Newsletter

The Cabinet Committee on Economic Affairs (‘CCEA’), chaired by the Hon’ble Prime Minister Shri Narendra Modi, on 13 March 2020, had approved the introduction of Remission of Duties and Taxes on Exported Products (‘RoDTEP’) Scheme to replace existing export incentive scheme of Merchandise Export from India (‘MEIS’). 

Subsequent to the approval of the RoDTEP Scheme, the Directorate General of Foreign Trade (‘DGFT’) had received queries from the members of the trade, as to in what manner benefits under MEIS will be available under the Foreign Trade Policy (‘FTP’) 2015-20 which has been extended till 31 March 2021.

In order to clarify the mechanism for replacement of MEIS by RoDTEP, the DGFT vide Trade Notice No. 03/2020-21 dated 15 April 2020 has clarified that:

• Benefits under the MEIS for any item currently listed in Appendix 3B, will be available only up to 31 December 2020;
• Prior to 31 December 2020, as and when an item is notified to be covered under RoDTEP Scheme, it would, at the same time, be removed from coverage under MEIS;
• Detailed operational framework for the RoDTEP Scheme will be notified separately.

The Ministry of Corporate Affairs (‘MCA’) has recently issued set of FAQs clarifying which COVID-19 related expenditure would be covered under Corporate Social Responsibility (‘CSR’) Norms. Following are the clarifications provided vide the FAQs:

• Contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure;
• Contribution made to State Disaster Management Authority to combat COVID-19 shall qualify as CSR expenditure;
• Contributions to ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund’ for COVID-19 shall not qualify as admissible CSR expenditure;
• Spending CSR funds for COVID-19 related activities shall qualify as CSR expenditure. Funds may be spent for various activities in relation to COVID-19 for promotion of health care including preventive health care and sanitation, and disaster management;
• Payment of salary / wages to employees and workers even during lockdown period is a moral obligation of the employers. Therefore, such payment of salary / wages shall not qualify as admissible CSR expenditure;
• Payment of wages to temporary or casual or daily wage workers during lockdown period is part of the moral / humanitarian / contractual obligations of the Company and is applicable to all Companies irrespective of legal obligation for CSR contribution. Therefore, such payment of wages shall not be admissible as CSR expenditure;
• If any ex-gratia payment is made to temporary / casual workers / daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID-19, the same shall be admissible towards CSR expenditure as a one-time exception. For this a declaration by the Board of Directors, duly certified by the auditors will be needed.

GLS Comments:

Large Corporates are mandated by law to spend 2% of their net profits towards expenditure or activities that qualify as CSR. These may include funds directed towards promoting education and skill development, helping eradicate poverty and hunger, improving child and maternal mortality rate or for disaster relief. However, with the outbreak of the COVID-19 pandemic, the Government had relaxed norms around what constitutes CSR spending.

In addition to allowing the contributions to the PM CARES Fund as CSR Expenditure, the MCA has allowed all COVID-19 related spending on health care to be classified as CSR expenditure including preventive health care and sanitation, and disaster management.

While the PM CARES Fund has already received about Rs. 6,500 crore within a week of its launch, this clarification by the MCA is likely to add more contributions to the all the relief funds wherever CSR expenditure has been made admissible.

While various State Governments have already extended the lockdown in their respective jurisdictions amid the COVID-19 pandemic, the Central Government is yet to announce the extension on national level. In the midst of this lockdown, the Department for Promotion of Industry and Internal Trade (‘DPIIT’) has suggested that some more activities with reasonable safeguards should be allowed to operate once a final decision regarding extension and nature of lockdown is taken by the Central Government.

The DPIIT Secretary opined that new activities are essential to improve the economic activity and provide liquidity in the hands of the people. The Secretary further mentioned that the industrial units which may be allowed to operate must meet the following five conditions:

• Single Entry Point for workers;
• Sufficient Space for ensuring social distancing;
• Use of separate transport for ferrying workers or make stay arrangements in factory premises;
• High Quality regular sanitization of the premises;
• State and District Authorities, while allowing these new activities, should ensure strict observance of these conditions.

GLS Comments:

The World Bank has warned that the COVID-19 pandemic is likely to severely affect the Indian economy. It has been estimated that the Indian economy to decelerate to 5 per cent in 2020 and project a sharp growth deceleration in fiscal 2021 to 2.8 per cent in a baseline scenario.

The World Bank report further said that the COVID-19 outbreak came at a time when India's economy was already slowing, due to persistent financial sector weaknesses.

Accordingly, resuming the economic operations is considered as critical as that of efforts to contain the spreading of COVID-19 virus. Therefore, the Government, has decided to resume various industrial units in the staggered manner, taking the due measures to keep a check on further spread of the virus.

The unforeseen COVID-19 pandemic has severely impacted the export sector of the country. As a relief to the affected exporters, the DGFT has issued Public Notice No. 01/2015-20 dated 07 April 2020 whereby the time limit for requesting the RAs for extension of export obligation period or submission of installation certificate has been extended till 31 March 2021. Further, the additional composition fee of Rs. 5,000/-which was required to be paid along with the request has also been waived off. 

GLS Comments:

As desperate times needs desperate measures, the DGFT had no choice but to provide such condonation as the Indian exporters are not in a position to meet their export obligations. Though the previous outbreaks such as the SERS, Ebola, H1N1 had little impact on the Indian exports, the ongoing pandemic is expected to have severe repercussions. 

Most likely, the fallout of the COVID-19 pandemic will be that countries are increasingly likely to adopt more and more protectionist measures. While countries, particularly those exporting finished manufacturing goods, with established export markets, are likely to wade through such an environment, those like India that are dependent on intermediate and agricultural exports and are on the lookout to tap newer markets, are likely to find the going tougher.

However, as they say, every cloud has a silver lining. The current COVID-19 pandemic may bring up some opportunities for the Indian exporters as various western manufacturers are looking at moving their factories from China. India could capitalize this opportunity by welcoming such manufacturers in India. 

Pursuant to the Finance Ministry’s decision to process all Customs refund cases immediately as a relief during these difficult times amid the COVID-19 pandemic, the CBIC has issued an instruction to implement Special Refund and Drawback Disposal Drive. The said drive shall be in place by 30 April 2020 and expectedly, all refund and drawback claims pending as on 07 April 2020 shall be disposed.

In order to ensure that there are no delays, the Principal Chief Commissioner / Chief Commissioner have been instructed to monitor this Drive closely on a daily basis and, wherever required, suitably guide the officers concerned to maximize the disposal.

The CBIC has further instructed that:

• The authorities to exercise due diligence before granting the refunds and drawbacks All the relevant legal provisions, notifications, circulars and instructions must be followed while processing these claims;
• For facilitation of exporters, all communication should be done over email, wherever email id of the applicant is available;
• All deficiency memos may be reviewed and refund / drawback may be considered on merit.

The CBIC aims to liquidate all the pending refund and drawback claims by 30 April 2020 and make the Special Drive a grand success.

Rajasthan AAR holds that services provided by a director are covered under the Schedule III of the CGST Act and therefore cannot be said to be an outside the scope of ‘supply’. The AAR further holds that the consideration received by a director of a company is specifically covered under Notification 13/2017 – Central Tax (Rate) dated 28 June 2017, and therefore the same is liable to GST under RCM.

GLS Comments:

Recently, the Karnataka AAR in the case of Alcon Consulting Engineers Private Limited [2019 (30) GSTL 678] had similarly held that remuneration given by a Company to its directors is not covered under Schedule III of the CGST and therefore, is liable to GST under RCM as per Notification No. 13/2017. 

Basis the present ruling of the Rajasthan AAR and the ruling of the Karnataka AAR, the position of the Revenue seems to be clear that Directors’ remuneration is liable to GST. However, such conservative view of the authorities is likely to be challenged.

The Hon’ble Supreme Court in the case of Ram Prashad vs. Commissioner of Income Tax [1973 SCR (3) 985] had held for the purpose of Income Tax Act, 1961, a director can be an employee of the Company and the remuneration received by him is salary. Similar views have been taken by various High Courts for the purpose of Companies Act as well as the Employees’ State Insurance Act.

Accordingly, it may be contemplated that merely for the purpose of levying GST on the remuneration of a director, notifying him as the service provider and the Company as service recipient is not in consonance with the other laws of the land.

Therefore, we are of the considered view that the question relating to taxability on a director’s remuneration may be put to rest only by any decisive and unequivocal judgment of any High Court or the Supreme Court.

In wake of the COVID-19 pandemic and with a view to provide immediate relief to business entities and individuals, the Ministry of Finance ('MoF') has decided to immediately issue all pending income tax refund cases up to Rs. 5 lakhs. It is contemplated that such processing of refund would benefit around 14 lakh taxpayers.

The MoF has also decided to issue all pending GST and Customs refunds which provide benefit to around 1 lakh business entities including MSMEs.

Amid the COVID-19 outbreak, the CBIC had issued a series of notifications on 03 April 2020 to relax various tax provisions which inter alia extended the due date of various statutory forms and relaxed the interest and late fee provisions.

In respect thereto, the CBIC vide Circular dated 03 April 2020 provided the following key clarifications:

• The due date for filing Form GSTR-3B for the months of February, March and April 2020 have not been extended, however, NIL rate of interest for the first 15 days of late filing and reduced rate of 9% p.a. thereafter has been notified for taxpayers having aggregate turnover of more than Rs. 5 crores in the preceding F.Y. Further, for registered persons having aggregate turnover of upto Rs. 5 crores in the preceding F.Y., NIL rate of interest has been notified. The lower rate of interest and waiver of late fee would be available only if due tax is paid by filing return in Form GSTR-3B by the due dates as notified;
• The reduced rate of interest is subject to the condition that the taxpayers file Form GSTR-3B on or before 24 June 2020. Failure to do so, will attract interest at 18% p.a. from the due date of return, till the date on which the return is filed. In addition, regular late fee shall also be applicable for such delay along with liability for penalty;
• Late fee for filing of Form GSTR-1 for the period March, April and May 2020 and the quarter ending March 2020 have been waived off if the same are filed on or before 30 June 2020;
• The restriction to avail ITC u/r. 36(4) of the CGST Rules, shall not apply to ITC availed by registered persons in the returns in Form GSTR-3B for the months of February, March, April, May, June, July and August, 2020, however, that the said condition shall apply cumulatively for the said period and the return in Form GSTR-3B for the tax period of September, 2020 shall be furnished with cumulative adjustment of ITC for the said months;
• Wherever the validity of an e-way bill expires between 20 March 2020 and 15 April 2020, the validity shall be extended till 30 April 2020;
• Where the time limit for completion or compliance of any action falls during the period from the 20 March 2020 to 29 June 2020, such time limit shall be extended to 30 June 2020;
• Taxpayers required to deduct or collect tax at source, input service distributors and non resident taxable persons, are allowed to file their respective returns for the months of March 2020 to May 2020 till 30 June 2020;
• The composition dealers shall be allowed to file Form GST CMP-08 for the quarter January to March, 2020 by 07 April 2020 and 15 April 2020 to file Form GSTR-4 for the F.Y. 2019-20;
• Taxpayers opting for composition scheme for the F.Y. 2020-21 shall be allowed to file an intimidation in Form GST CMP-02 by 30 June 2020 and GST ITC-03 by 31 July 2020.

Vide Notification dated 03 March 2020, the DGFT had restricted the exports of various bulk drugs and their formulations to ensure there is no shortage of drugs in India due to the lockdown in Hubei Province of China, a major source for these raw materials that has also been the epicenter of the coronavirus outbreak. 

As a result of the hardships faced by the exporters due to the restriction, the Pharmexil (Pharmaceutical Export Promotion Council) had written to the DGFT seeking removal of restriction on export of 13 APIs and their formulations. It was stated that the export restriction had created lot of inconvenience and hardships to exporters and impacted the pharmaceutical export performance of the nation. Most of the restricted products were not even related to COVID-19 treatment as critical therapy.

This restriction of export further created a negative impact in the minds of overseas stakeholders including Government agencies as most of the countries were depending on India either for generic drugs or for Active Pharmaceutical Ingredients (‘APIs’).

Further, most of the manufacturers and exporters had manufactured the restricted items before the outbreak of COVID-19 and had planned and committed to ship the consignments to their customers in agreed timelines. The DGFT notification imposing restriction on export of APIs and their formulations with immediate effect had severely impacted exporters, as many number of consignments were lined up for export in the warehouses and ports. Some of the orders for institutional supplies mandate the supply of all items committed in their contracts and non-supply of one item could possibly result in cancellation of entire order for all other products resulting in blacklisting of the companies by the procurement agencies and imposes huge penalties.

The Drug industry had also filed a representation before the Government stating that there is no shortage of raw materials in the domestic market. It was urged that the Chinese government succeeded in containing the further spread of the COVID-19 and the position of China has substantially improved during the past few weeks with restoration of manufacturing activities in most of the provinces. The Indian drug units started receiving the few supplies from China and are expecting more supplies in coming weeks.

Taking into cognizance the submissions made by the Pharmexil and the Drug Inustry, the DGFT, vide Notification dated 06 April 2020 has lifted the restriction on export policy of various APIs.

The pharmaceutical companies have now welcomed the removal of this restriction stating that there is no shortage of raw materials in the domestic market. Further, the shipments of APIs have also began from China. 

The current Online Platform for Preferential Certificate of Origin (‘CoO’) which has been designed as a single point access for applications and issuance of CoO covers only a few Free Trade Agreements (‘FTAs’) / Preferential Trade Agreements (‘PTAs’) such as the India-Chile PTA, IKCEPA, etc.

Amid the COVID-19 pandemic, the DGFT vide Trade Notice dated 07 April 2020 has notified the following FTAs / PTAs and the partner countries, to apply and issue the CoO only through the designated online platform with effect from 07 April 2020:

It has also been clarified that the designated agencies will issue digitally signed electronic CoO (‘eCoO’) and no hard copies of the same will be provided. The Applicants may download the online certificates, which will maintain the same layout, appearance and validity as paper certificates.

Once normalcy resumes, the CoO so issued electronically will also be made available in hard copies.