Newsletter

The 43rd GST Council Meeting held on 12 October 2020 under the chairmanship of Smt. Nirmala Sitharaman concluded. Following are the key highlights of the Meeting:

• The cess collection has inadequate shortfall in compensation and therefore, the said shortfall shall be met by borrowing;
• It has been unanimously agreed extend the cess beyond 5 years, to repay the principal and interest of the entire compensation. The FM remarked that there is no dispute as the entire compensation has to be paid;
• The Centre has issued a borrowing calendar, if it goes beyond that to borrow, the Government Security deals, which are used as benchmark for every other borrowing will go up, this will hence increase borrowing costs for states and private sector too;
• The States who wish to opt for the borrowing option both interest and principal for the borrowing shall be paid out of compensation cess collected from July 2022. The same shall neither be paid from Central, nor from state resources;
• The Centre will work with the States and estimate the shortfall each state would face. Further, the Centre will assure that the States get a goods rate of interest on the compensation which would become available to them.

The GST Council in its last meeting had decided to make the provision u/r. 138E(b) applicable, which provides for restriction of E-Way bill generation, if the taxpayer has failed to file his GSTR-3B for a consecutive period of 2 months or more.

In respect thereto, it has been informed that GSTIN associated with the respective PAN, having Aggregate Annual Turnover of over Rs. 5 crores, who has failed to file their GSTR-3B Return for 2 or more tax periods, up to the month of tax period of August, 2020, their E-Way Bill generation facility will be blocked on the EWB Portal.

It has been further informed that the EWB generation facility for such GSTINs, whether as consignor or consignee or by transporter, will be blocked on EWB Portal after 15 October 2020.

Dear Readers,

We are pleased to present to you the second edition of our Vision 360 Newsletter in association with TIOL, covering all the judicial and legislative developments in the fields of taxation. True to the title, this edition of the newsletter brings you key tax and regulatory updates and also insightful articles on ITC of GST on employees’ transportation charges and De-criminalization of Off¬ences under the Companies Act.

In the Sparkle Zone of our Newsletter, we have covered the recent development in the international arbitration case of Vodafone under the India-Netherlands BIPA.

For the Industry Speaks section, we have discussed the umpteen tax issues with a well-renowned name in the Hotelier industry.

Further, in the International Desk section, we have discussed the amendments made by the UAE in its Economic Substance Regulations retrospectively for FY 2019. We have also covered developments of the erstwhile indirect tax laws, which can be helpful precedents for disposing the pending litigations.

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>

The CBIC vide Notification No. 30/2020 – C.T. dated 03 April 2020 had prescribed that the condition u/r. 36(4) shall apply cumulatively for the tax period February to August, 2020 and that the return in GSTR-3B for the tax period September 2020 shall be furnished with the cumulative adjustment of ITC for the said months.

In respect thereto, the CBIC vide Circular No. 142/12/2020 – GST dated 09 October 2020 has advised the taxpayers to ascertain the details of invoices uploaded by their suppliers for the periods of February, to August 2020, till the due date of furnishing of the statement in GSTR-1 for the month of September 2020 as reflected in GSTR-2As.

It has been clarified that shall reconcile the ITC availed in their GSTR-3Bs for the period February to August 2020 with the details of invoices uploaded by their suppliers of the said months, till the due date of furnishing GSTR-1 for the month of September 2020. The cumulative amount of ITC availed for the said months in GSTR-3B should not exceed 110% of the cumulative value of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers till the due date of furnishing of the statements in GSTR-1 for the month of September 2020.

It has further been clarified that the excess ITC availed arising out of reconciliation during the said period, if any, shall be required to be reversed in GSTR-3B, for the month of September 2020 and failure to do so would be treated as availement of ineligible ITC during the month of September 2020.

Lastly, the CBIC has illustrated the manner of cumulative reconciliation for the said months in terms of proviso to Rule 36(4) of the CGST Rules.

CBIC vide their flyer on Customs (Administration of Rules of Origin under Rules of Origin under Trade Agreements) Rules, 2020 (‘CAROTAR’) have inter alia explained the background of foreign trade and the requirement to impose the said Rules. In the recent trends of Foreign Trade, there has been a staggered reduction in preferential duties under existing Foreign Trade Agreements (‘FTAs’) along with resultant increase in the preferential trade volumes. Further, frequent instances of misuse have come to notice of the Government in which fraudulent traders have mis-declared country of origin in order to avail undue duty concessions.

Owing to the above-mentioned fraudulent mis-use of the FTAs, the Government had inserted Chapter VAA and section 28DA in the Customs Act. The new section inter alia provided for a basic level of due diligence on the part of an importer to satisfy himself that the claimed originating criteria have been met, and that mere submission of a Certificate of Origin may not be sufficient.

In light of the above background, the CBIC has provided the following clarifications in respect of CAROTAR 2020 vide the FAQs in the flyer:

• It has been clarified that under CAROTAR 2020, Form-I helps guide and assist an importer in assessing origin of goods. An importer is not required to submit this Form at time of filing customs declaration. However, it has been further provided that when there is a doubt on the declared country of origin, the customs officer may ask origin-related details from the importer, in which case the importer would have to submit the Form along with supporting documents.
• It has been further clarified that the same set of information can be utilised in filling up Form-I for identical shipments, unless there is any change in the production process or manner of processing;
• Where an importer is unable to receive all information as prescribed under the Rules, he may still import the goods, claiming preferential tariff treatment. However, in such cases, the origin-related information may be sought by Indian customs from the verification authorities in the exporting country, where timelines are relatively lengthier;
• Where an importer is unable to receive all information from the exporter, the Customs officer shall initiate overseas verification. Further, the preferential tariff treatment may be suspended till conclusion of verification, and goods may be assessed provisionally with bond and security. The officer shall further verify assessment of all subsequent bills of entry filed by the importer with the claim of preferential duty;
• The rules do not mandatorily seek the information on cost break-up or proprietary production process. It should be submitted if available. With regard to requirement to know ‘components which constitute value addition’, the importer is not expected to know exact figures. Only the description of major components that have been taken into calculation of domestic value addition, e.g. material, labour, profit etc., need to be stated;
• The Importers are not required to submit the elaborate and technical production process of the goods being imported. The production process can be recorded in a brief manner, clearly incorporating the way it meets the prescribed originating norms;
• Supporting documents required under the CAROTAR 2020, no specific information / document has been prescribed as supporting documents. The same could range from an email communication from exporter, informing the various origin-related details, to photographs of the production site, demonstrating the process which a good undergoes in an exporting party;
• Tariff treatment cannot be denied on identical goods when previous consignment was denied preferential tariff. Under the CAROTAR 2020, preferential tariff treatment can be denied without verification of origin on account of non-compliance of procedures or conditions owing to reasons such as expired validity period of COO or incomplete COO;
• In the event of a conflict between the provisions of Trade Agreement and CAROTAR 2020, the provision of rules of origin shall prevail to the extent of conflict.

The summary of the provisions of CAROTAR 2020 may be accessed at https://www.gstlegal.co.in/newsletter-detail.html?id=425 

Earlier in June 2020, the Ministry of Textiles had provided that the DGFT would be issuing the Duty Credit Scrips for RoSTL over and above the budget provision for the shipments made prior to 07 March 2019 only. The allocation of RoSTL over and above budget provision for issuing scrips, would be provided by the Department of Revenue for such old cases which could not be disbursed due to budget limitation.

In respect thereto, the DGFT vide Notification No. 37/2015-2020 dated 06 October 2020 has enabled issuance of duty credit scrips under the RoSCTL, for which the procedure will be laid down separately.

The Government of India, vide Notification No. 36/2020 – dated 05 October 2020 has extended the validity period of Rebate of State and Central Taxes and Levies scheme (‘RoSCTL’) till 31 March 2021 or until such date that the RoSCTL is merged with the RoDTEP Scheme, whichever is earlier.

The 42nd GST Council meeting concluded under the Chairmanship of Union Finance and Corporate Affairs Minister Smt. Nirmala Sitharaman through video conferencing today. Following are the key recommendations of the Meeting:

• Compensation Cess levy to be extended beyond the transition period of five years i.e. beyond June, 2022, for such period as may be required to meet the revenue gap;
• Centre to release compensation of Rs. 20,000/- crore to States towards loss of revenue during 2020-21 and an amount of Rs. 25,000/- crore (approx.) towards IGST of 2017-18 by the coming week;
• In the 39th GST Council Meeting held in March 2020, it had been recommended to have an incremental approach to incorporate features of the new return system in the present GSTR-1/3B scheme. Since then, various enhancements have been made available in the GSTN portal. In order to further enhance Ease of Doing Business (‘EoDB’) and improve the compliance experience, the Council has approved the future roadmap for return filing under GST.
• In order to facilitate timely furnishing of details of outward supplies in GSTR-1 by a taxpayer and his suppliers would:
  • allow him to view the ITC available in his electronic credit ledger from all sources i.e. domestic supplies, imports and payments on reverse charge etc. prior to the due date for payment of tax, and
  • To enable the system to auto-populate return in GSTR-3B through the data filed by the taxpayer and all his suppliers.
• In this regard, the GST Council has recommended the following:
  • Due date of furnishing quarterly GSTR-1 by quarterly taxpayers to be revised to 13th of the month succeeding the quarter w.e.f. 01 January 2021;
  • Roadmap for auto-generation of GSTR-3B from GSTR-1s by:
    • Auto-population of liability from own GSTR-1 w.e.f. 01 January .2021;
    • Auto-population of ITC from suppliers’ GSTR-1s through the newly developed facility in FORM GSTR-2B for monthly filers w.e.f. 01 January 2021 and for quarterly filers w.e.f. 01 April 2021;
  • In order to ensure auto population of ITC and liability in GSTR 3B as detailed above, FORM GSTR-1 would be mandatorily required to be filed before Form GSTR-3B w.e.f. 01 April 2021; and
  • The present GSTR-1/3B return filing system to be extended till 31 March 2021 and the GST laws to be amended to make the GSTR-1/3B return filing system as the default return filing system.
• Small taxpayers having aggregate annual turnover of less than Rs. 5 cr., shall be allowed to file returns on a quarterly basis with monthly payments by such taxpayers to be implemented w.e.f. 01 January 2021. Such quarterly taxpayers would, for the first two months of the quarter, have an option to pay 35% of the net cash tax liability of the last quarter using an auto generated challan;
• Revised requirement of declaring HSN for goods and SAC for services in invoices and in Form GSTR-1 w.e.f. 01 April 2021 as under:
  • HSN/SAC at 6 digits for supplies of both goods and services for taxpayers with aggregate annual turnover above Rs. 5 crores;
  • HSN/SAC at 4 digits for B2B supplies of both goods and services for taxpayers with aggregate annual turnover upto Rs. 5 crores; and
  • Government to have power to notify 8-digit HSN on notified class of supplies by all taxpayers
• Suitable amendments in CGST Rules, 2017 and Forms to include the provision for furnishing of Nil Form CMP-08 through SMS;
• Refund to be paid/disbursed in a validated bank account linked with the PAN and Aadhaar of the registrant w.e.f. 01 January 2021; and
• The satellite launch services supplied by ISRO, Antrix Corporation Limited and NSIL would be exempted.

CBIC vide Notification No. 12/2017 - CT (Rate) dated 28 June 2020 had exempted services by way of transportation of goods by air / sea from Customs Station in India to outside India for a period up till 30 September 2020. In respect thereto, the CBIC vide Notification No. 04/2020 - CT (Rate) dated 30 September 2020 has further extended the said exemption till 30 September 2021

During the introduction of the concept of e-invoicing in the month of December 2019, the Government had prescribed that GST taxpayers having aggregate turnover of more than Rs. 100 crores in any preceding financial year, would be subject to e-invoice for all the B2B supplies, in the manner prescribed under rule 48(4) of the CGST Rules, w.e.f. 01 April 2020. However, on account of the COVID-19 pandemic, the Government had deferred the date of implementation 01 October 2020.

Further on account of continued hardships faced by the taxpayers, the Government had raised the threshold limit for taxpayers subject to e-invoicing to Rs. 500 crores. However, even after more than 9 months of the first notification in respect of e-invoicing, some of the taxpayers having aggregate turnover of Rs. 500 Cr. and above are still not ready. 

In order to facilitate the taxpayers, as a last chance, in the initial phase of implementation of e-invoice, the CBIC vide Press Release dated 30 September 2020 has clarified the invoices issued by such taxpayers during October 2020 without following the manner prescribed u/r. 48(4), shall be deemed to be valid. Further, the penalty leviable under section 122 of the CGST Act, for such non-adherence to provisions, shall stand waived if the Invoice Reference Number (IRN) for such invoices is obtained from the Invoice Reference Portal (IRP) within 30 days of date of invoice.

The CBIC has further clarified that no such relaxation would be extended for the invoices issued from 01 November 2020 and such invoices issued in violation of rule 48(4) of the CGST Rules would not be valid and all the applicable provisions of CGST Act and Rules would apply for the violation

GLS Comments:

In light of the instant press release, it would be pertinent to note that out of 9 months of delay in implementation of e-invoicing provisions, more than 6 months have been impacted by the COVID-19 pandemic. As the pandemic is still very prelevant to this day, the taxpayers are only now getting back onto their feet and regularising their business operations. Further, most of the taxpayers are not yet operating at full capacity, thereby limiting their ability to become 'e-invoice ready'.

It would further be pertinent to note that the Government has extended the due date for filing of GST annual return and reconciliation statement to 31 October 2020. Co-incidently, the due date for income tax audit also falls on 31 October 2020. Therefore, it can be seen that the coming month would be rather busy for taxpayers and professionals. On account of the above-mentioned difficulties, it would be difficult for taxpayers to be 'e-invoice ready' on 01 November 2020. The Government could have been more considerate than merely providing a 30 day relief from penal provisions.