The Applicant had been engaged as a non-exclusive consultant for a Singapore Company for the sale of their products to certain refineries in India. The Applicant claimed to provide only marketing consultancy service in India on behalf of the foreign company and their billing is directly done to the foreign company in foreign currency and paid by inward remittance. Further, the Applicant claimed to not have any agreement with the Indian clients for rendering or facilitating any sale / purchase.
In view of the above, the Applicant had filed an application before the MP AAR to ascertain whether such marketing and consulting service are classifiable as ‘export of service’ or not. The AAR had held that the above-mentioned service was in fact classifiable as ‘intermediary service’ and therefore chargeable to IGST. Aggrieved, the Applicant had preferred an Appeal before the MP AAAR praying for remanding the matter back to the AAR to ascertain the question in light of a recent judgement by the Bangalore CESTAT in IBM India Private Limited [2020 (34) GSTL 436], wherein it had been inter alia held that marketing service for a foreign parent Company is an export of service. Accordingly, the matter had been remanded back.
Upon reconsideration of the question, the MP AAR observed that the judgement relied upon pertained to the pre-GST era, and therefore, is not applicable to Intermediary Service under the IGST Act. It was further observed that in the instant case, the Applicant had been providing marketing services to the Foreign Company in the capacity of an ‘Intermediary’. Therefore, it was ruled that the Applicant is liable to pay IGST as an intermediary service provider.
DKV Enterprises Private Limited [AAR No. 02/AP/GST/2021 dated 11.01.2021]
GLS Comments:
The chargeability of tax on supply of intermediary services has perpetually been litigative right from the Service Tax era. It is generally understood that where a taxable person in India facilitates transactions between two or more persons, such a person would be classified as an ‘intermediary’. Further, it is important to analyse the actual role and functions as the intermediary is not supposed to provide any services of his own account.
However, there is another school of thought, which believes that where the location of the recipient of service provided by an intermediary is outside India, treating the place of supply in India basis the location of supplier, by virtue of a deeming fiction, is contrary to the scheme of GST law. Therefore, a question arises as to whether such provision is arbitrary and unconstitutional. In this regard, a division bench of the Bombay HC in the case of Dharmendra M Jani [2021-TIOL-1326-HC-MUM-GST] passed a judgment, resulting in a deadlock with Hon’ble judges taking contradictory view. While one judge held the intermediary service provision to be unconstitutional, the other has upheld its constitutional validity. The said matter has now been referred to the Chief justice of the Bombay HC on the administrative side for his decision.
The Remission of Duties and Taxes on Exported Products (‘RoDTEP’) scheme had been introduced w.e.f. 01 January 2021. However, the scheme had been a pandora’s box of difficulties and uncertainties, especially as the rates under the scheme had not been notified. In order to close such pandora’s box, the Ministry of Commerce and Industry vide Notification No. 19/2015-2020 dated 17 August 2021 has issued guidelines to the RoDTEP Scheme and the applicable rates thereof. A summary of the notification is provided hereunder:
Objectives
Ineligible Categories
Rates
As for the quantum under the RoDTEP Scheme, beneficial rate ranging from 0.01% to 4.3% has been notified for varying products. Notably, the highest rate of 4.3% has been notified for exports of woven fabrics of cotton. On the contrary, Chapters 61, 62 and 63 which inter alia cover articles of apparel, are kept outside the purview of the RoDTEP Scheme. Similarly, the benefit of the Scheme has also not been extended to chemicals classifiable under Chapters 24-30.
As for railway products classifiable under Chapter 8607, RoDTEP rate of 1.8% has been notified. However, for automobiles classifiable under Chapter 8708, a substantially lower rate of 0.5% to 1% has been notified. A detailed list of the rates under the RoDTEP Scheme has been attached to this e-mail update.
The Petitioner challenged the order dated 27.07.2021 wherein interest was levied u/s 50 of the CGST Act relating to interest on cash remittances as well as remittances by way of adjustment of Electronic Credit Register.
In connection thereof, Madras HC referring to the provisions of sec 42 of the CGST Act observed that the provisions are not applicable in the instant case wherein the Petitioner has revered the ITC and voluntary paid the tax in Form DRC-03 upon receipt of the of intimation of the wrongful availment. The provisions of Section 42 can only be invoked in a situation where the mismatch is on account of the error in the database of the revenue or a mistake that has been occasioned at the end of the revenue. In a case where the claim of ITC by an assessee is erroneous, as in the instant case, then the question of Section 42 does not arise at all, since it is not the case of mismatch, one of wrongful claim of ITC. Reliance was also placed upon the case of Maansarovar Motors Private Limited v/s The Assistant Commissioner, Poonamallee Division, Chennai (W.P.Nos.28437 of 20190).
Accordingly, it was held that levy of interest u/s 50 of the CGST Act will be there on cash remittances of tax being compensatory and mandatory and no interest shall be levied on remittances by way of adjustment of Electronic Credit Register.
F1 Auto Components P ltd [W.P. No. 6631 of 2021 and WMP No. 7188 of 2021]
The Applicant inter-alia engaged in the business of leasing of Diesel Generator (‘DG’) set. The Applicant entered into an agreement with one of the recipient of service to install DG set on rental along with reimbursement of the cost on diesel incurred on usage of DG. However, the recipient alleged that tax collected by the Applicant pertaining to the reimbursement of diesel charges for usage of DG set was erroneous being diesel a non GST goods as per section 9 of the CGST Act. In connection thereto, the Applicant sought an Advance Ruling before Karnataka AAR on applicability of GST on cost of the diesel incurred in the form of reimbursements for running DG set in the course of providing DG Rental Service.
In regards to above, referring to sec 2(31) of the CGST Act, the AAR observed that the reimbursement of the diesel cost incurred for running DG set are incidental expenses and are part of the consideration. Since, there is no separate contract for supply of diesel, both the services form part of the same contract i.e. supplying DG Set on hire. Accordingly, it was held by AAR that reimbursement charges for running DG Set being an additional consideration for the supply of DG Set on rent as per sec 15 of the CGST Act, it will attract GST @ 18%.
Goodwill Auto’s [Advance Ruling No. KARADRG 44/2021]
With a great end to our Olympic ambitions, winning a historic total of 7 medals, India has certainly marked its name at the world stage! Similar to our athletes, the Government has been making strides to make India globally competitive. With the announcements and advancements of various PLI Schemes and the decision to re-vamp the Customs Duty schemes, the future of the Indian in the global market seems bright. The Government has also invited suggestions from the Trade and Industry for the formulation of the new FTP, which depicts the intent of the Government to make formulate an assessee-friendly policy. Compiling all such developments, we are glad to bring you the 12th Edition of our ‘Vision 360’ Newsletter in association with TIOL.
We have covered all the judicial and legislative developments in Direct, Indirect Tax other regulatory areas. 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.
DGFT vide Notification No. 16/2015-2020 dated 09 August 2021 has further extended the period of modification i.e. updating/confirming the details in IEC, from 31 July 2021 to 31 August 2021. Further, the late fee has also been waived off. In cases where there are no changes in IEC details, the same is required to be confirmed online.
The Petitioner inter-alia engaged in dealing in the business of goods and services relating to Ferrous waste and scrap, re-melting scrap ingots of iron or steel, flat-rolled products of iron or non-alloy steel etc. In connection thereof, basis the investigation carried on by the Revenue authorities the petitioner received a letter dated 25 April 2019 wherein it was requested to reverse the input tax credit availed on invoices from suppliers which were considered as fake invoices. Further in respect thereto, the Revenue authorities sent an intimation of tax dated 22 January 2021 wherein payment was advised to be paid failing which a show cause would be issued u/s 74(1) of the Act.
In regards to above, the HC observed that section 74(5) does not provide any right to the Revenue to raise a tax demand when an investigation is still in process. Further, it was also held that the Revenue cannot coerced the Petitioner to make any payment without issuing notice u/s 74(1) of the Act and following the procedure therein. In the instant case, the action of the Revenue was wholly arbitrary and without jurisdiction. Thus, the petition was allowed and also HC directed to refund the duty paid by the Petitioner along with interest.
Deem Distributors Private Limited [Writ Petition No. 7063 of 2021]
DGFT vide Trade Notice No. 13/2021-22 dated 04 August 2021 has allowed uploading of E-BRCs latest by 15 September 2021 for all the Shipping Bills upto 31 March 2020 on which RoSCTL scrip has been claimed. This has come to effect, upon DGFT noticing that in significant cases E-BRCs have not been uploaded for RoSCTL Shipping Bills with LEO upto 31 March 2020. It has been further provided that upon failure to comply with aforementioned due date, action will be initiated by the jurisdictional RAs as per the recovery mechanism provisions of the Hand Book of Procedure.
Earlier, the MCA vide Circular No. 10/2020 dated 23.03.2020 had clarified that spending of CSR funds for COVID-19 was an eligible CSR activity. In furtherance thereto, the MCA vide General Circular No. 13/2021 dated 30 July 2021 has further clarified that spending of CSR funds for COVID-19 vaccination for persons other than employees and their family shall be eligible as a CSR activity. The above-mentioned activities shall be classifiable as CSR expenditure under the following heads:
The Companies can undertake aforesaid activity subject to fulfilment of the Companies (CSR Policy) Rules, 2004 along with the CSR Circulars issued by MCA from time to time.
CBIC vide Notification No. 30/2021 – Central Tax, dated 30 July 2021 amends the Central Goods and Services Tax (CGST) Rules 2017 which has come into force from 01 August 2021. Following rules are duly inserted in the CGST Rules:
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