GST, Excise, Service Tax & Customs updates for February 2019

Article contains Proposal of 32nd GST council meeting, Summary of GST Notification / Circulars Issued during February 2019, Analysis of Important cases decided on GST, GST Compliance calendar – March 2019 , Summary of Custom Notification / Circulars / Judgments of  February 2019, Summary of Central Excise & Service Tax  Notification / Circulars / Judgments of  February 2019 and Summary of Value Added Tax (VAT) Notification / Circulars / Judgments of  February 2019.

A. Proposal of 32nd GST council meeting

The GST Council (Council), in its 33^rd meeting, has recommended a reduction in the rate of tax on supply of under-construction residential properties to 5% (1% for the affordable housing segment) without any input tax credit (ITC). This is proposed to be made effective from 1 April, 2019. Recommendations with regard to the aforesaid by the Council are summarised below

• The effective rate of tax on affordable housing properties is proposed to be reduced to 1% without any ITC. For other residential properties, the rate is proposed to be reduced to 5% without ITC.
• Affordable housing has been defined as a residential house/ flat of carpet area of up to 90 square meters (sqm) in non-metropolitan cities/ towns or 60 sqm in metropolitan cities, with a value cap up to INR 4.5 million in both cases. Bengaluru, Chennai, NCR, Hyderabad, Kolkata and Mumbai would be considered as metropolitan cities.
• The intermediate supplies relating to land, such as TDR, JDA, lease premium, FSI etc. are proposed to be exempted when in relation to residential property on which GST is payable.
• Respective committees of the GST Council would prepare the transitional rules covering the issues which may need to be addressed to implement such change in rates and would put it in public domain by 10 March, 2019.

B. Summary of GST Notification / Circulars Issued during February 2019

– GST invoices to mandatorily mention place of supply: CBIC has reiterated that all registered persons making supply of goods/services in course of inter-State trade or commerce shall specify the place of supply along with the name of the State in the tax invoice.  Contravention of any of the provisions of CGST Act or the Rules made there under attracts penal action under the provisions of Sections 122 or 125. It further notes that number of registered persons (especially in banking, insurance and telecom sectors) are not mentioning place of supply. (Circular No. 90/9/2019-GST, dated 18-2-2019)

– In-bond sale of goods during July, 2017 to March, 2018 Deemed compliance of transaction not reported correctly: Considering that facility to correctly report the nature of transaction in Form GSTR-1 furnished on the common portal was not available during the period July, 2017 to March, 2018, in respect of supply of warehoused goods while being deposited in a customs bonded warehouse, CBIC has clarified that, as a one-time exception, suppliers who have paid CGST and SGST on such supplies, during the said period, would be deemed to have complied with the provisions of law as far as payment of tax on is concerned. (Circular No. 91/10/2019-GST, dated 18-2-2019)

– Government of India vide Circular No. 89/08/2019-GST dated 18th February 2019 titled “Mentioning details of inter-state supplies made to unregistered persons in Table 3.2 of FORM GSTR-3B and Table 7B of FORM GSTR-1”

Important points are as follows:

♦ Required details to be filed in Table 3.2 of FORM GSTR-3B. Non-filing of appropriate details in this table would result in noon-appropriation of tax to receiving state.

♦ Accordingly, it is instructed that the registered persons making inter-State supplies to unregistered persons shall report the details of such supplies along with the place of supply in Table 3.2 of FORM GSTR-3B and Table 7B of FORM GSTR–1 as mandated by the law. Contravention of any of the provisions of the Act or the rules made there under attracts penal action under the provisions of section 125 of the CGST Act.

– Government of India issued notification  “seeks to insert tariff item 9806 00 00 in chapter 98 of the First schedule to Customs tariff act, 1975 to impose basic customs duty of 200% on all goods originating in or exported from Pakistan” The Central Government levied Import duty on all goods originating from Pakistan @ 200%  from 16^th February 2019.  Day after announcing that it is withdrawing most favored nation (MFN) status to Pakistan on the backdrop of the Pulwama terror attack, India on Saturday also increased duties on imports from Pakistan to 200%. Increasing duties would significantly hit Pakistan’s exports to India. (Notification No. 05/2019-Customs dated 16^th February 2019)

C. Important cases decided on GST

– The Authority for Advance Rulings in Tamilnadu has issued advance ruling  – Whether sale of Goods stored in Free Trade Warehousing Zone (FTWZ) by a foreign supplier which is cleared to Domestic Tariff Area (DTA) customer in India would result in supply subject to levy under GST Act 2017?  Whether foreign supplier need a registration in such FTWZ-  It was held that the Applicant is not liable to pay IGST at the time of removal of goods from the FTWZ to DTA. Recipient unit in DTA is liable to pay taxes on filing Bill of entry for consumption.As no tax is payable by foreign supplier in FTWZ, thereby registration is also not required for the same. (Advance Ruling No.  24/AAR/2018 dated 31st December 2018 Sadesa Commercial Offshore De macau Ltd )

– Electricity transmission No. 34 struck down: Gujarat High Court has struck down Para 4(1) of the CBIC Circular No. 34/8/2018-GST as ultra vires the provisions of CGST Section 8 as well as Notification No. 12/2017-Central Tax (Rate), serial No. 25. It is observed that meaning of transmission and distribution of electricity does not change either in Negative list regime  nor in GST regime.  It was also held that services which stood included within the ambit of transmission and distribution of electricity during the pre-negative list regime, as per 2010 circular, cannot now be sought to be excluded by merely issuing a clarificatory circular. (Torrent Power Ltd. v. Union of India – 2019-TIOL-15-HC-AHM-GST)

– GST TRAN-2 – Calcutta High Court allows revision: Observing that there is no ground as to why a person filing Form GST TRAN-2 should not be allowed to correct and file such revised form, Calcutta High Court has allowed filing of revised Form GST TRAN-2 (Optical Health Solutions Pvt. Ltd. Vs Union of India (Calcutta High Court))

– Goods detained due to multiple invoices in single e-way bill Kerala High Court grants interim relief: The Court provided interim relief after observing that the department may find it practically difficult in tracking multiple invoices with respect to a single e-way bill. It noted that it was not a case where the e-way bill did not mention all the invoices. (Stove Kraft (P) Ltd. v. Asst. STO – 2019-VIL-61-KER)

– GST on TCS collected under Income Tax CBIC Circular No. 76 stayed: Kerala High Court has directed the State authorities not to act on clarification at Sl. No. 5 of the CBIC Circular 76/50/2018-GST pending disposal of the writ petition. The circular states that TCS collected under Income Tax Act is includible since value to be paid by buyer is inclusive of said TCS.  The High Court observed that the petition raises prima facie issue which needs attention. (PSN Automobiles v. UOI – 2019-TIOL-14-HC-KERALA-GST)

– Non-production of goods is not a ground for imposition of penalty: Kerala High Court has held that penalty cannot be imposed for not producing the goods (before the officer) after release on bond, when there is a security equivalent to value of goods which could be invoked. It noted that there was no question of tax and penalty being not paid as bank guarantee could be invoked at any time. (Noushad Allakkat v. Stata Tax Officer – WA. No. 2070 of 2018, decided on 8-11-2018, Kerala High Court )

– Profiteering even when increased base price still lower than pre-GST price: In a case of increase in the base price of product after GST rate reduction, where base price was still lesser as compared to pre-GST price, National Anti-profiteering Authority has held that benefit of price reduction was not passed on. The Authority in this regard observed that not increasing MRP when tax rates were increased after implementation of GST was a business call taken by the respondent and therefore no concession on this ground would be available. It held that the benefits from rate reduction cannot be denied just because the MRP was not changed earlier by the assessee to extend extra benefit to consumers. (Surya Prakash Loonker v. Excel Rasayan Pvt. Ltd. – 2019-VIL-02-NAA)

– Recovery of part of premium from employees Maharashtra AAR has held that payments received by the applicant-company from its employees for payment to insurance companies cannot be treated as a supply of service. Further, AAR also held that ITC cannot be claimed by assessee in respect of hotel accommodation for its expatriate GM/MD since it was for their personal comfort and if they had stayed in other residential flat, GST would not have been paid as renting service in such case was exempted.  (POSCO Order No. GST-ARA-36/2018-19/B-110)

– Services of sales promotion to principal Coverage under intermediary service: Karnataka Appellate AAR has held that appellant providing services of business marketing, sales promotion and post sale support services in India for a principal company in Germany will be termed intermediary under section 2(13) of IGST Act. ( Toshniwal Brothers (P) Ltd. Order No. KAR/AAAR/06/2018-19, dated 9-1-2019, Karnataka AAAR )

D. GST Compliance calendar – March 2019 

E. Summary of Custom Notification / Circulars / Judgments of  February 2019

– All Industry Rates of duty drawback amendments effective from 20-2-2019: Ministry of Finance has clarified amendments made to All Industry Rates (AIRs) of duty drawback by Notification No. 12/2019-Cus. (N.T.), effective from 20-2-2019. Changes include enhanced AIRs/caps of drawback on leather sofa cover including automobile upholstery, synthetic filament tow, carpets, silk articles, boots, gold jewellery and mobile phones. Drawback has been rationalised for silver jewellery/articles. Certain new tariff items have been created to allow better differentiation of exports.  (CBIC Circular No. 5/2019-Cus., dated 20-2-2019 )

– Advance authorisation – Removal of pre-import condition for IGST exemption: Pre-import condition to avail exemption from IGST and Compensation Cess for imports under Advance Authorisation has been removed.  (CBIC Notification No. 01/2019-Cus., dated 10-01-2019) As per the new additional conditions, in case of imports after discharge of export obligation in full, if IGST exemption is claimed and if the facility of Input Tax Credit (ITC) has been availed in respect of inputs used for manufacture and supply of goods exported, then the importer needs to furnish a bond, binding himself to use the imported material in his factory or in the factory of his supporting manufacturer. Additionally, the importer is now required to submit a certificate from a chartered accountant certifying that the inputs have been so used.

– Clubbing of Authorisations issued only within 18 months – HoP amended: DGFT has amended Para 4.38 of FTP Handbook of Procedures relating to Facility of Clubbing of Authorisations. Only authorisations issued within 18 months from the date of earliest authorisation can be clubbed subject to condition that imports are made within 30 months of the earliest authorisation. Any import made beyond 30 months of the earliest authorisation shall be regularised as per Para 4.49 of HoP. All cases clubbed as per earlier provisions are not to be reopened. (Public Notice No. 70/2015-2020)

– Essential parts can be treated as complete goods for customs but not Motor Vehicle Act: In a case involving import of essential parts for assembling e-rickshaw, Delhi High Court has held that Rule 2(a) of Interpretative Rules, treating unfinished articles as complete. The High Court observed that legal fiction created by a statute cannot be extended beyond the purpose for which it is created. It directed Customs to clear goods withheld because of absence of type certificate required under Motor Vehicles Act. (Ramakrishna Sales v. UOI – W.P.(C) 1232/2018, decided on 31-1-2019, Delhi High Court]

– Drawback on re-exports – GR declaration when not required: Delhi High Court has held that non-commercial re-export of duty-paid goods would be entitled to drawback under Section 74 of the Customs Act and that requirement of Guaranteed Remittance was not necessary in a case where the exporter and owner of the goods were one and the same. The High Court in this case, Kingfisher Airlines was cannibalized and subsequently an aircraft engine was imported so that the aircraft chassis could be flown back, held that the petitioner was entitled to drawback on re-export of aircraft engine. (International Lease Finance Corporation v. UOI – W.P.(C) 6344/2018, decided on 10-1-2019, Delhi High Court)

– Demand of anti-dumping duty for imports under Advance Authorisation: Rejecting the plea that bond/LUT executed by assessee-importer did not cover the anti-dumping duty leviable on material imported under Advance Authorisation, The Tribunal observed that the bond executed did not make any distinction between the duties leviable. Larger Bench order in Caprihans and Bombay High Court decision in Dharampal Lalchand Chug were distinguished. The case was also found fit for category (d) of Explanation 1 of Customs Section 28 (relevant date). (Kopran Ltd. v. Commissioner – Order No. A/85037/2019, dated 10-1-2019, CESTAT Mumbai)

– Clarification issued by Ministry to assessee is not a circular: CESTAT Delhi has held that a clarification issued by the Ministry to the assessee cannot be treated as a circular and that the same is not binding on the adjudicating authority who can differ on well-reasoned arguments. The Tribunal upheld the order of Commissioner (Appeals) extending exemption under Notification No. 12/2012-Cus., to a manufacturer of power bank where the appellate authority ignored the clarification issued by Ministry and asserted that power bank was a battery charger of mobile handsets. Judgment of the Supreme Court in State of Punjab v. Nokia India was relied. (Commissioner v. S B Industries – 2019-VIL-37-CESTAT-DEL)

F. Summary of Central Excise & Service Tax  Notification / Circulars / Judgments of  February 2019

– Warehouse in foreign land can be a place of removal to avail Cenvat Credit: CESTAT Mumbai has held that Cenvat credit can be availed on foreign warehouse services received by a company in India for which service tax was paid under reverse charge mechanism. It was held that denial of credit would amount to double taxation. (Eaton Industrial System Pvt. Ltd. Vs CCE & ST (CESTAT Mumbai)

-Service Tax exemption to services provided that exemption is available to ADB and IFC from by ADB & IFC: CBIC through Circular No. GST in terms of provisions of ADB Act and IFC 211/1/2019-ST dated 15-01-2019 has clarified  that the services provided by Asian Development Bank (ADB) and Indian Financial Corporation (IFC) are exempted from service tax too ( Circular No. 83/2/2019-GST )

– CAG cannot carry compulsory service tax audit of private agencies, after GST: Relying on Central GST Section 174(2), Gujarat High Court has held that there was no saving of Rule 5A of Service Tax Rules, 1994 such that fresh audit proceedings under the said rule cannot be initiated by CAG. It was observed that with the enactment of GST, Finance Act 1994 and Service Tax provisions stood repealed. The High Court in this regard stayed CAG audit of a private limited company providing warehouse and logistical support services in SEZ. CAG was directed not to carry out any further Service Tax audit of petitioner. (Oil Field Warehouse and Service Ltd v. UOI – R/Special Civil Application No. 16232 of 2018, decided on 17-10-2018, Gujarat High Court)

– Cenvat credit on guest house – formula set aside: Bombay High Court has held that rough and ready formula as formulated by CESTAT regarding availability of Cenvat credit on guest houses, that credit was available only on guest houses situated near the manufacturing unit, was not entirely satisfactorily. The High Court in this regard held that even in relation to guest house not situated close to the manufacturing unit, if the use was not for personal use or consumption of the employees exclusion clause in definition of input service, may not apply. (ACG Associated Capsules P. Ltd. v. Commissioner – Central Excise Appeal No. 55 of 2018, decided on 5-12-2018, Bombay High Court)

– Cenvat credit on maintenance charges for common area of business premises: CESTAT Delhi has allowed Cenvat credit on maintenance charges for common area of a business premises taken on rent by assessee. The charges were related to roads, street lights, drainage, etc., provided beyond the manufacturing premises but were charged based on per square meter of business premises occupied. The Tribunal observed that these charges were indirectly related to business and were covered in the main part of definition of input services. Judgment of the Supreme Court in the case of Karnani Properties was relied on. (Mahle Engine Components v. Commissioner – Final Order No. 50046/2019, dated 15-1-2019, CESTAT Delhi)

– Cenvat reversal on inputs cleared as such FIFO system to be followed: In a case involving removal of inputs as such, CESTAT Ahmedabad has held that first-in first-out (FIFO) system must be applied and removal of inputs from the old stock of a manufacturer must be considered. t noted that that the quantity removed from time to time was carried forward from the old stock and the stock balance of the input was much more than the quantity cleared. (Wimplast Ltd. v. Commissioner – Final Order No. A/12948/2018, dated 13-12-2018, CESTAT Ahmedabad)

G. Summary of VAT Notification / Circulars / Judgments of  February 2019

– Sales tax on replacements during warranty period Matter referred to Larger Bench: Supreme Court has referred to its Larger Bench the issue as to whether sales tax was payable based on credit note issued for replacement of spare parts of automobile under warranty. It expressed reservations on propositions laid down in Mohd. Ekram Khan & Sons. The Court in this regard observed that price included cost of spare parts and that sales tax was paid on car as well as spare parts inventory with the dealer. (Tata Motors v. Dy. Commissioner Judgement dated 5-2-2019 in Civil Appeal No. 1822 of 2007 and Ors., Supreme Court)

-Sale of goods when in bonded warehouse, not exempt from CST: Bombay High Court has held that sale made by transfer of documents while goods are in bonded warehouse would not qualify as exempt under Section 5(2) of the Central Sales Tax Act, relating to high sea sales. Observing that concept of crossing the customs frontiers of India is distinct from customs barriers of India, the High Court termed such sale as local sale. (Commissioner of Sales Tax Vs Radhasons International (Bombay High Court))

– Edible oil, vanaspati and sugar are  agricultural produce for market fee-  Supreme Court has upheld High Court Order holding that edible oil, vanaspati and sugar are covered under he definition of agricultural produce under Section 2(1)(a) of the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963, for the purpose of levy of market fee. (Britannia v. Bombay Agricultural Produce Marketing Committee – Civil Appeal No. 1746 of 2010, decided on 24-1-2019, Supreme Court)

With Warm Regards & Jai Hind – CMA Rakesh Bhalla,  [email protected]

*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).

Information source- M/s LKS, Nitya Tax Associates, Probability GST updates, PwC India Indirect Tax News Flash, cbic.gov.in and other sources-many thanks to all.