Newsletter

In a rather eventful week for GST, beginning with the Supreme Court’s verdict on Inverted Duty Structure, ended with one of the most significant GST Council Meetings. The Meeting was held yesterday in Lucknow under the chairmanship of the Union Finance and Corporate Affairs Minister Smt. Nirmala Sitharaman. The Council made the following the following key recommendations:

Recommendations relating to GST rates on goods and services

Extending the existing concessional GST rates on certain COVID-19 treatment drugs, up to 31 December 2021 such as Remdesivir chargeable to 5% GST, Tocilizumab chargeable to Nil rate, etc. The Council further recommended reduction of GST rate to 5% on more COVID-19 treatment drugs, up to 31 December 2021.

The Council has further recommended to change the GST rate on the certain goods w.e.f. 01 October 2021. It has been recommended to change the GST rate on Railway parts, locomotives & other goods in Chapter 86 of the Tariff Act from 12% to 18%. Similarly, the GST rate of waste, scrap and other plastics has been recommended to be increased from 5% to 18%. The Council has also recommended to rationalize the GST rate on all pens to 18%.

Correction in Inverted Duty structure in Footwear and Textiles sector

GST rate changes in order to correct inverted duty structure, in footwear and textiles sector, to be implemented with effect from 01 January 2022. 

Clarifications on GST Rate of certain Goods

• External batteries sold along with UPS Systems/ Inverter attract GST rate applicable to batteries [28% for batteries other than lithium-ion battery] while UPS/inverter would attract 18%.
• All pharmaceutical goods falling under heading 3006 attract GST at the rate of 12% and not 18%.
• Carbonated Fruit Beverages of Fruit Drink and Carbonated Beverages with Fruit Juice attract GST rate of 28% and Cess of 12%. This is being prescribed specifically in the GST rate schedule.

Clarifications on GST rate on certain services

• Coaching services to students provided by coaching institutions and NGOs under the central sector scheme of Scholarships for students with Disabilities is exempt from GST;
• Overloading charges at toll plaza are exempt from GST being akin to toll;
• Alcoholic liquor for human consumption is not food and food products for the purpose of the entry prescribing 5% GST rate on job work services in relation to food and food products.

Other recommendations

The Council decided to set up a GoM to examine the issue of correction of inverted duty structure for major sectors, rationalize the rates and review exemptions from the point of view of revenue augmentation, from GST. It was also decided to set up a GoM to discuss ways and means of using technology to further improve compliance including monitoring through improved e-way bill systems, e-invoices, FASTag data and strengthening the institutional mechanism for sharing of intelligence and coordinated enforcement actions by the Centre and the States.

GST Laws and Procedures

Relaxation in the requirement of filing Form GST ITC-04:

Requirement of filing Form GST ITC-04 under rule 45(3) of the CGST Rules has been relaxed as under:

• Taxpayers whose annual aggregate turnover in preceding financial year is above Rs. 5 crores shall furnish ITC-04 once in six months;
• Taxpayers whose annual aggregate turnover in preceding financial year is upto Rs. 5 crores shall furnish ITC-04 annually.

Interest at the rate of 18% is to be charged only in respect of net cash liability, section 50(3) of the CGST Act to be amended retrospectively, w.e.f. 01 July 2017, to provide that interest is to be paid by a taxpayer on ‘ineligible ITC availed and utilized’ and not on ‘ineligible ITC availed.’ 

The Council has recommended Issuance of the following circulars in order to remove ambiguity and legal disputes on various issues, thus benefiting taxpayers at large:

• Clarification on scope of ‘intermediary services’;
• Clarification in respect of certain GST related issues:
• W.e.f. 01 January 2021, the date of issuance of debit note (and not the date of underlying invoice) shall determine the relevant financial year for the purpose of section 16(4) of CGST Act;
• There is no need to carry the physical copy of tax invoice in cases where invoice has been generated by the supplier in the manner prescribed under rule 48(4) of the CGST Rules;
• Only those goods which are actually subjected to export duty i.e., on which some export duty has to be paid at the time of export, will be covered under the restriction imposed under section 54(3) of CGST Act from availment of refund of accumulated ITC.

Provision to be incorporated in in CGST Rules, for removing ambiguity regarding procedure and time limit for filing refund of tax wrongfully paid as specified in section 77(1) of the CGST/SGST Act and section 19(1) of the IGST Act.

Measures for streamlining compliances in GST

• Aadhaar authentication of registration to be made mandatory for being eligible for filing refund claim and application for revocation of cancellation of registration;
• Late fee for delayed filing of Form GSTR-1 to be auto-populated and collected in next open return in Form GSTR-3B;
• Refund to be disbursed in the bank account, which is linked with same PAN on which registration has been obtained under GST;
• Rule 36(4) of CGST Rules, to be amended, once the proposed clause (aa) of section 16(2) of CGST Act, is notified, to restrict availment of ITC in respect of invoices/ debit notes, to the extent the details of such invoices/ debit notes are furnished by the supplier in Form GSTR-1/ IFF and are communicated to the registered person in FORM GSTR-2B.

The Cabinet has cleared the Production Linked Incentive (‘PLI’) scheme for the auto sector to boost the struggling industry, ramp up production and generate employment. The Government has further announced PLI scheme for the drone sector as well. Incentives worth Rs. 26,058 crores will be offered under the PLI scheme for auto sector, auto components and drone sector. The focus of the auto sector PLI scheme is likely to promote manufacture of electric vehicles and hydrogen fuel cell vehicles.

It is estimated that over a period of five years, the PLI Scheme for Automobile and Auto Components Industry will lead to fresh investment of over Rs. 42,500 crores, incremental production of over Rs. 2.3 lakh crores and will create additional employment opportunities of over 7.5 lakh jobs. Further this will increase India’s share in global automotive trade.

The scheme has two components viz. Champion OEM Incentive Scheme and Component Champion Incentive Scheme. The Champion OEM Incentive scheme is a ‘sales value linked’ scheme, applicable on Battery Electric Vehicles and Hydrogen Fuel Cell Vehicles of all segments. The Component Champion Incentive scheme is a ‘sales value linked’ scheme, applicable on Advanced Automotive Technology components of vehicles, Completely Knocked Down (‘CKD’)/ Semi Knocked Down (‘SKD’) kits, Vehicle aggregates of 2-Wheelers, 3-Wheelers, passenger vehicles, commercial vehicles and tractors etc.

With the available information, it is understood that new players in the auto component sector will have to invest Rs. 500 crores while the existing players will have to invest Rs. 250 crores. It is contemplated that auto component sector could include automatic transmission, automatic braking, electronic steering system among others. This scheme will enable India to leapfrog from traditional fossil fuel-based automobile transportation system to environmentally cleaner, sustainable, advanced and more efficient Electric Vehicles (‘EV’) based system.

During the course of constructing an administrative building, the Applicant had incurred various expenses such as central air conditioning plant, locker cabinet, lift, electrical fittings, architect, interior designing, etc. In respect thereto, the Applicant had filed an application before the Gujarat AAR to ascertain whether it is entitled to avail ITC (‘ITC’) on the said expenses.

It was observed by the AAR that the air conditioning plant, lift, electrical fittings, roof solar plant and fire safety extinguishers qualify as immovable property as these items cannot be shifted from one place to another without damaging them. Accordingly, ITC is not available on such expenses u/s. 17(5) of the CGST Act, being in relation to immovable property.

As for the architect and interior designing service, it had been held that ITC is also not available as these are procured for construction of new building irrespective of their booking as revenue or capital expenditure. The AAR allowed ITC on locker cabinet and generator as they are movable goods and not restricted under Section 17(5) of the CGST Act.

The Varachha Co-Operative Bank Limited [Advance Ruling No. GUJ/GAAR/R/37/2021]

GLS Comments:

It would be pertinent to note that Section 17(5) of the CGST Act restricts ITC on immovable property other than Plant and Machinery. It is to be noted that Air conditioning plant, lift, electrical fittings, etc may qualify as ‘Plant and Machinery’ under Explanation to the said provision. The Rajasthan AAR in the case of Rambagh Palace Hotels Private Limited [2019-TIOL-155-AAR-GST] had allowed ITC on electrical fittings, etc. to the extent of capitalization.

With the gradual revival of the economy, the Government has been making strides towards the right direction. One such step forward has undoubtedly been announcement of the rates and guidelines of RoDTEP. In another major news, the Gujarat AAR has made rather interesting observations to hold that GST is leviable on canteen facilities for employees. In Direct Tax news, the CBDT has notified the extension of time line for electronic filing of various forms.

Compiling all such developments, we are glad to bring you the 13th 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.

The CBIC vide Notification No. 34/2021 – CT dated 29 August 2021 (‘NN. 34/2021’) had extended the timelines for filing of application for revocation of cancellation of registration to 30 September 2021. In respect thereto, the CBIC vide Circular No. 158/14/2021-GST dated 06 September 2021 has clarified various circumstances in which the benefit of the notification can be availed. The clarifications have been tabulated hereunder: 

The Factories Act, 1948 mandates the prescribed factories to maintain a canteen facility. Usually, the factories recover nominal amounts from the employees as expenditure incurred towards canteen facility. As such expense is mandated under the law, the factories, by virtue of a proviso in the blocked credit provision of the CGST Act, tend to avail the ITC on GST charged by service provider on canteen facility.

This entire practice has been a subject matter of litigation ever since the inception of GST. However, it has now been brought back to forefront by the Gujarat AAR in Re: Tata Motors Ltd. [TS-437-AAR(GUJ)-2021-GST]. Against this backdrop, we have penned down an article titled ‘ITC on Canteen Services – A Riddle of Semicolons’, wherein the authors have analysed the ruling in detail, exposing the cracks in the Ruling.

The Article has been attached hereiwith. We hope that reading of the Article would bring an enriching experience to you! Your valuable feedback is always welcome at consult@gstlegal.co.in or updates@gstlegal.co.in.

The Applicant had sought an advance ruling before the Andhra Pradesh AAR to ascertain the classification of ‘car seat covers’ under CTH chargeable to CTH 8708 chargeable to 28% GST or under CTH 9401 chargeable to 18% GST. The Applicant submitted that the 'seat covers' were rightly classifiable under CTH 9401 as the 'seat covers' are an essential and integral 'part of seats, without which 'seat' can be rendered dysfunctional.

The AAR observed that CTH 9401 covers Seats and parts thereof. Referring to the definition of the term ‘part’, the AAR observed that 'parts' combine to form a whole and they are integral to the completion of any article or equipment. Further, the term ‘accessories’ means an object or device that is not essential in itself but adds to the beauty, convenience, or effectiveness of something else. Basis the definitions, it had been observed that seat covers cannot be a part of seats by any means in the instance case. They are meant for the protection of the seats and the functional value of seat covers, is the comfort and convenience it extends to the driver and the passengers. Thus, the 'seat covers' are not essential parts of the seats but accessories that enhance their functional value.

The AAR further relied upon CBEC Circular No. 541/37/2000-CX dated 16 August 2000, wherein it had been clarified that car seat covers are classified under CTH 8708. In view of the above observations, the AAR ruled that car seat covers merit classification under CTH 8708 chargeable to 28% GST.

Saddles International Automotive and Aviation Interiors Private Limited [AAR No. 15/AP/GST/2021 dated 21 June 2021]

GLS Comments:

The AP AAR has correctly interpreted the term ‘parts’ in as much as the seat cover is an accessory to the automotive vehicle and not the car seats or its parts as the seats are complete in themselves even without such covers. It would be pertinent to note that is a similar ruling, the Gujarat AAR in the case of Shiroki Technico India Private Limited [2021-TIOL-11-AAR-GST], had held that Seat Adjusters are classified under CTH 8708 as it does not give any shape or structure to the seat but merely helps the seat to slide back and forth as per the convenience/requirement or comfort of the driver or passenger.

The CBIC vide a series of Notifications dated 29 August 2021 extends various due dates. The said notifications have been summarized hereunder:

GLS Comments:

On account of the difficulties faced during the COVID-19 pandemic, the registrations of a number of taxpayers had been cancelled. The instant benefit of extension of time limit for filing of application for revocation of cancellation of registration will be largely beneficial to such taxpayers.

The writ petition filed by the Respondent was allowed by the HC wherein it was considered that the drawback rates being same, it only represented the Customs elements excluding Central Excise and Service Tax elements, which doesn’t get subsumed with the GST. Thus, there being no point of availing double benefit i.e. IGST refund and higher duty drawback. Basis which IGST refund was allowed along with interest. Aggrieved by the same, the Revenue filed the current Appeal.

In regards to above, referring to the decision of the Division Bench of Gujarat HC (2020-TIOL-2238-HC-AHM-GST) SC held that the Respondent had claimed IGST export refund only to the extent of the customs component and there was no error in the finding of the High Court decision. Thus, the Appeal was dismissed. 

UOI vs. Awadkrupa Plastomech Pvt. Ltd. [TS-383-SC-2021-GST]

GLS Comments:

There have been several instances where taxpayers have to resort to litigation at Tribunal level in order to obtain specific relief and direction for grant of IGST refunds. This results in unreasonable delay in grant of refund of IGST which impacts the exporters and its business as a whole. Similar to the case in hand, the Gujarat HC in the decision of M/s. Amit Cotton Industries vs. Principal Commissioner of Customs [Special Civil Application No. 20126 of 2018] held that claim of duty drawback cannot be considered as a valid reason for unreasonably withholding IGST refunds. In respect thereto, CBIC shall come with a clarification which shall result in easiness to the taxpayers to avail the benefits on export along with refund of IGST.

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.