Analysis of key recent developments under GST

D

The Supreme Court Rulings

7

Apex Court:
IGST under reverse charge not applicable on ocean freight in CIF contracts

Ocean Freight: Freight on transportation of goods in a vessel from a place outside India upto the customs station of clearance in India.

Issue: Whether an Indian importer can be subject to the levy of IGST under RCM on the component of ocean freight paid by the foreign seller to a foreign shipping line?

Recap: The Gujarat High Court in Jan'20 held that N.N. 8/2017-IGST(Rate) and N.N. 10/2017-IGST(Rate) are unconstitutional as they have exceeded their powers and no tax is leviable on ocean freight. Calcutta HC followed.

Supreme Court's Decision:
✔ The impugned notifications are validly issued.
✔ The recommendations made by the GST Council are not binding on the legislature.
✔ A CIF contract is a 'composite supply', comprising of supply of goods and supply of services of insurance and freight where supply of goods is the principal supply.
✔ The entire consideration shall be liable to tax as consideration for supply of goods. A separate levy of IGST on ocean freight under RCM for the supply of services would lead to violation of the overall scheme of the GST legislation.

● Welcome judgement - the issue of IGST on Ocean Freight under CIF contracts attains finality.

● The decision of the Hon'ble Apex Court rendered by a three-judge bench is binding on the assessees as well as the Revenue. Hence, taxpayers who adopted a no-tax position of IGST on ocean freight under RCM should continue the same.

● This would help in resolving the Audit queries or Audit Observations on the spot, as multiple GST Audit Commissionerate were raising demand on this issue.

● Companies who have paid taxes (to the extent ITC is not utilized) may consider filing refund of such amount. For the period of limitation, reliance may be placed on the landmark decision of Hon'ble Supreme Court in M/s Mafatlal Industries.

● It would be interesting to see whether the analogy of Dual Taxation and Composite supply can be taken in taxation of freight under FOB contracts also.

E

Important High Court Rulings under GST

8

Orissa HC:
Transfer of ITC without actual provision of service is invalid

Facts: JSW Odisha paid GST under RCM on licensing services and availed ITC. The excess ITC after setting off liability was utilized by raising tax invoices for provision of facilitation/ support service from JSW Odisha to JSW ISD registration in MH.
 
The ITC transferred by JSW Odisha, was distributed by JSW MH ISD to other units of JSW located in TN, MH and KA.

Ruling: Cross charge of unutilized input tax credit by a registration to ISD under the sham of 'support service', when the aspect of support service provided is not clear, is not valid and is liable to be recovered.

1) This ruling would have wider applicability as the issue involved is relevant to all entities having presence in multiple states.
2) The taxpayers should proactively review the underlying supply, documentation, basis etc. for any such cross-charges to mitigate the potential risk, if any.
3) The Court argued that it is JSW-Company who has been granted the mining lease, and not a particular state. The same argument could be taken by Petitioner with respect to the RCM payments, as it has been only paid by JSW Odisha, however it pertains to JSW-Company (as a whole). Hence, the same should be available as ITC to all GSTINs.

M/S. JSW STEEL LTD. VERSUS UNION OF INDIA & OTHERS [2022 (5) TMI 1238 - ORISSA HIGH COURT]

9

Madras HC:
Procedural infraction can't debar legitimate way of refund of tax paid on exports

Facts: The petitioner had exported goods on payment of tax. Though the petitioner correctly declared the export details in GSTR-1, the petitioner made a mistake in declaring the same in GSTR-3B. Thus, the refund of tax paid on exports was denied.

Ruling: Refund is given as an export incentive to encourage exports and thereby creating an inward remittance of foreign currency. The procedures given in the law shall not be applied so stringently that it defeats the purpose of the incentives.

This is a welcome judgement which can be referred in all the cases where any substantive benefit is denied merely due to procedural lapses.

M/S. ABI TECHNOLOGIES VERSUS THE ASSISTANT COMMISSIONER OF CUSTOMS, TUTICORIN.

[2022 (5) TMI 1136 - MADRAS HIGH COURT]

F

GSTAT Ruling

10

No update

Tribunal is yet to be constituted.

G

Relevant AARs under GST

11

Gujarat AAR: Employees portion collected towards canteen charges a supply or not?

Que: Whether the subsidized deduction made by the applicant from the employees who are availing food facility in the premises would be considered as a supply of service?

Ruling: The canteen services provided by the applicant to its employees cannot be considered to be an activity made in the course or furtherance of business. Thus, it is not a supply.

1) On all employee recoveries made as pass-through, Companies (having presence in multiple states) may consider obtaining Adv Ruling (preferably from GJ & KA) to settle potential disputes as the same will have binding effect on their officer.
2) Restricting ITC on F&B even when obligatory under law is contrary to the intention of the amendment made in 17(5).

12

Maharashtra AAR:
Incentives received by a reseller from Intel US to be treated as supply

Facts: The distributors import products from Intel US LLC and the applicant purchases products from the said distributors for resale. As per an agreement between Inntel US LLC and the applicant, the applicant will receive certain incentive on completion of certain said targets.

Key Que: Whether sales target incentive received by the applicant from Intel US LLC a trade discount or a supply?

Ruling:
✔ There is no supply of goods or services between the IIUL and the applicant. Hence, the 'incentives' provided by the IIUL to the applicant cannot be treated as Trade Discount.
✔ The only reason for the applicant to receive incentives from IIUL is for increasing the business of IIUL and thus, there is a supply of services.
✔ The incentives received by applicant from IIUL can be treated as the consideration for the said services.

● The ruling holds that if the incentives or post sale discounts are received from a third party (i.e. other than supplier), the benefit of discount shall not be available. The same would be treated as an independent supply.

● Further, the AAR observed that the POS for said marketing services is in India, hence the same doesn't qualify as export. This interpretation seems to be incorrect.

● Also, it is surprising to see AARs pronouncing ruling on the 'Place of Supply', however the same is not covered u/s 97(2) - the questions on which Adv ruling can be sought.

IN RE: M/S. MEK PERIPHERALS INDIA PVT. LTD. [2022 (4) TMI 1344 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA]

H

Service Tax & CE Rulings

13

Apex Court:
Service tax leviable on secondment of employees from overseas company to Indian company`

Facts: The foreign group entities seconds personnel to the assessee company in India. The seconded employees would receive their salary, bonus, social benefits and other expenses from the group company and thereafter the Indian Co would reimburse the same to the foreign group company.

Issue: Whether these secondment agreements be subject to service tax under the category of manpower supply?

Story so far: The Adjudicating Authority confirmed the demand of service tax for the period Oct'06 to Mar'12. The CESTAT allowed the assessee appeals and dismissed the Revenue Appeals holding that the assessee and seconded employees were related as employer-employee. Consequently, the Revenue filed Appeal before the SC.

Supreme Court's Ruling: Even though the control over the seconded employees was with the Indian company, yet they were under the payroll of the group companies. Their terms of employment were in accordance with the overseas companies. Upon end of the period of secondment, they return to their original places. Hence, there is no substance of employer-employee relationship between the seconded employees and the appellant companies, and that the Indian company shall be therefore, considered as a recipient of manpower supply services.

● This ruling would have industry wide ramifications as cross-border movement of the employees between MNCs is a very common practice in today's globalized era.

● Though the decision pertains to the erstwhile service tax law, it has far-reaching implications under GST as well as income tax, given these secondment arrangements have always been the subject matter of scrutiny by India tax authorities both in the context of DT and IDT.

● Here the sole determinant for taxability is: 'Whether the personnel deputed are 'employees' of the Foreign Co. or of Indian Co during the period of secondment'.

● If the answer to above que is 'Foreign Co' [as established through terms of the contracts in light of underlying business objectives], then the same would be taxable and vice-versa.

● It would be prudent for relevant companies to pro-actively review such secondment or deputation arrangements to assess and mitigate risks from the perspective of direct tax, GST, immigration, and labor laws.

C.C.,C.E. & S.T. – BANGALORE (ADJUDICATION) ETC. VERSUS M/S NORTHERN OPERATING SYSTEMS PVT LTD.

[2022 (5) TMI 967 - SUPREME COURT]

I

State VAT Rulings

14

No such major highlights during the update period

J

Other Updates

15

Anti-profiteering authority to be merged with CCI

The Anti-profiteering authority is likely to be subsumed with the Competition Commission of India. All the pending cases of anti-profiteering authority, post the merger will be then taken up by the CCI.

It would be interesting to see how this is structured in the time to come.

CNBC Article

16

Telangana Settlement Scheme 2022

The Government of Telangana State has introduced a ‘One-Time Settlement Scheme 2022’ to settle the disputed tax under the legacy VAT & CST Acts

Relevant taxpayers should evaluate eligibility and take benefit of the scheme before the last date 30.06.22

Order No: G.O.Ms NO. 45, dated 9 May 2022