Indirect Tax and GST Updates Till March 2019
GST Compliance calendar – April 2019
|Return||Due Date of filing|
|GSTR-1||Outward supply for the month of March 2019||11th April 2019|
|GSTR-5||Non-resident foreign taxpayers return for the month of March 2019||20th April 2019|
|GSTR-6||Input service distributor for the month of March 2019||13th April 2019|
|GSTR-7||Tax Deducted at Source for March 2019||10th April 2019|
|GSTR-8||Tax Collected at Source by e-commerce operator for March 2019||10th April 2019|
|GSTR-3B||Summary return tax payment for the month of March 2019||20th April 2019|
|Important alert :- In order to remove the difficulties faced by Taxpayers, the Central Government, on recommendations of the Council, has informed that input tax credit in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18 can be availed till March 2019. So all assesse ensure to avail benefit of ITC while filing returns of March 2019 returns.|
The GST Council (Council), in its 34rd meeting on 19th March 2019 discussed operational details for implementation of recommendations made in 33rd meeting in respect of new rate of tax for under construction and new residential projects. Key Highlights of 34th GST Council Meet
- GST Council has approved the transition plan for the implementation of the new tax structure for housing units.
- GST rates for new projects will be mandatory from April 1.
- Builders of existing housing projects that are completing construction by 31st March 2019 get to choose either of the two alternatives:
- Alternative 1: Choose the old rate of 12% (8% for affordable housing) and charge this GST Rate in the invoices raised. Further, input tax credit benefit is available and can be passed on to the buyer.
- Alternative 2: Choose to bear GST tax at the rate of 5% (1% for affordable housing as defined by GST law). The benefit of the input tax credit (ITC) is not available to the builder for procurements used in construction.
- Those who choose the 2nd alternative must reverse the accumulated ITC on their closing stock of under-construction properties in a proportion laid down in rules (to be notified) within six months.
- The new rate of 5% (1% for affordable housing) will apply to those residential properties whose construction is going on even after 31st March 2019 or any new projects launched after 1st April 2019. Here, the benefit of ITC on procurements will not be available to the builders.
New GST Rates for Affordable Housing Project- Rate of tax is 1% without input tax credit (ITC) on construction of affordable houses-
- (a) All houses which meet the definition of affordable houses as decided by GST Council (area 60 sqm in non- metros / 90 sqm in metros and value upto Rs.45lakhs),and
- (b) Affordable houses being constructed in on going projects under the existing central and state housing schemes presently eligible for concessional rate of 8% GST (after1/3rdlandabatement) which have opted for new scheme.
New GST Rates for Non-Affordable Housing Project – Rate of tax is 5% without input tax credit on construction of-
(a) all houses other than affordable houses in new projects.
(b) commercial apartments such as shops,offices etc. in a residential real estate project (RREP) in which the carpet area of commercial apartments is not more than15% of total carpet area of all apartments.
(c) all houses other than affordable houses in on going projects whether booked prior to or after 01.04.2019 where developer has opted for new scheme .In case of houses booked prior to 01.04.2019 ,new rate shall be available on instalments payable on or after 01.04.2019.
Conditions for new tax rates
- ITC shall not be available.
- 80% input & input services [other than capital goods, TDR/JDA,FSI, long term lease(premiums) shall be purchased from registered persons. If purchases from such persons is below 80%, tax shall be paid by the builder @18% on reverse charge basis (other than capital goods and cement).
- Tax on cement purchased from unregistered person shall be paid @28% under RCM. Tax on capital goods purchased from unregistered person shall be paid at applicable rates under RCM.
- Whether financing costs will be covered within the meaning of input services for 80% slab?
- Whether RCM applicable on purchase of cement from unregistered person in case where more than 80% input and input services are purchased from registered dealer?
- Whether capital goods are under the RCM condition or not?
Exemption on TDR/ FSI and long term lease for residential projects commencing after 01.04.2019 – Open Issues
- Whether exemption available in respect of ongoing projects where developer has opted for new rate scheme?
- Whether exemption available in respect of projects with mixed use i.e. both residential and commercial units?
Applicability of GST on TCS – Corrigendum issued
Corrigendum dated March 7, 2019 issued to Circular No. 76/50/2018-GST dated December 31, 2018 (‘Circular’). The Corrigendum clarifies that collection of tax at source (TCS) is an interim levy under Income Tax laws and not a tax per se. Therefore, TCS shall not be added to the taxable value for the purpose of charging GST. This clarification comes as quite a relief for businesses specifically for automotive sector to avoid apprehensive of litigation on this aspect. Relevant abstract of clarification is given below
“In the light of the representations received from the stakeholders, the matter has been re-examined in consultation with the Central Board of Direct Taxes (CBDT). The CBDT has clarified that Tax collection at source (TCS) is not a tax on goods but an interim levy on the possible “income” arising from the sale of goods by the buyer and to be adjusted against the final income- tax liability of the buyer.
Accordingly, in S. No. 5 of the Circular No. 76/50/2018-GST dated 31st December, 2018:
For the purpose of determination of value of supply under GST, Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of
- The corrigendum clarifies the correct position of law as discussed in our previous update. Notably, the Corrigendum is considered as part and parcel of the original Circular. Consequently, it will be considered that after the issuance of Corrigendum, the clarification given in the original Circular never existed. Thus, GST shall not be payable on TCS amount even for the interim period.
- If the taxpayers have charged GST on TCS in the months of January and February 2019 which became an added cost, they can consider issuing a GST credit note in the month of March 2019 (any time before September 30, 2019). If the taxpayers are issuing GST credit note, they must refund the additional GST amount if collected from their customers.
Sales promotion schemes – GST liability and ITC availability clarified: Where free samples and gifts are offered as part of sales promotion scheme, CBIC has clarified that supply of such goods, services or both which are supplied free of cost without a consideration, will not be treated as ‘supply’ under GST law.
- ITC is not available on inputs, input services and capital goods to the extent they are used in relation to such supplies.
- Schemes like ‘buy one get one free’ should be treated as two goods supplied for the price of one and such supply will be taxable as per Section 8 of the CGST Act, after determining whether it is a mixed or composite supply. ITC will be available to the supplier in such cases. (Circular No. 92/11/2019-GST, dated 7-3-2019)
Valuation – Discounts when not includible in value of supply:
- Discounts are excludible from the value of supply, subject to condition including reversal of ITC by the recipient in cases of ‘Buy more, Save more offer’ or staggered/volume discounts, where rate of discount is increased after volume of purchase is increased However, the supplier will be entitled to ITC on inputs, input services and capital goods used in relation to such supplies.(Circular No. 92/11/2019-GST, dated 7-3-2019)
- Last dates for filing GSTR-1 and GSTR-3B for April-June 2019, notified:
- GSTR-1 for the months of April, May and June 2019 are to be filed till 11th day of the succeeding month by registered persons having aggregate turnover of more than INR 1.5 crore.
- For persons whose turnover is up to INR 1.5 crore, this return for the quarter April-June 2019 can be filed till 31-7- 2019.
- Form GSTR-3B for each of the months from April to June 2019, must be furnished by twentieth day of the succeeding month. (Notifications Nos. 11 to 13/2019-CT dated 7-3-2019)
- New return formats placed on GST portal: Goods and Services Tax Network (GSTN) has placed the proposed three return documents, as approved by the competent authority, on the GST Portal.
- The new formats, titled, normal, sahaj and sugam, is likely to simplify the compliance process for taxpayers having turnover of up to INR 5 crore.
- The taxpayers would have an option to file any of the three forms. It may however be noted that HSN code at least at 6-digit level shall have to be reported. As decided by the GST Council, these forms will operate on a pilot basis from 1-4-2019 and will be made mandatory only from July 2019.Important cases decidedAnti-profiteering – Passing of benefit by retailer not dependent on manufacturer passing the benefit: National Anti-profiteering Authority has held that passing of benefit by distributor or retailer does not depend on passing such benefit by manufacturer or his supplier to him first. The Authority in this case agreed with the DGAP report taking cum-tax price and rejected the plea that average base price is to be used to compute profiteering. It also held that the respondent had not only increased the base price but also collected GST on such price and hence was liable to penalty. (Rahul Sharma v. Cloudtail India Pvt. Ltd. – Order dated 7-3-2019 in Case No. 16/2019, NAA)Valuation – Cost of tools billed to customer, not includible: Appellate AAR Karnataka has held that amortized cost of the tools manufactured by the assessee and billed to the customer but retained by the assessee for manufacture of components for the customer, is not to be added to arrive at the value of the goods supplied. It was held that the value of the tools, which had already suffered tax and supplied FOC to the assessee, is not required to be added. (Nash Industries (I) Pvt. Ltd. – 2019-VIL-08-AAAR)
- ITC on ambulance purchased prior to 1-2- 2019 not available: AAR West Bengal has denied input tax credit on ambulance purchased, prior to 1-2-2019, by a manufacturer of agricultural machinery for the benefit of the employees under legal requirement of the Factories Act, 1948. It observed that the exception carved out under Section 17(5)(b)(iii)(A) of CGST Act is not applicable. The Authority in its ruling observed that the eligibility for claiming ITC under Section 16(1) is subject to the provisions of the law at the time of occurrence of the taxable event, irrespective of when the claim is made. ( Nipha Exports Pvt. Ltd. – 2019-VIL-52-AAR)
- Profiteering to be calculated as per period owing to change in GST rates: NAA has upheld the findings of the Director General of Anti- Profiteering (DGAP) that the respondent involved in construction of flats did not pass benefit of ITC accrued post-GST to flat buyers / recipients. Observing that in construction of affordable housing, post-GST rates were also reduced, the Authority held that in cases of amendment in GST rates, profiteered amount must be broken into two parts, i.e. from 1-7-2017 to 24-1-2018 and from 25-1-2018 onwards. (Ashok Khatri v. S3 Infrareality (P) Ltd. – 2019-VIL-06-NAA)
- Provisional attachment – Section 83 not invokable against Directors: Gujarat High Court has set aside provisional attachment of bank accounts of directors of a company on the ground that provisions of Section 83 of the CGST Act can be invoked against the company, which is a taxable person, and not against the directors. The High Court also observed that when dues cannot be recovered from a company, the same can be recovered from directors under CGST Section 89 unless they prove that such non- recovery was not attributable to any gross neglect, misfeasance or breach of duty on their part. (H.M. Industrial (P) Ltd. v. Commissioner – 2019 (22) GSTL 13 (Guj.)
- National Bench of GST Appellate Tribunal notified: Ministry of Finance has notified creation of National Bench of the Goods and Services Tax Appellate Tribunal (GSTAT) at New Delhi. Notification S.O. 1359(E), dated 13-3-2019 has been issued under Section 109 of the Central Goods and Services Tax Act, 2017 for this purpose. It may be noted that the Allahabad High Court in its Order dated 28-2-2019 in Torque Pharmaceuticals v. UOI had directed the government to give a cut-off date to set-up the Tribunal. Union Cabinet had on 21-1-2019 approved setting-up of GSTAT.
ITC on inward supplies for construction of pre-fabricated warehouse, not available: Observing that a warehouse built with prefabricated material is constructed with the intention of use as permanent structure and associated with beneficial enjoyment of the land on which it is built, AAR West Bengal has held that the same being immovable property, input tax credit on inward supplies is not available. Definition of “immovable property” in Section 3(26) of the General Clauses Act, 1897 was referred. ( Tewari Warehousing Co. Pvt. Ltd. – 2019-VIL-47-AAR )
MEIS benefit on exports directly from EOU/SEZ on behalf of DTA unit: Export of goods produced by the EOU/SEZ unit and exported directly from the EOU/SEZ to the foreign consumer with the name of DTA unit on whose behalf the exports are made, are eligible for the benefits under Merchandise Exports from India Scheme (MEIS). MEIS benefits may be taken by SEZ/EOU or DTA unit and not both, based on disclaimer from the other firm. Certain criterion as specified in the circular, however, need to be fulfilled for availing such benefit. (Circular No. 20/2015-20, dated 22-2-2019)
Printing of Advance/EPCG Authorisation on security paper to be discontinued: DGFT will discontinue printing of advance authorisations and EPCG Authorisations where port of registration is an EDI port. This system is applicable for authorisations issued from 1-3- 2019 onwards. Details of authorisation will be available on ICES and process of registration of authorisations and taking bond/bank guarantee remain unchanged. (Circular No. 7/2019-Cus., dated 21-2-2019)
SEZ – Value of indigenous inputs not includible in net forex earning: Ministry of Commerce has amended Special Economic Zone Rules, 2006 to provide that sum of value of inputs in the formula for calculating positive net foreign exchange [B in formula A-B>0], will not include value of indigenous inputs, used for authorised operations. It may be noted that prior to 21-9-2018 the position was same and the reference to indigenous inputs was inserted in Rule 53 of SEZ Rules by Notification dated 19-9- 2018. SEZ Notification No. G.S.R. 200(E), dated 7-03-2019 has been issued for this purpose
Important Cases decided
Valuation – Demurrage not includible – Explanation to Valuation Rule 10(2) is bad: Observing that the provisions in the Customs Act were silent about demurrage, the High Court held that it is beyond the legislative powers to include demurrage charges in the rules for Customs valuation. Supreme Court judgements in Wipro ltd, Essar Steel Ltd. and Mangalore Refinery and Petrochemicals Ltd. were relied on. (Tata Steels v. UOI – W.P.(C) No. 7917 of 2009, decided on 14-2-2019, Orissa High Court)
Advance authorisations – ‘Prior import condition’ quashed: Gujarat High Court has quashed the ‘pre-import condition’ under Advance Authorisation regarding prior imports for manufacture of export goods. It observed that such condition, after introduction of GST, lead to cash blockage and made imports under Advance Authorisation next to impossible. The condition was also held as not meeting test of reasonableness. It may be noted that this condition was in force from 13-10-2017 to 9-1-2019. (Maxim Tubes Company Pvt. Ltd. v. Union of India – R/Special Civil Application No. 14558 of 2018 and Ors., decided on 4-2-2019, Gujarat High Court)
Anti-dumping duty not to be imposed on second hand machinery: CESTAT Chennai has held that import of second hand machinery cannot be subjected to imposition of anti- dumping duty (ADD) meant for new machinery. It observed that purpose of anti-dumping is served, in case of second-hand machinery, by way of re-appraisement of declared value, and imposition of ADD would be nothing but double jeopardy. (Commissioner v. Trinity Exporters – Final Order No. 40357/2019, dated 20-2-2019, CESTAT Chennai)
|Central Excise & Service Tax|
Job work of textile goods – Liability under Excise Rule 12B explained: Noting that Central Excise Rule 12B and the notification talked about ‘aggregate value’ of clearances of job worker, the Supreme Court has held that assessee manufacturing textiles through job workers would be liable once aggregate value crossed the threshold. The Apex Court rejected assessee’s reliance on third illustration in CBEC Circular dated 30-10-2003. It held that third illustration did not fit in the scheme of Rule 12B. The assessee had pleaded that liability will be only in respect of a particular job worker whose clearance had exceeded threshold. [Dinesh Textiles v. Commissioner – Civil Appeal Nos. 9740-9741 of 2018, decided on 28-2-2019, Supreme Court
Refund claim by buyer and manufacturer to be treated differently: Supreme Court has rejected time-barred refund claim of central excise duty by the buyer, in a case where duty was paid under protest by the manufacturer- seller. It observed that scheme of Excise Section 11B makes a distinction between rights of a manufacturer and that of the buyer. Supreme Court’s earlier decision in the case of CCE v. Allied Photographics India Ltd.
In-house corporate guarantee not liable to service tax: CESTAT Chennai has held that commission received/paid for issuance of corporate guarantee to associate/subsidiary companies is not exigible to service tax under Section 65(12)(a)(ix) of Finance Act, 1994. The Tribunal observed that corporate guarantee is not same as bank guarantee since corporate guarantee is an in-house guarantee issued to safeguard financial health of associate enterprises and is not issued to customers generally. It was also held that only the services listed in Section 65(12)(a)(ix) ibid would be exigible to service tax under Banking and Other Financial Services. The Tribunal in this regard also observed that it was also not the case that the corporate guarantee was issued / procured to enable the bank to issue bank guarantee. (Sterlite Industries v. Commissioner – Final Order No. 40318/2019, dated 19-2-2019, CESTAT)
Service tax exemption to transport from factory to gateway port – Conditions: CESTAT Delhi has held that exemption under Notification No. 31/2012-ST, to transportation of goods from factory to the gateway port, cannot be denied for belated filing of declaration EXP-1, EXP-2. (Makson Healthcare Pvt. Ltd. v. Commissioner – Final Order No. 50299/2019, dated 21-2-2019, CESTAT Delhi)
Cenvat credit on GTA services when goods cleared on FOR basis: CESTAT Ahmedabad has held that Cenvat credit was available on GTA services for delivering goods to buyer’s doorstep, in a case involving both MRP and non-MRP sales. Period involved was after 1-4-2008. The Tribunal observed that goods were cleared on FOR basis and freight/damages in transit was responsibility of assessee. Supreme Court judgement in Ultratech was distinguished noting that it did not consider Point of Sale or FOR price issue. CBIC Circulars dated 22-12-2014 and 23- 8-2007, as in force during relevant time, were relied upon. (Sanghi Industries v. Commissioner – Final Order No. A/10374-10375/2019, dated 25- 2-2019, CESTAT Ahmedabad)
Commission paid by exporter to foreign subsidiary – Exemption: CESTAT Allahabad has held that benefit of service tax exemption was available on commission paid by exporter to its foreign based subsidiary for procurement of orders from foreign companies. It noted that denial of exemption would apply only in cases where export was made to own joint venture or wholly owned foreign subsidiary (Super House Limited Shoe Div. v. Commissioner – 2019-VIL-111-CESTAT-ALH-ST)
|Value added Tax (VAT)|
State enactment for saving VAT recovery post GST, valid: Kerala High Court has held that Kerala VAT Act does not stand fully repealed with the 101st Amendment to the Constitution and that the State has legislative powers to enact saving clause under Section 174 of the Kerala GST Act allowing department to levy and recover VAT for transactions prior to GST. It rejected the plea that States have been denuded of the legislative power to enact Section 174 because of the amendment to Entry 54 of List II of Seventh Schedule to the Constitution of India. It observed that there is always a presumption in favour of the constitutionality and where the validity of a statute is in question, the interpretation which makes the law valid is preferred. (Sheen Golden Jewels v. STO – WP(C). No. 11335 of 2018, decided on 11-1- 2019, Kerala High Court)
Levy of advertisement tax by State govt is ultra vires post 101st amendment: Allahabad High Court has held that levy and collection of Advertisement Tax by Nagar Palika Parishad, Hathras is without legislative/statutory competence and is ultra-vires Article 265 of the Constitution.
The High Court observed that by 101st Amendment to the Constitution, Entry-55 of List-II of Seventh Schedule to Constitution of India, under which State government had competence to levy/collect advertisement tax, was omitted. It noted that taxation power with municipalities under Section 128(2)(vii) of the UP Municipalities Act stood omitted by Section 173 of the UPGST Act. (Pankaj Advertising v. State of U.P. – 2019-VIL-70-ALH)
Rakesh Bhalla *Member ZAC & RAC Chandigarh - Central Excise & Service Tax (now GST) & Customs, Govt. of India, Member of Indirect Tax committee SIAM , Member, ASSOCHAM National Indirect Taxes Committee, Chief General Manager Finance- SML Isuzu Ltd., Winner Achiever Award 2015 by ICAI (CMA). Information source- M/s LKS, Nitya Tax Associates, Probability GST updates, PwC India Indirect Tax News Flash, cbic.gov.in and other sources-many thanks to all.