Vide Notification No. 39/2018 – Central Tax dated 04.09.2018, CGST Rules have been amended for the eighth time in the current calendar year. Consequent amendments have also been made in the respective State Rules. Before we discuss the amendments, it may be noted that except otherwise stated, all the amendments shall come into force from 04.09.2018 itself. Detailed analysis of the amendments are as under:
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Cancellation of Registration
Following proviso has been inserted in Rule 22(4):
“Provided that where the person instead of replying to the notice served under sub-rule (1) for contravention of the provisions contained in clause (b) or clause (c) of sub-section (2) of section 29, furnishes all the pending returns and makes full payment of the tax dues along with applicable interest and late fee, the proper officer shall drop the proceedings and pass an order in FORM GST-REG 20.”.
It may be noted that contraventions contained in clause (b) or clause (c) of sub-section (2) of section 29 deals with not furnishing of returns for continuous three tax periods (in case of composition supplier) or six months (in case of all other registered persons). Hence on occurrence of such contravention, officer can cancel the registration after serving a notice. Consequent to the above insertion of the proviso, if the person who has received such notice furnishes all the pending returns and makes full payment of the tax dues along with applicable interest and late fee, concerned officer shall drop the proceedings of cancellation of registration and pass an order in FORM GST-REG 20. Format of the said form has also been prescribed in the said Notification.
Document for Availing Input Tax Credit
Following proviso has been inserted in Rule 36(2) which deals with the documents and the conditions for availing the ITC:
“Provided that if the said document does not contain all the specified particulars but contains the details of the amount of tax charged, description of goods or services, total value of supply of goods or services or both, GSTIN of the supplier and recipient and place of supply in case of inter-State supply, input tax credit may be availed by such registered person.”
Above proviso hence gives a relief to the registered recipients since even if all the necessary particulars are not there on an invoice, still ITC can be claimed if following particulars are provided in the said invoice:
a. details of the amount of tax charged
b. description of goods or services
c. total value of supply of goods or services or both
d. GSTIN of the supplier and recipient
e. place of supply in case of inter-State supply
Transportation of Goods in Batches or Lots
Rule 55(5) is amended to provide that the manner prescribed therein for transportation of goods in a semi knocked down or completely knocked down condition shall also apply to the transportation of goods in batches or lots. Consequent amendment has been made in the FORM GST EWB-01.
Formula For Refund of Accumulated ITC on Account of Zero-Rated Supplies
“Adjusted total turnover” as appearing in the denominator of the formula prescribed under Rule 89(4) for calculating the refund amount has been substituted with the following:
“‘(E) “Adjusted Total Turnover” means the sum total of the value of-
(a) the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the turnover of services; and
(b) the turnover of zero-rated supply of services determined in terms of clause (D) above and non-zero-rated supply of services, excluding-
(i) the value of exempt supplies other than zero-rated supplies; and
(ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period.”
It may be noted that before the above amendment, entire turnover in a State was to be considered which included turnover of zero-rated supply of services on accrual basis (i.e. invoice basis). However the “Turnover of zero-rated supply of services” as defined under clause (D) of the said sub-rule only considered the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period.
Hence the above amendment rectifies the error by providing that even while computing “adjusted total turnover”, the turnover of zero-rated supply of services shall be as per clause (D) and not on accrual basis.
Nightmare For exporters
Sub-rule (10) to Rule 96 is substituted retrospectively w.e.f. 23rd October, 2017 as under:
“(10) The persons claiming refund of integrated tax paid on exports of goods or services should not have –
(a) received supplies on which the benefit of the Government of India, Ministry of Finance notification No. 48/2017-Central Tax, dated the 18th October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i),vide number G.S.R 1305 (E), dated the 18th October, 2017 or notification No. 40/2017-Central Tax (Rate), dated the 23rd October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i),vide number G.S.R 1320 (E), dated the 23rd October, 2017 or notification No. 41/2017-Integrated Tax (Rate), dated the 23rd October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1321 (E), dated the 23rd October, 2017 has been availed; or
(b) availed the benefit under notification No. 78/2017-Customs, dated the 13th October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1272(E), dated the 13th October, 2017 or notification No. 79/2017-Customs, dated the 13th October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i),vide number G.S.R 1299 (E), dated the 13th October, 2017.”
As per Sec. 16(1) of the IGST Act, 2017 export of goods or services or both is regarded as “zero rated supply”. This means that exporter is not required to levy any tax on such exports for recovery of the same from the customer and at the same time is also entitled to input tax credit (“ITC”) of the goods or services used in making such exports. Further Sec. 16(3) gives two routes for obtaining the refund of ITC which may get accumulated on account of exports. Said routes are as under:
Route 1: Exporter may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit. Rule 89 read with Rule 96A of the CGST Rules, 2017 prescribes the manner for claiming the refund of such accumulated ITC.
Route 2: Exporter may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied. Rule 96 of the CGST Rules, 2017 prescribes the manner for claiming the refund of IGST paid on exports.
Normal belief is that the selection of route is only a matter of convenience. It is not so. Rule 96(10) contains certain restrictions on the selection of the route. Rule 96 has undergone amendment several times. Latest amendment which is given a retrospective effect from 23rd October, 2017 is discussed below.
As far as cases covered under clause (a) of the amended sub-rule (10) are concerned, there is no change. In other words, exporter, who has received supplies on which supplier has claimed benefit under any of the below mentioned notifications, shall be debarred from exporting with payment of IGST:
A. Notification No. 48/2017-Central Tax dated 18.10.2017 – Said Notification deals with deemed exports. It covers domestic supplies made against advance authorization, supply of capital goods against EPCG authorization, supply of goods to EOU & supply of gold by a bank or PSU against advance authorization. It must be noted that procurement against advance authorization has to be done on pre-import basis for physical exports to claim the benefit.
B. Notification No. 40/2017-Central Tax (Rate) dated 23.10.2017 & Notification No. 41/2017-Integrated Tax (Rate) dated 23.10.2017 – Said Notification covers supplies made to merchant exporter at the rate of 0.1% in case of IGST or 0.05% each in case of CGST & SGST.
Hence in above cases, exporter has to export only under LUT and claim refund of accumulated ITC.
Above amendment also provides under clause (b) that exporter shall be debarred from making exports with payment of IGST if such exporter has availed the benefit under notification No. 78/2017-Customs as well as notification No. 79/2017-Customs. Brief contents of the said notifications are as under:
C. Notification No. 78/2017-Customs dated 13.10.2017 – Said Notification read with parent Notification provides exemption from Customs Duty & IGST under Customs on goods imported or procured from Public or Private Warehouse or from International Exhibition by Hundred per cent EOU, STP or EHTP units.
D. Notification No. 79/2017-Customs dated 13.10.2017 – Said Notification read with parent Notification provides exemption from Customs Duty & IGST under Customs on imports under EPCG, Advance Authorization, Advance Authorization for Annual Requirements, Advance Authorization for Deemed Export, Advance Authorization for export of Prohibited Goods and Narrow Woven Fabrics, etc.
It may be noted that before the amendment, said Notifications were also part of said sub-rule but were not separately carved out by way of a clause. Hence a view was taken that since the transactions covered are imports, it cannot be said that supplier (who is located outside India) has availed any benefit and thus even if exporter has availed the benefit under the said notifications, he can still export with payment of IGST and claim refund accordingly. Said view was duly supported by Circular No. 45/19/2018-GST dated 30.05.2018 (readers may peruse our email dated 14.09.2018 in this regard).
The latest amendment now carves out such cases referred above by way of a separate clause and provides that if the benefit has been availed by an exporter, he cannot export with payment of IGST. He has to compulsorily export under LUT and claim refund of the accumulated ITC. Said amendment is applied retrospectively w.e.f. 23rd October, 2017.
Following questions still remain unanswered:
i. Sec. 16(3) of the IGST Act, 2017 provides for two options to the registered person making zero-rated supply for claiming refund. It further provides that a person can supply on payment subject to certain conditions, safeguards and procedure as may be prescribed. Hence the function of Rule 96 is only to prescribe the modalities for claiming such refunds. Can it travel beyond the express provisions of Sec. 16(3) and block the route for claiming refund with payment of IGST in certain cases ?
ii. Sec. 54(1) which contains provisions related to refund only provides that Government (by way of Rules) can specify the form and manner for claiming the refund. Can it block a route which is statutorily permitted ?
iii. Amended sub-rule (10) is also silent on whether the restriction imposed shall apply at the transaction level or the entity level and also whether the said restriction will expire at the end of the tax period in which such supplies are received ?
iv. Assuming that the amendment is good in law, can it apply retrospectively when goods have already been exported with payment of IGST and refunds have been received ?
v. Assuming that the amendment can apply retrospectively, what is the procedure to surrender the refunds already received from 23rd October, 2017 ?
vi. Once such amount is surrendered, what is the procedure for claiming back the refund by considering that the exports have been made without payment of IGST ?
vii. Whether interest shall be payable on such surrender of amount especially when this is not the case of wrongful claim of refund ?
viii. Why does Government desire to block one route (which is exporter friendly) and force exporters to go through another route of manually claiming the refund (which entails cost and time) ?
It is deeply regretted that Government has gone ahead and retrospectively amended the sub-rule without bothering to answer the above questions.
E-Way Bill in Case of Imports
Following proviso is inserted in Rule 138A(1):
“Provided further that in case of imported goods, the person in charge of a conveyance shall also carry a copy of the bill of entry filed by the importer of such goods and shall indicate the number and date of the bill of entry in Part A of FORM GST EWB-01.”
Above proviso thus makes it mandatory for the person in charge of a conveyance to carry a copy of the bill of entry filed by the importer of goods and to indicate the number and date of the bill of entry in Part A of FORM GST EWB-01.
ITC-04 – Change in Format
Format of ITC-04 (for sending/receiving goods on job-work) has been modified. Details about “nature of job work done by job worker” as well as “losses & wastes” in terms of quantity are also to be reported. Readers may peruse the said form from the copy of the notification which is attached.
Annual returns – Format Notified
Format of the annual return in “Form GSTR 9” (for normal tax payers) & “Form GSTR 9A” (for composition tax payers) have been notified. Readers may peruse the said form from the copy of the notification which is attached. It may be noted that due date for filing the said form for FY 2017-18 is 31st December, 2018.
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Nicely explained Abhay, thanks!!
nice