Tax Vista Your weekly tax recap Edn. 125 - 7th Nov. 2022 By Dr. G. Gokul Kishore

 

 

Rectification of GSTR-1 return - Divergent rulings from High Courts

Rectifying an inadvertent error in a statutory return should be fairly simpler and easier. However, in GST regime, even such process is complicated as the mechanism originally envisaged whereby exchange of messages in respect of mis-match in data as furnished by one of the parties and correction of the same by counter-party was provided for, could never be implemented. The provisions on such mechanism / mis-match have been omitted now by Finance Act, 2022. Absence of mechanism to file rectified returns from day one has adversely impacted large number of taxpayers when the errors are insignificant but the losses are substantial.

 

In the above backdrop, Jharkhand High Court has directed GST Portal to be opened for rectifying the mistake in GSTR-1 return wherein GSTIN of the counter-party was mentioned wrongly. The Court has allowed corrections to be made by manual mode if there is technical challenge in opening the portal at such a distant date as the GSTR-1 pertains to January, 2019. The department highlighted the due date of filing September return or annual return (whichever is earlier) for such rectification and the taxpayer having missed such timelines. However, the Court observed that the case has no revenue / tax impact as the party who is rightly entitled to input tax credit, initially availed it but later in the absence of reflection in GSTR-2A, reversed it and the party whose GSTIN was mentioned wrongly, never availed it as the supply did not pertain to them [2022-VIL-735-JHR]

 

An exactly opposite view has been taken by Telangana High Court on this issue by holding that GSTR-1 cannot be rectified / corrected beyond the time-period provided in the statute. The returns pertained to 2018 in this case and the High Court followed Supreme Court's ruling in UOI v. Bharti Airtel Ltd. [2021-VIL-87-SC] wherein plea to rectify GSTR-3B was not accepted. In this case, the High Court has not given any independent reasoning. Though the High Court has noted that GSTR-2A being made operational has been considered by the Apex Court, the fact that matching and correction process has never been implemented has not been taken into account [2022-VIL-733-TEL].

 

Rectification of returns is a matter of procedure without involving any interpretation of law and consequently determination of rights. GST Council should evolve an appropriate mechanism to address such procedural issues instead of taking up the time of Constitutional Courts.

 

GST rate of 18% on liquor job work is applicable retrospectively

Liquor is not a food product as whatever is consumed by human beings cannot be construed as food and food products. Based on such reasoning, the High Court has held that GST rate of 5% applicable to job work relating to food products is not applicable to job work of manufacture of alcoholic liquor for human consumption. The High Court noted that specific entry was inserted by amendment in 2021 but the same being clarificatory, will be effective retrospectively. Specific exemption was never granted to such product even before such amendment and the taxpayer was claiming exemption on his own which led to issuance of such amendment, as per the order. This judgment is briefly mentioned in this column not because of the catchy line of liquor not being a food product but the notification prescribing 18% GST has been held to be retrospective. All similarly placed taxpayers will be impacted by this ruling and multiple litigation on such retrospective operation cannot be ruled out [2022-VIL-734-AP].

 

ITC on input services and capital goods available to second hand goods dealer

Input tax credit in respect of input services and capital goods can be availed by taxpayers working under margin scheme under Rule 32(5) of CGST Rules, as per a recent advance ruling. This rule pertains to those dealing with second hand goods where the difference between the purchase price and sale price is taken as the taxable value for GST. The applicant, engaged in sale of used gold jewellery can avail ITC on rent, advertisement, commission, etc. One of the conditions of the said rule is ITC is not to be availed on purchase i.e. GST paid at the time of purchase of such goods. The ruling is frugal but taxpayer friendly and does not labour to bring a treatise when the provisions are simple [2022-VIL-288-AAR].

 

E-commerce operator not collecting consideration is not covered under Section 9(5)

Though everyone is getting used to apps but there are so many finer points when it comes to taxation as a recent AAR ruling reveals. The applicant made the right connections on his arguments and the AAR held that though the applicant - owner of a digital platform is an e-commerce operator, since he is not responsible for collection of consideration, tax  (TCS) need not be collected and paid on the supply of services supplied by the service provider (person who has subscribed to applicant's app) to his customers (who also have subscribed to applicant's app) on the applicant's computer application. The applicant operates an app which connects his subscribers who may interact among themselves to transact supply of services - in this case cab operator services. The applicant argued that the supply of services is not "through" him since he has no role in selection of provider, rate/fare or delivery of services. According to him "through" means from beginning to end of the transaction and in his case the supply of services between the provider and customer was independent of the applicant [2022-VIL-289-AAR]. 

 

Compensation obtained as reimbursement - Ruling on pure agent applicability

Advance rulings sometimes reveal hardly any reasoning even if the readers adopt presumptions liberally. The applicant has sought ruling on whether GST is applicable on compensation paid to farmers for the trees cut and to the land owners for the land used during the course of execution of the project of installation of electricity sub-station. The Authority for Advance Ruling (AAR) has held that while the compensation paid for the trees cut is not taxable as the conditions for pure agent are satisfied, the reimbursement of land compensation is liable to GST as such condition of pure agent is not satisfied. Farmers and land owners have been held as supplying service of obligation to tolerate an act covered under Schedule-II of CGST Act and such service is supplied to power transmission company and the applicant acts as pure agent. This ruling is not fully analysed here as there appears to be certain drafting errors [2022-VIL-291-AAR]

 

 

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal. The author has published books on cross-border taxation and investigations & appeals under GST. He has edited R.K. Jain's GST Law Manual - 15th Edition - Feb., 2022. E-mail - gokulkishore@gmail.com)