1. Retaining by-products/scrap by job-worker – GST applicable?

The High Court of Andhra Pradesh in the case of Shirdiri Sainath Industries Vs DCST 2020-TIOL-2052-HC-AP-GST has held including the value of by-products to the milling charges and assessing tax is legally unsustainable.

Fact:

  • Rice milling done on job work bases.
  • milling charges was per quintal basis
  • mill shall retain all the by-products

Comment: GST is payable on the transaction value and the same has to be determined based on the contractual terms. The conclusion that by products retained is not consideration and not subjected to GST was arrived by interpreting the clauses of the agreement. This decision cannot be applied in all cases. It must be based on the clause of the agreement. In many transactions there no consideration for job-work but for the retaining the scrap.

Action Point: The agreement/WO/PO should clearly bring out what is the agreed consideration and the scope of work, which gives clarity. Further scrap/by-product retained when sold GST is applicable.

2. Serving of notice by e-mail – Valid?

The MP High Court in case of Ram Prasad Sharma Vs Chief Commissioner 2020-TIOL-2065-HC-MP-GST has held the only mode prescribed for communicating the show-cause notice/order is by way of uploading the same on website of the revenue.

Comment

  • Section 169 provides methods of serving notice (that includes sending e-mail)
  • Rule 142 provides uploading the summary of the notice electronically in DRC 01
  • Notice can be served in email, but of the summary of the same is not uploaded in portal in Form DRC-01 then the same would not be valid.

Action Point: On receipt of notice, one must check DRC-01 in the portal and vice versa. Either of them missing would not be a vail serving of notice and can pray for quashing the same.

3. Order passed without hearing the assesses

The High Court of Karnataka in the case of Mohalla Tech Pvt Ltd Vs UoI  held right of hearing is not extended. Therefore, the order cannot be sustained and is required to be quashed.

Comment: The Principle of Natural Justice requires

  • Issuance of SCN with detailed reasoning for the proposal
  • Opportunity of being heard in personal
  • Passing a reasoned ordered considering all the submissions made.

Action Point: Where the order has been passed in violation of principle of natural justice, the same can be contested to be quashed.

4. Job work Vs. Works Contract

The AUTHORITY FOR ADVANCE RULING, WEST BENGAL in the case of VRINDA ENGINEERS PRIVATE LIMITED 2020 (12) TMI 190 has ruled job-work of fabrication on the material provided by the Principal and delivery thereof and painting post erection of the structure as a mixed supply of job-work and works contract leviable to tax as works contract

Pointers:

(2) supply of paint on the fabricated structures and (3) works contract involving the application of a coat of paint on the erected structures and thereby improving / maintaining an immovable property.

5. Credit Eligibility of tax paid by vendor with his ineligible ITC

The Authority for Advance Ruling, Himachal Pradesh in the case of  M/s. Aditya Industries 2020 (12) TMI 273 has expressed even in cases where tax has been paid by the supplier to the government through in-eligible input tax credit it would always deemed not to have been paid as tax has not actually been paid to the government

Pointers:

  • All conditions for availing ITC have been fulfilled
  • The GST collected by the vendor has been paid through ineligible ITC
  • AAR Rejected the application stating lack of jurisdiction

Comment: Since the Application is rejected the ratio would have no relevance, however this gives a tool for the Department to ask the tax payer to prove the payment of tax has been made by the vendor through eligible ITC. However this is practically impossible.

Action Point: It is to be noted that a condition impossible to perform need not be performed. Further as a matter of abundant caution and to rest the litigation, a declaration can be taken by the major vendors that they have paid the GST collected through utilisation of eligible credit.

6. Quasi-adjudicatory functionaries discharged by persons who do not have a legally trained mind

The High Court of Allahabad in case of Ansari Construction Vs Additional Commissioner Central Goods And Services Tax  2020-TIOL-2107-HC-ALL-GST has observed Department miserably failed to verify the facts from their own records and proceeded to issue a show cause notice. Show cause notice has recorded any shortcoming on the part of the assessee. Assistant Commissioner rejecting the application of the petitioner is wholly arbitrary and demonstrates the lack of legally trained mind as there appears to be no effort to verify the correctness of the assertions made by the petitioner at the end of the Department. While revoking the order passed for cancellation of registration order a cost of Rs.10,000/- to be paid from his own salary of the officer.

Comment: This approach has been seen by many state authorities, which is totally against the ease of doing business.

Action Points: Representation to State authorities to be made by the taxpayers and the Trade forum to have an in-depth legal training for all the offers and also to have a manual to aid adjudication proceedings. This decision can also be quoted during the Adjudication/Appeal where there is gross negligence of principle of natural justice.

7. Discount/Incentive received from Vendor – Liable to GST?

The CESTAT, New Delhi in the case of Rohan Motors Ltd Vs CCE 2020-TIOL-1676-CESTAT-DEL has held sales promotion activities by the appellant is for the mutual benefit of the business of the appellant as well as the business of the manufacturer. The amount of incentives received on such account cannot, therefore, be treated as consideration for any service. The incentives received by the appellant cannot, therefore, be leviable to service tax

Comments: It is quite common that post sales incentives or discount is extended by the manufacturer to the dealer based on various schemes, which is recognised as other income. GST is demanded on such income, which is not liable. This case although is under service tax, it would be relevant even under the GST regime.

Action Points: Since the actual nature of such incentive is discount, it would be highly recommended to reduce this from the cost of goods sold/purchases rather than disclosing as other income. Further one must ensure the dealership agreement to have a proper understanding of such post sales incentives. Some cases TDS has been deducted from the manufacturers; this case can be used for avoiding the withholding the TDS also.

8. Attachment of CC Account

THE HIGH COURT OF GUJARAT in Chechani Trading Company Vs State of Gujarat 2020-TIOL-2133-HC-AHM-GST has held that the Bank and the assessee will not have the debtor-creditor relationship. The provisional attachment of the cash credit account shall no longer operate and ordered to be lifted. The Bank shall permit the writ applicant to operate the Cash Credit Account.

Comment: The sum and substance of this decision would be that the taxpayer cannot be forced to bower and clear the dues against the provisional attachment. Punjab and Hariyana HC in the case of Bindal Smelting Pvt. Ltd. vs Addl. Dir. Gen., Directorate Gen. of GST Intelligence 2020 (034) GSTL 0592 P&H. has made it clear that The provisional attachment power should be exercised only to protect the interest of revenue and not to ruin the business of any taxable person.

Action Point: Where the Overdraft or a CC account is attached, a copy of this decision can be given to Banker and to the officer seeking to lift the attachment.

9. Employee Secondement

The CESTAT, Hyderabad in M/s. Nektar Therapeutics (India) Pvt Ltd Vs. CCE, Hyderabad set aside the demand of service Tax for supply of manpower service under RCM. The decision of SC in M/s Nissin Brake India Pvt Ltd 2019 (2) TMI 1630 – SC ORDER was followed.

Facts:

  • An employee of the parent company in USA, was sent to India on a secondment to the Indian company,
  • the ‘secondee’ was a full time employee of the Indian Company
  • There was a relationship of employer- employee between the appellant and the Indian Company
  • The salary of the ‘secondee’ would be paid in foreign currency outside India by the parent company which would be reimbursed by the appellant to its parent entity
  • ‘secondee’ is always under the control and supervision of the Indin Company
  • Parent company had absolutely no obligation to pay the salary and other charges to the ‘secondee’ but for remitting secondee’s salary in foreign exchange based on the salary reimbursement agreement.

Comment: The very curx of this decision is that there was no obligation for the Parent Company to pay salary of the sencondee, in which case there cannot be a supply of service but a mere reimbursement.

Action Point: The contract should clearly bring out as to the obligation for payment of salary, the terms of employment, employer and employee relationship, control and supervision, reimbursement and not provision service.

10. Recover tax dues in advance – Illegal

The High Court of Madras in Sri Ganesh Lubricants Vs CTO 2020-TIOL-2163-HC-MAD-VAT held demand made is illegal without an assessment order.

Pointers

  • It is settled law that recovery of tax in advance by inspecting officials (Enforcement Wing) is illegal
  • coercive steps taken for recovering the alleged tax due is illegal

Comments: Unless the tax is self-assessed, the same has to be collected only after the adjudication process following natural justice principles. The spot collection of taxes during the investigation and the audit is illegal. Though this decision is in the context of VAT, it would be relevant for GST.

Action Point: One may contest any tax demand made without the SCN and Order’s issuance using this decision. If the taxpayer opts for the benefit of section 74(8) i.e. payment of tax, interest, and 25% penalty for concluding the proceeding, only in such case tax can be paid before issuance of the SCN.

(GST GyanGange with CA Sudhir V S)

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