GST – Boys to be men

GST Calendar – Compliances for the month of September 2021

Nature of Compliances	Due Date
GSTR-7 (Tax Deducted at Source ‘TDS’)	October 10, 2021
GSTR-8 (Tax Collected at Source ‘TCS’)	October 10, 2021
GSTR-1 September 2021	October 11, 2021
IFF- Invoice furnishing facility (Availing QRMP)	October 13, 2021
GSTR-6 September 2021 Input Service Distributor	October 13, 2021
GSTR-2B (Auto Generated Statement)	October 14, 2021
GSTR-3B September 2021	October 20, 2021
GSTR-5 Sept 2021 (Non-Resident Taxable Person)	October 20, 2021
GSTR-5A September 2021 (OIDAR Service Provider)	October 20, 2021
PMT-06 (who have opted for QRMP scheme)	October 25, 2021
GSTR-9 & GSTR-9C FY 2020-2021	December 31, 2021
ITC-04 (Quarter Jul’21 – Sep’21)	October 25, 2021

Intermediary Services: Clarification issued by CBIC  ‘Intermediary Services’ has been a much litigated and prominent issue in GST as well as Service Tax Regime. Dispute arises in transactions where the service provider is located in India and is exporting services to a place outside India. It is imperative to note that for a transaction to qualify as ‘exports of service’ all the condition as provided under Section 2(6) of the IGST Act needs to be fulfilled, one condition being that Place of supply should be outside India. However, in terms of Section 13(8) of IGST Act, Place of supply for intermediaries is location of ‘supplier’, thereby implying if an Indian Service provider qualifies as ‘Intermediary’, he shall be disqualified from the definition of ‘Export of services’. Further, any refund claims on account of Export of Services shall be denied / rejected / withheld by the Revenue in such scenarios. The said matter was discussed in the 45th GST Council meeting and a clarification was issued by CBIC subsequently on the scope of services of ‘Intermediary’ as an attempt to eliminate the ambiguity for qualification of ‘Intermediary’.

Read more at: https://www.cbic.gov.in/resources//htdocs-cbec/gst/Circular No. 159_14_2021_GST.pdf

Our Comments:
Even though the clarification issued soon after 45th GST Council meeting explaining the scope of ‘Intermediary’ is laudable, as the clarification brings relief to ambiguous interpretation of the term ‘Intermediaries’ by Revenue in terms of clear identification of the key characteristics when a service would qualify as an ‘Intermediary Service’ and by way of illustrations.

However, the clarification still does not addressees the core issue for ‘Intermediaries’. The controversy in case of ‘Intermediary’ may have been put to rest by amending Sec13(8) of the IGST Act, 2017 and brining place of supply in case of ‘Intermediaries’ under the general ‘Location of Service Recipient Rule’ instead of location of supplier.

A. Vehicle to be released on account of technical defects or unforeseen circumstances
M/s N E Equipment Solutions Pvt. Ltd. vs. State of Tripura & Ors. | Tripura High Court

Facts

• Petitioner deals in TATA Hitachi Construction machinery and sold a machinery (excavator) to its customer on which IGST was duly collected from the purchaser and declared in the sale invoices. The excavator was being transported from Silchar to Agartala under a properly generated E-way bill created on August’ 14, 21 and valid upto August’ 16, 21.
• The vehicle was detailed by the Transport Department of Tripura on the ground of non-registration of vehicle within the State of Tripura, which is violative of Section 192A of the Motor Vehicles Act. Accordingly, the vehicle was released on August 17, 21 upon payment of fine. Meantime the validity of the e-way bill expired
• The vehicle was intercepted by the GST authorities and detained at check post on the ground that the driver did not have valid e-way bill for the machinery being brought within the State. Petitioner have generated a fresh e-way bill on August 18, 2021; however, the GST authorities refused to accept the said e-way bill and issued a show-cause notice U/s 129(3) of CGST Act, 2017 calling upon the petitioner why unpaid tax with penalty should not be recovered on the transaction.

Issue:
Whether GST Authority is right in detaining the said vehicle and machinery. Petitioner had approached the Hon’ble Tripura High Court primarily for release of the machinery

Held:

• Hon’ble High Court noticed that the Department have not disputed that Petitioner has collected the necessary GST on the sale of machinery as indicated on the Invoice and that there is no allegation that the tax has not been deposited with the Revenue. Further, there is not dispute that the vehicle did arrive at Churaibari check post carrying proper e-way bill and within the validity period of the e-way bill. The validity expired on account of unforeseen and unexpected delay in crossing the check post as the transport department stopped the movement of the vehicle which took more than 24 hours and, in the meantime, the validity of the e-way bill expired. Furthermore, Petitioner had generated a new e-way bill, however GST Department of the State did not accept the same.
• Hon’ble High Court opined that machinery in question should be released immediately, as the fault of the petitioner if at all is rather technical and that detaining such machinery at the check post would expose it to deterioration including gross inconvenience for the purchaser who had paid for purchase of the said machinery leading to delay in the projects and works which must be in pipeline.
• Hon’ble High Court stated that GST law provides with power to tax authority for release of machinery on provisional basis pending further assessment and that this was an appropriate case where such power should have been activated. Further, the tax authorities must make a clear distinction between deliberate tax evasion and technical or minor defects which manifest no intention to evade tax-when IGST liability has been fully discharged.
• Hon’ble High court directed the Respondents to release the transport vehicle and the machinery in question forthwith; and that Petitioner needs to file an undertaking sworn through Manager / Director of the Company that in case any tax / penalty liability is crystallized upon final assessment subject to right of appeal and further challenge, the petitioner shall deposit the same with the Government.

B. Highlights of 45th GST Council Meet

• No Interest to be charged on ITC availed but not utilized: Retrospective amendment w.e.f. 1st July 2017 has been proposed in Section 50(3) to levy interest at the rate of 18% on ‘Ineligible ITC which is availed and utilized’, thereby implying no interest shall be levied on ineligible ITC which is availed but remains unutilized.
• GST payable by E-Commerce operators: Services provided through E-commerce operator as enlisted below shall be liable to pay tax w.e.f. 1st January 2022:
  • transport of passengers, by any type of motor vehicles through it;
  • restaurant services provided through it with some exceptions.
• Amendment in Rule 36(4) proposed to discontinue practice of 5% provisional ITC: Rule 36(4) is proposed to be amended wherein the registered person shall be able to avail ITC only to the extent of Invoices/Debit Notes as furnished by the supplier in GSTR-1/IFF and thereby reflecting in GSTR-2B. With the said amendment, a registered person shall be not able to avail 105% of ITC.
• Refund of tax paid under wrong head: A proviso is proposed to be incorporated in CGST Rules to remove ambiguity with respect to procedure and time limit for filing Refund of tax wrongfully paid in terms of Sec 77(1) of the CGST Act, 2017 and Sec 19(1) of the IGST Act,2017.
• Transfer of unutilized CGST and IGST Cash Ledger Balance: Any unutilized balance in CGST and IGST Cash Ledger may be allowed to be transferred between Distinct persons (entities having same PAN but registered in different states), without going through the refund procedure, subject to certain safeguards
• Relaxation in ITC-04:
  FORM GST ITC-04 under Rule 45 (3) of the CGST Rules,2017 to be filed as under:

Annual Aggregate Turnover in preceding Financial Year	Frequency to file
More than Rs. 5 crores	Bi-annually
Upto Rs. 5 crores	Annually

• Amendment in Rule 59(6):
  An amendment is proposed in Rule 59(6), wherein a registered person shall not be allowed to furnish FORM GSTR-1, if he has not furnished the return in FORM GSTR-3B for the preceding month.
• Late Fee: Late fee for delayed filing of FORM GSTR-1 to be auto-populated and collected in next open return in FORM GSTR-3B.
• Aadhaar Authentication: Mandatory Aadhaar authentication of registration for being eligible to file refund claim and application for revocation of cancellation of registration.
• GST Refund: Refund to be disbursed in the bank account, which is linked with same PAN on which registration has been obtained under GST.
• Petroleum: GST Council, after due deliberation was of the view that it is not appropriate to bring Petroleum products under the ambit of GST Regime. The matter was taken up by the GST Council on the directions of Hon’ble Kerala High Court.
• Inverted Duty structure:
  • GST Council decided to set up a GoM in order to examine the issue of correction of Inverted Duty Structure for major sectors, rationalizing the GST rates and review exemptions from the point of view of revenue augmentation.
  • GST Rate changes in order to correct inverted duty structure for footwear and textiles sector to be implemented w.e.f. 1st Jan 2022.
• Export of goods liable to Export Duty u/s 54(3):
  Only those goods which are actually subjected to export duty i.e., on which some export duty has to be paid at the time of export, shall be covered under the restriction imposed under section 54(3) of CGST Act, 2017 from availment of refund of accumulated ITC.
• Other clarifications:
  • Date of issuance of Debit Note (and not the date of underlying invoice) shall determine the relevant financial year for the purpose of section 16(4) of CGST Act, 2017 w.e.f 1st Jan 2021;
  • Where an E-invoice has been generated as prescribed under Rule 48(4) of CGST Rule, 2017, there is no need to carry the physical copy of tax invoice.
  •  

Clarification in relation to GST rate on Goods:

• Edibles:
  • Carbonated Fruit Beverages of Fruit Drink” and “Carbonated Beverages with Fruit Juice” attract GST rate of 28% and Cess of 12%. This is being prescribed specifically in the GST rate schedule.
  • Distinction between fresh and dried fruits and nuts is being clarified for application of GST rate of “nil” and 5%/12% respectively;
• UPS/Batteries/Inverters: External batteries sold along with UPS Systems/ Inverter attract GST rate applicable to batteries [28% for batteries other than lithium-ion battery] while UPS/inverter would attract 18%.
• Renewable Energy: GST on specified Renewable Energy Projects can be paid in terms of the 70:30 ratio for goods and services, respectively, during the period from 1st July 2017 to 31st December 2018, in the same manner as has been prescribed for the period on or after 1st January 2019.

Read more at : Microsoft Word – Press_Release_45_GSTC.docx (cbic.gov.in)

C. No credit on Input Services in case of Inverted Duty Structure – Hon’ble Supreme Court

VKC Footsteps India Pvt Ltd. vs Union of India & Ors.
Background: Inverted duty structure refers to a situation where a registered person procures inputs and/or input services at a higher tax rate and thereafter undertakes outward supplies of the final product at a lower tax rate leading to accumulation of unutilized Input Tax Credit in the Electronic Credit Ledger of the registered person.

The issue revolves around Section 54(3) of the CGST Act, 2017 read with Rule 89(5) of the CGST Rules, 2017 which debars the credit of input services in case of Inverted Duty structure. Section 54(3) of the CGST Act, 2017 provides that any registered person may claim refund of any utilized Input Tax Credit at the end of the tax period and that the proviso to Section 54(3) provides that refund shall be allowed only in the below mentioned cases:

1. Zero rated supplies made without payment of tax;
2. Supplies where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than Nil/Exempted Supply/notified goods or services).

Further, Rule 89(5) of the CGST Rules, 2017 which provides the formula for computation of refund amount in case of Inverted duty structure, excludes Input Services from the definition of ‘Net ITC’, thereby allowing refund to the extent of ITC on Inputs. The matter was examined by Hon’ble High Court of Gujarat, wherein it was held that the formula as prescribed under Rule 89(5) denying refund of unutilized ITC paid on Input Services accumulated on account of Inverted Duty Structure is ultra-vires the provision of Section 54(3) of the CGST Act, 2017. Contrary to this, Hon’ble Madras High Court upheld the vires of Rule 89(5) and that the exclusion of Input Services from the definition of ‘Net ITC’ is in line with Section 54(3). Further, Section 54(3)(ii) does not infringe Article 14 of the Constitution of India and that it qualifies, curtails, and imposes a restriction on the quantum and entitlement of refund claim and a valid exercise of legislative power.

Held:

• Provision to Section 54(3) is merely a restriction and not a condition : Hon’ble Apex Court stated that the expression ‘other than’ is followed by clauses (i) and (ii) which signifies that a refund can be allowed only in the said envisaged eventualities, thereby implying the expression operates as a limitation /restriction. Further, it is within the legislative competency of the Parliament to determine whether refunds should be allowed of unutilized ITC for input goods alone or both input goods and input services including the circumstances in which a refund can be claimed.
• Legislative boundaries cannot be drawn on the basis of an ideal by Court: It would be impermissible for the Supreme Court to redraw the boundaries / expand the refund provision’s beyond what the statue has provided. Further, the judicial interpretation cannot be ahead of policy. The Supreme Court observed that jurisprudential material relied upon by the taxpayer portrays an ideal state of GST legislation that may not match the actual situation. It was observed that the ideal of a GST framework that Article 279A(6) of the Constitution embodies must be progressively realized. The underlying rationale for the enactment of the law cannot furnish either a valid basis for the judicial review of the legislation or offer a ground for invalidating a validly enacted law unless it infringes constitutional parameters. If the legislature has intended that the equivalence between goods and services should be progressively realized and for the purpose of determining whether refund should be provided, the restriction imposed in clause (ii) of the proviso to section 54(3) of the CGST Act should be enacted. According to the Supreme Court, this lies within the realm of policy, which is the responsibility of the legislature.
• ‘Inputs’ cannot include both goods and services: Input’ has been defined under section 2(59) of the CGST Act to include goods other than capital goods. It is imperative to note that the plural expression ‘inputs’ has not been specifically defined. Further, there is no reason that why the ordinary principle of construing the plural in the same plane as that of the singular should not be applied. Further, construing ‘inputs’ to include both goods and services would be violative of provisions of Section 54(3) of the CGST Act and contrary to Explanation I to Section 54 of the CGST Act. Such an interpretation would enhance the scope of Section 54 beyond what is intended by the Statue.
• Constitutional validity of section 54(3) of the CGST Act upheld: Hon’ble Court stated that Refund is a matter of a statutory prescription and that there is no constitutional entitlement to seek a refund. Parliament was within its legislative authority in determining whether refunds should be allowed of unutilized ITC tracing its origin both to input goods and input services or, as it has legislated, input goods alone. Further, invalidity arise where equals are treated as unequally and unequal’s are treated as equals and held that both under the Constitution and the CGST Act, goods and services and input goods and input services are not treated as one and the same. Hon’ble Court held that the principle of equality does not preclude the classification of property, trade, profession, and events for taxation and the same is not hit by Article 14 of COI. State may impose different specific taxes upon different species which it seeks to regulate. Thus, a discriminatory provision under tax legislation is not invalid per se.
• Rule 89(5) of the CGST Rules is not ultra vires Section 54(3) of CGST Act : The Hon’ble Court did not accept the submission that the word ‘inputs’ in Explanation (a) to Rule 89(5) be struck down as being severable to bring it ‘entirely in line with the main provision’. It held that the definition of ‘Net ITC’ to mean ITC availed on inputs (goods) is entirely in line with the main provision; and if it were to accept the submission it would expand the ambit of Rule 89(5) beyond the terms governing the admissibility of a refund under Section 54(3)., and hence impressible. Hon’ble Court noted that wide powers have been given under Section 164 of the CGST Act to make rules and that such power to make rules are not restricted to only those sections that grant specific authority to frame them. Thus, absence of the words ‘as may be prescribed’ in Section 54(3) does not deprive the rule making authority to make rules for carrying out the provisions of the Act.
• Formula under Rule 89(5) of the CGST Rules cannot be read down: Hon’ble Court held that a formula to create a legal bifurcation is valid and that the use of such formula is a familiar terrain in fiscal legislation including delegated legislation under parent norms and is neither untoward nor ultra vires. Further, the purpose of the formula in Rule 89(5) of the CGST Rules is to give effect to section 54(3)(ii) of the CGST Act, which makes a distinction between input goods and input services for grant of refund. It held that once the principle behind Section 54(3)(ii) of the CGST Act is upheld, the formula cannot be struck down merely for giving effect to the same. Hon’ble Court took note of the imperfections of the said formula and observed that the formula tilts the balance in favor of Revenue by reducing the refund amount in contrast to a refund of zero-rated supplies as provided in Rule 89(4) of the CGST Rules, wherein ‘Net ITC’ includes input goods and input services both. It stated that this Court has intervened to read down or interpret a formula only where it leads to absurd results or is unworkable, which is not the present case. It further stated that reading down the formula by prescribing an order of utilisation would mean that the Supreme Court is recrafting the formula and stepping into the shoes of the Executive / Legislature, which is not permissible. Hon’ble Court directed GST Council to take a considered view based on its observations about the refund formula prescribed in Rule 89(5) of the CGST Rules.
• Clarification ‘Mere establishments of Distinct Persons’ : CBIC has clarified that a company incorporated in India and a body corporate incorporated by or under the laws of a country outside India ‘foreign company’, are separate persons under CGST Act, and thus are separate legal entities. Accordingly, the said two separate persons would not be considered as ‘merely establishments of a distinct person in accordance with Explanation 1 in section 8’.

Read more at : Microsoft Word – Circular No. 161_17_2021.docx (cbic.gov.in)