Newsletter

Recently, the Government of India has introduced the Rebate of State and Central Taxes & Levies Scheme (‘RoSCTL’) specifically for garments industry, in order to offset high freight cost and other externalities to international markets with a view to enhance India’s competitiveness globally.

In line with the objective of the said Scheme, the CBIC has issued a Notification for exemption from customs duty and additional duty upon imports against scrips issued by the RoSCTL subject to the fulfillment of certain conditions.

The Hon'ble Madras HC has permitted a taxpayer to upload his Form TRAN-1 and avail transitional credit without the requirement of submitting evidence of technical glitches. The Hon’ble Court took note that the era of GST is in a nascent stage and both the Revenue as well as Assessees are still learning the ropes. Therefore, a rigid view should not be taken in matters involving procedural requirements such as availment of credit. This Hon'ble Court emphasized on the principle that mere procedural lapse cannot lead to denial of significant benefit to an assessee. 

GLS Remarks:

This judgment is welcome by the Trade and Industry with open arms as it provides a huge relief for taxpayers who could not carry forward their CENVAT credit into GST regime due to technical glitches, but had no evidence of the same. Earlier, various High Courts had allowed the filing of declaration in Form TRAN-1 on submission of evidences of technical difficulties faced by Assessees [Siddharth Enterprises (C/SCA/5758/2019)] [Adfert Technologies CWP No. 30949 of 2018)]. However, in this judgment, the Hon'ble Madras HC went up a notch by allowing the declaration without evidence of technical glitches. This reaffirms the settled principle in law that CENVAT credit is a vested right of an asseesee and mere procedural lapse cannot lead to denial of substantial benefit.

It is now to be seen whether the CBIC takes note of this judgment and open the window for filing of form TRAN-1 for all taxpayers or whether the affected taxpayers would be required to approach the Courts seeking a direction for acceptance of the declaration in Form TRAN-1.

The Hon’ble Madras HC holds that provision relating to interest on delayed payment of tax under the CGST Act applies only to the cash component of tax remitted belatedly and not ITC. It was observed that the term ‘delayed’ connotes a situation of deprival whereas availability of ITC runs counter to this. It has further been held by the Hon'ble HC that such amendment made to Section 50(1) of the CGST Act is clarificatory in nature and therefore, should be read as having retrospective effect from the date of implementation of GST.

GLS Remarks:

GST Council in the 31st meeting recommended to amend Section 50 of the CGST Act, 2017 to charge interest on net tax liability. It is important to note that such an amendment could not be incorporated in the law. Further the CBIC had vide its internal circular dated 10th February 2020 issued to Principle Commissioners and Chief Commissioners, had instructed to recover an outstanding interest on amount of tax liability which is paid belatedly based upon the amount of liability as declared in form GSTR 3B i.e. on gross liability declared in GST return. 

Recently, the CBIC has clarified vide their tweet dated 15 February 2020 that basis the recommendation of GST Council the Centre and States to amend the respective GST law to charge interest on net tax liability. Further, it has been clarified that such amendment would be made prospectively. 

It is important to note that while the order of Hon'ble Madras HC allowed payment of interest under Section 50 of the CGST Act on net tax liability and held such amendment to be effective retrospectively, it appears that the Government intends to implement the amended Section 50 of the CGST Act prospectively. Such view held by the CBIC will put onerous burden on the taxpayers and is likely to lead to further litigation on this matter. 

Maharashtra AAR holds that electric transformers supplied to the Indian Railways are classifiable under Heading 8504 chargeable to 18% GST and not under Heading 8607. The Ruling Authority has noted that as per the Circular issued by the CBIC, only those goods which as are classifiable under heading 8607 and supplied to the Indian Railways would attract 5% GST with no refund unutilised credit.

GLS Remarks:

Classification of goods for exclusive use of Indian Railways has been a matter of perpetual litigation. Such confusion is mainly attributable to the two contradictory Notes in Section XVII which inter alia covers Chapter 86. On one hand, Note 2 of the said Section excludes items of general use classifiable different headings from the purview of Chapter 86, whereas, on the other hand, Note 3 provides that the items, when classifiable under more than two Headings shall be classified basis their principal and exclusive usage, leading one to conclude that items used exclusively for Railways shall be classified under Chapter 86. 

The Authorities of Advance Ruling under GST have time and again preferred Section Note 2 of Section XVII. A couple of such judgments are referred to below:

• Cummins India Limited [2019 (23) G.S.T.L. 559];
• Sutlej Coach Products Private Limited [2019 (29) G.S.T.L. 844].

Such litigation existed in Pre-GST Era as well, wherein various judicial forums have given preference to Note 3 of Section XVII. A couple of such judgments are referred to below:

•  San Transmissions [1999 (107) E.L.T 482];
• Diesel Component Works [2000 (120) E.L.T. 648]. 
  

This makes it clear that the department would always take a pro-revenue position to classify Railway products in Headings other than Chapter 86. It appears that this confusion could be cleared only by a clear and unequivocal judgment of the High Court / Apex Court.

The Government of India has time and again emphasised that it is keen at relooking at all quality standards for goods and services in order to balance the interest of consumers with that of the industry which will enable the culture of quality to take root in the country and production or import of substandard products and services will not be tolerated any longer. 

In line with the above objective of the Government to impose controls on quality of production of goods in India, the Ministry of Commerce and Industry, recently has issued two Notification dated 21 January 2020, which brings the domestic pressure cookers and various types of cables under the purview of Bureau of Indian Standards.

Recently, the Hon’ble Rajasthan HC had passed an interim order directing the Revenue to accept the Annual Returns till 12 February 2020 without late fee in light of the technical shortcomings of the GSTN Portal. Such order was passed overriding Notification No.06/2020 – Central Tax dated 03 February 2020.

Being aggrieved, the Revenue had preferred an appeal before the Hon’ble SC seeking to over-turn the Rajasthan HC’s judgment. The Tax bar Association had brought to the notice of SC that the capacitiy of the GST portal to file returns and application is limited. The Hon’ble SC further directed the Revenue to look into the problem and come out with a solution in accordance with the aforesaid capacity as soon as is practicable. Further Hon'ble SC has refused to interfere with the order passed by Rajasthan HC and has asked to decide the case based upon facts.

GLS Remarks:

It can be seen that the even though the Hon'ble Rajasthan HC had passed the iterim order extedning the due date of filing form GSTR-9 and reconciliation statement in Form GSTR-9C as fixed by the Government, such action and direction was necessary in light of genuine issues and technical difficulties being faced by the taxpayers. The Hon'ble SC rightly refused to interefere with the judgment of the HC judgment. It is expected that this will pursuade the relevant authorirties to rectify / correct the technical shortcomings of the GSTN Portal.

CBIC extends the time limit for submission of Form GST TRAN-1 till 31 March 2020 vide Order No. 01/2020 - GST dated 07 February 2020 for certain taxpayers who could not submit their declaration by the due date owing to the technical difficulties faced by them.

In line with the Sabka Vishwas Legacy Dispute Resolution Scheme, 2019, introduced in Budget 2019, the Finance Minister had proposed to introduced a similar scheme in the direct tax regime called ‘Vivad Se Vishwas’ as a measure to reduce tax litigations.

Under the said scheme, a taxpayer would be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty provided he pays the same by 31 March 2020. Those tax payers who avail this scheme after 31 March 2020 will have to pay some additional amount. The scheme will remain open till 30 June 2020. Taxpayers in whose cases appeals are pending at any level can benefit from this scheme.

CBIC vide Notification No.06/2020 – Central Tax dated 03 February 2020 further extends the due date for filing Annual Return and Reconciliation Statement for the FY 2017-18 in staggered manner similar to previous extension. The extended due dates for registered persons having their principal place of business in various states are as follows:

• Chandigarh, Delhi, Gujarat, Haryana, Jammu and Kashmir, Ladakh, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh, Uttarakhand - 05 February 2020; and;
• Andaman and Nicobar Islands, Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Dadra and Nagar Haveli and Daman and Diu, Goa, Himachal Pradesh, Jharkhand, Karnataka, Kerala, Lakshadweep, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Telangana, Tripura, West Bengal, Other Territory – 07 February 2020.

In the wake of recent slowdown in the economy and the existing challenges, the Hon’ble Finance Minister Nirmala Sitharaman has endeavored to steer the economy through slew of expenditure plans and investment schemes. Riding over the three themes of the budget viz., Aspirational India, Economic Development and Caring Society, the Hon’ble Minister has allocated funds and proposed new schemes in various sectors particularly for the agriculture, healthcare and infrastructure.      

With billions of dollars on expenditure offerings, the Government expects that the economy will grow up to 6.5% in the next fiscal year and hopes to follow China's example in developing labor-intensive industries and exports. Accordingly, it has focused on generation of employment and inclusive growth through increased expenditure on rural economy, infrastructure, digital governance, MSME and healthcare.

Further, abolition of DDT, tax relief to middle class and lower middle-class segments along with simplification of the tax regime appears to be a sincere effort on part of the Government to provide the necessary impetus to improve the public sentiment and augur well for the economy.

Moreover, the proposed easing of tax payments for startups with a view to promote growth of budding entrepreneurs ‘by deferring the tax payment by five years or till they leave the company or when they sell, whichever is earliest’ would potentially encourage and promote the startups ecosystem in the country.

It goes without saying that the Government intends to make-up the short fall arising due to the aforesaid expenditures through various divestment plans including the listing of LIC, the Vivaad se Vishwas amnesty Scheme under the Income tax, and increase in Custom duties on various products etc.

Overall, the Government looks rich on intent and have been able to identify the sufficient strategic points to accelerate the growth. The same is evident in view of the extended support to MSME Sector by providing adequate Credit facility, investments in road and infrastructure construction activity. However, we will have to wait and analyze the real impact of the proposed measures in coming months. Even though the markets have fallen nearly 1000 points in the immediate aftermath of the Budget 2020, it is expected that matching with the Government’s intent, the measures would deliver results on expected lines

Attached herewith is a Budget booklet providing meaningful insights into the key amendments proposed in Union Budget for FY 2020-21.