Indirect Taxes Updates- GST, Customs, Excise, Service Tax & VAT- Month – July 2019
A. GST Updates for the Month of July 2019
(i) Amendments proposed in CGST Act vide Union Budget-2019
a. Penalty for profiteering under GST proposed- Finance (No.2) Bill 2019 has propose amendment in Section 171 of the Central GST Act to provide for imposition of mandatory penalty equal to 10% of the profiteered amount However, according to the proviso to new sub-section (3A) to Section 171, no penalty will be leviable if the profiteered amount is deposited within thirty days of order of the National Anti-profiteering Authority
b. New 3-member National Appellate Authority for Advance Rulings proposed: Finance (No.2) Bill 2019 has proposed amendments in the Central GST Act to provide for constitution of three-member National Appellate Authority for Advance Ruling (NAAAR) to hear appeals when conflicting views are expressed by two or more State Appellate Authorities.
c. Refund of SGST by Central Government: Central Government is being empowered for disbursement of refund of State GST as well. Finance (No. 2) Bill, 2019, for this purpose, proposes to insert sub-section (8A) in Section 54 of the CGST Act. It may be noted that the scheme of single authority for disbursement of refund was recommended by GST Council in its 31st meeting, and similar amendments will also be made in the State GST provisions by the respective States.
d. Transfer an amount from one head to another in the electronic cash ledger: Amendment has been proposed in Section 49 of the Central GST Act to provide for facility to the taxpayer to transfer an amount from one head to another in the electronic cash ledger. As per new sub-section (10) being inserted in Section 49, a registered person will be able to transfer any amount from one of the major heads like IGST, CGST, SGST, UTGST or Compensation Cess to another major head. Similarly, amount paid towards minor heads like tax, interest, penalty, fee or any other amount can also be inter- changed with such other minor head. Such transfer will be deemed to be a refund from the Electronic cash ledger under the Act.
(ii) GST returns and declaration – Due dates notified
Central Board of Indirect Taxes and Customs has issued Notification No. 27/2019 & 28/2019– Central tax dated 28th June, 2019 regarding the extension of the due date for furnishing GSTR-1 for registered persons for the months of July’19 to Sep’19. Following are the due dates for filing GSTR-1:
|Turnover Limit||Months||Frequency||Time Period|
|Turnover exceeding Rs.1.5 crore||July-September||Monthly||11th day of month succeeding such month|
|Turnover up to Rs.1.5 crore||July-September||Quarterly||31st October, 2019|
As per notifications issued on 28-6-2019, time limit for furnishing Form GSTR-7 for October 2018 to July 2019, and Form GST ITC-04 for July 2017 to June 2019, will be 31-8-2019.
(iii) GST on taking goods out of India for exhibition, clarified: CBIC has clarified that activity of sending goods out of India for exhibition or for export promotion, except when the activity satisfies tests of Schedule I of CGST Act, is not ‘supply’ and hence not a zero-rated supply. Execution of bond/LUT is not required, however, records as prescribed in the Circular itself, are to be maintained. Supply is deemed to take place after 6 months from the date of such removal, if such goods are neither sold abroad nor brought back within such period. Refund of unutilized ITC can be claimed though bond / LUT was not executed when the goods were sent out of India. (Circular No. 108/27/2019-GST, dated 18-7-2019)
(iv) Treatment of additional or post-sales discounts clarified: : In a case where additional discount is given by supplier of goods to the dealer to offer a special reduced price to the customer, this additional discount is liable to be added to the consideration payable by the customer, for arriving at value of the supply, in the hands of the dealer. It also clarifies that dealer will be eligible to take ITC of the original amount of tax paid by the supplier of goods even if the latter has issued financial/commercial credit notes for post-sales discount, if the discounted value and said original tax amount are paid.
It has been further clarified that if additional discount given by the supplier of goods to a dealer is a post-sale incentive requiring the dealer to do some act like special sales drive, advertisement campaign, exhibition, etc., then such transaction would be a separate transaction. The additional discount will be the consideration for undertaking such activity, in relation to supply of service by the dealer to the supplier of goods. According to the circular, dealer will charge GST and ITC will be available to supplier of goods. (Circular No. 105/24/2019-GST, dated 28-6-2019 )
(v) IGST refund to exporters – ITC verification only of few risky exporters: identified 5106 risky exporters out of 1.42 lakh total exporter CBIC has instructed its formations to verify correctness of Input Tax Credit (ITC) by few exporters who are perceived as ‘risky’ based on certain pre-defined risk parameters. Since there were fears that even genuine exporters would face trouble in IGST refunds, Ministry of Finance has on 20-6-2019 clarified that all genuine exporters would continue to get their IGST refunds in a timely manner in a fully automated environment.
(vi) Important Cases decided on GST
a. Return in Form GSTR-3B is temporary and not in lieu of return in Form GSTR-3: Press Release dated 18-10-2018 clarifying that the last date for ITC on invoices issued during July, 2017 to March, 2018 is the last date for the filing of GSTR-3B for the month of September, 2018, has been held as illegal by the Gujarat High Court. According to the Court, the clarification is contrary to Section 16(4) read with Section 39(1) of the Central GST Act and Rule 61 of the CGST Rules. The High Court noted that reference in Notification No. 10/2017-CT that Form GSTR-3B is in lieu of Form GSTR-3, was retrospectively omitted and that notifications are being issued from time to time extending the due date of filing Form GSTR-3. (AAP & Co. v. UoI – 2019-VIL-314-GUJ)
b. High Court of Allahabad issued an important judgment, where HC directed GST authorities to allow manual filing of TRAN-1 in case GST portal not responding – HC directed the respondents to open the portal before 31st of March 2019 In the event they do not do so, they will entertain the GST TRAN-1 of the petitioner manually and pass orders on it after due verification of the credits as claimed by the petitioner and they will also ensure that the petitioner is allowed to pay its taxes on the regular electronic system. (Gupta Agencies v. union of India  104 taxmann.com 427 (ALLAHABAD).
c. Recently AAR gave an important ruling dated 27th June, 2019 regarding GST applicability on service of renting dwelling units for residential purpose – it was held that Applicant’s service is classifiable as rental or leasing service involving own/leased residential property and renting/leasing out the dwelling units for residential purpose is exempt under SI. No. 12 of the exemption notification and therefore is not liable to pay tax on supply of such service. (Borbheta Estate  106 taxmann.com 386 (AAR – WEST BENGAL)
d. Property to be attached only after notice and assessment: The Gujarat High Court has held that only after the notice is served under Section 46 of the CGST Act and the assessment is done by the proper officer under Section 62, can the goods and the bank accounts of the taxable person be attached under Section 83. The High Court observed that Section 46 indicates that if registered person fails to furnish return under Section 39 or 44 or 45, a notice is to be issued requiring him to furnish return and if he fails to furnish it, proper officer may assess tax liability. Only in such pendency if the Commissioner intends to protect interest of revenue, can property be attached. [Cengres Tiles Ltd. v. State of Gujarat – 2019-VIL-294-GUJ]
e. GST rate @28% on operating gaming zone in malls – The applicant is an arm of a Japanese video game development company indulged in releasing videos, music and other entertainment products related to its intellectual properties (IP). The applicant had stationed various gaming equipment and machines for different age group, consisting of kids, teenagers, and adults. The equipment and machines are either coin-operated or card-operated involving physical as well as mental skills in its faculty. The services of admission to amusement facility including the one provided by the applicant in form of offering gaming machine were kept under a new S.No.34 (iii) of Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017 which still remain chargeable at the rate of 28% (Bandai Namco India Pvt. Ltd.  107 taxmann.com 42 (AAR-MAHARASHTRA)
f. Dream 11’s fantasy sports is not gambling – GST liability clarified: Observing that success in Dream 11’s fantasy sports is not dependent on winning or losing of any team in real world, the Bombay High Court has reiterated that in such case no betting or gambling is involved. Meaning of betting and gambling as provided in the Finance Act 1994 was also relied. The High Court in this regard also held that since amount pooled in the escrow account for distribution to the winners is an actionable claim and not gambling, it will fall under Entry 6 of Schedule III of CGST Act and be not liable to GST. Payment of GST under Entry 998439 for online gaming, was found correct. [Gurdeep Singh Sachar v. UoI – Judgement dated 30-4-2019 in Criminal Public Interest Litigation Stamp No. 22 of 2019, Bombay High Court]
h. Transition of credit of Education Cesses – Gujarat High Court issues notice to UoI: The Gujarat High Court has issued notice to Union of India to explain reasons for bringing the amendment in Section 140 of the Central GST Act, seeking to retrospectively disallow transition and carry forward of Education Cess and Secondary and Higher Secondary Education Cess in the GST regime. The assessee in this case pointed out that the EC and SHEC qualified as Cenvat credit and that since Section 140(1) referred to Cenvat credit, they were eligible to transition of such credit. It was also argued that the amendment seeks to deny vested and accrued rights and benefit. (Grasim Industries Ltd. v. UoI – Order dated 10-7-2019 in R/Special Civil Application No. 11061 of 2019, Gujarat High court )
i. ITC available on vehicles used for demo by car distributors: Goa AAR has held that ITC on motor vehicle purchased for demonstration purpose is available as ITC on capital goods and be used for setting off output tax. The AAR noted that the applicant capitalized purchase of such demo vehicles in the books of accounts and sold them after 2 years. It held that CGST Section 17(5) was not applicable as provision does not prescribe time within which further supply is to be affected. The Authority was of the view that demo vehicle is an indispensable tool for promotion of sale by providing trial run to the customer. [In RE: Chowgule Industries Pvt. Ltd. – 2019-VIL-213- AAR.
vii. GST Compliance Calendar – August 2019
B. Customs updates for the Month of July 2019
i. Jurisdictional authority for filing SEIS application clarified: DGFT has clarified on the jurisdictional authority for filing SEIS applications in case where the IEC holder has both DTA and SEZ unit and one of them is having a zero export turnover. the correct jurisdictional authority for filing SEIS application would be the one under whose jurisdiction the unit with non-zero export turnover is situated. Provisions of Para 3.06(c) of the FTP-Handbook of Procedure Vol.1 have been further elaborated (Circular No 25/2015-20, dated 1-7-2019)
ii. Customs duty on reimport of jewellery exported under bond for exhibition: CBIC has clarified that Additional Customs duty is not payable in cases of re-import of jewellery earlier exported under bond/LUT for exhibition abroad or on consignment basis. As there was no sale involved, there was no liability to pay Central Excise duty as the same arises, as per Articles of Jewellery (Collection of Duty) Rules, 2016, only at the time of first sale. The Circular however states that if the jewellery was exported under rebate, repayment of rebate is required at time of re-import (Circular No. 17/2019-Cus., dated 19-6-2019 )
iii. Redemption of authorisations -DGFT stresses issuing of one consolidated deficiency letter: : DGFT has issued a Trade Notice reiterating that in processing of redemption request of Advance Authorization/EPCG cases, Regional Authorities are not to issue multiple deficiency letters in piecemeal manner. DGFT has stressed issuing of one consolidated deficiency letter to the importer mentioning all deficiencies in it. Second deficiency letter under unavoidable circumstances may be issued only after the approval of head of the RA. (Trade Notice No.20/2019-20, dated 26-6-2019)
iv. Important cases decide related to Custom Law
a. Goods cleared for home consumption do not retain identity of imported goods: Gujarat High Court has held that imported mis-declared goods, which were subsequently cleared for home consumption after payment of duty and furnishing of bond and guarantee, no longer retain identity of imported goods and can be exported. The High Court in this regard noted that there is no question of re-export. It observed that unless there is a statutory bar or statutory requirement for export are not satisfied, authorities cannot deny permission to export. According to the department, it had denied exports to deter the importer from committing same irregularities again.. [Naitik Enterprise v. UoI – 2019-VIL-287-GUJ-CU]
b. Valuation – No indication for how market survey conducted, is wrong: CESTAT Delhi has set aside order of rejection of declared value by the adjudicating authority observing that adjudication order did not indicate as to how market survey was conducted and how transaction value was rejected. The Tribunal held that if any transaction value is rejected by the assessing authority, it must be done under Section 14 of the Customs Act read with Customs Valuation Rules, 2007. It observed that appellant-importer accepted enhanced value and paid duty only to avoid heavy demurrage and detention charges. [Tushar Trading Company v. Pr. Commissioner – 2019-VIL-351-CESTAT-DEL-CU]
c. Penalty on CHA under Customs Section 114 is incorrect: CESTAT Mumbai has held that as separate provisions of Customs House Agents Licencing Regulation, 2004 exist which is a comprehensive self-contained scheme for licensing, operations, etc., imposition of penalty under Section 114 of the Customs Act on a CHA is patently incorrect. The Tribunal observed that every agent who has a licence is connected with import/export and if an agent can be proceeded against under Section 114 merely because of being an agent, then every agent must be made a noticee in proceedings under Sections 111 and 113 which is not intended. [Kailash Bahiru Jadhav v. Commissioner – Final Order No. A/86092 / 2019, dated 13-6-2019, CESTAT Mumbai]
d. Computer with integrated CPU, VDU and virtual keyboard is portable PC: Computer having integrated CPU, VDU, but without physical keyboard (having virtual keyboard), and weighing less than 10 kg is classifiable as portable PC under TI 84713010 and not under TI 84715000 of the Customs Tariff Act, 1975. The Tribunal found no literature to support the contention that since product does not have in-built keyboard or mouse, it cannot be classified as portable computer. It ruled that the term portable computer is not merely limited to laptops and notebooks but covers computers that can be relocated easily. [Lenovo India v. Commissioner –2019-VIL-389-CESTAT-MUM-CU]
C. Central Excise Updates for the Month of July 2019
i. Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019: Finance Ministry has, as part of Budget 2019, proposed a dispute resolution cum amnesty scheme named the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. The scheme is being introduced for resolution of disputes relating to central excise, service tax and cesses, all earlier subsumed in Goods and Services Tax (GST) in 2017. While providing relief from a percentage of tax dues (ranging from 40% to 70%), this scheme also provides for waiver of penalty and interest. Additionally, the declarant would not be liable to be prosecuted for the matter. If the tax dues are payable on account of voluntary disclosure by the declarant, then, no relief shall be available with respect to tax dues. Meaning of ‘tax dues’ has also been elaborated in Finance (No.2) Bill, 2019 which also states that all persons shall be eligible to make a declaration under this scheme except as enumerated in clause 124 of the Bill. Further, according to clause 129 of the Bill, any amount paid under this scheme cannot be paid through the input tax credit account and will not be refundable under any circumstances.The provisions also provide that such amount paid shall not be available as input tax credit.
ii. Important cases decided on Custom Law
a. Refund of credit of Swachh Bharat Cess on export of services, available: CESTAT Mumbai has held that appellant is entitled to refund of Swachh Bharat Cess paid on input services used for providing export services. It was observed that Swachh Bharat Cess may be considered separate from Service Tax but, will follow the same legal framework. The Tribunal was of the view that as per Section 119(5) of the Finance Act, 2015, rules notified under Finance Act, 1994 which also includes Cenvat Credit Rules 2004, shall be applicable to Swachh Bharat Cess as they apply to service tax. [State Street Syntel Services (P) Ltd. v. Commissioner – 2019-VIL- 348-CESTAT-MUM-ST]
b. Cenvat credit of tax paid on demurrage charges is available: CESTAT Mumbai has held that demurrage was part of handling of import and export shipments of the assessee and therefore Cenvat credit of tax paid on such demurrage charges would be available. The demurrage charges were paid by the C&F service provider on behalf of the assessee and billed to him as out of pocket expenses. The Tribunal also observed that Customs Clearance Service also qualified to be input service covered by Cenvat Rule 2(l). [Federal Express Corp. v Commissioner – Final Order No. A/86087/2019, CESTAT Mumbai]
c. No refund of Cenvat credit on closure of factory – Larger Bench of Bombay High Court: Full Bench of the Bombay High Court has held that Cenvat credit cannot be refunded merely because inputs were lying unutilised or were capable of being utilised, but manufacturing activities came to halt because of closure of factory. The High Court was of the view that cash refund is not permissible in terms of clause (c) to proviso to Section 11B(2) of the Central Excise Act, 1944 where an assessee is unable to utilize credit on inputs. The Court also held that the decision of the Supreme Court in the case of Slovak India cannot be read as a declaration of law under Article 141 of Constitution of India. [Gauri Plasticulture P. Ltd. v. UoI – Judgement dated 14-6-2019 in Central Excise Appeal No. 13 of 2007 and Ors., Bombay High Court]
D. VAT updates for the Month of July 2019
i. Sales Tax exemption or deferment – Availability to units after re-organization of States: Larger Bench of the Supreme Court has accepted the contention of the States of Madhya Pradesh and Chhattisgarh that from the date when new State of Chhattisgarh came into existence, trade between territories of MP and Chhattisgarh would be in the nature of inter-State sales and not intra-State sales. It held that Sales Tax Act in force in unified State of Madhya Pradesh would continue to apply to MP and Chhattisgarh as two separate enactments applicable to two different States but within territorial limits. The Court noted that as per Article 286, States are not competent to enact legislation relating to taxation of inter-State sales and the provisions of relevant statute on reorganization of the said two States did not provide for considering trade between them as intra-State The contention of the assessees that even inter- State transaction were entitled to some exemption under the relevant clauses were left open to be raised before authorities as they were not raised before. [State of MP v. Lafarge Dealers Association – Judgement dated 9-7-2019 in Civil Appeal No. 5302 of 2019 and Ors Supreme Court Larger Bench]
ii. Property tax payable for use of municipal land for laying cables: Chhattisgarh High Court has held that since Municipal Corporation has passed a resolution to impose property tax for use of land for laying underground cable against all cellular companies, property tax is payable. It observed that levy is not for laying cables but for use of land for laying the telecommunication cables. The Court observed that the definition of land in Chhattisgarh Municipal Corporation Act was pari materia with that in the Gujarat Provincial Municipal Corporations Act, 1949 hence Supreme Court judgement in Ahmedabad Municipal Corporation v. GTL Infrastructure was applicable. [Bharti Airtel v. State of Chhattisgarh –
*Also, 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).
With Warm Regards & Jai Hind
CMA Rakesh Bhalla
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.