Key recent developments under GST – A bird’s eye view

A

Legislative Amendments - GST Act

1

Proposed amendment in Section 50(3) of CGST Act

Section 50 (3) of the CGST Act to be amended retrospectively, w.e.f. 01.07.2017, to provide that interest to be paid by a taxpayer on “ineligible ITC availed and utilized” at 18% and not on “ineligible ITC availed”.

• This is a welcome change which needs to be made effective at the earliest.
• From outward tax perspective, a strict reading of proviso inserted in Section 50(1) provides relief only in 'delayed filing' of returns. Its scope should be expanded to trigger interest levy on net cash liability even for 'delayed reporting' of invoices.

Press Release of 45th GSTC Meeting dated: 17.09.2021

B

GST Notifications

2

Amendment in CGST Rules

• Aadhaar authentication to be mandatory for claiming refund or seeking revocation of cancellation of registration - effective date yet to be notified.

• Rule 59 is being amended from 1-Jan-2022 to restrict filing of GSTR-1 if  GSTR-3B has not been filed for preceding 1 month as against 2 months now.

• For refund u/s 77 of incorrect type of tax paid: A new sub-rule 89(1A) is inserted to stipulate time-limit of 2 years from the date of payment of tax under the correct head. If the right type of tax is paid before, refund of the wrong type of tax paid can be applied within 2 years from 24-9-2021.

• Registered persons should complete Aadhar authentication in due course to avoid any hassle later.

• The insertion of procedural aspect to Sec 77 refund (better late than never!) would be helpful to claim refund and close open matters at various forums on this aspect.

• It is yet to be seen whether the ITC of incorrect tax head availed by bonafide recipient can be questioned in such cases, where supplier pays correct tax type subsequently & claims refund of incorrect tax type.

Notification No. 35/2021-CT dt 24 Sept 2021

3

Notifications issued to implement GSTC recommendations

Late evening on 30-09-2021, CBIC issued multiple notifications to implement the recommendations made by the GST Council in the 45th meeting held on 17 Sept 2021 in Lucknow for GST rate changes for several goods & services.

As the Taxpayers generally file their returns close to the due date, the tax officers also seem to be adopting similar approach by cutting it too fine. Such rate change notifications should be issued at least 2 to 3 days in advance to enable taxpayers gearing-up their billing systems in due course.

Notification No. 06/2021-CT & IGST (Rate)to N.N. 12/2021-CT & IGST (Rate) dated 30-09-2021

C

Circular/ Orders GST

4

Clarifying rate / classification on certain goods and services

Pursuant to GST Council meeting, CBIC has issued 2 circulars clarifying GST rate and classification on certain goods and services:

Key highlights:
 

• Cloud kitchens will be classified as restaurant service and taxed at 5% GST,
• Ice cream sold by ice cream parlors is liable to 18% GST,
• Job work in respect of manufacture of alcoholic liquor for human consumption being liable to 18% GST
• UPS/inverter and external battery even if sold under single invoice will attract GST at applicable rates separately.

Earlier, AARs in some cases ruled that ice-cream sold in ice cream parlors would be covered under restaurant services (except when sold in bulk orders) and therefore attract GST rate of 5% (without ITC).

Circular No. 164/20/2021-GST and 163/19/2021-GST dated 06-Oct-2021

5

Refund of incorrect tax type u/s 77

Sec 77 provides for refund of the wrong type of tax paid - CGST and SGST instead of IGST and vice versa. Circular clarifies that the provision covers both the cases where either:
a) the taxpayer has himself subsequently found out the mistake or
b) held as incorrect in any proceeding.

This change has also been enabled on the GSTN portal. Earlier while filing such refund claims online, it was mandatory to fill 'Order Number' under which the supply is held to be of inter-state or vice versa.

Circular No. 162/18/2021-GST dated 25-Sept-2021

6

Circular on export of services- Sec 2(6)(v) of IGST Act

Interpretation of the term “merely establishment of distinct person”

● A company incorporated in India and a body corporate incorporated by or under the laws of a country outside India are separate persons under the CGST Act, and therefore, they are separate legal entities, and they will not be considered as establishments of a distinct person as per explanation 1 in Sec 8 of IGST Act.
● Therefore, such services will qualify as 'export of services'.

Welcome clarification which should help in resolving pending refund matters, which were stuck at adjudication or appellate forums due to this issue.

Circular No. Circular No. 161/17/2021-GST dated 20-Sept-2021

7

Clarification in respect of certain GST related issues

● W.e.f. 01.01.2021, date of issuance of Debit Notes for determination of relevant financial year for purpose of S. 16(4) of the CGST Act.
● No need to carry the physical copy of tax invoice in cases where IRN has been generated u/r 48(4) of the CGST Rules.

● The amendment of de-linking DN with invoices should be made retrospectively w.e.f. 01-07-2017.
● Doing away physical invoices would require both buyers & sellers to change their supply chain procedures especially when the GRN is done by way of stamp on the invoice paper.

Circular No. 160/16/2021-GST dated 20-Sept-2021

8

Circular on scope of “Intermediary

Key clarifications on the concept of intermediary services:

• Minimum of 3 Parties and 2 distinct supplies.
• The role of intermediary is only supportive, and it does not provide the main supply.
• Scope of intermediary does not cover the situation where main supply itself is supplied.
• Sub-contracting is not an intermediary service.

This settles the anomaly (to some extent!), which was created due to some contrary AARs on this perennial issue. The circular categorically says that such BPO entities undertaking outsourced work are not covered under intermediary.

Circular No. 159/15/2021-GST dated 20-Sept-2021

D

The Supreme Court Rulings

9

Apex Court:

Refund admissible only on inputs (and not input services) in inverted duty structure

Issue: Whether refund of ITC on 'input services' is available under inverted duty refund u/s 54(3) r/w Rule 89(5)?

Recap: Earlier, the Gujarat HC held Rule 89(5) to be ultra vires section 54(3) and ruled in the favor of the taxpayer, while a contrary ruling upholding Rule 89(5) was rendered by the Madras HC.

Supreme Court’s decision:

● Proviso to S. 54(3) of the CGST Act is a restriction and not a mere condition.

● Court cannot redraw legislative boundaries based on an ideal situation.

● Constitutional validity of section 54(3) of the CGST Act upheld.

● Rule 89(5) of the CGST Rules is not ultra vires section 54(3) of the CGST Act.

● Formula under Rule 89(5) of the CGST Rules cannot be read down.

● The issue of refund of ‘input services’ in case of inverted duty structure has been a long-pending issue that has attained finality with this landmark judgement.

● The Court noted, practical application of prescribed refund formula may result in certain inequities. It strongly urged the GST Council to reconsider the formula and take a policy decision. Industry bodies should file representations to GSTC, seeking to rectify the anomalies in the 46th meeting.

UNION OF INDIA & ORS. VERSUS VKC FOOTSTEPS INDIA PVT LTD. [2021 (9) TMI 626 - SUPREME COURT]

E

Important High Court Rulings under GST

10

Orissa HC:
Pre-deposit cannot be paid thru Credit Ledger

Issue: Whether Elec Cash Ledger (ECL) can be used for making payment of pre deposit at the time of filing appeal?
HC noted & held:
● ­“Output Tax” could be equated to the pre-deposit.
● GST Act limits the usage to which the Credit Ledger could be utilized. It cannot be debited for making payment of pre-deposit.

● While the order carves out a distinction between 'pre-deposit' vs 'output tax', the appeal provisions under GST law nowhere uses this terminology. The law merely contemplates payment of a sum equal to xx % of the amount of 'tax in dispute'. Notably, there is no restriction in the law for payment of 'tax' using the 'credit'.
● Even the statutory Appeal Form APL-01 explicitly provides the option to pay such amount via Cash or Credit to the Appellant.
● This judgement deviates from the acceptable practice of the pre-GST era and would create unnecessary working capital hassle for taxpayers.

M/S. JYOTI CONSTRUCTION VERSUS DEPUTY COMMISSIONER OF CT & GST, BARBIL CIRCLE, JAJPUR AND ANOTHER [2021 (10) TMI 524 - ORISSA HIGH COURT]

11

Gauhati HC:
Traders eligible to claim refund under Inverted duty structure

Circular 135/2020: Refund of accumulated ITC u/s 54(3)(ii) would not be applicable in cases where the input and the output supplies are the same.
Petition: Writ petition was filed as refund was rejected by department relying on the above circular.
HC opined: Para 3.2 of circular appears to be in conflict and contrary to the clear unambiguous provisions of S. 54(3)(ii) and hence would have to be ignored. ITC refund is allowed in the event the rate of tax on the input supplies is higher than the rate of tax on output supplies.

● This reaffirms the well settled principle, whenever there is a conflict, the provisions of the statutory Act would prevail over conflicting provisions of a notification or a circular of an administrative authority.
● With support of this Gauhati HC order, it is yet to be seen whether such refunds get sanctioned at the first level in other jurisdictions, without causing the trouble of knocking the doors of respective HCs.

BMG INFORMATICS PVT. LTD., VERSUS THE UNION OF INDIA AND 3 ORS., THE COMMISSIONER CENTRAL GOODS AND SERVICE TAX GUWAHATI, THE JOINT COMMISSIONER (APPEALS) CGST CENTRAL EXCISE AND CUSTOMS GUWAHATI, THE ASSISTANT COMMISSIONER CGST AND CENTRAL EXCISE DIVISION II [2021 (9) TMI 472 - GAUHATI HIGH COURT]

12

Orissa HC:
Buyer's registration cannot be cancelled for fraud committed by seller

Orissa HC rules that “for the fraud committed by the selling dealer, which resulted in cancellation of a selling dealer’s registration, there cannot be an automatic cancellation of the registration of the purchasing dealer”.

● HC noted, to attribute fraud to the buyer, the onus is on Department to show that somehow the buyer and seller acted in connivance to defraud the revenue and with a high threshold of transactions.
● This decision can be cited in scenarios where the authorities are initiating proceedings against bonafide 'buyers' if 'sellers' are found non-compliant.

M/S. BRIGHT STAR PLASTIC INDUSTRIES VERSUS ADDITIONAL COMMISSIONER OF SALES TAX (APPEAL) AND OTHERS [2021 (10) TMI 256 - ORISSA HIGH COURT]

13

Tripura HC:
Relief by HC on detention of goods merely on account of EWB expiry

Petition: Assessee prayed for release of the machinery (excavator) detained in-transit due to expiry of e-way bill. The EWB got expired on account of time taken in earlier detention by Transport Dept for some non-compliance and payment of fine.
HC observed & held:
● The tax authorities must make a clear distinction between deliberate tax evasion and technical or minor defects which manifest no intention to evade tax.
● Held that allowing the department to detain the machinery would be wholly impermissible as the fault of Assessee if at all was rather technical.

● Good to see such well-reasoned and business-friendly order passed by the Tripura HC.
● HC categorically pointed out, it was a fit case for provisional release of goods as both supplier & buyer had to suffer a lot due to such unjustifiable detention of high value goods.
● A clarification/guidelines from CBIC on this issue would go a long way to prevent such misuse of draconian powers by the field level officers.

NE EQUIPMENT SOLUTIONS PVT. LTD. VERSUS THE STATE OF TRIPURA AND OTHERS [2021 (8) TMI 1179 - TRIPURA HIGH COURT]

F

GSTAT Ruling

14

Update on GSTAT, Rajasthan

5. Tribunal is yet to be constituted.
5. As per recent order dated 24.09.2021 from Govt of Rajasthan, two benches of Tribunal, one at Jaipur (State Bench) and other at Jodhpur (Area Bench) for the state of Rajasthan, will be functional very soon.

G

Relevant AARs under GST

15

WB AAR:

Determination of Mixed Supply vs Individual Supplies

Context: The applicant supplying hosiery goods (Vests, Briefs) to retailers, runs a promotional scheme. Example: the retailer would be eligible to buy a split AC for ₹ 50 only against purchase of 1300 boxes of hosiery goods.

Que: Whether the supply of goods such as gold coins, refrigerator, AC etc. at nominal price to retailers against purchase of specified units of hosiery goods would qualify as individual supplies or mixed supply?

Ruling: The said supply of unconnected goods at nominal price to retailers would qualify as individual supplies taxable at individual rates. ITC on the items being sold at nominal prices would be available to the applicant.

• Good to see a favorable ruling on this contentious issue, especially on the point, these promotional items are not 'gifts' and therefore ITC restriction u/s 17(5)(h) shall not apply.

• AAR noted the nominal price charged is not the sole consideration here. The strategy made by Applicant of assigning nominal values does not seem to be full proof as it could only win the ITC test; but stuck in the valuation issues.

IN RE: M/S. KANAHIYA REALTY PRIVATE LIMITED [2021 (10) TMI 326 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL]

16

Gujarat AAR:
Taxability of settlement amount paid to foreign party under Schedule II - Entry (5)(e)

Que: Whether the settlement fees (20% of USD 80,00,000) payable by the Applicant (Indian concessionaire) against demand made by ANP (foreign regulatory body of Timor Leste's Government) attract levy of India GST?
 

Ruling:
● ANP is service provider by providing the service of agreeing to tolerate non-payment of exploration cost, non-payment of damages for breach of contract and to refrain pursuing arbitration proceedings.
● The subject payment is not arising as a condition to the contract, but in pursuance of deed of settlement.
● Applicant is liable to pay IGST under RCM, on Import of subject supply of service.

AAR categorically highlighted, by traversing far and wide within the confines of GST law, we find it loud and clear like a crescendo that activity mentioned at Schedule II (5)(e) is Supply of Service. No amount of submission by the applicant countering this position of law enacted by the competent legislature can water down/ obscure/ nullify/ declare unconstitutional the said Schedule II(5)(e).

17

Maharashtra AAR:
Managerial and leadership services to units in different States liable to GST

• Holds that managerial and leadership services by Registered/Corporate Office to its Group Companies (related parties) & construction sites registered in different States (distinct persons) is “supply of service” in terms of Sec 7 of CGST Act.
• AAR notes that “site offices/group companies cannot be treated as persons who are employed by the applicant.
• AAR agreed with the applicant that value declared in the invoice would be deemed to be open market value under second proviso to Rule 28, where the recipient is eligible for availing full ITC.

● The ruling is on similar lines with the most popular ruling on this matter in case of Columbia Asia.
● This issue is likely to be picked up in ongoing departmental audits and appears far away from settling down unless a timely clarification is issued by CBIC.
● The ruling is good to refer if the valuation of cross-charge invoices is questioned by authorities (where recipient offices are able to take full ITC). AAR supports any value to be deemed as OMV.

18

Gujarat AAR:
Business arrangement bw AAI & SPV qualifies 'transfer of going concern'

Context: Airport Authority of India (AAI) conducted PPP bidding process wherein Adani Enterprises Ltd. won the bid agreeing to form a Special Purpose Vehicle (SPV) for operation, management, and development of the airport;
 

Key Que: Whether business arrangement between AAI and SPV is a transfer of going concern (Exempt under GST) or whether GST is leviable on transfer of existing Assets, Concession Fees paid by Adani, reimbursement of salary costs etc.?
 

Ruling: The subject supply is 'Transfer of Going Concern Service'. The consideration paid by SPV to AAI including Concession Fees & reimbursement of costs etc. is exempt under the relevant entry.

To substantiate this view, AAR categorically holds that “for transfer to be affected, sale is not the only criteria. Transfer simpliciter…is valid enough to term subject going concern as transferred from AAI to SPV.”

H

Service Tax & CE Rulings

19

CESTAT Chennai:
TDS under Income Tax is not a consideration and not liable to service tax

• CESTAT has held that activity of deducting tax at source is an obligation under Income Tax Act, 1961 and when the TDS amount is grossed up and borne by the assessee and the service provider receives only the actual consideration agreed between parties, the TDS amount cannot be included in the taxable value.
   
• It further held that compliance with statutory provisions cannot be considered as rendering of service.

• While this order has been passed under service tax law, it would have relevance under GST as well.

• As similar to the clarification issued by CBIC for TCS (Circular 76 dt 31.12.2018), a circular for TDS would go a long way to resolve unwarranted potential disputes on this issue under GST regime.

I

State VAT Rulings

20

 No highlights

No such major highlights during the update period

J

Other Updates

21

Departmental Instruction to issue SCNs in time-bound manner

Instruction dt 22-Sep-2021 was issued by the GST Investigation Wing, CBIC which highlights that the Tax Authorities within their jurisdiction should take stock of the pending investigation cases/other cases which warrant issuance of SCNs and take appropriate action to ensure timely completion of investigation(s) and issuance of SCNs well before the last date.

From taxpayers' perspective, this instruction could lead to increase in cases of audits/ investigations/ summons and consequently SCNs from ground level tax authorities.

Instruction 02/2021-22 - GST Investigation Wing