Newsletter

Circular No. 118/37/2019 – GST dated 11 October 2019

• Clarification was requested as to whether provision of hardware prototypes and samples and testing thereon lends these services the character of performance-based services in respect of goods required to be made physically available by the recipient to the provider;  
• It was pointed out that during the supply of software / design services in respect of Electronics Semi-conductor and Design Manufacturing (EDSM) industry to service recipients located in non-taxable territory by using sample prototype hardware / test kits is a composite supply, where testing is an ancillary supply whereas, chip design/software development is the principal supply of the service provider. The service provider is not involved in software testing alone as a separate service;  
• Accordingly, the place of supply in such cases shall be the location of the service recipient in terms of Section 13(2) of the IGST Act;
• It was further clarified that the entire activity needs to be viewed as one supply and accordingly treated for the purposes of taxation. Artificial vivisection of the contract of a composite supply is not provided in law.

Circular No. 119/38/2019 – GST dated 11 October 2019

• In terms of the definitions of Goods and Services provided in the CGST Act, 2017, the activity of lending of securities is not a transaction in securities per se, as it does not involve disposal of securities. Further, the explanation added to the definition of ‘service’ to include facilitating or arranging transactions in securities is only clarificatory in nature and does not have any bearing on the taxability of the services on lending of securities in the past since 01 July 2017;
• The lender temporarily lends the securities held by him to a borrower and charges lending fee for the same from the borrower. The borrower of securities can further sell or buy these securities and is required to return the lended securities after a stipulated period of time. The lending fee charged from the borrowers of securities has the character of consideration and this activity is taxable in GST since 01 July 2017
• The Securities Lending Scheme, 1997 does not treat lending of securities as disposal of securities and therefore is not excluded from the definition of services. It would be taxable under heading 997119 attracting GST rate of 18%. Further, for the period 01 July 2017 to 30 September 2019, IGST shall be paid under forward charge by the lender and SEBI shall disclose the information about borrower for discharging GST under forward charge;
• Borrowers of securities shall be liable to discharge GST under reverse charge w.e.f. 01 October 2019 in view of Notification No. 22/2019 – Central Tax (Rate) dated 30 September 2019.

Circular No. 120/39/2019 – GST dated 11 October 2019

• Section 11(3) of CGST Act provides that the Government may insert an explanation in any notification issued under section 11, for the purpose of clarifying its scope or applicability, at any time within one year of issue of the notification and every such explanation shall have effect as if it had always been the part of the first such notification; 
• The explanation inserted vide Notification No. 17/2018 – Central Tax (Rate) dated 26 July 2018 which provided that the activities or transactions under taken by Government and Local Authority are excluded from the term ‘business’, is effective from 21 September 2017, which is the date of inception of the relevant entry;
• Since the explanation in question was inserted in exercise of powers under Section 11(3) of the CGST Act within one year of the insertion of the original entry prescribing concessional rate, the line in notification No. 17/2018-CTR dated 26 July 2018 which states that the notification shall come into effect from 27 July 2018 does not alter the operation of the notification. 

Circular No. 121/40/2019 – GST dated 11 October 2019

• Services proved by the Government to business entities including by way of grant of privileges, licences, mining rights, natural resources such as spectrum etc. against payment of consideration in the form of fee, royalty etc. are taxable under GST. Same was the position under Service Tax regime also with effect from 01 April 2016. Tax is required to be paid by the business entities on such services under reverse charge. 
• Subsequent to the decision taken in 26th GST Council meeting to not levy GST on license fee and application fee, grant of alcoholic liquor license was notified as neither a supply of goods nor a supply of service in terms of Notification No. 25/2019 - Central Tax (Rate) dated 30 September 2019;
• It is further clarified that this special dispensation applies only to supply of service by way of grant of liquor licenses by the State Governments as an agreement between the Centre and States. Further clarifies that the same has no applicability or precedence value in relation to grant of other licenses and privileges for a fee in other situations, where GST is payable.

Pursuant to the recommendations of the 37th GST Council meeting, CBIC notifies the due dates for furnishing returns in Form GSTR 1 and GSTR 3B among other things. Key observations are summarised as below:

• In the wake of postponement of new return system to April 2020, the CBIC has notified that GSTR-1 and GSTR-3B shall continue until March 2020. Further, the due dates of the returns shall remain the same;
• It is notified that annual return shall be made optional for taxpayers with turnover less than Rs. 2 crores for financial years ending March 2018 and March 2019;
• Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers, shall not exceed 20 per cent of the eligible credit available in respect of invoices or debit notes, the details of which have been uploaded by the suppliers;
• To nullify the recent decision of Gujarat High Court in the case of AAP and Co., wherein it was held that GSTR-3B is not a return u/s 37 of the CGST Act, 2017, Rule 61(5) of the CGST Rules, 2017 have been amended restrospectively to include GSTR-3B as return u/s 39 of the CGST Act, 2017;
• Due date of filing TRAN-1 and TRAN-2 Forms extended to 31 December 2019 and 31 January 2020 for taxpayers who could not file the same due to techincal difficulties.

Circular No. 110/29/2019 – GST dated 03 October 2019

• Registered persons who have inadvertently filed NIL refund application in Form GST RFD-01A / RFD-01 for a particular period under a particular category may again apply for refund of the same subject to the following conditions:
  • NIL Refund application must have been filed for a particular period under a particular category;
  • No refund application must have been filed under the same category for any subsequent period.
• The second condition shall apply only to refund of unutilized ITC on account of exports without payment of tax, supplies made to SEZ Unit / Developer without payment of tax and inverted duty structure;
• In other cases, refund application can be filed even if the second condition is not satisfied. Such refund application may be filed with supporting documents under ‘Any Other’ category instead of the category under which the ‘NIL’ refund claim has already been filed.

Circular No. 111/30/2019 – GST dated 03 October 2019

• Registered persons who receive favourable orders in appeal or any other forum in respect of refund claim initially rejected, shall file fresh refund application under the category of ‘Refund on account of assessment / provisional assessment / appeal / any other order’;
• Since the amount debited, if any, at the time of filing of the refund application was not re-credited, the registered person shall not be required to debit the said amount again from electronic credit ledger at the time of filing of the fresh refund application.

Circular No. 112/31/2019 – GST dated 03 October 2019

• Circular No. 105/24/2019 – GST dated 28 June 2019 which was issued to provide certain clarifications with respect to treatment of secondary or post-sales discounts under GST, hereby stands withdrawn in view of the representations which were made expressing apprehensions on the implications of the said Circular.

Kerala HC: Statutory taxing provisions are to be strictly construed against an assessee and in favour of the Revenue. Such provisions must be interpreted in the same manner as exemption provisions in a taxing statue are interpreted

CBIC vide Circular No. 1072/05/2019-CX issued clarifications on the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 on various issues raised in the context of the various provisions of the Finance Act, 2019 and Rules made thereunder, as follows:

• Only the persons who are eligible in terms of Section 125 can file a declaration under the scheme. Declarations made by ineligible persons by selecting an incorrect response shall be void and not merit consideration under the scheme;
• Deemed withdrawal shall be applicable for departmental appeals. Further, if prosecution has already been launched, then, procedure laid down under the prescribed circular shall be followed for withdrawal of prosecution after issuance of discharge certificate;
• Rule 3 of the scheme provides that separate declaration needs to be filed for each return in case where the declarant has filed a return but not paid duty;
• Relief under the scheme will be applied to the outstanding amount and only thereafter the pre-deposits / deposits shall be adjusted;
• Taxpayers can file a declaration under the scheme, where such taxpayer does not want to file an Appeal even though time period for filing such Appeal is not over, provided that such taxpayer intimates in writing to the Department that he is filing a declaration under the scheme.
• Section 125(1)(f) specifically excludes persons from making a voluntary disclosure after being subjected to an enquiry / investigation or audit. The Designated Committee shall consider each declaration from case to case basis where documents like balance sheet / P&L account, etc. called upon by the Department would constitute enquiry / investigation or audit under the Scheme.

On careful consideration of the represenatations made by the trade and indsutry, the Income Tax India Department vide their tweet dated 26 September 2019 informed that the CBDT has decided to extend the due date for filing ITRs and Tax Audit Reports from 30 September 2019 to 31 October 2019 in respect of persons whose accounts are required to be audited. Notification in this regard to follow soon

Madras HC strikes down the provisions of CGST Act, 2017 which provides for the appointment of 1 Judicial Member and 2 Technical Members in the constitution of GST Appellate Tribunal as being unconstitutional. States that such constitution of the Tribunal is contrary to mandate of Article 50 of the Constitution of India and such a composition would seriously affect the independence of judiciary. Further recommends the Parliament to consider the inclusion of lawyers for being eligible to be appointed as Judicial Members to the Appellate Tribunal in view of the issues which are likely to arise for adjudication under the CGST Act and in order to maintain uniformity in various statutes

The Hon'ble Finance Minister, Smt. Nirmala Sitharaman held a press conference yesterday to propose a slew of measures under Direct Tax, which included much awaited reduction in the income tax rate to 22% for existing domestic companies and 15% for new companies investing in manufacturing sector.

With a view to revive the economy and provide further relaxation to the taxpayers, the GST Council in its 37th Meeting held in Goa on 20 September 2019 made some important decisions. The highlights of the Meeting are as follows:

• Filing of Annual Return for F.Y. 2017-18 and F.Y. 2018-19 made optional for taxpayers having aggregate turnover up to Rs. 2 crores. Further simplification of annual return and reconciliation statement is under deliberations;
• Restriction imposed on availment of Input Tax Credit by recipients in cases where details of outward supplies are not furnished by suppliers in terms of Section 37 of CGST Act;
• Changes in GST rates for several products has been proposed such as railway wagons, caffeinated drinks, hotel tariffs etc;
• Ab-intio rescinding of Circular dated 28 June 2019 issued in respect of post-sale discounts;
• Implementation of new return system postponed to April 2020 (as against the erstwhile proposal to implement the same from October 2019)
• Clarification to be issued regarding supply of ITeS services being made on own account or as intermediary.

GLS Comments:

• Apparently, the government has taken several steps to simply the procedural compliances or provide clarifications on several open issues such as post sale discounts and ITeS services being made on own account;
• The postponement of new return system would come as relief to taxpayers as they would get more time to acclimatize themselves with the proposed new return system. Further, the industry would have to wait and see what changes are being proposed in the annual return and the reconciliation statement as the taxpayers have been finding it difficult to compile the data for filing of the same in its current shape and form;
• One of the key changes has been proposed to restrict the Input Tax credit to the recipient only in respect of the supplies uploaded by the supplier in his GSTR-1 returns. Off late, in several cases of mismatch with GSTR-2A, the department has been issuing notices to taxpayers. The said Notices have been challenged by the taxpayers in the Courts. Pursuant to this amendment, the taxpayers will now have to follow-up with their vendors more rigorously to ensure they file their returns or suffer the risk of their Input Tax credit being denied. It would be interesting to see how the industry responds to such changes.

During the Press Conference held in Goa on 20 September 2019, the Finance Minister announced various fiscal reliefs for Companies. Following are the highlights of the said conference:

• Existing Domestic Companies will have an option to pay income tax at the rate of 22% (effective rate 25.17% inclusive of surcharge and cess) subject to condition that they do not avail any exemption/incentive. Such companies shall not be liable to pay Minimum Alternate Tax;
• New Domestic Companies incorporated on or after 01 October 2019 investing in manufacturing will have an option to pay income-tax at the rate of 15% (effective rate 17.01% inclusive of surcharge and cess) subject to condition that they do not avail any exemption/incentive. Such companies shall not be liable to pay Minimum Alternate Tax;
• Companies not opting for the concessional tax regime by availing exemptions/incentive, shall pay income tax at the pre-amended rate. Such companies will have an option to opt for concessional tax regime after expiry of their tax holiday/exemption period. For such companies availing tax incentives, the Minimum Alternate Tax has been reduced from 18.5% to 15%. Companies subsequently opting for concessional tax regime shall not be allowed to withdraw the same;
• Enhanced surcharge introduced earlier this year vide Finance (No. 2) Act, 2019, shall not apply on capital gains arising on sale of equity share in a company or a unit of an equity oriented fund or a unit of a business trust liable for securities transaction tax, in the hands of an individual, HUF, AOP, BOI and AJP;
• Enhanced surcharge shall also not apply to capital gains arising on sale of any security including derivatives, to Foreign Portfolio Investors;
• Tax shall not be chargeable on buy-back of shares for listed companies who have already made a public announcement of buy-back before 05 July 2019; and
• CSR 2% can be spent on incubators funded by Central or State Government or any other specified agency.

P.P. Automative Private Limited vs. UOI and others [CWP-24600-2019]

• The Petitioner erroneously entered wrong particulars in GSTR-3B for the month of July 2017. The same could not be rectified due to unavailability of suitable mechanism for making corrections in the Return;
• The Hon'ble Punjab & Haryana HC notes that when the petitioner attempts to insert correct figures in the annual return, the offline utility does not allow the same as it has some auto-populated data i.e. details of utilisation of ITC from GSTR-3B returns filed electronically on the common portal;
• The Petitioner has also challanged the inaction on the part of Revenue since the petitioner had filed various requests seeking correction in the erroneous return filed, however, the Revenue failed to address the same;
• Taking cognizance of the above, the HC directs Revenue to make correction in mechanism of operation of Common Portal in consonance with the relevant notifications by which the Government has notified Form GSTR-9;
• The Hon'ble HC further directs the Revenue to accept the rectified copies of Form GSTR-3B as submitted by the Petitioner.