Analysis of Notifications and Circulars for Week ending 8th September 2024

The week of 2nd-8th September 2024 saw significant legal and regulatory updates. The Supreme Court ruled that amendments to Section 80DD of the Income Tax Act, made by the Finance Act 2022, will apply prospectively from April 1, 2023, rejecting any retrospective effect. In GST, the introduction of an Invoice Management System (IMS) was announced for matching records and ensuring proper Input Tax Credit (ITC) claims, effective from October 1. GST advisories were also issued, including biometric Aadhaar authentication for registrations and rulings on Input Tax Credit for rotary parking systems and services involving civil structures. Central Excise duty exemptions were granted on the export of fuel to Bhutan. Custom updates include rescinding exemptions on artworks and new procedures for handling export-oriented units. Additionally, SEBI modified reporting timelines for payment obligations on listed commercial paper. The Directorate General of Foreign Trade (DGFT) issued notifications on the extension of time for exporting Red Sanders wood, amendments to the import policies for Pet Coke, and the allocation of sugar export quotas under the TRQ scheme.

A. Income Tax

SC, Amendment of Section 80DD by Finance Act, 2022 cannot be given retrospective effect: Case of Ravi Aggarwal vs Union of India, SC Judgement Dated 20^th August 2024. Section 80DD, provide for a deduction to an individual or HUF, who is a resident in India, in respect of expenditure on medical treatment / insurance scheme for the maintenance, of a disabled dependent. One of the conditions for allowing deduction in respect of payment or deposit for insurance scheme, is that the payment of annuity or lump sum amount is made in the event of the death of the individual or member of HUF in whose name subscription has been made. Finance Act 2022 amended the provisions to allow the deduction, in case the payment of annuity or lump sum amount is made, also during the lifetime, i.e., upon attaining age of sixty years or more and where payment or deposit has been discontinued. The amendment to be effective from 1^st April, 2023 i.e. AY 2023-24.

–Supreme Court held that amendment to Section 80DD by Finance Act, 2022 is effective only from 1^st April 2023 and the same cannot be given retrospective effect. This is particularly having regard to the fact that an insurance contract is in a sense, a commercial contract, having certain terms and conditions and the sub-stratum of the contract cannot be removed by giving a retrospective operation to the amendment. The benefit under Section 80DD of the Act would have been availed by the subscribers at the time when they have subscribed to the policy. (SC Judgement Dated 20/08/2024)

B. GST

Advisory, Invoice Management System (IMS): The GST Network will introduce the Invoice Management System (IMS), which will assist taxpayers in matching their records and invoices with those issued by their suppliers to ensure they claim the correct Input Tax Credit (ITC), on October 1. At the time of GSTR 2B generation, a record will be considered as ‘Deemed Accepted’ if no action is taken on that record in IMS. All the accepted/ deemed accepted/ rejected records will move out of IMS dashboard after filing of respective GSTR 3B. Pending records will remain on IMS dashboard and these records can be accepted or rejected in future months. (GSTN Advisory Dated 03/09/2024)

Advisory, Reporting of supplies to un-registered dealers in GSTR1/GSTR 5: Vide Notification No. 12/2024 dated 10^th July, 2024, the threshold limit has been reduced for reporting of invoice wise details of inter-state taxable outward supplies made to unregistered dealers from 2.5 Lakh to 1 Lakh which needs to be reported in Table 5 of Form GSTR-1 and Table 6 of GSTR-5. Till the time the functionality is made available on portal, it is advised to continue reporting the invoice wise details of taxable outward supplies to unregistered dealers which are more than 2.5 Lakhs. (GSTN Advisory Dated 03/09/2024)

Advisory for Biometric-Based Aadhaar Authentication and Document Verification for GST Registration Applicants of Bihar, Delhi, Karnataka and Punjab: CGST rule was amended to provide that an applicant can be identified on the common portal, based on data analysis and risk parameters for Biometric-based Aadhaar Authentication and taking a photograph of the applicant along with the verification of the original copy of the documents uploaded with the application. The said functionality has been developed by GSTN. The new functionality mandates that after submitting Form GST REG-01, applicants will receive an email with either a link for OTP-based Aadhaar Authentication or a link to book an appointment at a GST Suvidha Kendra (GSK). It has been rolled out in Bihar, Delhi, Karnataka and Punjab on 6^th September 2024. (GSTN Advisory Dated 06/09/2024)

AAAR, Input Tax Credit not admissible on Rotary Parking System: Case of Arthanarisamy Senthil Maharaj, Tamil Nadu AAAR Ruling Dated 21st August 2024. The applicant sought a ruling on whether they could claim Input Tax Credit (ITC) on a Rotary Parking System, which they intended to install on their premises for providing parking facilities to tenants and customers. The applicant argued that since the parking system was detachable and solely intended for business purposes, it should be eligible for ITC.

–However, the AAR found that the Rotary Parking System, though detachable, required a specific foundation and steel structure for installation, making it akin to an immovable property as per legal definitions. Furthermore, the AAR analysed that since the primary function of the system was to provide parking space and not manufacturing or service provision, it fell under the exclusion clause of plant and machinery. AAR determined that the Rotary Parking System, despite being detachable, was considered an immovable property and fell under the category of civil structures, making it ineligible for Input Tax Credit under relevant GST laws.  The appeal was filed. AAAR held that the ‘rotary parking system’, installed and commissioned at the premises of the appellant amounts to construction of an immovable property, and input tax credit becomes ineligible under Section 17(5)(d) of CGST/TNGST Act. (AAAR Tamil Nadu Ruling Dated 21/08/2024)

AAR, GST on handing over of Building and Civil Structure including Railway siding to Odisha Mining Corporation limited (OMCL): Case of Essel Mining Industries Limited, AAR Odisha Ruling Dated 28th August 2024. The applicant had entered into a lease deed with Government of Odisha for Iron and Manganese mines valid from 1^st October 1984 to 30^th September 2004, which was further extended to 31^st March 2020. To carry out mining operation, the applicant had constructed building and civil infrastructure including railway sidings and plant and machinery. After the expiry, Government of Odisha decided to grant mining lease to OMCL. OMCL expressed their willingness to acquire the infrastructure assets, and an agreement was entered for handing over the assets on ‘as is where is basis’ for a consideration of Rs 18.50 Crores.

–The GST on plant and machinery had been paid. However for building and civil structure including railway sidings, the applicant is of the view that GST is not leviable as per clause 5 to schedule III of CGST Act. AAR held that it is not a contract for sale. It is effectively a contractual agreement to refrain from removing the erected structures against receipt of consideration and is supply of service as per clause 5(e) of schedule II of CGST Act. It is a service classifiable under other miscellaneous service (SAC 999792) and taxable @ 18% under serial number 35 of notification 11/2017 (Rate) dated 28^th June 2017. (AAAR Odisha Ruling Dated 27/08/2024)

C. Central Excise

Special Additional Excise Duty exemption on export of ATF to Bhutan: The notification exempts ATF from levy of Special Additional Excise Duty (SAED), when cleared for export to Bhutan. (Central Excise Notification 22/2024 Dated 02/09/2024)

Special Additional Excise Duty exemption on export of Petrol and Diesel to Bhutan: The notification exempts Petrol and Diesel from levy of Special Additional Excise Duty (SAED), when cleared for export to Bhutan. (Central Excise Notification 23/2024 Dated 02/09/2024)

Road and Infrastructure Cess exemption on export of Petrol and Diesel to Bhutan: The notification exempts Petrol and Diesel from levy of Road and Infrastructure Cess (RIF), when cleared for export to Bhutan. (Central Excise Notification 24/2024 Dated 02/09/2024)

D. Custom Duty

Rescinds Notification Customs (T) 26/2011 Dated 1^st March 2011: CBDT has rescinded The Notification Customs (T) 26/2011 Dated 1st March 2011 relates to exemption provided on Work of Arts, Antiques from customs and additional duty levied thereon. CBDT has rescinded the notification w.e.f. 7^th September 2024. (Custom Notification 42/2024 (T) Dated 06/09/2024)

Authority for SCN adjudication appointed for case involving Zenlayer Inc.: The notification appoints adjudicating authorities to handle Show Cause Notices (SCNs) related to customs violations involving Zenlayer Inc., based in California, and others. (Custom Notification 58/2024 (NT) Dated 04/09/2024)

Authority for SCN adjudication appointed for case involving DK Biopharma: The notification appoints adjudicating authorities to handle Show Cause Notices (SCNs) related to customs violations involving DK Biopharma located in Maharashtra, and others. (Custom Notification 59/2024 (NT) Dated 05/09/2024)

Implementation of automation in the Customs Rules in respect of EOUs:  Vide Circular 11/2024 Dated 25th August 2024, CBIC had notified the implementation of automation for the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022, in respect of Export Oriented Units (EOUs) w.e.f. 1^st September 2024. Representations have been received from several EOUs regarding difficulties being faced by them in the implementation of the above module such as Registration, generation of IIN details and the submission of Bond details. In view of above, Board has decided to implement the same from 17.09.2024 onwards. (Custom Circular 13/2024 Dated 04/09/2024)

Implicating Customs Brokers as co-noticee in cases involving interpretative disputes:  The instructions provide that implicating Customs Brokers as co-noticee in a routine manner, in matters involving interpretation of statute, must be avoided unless the element of abetment of the Customs Brokers in the investigation is established by the investigating authority. Further, the element of abetment should be clearly elaborated in the Show Cause Notice issued for the offence case under the provisions of the Customs Act, 1962. As regard the suspension of licenses of Customs Brokers, Instruction No. 24/2023 dated 18^th July 2023 shall continue to be followed. (Custom Instructions 20/2024 Dated 03/09/2024)

E. Directorate General of Foreign Trade (DGFT)

Amendment in Appendix 3 (SCOMET items) Classification of Export and Import Items: This amendment updates the list of SCOMET (Special Chemicals, Organisms, Materials, Equipment, and Technologies) items. The updated Appendix will be available on the DGFT’s web portal under “Regulatory Updates” and will take effect 30 days from the notification date, allowing the industry time to adapt. (DGFT Notification 25/2024 Dated 02/09/2024)

Export of Red Sanders wood by Govt of Odisha, extension of time: The Forest, Environment & Climate Change Department, Government of Odisha has been allowed additional time of 12 months for export of Red Sanders Heart Wood in log form. (DGFT Notification 26/2024 Dated 03/09/2024)

Amendment in Import policy condition for Raw Pet Coke and Calcined Pet Coke: The notification allows import of Pet Coke for other industries. Hence, Import of Raw Pet Coke (RPC) and Calcined Pet Coke (CPC) shall be permitted to cater entirely to the domestic needs of aluminium industry and other industries, for the processed as permitted under relevant regulations/ statues. (DGFT Notification 27/2024 Dated 04/09/2024)

Allocation of 8606 Metric Tonne Raw Value of raw cane sugar to USA under TRQ scheme: The quantity of 8606 Metric Tonnes Raw Value (MTRV) of raw cane sugar to be exported to USA under TRQ scheme from 01.10.2024 to 30.09.2025 has been notified. (DGFT Public Notice 22/2024 Dated 03/09/2024)

Extension of Interest Equalization Scheme (IES) on Pre and Post Shipment Rupee Export Credit: The notification extends the Interest Equalization Scheme (IES) on Pre and Post Shipment Rupee Export Credit until 30^th September 2024. For the extended period from 1^st August 2024, only Micro, Small, and Medium Enterprise (MSME) Manufacturer exporters are eligible for the scheme. (DGFT Trade Notice 16/2024 Dated 31/08/2024)

F. Securities and Exchange Board of India (SEBI)

Modification in the timeline for submission of status regarding payment obligations to the stock exchanges by entities that have listed commercial paper: SEBI LODR Regulation 57 mandates entities with listed non-convertible securities to report the status of their payment obligations within one working day of its payment becoming due whereas of the SEBI NCS Master Circular of Chapter XVII Para 8.4 requires issuers of listed Commercial Paper to submit a certificate confirming the fulfilment of their payment obligations within two days of payment becoming due. In order to align the timeline of intimating Stock Exchanges regarding status of payment obligations for listed non-convertible securities and listed Commercial Paper, NCS Master Circular, has been amended to read as within one working day of payment becoming due. (SEBI Circular Dated 06/09/2024)

Working  Paper  on Household  Savings  through Indian Securities Market: The paper examines the existing methodology for computing household savings through the Indian securities market. Currently, data on household savings in equities, debt, and mutual funds is partly based on estimates, with actual mutual fund investment data sourced from SEBI and AMFI. The methodology in equity and debt segments, uses imputed percentages for household contributions, which may not fully capture the scope of savings. The paper proposes three major changes to the computation methodology: revising the categories of investors, the financial instruments considered, and including missing segments to enhance accuracy. It suggests providing SEBI’s granular data to RBI, which would then be shared with MoSPI to reflect actual household investments. These changes aim to better account for evolving saving patterns and structural changes in the securities market, leading to improved national accounts statistics for household savings. (SEBI Working Paper Dated 04/09/2024)

SEBI study shows 54% of IPO Shares allotted to Investors (excluding anchor investors) are sold within a week: Individual investors sold 50% of the shares allotted to them by value within a week of listing, and 70% of shares by value within a year. The investors shown a greater propensity to sell IPO shares that posted positive listing gains, compared to those that listed at a loss. Nearly half of the demat accounts that applied for IPOs between April 2021 and December 2023 were opened during the post-COVID period (i.e., 2021-2023). Following SEBI’s policy interventions regarding Non-Institutional Investor (NII) share allotment process and RBI’s guidelines on IPO financing by NBFCs in April 2022, significant reduction in NII category oversubscription and sharp decline in applications from “Big Ticket NII Investors” were observed. (SEBI Press Release 19/2024 Dated 02/09/2024)

HRA issues of staff misguided by external elements to target credibility of SEBI and its leadership: This has reference to the media report on SEBI’s work culture. A key issue raised by employees is the demand for a 55% increase in House Rent Allowance (HRA) beyond the 2023 levels. Some employees raised concerns about SEBI’s Management Information System for tracking performance. In response to protests, a narrative emerged focusing on SEBI’s work culture to gain leverage in securing additional benefits, including automatic promotions without interviews. SEBI clarified that officers are already well-compensated, and the new demands would add substantial costs. SEBI emphasized its efforts in fostering transparency, accountability, and performance-based rewards. The organization believes some employees were misled by external elements to frame work culture issues as bargaining tools. Various SEBI associations condemned the leaking of internal grievances and expressed confidence in the management. SEBI reaffirmed its commitment to ensuring high standards of performance and responsibility, enhancing its employees’ capacity while addressing grievances through internal dialogue. (SEBI Press Release 20/2024 Dated 04/09/2024)

G. Ministry of Corporate Affairs (MCA)

No Notification/ Circular during the week.

H. Insolvency and Bankruptcy Board of India (IBBI)

No Notification/ Circular during the week.

I. Reserve Bank of India (RBI)

Review of Extant Instructions, Withdrawal of Circulars: An internal review was carried out to identify and withdraw obsolete/ outdated/ superfluous instructions. The five circulars stand withdrawn with immediate effect in view of subsequent updated instructions issued on the subject matters. (RBI Notification 73/2024 Dated 02/09/2024)

Liberalised Remittance Scheme (LRS) for Resident Individuals, Discontinuation of Reporting of monthly return:  On a review, it has now been decided to discontinue the requirement for submission of LRS monthly return by AD Category-I banks. These banks, henceforth, will be required to upload only transaction-wise information under LRS daily return at the close of business of the next working day on CIMS. In case no data is to be furnished, banks shall upload a ‘NIL’ report. (RBI Notification 74/2024 Dated 06/09/2024)

J. Miscellaneous

SC, Sale of lottery tickets doesn’t involve any service hence not leviable to service tax: 

(Case of K Arumugam vs Union of India, SC Judgement Dated 8th August 2024). The appellant is registered with the Directorate of State Lotteries in Thiruvananthapuram and has purchased Kerala State Lotteries in bulk from registered promoters at a discounted rate. The appellant contends that this purchase was made on an outright sale basis, meaning, they bought all tickets in bulk with no return policy and subsequently sold them to retailers, also on an outright sale basis. A profit was made from the difference between the amount received from retailers and the amount paid to the registered promoters. Appellant was directed by the excise department, to obtain registration and pay service tax under the heading ‘business auxiliary service‘.

–The court considered that sale of lottery tickets is not a service in relation to promotion or marketing of service provided by a client, i.e., the State in the instant case. The mere insertion of an explanation cannot make an activity a taxable service when it is not covered under the main provision. Conducting a lottery which is a game of chance is ex facie a privilege and an activity conducted by the State and not a service being rendered by the State. SC allowed the appeals filed by setting aside the impugned judgments of the High Courts. (SC Judgement Dated 08/08/2024)