As GST roll out completed 2.5 years, we have seen everything in this period-transitioning from existing regime to new era, understanding the provisions of GST, analyzing what impact does it had rather still having on business, making GST compliances from return filing to reconciliations and as soon as one tax period completed, audit requirements also came into picture. As a measure of making GST friendly with the business(which is yet to happen) and to ensure that it does not hamper the business dealings ,CBIC took several measures to name few- rates of goods and services have been taken into consideration on multiple occasions , extension of due dates of various returns time to time including timelines for conducting audits for FY 17-18 & 18-19 ,simplifications of annual returns and reconciliation statements(GSTR-9/9C), Filing of annual returns made optional for FY 17-18 & 18-19 for small taxpayers(Aggregate turnover less than 2 crores), waiving of late fees for late filing of returns, etc. in 38 GST council meetings held so far.
Judgments on Goods & Services Tax (GST)
After write-ups on E-invoicing and monthly updates for decisions taken in December month, In this article we made an attempt to bring series of important judgments pronounced in 2019 which can prove to be essential for businesses in the year of 2020 while arriving at any conclusion in respect of the subject covered by these rulings.
1. Writ petitions could not be filed before HC against seizure orders
State of Uttar Pradesh Vs Kay Pans Fragrance (P) Ltd. (Supreme Court)
- Interim orders passed by the High Court directing the State to release the seized goods on deposit of security or on furnishing of indemnity bond equal to tax and penalty to the satisfaction of the Assessing Authority against which appeal was filed before SC.
- The Apex Court held that in all such cases, HC should have referred assessees to Appropriate Authority for complying with the procedure prescribed under GST Act. CGST Act read with CGST Rules contains a complete code for release (including provisional release) of seized goods. Therefore, the orders passed by the High Court are held contrary to the provisions prescribed and such order would not be given effect, to be processed by the authorities afresh in accordance with law.
2. ITC on goods/services used in the construction of mall can be used against GST payable on rental income
Safari retreats (p.) ltd. vs Chief Commissioner of CGST (Orissa High Court)
- The petitioner was engaged in construction of shopping malls and letting out of the shops so constructed for which materials & other inputs were required. Those goods/services purchased were taxable and petitioner had paid huge amount of GST.
- GST authorities held that ITC of taxes paid on the purchase of input material & services used for the construction of shopping mall not available for set-off against GST payable on rent received from the tenants of the shopping mall. The petitioner filed writ petition contending that the ITC should be allowed to him.
- The High Court observed that ITC is not available to a taxable person who has constructed the immovable property ‘on his own account’. This condition cannot be applied in cases where construction of immovable property is intended for letting out. In this case, the shopping mall which the petitioner was constructing was neither intended for sale noron his ownaccount but was ‘intended for letting out’. Therefore, narrow interpretation by the department could not be accepted as the petitioner was retaining the property not for its own purpose but to let out the same.
- The High Court has held that the petitioner would be allowed to set off the ITC on the goods/services used in the construction of mall from the GST payable on the rental income received.
3. Online Fantasy Sports Game is a ‘Game of Skill’ & Subject To 18% GST
Gurdeep Singh Sachar Vs UOI (Bombay HIgh Court)
- The petitioner filed PIL to initiate criminal prosecution against the Company Dream 11 Fantasy Pvt. Ltd for conducting illegal operations of gambling/betting/wagering activities in the name of Online Fantasy Sports Gaming, which attracts penal provisions of Public Gambling Act, 1867.
- As observed by the High Court in online fantasy sports game conducted by the Company, participants create virtual teams comprising of playerssimilar to real life teams. The participants compete within a time limit against such virtual teams created by other participants. The winners are decided based on points scored, using statistical data generated by the real-life performance of the players. The participants do not bet on the outcome of the match. The result of the fantasy game contest does not depend on winning or losing of any particular team in any real game on any given day.
- Held that success in Dream 11 game arises due to superior sports knowledge, judgment and attention of the participants. Therefore, the Online Fantasy Sports Gaming is a ‘game of skill’ and not any ‘game of chance’.
- Thus held by HC, that Online Fantasy Sports gaming of the company are not gambling services, hence, 18% GST rate shall be applicable.
4. ITC of notified goods which remains unutilized on account of inverted duty structure shall not lapse
Shabnam Petrofils (P) Ltd Vs UOI (Gujarat High Court)
- The applicant engaged in manufacturing & selling of textile goods filed special civil application before HC in order to challenge the provisions of CGST Act,2017, notifications and circularswhich prohibits refund of accumulated ITC on account of inverted duty structure.
- The HC observed that the said notification as amended by the subsequent notification provided that accumulated ITC on inward supplies received upto 31st July, 2018 would lapse.
- HC held that no inherent power could be inferred from the provisions of refund of CGST Act 2017 which could empower the CG to lapse unutilized ITC on account of inverted duty structure & hence such ITC would not lapse. [SHABNAM PETROFILS (P) LTD VS UOI]
5. Manual rectification of FORM-GSTR-3B/GSTR-1 allowed by High Courts
Panduranga Stone Crushers Vs. Union of India (Andhra Pradesh, Amaravati)
Andhra Pradesh HC by way of interim order permitted the assessee to rectify Form GSTR-3B statements manually for the months of Aug 2017, Dec 2017, Jan 2018 & Feb 2018 subject to the outcome of writ petition. The revenue authorities would proceed rectified statements submitted by assessee in accordance with law.
Vadehra Builders Pvt. Ltd. Vs Union of India & Anr. (Delhi High Court)
Taking the view of AP HC, Delhi High Court also permitted through interim order subject to final outcome of writ petition, to rectify form GSTR-1 manually for the month of Nov 2017.
6. Sale of goods from Duty Free Shops (DFS) located at international airports constitutes ‘Export’
Sandeep Patil Vs Union of India (Bombay High Court)
- The Assessee sells goods from DFS located in International Airport at Mumbai to international passenger.Such goods are mainly imported or procured from SEZ units in India and are sold before they cross customs barriers. The assessee had challenged the order passed by the DC denying the refund of ITC accumulated on account of services received by duty free shops at the airport.
- Export means ‘taking goods out of India to a place outside India’ as observed by HC. Supply by assessee from DFS to the outbound passenger constitutes export. Warehoused goods supplied before clearance for home consumption is neither supply of goods nor supply of services. Sales from DFS to arriving passengers are sales from the customs area as the goods have neither crossed customs frontier nor cleared for home consumption by DFS and, hence, customs duty and IGST are not payable by DFS.
- The HC, thus, sets aside the order passed by the DC and held that the sale of goods from DFS located at International Airports constitutes ‘export of goods’ & hence, assessee is entitled to get refund of input tax credit.
7. Bombay HC quashed napa’s order as all members signing the order was not present for hearing
Hardcastle Restaurants (P.) Ltd. Vs. Union Of India (Bombay High Court)
- NAPA ruled that the assessee derived profit of INR 7.49 crores through price increase. NAPA passed the order where one technical member, who had joined the bench after conclusion of hearing, also signed the order along with three other members who had heard the parties. The assessee filed a writ petition against NAPA’s order.
- The High Court held that the assessee entitled to be heard by all members who were the ultimate decision-makers so that it could try to convince each member of the Authority. The High Court, thus, set aside the order passed by NAPA and held that order resulted in the violation of the principles of natural justice when the fourth member joined only for signing the order and did not participate in the hearing.
8. No GST leviable on services provided by court receiver
Bai Mamubai Trust V. Suchitra (Bombay High Court)
- Issue raised whether GST is applicable on services or assistance rendered by the Court receiver appointed by the Court under order XL of CPC.
- Court observed that schedule III provides that services provided by any court or tribunal established under any law is neither a supply of goods nor supply of services. Court Receiver should implement orders of the court and functions under the supervision and direction of the Court. Hence, office of the Court Receiver is an establishment of the High Court through which the orders issued by the Court are given effect to.
- Therefore, the services of the Court Receiver are to be considered as services provided by any Court. Accordingly, the fees or charges paid to the Court Receiver are not liable to GST. The Honorable High Court held that GST cannot be levied or recovered on services provided by the Court Receiver.
9. Excess claim of Duty Drawback (DDB) cannot be a reason to withheld refund of IGST paid on exported goods
Amit Cotton Industries V. Principal Commissioner of Customs (Gujarat High Court)
- Applicant running a cotton ginning mill exported goods and claimed refund of IGST paid on such goods which was denied by revenue authorities on the ground of excess availement of DDB.
- High Court held that refund could be withheld only when request was received by the jurisdictional Commissioner regarding the same or when the goods were exported in violation of the Customs Act, 1962 as determined by proper officer of Customs.
- There was neither any provision nor any circular or instruction under GST law which would restrict IGST refund for reason that higher rate of drawback was claimed. The High Court held that the applicant was entitled to claim IGST refund in respect of goods exported and directed revenue authorities to immediately sanction the refund amount along with 7 per cent interest from date of shipping bills till date of actual refund.
10. provisions of anti- profiteering attracted if incorrect methodology is adopted for passing on the benefit of rate reduction
DGAP VS Nestle India Ltd (National Anti-Profiteering Authority or NAA)
- The respondent, subsidiary of Nestle group, engaged in manufacturing and sale of various food products including coffee, noodles, chocolates, etc the rates on several those products were reduced from 28% to 18% w.e.f. 15.11.2017 and from 18% to 12% w.e.f. from 25.01.2018. Applicant suo moto deposited around INR 16 crore in the Consumer Welfare Fund before any notice of investigation of profiteering was issued. In the meanwhile investigation was ordered by NAA against the respondent to be conducted by DGAP.
- As per the DGAP’s report, The base prices of 300 stock keeping units (SKU) increased by the respondent which were impacted by the rate reduction due to which anti-profiteering provisions gets attracted. Respondent has passed the benefit of rate reduction at aggregate level of SKU or at product level instead of passing on every SKU so that benefit could reach to every buyer of that SKU. Hence, the methodology adopted by the respondent was incorrect. The total profit made by the respondent was determined at around INR 89 crores.
- The NAA directed the respondent to reduce the prices proportionately and to deposit the balance profit in the Consumer Welfare Fund.
11. Issue of own closed Prepaid Instruments(PPI) is not actionable claim, GST applicable as it is supply of goods
Kalyan Jewellers India Ltd AAR Tamil Nadu
- Applicant engaged in business of manufacturing & trading of jewellery products introduced the facility of prepaid instruments (PPI) popularly called as gift vouchers/ gift cards sought ruling on GST applicability on issue of such vouchers and if yes then what would be the time of supply and rate of tax.
- AAR held that these PPI’s issued are vouchers as defined under CGST/TNGST Act, 2017, are a supply of goods under GST provisions and GST is applicable.
- If vouchers are specific to any particulars goods specified against it, time of supply (TOS) of such vouchers/gift cards/gift vouchers shall be date of issue of vouchers whereas if these vouchers are redeemable against any goods bought then it shall be date of redemption of voucher.
- Rate of tax shall be 12% in case of paper based gift voucher classifiable under CTH 4911 & 18% for gift cards classifiable under CTH 8523.
12. Restaurant & sweetshop operated from same premises are not ‘Composite Supplies’ of restaurant services
Aravali Polyart (P.) Ltd (AAAR Uttrakhand)
- The applicant is running sweetshop and a restaurant in two distinctly marked separate parts of the same premises, separate accounts and billings for the two types of businesses were also maintained. Advance Ruling sought on whether the supply of sweets, namkeens, cold drinks and other edible items from a sweetshop which also runs a restaurant is a supply of goods or a supply of service.
- AAR held that the above supply shall be treated as a supply of service and sweetshop will be treated as an extension of restaurant. The applicant further filed an appeal before the Appellate Authority for Advance Ruling (AAAR).
- AAAR observed that as per the CGST Act, 2017, ‘composite supply’ consists of two or more taxable supplies of goods or services or both which are naturally bundled and supplied in conjunction with each other. The supply of food to customers in a restaurant or as a takeaway from the restaurant counter which is being billed under restaurant sales head should fall under ‘composite supply’ of restaurant services.
- However, goods supplied to customers through sweetshop counter have no direct or indirect nexus with restaurant services. Anyone can come and purchase any item of any quantity from the counter without visiting the restaurant. These sales are completely independent of restaurant activity and will continue even when the restaurant is closed.
- AAAR held that in case of sale of food items from restaurant, GST rates on restaurant service will be applicable on all such sales and ITC will not be allowed. In case of sale of those items from sweetshop counter it will be treated as supply of goods and GST rates of the respective items being sold will be levied and ITC will be allowed on such supply.
13. Resale of food & bakery products is not restaurant service
Square One Homemade Treats (AAR Kerala)
- Applicant engaged in purchase/sale of food products (cakes, cookies, ready to eat homemade packed food etc) procured from other dealers, all items sold are pre-packed & it does not have any kitchen facility to cook food at the premises, sought advance ruling whether resale of such products falls under restaurant services.
- Noted that in restaurant, food & drinks are prepared, served to customers whereas in present case already cooked food is served from the counter and only by giving a mere facility to customers to consume such foods in premises does not suffice enough to make it a restaurant service.
- Held that resale of food & bakery products cannot be classified as restaurant service.
14. ITC of GST paid on hotel services cannot be availed if the recipient is registered in another state
IMF Cognitive Technology (P) Ltd. (AAAR Rajashthan)
- The applicant registered in the state of Rajasthan procured hotel services in Haryana state on which CGST and SGST of Haryana was paid.
- On receipt of application to determine the availability of ITC of GST paid, AAR held, ITC of GST paid in Haryana shall not be available to the applicant registered in Rajasthan state. In response to further appeal filed before AAAR, it held that ITC of CGST/SGST is available to a person regd. in Rajasthan only if location of supplier and place of supply of services are in same state i.e. Rajasthan only, therefore ITC of CGST/SGST paid in Haryana shall not be available to recipient registered in Rajasthan.
15. No GST leviable on volume discount received on purchase/sale of motor vehicles without any GST adjustment
Kwality Mobikes (P.) Ltd. (AAR Karnataka)
- Applicant engaged in business of supply of motor vehicles eligible for volume discount for sales and purchase of such vehicles on achieving target sought advance ruling to determine applicability of GST on such discount received.
- Authorized dealer issued credit note for such volume discounts without adjusting price & GST amount of the goods already sold as it does not affect the price of the goods sold so no reduction of ITC already claimed is done.
- AAR held that credit note issued by the dealer does not have any effect on value of supply & is only a financial document for account adjustment for incentive therefore volume discount received on purchase/sales in the form of credit notes without any adjustment of GST is not liable for GST.
16. ITC available on motor vehicles purchased to provide trial runs to customer
Chowgule Industries (P.) Ltd (AAR Goa)
- Applicant authorized dealer of Maruti Suzuki India Ltd for sale of motor vehicles & spares sought advance ruling on ITC availability on motor vehicles purchased for demo
- AAR held that vehicle used as demo cars (for a specified period only) to provide trial runs to customers are being capitalized by the applicant and ITC is available on those capital goods which are used in the course or furtherance of business, further GST is charged when such demo vehicles are sold which excludes it from blocked credit as well so ITC on motor vehicles purchased to provide trial runs can be availed by the applicant.
17. Medicines, implants etc used in medical treatment is a ‘composite supply’ of healthcare services and hence no gst is payable
Royal Care Speciality Hospital Ltd. (AAR Tamil Nadu)
- Applicant a multi-speciality hospital providing healthcare services sought advance ruling on whether the medicines, implants and consumables etc used in the course of providing healthcare services to admitted patients in hospital would be considered as composite supply of healthcare services and exempt from GST.
- ‘Composite supply’ means supply of goods/services or both which are naturally bundled and are provided in conjunction which each other in the course of business. Since above stated goods are supplied to in-patients as prescribed by the doctor for which a single bill is raised and after usage of medicines etc, treatment gets completed.
- Therefore held that supply of medicines etc used in providing healthcare services to patients are composite supply of healthcare services which are exempt from GST.
18. Reimbursement of expenses incurred by employees on company behalf does not attract any GST
Alcon Consulting Engineers (India) (P.) Ltd. (AAR Karnataka)
- While providing consultancy services for construction project, employees of the applicant incurred some expenses on behalf of applicant, advance ruling is sought whether the periodic reimbursement of expenses incurred by staff on applicant’s behalf liable to GST.
- Observed that amount paid by employees to the supplier of service is a ‘consideration’ as if it is paid by the applicant itself for services received by it. This amount reimbursed by the applicant to the employee later on would not amount to consideration for the supplies received by it because the service of employee to its employer, in the course of employment, is neither a supply of goods nor supply of services.
- Hence, the same is not liable to GST.AAR held that the amount paid to employees by the applicant as reimbursement of expenses incurred by them in the course of employment are not liable to GST.
19. No GST on corpus sinking fund collected by RWA from members
Prestige South Ridge Apartment Owners Association (AAR Karnataka)
- Apartment owners association filed application for advance ruling for GST applicability on corpus fund collected from the members.
- Observed that in order to adhere the bylaws of RWA, an amount is collected from the members for future supply of services which are in the nature of deposit towards unforeseen/planned events and deposited to corpus/sinking fund.
- The proviso in definition of ‘consideration’ states “any deposit given i.r.o. supply of goods/services shall not be considered as payment made for such supply until supplier applies such deposit as consideration for the said supply.’’
- Hence amount collected towards corpus/sinking fund does not form part of consideration at the time of collection and not liable to GST however the amounts so utilized for provisioning of service are liable to tax at the time of actual supply of service.
20. Accommodation services provided to sez units are to be treated as zero rated supplies
Carnation Hotels (P.) Ltd. (AAR Karnataka)
- The applicant registered office in New Delhi proposed to operate hotels and rent out the rooms to the employees of SEZ units sought advance ruling whether such accommodation services rendered by the applicant to SEZ units can be treated as ‘zero rated supplies’ under GST.
- Under GST, Supply of goods/services or both to a SEZ Developer/Unit are treated as ‘Zero Rated Supplies’. Supply to SEZ developer/units shall be treated as such only if those are used towards authorized operations by SEZ.
- Held that if the hotel or accommodation services received by SEZ developer/unit for authorized operations, as endorsed by the specified officer of the zone, the benefit of zero rated supply shall be available to the supplier. Therefore, accommodation services supplied by the applicant to SEZ units are to be treated as ‘zero rated supplies’.