Goods and Services Tax circumstantially evolving and progressing

FAQs on manufacturing and other operations in bonded warehouses

The sealant aspects of FAQs are as under:

1. A customs-bonded warehouse licensee may surrender its license on making a payment of nominal applicable duty and making a request in writing to the Principal Commissioner of Customs or Commissioner of Customs.
2. An existing private warehouse licensee need not file a new application but can seek permission for in-bond manufacturing and other operations under section 65 of the Customs Act, 1962.
3. Goods necessitating clearance on import are required to obtain such clearances at the time of filing the into-bond Bill of Entry (BoE) from government agencies, such as Food Safety and Standards Authority of India and the Ministry of Environment, Forest and Climate Change.
4. Regulatory check for compliance in relation to goods restricted for imports would be applied at the time of filing the into-bond BoE and before the goods are utilized in the bonded warehouse.
5. Hazardous cargo has to comply with the applicable laws for operating as a custom-bonded warehouse. No exceptions are provided for such cargo movement.
6. An importer can claim exemption from customs duties as may be applicable on the date on which a BoE for home consumption is presented under various Customs Tariff notifications.
7. Customs duty is to be paid at the transaction value of imported inputs at the rate of duty applicable on the date of clearance of such imported inputs from a bonded premise.

Judgement

CESTAT, Mumbai reject assessable maintains that companies are artificially created to maintain lower selling price for payment of excise duty between two Indian subsidiaries of an overseas parent.

Facts

• The assessee was engaged in manufacturing and production of two car models as per the designs and specifications of their parent company in India. The assessee sold these cars in India to the other subsidiary of its parent company.
• The assessee sold these cars in India to the other subsidiary of its parent company.
• The taxpayer entered into a Service and Distribution Agreement with the marketing subsidiary for the promotion, advertisement, after sales support and distribution of the cars to the dealers and the reimbursement of the marketing and sales promotion expenses was made from their parent company.
• The Revenue authorities rejected the assessable value, observing that the subsidiaries were inter-connected and had mutuality of interest in each other’s business.

CESTAT’s Pronouncement

The CESTAT held that the sale of cars by the taxpayer to the marketing subsidiary is not at arm’s length and the assessable value that the taxpayer declared was unacceptable.

CESTAT – Abridgement and observations:

• The documents and mails suggested that the parent company determined the price (arrived using ‘Retail minus’ method) and dictated it to its two subsidiaries. The transfer value was determined mutually between the two subsidiaries, which the parent company heads.
• The cars manufactured were kept in earmarked premises within its plant, after selling them to the marketing subsidiary. The sale is made after a defined area of control in the taxpayer’s premises, after which the taxpayer issues invoices in the name of the marketing subsidiary.
• This indicated a commonality of interest in marketing the cars and the distinction in functionality between the taxpayer and the marketing subsidiary had been created artificially, only with the intention to reduce the sale price, which has bearing on the amount of Central Excise Duty.
• The parent company renders financial assistance for any operating loss.
• The principles of determination of normal value and judicial exposition in respect of ‘normal value’ apply to ‘transaction value’.
• The value under section 4(1)(a) of the Actc an only be the value on account of sale at arm’s length, the value claimed by the taxpayer to be the value as per section 4(1)(a) of the Act, does not stand to the test laid down by the Supreme Court in the case of Fiat India4.
• In the absence of value under section 4(1)(a) of the Act, the only route available to determine the value would be under section 4(1)(b) of the Act, through Rule 11 of the Valuation Rules, 2017.
• In case of transactions between related persons, it was held that the value has to be determined under Rule 9 of the Valuation Rules, 2017, i.e., on the basis of sale price, by the marketing subsidiary to dealers.
• Benefit of duty price is available on the sale price of the marketing subsidiary to dealers.

Analysis:

The CESTAT held that value of goods cleared by the taxpayer to the marketing subsidiary has to be determined on the basis of sale price by the marketing company to independent dealers, by treating the sale price as cum duty price. As the issue was under discussion and the Revenue entertained the correctness of the valuation methodology as per the Audit report, change in opinion or insufficiency in enquiries made cannot be grounds for invoking an extended period of limitation. As there was no suppression of facts and the issue involved the interpretation of statutory provisions, penalties levied were set aside by the Tribunal.

Notification No. 81,82,83,84,85,86,87 and 88/2020 dated 10.11.2020,CGST

The above notification are effective from January 1^st,2021.

• Amendment in Rule 59 of CGST Rules,2017- “Form & manner of furnishing the details of Outward supplies.”
• Change in structure of GSTR1 & GSTR3B
• Introduction of IFF (Invoice furnishing Facility) as an option to the registered person who file GSTR1 quarterly to file GSTR1 monthly in manner prescribed under Rule 26 of CGST Rules,2017.
• Amendment in Rule 61 giving an option to the taxable person having turnover upto Rs 5 crore to quarterly file GSTR3B quarterly by 22^nd/25^th , as the case may be, of the succeeding quarter . The tax payment to be made on monthly basis though through PMT 06, on or before 25^th day of succeeding month.
• Rule 61A provides for the manner in for opting the option of quarterly filing of GSTR3B which is, 1^ST day of second month of the preceding quarter till the last day of first month of the quarter.
• It will be mandatory to specify the number of digits of HSN code for goods or service that a class of registered person shall be required to mention.
• Extension of the time limit of furnishing the FORM GST ITC-04, in respect of goods dispatched or received from a job worker, during the period from July,2020 to September,2020 till 30^th day of November,2020. It shall deemed to come into force w.e.f 25^th day of October,2020.
• Issue of E-invoice is mandatory for the taxable persons having a turnover of Rs 100 crores or more.

GST Calendar – November’ 2020

Nature of Compliance	Due Date
GSTR-1  October’ 2020 turnover more than 1.5 cr	11 November 2020
GSTR-6 – October’ 2020 Input Service Distributor	13 November 2020
GSTR – 3B October’ 2020 turnover more than 5 Cr	20 November 2020
GSTR-5  October’ 2020 Non-Resident Taxable Person	20 November 2020
GSTR-5A October’ 2020 OIDAR Service Provider	20 November 2020
GSTR-3B  October’ 2020 turnover upto 5 Cr	24 November 2020
GSTR 9 – FY 2018-19 annual aggregate turnover more than Rs. 2 cr	31 December 2020
GSTR 9C – FY 2018-19 annual aggregate turnover more than Rs. 5 cr	31 December 2020
GSTR-4 – Annual Return, Composition Dealer  FY 2019-2020	31 December 2020