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The CBIC vide Notification No. 90/2020 – Central Tax dated 01 December 2020 has mandated the taxpayers to report 8-digit HSN codes in tax invoices for certain prescribed chemicals such as Dimethyl propylphosphonate, carbonyl dichloride, etc.

GLS Comments:

In the later months of the year 2019 and the beginning of 2020, the CBIC had issued certain trade notices in Customs, requesting the importers and exporters to refrain from classifying their goods under the ‘other category’. Similarly, on various occasions, the Government had expressed their will to align the use of correct and apt HSN codes across all fields of indirect taxation. This instant notification seems to be a step towards to goal of correct reporting of HSN codes for tradable goods.

The Appellant had imported certain raw materials and equipment, from their US based parent company. The case was forwarded to Special Valuation Branch (‘SVB’) for detailed investigation. Upon investigation, the SVB rejected the Appellant’s declared transaction value and loaded the declared value. The said order was further confirmed by the Commissioner (Appeals). Aggrieved, the Appellant preferred an Appeal before the CESTAT.

It was contended by the Appellant that the Respondent’s orders fly in the very face of Rule 4(3)(a) of the Customs Valuation (Determination of Price of Imported Goods) Rules, and settled principles of law on redetermination of value. In terms of Rule 4(3)(a) of the CVR, 1988, the Department needs to accept the transaction value even in cases where the parties are related. Before rejecting the transaction value, a duty is cast on the Department to examine the circumstances surrounding the sale and the transaction value may be rejected only if such examination indicates that the relationship between the parties influenced the price.

The CESTAT observed that no clarification whatsoever was sought by the Department from the Appellant as to the relevance of the Chemical weekly report before proceeding to rely on the report. It was further observed that no opportunity of hearing in this regard was afforded to the Appellant. The Department relied upon the international chemical report without actually assessing whether the items mentioned therein and the items imported were comparable in quality as well as quantity and that no test report had been obtained.

It was further observed by the CESTAT that the original authority had given a finding that that the onus to prove that their relationship has not affected the pricing lies on the importer in terms of the rules cited above. However, the same is not the correct proportion of law. It was observed that as per Rule 3(a) of the Customs Valuation Rules, where the buyer and the seller are related, the transaction value shall be accepted provided that the examination of the circumstances of the sale of the imported goods indicate the relationship did not influence the price. It was observed that neither the original authority nor the Appellate authority had given reasons to hold that the relation had indeed affected the prices.

The CESTAT further observed that no reasons were produced by both the authorities for rejecting the submissions of the appellant and that no discussion and findings were given by both the authorities. In the end there was rush to complete the proceedings. 

Basis the above observations, the CESTAT allowed the appeal by way of remanding the matter back to the original authority for proper examination of all facts and submissions of the Appellant and to pass a speaking and reasoned order as per law.

GLS Comments:

It has been seen that various SVB matters have been pending at the adjudication stage despite the Revenue’s clear instruction to dispose the same on expeditious basis. It would be pertinent to note that such delays in finalization of SVB matters adversely affect the importers to a great extent.

Pending the SVB Order, the importers are required to pay the application RD / EDD for clearance of their consignments imported from related parties. Although such duties paid on imports during investigation can be refunded, it casts additional burden upon importers. In this regard, the Revenue shall ensure that all SVB matters are disposed judiciously and expeditiously. 

CBIC vide Notification No. 89/2020 – CT dated 29 November 2020 has waived the penalty for non-compliance of provisions of dynamic QR code in B2C invoices between the period 01 December 2020 to 31 March 2021 subject to the condition that such person complies with provisions of dynamic QR code in B2C invoices w.e.f. 01 April 2021

The Petitioner had challenged the order of the Appellate Authority denying refund due to them exports had been made outside India and such exports were regarded as zero-rated supplies u/s. 16 of the IGST Act on which the Petitioner was entitled to refund of ITC u/s. 54(3) of the CGST Act.

The Respondents had rejected the refund on sole ground that any exports through the Foreign Post Office (‘FPO’) would be eligible for zero-rated exports and the refund of such duty could be claimed only vide Notification No. 48/2018 – Customs (N.T.) dated 04 June 2018 read with Circular No. 14/2018 – Customs dated 04 June 2018 and that the Petitioner refund claim pertains to August 2017 and September 2017 i.e. prior to the date of Notification. 

The Delhi HC observed that Circular No. 14/2018 was neither clarificatory, nor it determined the eligibility of allowing ITC on exports. It was further observed that in any event, new procedure cannot be made applicable from a retrospective date. The HC further noted that refunds shall be examined with reference to their compliance with the extant provisions, including law and procedures relating to GST and Customs. Basis the above observations, the HC set aside the orders passed by the Respondent and remanded the matter back to the original Adjudicating Authority.

Medical Bureau vs. Commissioner of CGST [W.P. (C) 3917/2020]

The Applicant, owner of an immovable property, had entered into a Joint Development Agreement with M/s. Suprabhat Constructions (‘the Developer’) for construction of residential flats, agreeing to get 40% of share of undivided right, title and interest. The JDA had been entered along with irrevocable general power of attorney with the Developer, who had obtained necessary Plan Approval, Commencement Certificate and Completion / Occupancy Certificate from the competent authority.

Post the completion of the project, the share of the residential flats had been handed over by the Developer after the issuance of Completion / Occupancy Certificate. Further, the relevant clauses of the Area Sharing Agreement restricted the right of the Applicant to execute sale agreement or any conveyancing deeds till the issuance of Completion / Occupancy Certificate and taking over their share of flats. In respect thereto, the Applicant had sought a ruling before the Karnataka AAR to ascertain whether the amount to be received towards advances or sales consideration of the flats to the extent of 40% of JDA, are not amenable to GST.

The AAR observed that the sale of flats would not be exigible to GST if and only if they are sold after the issuance of Completion / Occupancy Certificate, in which case, it would be treated neither as supply of goods nor supply of services in terms of Entry 5 of Schedule III, which covers sale of land. The AAR also remarked that had the Applicant themselves, or the Developer, on behalf of the Applicant, had sold the flats prior to the issuance of Completion Certificate, the transaction would have been liable to GST as Works Contract. However, in the instant case, as the Completion / Occupancy Certificate had been received, the AAR held that the transaction would fall under Entry 5 of Schedule III and will neither be treated as supply of goods or services and therefore, not liable to GST.

BR Sridhar [Advance Ruling No. KAR ADRG 55/2020 dated 07 November 2020]

The GSTN on 20 November 2020 has released the salient features Quarterly Return filing and Monthly Payment of Taxes (‘QRMP’) Scheme as follows:

Eligibility

Following Registered Person (‘RP’) can file quarterly returns and pay tax on monthly basis w.e.f. 01 January 2021:

• A RP who is required to file GSTR 3B with Aggregate Annual Turnover (‘AATO’) of up to Rs 5 Cr. in the previous F.Y. is eligible. If AATO crosses Rs 5 Cr. during a quarter, the RP will become ineligible for the Scheme from next quarter;
• Any person obtaining a new registration or opting out of Composition Scheme can opt for this Scheme;
• The option to avail this Scheme can be availed GSTIN wise. Therefore, few GSTINs for that PAN can opt for the Scheme and remaining GSTINs can remain out of the Scheme.

Changes in GST Portal

For quarter January 2021 to March 2021, all RPs whose AATO for the FY 2019-20 is up to Rs 5 Cr. and have furnished the return in GSTR-3B for the month of October 2020 by 30 November 2020, will be migrated by default in the GST system as follows:

When can a person opt for the scheme

• Facility can be availed throughout the year, in any quarter.
• Option for QRMP Scheme, once exercised, will continue till RP revises the option or his AATO exceeds Rs 5 Cr.
• RPs migrated by default can choose to remain out of the scheme by exercising their option from 05 December 2020 till 31 January 2021.

The RPs opting for the scheme can avail the facility of Invoice Furnishing Facility (‘IFF’), so that the outward supplies to registered person is reflected in their Form GSTR 2A and 2B.

Payment of tax under the scheme

• RPs need to pay tax due in each of first two months (by 25th of next month) in the quarter, by selecting ‘Monthly payment for quarterly taxpayer’ as reason for generating Challan;
• RPs can either use Fixed Sum Method (pre-filled challan) or Self-Assessment Method (actual tax due), for monthly payment of tax for first two months, after adjusting ITC;
• No deposit is required for the month, if there is NIL tax liability;
• Tax deposited for first 2 months can be used for adjusting liability for the quarter in Form GSTR-3B and cannot be used for any other purpose till the filing of return for the quarter

The Applicant, a Co-operative housing society, raised funds by collecting contributions / charges from the members of the society. The charges included property tax, water tax, electricity charges, parking charges, etc. The said charges were collected by the Applicant periodically by issuing invoices and the charges so collected were used for specified purposes as enumerated in the Bye-laws of the Society.

The Applicant had sought a ruling before the Maharashtra AAR inter alia to ascertain whether the activities carried out by them would amount to supply and whether the same would be liable under GST. The Maharashtra AAR had observed that the services by the Applicant were being carried out for a consideration in the course of furtherance of business and therefore liable to GST.

Aggrieved, the Applicant had preferred an appeal against the order of the AAR before the Maharashtra AAAR. The Maharashtra AAAR took note of the nature of the activities carried out by the Applicant as mentioned in the Bye-Laws and observed that the same are entirely oriented towards providing services to its members and therefore are covered under the definition of business.

The AAAR further took note of the judgement of the SC in Calcutta Civil Club Limited [Civil Application No. 4184 of 2009] relied upon by the Applicant. It was observed by the AAAR that in the said case, the SC had held that the club cannot be said to be doing any business with its members as both the members and the club are one and the same owing to the principle of mutuality. It was observed by the AAAR that the said judgement was made in relation to sales tax, the provision of which are entirely different from GST and therefore, the same cannot be applicable in the instant case.

The AAAR further observed that ‘service’ under the CGST Act has been rendered a very wide connotation and ‘person’ as defined under CGST Act includes both ‘incorporated and unincorporated clubs and thus clarifies that both these deeming fictions convey the intention of the legislature to do away with the principle of mutuality.

It was further observed by the AAAR that Notification No. 12/2017 – C.T. (Rate) dated 28 June 2017 stipulates that services by an unincorporated body or a non-profit entity to its members for Rs. 7,500/- per month per member is exempt from GST. Thus, implying that any amount, exceeding Rs. 7,500/- per month per member would be subject to GST provided that the aggregate turnover of such society in a F.Y. exceeds Rs. 20 lakhs.

Basis the above observations, the AAAR upheld the order of the AAR holding that the activities carried out by the Applicant would amount to supply liable for GST subject to the prescribed conditions.

Apsara Co-Operative Housing Society Limited [Order No. MAH/AAAR/RS-SK/28/2020-21 dated 05.11.2020]

GLS Comments:

The question relating to GST applicability on Co-operative housing society has been rather persistent right from the beginning of GST. As rightly noted by the Maharashtra AAAR, GST has surely widened the scope of the term ‘supply’. In this regard, it would be pertinent to note that the Maharashtra AAR in the case of Rotary Club of Mumbai Elite [2019 (30) G.S.T.L. 60] had held that charges collected by the Club would be considered as ‘supply’ u/s. 7 of the CGST Act and therefore liable to GST.

The Applicant, a Russian entity, had entered into a Maintenance and Repair Contract (‘MARC’) with Bharat Coking Coal Limited (‘BCCL’), an Indian entity. As per the terms of the agreement, the foreign supplier was be responsible for taxes and duties in BCCL’s country during execution of the contract. The services were actually rendered by appointing a sub-contractor to execute a part of the obligations under MARC. The Applicant had specifically deployed its supervising and technical employees at the site of BCCL, whose salaries were also borne by the Applicant. On account of certain problems in the payment channel, the Applicant had opened a branch in India and registered under the CGST Act. According to the Appellant, the recipient of services, i.e., BCCL was liable to pay IGST on the imported services under reverse charge mechanism.

In view of the afore-stated background, the Appellant had sought an advance ruling to specify the person liable to pay tax and whether it is justified by BCCL to deduct GST from payments made to foreign company. The WB AAR had observed that deputation of human and technical resources at the site of BCCL constitutes as 'fixed establishment' and therefore concluded that the location of the 'supplier' in the present case was in India. Therefore, it had been that held that the supply of service to BCCL was not import of service. The recipient was not liable to pay GST on reverse charge basis. The Applicant, being the domestic MARC holder was liable to pay the tax as applicable. Aggrieved, the Applicant had preferred an Appeal against the order of the AAR.

The WB AAAR observed that the AAR had not considered various terms of the agreement which inter alia state that the entire control of the activities would rest with the foreign entity, which had entered into an agreement with BCCL. The AAR had further observed that the service is ensured from the Applicant’s domestic entity for 17 years of the contract. However, it has not taken into consideration the fact that the Applicant is providing service to BCCL since 2015, whereas the domestic entity came into existence in 2018 only. The AAAR had further observed that the registered place of business of the Applicant cannot be termed as 'fixed establishment'. The AAR had not adduced any finding to draw conclusion that the Applicant as registered in India maintains suitable structures in terms of human and technical resources to provide the service for which the MARC has been entered into between the parties Accordingly, it was held by the AAAR that the ruling of the AAR does not hold good.

It was further observed that in terms of Section 2(11) of the IGST Act, import of service contains the following three elements:

• The supplier of service should be located outside India;
• The recipient of service should be located in India;
• The service should be provided in India.

The AAAR noted that the Applicant, being a foreign entity had been raising invoices upon BCCL and therefore the conditions of import as envisaged herein-above were being fulfilled. Accordingly, the AAAR modified the AAR order to the extent the supply of services by the Applicant to BCCL qualified as import and GST on such services is payable under reverse charge mechanism in terms of Notification No. 10/2017 – Integrated Tax (Rate) dated 28 June 2017.

IZ Kartex named after p. G. Korobkov Limited [Appeal case No. 02/WBAAAR/APPEAL/2020 dated 17 August 2020]

The CBIC vide Notification No. 42/2020 - Customs dated 11 November 2020, has increased the Basic Custom Duty on specified components / parts used in manufacture of Open cell of LED and LCD television panels of Tariff Heading 8529, from nil to 5%. The revised rate has been made effective from 12 November 2020

The Petitioner had been supplying anti-virus software services to its clients. The Respondent had raised a tax demand along with interest and penalty on the supply of software services for the period July 2012 to March 2013, by classifying the same as ‘Information Technology Software Services’ under the Finance Act.

Aggrieved, the Petitioner filed a Writ Petition against Service Tax demand order before the Madras HC. It had been argued by the Petitioner that they had discharged VAT on the sale of the Software, since it is deemed to be a 'sale of goods' and has been duly assessed by the authorities under the Tamil Nadu Value Added Tax Act and therefore, the Department’s claim that the same is amenable to service tax is not sustainable.

Referring to the judgement of the Division Bench of Madras HC in the case of ISODA vs. Union of India [2010 (20) STR 289 (Mad)], the HC observed that Anti-Virus software is a representation of instructions recorded in a machine readable form that provides interactivity to the End User through a computer that has working internet connectivity and therefore, Anti-Virus Software squarely falls within the definition of 'Information Technology Software'.

It was further observed by the HC that though the software are goods, when the goods as such are not transferred but the transaction of right to use as transferred to the end-user, it would only be a 'service' and not a 'sale'. Accordingly, applying the rationale of the Division Bench in ISODA (supra), the HC concluded that Anti-Virus Software' in CD forms squarely falls within the essential features of the definition of the 'Information Technology Software. Basis the above observations, the Madras HC upheld the Respondent’s demand of Service Tax along with interest and penalty.

K7 Computing Private Limited [W.P.Nos.25923 & 31485 of 2018]

GLS Comments:

Right from the turn of the decade, the question as to whether ‘software’ can be termed as ‘goods’ or ‘services’ has consistently remained a hot topic. In this regard, a breakthrough came with the judgement of the SC in the case of TCS vs. State of A.P. [271 ITR 401] wherein it had been held that software, which is incorporated on a media, would be goods and therefore, liable to sales tax. 

However, subsequent to the SC judgement, it had been seen that different authorities had been taking different views. The Karnataka HC in the case of Sasken Communications Technologies Limited [Writ Appeal Nos. 90-113 and 118-129 of 2011] had held that the contract for development of software in question is not works contract but a contract for service simplicitor liable to service tax and not VAT.

It would be pertinent to note that conflicting tax treatments of similar transaction by different tax authorities definitely creates hurdles for the businesses. Accordingly, it is likely that legacy cases in relation to tax demands for software would continue.