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Pencils and sharpeners sold in sets, classifiable as 'mixed supply' and not 'composite supply'
The Applicant is engaged in the business of manufacturing and supplying all kinds of stationery items. The Applicant sold ten pencils in sets with the sharpener and eraser in the pack as accessories. Furthermore, the Applicant used to sell the pack under the HSN code of the item with the highest value inside the pack, which also had the highest GST rate, however with the change in the GST rate of the pencil sharpener to 18%, the sharpener now carries the highest tax rate among all products bundled. Hence, the Applicant sought an advance ruling to ascertain whether the supply of pencil sharpeners along with pencils, which, as per the Applicant, is the principal supply, will be considered as ‘composite supply’ or ‘mixed supply.’
The Applicant had argued that sale of such stationary items is naturally bundled, with pencils being the principal sully and therefore, classifiable as composite supply. It had been further argued that in terms of the Rule 3 of General Interpretation Rules for classification of goods, issued by the World Customs Organization, when goods are capable of being classified as under two or more headings, the classification of goods, which are put up in sets for retail sale is to be undertaken basis the product giving providing essential character to the complete set.
Basis the above contentions, the Applicant had argued that stationary sets supplied by them are classifiable as composite supply, with pencils being the principal supply, chargeable to 12% GST.
The AAR noted that, the pack supplied by Applicant satisfies all the conditions of ‘Mixed Supply’ u/s 2(74) of the CGST Act and as per the provision of mixed supply, the supply that attracts the higher rate of tax shall be the applicable rate for the supply. Accordingly, the AAR ruled that the supply of sharpeners along with pencils falls under the category of ‘mixed supply’ and therefore, the Applicant is required to use the HSN code of the product, which attracts a higher rate of tax among all the taxable supplies contained in a pack or box.
Doms Industries Private Limited [Advance Ruling No. GUJ/GAAR/R/2022/52]
GLS Comments:
Interestingly, in the instant case, the Applicant had placed reliance on the General Rule of the General Interpretation Rules of Customs to argue that in case of goods sold in sets, the product giving the essential character is to be used for classification. In this regard, it shall be noted that the purpose of classification of goods under the Customs law vis-à-vis the GST law is different. The Rules meant for classification for the purpose of Customs, although having persuasive value for GST classification, cannot be applied mutatis mutandis.
In RE: Texel Industries Limited [2022 (61) GSTL 217 (AAR-GST-Guj.], it had been held that GST Scheme of law shall be given precedence and compliance for Classification. Further, the explanatory notes issued by the WCO have a persuasive value for determining classification.
HC allows rectification of GSTR-1 in accordance with CBIC circular
The Petitioner had inadvertently furnished incorrect GSTIN in its outward supplies. Aggrieved, the Petitioner, relying upon the Circular No. 183/15/2022-GST dated December 27, 2022 preferred a writ before the Karnataka HC seeking relief by way of rectification in Form GSTR-1 uploaded between FY 2017-18 and 2018-19 so that their recipient can claim the ITC.
The HC observed that the Circular allows rectification of the bona fide and inadvertent mistakes committed by the assessee at the time of filing of forms and submitting returns is applicable in peculiar and special facts and circumstances. Further, it was also noted that the Petitioner's error in the invoices, which was carried through in the relevant forms, had occurred as a genuine error that arose owing to bonafide causes, and hence the circular was squarely applicable. Accordingly, the rectification was allowed and the Revenue was directed to follow the procedure in accordance with the Circular.
Wipro Limited India [2023-VIL-22-KAR]
NEWSLETTER - VISION 360: A TREASURY OF TAX AND REGULATORY DEVELOPMENTS - DECEMBER 2022
As we usher into 2023, there is a lot of hope for the economic development of the Nation. With the record collections in GST and the strides towards being an export-centric country, the foreseeable future certainly looks good. Most importantly, with the recent Foreign Trade Agreement entered with the Government of Australia, the exporters of various goods especially that of consumer goods, will enjoy many benefits.
Further, with the Budget 2023 just around the corner, the corporate sector anticipates that uniformity in tax rates should be implemented for India to stand as a center for both the manufacturing and services industries. Furthermore, there have also been ample judicial and legislative growth in the past month. The CBDT has issued Circular for TDS on Salary for FY 2022-23. Furthermore, the CBIC has issued numerous circular/clarifications in line with the recommendation from the 48th GST Council meeting. The CBIC has clarified the much debated issue of ITC difference in GSTR-3B vis-à-vis GSTR-2A for F.Y. 2017-18 and F.Y. 2018-19.
In addition, thereto, true to our view of bringing news which are beyond facts, we have covered all the judicial and regulatory developments in direct and indirect taxes with interesting insights. We have also covered developments of the erstwhile indirect tax laws, which can be helpful precedents for disposing the pending litigations.
Compiling all such developments, we are glad to bring to you, the 28th Edition of our ‘Vision 360’ Newsletter in association with TIOL. We have covered the key judicial and legislative developments in Direct, Indirect Tax other regulatory areas in the month of December 2022. We hope that reading of the newsletter would bring an enriching experience to you! Your valuable feedback is always welcome at consult@gstlegal.co.in or updates@gstlegal.co.in
Orissa HC holds Rule 89(4) of GST Rules as “Intra Vires”
The Petitioner had filed a refund application of the unutilized ITC in respect of zero-rated supplies made by all its units together. The said refund was allowed by the Department, however the Petitioner on computing the unit-wise quantum of refund, it was observed that the amount of refund granted by combining all of the units together was considerably less. Therefore, the Petitioner manually applied for a supplementary refund by computing the claim on the basis of supplies made unit-wise, however, the department rejected the supplementary refund. Aggrieved the Petitioner preferred a Writ before the Orissa HC.
The HC emphasised that all units of the company having same GSTIN has to be treated as one individual for the purpose of making claims under the GST Act. Further as the Petitioner had availed the benefits of refund by combining the three units, subsequent thereto, it could not turn around and ask for more refund by filing further application for supplementary refund by computing amount of refund taking into account transactication based on a fresh calculation mions of individual unit. Accordingly, the HC held that, there is no scope for consideration of a supplementary refund applade by taking individual unit-wise transactions into account. The bench also declined to read down Rule 89(4) of the CGST Rules, 2017 as it was framed in conformity with the powers conferred on the government u/s 164 of the CGST Act and thus held it as “intra vires”.
Vedanta Limited vs. UOI [TS-01-HC(ORI)-2023-GST]
Lease transaction between distinct persons exigible to GST
The Applicant had sought an advance ruling to ascertain whether lease charged for the supply of equipment to its other branches across India will be considered as supply u/s 7 of the CGST Act.
The AAR observed that as per the entry in Schedule I of the CGST Act, there can be supply of goods or services between distinct entities even in case no consideration is involved. Accordingly, it was held that the transaction made by the Applicant would be taxable. It was further held the normal value which would be derived after taking into consideration the lease rate would be the value on which GST has to be charged in terms of Section 15 of the CGST Act.
Chep India Private Limited [NO.GST-ARA-82/2020-21/B-111]
CBIC clarifies issues pertaining to GSTR-3B vs. GSTR-2A ITC difference for 2017-18 and 2018-19
With a slew of Circulars issued on 27 December 2022, the CBIC has clarified various issues in relation to GST. Following are the key highlights of the Circulars:
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Sr. No. |
Notification No. |
Clarification |
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1 |
Circular No. 183/15/2022-GST dated 27 December 2022 |
ITC Difference in GSTR-3B vs. GSTR-2A during F.Y. 2017-18 and F.Y. 2018-19
In cases, where the supplier erred in filing Form GSTR-1, due to which the supplies made in the relevant tax period is not reflected in Form GSTR-2A of the recipients, the ITC availed on such supply shall be allowed basis the fulfilment of the following conditions:
· All the conditions of section 16 of the CGST Act is fulfilled in respect of the ITC availed. · The ITC is not been blocked under section 17 of the CGST Act and further, the ITC has been availed within the time period specified u/s. 16 (4) of the CGST Act. · In cases of section 16(2)(c) of the CGST Act, where the difference is because of late filing or non-filing by the supplier, credit will be allowed if: a. In respect of difference for the said financial year exceeds Rs 5 lakh, the recipient shall produce a certificate for the concerned supplier from the Chartered Accountant or the Cost Accountant, certifying that supplies in respect of the said invoices of supplier have actually been made by the supplier and the tax on such supplies has been paid by the said supplier. b. In respect of difference for the said financial year is upto Rs 5 lakh, the recipient shall produce a certificate from the concerned supplier to the effect that said supplies have actually been made by him and the tax on said supplies has been paid by the said supplier.
· However, for the period FY 2017-18, as per proviso to section 16(4) of CGST Act, the aforesaid relaxations shall not be applicable to the claim of ITC made in the FORM GSTR-3B return filed after the due date of furnishing return for the month of September, 2018. · These instructions will apply only to the ongoing proceedings in scrutiny/audit/investigation, etc. for FY 2017-18 and 2018-19 and not to the completed proceedings.
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2 |
Circular No. 184/16/2022-GST dated 27 September 2022 |
ITC availability where the place of supply is concerned foreign destination and not the State in terms Section 12(8) of the IGST Act · In cases where the transportation of goods is to a place outside India, and where the supplier and recipient of the said supply of services are located in India, the supply of services would be considered as inter-State supply in terms of section 7(5) of the IGST Act · Further, there is no such provision u/s. 16 and u/s.17 of the CGST Act for restricting availment of ITC by the recipient located in India if the place of supply of the said input service is outside India. Accordingly, the recipient of such service shall be eligible to avail ITC in respect of the IGST so charged by the supplier
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3 |
Circular No. 185/17/2022-GST dated 27 December 2022 |
Re-determination of recovery proceedings
· In cases where direction is issued by the Appellate authority to re-determine the amount of tax payable by the Noticee by deeming the notice to have been issued u/s. 73(1) of CGST Act (as against the original notice being issued u/s. 74) in in terms of section 75(2) of the said Act, the issuance of the redetermination of tax, interest and penalty payable should be within a period of 2 years from the date of communication of the said direction in terms of section 75(3) of the CGST Act. · In cases where the proper officers had issued notices u/s. 74, which were subsequently determined to have been issued u/s. 73 by way of a deeming fiction as in terms of Section 75(2), the de novo proceedings for the recovery u/s. 73 would be applicable only where the such notices issued u/s. 74 (deemed to have been issued u/s. 73), were issue within the limitation of Section 73(10). · In cases where the Notice have been issued beyond the said period, the entire proceeding shall dropped, being hit by the limitation of time as specified in section 73.
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4 |
Circular No. 186/18/2022-GST dated 27 December 2022 |
Taxability of No Claim Bonus offered by Insurance companies · No claim bonus is a permissible deduction u/s. 15(3)(a) of the CGST Act, and where such NCB is provided in the invoice issued by the insurer to the insured, GST shall be leviable on actual insurance premium amount, payable by the policy holders to the insurer. · Further, exemption, from generation of e-invoices in terms of Notification No. 13/2020- Central Tax dated 21st March, 2020 is for the entity as a whole and is not restricted by the nature of supply being made by the said entity.
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5 |
Circular No. 187/19/2022-GST dated 27 December 2022 |
Treatment of GST dues where proceedings have been finalised under IBC, 2016
In cases where demand for recovery has been issued in FORM GST DRC-07/DRC 07A against the corporate debtor, and where under IBC the proceeding have been finalised by reducing the amount of statutory dues payable by the corporate debtor to the government under CGST Act or under existing laws, then the jurisdictional Commissioner shall issue an intimation in FORM GST DRC-25 reducing such demand, to the taxable person
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6 |
Circular No. 188/20/2022-GST dated 27 December 2022 |
Procedure for refund application for unregistered persons
· The unregistered person, who wants to file an application for refund u/s. 54(1) of CGST Act, in cases where the contract/agreement for supply of services of construction of flat/ building has been cancelled or where long term insurance policy has been terminated, shall obtain a temporary registration on the common portal · Thereafter, the application for refund shall be filed in FORM GST RFD-01 on the common portal under the category ‘Refund for unregistered person’. · Further, the applicant shall upload statement 8 (in pdf format) and all the requisite documents as per the provisions of rule 89(2) of the CGST Rules
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CBIC notifies amendments in CGST Rules
CBIC vide Notification No. 26/2022 dated 26 December 2022, has notified various provisions under the CGST Rules, which had been proposed in the 48th GST Council Meeting:
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Sr. No |
CGST Rule No. |
Summary |
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1 |
Rule 37A |
Reversal of ITC in case of non-payment of tax by the supplier and re-availment thereof Where ITC has been availed in FORM GSTR-3B in respect of invoices, which has been reported by the vendor in GSTR-1 but not in GSTR-3B till the 30th September, the said ITC shall be reversed while furnishing FORM GSTR-3B on or before the 30th November following the end of such financial year; Where the ITC is not reversed in FORM GSTR-3B on or before the 30th day of November following the end of such financial year, such amount shall be payable by the said person along with interest thereon u/s. 50 of the CGST Act; Further, where the supplier subsequently reports the invoice in FORM GSTR-3B for the said tax period, the said registered person may re-avail such credit in FORM GSTR-3B for a tax period thereafter. |
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2 |
Rule 88 |
Manner of dealing with difference in liability reported in statement of outward supplies and that reported in return The registered person shall now receive intimation, in respect of mismatch between GSTR 1 vs. GSTR 3B, in FORM GST DRC-01B Part A to either (a) pay the differential liability fully or partially, along with interest u/s. 50 of the CGST Act, through FORM GST DRC-03 and furnish the details thereof in Part B of FORM GST DRC-01B; or (b) furnish a reply on common portal, incorporating reasons in respect of that part of the differential tax liability that has remained unpaid, if any, in Part B of FORM GST DRC-01B. |
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3 |
Rule 89 |
Procedure for filing application of refund by the unregistered buyers Refund application shall be accompanied by a statement containing the details of invoices, along with copy of such invoices, proof of making such payment to the supplier, the copy of agreement, the letter issued by the supplier for cancellation or termination of agreement for supply of service, details of payment received from the supplier against cancellation of such agreement along with proof thereof, in a case where the refund is claimed by an unregistered person where the agreement for supply of service has been cancelled or terminated. Refund application shall be accompanied by a certificate issued by the supplier to the effect that he has paid tax in respect of the invoices on which refund is being claimed by the applicant; and other such prescribed declarations. A proviso has been inserted in Rule 89(2)(m) to provide that certificate is not required to be furnished in cases where refund is claimed by an unregistered person who has borne the incidence of tax. |
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4 |
Rule 109 |
Application to the Appellate Authority An application to the Appellate Authority shall be filed in FORM GST APL-03, and a provisional acknowledgment shall be issued to the Appellant immediately. Where the decision or order appealed against is uploaded on the common portal, a final acknowledgment, indicating appeal number, shall be issued in FORM GST APL-02 by the Appellate Authority and the date of Appeal will be the date of the provisional acknowledgment. Where the decision or order appealed against is not uploaded on the common portal, the Appellant shall submit a self-certified copy of the said decision or order within a period of seven days from the date of filing of FORM GST APL-03 on the portal and thereafter a final acknowledgment, indicating appeal number, shall be issued in FORM GST APL-02 by the Appellate Authority. |
Settlement Commission Benches has been constituted to provide ADR Mechanism for expeditious settlement of show-cause notices
The CBIC vide Public Notice No. 01/2022 dated 13.12.2022 has notified that the much-awaited Customs, Central Excise & Service Tax Settlement Commission to resolve and settle the show-cause notices issued under the Customs Act, Central Excise Act and Service Tax regime has been constituted.
The Competent Authority has constituted the Settlement Commission Benches at Delhi, Mumbai, Chennai and Kolkata to provide Alternative Dispute Resolution Mechanism for expeditious settlement of show-cause notices issued. Further, the Commission also has powers to grant immunity either wholly or in part from the imposition of any penalty and fine under the Central Excise Act or the Customs Act.
ADD imposed on Stainless-Steel Seamless Tubes and Pipes originating in or exported from China
The CBIC vide Notification No. 31/2022 - Customs (ADD) dated 20 December 2022 has imposed Anti-Dumping Duty on Stainless-Steel Seamless Tubes and Pipes classifiable under CTH 7304 that are originating in or exported from China PR for a period of 5 years in order to remove material injury suffered by the domestic industry.
Key Highlights of 48th GST Council Meeting
The 48th GST Council meeting has concluded on 17 December 2022 under the chairmanship of the Smt. Nirmala Sitharaman. While not all the points in the agenda could be discussed during the meeting, a number of key recommendations have been made. Following are key highlights of the recommendations made in the Meeting:
- Amendment in Rule 37 of the CGST Rules retrospectively with effect from 01 October 2022 to provide for reversal of ITC proportionate to the amount not paid to the supplier vis-à-vis the value of the supply, including tax payable;
- Insertion of a new Rule to prescribe the mechanism of reversal of ITC non-payment of tax by the supplier by a specified date and mechanism for re-availment of such credit, if the supplier pays tax subsequently;
- Decriminalization of certain offences under GST;
- Facility for withdrawal of Appeals under GST at certain specified stages for reducing the litigations;
- GSTR-1 to be amended to provide for reporting of details of supplies made through Electronic Commerce Operators;
- Amendment under the CGST Rules to prescribe the procedure for filing refund application by unregistered persons in cases where certain contract/ agreement for supply of services, is cancelled and the time period of issuance of credit note by the concerned supplier is over;
- Rate rationalization on certain pulses and motor spirit.
GLS Comments:
Currently, Section 16(2) of the CGST Act as well as Rule 37 of the CGST Rules does not mention the word 'proptionate' in respect of reversal of ITC in case of non-payment of dues to suppliers within 180 days. This amendment therefore would be welcome by the Trade and Industry. Nonetheless, the validity of such provision u/s. 16(2) of the CGST Act is still under judicial review. Accordingly, the fate if this provision is still unclear.
Further, the facility for withdrawal of Appeal would also ensure that no unnecessary litigation would burden the appellate authorities. However, what the Trade and Industry awaited from this meeting was clarifications in respect of formation of GSTAT and tax applicability on online gamings. It is understood that on account of paucity of time, the same could not be discussed. It is expected that these discussions woud be taken up in the next meeting.
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