1. Is the recipient eligible to claim a refund? Whether the refund of the unutilized ITC in the e-credit ledger be claimed?

In the case of M/s Britannia Industries Limited Vs Union of India (Gujarat High Court) the assessee is an SEZ unit being an exporter has procured the goods and services with payment of GST to vendors through Input Service Distributor. Claimed the refund of the accumulated credit as a recipient. The refund was held to be eligible.

Things to ponder:

– Can this ratio be extended for claiming a refund for accumulated credit in all cases?

Comment: This decision has been given considering Section 54 and hence cannot be applied for the scenario beyond covered in Section 54 i.e. refund is eligible only in case of exports and inverted duty structure.

– Can this ratio apply to say recipient eligible for the refund?

Comment: This decision has examined the 2nd proviso to Rule 89(1) of the CGST Rules 2017, where there is a restriction on claiming the refund relating to supplies to SEZ. However, without such restriction, the recipient is eligible in all other cases to claim a refund.

two green one black pencil with text GST GOODS AND SERVICES TAX in the notebook on the white background

 2. Demand under RCM for the past period.

Service Tax demand under the Reverse Charge Mechanism after the introduction of GST. Now that the department is closing out Audits of the pre-GST regime, this is a common issue.

Things to ponder:

Whether Service Tax has to be paid? If service tax to be paid would that be eligible as credit under GST (CGST)?

Comment: One can contest non-payment of service tax when tax paid under RCM was eligible for credit.

CESTAT in the case of Ashirwad Foundaries Pvt Ltd Vs Commissioner of CGST & CE  2020-TIOL-908-CESTAT-KOL dropped the demand of Service tax on GTA under RCM, stating revenue neutrality. Star Alloys & Chemicals Pvt. Ltd. 2018-TIOL-1453-CESTAT-DEL has held that in the case of GTA service, CENVAT credit is available, therefore extended period cannot be invoked. The Supreme Court in the case of Coca-Cola India Pvt. Ltd. 2007-TIOL-245-SC-CX and Narmada Chematur Pharmaceuticals Ltd. 2004-TIOL-113-SC-CX-LB, has held that if there is no revenue implication involved, then no tax is required to be paid.

3. Principle of Natural Justice – Opportunity of being heard.

Madras High Court in the case of Urbanclap Technologies India Pvt Ltd Vs State Tax Officer 2020-TIOL-1506-HC-MAD-GST squashed the Assessment order passed by the GST State Tax Officer dated 14th February 2020 where the Personal Hearing intimation was issued on 13th February 2020 posting the hearing on 14th February 2020.

Comment: There has been a reasonable discipline of adjudication by the Central Tax offices where sufficient time for a hearing has been granted with at least 3 opportunities. However when it comes to adjudication by the GST – State Tax Offices, it is often observed that there is a short time for appearing, adjournments not entertained, etc.

Action Point: This sought of decision need to be bought to the notice of the Commissioner of GST – State Tax and suitable internal guidance lines for the officers may be requested.

4. Expat salary reimbursement on Deputation.

Chandigarh CESTAT in the case of Canon India Pvt Ltd Vs CGST 2020-TIOL-1356-CESTAT-CHD CESTAT has referred the issue whether Service Tax is payable on the salary reimbursement paid to the parent company abroad under the reverse charge mechanism to Larger Bench.

Facts: M/s. Canon Inc Japan has deputed few employes on deputation to India on rolls of M/s. Canon India. Salary paid by Canon Inc Japan to the employees, which is reimbursed by M/s. Canon India.

Difference: This issue was settled in the favour of revenue in the case of M/s. Mikuni India Pvt.Ltd. -2019-TIOL-3188-CESTAT-DEL & India Yamaha Motor Private Limited- 2019-TIOL-3675-CESTAT-DEL, however Member (Technical) believes that these decisions would be relevant for the period before the negative list (1st of July 2012). Member (Judicial) is of the view the facts have not been distinguished.

Things to ponder: Whether this decision applies to GST?

Comments: The definition of service excluded the services provided by the employee to  employer and in GST the same is covered under schedule – III of the CGST Act. So would be relevant for GST also.

Action Points: Since the matter is referred to the Larger Bench, the chance of demand under GST may arise. Few things to consider:

1. Clear employment contractor indicating the employer-employee relationship

2. Compliance of the local Law (PT/PF) considering the employment of the deputed person on rolls

3. Explore the possibility to fulfill the condition of Pure Agent

5. GST on employee recovery

Maharashtra Authority For Advance Ruling in the case of Tata Motors Ltd 2020-TIOL-245-AAR-GST has ruled that the nominal cost recovery from the employee towards the transportation is not liable for GST. It was observed employer is not supplying any services to its employees.

Comments: A very good ruling, few additions that could be considered, when the recovery is made there is no contract for the supply of service, it is more of the employee benefit extended. Further, if this would be part of the CTC of the employee, then it would be like a settlement of the employment service, which is neither supply of goods nor supply of service.

6. Determining principle supply

Gujarat Authority for Advance Ruling in the case of M/s Oswal Industries Ltd 2020-TIOL-251-AAR-GST has ruled the naturopathy along with the accommodation is liable for GST. The advance ruling has treated this a composite supply of treatment and accommodation and the principal supply being accommodation.

Reasons: (1) Since the therapy can in no way be administered without accommodation, (2) No option available for the customer to avail the wellness package without opting for the accommodation.

Comments: The principle supply to be determined based that an essential part of the supply, for which reason the recipient is availing the said supply. In this case, the recipient is interested in therapy and not he accommodation, and hence the principle supply has to be health care and cannot be accommodation service. Even in a hospital without the inpatient room treatment cannot be provided, does that mean the principle supply is an accommodation?

On Merits: AP High Court held Service Tax not payable on naturopathy treatment in a very similar set of facts. Writ Petition No. 33798 of 2016 as reported in 2017 (3) G.S.T.L. 213 (A.P.) (Manthena Satyanarana Raju Charitable Trust v. Union of India)

 7. Scrutiny report obtained during the adjudication to be provided to the respondent

The High Court of Madras in the case of M/s T V Sundaram Iyengar & Sons Pvt LTD 2020-TIOL-1554-HC-MAD-ST has held that the scrutiny report obtained by the Commissioner during the adjudication has to be made available to Notice.

Comment: During the adjudication, a verification report would be called for from the range office based on the submission made by the assessee. The order would be passed considering this report, however, the assessee would come to know only after the order is passed. In case there was an error in the report, the appeal is the only remedy. The appeal comes with the cost of pre-deposit. This decision can be used by the noticee to reserve the right of giving the additional submission based on the report of the range. This submission can be made in the reply to show cause notice an also during the personal hearing.

 8. Jurisdiction for Detention of Goods in Transit

It is been seen often, the goods have been detained by the recipient state officer and object the classification or the rate of tax. Now the supplier is being assessed with the jurisdiction where the goods are arising. So do the officer at the recipient location has the power to detain the goods?

Kerala High Court in the case of 2020-TIOL-1565-HC-KERALA-GST Hindustan Coca Cola Pvt Ltd Vs Assistant State Tax Officer held it is irresistibly concluded that in case of a bonafide dispute with regard to the classification between a transitor of the goods and the squad officer, the squad officer may intercept the goods and detain them for the purpose of preparing the relevant papers for effective transmission to the jurisdictional assessing officers and nothing beyond.

Comments: Whenever there is the detention of good without jurisdiction it can be challenged and hence we need to understand the jurisdiction.

 9. Supply by Franchisee: Is it on behalf of the Franchisor?

The Gujarat Authority for Advance Ruling in the case of Patrator 2020-TIOL-256-AAR-GST has ruled franchisee is supplying goods and service on behalf of the Franchisor, thereby is liable for taking GST registration (compulsory registration u/s 24 of the CGST Act) and pay GST even if turnover is less than Rs.20L

Things to Ponder: The Advance Ruling authority has not considered

– Transfer of ownership of goods or service from the Franchisor to Franchisee

– Privity of the contract between the franchisee and its customer

– Supply of goods or services being done by franchisee using the brand of Franchisee and not on behalf of the franchisee

– No Agency agreement b/w franchisor and franchisee

– Profit or loss of the franchisee would not be borne by the franchisor

Comments: The above factors need to be considered before concluding the requirement of the registration for the franchisee.

10. Disputed CENVAT Credit paid during the Service Tax Regime available as a refund in cash.

There may be several disputes of CENVAT under service tax and central excise, where the CENVAT would be reversed and the matter would be subjudice. If the matter is settled in favor of the assessee what would happen to CENVAT which was reversed? Delhi CESTAT in the case of Kaizen Organics Pvt Ltd Vs Commissioner of CGST 2020-TIOL-1412-CESTAT-DEL has ordered for refund in cash along with interest.

Comments: In all such cases where the CENVAT has been reversed during the adjudication/appeals a specific prayer for granting refund in cash may be made.

11. Refund of ITC on input service and capital goods in case of an inverted duty structure?

The taxpayer is supplying the goods having a lower rate of tax than the rate paid on purchase, ITC gets the accumulated. The accumulation will not only be from the inputs but also capital goods and input services. Now the question would such taxpayer would be eligible for the entire refund accumulated or the same needs to be restricted only to the extent of inputs?

Gujarat High Court in the case of VKC Footsteps – 2020-TIOL-1273-HC-AHM-GST had held that accumulated input tax credit of the input service should also be eligible for the refund in case of inverted duty structure. Recently Madras High Court in the case of Transtonnelstroy Afcons JV Vs UoI 2020-TIOL-1599-HC-MAD-GST has deviated from this and has held that refund should be restricted only on inputs. Now this matter has to be settled by the Supreme Court

Comments: The intention of giving a lower rate of tax for a product is to ensure the incidence of the tax is restricted. Not allowing the refund of the input service and capital goods will add tax incidence, adding cost to that extent to the buyer. So will this serve the intention of the statute? This requires correction in my view.

Action Points :

1. Representation needs to be made to the GST Council for amendment of the act to allow refund of any credit accumulated in case of the inverted duty structure.

2. Claim the refund of input service and capital goods despite the decision of Madras High Court to avoid limitations.

12. Eligibility of ITC in case of non-payment by the vendor

High Court of Madras in the case of Sri Ranganathar Valves Pvt Ltd Vs Assistant Commissioner (CT) (FAC) 2020-TIOL-1611-HC-MAD-VAT has held that ITC claimed by an assessee cannot be denied solely because the dealers from whom the assessee made purchases, had not paid taxes following the landmark judgment in case of Thiruverkadu Assessment Circle, Kolathur, Chennai Vs. Infiniti Wholesale Ltd. reported in [2017] 99 VST 341 (Mad).

Comment: This is a decision given under the TNVAT Act, 2006 where proviso to section 19 requires to establish that the tax due on the purchase of goods has actually been paid in the manner prescribed by the registered dealer who sold such goods and the burden of proof is vested on the purchasing dealer us/ 17. Which is very similar to the CGST Act, 2017. Thereby this should be applied under the GST regime.

Action Points:

This decision can be used against all the notice and demands proposed by the department for the mismatch between GSTR-2A and GSTR-3B.

13. GST paid to the vendor instead of paying to Govt. under RCM

Kolkata Cestat in the case of Mahanadi Coalfields Ltd Vs CCGST & CE 2020-TIOL-1434-CESTAT-KOL held there is no reason to confirm the demand when service tax stands already paid and there is no loss of revenue to the Exchequer.

Comment: On some notified services, GST needs to be paid by the recipient instead of the supplier. However, in many cases, the supplier charges the GST and the recipient makes the payment of GST to the supplier instead of remitting to the credit of Govt. Since the amount is with the Govt. paying again under RCM is not required.

Action Points:

Although this decision would be useful it would be recommended to pay the tax under RCM as applicable and this decision could be used as a shelter for past noncompliance.

In all such cases, the onus to prove that tax is with the Govt. would be on the recipient and hence a proper proof such as declaration from the supplier, CA certificate, returns, etc. has to be kept handly.

14. Transaction Value to be accepted unless the proper officer has reason to doubt the truth or accuracy of such value.

Delhi CESTAT in case of Aureole Atelier Pvt Ltd Vs CC 2020-TIOL-1440-CESTAT-DEL in a Customs case has held for the purpose of valuation the value of imported goods shall be the transaction value of such goods, i.e. to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time of place of importation, or as the case may be for export from India, where the buyer and seller of the goods are not related and the price is the sole consideration for the sale. There are no reasons recorded for rejection of transaction value before taking the exercise of revaluation and enhancement of transaction value. Thereby revaluation was setaside and the transaction value was upheld.

Comment: This decision would apply to GST also. Doubt arises whether there could be differential pricing for the same goods or services, based on the various type of customer and demand? As long as the price paid or payable is the sole consideration between the related party, the valuation cannot be questioned.

15. Direct and immediate nexus with the supply and consideration required to attract GST.

Maharashtra Appellate Authority for Advance Ruling in the case of Vijay Baburao Shirke 2020-TIOL-51-AAAR-GST has ruled the price money on winning of the race is not liable to GST.

Some important observation is Ruling :

1. No service has been provided by the applicant-respondent to the racing clubs for the Prize money/stakes received from such clubs

2. Not all horse owners, who agree to provide their horses to such race organising clubs, get consideration in the form of the said prize money/stakes from such clubs

3. For the occurrence of any taxable event, there must be a direct and immediate link between the supply made and the consideration received

4. Every supply is a contract but not every contract is a supply

Comment: This ruling brings out an important point that there has to be a nexus between the supply and the consideration. Consideration received without having a direct nexus with the supply would not attract GST.

Action Point: This Ruling can be used for various scenarios like compensation, damages, incentives, etc. where there is not any nexus with the supply for not paying the GST.

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

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June 2021