Newsletter

The CBIC vide Notification No. 92/2020 – Central Tax dated 22 December 2020 has appointed 01 January 2021 as the date on which the provisions of the Finance Act, 2020 giving effect to proposed amendments in the CGST Act, shall come into force.

Following is the summary of the amended laws:

The Allahabad HC has held that in cases of Tenders / Bids, if the GST value is to be added in the base price to arrive at the total price of offer for the procurement of products in a tender and is used to determine inter se ranking in the selection process, the relevant Department / Authority would be required to clarify the issue, if any, with the GST authorities relating to the applicability of correct HSN Code of the procurement product and mention the same in the tender notice, so as to ensure uniform bidding from all participants and to provide all tenderers/bidders a 'Level Playing Field'.

GLS Comments:

The HSN classification of railway products has been a perpetual issue right from the Excise days, which has found its place under the GST regime as well. Where there exists inconsistency in the HSN code in the same industry, different price bids are bound to arise. The Allahabad HC has rightly held in the instant case that the relevant authorities ought to clarify HSN Code related issues in Bids so as to ensure level playing field to all the bidders.

A departure from the doctrine of level playing field would defeat the entire purpose of the Make In India Policy. In the instant judgement, the Allahabad HC has rightly identified the root of the issue and issued a direction which would certainly reduce the HSN Code related issues in Biddings.

The CBIC vide Notification No. 94/2020 – Central Tax dated 22 December 2020 has notified the CGST (Fourteenth Amendment) Rules, 2020. Following are the key amendments of the notification:

Aadhar Based Verification

• Biometric-based Aadhaar authentication and taking photograph has been mandated for GST registration unless the said requirement has been exempted;
• The time-limit for approval of grant of GST registration has been extended from 3 to 7 working days of the date of application. It has been further provided that where the Applicant fails to undergo authentication of Aadhar, that the GST registration shall be granted within 30 days of the submission of application after physical verification;

GST Registration Cancellation

• GST Registration shall be cancelled if the taxpayer has availed ITC in violation of the prescribed provision of availing ITC i.e., Section 16 of the CGST Act;

GST Registration Suspension

• GST registration shall be suspended, where upon comparison of GSTR-3B and GSTR-1 indicate that there are significant differences or anomalies indicating contravention of the provisions of the Act or the Rules;

ITC Restriction

• The restriction of availment of ITC in respect of unreported invoices or debit notes have been limited to 5% of eligible ITC;

Return Filing Restriction

• The taxpayers shall not be allowed to file GSTR-1 unless the return in GSTR-3B has been filed for the preceding two months;
• Taxpayers required to furnish return for every quarter shall not be allowed to furnish GSTR-1 or using the invoice furnishing facility, if he has not furnished the return in GSTR-3B for preceding tax period;
• Taxpayers restricted from using the amount available in electronic credit ledger to discharge liability towards tax in excess of 99% of such tax liability under rule 86B, shall not be allowed to furnish GSTR-1 or using the invoice furnishing facility, if he has not furnished GSTR-3B for preceding tax period;

Newly inserted Rule 86B

• Rule 86B has been inserted which provides that taxpayers shall not use the amount available in electronic credit ledger to discharge liability towards output tax in excess of 99% of such tax liability, in cases where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees, unless:
  • The said person or the proprietor or karta or the managing director or any of its two partners, prescribed directors, as the case may be, has paid more than Rs. 1 lakh as income tax under the Income-tax Act, 1961, in each of the last two financial years; or
  • Such person has received a refund of more than Rs. 1 lakh in the preceding financial year on account of unutilised ITC in respect of zero rate supplies or inverted duty structure; or
  • Such person has discharged the liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, up to the relevant month in the current F.Y.;
  • The registered person is a Government Department, or a PSU, or a local authority or statutory body.

GLS Comments:

Recently, a number of cases have surfaced wherein the taxpayers had fraudulently availed ITC in contravention of Section 16 of the CGST Act. The new provisions would significantly limit such wrongful availment of ITC. However, whether such direct cancellation / suspension of registrations might also be considered as rather harsh for taxpayers who might have contravened the provisions of ITC availment in a bona fide manner.

As for the restriction of unmatched ITC u/r. 36(4) of the CGST Rules, it is seen that the Government had initially restricted the availment of unmatched ITC to 20%, which was later reduced to 10% and now being further reduced to 5%. Such a trend shows that the Government intends to gradually restrict the entire unreported ITC. In this regard, it would be pertinent to see whether such restriction would be made effective in entirety w.e.f. 01 April 2021 i.e., introduction of new return filing system. It would further be pertinent to see whether the Government introduced any new provision or provides any clarification in cases where the mis-match in ITC occurs on account of the vendor being quarterly taxpayer.

Lastly, and quite possibly, the most important amendment vide the instant notification is the introduction of Rule 86B. The said Rule inter alia provides that at least 1% of the output tax liability shall be discharged from the electronic cash ledger where the value of taxable supplies, other than zero rated and exempt supplies is more than Rs. 50 lakhs. In this regard, it would be pertinent to note that as a settled principle of law, the Rules always flow from the Principal Act. Any Rule which does not flow from the Principal Act is ultra vires and consequently void. Accordingly, it would be interesting to ascertain that whether such restriction of using electronic credit ledger for output tax liability is valid or not. This might ensue litigations in the future.

The erstwhile CBEC had issued a Circular No. 33/2016 dated 22.07.2016 stating that the AEO Programme Manager shall take into account the possible difficulties for MSMEs in meeting with eligibility conditions and criteria with a view to make the AEO certificates more available to MSMEs.

Now, in view of the above circular and the Prime Minister's Aatma Nirbhar Bharat Abhiyaan to support MSMEs against the challenges of the COVID-19 pandemic, the CBIC vide Circular No. 54/2020 - Customs dated 15 December 2020 has decided to relax the entire gamut of compliance and security requirements for MSMEs. The said relaxations have been extended to ensure that the MSMEs are facilitated through rationalized compliance requirements and minimum but effective security requirements. Following are the key relaxations provided to the MSMEs:

• The Applicants shall handle a minimum of 10 documents during the last F.Y., subject to handling at least 5 documents in each half-year period of the preceding F.Y.;
• The Applicants should have business activities for at least two F.Y.s preceding the date of application;
• The qualifying period for legal and financial compliance has been reduced from last three F.Y.s to last two F.Y.s;
• For AEO T1 and T2 accreditation, the present annexures have been supplanted with two MSME annexures;
• For AEO T2 certification, the present annexures i.e., Annexure for physical verification have been rationalized to a single annexure;
• The time limit for processing of MSME AEO T1 and AEO T2 applications have been reduced to fifteen working days and three months respectively after the submission of complete documents for priority processing by customs zones;
• The benefit of relaxation in furnishing of Bank Guarantee for AEOs has been further relaxed to 25% and 10%, of that required to be furnished by an importer/exporter who is not an AEO certificate holder, for MSME AEO T1 and MSME AEO T2 entities respectively.

It has been further provided that the relaxations shall apply only to applicants who have a valid MSME certificate. Furthermore, the approved MSME are required to ensure their continuous MSME status during the validity of its AEO certification, if granted.

All in all, the AEO accreditation for MSME now requires submission of only two annexures for AEO T1 and three annexures for AEO T2 applicants respectively.

In order to provide immediate relief to taxpayers, especially MSMEs during the lockdown period on account of the COVID-19 pandemic, the CBIC vide Instruction No. 03/2020 dated 09 April 2020 had implemented a Special Refund and Drawback Disposal Drive for immediate disposal of drawback claims.

Now, the CBIC vide Instruction No. 21/2020 – Customs dated 16 December 2020 has directed the State to reduce pendency and improve rate of disposal of claims. The CBIC informed that as per the decision of the National Committee on Trade Facilitation, at least 90% of drawback should be credited within a time period of 3 days. CBIC further instructs that the refund may be deposited into the customers’ account in T+2 days.

In respect of payment of duty drawback by banks to the exporters’ account, the CBIC reiterated that in terms of Circular dated 24.04.2018, the authorised banks shall credit / refund the drawback account to the exporters’ accounts either on the same day of receiving Computerized Customs Drawback Advice along with the supporting cheque or on the next working day.

The Government vide Notification No. 30/2015-20 dated 01 September 2020 had amended the Foreign Trade Policy 2015-20 to insert two new paras. The said amendment had capped the ceiling on total reward under MEIS to Rs. 2 crores for an IEC holder for the period ranging from 09 September 2020 to 12 December 2020. Aggrieved by the said amendment, a Writ Petition has been filed before the Gujarat HC challenging the above amendment inter alia on two grounds:

• The Notification seeks to artificially classify similarly placed exporters into two separate class and therefore, is in violation of Article 14 of the Constitution;
• The amended provision does not provide for an exception in respect of contracts already executed factoring in the MEIS benefits and thus is in breach of the principle of promissory estoppel and legitimate expectation.

The Gujarat HC has issued a notice to the Respondents, returnable on 19 January 2021.

Man Industries (India) Limited vs. Union of India [C/SCA/15716/2020] 

The Petitioner, a 100% EOU was engaged in exporting major portion of its manufactured products and clearing minor portion for sale in the Domestic Tariff Area (DTA). The Petitioner imported capital goods and input for manufacturing its products and availed exemption of BCD and IGST paid on such imports under the relevant notifications.

Invoking the extended period of limitation, the DRI initiated investigations against the Petitioner seeking to deny refund of IGST in light of restrictions envisaged u/r. 96(10) of the CGST Rules as amended by Notification No. 54/2018 dated 09 October 2018. The DRI sought details of refund received by the Petitioner and requested the Petitioner to voluntarily pay customs duty in the form of IGST and Compensation Cess.

Aggrieved, the Petitioner preferred a Writ before the Madras HC challenging the vires of Rule 96(10). The said Rule inter alia provides that the claimant shall not have availed the benefit of IGST exemption in terms of certain customs notifications. The Petitioner contended that the said Rule violates the provisions in the parent statute because the only prescription in Section 16 of IGST Act and Section 54 of CGST Act was to the extent of outlining the form and manner for claiming refund and not for restricting refund.

It was further argued by the Petitioner that the only intent was to block IGST refund for exporters who had imported inputs under Advance Authorisation Scheme. However, in the process, amended Rule 96(10) has disentitled exporters who do not import inputs under Advance Authorisation scheme which was never the intent.

The Writ has been admitted by the Madras HC.

Comstar Automotive Technologies Private Limited vs. Union of India

Earlier the CBIC had provided waiver from recording of UIN on the invoices issued by retailers / other suppliers till March 2020. Taking cognizance of the continued issue of non-recording of UIN, the CBIC vide Circular No. 144/14/2020 - GST dated 15 December 2020 has given waiver from recording of UIN on the invoices issued by the retailers / suppliers, pertaining to the refund claims from April 2020 to March 2021, subject to the condition that the copies of such invoices are attested by the authorized representative of the UIN entity and the same is submitted to the jurisdictional officer.

The Petitioner had contemplated to sell certain copper wire rods, etc. on high sea sale basis to the Original importer. Accordingly, two Bills of entry in respect of two consignments had been filed in the name of the Original importer. 

The said Importer subsequently declined to get purchase the imported goods on high seas, however agreed to co-operate in getting No Objection Certificate (NOC) and for substitution of the name of the Petitioner in the two BOE. A request was made for the amendment of the BOE, which was duly carried out. Subsequently, the DRI authorities seized the consignment of the Petitioner on the ground that certain provisions of Notification No.25/1999 – Customs 28.02.1999 had been contravened. Aggrieved, the Petitioner filed a Writ before the Bombay HC.

Referring to Section 110 of the Customs Act, the HC observed that if the proper officer has reason to believe that any goods are liable to confiscation under the Customs Act, he may seize such goods. Accordingly, the proper officer must have reason to believe that the goods in question are liable to confiscation under the Customs Act. Once the proper officer forms such a belief then he may seize such goods.

It was further observed that the expression 'reason to believe' is an expression of considerable import and in the context of the Customs Act, confers jurisdiction upon the proper officer to seize goods. The HC further observed that the belief has to be of the proper officer who had made the seizure. It cannot be that seizure is made by one officer and the reasons to believe are recorded by another officer. It was further observed that the proper officer who made the seizure must have reasons to believe that the seized goods are liable to confiscation. Seizure of goods is not an end in itself.

It was further noted by the HC that the Petitioner had not sought any concession or exemption or benefit under Notification No. 25/99 – Customs dated 28.02.1999. Accordingly, there could not have been any reason to believe that the said imported goods had contravened any of the provisions of section 111 dealing with confiscation and hence liable to seizure under section 110.

It was further remarked that the cancellation of amendment was not carried out by the authority which had allowed the amendment i.e., Customs authorities, Nhava Sheva, after due application of mind. It was carried out as per the direction of DRI, Zonal Unit, Ahmedabad. Such cancellation certainly resulted in adverse civil consequences upon the Petitioner who was the beneficiary of the amendment. It was further observed that without putting the Petitioner to notice and without giving an opportunity of hearing, the amendments could not have been unilaterally cancelled. Such cancellation of amendment would, therefore, be a nullity having no legal sanctity.

Basis the above observations, the HC set-aside the order for seizure of goods and directed for the release of the goods subject to the payment of the requisite duty and completion of necessary formalities.

Nikkom Copper and Conductors Private Limited vs. Union of India and Ors. [W.P. No. 3834 of 2020]

As we approach towards the end a rather nightmarish 2020, hopes are high for better days in the ensuing year, 2021. Amid all the difficult times faced this year, one must also take note of the collective global effort taken by everyone to fight the COVID-19 pandemic, especially the health workers and the State authorities, who kept the economies running.

Speaking of the initiatives taken by the State authorities, we have analyzed the PLI Scheme of the Atmanirbhar 3.0 package, in the Sparkle Zone of our newsletter. We have also penned down articles exploring the scope of ITC restriction provisions under GST and position of the MSME Sector in India. 

With other judicial and legislative developments in the fields of taxation along with our insightful analysis, we are glad to present to you the 4th edition of our Vision 360 Newsletter in association with TIOL.

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.