2021 (4) TMI 558 - AAR - GST

GST on Plastic Toys: Input Tax Credit Rules for Debit Notes

The plastic toys manufactured and supplied by the applicant are classified under Tariff Item 9503 00 30, attracting a GST rate of 12% (6% CGST + 6% SGST). ... Classification under Heading 9503 - Interpretation of the First Schedule to the Customs Tariff Act - Application of HSN explanatory notes - Tax liability under Notification No.01/2017-Central Tax (Rate) - Input tax credit - time limit under Section 16(4) - Effect of omission of words 'invoice relating to such' by Finance Act, 2020 w.e.f. 01.01.2021 - Nature of debit note and its connection to the original invoiceClassification under Heading 9503 - Tax liability under Notification No.01/2017-Central Tax (Rate) - Classification and GST rate applicable to plastic toys manufactured and supplied by the applicant. - HELD THAT: - The Authority examined Chapter 95 and Heading 9503 of the First Schedule to the Customs Tariff Act, 1975, the Chapter Notes and the entries for sub-heading 9503 00 30 (of plastics). Having considered the product descriptions, samples and submissions, the Authority concluded that the applicant's plastic toys are toys made of plastics and are not electronic. Sub-heading 9503 00 30 therefore applies. On reference to Notification No.01/2017-Central Tax (Rate), sub-heading 9503 is listed at Sr. No. 228 in Schedule II where the applicable combined GST rate is 12% (6% CGST + 6% SGST). The Authority accordingly held that plastic toys of the applicant are classifiable under 95030030 and attract GST at 12% (6% + 6%). [Paras 14, 15]Plastic toys of the applicant are classifiable under 95030030 and taxable at 12% (6% CGST + 6% SGST).Input tax credit - time limit under Section 16(4) - Effect of omission of words 'invoice relating to such' by Finance Act, 2020 w.e.f. 01.01.2021 - Nature of debit note and its connection to the original invoice - Whether input tax credit can be claimed in 2020-21 in respect of debit notes issued in 2020-21 for supplies made in 2018-19. - HELD THAT: - The Authority compared the pre-amendment text of Section 16(4) with the amendment effected by the Finance Act, 2020 and the notified commencement date 01.01.2021. It held that omission of the words 'invoice relating to such' does not sever the intrinsic connection between a debit note and the original invoice: a debit note, by statutory definition and prescribed particulars, must reference the corresponding tax invoice. Consequently the financial year to which a debit note pertains remains the financial year in which the original invoice was issued. Applying amended Section 16(4) w.e.f. 01.01.2021, the Authority concluded that input tax credit in respect of debit notes issued for transactions of 2018-19 can be claimed only within the time limit specified in Section 16(4) for that financial year (i.e., on or before the due date for furnishing the return under section 39 for the month of September following the end of financial year 2018-19 or the relevant annual return, whichever is earlier). The Authority rejected the applicant's contention that the amendment grants independent existence to debit notes permitting ITC in the year of issuance notwithstanding the year to which the underlying invoice pertains. [Paras 17, 18, 19, 20, 21]The applicant cannot claim input tax credit in 2020-21 in respect of debit notes issued in 2020-21 for supplies of 2018-19 unless the claim is within the time-limit prescribed by Section 16(4) for the financial year 2018-19.Final Conclusion: Advance ruling: (i) The applicant's plastic toys are classifiable under 95030030 and attract GST at 12% (6% CGST + 6% SGST). (ii) Input tax credit in respect of debit notes relating to supplies made in 2018-19 can be availed only subject to the time-limit under Section 16(4) for the financial year 2018-19; debit notes issued in 2020-21 do not, by reason of the amendment, independently extend the period for claiming ITC for those earlier supplies. Issues Involved:1. Classification and applicable GST rate for plastic toys.2. Eligibility for claiming Input Tax Credit (ITC) on debit notes issued in the financial year 2020-21 for transactions of the financial year 2018-19.Issue-wise Detailed Analysis:1. Classification and Applicable GST Rate for Plastic Toys:The applicant, engaged in manufacturing and supplying plastic toys, sought clarification on the appropriate classification and GST rate for their products. They argued that their plastic toys should be classified under Chapter Heading 9503 of the Customs Tariff Act, 1975, specifically under Tariff Item No. 9503 00 30, which pertains to toys made of plastics.The relevant provisions and jurisprudence were examined, including the Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017, which outlines the GST rates for various goods. According to the notification, toys other than electronic toys fall under Entry No. 228 of Schedule II, attracting a GST rate of 12% (6% CGST + 6% SGST).After reviewing the Chapter Notes and the product samples provided by the applicant, it was concluded that the plastic toys manufactured and supplied by the applicant are correctly classifiable under Heading 9503 00 30. Consequently, these toys attract a GST rate of 12% (6% CGST + 6% SGST).2. Eligibility for Claiming Input Tax Credit on Debit Notes:The applicant also sought clarification on whether they could claim ITC for CGST-SGST charged separately in debit notes issued by the supplier in the financial year 2020-21 for transactions that occurred in the financial year 2018-19. The applicant referenced an amendment in sub-section (4) of Section 16 of the CGST Act, 2017, which they believed simplified the process by removing the condition of invoice-to-debit note correlation.The amendment, introduced by the Finance Act, 2020, and effective from 01.01.2021, omitted the words 'invoice relating to such' from sub-section (4) of Section 16. However, it was clarified that this change did not sever the connection between debit notes and their corresponding invoices. A debit note remains linked to the original invoice, and the financial year to which a debit note pertains is the same as the financial year of the original invoice.Therefore, the applicant can only claim ITC for debit notes issued for transactions in the financial year 2018-19 if the claim is made on or before the due date for furnishing the return under section 39 for the month of September following the end of the financial year 2018-19 or the relevant annual return, whichever is earlier. The applicant's interpretation that the amendment allowed for claiming ITC in the financial year 2020-21 for transactions of 2018-19 was found to be incorrect.Ruling:1. Classification and GST Rate: The plastic toys manufactured and supplied by the applicant are classified under Tariff Item 9503 00 30, attracting a GST rate of 12% (6% CGST + 6% SGST).2. Input Tax Credit: The applicant cannot claim ITC for CGST-SGST charged separately in debit notes issued in the financial year 2020-21 for transactions that occurred in the financial year 2018-19. The claim must adhere to the timelines specified in sub-section (4) of Section 16 of the CGST Act, 2017.