Indirect Taxes Updates GST, Customs, Excise, Service Tax & VAT – Month – September 2018
A. Amendment in Goods & Services Tax for the Month of September 2018
- GSTR-1 for July 2017 to September 2018 can be filed till 31-10-2018: Form GSTR-1 for themonths of July 2017 to September 2018 can now be filed till 31stof October 2018, both by persons having turnover up to Rs.1.5 crore and more (with certain exceptions). Taxpayers having turnover up to Rs.1.5 crore can file quarterly GSTR-1 for various quarters starting from October to March, 2019 by the last day of thesubsequent month. Taxpayers having turnover more than Rs.1.5 crore are required to file monthly GSTR-1 returns by 11thof subsequent month, for the months from October 2018 to March 2019. Due date for filing quarterly GSTR-1for July, 2018 to September,2018 is 15-11-2018 in the case of registered persons in Kerala, or having principal place of business in Kodagu district in Karnataka or Mahe in Puducherry. Further, taxpayers who have obtained GSTIN in terms of Notification No 31/2018-Central Tax, can file this return for the period July 2017 to September 2018, by 31st of December 2018. (Refer Notification No. 43, 44, 45, 46/2018-Central Tax dated 10/09/2018).
- TDS & TCS provisions to come into force from 1st October, 2018: Provisions relating to Tax Deduction at Source (TDS) and Collection of Tax at Source (TCS), provided under Sec 51 and 52 of the Central GST Act, 2017 will come into effect from 1st of October 2018. TDS provisions provide for mandatory deduction of tax at the rate of 1% of value of supply (excluding GST) by the department or establishment of Central Govt. or State Govt., or local authority, or Governmental agencies. Notification No. 50/2018-Central Tax, dated 13-9-2018 has been issued in thisregard in supersession of Notification No. 33/2017-Central Tax which though brought these provisions into effect from 18-9-2017 but stated that liability to deduct tax will come into effect from a date to be notified subsequently. It also notifies public sector undertakings and authority or a board or any other body set up by an Act of Parliament or a State Legislature, and certain other entities, as liable to deduct tax at source (Refer Not. No. 50, 51/2018-Central Tax dated 13/09/2018).
- Every electronic commerce operator, not being an agent, shall collect an amount calculated at a rate of half per cent of the net value of intra-State taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the said operator. (Refer Notification No. 52/2018-Central Tax dated 20/09/2018).
- Invoice procedure for goods transportation in batches and lots: Procedure for transportation of goods in semi-knocked down or completely knocked down condition, without invoice, will be applicable also for transportation of goods in batches and lots as well. Sub-rule 55(5) of the Central Goods & Services Tax Rules, 2017 (CGST Rules) has been amended for this purpose by Notification No. 39/2018-Central Tax, dated 4-9-2018. Accordingly, the supplier has to issue complete invoice before dispatch of the 1st consignment and delivery challans for each consignment,containing reference to the invoice. Consignment must be accompanied by copies of delivery challan along with a certified copy of invoice. (Refer Notification No. 39/2018-Central Tax dated 04/09/2018).
- Audit –Reconciliation statement and certification –Form GSTR-9C notified:CBIC has notified Form GSTR-9C for the reconciliation statement and the certification which must be furnished along with the audited annual accounts, electronically through the common portal. Central GST Rules, 2017 have been amended for the tenth time this year, by Notification No. 49/2018-Central Tax, dated 13-9-2018. (Refer Notification No. 49/2018-Central Tax dated 13/09/2018).
- Extension of time limit for submitting the declaration in FORM GST TRAN – 1 under rule 117(1A) of the Central Goods and Service Tax Rules, 2017 in certain cases- Submission of declaration in FORM GST TRAN -1 extended till 31st Jan., 2019, for the class of registered persons who could not submit said declaration by the due date on account of technical difficulties on the common portal and whose cases have been recommended by the Council. (Refer Order No. 4/2018-GST dated 17th 2018) Supply or construction of solar power plant is composite supply: Agreement included engineering, design, procurement, supply, development, testing and commissioning, and was a composite supply, as supplies of goods and services were naturally bundled inasmuch as it is natural and also a practice to expect that the contractor who will supply the goods will alsosupply the services along with it. Applicant-appellant was however held to be providing works contract under Section 2(119) of the CGST Act, since the project fulfilled all conditions of immovable property. It was noted that the machines were embedded with no visible intention to dismantle them and they were intended to be used for a fairly long period of time. [In RE: Giriraj Renewables –Order No.MAH/AAAR/SS-RJ/08/2018-19, dated 5-9-2018, AAAR Maharashtra]
- GST liability on activities of Charitable Trust: Deliberating on various meanings of the words ‘trade’ and ‘commerce’, Maharashtra AAR for GST has held that a charitable trust with object of advancement of religion, spirituality and yoga can be said to be in the business and be liable to be registered under the GST provisions. It was also held that sale of spiritual material was ‘supply’ under Section 7 of the Central GST Act. On claim of exemption under GST as charitable trust, it was held that activities of arranging satsang/shibir/yoga camps by applicant were not covered under ‘charitable activities’ and particularly under advancement of religion,spirituality and yoga, although registration was obtained under Section 12AA of the Income Tax Act. [In RE: Shrimad Ramchandra Adhyatmic Satsang Sadhana Kendra –Order No. GST-ARA-41/2017-18/B-48, dated 14-6-2018, AAR Maharashtra.
- Supply of spares, consumables take serviceout of ‘pure service’: Assessee was also supplying spares, materials and consumables to municipalities under contract for operation and maintenance of sewage treatment plants, AAR Maharashtra has held that the service is not covered as ‘pure service’ under Sl. No. 3 of Notification No. 12/2017-Central Tax till 24-1-2018 when Sl. No. 3A was inserted for ‘composite supplies’. The Authority however noted that exemption from 25th January 2018 is available if the value of goods does not exceed 25% of the value of the composite supply. The applicant was held as eligible for availing ITC of the purchases made against such work orders. [In RE:Khilari Infrastructure Private Limited –2018-VIL-134-AAR]
B. Customs Updates for the Month of September 2018
- EPCG –Shifting of capital goods, and EO fulfilment intimation:EPCG authorisation holders have been permitted to shift capital goods, imported during entire export obligation period, to their other units mentioned in their IEC and RCMC. Fresh installation certificate however would be required within 6 months. Further, Regional Authority can be intimated on fulfilment of export obligation as well as average exports, without using digital signatures. Amendments in this regard have been made in Paragraphs 5.04(a) and 5.14(b) of Handbook of Procedures Vol.1 by Public Notice Nos. 31 and 32/2015-20,both dated 29-8-2018.
- Bio-fuels –Export Policy revised from ‘free’ to ‘restricted’:Ministry of Commerce and Industry has, on 28-8-2018, amended export policy of biofuels from ‘Free’ to ‘Restricted’, in line with the National Policy on Biofuels 2018. New entries at Sl. No. 115A, 115B and 115C have been inserted in Schedule 2 of ITC (HS) to cover Tariff Items 2207 20 00, 2710 20 00 and 3826 00 00. Export of bio-fuels enumerated in said entries will now be permitted under license only for non-fuel purposes. Notification No. 29/2015-2020 has been issued for this purpose. It may be noted that Import Policy for such products, with similar conditions, was notified on 21-8-2018.
- Export of SCOMET items for repair/display -Procedure:DGFT has laid down elaborate procedure for export of imported or re-imported (indigenous) SCOMET items for repair or replacement purposes and for export of SCOMET items for display, exhibition, tenders, etc. Public Notices Nos. 33 and 34/2015-20, both dated 4-9-2018 insert Paras 2.79C and 2.79D in the FTP Handbook of Procedures Vol. I. The paragraphs specifically mention that end user certificate will not be insisted in such cases.
- System Driven approval of MEIS for exports from EDI ports –Guidelines: DGFT will, from 13-9-2018, start a process of system driven approval of MEIS claim applications for exports through EDI shipping bills. The online module will not accept application if it is not made in one jurisdictional regional office for one financial year. Shipping bills, already attached in earlier applications and disallowed, will not be accepted again under new module, unless re-activated.According to Trade Notice No. 30/2018-19,dated 11-9-2018, all shipping bills meeting specified requirements like having Let Export date on or after 1-1-2017, total claim value of less than Rs.2 Crore, etc., would be approved by the system automatically.
- Import by EOU –Excess imports when not relevant to deny exemption:In a case involving imports by EOU, CESTAT Mumbai has held that even if the goods are found to be in excess of that declared for import, benefit of exemption notification should not be denied. It observed that to the extent that the imported goods are utilized for export, the quantity imported is irrelevant. It stated that the same is not relevant also in the context of manufactured goods cleared in DTA. The Tribunal in this regard noted that imported goods are required to be bonded and the utilization thereon is under the supervisory, and documentary, control of customs bond personnel as well as the Development Commissioner concerned. It further rejected enhancement of value to encompass the gross weight. [Micro Inks Ltd v. Commissioner -Order Nos. A/87088-87089/2018, dated 14-8-2018, CESTAT Mumbai]
- Freezing of bank account must comply with Customs Sections 105 and 110:Delhi High Court has held that communication by DRI to freeze bank account of the assessee for having connection in an alleged export fraud case is not sustainable as the same was without authority of law and not in accordance with Section 105 and Section 110 of the Customs Act, 1962 which provides for provisions related to search, seizure and arrest. The High Court in this regard observed that any seizure under Section 110 is to be followed by adjudication under Section 122 which requires prior SCN under Section 124, and that these required proceedings were not initiated in the case before it. [R K Impex v.UOI-W.P.(C) 7367/2016, decided on 29-8-2018, Delhi High Court].
- No Customs duty payable during redemption when no such demand made in SCN: Delhi High Court has held that the department is not entitled to recover customs duty under Section 125(2) of the Customs Act on goods which are confiscated under Section 111(d) and allowed redemption under Section 125(1), if no specific demand is made in SCN issued under Section 124. The High Court observed that if primary obligation of assessing value and indicating duty payable is not discharged, it cannot be contended at a later stage that importer was under obligation to pay relevant duty which was never assessed at first instance. [Commissioner v.R.K. International -CUS. A.C. 9/2009, decided on 23-8-2018, Delhi High Court].
- Project imports–No need of registration before imports: CESTAT Kolkata has held that Regulation 5 of Project Import Regulation, 1986 is only a procedural requirement and not a condition determining eligibility of imported goods for the benefit of concessional rate of assessment. The Tribunal observed that a project can be registered before goods are cleared for home consumption, and that there was no prescribed time limit for obtaining clearance from sponsoring authority. The department had denied the benefit on the ground that registration was taken after imports and warehousing. [Eveready Industries v.Commissioner -Order No. FO/76541/2018, dated 13-6-2018, CESTAT Kolkata]
- Pre-cooked and fried noodles can be considered as ‘dried’:Taking note of the fact that the term ‘dried’ is not defined in respect of EU’s CN sub-heading 1902 30 10, Court of Justice of European Union has held that pre-cooked and fried noodles which at the end of production stage are packaged in a dry state are dried pasta under said sub-heading. The Court in this regard rejected referring court’s argument that goods are covered under 1902 30 90 as ‘drying’ constitutes a means of preservation by extracting moisture while cooking/frying besides eliminating water also causes numerous other chemical reactions.Further, considering the scheme of things in Heading 1902, the court was of the view that sub-heading 1902 30, within which 1902 30 10 (‘dried’ pasta) falls, necessarily covers cooked pasta or pasta, otherwise prepared, which is not stuffed. It was also held that scope of said sub-heading should not be limited to pasta whose dry state has been obtained by processes which are used solely for their preservation and which remove only water from the treated products,without changing them in any other way. [Kreyenhop & Kluge GmbH & Co. KG v.Hauptzollamt Hannover –Judgement dated 6-9-2018 in Case C-471/17, CJEU]
C. Central Excise and Service Tax Updates for the Month of September 2018
- Cenvat credit admissible on mandatory CSR activities:CESTAT Mumbai has allowed Cenvat credit on payments made to a trust for imparting training to students of underprivileged section of the society in discharge of obligations related to corporate social responsibility (CSR) of the company. Deliberating on definitionof CSR by Confederation of Indian Industry, World Bank and UNIDO, it was held that CSR is not a charity anymore since it has a direct bearing on the manufacturing activity. The Tribunal, for this purpose, also held that CSR is an input service covered under ‘activities relating to business, as company’s image is enhanced thus increasing its credit rating. It noted that sustainability of the company is dependent on CSR without which it cannot operate smoothly for a long period. [Essel Propack v. Commissioner -Order No. A/87216/2018, dated 31-8-2018,CESTAT Mumbai].
- Abatement under Excise Sec. 3A(2) –CESTAT refers issue to Larger Bench: Hyderabad Bench of CESTAT has referred to Larger Bench the question as to whether the sub-section 3A(2) of Central Excise Act which only deals with powers of Government of India, can be treated as a provision for abatement of duty, and if so, how that abatement should be followed.The Tribunal in this regard disagreed with the order by Bangalore Bench and held that abatement was not available if benefit of concessional rate under Rule 96ZP(3) of Central Excise Rules, 1944 was availed. It held that assessee who was availing the benefit of lower rate of tax under Rule 96ZP (3) was not entitled to the benefit of abatement under Section 3A(3) read with Rule 96ZP(2).[Commissioner v.Kamini Ispat Limited -Order No. A/30731/2018, dated 19-7-2018, CESTAT Hyderabad]
- Valuation –Loss in final goods immaterial for captive consumption valuation:CESTAT Mumbai has held that loss in respect of the product that is cleared finally using the goods which were captively consumed as an input is not relevant for determining the notional profit envisaged in Rule 6(b)(ii) of the erstwhile Central Excise (Valuation) Rules, 1975, in respect ofthose inputs. The Tribunal observed that assessee was not able to show that the assessable value adopted by the department did not reflect the cost of production and the profit. [Golden Tobacco Limited v. Commissioner -Order No. A/87196/2018, dated 29-8-2018,CESTAT Mumbai]
- Valuation –Value of drawing received from buyer when not includible:Observing that drawings supplied by customers were only dimensions of the components with no technical details, and therefore having no value, CESTAT Chennai has held that cost of such drawings is not required to be included in the assessable value of the final product. The Tribunal in this regard also noted that assessee was involved in cutting and welding of MS plates as per required specification which did not require any specialized drawings. It also observed that drawings were not shown as separate excisable goods. [Technoweld Alloys (I) Pvt. Ltd. v.Commissioner -Final Order No. 42263/2018, dated 7-8-2018, CESTAT Chennai]
- Refund not barred by limitation when liability absent:Delhi High Court has held that an assessee, in the absence of any liability, is entitled to refund of tax paid under a wrong impression and cannot be barred for a part of it on account of limitation under Section 11B of the Central Excise Act or Section 27(c) of the Customs Act. Supreme Court’s decision in Krishna Carbon Paper was distinguished by the High Court. The assessee was a registered society set up by the Ministry of Finance and was not liable to service tax at relevant time for any work or function undertaken, as clarified by CBEC then. [National Institute of Public Finance and Policy v. Commissioner -SERTA 13/2018, decided on 23-8-2018, Delhi High Court]
- Renting of immovable property service -Refundable security not liable:CESTAT Bench at Delhi has held that the demand of service tax on the refundable security deposit in respect of Renting of Immovable Service, was erroneous because such refundable amount was not covered under ‘consideration’ under Section 67 of the Finance Act, 1994. The assessee had provided option to tenant according to which if they pay additional amount of security deposit then no rent was to be paid and full security was refundable on vacating of premises. The Tribunal, however, while setting aside the penalty, confirmed the service tax to the extent of annual rent.[Satya Prakash Builder v.Commissioner -Final Order No. 52663/2018, dated 24-7-2018, CESTAT Delhi]
- Credit available on services from non-whole time director:CESTAT Allahabad has held that service tax paid on services received from the on-whole time Director is admissible as Cenvat credit. The appellant had availed Cenvat credit of service tax paid under reverse charge mechanism on the remuneration paid to non-whole time director. The Tribunal observed that it is deemed by law that such directors have provided services to company and therefore, it cannot be held that such service was not input service. Notification No. 45/2012-S.T., dated 7-8-2012 was relied upon. [Mohan Steels v. Commissioner-Final Order No. 71957/2018, dated 13-8-2018, CESTAT Allahabad]
- Cenvat credit –Failure to ascertain exclusion under Rule 9(1)(b) is not suppression:CESTAT Delhi has allowed Cenvat credit on supplementary invoices holding that mere failure to ascertain about the exclusion part of Cenvat Rule 9(1)(b) cannot be held to be an act of suppression or collusion on the part of the assessee. The Tribunal noted that supplementary invoices were issued by coal companies which are undertakings of Government, hence, there was no presumption, unless rebutted, of alleged suppression or collusion. It noted that an element of confusion was present as connected matters are pending before the Supreme Court. [Ultratech Cement v.Commissioner -Final Order No. 52723/2018, dated 27-7-2018, CESTAT Delhi].
- Cenvat credit on inputs lost in cyclone when not required to be reversed:CESTAT Kolkata has held that credit availed on inputs destroyed in natural calamity including cyclone, need not be reversed as it did not amount to removal of input as such. The inputs including coal were issued and put for continuous production process. It was observed that inputs lost during the process of manufacture were not required to be considered for reversal of credit. The Tribunal also noted that there was no provision of reversal of credit availed on inputs which were destroyed. [Sundaram Steel Pvt. Ltd. v. Commissioner -Order No. FO/76523/2018, dated 14-8-2018,CESTAT Kolkata].
- Cenvat credit on laying or maintenance of railway siding track, available:Chennai Bench of the CESTAT has held that service of railway siding track laying/maintenance work did not fall within the exclusion clause of ‘input service’ and hence, credit availed in respect of the said service was eligible. The period in dispute was from September 2011 to August 2012 when definition of ‘input service’ in the Cenvat Credit Rules, 2004 excluded specified works contract services used for (a) construction of a building ora civil structure or a part thereof; or (b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services. The Tribunal observed that when works contract services were availed for painting, laying of floor tiles, etc., in the nature of completion of finishing services, these would generally be in the nature of modernization or repair/renovation of existing structures, and eligible for credit. [India Cements Ltd. v. Commissioner -2018-TIOL-2733-CESTAT-MAD].
- Cenvat credit when part of amount payable to service provider withheld by recipient: Cenvat credit of full service tax paid by service provider in respect of services provided would be available even if amount payable to service provider withheld by recipient-respondent, so long as there was no change in service tax paid by service provider. In terms of agreement entered into between the respondent and the contractors, a certain percentage of payment was to be withheld from the RA bills issued by the contractors and was required to be released after successful execution of the contract. The department had denied credit on the ground that as per Rule 4(7) of Cenvat Credit Rules, 2004, credit was allowed when full payment was made by the service recipient towards value of input service as well as service tax within three months of the date of invoice. Circular No. 122/3/2010 S.T., dated 30-4-2010 was argued by department as inapplicable on ground that said circular catered to only those situations where finally settled amount of service was less than the amount initially charged by the service provider. [Commissioner v. Hindustan Zinc Ltd. -2018-TIOL-2574-CESTAT-DEL]
- Cenvat credit available on capital goods predominantly used in exempted goods except for a short period: Cenvat credit allowed in a case where the assessee, for the first two years, used capital goods exclusively for manufacture of exempted goods but used them for manufacture of dutiable goods for total of 19 days in the subsequent year and thereafter never used for manufacture of dutiable products. The Tribunal observed that at the time of purchase of capital goods, the appellant had intimated his intention to use the subject capital goods for manufacture of both exempted and dutiable goods. It also noted that Rule 6(4) of Cenvat Credit Rules, 2004 entitled an assessee to avail Cenvat credit on capital goods even if the machinery was used to manufacture a single unit of dutiable goods. The appellant was engaged in the manufacture of exempted (non-carbonated beverages) as well as dutiable goods (carbonated beverages). The department had issued SCN denying creditin terms of Rule 6(4). [Lakshmi Balaji Bottling Pvt. Ltd. v. Comm-2018 VIL 627 CESTAT-Hyd-CE]
D. VAT Updates for the Month of September 2018
- Fashion show amounts to ‘entertainment’ and liable to entertainment tax:Karnataka High Court has held that fashion show fall within the expression ‘entertainment’ under Section 2(e)(iii) of the Karnataka Entertainment Tax Act, 1958, and that sponsorship fees and advertisement charges received by organisers would amount to ‘payment for admission’ as per Section 2(i)(iv-a)of the said Act. The Court observed that even though the ‘Bangalore fashion week’ served the business interests of the sponsors, the element of amusement and entertainment naturally woven in it cannot be taken out.[Dream Merchants v.State of Karnataka -Writ Appeal No.843 of 2018 (T-ET), decided on 3-9-2018, Karnataka High Court]
- Deemed sale –Provision of infrastructure under exclusive control:Gujarat High Court has held that provision of passive telecommunication infrastructure under Master Service Agreement granted exclusive control to telecom operator by virtue of ‘right to use goods’ and hence, the transaction was not in the nature of service contract as contemplated by petitioner, but a ‘deemed sale’ taxable under the Gujarat VAT Act. The Court in this regard also rejected the contention that liability to pay Gujarat VAT would result in double taxation as petitioner had already paid service tax on said transaction. [Indus Towers Ltd. v.State of Gujarat -R/Special Civil Application No. 3358 of 2016, decided on 6-8-2018, Gujarat High Court]
- Kerala VAT -Limitation under Section 25(1) concerns initiation of assessment of turnover: In a case concerning interpretation of provisions providing for assessment of escaped turnover, Kerala High Court has held that the words ‘proceed to determine’ in Section 25(1) of the Kerala VAT Act were for initiation of proceedings with a notice and not for completion of assessment. Relying on Full Bench judgment in Tirur Medical Stores, it observed that the decision as to the timeframe required for completion of assessment is the task of the legislature. The High Court set aside the notice issued beyond limitation period under Section 25(1).[Cholayil v.Asst. Commissioner -WA. No.1184 of 2013 in WPC. 18143/2013, decided on 5-7-2018, Kerala High Court]
*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, 9779010685, [email protected]