GST and evolving law

GST Calendar – Aug 2021

Nature of Compliances	Due Date
GSTR-7 JUL 2021 tax deducted at source	August 10,2021
GSTR-1 JULY 2021	August 11, 2021
IFF- Invoice furnishing facility (Availing QRMP)	August 13, 2021
GSTR-6 JUL 2021 Input Service Distributor	August 13, 2021
GSTR-3B JULY 2021	August 20, 2021
GSTR-5 JULY 2021 Non-Resident Taxable Person	August 20, 2021
GSTR-5A JULY 2021 OIDAR Service Provider	August 20, 2021
ITC-04 (Quarter Jul’21 – Sep’21)	October 25, 2021
GSTR-9 & GSTR-9C FY 2020-2021	December 31,2021

A. Clarification|Dynamic Quick Response (‘QR’) Code| B2C Invoice

CBIC vide Circular No. 156/12/2021-GST dated June 21, 2021 has issued clarification regarding applicability of Dynamic Quick Response (‘QR’) Code on B2C invoices, details are enlisted below:

• An invoice, issued to a person having UIN, shall be considered as invoice issued for a B2C supply and shall be required to comply with the requirement of Dynamic QR Code.
• Separate details of bank account and IFSC may not be provided in the Dynamic QR Code, where the UPI ID is linked to a specific bank account of the payee/ person receiving payment.
• Where the payment is collected by some another authorized person on behalf of the supplier, UPI ID of such person may be provided in the Dynamic QR Code, instead of UPI ID of the supplier
• Dynamic QR code is not required, where an invoice is issued to a recipient located outside India, for supply of services, for which the place of supply is in India and the payment is received by the supplier in foreign currency, through RBI approved mediums.
• Dynamic QR code is not required, where an invoice is issued to a recipient located outside India, for supply of services, for which the place of supply is in India and the payment is received by the supplier in foreign currency, through RBI approved mediums.
• Where part payment has already been received from the customer/recipient either in form of advance / adjustment by way of voucher, discount coupons, etc, dynamic QR code to provide for remaining amount payable by customer/recipient against an invoice value. Dynamic QR code shall also provide details of total invoice value including details and cross reference of the part payment/advance/adjustment and any remaining amount payable by the customer.

B. FTP | Service Export Incentive Scheme for FY 2019-20 under promulgation:Highlights of meeting with respect to Service Export Incentive Scheme(SEIS) for FY 2019-20

• SEIS to be announced soon for FY 2019-20;
• Capping system may be introduced to benefit MSMEs
• Certain sectors being mature enough to be precluded from the scheme;
• SEPC to undertake framing a more purposeful and result oriented incentive scheme to promote sectors that would contribute maximum growth to exports
• The emphasis is on the importance of service sector in overall growth of the economy and exports.

C. CBIC clarifies on scope of extension of timelines; as enumerated by Supreme Court : The Hon’ble Supreme Court vide Order dated April 27, 2021 has enumerated on extension of timelines; CBIC vide Circular No. 157/13/2021 dated July 20, 2021 has clarified the scope of such extensions:

• Where any appeal is required to be filed before Joint/ Additional Commissioner (Appeals), Commissioner (Appeals), Appellate Authority for Advance Ruling, Tribunal and various courts against any quasi-judicial order or where a proceeding for revision or rectification of any order is required to be undertaken, the timelines shall stand extend in terms of Hon’ble Supreme Court Order.
• However, timelines in relation to below transactions shall continue to be governed as per the provisions of GST Statue:
• Compliances and proceedings on the part of taxpayers, including scrutiny of returns, issuance of summons, search, enquiry or investigations and even consequential arrest;
• Issuance of show cause notice, granting time for replies and passing orders, even though being in the nature of quasi-judicial proceedings.
• Quasi-judicial functions, including disposal of application for refund, application for revocation of cancellation of registration, adjudication proceedings of demand notices, etc. Similarly, appeals which are filed and are pending, can continue to be heard and disposed off and the same will be governed by those extensions of time granted by the statutes or notifications, if any

D. GST leviable on interest paid for delay in payment and reimbursement charges

M/s. Enpay Transformer Components India Private Limited | AAR Gujarat

Facts

• Applicant is engaged in the business of manufacturing and supply of transformer components. Applicant is importing goods from the Holding company located at Turkey for which the payment terms is 120 days from the date of invoice for import of goods. Further, in case payment is not made on due date, the holding company charges interest on late payment.
• Applicant had taken a bank credit facility which is backed by corporate guarantee issued by the Holding company. Holding company had paid stamp tax in accordance with the land rules, and have raised a reimbursement invoice upon the Applicant for payment.
• Holding company has not charged any mark up on the said transaction.

Issue

• Whether GST shall be payable under reverse charge mechanism ‘RCM’ on payment of interest due to delay in payment of invoices of imported goods, if yes, the rate of tax.
• Whether GST shall be payable under reverse charge mechanism ‘RCM’ on reimbursement of stamp tax, in case Holding Company acts as a ‘PURE Agent’ on behalf of the Applicant.

Held

• AAR held that the payment of interest by applicant to its holding company would be covered under Entry No. 5(e) of Schedule II of CGST Act 2017 ‘agreeing to the obligation to refrain from an act, or tolerate an act or a situation, or to do an act’. Therefore, said transaction qualifies as supply of service and shall be exigible to GST.
• AAR relied upon Sec 15(2) of CGST Act, 2017 which provides that any interest or late fee or penalty for delay in payment of any consideration for any supply shall be included in the value of supply and held that GST would be levied on interest paid to the holding company for delay in making payment with respect to imported goods. Further, GST rate on interest would be the same rate as of IGST applicable on the imported goods.
• AAR held that Applicant is liable to pay GST under RCM on the reimbursement invoice raised upon Applicant by the Holding company for stamp tax paid by Holding Company on the behalf of Applicant, as the conditions for being ‘PURE AGENT’ are not qualified in the instant transaction, observations of the court are enlisted as below:

i) No documents, agreement or contract were provided proving that:

• Applicant have authorized the Holding Company to make the payment to the third party;
• Applicant had entered into contractual agreement with the Holding company to act as ‘PURE AGENT
• Holding Company neither intends to hold or holds any title for his own interest;
• No mark-up was charged on the reimbursement expenses, as the Applicant has provided documents in foreign language (Turkish) without any accompanying English translated language.

ii) Bank Guarantee in the instant transaction is in direct relation with business of the Applicant and is not an addition to the supply of goods/services that the Holding company provides to the Applicant.

iii) Services procured by the Holding Company by entering into Bank Guarantee on behalf of the Applicant, are used for own interest of the Holding Company, as the said services are directly in relation to Applicant by way of supply of imported goods.

E. Arranging / Facilitating sale of goods to overseas client is ‘Intermediary services’

M/s Terretax Trading Private Limited | AAR West Bengal

Facts

• Applicant is engaged in supply of services by way of arranging sales of goods for various overseas manufacturers/traders.
• Business activities include locating prospective overseas/Indian buyers and understand their requirement of goods and arranging sales of the said goods from the foreign manufacturers/ traders to the prospective buyers.
• Goods are delivered to the buyers directly by the suppliers located outside the country.
• No prior agreement is made by the applicant with the overseas manufacturers/ traders for arranging such sales. The applicant receives consideration in the form of commission in convertible foreign exchange from the overseas suppliers
• Applicant provides services by connecting the prospective buyers in India with the suppliers of goods located outside India, thereafter the supplier directly dispatches the goods to buyers, receives consideration in the form of commission from the overseas suppliers.        

Issue

• Whether the services provided by the Applicant would qualify as ‘Export of Services’.

Held

• AAR observed that the nature of activities undertaken by the Applicant are closely akin to ‘intermediary’. Applicant falls under the ambit of ‘intermediary services’ on account of following:

i) Supply of services as provided by the Applicant is inextricably linked with the supply of goods made by the overseas supplier;
ii) Applicant can neither change the nature and value of supply of goods;
iii) Applicant does not holds the title of the goods at any point of time during the entire transaction;
iv) Value of supply of services as provided by Applicant is claimed to be based on an agreed percentage and separately identifiable;
v) Value of supply of services as provided by Applicant is claimed to be based on an agreed percentage and separately identifiable;

• AAR held that the instant transaction shall not qualify as ‘export of service’, as the aforesaid services are performed by an intermediary; therefore Place of Supply shall be in India. The services provided by the Applicant shall not be treated as zero-rated supply.

F. Services by Indian branch office to foreign office is not Export of Service.

M/s Sutherland Mortgage Services Inc.| AAR Kerala

Facts

• Applicant is an Indian branch of Sutherland, USA (Head Office) and is primarily engaged in the business of providing Information Technology Enabled Services (ITES) such as mortgage orientation, Primary Servicing, Special Servicing, Cash Management, Analytics & Reporting and other related services.
• Applicant is established in India as a branch office of Sutherland, USA as the mortgage law of USA prevented outsourcing of work to separate legal entity.
• Applicant has entered into an Inter-Company Agreement with its Head Office in USA for providing services to the customers of Sutherland, USA located outside India.
• Sutherland, USA invoices for the services to customers in USA and reimburses the Applicant the cost to perform such services on a cost plus 10% mark up. The consideration in foreign exchange is received by the Applicant based on the intra office invoice as per inter-company agreement
• Services provided by the Applicant cannot be reviewed by Sutherland, USA before the same is delivered to the ultimate customers. The said services are directly delivered to the ultimate customers by the Applicant without any consolidation at Sutherland, USA.

Issue

• Whether supply of services by Applicant to the customers located outside India shall be liable to GST in the light of the inter-company agreement with Sutherland, USA.          

Held

• AAR observed that Explanations to Section 8 of the IGST Act, 2017, creates a legal fiction that the establishment of a person in India and any other establishment of the same person outside India are two separate legal persons for the purpose of GST laws. Therefore, the Applicant and Sutherland, USA are two separate legal persons / distinct persons as far as the applicability of goods and services tax law is concerned, even though they cannot be treated as distinct persons under the contract law / commercial / accounting parlance.
• The contention of the Applicant that the Customer in USA are legally entitled to receive the services from Sutherland, USA and is obliged to make payment to Sutherland, USA and that the Applicant is providing services directly to the customers, in capacity of being branch office is not sustainable.
• AAR further observed that the services supplied by an establishment of a person in India to any establishment of that person outside India, which are treated as establishments of distinct persons in accordance with Explanation I in Section 8 of the IGST Act has been exempted vide Entry at Sr. No. 10F of Notification No. 09/2017 IT (Rate) dated 28.06.2017 as inserted by Notification No. 15/2018 IT (Rate) dated 26.07.2018.
• AAR held that the conditions at Clause (i) to (iv) of the definition ‘Export of Service’ u/s 2 (6) of the IGST Act, 2017 are met and undisputed, however the condition at Clause (v) of the said definition is not fulfilled in the instant transaction. Accordingly, the service provided by the Applicant does not constitute Export of Service (Zero-rated supplies) and consequently Applicant is liable to pay IGST for the period 1 July 2017 to 26 July 2018. It further held that the said services shall qualify as Exempted Services with effect from 27.07.2018 in light of Entry No. 10F of Notification No. 09/2017 IT (Rate).

G. Development Rights – GST payable on transfer of possession or rights in property by way of conveyance deed or similar instrument.

M/s. Vajra Infracorp India Private Limited | AAR Telangana

Facts

• Applicant provides taxable services of construction of residential complexes. It has entered into an agreement with a land owner in pre-GST regime for construction of residential units and the number of flats to be allotted with the land owner were earmarked at the time of agreement in pre-GST era.
• Whereas, construction of the units was expected to be completed in GST regime i.e. October /November 2018.

Issue

• The time of supply and point of taxation with respect to residential flats allotted to land owner by the builder in terms of Service Tax / GST regime.
• Whether the date of agreement is to be concluded as the date of allotment for payment of service tax in respect of construction services provided to landlord ignoring the fact that the construction was continued subsequently from May, 2017 to November, 2018.
• Clarification on meaning of ‘Constructed complex‘ referred to in relevant notification.

Held

• AAR observed that when two or more words susceptible of analogous meaning are clubbed together, they are understood to be used in their cognate sense, thereby by applying principal of ‘Noscitur-a-sociis’ the word ‘constructed complex’ is to be understood in its natural, ordinary and popular sense to mean a ‘building’
• AAR held that the phrase ‘Constructed complex’ is understood in its natural, ordinary and popular sense to mean a ‘building’ and that in terms of phrase ‘Constructed complex’ such a complex, building or civil structure should first be in place so that its possession / the rights in it may be transferred by the developer to the person supplying development rights and such transfer of possession or transfer of right in the building shall be accomplished by a conveyance deed or similar instrument such as allotment letter.
• AAR held that the phrase ‘Constructed complex’ is understood in its natural, ordinary and popular sense to mean a ‘building’ and that in terms of phrase ‘Constructed complex’ such a complex, building or civil structure should first be in place so that its possession / the rights in it may be transferred by the developer to the person supplying development rights and such transfer of possession or transfer of right in the building shall be accomplished by a conveyance deed or similar instrument such as allotment letter.