Newsletter

Dear Patrons,

As the nation prepares to revive the economy after being in lock-down for nearly two and a half months, the Government has been emphasising on the need to become self-reliant. In order to assist the Trade and Industry in becoming self-reliant, the Government has announced the Atmanirbhar Bharat Abhiyaan. Needless to say, under the said campaign, the Government has provided various reliefs on the Tax front which have been discussed in this newsletter, among others.

We are glad to present to you this 5th volume of our Fortnightly Newsletter containing notable judgments and key legislative updates in the fields of Direct and Indirect Taxation. 

We hope that reading of the newsletter would bring an enriching experience to you! Your valuable feedback is always welcome!

• Insolvency Resolution Professionals / Resolution Professionals (IRPs / RPs), appointed to undertake corporate insolvency resolution proceedings for Corporate Debtors, in terms of Notification. No 11/2020-CT, dated 21 March 2020 can apply for new registration on GST Portal, on behalf of the Corporate Debtors, in each of the States or Union Territories, on the PAN and CIN of the Corporate Debtor, where the corporate debtor was registered earlier, within thirty days of their appointment as IRP / RP;
• They should select the Reason for Registration as “Corporate Debtor undergoing the Corporate Insolvency Resolution Process with IRP/RP” from the drop down menu;
• The date of commencement of business for IRP / RPs will be the date of their appointment. Their compliance liabilities will also come into effect from the date of their appointment;
• The person appointed as IRP/RP shall be the Primary Authorized Signatory for the newly registered Company;
• In the Principal Place of business / Additional place of business, the details as specified in original registration of the Corporate Debtors, is required to be entered;
• The new registration application shall be submitted electronically on GST Portal under DSC of the IRP/RP;
• The new registration by IRP/RP will be required only once. In case of a change in IRP/RP, after initial appointment, it would be deemed to be change of authorized signatory and not an appointment of a distinct person requiring a fresh registration;
• In cases where the RP is not the same as IRP, or in cases where a different IRP/RP is appointed midway during the insolvency process, the change in the GST system may be carried out by a non-core amendment in the registration form;
• The change in Primary Authorized Signatory details on the portal can be done either by the authorised signatory of the Company or by the concerned jurisdictional officer (if the previous authorized signatory does not share the credentials with his successor) on request of IRP / RP.

CESTAT holds that penalty under Service Tax is not imposable where an Assessee has paid the tax along with the applicable interest before the issuance of Show Cause Notice. The CESTAT noted that the Appellant was under the bona fide belief that Service Tax was not payable by them, accordingly, the Department’s contention of suppression of facts is not tenable.

GLS Comments:

The law has always been clear about the imposition of penalty. The provisions of GST, similar to Service Tax clearly state that penalty cannot be imposable where an Assessee has paid tax along with applicable interest before the issuance of Show Cause Notice, except in cases of fraud, supression of facts, etc. Despite this clear and unambiguous provision, time and again, we come across orders where Departments levy penalty even though the tax has been paid before the issuance of Show Cause Notice. This results in unnecessary legal costs to the assessees.

Delhi HC dismissed the injunction application seeking for waiver of demurrage / rent / penal charges by Customs Freight Station (‘CFS’) amid the lockdown imposed by the Government on account of COVID-19 pandemic. The HC observed that the circulars / letters issued by the Ministry of Shipping to the shipping lines advising them to adopt sympathetic and humanitarian approach while levying the container detention charges, etc. is not directory and therefore does not bind the Ports to waive demurrage, penal charges, ground rent, etc. The Delhi HC further observed that the advisories issued by the Ministry of Shipping also cannot intervene or interfere in a private contract which CFS and Major Ports have with their customers.

In a recent ruling of Delhi HC in the case of Brand Equity Treaties Limited [W.P.(C) 11040/2018 and C.M. No. 42982/2018], it was held that the time limit prescribed under Rule 117 of the CGST Rules is directory and not mandatory. In absence of any specific statutory limitation under the CGST Act, the Delhi HC read down the above provision of the CGST Rules and declared that the time limit of 3 years under the residuary provisions of the Limitation Act 1963 would apply.

Aggrieved by the said judgment, the Revenue authorities have filed a Special Leave Petition before the Supreme Court against the order of Delhi HC. It would now be interesting to see whether the SC would interfere with the Delhi HC judgment or uphold it.

Karnataka AAAR upholds the order of the AAR that the activity of development and sale of land under a Joint Development Agreement (‘JDA’) is a supply of service and therefoer liable to GST. The AAAR reasoned that the sale of land is not a supply in terms of Schedule III to the CGST Act, however, the development of land is de facto a supply. Therefore, two activities, where one is not a supply, cannot be called as a ‘composite supply’ under GST

GLS Remarks:

The trend of the Advance Ruling authorities under GST has always been in favour of the Revenue authorities. This ruling is no different as the previous rulings in this regard by various Advance Ruling authorities. The Karnataka AAR in another previous case of the same nature in Nforce Infrastructure Private Limited [2019 (20) GSTL 184] had held that the taxpayer was supplying construction service to the supplier of development right against consideration in the form of transfer of development rights, and therefore was liable to GST.

Most recently, the Madhya Pradesh AAR in the case of Vidit Builders [Case No. 19/2019 dated 06 January 2019] that the activities undertaken by an Applicant for development of land under a Joint Development Agreement would amount to works contract and not sale of land. 

Based on the various rulings of the Advance Ruling authorities, it may be construed that where land development activities are undertaken under a JDA, the same are likely to be taxed under GST. However, where development of land is naturally bundled with sale of land and sale is the principal supply in the bundled transaction, the transaction may be construed as composite supply. Therefore, it would be imperative to agree upon the scope of services under a JDA to determine its taxability.

In the 4th tranche of the the announcements by the Finance Minister, under the 20 lakh crore Special Economic Package, major structural reforms have been propsed. The Government has decided to liberalise some crucial sectors for more investment, higher production and more jobs opportunities. 

Majorly, the Government has announced reforms for eight sectors, viz. Coal, Minerals, Defence Production, Air Space Management, Airports, MRO, Distribution Companies in UTs, Space Sector, and Atomic Energy. Following are key highlights of the FM’s announcement addressed on 16 May 2020:

• FDI limit in defence manufacturing sector under automatic route to be raised from 49% to 74%;
• Power distribution companies in Union Territories to be privatized in line with Tariff policy reforms;
• Easement of the restrictions on utilisation of the Indian Air Space;
• Commercialization of mining and coal sector to remove the Government’s monopoly from the said sector;
• Discoms in metros to be privatised and load shedding will face penal action. Discom functions to be streamlined so as to improve accountability;
• Private Companies to be encouraged to be a co-traveller in the space sector to provide a level playing field in satellite, launches and space based services;
• Establishment of a research reactor in PPP (‘Public Private Partnership’) mode for production of medical isotopes;
• Technology development cum incubation centres to be set up for fostering synergy between research facilities and tech-entrepreneurs;
• Tax regime for MRO ecosystem to be rationalized;
• Private sector to be allowed to use ISRO (‘Indian Space Research Organisation’) and other relevant assets to improve their capacities;
• Creation of social infrastructure projects worth Rs. 8100 cr. Through revamped viability gap funding up to 30% each of total project cost;
• Rs. 50,000 cr. to be spent by the Government to ensure evacuation infrastructure being provided in coal sector.
• 500 mining blocks to be offered through an open transparent auction process. Further, a joint auction of bauxite and coal mineral blocks to be introduced to enhance aluminium industry’s competitiveness;

In the beginning of the 4th tranche of the Special Economic Package, the FM had stated that the country needs to be ready for stiff competition in the global market so as to become self-reliant. The above measures seem to be very much in line with their liberalization approach to revive the economy. The FM has further announced that the schemes announced on 16 May 2020 are to be implemented in States through challenge mode for industrial cluster upgradation of common infrastructure facilities and connectivity.

In wake of the COVID-19 pandemic, the Government had issued various notifications enforcing the lockdown period. Accordingly, the Maharashtra Government had directed its employees to work from home through VPN and other such facilities. 

In order to facilitate the processing GST Refunds, the various internal circulars were issued whereby it was mandated for officers to submit the refund files at each stage of the processing for approval of the supervisor officer. However, various suggestions were received by the Maharashtra Government that seeking approval of the supervisor for grant of refund was delaying the process. 

In view of the suggestions received, the Maharashtra Government has modified its earlier circulars to do away with the requirement of seeking of approval for the process of GST refunds and thereby expediting the process in the following manner:

• The requirement for seeking approval of the supervisor on the basis of the average monthly refund amount shall be as per the revised monetary limits;
• The said monetary limit shall not be applicable to the refund processed under any other Acts like MVAT, CST etc. and is only for GST refund;
• The concerned officers who have processed the refund applications while working from home shall send an email to the concerned Commissioner within 3 days from the date of issuance of order of refund i.e., Form GST RFD-04 or GST RFD-06 as the case may be.

The Nodal officers have been directed to undertake every possible effort so as to dispose the pending GST refund applications whether provisional or final or otherwise on or before 31 May 2020/

It is also clarified that the above procedural requirement shall not be applicable to refund applications filed for the first time.

CBIC notifies the Sabka Vishwas (Legacy Dispute Resolution) Scheme Rules, 2020 vide Notification No. 01/2020 – Central Excise (N.T.) dated 14 May 2020. Following are the highlights of the Rules:

• The designated committee shall intimate the amount payable by 01 May 2020;
• Due date for furnishing statement of amount in Form SVLDRS – 3 shall be 31 May 2020;
• Due date for payment under Form SVLDRS – 3 shall be 30 June 2020.

The Hon’ble Prime Minister, Shri Narendra Modi, on 12 May 2020, addressed the nation amid the COVID-19 pandemic. During the speech, the Hon’ble PM, while pledging a sum of Rs. 20 lakh crores, which is equivalent to 10% of Indian economy, emphasized on the need to become a self-reliant economy. Accordingly, the Hon’ble PM introduced the ‘Atmanirbhar Bharat Abhiyan’ which will provide special economic packages to the labourers, farmers, honest taxpayers, MSMEs and cottage industry.

Recalling the devastation of Kutch earthquake in 2001, the Hon’ble PM stated that through determination and resolve, the area was back on its feet. A similar determination is needed to make the country self-reliant. The objective to make India ‘self-reliant’ is based on five pillars, namely:

• Economy – To bring in quantum jump and not incremental change;
• Infrastructure – To become the identity of India; 
• System – based on 21st century technology driven arrangements; 
• Vibrant Demography – source of energy for a self-reliant India; and 
• Demand – the strength of our demand and supply chain should be utilized to full capacity.

Under the Aatmanirbhar Bharat Abhiyaan, the Hon’ble Finance Minister, Ms. Nirmala Sitharaman, on 13 May 2020, announced various reliefs to support Indian economy in fight against COVID-19 in line with the objective of the Abhiyaan. It has been observed that the main focus for development under this Abhiyaan has been on MSMEs. The very definition of MSMEs has been changed to include more Indian manufacturers and service providers under its purview.

Following are the key measures taken by the Government in order tackle the COVID-19 Pandemic under the Atmanirbhar Bharat Abhiyaan:

• Emergency Credit Loan to Businesses/MSMEs from Banks and NBFCs up to 20% of entire outstanding credit as on 29 February 2020 for borrowers with up to Rs. 25 crore outstanding and Rs. 100 crore turnover;
• Provision of Rs. 20,000 cr as subordinate debt for functioning MSMEs which are NPA or are stressed;
• Provision to provide Rs. 4,000 Cr. to CGTMSE (‘Credit Guarantee Funds Trust for Micro and Small Enterprises’);
• Funds of Fund with Corpus of Rs. 10,000 crores will be set up for providing equity funding for MSMEs with growth potential and viability;
• As a step towards Self Reliant India, Global tenders will be disallowed in Government procurement tenders upto Rs 200 crores;
• Due date of all income-tax return for FY 2019-20 will be extended from 31 July 2020 and 30 October 2020 to 30 November 2020 and Tax audit from 30 September 2020 to 31 October 2020;