Dear Reader,
Greetings from GLS!
Shri. Piyush Goyal today launched the Foreign Trade Policy 2023 in one-of-a-kind avatar that expelled sunset clause and brought policy level stability whilst enabling time-to-time amendment to ensure its relevance. The Key Approach to the policy is based on these 4 pillars: (i) Incentive to emission, (ii) Export promotion through collaboration - Exporters, States, Districts, Indian Missions, (iii) Ease of doing business, reduction in transaction cost and e-initiatives and (iv) Emerging Areas – E-Commerce Developing Districts as Export Hubs and streamlining SCOMET policy.
We have briefly summarised salient features of this Policy below and have also enclosed copy of policy, Press Note and Summary issued by the DGFT.
STREAMLINING SCOMET POLICY
India is placing more emphasis on the "export control" regime as its integration with export control regime countries strengthens. There is a wider outreach and understanding of SCOMET (Special Chemicals, Organisms, Materials, Equipment and Technologies) among stakeholders, and the policy regime is being made more robust to implement international treaties and agreements entered into by India. A robust export control system in India would provide access of dual-use High end goods and technologies to Indian exporters while facilitating exports of controlled items/technologies under SCOMET from India.
AMNESTY SCHEME
A special one-time Amnesty Scheme under the FTP 2023 to address default on Export Obligations is introduced. This scheme is intended to provide relief to exporters who have been unable to meet their obligations under EPCG and Advance Authorizations, and who are burdened by high duty and interest costs associated with pending cases.
All pending cases of the default in meeting Export Obligation (EO) of authorizations mentioned can be regularized on payment of all customs duties that were exempted in proportion to unfulfilled Export Obligation. The interest payable is capped at 100% of these exempted duties under this scheme. However, no interest is payable on the portion of Additional Customs Duty and Special Additional Customs Duty and this is likely to provide relief to exporters as interest burden will come down substantially.
FACILITATION UNDER EXPORT PROMOTION OF CAPITAL GOODS (EPCG) SCHEME
Prime Minister Mega Integrated Textile Region and Apparel Parks (PM MITRA) scheme has been added as an additional scheme eligible to claim benefits under CSP (Common Service Provider) Scheme of Export Promotion capital Goods Scheme (EPCG).
Dairy sector to be exempted from maintaining Average Export Obligation. Battery Electric Vehicles (BEV) of all types, Vertical Farming equipment, Wastewater Treatment and Recycling, Rainwater harvesting system and Rainwater Filters, and Green Hydrogen are added to Green Technology products – will now be eligible for reduced Export Obligation requirement under EPCG Scheme.
FACILITATION UNDER ADVANCE AUTHORIZATION SCHEME
Special Advance Authorisation Scheme extended to export of Apparel and Clothing sector under para 4.07 of HBP on self-declaration basis to facilitate prompt execution of export orders – Norms would be fixed within fixed timeframe.
Benefits of Self-Ratification Scheme for fixation of Input-Output Norms extended to 2 star and above status holders in addition to Authorised Economic Operators at present.
TOWNS OF EXPORT EXCELLENCE
Four new towns, namely Faridabad, Mirzapur, Moradabad, and Varanasi, have been designated as Towns of Export Excellence (TEE) in addition to the existing 39 towns. The TEEs will have priority access to export promotion funds under the MAI scheme and will be able to avail Common Service Provider (CSP) benefits for export fulfillment under the EPCG Scheme. This addition is expected to boost the exports of handlooms, handicrafts, and carpets.
PROMOTING EXPORT FROM THE DISTRICTS
The FTP aims at building partnerships with State governments and taking forward the Districts as Export Hubs (DEH) initiative to promote exports at the district level and accelerate the development of grassroots trade ecosystem. Efforts to identify export worthy products & services and resolve concerns at the district level will be made through an institutional mechanism – State Export Promotion Committee and District Export Promotion Committee at the State and District level, respectively. District specific export action plans to be prepared for each district outlining the district specific strategy to promote export of identified products and services.
FACILITATING E-COMMERCE EXPORTS
E-commerce exports are a promising category that requires distinct policy interventions from traditional offline trade. Various estimates suggest e-commerce export potential is in the range of $200 to $300 billion by 2030. FTP 2023 outlines the intent and roadmap for establishing e-commerce hubs and related elements such as payment reconciliation, book-keeping, returns policy, and export entitlements.
MERCHANTING TRADE
To develop India into a merchanting trade hub, the FTP 2023 has introduced provisions for merchanting trade. Merchanting trade of restricted and prohibited items under export policy would now be possible. Merchanting trade involves shipment of goods from one foreign country to another foreign country without touching Indian ports, involving an Indian intermediary. This will be subject to compliance with RBI guidelines, and won’t be applicable for goods/items classified in the CITES and SCOMET list.
PROCESS RE-ENGINEERING AND AUTOMATION
Considering the effectiveness of some of the ongoing schemes like Advance Authorisation, EPCG etc. under [ftp://FTP 2015-20]FTP 2015-20, they will be continued along with substantial process re-engineering and technology enablement for facilitating the exporters. FTP 2023 codifies implementation mechanisms in a paperless, online environment, building on earlier 'ease of doing business' initiatives. Reduction in fee structures and IT-based schemes will make it easier for MSMEs and others to access export benefits.
Presently, issuance of the Hand-Book Procedure is awaited, and we shall update soon as the same is issued. In order to unearth the nuances of this new [ftp://FTP 2023]FTP 2023, we shall share chapter-wise snippets along-with practical anecdotes over the coming week, followed by a detailed document and an interactive webinar to address queries/issues of our esteemed readers.
We believe you find this endeavour informative and welcome your suggestions/feedback.
Best Regards,
Team GLS
The Petitioner had exported customized and unique products and filed a refund application for the unutilized ITC in respect of zero-rated supplies made. Thereafter, the Department rejected the refund claim under the amended Rule 89(4)(C) for not providing proof of "like goods" domestically supplied. Aggrieved the Petitioner filed a Writ before the Karnataka HC.
The HC observed that the amended rule is arbitrary and ultra vires as it contradicts the section 16 of the IGST Act and section 54 of the CGST Act, as the intention of zero-rating is to make the entire supply chain of exports tax-free. The court also observed that the amended rule whittling down such refunds is ultra vires in view of settled principles of law that rules cannot override the parent legislation. The HC noted that the amended rule suffers from vagueness as the phrases 'like goods' and 'similarly placed supplier' were not defined, and in cases of unique and customized products, there cannot be the availability of like goods. The HC emphasized that the amendment also lacks clarity, as it creates uncertainties where there are no local supplies of like goods. Accordingly, the HC quashed the amended Rule 89(4)(C) which restricts the refund of unutilized ITC on zero-rated supplies.
Tonbo Imaging India Pvt Ltd Vs UOI & Ors [TS-108-HC(KAR)-2023-GST]
The Petitioner, entered into an agreement with its parent company for providing various professional consultancy services like business advisory services, technical assistance etc. to its overseas entities. Thereafter, the Petitioner had applied for the ITC refund availed for providing its professional consultancy services. However, the refund was rejected on the ground that the Petitioner was an ‘intermediary’ and the place of services was the Petitioner’s place of business in India and not where the recipient of services was located. The Adjudicating Authority and Appellate Authority both upheld this decision. Aggrieved the Petitioner filed a Writ before the Delhi HC.
The court observed that on a plain reading of the definition of the term ‘intermediary’ makes it clear that an intermediary merely “arranges or facilitates” the supply of goods or services or both between two or more persons, however in the instant case the Petitioner was the actual supplier of the professional services and not merely the facilitatory. Accordingly, the Appellate Authority’s interpretation of 'intermediary' u/s. 2(13) of the IGST Act was deemed fundamentally flawed since the Petitioner did not arrange or facilitate services from any third parties. The HC also relied upon that Circular No. 159/15/2021-GST dated 20.09.2021 issued by the CBIC clarifies the requisites for qualifying as an intermediary. Hence as the Petitioner was not fulfilling any of the requisites as per the circular, the Petitioner's services did not fall within the definition of an 'intermediary'. The HC also determined that the circular reaffirms that the scope of intermediary services in the GST regime vis-à-vis the service tax regime is the same. Further as in the erstwhile regime the services rendered by the Petitioner were considered as 'export of services', the same interpretation should continue under the GST regime.
Subsequently, the HC held that since the services provided by the Petitioner were not as an intermediary, the place of supply should be determined based on the location of the recipient of services. And as the Department did not dispute that the recipient was outside India, the services correctly fall under the definition of 'export of service' under Section 2(6) of the IGST Act. Accordingly, the impugned orders were set aside, and the writ petition was allowed.
M/s Ernst and Young Limited [2023-VIL-190-DEL]
GLS Comments:
It would be pertinent to note that this Delhi HC ruling on the scope of intermediary services is likely to provide much-needed certainty for taxpayers engaged in similar businesses, amidst the divergent advance rulings on this issue. However, it is worth noting that the interpretation of the constitutional validity of the provisions relating to intermediary services under the IGST Act remains uncertain and dicey, with some dissenting judgments from the Bombay High Court Dharmendra M.Jani [2021-TIOL-1326-HC-MUM-GST] to the unfavorable orders from the Gujarat High Court in Material Recycling Association of India [R/Special Civil Application No. 13238 of 2018] and other notable AAR’s.
The Government of Maharashtra has notified the Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fee Act, 2023 (‘the Act’). The Government has introduced the Act for settlement of dues under the MVAT Act, CST Act and nine other relevant acts, in respect of period prior to 30 June 2017. This Act shall come into force from 01 May 2023.
Following are the key highlights of the Act:
The GSTN has issued an advisory for taxpayers wishing to register as a One Person Company (‘OPC’) under the GST regime. Earlier, the taxpayers registering as an OPC raised concerns about the GST registration process as the option to select OPC was not available on the GST portal.
To address this issue, the Applicants are now advised to select "Others" under the "Constitution of Business" dropdown list in Part B of the GST Registration Form "REG-01" if they wish to register as an OPC. After selecting "Others," Applicants should mention OPC in the text field and complete the registration application process as usual. In case of any further issues, it is advised to raise a ticket at the self-help portal.
The Delhi High Court recently heard a batch of petitions challenging the validity of Section 16(2)(c) and Section 16(4) of the CGST Act, 2017. During the hearing, the Court observed that the restrainment placed on the availment of ITC u/s. 16(2)(c) is similar to the condition placed under Section 9(2)(g) of the Delhi VAT Act, 2004 that was read down by the SC in the case of Quest Merchandising India Private Limited [W.P.(C)--6093/2017].
The Court determined that the outcome of this petition will have a bearing on other petitions challenging the provisions related to the availment of ITC, including Rule 36(4) of the CGST Rules (unamended). Therefore, the Court has decided to first hear related matters in the case of Bharti Telemedia and Bharti Airtel, before deciding on the remaining matters. The Court has listed the matter along with the other pending batch of petitions for hearing on April 19, 2023.
GLS Comments:
The Delhi High Court's forthcoming decision is highly anticipated and critical for taxpayers as far-reaching implications on the availment of ITC for the taxpayers. The Constitutional validity of Section 16(2)(c) of the CGST Act has always been in questioned, primarily on the grounds of potential violations of Articles 14 of the Constitution of India. These challenges arise from the fact that the bonafide buyer is denied ITC for the supplier defaults. However, various High Courts have consistently upheld the proposition that ITC cannot be denied to recipients due to the defaults of their suppliers . This position of law also flows from the erstwhile indirect tax regime like in case of RE: Arise India Limited [2018-TIOL-11-SC-VAT], wherein the Apex Court had affirmed the Hon’ble Delhi HC’s view that ITC cannot be restricted to bonafide recipients.
The past month has seen several significant developments in the world of taxation, both in India and internationally. From the Union Budget 2023 to the discussions on tax reforms in other countries such as Qatar and Hungary.
In this edition, we delve into recent judicial and legislative developments in the tax sphere, such as the 49th GST Council Meeting and major MCA and SEBI decisions. Further, true to our view of bringing news which are beyond facts, we have covered all the judicial and regulatory developments in direct and indirect taxes with interesting insights. We have also covered developments of the erstwhile indirect tax laws, which can be helpful precedents for disposing the pending litigations.
Compiling all such developments, we are glad to bring to you, the 30th Edition of our ‘Vision 360’ Newsletter in association with TIOL. We have covered the key judicial and legislative developments in Direct, Indirect Tax other regulatory areas in the month of February 2023. 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 running a furnace and for the purpose of the same, they procured ferrous alloys, scrap, gas, and other materials from within the State of Punjab. The Applicant had sought advance ruling as to whether the Applicant is entitled to claim ITC on the purchases made by it from the seller who had discharged its GST liability but preceding seller has not discharged its liability.
The AAR referring to Section 16(2)(c) of the CGST Act emphasised that no person shall be entitled to claim ITC unless the tax has been paid to the Revenue. Based on this provision, the AAR held that the Applicant was not eligible to claim ITC on the purchases made from a seller who had paid their tax liability but the preceding seller had not paid their liability under the Act.
M/s Vimal Alloys Private Limited [ORDER NO. AAR/GST/PB/31]
In order to comply with Notification No. 78/2020 dated October 15, 2020, the GST e-Invoice Portal requires taxpayers with an Aggregate Annual Turnover of more than Rs. 5 crores to report 6-digit HSN codes for their outward supplies. The portal will soon block the 4-digit HSN codes, and therefore, taxpayers will be required to make the necessary changes in their systems to ensure compliance. Further, to verify that all HSN codes are 6 digit codes, taxpayers have been advised to access the HSN Codes section on the e-Invoice Portal and raise a ticket at the Helpdesk if the 6-digit code is not available.
The Maharashtra Deputy Chief Minister Devendra Fadnavis, commenced the Maharashtra Budget ’23 speech based on the principle of ‘Panchamrut’. In the Indirect tax, the Amnesty Scheme, ‘Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fee Act, 2023 was announced.
Following are the key highlights of the proposed scheme: -
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