GST, Excise, Service Tax, Customs & VAT updates for May 2018

Article contains update for the Month of June 2018 related to GST, Excise, Service Tax, Customs & VAT which includes Summary of Notifications, Circulars, Advance Rulings, Important Case Laws and announcements made by Government.

A. Goods & Services Tax (GST) Tax Update for May 2018

♣ Time limit for furnishing the return by an Input Service Distributor in FORM GSTR-6

Time limit for furnishing the return by an Input Service Distributor in FORM GSTR-6 under sub-section (4) of section 39 of the said Act read with rule 65 of the Central Goods and Services Tax Rules, 2017, for the months of July, 2017 to June, 2018, has been extended till the 31st day of July, 2018.(Refer Notification No. 25/2018 – Central Tax dated 31^st May 2018).

♣ For GST Refund, GSTR-1 & 3B not must for all

For GST Refund, GSTR-1 & 3B not must for all. Composition tax payer to file GSTR-4, ISD – GSTR-6 and Non-resident – GSTR-5.(Refer Circular No. 45/19 /2018 – GST dated 30^th May 2018).

♣ Roll out of E-way Bill System for intra-State movement of goods in Maharashtra, Manipur States & five Union Territories (without Legislation)

E-way bill system for Inter-State movement of goods has been rolled out from 1^st April 2018. As on 23^rd May 2018, e-way bill system for intra-state movement of goods has been rolled out in 19 States & 1 Union Territory. Further, implementation of e-Way Bill system of intra-state movement of goods – 25^th May 2018 in two more States & five Union Territories. (Refer Press release dated 24^th May 2018).

Latest news about E-way Bill – Refer Latest Updates dated 02.06.2018 – www.ewaybill.nic.in :

-E-way bill operations compulsory for intra-state movement of goods for West Bengal from 3rd June 2018.

-E-way bill operations compulsory for intra-state movement of goods for Tamil Nadu from 2nd June 2018.

-E-way bill operations are compulsory for intra-state movement of goods for Chhattisgarh, Goa, Jammu & Kashmir, Odisha, Punjab and Mizoram from 1st June 2018. 

♣ Late fee waived for not furnishing GSTR – 3B in specified situation

Late fee waived for failure to furnish monthly return in FORM GSTR- 3B by due date for the months of October 2017 to April 2018. The waiver is for those taxpayers who had submitted FORM GST TRAN-1 but could not file the same on or before 27-12-2017 on the GST portal, but has now been filed before 10-05-2018.  The waiver of late fees is available only if such registered person files FORM GSTR -3B for each of such months on or before 31-5-2018.  (Refer Notification No. 22/2018–CT, dated 14-5-2018). 

♣ GST leviable on transfer of tenancy rights

Transfer of tenancy right against consideration in form of tenancy premium is supply of service liable to GST. Surrendering of such rights by outgoing tenant against consideration is also liable to GST. However, grant of tenancy rights in a residential dwelling for use as residence against tenancy premium or periodic rent or both are exempt. (Refer Circular No. 44/18/2018 – GST, dated 2-5-18)

♣ Inspection, confiscation and release of goods – Procedure

Detailed procedure has been prescribed for interception of conveyances and for inspection of goods in movement. Procedure has also been laid down for detention, seizure and release and confiscation of such goods and conveyances. An e-way bill number may be available with person in charge of conveyance in the form of a printout, SMS or written on the invoice and all these forms of having an e-way bill are valid. Confiscation order will be uploaded on common portal and demand accruing from said order will be added in electronic liability register. No order for confiscation of goods or conveyance, or for imposition of penalty, shall be issued without giving the person an opportunity of being heard. Various forms have also been prescribed for the purpose. (Refer Circular No. 41/15/2018-GST, dated 13.04.2018).

♣ Recovery of arrears of Excise, Service Tax and Cenvat credit–Procedure

Arrears of central excise duty, service tax or wrongly availed Cenvat credit, unless recovered under then prevalent law, are to be paid as central tax (CGST, utilizing amounts available in electronic credit/cash ledger under GST. Credit wrongly carried forward as transitional credit can also be paid similarly. Arrears of interest, penalty and late fee however have to be paid through electronic cash ledger. Arrears from assesses under the laws as prevalent before 1-7-2017 who are not registered under present GST regime, will also be recovered in cash. (Refer Circular No. 42/16/2018-GST, dated 13 -4-2018).

♣ E -way Bill in Bill-to Ship–to transactions clarified

Bill-to-Ship-to model of supply which involves two transactions, only one e-way bill is to be generated –either by the person ordering goods to be sent to another (A) or by the person actually sending the goods (B). According to Press Release dated 23-4-2018, if B (person sending the goods) generates e-way bill, he needs to mention his details in the field for “Bill from”, and mention details of A (person ordering sending of goods) in the field for “Bill To” while mentioning details of the recipient in the field for “Ship To”. In case the e-way bill is generated by A, he needs to mention details of the person receiving the goods, in both “Bill To” and “Ship To” fields, while mentioning his own detail in the field for “Bill from”.

♣ GST refund to UIN agencies clarified

Government has granted a one -time waiver, in case of non-recording of UIN by supplier in invoices for supplies to UIN agencies, from July 2017 to March 018. The UIN agencies’ authorised representative however has to submit attested copy of such invoice to the jurisdictional officer, for quarterly GST refund. Agencies to manually furnish (for the time being) the statement containing invoice details along with refund application. Further, officers have been advised not to request for original or hard copy of invoices unless necessary. (Refer Circular No. 43/17/2018-GST, dated 13-4-2018)

♣ GST Council grants in -principle approval to new return design

In principle approval given for the new design for filing of returns. All taxpayers, except a few, will be required to file single monthly return with a simple design and easy IT interface. B2B dealers will have to fill invoice-wise details of outward supply. There will be no automatic reversal of ITC on non-payment of tax by seller, and recovery of tax or reversal of ITC will be through online process of issuing notice and order. The new system will be implemented in 6 months and till then filing of GSTR-3B and GSTR-1 will continue. (Refer GST Council meeting dated 4-5-2018).

♣ Rate concession in digital payments, and sugar cess –Issue referred to Group of Ministers

Discussion on concession of 2% in GST rate (where GST rate is 3% or more, 1% each from applicable CGST and SGST rates) on B2C supplies for which payment is made through cheque or digital mode. There would be a ceiling of Rs. 100 per transaction. Discussion held on imposition of sugar cess over and above 5% GST, and reduction in GST rate on ethanol. Both the proposals will be looked into by the Group of Ministers who will make their recommendations. (Refer GST Council meeting dated 4-5-2018).

♣ Seizure on inter-state movement where Part-B not filled, when unjust

Allahabad High Court has held that goods in transit from a consignor in UP to a transporter in the same State for further despatch to a consignee in other State cannot be seized when details of the vehicle are not found in Part-B of e-way bill. It observed that unless the goods reach the place of the transport company from where they were required to be transported to its ultimate destination, it was not possible to fill up the details of the vehicle. [Rivigo Services Pvt. Ltd. v. State of UP – 2018-VIL-204-ALH]

♣ GST payable on one-time lease premium when specific exemption absent

Division Bench of Bombay High Court has held that GST is leviable on one-time lease premium paid by the allottee to acquire plots for business purposes on long term lease. It was held that once the law treats the activity particularly in relation to land and building and includes a lease, as supply of goods or supply of services, then the consideration there for as a premium/one-time premium is a measure on which the tax should be levied.

The allottee also sought exemption under Section 7(2) of Central GST Act as activities performed were the in nature of statutory obligations, tenders being floated by sovereign authorities. The Court however rejected the plea noting absence of notification and further held that merely going by the status of the CIDCO, it cannot be held that lease premium would not attract liability to pay GST. [Builders Association Navi Mumbai v. Union of India – Judgement dated 28-3-2018 in Writ Petition No. 12194 of 2017, Bombay High Court]

♣ State government whether can issue notification for inter-State e-way bill? – Allahabad High Court refers issue to Larger Bench

Whether the State Government is empowered under Rule 138 of U.P. GST Rules to issue a notification prescribing carrying of any forms or documents along with a consignment during inter-State movement? Allahabad High Court has referred the question to its Larger Bench taking note of two diametrically opposite judgements of the coordinate benches, one affirming such notification by the State government and other nullifying it. It noted that while one judgment did not consider the relevant statutory provisions, the other judgment overlooked the earlier judgment which was a binding precedent. The dispute involved transportation of goods without e-way bill from Delhi to U.P. in Nov. 2017. [Om Disposals v. State of U.P – 2018-VIL-200-ALH]

♣ CGST Act does not authorise issuance of second SCN for same demand and period

Gujarat High Court has held that the Revenue department cannot issue second show cause notice pertaining to same period and for same demand of unpaid taxes. The Court while interpreting Section 74 of the CGST Act stated that powers under Section 74(3) cannot be exercised for expanding or enlarging the liability arising out of show cause notice issued under Section 74(1). It also observed that practice of collecting post-dated cheques either voluntarily or by coercion during raid is not permissible when no tax demand has been confirmed or crystallised. Provisional attachment of the petitioner’s two bank accounts was also lifted, subject to certain conditions. [Remark Flour Millsv. State of Gujarat – Judgement dated 19-4-2018 in R/Special Civil Application No. 4835 of 2018, Gujarat High Court].

♣ Liquidated damages liable to GST @ 18% – Manner of payment immaterial

Liquidated damages are liable to GST @ 18%. Held that fact that damages were deducted from contract price, was immaterial. The AAR also held that said service is covered under clause (e) of para 5 of Schedule II of CGST Act, classifiable under Heading 9997. It was also held that time of supply in respect of such service would be defined once delay in completion of the project is established. The Authority in this regard observed that levy is not when the delay is occurring but when liability for payment is established on part of the contractor. [Maharashtra State Power Gen. Co. Ltd. – Order dated 8-5-2018, AAR Maharashtra]

♣ Supply to international outbound passengers, when not exports

Supply of goods to international outbound passengers, by a retail outlet situated in security hold area of international airport, is not covered under export or zero-rated supply. Authority for Advance Ruling, Delhi while holding so, observed that the outlet is within the territory of India as defined under Section 2(56) of the Central GST Act and Section 2(27) of the Customs Act, and hence applicant is not taking goods out of India. Reliance in this regard was also placed on definition of ‘export’ under Sec 2(18) of Customs Act & 2(5) of Integrated GST Act. Applicant was held liable to GST on such sales. [Rod Retail Pvt. Ltd. – Order dated 27-3-2018, AAR Delhi]

♣ Road reinstatement charges paid to municipality liable to GST

AAR, Maharashtra has ruled that charges for restoring roads from the patches dug up by business entities cannot be equated to performing a sovereign function by the municipality under Article 243W of the Constitution of India. The Authority observed that there are many such entities such as telephone, gas, etc., which dig up the road and restoration is required to be done. It was held that restoration work is different from construction and maintenance of roads covered under the sovereign function of the municipality. Reinstatement and access charges paid to municipal authorities were thus held to be exigible to GST. [Reliance Infrastructure Ltd. – Order dated 21-3-2018, AAR Maharashtra]

♣ Package containing name of company to be considered as bearing brand name

Package of goods having a declaration mentioning name and registered address of the assessee as manufacturer or under ‘Marketed by’, as per statutory requirements, cannot be considered as not bearing a ‘brand name’. Maharashtra Authority for Advance Ruling while holding so, also held that exemption under relevant entries of Notification No. 2/2017-Central Tax (Rate), and similar notifications under IGST and SGST, will not be available. AAR in this regard noted that the goods were supplied through specific stores which also had registered brand name as on 15- 5-2017. [Aditya Birla Retail Ltd. – Order dated 23- 3-2018, AAR Maharashtra]

♣ Sale of used vehicle as scrap liable to GST

Supply of old motor vehicle as scrap after its usage is ‘supply’ in the course or furtherance of business and is liable to GST. AAR, Maharashtra held that buying new assets and discarding old and unusable ones is an activity in the course of business. The AAR rejected the plea of coverage under Schedule I (disposal of business assets) and Schedule II (transfer of business assets) of the Central GST Act. It observed that while Schedule I covers exceptional case where consideration is absent, Schedule II classifies supplies into goods or services. Question as to whether input tax credit on purchase of such vehicles which are used for cash management business and supplied post usage as scrap, was however referred to the Appellate Authority for Advance Ruling, as there was difference of opinion among the Members of the AAR. [CMS Info Systems Ltd. – Order dated 19-3-2018, AAR Maharashtra]

♣ Coaching service provided by private institution is liable to GST

Service of coaching for entrance examinations comes under ambit of GST. AAR, Maharashtra held that exemption under Sl. No. 66 of Notification No. 12/2017-Central Tax (Rate) is not available as said service is not covered under ‘service provided by an educational institution’. It noted that private institute does not have any specific curriculum, examination and it does not award any qualification recognised by law. The AAR held that the service would be taxable at the rate of 9% CGST and 9% Maharashtra GST. [Simple Rajendra Shukla – Order dated 9-3- 2018, AAR Maharashtra]

♣ Cenvat credit of Krishi Kalyan Cess carried from earlier regime is not admissible input tax credit 

Accumulated Cenvat credit of Krishi Kalyan Cess (KKC) carried forward from earlier Service Tax regime into new GST regime on 1-7-2017 is not an admissible input tax credit. Maharashtra Authority for Advance Ruling while holding so observed that credit of KKC was to be utilised for payment of KKC only and hence it cannot be treated as excise duty or service tax. Cenvat credit referred in Section 140(1) does not include credit of KKC. The AAR further noted that CBEC had in its FAQ clarified that Cenvat credit of Swach Bharat Cess (SBC) and KKC cannot be carried forward to GST credit ledger. [Kansai Nerolac Paints Ltd. – Order dtd 5-4-18, AAR Maharashtra]

♣ Construction of complex – Valuation and rate of GST

Authority for Advance Ruling, Delhi, in an issue involving value and rate of GST on service of construction of a complex, building, etc., intended for sale to a buyer, has ruled that GST would be payable on two-third of total amount consisting of amount charged for transfer of land. It was also held that whole of consideration would be added for payment of GST even if agreement was entered after part of construction already completed. Notification No. 11/2017-Central Tax (Rate) was relied by AAR for this purpose. [Sanjeev Sharma–Order dated 28-3- 2018, AAR Delhi]

♣ Dried tobacco leaves undergoing curing liable to GST @ 28%

AAR, Delhi has held that ‘dried tobacco leaves’ which have undergone process of curing after harvesting are ‘unmanufactured tobacco’ covered under HSN Code 2401. The goods were held to be covered under Sl. No. 13 of Schedule-IV of Not. No. 1/2017-Central Tax (Rate) attracting 14% (CGST & SGST each) or 28% (IGST). Goods proposed to be supplied had undergone curing by sun-dry/ air-dry processes, hence the same cannot be covered under Sl. No. 109 of Schedule-I as ‘Tobacco Leaves’. [Shalesh Kumar Singh – Order dated 6-4-2018, AAR Delhi].

♣ Books primarily used for writing classified as ‘Exercise Books’

AAR, Delhi, in an application involving classification of books Sulekh Sarita Part-A, Part-B and Part 1-5, has held that they should be classified as Exercise Books (HSN 4820 of GST Tariff). CGST rate of 6% was held as applicable in terms of Entry No. 123 of Schedule II of Notification No. 1/2017-Central Tax (Rate). Primary use of the goods supplied was writing and that printing was merely incidental. Further, contention that persons who are not liable to tax shall not be required to take registration was rejected by the AAR observing that registration is compulsory if a person has GST liability under reverse charge mechanism. [Sonka Publications (India) Pvt. Ltd. – Order dated 6-4-2018, AAR Delhi]

♣ Maintenance of railway track taxable @ 18%

Maintenance work of railway tracks, involving cleaning, surface preparation and painting of the rails, welding of joints, fabrication and fixing of guard rails, and other related work, is taxable @ 18% under Sl. No. 3(ii) of Notification No. 11/2017-Central Tax (Rate). West Bengal Authority of Advance Ruling while holding so declined the benefit of amendment dated 13-10- 2017 in respect of works contracts involving predominantly earth work. The AAR also held that appropriate tariff code for the said works contract service would be sub-group 995429. [Sreepati Ranjan Gope & Sons – Order dated 3- 5-2018, AAR West Bengal]

♣ Floor mats impregnated and coated with PVC classifiable under Chapter 39

Authority for Advance Ruling, Maharashtra has ruled that PVC floor mats are classifiable under Customs Tariff Heading 3918 and not under Heading 5705. It was also held that the product falls under Sl.No. 104A of Schedule III to Notif. No. 1/2017-Central Tax (Rate), thereby attracting GST @ 18%. The applicant’s claim of classification under Heading 5705 was rejected. The AAR noted that Note 2 to Chapter 39 excluded goods of Section XI & that latter excluded nonwovens covered with plastic. [National Plastic Industries – Order dated 2-4- 2018, AAR Maharashtra]

♣ Rate of GST on canteen services

Even though the meal, snacks, teas are provided to and consumed by workers/employees of recipient, applicant is providing service to the recipient and not to workers / employees of the recipient – it is not in the nature of service provided by a restaurant – The service is attracting Goods and Service Tax @ 18% (CGST 9% + SGST 9%) – AAR

♣ Levy of GST – composite contracts

The applicant supplies works contract  service, of which freight and transportation is merely a component and not a separate and independent identity, and GST is to be paid at 18% on the entire value of the composite supply, including supply of materials, freight and transportation, erection, commissioning etc. – AAR

B. Customs Update for May 2018    

♣ Automotive mining and oil rigging equipments – Import policy condition

Ministry of Commerce has introduced a new policy condition for import of old/used and new automotive mining equipment, oil rigging equipment for operation in captive mines or oil rigging areas and other vehicles for research and development purposes. According to amendment by Notification No. 7/2015-20, dated 8-5-2018, Policy Condition No. 1 and 2 (except for import through particular port in India), under Chapter 87 of the ITC (HS) would not be applicable to these items if these are re-exported or scrapped after the purpose is served.

♣ India expands import restrictions on pulses, while issue raised at WTO

Urad and moong in split and other forms, classifiable under HS 0713 90 10 and 0713 90 90, have been put in restricted import category with total annual import quota of 3 lakh MT. Notification No. 6/2015-20 in this regard amends import policy and condition for these items from 4-5-2018.It ay be noted that DGFT had in August 2017 restricted import of urad and moong covered under HS 0713 31 00. The annual (fiscal year) quota will now be applicable for all 3 HS codes. Meanwhile, Australia, EU, Canada, USA, Ukraine and Japan have, in WTO Committee on Import Licensing, raised concerns against these quantitative restrictions.

♣ No import restriction prior to 20-5-2015 on remnant fuel in ship brought for breaking

CBIC has clarified that remnant fuel contained in vessel brought in India for breaking is not subject to any import policy restriction under Chapter 27, prior to 20-5-2015. Circular No. 9/2018-Cus., dated 19-4-2018 relied upon a Supreme Court decision which had upheld CESTAT order, in turn holding that HSD is an integral part of such vessel/ships classifiable under Chapter89 of the Customs Tariff and is free from restrictions. DGFT had in 2015 revised its stand, classifying remnant fuel under Chapter27 and made such imports free from restrictions.

♣ Advance authorisation provisions in Chapter 4 of FTP HoP Vol.1 revised

Ministry of Commerce and Industry has amended certain paras of Chapter 4 of Handbook of Procedures. The changes include provision for issuance of Advance Authorization for Annual Requirement where ad hoc norms exist for a resultant product. Provision has also been made to submit manual Bank Realization Certificates (BRC) and self-attested copy of exporter’s copy of shipping bill. According to Public Notice No. 9, dated 14-5-2018, these changes have brought clarity and have harmonised documentation requirements for Export Obligation Discharge Certificate (EODC).

♣ Drug exports–Implementation of Track and Trace System extended till 16-11-2018

DGFT has extended implementation of Track and Trace System for export of drug formulations. System for maintaining parent-child relationship in packaging levels and its uploading on Central Portal will now be implemented from 16-11-2018. Resultantly, all drugs manufactured by SSI as well as non-SSI units & having manufacturing date after 15-11-2018 can only be exported if both tertiary & secondary packaging carry bar coding as applicable, and the relevant data is uploaded on Central Portal. Public Notice No. 5/2015-20, dated 9-5-2018 has been issued for this purpose.

♣ SAD refund – No condition that subsequent sale has to be in same form

Mere conversion of imported logs in to sawn timber without loss of identity of original product, before subsequent sale, would not deprive importer of the benefit of notification granting refund of SAD. Upholding the view taken by the Tribunal and the High Court, the Apex Court rejected the plea that subsequent sale must be in the same form in which goods were imported. It observed that the plea was not supported by plain reading of notification dated14-9-2007 even if construed in the strictest terms. [Commissioner v. Variety Lumbers – Civil Appeal Nos. 10258-10296/2011 and Ors., decided on 24-4-2018, Supreme Court].

♣ End-use of imported goods when valid for classification

In the dispute pertaining to classification of calcium nitrate and mono potassium phosphate, CESTAT Mumbai has held that the goods are classifiable under Chapter 31 and not Chapter 28 of Customs Tariff Act, 1975. The Tribunal observed that when grouping of products and their description connotes end-use, disassociation with classification is not correct. It was noted that the goods composed of two out of three fertilizing elements, and that the government had issued licence for these. [Commissioner v. Solufeed Plant Product – Order No. A/85989-85997/2018, dated 5-4-2018, CESTAT Mumbai]

♣ Bona fide purchaser can opt to pay redemption fine and duty

In a case involving confiscation due to misdeclaration, Kerala High Court has held that bona fide purchaser of imported goods can opt for payment of redemption fine along with short levied duty to get goods released. It was held that such payment is not a levy rather an option provided under Section 125 of the Customs Act, 1962. If option for redemption of goods is not exercised then owner loses its property in goods, and subsequently, liability of short duty along with interest passes on to the original importer. [Commissioner v. Nalin Choksey – Customs Appeal No. 18 of 2009, decided on 3-4-2018, Kerala High Court]

C. Central Excise and Service Tax Update for May 2018    

♣ Valuation –Inclusions that enrich value of article, permissible -No difference in ‘transaction value’ and ‘normal value’

Inclusions that enrich value of article till its clearance, are permissible additions to value under Section 4 (prior to 2000) of the Central Excise Act, 1944 as well as transaction value under amended Section 4 effective from 1-7-2000. No discernible difference in statutory concept of transaction value and judicially evolved meaning of normal price in this regard. It approved the judgement in Bombay Tyre International and held that views expressed in para 84 of the judgement in Acer India are not in conflict with the earlier decision. Measure of levy contemplated in Section 4 will not be controlled by the nature of the levy, and that so long a reasonable nexus is discernible between the measure and the nature of the levy, both Section 3 and 4 would operate in their respective fields. [Commissioner v. Grasim Industries –Judgement dated 11-5-2018 in Civil Appeal No. 3159/2004 and Ors., Supreme Court]

♣ Exemption to SEZ – Notification No. 9/2009- T. cannot prescribe conditions

CESTAT Delhi has held that Central Government cannot issue a notification under different statute, i.e. under Finance Act, 1994, to provide for conditions for grant of refund of such tax paid on taxable services used for authorised operations in SEZ. The Tribunal noted that all the activities relating to SEZ are to be guided and governed by the provisions contained in the SEZ Act and the SEZ Rules only. It observed that by virtue of Section 51 of SEZ Act, the provisions of the said Act and the Rules made there under have an overriding effect over the provisions contained in any other statute. [Cummins Technologies India Ltd. v. Commissioner – Final Order No. 51683/2018, dated 4-5-2018, CESTAT Delhi]

♣ Depot sales – Applicability of valuation Rule 7 when additions made at depot

In a case involving sale of branded MS/HSD under name ‘speed’ from depot after addition of octane boosters, CESTAT Mumbai has held that Rule 7 of the Central Excise Valuation Rules will apply. Department’s contention that sale price of Speed MS/HSD at which the goods are sold from depot is applicable, was thus rejected. The Tribunal was of the view that sale price of plain MS/HSD as cleared from factory will apply as term ‘such goods’ appearing in Rule 7 means goods originally cleared from the factory. [Bharat Petroleum v. Commissioner – A/86006- 86007/2018, dated 13-4-2018, CESTAT Mumbai]

♣ Surrender charges for discontinuance of ULIP policy are not taxable

Observing that surrender charges are not for management of investment in Unit Linked Insurance Plan, CESTAT Mumbai has held that same cannot be subjected to service tax. These charges, when an insured person dilutes its policy completely or partially, are in nature of penalty or liquidated damages. It noted that ULIP is a contract and said charges are compensation under Sections 73 and 74 of the Contract Act, 1872, incidental to ending of the contract. [Reliance Life Insurance v. Commissioner – Order No. A/85966/2018, dated 12-4-2018, CESTAT Mumbai]

♣ Coconut oil in small containers – Classification issue referred to Larger Bench of Supreme Court

Consequent to difference of opinion among two Judges, Supreme Court of India has referred the question of classification of coconut oil in small packages, to its Larger Bench. According to one opinion, mere packing in small containers and use of the product by some customers as hair oil cannot be a valid basis for classification under Chapter 33 as hair oil, even after amendment in 2005. However, as per another view, relying on common parlance and Interpretative Rule 3(c), the goods were held as classifiable under Chapter 33, and not under Chapter 15 as vegetable oil. [Commissioner v. Madhan Agro Industries (I) Pvt. Ltd. – Judgement dated 13-4-2018 in Civil Appeal No. 1766/2009 and Ors., Supreme Court]

♣ Service Tax liability and sharing of fees

CESTAT Mumbai has held that assessee-appellant should not suffer double taxation when another company (agent) collected fee from clients & discharged service tax liability on whole amount of fee collected. Assessee, a stock-broking company, was providing online trading facility through its affiliate who provided online trading plat form and was entrusted with sole responsibility of collection of card fee including service tax for such consolidated service to the customer.Held that tax demand under Business Support Services in SCN and under Stock Broking service in impugned order, was not permissible.[Reliance Securities Ltd. v. Commissioner – Order No. A/85964/2018, dated 10-4-2018, CESTAT Mumbai]

♣ Cenvat credit on construction of hotel rooms

Relying on Cenvat Rule 6(5), CESTAT Mumbai has allowed Cenvat credit on Construction service used in construction and renovation of rooms by a hotel when assessee was discharging service tax on rent-a-cab service, convention service, mandap keeper service, outdoor catering service, health and fitness service, etc. It observed that overall hotel business was rendered from the common hotel building and that the construction service received in respect of construction of any part of the hotel was a common input service which had nexus with overall hotel business. [Lemon Tree Hotels v. Commissioner – Order No. A/85880/18, dated 3-4-18, CESTAT Mumbai]

♣ Inputs removed as such to own unit – Excise Valuation Rule 8 not applicable

CESTAT Mumbai has held that duty to be paid on clearance of inputs as such to own units should be equivalent to the amount of Cenvat credit availed on such inputs. Department’s contention that duty was required to be paid according to Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, was thus rejected. The period involved in the dispute was from 11-10-2003 to 25-10-2003, and the Tribunal relied on Cenvat Rule 3(4) prevalent at that time. [Bhuwalka Steel Industries v. Commissioner – Order No. A/85811/2018, dated 22-3-2018, CESTAT Mumbai]

D. VAT Updates for May 2018

♣  Works contract or sale and service contract –Nature of contract is relevant

When there are two contracts, one for purchase of component and other for labour and service then the nature of contract is relevant in determining transaction as sale simpliciter or works contract. The Court, considering documentary evidence, held that transaction of sale was inter-State sale, and Section 3(a) of Central Sales Tax Act would be applicable thus excluding State authorities from imposing VAT. It observed that purchase orders were placed by the contractees/purchasers with the manufacturing unit in Maharashtra, and that movement of goods occasioned from Maharashtra to Karnataka. The ground that assessee had employed dubious method by executing separate contracts for works and sale was also rejected by the Court while allowing the writ petition. [Thyseenkrupp Elevatorv. Commissioner–Judgement dated 24-4-2018 in W.P. Nos.13607/2017 & 14081-14091/2017 (T–RES), Karnataka High Court]

♣ Rajasthan VAT –“Ujala Supreme”is an industrial input

Supreme Court has rejected the contention of the Revenue department that item “Ujala Supreme” is to be covered under Schedule V of the Rajasthan Value Added Tax Act as it is a consumer product. The Court in this regard relied on it earlier decision in respect of pari materia provisions under Kerala Value Added Tax Act. The Apex Court had then held the goods to be classifiable as industrial input. The goods were held to be covered under provisions of Schedule IV, Part-B, Entry 119 of the Rajasthan VAT Act, 2003. [Asstt. Commissioner v. Jyoti Laboratories –SLP No. 36386/2017 and Ors., decided on 17-4-2018, Supreme Court]

♣ Erection & Commissioning -Coverage under Service Tax and not Sales Tax

The assessee had entered into an agreement for erection and commissioning of equipment which the Department considered as ‘transfer of right to use goods’ under Section 2(39)(d) of West Bengal VAT Act. The Board noted that concerned contract was of pure service and there was neither any transfer of possession and effective control of the materials nor any consideration was paid. [Damodar Valley Corp. v. Commissioner –Order dated 7-12-2017 in Revision VAT Case No. 2411 of 2016-17, West Bengal Commercial Tax Appellate & Revisional Board]

*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

(Author can be reached at [email protected])