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Notional interest on security deposit is taxable if it sways value of supply – AAR Karnataka

Facts 
The plaintiff plans to enter in an agreement for renting of an immovable property to an Educational Institution. Ensuing the agreement, the rent is Rs. 1.5 lacs per month and refundable security deposit is Rs. 500 lakhs, the same is refundable on termination of the tenancy without interest. The plaintiff has not obtained Goods and Services Tax Registration under the Act. However, have discharged other taxes levied by municipal authorities on the property.

The plaintiff has pursued an advance ruling in relation to the following:

• Notional interest on security deposit shall form a part of value of supply.
• Whether property taxes and other levies could be deducted from the value of rental income.
• Is it mandatory to register in view of the threshold of turnover being Rs. 20 lakhs under the GST Act.  

Plaintiff Arguments
The statutory taxes are not connected to the service of giving property on rent; by the local corporation and cannot be included  in value of taxable supply. The security deposit is refundable without interest after the lease period is over and is not connected with supply of renting of immovable property services and is not a consideration for leasing of property. Also, the deposit given would not be considered as a consideration, except wherein the supplier considers such deposit as consideration towards the aforesaid supply. The plaintiff did place reference on various advance rulings on the aspects.  

AAR directive
The taxes, cesses, duties and fees along with any charges imposed under any law to be included in the value of supply. The AAR refereed to section 15(2)(a) of the Central Goods and Services Tax Act, 2017. The exclusions being the taxes, cesses, duties and fees levied under the CGST Act and SGST Act, 2017. In the aforesaid case, the property tax is imposed under the Karnataka Municipalities Act 1964.

Further, refundable security deposit if withheld at the expiry of lease tenure, the amount not refunded would be liable to GST at that point of time, if otherwise, shall not be treated as consideration for supply of renting services.

AAR further observed it’s a general practice that where the deposit is higher, the rent charged is less. In the absence of adequate details in the present case of notional interest influencing or not the monthly rent. Consequently, AAR decided that notional interest to form a part of the value of supply if it sways the monthly rent.

Refund of credit disseminated by Input Services Distributor (ISD) to unit in Special Economic Zone (SEZ)

Facts
The appellant for the services pertaining to the SEZ unit have received credit from Input Service Distributor (ISD)

The appellant applied for refund in relation to the credit of Integrated Goods and Services Tax (IGST). The refund claim was disallowed by the authorities. Subsequently, a writ petition was filed before the High Court of Gujarat.

Appellant’s Arguments
A registered person is eligible to claim  ITC of tax paid on supply of goods or services used in furtherance to business and commerce as per Section 16 of the Central Goods and Services Tax Act, 2017 (CGST Act). Further Notification no. 28/2012-C. E. (NT) dated June 20, 2012 clarifies procedure for distribution of credit. Thus, the distributed credit by ISD to units shall be refundable to the units in SEZ and is not restricted under GST law, also on construing of section 16 of IGST Act, 2017 and section 54 of the CGST Act, the refund of unutilized ITC in electronic credit ledger is eligible to SEZ unit. There isn’t any express provision denying refund claim to SEZ under the CGST Act vide application in in Form GST RFD-01A after 14 May 2019 being inclusive in nature under Section 54 of the Act.

High Court Pronouncement
The supplier of goods and services cannot  file an application for claiming refund of credit (ITC) distributed to SEZ unit. High Court also referred to the ruling of Amit Cotton Industries (supra). In the present case, Rule 89 would be applicable pertaining to refund of ITC, in place of Rule 96 as applicable in Amit Cotton Industries. HC referred to provisions of CGST Act and IGST Act, refund and zero-rated supplies pertaining to ITC.

Support was cited from notification no. 28/2012 – CE (N.T) providing for service tax to be attributable to the services used in more than one unit shall be distributed pro-rata on the basis of the turnover during the relevant period of the concerned unit to the sum total of the turnover of all the units. In the same way, in the present case, credit of tax is distributed by ISD to all the units and thus claim of refund is required to be provided to the SEZ unit.  

Inferences from above, High Court  held that as no specific supplier can claim refund under the provisions of the CGST Act and the CGST Rules, the appellant is entitled to refund of the IGST in the electronic credit ledger since ITC is distributed by ISD.

Plugging of benefit and phasing out of Merchandise Exports from India Scheme

Merchandise Exports from India Scheme (MEIS) replaced with Remission of Duties or Taxes on Export Product, in a phased manner by the end of 2020. The plugging of benefit of MEIS on exports made from September 01, 2020 to December 31, 2020.

Plugging of MEIS benefits on exports and has been summarized below:  

MEIS benefit plugged:
The gross benefit against an Importer Exporter Code (IEC) on exports based on Let Export Order (LEO) date of Shipping Bill made from September 01, 2020 to December 31, 2020 would not exceed Rs. 20 millon.

The upper limit of Rs. 20 million may be further lowered ensuring the maximum out-go does not exceed Rs. 50,000 million for exports made from September 01, 2020 to December 31, 2020, , as per the limit provided by the Government of India.

Exporter not having made exports between September 01, 2019 and August 31, 2020 or entities having obtained new IEC on or after September 01, 2020, shall not be eligible to claim the benefit for exports made on and after 1 September 2020 of MEIS.

MEIS phasing out of benefits:
MEIS benefit on exports shall not be available from January 01, 2021.

Point to ponder:
The exporters need to revisit the use of MEIS and assess the alternatives. The exchequer to advise the Remission of Duties or Taxes on Export Product at the earliest for exports to acquaint with the withdrawal of MEIS to enforce positivity in the exporting entities. .

Time limit of issuing invoice extended for goods sent out of India on approval basis

 The highlights of changes are as under:

• The goods being sent or taken on approval for sale or return and are removed before the supply takes place, the invoice would be issued before or at the time of supply or six months from the date of removal, whichever is earlier.

• In case the time limit for the issuance of invoice in respect of goods being sent or taken out of India on approval for sale or return falls between March 20, 2020 to October 30, 2020, such compliance shall stand extended till October 31, 2020. The extension does not cover the goods sent or taken on approval basis in case of domestic transactions.

• Form GSTR-4 (return by composition dealers) for the period July 2017 to March 2020 the late fee in excess of Rs. 500 been waived for delayed filing provided the same is furnished between the periods from 22 September 2020 to 31 October 2020. Further, the due date of filing GSTR-4 for the period April 2019 to March 2020 has been already extended till 31 October 2020. The late fee is fully waived if the tax liability is NIL.

Due date of filing annual return under GST extended for FY 2018-19 

The due date of filing annual return in Form GSTR-9 and reconciliation statement in Form GSTR-9C for the financial year 2018-19 has been extended from September 30, 2020 to October 31, 2020.

Tax invoice and E-way Bills undergoes changes in CGST Rules

CGST Rules, 2017 have been amended in relation to:

(a) Tax invoice
The tax invoice shall have an QR Code, an embedded invoice number (IRN) for invoice issued as per 48(4) of the CGST Rules.

(b) Issuing invoices under Rule 48
May exempt a person or class of persons for a specified period on conditions or restrictions form issuance of invoice as may be notified.

(c) Documents
Documents by a person-in-charge of conveyance QR code may be produced electronically for verification by proper officer in lieu of physical copy of tax invoice as per Rule 138A.

GST details in Income Tax Form 26 AS

• The details in relation to GST Returns shall be uploaded within 3 months in the Annual Information Systems in Form 26AS.
• The above would facility comparison between Income Tax filings and GST filings for the Income Tax authorities.
• The procedures, formats and standards for the same, shall be specified.

Ocean/Air Freight exemption for export of goods extended

The exemption on services by way of transportation of goods by a vessel/aircraft from customs station to a place outside India extended for a year i.e. upto September 30, 2021.

GST Calendar – October’ 2020

Nature of Compliance	Due Date
GSTR-1  September’ 2020  turnover more than 1.5 cr.	October 11, 2020
GSTR-6 – September’ 2020 Input Service Distributor	October 13, 2020
GST CMP 08 July 2020 to September 2020	October 18, 2020
GSTR-3B September’ 2020 turnover more than 5 Cr	October 20, 2020
GSTR-5  September’ 2020 Non-Resident Taxable Person	October 20, 2020
GSTR-5A September’ 2020 OIDAR Service Provider	October 20, 2020
GSTR-3B September’ 2020 turnover upto 5 Crore for State category I	October 22, 2020
GSTR-3B  September’ 2020 turnover upto 5 Crore State category II	October 24, 2020
GSTR 9 – FY 2018-19 annual aggregate turnover more than Rs. 2 cr.	October 31, 2020
GSTR 9C – FY 2018-19 annual aggregate turnover more than Rs. 5 cr.	October 31, 2020
GSTR-4 – Annual Return, Composition Dealer FY 2019-2020	October 31, 2020