Newsletter

Karnataka AAR: ITC shall be available on generation of electricity, which is a non-taxable good, used for the production of cement, which is a taxable good in terms of Section 16 and 17 of the CGST Act. Further, capital goods used for the production of electricity for supply of cement shall not be eligible for ITC since the definition of ‘Inputs’ does not cover capital goods

Karnataka AAR: Even though the catering services provided by the Applicant is not covered under Explanation to the specific entry of the rate notification, the same shall be taxable in accordance with said entry if the moot condition is satisfied

Karnataka AAR: Warranty expenses incurred by Indian entity on behalf of a foreign entity which is in turn reimbursed, does not constitute as export of service and accordingly cannot be termed as ‘zero-rated supply’ in terms of IGST Act. Further rules that supplies where replacement / repair work is merely an ancillary service to another principal supply, shall be considered as composite supply

Karnataka AAR holds that job work supply where the Principal Manufacturer provides critical goods required for manufacturing of the final product, to the job worker on FOC basis and where job worker procures non-critical goods in his own capacity, is a ‘composite supply’. Further, the value of goods received by the job worker, from the Principal Manufacturer, shall be excluded from valuing the supply

Circular No. 118/37/2019 – GST dated 11 October 2019

• Clarification was requested as to whether provision of hardware prototypes and samples and testing thereon lends these services the character of performance-based services in respect of goods required to be made physically available by the recipient to the provider;  
• It was pointed out that during the supply of software / design services in respect of Electronics Semi-conductor and Design Manufacturing (EDSM) industry to service recipients located in non-taxable territory by using sample prototype hardware / test kits is a composite supply, where testing is an ancillary supply whereas, chip design/software development is the principal supply of the service provider. The service provider is not involved in software testing alone as a separate service;  
• Accordingly, the place of supply in such cases shall be the location of the service recipient in terms of Section 13(2) of the IGST Act;
• It was further clarified that the entire activity needs to be viewed as one supply and accordingly treated for the purposes of taxation. Artificial vivisection of the contract of a composite supply is not provided in law.

Circular No. 119/38/2019 – GST dated 11 October 2019

• In terms of the definitions of Goods and Services provided in the CGST Act, 2017, the activity of lending of securities is not a transaction in securities per se, as it does not involve disposal of securities. Further, the explanation added to the definition of ‘service’ to include facilitating or arranging transactions in securities is only clarificatory in nature and does not have any bearing on the taxability of the services on lending of securities in the past since 01 July 2017;
• The lender temporarily lends the securities held by him to a borrower and charges lending fee for the same from the borrower. The borrower of securities can further sell or buy these securities and is required to return the lended securities after a stipulated period of time. The lending fee charged from the borrowers of securities has the character of consideration and this activity is taxable in GST since 01 July 2017
• The Securities Lending Scheme, 1997 does not treat lending of securities as disposal of securities and therefore is not excluded from the definition of services. It would be taxable under heading 997119 attracting GST rate of 18%. Further, for the period 01 July 2017 to 30 September 2019, IGST shall be paid under forward charge by the lender and SEBI shall disclose the information about borrower for discharging GST under forward charge;
• Borrowers of securities shall be liable to discharge GST under reverse charge w.e.f. 01 October 2019 in view of Notification No. 22/2019 – Central Tax (Rate) dated 30 September 2019.

Circular No. 120/39/2019 – GST dated 11 October 2019

• Section 11(3) of CGST Act provides that the Government may insert an explanation in any notification issued under section 11, for the purpose of clarifying its scope or applicability, at any time within one year of issue of the notification and every such explanation shall have effect as if it had always been the part of the first such notification; 
• The explanation inserted vide Notification No. 17/2018 – Central Tax (Rate) dated 26 July 2018 which provided that the activities or transactions under taken by Government and Local Authority are excluded from the term ‘business’, is effective from 21 September 2017, which is the date of inception of the relevant entry;
• Since the explanation in question was inserted in exercise of powers under Section 11(3) of the CGST Act within one year of the insertion of the original entry prescribing concessional rate, the line in notification No. 17/2018-CTR dated 26 July 2018 which states that the notification shall come into effect from 27 July 2018 does not alter the operation of the notification. 

Circular No. 121/40/2019 – GST dated 11 October 2019

• Services proved by the Government to business entities including by way of grant of privileges, licences, mining rights, natural resources such as spectrum etc. against payment of consideration in the form of fee, royalty etc. are taxable under GST. Same was the position under Service Tax regime also with effect from 01 April 2016. Tax is required to be paid by the business entities on such services under reverse charge. 
• Subsequent to the decision taken in 26th GST Council meeting to not levy GST on license fee and application fee, grant of alcoholic liquor license was notified as neither a supply of goods nor a supply of service in terms of Notification No. 25/2019 - Central Tax (Rate) dated 30 September 2019;
• It is further clarified that this special dispensation applies only to supply of service by way of grant of liquor licenses by the State Governments as an agreement between the Centre and States. Further clarifies that the same has no applicability or precedence value in relation to grant of other licenses and privileges for a fee in other situations, where GST is payable.

Pursuant to the recommendations of the 37th GST Council meeting, CBIC notifies the due dates for furnishing returns in Form GSTR 1 and GSTR 3B among other things. Key observations are summarised as below:

• In the wake of postponement of new return system to April 2020, the CBIC has notified that GSTR-1 and GSTR-3B shall continue until March 2020. Further, the due dates of the returns shall remain the same;
• It is notified that annual return shall be made optional for taxpayers with turnover less than Rs. 2 crores for financial years ending March 2018 and March 2019;
• Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers, shall not exceed 20 per cent of the eligible credit available in respect of invoices or debit notes, the details of which have been uploaded by the suppliers;
• To nullify the recent decision of Gujarat High Court in the case of AAP and Co., wherein it was held that GSTR-3B is not a return u/s 37 of the CGST Act, 2017, Rule 61(5) of the CGST Rules, 2017 have been amended restrospectively to include GSTR-3B as return u/s 39 of the CGST Act, 2017;
• Due date of filing TRAN-1 and TRAN-2 Forms extended to 31 December 2019 and 31 January 2020 for taxpayers who could not file the same due to techincal difficulties.

Circular No. 110/29/2019 – GST dated 03 October 2019

• Registered persons who have inadvertently filed NIL refund application in Form GST RFD-01A / RFD-01 for a particular period under a particular category may again apply for refund of the same subject to the following conditions:
  • NIL Refund application must have been filed for a particular period under a particular category;
  • No refund application must have been filed under the same category for any subsequent period.
• The second condition shall apply only to refund of unutilized ITC on account of exports without payment of tax, supplies made to SEZ Unit / Developer without payment of tax and inverted duty structure;
• In other cases, refund application can be filed even if the second condition is not satisfied. Such refund application may be filed with supporting documents under ‘Any Other’ category instead of the category under which the ‘NIL’ refund claim has already been filed.

Circular No. 111/30/2019 – GST dated 03 October 2019

• Registered persons who receive favourable orders in appeal or any other forum in respect of refund claim initially rejected, shall file fresh refund application under the category of ‘Refund on account of assessment / provisional assessment / appeal / any other order’;
• Since the amount debited, if any, at the time of filing of the refund application was not re-credited, the registered person shall not be required to debit the said amount again from electronic credit ledger at the time of filing of the fresh refund application.

Circular No. 112/31/2019 – GST dated 03 October 2019

• Circular No. 105/24/2019 – GST dated 28 June 2019 which was issued to provide certain clarifications with respect to treatment of secondary or post-sales discounts under GST, hereby stands withdrawn in view of the representations which were made expressing apprehensions on the implications of the said Circular.

Kerala HC: Statutory taxing provisions are to be strictly construed against an assessee and in favour of the Revenue. Such provisions must be interpreted in the same manner as exemption provisions in a taxing statue are interpreted

CBIC vide Circular No. 1072/05/2019-CX issued clarifications on the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 on various issues raised in the context of the various provisions of the Finance Act, 2019 and Rules made thereunder, as follows:

• Only the persons who are eligible in terms of Section 125 can file a declaration under the scheme. Declarations made by ineligible persons by selecting an incorrect response shall be void and not merit consideration under the scheme;
• Deemed withdrawal shall be applicable for departmental appeals. Further, if prosecution has already been launched, then, procedure laid down under the prescribed circular shall be followed for withdrawal of prosecution after issuance of discharge certificate;
• Rule 3 of the scheme provides that separate declaration needs to be filed for each return in case where the declarant has filed a return but not paid duty;
• Relief under the scheme will be applied to the outstanding amount and only thereafter the pre-deposits / deposits shall be adjusted;
• Taxpayers can file a declaration under the scheme, where such taxpayer does not want to file an Appeal even though time period for filing such Appeal is not over, provided that such taxpayer intimates in writing to the Department that he is filing a declaration under the scheme.
• Section 125(1)(f) specifically excludes persons from making a voluntary disclosure after being subjected to an enquiry / investigation or audit. The Designated Committee shall consider each declaration from case to case basis where documents like balance sheet / P&L account, etc. called upon by the Department would constitute enquiry / investigation or audit under the Scheme.

On careful consideration of the represenatations made by the trade and indsutry, the Income Tax India Department vide their tweet dated 26 September 2019 informed that the CBDT has decided to extend the due date for filing ITRs and Tax Audit Reports from 30 September 2019 to 31 October 2019 in respect of persons whose accounts are required to be audited. Notification in this regard to follow soon