1. Interest for delayed payment – Tolerance of an Act Vs. Addition to Consideration

The Maharashtra Appellate Authority For Advance Ruling in Bajaj Finance Ltd 2020-TIOL-64-AAAR-GST has ruled the additional/penal interest recovered by the appellant from customers against delayed payment of monthly instalments of the loan extended to the customers would be exempt from GST.

Issue: Schedule II of the CGST Act, 2017 provides “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act” as a supply of service. Section 15 of the CGST Act, the value of supply shall include “interest or late fee or penalty for delayed payment of any consideration for any supply.” Now collection on interest for delayed payment of consideration whether to be treated as a separate transaction or needs to be considered as additional consideration?

Comment: Any amount collected incidental to a transaction to be treated as one single supply and cannot bring out a second supply.  Thereby the Circular (102/21/2019-GST, dated 28-6-2019) in this regard and the ruling based on the circular is correct.

Action Point: The clause in the contract/PO/WO relating to the breach of contract, consideration for the delay in payment of the consideration, needs to be drafted carefully.

2. Mensrea and Penalty

The High Court of Madras in the case of Sarathas Vs Assistant Commissioner (ST) 2020-TIOL-1841-HC-MAD-VAT has held It is well settled that levy of penalty involves a penal element. Therefore, the element of mensrea should be recorded to be present. In this case, no such finding can be discerned in the orders impugned in the writ petitions.

Comment: This case pertains to Entry Tax, but relevant for GST.

3. Can department conduct service tax audit now?

The High Court of Delhi in case of Vianaar Homes Pvt Ltd Vs Assistant Commissioner 2020-TIOL-1847-HC-DEL-ST has held an Audit initiation of Rule 5A of the Service Tax Rules, 1994, read with Section 174(2)(e) of the Central Goods and Services Tax Act, 2017 for conducting audit/verification of documents and records at the business premises is valid.

Comment: The contention was raised stating provision of finance act has been saved, but not the rules made there under, where the provision relating to audit is mentioned. Further audit by itself is not a liability or due. In past when such decision stopped the authority to conduct audit, the demand was initiated by way of enquiry and investigation. So, one cannot escape if there is a liability.

Action Points: Where the audit for the past period is pending, the records, documents, reconciliation, etc. to be review and kept ready. A review by an independent professional to check all the compliance under the service tax and voluntary discharging of the service tax liability (if any) along with applicable interest will safe penalty.

4. Correction of GSTR-1 for the FY 17-18 & 18-19 – Enabling credit to recipient

The High Court of Madras in the case of M/s. Sun Dye Chem Versus The Assistant Commissioner (ST) 2020 (11) TMI 108 has permitted to rectify the GSTR -1 as an annexure to GSTR-3B and directed the officer to enable auto-population of the credit to the recipient.

Provisions: Section 37 provides filing of the GSTR-1. Error or omission therein can be rectified before earlier of 30th Sept of the next financial year and the date of filing of annual returns (31st of March 2019 for FY 17-18)

Issue: Many times, there has been some error as under in filing the GSTR -1, leading to denial of credit to the customer, due to non-auto population in GSTR 2A.

  • B2B indicated as B2C
  • Wrong GTIN of the customer used
  • Incorrect GST, etc.

Pointers from the decision:

  • That assessees should not be prejudiced from availing credit that they are otherwise legitimately entitled to
  • The error committed by the petitioner is an inadvertent human error and the petitioner should be in a position to rectify the same
  • Absence of an effective, enabling mechanism under statute for rectification

Comment: One can use this decision to approach the Authority requesting them to rectify the GSTR-1 beyond the prescribed due date.

Action Point: A follow-up write to be filed from the Trade Forums to enable this rectification of GSTR-1 in the GST Portal for all assessee, else each one needs to know the HC Door.

5. Does the Law allow GST officers to use coercive measures during investigation?

The High Court of AP at Telengana in case of Agarwal Foundries Pvt Ltd Vs UoI 2020-TIOL-1898-HC-AP-GST has held that it would be futile for the respondents to claim any liberty to torture or use physical violence during the course of search, investigation or interrogation under the CGST Act, 2017 against persons suspected of tax evasion like the petitioners or their employees.

Comment: In some cases, the officers may restore to physical assault on the assessee or its employees. There may be unreasonable summons and detention till late night. The officer cannot go to violate the right of personal Liberty granted by the Constitution.

Action Points: During the investigation, first requirement is to co-operate with the officers and provide all the required information. If there is a case of physical assault by the officer, then a police complaint needs to be registered. This fact can also be bought to the notice of the higher official. Summons issued to appear late night should be challenged and request for the rescheduling the same during the day needs to be done.

6. Change in Destination of Goods – Can the goods be detained?

The High Court of AP in the case of Sree Rama Steels Vs Deputy State Tax Officer 2020-TIOL-1899-HC-AP-GST held ‘Noticing the conveyance at a wrong destination’ without anything more cannot be said to be a contravention of the CGST Act/Telangana GST Act, 2017 and it is not an taxable event, for there could be several reasons for the same including the driver losing his way or stopping for repair or to answer a call of nature. Once the conveyance/vehicle driver had the tax invoice and the e-way bill, there is prima facie compliance with the provisions of the CGST Act and Telangana GST Act and the rules made thereunder and as per para 5 of the circular dt. 14.9.2018 referred to above, it did not warrant initiating of proceedings under Sec. 129 of the Telangana GST Act, 2017.

Comment: In business it common that the destination of the goods may be changed at the last movement, due to sale in transit or the customer request etc. In such case the goods cannot be detained only because the goods are in wrong destination as compared to e-way bill.

Action Point: As a professional approach, in case there is a change in destination of the goods than that of the e-way bill. The fact can be intimated to the jurisdiction office in writing or e-mail to official mail id, which helps in establishing the facts, and do not give chance for the dep to argue the same to be after thought.

7. Can ITC be availed beyond due date?

The High Court of Bombay in the case of Heritage Lifestyles And Developers and Pvt Ltd Vs UoI 2020-TIOL-1875-HC-MUM-GST has held when there is no dispute to the fact that the Petitioner is otherwise eligible for credit of Rs. 78,62,466/- then to deny the benefit of such Input credit merely on technical grounds cannot be justified. Merely on technical ground an admitted input credit is sought to be denied to the Petitioner. That according to us would be wholly unfair and a travesty of justice. It is in these facts and circumstances that we are compelled to invoke our writ jurisdiction in this case.

Facts of the case: The petitioner had not filed TRAN-1 within due date (not even attempted). After the due date made a manual application seeking credit. Department denied the credit stating the claim was beyond due date. HC allowed the credit.

Comment: There is a common issue for not availing the input tax credit within the due date (earlier of 30th September of next FY & filing of the annual returns). This decision gives hope for claiming the otherwise eligible credit beyond due date

Action points: Wherever there is a missed credit, a manual letter could be filed with the Department seeking for credit in the electronic credit Ledger by taking the reference of this judgment. In case there is a substantial amount missed one may explore the option of filing a writ in the High Court

8. Can the goods having invoice be confiscated during transit for error in e-way bill?

The High Court of Kerala in the case of Gokul PG Vs State Of Kerala 2020-TIOL-1929-HC-KERALA-GST has held invocation of Section 130, in the absence of any material to suggest that there was an evasion of tax by the petitioners, cannot be said to be justified. In particular, it has to be noticed that the invoice raised by the petitioners admitted their liability to IGST, and while there is a presumption in favour of the petitioners with regard to tax compliance.

Comment: Section 130 of the CGST Act provides for confiscation of goods or conveyances and levy of penalty when there is an intent to evade payment of tax. If Invoice is issued where would be the intention to evade the tax? It is an accounted transaction.

Action Point: This decision can be used for contesting the confiscation and fine imposed during the transit where invoice was available.

9. Subscription collected by residential welfare society – taxable?

The Maharashtra Appellate Authority for Advance Ruling in the case of Apsara Co-Operative Housing Society Ltd 2020-TIOL-65-AAAR-GST has ruled that The provisions under the CGST law – definition of ‘person’, ‘business’ and ‘supply’ are now self-contained, unqualified and wide enough to include the supply by both – incorporated and unincorporated clubs to its members and by their extensiveness completely does away with the principal of mutuality

Pointers:

  • SC decision Calcutta Club [2019-TIOL-449-SC-ST-LB ] is with respect to sales tax
  • Amendment to Article 366(29A) of the Constitution and Finance Act, 1994 were inadequate in doing away with the principle of mutuality and the deeming provisions fell short of taxing sales or service provided by incorporated clubs
  • ‘person’ under section 2(84) of the Act clearly includes both incorporated and unincorporated clubs
  • business includes provision by a club of the facilities or benefits to its members
  • Housing society provides benefits and facility unlike in Rotary Club where it is only sharing of the admin expense.

Comment: This Ruling has not appreciated the fact that the housing society only channelises the common expense to maintain the society and distributes the cost among the members.

Action Points: The definitions in GST brining in the artificial levy for the expenses incurred through an incorporated body should be challenged based on the principle of mutuality.

10. Service received from foreign entity through its branch in India – RCM of Direct Charge?

The Appellate Authority For Advance Ruling West Bengal in the case of IZ Kartex 2020-TIOL-66-AAAR-GST has ruled supply of service by the Vendor aboard qualifies as import of service and GST is payable on such import of service by recipient under reverse charge mechanism.

Facts

  • IZ-Kartex, the Russian company has entered into maintenance contract with BCCL in India.
  • IZ-Kartex, has registered its branch in India and have taken GST registration
  • They have deployed DDP-N, an Indian company as the subcontractor.
  • DDP-N issues invoice to the Russian company. Again, the Russian company is raising bills on BCCL against supply of service.

Pointers

  • Registered place of business cannot be termed a fixed establishment.

Comment: The definition of the location of the supplier of service to be the place of business for which the registration has been obtained from where the service is provided. In this case the appellate advance ruling has been not considered the fact that the place of business is in India for which they have taken the registration, the fact that the work is executed by a sub-contractor will not negate the Indian premise to be the place of supply.

Action Point: If this ruling is to be followed, the ITC charged by sub-contractor would be a cost. So one has to ensure the contract has been executed by the Indian branch of the foreign entity and all invoicing is made to and from that branch.

11. Commission paid to Whole Time Director – Liable to GST under RCM ?

The Kolkata CESTAT in case of Bengal Beverages Pvt Ltd Vs CGST & CE 2020-TIOL-1626-CESTAT-KOL has held whatever remuneration is being paid in conformity with the provisions of the Companies Act, is pursuant to employer-employee relationship and the mere fact that the whole-time Director is compensated by way of variable pay will not in any manner alter or dilute the position of employer-employee status between the company assessee and the whole-time Director. Demand that the directors have provided service to the company becomes infructuous and hence cannot survive before the eyes of the law

Pointers:

  • A whole-time Director refers to a Director who has been in employment of the company on a full-time basis and is also entitled to receive remuneration
  • He is an officer in default for any violation or non-compliance of the provisions of Companies Act
  • Companies Act make whole-time director (as also in capacity of key managerial personnel) responsible for any default/offences

Comment: Demand on the director remuneration in the hands of the company under RCM is a quite common, this decision would be handy to deal with all such demands whether on the commission or on remuneration.

Action Points: One must have the proper documentation to prove that the director appointment is whole-time, which could be resolution of appointment, the forms filed with the MCA. The TDS compliance under 192 of the Income Tax Act would also confirm the nature.

12. Sale of flats by Landowner allotted to him pursuant to JDA – Liable to GST?

The Karnataka Authority For Advance Ruling in B R Sridhar 2020-TIOL-285-AAR-GST has ruled sale of owner’s share of units/flats prior to issuance of completion certificate, the transactions amount to supply of “Works Contract Service” are liable to GST.

Facts of the case: The landowner has entered into JDA and gets 40% of the built-up area, which he sells. The question is on applicability of GST on such case by landlord.

Comment: Common perception of the trade is that since landlord is not undertaking any construction, no GST liability of sale of built-up area made by them. However, it has to be noted the levy is on supply of goods and service, exclusion is only for items falling under schedule -III and hence such sale of landowner will not be an exception.

Action Point: The landowner who intends to sell, his share prior to completion certificate need to obtain the registration and pay GST. Landowner would also be eligible of ITC of the GST charged by the developer. No GST to be paid in case entire consideration received after obtaining completion certificate.

(For feedback and queries mail to [email protected])

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10 Comments

  1. ASHOK KANUNGA says:

    PLEASE PROVIDE CASE LAW /ADVANCE RULING OF —INTEREST NOT PAYABLE UNDER GST IF ITC AVAILED BUT NOT UTILIZED SECTION 50 (3) OF CGST

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