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Full ITC on goods and services not available if consideration is netted off against receivables

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Under the GST law, different units of the same entity functioning in different States are treated as ‘distinct persons,’ and as per Schedule I of the CGST Act, the supply of goods or services or both between such distinct persons, even if made without consideration are treated as supply. This deeming fiction was created so that the Input Tax Credit (ITC) chain is maintained intact. The recipient is required to make payment to the supplier within 180 days to claim ITC. Recently, the Appellate AAR, in the case of Sanghvi Movers Ltd.i (‘the taxpayer’), has held that full ITC is eligible to the taxpayer. However, the consideration is netted off in the books of accounts. In the instant case, the taxpayer is engaged in the business of providing cranes on lease/hire to its clients. The Head Offic...

AAR has jurisdiction to determine Place of Supply

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As per Section 97(2) of the CGST Act, an advance ruling can be sought in respect of: a. Classification of any goods or services or both; b. Applicability of a notification issued under provisions of the GST Act(s); c. Determination of time and value of supply of goods or services or both; d. Admissibility of input tax credit of tax paid or deemed to have been paid; e. Determination of the liability to pay tax on any goods or services under the Act; f. Whether the applicant is required to be registered under the Act; g. Whether any particular thing done by the applicant with respect to any goods or services amounts to or results in a supply of goods or services, within the meaning of that term. In the past, in many taxpayer cases , the AAR has rejected the applications for Advance Ruling in...

IGST levied on ocean freight transportation held unconstitutional

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In 2017, the Ministry of Finance had imposed service tax on a reverse charge basis on ocean freight incurred by an importer. This tax was payable even if the importer did not directly pay the ocean freight charges to the shipping company/freight forwarder. This proposition has been continued into the GST regime as well. The GST law specifically provides that the importers are required to discharge IGST at 5% on ocean freight charges under the reverse charge mechanism. However, at the same time, customs duty on the CIF value (which includes the freight component as well) of the goods imported into India is also paid by the importer. As a result, there is double taxation on the ocean freight under GST law, which is an impediment and has bloated the cost of imports. Recently, in a landmark ru...

Exporters to follow Standard Operating Procedure (SOP) issued by CBIC

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The Central Board of Indirect Taxes and Customs (CBIC), vide Circular No.131/1/2020 GST dated January 23, 2020, has issued Standard Operating Procedure (SOP) for exporters to follow. Here is a brief summary of the Circular below: CBIC, on verification, has found that many exporters were non-existent, and it is noticed that ITC was taken by the exporters based on fake invoices to pay IGST on exports; The CBIC has taken measures using rigorous data analytics and Artificial Intelligence tools to mitigate the risk. Based on these analytics, individual exporters will be taken up for further verification. The refund scrolls in such cases will be kept in abeyance till the verification is received from the field formations. Moreover, the export consignments or shipments of concerned exporters will...

Provisions of Insolvency and Bankruptcy Code override GST provisions

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The Insolvency and Bankruptcy Code 2016 (IBC) was introduced to promote the ease of doing business in India, to address the issue of liquidity in cases relating to insolvency/bankruptcy in India. It consolidates all existing insolvency-related laws like the Sick Industrial Companies, Special Provisions Act 1985, and many more. The IBC also specifies that it will override any other legislation in cases of conflict. The companies going through a resolution mechanism under the IBC, the revenue authorities are insisting on having a priority in the collection of past tax dues. In December 2019, the National Company Law Tribunal (NCLT), Chennai, in the case of T. R. Ravichandran – Resolution Professional (RP) for Kiran Global Chem Limited1. (Corporate Debtor), has directed the revenue auth...

Impact of Goods & Services Tax on Gifts and Free Samples

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The GST law has introduced the concept of ‘supply’ as a taxable event and done away with the erstwhile taxable events of manufacture, sale, service. The taxability and availability of Input Tax Credit (ITC) on gifts have always been a subject matter of discussion. The gifts are provided by the taxpayer for the purpose of advancement of its business or for sales promotion. The term gift is not defined under the GST law; thus, reliance could be placed on the definition provided under the Gift Tax Act, 1858. As per Section 2(xii), the term ‘gift’ means the transfer by one person to another of any existing movable or immovable property voluntarily and without consideration in money or money’s worth. The incidence of tax, under GST law, is on ‘supply’. The term ‘supply’, as defined under Sectio...

Interest on delayed GST payment whether payable on gross or net tax liability?

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Traditionally, under the erstwhile Indirect Tax Laws viz. Service Tax, VAT, etc. interest is payable on the amount of tax due after adjustment of the Input Tax Credit (ITC), which remains unpaid by the due date. However, under the GST law, the said practice got destroyed under the concepts of ‘Electronic Cash Ledger’, ‘Electronic Credit Ledger’, etc. and offsetting the liabilities with amounts in cash and credit ledgers through return in Form GSTR-3B. Section 50 of the CGST Act prescribes for payment of interest when there is a delay in payment of tax. It does not expressly provide that interest is payable even on the tax liability that was offset with accumulated ITC. In February 2019, the Principal Commissioner (Hyderabad) had issued a Standing Order No. 01/2019 to clarify that interest ...

India Extends Tax Compliance Deadlines to Offset COVID-19 Impact

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The rapidly escalating novel Coronavirus has claimed over 15,000 victims and infected close to 400,000 people across 132 countries. India saw its first positive case in the first week of March, and in less than four weeks, this number has crossed 500. Vowing not to follow in the lines of the heavily infected countries, India has imposed a 21-day lockdown period starting March 25, 2020. While this is an excellent move and should hopefully flatten the curve for India, it does raise concerns among taxpayers who are expected to file their tax returns – March being the tax month. The lockdown will prove to be particularly tricky for tax practitioners, chartered accountants and company secretaries as organizations have started to work from home and these professionals have minimal access t...

GST authorities to accept GSTR-9 and 9C returns without late fees

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The Tax Bar Association approached the Rajasthan High Court [D.B. Civil Writ Petition No. 1805/2020] contending that the Forms GSTR-9 and 9C of various taxpayers, for Financial Year 2017-2018, could not be uploaded by the due date because of technical glitches on the Goods and Services Tax (GST) portal. The Tax Bar Association appraised the High Court regarding technical glitches in filing of Forms GSTR-9 and 9C with various data/screenshots and also the arbitrary fixation of last dates, through ‘tweet’ on Twitter, by the Central Board of Indirect Taxes and Customs (CBIC). The High Court after taking into consideration screenshots submitted by the Tax Bar Association regarding the unsuccessful attempts of the tax professionals, held as under: GST portal appears to be having technical bottl...

Highlights of the 39th GST Council Meeting

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The 39th GST Council meeting held on Saturday, March 14, 2020, at New Delhi and chaired by the Union Finance Minister Nirmala Sitharaman took decisions on several crucial issues under GST, including deferment of e-invoice and new returns. The due date of filing an annual return and reconciliation statement for Financial Year (‘FY’) 2018-2019 has been extended to June 30, 2020. The Council also recommended amendments in the CGST Rules 2017 and issuance of circulars to clarify specific issues. Given below are the highlights of the recommendations made by the GST Council for changes in the law, procedure, and GST rates: Changes related to law and procedure: 1. Interest on delayed payment of GST The proviso to Section 50(1) of the CGST Act 2017 concerning interest for delay in payment of GST, ...