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Tax Amicus - April 2019

Lakshmikumaran & Sridharan
MEMBER FIRM OF TerraLex

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India April 25 2019

Expenses incurred on CSR - Not so GST friendly?

One of the major advantages under the GST regime is the unlocking of tax credits, a lot of which was not available in the erstwhile Indirect tax regime. While the earlier legislations imposed

numerous restrictions on credits, such conditions

are now a lot relaxed with Section 17(5) of the

CGST Act mentioning a list of supplies for which

credit is not available.

ITC provisions under CGST Act

We will now discuss ITC implications of

expenses incurred for meeting obligations under

certain other laws. According to Section 16(1) of

the CGST Act, every registered person is entitled

to take input tax credit on supplies of goods or

services or both used in the course or

furtherance of business. This is unlike the

erstwhile Cenvat credit regime where credit was

available only if the goods/ services were

covered by the definition of inputs, input services

or capital goods. Further, according to Section

17(5) of the CGST Act, input tax credit is not

available in respect of supplies listed therein,

notwithstanding anything contained in Section

16(1) of the CGST Act.

Therefore, based on the above-mentioned

provisions it can be said that input tax credit is

available for any inward supply which is used in

the course or furtherance of business, unless it is

covered by the negative list mentioned under

Section 17(5) of the CGST Act. The expression

‘course or furtherance of business’ appears to be

very wide in scope and therefore, it is said that

the a lot of tax credits are now available under

GST which were not available earlier. Let us now

discuss whether credit can be availed for

expenses incurred in meeting various statutory

obligations.

Mandatory nature of CSR and business purpose

One such obligation is that of corporate

social responsibility (‘CSR’). According to Section

135 of Companies Act, 2013, every company

subject to a specified threshold has to spend

atleast 2% of its net profit for CSR. Companies

may incur expenses either on procurement of

goods or services for distribution. Given that GST

regime is that of minimum exemptions, most of

such procurements involve a GST component as

well. Therefore, if credit is not available for any

such expense, it will amount to an additional cost

on account of CSR.

CSR is mandatory under Companies Act,

2013 and accordingly, non-compliance with such

requirements can have implications for

businesses. Therefore, one may argue that such

expenses are incurred in the course or

furtherance of business.

Cenvat credit on CSR under earlier regime

In the case of Essel Propack v.

Commissioner [2018-TIOL-3257-CESTAT-

Mumbai], CESTAT observed that CSR is not in

the nature of charity as it has got a direct bearing

on the manufacturing activity of the company

which is largely dependent on smooth supply of

raw materials. Further, it augments the credit

rating of the company and its standing in the

Article

© 2019 Lakshmikumaran & Sridharan, India All rights reserved

3

TAX AMICUS April 2019

corporate world. The Tribunal thus held that such

expenses are incurred to win the confidence of

the stakeholders and shareholders. It also noted

that CSR which was a mandatory requirement for

the public sector undertakings, has been made

obligatory also for the private sector and unless

the same is to be treated as input service in

respect of activities relating to business,

production and sustainability of the company

itself would be at stake. Hence, Cenvat credit

was allowed to the appellant.

Advance ruling on CSR in GST regime

The authorities have however not been so

generous under GST. In the case of Polycab

Wires Pvt Ltd reported at 2019-VIL-100-AAR, the

applicant had distributed electrical goods to

people affected by flood in Kerala against

discharge of its CSR obligations. The Kerala AAR

held that the applicant distributed electrical items

on free basis without collecting any money and

for these transactions input tax credit would not

be available as per Section17(5)(h) of the

KSGST Act and CGST Act. Therefore, it can be

seen that the provisions of Section 17(5)(h) of the

CGST Act are invoked to deny ITC of goods

distributed free of cost for meeting CSR

obligations.

ITC on services used for CSR

Let us now discuss the provisions of Section

17(5)(h) of the CGST Act. According to this sub-

section, ITC is not available for “goods lost,

stolen, destroyed, written off or disposed of by

way of gift or free samplesâ€. It is to be seen that

the said sub-section merely places ITC restriction

on free distribution of goods and does not restrict

ITC on provision of services for free. In the case

of CIT v. Ajax products Ltd reported at (1965) 55

ITR 741, the Apex Court had held that there was

no scope for intendment where the words used

by the legislature were clear and unambiguous.

Therefore, the restriction under Section 17(5)(h)

cannot be made applicable on free provision of

services.

Therefore, two different tax treatments

appear to apply for the very same nature of

expense - goods and services. The scope of ITC

was already wide in GST and has been further

widened under the CGST (Amendment) Act. It is

time that the government brings in benevolent

amendment to ensure that ITC is allowed for

distribution of goods and services alike for CSR.

This will encourage the industry to come forward

for taking up similar projects of CSR which

otherwise requires government support.

[The author is a Senior Associate, GST

Practice, Lakshmikumaran & Sridharan, New

Delhi]

Notifications and Circulars

New regime for residential realty sector

implemented: CBIC has issued notifications,

effective from 1-4-2019, for the implementation of

GST rate of 1% in case of affordable houses and

5% on construction of houses other than

affordable houses. The new rates are

mandatorily applicable for new projects

commencing from 1st April. For on-going projects

which had commenced before 1st April,

promoters will have to exercise option by 10th

May if they wish to continue to pay tax at the old

Goods and Services Tax (GST)

© 2019 Lakshmikumaran & Sridharan, India All rights reserved

4

TAX AMICUS April 2019

rate. It may be noted that otherwise, it will be

deemed that they have opted to adopt the new

rate. Few conditions however, must be adhered

to if the new lower rate is chosen. While ITC is

not available in case of new rates, promoters are

also required to purchase from GST-registered

suppliers and if such purchases fall below 80% of

the value of inputs and input services, GST will

be required to be paid by the promoter under

reverse charge mechanism at the rate of 18%.

GST at rate of 28% is however required to be

paid by the promoter if cement is procured from

unregistered suppliers, even in case where

condition of 80% inputs and input services from

registered suppliers is fulfilled. A promoter is also

required to maintain project wise account of

inward supplies from registered and unregistered

suppliers and calculate tax payments on the

shortfall at the end of the financial year.

Further, Transfer of Development Rights (TDR)

and payment of upfront amount payable in

respect of grant of long term lease, on or after 1st

of April by the landowner to the developer will be

exempt. Such exemption, however, is not

available on the part of the value of such rights

attributable to units remaining un-booked at time

of receipt of completion certificate. In these

cases, GST will be payable on TDR and upfront

amount for lease, on proportionate basis under

RCM by the promoter. Notification Nos. 3 to

8/2019-Central Tax (Rate), all dated 29-3-2019

and effective from 1-4-2019 have been issued in

this regard.

Composition scheme for suppliers of goods

or services or both – Reversal of ITC availed:

As per Notification No. 2/2019-Central Tax

(Rate), suppliers of goods or services or both

upto an aggregate turnover of Rs. 50 lakh, can

opt to pay GST @ 6% (3% CGST + 3% SGST)

and not collect any tax from the recipient on such

supplies. Benefit of ITC is also not available to

suppliers taking benefit of this notification. Now

this notification has been amended by

Notification No. 9/2019-Central Tax (Rate), dated

29-3-2019 (effective from 1-4-2019) to provide for

payment of tax equivalent to the credit of input

tax in respect of inputs held in stock and inputs

contained in semi-finished or finished goods held

in stock and on capital goods. New clause 8 also

states that the balance of input tax credit, if any,

lying in the electronic credit ledger will lapse.

Further, as per new clause (iii) in the Explanation,

CGST Rules, 2017, as applicable to a person

paying tax under CGST Section 10, shall apply to

a person paying tax under Notification No.

2/2019-Central Tax (Rate). Also, as per Circular

No. 97/16/2019-GST, dated 5-4-2019, a

registered person who wishes to opt for benefit of

said notification shall file intimation in Form GST

CMP-02 by selecting the category of registered

person as “Any other supplier eligible for

composition levyâ€. Such person would also be

required to furnish a statement in Form GST ITC-

03.

Refund of accumulated ITC to merchant

exporter clarified: Refund of accumulated input

tax credit to merchant exporter where supplies

are received by him after availing benefit under

Notification No. 40/2017-Central Tax (Rate) or

41/2017-Integrated Tax (Rate) has been clarified

by CBIC. According to Circular No. 94/13/2019-

GST, dated 28-3-2019, this refund of

accumulated ITC under CGST Rule 89(4B) must

be applied under the category ‘any other’ instead

of ‘refund of unutilized ITC on account of exports

without payment of tax’. Refund claim shall be

filed in the Form GST RFD-01A.

E-way Bill – New forthcoming system for

extension: Provision to extend e-way bill, when

goods are in transit, are being incorporated in the

next version of e-way bill system. According to an

update on website ewaybill.nic.in, during the

extension, user will be prompted to answer

© 2019 Lakshmikumaran & Sridharan, India All rights reserved

5

TAX AMICUS April 2019

whether the consignment is in transit or in

movement. On selection of in transit, address

details of transit place are required, while place

and vehicle details are required on selection of in

movement. In both scenarios, destination pin

code will be considered from Part-A for

calculation of distance for movement and validity

date.

E-way Bill – Auto calculation of distance:

Government has released an update on

forthcoming changes in e-way bill system. The

system is being enabled to auto calculate route

distance for movement of goods, based on postal

pin codes of source and destination. User would

however be allowed to enter actual distance,

which will be limited to 10% more than displayed

distance. According to update released on 25-3-

2019 on website ewaybill.nic.in, in case, source

PIN and destination PIN are same, the user can

enter up to 100 km. If the PIN entered is

incorrect, the system would alert the user.

Transfer of ITC in case of death of sole

proprietor – Clarification: CBIC has clarified

that transfer or change in the ownership of

business will include transfer or change in the

ownership of business due to the death of the

sole proprietor. It is also stated that the

transferee / successor shall be liable to pay any

tax, interest or any penalty due from the

transferor in cases of transfer of business due to

death of sole proprietor. Circular No. 96/15/2019-

GST, dated 28-3-2019 further clarifies that in

case of transfer of business on account of death

of sole proprietor, the transferee / successor shall

file Form GST ITC-02 in respect of the

registration which is required to be cancelled on

account of death of the sole proprietor, before

filing the application for cancellation of such

registration by the legal heirs.

Ratio decidendi

Confiscation when case on search validity

pending before HC, not correct: Observing that

CGST Section 130(4) prescribes grant of hearing

opportunity prior to confiscation, Allahabad High

Court has remanded the matter for fresh

adjudication. The assessee in this case had

requested the authorities to defer adjudication on

confiscation as issue of validity of search was

engaging High Court’s attention. The High Court

held that the authorities should have awaited

outcome of the challenge. It also observed that

substantive due process under Section 67 is

essential before a search and that the Court in

exercise of powers under Article 226 of the

Constitution cannot go on sufficiency of reasons.

[Rimjhim Ispat v. State of UP - Writ Tax No. 619

of 2018, decided on 15-3-2019, Allahabad High

Court]

Fraudulent availing of ITC - Summon justified

on MD: Rajasthan High Court has upheld the

summons issued to MD of a company in a case

of ITC availment on the basis of fake invoices.

Plea of residing in USA and not involved in day-

to-day activities was rejected, observing that

petitioner was receiving managerial remuneration

from the company since 2012 and became its

MD in 2018. Dismissing the petition with costs,

the High Court also observed that allegation of

fraudulent ITC was not controverted, and that

determination of tax was not required in an

offence under Section 132. Delhi High Court

decision in Make My Trip, was distinguished.

[Bharat Raj Punj v. Commissioner – 2019 VIL

113 RAJ]

No GST on interest free deposit if not

withheld at completion of lease: In a case

involving interest free security deposit, taken from

lessee as security against damages during lease

of premises, Maharashtra AAR has held that

deposit received is not a consideration for supply

© 2019 Lakshmikumaran & Sridharan, India All rights reserved

6

TAX AMICUS April 2019

made by assessee-applicant and hence no GST

is payable. It observed that applicant will not

apply such deposit as consideration as entire

amount is returned back to the lessee. The AAR,

however, observed that if at time of completion of

lease tenure, the amount or part of it is withheld

as charge against damages, then that amount

would be liable to GST. [In RE: E-Square Leisure

Pvt. Ltd. – 2019 TIOL 121 AAR GST]

Exemption available only to clinical

establishments providing healthcare: Madhya

Pradesh AAR has held that exemption provided

under S.No.74 of Notification No.12/2017-Central

Tax (Rate) is service specific and service

provider specific, therefore to qualify an

establishment must satisfy the dual condition of

providing healthcare services as well as being a

clinical establishment. The applicant had pleaded

that it is ancillary to other clinical establishment

accredited by National Accreditation Board for

Testing and Calibration Laboratories (NABL).

However, the AAR held that mere involvement in

sophisticated testing and consultancy will not be

sufficient to qualify as a clinical establishment. It

was also observed that applicant was functioning

as sub-contractors to the said accredited

companies and not as an independent clinical

establishment. [In RE: J C Genetic India Pvt. Ltd.

– 2019 VIL 108 AAR]

Exemption from GST on reverse charge basis

under Section 9(4) not retrospective:

Maharashtra AAR has held that Notification No.

38/2017-Cental Tax (Rate), dated 13-10-2017

exempting supply of goods and services received

from unregistered person, which are liable under

reverse charge mechanism under CGST Section

9(4), is not available for the period prior to 13-10-

2017. It was held that RCM is applicable on the

transactions effected from 1-7-2017 till 12-10-

2017. The AAR observed that if the notification

does not clearly stipulate that it is retrospective, it

shall be considered as prospective. Supreme

Court’s decision in Garikapatti Veeraya v. N

Subbiah Choudhury was relied on. [In RE:

Famous Studios Ltd. – 2019 VIL 109 AAR]

Works contract pertaining to railways – Lower

tax rate for sub-contractor: In a case involving

works contract services provided by a sub-

contractor to the main contractor in respect of

work relating to railways, AAAR has held that

benefit under Sl. No. 3(v) of Notification No.

11/2017-Central Tax (Rate) as amended by

Notification No. 1/2018-Central Tax (Rate) is

available to the sub-contractor. AAAR

Maharashtra held that composite supply of works

contract is ultimately going to the use of railways

without being subjected to any change or

modification, and thus said works contracts is

‘pertaining to the railways’. The work was hence

held as eligible for concessional rate of GST.

Department’s contention that there is no specific

mention of sub-contractor providing services in

Sr. 3(v), was rejected. [In RE: Shree Construction

– 2019 VIL 33 AAAR]

ITC available only on discounted invoice

value: In a case involving post-invoice discount

where discount cannot be pre-determined or

recorded in invoices and supply of goods is made,

AAR Tamil Nadu has held that buyer can avail ITC

only on proportionate GST as applicable on

invoice value less the discounts. Proviso to CGST

Section 16 on payment towards value of supply

along with tax amount to supplier within 180 days

was relied on. The Authority in this regard held

that Section 15(3) will not apply where discount is

given after invoices are raised and supply of

goods is made. The AAR observed that if ITC is

availed on full tax amount, difference should be

reversed to avoid liability. The applicant had

argued that since the discount was not eligible for

exclusion from taxable value and tax would be

paid on full invoice value, no credit was reversible

and the entire tax amount would be available as

credit. [In RE: MRF Ltd. – 2019 VIL 71 AAR]

© 2019 Lakshmikumaran & Sridharan, India All rights reserved

7

TAX AMICUS April 2019

IGST liable on hospitality services provided in

SEZ to visitors from DTA: Gujarat AAAR has

upheld the AAR ruling on GST liability of a hotel

located in non-processing zone of SEZ in respect

of hospitality services provided to visitors from

DTA. Plea that IGST is not applicable since SEZ

is deemed to be outside the territory of India, was

hence rejected. Rejecting the appeal, Appellate

AAR observed that clarification with regard to

SEZ being deemed as port under Section 7 of

the Customs Act will not be applicable as it was

issued for customs bonded warehouse. Reliance

placed by the appellant on Section 53(2) of the

SEZ Act, 2005 and Circular Nos. 46/2017-Cus.,

dated 24-11-2017 and 3/1/2018-IGST dated 25-

5-2018 in their appeal, was not accepted. [In RE:

Sapthagiri Hospitality (P) Ltd. - 2019 VIL 19

AAAR]

No ITC if goods supplied under CSR activity

on FOC basis: Referring to Section 17(5)(h) of

the CGST Act, 2017 which restricts ITC with

respect to goods that are disposed of by way of

gift or free samples, Kerala AAR has held that

ITC will not be available to the manufacturer on

supply of electrical items to the flood affected

people under CSR activity on FOC basis. The

Authority, however, held that the distributors of

the applicant-manufacturer who had supplied

goods to Kerala State Electricity Board on the

instructions of the applicant will be entitled to

avail ITC on such goods as the goods were

supplied to KSEB and GST was paid to the

Government by the distributors with respect to

the goods. [In RE: Polycab Wires Pvt. Ltd. – 2019

VIL 100 AAR]

No ITC on goods supplied free under sales

promotion scheme: Maharashtra AAR has held

that ITC is not available to the assessee on

procured gold coins to be distributed to its

customers for free of cost under a sales

promotion scheme at the end of scheme period

for achieving the stipulated lifting or payment

criteria. It was held that only use of goods in the

course of furtherance of business as mentioned

in Section 16(1) of CGST Act does not entitle one

to avail ITC since Section 17(5) starts with

“Notwithstanding anything contained in sub-

Section (1) of Section 16â€. The Authority was of

the view that considering the bar to avail credit by

virtue of Section 17(5)(h), even in a case where

the goods are used in the course or furtherance

of business, ITC shall not be available on

distribution of gold coins for free as gifts under a

sales promotion scheme. It also elaborated on

the meaning of “gifts†as assigned under the Gift

Tax Act, 1958 and observed that gift was a

transfer of property without consideration which

was given voluntarily. [In RE: Biostadt India

Limited – 2019 VIL 60 AAR]

Job work – Dispatch of consumables to job

worker is not ‘supply’: The question before the

Authority was whether dispatch of consumable

materials (zinc, furnace oil, nickel, etc.) for

galvanization, would be treated as supply from

the principal to the job worker, if they were not

returned within the time allowed under Section

143(1)(a) of the CGST Act, 2017. Answering this

question, the AAR West Bengal held that as the

goods were consumed in the process, the return

of the galvanized goods to the applicant would

satisfy the condition of receiving back the inputs

in accordance with Section 143(1)(a). It was also

held that as the goods were consumed in the

process of galvanizing and became inseparable

from the galvanized goods, they shall not be

treated as supply in terms of Section 143(3)

provided they have been entirely used up in the

process of galvanizing. [In RE: Ratan Projects &

Engineering Co. Pvt. Ltd. – 2019 VIL 91 AAR]

ITC available on cars further leased out:

Madhya Pradesh AAR has held that applicant,

providing cars on lease and charging outward

GST, is eligible to claim ITC as it falls under

exception of ‘further supply of such vehicles or

© 2019 Lakshmikumaran & Sridharan, India All rights reserved

8

TAX AMICUS April 2019

conveyance’ under CGST Section 17(5) and

satisfies the conditions before and after

amendments from February 2019. It held that the

term ‘further’ prefixed to ‘supply’ does not

differentiate it from the term ‘supply’ as construed

under GST, making the applicant eligible for

availing ITC on supply of tax paid motor vehicles

on monthly lease. It was, however, held that held

that at the termination of lease agreement, if the

vehicle is not further leased to same or other

customer, the applicant will be liable to reverse

the ITC so availed as per the law. [In RE:

Narsingh Transport – 2019 VIL 107 AAR]

ITC of Compensation Cess paid on motor

vehicles not available for supply of rental

service: The applicant was engaged in supply of

renting of motor vehicles and then their disposal

after some time. The Kerala AAR has held that

such applicant was eligible to claim ITC of

Compensation Cess paid at the time of purchase

of motor vehicles but would be required to

reverse proportionate amount of ITC of such cess

every month based on the turnover of rental

service as the same was an exempt supply, not

being liable to cess under GST (Compensation to

States) Act, 2017. It held that such ITC can be

utilized for discharging liability of Compensation

Cess arising at the time of sale of such vehicles.

The Authority in this regard relied on Section 2(p)

of the GST (Compensation to States) Act which

defines the term “taxable supply†under the said

Act and referred to definition of ‘exempt supply’

as provided in CGST Act. [In RE: Orix Auto

Infrastructure Services Limited – 2019 VIL 98

AAR]

Fabrication of body on chassis supplied by

principal is supply of service: Kerala AAR has

held that the activity of fabrication of a body is in

the nature of adding a structure (any treatment

done) on the chassis owned by the customer,

and hence even when the job worker used his

own material to do the fabrication on the chassis,

it will be considered as supply of service and will

be classified under SAC Code 9988, thereby

attracting 18% GST. The Authority observed that

chassis was a semi-finished good owned by the

principal and any treatment done by any other

party on the chassis of the principal was in the

nature of job work activity. [In RE: Kondody

Autocraft (India) Pvt. Ltd. – 2019 VIL 97 AAR]

EU VAT - Place where educational course

takes place is ‘place of supply’: CJEU has held

that the place where educational courses were

organised will be considered as actual place of

supply for VAT purposes, irrespective of place

where registration and payments for said course

took place. The Court held that the expression

‘services in respect of admission to events’ with

respect to five-day course on accountancy will be

included in the meaning of common system of

VAT as per which place where educational event

is held will be considered as place of supply.

[Skatteverket (Swedish Tax Authorities) v. Srf

Konsulterna AB – Judgement dated 13-3-2019 in

Case C‑647/17, CJEU]

UK VAT – Supply of skates along with right to

admission, separate supply: UK’s Upper

Tribunal (Tax and Chancery Chamber) has set

aside the First-tier Tribunal (Tax Chamber)

decision which had held that supply of ‘skating

with skates’ package involved two separate

supplies, the standard-rated supply of admission

to ice rink and a separate zero-rated supply of

hire of children’s skates. The assessee provided

various options where all constituents of the

package could be purchased separately,

however a single unbroken price was charged for

the package. The matter was remitted to FTT for

reconsideration. [Commissioner HMRC v. Ice

Rink Company Limited – Decision dated 8-4-

2019 in Appeal number: UT/2017/0180, UK’s

Upper Tribunal (Tax and Chancery Chamber)]

© 2019 Lakshmikumaran & Sridharan, India All rights reserved

9

TAX AMICUS April 2019

Notifications and Circulars

Customs duty reduced on import of specified

goods from Japan: Rate of Customs Duty on

specified goods imported from Japan has been

considerably reduced with effect from 1-4-2019.

The new rates will be applicable to goods falling

under 806 tariff lines as specified in Notification

No. 69/2011-Customs. Notification 10/2019-

Customs, dated 28-03-2019 has been issued for

this purpose. This concessional rate is available

only if the importer proves that the goods for

which exemption is being claimed are of the

origin of Japan as per the rules notified for this

purpose.

Rebate of State and Central Taxes and Levies

scheme – FTP and HoP amended: Scheme for

Rebate of State and Central Taxes and Levies

(RoSCTL), as notified by the Ministry of Textiles

Notification No. 14/26/2016-IT(Vol II), by

issuance of scrips to support textile sector

(garments and made-ups) has been incorporated

in the FTP and Handbook of Procedures Vol.1.

As per Paras 4.95 and 4.96 inserted in HoP by

DGFT Public Notice No. 83/2015-20 dated 29-03-

2019, rates of RoSCTL are notified as Schedules

to Notification dated 8-3-2019 of the Textile

Ministry. Duty credit scrips with a validity of 24

months, if registered at EDI port, can be used at

any EDI port.

Transport and Marketing Assistance for agri.

products – FTP and HoP amended: Provisions

relating to Transport and Marketing Assistance

for specified agricultural products to specified

destinations have been notified by the DGFT

through Chapter 7(A) in FTP and HoP Vol.1.

Aayaat Niryaat Form 7A(A) has also been

notified. As per chapters inserted by Notification

No. 58/2015-20 and Public Notice No. 82/2015-

20, both dated 29-03-2019, assistance will be

paid only to exporter who receives payment in

foreign currency. Application shall be filed online

on DGFT website and will not be maintainable

after completion of one year from the quarter in

which exports were made.

Physical copies of MEIS/SEIS scrips phased

out for EDI ports: Physical copies of MEIS or

SEIS duty credit scrips will not be issued by the

DGFT from 10-4-2019 onwards, in cases where

the port of registration is an EDI port. As per

CBIC Circular No. 11/2019-Cus. dated 9-4-2019,

the scrips will continue to be transmitted

electronically by the DGFT to the Customs

system and would be visible to concerned

officers involved in imports. While no TRA shall

be issued in respect of these paperless scrips

issued electronically, DGFT will continue to issue

scrips in physical form as per current practice for

non-EDI ports.

Advance authorisation, EPCG and EOU - IGST

and Cess exemption extended: Exemption

from Integrated tax and Compensation Cess for

imports under Advance authorisation, EPCG

scheme and by EOUs has been extended again.

This time the exemption has been extended for

full one year, and would now be available till 31st

of March 2020, instead of 31st March 2019.

Amendments have been made in Paras 4.14,

5.01(a) and 6.01(d)(ii) of the Foreign Trade Policy

by DGFT Notification No. 57/2015-20, issued on

20-3-2019. Ministry of Finance has also issued

notifications to amend the Customs notifications.

Peas and pulses - Import of certain quantities

relaxed from 1-4-2019: Ministry of Commerce

has relaxed import of Moong, Urad and Peas.

Such products will be subject to annual (fiscal

Customs

© 2019 Lakshmikumaran & Sridharan, India All rights reserved

10

TAX AMICUS April 2019

year) quota of 1.5 Lakh Metric Tonne. Import of

Toor Dal shall be subject to an annual quota of 2

Lakh MT as per procedure notified by DGFT.

Import of these products was earlier fully

restricted. As per DGFT Trade Notice dated 1-4-

2019, Ministry of Commerce Notifications S.O.

1478(E), 1479(E), 1480(E) and 1481(E) amend

the import policy conditions of certain items in

Chapter 07, and are effective from 1-4-2019.

Ratio decidendi

Rectification in Bill of Entry under Customs

Section 154 on error by importer: In a case

where the importer accidently paid duty twice on

same invoice, Madras High Court has remanded

the matter to assessing officer to pass order after

exercising power under Section 154 of the

Customs Act. The High Court observed that the

error was apparent on the face of the order and

the bill of entry should have been verified to

avoid litigation. It observed that powers of

Section 154 can be exercised by the authority

when error is pointed out by an importer/exporter

for reasons attributable to latter, but only in

respect of clerical/arithmetical error.

[Commissioner v. Symrise (P) Ltd. - 2019-VIL-

141-MAD-CU]

Advance authorisation – Use of surplus

inputs for goods cleared in DTA: In a case

where actual use of inputs in export goods was

less than SION norms and surplus was used in

the manufacture of domestic goods, CESTAT

Ahmedabad has allowed benefit of advance

authorisation. Observing that export obligation

was fulfilled and off-grade goods, considered as

waste, were cleared in DTA, the demand on

ground of use of inputs being less than that

prescribed in SION was set aside. The Tribunal

placed reliance on Para 4.1.5 of FTP and the

Tribunal decision in the case of Areva T & D India

Ltd. [K L J Organics Ltd. v. Commissioner - 2019-

VIL-208-CESTAT-AHM-CU]

DFIA scheme – Import of popcorn maize –

Word ‘maize’ is not generic: Bombay High

Court has allowed the benefit of DFIA scheme for

import of popcorn maize against export of maize

starch powder. The Court accepted the

contention that SION entry for import inputs

mentioned only ‘maize’, and hence any quality of

maize was importable. It noted that actual user

condition was absent. Department’s view that

non-mentioning of specific input in shipping bill

violated FTP Para 4.12(i), was rejected, noting

that term ‘maize’ was not generic but specific,

and that popcorn was capable of use in

manufacture of export goods. [Shah Nanji Nagsi

Exports v. UoI – Judgement dated 29-3-2019 in

Writ Petition No. 8268/2017, Bombay High Court]

Demurrage charges are justified unless

waiver mandated by Rules: Delhi High Court

has held that the warehousing service provider

was justified in not waiving and returning

demurrage charges deposited in a case where

detention was held justified, even when penalty

and confiscation by Customs were set aside. The

High Court held that fee payable for duration for

which warehousing was done cannot be removed

by the court unless rules or relevant policy

provided for the same. It observed that even

otherwise warehousing is a commercial activity

for which service provider invests in resources,

deploys manpower and creates infrastructure.

[International Lease Finance Corp. v. UoI - Order

dated 27-3-2019 in W.P.(C) No. 6490/2018, Delhi

High Court]

Skin barrier Micropore Surgical Tapes -

Customs exemption: CESTAT Chennai, by a

majority order, has allowed benefit of Notification

No. 21/2002-Cus. (Sl. 363A, List 37, Entry 22) to

skin barrier Micropore Surgical Tapes which are

not exclusively used as Ostomy products.

Department’s argument on non-availability of

exemption on the ground that surgical tapes were

general purpose tapes and not exclusively for

© 2019 Lakshmikumaran & Sridharan, India All rights reserved

11

TAX AMICUS April 2019

Ostomy use, was rejected by Tribunal. It noted

that notification does not refer to end-use of

tapes, and that exemption is not deniable merely

because the tapes are being used as multiple

use items. [Sutures India P. Ltd. v. Commissioner

- 2019-VIL-221-CESTAT-CHE-CU]

Difference between ‘wrench’ and ‘plier’ –

Classification in USA: US Court of Appeals for

the Federal Circuit has affirmed US CIT’s

interpretations of the term ‘wrenches’ in

8204.12.00 and ‘pliers’ in 8203.20.6030.

According to CIT, wrenches are hand tools

having a head with jaws or sockets having

surfaces adapted to snugly or exactly fit and

engage the head of a fastener and a singular

handle with which to leverage hand pressure to

turn the fastener. Plier was held as a hand tool

with two handles and two jaws on a pivot, which

must be squeezed together to enable it to grasp

an object. [Irwin Industrial Tool Company v.

United States – Decision dated 9-4-2019 in 2018-

1215, United States Court of Appeals for the

Federal Circuit]

Ratio decidendi

Excise valuation – Dharmada charges not

includible: Larger Bench of the Supreme Court

has held that ‘Dharmada’ collected as optional

payment from buyer, cannot be part of

transaction value for goods. It held that the

amount to be credited to charity and not forming

part of income was not includible. The Court held

that no amount not paid as consideration for

goods can go to make transaction value and if an

amount paid at the time of sale transaction was

for a purpose other than the price of the goods, it

cannot form part of transaction value as such

payment is not for transaction of sale i.e. for

transfer of possession of goods. Observing that

payment of dharmada was meant for charity and

was received and held in trust by the seller, the

Court was of the view that if such amounts were

meant to be credited to charity and did not form

part of the income of the assessee they cannot

be included in the transaction value or

assessable value of the goods. [D.J. Malpani v.

Commissioner – Judgement dated 9-4-2019 in

Civil Appeal No. 5282 of 2005, Supreme Court]

NCCD exemption available to units exempted

from Excise duty: Supreme Court has held that

manufacturing units in special category States

which were exempt from Central Excise duty

would also be exempt from National Calamity

Contingent Duty (NCCD), since NCCD was of the

nature of an excise duty. The Court held that

same view on this exemption would apply as

taken for Education Cess and Secondary &

Higher Education Cess by the Court in the case

of SRD Nutrients (P) Ltd., even if NCCD was

levied on the product and not on the excise duty

payable. The Apex Court in this regard was of the

view that exemption notifications, like the one in

question must be read in a manner that give

them a liberal interpretation, provided that no

violence is done to the language employed.

[Bajaj Auto Ltd. v. UoI – Judgement dated 27-3-

2019 in Civil Appeal No. 3239 of 2019, Supreme

Court]

Central Excise and Service Tax

© 2019 Lakshmikumaran & Sridharan, India All rights reserved

12

TAX AMICUS April 2019

Service tax audit after introduction of GST –

Saving clause under CGST Section 174(2)(e):

Jharkhand High Court has prima facie rejected

the contention that saving clause in CGST

Section 174 did not protect Service Tax Rules

and hence action taken pursuant to such rules

was without authority of law, after introduction of

GST. Dispute pertained to inquiry/audit under

Rule 5A. The Court however prima facie held that

the expression ‘instituted’ in CGST Section

174(2)(e) implied that proceeding stood already

instituted at time of repeal of Finance Act, 1994.

Decisions of Gujarat and Delhi High Courts were

referred while directing status quo till next date of

hearing. [Sulabh International v. UoI – Order

dated 4-4-2019 in W. P. (T) No. 1599 of 2019,

Jharkhand High Court]

Construction exclusively or primarily for

commerce alone liable to service tax: Bombay

High Court has held that if primary use of

construction was non-commercial, even if 1/3rd of

the constructed area was used for commercial

purpose, service tax would not be attracted under

Section 65(25b) of Finance Act 1994 for services

of commercial and industrial construction. The

High Court upheld CESTAT ruling that

construction of sports complex for

Commonwealth Youth Games on land owned by

Govt. of Maharashtra was not for commercial

purposes. Affidavit by Director of Sports and

Youth Services that stadium would be used for

non-commercial purposes even after games, was

noted. [Commissioner v. B.J. Shirke Construction

Technology – Judgement dated 15-3-2019 in

Central Excise Appeal No. 186 of 2017, Bombay

High Court]

Omission/substitution included in meaning of

‘repeal’: Reiterating that omission/substitution

would fall within ‘repeal’ of a provision and relying

on Central Excise Section 38A(c), Bombay High

Court has held that notice dated 17-1-2000 under

the Modvat Rules would be valid even post 1-4-

2000 when Cenvat Rules were introduced. The

Court however remanded the case observing that

order, without cross examination and without

supplying relied-upon documents, was in the

breach of natural justice. It observed that

statement that superior goods were diverted after

taking credit, needs to be tested through cross

examination. [Commissioner v. Milton Polyplas –

Judgement dated 1-4-2019 in Central Excise

Appeal No. 142 of 2005, Bombay High Court]

Cenvat credit refund – CESTAT when can

interpret GST transitional provisions: In a

case of partial denial of refund of Cenvat credit,

CESTAT Hyderabad, relying on proviso to CGST

Section 142(3) has upheld the denial. It rejected

the plea that if assessee had taken back the

credit, after rejection of refund, before CGST Act

came into force, they could have transferred it as

ITC and hence should now be paid-back in cash.

The Tribunal observed that in transitional cases,

CESTAT has to interpret and apply provisions of

CGST Act, to the extent they modify provisions of

Central Excise Act and Finance Act, 1994. It

however held that other transitional provisions

such as transfer of Cenvat credit lying in balance

as input tax credit under GST is purely a

provision of the CGST Act and CESTAT has no

role in interpreting or applying such provisions.

[United Seamless Tubular Pvt. Ltd. v.

Commissioner - 2019-VIL-210-CESTAT-HYD-

CE]

Mere consumption of goods during service

cannot turn it into work contract: CESTAT

Ahmedabad has held that consumption of goods

by a service provider during the provision of

service does not automatically convert the

service into a works contract. The Tribunal

observed that if the scope of work contract was

extended to include consumables then there

would be no service which can fall outside the

purview of works contract. It also observed that

even consultancy service provided by an

© 2019 Lakshmikumaran & Sridharan, India All rights reserved

13

TAX AMICUS April 2019

engineer or an advocate involves consumables

like paper, ink, pen, etc. [Krishna Engineering

Works v. Commissioner – 2019 (22) GSTL 409

(Tri. – Ahmd.)]

Supply of electricity in the absence of licence,

exigible to service tax: Observing that petitioner

was not a person authorised to transmit, supply,

distribute or undertake trading in electricity,

Calcutta High Court has ruled that receiving high-

tension electricity and converting into low-tension

for supply to occupants of a mall, was classifiable

as services. It held that any interpretation that

violates Electricity Act, should be avoided. The

Court held that although electricity is goods, in

the absence of licence under Section 12 of the

Electricity Act, would be termed as a service

liable under Section 65B(23) of the Finance Act,

1994. [Srijan Realty Pvt. Ltd. v. Commissioner –

2019 TIOL 594 HC KOL ST]

No automatic vacation of stay after 6 months:

Distinguishing the Supreme Court judgement in

Asian Resurfacing of Road Agency vacating stay

on all pending proceedings on expiry of 6

months, CESTAT Bangalore has held that

officials are to approach the Tribunal for vacation

of stay. It held that the Supreme Court judgement

was restricted to original courts and that the

Tribunal is not a trial court but an authority. The

Tribunal held that in the absence of application

for vacation of stay, the stay order will continue

till disposal of appeal. Larger Bench decision in

the case Haldiram India was relied on.

[Vijayanagar Sugars (P) Ltd. v. Commissioner –

Misc. Order No. 20104-20106/2019, dated 7-3-

2019, CESTAT Bangalore]

Supply of tangible goods - Possession and

effective control are relevant: In a case

involving lease of computer system and provision

of IT Assistant, CESTAT Delhi has set aside

demand under Supply of Tangible Goods

services. It noted that lessor could not remove, at

their discretion, any assets, while lessee could

direct him to re-assign equipment from one place

to another. The Tribunal observed that both

equipment and the Assistant worked under direct

physical possession and effective control of

lessee. It held that this fulfilled the requirements

of exclusion clause. [Compucom Software Ltd. v.

Commissioner - Final Order No. 50167/2019,

dated 4-2-2019, CESTAT Delhi]

Ratio decidendi

Karnataka Sales Tax – Turnover not limited to

‘taxable turnover’: Supreme Court has held that

levy under Section 6B of the Karnataka Sales

Tax Act, must be on the total turnover and not

only on the taxable turnover. It rejected the

contention that ‘total turnover’ in Section 6B(1) for

purpose of turnover tax, cannot include turnover

on which State has no power to levy tax.

Applying strict rule of interpretation of taxing

statutes, the Court held that except the

deductions provided under the first proviso to

Section 6B(1), nothing else can be deducted from

total turnover as defined under Section 2(u-2).

[Achal Industries v. State of Karnataka –

Judgement dated 28-3-2019 in Civil Appeal

No(s). 4837 of 2011 and Ors., Supreme Court]

Value Added Tax (VAT)

© 2019 Lakshmikumaran & Sridharan, India All rights reserved

14

TAX AMICUS April 2019

Rusk and toast are bread as per composition,

hence not liable to VAT: Chhattisgarh High

Court has held that Rusk and Toast are to be

treated as Bread under Entry-7 of Schedule-I to

the Chhattisgarh VAT Act making them tax free

goods. The goods were held not classifiable

under the residuary entry of Part IV of Schedule II

of the Act. Upholding the single Judge Order, the

Court observed that as per judicial precedents, it

was required to find out if contents of the product

fits the description of the basic entry and only if

the same was not possible, residuary entry can

be taken as a resort. [State of Chhattisgarh v. Saj

Food Product (P) Ltd. - 2019-VIL-138-CHG]

Mobile crane wire rope classifiable as part of

mobile crane: Supreme Court has held that wire

ropes used in mobile cranes are a part of such

cranes and liable to 4% tax as per Entry 155 of

Schedule IV to Rajasthan VAT Act. The Apex

Court observed that in order to make mobile

cranes operational, use of wire ropes was

essential and hence mobile crane wire rope was

an essential part of the mobile crane. Relying on

judgement in Annapurna Carbon Industries, the

Court reiterated the test that a thing is a part of

the other if the other cannot function without it.

[Commissioner v. Prasoon Enterprises –

Judgement dated 26-3-2019 in Civil Appeal No.

3198 of 2019 and Ors., Supreme Court]

© 2019 Lakshmikumaran & Sridharan, India All rights reserved

15

TAX AMICUS April 2019

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