Indirect Tax Updates for the Month of February 2020

A. Updates Related to GST for the Month of February 2020.

Finance Bill, 2020

Budget 2020 – Important changes proposed by the Finance Bill 2020 in GST regime: Budget 2020 was presented by the Finance Minister in the lower House of the Indian Parliament on 1st of February 2020. The Finance Bill, 2020 in this regard proposes many changes in the Central Goods and Services Tax Act, 2017, Integrated Goods and Services Tax Act, 2017, Union Territory Goods and Services Tax Act, 2017 and the Goods and Services Tax (Compensation to States) Act, 2017. Some of the important changes are elaborated below.

• ITC – Delinking of date of debit note from date of issuance of underlying invoice: Section 16(4) of the Central GST Act, 2017 has been proposed to be amended to delink the date of debit note from the date of issuance of underlying inv The provision will extend the time-period to avail ITC on debit notes i.e. up to the due date of September month return or annual return following the financial year corresponding to the debit note.
• Transitional credit – Time limit prescribed Section 140 of the CGST Act has been proposed to be amended to prescribe the manner and time limit for taking transitional It may be noted that this amendment is proposed to come with into force with retrospective effect from 1-7-2017, i.e. from the date of effect of the GST regime. Various sub-sections of Section 140 have been proposed to be amended for this purpose. The present amendment put to rest the controversy that there is no time limit prescribed under Section 140.
• Rate of GST on certain goods – Retrospective amendments: Exemption has been proposed to Fishmeal for the period 1-7-2017 to 30-9-2019 owing to confusion on applicable rate under No. 102 of Notification No. 2/2017-Central Tax (Rate) vs. S. No. 103 of Notification No. 1/2017-Central Tax (Rate). Further, 12% GST has been proposed on pulley, wheels and other parts (falling under heading 8483) and used as parts of agricultural machinery, during the period 1-7- 2017 to 31-12-2018. It may be noted that according to clause 130 of the Finance Bill, 2020, there would be no refund for tax already collected and deposited.

Cases Law

Interest under CGST Section 50 is applicable only where output tax is paid in cash – Proviso to Section 50(1) is clarificatory: Madras High Court has held that interest under Section 50 of the Central GST Act, 2017 is applicable only in case where the output tax is paid in cash and not by way of ITC since there is no deprival to the department in case of payment of output tax by way of ITC. The Court was of the view that proviso to Section 50(1), as per which interest is leviable only on that part of tax which is paid in cash, has been inserted w.e.f 1-8-2019, but clearly seeks to correct an anomaly in the provision as it existed prior to such insertion, and hence, the proviso must be read to be clarificatory and be operative retrospectively. The Telangana High Court decision in the case of Megha Engineering and Infrastructures Ltd. was distinguished by the Court observing that at the point when that decision was rendered, the proviso was not incorporated in the statute. (Refex Industries Ltd. v. Assistant Commissioner, Writ Petition Nos. 23360 and 23361 of 2019, decided on 6-1-2020, Madras High Court)

No GST on premium collected from employees towards parental insurance premium: Recovery of premium from the employees by the applicant towards parental insurance premium will not be treated as supply of service in the course or furtherance of business and hence not be liable to GST. The Uttar Pradesh Advance Ruling Authority in this regard observed  that the applicant had transferred the whole amount, collected from their employee towards the insurance, to the insurance company, which in turn provided insurance cover to the parents of the employee. It was also noted that the applicant was in the business of development and export of software and not in the business of providing insurance services. Provisions of Sections 7(1), 2(17) and 2(102) of the CGST Act, 2017 which define the scope of ‘Supply’, ‘Business’ and ‘Services’, respectively were relied upon. (Ion Trading India Private Limited – 2020 VIL 27 AAR)

Accommodation service to SEZ unit is inter-State supply and is zero-rated: Karnataka Authority for Advance Rulings has held that that provision of accommodation services to SEZ Unit would be treated as inter-State supply. Reliance in this regard was placed by the Authority on Section 16(1) of the IGST Act, 2017 and Circular No. 48/22/2018-GST dated 14-6-2018. The Authority also referred to Paragraph 2.3 of the said Circular, which clarified that subject to the provisions of Section 17(5) of the CGST Act, if hotel, accommodation services are received by a SEZ developer or a SEZ unit for authorised operations, the benefit of zero-rated supply shall be available in such cases to the supplier. (Carnation Hotels Pvt. Ltd. – 2019 VIL 484 AAR)

No ITC on replacement of lifts by co-operative housing society: Relying on the Supreme Court decision in the case of Otis Elevator Company (India) the Maharashtra Advance Rulings Authority has held that the lift, after erection and installation is to be considered as an integral part of the immovable property, i.e. a building. Accordingly, it was held that ITC in respect of installation of lift will not be available to the applicant, a co-operative society providing various services to its members and charging applicable GST on the same. The applicant had sought an advance ruling as to whether it will be entitled to claim ITC of GST paid on replacement of existing lift. The Authority referred to Section 17(5)(d) of the CGST Act and Explanation to Section 17(5) and observed that ITC in respect of construction of immovable property, other than plant & machinery, will not be available. It noted that the definition of plant & machinery as provided under Explanation to Section 17(5) includes apparatus, equipment, and machinery fixed to earth by foundation or structural support but excludes land, building or any other civil structure. (Las Palmas Co-operative Housing Society Limited – 2020 VIL 37 AAR)

GST Compliance Calendar – Returns for the M/O February 2020 to be filed in March  2020

B. Updates Related to Customs for the Month of February 2020.

Budget 2020 – Import prohibition to prevent injury to the economy of the country: Central Government is at present empowered to prohibit import or export of gold or silver in order to prevent injury to the economy of the country by the uncontrolled import or export of such goods. Now this provision [Section 11(2)(f) of the Customs Act, 1962] has been proposed to be amended to include any other goods as well. Accordingly, the central government will be empowered after Finance Bill receives the Presidential assent to prohibit to prevent any other goods also in order to prevent economy of the country.

All Industry Rates of Duty Drawback revised: The All Industry Rates (AIRs) of duty drawback have been revised with effect from 4-2-2020. As per CBIC Circular No. 6/2020-Cus., dated 30-1-2020, Drawback has been increased for certain items pertaining to marine products and seafood (Chapter 3, 15, 16, 23), chemicals (Chapter 29), finished and lining leather, leather articles and footwear (Chapter 41, 42 and 64), cotton and MMF textiles (Chapter 50 to 60), carpets (Chapter 57), made-ups (Chapter 63) and glass and glass ware (Chapter 70). Further, the rates have been rationalized for bicycles tubes (Chapter 40), wool yarn/fabrics/readymade garments (Chapter 51 and 61-62) and silk yarn/fabrics/readymade garments (Chapter 50  and 61-62) among other items. While 31 new tariff items have been introduced in the Schedule pertaining to sectors viz. chemicals, textiles and readymade garments, leather  articles   and footwear and glass handicraft/ art ware,  appropriate caps of duty drawback amount have been provided wherever felt necessary to prescribe upper limit of duty drawback. Budget 2020 – Import prohibition to prevent injury to the economy of the country: Central Government is at present empowered to prohibit import or export of gold or silver in order to prevent injury to the economy of the country by the uncontrolled import or export of such goods. Now this provision [Section 11(2)(f) of the Customs Act, 1962] has been proposed to be amended to include any other goods as well.  Accordingly, the central government will be empowered after Finance Bill receives the Presidential assent to prohibit to prevent any other goods also in order to prevent economy of the country.

Cases law

EPCG Scheme – Exemption from additional  customs duty (IGST) during 1-7-2017 till 12-10-2017: Gujarat High Court has held that  Notification No. 26/2017-Cus., dated 29-6-2017  amending Notification No. 16/2015-Cus. to limit  the exemption from payment of additional duty under Section 3 of the Customs Tariff Act to sub- sections (1), (3) and (5) thereof only, is repugnant  to the policy declared by the Central Government  under Chapter 5 of the Foreign Trade Policy 2015-2020 relating to EPCG scheme. The Court in this regard noted that when the authorisation under the EPCG Scheme was issued, the  petitioner had reason to believe that it would not  be required to discharge any liability in respect of  additional customs duty (IGST) in as much as a promise was held out to the petitioner that it will not be liable. It also noted that import of capital goods under the EPCG Scheme was totally exempt from payment of additional duty, except for the short period between 1-7-2017 and 13-10- 2017 and hence intention of the Government was clear that total exemption from payment of additional duty was to be granted under the EPCG Scheme. The Court concluded that hence Notification No.79/2017-Cus., dated 13th October, 2017, again providing the exemption, has to be read as clarificatory or curative in nature. The High Court also held that though Notification No.16/2015-Cus. is a statutory notification, it is not an exemption notification.  Prince Spintex Pvt. Ltd. Vs Union of India (Gujarat High Court); R/Special Civil Application No. 20756 of 2018; 03/02/2020

Only excess goods liable to confiscation and not eligible for exemption: CESTAT Kolkata has held that only the goods found to be in excess of what was declared are liable to confiscation and not the entire quantity of goods. It noted that a plain reading of Section 111(e) and (l) of the Customs Act, 1962 shows that these apply to such goods only which have been concealed and have not been declared and not the entire quantity of goods. The Tribunal was also of the view that denial of the exemption notification for the entire quantity of goods when the bulk of the goods are already covered by the SAFTA certificate is not supported by any legal provision. Appeals were partly allowed also reducing the penalty and redemption fine in proportion. (Bikash Saha v. Principal Commissioner – 2020 VIL 70 CESTAT KOL CU)

C. Updates Related to Excise & Service Tax for the Month of February 2020.

Notice pay – Amount received from outgoing employee in lieu of notice period not liable to service tax: Madras High Court has held that the amount received from the outgoing employee in lieu of the notice period was not liable to service tax. It was held that the employer cannot be said to have rendered any service per se, much less a taxable service, and had merely facilitated the exit of the employee upon imposition of a cost upon him for the sudden exit. It observed that notice pay, in lieu of sudden termination, did not give rise to the rendition of service either by the employer or the employee. The department had contended that the amount is liable to service tax under Section 66E(e) of the Finance Act, 1994 as petitioner had tolerated the act of immediate quitting. (GET & D India Limited v. Deputy Commissioner – W.P.Nos.35728 to 35734 of 2016 , decided on 7-11-2019, Madras High Court]

Sabka Vishwas scheme – Benefit under voluntary disclosure category after denial under arrears category: The High Court of Karnataka has allowed the petitioner to opt for benefit under voluntary disclosure category instead of arrears category of Sabka Vishwas  (Legacy Dispute Resolution) Scheme. It observed that the scheme in question being for the benefit of assessees needs to be construed liberally to effectuate the purpose. The benefit under arrears category was denied as petitioner’s arrears of tax were yet to be assessed and adjudication was still pending. The Court observed that petitioner’s apprehensions that their claim under voluntary disclosure category is likely to be turned down because of some statutory block was taken care of by department’s statement that     such   apprehensions were unfounded. (Ramesh Electricals v. UoI – 2020 TIOL 144 HC KAR CX)

With Warm Regards & Jai Hind

CMA Rakesh Bhalla , 9779010685, [email protected]

Information Source – M/s LKS, CBIC.gov.in., various internet websites including Income tax website, Dailyhunt, Deloitte, livemint.com,  related links and various notifications, circulars, orders, press releases and other sources-many thanks to all.