CBIC vide Instruction No. 05/2023-GST dated December 13, 2023 has instructed the Revenue authorities that the decision of the SC in RE: Northern Operating Systems Private Limited (NOS) [2022-VIL-31-SC-ST] should not be applied mechanically in all the cases.
The CBIC clarified that the SC in its judgment held that the secondment of employees by the overseas group company to NOS was a taxable service of 'manpower supply' and therefore, Service Tax was applicable on same, only after taking every fact into consideration. Accordingly, there may be multiple types of arrangements in relation to secondment of employees of overseas group company in the Indian entity. In each arrangement, the tax implications may be different, depending upon the specific nature of the contract and other terms and conditions attached to it.
Relying on the judgement of the Apex Court in RE: Fiat India Private Limited [2012-VIL-01-SC-CE], noted that each case depends on its own facts, and a broad resemblance to another case is not decisive. Thus, the uniqueness of each case should be considered in determining tax implications. The CBIC further clarified that the extended period of limitation u/s. 74(1) of the CGST Act in cases involving secondment can be invoked only when there is evidence of fraud, wilful misstatement, or suppression of facts to evade tax. Mere non-payment of GST is not sufficient to invoke this provision.
GLS Comments:
The aforesaid instruction is a welcome clarification, especially since the Revenue authorities have been bombarding the taxpayers with investigations on all kinds of secondment arrangement irrespective of the facts of each case. Interestingly, the said instruction does not provide a rationale relating to levy of taxation, but only emphasizes that the precedent decision cannot be universally applied.
It may be noted that recently, the demand of GST on secondment of employees has been challenged before the Delhi HC in RE: Metal One Corporation Private Limited [2023-VIL-816-DEL]. Similar writ has been filed by Alstom Transport India Limited [W.P. No. 23915/2023]. Both the matters have been stayed and pending for hearing. It would be interesting to see the outcome of these Writs.
The GSTN vide Advisory No. 614 dated November 14, 2023, has intimated about a new functionality on the GSTN Portal to generate automated intimation in Form GST DRC-01C.
The said functionality intends to compare the ITC declared in GSTR-3B/3BQ with the ITC available in GSTR-2B/2BQ for each return period. If the ITC claimed in GSTR 3B exceeds the available ITC in GSTR-2B by a predefined limit or the percentage difference exceeds the configurable threshold or predefined limit, then the taxpayer will receive an intimation in the form DRC-01C.
In response to the same, either the taxpayer can opt to
However, if no response is filed by the taxpayers in Form DRC-01C Part B, such taxpayers will not be able to file their subsequent period GSTR-1/IFF returns.
GLS Comments:
ITC mismatch can happen due to several reasons, some of which are listed below:
While there is no doubt that the said advisory is driven by the goals of simplifying processes, reducing legal disputes, and providing greater clarity on ITC mismatch issue, but at the same time it blocks the clock as the action time on DRC is short and missing the due date may result into blocking of GSTR-1 facility for the subsequent month, thereby causing working capitals hiccups. Accordingly, now the taxpayers are urged to familiarize themselves with this new process, and to respond promptly to the said intimation and ensure the reconciliations are ready in case of ITC claimed in excess of that appearing of GSTR-2B of that month.
With the festivities all around in the last quarter of the calendar year, the spirits are high among the people! A big gift by the CBIC in this festive season has been the batch of notification/circulars issued based-on recommendations made in the 52nd GST Council Meeting.
In this past month of October 2023, the CBIC had issued a slew of circulars clarifying various provision under the CGST Act along with corresponding amendments in the GST Rules. These mainly include taxability of personal and corporate guarantees, place of supply in case of select services, transportation, imitation zari thread, reimbursement of electricity charges, job work etc.
In this edition of our newsletter, we have curated a diverse range of articles including insights from the industry experts that cover a variety of topics, including recent tax reforms, emerging trends in the industry, and updates from the global tax arena. In addition, here are the salient developments covered in this Newsletter:
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 are pleased to present to you the 37th Edition of our 'Vision 360' Newsletter in partnership with TIOL. This edition encapsulates the pivotal judicial and legislative advancements in Direct Tax, Indirect Tax, and other regulatory domains throughout the month of October 2023. We trust that perusing this newsletter will provide you with an enriching experience. Your valuable feedback is always appreciated and can be shared with us at consult@gstlegal.co.in or updates@gstlegal.co.in
CBIC vide notification dated 26.10.2023 has amended the CGST Rules by introducing Rule 28(2). The new rule specifically addresses the valuation of services when provided by corporate guarantee to a related person. As per this rule, the value of such services is considered to be 1% of the guarantee amount or the actual consideration, depending on which is higher.
Notification No. 52/2023 – Central Tax dated 26.10.2023
The DGFT vide Trade Notice dated 13.10.2023 has announced a two-week Export Obligation Discharge Certificates (EODC) camp for pending applications. The camp will be held from November 13, 2023 to November 24, 2023. The purpose of the camp is to expedite the processing of pending applications for EODCs for Advance Authorisations and EPCG. Exporters with pending EODC applications are advised to participate in the camp and ensure the disposal of un-redeemed licenses.
In accordance with Trade Notice 28/2021-22 dated December 31, 2021, and Trade Notice 01/2023-24 dated April 06, 2023, the following points are reiterated for due compliance:
Trade Notice No. 29/2023-24 dated October 13, 2023
Embracing change is the essence of progress, following the recommendations of the 50th and 51st GST Council meetings, the Government has officially notified that the amendments to the CGST Act through the CGST Amendment Act, 2023, which will come into effect from October 2023. The recent 52nd GST Council has also initiated a series of substantial changes that carry wide-ranging implications for taxpayers and the overall GST framework. These decisions are driven by the goals of simplifying processes, reducing legal disputes, and providing greater clarity.
In this edition of our newsletter, we have curated a diverse range of articles including insights from the industry experts that cover a variety of topics, including recent tax reforms, emerging trends in the industry, and updates from the global tax arena. Alongside these updates, here are the salient developments covered in this Newsletter:
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.
We are pleased to present to you the 36th Edition of our 'Vision 360' Newsletter in partnership with TIOL. This edition encapsulates the pivotal judicial and legislative advancements in Direct Tax, Indirect Tax, and other regulatory domains throughout the month of September 2023. We trust that perusing this newsletter will provide you with an enriching experience. Your valuable feedback is always appreciated and can be shared with us at consult@gstlegal.co.in or updates@gstlegal.co.in
The 52nd GST Council meeting chaired by Finance Minister Nirmala Sitharaman on October 07, 2023 resulted in several key recommendations, which are summarized in the following sections.
A. RECOMMENDATIONS WITH REGARD TO GST ON GOODS:
1. GST rates on ‘Food preparation of millet flour in powder form, containing at least 70% millets by weight’ falling under HSN code 1901 is recommended to be reduced from 18% to prescribed as:
2. GST rate on molasses is recommended to be reduced from 28% to 5%.
3. Imitation zari thread or yarn made of metallised polyester film/plastic film will attract 5% GST, however, no refund will be allowed on account of inversion.
4. Foreign-going vessels converting to coastal run will be liable to pay 5% IGST, with conditional IGST exemption if they reconvert to foreign-going vessels within six months.
5. Extra Neutral Alcohol used for the manufacture of alcoholic liquor for human consumption will be excluded from GST.
6. A separate tariff HS code will be created for rectified spirit for industrial use, attracting an 18% GST rate.
B. RECOMMENDATIONS WITH REGARD TO GST ON SERVICES:
1. Exemption in respect of pure and composite services provided to Central/State/UT governments and local authorities in relation to any functions entrusted to Panchayat/Municipality under the Constitution of India will be retained.
2. Services of water supply, public health, sanitation conservancy, solid waste management, and slum improvement supplied to Governmental Authorities will be exempted.
3. Job work services for processing barley into malt will attract a 5% GST rate instead of 18% and would be covered under ‘job-work in relation to food and food products’.
4. Bus operator companies selling through e-commerce are excluded from the purview of section 9(5) of the CGST Act enabling them to pay GST on their supplies using their ITC.
5. Supply of all goods and services by Indian Railways will be taxed under Forward Charge Mechanism.
C. OTHER RECOMMENDATIONS:
1. Amnesty scheme for filing of appeals: The eligibility criteria for taxpayers who can avail the benefits under this amnesty scheme are inter alia:
Taxpayers must make a pre-deposit of 12.5% of the disputed tax amount, with at least 20% (i.e., 2.5% of the disputed tax) to be debited from the Electronic Cash Ledger.
2. Levy of GST on personal guarantees (by directors)/corporate guarantees provided by holding company to its subsidiary company:
A circular will be issued to provide further clarification that after the insertion of the said sub-rule, the value of 'corporate guarantees' supplied between related parties will be governed by this rule, regardless of whether full ITC is available to the recipient of services or not.
3. Provision for automatic restoration of provisionally attached property: Amendment recommended to Rule 159(2) of the CGST Rules and Form GST DRC-22 to provide that the order for the provisional attachment of property will automatically become invalid after one year from the date of the provisional attachment order, without need for separate specific written order from the Commissioner.
4. Clarification on various issues related to Place of Supply: A Circular to be issued to provide clarification on several issues related to the place of supply including transportation of goods, advertising services and of co-location services.
5. Clarification relating to export of services: A Circular would be issued clarifying the admissibility of export remittances received in Special INR Vostro Account, as permitted by RBI, for the purpose of consideration of supply of services to qualify as ‘export of services’ as per Section 2(6)(iv) of the IGST Act.
6. Supplies to SEZ units/developers for authorized operations: Amendments recommended to Notification No. 1/2023-Integrated Tax, effective from October 1, 2023 enabling suppliers to SEZ developers or units engaged in authorized operations to provide goods or services (excluding specific commodities) to SEZ developers or units for authorized operations. Consequently, such supplies can be made by paying the IGST, which can later be claimed as a refund.
7. Composition of GSTAT Members: Amendments recommended to Section 110 of the CGST Act to align the appointment provisions for the President and Members of the GSTAT with the Tribunal Reforms Act, 2021.
8. Amendment with respect to ISD: Amendments recommended in sections 2(61) and 20 of the CGST Act, along Rule 39 of the CGST Rules, to make ISD procedure mandatory for distributing ITC in specific cases involving Head Offices and Branch Offices.
GLS Comments:
These recommendations from the 52nd GST Council has initiated a series of substantial changes that carry wide-ranging implications for taxpayers and the overall GST framework. These decisions are driven by the goals of simplifying processes, reducing legal disputes, and providing greater clarity. From the introduction of an amnesty scheme for appeal filing to the insertion of new rule for corporate guarantees are positive moves as these changes reflect a commitment to making the GST system more efficient and taxpayer-friendly.
However, certain critical questions arise from these recommendations. While the introduction of the amnesty scheme, is beneficial for those who, due to various reasons, were unable to file appeals within the prescribed timelines. It comes as a relief to taxpayers who may have faced challenges like the pandemic or other unforeseen circumstances hindering their ability to file timely appeals. However, it remains unclear how this scheme will address cases that were previously disposed of due to being time-barred, with recoveries already made by GST authorities. Will these taxpayers be allowed to file appeals and challenge the recoveries already executed?
The amendment concerning the ISD registration, adds a layer of complexity to compliance. Even companies with only two GST registrations, procuring common third-party services, will now be obligated to obtain additional GST registrations. This change could potentially result in heightened compliance burdens, especially for MSMEs.
On the topic of corporate guarantees, the recommended changes aim to provide much-needed clarity to a current landscape of numerous notices and litigations surround this issue. The recommended changes, which specify the valuation and taxability of corporate guarantees provided between related parties, aim to streamline this process and reduce ambiguities.
While these changes are undoubtedly progressive, they also pose certain challenges. It is essential for taxpayers to stay vigilant and adapt swiftly to ensure compliance and optimize their tax strategies. The industry eagerly awaits the fine print of the specific amendments to assess if any further open issues or complexities require attention.
The Applicant had sought the advance ruling to ascertain whether ITC is admissible on the expenditure spent for the CSR activities. The Gujarat AAR [TS-505-AAR(GUJ)-2021-GST] had ruled that CSR activities are not eligible for ITC as they cannot be considered as in course of or furtherance of business. Aggrieved the Applicant filed an appeal before the Gujarat AAAR. The Applicant contended that since CSR is mandate under the Companies Act, it should be considered an activity in the course and furtherance of business, and therefore, ITC should be allowed.
The AAAR observed that CSR activities are excluded from the normal course of business of the company, and therefore, they are not eligible for ITC as per Section 16(1) of the CGST Act. The AAR further observed that CSR activities are not subject to GST, and the Income Tax Act also does not consider CSR expenses as business expenditure. The AAAR emphasized that ITC on inward supplies is only available when outward supplies are taxable. Since CSR activities are conducted free of cost and with the motive of fulfilling commitments to society and the environment, the expenses incurred cannot be considered in the course or furtherance of business. The AAAR also referred to the amendments in Section 17 of the CGST Act, introduced through the Finance Act, 2023, effective from October 1, 2023 which clarified the legislative intent to disallow ITC on goods or services used for CSR activities. Consequently, the AAAR upheld the AAR ruling and rejected the appeal.
M/s. Adama India Private Limited [TS-491-AAAR(GUJ)-2023-GST]
GLS Comments:
Admissibility of ITC on CSR expenditure has always been a contentious issue. It may be noted that before the insertion of Section 17(5)(fa) of the CGST Act, ITC on CSR had been made eligible. Like in the case of RE: Dwarikesh Sugar Industries Limited [2021 (53) G.S.T.L. 482 (A.A.R. - GST - U.P.)], the UP AAR had held that a company is mandatorily required to undertake CSR activities and thus, forms a core part of its business process. Hence, the CSR activities are to be treated as incurred in the course of business and therefore, the ITC would be admissible.
However, the insertion of clause (fa) in Section 17(5) has been made prospectively but yet the Department seems to be treating it in the retrospectively manner. This could be seen as a possible challenge to the industry as the availability prior to October 2023 seems to be under scrutiny. The industry will need to closely monitor how this issue unfolds and whether any legal actions are taken to clarify the retrospective or prospective nature of the provision.
The Finance Ministry has notified important amendment to the IGST Act, impacting payments related to 'ocean freight' for imported goods. The notification has exempted the 5% IGST payments made for goods imported through ocean freight with effect from October 1, 2023. These changes, come as a relief to importers who were previously obligated to pay a 5% IGST under the RCM. The amendments align with a significant Supreme Court ruling in the Mohit Minerals case [Civil Appeal No. 1390 of 2022], emphasizing that an additional levy on Indian importers for 'supply of services' by shipping lines would contradict the GST Act.
Notification No. 13/2023- Integrated Tax (Rate) dated September 26, 2023
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