GST Council cannot determine classification of goods

 This tax alert summarizes a recent judgement of Madras High Court (HC) regarding classification of “Flavoured Milk” and whether Goods and Services Tax Council (GST Council) is empowered to determine classification of goods.

GST Council, in its 31st meeting held on 22 December 2018, classified “Flavoured milk” under HSN 2202.

HC observed that:

GST is an unsolved puzzle to do business in India.

In the annals of 2017, when the advent of GST dawned upon the business milieu, optimism pervaded. It was widely believed that the tapestry of commerce in our land would be woven with the seamless threads of simplified indirect tax compliance. Alas, the reality unfolded in stark contrast. The enactment and the system proved neither facile nor smooth. A colossal ordeal awaited businesses during the transition.

Income Tax benefits to startups

 

In the collective yearning for enlightenment, the inquiry arises regarding the fiscal inducements

accessible to fledgling enterprises within the Indian realm. Hereinafter, I proffer a concise compendium delineating the aforesaid tax benefits bestowed upon such nascent entities.

 

Delhi HC holds Tax Research Unit of the Department of Revenue lacks authority to issue GST circulars

 This Tax Alert summarizes a recent ruling of the Delhi High Court (HC) ^[1]. The issue involved was whether the Tax Research Unit (TRU) under the Department of Revenue, Ministry of Finance, is authorized to issue circulars under the Goods and Services Tax (GST) law.

Taxpayer in the present case was aggrieved by Circular No. 80/54/2018-GST dated 31 December 2018 issued by TRU to the extent it purports to clarify that polypropylene woven and non-woven bags are classifiable as “plastic bags” under Tariff Heading 3923.

It preferred a writ petition before the HC challenging the authority and jurisdiction of TRU to issue such clarification.

Taxpayer contended that as per Section 168(1) of the Central Goods and Services Tax Act, 2017 (CGST Act), the power to issue orders, instructions or directions to Central Tax Officers stands vested exclusively in the Central Board of Indirect Taxes and Customs (CBIC) and no such power stands conferred upon the TRU.

HC concurred with the views of the taxpayer and observed that there are no provisions under the CGST Act in terms of which TRU could be said to have been clothed with the authority or jurisdiction to render a clarification with respect to classification of goods and articles.

Accordingly, HC quashed the Circular. However, the issue of classification was left open for consideration of the competent authority in appropriate proceedings.

Comments:

Circulars issued by TRU which are unfavorable to the industry may be challenged basis above judgement.

Changes made in CGST Rule 2017 as per Notification No.38/2023-Central Tax dated 04/08/2023

 👉Rule 9. Verification of the application and approval

• For physical verification of premises presence of registered person is not required 👉Rule 10A. Furnishing of Bank Account Details • Time limit for furnishing Bank Account is reduced 👉Rule 21A. Suspension of registration • RC will be suspended if Bank account is not furnished or Discrepancy in GSTR-3B and GSTR-1 👉Rule 23. Revocation of cancellation of registration • Time limit for applying for revocation of cancellation of GST registration extended from 30 days to 90 days and time limit by the Commissioner/officer is extended for a further period of not exceeding 180 days (W.e.f-01-10-23) 👉Rule 25. Physical verification of business premises in certain cases • For physical verification of premises presence of registered person is not required 👉Rule 43. Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases • Determination of value of exempted value with reference to certain supplies mentioned in Schedule III. (W.e.f 01/10/23) 👉Rule 46. Tax invoice • Pin code number is not required for supply to unregistered person through e-commerce operator 👉Rule 59. Form and manner of furnishing details of outward supplies • GSTR-1 or IFF will not be allowed if reply is not furnished, or amounts paid for the difference between GSTR-3B and GSTR-2B for the noticed issued under Rule 88D or Bank details are not furnished as required under Rule 10A 👉Rule 64. Form and manner of submission of return by persons providing online information and data base access or retrieval services (W.e.f 01/10/23) • Minor change wrt to non-taxable online recipient 👉Rule 67. Form and manner of submission of statement of supplies through an e-commerce operator • Sub rule redrafted for clarity 👉Rule 88D. Manner of dealing with difference in input tax credit available in auto-generated statement containing the details of input tax credit and that availed in return • New rule for the difference in GSTR-2B and GSTR-3B with reference to availment of ITC 👉Rule 89. Application for refund of tax, interest, penalty, fees or any other amount • Refund on account of casual registrant and modified statement for excess payment of tax, interest and any other amount 👉Rule 94. Order sanctioning interest on delayed refunds • Exclusion of Certain Periods from Delay in Sanctioning Interest on Refunds (W.e.f 01/10/23) 👉Rule 96. Refund of integrated tax paid on goods or services exported out of India • Certain provisos omitted 👉Rule 108. Appeal to the Appellate Authority • Manual filing of Appeal is legalized if the order is not uploaded electronically 👉Rule 109. Application to the Appellate Authority • Manual filing of Appeal is legalized for Department, if the order is not uploaded electronically

Maintenance of books of accounts by Trusts: Rule 17AA

  1. Finance Act 2022 and Rule 17AA of the Income Tax Rules inserted with effect from the assessment year 2022-23 specifies the requirements for maintaining books of accounts and other documents for trusts and institutions.

Issues and Disputes Regarding ITC for Construction-Related Costs, Including Land Lease Transactions

 During their regular operations, business entities often accrue a range of expenses related to immovable properties, such as construction for structures like factory buildings, sheds, ETP/STP plants, as well as securing land through lease agreements for factory setups. These lease agreements typically involve one-time upfront premiums, one-time common infrastructure and development fees, annual lease rentals, and annual maintenance charges.

CBIC issues Circulars pursuant to recommendations made in 52nd GST Council meeting

 This Tax alert summarizes recent Circulars issued by Central Board of Indirect Taxes and Customs (CBIC) based on the recommendations made by the Goods and Services Tax (GST) Council in its 52^nd meeting.

The key clarifications are:

• For personal guarantee provided by director, the open market value is zero and thus, no tax is payable. Corporate guarantee provided by a company to the bank/ financial institutions for providing credit facilities to its related person would be treated as a supply of service, even when made without any consideration. The taxable value of such supply will henceforth be determined as per Rule 28(2) of the Central Goods and Services Tax Rules, 2017.
• The place of supply for service of transportation of goods, including through mail and courier, where location of supplier or location of recipient is outside India, will be the location of recipient of service and in absence of recipient’s location, it will be location of the supplier of services.
• In case of sale of space or grant of rights to use the space on hoarding/ billboard (immovable property) for display of advertisement, the place of supply will be the location where such immovable property is located.
  However, where vendor is providing advertisement services by providing visibility to the recipient’s advertisement for a specific period of time on structure possessed/taken on rent by the vendor at the specified location, the place of supply will be the location of the recipient.
• Co-location services includes both making available the immovable property and various services related to hosting and IT infrastructure. Thus, the place of supply would be the location of recipient.
  However, where the scope of service is restricted to providing physical space on rent along with basic infrastructure, without components of hosting and IT infrastructure provisioning services, it will be considered as supply of renting of immovable property.

Comments

• The clarifications relating to place of supply of various services and fulfillment of export condition when consideration is received in INR through RBI permitted mechanism is likely to benefit trade and industry.
• Courier service providers who had earlier opted to pay GST in view of ambiguity in place of supply provisions, may now explore the possibility of claiming refund.
• There is a view prevailing in the industry that provision of corporate guarantee is a shareholder’s activity basis Income tax rulings and thus, not a service. While the Circular clarifies it to be a supply of service and Rule provides for its valuation, one may still need to analyse its coverage under GST. More clarity may emerge once the agenda and minutes of the Council meeting are released.
• While the provisions of new rule 28(2) are prospectively effective, its applicability to ongoing corporate guarantees may need to be evaluated in light of time of supply provisions.
• It is relevant to note that rule 28(2) covers only the cases where the guarantee is offered to bank/ financial institutions. Taxpayers may need to analyse the relevant valuation provision where such guarantee is given to vendors, customers, or government departments.
• While the rule provides for taxable value at 1% of the amount of guarantee offered, further clarity may be required on its periodicity, particularly, in case of multi-year guarantee arrangement.