Newsletter

CBIC vide Press Release dated 24 October 2020 has extended the due date for furnishing Annual Return in Form GSTR-9 and Reconciliation in Form GSTR-9C for the F.Y. 2018-19 till 31 December 2020

In another twist to the tale of transitional credit, the division bench of the Madras HC has reversed the single judge order in the case of Sutherland Global Services Private Limited [2019 (30) G.S.T.L. 628]. While the single judge had held in the favour of the Assessee by allowing carry forward of the accumulated credits of Education Cess, Secondary Higher Education Cess and Krishi Kalyan Cess (‘Cesses’) into GST, the division bench has held otherwise. The rationale of the division bench for arriving at the decision to disallow the credit of cesses into GST has been summarised hereunder:

Cess vs. Tax

• Even though the imposition and collection of Cess may be loosely termed as Tax or Duty, the collection of Cess remains distinct, inasmuch as Cess amount collected by the Government is liable to be spent for the avowed and dedicated purpose for which such imposition was made which is usually reflected in the name of the imposition itself like Education Cess, Secondary and Higher Education Cess etc.;
• Mere facility of taking credit of Input Cess paid on Input goods or services just to avoid the cascading effect on the multiple transactions in the series does not militate or alter the character of the imposition of Cess itself;
• Explanation 1 to Section 140 of the CGST Act confines the term ‘eligible duties’ to 7 specific duties. Only those specified the said explanation can be considered as eligible duties. As the cesses are absent from the seven categories in Explanation 1, the same cannot be considered as an eligible duty u/s. 140.
• Explanation 2 to Section 140 refers covers the ‘eligible duties and taxes.’ While the first seven duties are same as mention in Explanation 1, the eight one was added, being service tax to be set off and carry forward under the CGST Act;
• The only distinction between the two explanations are that while Explanation 1 covers eligible duties of goods held in stock as on 01 July 2017, Explanation 2 covered specified 8 duties and taxes in respect of inputs and services received on or after 01 July 2017. The addition of words ‘and Taxes’ with ‘Eligible Duties’ in Explanation 2 appears to be only on account of addition of ‘Service Tax’ in Explanation 2 which specifies eight duties and taxes for set off.
• The Legislature took further care by inserting Explanation 3 which clarified that eligible duties and taxes will exclude Cesses which have not been specified in Explanations 1 and 2.

Spoilt Fruit

• Merely because the Assessee had ‘taken’ the amount of education cesses, it does not entitle him to utilize the same against the Output GST Liability. The ‘taking’ of credit education cesses after 2015, after the levy of Cess itself ceased and stopped, therefore, it cannot be called an ‘input CENVAT Credit’ and accordingly, mere such accounting entry will not give any vested right to the Assessee to claim such transition and set off against such Output GST Liability;
• It is like Input Credit being a Fruit, which if found to be spoilt or unfit for consumption, it has to be thrown and if it is still fresh and worthy of being kept and used, it has to be so used. The Fruit of Input Credit of education cesses became a spoilt fruit in 2015 itself and was not fit to be carried forward and consumed (adjusted) after 01 July 2017.

Judicial Precedents

• The HC held that the judgement of SC in the case of Eicher Motors [1999 (106) ELT 3] is not applicable to the instant case as the same dealt with MODVAT Credit itself in the same enactment and not cess. In the instant case, the question is in relation to imposition of Cess under different enactments like Finance Acts which even ceased to operate before GST Regime which was enforced on 01 July 2017;

101st Constitutional Amendment Act

• During the introduction of GST Law, it did not include within its ambit six commodities which were left out and continued to be covered by the earlier existing laws of Excise Duty and VAT Law. For that purpose, Entry 54 of the State List and Entry 84 of the Union List were also suitably amended by 101st Constitutional Amendment Act. Except for those 16 taxes and duties specified in different enactments, no other tax or duty were subsumed under the new GST Regime with effect from 01 July 2017;
• The transition of unutilised ITC could be allowed only in respect of taxes and duties which were subsumed in the new GST Law. Admittedly, the cesses were not subsumed in the new GST Laws, either by the Parliament or by the States. Therefore, the question of transitioning them into the GST Regime and giving them credit under against Output GST Liability cannot arise.

In light of the above reasons, the Madras HC allowed the Appeal of the Revenue and set aside the judgement of the single judge and held that the Assessee was not entitled to carry forward and set off of unutilised cesses against the GST Output Liability with reference to Section 140 of the CGST Act.

Asst. Commissioner of CGST and C. Ex. vs. Sutherland Global Services Private Limited [WP No.53 of 2020]

The CBIC released a series of Notifications on 15 October 2020 inter alia notifying the due dates for filing Form GSTR-1 and GSTR-3B. said notifications have been summarized hereunder:

Notification No. 75/2020 – C.T. dated 15 October 2020

Time limit for filing Form GSTR-1 by registered persons having aggregate turnover of more than Rs. 1.5 crores, in the preceding F.Y. or the current F.Y., for each of the months from October 2020 to March 2021 till the 11th of the succeeding month.

Notification No. 76/2020 – C.T. dated 15 October 2020

Form GSTR-3B for each of the months from October 2020 to March 2021 shall be furnished electronically through the common portal, on or before the 20th day of the succeeding month. However, it has been provided that for taxpayers, having aggregate turnover of upto Rs. 5 crores, in the previous F.Y., whose principal place of business is in the States of Chhattisgarh, Madhya Pradesh, Gujarat, Maharashtra, Karnataka, Goa, Kerala, Tamil Nadu, Telangana, Andhra Pradesh, the Union territories of Daman and Diu and Dadra and Nagar Haveli, Puducherry, Andaman, and the Nicobar Islands or Lakshadweep, the due date for filing GSTR-3B shall be filed on or before 22nd of the succeeding month.

It has been further provided that for taxpayers having an aggregate turnover of up to Rs. 5 crore in the previous F.Y., whose principal place of business is in the States of Himachal Pradesh, Punjab, Uttarakhand, Haryana, Rajasthan, Uttar Pradesh, Bihar, Sikkim, Arunachal Pradesh, Nagaland, Manipur, Mizoram, Tripura, Meghalaya, Assam, West Bengal, Jharkhand or Odisha, the Union territories of Jammu and Kashmir, Ladakh, Chandigarh or Delhi, the return in FORM GSTR-3B shall be furnished electronically through the common portal, on or before the 24th of the succeeding month.

Furthermore, registered persons filing Form GSTR-3B, shall discharge their liability towards tax by debiting the electronic cash ledger or electronic credit ledger, and the liability towards interest, penalty, fees or any other amount payable, by debiting the electronic cash ledger, not later than the last date on which Form GSTR-3B is due.

Notification No. 77/2020 – C.T. dated 15 October 2020

Notifies that filing of Annual Return in Form GSTR-9 and Reconciliation Statement in Form GSTR-9C shall be optional for F.Y. 2017-18 to F.Y. 2019-20 for taxpayers having aggregate turnover of less than Rs. 2 crores.

The DGFT vide Public Notice No. 25/2015-20 dated 13 October 2020 has laid down the procedure for application and issuance of scrips under Rebate of State and Central Taxes and Levies (‘RoSCTL’). The key highlights of the said notification have been summarized hereunder:

Procedural Aspects

• The RoSCTL scrips shall be issued only for such old Shipping Bills of Scheme for RoSCTL, for which RoSCTL amount could not be disbursed earlier due to budget limitations;
• The application for claiming RoSCTL is to be filed online in Form AND-4SL using digital signature. The applicant would be required to link the relevant EDI Shipping Bills and e-BRCs and submit the application through online mode only. Maximum of 50 Shipping Bills can be attached in the online application;
• The rebate would be admissible only for shipping bills for which Drawback has been disbursed and RoSCTL amount has not been disbursed. The applicant would be required to ensure that no application is filed against the Shipping Bill for which RoSCTL claim has been received from the Customs Authorities along with Drawback;
• The facility of split scrips shall be the same as applicable to MEIS and SEIS;
• The Applicants shall ensure that they are applying only to the concerned Jurisdictional RA, as per the prescribed provisions of the Handbook of Procedures for getting the scrip and shall submit a declaration to that effect while applying for the scrip online;
• While making an online application, the applicant may choose the Port of registration from any one of the EDI ports from where export has been made for the Shipping Bills in that online application. Duty Credit Scrip (including splits) shall be issued with that single EDI port of registration;
• Subsequent to the approval of the final rebate amount, the scrips shall be issued by RAs in a paperless mode;
• Duty credit scrip shall be registered at the port mentioned on the scrip, prior to allowing usage of duty credit;
• Duty Credit Scrip shall be valid for a period of 24 months from the date of issue and must be valid on the date on which actual debit of duty is made. Revalidation of Duty Credit Scrip shall not be permitted unless validity has expired while in custody of Customs Authority / RA;
• The Applications containing Shipping Bills with Let Export Order (LEO) date between 01 October 2017 and 06 March 2019 are required to be submitted separately. Similarly, separate application containing shipping bills with LEO date before 01 October 2017 needs to be submitted. Last date for submitting applications containing shipping bills with LEO date from 01 October 2017 to 06 March 2019 is 30 June 2021. Further, the last date for filing applications containing Shipping Bills with LEO date before 01 October 2017 would be notified at a later date;
• No application shall be allowed to be submitted post the deadlines. There is no provision for late fee under RoSCTL;
• All exporters are eligible for making a claim under the RoSCTL, except the entities / IEC which are in the Denied Entity List of the DGFT.

Recovery

• The record of Shipping Bills and other documents related to export on which RoCSTL is claimed, is required to be maintained by the Applicant for a period of 3 years from the date of issuance of scrip for post issue scrutiny and recovery purposes. The RA may call upon such details within a period of 3 years from the date of issuance of scrips. In case of failure to provide the requisite details, the Applicant shall be liable to refund the rebate granted along with the applicable interest;
• In case, excess payment is made due to error or miscalculation, the exporter shall be liable to refund the same within 30 days from the date of demand raised by the concerned RA of DGFT. The Applicant shall be liable to pay 15% interest or as prescribed under Section 28AA of Customs Act, whichever is higher. In case the exporter fails to refund the amount so demanded by RA within the prescribed time limit, recovery proceedings shall be initiated;
• In case, the rebate is claimed on the basis of mis-declaration or suppression of facts or by submitting fabricated export documents, the exporter shall be liable for penal action under the provisions of Foreign Trade (Development and Regulation) Act.

The 43rd GST Council Meeting held on 12 October 2020 under the chairmanship of Smt. Nirmala Sitharaman concluded. Following are the key highlights of the Meeting:

• The cess collection has inadequate shortfall in compensation and therefore, the said shortfall shall be met by borrowing;
• It has been unanimously agreed extend the cess beyond 5 years, to repay the principal and interest of the entire compensation. The FM remarked that there is no dispute as the entire compensation has to be paid;
• The Centre has issued a borrowing calendar, if it goes beyond that to borrow, the Government Security deals, which are used as benchmark for every other borrowing will go up, this will hence increase borrowing costs for states and private sector too;
• The States who wish to opt for the borrowing option both interest and principal for the borrowing shall be paid out of compensation cess collected from July 2022. The same shall neither be paid from Central, nor from state resources;
• The Centre will work with the States and estimate the shortfall each state would face. Further, the Centre will assure that the States get a goods rate of interest on the compensation which would become available to them.

The GST Council in its last meeting had decided to make the provision u/r. 138E(b) applicable, which provides for restriction of E-Way bill generation, if the taxpayer has failed to file his GSTR-3B for a consecutive period of 2 months or more.

In respect thereto, it has been informed that GSTIN associated with the respective PAN, having Aggregate Annual Turnover of over Rs. 5 crores, who has failed to file their GSTR-3B Return for 2 or more tax periods, up to the month of tax period of August, 2020, their E-Way Bill generation facility will be blocked on the EWB Portal.

It has been further informed that the EWB generation facility for such GSTINs, whether as consignor or consignee or by transporter, will be blocked on EWB Portal after 15 October 2020.

Dear Readers,

We are pleased to present to you the second edition of our Vision 360 Newsletter in association with TIOL, covering all the judicial and legislative developments in the fields of taxation. True to the title, this edition of the newsletter brings you key tax and regulatory updates and also insightful articles on ITC of GST on employees’ transportation charges and De-criminalization of Off¬ences under the Companies Act.

In the Sparkle Zone of our Newsletter, we have covered the recent development in the international arbitration case of Vodafone under the India-Netherlands BIPA.

For the Industry Speaks section, we have discussed the umpteen tax issues with a well-renowned name in the Hotelier industry.

Further, in the International Desk section, we have discussed the amendments made by the UAE in its Economic Substance Regulations retrospectively for FY 2019. We have also covered developments of the erstwhile indirect tax laws, which can be helpful precedents for disposing the pending litigations.

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>

The CBIC vide Notification No. 30/2020 – C.T. dated 03 April 2020 had prescribed that the condition u/r. 36(4) shall apply cumulatively for the tax period February to August, 2020 and that the return in GSTR-3B for the tax period September 2020 shall be furnished with the cumulative adjustment of ITC for the said months.

In respect thereto, the CBIC vide Circular No. 142/12/2020 – GST dated 09 October 2020 has advised the taxpayers to ascertain the details of invoices uploaded by their suppliers for the periods of February, to August 2020, till the due date of furnishing of the statement in GSTR-1 for the month of September 2020 as reflected in GSTR-2As.

It has been clarified that shall reconcile the ITC availed in their GSTR-3Bs for the period February to August 2020 with the details of invoices uploaded by their suppliers of the said months, till the due date of furnishing GSTR-1 for the month of September 2020. The cumulative amount of ITC availed for the said months in GSTR-3B should not exceed 110% of the cumulative value of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers till the due date of furnishing of the statements in GSTR-1 for the month of September 2020.

It has further been clarified that the excess ITC availed arising out of reconciliation during the said period, if any, shall be required to be reversed in GSTR-3B, for the month of September 2020 and failure to do so would be treated as availement of ineligible ITC during the month of September 2020.

Lastly, the CBIC has illustrated the manner of cumulative reconciliation for the said months in terms of proviso to Rule 36(4) of the CGST Rules.

CBIC vide their flyer on Customs (Administration of Rules of Origin under Rules of Origin under Trade Agreements) Rules, 2020 (‘CAROTAR’) have inter alia explained the background of foreign trade and the requirement to impose the said Rules. In the recent trends of Foreign Trade, there has been a staggered reduction in preferential duties under existing Foreign Trade Agreements (‘FTAs’) along with resultant increase in the preferential trade volumes. Further, frequent instances of misuse have come to notice of the Government in which fraudulent traders have mis-declared country of origin in order to avail undue duty concessions.

Owing to the above-mentioned fraudulent mis-use of the FTAs, the Government had inserted Chapter VAA and section 28DA in the Customs Act. The new section inter alia provided for a basic level of due diligence on the part of an importer to satisfy himself that the claimed originating criteria have been met, and that mere submission of a Certificate of Origin may not be sufficient.

In light of the above background, the CBIC has provided the following clarifications in respect of CAROTAR 2020 vide the FAQs in the flyer:

• It has been clarified that under CAROTAR 2020, Form-I helps guide and assist an importer in assessing origin of goods. An importer is not required to submit this Form at time of filing customs declaration. However, it has been further provided that when there is a doubt on the declared country of origin, the customs officer may ask origin-related details from the importer, in which case the importer would have to submit the Form along with supporting documents.
• It has been further clarified that the same set of information can be utilised in filling up Form-I for identical shipments, unless there is any change in the production process or manner of processing;
• Where an importer is unable to receive all information as prescribed under the Rules, he may still import the goods, claiming preferential tariff treatment. However, in such cases, the origin-related information may be sought by Indian customs from the verification authorities in the exporting country, where timelines are relatively lengthier;
• Where an importer is unable to receive all information from the exporter, the Customs officer shall initiate overseas verification. Further, the preferential tariff treatment may be suspended till conclusion of verification, and goods may be assessed provisionally with bond and security. The officer shall further verify assessment of all subsequent bills of entry filed by the importer with the claim of preferential duty;
• The rules do not mandatorily seek the information on cost break-up or proprietary production process. It should be submitted if available. With regard to requirement to know ‘components which constitute value addition’, the importer is not expected to know exact figures. Only the description of major components that have been taken into calculation of domestic value addition, e.g. material, labour, profit etc., need to be stated;
• The Importers are not required to submit the elaborate and technical production process of the goods being imported. The production process can be recorded in a brief manner, clearly incorporating the way it meets the prescribed originating norms;
• Supporting documents required under the CAROTAR 2020, no specific information / document has been prescribed as supporting documents. The same could range from an email communication from exporter, informing the various origin-related details, to photographs of the production site, demonstrating the process which a good undergoes in an exporting party;
• Tariff treatment cannot be denied on identical goods when previous consignment was denied preferential tariff. Under the CAROTAR 2020, preferential tariff treatment can be denied without verification of origin on account of non-compliance of procedures or conditions owing to reasons such as expired validity period of COO or incomplete COO;
• In the event of a conflict between the provisions of Trade Agreement and CAROTAR 2020, the provision of rules of origin shall prevail to the extent of conflict.

The summary of the provisions of CAROTAR 2020 may be accessed at https://www.gstlegal.co.in/newsletter-detail.html?id=425 

Earlier in June 2020, the Ministry of Textiles had provided that the DGFT would be issuing the Duty Credit Scrips for RoSTL over and above the budget provision for the shipments made prior to 07 March 2019 only. The allocation of RoSTL over and above budget provision for issuing scrips, would be provided by the Department of Revenue for such old cases which could not be disbursed due to budget limitation.

In respect thereto, the DGFT vide Notification No. 37/2015-2020 dated 06 October 2020 has enabled issuance of duty credit scrips under the RoSCTL, for which the procedure will be laid down separately.