CMA Rakesh Bhalla
Past chairman NIRC of ICAI (CMA)*
CMA Rakesh Bhalla

GST

Clarifications regarding GST in respect of certain services –

Refer Circular No. 32/06/2018-GST dated 12th February 2018)

For example: Issue – Is hostel accommodation provided by Trusts to students covered within the definition of Charitable Activities and thus, exempt under Sl. No. 1 of notification No. 12/2017-CT (Rate).

Hostel accommodation services do not fall within the ambit of charitable activities as defined in para 2(r) of notification No. 12/2017-CT (Rate). However, services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent are exempt. Thus, accommodation service in hostels including by Trusts having declared tariff below one thousand rupees per day is exempt.

Refer Circular No. 34/8/2018-GST dated 01st March 2018

For example Issue- Whether activity of bus body  building, is a supply of goods or services?

In the case of bus body building there is supply of goods and services. Thus, classification of this composite supply, as goods or service would depend on which supply is the principal supply which may be determined on the basis of facts and circumstances of each case.

Adjudication under CGST Act & IGST Act – Monetary limits of officers prescribed: Superintendents (of Central Tax) will be empowered to issue SCN & pass order where CGST not paid or short paid or erroneously refunded or ITC of CGST has been wrongly availed or utilized is upto Rs.10 lakhs. This limit in respect of IGST will be Rs. 20 lacs. Deputy /Assistant Commissioners can issue SCN and pass order in cases where such CGST not paid, etc., is above Rs. 10 lakhs (IGST–Rs. 20 lakhs) and upto Rs. 1 crore (IGST–Rs.2 crore). Additional / Joint Commissioners have been empowered to issue SCN and pass adjudication order without any monetary limit. Officers of Audit Commissionerates and Directorate General of GST Intelligence can issue SCN but adjudication will be undertaken by officers concerned in executive Commissionerate in whose jurisdiction noticee is registered. CBEC Circular No. 31/05/2018-GST dated 9-2-2018.

GST on construction of affordable flats -Finance Ministry issues Press Release: Builders and developers should not recover GST payable on certain category of flats/houses from the buyers. All inputs and capital goods used in construction attract GST of 18% or 28%, and hence builders who are liable to GST @ 12% on certain category of flats/houses would have enough ITC available. Builders/developers are expected to follow the principles laid down under Section 171 (anti-profiteering), scrupulously. Further, it notes that there is no GST on supply of land whether by way of sale or lease or sub-lease to the buyer of flats. Press Release dated 7-2-2018

CGST Rules amended to revise provisions for registration and e-way bills: Provisions restricting cancellation of registration taken on voluntary basis, before one year of registration, have been omitted, while persons who have migrated to GST though not liable now can submit application for cancellation of registration till 31-3-2018. Rule 138 dealing with E-way Bills has also been substituted with effect from 1-2-2018. Further, changes have been made to make it mandatory for the person-in-charge of the conveyance to carry copy of tax invoice or bill of supply in case he is not required to carry an e-way bill. New Rule 55A has been inserted in this regard with effect from 23-1-2018.

Supplies to Railways – Classification and rate of duty clarified:CBEC has clarified that only the goods classifiable under Chapter 86, supplied to the Railways would attract 5% GST rate with no refund of unutilized input tax credit (ITC). Other goods falling under any other chapter of the Tariff, will attract the applicable GST rates to such goods, even if they are supplied to Railways.Circular No. 30/4/2018-GST 25-01-2018.

GST payable on net quantity when only portion of raw material retained: –GST will be payable by the oil refinery on the value of net quantity of polybutylene feedstock and liquefied petroleum gas retained for the manufacture of Poly Iso Butylene and Propylene or Di-butyl Para Cresol by manufacturers of such products. Refinery will be liable to pay GST on such returned quantity of Polybutylene feedstock and Liquefied Petroleum Gas when the same is supplied by it toany other person. Manufacturers of Propylene orDi-butyl Para Cresol and Poly Iso Butylene were receiving LPG and Poly butylene feed stock fromoil refineries, and while a portion of the rawmaterial is retained by these manufacturers theremaining quantity is returned to the oil refineries.Circular No. 29/3/2018-GST, dated 25-1-2018.

EU proposes more flexibility to States on VAT rates:The European Commission has proposed new rules to give Member States of EU more flexibility to set VAT rates. Currently, Member States can apply a reduced rate of as low as 5% to two distinct categories of products in their country. States will now be able to have two separate reduced rates of between 5% and the standard rate chosen by the Member State; one exemption from VAT (or ‘zero rate’); and one reduced rate set at between 0% and the reduced rates. According to the EU Press Release dated 18-1-2018, States will however have to ensure that weighted average VAT rate is at least 12%.

GST regime not tax (payer) friendly – State of affairs not satisfactory:In a Writ Petition filed by a manufacturer expressing various difficulties faced in accessing the GST online portal, for filing returns, etc., Bombay High Court held that GST regime is not tax friendly. Directing the Union of India to file affidavit, the Court expressed hope that those in charge of implementation and administration of GST law would put in place the requisite mechanism which is necessary to preserve the image, prestige and reputation of the country.Further, taking note of the recent Allahabad High Court Order directing the government to reopenthe portal or entertain the application manually, the Court in the present case stated that it would also be constrained to pass such order which would not be restricted to the petitioner alone. Authorities to work out the necessary mechanism and also set up and establish a grievance redressal mechanism. [Abicor and BinzelTechnoweld Pvt. Ltd. v/s. Union of India – 2018- VIL-61-BOM].

Detention not permissible for mere infraction of Kerala State GST Rules 55 and 138:Kerala High Court has held that mere infraction of the procedural rules like Rules 55 and 138 of the State GST Rules cannot result in detention of goods, though it may result in imposition of penalty. The Court in this regard noted that detention is contemplated under the statutes only when it is suspected that the goods are liable to confiscation. It was observed that according to Section 130 of the Kerala GST Act confiscation of goods is contemplated only when a taxable supply is made otherwise than in accordance with the provisions, with the intent to evade payment of tax. The High Court also noted that the Revenue department had not disputed the genuineness of the delivery challan issued by the assesse-petitioner for transporting the goods involved.

[Indus Towers Limited v. Assistant State Tax Officer – 2018-VIL-48-KER].

Detention of goods cleared under delivery challan when not sustainable: –Kerala High Court has set aside detention of goods cleared under Delivery Challan, without declaration under Section 138(2) of Kerala State GST Act (e-way bill). The Court rejected plea of suspicion of evasion since goods were intended for unregistered firm, holding that registration of person to whom goods are supplied is irrelevant. Plea of non-accompanied documents was rejected, relying on earlier order holding that in such cases unless authenticity of delivery challan is doubted, goods cannot be detained.

[Age Industries v. Asst. STO – 2018-VIL-45-KER].

Customs                                                                                               

Edible/food products – Import conditions revised:Import of all edible/food products will now be allowed only if the product, at time of import, is having a valid shelf life of not less than 60% or 3 months before expiry, whichever is less. This condition will apply to the import food products in addition to the provisions of Food Safety & Standards (Import) Regulation, 2017. This condition is not applicable to re-import for export purposes under Para 2.46 of the current ForeignTradePolicy.DGFT Notification No. 49/2015-20, dated 5-2-2018.

Import duties increased on sugar and chickpeas: – Ministry of Finance has, on 6-2-2018, increased Basic Customs duty payable on import of Sugar and Chickpeas. Notification No. 24/2018-Cus. issued in this regard omits certain entries providing for reduced rate of duty under Notification No. 50/2017-Cus on goods of Heading 1701, raw sugar, refined or white sugar, etc. It may be noted that the Tariff rate for goods of Heading 1701 is 100% at present. BCD on Chickpeas has been increased to 40% by Notification No. 25/2018-Cus.

Customs redemption fine to be paid within 120 days: – Section 125 of the Customs Act, 1962 has been proposed to be amended by Clause 93 of the Finance Bill, 2018 to provide for payment of redemption fine within 120 days from the date when such option is provided. According to the proposed sub-section (3) such option otherwise will become void unless an appeal against order providing such option is pending. It may be noted that in cases where order providing option of redemption fine is passed before Finance Bill, 2018 receives the Presidential assent, this option can be exercised within 120 days from the date of assent.

Demand – Pre-consultation before SCN and time limit for adjudication under Customs: – Clause 61 of the Finance Bill, 2018 seeks to amend Section 28 of the Customs Act, 1962 to provide for pre-notice consultation before SCN in cases not involving collusion, willful misstatement and suppression. Further, adjudication of SCN – both under normal and extended period, will have to be mandatorily done within 6 months and 1 year respectively. As per the proposals, this period can be extended once, after which notice will be deemed as not issued, subject to certain conditions. Notices issued after 14-5-2015 but before Presidential assent of the Finance Bill, 2018, will however continue to be governed by existing Section 28.

Exemption to inward and outward processing of goods:- Finance Bill, 2018 (Clause 60) proposes to insert two sections in the Customs Act, 1962 to empower the government to exempt inward and outward processing of goods. While new Section 25A seeks to exempt goods imported for the purposes of repair, further processing or manufacture, Section 25B will empower the government to exempt goods reimported after being exported for repair, further processing or manufacture. Re-exports or reimports will have to be made within a period of one year from the order of clearance of imports and exports, respectively.

Finance Bill introduces Social Welfare Surcharge of 10% on imports:-Finance Bill, 2018 has proposed a Social Welfare Surcharge as Customs duty on goods specified in the First Schedule to the Customs Tariff Act. The new levy which replaces Education Cess and Secondary and Higher Education Cess, will be levied on imports at the rate of 10% on aggregate of Customs duties. While certain goods are exempted, surcharge at the rate of 3% will be levied on petrol, HSD and certain silver and gold. It may be noted that while Clause 108 of the Finance Bill proposing the surcharge has come into effect immediately, exemption, till the Bill receives the Presidential assent, has been provided from Education Cesses by Notification Nos. 7 and 8/2018-Cus., both dated 2-2-2018.

IGST and Compensation Cess on warehoused goods sold before clearance:- Customs Tariff Act, 1975 has been proposed to be amended by Clause 100 of the Finance Bill 2018 to provide for the method of computation of Integrated Tax and GST Compensation Cess where goods are warehoused before clearance. The new provisions will be applicable where the warehoused goods are sold before clearance for home consumption or export. According to proposed sub-sections 3(8A) and (9A), the value in such case would be the transaction value or the value determined under sub-sections (8) and (9), respectively, whichever is higher.

Customs Act – Scope to be expanded: –The scope of Customs Act, 1962 is sought to be expanded to make it applicable to a person who commits any offence or makes any contravention thereunder outside India. Section 1 of the Customs Act is proposed to be amended in this regard by Clause 55 of the Finance Bill 2018.Further, according to Notes on Clauses of the Finance Bill, Section 17 of the Customs Act is proposed to be amended to broaden the scope of verification by the proper officer. Similarly, the scope of re-assessment is also proposed to be broadened beyond valuation, classification and exemption or concession of duty.

Valuation – Loading of profit margin of foreign supplier:-CESTAT, Bangalore has held that it was not justified to attribute loading of profit margin of the related unit in Ireland to the goods imported from the related unit in Singapore. The adjudicating authority had loaded the value observing that the goods were receive by the Singapore Company from Ireland and subsequently supplied to the Indian importer, and that profit margin of Singapore unit was extremely low in comparison to that of unit in Ireland.

[Commissioner v. Apple India – Final Order No. 22966/2017, dated 4-12-2017, CESTAT Bangalore].

No redemption fine in case of bona fide import: – Refund of redemption fine and penalty paid by the importer under protest has been ordered by CESTAT (Mumbai Bench) in a case where there was no restriction on import of seamless pipes – both at the time of placing the orders and also when the Bill of Entry was filed subsequently when the restriction was removed. The goods had arrived in India when such restriction was in place. The Tribunal observed that an application for opening Letter of Credit was filed by the importer before the issue of notification restricting such imports, which was issued/opened by the bank on the date on which the notification imposing restriction on future import of such goods was issued by DGFT. Fact that effective steps were also taken by the importer for obtaining license was also taken note of by the Tribunal.

[Oil and Natural Gas Corporation Ltd. v. Commissioner – Order dated 8-1-2018 in Appeal No. C/440/09, CESTAT Mumbai].

Central Excise and Service Tax

Commercial construction service – Nature of occupant’s activities important:- CESTAT Delhi has set aside demand of Service Tax under Commercial and Industrial Construction service for construction of headquarter building of National Rifle Association of India and another building for a recognized university. The Tribunal was of the view that collection of fees for promoting or allowing a person to use the facility by the Rifle Association or the University will not make the buildings ‘commercial’. [Vij Construction Pvt. Ltd. v. Commissioner – Final Order No. 0291/2018, dated 11-1-2018, CESTAT Delhi].

Cleaning of railway coaches not liable under Cleaning Service: Observing that railway coaches are rolling stock of railways and they are not covered under commercial objects of industrial building, factory, plant or machinery, CESTAT Delhi has set aside demand under Cleaning service in respect of cleaning of railway coaches. Original authority’s contention that railway coaches are either standing on platform or running on the track and the same are to be considered as object on the premises for Indian Railway, was hence rejected.

[R.K. Refreshment & Enterprises (P) Ltd. v. Commissioner – Final Order No.50298-50299/2018, dated 22-1-2018, CESTAT Delhi].

Classification of service – Separate identifiable service as part of composite contract: – CESTAT Delhi has held that when there were identified specific activities, though part of a general contract involving both taxable and non-taxable activity, it was not proper to invoke the provisions of Section 65 of the Finance Act, 1994 to decide classification of service. The dispute involved supply of newspaper to railway passengers, under a composite contract involving outdoor catering. Observing that the amount attributable to supply of newspaper was clearly identified, the Tribunal held that Section 65 was applicable in cases of composite services involving combination of different services. [R.K. Refreshment & Enterprises (P) Ltd. v. Commissioner – Final Order No.50298-50299/2018, dated 22-1-2018, CESTAT Delhi].

Composite contract – Liability not determined by nature of invoice: CESTAT Chennai has upheld findings of composite contract for period before 2007. Dismissing the appeal, the Tribunal held that in a contract executed over a period of time,periodical invoices may be issued for supply of goods/labour or for both. It was held that contract liability was not decided by nature of invoices and that the rate schedule in contract did not convey its nature. [Commissioner v. Raghavendra Automations – Final Order No. 40166/2018, dated 22-1-2018, CESTAT Chennai].

Valuation – Quantification of cost of drawings supplied free of cost: –Mumbai Bench of the CESTAT has directed the manufacturer to obtain Chartered Engineer’s certificate for certifying the cost of drawing supplied free of cost to them by their principal. The Adjudicating Authority had taken 0.90% which was overall R & D expenses of the company to which assessee cleared its goods and which had provided the drawing free of cost. The Tribunal in this regard observed that cost of drawing is much less than overall R & D expenses for the reason that it also included expenses towards development and design of their final product and also parts which were manufactured by various other vendors. [Deluxe Engineering v. Commissioner – Order dated 11-1-2018 in Appeal No. E/772/09, E/62, 1952/10, E/1095/11 & E/755/12, CESTAT Mumbai].

IPR service – Continuous usage is not continuous rendering of service: –In a case involving transfer of right to use trademark, CESTAT Delhi has held that continuous usage byanother company cannot be construed as continuous rendering of service. Order of the Original Authority was set aside by the Tribunal in observing that the tax entry [Section 65 (55b) of Finance Act,1994] was not for continuous usage of intellectual property but on the event of transfer or permission. It was noted that transfer in the dispute was made before introduction of tax on such Intellectual Property Service. [Hamdard National Foundation (India) v. Commissioner – Final Order No. 50335/2018, dated 15-1-2018, CESTAT Delhi]

No charge under RCM on expenditure when income shown in accounts already suffered tax: CESTAT Delhi has held that expenditure which was part of same accounting for income cannot be taxed for same service, even under Reverse Charge Mechanism. The assessee had paid Service Tax on consideration paid by Indian recipient to assessee’s foreign office, which was captured in assessee’s accounts and further adjusted in accounts of the foreign firm. The department however had sought to tax expenditure as shown in same accounts under the category of consultancy fee, which again was reflected in accounts of the foreign firm, under RCM. [Lea International v.Commissioner – Final Order No. 50313/2018, dated 12-1-2018, CESTAT Delhi]

BAS – Media monitoring services not covered under ‘sales promotion’:CESTAT Delhi has rejected the contention of the Revenue department that media monitoring services covering analysis and/or supply of copies of media contents of interest, and news and views, relating to technological advancements pertaining to products and services being dealt with by clients, were ‘sales promotion’ liable under Business Auxiliary Service. The Tribunal in this regard was of the view that such activity though may help the client to formulate certain policies to improve business, it had no direct nexus to sales promotion. It was observed that such public relation activities were subsequently brought under tax liability from 1-5-2006. [Commissioner v. IPAN – Final Order No.50306/2018, dated 24-1-2018, CESTAT Delhi].

Excise – Software supplied separately when distinct from firmware: CESTAT Chennai has held that software supplied separately for loading in the client’s computer linked to the access control device for retrieval and monitoring of data cannot be considered as part and parcel of the said device. The assesse was engaged in manufacture of Electronic Circuit and Safety Equipment, and the dispute pertained to classification of separately supplied software which according to the department must be categorized along with said equipment. [Siemens Ltd. v. Commissioner – Final Order No. 40233/2018, dated 29-1-2018, CESTAT Chennai].

BAS – ‘Sales promotion’ does not cover non-compete agreement: CESTAT, Chandigarh has held that non-compete and non-solicitation agreement was not covered under sales promotion to be liable to tax under Business Auxiliary Services. Taking note of definitions of ‘marketing’ and ‘promotion’ in various dictionaries, and the Gujarat High Court decision in Cadila Healthcare, the Tribunal observed that assessee was not involved in targeting large population of consumers, but was paid for not to target consumers. It was also held that such activity was not liable before 1-7-2012. [Ashwini Kumar Bajaj v. Commissioner – Final Order No. 60015-60017/2018, dated 1-1-2018, CESTAT Chandigarh].

Commercial Coaching or Training services – Scope of vocational training: New Delhi Bench of the CESTAT has allowed exemption under Notification No. 24/2004-S.T. to an institute conducting courses in hotel management in collaboration with a foreign university. Rejecting the contention that degree in hotel management was not a vocational course, it was held that amendment made in 2010 was not retrospective.[Rosalinds Mediretta Institution Foundation v. Commissioner – Final Order No. 50239-50244/2018, dated 18-1-2018, CESTAT Delhi].

Cenvat credit on outward transportation, from place of removal, prior to 1-4-2008: Supreme Court of India has rejected the contention of the Revenue department that outward transportation provided beyond the place of removal was not eligible for Cenvat credit as input service. The period involved in this dispute was prior to 1-4-2008. Reliance in this regard was placed on CBEC Circular dated 23-8-2008 mentioning three conditions. It was held that it was not department’s case that the conditions laid down in the Circular were not satisfied, and that accepting department’s contention would amount to nullifying effect of the word ‘from’ in the then relevant definition of input service. [Commissioner v. Andhra Sugars Ltd. – Civil Appeal No. 11711, 11872, 11873 and 11910/2016, decided on 5-2-2018, Supreme Court]

VAT

VAT – Mobile phone charger when not to be charged separately from mobiles: – Distinguishing the Supreme Court judgment in case of Nokia India Pvt. Ltd., Allahabad HighCourt has held that mobile charger when sold as part of a composite package bearing a single MRP, along with a mobile phone, was not liable to be taxed separately. [Samsung (India) Electronics Pvt Ltd. v. Commissioner – 2018-VIL-41-ALH].

Valuation – Admissibility of deduction of discounts not shown in invoice: – Supreme Court of India has rejected the contention of the Revenue department that discount was permissible as deduction when computing the taxable turnover only if such discount was shown in the tax invoice. Taking note of the provisions of Rule 3(2)(c) of the Karnataka Value Added Tax Rules 2005, the Court was of the view that the words “in respect of the sales relating to such discount” cannot be construed to mean that the discount would be inadmissible unless the tax invoice pertaining to the goods originally issued shows the discount. [Maya Appliances (P) Ltd. v. Addl. Commissioner – 2018-VIL-05-SC]

(Author can be reached at nancybhalla@yahoo.com)

*Member ZAC & RAC Chandigarh – Central Excise & Service Tax (now GST) & Customs, Govt. of India, Member of Indirect Tax committee SIAM , Member, ASSOCHAM National Indirect Taxes Committee, Chief General Manager Finance- SML Isuzu Ltd., Winner Achiever Award 2015 by ICAI (CMA).

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