Newsletter

Taking cognizance of the difficulties faced by the taxpayers on account of the COVID-19 pandemic, the Ministry of Finance vide Press Release dated 30 December 2020 has extended various due dates in the following manner:

• Due date for furnishing IT Returns for A.Y. 2020-21 for taxpayers (including their partners) who were required to get their audits accounts audited and companies, has been extended to 15 February 2021;
• Due date for furnishing IT Returns for A.Y. 2020-21 for taxpayers (including their partners) who were required to furnish report in respect of international / specified domestic transactions, has been extended to 15 February 2021;
• Due date for furnishing IT Returns for A.Y. 2020-21 for other taxpayers, has been extended to 10 January 2021;
• Due date for payment of self-assessment tax for the taxpayers whose self-assessment tax liability is upto Rs. 1 lakh, has been extended to 15 February 2021 for taxpayers mentioned in para 1 and 2 above and to 10 January 2021 for taxpayers mentioned in para 3 above.
• Due date for furnishing various audit reports under the Income Tax Act including tax audit report and report in respect of international / specified domestic transactions for A.Y. 2020-21, has been extended to 15 January 2021;
• Last date for making declarations and passing the order under the Vivad Se Vishwas Scheme, has been extended to 31 January 2021;
• The date for passing of orders or issuance of notice by Authorities under the Direct Taxes and Benami Acts, has been extended to 31 March 2021;and
• Due date for furnishing annual return in Form GSTR-9 for the F.Y. 2019-20 has been extended to 28 February 2021;

GLS Comments:

The Ministry of Finance has only marginally extended the due date of various Income Tax Returns and Audits acknowledging the challenges being faced due to outbreak of COVID-19 situation wherein travelling to offices / client places have been impacted. However, it remains to be seen whether such extensions have indeed provided any relief to the taxpayers as well professionals conducting audit, as the extended due date of completion of tax audit is 15 January 2021.

On a separate note, it should be noted that the due date for filing GST Annual Return and Reconciliation Statement for F.Y. 2018-19 has not been extended. It seems strange that the Government has failed to acknowledge similar pandemic induced challenges in completion of GST Audit for FY 18-19.

Further, the due date for filing annual return for F.Y. 2019-20 has been extended only till 28 February 2021, which seems rather unreasonable and harsh. In this regard, it would be interesting to see whether the Government provides any relaxation or clarification in this regard. Instead of giving multiple extensions, they should look to give one reasonable extension which would be sufficient to complete the GST Audit 

Kiran Enterprises, the Petitioner is a distributer of Bharati Hexacom Limited. While filling tax invoices, Bharati Hexacom Limited had mentioned the name of Kiran Enterprise, however, the GSTIN had been inadvertently mentioned of New Kiran Enterprise, which is another sole proprietorship firm of the Petitioner dealing in the same products with same PAN. 

The Petitioner wrongfully utilised the excess ITC against discharge of its GST liabilities. Thereafter, the Respondent sought to demand of tax and impose penalty for availing wrongful ITC. Aggrieved, the Petitioner had filed an application for rectification of error in the tax invoice. However, the Application came to be rejected as being time-barred.

The Tripura HC observed that in terms of Section 161 of the CGST Act, any error which is apparent on the face of the record in the decision or the order or the notice or the certificate or any other documents issued by any authority, the said authority can rectify such error, within a period of 3 months from the date of such decision, or order or notice or certificate or any other documents as the case may be.

It had been further observed that Section 161 of the CGST Act is a complete code within itself and it has impliedly excluded the Limitation Act. The Tripura HC further noted that the rectification as sought by the Petitioner is not covered by Section 161 of the CGST Act. Accordingly, the HC dismissed the Writ Petition.

Kiran Enterprises vs. The State of Tripura [WP(C)No.114 of 2020]

The Applicant, a Japan based had sought a ruling before the Odisha AAR to ascertain whether the Applicant is required to be registered under the CGST Act for the consultancy services provided to Odisha Power Transmission Corporation Limited (OPTCL’). The Applicant had argued that they were not liable to obtain registration under the CGST Act in any capacity as the supply is being made by the Foreign Company located in Japan. It had been further argued by the Applicant that in terms of Section 2(71) of the CGST Act, the location of supplier shall either be the place of business where registration is taken, or a place which is a fixed establishment or the usual place of residence of the supplier. As per the Applicant, the place of business in the instant case, would fall outside India as it has no fixed establishment in India and the usual place of residence is also not in India.

Upon perusal of the agreement between the Applicant It was observed by the Odisha AAR that the scope of the services is Technology transfer for the outdoor GIS O&M and GIS operation Manual preparation. The applicant would carry out the services through its expert belonging / sub-station Engineer. It was further observed that OPTCL had provided an office to the consultant and the office operation and maintenance charge etc. were to be borne by OPTCL.

It was further observed that the Applicant maintained suitable structures in terms of human and technical resources at the sites of OPTCL which are fixed establishments indicating sufficient degree of permanence and thus, the ‘location of supplier’ should be in India. Further, referring to Section 2(15) of the CGST Act, the Applicant observed that the 'location of the supplier of services' is usually where a supply is made from, a place mentioned as a principal place of business on the GST registration certificate. It was further observed that the expert maintains suitable structures in terms of human and technical resources at the sites of OPTCL. It ensures provision of supply of consulting services for the contract period, indicating sufficient degree of permanence to the human and technical resources employed at the sites. It was observed that the Applicant through its expert belonging, therefore, supplies the service at the sites from fixed establishments as defined under section 2 (7) of the IGST Act. The location of the supplier should, therefore, be in India in terms of section 2 (15) of the IGST Act.

Accordingly, it was held by the AAR that the consultancy services to OPTCL is not import of service and the experts belonging to the Applicant is to be treated as supplier located in India and made liable to pay GST, and obtain registration.

Tokyo Electric Power Company [Order No. 02/0DISHA-AAR/2020-21 dated 26 November 2020]

The Appellant had entered into various commercial agreements, whereby certain clauses were provided for penalty for non-observance / breach of terms of contract, in order to safeguard the interests of the Appellant.

The Respondent had demanded the payment of service tax on the amount charged by the Appellant as penalty / compensation for breach of terms of contract holding such penalty / compensation for breach of terms of contract was taxable as declared services under section 66(E)(e) of the Finance Act.

The Delhi CESTAT observed that service tax is chargeable on any taxable service with reference to its value, then such value shall be determined in the manner provided for in (i), (ii) or (iii) of subsection (1) of section 67. In relation thereto, it was observed that what needs to be noted is that each of these refer to where the provision of service is for a consideration, whether it be in the form of money, or not wholly or partly consisting of money, or where it is not ascertainable. In either of the cases, there has to be a consideration for the provision of such service. 

It was further observed that the Explanation to Section 67(1) clearly provides that only an amount that is payable for the taxable service will be considered as consideration. It was observed that apart from this, what is important to note is that the term consideration is couched in an inclusive definition. Basis the above observations, the CESTAT allowed the appeal and set aside the order passed by the Respondent.

South Eastern Coalfields Limited vs. Commissioner of Central Excise and Service Tax [2020-TIOL-1711-CESTAT-DEL]

GLS Comments:

Although various judicial forums have time and again held that penalty for breach of contract cannot be construed as a service u/s. 66E(e) of the Finance Act, it has been seen that the Revenue does not shy away from demanding such tax. In this regard, it would be pertinent to note the Allahabad CESTAT in the case of  K. N. Food Industries Private Limited [Service Tax Appeal No.70737 of 2018] had held that an agreement should have an express concurrence of toleration of an act / situation to attract levy of Service Tax. It had been further held that the amount paid should be in the nature of ‘consideration’ and not ‘compensation’. Going by the principle laid down in K.N. Foods (supra), it can be said that as the amount received by the assessee is in the form of compensation vis-a-vis consideration, the same cannot be bought under the purview of Service Tax. However, it would be pertinent to note that there are various contradictory judgements in this front and and therefore the matter is yet to be settled.

The CBIC vide Notification No. 92/2020 – Central Tax dated 22 December 2020 has appointed 01 January 2021 as the date on which the provisions of the Finance Act, 2020 giving effect to proposed amendments in the CGST Act, shall come into force.

Following is the summary of the amended laws:

The Allahabad HC has held that in cases of Tenders / Bids, if the GST value is to be added in the base price to arrive at the total price of offer for the procurement of products in a tender and is used to determine inter se ranking in the selection process, the relevant Department / Authority would be required to clarify the issue, if any, with the GST authorities relating to the applicability of correct HSN Code of the procurement product and mention the same in the tender notice, so as to ensure uniform bidding from all participants and to provide all tenderers/bidders a 'Level Playing Field'.

GLS Comments:

The HSN classification of railway products has been a perpetual issue right from the Excise days, which has found its place under the GST regime as well. Where there exists inconsistency in the HSN code in the same industry, different price bids are bound to arise. The Allahabad HC has rightly held in the instant case that the relevant authorities ought to clarify HSN Code related issues in Bids so as to ensure level playing field to all the bidders.

A departure from the doctrine of level playing field would defeat the entire purpose of the Make In India Policy. In the instant judgement, the Allahabad HC has rightly identified the root of the issue and issued a direction which would certainly reduce the HSN Code related issues in Biddings.

The CBIC vide Notification No. 94/2020 – Central Tax dated 22 December 2020 has notified the CGST (Fourteenth Amendment) Rules, 2020. Following are the key amendments of the notification:

Aadhar Based Verification

• Biometric-based Aadhaar authentication and taking photograph has been mandated for GST registration unless the said requirement has been exempted;
• The time-limit for approval of grant of GST registration has been extended from 3 to 7 working days of the date of application. It has been further provided that where the Applicant fails to undergo authentication of Aadhar, that the GST registration shall be granted within 30 days of the submission of application after physical verification;

GST Registration Cancellation

• GST Registration shall be cancelled if the taxpayer has availed ITC in violation of the prescribed provision of availing ITC i.e., Section 16 of the CGST Act;

GST Registration Suspension

• GST registration shall be suspended, where upon comparison of GSTR-3B and GSTR-1 indicate that there are significant differences or anomalies indicating contravention of the provisions of the Act or the Rules;

ITC Restriction

• The restriction of availment of ITC in respect of unreported invoices or debit notes have been limited to 5% of eligible ITC;

Return Filing Restriction

• The taxpayers shall not be allowed to file GSTR-1 unless the return in GSTR-3B has been filed for the preceding two months;
• Taxpayers required to furnish return for every quarter shall not be allowed to furnish GSTR-1 or using the invoice furnishing facility, if he has not furnished the return in GSTR-3B for preceding tax period;
• Taxpayers restricted from using the amount available in electronic credit ledger to discharge liability towards tax in excess of 99% of such tax liability under rule 86B, shall not be allowed to furnish GSTR-1 or using the invoice furnishing facility, if he has not furnished GSTR-3B for preceding tax period;

Newly inserted Rule 86B

• Rule 86B has been inserted which provides that taxpayers shall not use the amount available in electronic credit ledger to discharge liability towards output tax in excess of 99% of such tax liability, in cases where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees, unless:
  • The said person or the proprietor or karta or the managing director or any of its two partners, prescribed directors, as the case may be, has paid more than Rs. 1 lakh as income tax under the Income-tax Act, 1961, in each of the last two financial years; or
  • Such person has received a refund of more than Rs. 1 lakh in the preceding financial year on account of unutilised ITC in respect of zero rate supplies or inverted duty structure; or
  • Such person has discharged the liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, up to the relevant month in the current F.Y.;
  • The registered person is a Government Department, or a PSU, or a local authority or statutory body.

GLS Comments:

Recently, a number of cases have surfaced wherein the taxpayers had fraudulently availed ITC in contravention of Section 16 of the CGST Act. The new provisions would significantly limit such wrongful availment of ITC. However, whether such direct cancellation / suspension of registrations might also be considered as rather harsh for taxpayers who might have contravened the provisions of ITC availment in a bona fide manner.

As for the restriction of unmatched ITC u/r. 36(4) of the CGST Rules, it is seen that the Government had initially restricted the availment of unmatched ITC to 20%, which was later reduced to 10% and now being further reduced to 5%. Such a trend shows that the Government intends to gradually restrict the entire unreported ITC. In this regard, it would be pertinent to see whether such restriction would be made effective in entirety w.e.f. 01 April 2021 i.e., introduction of new return filing system. It would further be pertinent to see whether the Government introduced any new provision or provides any clarification in cases where the mis-match in ITC occurs on account of the vendor being quarterly taxpayer.

Lastly, and quite possibly, the most important amendment vide the instant notification is the introduction of Rule 86B. The said Rule inter alia provides that at least 1% of the output tax liability shall be discharged from the electronic cash ledger where the value of taxable supplies, other than zero rated and exempt supplies is more than Rs. 50 lakhs. In this regard, it would be pertinent to note that as a settled principle of law, the Rules always flow from the Principal Act. Any Rule which does not flow from the Principal Act is ultra vires and consequently void. Accordingly, it would be interesting to ascertain that whether such restriction of using electronic credit ledger for output tax liability is valid or not. This might ensue litigations in the future.

The erstwhile CBEC had issued a Circular No. 33/2016 dated 22.07.2016 stating that the AEO Programme Manager shall take into account the possible difficulties for MSMEs in meeting with eligibility conditions and criteria with a view to make the AEO certificates more available to MSMEs.

Now, in view of the above circular and the Prime Minister's Aatma Nirbhar Bharat Abhiyaan to support MSMEs against the challenges of the COVID-19 pandemic, the CBIC vide Circular No. 54/2020 - Customs dated 15 December 2020 has decided to relax the entire gamut of compliance and security requirements for MSMEs. The said relaxations have been extended to ensure that the MSMEs are facilitated through rationalized compliance requirements and minimum but effective security requirements. Following are the key relaxations provided to the MSMEs:

• The Applicants shall handle a minimum of 10 documents during the last F.Y., subject to handling at least 5 documents in each half-year period of the preceding F.Y.;
• The Applicants should have business activities for at least two F.Y.s preceding the date of application;
• The qualifying period for legal and financial compliance has been reduced from last three F.Y.s to last two F.Y.s;
• For AEO T1 and T2 accreditation, the present annexures have been supplanted with two MSME annexures;
• For AEO T2 certification, the present annexures i.e., Annexure for physical verification have been rationalized to a single annexure;
• The time limit for processing of MSME AEO T1 and AEO T2 applications have been reduced to fifteen working days and three months respectively after the submission of complete documents for priority processing by customs zones;
• The benefit of relaxation in furnishing of Bank Guarantee for AEOs has been further relaxed to 25% and 10%, of that required to be furnished by an importer/exporter who is not an AEO certificate holder, for MSME AEO T1 and MSME AEO T2 entities respectively.

It has been further provided that the relaxations shall apply only to applicants who have a valid MSME certificate. Furthermore, the approved MSME are required to ensure their continuous MSME status during the validity of its AEO certification, if granted.

All in all, the AEO accreditation for MSME now requires submission of only two annexures for AEO T1 and three annexures for AEO T2 applicants respectively.

In order to provide immediate relief to taxpayers, especially MSMEs during the lockdown period on account of the COVID-19 pandemic, the CBIC vide Instruction No. 03/2020 dated 09 April 2020 had implemented a Special Refund and Drawback Disposal Drive for immediate disposal of drawback claims.

Now, the CBIC vide Instruction No. 21/2020 – Customs dated 16 December 2020 has directed the State to reduce pendency and improve rate of disposal of claims. The CBIC informed that as per the decision of the National Committee on Trade Facilitation, at least 90% of drawback should be credited within a time period of 3 days. CBIC further instructs that the refund may be deposited into the customers’ account in T+2 days.

In respect of payment of duty drawback by banks to the exporters’ account, the CBIC reiterated that in terms of Circular dated 24.04.2018, the authorised banks shall credit / refund the drawback account to the exporters’ accounts either on the same day of receiving Computerized Customs Drawback Advice along with the supporting cheque or on the next working day.

The Government vide Notification No. 30/2015-20 dated 01 September 2020 had amended the Foreign Trade Policy 2015-20 to insert two new paras. The said amendment had capped the ceiling on total reward under MEIS to Rs. 2 crores for an IEC holder for the period ranging from 09 September 2020 to 12 December 2020. Aggrieved by the said amendment, a Writ Petition has been filed before the Gujarat HC challenging the above amendment inter alia on two grounds:

• The Notification seeks to artificially classify similarly placed exporters into two separate class and therefore, is in violation of Article 14 of the Constitution;
• The amended provision does not provide for an exception in respect of contracts already executed factoring in the MEIS benefits and thus is in breach of the principle of promissory estoppel and legitimate expectation.

The Gujarat HC has issued a notice to the Respondents, returnable on 19 January 2021.

Man Industries (India) Limited vs. Union of India [C/SCA/15716/2020]