Newsletter

The Petitioner has challenged the constitutional validity of Section 17(5)(d) of the CGST Act to the extent that it denies the benefit of ITC to the petitioner as well as it provides a time bar restriction for the availment of ITC. The Petitioner has submitted that it has not availed ITC during the pendency of the writ petition and prayed that in the event the writ Petitioner succeeds, then it may be allowed to avail the benefits.

The Calcutta HC has requested the Additional Solicitor General of India and the Additional Advocate General of State of West Bengal to file their affidavits in this matter. The HC has further listed the matter to be heard in January 2021.

Instakart Services Private Limited vs. Union of India [W.P.A. 8205 of 2020]

The Petitioner has challenged the constitutional validity of Section 16(2)(c) of the CGST Act before the Gujarat HC. The said provision inter alia denies ITC to a buyer of goods or services, if the tax charged has not been actually paid to the Government by the supplier of goods or services. The Petitioner challenged the said provision, inter alia on the following grounds:

• Denial of ITC to a buyer of goods or services for default of the supplier of goods or services tantamount to shifting the incidence of tax from the supplier to the buyer which is arbitrary and irrational. The said provision is therefore violative of the Article 14, Article 19(1)(g) and Article 300A of the Constitution of India;
• The said provision requires reversal of ITC which has already accrued to a buyer of goods or services, on account of a fraud committed against the Revenue by the supplier of goods or services. Therefore, it punishes both the perpetrator of the fraud and the victim and treat them on an equal footing which is totally in contradiction with the mandate contained under Article 14 of the constitution, which provides that the equals are to be treated equally, but also lays down that the unequals should not be treated equally;
• The principle mischief which was sought to be remedied by introduction of GST Law by subsuming all existing indirect tax legislation was removal of cascading effect of tax. Denial of ITC will lead to cascading effect of tax because GST will again have to be paid on the tax paid stock;
• As a principle of law, it is necessary to look into the mischief against which the statute is directed, other statutes in parimateria and the state of the law at the time;
• In the absence of any finding about Petitioners' mala fide intention, connivance or wrongful association with the suppliers, no liability can be imposed on it on the principle of vicarious liability on account of fraudulent conduct of the suppliers, who have obtained registration on the basis of fictitious documents.

Taking cognizance of the submissions made by the Petitioner, the Gujarat HC has issued a notice in this regard, returnable on 19 January 2021.

Surat Mercantile Association vs. Union of India [R/SPECIAL CIVIL APPLICATION NO. 15329 of 2020]

GLS Comments:

It would be pertinent to note that a similar Writ Petition has been filed before the Delhi HC in the case of Bharti Telemedia Limited vs. Union of India and Ors. [W.P.(C) 6293/2019], wherein a notice has been issued. As for the erstwhile law, the Madras HC in the case of Sri Ranganathar Valves (Private) Limited [W.P.No.38488 of 2015], had held that the buyer cannot be denied ITC on account of sellers not depositing tax.

• The GSTN facility vide news dated 28 November 2020 has updated that in terms of Rule 138E (a) and (b) of the CGST Rules, the E-Way Bill generation facility of a taxpayer is to be blocked, in case the taxpayer fails to file their returns in Form GSTR-3B or Statement in Form CMP-08, for two or more consecutive tax periods. In order to unblock the facility, taxpayer shall apply to jurisdictional Tax Official in Form GST EWB 05.
• Further, a facility has been provided on the GST Portal, from 28 November 2020 onwards, to file an online application for unblocking of their EWB generation facility in Form EWB-05, in case their EWB generation facility has been blocked on the EWB Portal.
• In order to file an online application for unblocking EWB generation facility on GST Portal, a taxpayer shall:
  • Login to the portal and navigate to Services> User services> My Applications
  • Select application type as ‘Application for unblocking of E-way bill’ and click New Application
  • Submit application in Form EWB-05, with upload of up to 04 documents
• The application so filed would be populated to dashboard of jurisdictional tax official. The tax official can issue a Notice for personal hearing to the taxpayer. Subsequently, the taxpayer can file their reply to the notice online, along with supporting documents.
• During the conclusion of the proceedings, the tax officer can issue an order in Form EWB-06 approving the taxpayer application for unblocking the EWB generation facility, after which their EWB generation facility will be restored for the duration specified in the order.
• If the tax officer rejects the taxpayer’s application vide order in Form EWB-06, the EWB generation facility will remain blocked and the taxpayer shall be required to file their pending returns in Form GSTR-3B / Statement in FORM CMP-08, so as to reduce the pendency to less than two tax periods, for restoration of the EWB generation facility.
• Further, the notices / orders issued by tax officer would be sent via SMS and mail to taxpayer and would be made available on the taxpayer dashboard (Services > User Services > View Additional Notices/Orders option).

The CBIC vide Notification No. 90/2020 – Central Tax dated 01 December 2020 has mandated the taxpayers to report 8-digit HSN codes in tax invoices for certain prescribed chemicals such as Dimethyl propylphosphonate, carbonyl dichloride, etc.

GLS Comments:

In the later months of the year 2019 and the beginning of 2020, the CBIC had issued certain trade notices in Customs, requesting the importers and exporters to refrain from classifying their goods under the ‘other category’. Similarly, on various occasions, the Government had expressed their will to align the use of correct and apt HSN codes across all fields of indirect taxation. This instant notification seems to be a step towards to goal of correct reporting of HSN codes for tradable goods.

The Appellant had imported certain raw materials and equipment, from their US based parent company. The case was forwarded to Special Valuation Branch (‘SVB’) for detailed investigation. Upon investigation, the SVB rejected the Appellant’s declared transaction value and loaded the declared value. The said order was further confirmed by the Commissioner (Appeals). Aggrieved, the Appellant preferred an Appeal before the CESTAT.

It was contended by the Appellant that the Respondent’s orders fly in the very face of Rule 4(3)(a) of the Customs Valuation (Determination of Price of Imported Goods) Rules, and settled principles of law on redetermination of value. In terms of Rule 4(3)(a) of the CVR, 1988, the Department needs to accept the transaction value even in cases where the parties are related. Before rejecting the transaction value, a duty is cast on the Department to examine the circumstances surrounding the sale and the transaction value may be rejected only if such examination indicates that the relationship between the parties influenced the price.

The CESTAT observed that no clarification whatsoever was sought by the Department from the Appellant as to the relevance of the Chemical weekly report before proceeding to rely on the report. It was further observed that no opportunity of hearing in this regard was afforded to the Appellant. The Department relied upon the international chemical report without actually assessing whether the items mentioned therein and the items imported were comparable in quality as well as quantity and that no test report had been obtained.

It was further observed by the CESTAT that the original authority had given a finding that that the onus to prove that their relationship has not affected the pricing lies on the importer in terms of the rules cited above. However, the same is not the correct proportion of law. It was observed that as per Rule 3(a) of the Customs Valuation Rules, where the buyer and the seller are related, the transaction value shall be accepted provided that the examination of the circumstances of the sale of the imported goods indicate the relationship did not influence the price. It was observed that neither the original authority nor the Appellate authority had given reasons to hold that the relation had indeed affected the prices.

The CESTAT further observed that no reasons were produced by both the authorities for rejecting the submissions of the appellant and that no discussion and findings were given by both the authorities. In the end there was rush to complete the proceedings. 

Basis the above observations, the CESTAT allowed the appeal by way of remanding the matter back to the original authority for proper examination of all facts and submissions of the Appellant and to pass a speaking and reasoned order as per law.

GLS Comments:

It has been seen that various SVB matters have been pending at the adjudication stage despite the Revenue’s clear instruction to dispose the same on expeditious basis. It would be pertinent to note that such delays in finalization of SVB matters adversely affect the importers to a great extent.

Pending the SVB Order, the importers are required to pay the application RD / EDD for clearance of their consignments imported from related parties. Although such duties paid on imports during investigation can be refunded, it casts additional burden upon importers. In this regard, the Revenue shall ensure that all SVB matters are disposed judiciously and expeditiously. 

CBIC vide Notification No. 89/2020 – CT dated 29 November 2020 has waived the penalty for non-compliance of provisions of dynamic QR code in B2C invoices between the period 01 December 2020 to 31 March 2021 subject to the condition that such person complies with provisions of dynamic QR code in B2C invoices w.e.f. 01 April 2021

The Petitioner had challenged the order of the Appellate Authority denying refund due to them exports had been made outside India and such exports were regarded as zero-rated supplies u/s. 16 of the IGST Act on which the Petitioner was entitled to refund of ITC u/s. 54(3) of the CGST Act.

The Respondents had rejected the refund on sole ground that any exports through the Foreign Post Office (‘FPO’) would be eligible for zero-rated exports and the refund of such duty could be claimed only vide Notification No. 48/2018 – Customs (N.T.) dated 04 June 2018 read with Circular No. 14/2018 – Customs dated 04 June 2018 and that the Petitioner refund claim pertains to August 2017 and September 2017 i.e. prior to the date of Notification. 

The Delhi HC observed that Circular No. 14/2018 was neither clarificatory, nor it determined the eligibility of allowing ITC on exports. It was further observed that in any event, new procedure cannot be made applicable from a retrospective date. The HC further noted that refunds shall be examined with reference to their compliance with the extant provisions, including law and procedures relating to GST and Customs. Basis the above observations, the HC set aside the orders passed by the Respondent and remanded the matter back to the original Adjudicating Authority.

Medical Bureau vs. Commissioner of CGST [W.P. (C) 3917/2020]

The Applicant, owner of an immovable property, had entered into a Joint Development Agreement with M/s. Suprabhat Constructions (‘the Developer’) for construction of residential flats, agreeing to get 40% of share of undivided right, title and interest. The JDA had been entered along with irrevocable general power of attorney with the Developer, who had obtained necessary Plan Approval, Commencement Certificate and Completion / Occupancy Certificate from the competent authority.

Post the completion of the project, the share of the residential flats had been handed over by the Developer after the issuance of Completion / Occupancy Certificate. Further, the relevant clauses of the Area Sharing Agreement restricted the right of the Applicant to execute sale agreement or any conveyancing deeds till the issuance of Completion / Occupancy Certificate and taking over their share of flats. In respect thereto, the Applicant had sought a ruling before the Karnataka AAR to ascertain whether the amount to be received towards advances or sales consideration of the flats to the extent of 40% of JDA, are not amenable to GST.

The AAR observed that the sale of flats would not be exigible to GST if and only if they are sold after the issuance of Completion / Occupancy Certificate, in which case, it would be treated neither as supply of goods nor supply of services in terms of Entry 5 of Schedule III, which covers sale of land. The AAR also remarked that had the Applicant themselves, or the Developer, on behalf of the Applicant, had sold the flats prior to the issuance of Completion Certificate, the transaction would have been liable to GST as Works Contract. However, in the instant case, as the Completion / Occupancy Certificate had been received, the AAR held that the transaction would fall under Entry 5 of Schedule III and will neither be treated as supply of goods or services and therefore, not liable to GST.

BR Sridhar [Advance Ruling No. KAR ADRG 55/2020 dated 07 November 2020]

The GSTN on 20 November 2020 has released the salient features Quarterly Return filing and Monthly Payment of Taxes (‘QRMP’) Scheme as follows:

Eligibility

Following Registered Person (‘RP’) can file quarterly returns and pay tax on monthly basis w.e.f. 01 January 2021:

• A RP who is required to file GSTR 3B with Aggregate Annual Turnover (‘AATO’) of up to Rs 5 Cr. in the previous F.Y. is eligible. If AATO crosses Rs 5 Cr. during a quarter, the RP will become ineligible for the Scheme from next quarter;
• Any person obtaining a new registration or opting out of Composition Scheme can opt for this Scheme;
• The option to avail this Scheme can be availed GSTIN wise. Therefore, few GSTINs for that PAN can opt for the Scheme and remaining GSTINs can remain out of the Scheme.

Changes in GST Portal

For quarter January 2021 to March 2021, all RPs whose AATO for the FY 2019-20 is up to Rs 5 Cr. and have furnished the return in GSTR-3B for the month of October 2020 by 30 November 2020, will be migrated by default in the GST system as follows:

When can a person opt for the scheme

• Facility can be availed throughout the year, in any quarter.
• Option for QRMP Scheme, once exercised, will continue till RP revises the option or his AATO exceeds Rs 5 Cr.
• RPs migrated by default can choose to remain out of the scheme by exercising their option from 05 December 2020 till 31 January 2021.

The RPs opting for the scheme can avail the facility of Invoice Furnishing Facility (‘IFF’), so that the outward supplies to registered person is reflected in their Form GSTR 2A and 2B.

Payment of tax under the scheme

• RPs need to pay tax due in each of first two months (by 25th of next month) in the quarter, by selecting ‘Monthly payment for quarterly taxpayer’ as reason for generating Challan;
• RPs can either use Fixed Sum Method (pre-filled challan) or Self-Assessment Method (actual tax due), for monthly payment of tax for first two months, after adjusting ITC;
• No deposit is required for the month, if there is NIL tax liability;
• Tax deposited for first 2 months can be used for adjusting liability for the quarter in Form GSTR-3B and cannot be used for any other purpose till the filing of return for the quarter

The Applicant, a Co-operative housing society, raised funds by collecting contributions / charges from the members of the society. The charges included property tax, water tax, electricity charges, parking charges, etc. The said charges were collected by the Applicant periodically by issuing invoices and the charges so collected were used for specified purposes as enumerated in the Bye-laws of the Society.

The Applicant had sought a ruling before the Maharashtra AAR inter alia to ascertain whether the activities carried out by them would amount to supply and whether the same would be liable under GST. The Maharashtra AAR had observed that the services by the Applicant were being carried out for a consideration in the course of furtherance of business and therefore liable to GST.

Aggrieved, the Applicant had preferred an appeal against the order of the AAR before the Maharashtra AAAR. The Maharashtra AAAR took note of the nature of the activities carried out by the Applicant as mentioned in the Bye-Laws and observed that the same are entirely oriented towards providing services to its members and therefore are covered under the definition of business.

The AAAR further took note of the judgement of the SC in Calcutta Civil Club Limited [Civil Application No. 4184 of 2009] relied upon by the Applicant. It was observed by the AAAR that in the said case, the SC had held that the club cannot be said to be doing any business with its members as both the members and the club are one and the same owing to the principle of mutuality. It was observed by the AAAR that the said judgement was made in relation to sales tax, the provision of which are entirely different from GST and therefore, the same cannot be applicable in the instant case.

The AAAR further observed that ‘service’ under the CGST Act has been rendered a very wide connotation and ‘person’ as defined under CGST Act includes both ‘incorporated and unincorporated clubs and thus clarifies that both these deeming fictions convey the intention of the legislature to do away with the principle of mutuality.

It was further observed by the AAAR that Notification No. 12/2017 – C.T. (Rate) dated 28 June 2017 stipulates that services by an unincorporated body or a non-profit entity to its members for Rs. 7,500/- per month per member is exempt from GST. Thus, implying that any amount, exceeding Rs. 7,500/- per month per member would be subject to GST provided that the aggregate turnover of such society in a F.Y. exceeds Rs. 20 lakhs.

Basis the above observations, the AAAR upheld the order of the AAR holding that the activities carried out by the Applicant would amount to supply liable for GST subject to the prescribed conditions.

Apsara Co-Operative Housing Society Limited [Order No. MAH/AAAR/RS-SK/28/2020-21 dated 05.11.2020]

GLS Comments:

The question relating to GST applicability on Co-operative housing society has been rather persistent right from the beginning of GST. As rightly noted by the Maharashtra AAAR, GST has surely widened the scope of the term ‘supply’. In this regard, it would be pertinent to note that the Maharashtra AAR in the case of Rotary Club of Mumbai Elite [2019 (30) G.S.T.L. 60] had held that charges collected by the Club would be considered as ‘supply’ u/s. 7 of the CGST Act and therefore liable to GST.