Newsletter

The Assesse was engaged in the business of power generation in the state of Gujarat, they had leased out their land for 30 years and collected the premium amount as cost of the land which they have to handover to the government. Thereafter, the revenue had held the Assesse liable to pay the service tax on one time premium/salami under the category of renting of immovable property. The Assesse contented that the amount collected is part of the rent and it is the part and parcel of the gross value of taxable service.

The CESTAT by relying upon the case of Greater Noida Industrial Development Authority [2015-VIL-1250-ALH-ST] emphasised that it is a settled legal position that one time premium/salami cannot be considered as consideration towards rent and hence cannot be leviable to service tax for renting of immovable property. Accordingly, the demand of service tax on one time premium/salami under the category of renting of immovable property was set aside.

Gujarat Power Corporation Limited [2022-VIL-862-CESTAT-AHM-ST]

The Applicant is engaged in the business of renting Diesel Generator sets ('DG Set'). The Applicant had entered into agreements with their clients to install DG sets on a hire basis along with reimbursement of diesel costs incurred during the use of the DG Set. The Applicant had sought an Advance ruling to ascertain whether GST is applicably on cost of the diesel incurred for running DG Set in the course of providing DG rental service.

The AAR observed that Diesel is an essential competent for running the DG set. Further, the price of the Diesel to run the DG Set, shall form part of value of supply in view of sec 15 of the CGST Act. Accordingly, it was ruled that 18% GST is payable on the cost of the diesel incurred for running DG Set in the course of providing DG rental service.

M/s Tara Genset Engineers [2022-VIL-297-AAR]

GLS Comments:

It would be pertinent to note that in a similar matter before the Karnataka AAR in RE: Goodwill Auto's [2021-VIL-282-AAR], it had been held that consideration for reimbursement of expenses as cost of the diesel for running of the DG Set is nothing but the additional consideration for the renting of DG Set. Accordingly, it was ruled that in terms of Section 15 of the CGST Act, such cost of diesel attracts GST @ 18%.

We are glad to bring you the 26th Edition of our ‘Vision 360’ Newsletter in association with TIOL. In this edition, we have covered the key judicial and legislative developments in Direct, Indirect Tax other regulatory areas in the month of October 2022. Following are some key highlights of this Newsletter:

• An insightful piece on the Indian Renewable Energy Sector’s growth in respect to Discounted Incentives;
• Recent developments regarding the re-filing/revising TRAN-1 facility on the GSTN portal;
• HC’s decision in relation to interest and penalty provisions are not applicable to additional duties of Customs;
• Annual Progress Report on BEPS released by OECD, inviting comments on Administration and Tax Certainty;
• Judicial and Regulatory updates in the Direct Tax, Indirect Tax and Regulatory fronts!

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 Applicant was engaged in the business of providing services of maintenance of immovable property to tenants. The Applicant sought Advance ruling on whether they are eligible for claiming ITC on solar power panels procured and installed by it.

The AAR observed that electrical energy is ‘goods’ and exempted. Hence, the Applicant's provision of solar-generated electricity to tenants constitutes a supply of exempted items. Hence, ITC on solar panels is ineligible. Subsequently, the AAR did not discuss coverage of solar plant under Section 17(5) of the CGST Act or on inclusion of value of electricity charges in value of supply.

VBC Associates [2022-VIL-257-AAR]

GLS Comments:

It would be pertinent to note that in the instant case, the Applicant had been treating supply of electrical energy as part of composite supply of rental services. Accordingly, Solar Panels cannot be said to be used for making exempted supply. It would further be pertinent to note that the Rajasthan AAR in RE: Pristine Industries Limited [RAJ/AAR/2021-22/16], had held that solar power plant is classifiable as plant and machinery, and therefore, the ITC thereon is not blocked u/s. 17(5) of the CGST Act. 

The Petitioner was registered as an ISD under the pre-GST regime and transited CENVAT Credit lying in its Electronic Credit Ledger into GST regime. The Revenue initiated recovery proceedings in respect to such credit. The HC took note of the judgements of Bombay HC, wherein the ISD CENVAT credit has been allowed to be transitioned in absence of a definite procedure. Accordingly, HC restrained the Revenue from proceeding with any recovery.

Hero Motocorp Limited [2022-VIL-719-DEL]

GLS Comments:

The Bombay HC in RE: Unichem Laboratories Limited [Writ Petition No. 109 of 2020], while relying to SC’s judgement in RE: Filco Trade [2022-TIOL-57-SC-GST], directed the Petitioner to file or revise GST TRAN-1 through their respective units registered under CGST Act. It was further held that the same will be basis the manual ISD invoices issued by the ISD of petitioner subject to aggregate credit. The HC further directed the CBIC to issue a clarification, after due deliberation, in relation to the distribution / reporting of ISD credit. However, the CBIC is yet to issue any such clarification.

The Applicant had sought the advance ruling to ascertain whether ITC is admissible on the expenditure spent for the CSR activities. During the rise of COVID– 19 pandemics, as there was scarcity of oxygen in the country, the Applicant had donated oxygen plants to the hospital for the benefit of patients. 

The AAR observed that as per the statutory provisions of the Companies Act, companies are required to incur expenditure towards their CSR activities. Accordingly, it was held that the expenditure made in pursuant to the corporate responsibility u/s 135 of the Companies Act is an expenditure made in the furtherance of the business. Consequently, the ITC of tax paid on purchases made to meet the obligations under CSR is admissible under the CGST Act.

Bambino Pasta Food Industries Private Limited [2022-VIL-293-AAR]

GLS Comments:

Admissibility of ITC on CSR expenditure has always been a contentious issue. In RE: Essel Propack Limited [2018 (362) E.L.T. 833 (Tri. - Mumbai)], the Mumbai CESTAT had observed that sustainability of company dependent on CSR without which companies cannot operate smoothly for long period as they are dependent on various stakeholders. Accordingly, the CENVAT credit thereon had been allowed. Under the GST regime, the Kerala AAR in RE: Polycab Wires Private Limited [2019 (24) G.S.T.L. 103 (A.A.R. - GST)], had held that distribution of necessaries to calamity affected people under CSR expenses shall be treated as is if they are given on free basis and without collecting any money. Hence, for these transactions, it was held that ITC shall not be available as per section 17(5)(h).

However, there have been certain favourable ruling under the GST regime as well. In 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.

On account of a clerical error, the Petitioner had erred in filing Form GSTR-1 for the month of January 2019 by inadvertently mentioning wrong GSTIN against invoices raised on its purchaser. However, this error was noticed only during settlement of accounts in the year 2021, when the purchaser withheld payment in respect of the invoice as the invoice was not reflected in their GSTR-2A for the said period. Aggrieved, the Petitioner preferred a writ petition before the Jharkhand High Court seeking relief by way of rectifying the GSTR-1. 

The HC observed that the purchaser had reversed the ITC availed based on entries in books of account under the bona fide belief that the supplier had paid the taxes against such invoices. However, upon realization that the invoice under dispute did not appear in their GSTR-2A, the receipient had duly reversed the credit. Moreover, the party whose GSTIN was wrongly mentioned, had also not availed ITC wrongly reflected in its GSTR-2A. Therefore, the HC held that as there was no loss of revenue to Government, the interest of justice would be served if the Petitioner and their aggrieved purchaser would be allowed to make the necessary correction in their GSTR-1 and GSTR -2 respectively. Accordingly, the Petitioner was allowed to rectify its GSTR-1. The HC further left it open for the aggrieved purchaser to claim interest from the Petitioner on the ITC that was reversed by them for the relevant period.

Mahalaxmi Infra Contract Limited [2022-VIL-735-JHR]

GLS Comments:

This judgment is welcome by the trade with open arms as it will have far reaching impact on many taxpayers who have erred in filing their returns, especially during the initial periods of GST implementation. In this regard, it would be pertinent to note that last year, the Apex Court in RE: Bharti Airtel Limited [2021 (54) GSTL 257 (SC)] had held that self-assessment can be done even without the common electronic portal. The common portal is only a facilitator to feed or retrieve such information and need not be the primary source for doing self-assessment. The SC had agreed with the Revenue as they cannot permit the taxpayers to unilaterally carry out the rectification of their returns submitted electronically as this would affect the obligations and liabilities of other stakeholders because of the cascading effect in their electronic records, which would lead to uncertainty and chaos. It would now be interesting to see whether the Revenue would challenge the instant judgement of the Jharkhand HC, before the SC. 

The Applicant was engaged in the business of sale of used gold jewellery (second-hand goods) and was discharging GST under ‘Marginal Scheme’ u/r 32(5) of CGST Rules. The Applicant sought advance ruling on whether they can claim the ITC credit on the expenses like Rent, Advertisement expenses, commission, Professional expenses and other like expenses while being under Marginal Scheme. The AAR observed that Rule 32(5) of the Rule, provides provision bars for availment of ITC on the purchase of second hand goods, however, there is no such restriction on the availment of ITC in respect of input services or capital goods. Accordinlgy, ITC can be claimed on capital goods by the Applicant under Marginal Scheme u/s 16 to 21 and rules 36-45 of CGST Act and Rules.

In re Attica Gold Private Limited (2022-VIL-288-AAR)

The Appellant had entered into a Joint Venture (JV) to bid on Rail Vikas Nigam Limited's (RVNL) tender for the construction of a PEB shed, structure, building, water supply, general electrical works, OHE works, signal and telecommunication works, and supply, installation, and commissioning of machinery and plant for setting up an Electric Loco Shed. The Appellant had engaged in providing works contract services as a sub-contract to JV for the original works of RVNL. According to the J.V. Agreement, the Appellant was assigned the work of supply, installation, and commissioning of the plant and machinery, mechanical engineering works, electrical works, etc. Subsequently the Appellant sought an advance ruling on whether the work awarded to the Appellant is a composite supply of work contract service. The AAR held that the work awarded to the applicant was not a composite supply of work contract service. Aggrieved the Appellant preferred an appeal before the Uttar Pradesh AAAR.

The Appellant contended that the AAR failed to appreciate the material fact that the items of plant and machinery supplied, installed, and commissioned by the were of permanent nature. The AAR noted that for a contract to be classified as a work contract, the property must be immovable, which is not described under the GST provisions. 

The AAAR observed that upon installation the overhead electric supply assembly becomes one with the general electrical supply mechanism of the plant and cannot be moved without causing substantial damage not only to itself but the Entire Loco Shed itself. Subsequently, the AAAR set aside the order of the AAR and held that the contract of transfer of property in goods is coupled with supply of services as covered under the definition of ‘Works contract service’ as defined under Section 2(119) of the CGST Act. Accordingly, the Appellant is eligible for benefit of Notification No. 11/2017-Central Tax.

HYT Engineering Company Private Limited (Appeal Order No. 02/AAAR dated 15 July 2022)

The Applicant owned land and were planning to convert that land into residential sites for sale. The Applicant developed the land according to the District Town and Country Planning Act regulations. The Applicant sought advance ruling to ascertain the GST applicability on sale of these sites.

The AAR observed that in terms of Circular No. 177 dated August 3, 2022, that land may be sold either as it is or after some development. In either case, it is a sale of land covered by Entry 5 of Schedule III of CGST Act which enumerates activities or transactions which shall be treated neither as a supply of goods nor a supply of services and does not attract GST. Accordingly, the AAR ruled that GST is not applicable on consideration and advance received for residential plots/sites proposed to be converted and on plots/sites sold after completion of basic necessities works.