Tax Vista Your weekly tax recap Edn. 68 - 4 October 2021 By Dr. G. Gokul Kishore

Notifications issued to implement GST Council's recommendations

Last week, CBIC has issued notifications to implement the recommendations made by the GST Council in the meeting held on 17th September, 2021 in Lucknow. Notification No. 06/2021-Central Tax (Rate) dated 30-9-2021 has been issued to amend Notification No. 11/2017-Central Tax (Rate) providing for CGST rate on supply of services. Important amendments include removal of lower rate for non-IT related IPR services and prescription of uniform rate of 9% (total GST of 18%) for temporary or permanent transfer or permitting the use or enjoyment of IPR, job work in respect of alcoholic liquor for human consumption chargeable to 18% GST and printing and publishing related job work to attract 18% GST by omitting the entry which provided lower rate when content alone is provided by the publisher.

Notification No. 08/2021-Central Tax (Rate) amends Notification No. 1/2017-Central Tax (Rate) providing for CGST rate on supply of goods. Several printed materials like plans and drawings, cheque forms and similar stationery, calendars, brochure, catalogues, etc., which were under 12% rate will now attract 18% GST. Entry relating to cartons, boxes, bags etc., of paper which was under 12% rate has been brought under 18% with a merged / comprehensive entry. Railway related items and certain pens and related items will also be subject to higher rate of 18% GST. Fruit juices stuck in rate controversy have been provided with 28% GST through a new entry covering carbonated beverages of fruit drink or carbonated beverages with fruit juice. A few more notifications have also been issued but are not highlighted here. Rate change is a constant process as the same is necessitated due to anomalies, renewed priorities, revenue pressures, ambiguities, etc. As long as the objective is achieved, rate change may not be an issue except during the initial period of an increase, pushing up cost and eventually the price.

Issuance of DRC-01 and DRC-01A not merely procedural but mandatory

Unlike pre-GST laws, GST law provides for certain procedures to be followed when show cause notice is issued. Rule 142 of CGST Rules mandates issuance of summary of SCN through online mode in Form DRC-01. Before issuance of SCN, the amount of tax, interest and penalty payable may be informed through Form DRC-01A. In a recent case before Madras High Court, neither these procedures were followed, nor personal hearing was offered while passing order under Section 73 of CGST Act. The High Court held that these requirements are not merely procedural and it is a rule which needs to be adhered to. Opining that the order issued in disregard of such requirement affects the rights of the petitioner prejudicially, the order was set aside. The department was directed to decide the matter afresh. The provision relating to DRC-01A was amended by replacing "shall" with "may" to indicate the intention of the tax administration that such statutory prescription is discretionary. It appears the judiciary does not share this view [2021-VIL-693-MAD].

Taxpayer entitled to know reasons for credit blockage

The principles of natural justice (opportunity of hearing) were read into Rule 86-A of CGST Rules by the Madras High Court. The petitioner was aggrieved over non-communication of "reasons to believe" which led to blockage of credit while the department argued that the assessee cannot expect SCN to be issued prior to order blocking the credit since there was no such requirement in Rule 86-A. The said Rule requires the officer to record the reasons in writing. The Court held that the assessee should have an opportunity to effectively represent his case and he is entitled to know the reasons for invocation of powers under Rule 86-A. The Court set aside the order and directed the department to communicate the reasons and revoke the order of blockage if the explanation offered by the taxpayer was acceptable. Courts have been almost unanimous in holding that Rule 86-A is draconian in nature. Along with the powers to cancel registration and provisional attachment, this power to block ITC needs to be revisited for providing sufficient safeguards to the taxpayers [2021-VIL-687-MAD].

ITC blockage for more than one year - Taxpayers compelled to approach High Courts

Input tax credit can be blocked under Rule 86-A of CGST Rules for a maximum period of one year. These days, taxpayers against whom Rule 86-A is invoked are compelled to seek relief from High Courts as such blockage is not lifted even after expiry of one year. In Tax Vista dated 20-9-2021, an order passed by Tripura High Court on this issue was discussed wherein the prayer seeking lifting of restriction was allowed. In a similar case, Allahabad High Court has taken note of the validity period of one year but directed that department and the petitioner to take action as per law. It would have been a great relief to the petitioner if the Court had issued specific directions like the one issued by Tripura High Court [2021-VIL-692-ALH].

Allotment of incorrect GSTIN - High Court directs deemed correction of documents

In a peculiar case, proprietorship of a firm changed hands from father to son and registration under VAT was claimed as amended just before the advent of GST. During migration to GST, the provisional GSTIN allotted contained PAN of the father and the new proprietor lodged grievance and pointed out the mistake but the same was never corrected. For continuity of business, new registration was obtained but transitional credit, ITC for buyers, etc., remained deadlocked. Writ petition was filed and the Allahabad High Court has held that when provisional GSTIN was generated on verification of mobile number and e-mail address, the mistake in data collection regarding PAN was attributable to GSTN. It directed verification of facts and correction of GSTIN besides deeming invoices, returns, etc., as corrected.

At this distant date, availment of ITC based on such corrected invoices (on deemed basis) may be a challenge to buyers as well as the petitioner himself in case of his procurements though the claim is backed up by High Court's order. The authorities should have taken remedial measures long ago instead of making taxpayers fight in courts for years even for issues not involving any statutory interpretation [2021-VIL-681-ALH].

Condition on GST registration in tender document is not arbitrary

In a case before Andhra Pradesh High Court disputing the tender process mandating GST registration, the petitioner who was unsuccessful contended that, being engaged in exempt supplies, registration was not required under GST and therefore the bid could not have been rejected on the ground of absence of registration. The department argued that the petitioner had not objected to the condition of registration as contained in the bid document and hence cannot seek waiver through writ petition. The Court accepted the argument that if the petitioner was successful, he would have to supply medicines and other goods and hence, the requirement of GST registration was not arbitrary. The petitioner was unsuccessful before the High Court also. No contention was raised by the petitioner regarding impossibility of compliance with the condition of registration. The petitioner would have had to register on the basis of the possibility that he may engage in taxable supplies (assuming he would have all details of goods), undertake compliances till such time the bid results were announced and surrender the registration in case of failure in the bid. An alternative view would be that insistence on GST registration entailing such course of action as above brings in an element of arbitrariness [2021-VIL-691-AP].

Fuel cost reimbursed on actuals by recipient includible in taxable value

Free supply of fuel by the person using helicopter is includible in the value of rental services provided by the aviation company. In a rather abrupt conclusion before commencement of discussion, the Appellate AAR has held that the terms of the agreement indicated that it was appellant's responsibility to arrange fuel at all places and therefore, such fuel cost would get included in taxable value as per Section 15(2)(b) of CGST Act, 2017. Argument of the appellant to the contrary has been held to be "far from the truth". The AAAR has observed that the appellant had misread or misinterpreted the statutory provision. The AAAR has interpreted the contract to also hold that the arrangement is not covered under pure agent as per Rule 33 of CGST Rules besides the appellant being held as holding title to the goods and thus not satisfying one of the conditions. To fortify its reasoning, it further holds that such reimbursement of fuel cost would be liable for inclusion under Section 15(2)(c). It has discarded the argument on absence of mark-up. The ruling has an interesting finding - "We therefore find and conclude that only the ATF procured by the appellant and filled in the fuel tank of the aircraft would enable the aircraft to fly and thus enable the appellant to provide the "Rental services of aircraft" to their customer. Thus, the fuel so procured by the appellant is with the intention to enable him to supply the aforementioned service. Therefore, it cannot be said that the appellant neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply." [2021-VIL-46-AAAR].

Valuation issues under GST will certainly witness good number of disputes as the pro-revenue drafting and interpretation competes with the large body of jurisprudence on the principles evolved under other tax laws. The concept of pure agent is just a statutory showpiece as the conditions have been in-built in such a manner that almost nobody can comply with the same. The conditions are not only onerous but also verbose and prone to misinterpretation. It will require another authoritative pronouncement from the Apex Court and a more reasonable tax administration to contain the evergreen controversy.

GST applicable on certain merchant trade transactions before 1-2-2019

Schedule-III of CGST Act, 2017 was amended with effect from 1-2-2019 to effectively exclude from GST merchant trade transactions involving supply of goods from a foreign country to a recipient in a foreign country. In a case involving such supply, the Authority for Advance Rulings (AAR) had earlier held that - (a) the supplier (the applicant seeking ruling) was in India; (b) place of supply was outside India and (c) goods not being taken out of India and hence, not covered under export, the transaction would be liable to IGST. On appeal, the Appellate AAR has modified this ruling to hold that post the amendment as noted above, GST is not payable but before such amendment, the same was GST-liable transaction. The AAAR has noted that place of supply in case of goods involving movement is the place where such movement terminates for delivery and as per the definition of "supplier", the appellant in India is the supplier. Based on such interpretation, it has held that supply of goods from outside India to buyer outside India was liable to IGST till 31-1-2019. The amendment has been held as not retrospective [2021-VIL-43-AAAR].

These are transactions which were not visualized at the time of implementation of GST and the taxpayers are facing the consequences of late realization by the policy makers. The industry should represent to the GST Council so that exemption for the past period can be granted.

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal. Two books authored by him have been published recently - Cross-border Transactions under Tax Laws & FEMA (July 2021) and GST - Investigation, Demands, Appeals & Prosecution (August 2021))