Dear Reader,
Greetings from GLS!
Chairing the half-century of GST Council Meetings on 11 July 2023, the Hon’ble Minister Smt. Nirmala Sitharaman, has made a number of key recommendations awaited by the trade and Industry in respect of online gaming, GST Appellate Tribunals and extension of amnesty scheme. The Council has proposed several amendments and some of the prominent recommendations include taxation of casino, Horse racing and online gaming at 28% on full bet value. The meeting has discussed several taxation issues, including tax exemption on certain drugs, the definition of utility vehicles, goods sold in theaters, tightening of norms for GST registration and claiming an ITC, etc.
The Council focused on streamlining compliance processes and recommended the introduction of an auto-compliance procedure. This mechanism will enable businesses to rectify and explain discrepancies between ITC availment in GSTR-3B and GSTR-2B.
We have compiled a comprehensive booklet, with our valuable insights on the key recommendations discussed during the 50th GST Council Meeting. These insights will provide you with a comprehensive understanding of the discussions and their potential implications for the industry.
We believe you find this endeavour informative and welcome your suggestions/feedback.
Best Regards,
Team GLS
The preceding month has witnessed notable advancements in the world of taxation, both domestically in India and on the international stage. These include the Circular issued by the CBIC to implement the directions of the Hon’ble Supreme Court regarding the 'pre-import condition' within the Advance Authorization scheme. Furthermore, discussions on tax reforms have taken place in various countries such as the UAE and Switzerland.
In this edition, we delve into recent judicial and legislative developments in the field of taxation. In the realm of Direct Taxes, a significant development has transpired in addressing divergent Advance Rulings. The CBDT has introduced amendments to the rules, incorporating provisions for resolving points of difference between the Members of the Board for Advance Rulings through the rule of majority. This amendment aims to enhance the consistency of advance rulings.
On the Indirect Tax front, the CBIC has issued comprehensive guidelines for the processing of GST registration applications, aiming to provide clarity and streamline the registration process. Judicial developments include the invalidation of a recovery notice by the Jharkhand High Court, citing the failure to issue a proper Show Cause Notice. Additionally, the newsletter presents curated insights from industry experts on recent tax reforms, emerging trends, and updates from the global tax arena.
In line with our commitment to go beyond factual reporting, we have covered all significant judicial and regulatory developments in both direct and indirect taxes, offering intriguing insights. We have also included developments related to erstwhile indirect tax laws, which can serve as helpful precedents for resolving pending litigations.
Compiling these developments, we are pleased to present the 33rd Edition of our 'Vision 360' Newsletter in collaboration with TIOL. This edition covers key judicial and legislative advancements in direct and indirect taxes, as well as other regulatory areas, during the month of June 2023. We hope that reading this newsletter will provide you with an enriching experience. Your valuable feedback is always welcomed at consult@gstlegal.co.in or updates@gstlegal.co.in
The Goods and Services Tax Network (GSTN) has implemented a novel feature on the GST portal to address disparities between GSTR-1 and GSTR-3B returns. The purpose of this implementation is to ensure online adherence to regulations concerning liabilities or variances observed in R1 - R3B (DRC-01B). The following are the characteristics of the recently introduced feature by the GSTN:
https://tutorial.gst.gov.in/downloads/news/return_compliance_in_form_drc_01b.pdf
Advisory dated June 29, 2023
The Petitioner was engaged in the business of supplying and distributing iron and steel metal scrap. The Petitioner had purchased scrap from the Respondent by paying the required consideration including the GST amount. However, due to an inadvertent mistake by the Respondent, the GST amount was deposited in the wrong GSTIN, resulting in the invoice not being reflected in the Petitioner's GSTR-2A. Subsequently, the Petitioner received a demand notice for wrongly availed ITC. and the Assistant Commissioner confirmed the demand, imposed a penalty, and partially dropped the recovery amount. Aggrieved the Petitioner had preferred a Writ before Madhya Pradesh HC.
The HC observed that the Petitioner had already deposited the GST amount under protest to the Respondent, accordingly they should not be held liable for the Respondent’s mistake as it is a settled law that no one cannot be made to suffer for the fault of another. Consequently, the HC held that since the Petitioner had to pay the GST to the department with interest again in order to avoid their cancellation of GSTIN, the Petitioner was entitled to seek the refund from the Respondent for such payment. Accordingly, the writ was allowed.
Agrawal and Brothers vs. UOI [WRIT PETITION No. 14297 of 2020]
With a slew of critical Notifications and Circulars issued in the month of May 2023, the CBDT has taken significant strides in proposing and clarifying various issues in Direct Tax. Through a series of critical Notifications and Circulars, they have addressed key concerns and provided guidance to taxpayers. Further, On the Indirect Tax front, the CBIC has reduced the E-invoicing limit to 5 crores. As for the judicial developments, Karnataka High Court has ruled game of skill played with or without stakes not gambling. In another important judgement, the SC holds credit note issued by manufacturer to dealer as valuable consideration for warranty replacement, liable for sales tax. The newsletter also features curated insights from industry experts on recent tax reforms, emerging trends, and updates from the global tax arena. We have covered all such developments in this Newsletter. Apart from this, following are some of the key 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.
Compiling all such developments, we are glad to bring to you the 32nd Edition of our ‘Vision 360’ Newsletter in association with TIOL. We have covered the key judicial and legislative developments in Direct, Indirect Tax other regulatory areas in the month of June 2023. 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
The CBIC vide Circular No. 16/2023-Cus, dated June 07, 2023 have implemented of the Hon’ble Supreme Court direction regarding ‘pre-import condition’ in the Advance Authorization scheme This direction was given in the case of UOI and others Vs. Cosmo Films Limited [Civil Appeal No. 290 of 2023]. In the said judgment, the Supreme Court had aside the Gujarat High Court’s decision wherein they had struck down the pre-import condition contained in para 4.14 of FTP 2015-20 for being arbitrary and ultra vires. Aggrieved, Revenue preferred an appeal before the SC. The Supreme Court had noted that inconvenience caused to exporters by paying IGST and claiming refund thereafter could not be a ground to hold the ‘pre-import’ condition as arbitrary. Accordingly, the SC upheld the mandatory fulfillment of the pre-import. The decision had finally settled the issue of the pre-import condition vis-à-vis IGST exemption and compensation cess under Advance Authorization scheme during the period October 13, 2017 to January 9, 2019. The Apex Court has directed the Revenue to permit the manufacturer-exporters who were enjoying interim orders, till the impugned judgments were delivered, to claim refund or ITC. The Apex Court has also directed the Revenue to issue suitable circular in this regard.
Accordingly, the CBIC has clarified that the Supreme Court's order implies that imports under the Advance Authorization scheme that do not meet the pre-import condition requirements are liable to pay IGST and Compensation Cess.
The CBIC has further clarified that, as the existing system for customs duty payment does not support payment after the goods are cleared. Therefore, importers must approach the assessment group at the port of import to pay the IGST and cess using a TR-6 challan. After payment, the port of import shall generate a notional Out of Charge for the Bill of Entry on the Customs EDI system. This enables the transmission of IGST and Compensation Cess information to the GSTN portal. As a result, importer can claim the ITC for the assessed Bill of Entry. If the ITC is used for paying IGST on outward zero-rated supplies, the importer may be eligible for a refund.
The Appellant had entered into a service agreement with its holding company i.e McDonald's USA whereby the Appellant had agreed to perform certain services for its holding company. Thereafter, the Appellant filed a refund application for refund of tax paid on the inputs used for the services rendered to its holding company under the Service Agreement, however, the Adjudicating Authority rejected the refund application, deeming the Appellant acted as an intermediary with the place of supply in India. Aggrieved the Appellant had filed an Appeal before the Appellate Authority, however, the Appellate Authority upheld the refund rejection and noted that the Appellant was acting as a mediator between prospective joint ventures and franchisees, where the main supplies were made by holding company and ancillary supplies were provided by the Appellant and therefore, they do not qualify as export of services under Section 2(6). Aggrieved the Appellant preferred a Writ before the Delhi High Court.
The High Court observed that the Appellate Authority overlooked the Master License Agreement, which allowed the Appellant to enter into sub-licenses with franchisees which is a separate agreement. Hence, the HC concluded that there was no justification for the finding that the Appellant acted as a mediator between joint ventures/franchisees and holding company. Additionally, the HC also emphasized that the scope of services as mentioned in the Service Agreement, read in isolation, do not entail procurement or facilitating services from third-party suppliers. The court further noted that this had no connection with the requirements or contemplation of Section 13(3)(b) and Section 13(5) of the IGST Act. The HC also contended that the issue involved in the instant case was covered by the earlier decision of M/s Ernst and Young Limited [W.P (C) 8600/2022] and M/s Ohmi Industries Asia Private Limited [W.P. (C) 6838/2022], wherein it held that rendering service on behalf of another person does not render the service provider an intermediary.
The High Court observed that the Appellate Authority exceeded the scope of the SCN by raising additional grounds to reject the Appellant's claim for refund. The court emphasized that the Appellate Authority travelled beyond the SCN and therefore it was liable to be set aside solely on this basis. The HC highlighted that the Service Agreement clearly established that the holding company acts as the service recipient and the Appellant as the service provider. It further emphasized that the supply of services provided by the Appellant did not require the physical presence of McDonald's USA in India, therefore the that relevant provisions of Section 13(3)(b) of the IGST Act were not applicable to the Appellant’s services. As the provision contemplates the location of service, whereby the presence of a service recipient is necessarily to be in India. As a result, the court set aside the impugned order and remanded the matter back to the Adjudicating Authority for a fresh consideration.
McDonald’s India Private Limited [TS-203-HC(DEL)-2023-GST]
The Applicant had entered into two work agreements, the first agreement covered the supply of goods for the supply of goods including Flue Gas Desulphurization (FGD) system, Limestone and gypsum handling system, chimney-related items, and spares. The second agreement encompassed services such as such as transportation, erection, safety compliances and testing of the supplied items. The Applicant sought advance ruling on whether they are required to pay GST on initial advance of 5% and interim advance of 7.5% for the goods supplied under the First Contract Agreement under Notification No. 66/2017 – C.T. dated 15 November 2017 (‘NN. 16/2017’).
The Applicant contended that they are liable to pay taxes on the goods at the time of supply, upon the issuance of the invoice, and not on the receipt of advance payments and therefore supply of goods under the first contract, qualify for the benefits as per NN. 66/2017. The AAR observed that in the instant matter, the issue to be determined is whether the supply, which comprises two contracts under a single bidding document, should be classified as a 'composite supply' with the second contract as the principal supply or if both contracts should be treated as separate transactions for which the ‘time of supply’ and ‘rate of tax’ to be levied would differ as per the provisions of the CGST Act.
The AAR observed that the supply under the second contract begins after the completion of all activities in the first contract. Accordingly, scope of work in each contract undertaken by the Applicant is independent and distinct, thus it cannot be clubbed together. The AAR further noted that the agreements does not exhibit the concept of a "naturally bundled", as these contracts can be executed independently. Consequently, the supply of goods and services under the two contracts with separate invoicing cannot be construed as composite supply. The AAR emphasised that when viewed as separate contracts, the Applicant is eligible for the benefit of NN. 66/2017 for the outward supply of goods. Accordingly, the tax liability for the supply of goods under the first contract arises at the time of supply, by the Applicant or the last date on which he is required, u/s. 31 of the CGST Act to issue the invoice with respect to the supply.
PES Engineers Private Limited [2023-VIL-90-AAR]
Authors’ Notes:
The instant ruling is welcome by the Trade and Industry. Generally, in cases of works contract, the GST authorities are of the view that the bifurcation of contract for supply of goods and services is artificial and the supply is actually indivisible. It would be pertinent to note that in RE: Cable Corporation of India Limited [2019 (20) G.S.T.L. 631 (A.A.R. - GST)], the Maharashtra AAR had held that where two separate agreements are entered for the supply of works contract and transportation, such services are dependent on one another and therefore, classifiable as ‘Composite Supply.’ It would be interesting to see whether the Revenue would file an Appeal against the instant ruling, before the AAAR.
The Petitioner was issued with a SCN for wrongly availing ITC as their supplier had not paid the tax. Subsequently an order was passed, along with a demand notice. The Petitioner had filed an appeal against the order before the Appellate Authority but the same was dismissed for being barred by the limitation period. Aggrieved the Petitioner preferred a Writ before the Patna High Court.
The High Court observed that the Petitioner had the opportunity to file an appeal within 90 days, as directed by the Supreme Court in consideration of the pandemic-related limitations. However, the Petitioner failed to adhere to the timeline and filed the appeal after a delay of 65 days, surpassing the stipulated limitation period. The HC emphasized that due to the Petitioner's own failure in not availing the available appellate remedy, they cannot invoke the extraordinary jurisdiction under Article 226 of the Constitution of India. The HC further observed that the Petitioner's claim regarding ITC and its computation should have been raised before the appellate authority as the determination of the tax payable on the basis of the various claims validly arising from the statute and computation cannot be agitated in a petition under Article 226 of the Constitution. Accordingly, the Writ was dismissed.
The CBIC has issued Circular No. 11/2023-Customs dated May 17, 2023 regarding the Amnesty Scheme providing One Time Settlement for Default in Export Obligation by Advance Authorization and EPCG Holders. This scheme is in line with Notification No.32/2023-Customs dated April 26, 2023.
The Ministry had issued the notification to amend 13 Customs notifications pertaining to Advance Authorization and EPCG Schemes. The amendments implement the procedure outlined in DGFT's Public Notice No. 02/2023 dated April 01, 2023. It allows authorization holders to settle pending cases of default in export obligations by paying applicable Customs duty. The interest payable is capped at 100% of exempted duties, with no interest on Additional Customs Duty and Special Additional Customs Duty. The Authorization holders must ensure completion of the payment process before September 30, 2023, to avail of this scheme. Notably, the scheme does not apply to cases involving fraud, misrepresentation, or unauthorized diversion of materials or capital goods. Furthermore, Authorization holders are not eligible to claim CENVAT credit or seek refunds for duties paid under this scheme.
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