The Goods and Services Tax Council, in its 34th meeting held on 19-3-2019 recommended certain measures to streamline implementation of lower effective rates of GST for real estate sector. In its previous meeting, the GST Council
recommended that from 1-4-2019, the effective
tax rate of tax for affordable housing properties
would be 1% and that 5% would be applicable on
residential properties outside the affordable
segment.
While the home-buyers may be pleased with
an apparently lower rate of GST, the reality may
be different considering the conditions put forth
for availing the reduced tax rate. The conditions
recommended by the GST Council for
applicability of new effective tax rates are that:
• Input tax credit (ITC) shall not be available,
and
• 80% of inputs and input services shall be
purchased from registered persons. On
shortfall of purchases from 80%, tax shall be
paid by the builder @ 18% on reverse
charge (RCM) basis. However, tax on
cement purchased from unregistered person
shall be paid @ 28% under RCM, and on
capital goods under RCM at applicable
rates.
The above conditions would bar suppliers
from taking ITC on goods and services procured
by them. When the inputs and input services do
not suffer tax when procured from unregistered
persons, the builder would be obliged to pay
such tax under RCM effectively recouping the
ITC involved in such cases. It appears that the
government is targeting to make up for the
revenue shortfall on account of reduction in the
rate of tax on outward supplies by collecting non-
creditable tax from the recipient, thereby breaking
the chain of ITC.
Precedent on restricting ITC
A decision to restrict availment of ITC was
taken by the GST Council in the 23rd GST
Council meeting with regard to the supplies made
by restaurants chargeable to GST @ 5% without
the benefit of ITC. The principal reason for this
decision seems to be that the benefit of ITC was
not being passed on by restaurateurs to the
consumers. The concerns raised by the Finance
Minister on this aspect, leading to the
recommendation of reducing the rate of tax by
restricting the benefit of ITC, is extracted from the
Minutes of the GST Council Meeting, hereunder:
“65.23. The Hon'ble Chairperson stated that
the organized chains of restaurants were
factoring the input tax credit and transferring its
benefits to the consumers, but standalone
restaurants had not transferred the benefits of
input tax credit to the consumers. The anxiety
and keenness shown by these restaurants to
permit input tax credit was a method of
profiteering by them without benefiting the
consumers. He added that sectors like
automobile had passed on the benefit of input tax
credit but restaurants despite having an
advantage of 7-8% input tax credit, had not
reduced the prices and this sector had brought
bad name to GST.â€
Articles
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Considering industry’s reluctance to reduce
prices, the GST Council appears to have gone by
a popular saying in Hindi ‘जब घी सीधी उंगली से न ननकले तो ऊà¤à¤—ली टेढी करनी पड़ती है’â€, which implies ‘we will either find a way, or make one!’ While the
GST Council has taken a decisive stand of
regulating the price of supplies made by
restaurateurs and caterers by reducing the rate of
tax, the industry is still struggling to find their way
out for the period where they have availed ITC.
Role of NAA
The Government had taken a proactive step
by incorporating anti-profiteering measure in GST
law to ensure that any reduction in rate of tax on
any supply of goods or services or the benefit of
ITC is passed on to the recipient by way of
commensurate reduction in prices. However, lack
of lucidity regarding the methodology and
procedure for passing on the benefits to the
recipient by way of commensurate reduction in
prices, seems to have diluted the concept of anti-
profiteering. In fact, some of the members in real
estate and restaurant business are even held
guilty of profiteering by the National Anti-
Profiteering Authority. Some of the companies
seem to have chosen to approach the courts
seeking judicial approval to the stand taken by
them to withhold price reductions.
Jurisprudence
It may be pertinent to note that the concept of
restricting ITC is not new to the tax statutes in
India. Several States had imposed restrictions on
ITC in cases of inter-State stock transfers and
inter-State sale of goods to unregistered dealers
under the Value Added Tax regime. The
Supreme Court in the case of TVS Motor
Company Ltd. v. State of Tamil Nadu [2018-VIL-
29-SC] held that the scheme of ITC is a
concession and not a vested right, and that it was
open to the legislature to impose such
restrictions.
International perspective
The concept of breaking the chain of input
tax credit is also prevalent in the tax laws of other
countries. The Australian GST law has a unique
concept called ‘Input Taxed Supplies’, where the
supplier can neither charge GST, nor can he
recover any of the GST incurred in relation to that
supply, as credit. This concept is different from
GST-free supply (i.e., exempt supply). It may not
be appropriate to say that no GST is payable on
input taxed supplies, as the hidden element of
GST at input stage is added to the cost of
supplies made. Some of the categories of input
taxed supplies under Australian GST law are
financial supplies, residential premises, precious
metals, canteens, etc.
In UAE, Profit Margin Scheme is applicable
on second hand goods, wherein the second-hand
goods dealer pays VAT on the difference
between sale price and the purchase price,
without availing the benefit of input tax. The
concept of margin scheme is also available in
Indian GST law. The European Union VAT Rules
are simplified in some EU countries by providing
Flat-Rate Scheme, wherein the tax is calculated
by multiplying the VAT flat rate on the VAT
inclusive turnover, without allowing input VAT.
This concept is similar to the composition
scheme in Indian GST law.
Impact of recent amendments
Some of the recent changes (effective from
1-4-2019) in GST regime by way of introduction
of composition scheme for suppliers of service
(or mixed suppliers) as per Notification No.
2/2019-Central Tax (Rate) dated 7-3-2019 and
increase in turnover limit for existing composition
scheme by Notification No. 14/2019-Central Tax
dated 7-3-2019, can be regarded as moves to
enhance the ease of doing business, and in the
process breaking the chain of ITC. Similarly,
Notification No. 10/2019-Central Tax, dated 7-3-
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2019 granting higher exemption threshold limit for
supplier of goods is aimed at reducing the
compliance burden of small taxpayers at the cost
of loss of ITC for registered persons.
The overall impact of the above schemes is
that the cost of supply to an ultimate consumer
would be less than it would be under the normal
taxation system and more to a registered person
due to hidden GST component in the cost of
supply which is not available as credit.
Parting remarks
Eliminating cascading effect of taxes and
allowing seamless flow of ITC were the primary
reasons for us to migrate to GST regime.
Breaking the chain of ITC would take us back to
the erstwhile regime. Blocking or restricting ITC
at various stages of supply chain may help the
Government meet its revenue targets as every
supplier would end up foregoing ITC and pay tax
on the sale price rather than on the value added
by him. This practice should therefore be
implemented selectively in exceptional cases and
not as a general rule.
The supplier is the best judge to determine
the price of his products and services. The
principles of fiscal neutrality, proportionality and
the protection of legitimate expectations must be
interpreted in favour of the supplier to assess
their eligibility to avail ITC, particularly when all
the conditions prescribed under law are complied
with. If the departmental statistics or data
analytics reveal that the ITC is not being
efficiently utilised in a particular sector, then the
option must be given to the industry to choose
between paying lower rate of tax without the
benefit of ITC or a higher rate of tax with the
benefit of ITC.
[The author is a Principal Associate,
Lakshmikumaran & Sridharan, Bangalore]
Burden of unified registrations for EOUs and DTA units
By Anupama Ravindran
This article intends to highlight certain issues
with regard to restrictions on refund of integrated
tax paid on exports, for multiple business units
having a single GST registration.
Section 54 of the CGST Act states that any
person claiming refund of any tax may make an
application before the expiry of two years from
the relevant date. Explanation to Section 54
states that “refund†includes refund of tax paid on
zero-rated supplies of goods or services or both.
Further, it is clarified vide the Explanation that
“relevant date†means, in case of goods exported
out of India, date of loading of goods.
Rule 96 of the CGST Rules provides
procedures required for claiming such refund. It
enables refund of integrated tax paid on goods or
services that are exported out of India. The rule
states that the shipping bill filed by the exporter of
goods shall be deemed to be an application for
refund of integrated tax paid on export of goods.
Refund is granted subject to a few conditions as
prescribed under the rule.
Rule 96(10) of the CGST Rules states that
persons claiming refund of integrated tax paid on
export of goods or services should not have
received supplies on which the benefit of
Notification No. 48/2017-CT has been availed,
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that is, should not have received supplies under
deemed export benefit.
Further, Rule 96(10) of the CGST Rules
states that person claiming refund of integrated
tax paid should not have taken benefit under
Notification No. 78/2017-Cus, which is exemption
for imports by EOUs, or benefit under 79/2017-
Cus, which is exemption for imports against
advance authorization.
That is, in effect, if the registered person has
received any supplies under benefit of “deemed
exports†or customs notification providing
exemption from integrated tax and cess to Export
Oriented Units and Advance Authorization
holders, then the registered person is not eligible
to claim refund of integrated tax paid on exports.
The intention for the above restriction may be
that if the person has received deemed exports
supplies or has imported under customs
exemption notification for EOU/AA holders, then
refund of integrated tax paid on exports by
utilizing ITC should not be available as refund.
The Rule can be interpreted as provided
herein:
Rule 96(10) states that the persons claiming
refund of integrated tax paid on exports of goods
or services should not have
(a) Received supplies on which the benefit of
deemed exports benefit has been claimed
(b) Availed exemption of duties of customs for
imports by EOU, or Advance authorization
holders.
The rule does not carve out an exception for
persons who have achieved the export obligation
in respect of AAs or positive NFE in case of
EOUs, as the case may be, and subsequently
are claiming refund of integrated tax paid on a
future export.
The rule also does not make an exception for
exports of different business units under same
registration.
The rule does not also carve out an
exception for time elapsed after which such
exemption has been claimed. That is, if the
benefit of exemption is claimed today, then,
according to the said rule, the person is not
eligible anytime in the future to claim the refund.
Worse still, the rule does not carve an
exception even if the EOU unit has exited from
the EOU on payment of duties. Since the rule
reads that the person claiming refund of
integrated tax paid on exports of goods or
services should not have received supplies under
deemed export benefits or customs exemptions,
even if the EOU does not exist as of today, the
registered person cannot still claim refund.
Consider a scenario where a registered
person has multiple units within the same state,
one unit being a DTA, and another unit being
EOU or an Advance Authorization holder,
wherein the DTA unit brings 90% of total
revenue. This arrangement could be because the
local market requirement is much larger than the
export market, and DTA is handling local market
and EOU is handling exports.
In this case, the registered person is not
eligible to claim refund under Rule 96(10) of the
integrated tax paid on exports even for the DTA
unit under Rule 96. The DTA unit may prefer to
pay integrated tax on exports to utilize large
chunk of unutilized credit. However, although the
DTA unit maintains a separate book of accounts,
the restriction still applies, since Rule 96(10)
states that “person†claiming refund should not
have “received supplies†under deemed export
benefit or “availed the benefit†of customs
exemptions.
It may be noted that, GST provisions allow
for multiple units, including DTA and EOU, within
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the same state to be registered under one GST
registration. Therefore, the DTA also bears the
brunt of the credit lying in the books, when
actually the DTA unit has not received goods
under the exemption notification.
There is scope to amend Rule 96(10) of the
CGST Rules to allow these types of cases, and
to read the benefits and restrictions applicable for
each type of unit separately.
The alternative is rather simple and will
achieve a workaround to the said rule. If the
person who has claimed deemed export benefit
or exemption as claimed above, and also
maintains separate books of accounts, can very
well split the registration to separate the DTA
unit, from the unit which claims the exemption. In
this case, the DTA unit is eligible to claim the
refund from the separated registration.
Would this have been the intention of the
restriction on refund? That multiple registrations
have to be taken? That could very well have
been implemented through Section 24 of the
CGST Act stating that a EOU unit or a person
who has sought or intends to seek advance
authorization is required to be separately
registered.
While GST has harmonized registration for
the EOUs and DTAs, the registered person
should not bear impact of restriction of the EOU
on the whole registration and in turn render the
Foreign Trade Policy ineffective or burdensome
for them.
[The author is a Principal Associate,
Lakshmikumaran & Sridharan, Bangalore]
Notifications and Circulars
34th Meeting of GST Council – New regime for
residential realty sector: GST Council in the
34th meeting held on 19-3-2019 has decided on
the modalities of implementation of GST rate of
1% in case of affordable houses and 5% on
construction of houses other than affordable
houses. According to the press release, a one-
time time-bound option will be provided to
promoters to continue to pay GST at the old rate
in respect of on-going projects. Tax at new rate
will be payable from 1-4-2019 on new projects
and the same will be subject to conditions like
purchase of at least 80% of inputs and input
services [other than capital goods, TDR/ JDA,
FSI, long term lease (premiums))] from registered
persons. For ongoing projects, i.e., where both
construction and booking have started before
1-4-2019, and is not completed by 31-3-2019,
builders opting for new tax rates will transition
input tax credit as per the method to be
prescribed.
For real estate projects commencing after 1-4-
2019, supply of TDR, FSI, long term lease
(premium) of land by a landowner to a developer
will be exempt, if constructed flats are sold before
issuance of completion certificate and GST is
paid on them. If sale is after completion
certificate, GST will be payable (as per
prescribed value) on supply of TDR, FSI and long
term lease (premium) of land by the builder under
reverse charge mechanism. The liability in such
cases will arise on the date of issue of completion
certificate. Notifications are yet to be issued to
Goods and Services Tax (GST)
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implement these changes.
Special tax rate of 6% on intra-State supply,
on annual turnover of INR 50 lakh: CBIC has
notified a special tax rate of 3% CGST (+ 3%
SGST) on intra-State supply of goods or services
by a registered taxable person with an aggregate
turnover of INR 50 lakh made on or after 1st day
of April in any financial year. As per Notification
No. 2/2019-Central Tax (Rate), this tax rate will
apply subject to the conditions that supplier is not
engaged in non-GST supplies and should not be
making any supply through e-commerce. Ice-
cream, pan-masala and tobacco manufacturers
have been kept out of the purview of this special
rate.
It may be noted that suppliers taking the benefit
of this notification will be required to issue bill of
supply instead of tax invoice. Central Goods and
Services Tax (Third Removal of Difficulties)
Order, 2019, dated 8-3-2019 has been issued for
this purpose.
Registration exemption to supplier of goods if
turnover does not exceed INR 40 lakh: Any
person engaged in exclusive supply of goods and
whose aggregate turnover in the financial year
does not exceed INR 40 lakh, will not be required
to register under GST. The exemption will come
into effect from 1-4-2019. As per Notification No.
10/2019-Central Tax, dated 7-3-2019 issued to
implement the recommendations of the GST
Council, this exemption is not available to
persons required to take compulsory registration,
persons manufacturing ice cream, pan masala
and tobacco & manufactured tobacco substitutes,
persons in special category States, and persons
registering voluntarily.
TCS collected by supplier not includible in
value for GST: Tax Collected at Source (TCS)
under the Income Tax Act is not includible in the
taxable value for GST purpose as per the
corrigendum dated 7-3-2019 to Serial No.5 of
Circular No. 76/50/2018-GST dated 31-12-2018.
It cites consultation with the CBDT which clarified
that TCS is not a tax on goods but an interim levy
(not having character of tax) on possible income
arising from the sale of goods by buyer and is to
be adjusted against the final income tax liability of
the buyer.
Sales promotion schemes – GST liability and
ITC availability clarified: Where free samples
and gifts are offered as part of sales promotion
scheme, CBIC has clarified that supply of such
goods, services or both which are supplied free
of cost without a consideration, will not be treated
as ‘supply’ under GST law. It is also stated that
ITC is not available on inputs, input services and
capital goods to the extent they are used in
relation to such supplies. As per Circular No.
92/11/2019-GST, dated 7-3-2019, schemes like
‘buy one get one free’ should be treated as two
goods supplied for the price of one and such
supply will be taxable as per Section 8 of the
CGST Act, after determining whether it is a mixed
or composite supply. ITC will be available to the
supplier in such cases.
Valuation - Discounts when not includible in
value of supply: In cases of ‘Buy more, Save
more offer’ or staggered/volume discounts, where
rate of discount is increased after volume of
purchase is increased, discounts are excludible
from the value of supply, subject to condition
including reversal of ITC by the recipient.
However, the supplier will be entitled to ITC on
inputs, input services and capital goods used in
relation to such supplies. CBIC by Circular No.
92/11/2019-GST, dated 7-3-2019 has clarified
the above. It also clarifies that secondary
discounts, which are offered after the supply is
over, are not excludible, as these are not known
at time of the supply and the conditions
prescribed in clause (b) of Section 15(3) of CGST
Act are not satisfied. It is stated that there is no
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impact on availability or otherwise of ITC in the
hands of the supplier.
Last dates for filing GSTR-1 and GSTR-3B for
April-June 2019, notified: GSTR-1 for the
months of April, May and June 2019 are to be
filed till 11th day of the succeeding month by
registered persons having aggregate turnover of
more than INR 1.5 crore. For persons whose
turnover is up to INR 1.5 crore, this return for the
quarter April-June 2019 can be filed till 31-7-
2019. Further, Form GSTR-3B for each of the
months from April to June 2019, must be
furnished by twentieth day of the succeeding
month. Notifications Nos. 11 to 13/2019-Central
Tax have been issued on 7-3-2019 for this
purpose.
New return formats placed on GST portal:
Goods and Services Tax Network (GSTN) has
placed the proposed three return documents, as
approved by the competent authority, on the GST
Portal. The new formats, titled, normal, sahaj and
sugam, is likely to simplify the compliance
process for taxpayers having turnover of up to
INR 5 crore. The taxpayers would have an option
to file any of the three forms. It may however be
noted that HSN code at least at 6-digit level shall
have to be reported. As decided by the GST
Council, these forms will operate on a pilot basis
from 1-4-2019 and will be made mandatory only
from July 2019.
National Bench of GST Appellate Tribunal
notified: Ministry of Finance has notified creation
of National Bench of the Goods and Services Tax
Appellate Tribunal (GSTAT) at New Delhi.
Notification S.O. 1359(E), dated 13-3-2019 has
been issued under Section 109 of the Central
Goods and Services Tax Act, 2017 for this
purpose. It may be noted that the Allahabad High
Court in its Order dated 28-2-2019 in Torque
Pharmaceuticals v. UOI had directed the
government to give a cut-off date to set-up the
Tribunal. Union Cabinet had on 21-1-2019
approved setting-up of GSTAT.
GST incentives - Punjab to allow option: The
Punjab Cabinet has on 6-3-2019 approved an
amendment to the GST incentives notified under
the Industrial and Business Development Policy
2017, to enable industrial units to choose either
the Net GST incentive, as approved by the
Cabinet in October 2018, or incentivized SGST
on intra-State sale. As per official press release,
option must be exercised within 90 days of the
notification by units which had filed their common
application form on the Invest Punjab Business
First portal between October 17, 2017 and
October 17, 2018 (both days inclusive).
Ratio decidendi
Provisional attachment – Section 83 not
invokable against Directors: Gujarat High
Court has set aside provisional attachment of
bank accounts of directors of a company on the
ground that provisions of Section 83 of the CGST
Act can be invoked against the company, which
is a taxable person, and not against the directors.
The High Court also observed that when dues
cannot be recovered from a company, the same
can be recovered from directors under CGST
Section 89 unless they prove that such non-
recovery was not attributable to any gross
neglect, misfeasance or breach of duty on their
part. [H.M. Industrial (P) Ltd. v. Commissioner –
2019 (22) GSTL 13 (Guj.)]
Detention of goods not sustainable when
dispute is bona fide: Relying on Kerala High
Court judgement in the case of N.V.K.
Mohammed Sulthan Rawther v. UOI, the Madras
High Court has held that goods cannot be
detained when the dispute is bona fide and that it
is not open to the squad officer to detain goods
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beyond the reasonable period. The High Court
noted that only few hours are required to prepare
relevant papers for transmission to the assessing
officer. It directed the Commissioner to issue a
circular to all inspecting squad officers in Tamil
Nadu not to detain goods or vehicles where there
is a bona fide dispute as regards to the exigibility
of tax or rate of tax. [Jeyyam Global Foods v. UOI
- 2019-TIOL-28-HC-MAD]
Anti-profiteering – Passing of benefit by
retailer not dependent on manufacturer
passing the benefit: National Anti-profiteering
Authority has held that the registered supplier
issuing tax invoices on e-commerce platform is
equally responsible for passing benefits of tax
reduction and by increasing base price post rate
reduction, he had profiteered. It was observed
that passing of benefit by distributor or retailer
does not depend on passing such benefit by
manufacturer or his supplier to him first. The
Authority in this case agreed with the DGAP
report taking cum-tax price and rejected the plea
that average base price is to be used to compute
profiteering. It also held that the respondent had
not only increased the base price but also
collected GST on such price and hence was
liable to penalty. [Rahul Sharma v. Cloudtail India
Pvt. Ltd. – Order dated 7-3-2019 in Case No.
16/2019, NAA]
Anti-profiteering – Comparison can be made
with pre-GST tax rates: Observing that principle
of contemporanea exposito was not applicable in
interpreting Section 171 of the CGST Act, NAA
has held that the respondent cannot claim that
the term ‘Tax’ in Section 171 was not applicable
to non-GST levies like Central Excise duty. It
rejected the pleas that said section does not
extend to reduction in rate of tax as compared
with pre-GST indirect tax regime, and that only
reduction of tax rate in GST regime can be
considered. The Authority in this regard ruled that
respondent had indulged in profiteering as tax
incidence was reduced from 30.06% during pre-
GST to 28% and later 18% under GST regime.
[R.K. Gupta v. Abbott Healthcare Pvt. Ltd. –
Order dated 5-3-2019 in Case No. 15/2019, NAA]
Profiteering to be calculated as per period
owing to change in GST rates: NAA has upheld
the findings of the Director General of Anti-
Profiteering (DGAP) that the respondent involved
in construction of flats did not pass benefit of ITC
accrued post-GST to flat buyers / recipients. It
was held that provisions of Section 171(1) of the
CGST Act were contravened and the respondent
was also liable to penalty. Observing that in
construction of affordable housing, post-GST
rates were also reduced, the Authority held that
in cases of amendment in GST rates, profiteered
amount must be broken into two parts, i.e. from
1-7-2017 to 24-1-2018 and from 25-1-2018
onwards. [Ashok Khatri v. S3 Infrareality (P) Ltd. -
2019-VIL-06-NAA]
Valuation - Cost of tools billed to customer,
not includible: Appellate AAR Karnataka has
held that amortized cost of the tools
manufactured by the assessee and billed to the
customer but retained by the assessee for
manufacture of components for the customer, is
not to be added to arrive at the value of the
goods supplied. Overruling the AAR ruling, the
AAAR observed that according to the contract
between the assessee and the customer, there
was no obligation on the part of the assessee to
provide moulds/dies/tools. Reliance was placed on
CBIC Circular No. 47/21/2018-GST, dated 8-6-
2018. It was held that the value of the tools, which
had already suffered tax and supplied FOC to the
assessee, is not required to be added. [In RE:
Nash Industries (I) Pvt. Ltd. - 2019-VIL-08-AAAR]
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Lodging and food provided by private
boarding house is a mixed supply: Services of
lodging and food provided by a private boarding
house exclusively to the students of a secondary
school run by a charitable society is a mixed
supply, and hence is taxable at the highest
applicable rate. AAR West Bengal in its ruling
observed that services comprised of lodging
facility, food, housekeeping services and laundry
services, and were not indivisible. Exemption
under Notification No. 12/2017-Central Tax
applicant was not an educational institution. [In
RE: SARJ Educational Centre - 2019-TIOL-57-
AAR-GST]
ITC on ambulance purchased prior to 1-2-
2019 not available: AAR West Bengal has
denied input tax credit on ambulance purchased,
prior to 1-2-2019, by a manufacturer of
agricultural machinery for the benefit of the
employees under legal requirement of the
Factories Act, 1948. It observed that the
exception carved out under Section
17(5)(b)(iii)(A) of CGST Act is not applicable. The
Authority in its ruling observed that the eligibility
for claiming ITC under Section 16(1) is subject to
the provisions of the law at the time of
occurrence of the taxable event, irrespective of
when the claim is made. [In RE: Nipha Exports
Pvt. Ltd. - 2019-VIL-52-AAR]
ITC on inward supplies for construction of
pre-fabricated warehouse, not available:
Observing that a warehouse built with
prefabricated material is constructed with the
intention of use as permanent structure and
associated with beneficial enjoyment of the land
on which it is built, AAR West Bengal has held
that the same being immovable property, input
tax credit on inward supplies is not available. The
Authority while holding so, also observed that the
vendor is not supplying floor as prefabricated but
is developing floor space by fixing prefabricated
structure upon it. It also noted that the warehouse
cannot be conceived without beneficial
enjoyment of the civil structure embedded on
earth. Definition of “immovable property†in
Section 3(26) of the General Clauses Act, 1897
was referred. [In RE: Tewari Warehousing Co.
Pvt. Ltd. - 2019-VIL-47-AAR]
ITC on services of horticulture within plant
area available: Appellate AAR Odisha has held
that services availed in relation to horticulture, i.e.
plantation and gardening, within the plant area
including mining area and the premises of other
business establishments, shall qualify as input
service since creation and maintenance of green
area/zone inside plant/mining/office premises is a
business necessity for controlling pollution as
well as atmospheric temperature. The AAAR
however held that expenditure incurred towards
construction, reconstruction, renovation,
additions or alterations or repairs of the
residential colony would not be eligible for benefit
of input tax credit. Further, overruling the AAR
ruling to effectively disallow ITC on input and
input services for maintenance of guest house
transit house and trainee hostel, it was held that
these are in the nature of perquisites in favour of
the employees. [In RE: National Aluminium
Company Ltd. - 2019-VIL-07-AAAR]
Liaison office not acting as distinct person –
GST registration not required: AAR Tamil
Nadu has held that a liaison office acting as
communication channel between the parent
company abroad and Indian supplier of goods
and not charging any consideration for its
activities in India, is not liable to register itself
under GST. It observed that such office is neither
© 2019 Lakshmikumaran & Sridharan, India All rights reserved
11
TAX AMICUS March 2019
related nor a distinct person but merely an
extension of its foreign company (working as
employees of the foreign office) and therefore
activities performed by it do not constitute supply.
The Authority in its ruling held that procurement
activities in India, for a foreign company, when
acting strictly in line with RBI conditions, do not
Holding Gmbh - 2019-VIL-48-AAR]
No exemption under Notification No. 51/96-
Cus. to OEM suppliers supplying to specified
institutions: GST AAR Odisha has held that
benefit of Notification No. 51/96-Cus. read with
Notification No. 43/17-Cus. is not available to the
OEM supplier importing specified machinery and
supplying to research institution. It observed that
the applicant (research institute) can avail the
exemption benefit only if it directly imports or
purchases before the goods being imported into
the country cross the customs frontier. The
Authority however held that concessional rate
under Notification No. 45/17-Central Tax (Rate)
and 47/17-Integrated Tax (Rate) will be available
to both imported and indigenous goods. Question
whether GST Council’s decision is binding in the
absence of a notification, was answered in
negative, observing that exemption must be as
per the statutory notification. [In RE: Indian
Institute of Science Education and Research -
2019-TIOL-54-AAR-GST]
Payback points not redeemed by customers
are not actionable claim: AAAR Haryana has
held that supply of providing payback points
under loyalty programme of the partner clients to
the end customers, ceases to be actionable claim
post lapse of validity period for the claim. The
Appellate Authority was of the view that such
supply would hence become a supply of service
liable to GST. The AAAR in its ruling upheld AAR
ruling holding that amount retained in lieu of
expiry of payback points is supply of services
attracting GST. It observed that since the
consideration for the unredeemed payback points
has flown from the partners, the same has
become applicant’s revenue after expiry of
validity period. [In RE: Loyalty Solutions and
Research P. Ltd. - 2019-VIL-05-AAAR]
EU VAT - Motor vehicle driving tuition is not
school or university education: CJEU has held
that motor vehicle driving tuition by a driving
school for acquiring licences to drive vehicles, is
not exempt from VAT. The EU Court in this
regard held that such tuition is not covered by the
exemption in VAT Directive for ‘school or
university education’. It held that such tuition,
even if it covers a range of practical and
theoretical knowledge, is not transfer of
knowledge and skills covering a wide and
diversified set of subjects or their furthering and
development which is characteristic of school or
university education. [A & G Fahrschul-Akademie
v. Finanzamt Wolfenbüttel – Judgement dated
14-3-2019 in Case C‑449/17, CJEU]
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12
TAX AMICUS March 2019
Notifications and Circulars
MEIS benefit on exports directly from
EOU/SEZ on behalf of DTA unit: Export of
goods produced by the EOU/SEZ unit and
exported directly from the EOU/SEZ to the
foreign consumer with the name of DTA unit on
whose behalf the exports are made, are eligible
for the benefits under Merchandise Exports from
India Scheme (MEIS). According to the DGFT
Policy Circular No. 20/2015-20, dated 22-2-2019,
MEIS benefits may be taken by SEZ/EOU or DTA
unit and not both, based on disclaimer from the
other firm. Certain criterion as specified in the
circular, however, need to be fulfilled for availing
such benefit.
Printing of Advance/EPCG Authorisation on
security paper to be discontinued: DGFT will
discontinue printing of advance authorisations
and EPCG Authorisations where port of
registration is an EDI port. This system is
applicable for authorisations issued from 1-3-
2019 onwards. Details of authorisation will be
available on ICES and process of registration of
authorisations and taking bond/bank guarantee
remain unchanged. According to CBIC Circular
No. 7/2019-Cus., dated 21-2-2019, no physical
copy of even amendment will be sought from
authorisation holder. TRA facility would however
not be available for such authorisations.
SEZ – Value of indigenous inputs not
includible in net forex earning: Ministry of
Commerce has amended Special Economic
Zone Rules, 2006 to provide that sum of value of
inputs in the formula for calculating positive net
foreign exchange [B in formula A-B>0], will not
include value of indigenous inputs, used for
authorised operations. It may be noted that prior
to 21-9-2018 the position was same and the
reference to indigenous inputs was inserted in
Rule 53 of SEZ Rules by Notification dated 19-9-
2018. SEZ Notification No. G.S.R. 200(E), dated
7-03-2019 has been issued for this purpose.
Trust can also establish SEZ – SEZ
(Amendment) Ordinance promulgated:
President of India has, on 2nd of March,
promulgated the Special Economic Zones
(Amendment) Ordinance, 2019. According to the
latest amendments, which came into effect from
2nd of March 2019, trust or any entity notified by
the Central Government, can also establish a
Special Economic Zone for manufacture of goods
or for rendering of services. Definition of ‘person’
as available in clause (v) of Section 2 of the
Special Economic Zones Act, 2005 has been
amended for this purpose. The Union Cabinet
had approved the Ordinance on 28-2-2019.
Transport and Marketing Assistance scheme
for agriculture produce approved: Central
government has approved a scheme titled
Transport and Marketing Assistance (TMA) for
specified agriculture produce. This scheme will
provide for reimbursement of international
component of freight and marketing assistance
for export by air as well as by the sea. It will
mitigate disadvantages of higher cost of
transportation of export of specified agriculture
products and promote brand recognition for
Indian agricultural products in the overseas
market. Department of Commerce & Industry has
issued a notification on 27-02-2019 in this regard.
Customs
© 2019 Lakshmikumaran & Sridharan, India All rights reserved
13
TAX AMICUS March 2019
Ratio decidendi
Valuation – Demurrage not includible –
Explanation to Valuation Rule 10(2) is bad:
Observing that demurrage is a kind of penalty
and that the legislature did not intend to include it
in the value of goods under Section 14 of the
Customs Act, 1962, Orissa High Court has held
that provisions for inclusion of demurrage
charges, under the Customs Valuation Rules, are
ultra vires Section 14 of Customs Act.
Explanation to Rule 10(2) was hence struck
down. Observing that the provisions in the
Customs Act were silent about demurrage, the
High Court held that it is beyond the legislative
powers to include demurrage charges in the rules
for Customs valuation. Supreme Court
judgements in Wipro ltd, Essar Steel Ltd. and
Mangalore Refinery and Petrochemicals Ltd.
were relied on. [Tata Steels v. UOI – W.P.(C) No.
7917 of 2009, decided on 14-2-2019, Orissa High
Court]
Advance authorisations – ‘Prior import
condition’ quashed: Gujarat High Court has
quashed the ‘pre-import condition’ under
Advance Authorisation regarding prior imports for
manufacture of export goods. The Court
observed that the government cannot grant
benefit by one hand and take it away by other
and say that it is up to the beneficiary to take it or
leave it. It observed that such condition, after
introduction of GST, lead to cash blockage and
made imports under Advance Authorisation next
to impossible. The condition was also held as not
meeting test of reasonableness. It may be noted
that this condition was in force from 13-10-2017
to 9-1-2019. [Maxim Tubes Company Pvt. Ltd. v.
Union of India - R/Special Civil Application No.
14558 of 2018 and Ors., decided on 4-2-2019,
Gujarat High Court]
Green pepper as raw produce to be classified
as vegetable and not as pepper: CESTAT
Bangalore has held that green pepper as raw
produce shall be classified as a vegetable under
Chapter 07 of the Customs Tariff and it can be
classified as spice under Chapter 09 only when it
is dried and processed. It observed that the
goods classifiable under specific item cannot be
classified under residuary item. The Tribunal in
this regard held that all the products of ‘pepper
vine’ do not necessarily fall in the chapter
pertaining to spices and that spice is not the
produce of the plant but the product of
processing of such produce. [Herbal Isolates (P)
Ltd. v. Commissioner – 2019 (365) ELT 820 (Tri.
– Bang.)]
No penalty on CHA for exports without Let
Export Order: In a case involving loading of
export containers without Let Export Order
(LEO), CESTAT Mumbai has set aside penalty
on the Customs House Agent. It held that
restriction on placing goods on board without
proper clearance is applicable to person-in-
charge of conveyance, or custodian, and not to
CHA. The Tribunal also noted that contents of the
container were not in breach of any prohibition.
Department’s plea that there was substantial
lapse on part of the CHA in handing over
containers without first obtaining clearance under
Section 51 of the Customs Act, 1962, was
rejected. [Delta Logistics v. Commissioner -
Order No. A/85297/2019, dated 15-2-2019,
CESTAT Mumbai]
Anti-dumping duty not to be imposed on
second hand machinery: CESTAT Chennai has
held that import of second hand machinery
cannot be subjected to imposition of anti-
dumping duty (ADD) meant for new machinery. It
observed that purpose of anti-dumping is served,
in case of second-hand machinery, by way of re-
© 2019 Lakshmikumaran & Sridharan, India All rights reserved
14
TAX AMICUS March 2019
appraisement of declared value, and imposition
of ADD would be nothing but double jeopardy.
The Tribunal while holding so, dismissed the
appeal for ADD imposition and for transfer of the
matter to the ADD Bench. It also observed that
anti-dumping duty notification which came in
2009, cannot be back-pedalled to be imposed on
goods which have been manufactured and
exported in 2007 from a particular country.
[Commissioner v. Trinity Exporters - Final Order
No. 40357/2019, dated 20-2-2019, CESTAT
Chennai]
Ratio decidendi
Job work of textile goods – Liability under
Excise Rule 12B explained: Noting that Central
Excise Rule 12B and the notification talked about
‘aggregate value’ of clearances of job worker, the
Supreme Court has held that assessee
manufacturing textiles through job workers would
be liable once aggregate value crossed the
threshold. The Apex Court rejected assessee’s
reliance on third illustration in CBEC Circular
dated 30-10-2003. It held that third illustration did
not fit in the scheme of Rule 12B. The assessee
had pleaded that liability will be only in respect of
a particular job worker whose clearance had
exceeded threshold. [Dinesh Textiles v.
Commissioner - Civil Appeal Nos. 9740-9741 of
2018, decided on 28-2-2019, Supreme Court]
Refund claim by buyer and manufacturer to
be treated differently: Supreme Court has
rejected time-barred refund claim of central
excise duty by the buyer, in a case where duty
was paid under protest by the manufacturer-
seller. It observed that scheme of Excise Section
11B makes a distinction between rights of a
manufacturer and that of the buyer. Supreme
Court’s earlier decision in the case of CCE v.
Allied Photographics India Ltd. was relied on. The
Apex Court hence refused buyer’s refund claim
filed beyond period of limitation, for which excise
duty was paid by the manufacturer under protest
and was never claimed though decided in favour
by the court. [Western Coalfields Ltd. v.
Commissioner - Civil Appeal No(s). 807 of 2006
and Ors., dated 20-2-2019, Supreme Court]
In-house corporate guarantee not liable to
service tax: CESTAT Chennai has held that
commission received/paid for issuance of
corporate guarantee to associate/subsidiary
companies is not exigible to service tax under
Section 65(12)(a)(ix) of Finance Act, 1994. The
Tribunal observed that corporate guarantee is not
same as bank guarantee since corporate
guarantee is an in-house guarantee issued to
safeguard financial health of associate
enterprises and is not issued to customers
generally. It was also held that only the services
listed in Section 65(12)(a)(ix) ibid would be
exigible to service tax under Banking and Other
Financial Services. The Tribunal in this regard
also observed that it was also not the case that
the corporate guarantee was issued / procured to
enable the bank to issue bank guarantee.
[Sterlite Industries v. Commissioner - Final Order
No. 40318/2019, dated 19-2-2019, CESTAT
Chennai]
Central Excise and Service Tax
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15
TAX AMICUS March 2019
Service tax exemption to transport from
factory to gateway port – Conditions: CESTAT
Delhi has held that exemption under Notification
No. 31/2012-ST, to transportation of goods from
factory to the gateway port, cannot be denied for
belated filing of declaration EXP-1, EXP-2. Delay
in submission of form was of 22 days. The
Tribunal while holding so, observed that once
form EXP-1 was filed it would be valid till details
therein change. It was held that the form was not
required to be given with each consignment, as
the form did not contain the details of the
particular consignment. [Makson Healthcare Pvt.
50299/2019, dated 21-2-2019, CESTAT Delhi]
Cenvat credit reversal - Exempted value
cannot be used in formula: CESTAT Chennai
has held that where a portion of taxable service is
exempt, it is not justified in considering exempted
portion also in the formula for determining
amount of Cenvat credit to be reversed. The
appellant had availed exemption for 90% of the
value of Financial Leasing services under
Notification No. 4/2006-S.T. Tax was demanded
considering this 90% as exempted service under
Cenvat Rule 6(3A) formula. Tribunal observed
that service is not wholly exempted and cannot
be considered as exempted services. [Sundaram
Finance v. Commissioner - 2019-VIL-127-
CESTAT-CHE-ST]
Commission paid by exporter to foreign
subsidiary – Exemption: CESTAT Allahabad
has held that benefit of service tax exemption
was available on commission paid by exporter to
its foreign based subsidiary for procurement of
orders from foreign companies. It noted that
denial of exemption would apply only in cases
where export was made to own joint venture or
wholly owned foreign subsidiary. The Tribunal
held that benefit of exemption from service tax
under Notification No. 18/2009-ST was available
on such commission paid to own subsidiary
company. The demand was also held as time-
barred. [Super House Limited Shoe Div. v.
Commissioner - 2019-VIL-111-CESTAT-ALH-ST]
Cenvat credit on GTA services when goods
cleared on FOR basis: CESTAT Ahmedabad
has held that Cenvat credit was available on GTA
services for delivering goods to buyer’s doorstep,
in a case involving both MRP and non-MRP
sales. Period involved was after 1-4-2008. The
Tribunal observed that goods were cleared on
FOR basis and freight/damages in transit was
responsibility of assessee. Supreme Court
judgement in Ultratech was distinguished noting
that it did not consider Point of Sale or FOR price
issue. CBIC Circulars dated 22-12-2014 and 23-
8-2007, as in force during relevant time, were
relied upon. [Sanghi Industries v. Commissioner -
Final Order No. A/10374-10375/2019, dated 25-
2-2019, CESTAT Ahmedabad]
Appeal – Filing of appeal for different units at
principal place of business: In a case for
refund claims pertaining to different units,
CESTAT Ahmedabad has held that appeal can
be filed at principal place of registration since
under GST regime there is centralization of State
jurisdiction. Appeal before Commissioner
(Appeals) having jurisdiction over principal place
of business, was held to be correct. The Tribunal
also relied on CBIC Circular No. 1056/05/2017-
CX, meant for large taxpayer units (LTU). The
department had contended that Commissioner
(Appeals) Rajkot erred in admitting appeals
pertaining to a unit located at Dahej.
[Commissioner v. Reliance Industries - 2019-VIL-
163-CESTAT-AHM-CE]
© 2019 Lakshmikumaran & Sridharan, India All rights reserved
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TAX AMICUS March 2019
Ratio decidendi
State enactment for saving VAT recovery post
GST, valid: Kerala High Court has held that
Kerala VAT Act does not stand fully repealed with
the 101st Amendment to the Constitution and
that the State has legislative powers to enact
saving clause under Section 174 of the Kerala
GST Act allowing department to levy and recover
VAT for transactions prior to GST. It rejected the
plea that States have been denuded of the
legislative power to enact Section 174 because
of the amendment to Entry 54 of List II of
Seventh Schedule to the Constitution of India. It
observed that there is always a presumption in
favour of the constitutionality and where the
validity of a statute is in question, the
interpretation which makes the law valid is
preferred. The High Court hence upheld the
constitutional validity of Section 174 providing for
repeal and savings and rejected as inapplicable
the petitioners’ other propositions, the survival of
the sunset clause, the impact of a temporary
statute, and inapplicability of Section 6 of the
General Clause Act vis-Ã -vis a repealed
enactment. [Sheen Golden Jewels v. STO -
WP(C). No. 11335 of 2018, decided on 11-1-
2019, Kerala High Court]
Levy of advertisement tax by State govt is
ultra vires post 101st amendment: Allahabad
High Court has held that levy and collection of
Advertisement Tax by Nagar Palika Parishad,
Hathras is without legislative/statutory
competence and is ultra-vires Article 265 of the
Constitution. The High Court observed that by
101st Amendment to the Constitution, Entry-55 of
List-II of Seventh Schedule to Constitution of
India, under which State government had
competence to levy/collect advertisement tax,
was omitted. It noted that taxation power with
municipalities under Section 128(2)(vii) of the UP
Municipalities Act stood omitted by Section 173
of the UPGST Act. [Pankaj Advertising v. State of
U.P. - 2019-VIL-70-ALH]
Value Added Tax (VAT)
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17
TAX AMICUS March 2019
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