Indirect Taxes Updates – GST, Customs, Excise, Service Tax & VAT for April 2019
-Reversal of ITC availed under Composition scheme for suppliers of goods or services or both –Suppliers of goods or services or both upto an aggregate turnover of Rs. 50 lakh, can opt to pay GST @ 6% (3% CGST + 3% SGST) and not collect any tax from the recipient on such supplies. Benefit of ITC is also not available to suppliers taking benefit of this notification (Notification No. 2/2019-Central Tax (Rate)
Also, as per Circular No. 97/16/2019-GST, dated 5-4-2019, a registered person who wishes to opt for benefit of said notification shall file intimation in Form GST CMP-02 by selecting the category of registered person as “Any other supplier eligible for composition levy”. Such person would also be required to furnish a statement in Form GST ITC-03.
-Refund of accumulated ITC to merchant exporter clarified: Refund of accumulated input tax credit to merchant exporter where supplies are received by him after availing benefit under Notification No. 40/2017-Central Tax (Rate) or 41/2017-Integrated Tax (Rate) has been clarified by CBIC. As per Circular No. 94/13/2019-GST, dated 28-3-2019, this refund of accumulated ITC under CGST Rule 89(4B) must be applied under the category ‘any other’ instead of ‘refund of unutilized ITC on account of exports without payment of tax’. Refund claim shall be filed in the Form GST RFD-01A.
-Clarification regarding order of utilisation of ITC of IGST to set-off output tax liability – Rule 88A of the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’) was inserted and relaxed the order of setting off IGST credit against CGST and SGST liability (in any order). The CBIC has now clarified that the taxpayers can utilise excess credit of IGST towards payment of CGST or SGST in any sequence and proportion provided that IGST liability is fully discharged first. [Circular No. 98/2019 dated April 23, 2019]
-Non-filing of GST Returns to debar generation of e-way bill – Rule 138E of the CGST Rules was introduced on December 31, 2018 to provide that taxpayers who have not furnished their GST returns for consecutive two tax periods, will not be able to generate e-way bill. This provision was not notified till date and has been made effective from June 21, 2019. Rule 138E allows Commissioner to relax this provision on sufficient causes.
In this context, it is advisable that the taxpayers file their GST returns on time to avoid any obstruction in business due to non-generation of e-way bill. The taxpayers who could not file returns for genuine reasons (including IT issues), should approach their jurisdictional Commissioner for relaxing applicability of this provision. [Refer Notification No. 22/2019 dated April 23, 2019]
-Changes in e-way bill portal – To improve operational efficiencies in e-way bill system, following changes have been integrated in the e-way bill portal:
-On selection of the reason, the taxpayer needs to fill details of mode of transportation, location of goods and vehicle details for which the extension is required. Extended date is auto-calculated basis the reason and the distance between location of goods and final destination of goods.
Report on expiry date of e-way bills: Taxpayers can now view list of e-way bills that are about to expire in next four days from the date of view
-Transfer of ITC in case of death of sole proprietor – Clarification- Transferee / successor shall be liable to pay any tax, interest or any penalty due from the transferor – CBIC has clarified that transfer or change in the ownership of business will include transfer or change in the ownership of business due to the death of the sole proprietor. It is also stated that the transferee / successor shall be liable to pay any tax, interest or any penalty due from the transferor in cases of transfer of business due to death of sole proprietor. Circular No. 96/15/2019-GST, dated 28-3-2019 further clarifies that in case of transfer of business on account of death of sole proprietor, the transferee / successor shall file Form GST ITC-02 in respect of the registration which is required to be cancelled on account of death of the sole proprietor, before filing the application for cancellation of such registration by the legal heirs
Important Cases decided
-Fraudulent availing of ITC – Summon justified on MD- Plea of residing in USA and not involved in day-to-day activities was rejected : Rajasthan High Court has upheld the summons issued to MD of a company in a case of ITC availment on the basis of fake invoices. Plea of residing in USA and not involved in day-to-day activities was rejected, observing that petitioner was receiving managerial remuneration from the company since 2012 and became its MD in 2018. Dismissing the petition with costs, the High Court also observed that allegation of fraudulent ITC was not controverted, and that determination of tax was not required in an offence under Section 132. Delhi High Court decision in Make My Trip, was distinguished. [Bharat Raj Punj v. Commissioner – 2019 VIL 113 RAJ]
-Issue – Whether the exemption from payment of GST on reverse charge basis under section 9(4) of the CGST Act/SGST Act for receipt of supply of goods and/or services by us from an unregistered person is applicable since 1 July 2017 – Held in case of M/s Famous Studios Ltd (AAR-TAMILNADU)  103 taxmann.com 279 that RCM is applicable to the transactions effected from 1.7.2017 to 12.10.2017
The court ruled that Principal Secretary/Commissioner of Commercial Taxes, to consider and pass orders upon the application of the petitioner, wherein the petitioner would seek to pay pending GST dues in six monthly installments – Recently High Court of Madras gave an important Judgment in a case, where he directed authority to pass order allowing assessee to pay GST dues in six monthly installment in case of Asean Aromatics (p) Ltd. V. Assistant Commissioner (Circle)  103 taxmann.com 353 (Madras). Held that Goods and Service Tax is nascent in its application and is an evolving regime. The interests of small traders have thus weighed consideration with the authorities in granting the relaxation in time limits.
-No GST on interest free deposit if not withheld at completion of lease – In case amount or part of it is withheld as charge against damages, then that amount would be liable to GST: In a case involving interest free security deposit, taken from lessee as security against damages during lease of premises, Maharashtra AAR has held that deposit received is not a consideration for supply. The AAR, however, observed that if at time of completion of lease tenure, the amount or part of it is withheld as charge against damages, then that amount would be liable to GST. [ E-Square Leisure Pvt. Ltd. (AAR GST)–2019 TIOL 121 ]
-Exemption available only to clinical establishments providing healthcare – Must satisfy the dual condition of providing healthcare services as well as being a clinical establishment.: Madhya Pradesh AAR has held that exemption provided under S.No.74 of Notification No.12/2017-Central Tax (Rate) is service specific and service provider specific, therefore to qualify an establishment must satisfy the dual condition of providing healthcare services as well as being a clinical establishment. The applicant had pleaded that it is ancillary to other clinical establishment accredited by National Accreditation Board for Testing and Calibration Laboratories (NABL). However, the AAR held that mere involvement in sophisticated testing and consultancy will not be sufficient to qualify as a clinical establishment. It was also observed that applicant was functioning as sub-contractors to the said accredited companies and not as an independent clinical establishment. [J C Genetic India Pvt. Ltd. (GST AAR Madhya Pradesh) – 2019 VIL 108 AAR]
-Works contract pertaining to railways – Lower tax rate for sub-contractor: In a case involving works contract services provided by a sub-contractor to the main contractor in respect of work relating to railways, AAAR has held that benefit under Sl. No. 3(v) of Notification No. 11/2017-Central Tax (Rate) as amended by Notification No. 1/2018-Central Tax (Rate) is available to the sub-contractor. AAAR Maharashtra held that composite supply of works contract is ultimately going to the use of railways without being subjected to any change or modification, and thus said works contracts is ‘pertaining to the railways’. The work was hence held as eligible for concessional rate of GST. Department’s contention that there is no specific mention of sub-contractor providing services in Sr. 3(v), was rejected. (Shree Construction (GST AAAR Maharashtra)– 2019 VIL 33 AAAR)
-ITC available only on discounted invoice value: In a case involving post-invoice discount where discount cannot be pre-determined or recorded in invoices and supply of goods is made, AAR Tamil Nadu has held that buyer can avail ITC only on proportionate GST as applicable on invoice value less the discounts. Proviso to CGST Section 16 on payment towards value of supply along with tax amount to supplier within 180 days was relied on. The Authority in this regard held that Section 15(3) will not apply where discount is given after invoices are raised and supply of goods is made. The AAR observed that if ITC is availed on full tax amount, difference should be reversed to avoid liability. The applicant had argued that since the discount was not eligible for exclusion from taxable value and tax would be paid on full invoice value, no credit was reversible and the entire tax amount would be available as credit. [MRF Ltd. (GST AAR Tamil Nadu)– 2019 VIL 71 AAR]
-No ITC if goods supplied under CSR activity on FOC basis: Referring to Section 17(5)(h) of the CGST Act, 2017 which restricts ITC with respect to goods that are disposed of by way of gift or free samples, Kerala AAR has held that ITC will not be available to the manufacturer on supply of electrical items to the flood affected people under CSR activity on FOC basis. The Authority, however, held that the distributors of the applicant-manufacturer who had supplied goods to Kerala State Electricity Board on the instructions of the applicant will be entitled to avail ITC on such goods as the goods were supplied to KSEB and GST was paid to the Government by the distributors with respect to the goods. [ Polycab Wires Pvt. Ltd. (GST Kerala AAR)– 2019 VIL 100 AAR]
-No ITC on goods supplied free under sales promotion scheme: Maharashtra AAR has held that ITC is not available to the assessee on procured gold coins to be distributed to its customers for free of cost under a sales promotion scheme at the end of scheme period for achieving the stipulated lifting or payment criteria. It was held that only use of goods in the course of furtherance of business as mentioned in Section 16(1) of CGST Act does not entitle one to avail ITC since Section 17(5) starts with “Notwithstanding anything contained in sub-Section (1) of Section 16”. The Authority was of the view that considering the bar to avail credit by virtue of Section 17(5)(h), even in a case where the goods are used in the course or furtherance of business, ITC shall not be available on distribution of gold coins for free as gifts under a sales promotion scheme. It also elaborated on the meaning of “gifts” as assigned under the Gift Tax Act, 1958 and observed that gift was a transfer of property without consideration which was given voluntarily. [Biostadt India Limited (GST Maharashtra AAR) – 2019 VIL 60 AAR]
-Job work – Dispatch of consumables to job worker is not ‘supply’: The question before the Authority was whether dispatch of consumable materials (zinc, furnace oil, nickel, etc.) for galvanization, would be treated as supply from the principal to the job worker, if they were not returned within the time allowed under Section 143(1)(a) of the CGST Act, 2017. Answering this question, the AAR West Bengal held that as the goods were consumed in the process, the return of the galvanized goods to the applicant would satisfy the condition of receiving back the inputs in accordance with Section 143(1)(a). It was also held that as the goods were consumed in the process of galvanizing and became inseparable from the galvanized goods, they shall not be treated as supply in terms of Section 143(3) provided they have been entirely used up in the process of galvanizing. [Ratan Projects & Engineering Co. Pvt. Ltd. (GST AAR West Bengal)– 2019 VIL 91 AAR]
-ITC of Compensation Cess paid on motor vehicles not available for supply of rental service: The applicant was engaged in supply of renting of motor vehicles and then their disposal after some time. The Kerala AAR has held that such applicant was eligible to claim ITC of Compensation Cess paid at the time of purchase of motor vehicles but would be required to reverse proportionate amount of ITC of such cess every month based on the turnover of rental service as the same was an exempt supply, not being liable to cess under GST (Compensation to States) Act, 2017. It held that such ITC can be utilized for discharging liability of Compensation Cess arising at the time of sale of such vehicles. The Authority in this regard relied on Section 2(p) of the GST (Compensation to States) Act which defines the term “taxable supply” under the said Act and referred to definition of ‘exempt supply’ as provided in CGST Act. [ Orix Auto Infrastructure Services Limited (GST Kerala AAR) – 2019 VIL 98 AAR]
-Fabrication of body on chassis supplied by principal is supply of service: Kerala AAR has held that the activity of fabrication of a body is in the nature of adding a structure (any treatment done) on the chassis owned by the customer, and hence even when the job worker used his own material to do the fabrication on the chassis, it will be considered as supply of service and will be classified under SAC Code 9988, thereby attracting 18% GST. The Authority observed that chassis was a semi-finished good owned by the principal and any treatment done by any other party on the chassis of the principal was in the nature of job work activity. [KondodyAutocraft (India) Pvt. Ltd. (GST Kerala AAR) – 2019 VIL 97 AAR]
GST Compliance Calendar – May 2019
|GSTR-1||Outward supply for the month of April 2019||11th May 2019|
|GSTR-5||Non-resident foreign taxpayers return for the month of April 2019||20th May 2019|
|GSTR-6||Input service distributor for the month of April2019||13th May 2019|
|GSTR-7||Tax Deducted at Source for April 2019||10th May 2019|
|GSTR-8||Tax Collected at Source by e-commerce operator for April 2019||10th May 2019|
|GSTR-3B||Summary return tax payment for the month of April 2019||20th May 2019|
-Physical copies of MEIS/SEIS scrips phased out for EDI ports: Physical copies of MEIS or SEIS duty credit scrips will not be issued by the DGFT from 10-4-2019 onwards, in cases where the port of registration is an EDI port., the scrips will continue to be transmitted electronically by the DGFT to the Customs system and would be visible to concerned officers involved in imports. While no TRA shall be issued in respect of these paperless scrips issued electronically, DGFT will continue to issue scrips in physical form as per current practice for non-EDI ports. (CBIC Circular No. 11/2019-Cus. dated 9-4-2019)
-Advance authorisation, EPCG and EOU – IGST and Cess exemption extended: Exemption from Integrated tax and Compensation Cess for imports under Advance authorisation, EPCG scheme and by EOUs has been extended again. This time the exemption has been extended for full one year, and would now be available till 31st of March 2020, instead of 31st March 2019. Amendments have been made in Paras 4.14, 5.01(a) and 6.01(d)(ii) of the Foreign Trade Policy by DGFT Notification No. 57/2015-20, issued on 20-3-2019. Ministry of Finance has also issued notifications to amend the Customs notifications
-Peas and pulses – Import of certain quantities relaxed from 1-4-2019: Ministry of Commerce has relaxed import of Moong, Urad and Peas. Such products will be subject to annual (fiscal year) quota of 1.5 Lakh Metric Tonne. Import of Toor Dal shall be subject to an annual quota of 2 Lakh MT as per procedure notified by DGFT. Import of these products was earlier fully restricted. As per DGFT Trade Notice dated 1-4-2019, Ministry of Commerce Notifications S.O. 1478(E), 1479(E), 1480(E) and 1481(E) amend the import policy conditions of certain items in Chapter 07, and are effective from 1-4-2019.
Important Cases decided
-Rectification in Bill of Entry under Customs Section 154 on error by importer: In a case where the importer accidently paid duty twice on same invoice, Madras High Court has remanded the matter to assessing officer to pass order after exercising power under Section 154 of the Customs Act. The High Court observed that the error was apparent on the face of the order and the bill of entry should have been verified to avoid litigation. It observed that powers of Section 154 can be exercised by the authority when error is pointed out by an importer/exporter for reasons attributable to latter, but only in respect of clerical/arithmetical error. [Commissioner v. Symrise (P) Ltd. – 2019-VIL-141-MAD-CU]
-Advance authorisation – Use of surplus inputs for goods cleared in DTA: In a case where actual use of inputs in export goods was less than SION norms and surplus was used in the manufacture of domestic goods, CESTAT Ahmedabad has allowed benefit of advance authorisation. Observing that export obligation was fulfilled and off-grade goods, considered as waste, were cleared in DTA, the demand on ground of use of inputs being less than that prescribed in SION was set aside. The Tribunal placed reliance on Para 4.1.5 of FTP and the Tribunal decision in the case of Areva T & D India Ltd. (K L J Organics Ltd. v. Commissioner – 2019-VIL-208-CESTAT-AHM-CU)
-Demurrage charges are justified unless waiver mandated by Rules: Delhi High Court has held that the warehousing service provider was justified in not waiving and returning demurrage charges deposited in a case where detention was held justified, even when penalty and confiscation by Customs were set aside. The High Court held that fee payable for duration for which warehousing was done cannot be removed by the court unless rules or relevant policy provided for the same. It observed that even otherwise warehousing is a commercial activity for which service provider invests in resources, deploys manpower and creates infrastructure. [International Lease Finance Corp. v. UoI – Order dated 27-3-2019 in W.P.(C) No. 6490/2018, Delhi High Court]
-NCCD exemption available to units exempted from Excise duty: Supreme Court has held that manufacturing units in special category States which were exempt from Central Excise duty would also be exempt from National Calamity Contingent Duty (NCCD), since NCCD was of the nature of an excise duty. The Court held that same view on this exemption would apply as taken for Education Cess and Secondary & Higher Education Cess by the Court in the case of SRD Nutrients (P) Ltd., even if NCCD was levied on the product and not on the excise duty payable. The Apex Court in this regard was of the view that exemption notifications, like the one in question must be read in a manner that give them a liberal interpretation, provided that no violence is done to the language employed. [Bajaj Auto Ltd. v. UoI – Judgement dated 27-3-2019 in Civil Appeal No. 3239 of 2019, Supreme Court]
-Service tax audit after introduction of GST – Saving clause under CGST Section 174(2)(e): Jharkhand High Court has prima facie rejected the contention that saving clause in CGST Section 174 did not protect Service Tax Rules and hence action taken pursuant to such rules was without authority of law, after introduction of GST. Dispute pertained to inquiry/audit under Rule 5A. The Court however prima facie held that the expression ‘instituted’ in CGST Section 174(2)(e) implied that proceeding stood already instituted at time of repeal of Finance Act, 1994. Decisions of Gujarat and Delhi High Courts were referred while directing status quo till next date of hearing. [Sulabh International v. UoI – Order dated 4-4-2019 in W. P. (T) No. 1599 of 2019, Jharkhand High Court]
-Mere consumption of goods during service cannot turn it into work contract: CESTAT Ahmedabad has held that consumption of goods by a service provider during the provision of service does not automatically convert the service into a works contract. The Tribunal observed that if the scope of work contract was extended to include consumables then there would be no service which can fall outside the purview of works contract. It also observed that even consultancy service provided by an engineer or an advocate involves consumables like paper, ink, pen, etc. [Krishna Engineering Works v. Commissioner – 2019 (22) GSTL 409 (Tri. – Ahmd.)]
-Supply of electricity in the absence of licence, exigible to service tax: Observing that petitioner was not a person authorised to transmit, supply, distribute or undertake trading in electricity, Calcutta High Court has ruled that receiving high-tension electricity and converting into low-tension for supply to occupants of a mall, was classifiable as services. It held that any interpretation that violates Electricity Act, should be avoided. The Court held that although electricity is goods, in the absence of licence under Section 12 of the Electricity Act, would be termed as a service liable under Section 65B(23) of the Finance Act, 1994. [Srijan Realty Pvt. Ltd. v. Commissioner – 2019 TIOL 594 HC KOL ST]
-Excise valuation – Dharmada charges not includible: Larger Bench of the Supreme Court has held that ‘Dharmada’ collected as optional payment from buyer, cannot be part of transaction value for goods. It held that the amount to be credited to charity and not forming part of income was not includible. The Court held that no amount not paid as consideration for goods can go to make transaction value and if an amount paid at the time of sale transaction was for a purpose other than the price of the goods, it cannot form part of transaction value as such payment is not for transaction of sale i.e. for transfer of possession of goods. Observing that payment of dharmada was meant for charity and was received and held in trust by the seller, the Court was of the view that if such amounts were meant to be credited to charity and did not form part of the income of the assessee they cannot be included in the transaction value or assessable value of the goods. [D.J. Malpani v. Commissioner – Judgement dated 9-4-2019 in Civil Appeal No. 5282 of 2005, Supreme Court]
-Karnataka Sales Tax – Turnover not limited to ‘taxable turnover’: Supreme Court has held that levy under Section 6B of the Karnataka Sales Tax Act, must be on the total turnover and not only on the taxable turnover. It rejected the contention that ‘total turnover’ in Section 6B(1) for purpose of turnover tax, cannot include turnover on which State has no power to levy tax. Applying strict rule of interpretation of taxing statutes, the Court held that except the deductions provided under the first proviso to Section 6B(1), nothing else can be deducted from total turnover as defined under Section 2(u-2). [Achal Industries v. State of Karnataka – Judgement dated 28-3-2019 in Civil Appeal No(s). 4837 of 2011 and Ors., Supreme Court]
-Rusk and toast are bread as per composition, hence not liable to VAT: Chhattisgarh High Court has held that Rusk and Toast are to be treated as Bread under Entry-7 of Schedule-I to the Chhattisgarh VAT Act making them tax free goods. The goods were held not classifiable under the residuary entry of Part IV of Schedule II of the Act. Upholding the single Judge Order, the Court observed that as per judicial precedents, it was required to find out if contents of the product fits the description of the basic entry and only if the same was not possible, residuary entry can be taken as a resort. [State of Chhattisgarh v. Saj Food Product (P) Ltd. – 2019-VIL-138-CHG]
-Mobile crane wire rope classifiable as part of mobile crane: Supreme Court has held that wire ropes used in mobile cranes are a part of such cranes and liable to 4% tax as per Entry 155 of Schedule IV to Rajasthan VAT Act. The Apex Court observed that in order to make mobile cranes operational, use of wire ropes was essential and hence mobile crane wire rope was an essential part of the mobile crane. Relying on judgement in Annapurna Carbon Industries, the Court reiterated the test that a thing is a part of the other if the other cannot function without it. [Commissioner v. Prasoon Enterprises – Judgement dated 26-3-2019 in Civil Appeal No. 3198 of 2019 and Ors., Supreme Court]
Compiled by: Naincy Bhalla & team