Newsletter

In order to address the difficulties faced by the taxpayers in relation to Dynamic Quick Response (‘QR’) code applicability, the CBIC has issued Circular No. 156/12/2021-GST dated 21 June 2021 inter alia clarifying the issues:

• Any person who has obtained a Unique Identity Number is not a registered person u/s. 2(94) of the CGST Act. Therefore, any invoice issued to such person having UIN, shall be considered as an invoice issued for a B2C supply and shall be required to comply with the requirement of Dynamic QR Code;
• Bank account and IFSC details shall not be required in the Dynamic QR Code, as the UPI ID is linked to specific Bank Account of the payee/ person collecting money;
• If the payment is collected by a person, authorized by the supplier, the UPI ID of such person may be provided in the Dynamic QR Code, instead of UPI ID of the supplier;
• An invoice can be issued without Dynamic QR code to a recipient located outside India for which place of supply is in India, since the QR code cannot be used by recipient located outside India for making payment to the supplier in India in foreign exchange through RBI approved mediums;
• In case of retail sales over the counter, where invoice number is not available at the time of digital display of dynamic QR code, and invoice is generated after payment, the unique order ID/sales reference number may be provided in Dynamic QR Code for digital display, as long as details of unique order ID/ sales reference linkage with invoice are available on processing system of merchant/supplier and cross-reference of such payment along with unique order ID/ sales reference number are also provided on invoice;
• When the part-payment for any supply has already been received from the customer/ recipient, in form of either advance or adjustment, then the Dynamic QR code may provide only the remaining amount payable by the customer/recipient against “invoice value”. The details of total invoice value, along with details/ cross reference of the part payment/ advance/ adjustment done, and the remaining amount to be paid, should be provided on the invoice.

The Applicant, engaged in the business of manufacturing seat components and accessories, had preferred an application before the Tamil Nadu AAR to ascertain the correct tariff classification of Track Assembly of Automotive Seating System. The said product is fitted on the floor of the car, which enables forward and backward movement of the seat. When seats are fixed on this TRACK ASSY it can slide back and forth with the operation of a lever for varying the positions of the seats.

The Applicant had been classifying the Track Assy. Under CTH 8708. However, as various manufacturers insisted the classification of the said product to be under CTH 9401, the Applicant had preferred the Advance Ruling. It was observed by the AAR that CTH 8708 covers parts and accessories of Motor Vehicles. It was further observed that in order to be classified as a part and accessory, the said item:

• Should not be excluded under Note 2 to Section XVII;
• Should be principally used with the automotive vehicle; and
• Should not be covered more specifically elsewhere in the Tariff.

The AAR observed that vehicle seats, being specifically mentioned in CTH 9401 is excluded from the purview of CTH 8708. It was however observed that CTH 9401 covers parts of seats of motor vehicles. ‘Parts’ are an amount or section which when combined with others makes up the whole of something. Hence part is an essential component of the whole without which the whole cannot be complete or cannot function. Accessories on the other hand, are not an essential component without which the whole cannot be complete or function, but it is a component which when added improves the utility, efficiency or appearance of the whole thing.

It was observed that the seat is manufactured and complete before fixing it on the said assembly. The seat is fixed on the track assembly only to facilitate the movement of seat forward and backward. Thus, it is the seat and track assembly are two individual, independent products, manufactured separately and fixed together to make the seat movable.

The AAR further observed that as seats are complete even without the said track assembly, the said assembly cannot be termed as 'Parts of seat'. Accordingly, the same would not merit classification under CTH 9401. In view of the above, it was observed that that the Track assembly is an accessory to the Motor vehicle and is covered under CTH 8708. The AAR also noted that the Track Fittings fulfill the above-mentioned conditions to merit classification under CTH 8708. In light of the above submissions, the Tamil Nadu AAR ruled that the Track Fittings manufactured by the Applicant are classifiable under CTH 8708 chargeable to 28% GST.

Daebu Automotive Seat India Private Limited [Order No. 17/AAR/2021 dated 07.05.2021]

Subsequent to notifying the decision of the 43rd GST Council Meeting, certain doubts had been raised by the Trade and Industry. Accordingly, in order to clarify the issues, the CBIC has issued a series of Circulars, which have been summarized hereunder:

In our Update dated 10 June 2021, we had apprised you of the divergent views of division bench of the Bombay HC on the constitutional validity of intermediary service provision under GST. While Justice Ujjal Bhuyan had opined that intermediary service to be unconstitutional, Justice Abhay Ahuja had a dissenting view, upholding the constitutional validity of the intermediary service provision. In his dissenting view pronounced on 16 June 2021, Justice Ahuja has inter alia made following broad observations:

Constitutional Challenge

• As a settled principle of law, there is always presumption in favour of constitutionality of a law made by Parliament or a State Legislature;
• The amendment to the Constitution for introduction of GST, has defined the term to mean inter alia any tax on supply of goods, or services, or both by including the same in sub-Clause 12A of Article 366 of the Constitution of India;
• The term ‘supply’ has been defined under the GST Law and not under the Constitution to keep the process of future amendment simple whereas the terms ‘goods and services’ are defined under both. The expression ‘goods’ was already defined under Article 366 to include all the materials, commodities and articles. Further, the term ‘services’ has been defined under Article 366 to mean anything other than goods;
• In a similar challenge to the GST Compensation Act and Rules, in the case of UOI vs. Mohit Minerals Private Limited and Anr. [Civil Appeal No. 10177 of 2018], the SC had relied upon the statement of Objects and Reasons to the Constitution 101st Amendment Act, 2016 for the introduction of GST. Thereafter, the SC quoted Art. 246A, 269A and others and sections of the Constitution (101st) Amendment Act which were relevant in respect of deciding the challenge relating to the Compensation to States for loss of revenue on account of introduction of GST to finally hold that that the Compensation Act as well as the Rules were not unconstitutional or ultra vires the Constitution of India;
• Similar to the analogy in the case of Mohit Minerals (supra), it was observed that as per the Statement of Objects and Reasons of the IGST Act, the same has been enacted for levying GST on the supply of goods or services or both which takes place in the course of inter-State trade or commerce;
• It is apparent that the IGST Act has been enacted by the Parliament for levy of IGST on inter-state supply of goods or services, inter alia, pursuant to the exclusive power contained in Art. 246A(2);
• Under Article 269A, Parliament has powers to make laws (i) with respect to GST where the supply of goods or services or both takes place in the course of inter-State trade or commerce or (ii) on the principles determining place of supply, and when a supply of goods or services takes place in the course of inter-state trade or commerce;

GST Provisions

• Under the IGST Act, the only exception is that if the intermediary has provided the service on his own account in which case, he may claim to be an exporter of the service if he otherwise falls within the definition. It would not be an export of services in as much as Intermediary Services are specifically provided in Section 13 (8)(b) under the authority of the Constitution of India provided in Article 269A read with Article 246A;
• In the instant case, the Petitioner is providing intermediary service of arranging, marketing, facilitating the export of his overseas customers to Indian importers and therefore he receives commission. It is in respect of these intermediary services that Section 13(8)(b) refers to the place of supply of such service as the location of the supplier;
• Intermediary services are specifically dealt with, where it has been specifically provided that where the supplier or the recipient is outside India, then in respect of Intermediary services, the place of supply shall be the location of the supplier. There is no quarrel with the definition of export of services contained in Section 2 (6) of the IGST Act;
• When there is a specific provision defining Intermediary u/s. 2(13) of the IGST Act and Intermediary Services are specifically dealt with in section 13(8)(b), the question of application of general provision of Section 2(6) of export of services would not arise. Accordingly, there would therefore be no question of deeming Petitioner’s supply of intermediary services to be intra-State supply;

Deeming Fiction

• Section 8 of the IGST Act deals with nature of supply and Section 13 deals with place of supply. Both the provisions have different purposes. While Section 8(2) refers to a situation to be intra-state if location of supplier and place of supply is in the same State, Section 13(8) refers to place of supply being the location of the supplier of service in case of intermediary services whereas in the instant case the service recipient is outside India;
• In Section 8(2) the reference is to the same State in India, whereas in Section 13 (1) read with Section 13(8)(b) it is location of the service recipient being outside India. Once the Parliament has in its wisdom stipulated the place of supply in case of Intermediary Services be the location of the supplier of service, no fault can be found with the provision by artificially attempting to link it with another provision to demonstrate constitutional or legislative infraction;

Article 286 of the Constitution

• Firstly, Article 286 prevents one State in India from imposing any tax on supply of goods and services within another State as that is the prerogative of individual States i.e., no authority to any State to impose tax on intra state supply within another State except that other State;
• Secondly, it does not permit any State in India to authorize imposition of tax on import into or export out of the territory of India of goods and services as that is the prerogative of the Central Government;
• Thirdly, it states that the Parliament alone and not the State Legislatures will formulate the principles for determining when supply of goods or of services or both is outside the State or import into or export out of India;
• Accordingly, the whole purpose of Article 286(2) is to empower the Parliament to formulate principles to determine the situs of supply, which is also stated in Article 269A;

Scheme of the IGST Act

• In terms of Section 5 of the IGST Act, all that on inter State supplies of goods and services, there shall be levied IGST, which shall be paid by the taxable person. There is no divergence of view that the scheme, scope and object of the IGST Act is a levy on inter-State supplies and the supply in this case is an inter-State supply;
• Parliament, can by law determine the place of supply, which pursuant to Article 269A(5) of the Constitution of India, it has done by enacting Sections 10 to 14 on place of supply. Section 13(8)(b) pertains to the case of intermediary services, where the service recipient is outside India and where the place of supply has been provided to be the location of the supplier;
• When the Constitution has empowered the Parliament to formulate principles determining the place of supply, Section 13(8)(b) cannot be said to be ultra vires the charging section as the same does not violate the levy on the supply made by the intermediary, particularly in view of Section 7, which designates such supplies to be inter-State supplies.

In light of the above observations, Justice Ahuja, agreeing with the judgement of the Gujarat HC in the case of Material Recycling Association of India vs. UOI and Ors. [R/Special Civil Application No. 13238 of 2018 with R/Special Civil Application No. 13243 of 2018] held that the legitimacy of Section 13(8)(b) or Section 8(2) of the IGST Act cannot be doubted. Accordingly, the Constitutional validity of Section 13(8)(b) or Section 8(2) of the IGST have been upheld.

Failing to attain finality on the matter at hand due to the contrary views of the Division Bench, the same has now been directed to be placed before the Chief Justice on the administrative side for his decision.

Considering the difficulties faced by the taxpayers in electronic filing of Income Tax Forms 15CA/15CB on the portal, the Finance Ministry vide Press Release dated 14 June 2021 has provided the facility of manual filing of such forms till 30 June 2021. At a later date, facility will be provided on the new e-filing portal to upload the forms for the purpose of generation of the Document Identification Number.

The 44th GST Council meeting held on 12 June 2021 under the Chairmanship of Union Finance and Corporate Affairs Minister Smt. Nirmala Sitharaman, recommended changes in the GST Rates to remain in force till 30 September 2021 for specified items that are being used in COVID-19 relief and management. The recommendations for GST Rate changes have been tabulated hereunder:

It has been further provided that these rate reductions/exemptions shall remain in force upto 30 September 2021.

With the slow but gradual revival of the Country, the economy seems to be taking up pace once again. This is largely on account of the various reliefs extended by the Tax authorities for the in relation to compliances and the Special Drives undertaken by the CBIC for processing of refund and drawback claims. Similarly, the judicial and quasi-judicial authorities have also been liberal in condoning technical breaches, while also relaxing limitation provisions.

Compiling all such developments, we are glad to bring you the 10th 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.

A division bench of the Hon’ble Bombay HC in the case of Dharmendra Jani vs. Union of India [Writ Petition No. 2031 of 2018], heard a Writ Petition challenging the taxability vires of the intermediary service provider provision under GST. While one of the Judges has held the provision to be unconstitutional, the other has listed the matter on 16 June 2021 to provide his judgement. Justice Ujjal Bhuyan has reasoned that the intermediary service is undoubtedly an export of service. It is only by virtue of a deeming fiction that the said service is made exigible to tax. It was held that such an artificial deeming fiction runs contrary to the scheme of the CGST Act as well as the IGST Act besides being beyond the charging sections of both the Acts.

GLS Comments:

This judgement could prove to be a huge breakthrough in the industry of intermediary service as it would substantially reduce the tax burden on such mediators or marketing and promotional service providers. A long running issue in the indirect tax world could finally be put to rest, provided that Justice Abhay Ahuja concur with the view of Justice Bhuyan. 

Assuming that Justice Ahuja agrees with judgement given, the judgement of the Gujarat HC in the case of Material Recycling Association of India [2020-TIOL-1274-HC-AHM-GST], would essentially be negated, wherein the constitutional validity of the intermediary service u/s. 13(8)(b) of the IGST Act had been held to be valid. With two different view of two different HCs, the jurisdiction of the assesses would play a role in deciding the taxability. However, it is contemplated if Justice Ahuja concurs with the view of Justice Bhuyan, the matter would be taken up by the Legislative for suitable amendments in the IGST Act.

The Ministry of Commerce and Industry had approved the Product Linked Incentive (PLI) Scheme for White Goods (Air Conditioners and LED Lights) vide Notification dated 16 April 2021. In respect thereto, a detailed guideline has been issued for smooth and effective operation of the PLI Scheme for domestic manufacturers of White Goods. The key guidelines have been summarised hereunder:

Application and Approval

The application window for the PLI Scheme shall be open online at the portal from 15 June 2021 to 15 September 2021. The PLI Scheme shall be implemented through a Project Management Agency (PMA) under the instruction of the Department of Promotion of Industry and Internal Trade (DPIIT). The Applicants application will be processed by a PMA and on receiving approval, a Bank Guarantee for an amount equivalent to 0.5% of the committed investment shall be submitted in the proper format. The BG will be valid for 18 months. 

Criteria

The Applicants shall fulfil both the criterions 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. Investment under the guidelines shall include investment on plant, machinery, equipment and associated utilities (as specified in the guidelines) and shall be used in the regular course of manufacturing of the eligible products under target segments. The plant machinery equipment shall be purchased or leased. Expense incurred in respect to the plant, machinery and equipment’s shall also be considered.

Investment in Research and Development (R&D) shall also be considered as investment if the investment is under capital investment on R&D and product development. The revenue expenditure shall be excluded from ambit of investment. However, it shall be noted that the investment in R&D shall not exceed 15% of the total committed investment.

Eligibility

Incentive under the PLI shall be provided to Companies making brown field or green field Investments for manufacturing in target segments in India. The Scheme is applicable to the Applicants who process the raw materials or inputs and its results emerges into a new product. Mere, value addition to the Scheme shall not be eligible for the scheme benefit. 

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 category of investment to be considered under each target scheme will be Large as well as normal investment. The Applicants must meet all the threshold conditions to be eligible for disbursement of incentive as detailed under Appendix A to the detailed guidelines. Further, 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.

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 (i.e., F.Y. 2019-20) and one year of gestation period. The incentive calculation will be capped on the basis of the net increment sale of the products up to 5 times for Air Conditioners and 6 times LED Lights, of the cumulative threshold investment in the previous financial year. The first year of investment will be FY 2021-22 and the first year of incremental sale will be FY 2022-23.

Tenure

This Scheme shall be provided for a period of 5 years (i.e., F.Y. 2021-22 to F.Y. 2028-29) subsequent to the base year i.e., F.Y. 2019-20 and one year of gestation period for fructifying investment to be implemented over FY 2021-22 to FY 2028-29. Further, F.Y. 2019-20 shall be treated as base year for computation of cumulative incremental investment and net incremental sales of eligible products as well as financial attributes under pre-qualification criteria.

Disbursement

The Application for claiming the disbursement of the claim shall be submitted along with requisite document in the formats given in the guidelines through PMA online. Claim for disbursement shall be filed by the Applicants latest by 31 October in the following F.Y. to which the claim pertains. Actual disbursement of the claim under the PLI Scheme for a respective year will be subsequent to that year. Upon appropriate recommendations with DPIIT, the PMA will be processing the claim for the disbursement within 45 days from the date of receipt of the claim.

The GST Council in its 43rd Meeting held on 28 May 2021 at New Delhi had recommended to make it clear that the land owner promoters could utilize credit of GST charged to them by developer promoters in respect of such apartments that are subsequently sold by the land promotor and on which GST is paid. Accordingly, the CBIC vide Notification No. 02/2021 – Central Tax (Rate) dated 02 June 2021, has notified and implemented the said recommendation.