Janya (a fictional character is very inquisitive and wants to question each and everything)

Tanishi (a fictional character finds answers from nowhere and everywhere and wants to give solutions for everything)

Janya: I have seven transactional questions in my mind. I am stating them one by one to you- Tanishi

QUESTION 1

Janya  I am still confused about the implications of High Seas Sale in GST law. Whether Itc to be reversed or not

Tanishi

Applicable Section

Explanation to section 17(3) of the CGST Act, 2017

[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.]

High sea sale is a schedule III item under below entry

8 (b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.]

Interpretation

When you supply goods on High Seas Sale basis, it will remain an exempt supply – also a non-taxable supply.  Once this is so, you will get no input tax credit for inputs, input services and common input services and if you have claimed, it will have to be reversed u/s 17 of CGST Act.  In this connection, you may also read Circular No. 33/2017 (Customs) dated 1.8.2017.  In brief, the Circular states that IGST on High Seas Sale transaction of goods imported from outside India shall be levied and collected only when import declaration are filed before the customs authorities for the purpose of customs clearance.  However, effective 1st February, 2019, the law has been amended and an explanation to sub-section (3) of section 17 has been added wherein for the purpose of calculation of “value of exempt supply”, the High Seas Sale transactions seems to have been omitted.  Therefore, now the consignee need not reverse the input tax credit for inputs, input services and common input services for transactions of High Seas Sale. When an importer sells imported goods on high seas sales basis to a third party he is not required to pay duty/tax, namely, customs duties and IGST. Hence there is no question of taking credit or reversing credit by the original importer. Only the person who filed customs declaration with Customs authorities for the purpose of clearance of the imported goods for home consumption is required to pay customs duties and IGST. Only this person is eligible to take credit of IGST

QUESTION 2

Janya   We are engaged into repair and servicing of various goods.  We have been advised the activities amounts to a job work and accordingly, we are discharging the tax liability.  Is it correct

Tanishi

Applicable Section

“Job work” means undertaking any treatment or process by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly – section 2(68) of CGST Act.

Extract Of Notification No 11/2017 Dated 28th June 2017 Amended to NN 01/2018 Dated 25/01/2018

for serial number 25 and the entries relating thereto, the following shall be substituted, namely:-

“25 Heading 9987

(i) Services by way of house-keeping, such as plumbing, carpentering, etc. where the person supplying such service through electronic commerce operator is not liable for registration under sub-section (1) of section 22 of the Central Goods and Services Tax Act, 2017.

2.5 — Provided that credit of input tax charged on goods and services has not been taken [Please refer to Explanation no. (iv)].

(ii) Maintenance, repair and installation (except construction) services, other than (i) above

Interpretation

The job work wherever used in the Act has to draw its meaning from section 2(68).  So, when you effect repairs & maintenance on goods that belong to others, in my view, it cannot amount a job work.  Of course, it depends on the content of contracts you enter into with the owner of the goods.

In my view, it remains a composite supply and it shall be classified as service of repairs of goods and shall be taxable as such.

QUESTION 3

Janya   I have a confusion whether RCM will be applicable even for composition dealers

Tanishi

Applicable Section

Reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of Section 9, or under sub-section (3) or sub-section (4) of Section 5 of the Integrated Goods and Services Tax Act

Interpretation

Tax will have to be paid on such supplies by the composition taxpayer under reverse charge mechanism. The tax can be paid by the 18th day of the month succeeding the quarter in which such supplies were received.

In the CGST or in IGST Act, I do not see any provision exempting the composition dealers from liability to pay reverse charge.  In my view, if RCM is applicable on a particular supply of goods or services or both under any provision of CGST Act or IGST Act, composition dealer will have to pay GST under reverse charge. The reverse charge liability is required to be discharged through electronic cash ledger only.  However, if you have credit on this account, the same can be utilized to pay output tax liability under the normal charge.

QUESTION 4

Janya   There is a manufacturing unit where we are constructing a boiler of huge capacity. We require hundreds of tonnes of cement to support the foundation of pillars supporting this boiler.  We have been advised input tax credit u/s 17 will not available.

Tanishi

Applicable Section

The updated provisions of Section 17(5) of the CGST Act, 2017 is tabulated below:

Clause of Section 17(5) Blocked Credit When ITC is available and not blocked Remarks
 

 

 

 

(a), b(i)) & (ab)

Motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons (including the driver) including leasing, renting or hiring thereof.

Services of general insurance, servicing, repair and maintenance of aforesaid motor vehicles

When such motor vehicles are used for

i) further supply of such vehicles or

ii) transportation of passengers or

iii) imparting training on driving of such motor vehicles.

ITC would further be admissible for leasing, renting or hiring of motor vehicles when such motor vehicles are used for above said purposes or where the recipient is engaged in the manufacture of such motor vehicles or in the supply of general insurance services in respect of such motor vehicles insured by him.

Earlier ITC was prohibited for all motor vehicles and now seating capacity criteria has been inserted in new clause.

Further specific prohibition for ITC on services of general insurance, servicing, repair and maintenance of motor vehicles was not there in old clause and in new clause it has specifically been prohibited to avoid disputes in this regard. Although normally tax payers were not availing ITC on such services.

 

 

 

(aa) , b(i)) & (ab)

 

Vessels and Aircraft including leasing, renting or hiring thereof.

Services of general insurance, servicing, repair and maintenance of aforesaid vessels and aircrafts.

When such Vessels and Aircraft are used for

i) further supply of such Vessels and Aircraft or

ii) transportation of passengers or

iii) imparting training on navigating / flying such vessels / aircraft.

iv) transportation of goods.

ITC would be admissible for leasing, renting or hiring of vessels or aircraft when when such vessels or aircraft are used for above said purposes or where the recipient is engaged in the manufacture of such vessels or aircraft or in the supply of general insurance services in respect of such vessels or aircraft insured by him.

 

 

Specific prohibition for ITC on services of general insurance, servicing, repair and maintenance of vessels and aircraft was not there in old clause and in new clause it has specifically been prohibited to avoid disputes in this regard. Although normally tax payers were not availing ITC on such services.

 

 

 

b(i)

 

 

Supply of food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, life insurance and health insurance

ITC would be available when 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; ITC would be admissible where it is obligatory for an employer to provide such supplies to its employees under any law for the time being in force.
 

b(ii)

membership of a club, health and fitness centre;  

 

b(iii)

travel benefits extended to employees on vacation such as leave or home travel concession;  

 

 

 

(c)

Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;  

 

 

The term “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

Further the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes— (i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises

 

 

(d)

Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.  

 

 

 

(e)

Goods or services or both on which tax has been paid under section 10 i.e. Composition Scheme  

 

It may noted here that under composition scheme the tax cannot be charged by supplier from the recipient and accordingly question ITC availment by recipient does not arise.
 

(f)

Goods or services or both received by a non-resident taxable person except on goods imported by him;  

 

 

(g)

Goods or services or both used for personal consumption;  

ITC is admissible only in respect of supplies taken for business purposes. Thus supplies received for personal purposes are blocked.
 

(h)

Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;  

Such goods being not used for providing taxable supplies , the ITC thereon is blocked u/s 17(5).
 

(i)

Any tax paid in accordance with the provisions of sections 74 (Tax not / short paid due to fraud etc), 129 (Detention , seizure and release of goods and conveyance in transit) and 130 (confiscation of goods or conveyance and levy of penalty).  

 

As in such cases tax was not paid with intention to evade tax the ITC thereon has been prohibited in order to penalize such assessees.

Interpretation

In my view, cement when used for construction of foundation of pillars is actually used for structural support for plant & machinery.  Boiler is nothing but plant & machinery and hence u/s 17(5), there is no bar if input tax credit is claimed.  You can claim input tax credit. Pls refer to Point No c above which mentions Plant and machinery fixed to earth includes foundations and structural support

QUESTION 5

Janya   We are a small telecom company.  We are buying a lot of steel and other materials for construction of telecommunication tower, which is the heart of our business.  Can we claim input tax credit

Tanishi

Applicable Section

Section 17(5) Point C and Point D above

Interpretation

No, a telecommunication towers have been specifically excluded from definition of plant & machinery by the lawmakers. Therefore, by the interpretation, input tax credit cannot be claimed.

QUESTION 6

Janya   Whether there will be any GST implication when the goods warehoused in free trade warehousing zone are supplied to a DTA

Tanishi

Applicable Section

The Central Board of Indirect Taxes and Customs vide Circular No. 3/1/2018-IGST dated May 25, 2018 has Clarified that IGST would not be applicable on the supply of goods before their clearance from the warehouse.

It is seen that the “transfer/sale of goods while being deposited in a customs bonded warehouse” is a common trade practice whereby the importer files an into-bond bill of entry and stores the goods in a customs bonded warehouse and thereafter, supplies such goods to another person who then files an ex-bond bill of entry for clearing the said goods from the customs bonded warehouse for home consumption.

It is therefore, clarified that integrated tax shall be levied and collected at the time of final clearance of the warehoused goods for home consumption. This Circular would be applicable for supply of warehoused goods which are deposited in a customs bonded warehouse on or after April 1, 2018.

Interpretation

In terms of Circular No. 46/2017 dated 24.11.17 r/w Circular No. 3/1/2018-IGST dated 25.5.18, for supply of warehoused goods while they are deposited in FTWZ after 1.4.18, there will not be any liability to pay IGST at the time of removal of goods.

QUESTION 7

Janya   Where the printer is printing Ramayana under instructions from a foreign religious group and the printed Ramayana is supplied to a recipient in India – What is the GST implication

Tanishi

Applicable Section

Place of Supply (POS) Provisions

CBIC issued a circular no. 11/11/2017-GST dated 20th October, 2017 which clarified that

if the activity of printing gives essential character to the printed product, it will be supply of service. If the usage of the product gives essential character, it will be supply of goods.

iii. While per se products falling under chapter 48 have printing activity as ancillary as against chapter 49 in which printing activity is seems to be primary.

Interpretation

Undoubtedly, the person i.e. a printer in India is liable to pay GST under the appropriate act on such supplies. In general, the place of supply for services will be the location of the service recipient (the recipient needs to be a registered person). In cases, where service is provided to an unregistered person, the place of supply will be the: Location of the service recipient (if the address is available on record).

Also Read-

Some GST Aspects & Transactions Explained thru Q&A – Series II

Some GST Aspects &Transactions Explained Through Q&A- Series I

Disclaimer: While every care has been taken to ensure the accuracy/ authenticity of the above, the readers are advised to recheck/ reconfirm the same from the original sources/ relevant departments. The company shall in no way be responsible for any loss or damage suffered to any person on account of the same. The views expressed are personal opinion, compilation and is no way, to be used for any legal opinion, matters .

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