Newsletter

The CBIC vide Notification No. 07/2021 - Central Tax dated 27 April 2021 has suitably amended Rule 26 of the CGST Rules to allow registered persons to furnish return in FORM GSTR-3B and details of outward supplies in FORM GSTR-1 or using Invoice Furnishing Facility (IFF), verified through Electronic Verification Code (EVC) during the period 27 April 2021 to 31 May 2021.

In light of the severe COVID-19 pandemic raging unabated across the country, and in view of requests received from taxpayers, tax consultants and other stakeholders to further extend various Direct Tax due dates, the Government has decided extended certain timelines vide Press Release dated 24 April 2021.

Accordingly, to address the hardships being faced by various stakeholders, the Central Government has decided to extend the time limits to 30 June 2021 in the following cases where the time limit was earlier extended to 30 April 2021 through various notifications issued under the Taxation and Other Laws (Relaxation) and Amendment of Certain Provisions Act, 2020, namely:-

• Time limit for passing of any order for assessment or reassessment under the IT Act;
• Time limit for passing an order consequent to direction of DRP under section 144C of the IT Act;
• Time limit for issuance of notice under section 148 of the IT Act for reopening the assessment where income has escaped assessment;
• Time Limit for sending intimation of processing of Equalisation Levy u/s. 168 of the Finance Act 2016.

The Government has further decided that the time for payment of amount payable under the Direct Tax Vivad se Vishwas Act, 2020, without an additional amount, shall be further extended to 30 June 2021.

The Revenue Department had ordered for provisional attachment on Appellant’s receivables from their customers. Aggrieved, the Appellant had preferred a Writ Petition before the Himachal Pradesh HC challenging the vires of attachment order passed by the Revenue u/s. 83 of the CGST Act. However, the HC dismissed such Appeal as the Appellant had the option of alternative remedy under the CGST Act.

Aggrieved, the Appellant approached the SC on questions, whether the orders of provisional attachment are in consonance with the conditions stipulated in Section 83 and whether the HC was right in concluding that the provisional attachment not be challenged in a writ petition. Upon referring to Section 83 of the CGST Act, it was observed by the SC that:

• The power to order a provisional attachment is entrusted during the pendency of proceedings under any one of six specified provisions: Sections 62, 63, 64, 67, 73 or 74;
• The power to order a provisional attachment has been vested by the legislature in the Commissioner;
• Before exercising the power, the Commissioner must be ‘of the opinion that for the purpose of protecting the interest of the government revenue, it is necessary so to do’
• The order for attachment must be in writing; and
• Provisional attachment is of any property including a bank account belonging to the taxable person.

In view of the above, it was further observed that before the Commissioner can levy a provisional attachment, there must be a formation of ‘the opinion’ and that it is necessary ‘so to do’ for the purpose of protecting the interest of the Government Revenue. The power to levy a provisional attachment is draconian in nature. 

It was further observed that, conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. 

Firstly, the language of the statute indicates the necessity of the formation of opinion by the Commissioner. Secondly, the formation of opinion before ordering a provisional attachment. Thirdly, the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue. Fourthly, the issuance of an order in writing for the attachment of any property of the taxable person; and lastly, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. 

It was further observed that each of these components of the statute is integral to a valid exercise of power. It is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the Government Revenue.

In respect to the Rules for provisional attachment, the SC observed that in terms of Rule 159(5) of the CGST Rules, the person whose property is attached is entitled to dual procedural safeguards: (i) An entitlement to submit objections on the ground that the property was or is not liable to attachment; and (ii) An opportunity of being heard. It was further observed that even if the property, arguably, was validly attached in the past, the person whose property has been attached may demonstrate to the Commissioner that it is not liable to be attached in the present. 

The second significant aspect of sub-Rule (5) is the mandatory requirement of furnishing an opportunity of being heard to the person whose property is attached. In the instant case, there has been a breach of the mandatory requirement of Rule 159(5) and the Commissioner was clearly misconceived in law in coming into conclusion that he had a discretion on whether or not to grant an opportunity of being heard.

The SC further observed that Revenue while ordering a provisional attachment u/s. 83 was acting as a delegate of the Commissioner in pursuance of the delegation effected u/s 5(3) and an appeal against the order of provisional attachment was not available u/s 107 (1). As the Appeal was not maintainable under the CGST Act, it was observed that the Writ Petition before the HC was sustainable. 

In view of the above observations, the SC set aside the judgement of the Himachal Pradesh HC and allowed the Appeal.

Radha Krishna Industries vs. State of Himachal Pradesh and Ors. [Civil Appeal No 1155 of 2021]

The CBIC vide Notification No. 27/2021 – Customs dated 20 April 2021 has exempted Remdesivir and active pharmaceutical ingredients from the levy of Customs Duty, until 31 October 2021. Further, a conditional customs duty exemption has been granted for the ingredient Beta Cyclodextrin (SBEBCD) used in the manufacture of Remdesivir, till 31 October 2021.

GLS Comments:

Given the current situation of the COVID-19 pandemic, and the scarcity of vaccines, it was utmost important to provide such exemption upon import of vaccine ingredients. This would definitely help increase the production and supply of the anti-COVID-19 drugs, especially in view of the sudden surge in the demand of Remdesivir in the last few days.

The Ministry of Commerce and Industry vide Notification dated 16 April 2021 has approved the Production Linked Incentive (PLI) Scheme for White Goods (Air Conditioners and LED Lights) to be implemented over FY 2021-22 to FY 2028-29 with a budgetary outlay of Rs. 6,238/- crores.

This Scheme proposes to boost the domestic manufacturing and attract large investments in the White Goods manufacturing value chain. Support under the Scheme will be provided to companies/entities engaged in manufacturing of components of Air Conditioners and LED Lights in India as under:

• Air Conditioners:
  • Air Conditioners (Components – High value Intermediates or Low Value Intermediates or sub-assemblies or a combination thereof):
    • Large Investments
    • Normal Investments
  • High Value Intermediates (Copper Tubes, Aluminium Foil and Compressors)
    • Large Investments
    • Normal Investments
  • Low Value Intermediates (PCB assembly for controllers, BLDC motors, Service Valves and Cross Flow fans for AC and other components)
    • Large Investments
    • Normal Investments
• LED Lights:
  • LED Lighting Products (Core Components like LED Chip Packaging, Resisters, ICs, Fuses and large-scale investments in other components etc.)
    • Large Investments
    • Normal Investments
  • Components of LED Lighting Products (like LED Chips, LED Drivers, LED Engines, Mechanicals, Packaging, Modules, Wire Wound Inductors and other components)
    • Large Investments
    • Normal Investments

Incentive

This PLI Scheme shall extend an incentive of 4% to 6% on incremental sales (net of taxes) over the base year of goods manufactured in India and covered under target segments, to eligible companies, for a period of 5 years subsequent to the base year and one year of gestation period.

The applicants will have to fulfill both criteria of cumulative incremental investment in plant and machinery as well as incremental sales over the base year in that respective year to be eligible for PLI. The first year of investment will be FY 2021-22 and the first year of incremental sale will be FY 2022-23. Actual disbursement of PLI for a respective year will be subsequent to that year.

Eligibility

Incentive under the Scheme shall be provided to Companies making brown field or green field Investments for manufacturing in target segments in India. The eligibility shall be subject to thresholds of cumulative incremental investment and incremental sales of manufactured goods (as distinct from traded goods) over the base year for the respective year. The Applicants must meet all the threshold conditions to be eligible for disbursement of incentive as detailed under Annexure A to the notification.

It has been further provided that any entity availing benefits under any other PLI Scheme will not be eligible under this scheme for same products but the entity may take benefits under other applicable schemes.

Tenure

This Scheme shall be provided for a period of 5 years subsequent to the base year as defined and one year of gestation period for fructifying investment to be implemented over FY 2021-22 to FY 2028-29. It has been further provided that FY 2019-20 shall be treated as the base year for computation of cumulative incremental investment and incremental sales of manufactured goods as well as for prequalification criteria.

Beneficiaries

It has been further provided that the selection of companies for this Scheme shall be done so as to incentivize manufacturing of components or sub-assemblies which are not manufactured in India presently with sufficient capacity. Companies investing in basic/core components will have a higher priority.

GLS Comments

Hon’ble PM of India, Sh. Narendra Modi vide tweet dated 07 April 2021 had provided that this PLI Scheme for White Goods is yet another initiative that will strengthen the movement to create an Aatmanirbhar Bharat. The Government estimates that over the period of 5 years, this PLI Scheme will lead to incremental investment of Rs. 7,920/- Crore, incremental Production worth Rs. 1,68,000/- Crore, exports worth Rs 64,400/- Crore, earn direct and indirect revenues of Rs 49,300/- crore and create additional four lakh direct and indirect employment opportunities.

The Air Conditioning and LED Manufacturers in India shall look to capitalize on this opportunity and explore their eligibility to avail maximum benefits under this scheme.

The Applicant, a manufacturer and supplier of plastic and rubber toys had sought an Advance Ruling before the Gujarat AAR to ascertain the appropriate classification, GST Rate of the toys supplied and whether ITC can be claimed in relation to CGST and SGST separately in debit notes issued in current F.Y. towards the transactions for the period 2018-19?

It was submitted by the Applicant in terms of Notification No. 01/2017 – Central Tax Rate dated 28.06.2017, as amended, toys which are other than electronic toys, are classifiable under CTH 95030030, chargeable to 12% GST.

The Applicant further submitted that basis the amendment to sec 16(4) of the CGST Act, the condition of invoice to debit note correlation has been removed i.e., the language using the words ‘invoice relating to such’ before the words ‘debit note pertains’ have been omitted.

The AAR observed that as the toys manufactured by the Applicant were not electronic, they were appropriately classifiable under CTH 95030030, chargeable to 12% GST. As for the question relating to claiming of ITC in respect of debit notes for transactions of F.Y. 2018-19, it was observed that the amendment to sec 16(4) of the CGST Act does not have far reaching effect in the said matter and the debit note is always connected to the invoice even if it is issued in relation to change in value of an invoice. 

The debit note does not gain independent existence on omission of the words ‘invoice relating to such’ from the words ‘invoice relating to such debit note pertains’. Further, referring to an e-flyer issued by the CBIC, it was observed that the serial no. and date of corresponding tax invoice is required to be mentioned in the debit note. This indirectly co-relates the actual invoice with the debit note issued.

Basis the above observations, the AAR held that Applicant cannot claim ITC in relation to CGST and SGST separately in debit notes issued in current F.Y., towards the transactions for the period 2018-19.

I-tech Plast India Private Limited [Advance Ruling No. GUJ/GAAR/R/10/2021]

In spite of rising COVID Cases and looming second wave of COVID-19, the Legislature as well as the Judiciary have made some key decisions involving taxation matters which will have profound impact on the trade and businesses. Compiling all such developments, we are glad to bring you the 8th Edition of our ‘Vision 360’ Newsletter in association with TIOL.

We have covered all the judicial and legislative developments in Direct, Indirect Tax other regulatory areas. 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 DGFT vide Public Notice No. 53/2015-20 dated 09 April 2021 has relaxed the late cut fee for MEIS Applications with Let Export date from 01 April 2019 to 31 March 2020. It has been further provided that in case of delay in submitting the applications after 30 September 2021, the late cut would be applicable as per the existing provisions.

The Applicant, engaged in the business of business of manufacture and sale of sugar and allied products, had been obligated under the Companies Act to comply with Corporate Social Responsibility (‘CSR’). Accordingly, the Applicant had undertaken the following activities to comply with the CSR:

• Construction of school building, additional rooms, laboratories, etc.;
• Free supply of furniture / fittings such as tables, chairs etc., to be used in the school;
• Free supply of electrical goods for use in school; and
• Other expenses such as provision of goods / services to Registered Charitable Trusts / NGO’s

 In view of the above, the Applicant had filed an Application before the UP AAR to ascertain:

• Whether expenses incurred in order to comply with CSR qualified as being in the course of business and eligible for ITC under the CGST Act;
• Whether ITC in relation to CSR activities obligated under the Companies Act are restricted u/s. 17(5) of the CGST Act;
• Whether free supply of goods as a part of CSR is restricted u/s. 17(5) of the CGST Act;
• Whether goods and services used for construction of school building, which is not capitalized in the books of accounts is restricted u/s. 17(5) of the CGST Act.

It was submitted by the Applicant that the term ‘In the course of business’ includes all activities which are incidental / ancillary to the business, which are incurred during the course of business. It was further submitted that as a Company is compulsorily required to undertake CSR activities, they become an essential part of the business process as a whole and thus shall treated to be incurred in the course of business.

The Applicant had further submitted that CSR expenses are incurred in the course of business, however its actual benefits are reaped by the intended recipients and not by the Company. Since the benefits are rendered to the society and not the Company, restrictions under Section 17(5) of the CGST Act would not apply.

Referring to the judgement of Mumbai Tribunal in the case of Essel Propack Limited [2018(362) E.L.T. 833], it was observed by the AAR that since CSR has been made obligatory also for the private sector, unless the same is to be treated as input service in respect of activities relating to business, production and sustainability of the company itself would be at stake.

The AAR further observed that as per Section 17(5)(h) of the CGST Act, ITC shall not be available inter alia in respect of goods disposed of by way of gift or free samples. It was observed that in common parlance gift is provided to someone occasionally, without consideration and which is voluntary in nature.

Accordingly, the AAR noted that a clear distinction was required to be drawn between goods given as ‘gift’ and those provided /supplied as a part of CSR activities. While the former is voluntary and occasional, the latter is obligatory and regular in nature. As it is the Applicant’s obligation to incur such expenses, they do not qualify as ‘gifts’ and therefore, ITC is not restricted under Section 17(5) of the CGST Act.

Further, relying upon the ruling of Rajasthan AAR in Rambagh Palace Hotels Private Limited [RAJ/AAR/2019-20/05 dated 16.04.2019], it was observed that ITC in general is not available for construction, reconstruction, renovation, addition, etc. of an immovable property even when such goods or services or both are used in course or furtherance of business. However, the limitation in such a scenario is extent of capitalization. Accordingly, it was ruled by the AAR that the ITC of goods and services used for construction of school building will not be available to the Applicant to the extent of capitalization.

Dwarikesh Sugar Industries Limited [Order No. 52 dated 22.01.2020]

The Petitioner had filed a Writ before the Bombay HC against provisional back attachment order. The Petitioner contended that, no notice of proceedings u/s. 67 of the CGST Act was served upon them and there were no proceedings pending against them. 

It was observed by the HC observed that Section 83 of the CGST Act inter alia conditions the powers to provisionally attach bank account as follows:

• Pendency of any proceedings under sections 62 or 63 or 64 or 67 or 73 or 74;
• The proper officer shall be of the opinion that it is necessary to provisionally attach any property including bank account belonging to the taxable person and thereby exercise his powers by making an order in writing.

It was further observed by the HC that the pending proceedings should be relatable to the assessee whose property is being provisionally attached. However, in the instant case, the Petitioner was nowhere linked with the assessee. The HC also observed that the provisional attachment can be carried out by Commissioner of State Tax upon fulfilment of preconditions, however, in the instant case, there was no such specific authorization given by the Commissioner to the Joint Commissioner who had issued order for provisional attachment. In view of the above observations, the HC quashed the provisional bank attachment order.

Praful Nanji Satra vs. State of Maharashtra [W.P. (L) No. 5182 of 2020]

GLS Comments: 

Section 83 of the CGST Act clearly specifies the conditions for provisional attachment of bank accounts of the taxpayers. However, it has been lately seen that the Revenue authorities, more often than not, arbitrarily order for bank account attachments. It would be pertinent to note that the Bombay HC in the case of Gehna Trading LLP Vs Union of India [Writ Petition No. 167 of 2020] had held that when a specific proceeding is carried against one taxable person, the Bank Account of another taxable person cannot be provisionally attached.