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In June 2020, the DGFT had issued a public notice stating that re-validation to export authorizations for SCOMET items would be considered on merits by the DGFT for 6 months at a time and maximum upto 12 months. Subsequently, the DGFT received large number of requests from industry seeking re-validation to export authorization issued for technology / software transfer on the grounds that export of technology / software is ongoing and continuous process, and within the scope of the terms and conditions agreed to between the parties.
Taking cognizance of the requests made by the trade and industry, the DGFT vide Trade Notice No. 26/2020-21 dated 31 August 2020, has granted a one-time extension of 6 months, as a onetime relief in all SCOMET export authorization involving technology transfer (under any category of SCOMET) expiring by 30 September 2020, subject to submission of application in prescribed Performa to DGFT.
The validity period of SCOMET export authorizations for transfer of technology / software under any category of SCOMET shall be 24 months only or validity period of export authorization allowed in terms of Para 2.16 of HBP of FTP 2015-20. No subsequent revalidation in such authorizations would be permissible.
Import data in GSTR-2A
Launch of GSTR-2B
Under the Finance Act, 2020, the Government had inserted Chapter VAA and Section 28DA of the Customs Act to provide provisions for administration of rules of origin (‘ROO’) under a trade agreement.
In respect thereto, the CBIC has recently notified the Customs (Administration of Rules of Origin under Trade Agreement) Rules, 2020 (‘CAROTAR’) vide Notification No. 81/2020 – Customs (N.T.) dated 21 August 2020. The CBIC has further issued Circular No. 38/2020 – Customs dated 21 August 2020 prescribing guidelines for implementation of the new Rules.
Following are the key highlights of CAROTAR, 2020, which shall come into force on 21 September 2020:
The objective for introduction of CAROTAR 2020 can surely be considered as righteous, being a regulatory check on importers misusing / abusing the trade agreements for evasion of customs duties. However, the same casts additional hurdles for genuine importers. The CAROTAR 2020 requires certain information from the importers which may be difficult to obtain to say the least. Most notably, in certain cases, the CAROTAR 2020 requires the production process of the goods being imported, from the country of export, which may not be easily available.
In addition to the compliance requirements, the CAROTAR 2020 places ample discretionary powers in the hands of the proper customs officers, who may deny the preferential rate during import if they have ‘reasons to believe’ that the information provided by the importer is not accurate.
Considering the additional burden of compliance requirements imposed by the CAROTAR 2020, it is likely that representations would be filed before the appropriate authorities challenging the same or in the alternative, requesting certain relaxations.
Pursuant to the issuance of Notification No. 63/2020 – Central Tax dated 25 August 2020, wherein it had been notified that the amendment to Section 50 of the CGST Act would prospectively come into effect from 01 September 2020, the CBIC received an assortment of comments on social media as the said notification was not clear for the interest recovery proceedings for the past period.
In response to the comments, the CBIC vide press release dated 26 August 2020 clarified that the said notification had been issued prospectively due to certain technical limitations and no recoveries shall be made for the past period by the Revenue authorities in accordance with the decision taken in the 39th GST Council Meeting. This would ensure full relief to taxpayers as decided by GST Council.
CBIC vide Notification No. 63/2020 – Central Tax dated 25 August 2020 appoints 01 September 2020 as the date on which the amendment to Section 50 of the CGST Act shall come into force as introduced vide Section 100 of the Finance Act (No. 2), 2020.
As per the proviso inserted to Section 50 of the CGST Act, interest liability for delayed payment of GST is to be charged on the Net Cash Tax Liability.
The amendment to Section 50 of the CGST Act has been driven by the precedent laid down by the Madras HC in the case of Refex Industries Limited vs. The Asst. Commissioner and Ors. [WP Nos. 23360 and 23361 of 2019], wherein it had been held that interest could be demanded only on 'cash' component of tax remitted belatedly and not on 'ITC' component.
Taking cognizance of the said judgment, the GST Council in its 39th Meeting had decided that Interest for delayed payment of GST is to be charged on the net cash tax liability only.
The Petitioner runs a cinema theatre in a partnership firm. Until, the introduction of GST, Puducherry Government collected Entertainment Tax from the theatre owners. Post the introduction of GST, the Petitioner charged GST @ 18% and 28% depending upon the ticket prices excluding 10% maintenance charges, allowed to be charged by the theatre owners. However, the petitioner was forced to pay entertainment tax at the rate of 25%. Thus, altogether the petitioner was compelled to pay 53% tax.
Challenging the imposition of entertainment tax, the Petitioner submitted that out of the total tax collected, the dispute herein was in respect of 25% of entertainment tax being collected by the Respondent. After introduction of GST, and when the Puducherry Municipalities Act, 1973, is subject to GST, the Respondent had no authority to collect the entertainment tax. The entertainment tax is imposed by the Municipality and not by the State. Section 173(2) of the CGST Act annulled the collection of the tax by the Municipality.
The Petitioner further relied upon Article 265 of the Constitution of India, to submit that no tax can be collected, without the authority of law. It was further submitted by the Petitioner that entertainment tax cannot be collected separately especially when the same is included under GST.
Upon perusal of Section 173 of the CGST Act, the Madras HC observed that the the Legislature have consciously retained the power of the Municipal Council to collect tax on all other subjects except the collection of tax on advertisements other than advertisements published in the newspapers. In other words, the Municipal Corporation has the powers to impose Entertainment tax even after GST was introduced. It was observed that Section 173(1)(a) is a specific provision stating powers of Municipal Corporation to impose tax under different heads. Accordingly, Section 173(2) cannot override a specific provision made under Section 173(1), and is a stand-alone provision.
The HC further observed that as Section 173(2) of the CGST Act states that collection of tax by such authorities shall stand annulled or rescinded or modified, the powers of Municipal Corporation are only modified and are neither totally annulled nor rescinded.
Basis the above observations, the Madras HC held that the collection of the entertainment tax by Municipality is within their power as Entry 62 of the State List of the Seventh Schedule of the Constitution of India. Accordingly, the Madras HC dismissed the Writ filed by the Petitioner.
Balaji Theatre vs. The Chief Secretary and Ors. [W.P.No.33077 of 2018]
The Applicant, engaged in the business of providing data center construction and contracting services, had entered into a contract with M/s Cray. Inc for preparation and maintenance of Data center on sub-contracting basis. The Applicant had undertaken civil and mechanical works and also supplied various other equipment namely UPS and batteries, fire alarm system, chillers, air conditioners, etc. involving supply of equipment as well. Thus, the contract involved a composite supply of goods and services that are naturally bundled in the course of setting up of data center.
The Applicant referred to Notification No. 8/2017 – IT (Rate) dated 28.06.2017 and stated that analyzing the provisions of the CGST Act and the relevant entries of the aforementioned rate notification, it is pertinent to note that in order to be eligible to pay GST under the said notification, the supply of services will have to be in the nature of works contract.
The Applicant further referred to Section 2(119) of the CGST Act and submitted that a contract shall not be a contract for mere supply of goods or services but shall be a composite supply involving supply of both goods and services, which results in creation or repair / maintenance / renovation / improvement etc. of an immovable property as a whole.
Further, the Applicant relied upon a judgment of the SC and a ruling of the Maharashtra AAR to substantiate that setting up of Data center cannot be shifted to another location by first dismantling and then re-erecting it at another site. The Applicant further relied upon various web sources, submitting that it cannot be moved or shifted due to its structure and design, thereby proving that data center is be an immovable property.
In view of the above, the Applicant submitted that the supply of goods and services was in the nature of works contract as the same not only involved supply of goods but also installation, fitting out, repair, maintenance of an immovable property i.e., data center. It was claimed by the Applicant that such activities fall under the ambit of works contract under GST, hence, shall be liable to 18% GST.
On the other hand, the Revenue submitted that the works contract is only applicable to immovable property and where the value for goods and services is not distinct. However, in the in the case, as it was disclosed that the value of goods is distinct from the value of services basis the inspection of agreement, the same cannot be defined under Section 2(119) of CGST Act.
The Maharashtra AAR observed that Schedule II to the CGST Act clearly mention that the following are supply of services:
Hence, the works contract would be treated as a service and GST would be charged accordingly.
It was further observed by the Maharashtra AAR that the contract pricing is different for Equipment / Materials, their installation and maintenance. For goods supplied, the prices are shown exclusive of VAT / CST and for services rendered the prices are shown excluding Service Tax. It was further observed that the statement of works has clearly bifurcated the contract into supply of goods and services.
Further, it was observed that the goods are used to provide services of installation, testing and commissioning and these services cannot be supplied without the supply of goods. Therefore, the goods and services are supplied as a combination and in conjunction and in the course of their business where principal supply is supply of goods. As a result, the subject case cannot be considered as a works contract.
Further, the AAR observed that the Application shall be rejected as only those cases are eligible where the supply of goods or services or both being undertaken or proposed to be undertaken and not already completed at the time of filing of application.
The AAR also noted that the supply cannot be classifiable under Chapter 9954 as only those supplies which are mainly related to the construction of service can be classified under CTH 9954. However, in the instant case, the data center is merely a space / room where the equipment / machinery / other various apparatus is installed. As a result, there is no case of construction.
Lastly, the AAR agreed with the Revenue that the supply of goods and services by the Applicant does not fall under the ambit of Works contract as the value of goods and services is clearly distinct from one another.
Basis the above observations, the AAR held that the supply of goods and services by the Applicant does not qualify as 'Works Contract' under GST.
The Applicant, engaged in the business of manufacturing and supply of various steel castings, automobile parts, valves, etc. had filed an application before the Karnataka AAR to ascertain whether railway parts such as couplers, knuckles, lock, etc. which are supplied to a customer who in-turn supplies the same to the Indian railways, would merit classification under HSN 8607 or 7325.
The Applicant submitted that their buyer places order for supply of the said goods, on obtaining the orders from the Indian Railways. Therefore, the said goods are finally used by the Indian Railways and no other customer can use the same. Hence, the goods shall merit classification under HSN 8607.
The Applicant further submitted that HSN 7325 covers castings or iron and is a general entry. All specific items such as Automobile parts, earthmoving parts, railway parts, etc. used in respective industries are derived from the basic entry i.e., castings of irons. However, when specific entries are provided for individual items based on usage, then goods need to be taxed as per the specific heading. Specific entry in the Schedule always overrides the general entry.
The Applicant further submitted that the ultimate consumer of the casting is the Indian Railways and cannot be used by anyone else. Further, the classification cannot be changed during different stages of supply chain and hence the castings cannot be supplied under HSN 7325 by the Applicant to its customer, when the customer is supplying the same to the Indian Railways under HSN 8607.
The Applicant further relied upon a Tribunal judgement wherein it was held that the radiators supplied to the Indian Railways merit classification under HSN 8607. The Applicant further placed reliance on the decision of the 37th GST Council meeting to stress upon the usage of the manufactured product and contended that the rate of GST is purely depends upon the usage. Accordingly, the said goods are rightly classifiable under HSN 8607.
Taking cognizance of the submissions made by the Applicant, the Karnataka AAR observed that HSN 8607 inter alia covers parts of railway or tramway locomotives, coupling devices, etc. Further, the HSN 8607 covers parts of railway, tramway locomotives or rolling stock subject to fulfillment of the following conditions:
The AAR observed that the Applicant fulfilled the first condition as the goods are manufactured as per the pre-determined drawings of the Indian Railways on placement of order by the buyer, who are the main contractors for supply of the railway goods. Further, the buyer of the goods had given an affidavit that the said goods are ultimately supplied to the Indian Railways and are not useful for anyone else.
The AAR further observed that Note 2 to Section XVII specifies that the expression ‘parts and parts of accessories’ do not apply to certain listed articles, whether or not they are identifiable as for the goods of Section XVII and the said goods are not covered under the articles specified in Note 2. Thus, the goods manufactured and supplied by the applicant are not excluded by the provisions of Note 2 to Section XVII.
The AAR further referred to Note 3 to Section XVII wherein it has been provided that the term ‘parts or accessories’ do not apply to parts which are solely or principally with the articles of those chapters. Accordingly, the AAR observed that in the instant case as the parts of coupling devices are suitable solely for Indian Railways and also classifiable under specific entry of HSN 860730. Thus, the second condition is also fulfilled and therefore it was held that the coupling devices were correctly classifiable under HSN 8607.
The AAR further held that goods classifiable under HSN 8607 are chargeable to 12% GST in terms of Notification No. 14/2019 – Central Tax (Rate) dated 30.09.2019. Further, no refund of unutilized ITC shall be allowed, where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on the output supply of the goods.
The Tariff classification of railway products has always been a matter of immense litigation and dispute. While, the Revenue authorities generally wish to exclude the said goods from the purview of HSN 8607 in terms of Note 2 to Section XVII, the assessees wish to classify the goods under HSN 8607 itself in terms of Note 3. In the instant case, the Karnataka AAR has rightly concluded the correct classification of couplers by subjecting the same to the conditions for classification and giving preference to the specific entry over general.
A batch of Petitioners had filed a Writ before the Rajasthan HC requesting for filing of Form TRAN-1 to avail transitional credit. It was also prayed that the Respondents should give effect to Form TRAN-1 that had been manually submitted to avail relevant legitimate Input Tax Credit.
The HC observed that the prayers made in the Writ are similar to that as made in the case of Obelisk Composite Technology LLP vs. Union of India and Others [(D.B. Civil Writ Petition No. 18392/2019]. Accordingly, the HC observed that the present writ was liable to disposed similarly. Therefore, in line with the judgement in Obelisk (supra), the Rajasthan HC granted liberty to the Petitioners to make applications before GST council through Standing Counsel, who shall further hand over the same to the jurisdictional officer for forwarding the same to the GST Council to issue requisite certificate of recommendation along with requisite particulars, evidence and a certified copy of the order instantly and such decision be taken forthwith and if the Petitioners’ assertion is found to be correct, the GST Council shall issue necessary recommendation to enable the Petitioners to get the benefit of CENVAT credit within the stipulated time as stipulated by the Union of India.
Trivedi Ventures LLP vs. Union of India [D.B. Civil Writ Petition No. 4182/2020]
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