within the premises of jail. Thus, the prisoners within the jail were relatively safe.

Therefore, in view of the nature and gravity of offence, the amount involved and no reported case of COVID-19 in jail, interim bail was denied to the assessee

No separate registration needed for works contract executed in another state other than principal place of business

T & D Electricals, In re – [2020] 116 taxmann.com 390 (AAR – KARNATAKA)

The applicant is registered under GST Act as works contractor and wholesale supplier in Jaipur, Rajasthan. It has been awarded works contract which includes electrical, installation, testing and commissioning of township in the State of Karnataka. The applicant has sought advance ruling on whether the applicant requires separate registration in the State of Karnataka for executing the above works contract?

The Authority for Advance Ruling observed that as per the provisions of CGST Act, supplier is liable to be registered in the state from where he makes taxable supply of goods or services or both subject to threshold limit of aggregate turnover in a financial year. The applicant intends to supply goods or services or both from its principal place of business for which registration has been obtained i.e. Rajasthan and does not have any other fixed establishment. The location of the applicant is its principal place of business which is Rajasthan. Moreover, the applicant will execute the works contract at the temporary small space for office and store provided by the contractee in its premises located in Karnataka. Therefore, there is no requirement for a separate registration in Karnataka state for execution of works contract.

The Authority for Advance Ruling held that no separate registration is required by the applicant for execution of works contract in the State of Karnataka unless the applicant intends to have a fixed establishment at the project site in Karnataka.

No detention of goods in transit without e-way bill if tax already paid at the time of import:

No detention of goods in transit without e-way bill if tax already paid at the time of import: HC

Synergy Fertichem (P.) Ltd. v. State of Gujarat – [2020] 116 taxmann.com 221 (Gujarat)

The Competent Authority detained the goods in transit as well as vehicle of the assessee on the ground that the goods were not accompanied by e-way bill. The authority further issued a show cause notice as to why goods and vehicle should not be confiscated for non-payment of an amount of Rs. 60.72 lakhs. The assessee filed a writ petition before the High Court of Gujarat seeking relief in this regard.

The assessee submitted that the show cause notice was issued imposing penalty, redemption fine and confiscation without initiating any proceedings for detention, seizure and release of goods and vehicle under the GST Act, which was not permissible in law. It was further submitted that the assessee had already paid IGST on such goods at the time of import. Those were perishable goods with a limited shelf life.

Bond Scheme 2020-21 G.S.R. 250(E), dated 13-04-2020

Govt. notifies Forms under Sovereign Gold Bond Scheme 2020-21

G.S.R. 250(E), dated 13-04-2020

The Government has notified Sovereign Gold Bond Scheme 2020-21. The Scheme has prescribed Forms, eligibility criteria, tax exemption and procedure for making application for subscription of Gold Bonds. The followings are key features of the Scheme:

1) The Bonds may be held by a Trust, HUFs, Charitable Institution, University or by a person resident in India.

2) “person resident in India” shall have the meaning as defined in clause (v) of section 2 of the Foreign Exchange Management Act, 1999

3) The minimum limit of subscription for the Bonds issued shall be of one gram and maximum limit of subscription per fiscal year shall be of 4 kg for individuals & Hindu Undivided Family (HUF) and 20 kg for trusts.

4) Application for the Gold Bonds shall be made to any receiving office in Form A and must be accompanied by the ‘PAN’ issued by the Income-tax Dept.

5) Interest on Gold Bond shall be paid at a fixed rate of 2.50 percent per annum on the nominal value.

6) The Gold Bonds shall be repayable on the expiration of eight years from the date of the issue of the Bonds. However, premature redemption is allowed after 5 Years.

7) The interest on the Gold Bond shall be taxable. However, the capital gains tax arising on redemption of these bonds to an individual is exempted. The indexation benefits will be provided to long-term capital gains arising to any person on transfer of bond.

HC sets aside notice demanding interest & subsequent order

HC sets aside notice demanding interest & subsequent order attaching bank accounts as no SCN was issued to assessee

Union of India v. LC Infra Projects (P.) Ltd. – [2020] 116 taxmann.com 205 (Karnataka)

The notice demanding interest was issued upon asseseee. Subsequent to the issue of notice, bank accounts of the assessee were attached by the revenue authorities on account of non-payment of the said interest. On writ filed by the assesee, the Single Judge quashed both the orders. The revenue filed writ appeal in this regard.

The assessee submitted that the no notice as contemplated under Section 73 of the CGST Act was issued to the assessee before quantifying interest amount and attaching bank accounts of the assessee. Therefore, the authority had breached the principles of natural justice.

The Honourable High Court observed that whether there was a failure on part of the assessee to pay the tax within the period prescribed, the assessee was entitled to be heard. As per Section 73 of the CGST Act, when any tax has not been paid or short paid, a Show Cause Notice is to be issued to the assessee so as to show cause as to why he should not pay the amount specified in the notice along with interest.

Therefore, the Single Judge had rightly held that issuance of Show Cause Notice is an essential condition in order to proceed with the recovery of interest. The Honourable High Court upheld the view of the Single judge that a show cause notice was required to be issued to the assessee before initiating recovery of interest payable. Hence, demand of interest and order of attachment were set aside

Who are eligible taxpayers for opting-in for Composition Scheme:-

Following taxpayers may opt for this scheme:

• The normal taxpayers having aggregate turnover (at PAN level) below Rs. 1.5 Crore in the previous financial year, who doesn’t want to avail ITC facility,

• The normal taxpayers having aggregate turnover (at PAN level) below Rs. 75 lakh in the previous financial year who are situated in following states:

i. Arunachal Pradesh,

ii. Manipur,

iii. Meghalaya,

iv. Mizoram,

v. Nagaland,

vi. Sikkim,

vii. Tripura and

viii. Uttarakhand:

• The normal taxpayers supplying services and/or mixed supplies having aggregate turnover of last financial year below Rs. 50 lakhs.

Taxpayers, who are not eligible for opting in composition scheme:

1. Suppliers of the goods/services who are not liable to be taxed under GST,

2. Inter-State outward suppliers of goods/services,

3. The taxpayers supplying through e-commerce operators, who are required to collect tax under section 52,

4. The manufacturers of notified goods like (i) Ice cream and other edible ice, whether or not containing cocoa, (ii) All goods, i.e. Tobacco and manufactured tobacco substitutes and (iii) Pan Masala, (iv) Aerated water

5.. A Casual taxpayer,

6.. A Non-Resident Foreign Taxpayer,

7. A person registered as Input Service Distributor (ISD),

8.. A person registered as TDS Deductor /Tax Collector,

Govt. extends the due date of filing FORM GSTR-3B for the month of May, 2020

Editorial Note : Taxpayers having an aggregate turnover of more than Rs. 5 crores in the previous financial year shall furnish Form GSTR-3B for the month of May, 2020 by 27-6-2020. For taxpayers having turnover upto Rs. 5 crores, the due date of filing Form GSTR-3B for the month of May, 2020 has been extended to 12-7-2020 and 14-7-2020 respectively having place of business in specified states.

CIRCULAR NO: 136/06/2020-2020, DATED 03-04-2020

Validity of e-way bill expiring in lockdown period extended to 30th June, 2020

Editorial Note : The govt has announced various relief measures in meeting the compliance requirements in view of this emergent situation. The taxpayers can file the option for composition scheme till 30th of June, 2020. Interest and late fees on late filing of GSTR-3B and GSTR 1 have been relaxed to some extent. Various other clarifications have also been issued.

NOTIFICATION NO. 35/2020-CENTRAL TAX, DATED 03-04-2020

Due date of compliances under GST falling between March 20, 2020 to June 29, 2020 extended to June 30, 2020

Editorial Note : CBIC has extended the due dates of compliances such as filing of any appeal, reply or application or furnishing of any report, document, return, statement or such other record which falls during the period 20-3-2020 to 29-6-2020 to 30-6-2020 subject to certain conditions. Also, in case the validity of e-way bill expired during the period 20-3-2020 to 15-4-2020, the validity period of such e-way bill shall be extended till 30-4-2020.

NOTIFICATION NO. 34/2020-CENTRAL TAX, DATED 03-04-2020

Payment of tax & furnishing of returns for composite registered taxpayers extended

Editorial Note : CBIC has extended the date of making payment of self-assessed tax for composite registered taxpayers in Form CMP-08 for the quarter ending March 31, 2020 to 7-7-2020. Further, the due date of furnishing of returns in Form GSTR-4 for the financial year ending March 31, 2020 has also been extended to 15-7-2020.

NOTIFICATION NO. 32/2020-CENTRAL TAX, DATED 03-04-2020

No late fees on delay in filing of GSTR-3B if filed within new prescribed dates

Editorial Note : CBIC has provided conditional waiver of late fees for taxpayers having turnover of upto Rs. 5 crores in the preceding financial year provided that GSTR-3B has been filed by prescribed new dates for the period February-April, 2020. Also, for taxpayers having turnover of more than Rs. 5 crores, no late fee shall be charged if GSTR-3B for the period February-April, 2020 has been filed before 24-6-2020.

NOTIFICATION NO. 31/2020-CENTRAL TAX, DATED 03-04-2020

CBIC prescribes lower interest rates for delay in filing of GSTR-3B during lockdown period

Editorial Note : Taxpayers having turnover of upto Rs. 5 crores in the preceding financial year shall not be liable for interest provided that GSTR-3B has been filed by prescribed new dates for the period February-April, 2020. For taxpayers having turnover of more than Rs. 5 crores no interest shall be charged for first 15 days and thereafter lower rate of 9% p.a. shall be levied if GSTR-3B for the period February-April, 2020 has been filed after 24-6-2020.

NOTIFICATION NO. 30/2020-CENTRAL TAX, DATED 03-04-2020

Time for opting Composition Scheme extended & 10% restriction on ITC availment relaxed

Editorial Note : CBIC has notified that registered persons who wanted to opt for Composition Scheme for the F.Y. 2020-21 are allowed to file intimation in Form CMP-02 on or before 30-6-2020. Also, 10% rule for ITC availment has been deferred and made cumulative for the period February-August, 2020. The ITC of this period will be adjusted in the Form GSTR-3B of September, 2020.

SECTION 5 OF THE INTEGRATED GOODS AND SERVICES TAX ACT, 2017 – LEVY AND COLLECTION

Notification No. 8/2017-Integrated Tax (Rate), dated 28-6-2017 and Entry 10 of Notification No. 10/2017 – Integrated Tax (Rate), dated 28-6-2017 are ultra vires to Integrated Goods and Services Tax Act on ground of lack legislative competency – Essar Power Gujarat Ltd. v. Union of India – [2020] 116 taxmann.com 19 (Gujarat)

SECTION 18 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 – INPUT TAX CREDIT

STATUTES NOTIFICATION NO. 36/2020-CENTRAL TAX, DATED 03-04-2020 Govt.

STATUTES

NOTIFICATION NO. 36/2020-CENTRAL TAX, DATED 03-04-2020

Govt. extends the due date of filing FORM GSTR-3B for the month of May, 2020

CIRCULAR NO: 136/06/2020-2020, DATED 03-04-2020

Validity of e-way bill expiring in lockdown period extended to 30th June, 2020

NOTIFICATION NO. 35/2020-CENTRAL TAX, DATED 03-04-2020

Due date of compliances under GST falling between March 20, 2020 to June 29, 2020 extended to June 30, 2020

NOTIFICATION NO. 34/2020-CENTRAL TAX, DATED 03-04-2020

Payment of tax & furnishing of returns for composite registered taxpayers extended

NOTIFICATION NO. 32/2020-CENTRAL TAX, DATED 03-04-2020

No late fees on delay in filing of GSTR-3B if filed within new prescribed dates

NOTIFICATION NO. 31/2020-CENTRAL TAX, DATED 03-04-2020

CBIC prescribes lower interest rates for delay in filing of GSTR-3B during lockdown period

NOTIFICATION NO. 30/2020-CENTRAL TAX, DATED 03-04-2020

Time for opting Composition Scheme extended & 10% restriction on ITC availment relaxed

SECTION 5 OF THE INTEGRATED GOODS AND SERVICES TAX ACT, 2017 – LEVY AND COLLECTION

GOODS & SERVICES TAX / IDT UPDATE – 86

Advisory on Opting-in for Composition Scheme for 2020-21 – Extension of Dates in view of COVID-19 pandemic

Team GSTN has issued the following advisory for Composition Scheme dated 07th April,2020 as under:-

A. Due to COVID-19 pandemic and challenges faced by taxpayers, Government has extended dates for opting for composition scheme by normal taxpayers, for the financial year 2020-21. These are notified in Notifications 30/2020 Central Tax, dated 03.04.2020. Circular No. 136/06/2020-GST dated 3rd April, 2020 has also been issued.

B. Existing Normal taxpayers who want to opt for Composition Scheme in Financial Year 2020-21 may note following changes:

Revised date to file Form GST CMP 02: Normal and registered taxpayers who want to opt in for Composition in FY 2020-21 can apply in Form GST CMP-02 by 30th June 2020.

No GSTR 1 or 3B must be filed in 2020-21 financial year for associated PAN: The taxpayers SHOULD NOT file any GSTR-1/GSTR-3B, for any tax period of FY 2020-21, from any of the GSTIN on the associated PAN, or else they will not be able to opt for composition scheme for FY 2020-21.

No need for re-opting for the composition scheme: The taxpayers who are already in composition scheme, in previous financial year are not required to opt in for composition again for FY 2020-2021.

Revised date to file Form GST ITC 03: Form GST ITC-03 to reverse ITC for the stock in hand at the time of transition can be filed till 31st July, 2020.

Modification in earlier advisory date 18.02.2020: The advisory issued on 18.02.2020 and available on GST Portal

Remuneration paid to directors are not to be considered as salary.

Remuneration paid to directors are not to be considered as salary. Hence, not exempt and therefor liable for RCM. Held in below case. As per my opinion, this ruling is not correct.

2020 (4) TMI 228 – AUTHORITY FOR ADVANCE RULING RAJASTHAN

IN RE: M/S. CLAY CRAFT INDIA PVT. LTD.,

Levy of GST – salary paid to Director of the company who is paid salary as per contract – Reverse charge mechanism – levy of GST if the Director also is a part time Director in other company also – N/N. 13/2017- Central Tax (Rate) dated 28.06.2017.

HELD THAT:- The consideration paid to the Directors is against the supply of services provided by them to the applicant company and are not covered under clause (1) of the Schedule Ill to the CGST Act, 2017 as the Directors are not the employee of the Company. In the instant case Director is the supplier of services and the applicant company is the recipient of the services. So it is very clear that the services rendered by the Director to the company for which consideration is paid to them in any head is liable to pay GST under RCM – also, the applicant company is located in the taxable territory and the Director’s consideration is paid for the supply of services by the Directors to the applicant company and hence the same is liable to GST by way of reverse charge basis as provided under Notification No. 13 /2017- Central Tax (Rate) dated 28.06.2017 issued under Section 9(3) of the Central Goods and Services Tax Act, 2017.

Situation will remain same in case the Director also is a part time Director in other company also, and will attract GST under reverse charge mechanism.

Fresh order of provisional attachment in GST can be issued by appropriate authority after the expiry of time period

Section 83 does not provide for extension of order for provisional attachment and any such extension shall be dehors the statute. However, there is nothing in the section which indicates that upon completion of prescribed period, fresh order cannot be issued. The Court held that after the expiry of time period, appropriate authority is of the opinion that such attachment is further required to protect interest of revenue, may issue fresh order.

Beauty and Make-Up Preparations- Classification

INTRODUCTION Under the Indirect Tax regimes prevalent across the globe including India, the classification of various items which are the subject matter of tax, be it goods or services, is an essential and integral part of the whole levy and collection mechanism. It is important both from the taxpayer’s perspective and tax collector’s perspective to have a definite class or group under which a product or service falls. The primary intention of classifying them is to determine whether or not the same would be encumbered by the levy of taxes and if so, under which category the tax liability would arise. However, this is an ideal dream situation but in real and practical world disputes relating to classification of goods as well as services have been in existence since inception. The ideal way to eradicate disputes relating to classification is to have rational tax rates and items that are plausibly classifiable under more than one heads should have the same rate of tax. Thus if for example, the rate of tax on all products is the same then probably there would never be a classification related dispute. Again this is only an ideal situation. In real life, classification has added more woes to certain industries as there is always a certain amount of arbitrage created between the taxpayer and the tax collector for the classification of items. The significance of classification assumes all the more importance when the variation in tax rates is huge and the tax spectrum is large. Under GST this spectrum ranges primarily from Nil to 28% (except for sin products). Incorrect classification of a product can have such serious implications that it can even lead to a closure of an industry. Say for example an industry having annual turnover of say 100 Cr. treats its products/services to be exempt and later it is found that the same is taxable @ 18% then at the time when SCN is issued to the company its liability would be 18% of 500 Cr. (100 Cr x 5 years) i.e. Tax of 90Cr. along with interest and penalty. It requires no rocket science to imagine that if a company having an average turnover of 100 Cr is saddled with such a huge liability it would be impossible for such a company to function. The significance of classification can very well be gauged from this simple illustration. It is equally important to have a clear and definitive classification of goods or services in which a person deals, at the earliest, to avoid a huge liability at a later stage. Whenever the variation in rate is huge the tussle to classify items between the rates 18% or 28% shall be always on the cards. The Government in India being heavily dependent on the tax collections will always be tempted to classify items at the tax rate bracket of 28% and for the taxpayer, the situation will be vice-versa. The 10% gap between the rates, will always open the flood gates for litigation and divergent interpretations. The classification of all kinds of ‘Cosmetics and Ayurvedic products’ which has some therapeutic or prophylactic uses and can plausibly also be classified as ‘Medicaments’ has always been a contentious issue in the taxation regime. The perplexity relating to the classification of ‘Cosmetics and Ayurvedic products’ has been a matter of concern for all the stakeholders in the industry. Various rulings in the erstwhile law and the current law, with different schools of thought, had made the concept much more complex rather than simplifying the issue. This article is an attempt to throw some light and demystify the controversial issue relating to the classification of ‘cosmetics and Ayurvedic products’. The levy and collection of tax under GST is governed by Section 9 of the CGST Act, 2017 and corresponding provisions in the State GST Acts and IGST Act,2017. The relevant portion of the said Section reads as under: 9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intraState supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person. Classification of Goods as per Notification That the Central Government in exercise of its powers under Section 9 of the CGST Act has issued Notification No.1/2017-CT (Rate) dated 28th June, 2017, which has been amended from time to time. The said notification has prescribed the rate of tax (Schedules) for specified goods under CGST/IGST (“Rate Notification”). This notification divides all the goods into 6 Schedules, as follows: i. 2.5% (Schedule I); ii. 6% (Schedule II); iii. 9% (Schedule III); iv. 14% (Schedule IV); v. 1.5% (Schedule V); and vi. 0.125% (Schedule VI) To determine the rate of tax on the products in question we need to examine the relevant competing entries concerning the product in question. The relevant entries are reproduced hereunder: – Schedule II- 6% S.No Chapter / Heading / Subheading /Tariff Item Description of Goods (1) (2) (3) 62 3003 Medicaments (excluding goods of heading 30.02, 30.05 or 30.06) consisting of two or more constituents which have been mixed together for therapeutic or prophylactic uses, not put up in measured doses or informs or packings for retail sale, including Ayurvedic, Unani, Siddha, homeopathic or Bio-chemic systems medicaments. 63 3004 Medicaments (excluding goods of heading 30.02, 30.05 or 30.06) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of transdermal administration systems) or in forms or packings for retail sale, including Ayurvedic, Unani, homeopathic siddha or Bio-chemic systems medicaments, put up for retail sale. Schedule IV – 14% S.No Chapter / Heading / Subheading /Tariff Item Description of Goods (1) (2) (3) 26 3304 Beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen or sun tan preparations; manicure or pedicure preparations [other than kajal, kumkum, Bindi, Sindur, Alta]. *Omitted w.e.f. 15-11-2017 Schedule III – 9% S.No Chapter / Heading / Subheading /Tariff item Description of Goods (1) (2) (3) 58 3304 01-07-2017 to 14.11.2017 Kajal pencil sticks. *15-11-2017 onwards Beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen or sun tan preparations; manicure or pedicure preparations [other than kajal, Kumkum, Bindi, Sindur, Alta]. Schedule III – 9% S.No. Chapter / Heading / Subheading /Tariff item Description of Goods (1) (2) (3) 59 3305 9011, 3305 90 19 3305 01-07-2017 to 14.11.2017 Hair oil *15-11-2017 to 24-01-2018 Preparations for use on the hair. **25-01-2018 onwards Preparations for use on the hair. [except Mehendi pate in Cones] *Notification No.41/2017-Central Tax (Rate) dated 14th November, 2017 w.e.f.15th November,2017 **Notification No. 6/2018-Central Tax (Rate) dated 25th January,2018. It is pertinent to note that the Explanation to the Rate Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017 states as under: For the purposes of this Notification: … (iii) “Tariff item”, “sub-heading” “heading” and “Chapter” shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975). (iv) The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification. Therefore, while the Rate Notification under GST provides the rate of tax on goods and services, to interpret these Rate Notifications for purposes of levy of GST, one has to read the same along with the First Schedule (including the Section and Chapter Notes and General Explanatory Notes) of the Customs Tariff Act, 1975 (“Tariff”). Relevant Chapter Note of Customs Tariff Act, 1975 (51of 1975) read with Notification No. 1/2017- CT (Rate) dated 28th June, 2017 reads as under: – Chapter 30 Note 1(e) ‘This Chapter (Ch. 30) does not cover preparations of heading 3303 to 3307, even if they have therapeutic or prophylactic properties. The relevance of Section Notes, Chapter Notes, and HSN. One of the important tools relevant for the classification of any product has been provided for in the Harmonised System of Nomenclature (commonly abbreviated as HSN). This is an internationally accepted system of classification and the First Schedule to the Customs Tariff Act, 1975 is also based on this system of nomenclature. To some extent, GST also follows this system of classification and Notification No. 1/2017-CT (Rate) is also based on HSN classification to a certain extent. Each Section and Chapter under the Tariff is accompanied by the notes known as “Section Notes” and “Chapter Notes”. These are given at the beginning of the Section or Chapter respectively which governs the concerned Section or Chapter as the case may be. In the case of Section Notes, they apply to each Chapter which is part of a specific section of the Tariff. Thus the principle to be followed for determining the rate of tax on a particular product is as follows:- (i) Ascertain the Chapter / Heading / Sub-heading / Tariff item of the product in question and match it with the description of goods (given in Column no. 3) of Notification No.1. (ii) The description which matches most with the respective HSN shall be the appropriate classification of the said goods. (iii)In case of ambiguity refer to the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 Thus in case of ambiguity classification is to be determined only based on the description of the heading read with relevant section or Chapter notes. Since these notes are part of the Tariff itself, these have full statutory backing. Various Tribunals have held that coverage of respective headings has to be determined in the light of the respective section and Chapter note. Hence in this sense, the section and Chapter note have overriding force over the respective headings and sub-headings. In Fenner (India) Ltd v CCE (1995) 97 ELT 8 (SC), it was observed that the tariff schedule would be determined on terms of headings and any relevant section or Chapter notes. In CC. v Sanghavi Swiss Refills P Ltd (1997) 94 ELT 644 (CEGAT), it was held that section notes and chapter notes, being statutory in nature, have precedence over the functional test of commercial parlance for the purpose of classification. In the case of interpretation of an exemption notification also, the Supreme Court in the case of Gujarat State Fertilizers Co v CCE (1997) 91 ELT 3 SC laid down the principle in its judgment that Chapter Notes of Chapter of Tariff referred to in the notification have to be read as part and parcel of the exemption notification. Only in cases where a notification is clear and expresses a specific intent the scope of Section Note or Chapter Note as the case may be, is restricted and the language of the notification shall be given preference. It was held so in the case of New Holland Tractors vs CCE (2010) 253 ELT 249 (CESTAT). To determine the correct classification and rate of tax of Cosmetic Products having therapeutic or prophylactic uses it is imperative to understand the legal meaning of the terms used in Notification No.1 of 2017 dated 28th June, 2017. In order to cater the complexities involved in the classification of Cosmetic or Ayurvedic products having therapeutic or prophylactic uses under the new regime, it is pertinent to acquaint ourselves with the terminologies such as ‘Medicaments’, ‘Therapeutic’ and ‘Prophylactic uses’ to establish the actual intent of entries falling under the Chapter Heading 30 and 33 of Notification No. 1/2017- CT (Rate) dated 28th June 2017. As the word, ‘medicament’ has not been defined anywhere in the Drugs and Cosmetics Act 1940, the Delhi Goods and Services Tax Act, 2017, the Central Goods and Services Tax Act, 2017, the Integrated Goods and Services Tax Act, 2017, the Customs Tariff Act, 1975, or rules framed thereunder, the word must be construed in its popular sense i.e. how the common man who uses it, understands it. The term ‘medicament’ as defined in the Oxford Dictionary is ‘a substance used for medical treatment’ As per McMillan Dictionary medicament is ‘a substance used for treating an illness orinjury’. The American Heritage Medical Dictionary defines it as ‘An agent that prompts recovery from injury or ailment; a medicine’. The term therapeutic as defined in the Oxford Dictionary is a treatment designed to help/treat an illness As per Collins Dictionary, therapeutic treatment is designed to treat an illness or to improve a person’s health, rather than to prevent an illness and Similarly, the dictionary meaning of Prophylactic Uses is a substance or device used for preventing disease. In other words, to determine whether or not a product or a formulation is to be labelled as a ‘medicament’ it is necessary to consider its efficacy in treating or remedying an ‘injury’ an ‘ailment’ an ‘illness’ or a ‘disease’. Hence, it becomes imperative to look into the definition of ‘injury’. Miller-Keane Encyclopaedia and Dictionary of Medicine, Nursing, and Allied Health, Seventh Edition defines ‘injury’ as ‘harm or hurt; usually applied to damage inflicted on the body by an externalforce’. Again, in Medical terms ‘illness’ or ‘ailment’ is often defined as ‘a physical or mental disorder’ It is imperative to note here that the word ‘medicament’ is not defined anywhere while the word “cosmetic” is defined in the Drugs and Cosmetics Act, 1940. The Drugs and Cosmetics Act, 1940, defines cosmetic under clause (aaa) of section 3 to mean any article intended to be rubbed, poured, sprinkled or sprayed on, or introduced into, or otherwise applied to, the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance, and includes any article intended for use as a component of cosmetic. Medicament vs Cosmetic On perusal of the definitions of the word Medicaments and Cosmetics, one school of thought may be that cosmetic products are meant to improve the appearance of a person, that is, they enhance beauty. Whereas a medicinal product or a medicament is meant to treat some medical condition. It may happen that while treating a particular medical problem, the appearance of the person concerned may improve. What is to be seen is the primary use of the product. To illustrate, a particular product may be used for treating baldness. Baldness is a medical problem. By use of the product, if a person can grow hair on his head, his ailment of baldness is cured and the person’s appearance may improve. The product used for the purpose cannot be described as cosmetic simply because it has ultimately led to an improvement in the appearance of the person. The primary role of the product was to grow hair on his head and cure his baldness. Also, the extent or the quantity of medicament used in a particular product will not be a relevant factor to determine whether a product qualifies to be a medicament or not. Normally, the extent of use of medicinal ingredients is very low because a larger use may be harmful to the human body. The medical ingredients are mixed with what is in the trade parlance called fillers or vehicles to make the medicament useful. To illustrate an example of Vicks Vaporub is given in which 98% is said to be paraffin wax, while the medicinal part i.e. Menthol is only 2%. Vicks Vaporub has been held to be medicament by this Court in CCE vs. Richardson Hindustan Ltd. 1989 (42) ELT A100. Therefore, the fact that the use of a medicinal element in a product was minimal does not detract from it being classified as a medicament. In order to be a medicinal preparation or a medicament, it is not necessary that the item must be sold under a doctor’s prescription. Similarly, the availability of the products across the counter in shops is not relevant as it makes no difference either way. Classification Principles evolved by courts Trade / Common Parlance It is a cardinal principle of Tariff interpretation that resort must be had to the “popular sense” instead of the scientific and technical meaning. “Popular sense” connotes that which people conversant with the subject matter, with which the statute is dealing, would attribute to it. Based on this principle, it was held in the case of Muller & Phipps (India) c. CCE (2004) 167 ELT 374 (SC), that “Prickly Heat powder” is ‘medicament’ as per common parlance, though, for Drugs Act and Sales Tax Act, the product has been treated as a drug. In the case of CCE v. Connaught Plaza Restaurant P. Ltd (2012) 286 ELT 321 (SC) , it was held qua “Soft-serve”, in the absence of a definition of the term “ice cream”, it is to be construed as per common parlance, even if under the provisions of Food Adulteration Act, it may not fall within the meaning of ice cream. What matters is the way the consumer perceives the product. However, it is to be noted that trade parlance is to be examined only if the tariff entry is ambiguous as held in Nirlon Synthetic Fibres v. UOI (1999) 110 ELT 445 (Bom) (DB) However, it is moreover important to know that the common parlance test is not a rigid formula capable of being applied in all situations. That is why, in the case of Commissioner of CE vs. Ishan Research Lab, the Supreme Court pointed out that the common parlance test is not “be all and end of the matter” Section/Chapter Notes prevail over Trade Parlance The classification under the Customs Tariff is not pendent on trade parlance when the parameters are precisely laid down in the Tariff itself, in the description of the Section Notes, Chapter Notes read with the Interpretative Rules, all of which have statutory force. In CCE vs Wood Polymers Ltd (1998)97 ELT 193 (SC) it was held that classification should be done as per the rules of interpretation contained in the Tariff and not as per trade parlance and commercial understanding. However, this is so if the rules of interpretation give the correct and conclusive answer. Otherwise, one has to look at trade parlance. The Supreme Court in case OK Play (India) Ltd v CCE 2005 (2005) 180 ELT 300 (SC) (3 Judges Bench) laid down the parameters for classification of goods as under:  No single universal test can be applied for correct classification. There cannot be a static parameter for correct classification.  HSN along with explanatory notes provide a safe guide for interpretation of an entry.  Equal importance to be given to Rules of Interpretation of Excise Tariff  Functional utility, design, shape and predominant usage have also got to be taken into account while determining the classification of an item  The aforesaid aids and assistance are more important than names used in the trade or common parlance in the matter of correct classification. Now it can be seen that Chapter 30 prescribes the tariff for “Pharmaceutical Products”. Heading No. 3003 speaks of medicaments consisting of two or more constituents which have been mixed together for therapeutic or prophylactic uses, not put up in measured doses or in forms or packings for retail sale, including Ayurvedic, Unani, Siddha, homeopathic or Bio-chemic systems medicaments. Thus this Chapter 30 has to be read with the Chapter Note 1(e) which states that this Chapter (i.e. Ch. 30) does not cover preparations of heading 3303 to 3307, even if they have therapeutic or prophylactic properties. Note 1(e) to Chapter 30 was considered by the Supreme Court in Puma Ayurvedic Herbal (P) Ltd. case. It was observed that “Thus preparations falling in Chapter 33 even if they have therapeutic or prophylactic properties will not fall under Chapter 30 which deals with pharmaceutical products. The reason for this appears to be that even cosmetics may have something to improve skin or other parts of the body where they are used. In that sense they may have some therapeutic value, yet they remain cosmetic.” The distinction between primary and subsidiary therapeutic use was highlighted in the judgment of the Puma Ayurvedic case. It was stated that “a subsidiary curative or prophylactic use will not convert a cosmetic into medicament”. Then, it was clarified that the products which fall under Heading 3304 are primarily beauty or make up preparations. “They may incidentally help in protection against skin irritants. They may also help as a skin tonic, yet they are cosmetics because skin protection is subsidiary benefit”. Thus, in considering the question whether the goods which fall broadly within the description of skincare products are to be classified as medicaments, the test that has to be applied is whether they are intended primarily for use in the treatment of skin disorders or diseases and whether the ingredients therein have sufficient but not minimal therapeutic value. If the potential of a product as a medicament to cure the skin ailments is not clear or is not established, then, it cannot be placed under Chapter 30 as ‘medicament’. Thus on reconciling the Chapter Heading with Chapter Note it indicates that only those products whose curative or preventive value is substantial and the product is manufactured primarily with a view to control or cure a skin-related disease by adding suitable pharmaceutical ingredients shall be covered under Chapter 30. That is to say, if preparations for the care of skin contain sufficient level of medicinal ingredient so as to offer a cure for skin ailments, they stand excluded from the purview of 3304. Broadly speaking, any skincare preparations shall more appropriately fall under the heading “medicaments” because of their therapeutic propensities only when they are used more specifically for the treatment of skin infections or other skin ailments. All other skin preparations and cosmetics even if they have therapeutic or prophylactic properties would not fall within the meaning of medicaments under the GST regime. All earlier case-laws which dealt with similar issue might turn out to be redundant in light of the new scheme of classification provided in GST. Conclusion With reference to the provisions of GST Laws, relevant notifications read with section and chapter notes of Customs Tariff Act 1975 and relying upon the erstwhile case laws along with the recent decision of Appellate of Advance Ruling in Akanksha Hair & Skin Care Herbal Unit (P.) Ltd., 2018] 96 taxmann.com 243 (AAAR-WEST BENGAL) it can be concluded that there is a very thin line of differentiation between the word ‘Medicament’ and ‘Cosmetic’ and one has to be very careful in demarking the classification of there products. Whereas the rate of tax of products covered under the head of Medicaments is 12%, the same product when seen with the eyes of cosmetics corresponds to 18% and even 28% in certain cases. What makes the difference is the perception with which one sees the product. Although the burden of proof that a product is classifiable under a particular Tariff head is on the Department but the company must understand this fact that the gap of 6%/16% may prove to be disastrous in case the litigation is decided in favour of the Revenue. Thus, classification of products should be done diligently keeping in view the afore-stated guiding principles and under professional guidance only.

GST applicability on Remuneration paid to directors

1. INTRODUCTION

A director in a company maintains a prolific role within an organization and usually has a higher role within an organization. He generally decides on how to control the business and also make the final and key decisions. A director can be an executive, non-executive or independent director. An executive director is responsible for the daily operations. An independent director is engaged by a company either to comply with the statutory requirement or to bring in the expertise in the policy-making. An independent director is not an employee of the company as his role does not include the day-to-day operations. His involvement is limited to providing the professional advisory to the company. The tax treatment of the emoluments paid to the directors will depend on his relationship with the company and the nature of services he renders.

At this juncture, it is important to first know about the provisions available for taxability of director’s payments under the GST. In view of the notification issued under the Reverse Charge Mechanism (hereinafter referred to as ‘RCM’), a company or a body corporate is liable to pay GST under the reverse charge in respect of the services received from the director. Further, Schedule-III of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) provides that services by an employee to the employer in the course of or in relation to his employment shall not be treated as supply, and thus no GST would be applicable.

In a recent ruling, the Authority of Advance Ruling, Rajasthan (‘AAR’) in case of Clay Craft India Pvt. Ltd. held that the GST shall be chargeable on the remuneration paid or payable to the directors. The Authority has only taken note of the RCM, and outrightly denied to treat directors as employees of the company. This ruling, thus, arises a moot question – Whether GST is chargeable on the consideration paid or payable for the services rendered by every director?

In this write-up, we have analysed various types of directors along with their nature of engagement under the Companies Act, treatment of consideration received by directors under Income-tax Act and the erstwhile Indirect-tax regime in respect of the services.

2. ADVANCE RULINGS ON THE IMPUGNED ISSUE

The applicant has raised the following questions before the Rajasthan AAR:

a) Whether GST is payable on a reverse charge basis on the salary paid to the director of the company as per the contract?

b) Whether GST applicability will differ if the said director is also a part-time director in any other company?

The applicant submitted that GST will not apply on the remuneration paid to directors as they are the employees and they are given salaries along with benefits as per the policy decided by the company for its employees, thus, covered under Schedule-III (supra). On the contrary, the department has simply provided that the director is not the employee of the company and therefore, the amount paid to them will not be covered under Schedule-III (supra).

The AAR held that directors are not the employees of the company, consequently, GST would be applicable. It emphasised that the director is a supplier of services and the applicant (company) is the recipient of such services. Services rendered by the director to the company for which the consideration is paid to them, under any head, is chargeable to GST on reverse charge basis. Therefore, in respect of both the questions raised above, the applicant will liable to pay GST.

A similar view was taken by the Karnataka AAR in the case of Alcon Consulting Engineers (India) (P.) Ltd . The authority has observed that services provided by the Directors to the company are not covered under Schedule-III as the director is not the employee of the company.

3. OUR ANALYSIS

The taxability under GST legislation should be determined based on the principle of whether a director is an employee of a company. Notably, the GST legislation has not defined the terms ‘director’ and ‘employee’. Therefore, a reference to other laws including the erstwhile regime of service tax should be made.

3.1. Provisions of the Companies Act As per Section 2(34) of the Companies Act, 2013 ‘director’ means a director appointed to the Board of a company.Also, some directors are nominated by the Financial Institutions/Foreign Collaborators/banks/investors to form part of the board of directors. The Board has also powers to fill casual vacancies and appoint additional directors. All these directors collectively form a Board. The Board of Directors is the controlling authority of the company under the Companies Act, 2013.

3.1-1. Executive and Non-Executive Directors Directors who are in the whole-time employment or those who are entrusted with day-to-day operations of the company are termed as ‘Executive Directors’. Other directors are non-executive directors, who are from outside the company. Such nonexecutive directors do not take part in the day-to-day activities of the company and do not have the knowledge about the routine operations of the company. They only attend the meetings of the board of directors or its committees and thus, work only at a periodic interval on a part-time basis. Thus, it can be inferred that non-executive directors, who are not entrusted with day-to-day operations, cannot be treated as an employee of the company.

3.1-2. Independent directors As per Section 149(6) of the Companies Act, 2013, an ‘independent director’ has been defined as a director not being a managing director or a whole-time director or a nominee director. The selection of independent director shall be done by the board who is independent of the company management. Moreover, they have to pass/clear some examination as specified by the Ministry of Corporate Affairs. An independent director shall possess appropriate skills, experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the company’s business. The Independent directors do not work under the control and supervision of the company and therefore it can be inferred that independent directors are not the employees of the company.

3.1-3. Remuneration to directors Directors who are in whole-time employment of the company are termed as ‘wholetime directors’. Some directors may be appointed as ‘Managing/Whole-time Director’ who will be entitled to monthly remuneration.It may be noted that a ‘Managing Director’ need not necessarily be a ‘Whole-time Director’. It is possible and permissible to appoint a director as ‘Managing Director’ though he may not be in full-time employment. As per Section 2(78) of the Companies Act, 2013, ‘remuneration’ means any money or its equivalent given or passed to any person for services rendered by him and includes perquisites as defined under the Income-tax Act. Section 197 read with Schedule V of the Companies Act contains the provision for the computation and payment of director’s remuneration.

3.1-4. Payment of Sitting fees Directors (other than whole-time directors and Managing Director) work only on a part-time basis. These directors are ‘Non Executive Directors’. Normally, they attend the meetings of Board or its committees. These directors get fees for attending the Board meetings or Committee meetings. But a managing director or a whole-time director, who is getting remuneration, is not entitled to sitting fee. Even if the sitting fee is paid, it will be treated as ‘other allowance’ and the overall salary will be subject to the limit of managerial remuneration specified in Schedule-V of the Companies Act, 2013.

3.1-5. Comments Though the Companies Act, 2013 permits payment of remuneration to both Executive and Non-Executive Directors, but directors who are in whole-time employment or those who are entrusted with day-to-day operations of the company are termed as ‘Executive Directors’. These directors are treated as employees. Sitting fees is paid to the directors, not being whole-time directors and managing director, and they are not be considered as employees as they are entrusted with the responsibilities for the day-to-day operations.

3.2. Provisions of the Income-tax Act To tax any amount under the head ‘Salary’ there must be an existence of employee and employer relationship. Notably under the Income-tax Act, 1961 there are no predefined rules or principle to decide whether directors are treated as an employee of the company or not. It provides that if a person is treated as an employee, his remuneration will be taxable under the head salary and tax would be deducted under Section 192. Therefore, before a payment can be taxed as salary, the relationship of employer and employee or master and servant must be established.

3.2-1. Employer-Employee Relationship Taxability of an income under the head ‘Salary’ pre-requisites existence of employee and employer relationship. Before a payment can be taxed as salary, the relationship of employer and employee or master and servant must be established. The judiciary has laid down various principles for determining the relationships of employer and employee. In the absence of the employer-employee relationship, the income shall be assessable either as business income or income from other sources. If a person has to work under the direct control and supervision of the principal and he has no discretion of his own in the performance of his duties, he is deemed to be an employee and the remuneration payable to him in such a case is chargeable to tax under the head salaries. On the other hand, if principal exercises only a supervisory control in respect of work entrusted to the person and he has wide discretion of his own in the execution of the policies of the principal, the presumption is that such person is not an employee. The remuneration payable to such person in such a case is liable to be taxed under the head ‘Profits and gains of business or profession’. The nature of a director’s employment may be determined by the Articles of Association of a company and the service agreement, if any, under which a contractual relationship between the director and the company has been brought about. To decide the question of whether a director is an employee of the company or not, one has to find out as to whether the relationship of master and servant exists between the company and the director5 . If Articles of the company confers a specific right to the company to remove any director before the expiration of his period of office by an extraordinary resolution and if he were so removed he would automatically be dismissed from the office of the managing director, the director could be considered as an employee of the company. Example, if a company is carrying on business and an individual is employed to manage its affairs in terms of its Articles and the service agreement, and his employment can be terminated if his work is not satisfactory, he shall be treated as an employee of the company. If engagement for any work is incidental to the exercise of the profession, the gains arising from such engagement shall not be chargeable to tax under the head Salaries but under the head ‘Profits and gains from business or profession’. Thus, if he is not treated as an employee, any remuneration or fees or commission by whatever name called will be taxable under the head ‘Profit and gains from business or profession’ and tax would be deducted under Section 194J.

3.2-2. Comments After analysing above mentioned provisions of Income-tax Act and judicial decisions, it can be inferred that if the relationship of master and servant exists between the company and the director, only then a director can be treated as an employee. It is immaterial whether the director is the Managing director or Independent director.

3.3. Provisions of the erstwhile service-tax law Even in the erstwhile service tax regime, services rendered by an employee to the employer in the course of or in relation to his employment were outside the scope of service tax.Thus, no service tax was levied where the remuneration was paid for routine work but not for the consultancyservices. To substantiate this position, we have a few judgments of various tribunals and clarifications:

3.3-1. Judicial Pronouncements

a) Allied Blenders and Distillers (P.) Ltd. v. CCE & ST It was held that where assessee-company paid remuneration to its the whole-time directors for managing day-to-day affairs of the company and made necessary deductions on account of Provident fund, Professional Tax and TDS as applicable and declared these directors to all statutory authorities as employees of the company, remuneration paid to them was nothing but salary and assessee was not required to discharge service tax on remuneration paid to the directors.

b) Nrb Industrial Bearings Pvt. Ltd Versus CCE & ST Similar view has been taken in this case as well. In this case, the person was appointed as a Managing Director and salary was paid to him as per MOA and AOA. Forms filed before ROC, has mentioned salary and perquisites payable/paid to the managing director. Since no evidence was produced by the department which provides that remuneration was not for routine work but for the consultation provided, therefore, service tax not leviable on salary paid to the managing director.

3.3-2. Departmental Circulars

a) The CBIC clarified that the amount paid by the companies to Managing Director/Directors (Whole-time or Independent) even if termed as commission, is not ‘commission’ within the scope of business auxiliary service and, hence, service tax would not be leviable on such amount. It further clarified that Managing Director/Directors (Whole-time or Independent) being part of the Board of Directors, perform management function and not a consultancy or advisory function. Thus, the payments made by Companies to Directors could not be termed as payments made for providing the management consultancy service.

b) The MCA issued a circular about the applicability of Service-tax on commission payable to Non-Whole Time Directors of a company under Section 309(4) of The Companies Act, 1956. The Non-Whole Time Directors of the Company are presently not covered under the exempted list and, thereby, the sitting fee/commission payable to them by the company is liable to Service Tax. Thus, it can indirectly be inferred that the sitting fee/commission paid to Whole Time Directors by the company shall not attract Service tax.

3.4. Conclusion Based on the principles and jurisprudences cited above under Companies Act, Income-tax Act and erstwhile Service tax regime, it can be concluded that the consideration (except sitting fees) paid to the directors engaged in whole time employment with the company will be treated as part of the salary, and will be excluded from the ambit of GST. The sitting fees paid or payable to the independent directors should be brought within the ambit of GST. It appears that the AAR, Rajasthan had not evaluated the issue from the view-point of such principles. It just placed its reliance on the notification issued under the RCM. With due respect, this ruling requires re-consideration. Taxability of director’s remuneration under the GST should be determined on the basis of the fact whether the director is involved in routine work of management or not.

Where Lions Club collects fee from its members in form of entrance fee and annual

Where Lions Club collects fee from its members in form of entrance fee and annual membership fee and spends same for meeting administrative expenses and towards organising leadership programme for direct and indirect benefits of members, transaction between Lions Club and its members is nothing but supply and accordingly will attract GST – Assistant Commissioner, Central Tax v. Lions Club of Poona Kothrud – [2020] 115 taxmann.com 168 (AAAR-MAHARASHTRA)

Clarification on Refund related issues The Central Board of Indirect Taxes &

Clarification on Refund related issues

The Central Board of Indirect Taxes & Customs vide Circular No.135/05/2020-GST ,dated 31st March, 2020 has issued clarification in respect of some of the issues relating to GST refunds. A summary of the same is reproduced below:-

• Removal of restriction of Bunching of refund claims across Financial Years:-

It has been decided to remove the restriction on clubbing of tax periods across Financial Years. Accordingly, circular No. 125/44/2019-GST dated 18.11.2019 stands modified to that extent i.e. the restriction on bunching of refund claims across financial years shall not apply. Therefore, bunching of financial year would be allowed.

• Refund of accumulated input tax credit (ITC) on account of reduction in GST Rate:-

It has been clarified that refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.

That is, refund of unutilized ITC is not admissible on account of inverted duty structure where the inversion is due to change in the GST rate on the same goods.

• Change in manner of refund of tax paid on supplies other than zero rated supplies:-

Any refund of tax paid on supplies other than zero rated supplies will now be admissible proportionately in the respective original mode of payment i.e. in cases of refund, where the tax to be refunded has been paid by debiting both electronic cash and credit ledgers (other than the refund of tax paid on zero-rated supplies or deemed export), the refund to be paid in cash and credit shall be calculated in the same proportion in which the cash and credit ledger has been debited for discharging the total tax liability for the relevant period for which application for refund has been filed. Such amount, shall be accordingly paid by issuance of order in FORM GST RFD-06 for amount refundable in cash and FORM GST PMT-03 to re-credit the amount attributable to credit as ITC in the electronic credit ledger.

• Guidelines for refunds of Input Tax Credit under Section 54(3):-

It has been decided that the refund of accumulated ITC shall be restricted to the ITC as per those invoices, the details of which are uploaded by the supplier in FORM GSTR-1 and are reflected in the FORM GSTR-2A of the applicant. Accordingly, para 36 of the circular No. 125/44/2019-GST, dated 18.11.2019 stands modified to that extent.

• New Requirement to mention HSN/SAC in Annexure ‘B’:-

It has been recommended that a column relating to HSN/SAC Code should be added in the statement of invoices relating to inward supply as provided in Annexure–B of the circular No. 125/44/2019- GST dated 18.11.2019 so as to easily identify between the supplies of goods and services.

The issue has been examined and considering that such a distinction is important in view of the provisions relating to refund where refund of credit on Capital goods and/or services is not permissible in certain cases, it has been decided to amend the said statement. Accordingly, Annexure-B of the circular No. 125/44/2019-GST, dated 18.11.2019 stands modified to that extent.

A suitably modified statement format has been prescribed for applicants to upload the details of invoices reflecting in their FORM GSTR-2A. The applicant is, in addition to details already prescribed, now required to mention HSN/SAC code which is mentioned on the inward invoices. In cases where supplier is not mandated to mention HSN/SAC code on invoice, the applicant need not mention HSN/SAC code in respect of such an inward supply.

2020 (4) TMI 67 - AUTHORITY FOR ADVANCE RULING, UTTARAKHAND IN RE: M/S. RAJEEV BANSAL AND

2020 (4) TMI 67 – AUTHORITY FOR ADVANCE RULING, UTTARAKHAND

IN RE: M/S. RAJEEV BANSAL AND SUDERSHAN MITTAL

Business Transfer Agreement – Applicability of exemption Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 – going concern which consists of transferring under-construction project – HELD THAT:- The acquisition of goods/ services for commencement of business is covered under the said definition. A transfer of a business as a going concern is the sale of a business including assets. In terms of financial transaction ‘going concern’ has the meaning that at the point in time to which the description applies, the business is live or operating and has all parts and features necessary to keep it in operation. Thus Transfer of a going concern’ in a simple way can be describe as transfer of a running business which is capable of being carried on by the purchaser as an independent business.

In the present case, the applicant is carrying on the business of constructing residential/commercial complexes and selling thereof and the applicant firm come into existence particularly for the said project. Further on perusal of the sale deed dated 24.10.2019, we find that the applicant has sold the under-construction building, as a whole, situated at village- Manoharpur, Pargana-Jwalapur, District-Hardwar with its all assets and transfer the rights of the same to the buyer including the approved map from the competent authority. The buyer has purchased the under-construction building/business to carry on the same kind of business as the purchaser themselves engaged in constructing residential/commercial complexes and selling thereof. Further as on date there is no series of immediately consecutive transfers of the said business.

Thus, the applicant has transfer the business as a going concern to M/s. Ronav Infrastructure and it may treated as supply of services and as per serial no. 2 of the Notification No.12/2017-CentraI Tax (Rate) dated 28.06.2017 (as amended from time to time), the same is exempted from levy of GST as on date.

No.- Ruling No. 10/2019-20 in Application No. 09/2019-20

Govt. exempts levy of GST on goods supplied by outlets at

Govt. exempts levy of GST on goods supplied by outlets at International Airports, to outgoing International Tourists

CBIC has exempted any supply of goods to an outgoing international tourists made by a retail outlets established in the departure area of international airports, beyond the immigration counters from payment of IGST along with Cess. This notification would be effective from July 1, 2019 [Notification No. 11/2019-Integrated Tax (Rate)]

Retail outlets at international airports are specified as class of persons who shall be entitled to claim refund

CBIC has specified retail outlets established at the departure area of international airports, beyond the immigration counters, making tax free supply of goods to outgoing international tourists, as class of persons who shall be entitled to claim refund of applicable central tax paid on inward supply of such goods. This notification would be effective from July 1, 2019 [Notification No. 11/2019-Central Tax (Rate)]

CBIC prescribes procedure for filing & processing of refund claims by retail outlets established at Airports

CBIC has specified conditions, manner and procedure for filing and processing of refund claims of CGST, IGST,UTGST and Compensation cess paid on inward supplies which are subsequently supplied to outgoing international tourists by retail outlets established at the departure area of international airports [Circular No. 106/25/2019-GST]

invoice value to be considered as open market value in respect

invoice value to be considered as open market value in respect of goods supplied by one entity to another where recipient is eligible to claim full ITC.

Kansai Nerolac paints Ltd., In re – [2019] 106 taxmann.com 288 (AAR – MAHARASHTRA)

The Applicant is a manufacturer and seller of consumer and industrial paints to its customers from factory and depots located all over India. All depots and factories are engaged in supplying only taxable goods and, hence, all factories or depots are registered business entities under GST. The Applicant has sought advance ruling on whether supply of goods by one distinct entity to another distinct entity having same PAN can be valued at a price declared in the invoice?

The Authority for Advance Ruling, Maharashtra observed that the factories and depots of the company have same PAN but have distinct registration nos. under GST. Under GST, if a person obtains or is required to obtain more than one registration in more than one state then each registration shall be treated as distinct person. Thus, supply of paints to depot from manufacturing units or from one depot to another is considered as supply between distinct persons.

The Applicant is presently discharging the GST liability on transfer of goods from one distinct person to another distinct person where value of supply is taken as 110% of the manufacturing cost. As per valuation rules given in the CGST Rules, 2017 to determine the value for transactions undertaken by the distinct persons, ‘open market value’ can be taken as value of supply of goods or services. Further, if the recipient is eligible for input tax credit (ITC), invoice value shall be deemed to be open market value of the goods. In this case, the applicant intends to issue invoice declaring value of supply liable to GST and recipient is eligible to claim ITC.

The Authority for Advance Ruling, Maharashtra held that invoice value to be considered as open market value in respect of goods supplied by one entity to another where recipient is eligible to claim full ITC.

Refund of CENVAT credit allowed where CENVAT account was debited with refund

Refund of CENVAT credit allowed where CENVAT account was debited with refund amount after filing of refund claim

Inguest Technologies Software (P.) Ltd. v. Commissioner of Central Tax – [2019] 106 taxmann.com 298 (Bangalore – CESTAT)

The Appellant was exporter of ‘Information Technology Software Services’. The appellant had filed a refund claim for refund of accumulated and unutilized CENVAT credit on various input services which were used for provision of output services exported without payment of tax. During the scrutiny of the refund claim, the department noticed that the appellant had not submitted documents as proof of reversal of refund claimed and declaration of non-carry forward of CENVAT credit to Tran-1 and, hence, rejected the refund claim.

The appellant filed an appeal before the Commissioner (Appeals) who also rejected the refund claim. The Appellant filed an appeal before Customs, Excise & Service Tax Appellate Tribunal(CESTAT).

The Appellant submitted that non–submission of documents was just a procedural lapse and would not affect the eligibility for claiming the refund. The refund claim was filed by it on 27.03.2018 and the amount towards refund claim was debited in CENVAT account on 31.03.2018, just three days after the date of filing the refund claim.

The CESTAT observed that the rejection of the refund by both the authorities on the ground that the appellant had not debited the CENVAT account before filing the refund claim was not sustainable in law The tribunal relied on judgment of the Mumbai Bench in the case of Sandoz Pvt. Ltd. where delay in debiting the CENVAT account after filing of refund claim was permitted. Further, the appellant had filed NIL TRAN-1 Return under GST and had not carried forward any input credit.

The CESTAT held that the appellant was entitled to refund claim of CENVAT credit and remanded the matter to the original authority with the direction to verify the documents relating to reversal of credit.

GST registration not mandatory in every state where only godowns are situated

Gandhar Oil Refinery (India) Ltd., In re – [2019] 106 taxmann.com 291 (AAR – MAHARASHTRA)

The Applicant is trading in Non coking Coal in various states. The applicant is importing coal from various ports and also purchases from Indian dealers in various states. The applicant has sought advance ruling on whether it requires separate registration in each State where it imports and stores the coal in godowns?

The Authority for Advance Ruling, Maharashtra observed that the applicant is importing the goods from various ports in India under GSTIN of the Head Office located in Mumbai and after importing the goods, they are stored at godowns in various States. Entire transactions of sale and purchase of coal are done from Head office and all the invoices are raised from the Head Office with Mumbai GSTIN on which IGST is charged. Moreover, the place of supply shall be the location of importer and in this case, the place of supply is Mumbai from where the applicant makes taxable supply of goods.

The Authority for Advance ruling, Maharashtra held that since the coal is only stored in godowns in various States and all transactions are done from the Head Office in Mumbai, the applicant is not required to obtain separate registration in each State.

SEBI bars NDTV promoters from accessing security market for 2 years New Delhi Television

SEBI bars NDTV promoters from accessing security market for 2 years

New Delhi Television Ltd., In re – [2019] 106 taxmann.com 187 (SEBI)

In the instant case, SEBI received a complaint against the promoters of NDTV. It was alleged that, promoters of the company concealed the information about loan agreement from the investors so that the investors continued to trade in the shares of company blissfully ignorant of the fact that the promoters of the company had already vested their voting rights to the extent of 30 per cent in favour of a third external party.

SEBI conducted an investigation which revealed that loan agreements had been used to deceitfully transfer shares of NDTV up to 30 per cent to VCPL without the knowledge of NDTV board or its shareholders.

SEBI held that the promoters/directors had acted in flagrant breach of Code of Conduct. If the said information regarding loan agreements had been disclosed by the directors/promoters to the Board of Directors of company, then the company was bound to intimate the same to the stock exchanges which, in turn, would have disseminated such information on their websites for information of general public.

SEBI ruled that, the loan agreements were structured as a scheme to defraud the investors by camouflaging the information about the adversarial terms and conditions impinging upon the interest of company’s shareholders, thereby inducing innocent investors to continue to trade in the shares of company oblivious of such adversarial developments in the shareholding of the company.

Therefore, the promoters-directors were to be restrained from accessing securities market and dealing in securities during this period of restraint/prohibition; further the existing holding including units of mutual funds of promoters/directors would remain frozen. They were to be restrained from holding or occupying position as Directors or any Key Managerial personnel in company for a period of two years and in any other listed company for a period of one year.

NO EXTENSION OF FINANCIAL YEAR No extension of FY.

NO EXTENSION OF FINANCIAL YEAR

No extension of FY.

One notification is circulating among social media groups, pretending extension of FY.

The said notification is regarding amendments to Indian Stamps Act which were stated to be effective from 1st April,2020 now shall be effective from 1st July,2020

SECTION 7 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 - CORPORATE INSOLVENCY

SECTION 7 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 – CORPORATE INSOLVENCY RESOLUTION PROCESS

Initiation by financial creditor : Once CIRP petition filed by financial creditor for certain set of claim was admitted against principal borrower, then financial creditor cannot file second CIRP application for same set of claim against corporate guarantor – SEW Infrastructure Ltd. v. Mahendra Investment – [2020] 115 taxmann.com 356 (NCLT – Hyd.)

Clarification of issues in respect of issues under GST law for companies under Insolvency and

Clarification of issues in respect of issues under GST law for companies under Insolvency and Bankruptcy Code, 2016

The Central Board of Indirect Taxes & Customs vide Circular No.134/04/2020-GST ,dated 23rd March, 2020 has issued clarification in respect of various issues under GST law for the corporate debtors who are undergoing CIRP under the provisions of IBC and the management of whose affairs are being undertaken by IRP/RP under Insolvency and Bankruptcy Code, 2016 as under:-

1. How dues under GST for pre-CIRP period are be dealt?

In accordance with the provisions of the IBC and various legal pronouncements on the issue, no coercive action can be taken against the corporate debtor with respect to the dues for period prior to insolvency commencement date. The dues of the period prior to the commencement of CIRP will be treated as ‘operational debt’ and claims may be filed by the proper officer before the NCLT in accordance with the provisions of the IBC. The tax officers shall seek the details of supplies made / received and total tax dues pending from the corporate debtor to file the claim before the NCLT.

Moreover, section 14 of the IBC mandates the imposition of a moratorium period, wherein the institution of suits or continuation of pending suits or proceedings against the corporate debtor is prohibited.

2. Should the GST registration of corporate debtor be cancelled?

It is clarified that the GST registration of an entity for which CIRP has been initiated should not be cancelled under the provisions of section 29 of the CGST Act, 2017. The proper officer may, if need be, suspend the registration. In case the registration of an entity undergoing CIRP has already been cancelled and it is within the period of revocation of cancellation of registration, it is advised that such cancellation may be revoked by taking appropriate steps in this regard.

3. Is IRP/RP liable to file returns of pre-CIRP period?

No. In accordance with the provisions of IBC, 2016, the IRP/RP is under obligation to comply with all legal requirements for period after the Insolvency Commencement Date. Accordingly, it is clarified that IRP/RP are not under an obligation to file returns of pre-CIRP period.

During CIRP period

4. Should a new registration be taken by the corporate debtor during the CIRP period?

The corporate debtor who is undergoing CIRP is to be treated as a distinct person of the corporate debtor and shall be liable to take a new registration in each State or Union territory where the corporate debtor was registered earlier, within thirty days of the appointment of the IRP/RP. Further, in cases where the IRP/RP has been appointed prior to the issuance of notification No.11/2020 – Central Tax, dated 21.03.2020, he shall take registration within thirty days of issuance of the said notification, with effect from date of his appointment as IRP/RP.

5. How to file First Return after obtaining new registration?

The IRP/RP will be liable to furnish returns, make payment of tax and comply with all the provisions of the GST law during CIRP period. The IRP/RP is required to ensure that the first return is filed under section 40 of the CGST Act, for the period beginning the date on which it became liable to take registration till the date on which registration has been granted.

6. How to avail ITC for invoices issued to the erstwhile registered person in case the IRP/RP has been appointed before issuance of notification No.11/2020 – Central Tax, dated 21.03.2020 and no return has been filed by the IRP during the CIRP?

The special procedure issued under section 148 of the CGST Act has provided the manner of availment of ITC while furnishing the first return under section 40.

The said class of persons shall, in his first return, be eligible to avail input tax credit on invoices covering the supplies of goods or services or both, received since appointment as IRP/RP and during the CIRP period but bearing the GSTIN of the erstwhile registered person, subject to the conditions of Chapter V of the CGST Act and rule made thereunder, except the provisions of sub-section (4) of section 16 of the CGST Act and sub-rule (4) of rule 36 of the CGST Rules. In terms of the special procedure under section 148 of the CGST Act issued vide notification No.11/2020 – Central Tax, dated 21.03.2020. This exception is made only for the first return filed under section 40 of the CGST Act.

7. How to avail ITC for invoices by persons who are availing supplies from the corporate debtors undergoing CIRP, in cases where the IRP/RP was appointed before the issuance of the notification No.11/2020 – Central Tax, dated 21.03.2020?

Registered persons who are receiving supplies from the said class of persons shall, for the period from the date of appointment of IRP / RP till the date of registration as required in this notification or 30 days from the date of this notification, whichever is earlier, be eligible to avail input tax credit on invoices issued using the GSTIN of the erstwhile registered person, subject to the conditions of Chapter V of the CGST Act and rule made thereunder, except the provisions of sub-rule (4) of rule 36 of the CGST Rules.

8. Some of the IRP/RPs have made deposit in the cash ledger of erstwhile registration of the corporate debtor. How to claim refund for amount deposited in the cash ledger by the IRP/RP?

Any amount deposited in the cash ledger by the IRP/RP, in the existing registration, from the date of appointment of IRP / RP to the date of notification specifying the special procedure for corporate debtors undergoing CIRP, shall be available for refund to the erstwhile registration under the head refund of cash ledger, even though the relevant FORM GSTR-3B/GSTR-1 are not filed for the said period.

The instructions contained in Circular No. 125/44/2019-GST dt. 18.11.2019 stands modified to this extent.

[Circular No.134/04/2020-GST ,dated 23rd March, 2020]

Amendments in Central Goods & Services Tax Rules,2017

The Central Government vide Notification No. 16/2020- Central Tax dated 23rd March 2020; has made the following amendments in the Central Goods & Services Tax Rules, 2017 :-

1. Rule 8 : (Application for registration)

Insertion of sub-rule (4A):-

“(4A) The applicant shall, while submitting an application under sub-rule (4), with effect from 01.04.2020, undergo authentication of Aadhaar number for grant of registration.”

Comment: This sub-rule has been inserted to operationalize Aadhaar authentication for new taxpayers w.e.f. 1st April,2020.

2. Rule 9: (Verification of the application and approval.) Insertion of sub-rule w.e.f. 01.04.2020 in sub-rule (1):-

“Provided that where a person, other than those notified under sub-section (6D) of section 25, fails to undergo authentication of Aadhaar number as specified in sub-rule (4A) of rule 8, then the registration shall be granted only after physical verification of the principle place of business in the presence of the said person, not later than sixty days from the date of application, in the manner provided under rule 25 and the provisions of sub-rule (5) shall not be applicable in such cases.”

Comment: This rule has been inserted to restrict the new registrations only to those persons who have undergone authentication of Aadhaar No. or only after the physical verification of the premises w.e.f. 1st April 2020. It also clarifies that the provision of deemed approval of registration as specified in sub-rule (5) shall not apply in the above cases. This step has been taken to stop fraudulent persons to get registered under GST & to curb the fake invoicing and fraudulent passing of ITC by fraudulent businesses.

3. Rule 25: (Physical verification of business premises in certain cases.)

Substitution of Rule:- “ Where the proper officer is satisfied that the physical verification of the place of business of a person is required due to failure of Aadhaar authentication before the grant of registration, or due to any other reason after the grant of registration, he may get such verification of the place of business, in the presence of the said person, done and the verification report along with the other documents, including photographs, shall be uploaded in FORM GST REG-30 on the common portal within a period of fifteen working days following the date of such verification.”

Comment: This rule has been substituted to empower the proper officer to conduct the physical verification of the place of business of a person before the grant of registration, if aadhaar authentication is failed. Earlier, the rule provided for physical verification only after the grant of registration. This is again an important step to stop fraudulent persons to get registered under GST.

4. Rule 43:

(Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases.)

Substitution of sub-rule (1) with effect from the 1st April, 2020 :-

• For clause (c), the following clause shall be substituted, namely:-

“c) the amount of input tax in respect of capital goods not covered under clauses (a) and (b), denoted as ‘A, being the amount of tax as reflected on the invoice, shall credit directly to the electronic credit ledger and the validity of the useful life of such goods shall extend upto five years from the date of the invoice for such goods.’

Provided that where any capital goods earlier covered under clause (a) is subsequently covered under this clause, input tax in respect of such capital goods denoted as ‘A’ shall be credited to the electronic credit ledger subject to the condition that the ineligible credit attributable to the period during which such capital goods were covered by clause (a),denoted as ‘Tie’, shall be calculated at the rate of five percentage points for every quarter or part thereof and added to the output tax liability of the tax period in which such credit is claimed:

Provided further that the amount ‘Tie’ shall be computed separately for input tax credit of central tax, State tax, Union territory tax and integrated tax and declared in FORM GSTR-3B.

Explanation.- An item of capital goods declared under clause (a) on its receipt shall not attract the provisions of sub-section (4) of section 18, if it is subsequently covered under this clause.”

• For clause (d), the following clause shall be substituted, namely:-

“the aggregate of the amounts of ‘A’ credited to the electronic credit ledger under clause (c) in respect of common capital goods whose useful life remains during the tax period, to be denoted as ‘Tc’, shall be the common credit in respect of such capital goods:

Provided that where any capital goods earlier covered under clause (b) are subsequently covered under clause (c), the input tax credit claimed in respect of such capital good(s) shall be added to arrive at the aggregate value ‘Tc’;”;

Insertion of Explanation:-

• In clause (e), the following Explanation shall be inserted, namely:-

“Explanation.- For the removal of doubt, it is clarified that useful life of any capital goods shall be considered as five years from the date of invoice and the said formula shall be applicable during the useful life of the said capital goods.”;

Omission of Clause:-

Clause (f) shall be omitted.

5. Rule 80:

(Annual return.) Insertion of proviso in sub-clause (3):-

“Provided that every registered person whose aggregate turnover during the financial year 2018-2019 exceeds five crore rupees shall get his accounts audited as specified under subsection (5) of section 35 and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C for the financial year 2018- 2019, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner.”

Comment: This proviso has been inserted to increase the threshold limit for furnishing the Form GSTR-9C & thereby relaxing the said compliance for SME’s having turnover below Rs.5 Crores.

6. Rule 86 :

(Electronic Credit Ledger) Insertion of sub-rule (4A):-

“(4A) Where a registered person has claimed refund of any amount paid as tax wrongly paid or paid in excess for which debit has been made from the electronic credit ledger, the said amount, if found admissible, shall be re-credited to the electronic credit ledger by the proper officer by an order made in FORM GST PMT-03.”.

Comment: This sub-rule has been inserted to allow refund of excess tax/ wrongly paid tax claimed by registered person, by re-crediting the electronic credit ledger.

7. Rule 89 :

(Application for refund of tax, interest, penalty, fees or any other amount) Substitution of sub-rule (4) clause (C) :-

“Turnover of zero-rated supply of goods” means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both;”

Comment: This clause has been substituted to fix the ceiling for the value of the export supply for the purpose of calculation of refund on zero rated supplies.

8. Rule 92 :

(Order sanctioning refund) Insertion of sub-rule (1A):-

“(1A)Where, upon examination of the application of refund of any amount paid as tax other than the refund of tax paid on zero-rated supplies or deemed export, the proper officer is satisfied that a refund under sub-section (5) of section 54 of the Act is due and payable to the applicant, he shall make an order in FORM RFD-06 sanctioning the amount of refund to be paid, in cash, proportionate to the amount debited in cash against the total amount paid for discharging tax liability for the relevant period, mentioning therein the amount adjusted against any outstanding demand under the Act or under any existing law and the balance amount refundable and for the remaining amount which has been debited from the electronic credit ledger for making payment of such tax, the proper officer shall issue FORM GST PMT-03 re-crediting the said amount as Input Tax Credit in electronic credit ledger.”;

in sub-rule (4), after the words, brackets and figure “amount refundable under sub-rule (1)”, the words, brackets, figure and letter “or sub-rule (1A)”, shall be inserted;

in sub-rule (5), after the words, brackets and figure “amount refundable under sub-rule (1)”, the words, figures and letter “or sub-rule (1A)”, shall be inserted.

Comment: This sub-rule has been inserted to empower the proper officer to sanction refund in both cash and credit in case of excess payment of tax.

9. Rule 96 :

(Refund of integrated tax paid on goods or services exported out of India) Insertion of Explanation in in rule 96, in sub-rule (10),in clause (b) with effect from the 23rd October, 2017:-

“Explanation.- For the purpose of this sub-rule, the benefit of the notifications mentioned therein shall not be considered to have been availed only where the registered person has paid Integrated Goods and Services Tax and Compensation Cess on inputs and has availed exemption of only Basic Customs Duty (BCD) under the said notifications.”.

10. Rule 96B

(Recovery of refund of unutilised input tax credit or integrated tax paid on export of goods where export proceeds not realized) Insertion of Rule 96B:-

“96B. Recovery of refund of unutilised input tax credit or integrated tax paid on export of goods where export proceeds not realised. –

(1) Where any refund of unutilised input tax credit on account of export of goods or of integrated tax paid on export of goods has been paid to an applicant but the sale proceeds in respect of such export goods have not been realised, in full or in part, in India within the period allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), including any extension of such period, the person to whom the refund has been made shall deposit the amount so refunded, to the extent of non realisation of sale proceeds, along with applicable interest within thirty days of the expiry of the said period or, as the case may be, the extended period, failing which the amount refunded shall be recovered in accordance with the provisions of section 73 or 74 of the Act, as the case may be, as is applicable for recovery of erroneous refund, along with interest under section 50:

Provided that where sale proceeds, or any part thereof, in respect of such export goods are not realised by the applicant within the period allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), but the Reserve Bank of India writes off the requirement of realisation of sale proceeds on merits, the refund paid to the applicant shall not be recovered.

(2) Where the sale proceeds are realised by the applicant, in full or part, after the amount of refund has been recovered from him under sub-rule (1) and the applicant produces evidence about such realisation within a period of three months from the date of realisation of sale proceeds, the amount so recovered shall be refunded by the proper officer, to the applicant to the extent of realisation of sale proceeds, provided the sale proceeds have been realised within such extended period as permitted by the Reserve Bank of India.”. Comment: This Rule has been inserted to provide for recovery of refund on export of goods where export proceeds are not realized within the time prescribed under FEMA.

1. Rule 141 :

(Procedure in respect of seized goods ) Amendments in sub-rule (2):-

for the word “Commissioner”. the words “proper officer” shall be substituted.

Comment: This sub-rule has been amended to empower the proper officer to dispose of the seized goods or things & adjust the amount realized thereby against the tax, interest, penalty, or any other amount payable in respect of such goods or things in cases where the taxable person fails to pay such amount in respect of the said goods or things.

Earlier, only the Commissioner was empowered to take such action.

12. Amendment in GST Form:-

In FORM GST RFD-01, after the declaration under rule 89(2)(g), the following undertaking shall be inserted, namely

“UNDERTAKING

I hereby undertake to deposit to the Government the amount of refund sanctioned along with interest in case of non-receipt of foreign exchange remittances as per the proviso to section 16 of the IGST Act, 2017 read with rule 96B of the CGST Rules 2017.

Signature

Name – Designation / Status”.

[Notification No. 16/2020- Central Tax dated 23rd March 2020]

13. Exemption of specified class of persons from aadhar authentication.

The Central Government vide Notification No. 17/2020- Central Tax dated 23rd March 2020 has specified that the requirement of Aadhaar authentication w.e.f. 1st April,2020 for GST Registration shall not apply to a person who is not a citizen of India or to a class of persons other than the following class of persons, namely:–

(a) Individual;

(b) authorised signatory of all types;

(d) Karta of an Hindu undivided family

[Notification No. 17/2020- Central Tax dated 23rd March 2020]

14. Notification of date of Aadhaar authentication for registration

The Central Government vide Notification No.18/2020- Central Tax dated 23rd March 2020 has notified 1st April,2020 as the date from which an individual shall undergo authentication, of Aadhaar number, as specified in rule 8 of the Central Goods and Services Tax Rules, 2017 ,in order to be eligible for registration:

Provided that if Aadhaar number is not assigned to the said individual, he shall be offered alternate and viable means of identification in the manner specified in rule 9 of the said rules

[Notification No.18/2020- Central Tax dated 23rd March 2020]

15. Specified class of persons,other than individuals who shall undergo authentication, of Aadhaar number in order to be eligible for registration

The Central Government vide Notification No.19/2020- Central Tax dated 23rd March 2020 has notified that w.e.f. 1st April,2020, the following class of persons other than individuals who shall undergo authentication of possession of Aadhaar number, as specified in rule 8 of the Central Goods and Services Tax Rules, 2017, in order to be eligible for registration under GST:

(a) authorised signatory of all types;

(b) Managing and Authorised partners of a partnership firm; and

Provided that if Aadhaar number is not assigned to the said persons, they shall be offered alternate and viable means of identification in the manner specified in rule 9 of the said rules.

[Notification No.19/2020- Central Tax dated 23rd March 2020]

Press Release dated 24th March ,2020

Several relief measures relating to Statutory and Regulatory compliance matters across Sectors in view of COVID-19 outbreak

GST/Indirect Tax

1. Extension of Due Date of filing GSTR-3B for registered persons having Turnover less than 5 Crores:-Those having aggregate annual turnover less than Rs. 5 Crore, can file GSTR-3B for the month of Feb, March, April 2020 by the last week of June, 2020. No interest, late fee, and penalty to be charged.

2. Reduction of Interest Rate & relaxation of Penalty & Late fees for registered persons having Turnover of 5 Crores or above:-Others can file returns due in March, April and May 2020 by last week of June 2020 but the same would attract reduced rate of interest @9 % per annum from 15 days after due date (current interest rate is 18 % per annum). No late fee and penalty to be charged, if complied before till 30th June 2020.

3. Extension of date of opting for Composition Scheme:-Date for opting for composition scheme is extended till the last week of June, 2020. Further, the last date for making payments for the quarter ending 31st March, 2020 and filing of return for 2019-20 by the composition dealers will be extended till the last week of June, 2020.

4. Extension of Due Date of GST Annual Return for F.Y. 2018-19:-Date for filing GST annual returns of FY 18-19, which is due on 31st March, 2020 is extended till the last week of June 2020.

5. Extension of Due Date for issuing notices etc:-Due date for issue of notice, notification, approval order, sanction order, filing of appeal, furnishing of return, statements, applications, reports, any other documents, time limit for any compliance under the GST laws where the time limit is expiring between 20th March 2020 to 29th June 2020 shall be extended to 30th June 2020.

6. Issuance of Legal Circulars:-Necessary legal circulars and legislative amendments to give effect to the aforesaid GST relief shall follow with the approval of GST Council.

7. Extension of Payment date under SVLDRS:-Payment date under Sabka Vishwas Scheme shall be extended to 30th June, 2020. No interest for this period shall be charged if paid by 30th June, 2020.

Customs

8. 24X7 Custom clearance till end of 30th June, 2020

9. Due date for issue of notice, notification, approval order, sanction order, filing of appeal, furnishing applications, reports, any other documents etc., time limit for any compliance under the Customs Act and other allied Laws where the time limit is expiring between 20th March 2020 to 29th June 2020 shall be extended to 30th June 2020.

[Release ID: 1607942 dated 24th March,2020]

Extension of time limit for furnishing of the annual return for the financial year 2018-2019

The Central Government vide Notification No. 15/2020- Central Tax dated 23rd March 2020 has extended the time limit for furnishing of the annual return specified under section 44 of the said Act read with rule 80 of the said rules, i.e. Form GSTR-9 electronically through the common portal, for the financial year 2018-2019 till 30.06.2020.

[Notification No. 15/2020- Central Tax dated 23rd March 2020]

2020 (3) TMI 1088 - AUTHORITY FOR ADVANCE RULING,

2020 (3) TMI 1088 – AUTHORITY FOR ADVANCE RULING, KARNATAKA

IN RE: M/S. DEPARTMENT OF PRINTING, STATIONERY AND PUBLICATIONS

Exemption from GST – Printing and supply of Text books and Printed Materials, Karnataka Kaipidi, Annual Reports, Receipt Books, Measurement Books and Log books to Government Departments not registered under GST Act and Government Departments registered under GST Act – Printing & supply of Answer booklets, Visiting cards, Letter heads, Forms, Covers, File wrappers, invitation cards, Scribbling pads, Rubber stamps to Government Departments not registered under GST Act and Government Departments registered under GST Act – Printing and supply of Annual Reports and Receipt Books to Autonomous bodies – Supply of Log Books to Autonomous bodies – Printing & supply of Text books/ Karnataka kaipidis/Karnataka gazettes & Economic Survey of Government of Karnataka to Public & recognized book stalls – Supply of waste paper to public – Supply of old Machinery as Scarp to public – Supply of stationary Articles to Government Departments not registered under GST Act and Government Departments registered under GST Act – Transportation service received by applicant from GTA to Applicant is the recipient – Transportation service received by applicant from service provider other than GTA and courier agency to Applicant is the recipient – Printing and supply of Law reports to Honourable High Court of Karnataka – Issue of NOC to public – Printing and supply of Bus tickets to BMTC.

Supply to Various Departments of Government of Karnataka – whether the instant activity of printing and supply of text books & printed material / Annual Reports / receipt books/ measurement books & log books to other departments of same Government of Karnataka, who have not obtained separate registration under the GST Act, amounts to supply in terms of Section 7(1)(a) of the CGST Act 2017 or not? – HELD THAT:- The applicant claims exemption for the above said activity under entry No.8 of the Notification No.12/2017-Central Tax (Rate) dated 28.06.2017. This entry exempts only the services provided by the State Government to another State Government and hence the said entry is not relevant to the instant issue.

Supply of Goods to Various Departments of Government of Karnataka – supply of printed material i.e. answer sheets/visiting cards/ letter heads/ forms/covers/file wrappers/invitation cards/ scribbling pads / rubber stamps; content is provided by any of the Department of Government of Karnataka; physical inputs including paper belong to the applicant – HELD THAT:- The impugned activity of printing and supply of Answer sheets/visiting cards/ letter heads/ forms/covers/file wrappers/invitation cards/ scribbling pads / rubber stamps to other Departments of same Government of Karnataka who have not obtained separate registration under the GST Act does not qualify as supply in terms of Section 7(1)(a) of the CGST Act 2017 – However, if the said supply is done to the other Departments of Government of Karnataka who have obtained separate registration under the GST Act, said transaction qualify as supply in terms of Section 7(1)(a) of the CGST Act 2017 and liable to tax under GST.

Supply of Service to Autonomous bodies – printing & supply of Annual Reports / Receipt Books respectively, to autonomous bodies i.e. BRTS Company, Hubli-Dharwad Karnataka Electricity Regulatory Commission, Chamundeshwari Electricity Supply Company, Power Company of Karnataka Limited, BESCOM / HESCOM / MESCOM / KPTCL, Udupi / Bellary Nagarabhivrudi Pradhikara, Higher Education Council; content is provided by autonomous bodies – HELD THAT:- The impugned supply is that of services, classified under SAC 9989 and attracts 12% GST, in terms of Sl.No.27 of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017.

Supply of Goods to Autonomous bodies – Printing & supply of Log Books to autonomous bodies i.e. Karnataka Kolageri Abhivruddi mandali, Karnataka State Aids Prevention Society, Karnataka Vasathi Shikshana Samsthe, Karnataka Sarvajanika Arogya Samsthe – HELD THAT:- In the instant case, the applicant is engaged in supply of Log Books to autonomous bodies, where the content is not provided by the recipient but provided by any of the department of Government of Karnataka. The applicant supplies the Log Books itself out of the readily available stock and hence supply of the said items amounts to supply of goods – Log book is nothing but a register to maintain the details of movement of the vehicle; merits classification under Chapter Heading 4820 and gets covered under entry No.154 of Schedule III to Notification 01/2017-Central Tax (Rate) dated 28.06.2017 and thereby attracting GST A 18%.

Supply to Public & Recognised Book Stalls – printing & supply of Text books/ Karnataka kaipidis/Karnataka gazettes & Economic Survey of Government of Karnataka to Public & recognised book stalls – HELD THAT:- All the items in the instant issue, i.e. Text books/ Karnataka kaipidis/Karnataka gazettes & Economic Survey of Government of Karnataka, are nothing but printed books and merits classification under Chapter Heading 4901. Entry No.119 of Notification 02/2017-Central Tax (Rate) dated 28.06.2017 exempts the printed books i.e. goods falling under heading 4901. The impugned items are squarely covered under the said entry and hence are exempted.

Supply of waste paper etc. – supply of waste paper, old sweepings, old & obsolete forms and books, unusable articles as waste – HELD THAT:- In the instant case it could be inferred from the question that the applicant seeks advance ruling with regard to rate of GST applicable on the sale/ supply of waste paper. Waste & scrap paper is classified under heading 4707 and attract 5% GST.

Supply / sale of old machinery as scrap – supply of old machinery as scrap – HELD THAT:- In the instant case, the old printing machinery of ferrous material is intended to be sold/ supplied as scrap and the said old machinery, if sold as scrap, is considered as Ferrous Waste and Scrap. Thus the rate of GST applicable on the said Ferrous Waste and Scrap is 18% in terms of the aforesaid notification/entry number.

Supply of Stationery articles to Government Departments – pure agent services or not – HELD THAT:- In the instant case the applicant, being the part of Government of Karnataka, procures the required stationery and distributes the same to various departments, but does not procure any other services or goods or both for the supply / distribution of the stationery items and hence the applicant does not qualify to be a pure agent – the impugned activity of supply of stationary items to other Departments of same Government of Karnataka who have not obtained separate registration under the GST Act does not qualify as supply in terms of Section 7(1) (a) of the CGST Act 2017, as explained at para 10 (a) supra. However, if supply of stationary items is done to the other Departments of Government of Karnataka who have obtained separate registration under the GST Act, then the transaction qualify as supply in terms of Section 7(1)(a) of the CGST Act 2017 and liable to tax under GST.

Taxability of Transportation charges paid by the Applicant – whether they are liable to pay GST on the transportation charges paid to the service provider, in relation to transportation of the text books & other printed forms/PUC answer booklets? – The first situation i.e. the service provider is the GTA and also the applicant is receiver of the service of Transport of Goods by Road – HELD THAT:- In this case the applicant, being the receiver of the service, if falls under the specified 7 categories mentioned at column 4 of the Notification No. 13/2017 Central Tax (Rate) dated 28-06-2017, then the applicant is liable to pay GST on the service of GTA, under Reverse Charge Mechanism, in terms of the said Notification. The applicable rate of GST, on the said service is as per item (iii) of entry no 9 of the notification 11/2017 Central tax (Rate) dated 28/06/2017 as amended by the notification 20/2017 Central tax (Rate) dated 22/08/2017.

The applicant, in the second situation, if receives the service of transportation of goods [the text books & other printed forms/PUC answer booklets] by road from other than the GTA and Courier agency, such transportation service is exempted from payment of GST as per entry no. 18 of the notification 12/2017 Central Tax (Rate) dated 28/06/2017.

Whether they can deduct TDS on the transportation charges paid? – HELD THAT:- The applicant has to pay GST, under RCM, in the first situation and not required pay in the second situation. Therefore in either of the situation the applicant not paying the tax (GST) to the provider of the service and hence the question of deduction of TDS on the transportation charges paid does not arise.

Printing & Supply of “Indian Law Reports” to the Hon’ble High Court of Karnataka – HELD THAT:- In the instant case the applicant being a Government press, established by the Government of Karnataka, under the control and supervision of Primary & Secondary Education Secretariat and hence becomes part of Government of Karnataka. Applicant printing & supply the Indian Law Reports to the Hon’ble High Court of Karnataka, Bengaluru; content is provided by Hon’ble High Court of Karnataka; physical inputs including paper belong to the applicant. Therefore, in the instant activity, the principal supply is that of supply of printing service and transaction becomes supply of service – Therefore from the said entry it is observed that any service provided by the Government of Karnataka to business entity is excluded from exemption – thus, the printing & supply of Indian Law Reports to the Hon’ble High Court of Karnataka, Bengalure by the applicant is exempted om GST in terms of entry no 6 of the notification 12/2017 Central Tax (Rate) dated 28/06/2017.

Issuance of No Objection Certificate (NOC) to private persons, for change of name – HELD THAT:- The applicant being the Department of Government of Karnataka, issues the No Objection Certificate to the private individuals and collects an amount of ₹ 100/-. This activity of the applicant amounts to provision of service by the State Government to an individual. The services provided by the State Government, where the consideration for such service does not exceed five thousand rupees are exempted from GST, in terms of entry number 9 of the Notification No.12/2017 Central tax (Rate) dated 28/06/2017. Thus impugned activity of issuing NOC to the private individuals for the consideration of ₹ 100/- is exempted from GST.

Printing & Supply of Bus Tickets to BMTC, Bengaluru – HELD THAT:- In the instant case the applicant is involved in printing & supply of bus tickets; content is provided by the BMTC (recipient); physical inputs including paper belong to the applicant and hence the impugned activity amounts to supply of service, in terms of para 4 of the circular supra. The impugned supply is that of services, classified under SAC 9989 and attracts 12% GST, in terms of Sl.No.27 of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017.

No.- KAR ADRG 11/2020

GST rate on Maintenance, Repair and Overhaul (MRO) services in respect of aircrafts notified at 5% Notification No.

1. GST rate on Maintenance, Repair and Overhaul (MRO) services in respect of aircrafts notified at 5%

Notification No. 02/2020-Central Tax (Rate) dated 25-3-2020, Notification No. 02/2020-Integrated Tax (Rate) dated 25-3-2020 and Notification No. 02/2020-Union Territory Tax (Rate) dated 25-3-2020

CBIC has notified GST rate of 5% on maintenance, repair or overhaul services in respect of aircrafts, aircraft engines and other aircraft components or parts. Input tax credit shall be available on inward supplies. The said rate of 5% will be effective from April 1, 2020.

2. Govt. notifies uniform GST rate of 12% on all matchsticks & 18 % on all telephone sets

Notification No. 03/2020-Central Tax (Rate) dated 25-3-2020, Notification No. 03/2020-Integrated Tax (Rate) dated 25-3-2020 and Notification No. 03/2020-Union Territory Tax (Rate) dated 25-3-2020

The rate of 5% on handmade safety matches and 18% on other than handmade has been made removed and uniform rate of 12% has been notified for all types of safety matches. Also, telephones for cellular networks or other wireless networks and its related parts shall now be taxable at rate of 18%.

3. Assessee to file refund application for IGST levied on ‘ocean freight’ component before Competent Authority: HC

Gokul Agro Resources Ltd. v. Union of India – [2020] 116 taxmann.com 1 (Gujarat)

The assessee filed a writ petition before the High Court of Gujarat to declare the Entry No. 10 of Notification No. 10/2017-Integrated Tax (Rate) dated 28-6-2017 levying tax on ocean freight as ultra-vires of the Act as well as the Constitution of India. The assessee also sought relief to grant refund of IGST paid pursuant to the above entry.

The issue was earlier decided in the case of Mohit Minerals (P.) Ltd. v. Union of India, where the Honourable High Court held that no tax under GST shall be levied on the ocean freight for the services provided by the person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India and to declare the said notification to be unconstitutional.

The assessee submitted that it had already deposited the amount of IGST on ocean freight and as the said notification was ultra-vires, it was entitled to refund of IGST paid by it.

The Honourable High Court relied on the above judgement and permitted the assessee to file refund application before the competent authority. The Honourable High Court also directed the competent authority to immediately look into the matter and pass an appropriate order in accordance with law considering the decision of this Court rendered in the case of Mohit Minerals (P.) Ltd.

Key Relief Measures announced by FM of India- COVID-19

The Hon’ble Finance Minister of India today announced several relief measures on statutory and regulatory compliance matters to mitigate large-scale economic distress caused by COVID 19 across the globe. In majority of the cases, the due dates falling in March 2020 have been extended till 30th June 2020.

Key highlights for each compliance are summarized below:

I. Income tax

Particulars

1. Due date to file ITR for F.Y. 2018-19

Existing 31st March 2020

Revised 30th June 2020

2. Due date for Aadhaar-PAN linking

Existing 31st March 2020

Revised 30th June 2020

3. Vivad se Vishwas scheme

No additional 10% amount, if payment made by June 30, 2020

4. Investment by Taxpayers to avail tax benefits for F.Y. 2019-20

Existing 31st March 2020

Revised 30th June 2020

5. Interest on delayed payment of advanced tax, self-assessment tax, regular tax, TDS, TCS, equalization levy, STT, CTT

made between 20th March 2020 and 30th June 2020 12 %/18 % per annum

( i.e. 0.75% per month instead of 1/1.5 percent per month) 9% per annum

(Reduction in interest upto 50%)

6. Due dates for various filings *

Falling between 20th March 2020 to 29th June 202—–>30th June 2020

(*) Filings include issue of notice, intimation, notification, approval order, sanction order, filing of appeal, furnishing of return, statements, applications, reports, any other documents and time limit for completion of proceedings by the authority and any compliance by the taxpayer including investment in saving instruments or investments for roll over benefit of capital gains under Income Tax Act, Wealth Tax Act, Prohibition of Benami Property Transaction Act, Black Money Act, STT law, CTT Law, Equalization Levy law, Vivad Se Vishwas law

I. GSTR 3B filing due date

A. Turnover 5 Crore and above

For the Month of February-20-Due date-4-04-20

For the Month of March-20-Due date-5-04-20

For the Month of April-20-Due date-4-06-20

if filed till due date-No interest & penalty

if filed beyond due date but before 30-06-20—9% interest & no penalty

beyond 30-06-20—-18% interest with late fees and penalty

B. Turnover less than 5 Crore

Month

1. February’20

2. March’20 Last week of June 20

3. April’20

without Interest, Late fee and Penalty

beyond 30-06-20—-18% interest with late fees and penalty

II. Composition Scheme

Date for opting for composition scheme is extended till the last week of June, 2020. Further, the last date for making payments for the quarter ending 31st March, 2020 and filing of return for 2019-20 by the composition dealers will be extended till the last week of June, 2020.

III. General Extension

Time limit for any compliance under the GST laws where the time limit is expiring between 20th March 2020 to 29th June 2020 shall be extended to 30th June 2020.

Necessary legal circulars and legislative amendments to give effect to the aforesaid GST relief shall follow with the approval of GST Council.

2020 (3) TMI 1120 - GUJARAT HIGH COURT ANKIT RAMCHANDRA KABRA VERSU

2020 (3) TMI 1120 – GUJARAT HIGH COURT

ANKIT RAMCHANDRA KABRA VERSUS STATE OF GUJARAT

Bail Application – offences punishable under Sections 132(1)(b) and 132(1)(c) of CGST Act – The applicant is arrested on 21.07.2019 and almost 55 days are over and complaint is yet not filed by respondent no. 2 against the present applicant. – HELD THAT:- Considering the offence as alleged in the FIR and also considering the nature of allegations made in the FIR, this is opined to be a fit case to exercise the discretion to enlarge the applicant on bail.

The application is allowed subject to conditions and the applicant is ordered to be released on bail.

M/S. HINDUSTAN COCA COLA PRIVATE LIMITED VERSUS ASSISTANT STATE TAX OFFICER,

M/S. HINDUSTAN COCA COLA PRIVATE LIMITED VERSUS ASSISTANT STATE TAX OFFICER, COMMISSIONER OF COMMERCIAL TAXES

Release of detained goods – section 129 of GST Act – classification of goods – whether the Officers of Kerala would have a jurisdiction to detain and seize the goods or at the best could have intimated the jurisdictional Officer in Karnataka to initiate proper proceedings against the petitioner in view of the report? – HELD THAT:- It is evident that Section 129 opens with a non obstante clause empowering the Officers to detain and seize the goods, if it found to be in contravention of any of the any of the provisions of the Act and release of the vehicles, as per the conditions, enumerated, therein.

In case of a bonafide dispute with regard to the classification between a transitor of the goods and the squad officer, the squad officer may intercept the goods and detain them for the purpose of preparing the relevant papers for effective transmission to the judicial assessing officers and nothing beyond. In the present case, it is a case of bonafide miscalculation as to whether the goods would be exigible to 12% or 28%.

The upshot of the reasoning aforementioned is that the impugned order of detention Ext.P3(c) and consequential notices are not sustainable and hereby quashed – goods are directed to be released to the petitioner with a further direction that the inspecting authority of Kerala would prepare a report and submit the same to the assessing authority, Karnataka for taking action – Petition allowed.

SECTION 5 OF THE INTEGRATED GOODS AND SERVICES TAX ACT, 2017 - LEVY AND COLLECTION OF TAX

SECTION 5 OF THE INTEGRATED GOODS AND SERVICES TAX ACT, 2017 – LEVY AND COLLECTION OF TAX

Where assessee filed writ petition seeking declaration of Entry No. 10 of Notification No. 10/2017-Integrated Tax (Rate), dated 28-6-2017 as being ultra vires of section 5(3) and also prayed for issuance of directions to Competent Authority to grant refund of amount of IGST already paid pursuant to said Entry, Entry No. 10 was to be declared as ultra vires of section 5(3) and further assessee was to be directed to prefer application for refund of amount before Competent Authority – Gokul Agro Resources Ltd. v. Union of India – [2020] 116 taxmann.com 1 (Gujarat)

26.03.2020 Following are the components of the Pradhan Mantri Garib Kalyan Package: —

26.03.2020

Following are the components of the Pradhan Mantri Garib Kalyan Package: —

PRADHAN MANTRI GARIB KALYAN PACKAGE

I. Insurance scheme for health workers fighting COVID-19 in Government Hospitals and Health Care Centres

• Safai karamcharis, ward-boys, nurses, ASHA workers, paramedics, technicians, doctors and specialists and other health workers would be covered by a Special insurance Scheme.

• Any health professional, who while treating Covid-19 patients, meet with some accident, then he/she would be compensated with an amount of Rs 50 lakh under the scheme.

• All government health centres, wellness centres and hospitals of Centre as well as States would be covered under this scheme approximately 22 lakh health workers would be provided insurance cover to fight this pandemic.

II. PM Garib Kalyan Ann (अन्न) Yojana

• 80 crore individuals, i.e, roughly two-thirds of India’s population would be covered under this scheme.

• Each one of them would be provided double of their current entitlement over next three months.

• This additionality would be free of cost.

Pulses:

• To ensure adequate availability of protein to all the above mentioned individuals, 1 kg per family, would be provided pulses according to regional preferences for next three months.

• These pulses would be provided free of cost by the Government of India.

III. Under Pradhan Mantri Garib Kalyan Yojana,

Benefit to farmers:

• The first instalment of Rs 2,000 due in 2020-21 will be front-loaded and paid in April 2020 itself under the PM KISAN Yojana.

• It would cover 8.7 crore farmers

IV. Cash transfers Under PM Garib Kalyan Yojana:

Help to Poor:

• A total of 20.40 crores PMJDY women account-holders would be given an ex-gratia of Rs 500 per month for next three months.

Gas cylinders:

• Under PM Garib Kalyan Yojana, gas cylinders, free of cost, would be provided to 8 crore poor families for the next three months.

Help to low wage earners in organised sectors:

• Wage-earners below Rs 15,000 per month in businesses having less than 100 workers are at risk of losing their employment.

• Under this package, government proposes to pay 24 percent of their monthly wages into their PF accounts for next three months.

• This would prevent disruption in their employment.

Support for senior citizens (above 60 years), widows and Divyang:

• There are around 3 crore aged widows and people in Divyang category who are vulnerable due to economic disruption caused by COVID-19.

• Government will give them Rs 1,000 to tide over difficulties during next three months.

MNREGA

• Under PM Garib Kalyan Yojana, MNREGA wages would be increased by Rs 20 with effect from 1 April, 2020. Wage increase under MNREGA will provide an additional Rs 2,000 benefit annually to a worker.

• This will benefit approximately 13.62 crore families.

V. Self-Help groups:

• Women organised through 63 lakhs Self Help Groups (SHGs) support 6.85 crore households.

1. Limit of collateral free lending would be increased from Rs 10 to Rs 20 lakhs.

VI. Other components of PM Garib Kalyan package

Organised sector:

• Employees’ Provident Fund Regulations will be amended to include Pandemic as the reason to allow non-refundable advance of 75 percent of the amount or three months of the wages, whichever is lower, from their accounts.

• Families of four crore workers registered under EPF can take benefit of this window.

Building and Other Construction Workers Welfare Fund:

• Welfare Fund for Building and Other Constructions Workers has been created under a Central Government Act.

• There are around 3.5 Crore registered workers in the Fund.

• State Governments will be given directions to utilise this fund to provide assistance and support to these workers to protect them against economic disruptions.

District Mineral Fund

• The State Government will be asked to utilise the funds available under District Mineral Fund (DMF) for supplementing and augmenting facilities of medical testing, screening and other requirements in connection with preventing the spread of CVID-19 pandemic as well as treating the patients affected with this pandemic.

Press Release : 2019-2020/2130 Objective:

Press Release : 2019-2020/2130

Objective:

(i) expanding liquidity in the system to function normally in the face of COVID-related dislocations;

(ii) reinforcing monetary transmission;

(iii) easing financial stress caused by COVID-19 disruptions; and

(iv) improving the functioning of markets in view of the high volatility experienced with the onset and spread of the pandemic

I. Liquidity Management

1. Targeted Long Term Repos Operations (TLTROs)

RBI will conduct auctions of targeted term repos of up to three years tenor of appropriate sizes for a total amount of up to ₹ 1,00,000 crore at a floating rate linked to the policy repo rate.

2. Cash Reserve Ratio

Reduce to 3.0 per cent of net demand and time liabilities

Reduce the requirement of minimum daily CRR balance maintenance to 80 per cent effective

3. Marginal Standing Facility

In case of Marginal Standing Facility the limit has been increased to 3 per cent with immediate effect

These three measures relating to TLTRO, CRR and MSF will inject a total liquidity of ₹ 3.74 lakh crore to the system.

4. Widening of the Monetary Policy Rate Corridor

Widen policy rate corridor to 65 bps.

II. Regulation and Supervision

5. Moratorium on Term Loans

• All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (“lending institutions”)

• permitted to allow

• a moratorium of three months on payment of instalments in respect of

• all term loans outstanding as on March 1, 2020.

6. Deferment of Interest on Working Capital Facilities

• In respect of working capital facilities sanctioned

• in the form of cash credit/overdraft,

• lending institutions are

• permitted to allow

• a deferment of three months

• on payment of interest in respect of

• all such facilities outstanding as on March 1, 2020

7. Easing of Working Capital Financing

Lending institutions allowed to recalculate drawing power by reducing margins for loans based on for working capital.

MANAGEMENT SERVICES NOT TAXABLE AS ‘TECHNICAL SERVICES UNDER INDIA – UK TAX TREATY:

MANAGEMENT SERVICES NOT TAXABLE AS ‘TECHNICAL SERVICES UNDER INDIA – UK TAX TREATY: RULES AAR

Supply Management Services are not in the nature of fees for technical services because they do not meet ‘make available’ requirement under the India – UK Tax Treaty.

For a service to qualify ‘make-available’, the service should transmit technical knowledge, skill etc. allowing the recipient to utilize the knowledge or know-how on his own in the future without the aid of the service provider.

Services which are managerial in nature do not qualify as FTS under India – UK treaty.

Recently, the Authority for Advance Ruling (“AAR”) in the case of Cummins Ltd.1 has ruled that supply management service fees paid to a UK resident is not in the nature of Fees for Technical Services (“FTS”) under the India – UK double taxation avoidance agreement (“Tax Treaty”) because it does not meet the requirement of ‘make available’ as provided under the definition of FTS in the Tax Treaty. They also do not qualify as royalties under the Tax Treaty.

BACKGROUND

Cummins Limited (“Cummins”) is a company resident in the UK whereas Cummins Technology India Limited (“CTIL”) is a company resident in India. CTIL is engaged in the manufacture and sale of turbochargers which it purchases from third party suppliers in the UK and the US. In relation to these purchases, Cummins provides supply management services to CTIL under a Supply Management Service Agreement (“Agreement”). CTIL pays Cummins supply management service fees at 5% of the base prices charged by suppliers.

Cummins approached the AAR for a ruling on whether the payments made by CTIL to Cummins for supply management services should be taxable in India as FTS or royalty.

Scope of services under the Agreement

Under the Agreement, Cummins is responsible for the following:

finalising supply prices from UK and US based suppliers and ensuring market competitive pricing from them;

ensuring it has necessary manufacturing capacities and infrastructure;

ensuring on-time delivery of components by suppliers to CTIL; and

ensuring strict compliance with standards, procedures and processes by suppliers.

RULING

The AAR held that the payments made by CTIL to Cummins are not in the nature of FTS under the Tax Treaty. It held that the supply management services do not meet the ‘make available’ requirement under the Tax Treaty for the payments to be considered as FTS. The AAR also held that such payments are not in the nature of royalties under the Tax Treaty. Accordingly, in the absence of Cummins having a Permanent Establishment (“PE”) in India, the payments received by the Cummins from CTIL should not be taxable in India. It based its ruling on the following:

1. Services do not ‘make available’ technical knowledge, experience, skill etc.: Article 13 of the Tax Treaty defines FTS as payments in consideration for rendering of “technical or consultancy services”. An added requirement to be met under the Tax Treaty is that the service must “make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design”.

For examining the scope of “make available” AAR relied on Karnataka High Court’s judgment in CIT v. De Beers India Pvt. Ltd.2 and the AAR’s ruling in Intertek Testing Services India (P) Ltd.3 In these cases, “make available” has been interpreted to mean that the service should transmit technical knowledge, skill etc. so that the payer of the service could derive an enduring benefit enabling him to utilize the knowledge or know-how on his own in the future without the aid of the service provider, even after the particular contract comes to an end.

AAR noted that under the Agreement, Cummins maintains contract supply agreements from the suppliers after identifying the products’ availability, capacity to produce and competitive pricing. Hence, the supply management services do not impart any technical knowledge and expertise to CTIL which would enable it to perform such services without the aid of Cummins. Accordingly, the payments for these services should not be considered as FTS as the requirement of ‘make available’ under the Tax Treaty is not met.

2. ‘Managerial services’ absent from FTS definition in UK treaty: The definition of FTS only includes “technical or consultancy services”. ‘Managerial services’ were excluded from the ambit of FTS in the Tax Treaty in the year 1994 and the clause relating to ‘make available was introduced.

AAR ruled that supply management services which are rendered under the agreement are purely managerial in nature. It placed reliance on an earlier AAR ruling in Measurement Technologies Ltd.4 where it had ruled that procurement services can neither be classified as technical or consultancy in nature nor as making available any technical knowledge, experience etc.

3. There is no scheme for tax avoidance: The Revenue had argued that the Cummins entered into the Agreement with CTIL only to take benefit of the Tax Treaty since FTS defined under the Income Tax Act, 1961 includes ‘managerial services’. Further, neither of the treaties with Canada, Portugal, UK and USA expressly include ‘managerial services’ in the definition of FTS. It also invoked Article 28C of the protocol under Tax Treaty which makes benefits under the Tax Treaty unavailable to transactions having their main purpose of obtaining treaty benefits.

The AAR, however, dismissed the objection of the Revenue and observed that Cummins is responsible for finalising supply prices from UK and US suppliers to Cummins Turbo Technologies worldwide, including CTIL. Hence, the Agreement with CTIL is not with the main purpose of avoiding tax.

4. Payments are not royalties under the UK treaty: The Payments do not qualify as royalties under Article 13 of the UK treaty because they are not related with the use of, or the right to use any copyright, patent, trademark, design or model, plan, secret formula, process etc.

5. Transfer Pricing not Applicable: Based on the ruling on the above points, the AAR briefly held that Transfer Pricing provisions will not apply in this case.

ANALYSIS

The AAR has followed a consistently held view on the scope of the ‘make available’ clause which is present in various treaties. This clause is found in Indian double tax avoidance treaties with countries like Australia, Canada, Cyprus, Malta, Netherlands, Singapore, UK and US. The scope of FTS in light of the ‘make available’ clause has been explained in the Memorandum of Understanding (“MoU”) in respect of the India – US treaty. Courts have upheld the import of the meaning as explained in the MoU to treaties with other countries which have the ‘make available’ clause. The treaty with Singapore also explains ‘make available’ as an act which “enables the person acquiring the services to apply the technology contained therein”. This meaning is now settled under the Indian jurisprudence and has been uniformly applied by various High Courts, Tribunal benches and the AAR.

Amazonite Steel Pvt. Ltd vs. UOI (Calcutta High Court)

Provisional Attachment u/s 83 of GST Act: Provisional attachment ceases upon expiry of one year. The authorities have acted in a blatantly highhanded and illegal manner by keeping the provisional attachments in a state of continuance. The failure is nothing short of being an act of highhandedness. Such actions of authorities is an obloquy and reprehensible. The action is in violation of the right to carry on business under Article 19(1) & deprivation of property under Article 300A. The Revenue shall pay costs of Rs. 5 Lakh.

Supply of basic amenities along with development of plot is a supply of service under works contract

Supply of basic amenities along with development of plot is a supply of service under works contract, liable to GST

Vidit Builders, In re – [2020] 115 taxmann.com 216 (AAR – MADHYA PRADESH)

The applicant is engaged in the business of real estate developer and entered into an agreement for the development of plot and provision of common facilities. The applicant has sought advance ruling on whether supply of basic amenities along with development of plot is a sale of land or classified under works contract?

The Authority for Advance Ruling observed that the applicant has entered into joint development agreement with the land owners wherein the applicant has been involved in the development of plots which also includes construction of concrete roads and compound walls, development of garden, construction of drain and water supply system and erection of electric poles, etc.

The service provided by the applicant is for development of site which includes civil construction and amenities in order to make it fit for the purpose of residence. The services provided are based on an agreement signed between the land owner and the applicant which comes under works contract. Hence, the primary role of the applicant is development of the land into residential plots and not sale of land. Moreover, the applicant has no right in the title of land and cannot be considered as seller of plots. Therefore, the applicant’s role is limited to assist landowners in the sale of plots and, hence, are service providers.

The Authority for Advance Ruling held that the supply of basic amenities along with development of plot is a supply of service covered under works contract and liable to GS

Foreign Airlines Companies exempted from filing GSTR-9C Notification No.

Foreign Airlines Companies exempted from filing GSTR-9C

Notification No. 9/2020-CGST, dated 16-3-2020

Specified foreign airlines companies shall not be required to furnish reconciliation statement in FORM GSTR-9C. However, statement of receipts and payments for the financial year in respect of its Indian Business operations, authenticated by CA is required to be submitted for each GSTIN by the 30th September of the year succeeding the financial year.

AO couldn't initiate recovery proceedings against director without establishing non-recovery from co. Ashita Nilesh Patel v.

AO couldn’t initiate recovery proceedings against director without establishing non-recovery from co.

Ashita Nilesh Patel v. ACIT – [2020] 115 taxmann.com 37 (Gujarat)

The assessee was a director in a company which failed to pay outstanding tax demand. The Assessing Officer (AO) observed that there were no recoverable assets in the name of the company. AO initiated recovery proceedings under section 179 against assessee by treating her jointly and severally liable for payment of such tax.

On writ, the HC held that the first requirement to attract the liability of director under section 179 is that the tax cannot be recovered from the company itself. Before initiating recovery proceedings against directors it is necessary for the revenue to establish that such recovery cannot be made against the company.

The perusal of notice issued by the AO reveals that same was totally silent as regards the condition precedent for taking action under section 179. In show-cause notice, there was no whisper of any steps had been taken against the company for recovery of the outstanding amount. Thus, the notice passed by the AO was quashed and set aside.

GST : Where Competent Authority vide order dated 6-12-2019

GST : Where Competent Authority vide order dated 6-12-2019 directed Bank Manager of assessee not to allow any debt, since there were no proceedings under sections 62, 63, 64, 67, 73 and 74 against assessee, impugned order attaching bank account of assessee deserved to be set aside

■■■

[2020] 114 taxmann.com 566 (Bombay)

HIGH COURT OF BOMBAY

Gehna Trading LLP

Union of India*

NITIN JAMDAR AND M.S. KARNIK, JJ.

WRIT PETITION NO. 167 OF 2020

JANUARY 30, 2020

Section 83 of the Central Goods and Services Tax Act, 2017 /Section 83 of the Maharashtra Goods and Services Tax Act, 2017 – Demands and recovery – Provisional attachment – Competent Authority vide order dated 6-12-2019 directed Bank Manager of assessee, where assessee held a bank account, not to allow any debt – Assessee filed writ petition seeking relief in this regard – It submitted that though impugned order did not refer to any provision of law, power for provisionally attaching bank account is under section 83 – Assessee further submitted that there were no proceedings under sections 62, 63, 64, 67, 73 and 74 against it as mentioned under section 83, which was necessary if attachment under section 83 was to be levied – Whether in view of judgment of Bombay High Court rendered in case of Kaish Impex Pvt. Ltd. v. UOI [Writ Petition No. 3145 of 2019, dated 20-1-2020]; wherein facts were identical to that of instant case, impugned order passed by Competent Authority attaching bank account of assessee deserved to be quashed and set aside – Held, yes [Para 4] [In favour of assessee]

(NR)

CASE REVIEW

Kaish Impex (P.) Ltd. v. Union of India [Writ Petition No. 3145 of 2019, dated 17-1-2020] (para 3) followed.

CASES REFERRED TO

Kaish Impex (P.) Ltd. v. Union of India [Writ Petition No. 3145 of 2019, dated 17-1-2020] (para 3).

Brijesh Pathak for the Petitioner. J.B. Mishra for the Respondent.

ORDER

1. By this Petition the Petitioner has challenged the action of the Respondents in provisionally attaching the bank account of the Petitioner.

2. On 6 December 2019 the Deputy Commissioner, Central Goods and Service Tax (CGST) informed the Branch Manager where the Petitioner holds a bank account that in view of the proceedings filed against one Yusuf Fauzdar Shaikh, proprietor of M/s. Fashion Creations, proceedings have been launched against the said taxable person and the Respondents were of the belief that amounts were being transferred to various persons, including the Petitioner. Hence, a direction was issued to the bank not to allow any debit.

3. Though the order does not refer to any provision of law, the learned Counsel for the Petitioner points out that the power for provisionally attaching the bank account is under section 83 of the Central Goods and Services Tax (CGST) Act, 2017. The learned Counsel for the Petitioner submitted that there are no proceedings under sections 62, 63, 64, 67, 73 and 74 against the Petitioner as mentioned under section 83 of CGST Act, which is necessary if attachment under section 83 is to be levied. The learned Counsel for the Petitioner relies upon the decision of this Court dated 17 January 2020 in Writ Petition No. 3145 of 2019 Kaish Impex (P.) Ltd. v. Union of India wherein this Court has observed thus :—

“13. Primary defence of the Respondents is that even if section 62, 63, 64, 67, 73 and 74 mentioned in section 83 of the Act are not referable to the case of the Petitioner, since a summons is issued to the Petitioner in pursuant to the inquiry initiated against M/s.Maps Global under section 67 of the Act, by the issuance of summons the proceedings get extended to the Petitioner also.

14. The analysis of section 83 of the Act will show that such interpretation is not permissible and not contemplated by the legislature. Section 83 read with Rule 159(1), and the form GST DRC-22, lay down a scheme as to how provisional attachment in certain cases is to be levied. Section 83 though uses the phrase ‘pendency of any proceedings’, the proceedings are referable to section 62, 63, 64, 67, 73 and 74 of the Act and none other. The bank account of the taxable person can be attached against whom the proceedings under the sections mentioned above are initiated. Section 83 does not provide for an automatic extension to any other taxable person from an inquiry specifically launched against a taxable person under these provisions. Section 83 read with section 159(2), and the form GST DRC-22 show that a proceeding has to be initiated against a specific taxable person, an opinion has to be formed that to protect the interest of Revenue an order of provisional attachment is necessary. The format of the order, i.e. the form GST DRC-22 also specifies the particulars of a registered taxable person and which proceedings have been launched against the aforesaid taxable person indicating a nexus between the proceedings to be initiated against a taxable person and provisional attachment of bank account of such taxable person.

15. Power to provisionally attach bank accounts is a drastic power. Considering the consequences that ensue from provisional attachment of bank accounts, the Courts have repeatedly emphasized that this power is not to be routinely exercised. Under section 83, the legislature has no doubt conferred power on the authorities to provisionally attach bank accounts to safeguard government revenue, but the same is within well-defined ambit. Only upon contingencies provided therein that the power under section 83 can be exercised. This power is to be used in only limited circumstances and it is not an omnibus power.

16. It is therefore not possible to accept the submission of the Respondents that even though specified proceedings have been launched against one taxable person, bank account of another taxable person can be provisionally attached merely based on the summons issued under section 70 to him.”

The facts of the present case are identical to that of the case of Kaish Impex Pvt. Ltd.

4. The Petitioner is entitled to succeed. Accordingly the Writ Petition is allowed. The order passed by the Respondent dated 6 December 2019 attaching the bank account of the Petitioner, details of which have been given in the Petition is quashed and set aside.

SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881 -

SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881 – DISHONOUR OF CHEQUE FOR INSUFFICIENCY ETC., OF FUNDS IN ACCOUNT

Where appellant had shown sufficient reasons for not being able to institute complaint under section 138 for dishonour of cheque within stipulated period, delay in instituting complaint was to be condoned – Birendra Prasad Sah v. State of Bihar – [2020] 114 taxmann.com 543 (SC

SECTION 129 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 -

SECTION 129 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 – DETENTION, SEIZURE AND RELEASE OF GOODS AND CONVEYANCES IN TRANSIT

Section 129, read with section 130, of the Central Goods and Services Tax Act, 2017 /Section 129, read with section 130, of the Gujarat Goods and Services Tax Act, 2017 – Detention, seizure and release of goods and conveyances in transit – Competent Authority detained goods of assessee under transport under section 129(1) and issued show cause notice under section 130 to driver of vehicle – Assessee filed writ petition contending that order of detention was totally silent as regards discrepancy noticed after physical verification of goods and conveyance and notice under section 130 had to be issued to person who contravened provisions of CGST Act, whereas in instant case notice had been issued to driver, who would not be proper person to answer such show cause notice – Whether notice was required to be issued on GST Authorities – Held, yes [Para 2][In favour of assessee]

Debt acknowledged after expiry of 3 yrs. isn't sufficient to keep debt alive or to constitute

Debt acknowledged after expiry of 3 yrs. isn’t sufficient to keep debt alive or to constitute cause of action

Munish Kumar Bhunsali v. Kotak Mahindra Bank Ltd. – [2020] 114 taxmann.com 413 (NCL-AT)

Application filed under section 7 by Bank was admitted and Corporate Insolvency Resolution Process (CIRP) was initiated against appellant-corporate debtor.

The Appellant contended that date of default was 30-9-2015 whereas application was filed on 30-1-2019, i.e., three years after occurrence of default; therefore, same was barred by limitation.

The Appellant further contended that one time settlement letter dated 12-12-2018 relied upon by bank was barred by the Evidence Act, 1872 and moreover even if said OTS offer was admissible, it was necessary that alleged admission must be made during period of three years for a continuous cause of action.

Therefore, it could not be denied that an acknowledgement given after expiry of three years was not sufficient to keep debt alive and just sending a letter to settle issue did not amount to acknowledgement.

In view of fact that account of corporate debtor was declared as NPA on 30-9-2015, CIRP application filed by bank on 31-1-2019 was barred by limitation. Therefore CIRP order was to be set aside in furtherance of substantial cause of justice and application filed by bank under section 7 was to be dismissed.

Financial creditor who failed to pay amount as per

Financial creditor who failed to pay amount as per agreement couldn’t claim that debtor defaulted in paying debt

SKP Labs (P.) Ltd. v. Panyam Cements and Mineral Industries Ltd. – [2020] 114 taxmann.com 254 (NCLT – Hyd.)

In instant case, the corporate debtor entered into joint development agreement with X Ltd. for construction of residential apartments over its properties and subsequently entered into an agreement with petitioner for allotment of ten flats/apartments from its share of developed project to petitioner or its assignees.

According to petitioner, corporate debtor did not deliver all ten apartments as agreed which constituted default in payment of financial debt. Hence, it filed application under section 7 of the Insolvency and Bankruptcy Code, 2016.

The Corporate debtor contended that petitioner having not paid full amount as agreed under agreement could not expect corporate debtor to execute and deliver possession of all flats agreed thereunder and could not claim that there was default in payment of financial debt.

The amount raised by corporate debtor for forward sale would be ‘financial debt’ under section 5(

of the Insolvency and Bankruptcy Code, 2016 and, hence, petitioner would be a financial creditor under section 5(7) of the Code. However, financial creditor having not adhered to terms of agreement could not claim that corporate debtor owed a financial debt to it and defaulted in its repayment. Therefore, Corporate Insolvency Resolution Process (CIRP) petition was liable to be rejected.

Contribution to EPF deposited before due date of filing of return

Contribution to EPF deposited before due date of filing of return couldn’t be disallowed: ITAT

All Saints School v. ITO (Exemption) – [2019] 105 taxmann.com 149 (Delhi – Trib.)

Assessing Officer found that the assessee had deposited certain amount towards Employees Provident Fund. Due to delay in deposit of employees provident fund, he disallowed Rs. 1.39 lakhs under section 36(1)(va), read with section 2(24)(x).

The Delhi ITAT held that payment made prior to due date of filing of return prescribed under section 139(1) could not be disallowed under section 36(1)(va), read with section 2(24)(x). Therefore, if the deposits towards employee’s provident fund were made prior to due date of filing of return under section 139, no disallowance under section 36(1)(va) could be made.

Putting various ingredients in ‘Paan’ leaf amounts to manufacture

Putting various ingredients in ‘Paan’ leaf amounts to manufacture under Maharashtra VAT

Shokeen Pan Shop, In re – [2019] 106 taxmann.com 133 (AAR – MAHARASHTRA)

The Applicant is selling pan, pan masala, cigarettes from his shop. The Applicant has sought advance ruling to determine whether the activity of putting various ingredients together on a ‘Paan’ leaf for customer amounts to manufacture as per Maharashtra VAT?

The Authority for Advance Ruling, Maharashtra observed that the paan leaf purchased by the applicant and the paan being sold by him are not the same and are two different commercial products. After purchasing the paan leaf, different processes are carried out, such as stalk and tip of the leaves are cut off and then those are kept in water to make them soft. As per the choice of the customer, various ingredients are added to the paan leaf to make it appetizing. Therefore, Paan leaves initially purchased in raw form become different commodities after ingredients are added to those.

The Authority for Advance Ruling, Maharashtra held that the Paan leaves sold by the applicant after addition of various ingredients cannot be termed as resale but amounts to manufacture under Maharashtra VAT.

SECTION 2(30) OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017

SECTION 2(30) OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 – SUPPLY

Composite supply : Where applicant is running sweetshop and a restaurant in two distinctly marked separate parts of same premises and is also maintaining separate accounts as well as separate billings for two types of business, sale of sweets, namkeens, cold drinks and other edible items through restaurant will be treated as ‘composite supply’ with restaurant supply being principal service and existing GST rates on restaurant service will also be applicable on all such sales and no input tax credit will be allowed – Kundan Mishthan Bhandar, In re – [2019] 105 taxmann.com 364 (AAAR-UTTARAKHAND)

SECTION 7 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 – SUPPLY

Scope of : Where applicant is running sweetshop and a restaurant in two distinctly marked separate parts of same premises and is also maintaining separate accounts as well as separate billings for two types of business, sale of sweets, namkeens, cold drinks and other edible items from sweetshop counter will be treated as supply of goods with applicable GST rates of items being sold and input tax credit will be allowed on such supply – Kundan Mishthan Bhandar, In re – [2019] 105 taxmann.com 364 (AAAR-UTTARAKHAND)

SECTION 77 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 -

SECTION 77 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 – DEMAND AND RECOVERY

Where petitioner had inadvertently paid tax under head CGST, instead of IGST, and as such it was not a case of short payment and this mistake had occurred in early phase of implementation of GST, petitioner could not have been saddled with liability to pay interest on such amount – Shree Nanak Ferro Alloys (P.) Ltd. v. Union of India – [2020] 114 taxmann.com 302 (Jharkhand)

SECTION 11AA OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 -

SECTION 11AA OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 – COLLECTIVE INVESTMENT SCHEME

Where company VBDP and its directors had mobilized funds from investors through different land/plot allotment scheme which satisfied four requirements of a collective investment scheme as defined in section 11AA, since these schemes were being carried out without obtaining registration from SEBI in violation of section 12(1B), company VBDP and its directors were to be directed to refund illegally mobilised funds to investors and were also to be restrained from accessing securities market – Vayaa Builder and Developers (P.) Ltd., In re – [2020] 114 taxmann.com 624 (SEBI)

SECTION 50 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 -

SECTION 50 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 – PAYMENT OF TAX

Interest on delayed payment : Delhi High Court in case of M/S Landmark Lifestyle v/s Union of India & ORS., has granted stay on recovery of interest amount on gross GST Liability where there was delay in filing of GST return – Landmark Lifestyle v. Union of India – [2019] 105 taxmann.com 354 (Delhi)

Business Connection in India - Changing the Rule of Game In recent times

Business Connection in India – Changing the Rule of Game

In recent times, it has been observed that India is one of the most proactive country to take steps to tax digital economy in domestic law. Continuing with this effort, the Finance Bill 2020, the ambit of business connection has been proposed to widen with insertion of Explanation 3A to section 9(1) of the Income Tax Act, 1961 (the Act). Further in absence of agreement on number of users, threshold amount etc. at the global level, Finance Bill 2020 proposed to defer Significant Economic Presence (SEP) introduced by Finance Act, 2018 by a year to Assessment Year (‘AY’) 2022-23 and onwards with certain modification to its definition.

This article attempts to understand the India’s quest to tax the digital economy.

India’s steps towards taxing digital economy:

In this world of digital economy, the conventional manner of doing business has changed significantly. We are in the age of technological advancement where exists no boundaries. Internet, e-commerce, smart phones, cloud computing and many more digital technologies have changed the way of living and so does means of doing business.

As conventional business methodologies have changed, changes in conventional methods of taxation became necessary. In current scenario, businesses are more dependent on digital technology for its survival in the market. In a world of virtualization, taxation based on physical presence results in no or low taxes for such digital businesses. India with its second largest population in this world, has one of the biggest consumer base, which no multination corporations (‘MNCs’) can opt to ignore to expand its footprints through digital means.

Base Erosion and Profit Shifting (BEPS) action plan 15, under the Organisation for Economic Co-operation and Development (OECD) /G20 framework introduced Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) which offers solutions for governments to plug loopholes in international tax treaties by transposing results from the BEPS project into bilateral tax treaties worldwide. At present more than 125 countries are part of this inclusive framework. The intent of the MLI is to make amendments in the treaty agreements to tackle the loopholes in international taxation by incorporating measures suggested by BEPS action plans. One such measure is emergence of concept of Digital Permanent Establishment (‘PE’).

The Concept of PE under Double Tax Avoidance Agreements (DTAA) prima facie addresses on fixed place or physical appearance. Therefore, this new era poses a number of challenges with respect to taxation. To overcome these taxation challenges, OECD in its draft BEPS Action Plan 1 suggested following means to ensure fair allocation of profits:

Introduction of significant economic presence

Introduction of Equalisation levy

Introduction of withholding tax

India taking cue from BEPS Action Plan 1 introduced “Equalization Levy” vide Finance Act 2016. Equalization levy of 6% is charged on specified services received or receivable from a non-resident, on the consideration that is paid to that non-resident subject to prescribed conditions of such non-resident having PE or not. The “specified service” included online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement.

In order to increase the purview, India vide Finance Act 2018, introduced the concept of SEP in the Act. An explanation 2A was inserted to Section 9(1) of the Act to bring SEP in the ambit of “business connection” in India.

Under the said explanation, SEP was defined as:

i. Any transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India if the aggregate of payments arising from such transaction or transactions during the previous year exceeds the amount as may be prescribed; or

ii. Systematic and continuous soliciting of its business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means1.

What is SEP?

SEP looks at taxing enterprises based on various factors and not merely its physical presence. There are various criteria which may be considered for classifying an enterprise as having a SEP:

Revenue Based Criteria: Revenue earned from the customers in a country may be used to evaluate the economic presence in that particular country.

Digital Based Criteria: Usage of local domain name or having an internet website or such other digital platform through which businesses solicit as well as transact with customer base in a specific country may be used to evaluate the economic presence in that particular country.

User Based Criteria: The number of customers or users using digital services may be used to evaluate the economic presence in that particular country. A useful indicator for this is Monthly Active Users (MAU) which represents number of registered users who visit a company’s digital platform during a month.

Changes in SEP in Indian context

As you would have notice above, the applicability of SEP is primarily depending on the threshold of attributes agreed by the member nations. However, in absence of consensus among the OECD nations, the attributes for qualifying as SEP is not yet finalized and hence India is forced to defer its applicability by one year.

However, in this context it is interesting to note that India by Finance Bill 2020 propose to omit “through digital means” in explanation 2A of section 9(1) of the Act. This can be seen as India posturing to the OECD that in absence of any consensus on the SEP as per BEPS Action Plan 1, India will be open to tax MNCs who interacts with certain number of users in India which may be prescribed either through digital means or not. As of now, this may not have any effect on those MNCs who have double tax avoidance agreement (‘DTAA’) protection but it is matter of time when India based on its deep consumer base will re-negotiate the DTAA to widen the PE definition to target such MNCs.

Finance Bill 2020 – Widening the scope of business connection:

Finance Bill 2020 also propose to Insert explanation 3A in section 9(1) of the Act, where has been promulgated to expand the meaning of income arising from business connection to include the income from:

such advertisement which targets a customer who resides in India or a customer who accesses the advertisement through internet protocol (IP) address located in India.

sale of data collected from a person who resides in India or from a person who uses IP address located in India.

sale of goods or services using data collected from a person who resides in India or from a person who uses IP address located in India.

Thus, any non-resident earning income through advertisement, sale of data or e-commerce activities from a person residing in India or a person using Indian IP address shall constitute business connection in India.

Further, the exemption from ambit of business connection given for income generated through sale, distribution or exhibition of cinematographic films has been proposed to be omitted. This step seems to bring in the ambit of tax any subscription fees paid by Over the Top media players such as Netflix, Amazon Prime, Hulu etc. to the copyright holders of such films being non-residents.

Impact of this recent amendment in business connection:

In case of non-resident covered by DTAA: Where any non-resident covered by DTAA with India, earns any income in India through digital means as discussed above will be construed as income accrued and arose in India under section 9(1) of the Act. Though the domestic tax law has been amended to cover specified digital transactions, most of the treaty agreement still construe PE based on physical presence. Therefore, where as per the provisions of the Act a non-resident is construed to have a business connection in India, the non-resident can still resort to the provisions of relevant DTAA if they are more beneficial.

Though certain specified transactions which are not in ambit of provisions of PE under DTAA, they may attract equalization levy and be liable to pay tax in India subject to prescribed conditions.

In case of non-resident not covered by DTAA: In such a case,non-resident earning specified income will construe business connection in India and will be required to pay tax in India to the extent such income accrue and arise in India. It is pertinent to note here that Central Board of Direct Taxes has issued a draft circular for profit attribution rules in this regard, however same are yet to attain finalization.

It is interesting to note that in such cases, going forward any payment made to non-resident will require withholding tax at applicable rate from India tax perspective.

The path to future:

Digital PE is a concept under discussion and work in progress for both OECD and European Union. Countering the digital business techniques, UK has proposed to introduce a new 2% tax on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users from April 2020. Whereas some countries such as Israel, the Slovak Republic and India have unilaterally implemented legislation addressing the concept of digital PE in form of SEP in their domestic law.

India with introduction of Equalization Levy, SEP and its recent amendment to expand the scope of business connection has clearly shown its intent towards taxing the non-residents who are benefitted from the India economy via e-commerce and related transactions. India with its huge consumption base is negating its terms in international treaty negotiations and taking lead to change the rule in the game of digital economy taxation to ensure fair allocation of its share.

Impact of Limitation Act on Initiation of Corporate Insolvency

Impact of Limitation Act on Initiation of Corporate Insolvency Resolution Process – A Judicial Interpretation

1. The legislature has introduced the Limitation Act, 1963 (“Limitation Act”), for seeking relief within the specified time or to lose any such right once the said period has expired. Therefore, the statute of limitation is a caution for those who are lethargic about enforcing their legal rights.

It has been 3 years since the Insolvency & Bankruptcy Code, 2016 (“IBC” or “Code”) was introduced. The various amendments have made it evident that the Code is still in evolving stage. The Code aims to achieve revival of a distressed company in a time bound manner. Hence, the timeline plays a very important role in the whole process under IBC.

The Limitation Act constitutes a residuary Article, i.e., Article 137 which states that any other application for which no period of limitation is provided elsewhere in the Act, the said limitation will be considered as three years from the date when the right to apply accrues.

It is very interesting to note that there were perplexities among the parties with respect to the relevancy of the Limitation Act, 1963 for the “applications” filed under Section 7 or Section 9 of the IBC. The Judiciary, through a gamut of case laws, has duly understood, interpreted and explained the intention of the Legislature regarding applicability of the Limitation Act for initiation of the Corporate Insolvency Resolution Process (CIRP).

2. Relevant Case Laws

2.1 In the case of B.K. Educational Services (P.) Ltd. v. Parag Gupta & Associates [2018] 98 taxmann.com 213/150 SCL 293 the Apex Court held that “….since the Limitation Act is applicable to applications filed Under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred Under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.”

Therefore, as far as the Code is concerned, the intention of the legislature from the very beginning was to apply the Limitation Act to the National Company Law Tribunal (“NCLT”) and the National Company Law Appellate Tribunal (“NCLAT”) while deciding applications filed under Sections 7 and 9 of the Code and appeals therefrom. Section 433 of the Companies Act, which applies to the Tribunal and the Appellate Tribunal, expressly applies the Limitation Act to the Appellate Tribunal, the NCLAT, as well.

2.2 Further, in the case of Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank Ltd. [2019] 109 taxmann.com 198/156 SCL 539 (SC) Respondent No. 2 was declared as Non-Performing Asset (“NPA”) by the Cooperative Bank on 23.12.1999 and ultimately, a Recovery Certificate dated 24.12.2001 was issued. Later on, a Section 7 petition was filed by the Bank on 21.07.2017 before the NCLT and the same was admitted on 05.03.2018, stating that as the default continued, no period of limitation would be attracted. Further, an appeal was filed before the NCLAT, which resulted in dismissal with similar observations. The NCLAT held that the Recovery Certificate of 2001 plainly showed a default and that there was no statable defence. Finally, an appeal was made to the Apex Court which relied upon the observations made in the case of Balkrishna Savalram Pujari v. Shree Dnyaneshwar Maharaj Sansthan [1959] Suppl. (2) SCR 476 wherein it was observed that in order for Section 23 of the Limitation Act to be attracted, the wrongful act must have been a continuing wrong, thereby the Supreme Court held that”…when the Recovery Certificate dated 24.12.2001 was issued, this Certificate injured effectively and completely the Appellant’s rights as a result of which limitation would have begun ticking.”

2.3 Very interestingly, in the of Gaurav Hargovindbhai Dave v. Asset Reconstruction Co. (India) Ltd. [2019] 109 taxmann.com 395/156 SCL 397 (SC) Respondent No. 2 was declared as NPA on 21.07.2011 and the judgment of the Debt Recovery Tribunal proceedings was given on 10.06.2016. Thereafter, an independent proceeding was initiated by Respondent No.1 on 03.10.2017, through a Section 7 application. The NCLT applied Article 62 of the Limitation Act, which states that to enforce payment of money secured by a mortgage or otherwise charged upon immovable property, the limitation period is 12 years from the time the money sued for becomes due. The NCLT concluded that, since the limitation period was 12 years from the date on which the money suit has become due, the aforesaid claim was filed within limitation and, hence, admitted the Section 7 application.

However, the Apex Court considered the NPA date as the date of default and held that “…an application which is filed under Section 7, would fall only within the residuary Article 137. As rightly pointed out by learned Counsel appearing on behalf of the Appellant, time, therefore, begins to run on 21.07.2011, as a result of which the application filed under Section 7 would clearly be time-barred. So far as Mr. Banerjee’s reliance on para 7 of B.K. Educational Services (P.) Ltd. (supra), suffice it to say that the Report of the Insolvency Law Committee itself stated that the intent of the Code could not have been to give a new lease of life to debts which are already time-barred.”

2.4 Notably in, Jignesh Shah v. Union of India [2019] 109 taxmann.com 486/156 SCL 542 the Hon’ble Supreme Court rejected the arguments of the Respondent that cause of action for the purposes of limitation would include the commercial insolvency or the loss of substratum of the company. The Hon’ble Court observed that “…the trigger for limitation is the inability of the company to pay its debts. Undoubtedly, this trigger occurs when a default takes place, after which the debt remains outstanding and is not paid. It is this date alone that is relevant for the purpose of triggering the limitation for the filing of a winding-up petition. Though it is clear that a winding-up proceeding is a proceeding ‘in rem’ and not a recovery proceeding, the trigger of limitation, so far as the winding-up petition is concerned, would be the date of default….” Further, the Apex Court also held that the “…Winding up Petition filed on 21.10.2016, being beyond the period of three-years mentioned in Article 137 of the Limitation Act is time-barred, and cannot therefore be proceeded with any further.”

2.5 In the case of Sagar Sharma v. Phoenix ARC (P.) Ltd. [2019] 110 taxmann.com 50/156 SCL 707 the Hon’ble Supreme Court upheld the decision given in the case of B.K.Educational Services (P.) Ltd.’s case (supra) and held that “the date of coming into force of the IBC Code does not and cannot form a trigger point of limitation for applications filed under the Code. Equally, since “applications” are petitions which are filed under the Code, it is Article 137 of the Limitation Act which will apply to such applications.”

While the above judgements of the Hon’ble Supreme Court clarify the intention of the legislature, as far as limitation is concerned for initiating an application under section 7/Section 9 of the IBC, the trigger point of the same is to be dealt with very diligently by an applicant. As going by the a conjoint reading of the judgements mentioned supra, the issuance of Recovery Certificate, which injures the rights of a Debtor is to be considered as trigger point for calculating the limitation. Whereas the proceedings pending before the Debts Recovery Tribunal, as initiated by a Secured Creditor, which eventually may result in the Recovery Certificate being issued, is not considered as a continuous cause of action and, hence, the same is not taken into consideration while calculating the limitation.

The Supreme Court has also clarified that a One Time Settlement (“OTS”) proposal would also not constitute a continues cause of action and the trigger point will only be the date of NPA. In addition, one must also keep in mind the regime of Asset Reconstruction Companies (“ARC”) wherein the Bank transfers the debt to an ARC, once the said debt becomes a NPA. Therefore, going by the recent judgements, ARCs in India will have to be more proactive and vigilant to protect their rights under IBC, as practically when the debt is being assigned, the time to initiate an action against the Debtor under IBC has already begun. This may discourage the ARCs from actively taking up the debts which are age old, lying with the Banks and whose NPA dates have already crossed 3 years’ time.

Conclusion

3. In conclusion, while describing the nature of Limitation Act, the Apex Court in Gaurav Hargovindbhai Dave’s case (supra) stated:

“… It is well-settled that there is no equity about limitation – judgments have stated that often time periods provided by the Limitation Act can be arbitrary in nature.”

Insolvency Resolution plea initiated against guarantor on account of non-

Insolvency Resolution plea initiated against guarantor on account of non-payment of dues by borrower Company

Starwing Plastics & Chemicals (P.) Ltd. v. Baid Narrow Fab (P.) Ltd. – [2020] 114 taxmann.com 247 (NCLT – Ahd.)

In instant case, the applicant supplied PET and polyester super bright chips to company from time to time and company utilised goods without any complaint regarding quality/quantity but it failed to make full payments.

The Company as well as respondent approached applicant for settlement of matter. The Respondent stood as guarantor and company issued postdated cheques which were dishonored.

As the company failed to clear outstanding dues, applicant called upon respondent guarantor corporate debtor to clear such dues. Thereafter, the respondent failed to comply with demand notice. Since operational debt was due to applicant and no dispute had been raised by respondent, Corporate Insolvency Resolution Process (CIRP) was to be initiated

SECTION 83 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 -

SECTION 83 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 – DEMANDS AND RECOVERY

Provisional attachment : Where no proceedings were initiated/pending against petitioner under sections mentioned in section 83, order provisionally attaching bank account of petitioner merely on basis of summons issued under section 70 was without jurisdiction and was liable to be quashed and set aside – Kaish Impex (P.) Ltd. v. Union of India – [2020] 114 taxmann.com 300 (Bombay)

Services of laying down infrastructure for electricity

Services of laying down infrastructure for electricity distribution by State Transmission Utility are liable to GST

Uttar Pradesh Power Transmission Corporation Ltd., In re – [2020] 114 taxmann.com 309 (AAR-UTTAR PRADESH)

The Applicant is notified as the State Transmission Utility of Uttar Pradesh and is entrusted with transmission of electrical energy to various licensees. The applicant is required to lay down the infrastructure on the request of Distribution Company and recover the cost directly from customer for whom the infrastructure will be used. The ruling has been sought by the applicant regarding the applicability of GST on the service of laying down of infrastructure (referred as Deposit Work) undertaken by the applicant.

The Authority for Advance Rulings observed that under GST exemption has been provided on transmission or distribution of electricity by an electricity transmission or distribution utility. However, the services of deposit work and the transmission of electricity are not directly related to each other. The deposit work is neither integral nor ancillary to the service of transmission & distribution of electricity. Therefore, services of deposit work shall be treated as independent and not composite supply of service of transmission & distribution of electricity.

Hence, it is ruled by the Authority that the GST will be applicable on services of laying down infrastructure, i.e., deposit work for electricity distribution by State Transmission Utility.

Interest under GST to be levied only on delayed ‘cash’ component of tax & not on ‘ITC’ component:

1. Interest under GST to be levied only on delayed ‘cash’ component of tax & not on ‘ITC’ component: HC

Refex Industries Ltd. v. Sherisha Technologies (P.) Ltd. – [2020] 114 taxmann.com 447 (Madras)

The petitioner was a registered person under CGST Act and had filed belated returns for the period 2017-18. The department had demanded the interest due to delay in filing of returns and issued demand notices to banks seeking recovery from the bank accounts of the petitioner. The department started coercive recovery of the interest and therefore, the assessee filed the writ petition.

The petitioner objected that interest could only be demanded on the cash component stating that sufficient ITC was available with the department.

The court was of the view that the interest is payable on the delayed payment and the term ‘delayed’ connotes a situation where the state has been deprived of the funds whereas the availability of the ITC runs counter to this, as it connotes the enrichment of the State. The court also highlighted the amendment brought in section 51(1), which states that interest on tax payable shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.

Therefore, the writ petition was allowed and the impugned notices were set aside.