The Appellant, an e-commerce retailer had sought an advance ruling before the Karnataka AAR to ascertain whether ITC would be available on vouchers and subscription packages procured from third party vendors that are made available to the eligible customers, participating in the loyalty program against the loyalty points earned by such customers. The AAR had held that the Appellant was not eligible to avail the ITC on the vouchers in terms of section 17(5)(h) of the CGST Act, as the same are considered as 'gifts'. Aggrieved, the Appellant had preferred an Appeal before the AAAR.
Relying on the Karnataka HC judgment in RE: Premier Sales Promotions Private Limited [2023-VIL-67-KAR], the AAAR held that vouchers are neither goods nor services and cannot be taxable. The AAAR further held that the primary condition for the claiming ITC is that there should be an inward supply of either goods or services or both on which tax is charged by the supplier. Therefore, in the instant case, as vouchers are neither goods nor services, the AAAR concluded that the question of eligibility of ITC does not arise. Accordingly, the AAAR upheld the AAR ruling and held that the Appellant is not eligible to avail the ITC on the vouchers in terms of section 17(5)(h) of the CGST Act.
Myntra Designs Private Limited [KAR/AAAR/03/2023 dated 24 February 2023]
CBIC vide Circular No. 214/1/2023 – Service Tax dated February 28, 2023 relying upon Circular No. 178/10/2022-GST dated August 03, 2022 has inter alia clarified that the Service Tax is not chargeable on liquidated damages, which was a ‘declared service’ under the erstwhile Service Tax regime. It has been further clarified that the activities falling under section 66E(e) are those where a party agrees to refrain from an act, tolerate an act or situation, or do an act, but only if the agreement specifically mentions such activity and there is a flow of consideration for it. The contractual arrangement must have a sufficient nexus between the supply and the consideration. The taxability of such activities will depend on the facts of each case.
GLS Comments:
The scope of ‘agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an act’ under the Service Tax law as well as GST law has been a contentious issue. The Revenue Department generally hold transactions like notice pay recovery and liquidated damages to be a service and impose Service Tax. However, with the advent of the instant Circular relying on the GST Circular, a number of pending litigations before the erstwhile Appellate authorities can be disposed off.
In lines with the recommendations made during the 49th GST Council Meeting held on February 18, 2023, the CBIC vide a series of notifications dated February 28, 2023, has rationalized the GST rates of various goods and services effective from March 01, 2023 in the manner as tabulated hereunder:
Sr. No |
Notification No. |
Summary |
1 |
Notification No. 01/2023 - Central Tax (Rate) dated February 28, 2023 |
Exemption to National Testing Agency for conducting Entrance Exams The CBIC has amended Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017 in order to clarify that conducting of entrance examination for admission to educational institutions by any authority, board or body set up by the Central Government or State Government including National Testing Agency, shall be treated as educational institution. The notification clarifies that any entity set up by the Central or State Government(s) for conducting entrance exams will be treated as an educational institution for the purpose of providing services related to the conduct of entrance exams. |
2 |
Notification No. 02/2023 - Central Tax (Rate) dated February 28, 2023 |
Expanding the definition of 'State Legislatures' to include Courts and Tribunals Notification No. 13/2017 dated June 28, 2017 has been amended to include services provided by Courts and Tribunals under the category of RCM. |
3 |
Notification No. 03/2023 - Central Tax (Rate) dated February 28, 2023 |
GST Rates on Jaggery and Pencil Sharpeners Notification No. 1/2017 – Central Tax (Rate) dated June 28, 2017 has been amended notifying 5% GST rate for Jaggery of all types, including Cane Jaggery, Palmyra Jaggery, Khandsari Sugar, and Rab, pre-packaged and labelled; Further, 12% GST rate has been prescribed for Pencil sharpeners.
|
4 |
Notification No. 04/2023 - Central Tax (Rate) dated February 28, 2023 |
Exemption to Rab, from pre-packaged and labelled goods Notification No. 2/2017 – Central Tax (Rate) dated the June 28, 2017 has been amended to exempt Rab, other than pre-packaged and labelled |
5 |
Notification No. 1/2023 - Compensation Cess (Rate) dated February 28, 2023 |
Compensation Cess on coal rejects Notification No. 1/2017 – Compensation Cess (Rate) dated June 28, 2017 has been amended so that exemption benefit covers both coal rejects supplied to and by a coal washery, arising out of coal on which compensation cess has been paid and no input tax credit thereof has been availed by any person |
The GSTN has issued an Advisory dated February 25, 2023 for the payment of tax under the forward charge mechanism by Goods Transport Agencies ('GTA'). The Advisory is in accordance with the NN. 03/2022 dated July 13, 2022, which shall give the existing providers of GTA services the option to pay tax under the forward charge mechanism, which can be exercised by submitting Annexure V FORM. Follwoing are the steps for the payment by GTA after login, to submit their option on the portal;
Services > User Services > Opting Forward Charge Payment by GTA (Annexure V).
The option cannot be withdrawn during the year. The option of Annexure V is available on the portal for the Financial Year 2023-24 until March 15th 2023.
The past few decades have clearly shown that the dreams of self-reliant economies are far from being viable at this day and age. In order to be recognized as an economic power on the global stage, one has to walk hand-in-hand with the global economic trends and no such trend is as much in vogue, as economic trade agreements. Apart from economic benefits, such agreements also strengthen the military ties between countries, when in need.
India, being a global leader to be reckoned, has recently entered into an FTA with the Australian Government, which is expected to generate bilateral trade beyond USD 70 billion. Add to this, the multiple discussions between India and the UK, for a stronger economic agreement, is likely to result in a much-needed boost for the Indian Forex.
Back within the Indian shores, the Government has issued a slew of clarifications on GST rates and applicability on certain services, post the Budget changes, which will help ease the trade. Further, the CBIC has also notified the Customs (Assistance in Value Declaration of Identified Imported Goods), Rules, which will substantially eliminate the valuation difficulties in Customs declaration.
In addition, thereto, 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 29th 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 January 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 49th GST Council meeting has concluded on 18 February 2023 under the chairmanship of the Smt. Nirmala Sitharaman. Following are key highlights of the recommendations made in the Meeting:
GST Compensation:
Ø Government of India will clear pending balance of GST compensation amounting to Rs. 16,982 crores for June’2022, which shall be released from the Centre's own resources but same will be recouped from the future compensation cess collection.
GST Appellate Tribunal:
Ø The Council has approved the report of Group of Ministers (‘GoM’) for an establishment of the GSTAT with certain modifications.
Capacity Based Taxation and Special Composition Scheme:
Ø The Council has approved the recommendations of the GoM on Capacity Based Taxation and Special Composition Scheme to plug the leakages and improve the revenue collection from the commodities like pan masala, gutkha, chewing tobacco
GST Rate Rationalization:
Sr. No. |
Description |
From (Rate) |
To (Rate) |
1 |
‘Rab’ |
18% |
5% - if sold prepackaged and labelled Nil - if sold otherwise |
2 |
Pencil Sharpener |
18% |
12% |
Exemption Provided/Extended:
Ø Notification No. 1/2017-Compensation Cess (Rate) dated 28.06.2017 has been suitably amended to extend the exemption benefit on coal rejects supplied by and to the washeries on which compensation cess has been paid but no input tax credit thereof has been availed by any person.
Ø The council extended the exemptions to any authority, board, or body set up by the Central or State Government including National Testing Agency for the conduct of entrance examination for admission to educational institutions.
Other Recommendations/Clarification relating to GST rates on Goods and Services:
Ø GST payment on ‘rab’ during the past period on “as is basis” owing to doubts over its classification and GST rate is now been regularized.
Ø Notification No. 104/94-Customs dated 16.03.1994 is amended, to clarify that a device like tag- tracking device or data logger is already affixed on a container, no separate IGST shall be levied on such affixed device and the ‘nil’ IGST treatment available for the containers shall also be available to the such affixed device subject to the existing conditions.
Ø The Council extended the dispensation available to Central Government, State Governments, Parliament and State Legislatures in connection to payment of GST under reverse charge mechanism to the Courts and Tribunals in respect of taxable services supplied by them.
Amendment in Section 30 and 62 of CGST Act, 2017
Ø The time limit for making an application for revocation of cancellation of registration has been increased from 30 days to 90 days (extendable for another a period of days not exceeding 180 days’ subject to conditions) vide amendment to Section 30 of CGST Act and Rule 23 of CGST Rules. Further, this arrangement has been extended to the past cases, where registration has been cancelled on account of non-filing of the returns.
Ø The time limit for filing of return for enabling deemed withdrawal of best judgment assessment order from 30 days to 60 days (extendable for another 60 days’ subject to conditions) vide amendment to Section 62 of the CGST Act. Further, such extension is also being applied to past cases where the concerned return could not be filed within 30 days of the assessment order but has been filed along with due interest and late fee up to a specified date, irrespective of whether appeal has been filed or decided against the assessment order.
Rationalization of late fee for delayed filing of annual return from FY 2022-2023
Ø Registered persons having an aggregate turnover of up to Rs. 5 crores in a financial year, late fee of Rs 50 per day (Rs 25 CGST + Rs 25 SGST) shall be applied subject to a maximum of an amount calculated at 0.04 per cent. of his turnover in the State or Union territory.
Ø Registered persons having an aggregate turnover of more than Rs. 5 crores and up to Rs. 20 crores in the said financial year, late fee of Rs 100 per day (Rs 50 CGST + Rs 50 SGST) shall be applied subject to a maximum of an amount calculated at 0.04 per cent. of his turnover in the State or Union territory.
Place of supply for services of transportation of goods:
Ø The Council has recommended to rationalize the provision of place of supply for services of transportation of goods by deletion of section 13(9) of IGST Act, 2017, in cases where location of supplier of services or location of recipient of services is outside India, shall be the location of the recipient of services.
GST Amnesty Scheme:
Ø Amnesty schemes in respect of pending returns in FORM GSTR-4, FORM GSTR-9 and FORM GSTR-10 by way of conditional waiver/ reduction of late fee will be announced soon.
The aforesaid would be given effect through the relevant circulars/ notifications/ law amendments.
The Finance Minister Smt. Nirmala Sitharaman commenced the Budget ’23 speech by highlighting that in the 75th year of Independence, the world has recognized India as a ‘Bright Star’. This astronomical recognition is now proposed to be maintained / boosted by ‘Saptarishi’ i.e., seven priorities set by the Finance Ministry to realize the vision of ‘Amrit Kaal.’
In one of its kind, the priorities ranging from traditional goals of agricultural and financial development, to contemporary goals of Artificial Intelligence development and setting-up of labs for 5G services, seems to cover every aspect of the economy. In a bid to achieve the said targets, the Government has allocated a record INR 10 lakh crore budget for infrastructure development, which constitutes 3.3% of GDP.
On the direct tax front, the proposal to introduce Vivad Se Vishwas II for easier and standardized settlement scheme and the launch of Phase 3 of E-Courts. These initiatives would certainly help in reducing considerable litigation burden on the judicial and quasi-judicial authorities.
In Indirect Tax, the proposed amendments majorly seem to be Customs-centric with the goal of rate rationalization for promoting exports and Indian manufacturing. In GST, the proposals to disallow ITC on CSR expenditure, definitely has left the Trade and Industry disappointed. Add to this, the silence of the FM on the formation and launch of GST Appellate Tribunal, is rather unfortunate. Nonetheless, it is expected that this matter may be taken-up at the GST Council Meeting.
All in all, the Budget seems to be well formulated, with long-term objectives focusing on macro-economic growth, with a clear road-map. It now remains to be seen how well the Government executes this plan to achieve the desired targets. Attached is the detailed analysis of the Union Budget 2023-24, covering key areas of Policy Initiatives, proposals in Direct Tax, Indirect Tax, excerpts from the Industry leaders and much more…..
The Appellant was engaged in the business of manufacturing of sugar and molasses. During the process of manufacturing some byproducts like bagasse, press mud, boiler ash was generated which, were sold by the Appellant has by-products/waste in market. The Department issued SCN for violating the provisions of Rule 6(2) & 6(3) of the CCR, 2004. The Adjudicating Authority confirmed the demand along with interest and penalty which was upheld by the first Appellate Authority. Aggrieved the, Appellant filed an appeal before the CESTAT.
The CESTAT observed that provisions of Rule 6(3) of CCR, 2004 was only applicable to the manufacturer who is engaged in manufacture of the final product which is chargeable to duty as well as any other final product which is exempted from whole of duty. Further, it noted that due the amendment in Rule 6, the by-product can be treated as exempted goods however, it cannot be treated as manufactured goods, as the nature remains that of a waste/residue and is not as ‘a final product’. However, in the instant matter as the Appellant was not the manufacturer of bagasse or pressmud or boiler ash rather they were merely the by-products emerging as waste or residue while manufacturing of the primary goods. Further as none of the by-products falls under the purview of manufacture, demand cannot be raised. Accordingly, the CESTAT quashed the demand as the provisions of Rule 6(3) or Rule 6(2) had no applicability in the instant matter.
Purna Sahakari Sakhar Karkhana Limited. Vs. The Commissioner of CGST & C.Excise [Excise Misc. Appln No. 86112 of 2022]
The Applicant is engaged in the business of manufacturing and supplying all kinds of stationery items. The Applicant sold ten pencils in sets with the sharpener and eraser in the pack as accessories. Furthermore, the Applicant used to sell the pack under the HSN code of the item with the highest value inside the pack, which also had the highest GST rate, however with the change in the GST rate of the pencil sharpener to 18%, the sharpener now carries the highest tax rate among all products bundled. Hence, the Applicant sought an advance ruling to ascertain whether the supply of pencil sharpeners along with pencils, which, as per the Applicant, is the principal supply, will be considered as ‘composite supply’ or ‘mixed supply.’
The Applicant had argued that sale of such stationary items is naturally bundled, with pencils being the principal sully and therefore, classifiable as composite supply. It had been further argued that in terms of the Rule 3 of General Interpretation Rules for classification of goods, issued by the World Customs Organization, when goods are capable of being classified as under two or more headings, the classification of goods, which are put up in sets for retail sale is to be undertaken basis the product giving providing essential character to the complete set.
Basis the above contentions, the Applicant had argued that stationary sets supplied by them are classifiable as composite supply, with pencils being the principal supply, chargeable to 12% GST.
The AAR noted that, the pack supplied by Applicant satisfies all the conditions of ‘Mixed Supply’ u/s 2(74) of the CGST Act and as per the provision of mixed supply, the supply that attracts the higher rate of tax shall be the applicable rate for the supply. Accordingly, the AAR ruled that the supply of sharpeners along with pencils falls under the category of ‘mixed supply’ and therefore, the Applicant is required to use the HSN code of the product, which attracts a higher rate of tax among all the taxable supplies contained in a pack or box.
Doms Industries Private Limited [Advance Ruling No. GUJ/GAAR/R/2022/52]
GLS Comments:
Interestingly, in the instant case, the Applicant had placed reliance on the General Rule of the General Interpretation Rules of Customs to argue that in case of goods sold in sets, the product giving the essential character is to be used for classification. In this regard, it shall be noted that the purpose of classification of goods under the Customs law vis-à-vis the GST law is different. The Rules meant for classification for the purpose of Customs, although having persuasive value for GST classification, cannot be applied mutatis mutandis.
In RE: Texel Industries Limited [2022 (61) GSTL 217 (AAR-GST-Guj.], it had been held that GST Scheme of law shall be given precedence and compliance for Classification. Further, the explanatory notes issued by the WCO have a persuasive value for determining classification.
The Petitioner had inadvertently furnished incorrect GSTIN in its outward supplies. Aggrieved, the Petitioner, relying upon the Circular No. 183/15/2022-GST dated December 27, 2022 preferred a writ before the Karnataka HC seeking relief by way of rectification in Form GSTR-1 uploaded between FY 2017-18 and 2018-19 so that their recipient can claim the ITC.
The HC observed that the Circular allows rectification of the bona fide and inadvertent mistakes committed by the assessee at the time of filing of forms and submitting returns is applicable in peculiar and special facts and circumstances. Further, it was also noted that the Petitioner's error in the invoices, which was carried through in the relevant forms, had occurred as a genuine error that arose owing to bonafide causes, and hence the circular was squarely applicable. Accordingly, the rectification was allowed and the Revenue was directed to follow the procedure in accordance with the Circular.
Wipro Limited India [2023-VIL-22-KAR]
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