Taxmann's Sectoral Analysis of the 45th GST Council Meeting

45th GST Council Meeting : Sectoral Analysis

(Including changes relating to laws and other recommendations)

Taxmann’s Indirect Tax Research & Advisory’ Team September, 2021

1

Contents Introduction 3 PART A – SECTORAL ANALYSIS 3 1.

2.

3.

TWO WHEELER INDUSTRY

4

1.1.

4

Reduction in GST rate of Retro fitment kits

BPO INDUSTRY

4

2.1.

4

Clarification would be issued on the scope of Intermediary Services

GOODS TRANSPORTATION INDUSTRY (AVIATION, SHIPPING & ROAD)

3.1.

3.2.

3.3.

3.4.

4.

5.

Extension of exemption on transportation services by Air/Vessel for export cargo Exemption on payments made for obtaining National Permit Overloading charges are akin to toll charges Clarification that renting is akin to hire

6

4.1.

4.2.

6 6

5.1.

5.2.

5.3.

7.

GST on Motor Vehicle Aggregators GST on Food Delivery Aggregators

FOOD PROCESSING AND FMCG

7

6.1.

6.2.

6.3.

6.4.

6.5.

7 7 8 8

7.1.

7.2.

7.3.

9.

Clarification to be issued for GST on fresh, dried fruits and nuts Tamarind seeds are exempt from GST with some exceptions Clarification on Carbonated fruit beverages of fruit drink etc.

Scented sweet supari and flavored and coated illachi attract 18% GST Clarification on Brewers’ Spent Grain and Dried Distillers’ Grains with Soluble Cloud kitchens are restaurants and subject to GST at the rate of 5% without ITC Ice cream parlors are not restaurants and subject to GST at the rate of 18% Change in GST rate of fortified kernels for schemes like ICDS

8

8 8 8 8

8.1.

8

9.1.

9.2.

2

8

ALCOHOL INDUSTRY

Job work for alcohol attracts GST at the rate of 18%

EDUCATION INDUSTRY

10.

7

GST rate increase on Printing/Reproduction services of recorded media 7 GST increase on licensing services to broadcast films/recordings, etc.

7 GST rate on amusement parks having rides 7

RESTURANT INDUSTRY

8.

4 5 5 5

E-COMMERCE INDUSTRY

MEDIA, ENTERTAINMENT & LEISURE INDUSTRY

6.

4

Training services exempt where Government bears 75% or more expenditure Coaching services under Central Sector scheme are exempt

9

9 9

OIL & GAS INDUSTRY

9

10.1. Inclusion of Petroleum products under GST 10.2. Reduction of GST rate on Bio-diesel

9 9

11.

12.

13.

PHARMA INDUSTRY

10

11.1.

11.2.

11.3.

11.4.

11.5.

11.6.

11.7.

10 10 10 10 10 10 10

Goods falling under heading 3006 attract 12% GST Laboratory reagents attract 5% GST Pure Heena powder and paste without addictive attracts 5% GST Rate reduced on Medicine Keytruda for treatment of cancer Exemption of IGST on import of specified medicines for personal use Concessional GST rates on Covid 19 medicines upto Dec 31, 2021 Reduction of GST Rates on Covid-19 medicines upto Dec 31, 2021

AVIATION SECTOR

11

12.1. Conditions relaxed for IGST exemption relating to import of goods on lease

11

RECOMMENDATIONS RELATING TO OTHER SECTORS/SUPPLIES

11

13.1.

13.2.

13.3.

13.4.

13.5.

13.6.

13.7.

13.8.

13.9.

11 12 12 12 12 12 12 12 13

Brick Kilns Sector Footwear and Textile Sector Changes in GST rates for Packing and Printing Industry Mining Sector Sport Industry Leasing services of rolling stocks provided by IRFC to Indian Railways Goods supplied at Indo-Bangladesh Border Haats GST rate changes for other products Other recommendations

PART B – CHANGES RELATING TO LAWS AND OTHER RECOMMENDATIONS

14

14.

RECOMMENDATIONS RELATING TO REVERSE CHARGE ON GOODS

15

14.1. Reverse charge on Mentha oil

15

RECOMMENDATIONS RELATING TO INPUT TAX CREDIT

15

15.1. ITC availability would be based on Form GSTR 2B 15.2. Clarification on time limit to avail ITC on Debit notes

15 15

RECOMMENDATIONS RELATING TO EXPORTS

16

16.1.

16.2.

17.

17.1.

Export of Mentha Oil under LUT/Bond Clarification on distinct persons for the purpose of export of services RECOMMENDATIONS RELATING TO REFUNDS Clarification on the meaning of expression ‘actually subjected to export duty’ 17.2. Granting refund to PAN linked bank account 17.4. GoM to be formed to check inverted duty issues

16 16 16

RECOMMENDATIONS RELATING TO LEVY OF INTEREST

17

18.1. Interest chargeable where Ineligible Input Tax credit is availed and utilized

17

19.

RECOMMENDATIONS RELATING TO GST COMPENSATION CESS

18

20.

OTHER RECOMMENDATIONS

18

20.1. Tax invoice not to be carried in respect of E-Invoices during transportation

18

20.2. Transfer of Cash Balance in Electronic Cash ledger between distinct persons

18

20.3. Relaxation on filing of Job work return

18

20.4. Setting up Group of Ministers for various purposes

19

20.5. Other recommendations

19

15.

16.

18.

3

16 17 17

Introduction The GST Council in its 45th meeting recommended various key legal and procedural changes. It announced changes in GST rates of various items and issued various clarifications. In this document, we have analysed all such recommendations/ announcements.

PART A – SECTORAL ANALYSIS

4

1.

TWO WHEELER INDUSTRY

1.1. Reduction in GST rate of Retro fitment kits (Effective from Oct 01, 2021) X

GST rate on Retro fitments kits for vehicles used by the disabled would be reduced to 5%

TAXMANN’s Comments: The two wheelers attract GST at the rate of 28%. While after rate reduction, the said kits would attract GST at the rate of 5%. The dealers engaged in supply of two wheelers attaching the retro fitment kits would need to be cautioned on the manner of supply and billing for availing the benefit of lower GST rate. The already attached kits with two wheelers would be subject to GST rate as applicable on two wheelers1 as such supply would be a composite goods under Customs Tariff Act. Where the kits are attached with two wheelers on a special request of the customer, such supply of kits may also attract GST at the rate of 28%, if such composition qualifies as composite supply under GST. Therefore, manner of supply and billing would be an important factor in this case to avail the benefit of lower GST rate.

2.

BPO INDUSTRY

2.1. Clarification would be issued on the scope of Intermediary Services X

Government would issue a clarification on the scope of intermediary services

TAXMANN’s Comments: There exists a lot of confusion around the definition of ‘intermediary’. Various MNCs in India provide backend support services to their group companies located abroad.

The GST authorities are classifying these entities as ‘intermediary’.

In few cases, writ petitions2 were also being filed before the Hon’ble High Courts. The clarification in this regard from CBIC is a need of the hour for this industry.

Earlier, a clarification3 was issued by the Government providing the scope of Intermediary services which was later withdrawn4. The GST council in its 37th meeting recommended that a fresh clarification would be issued in this regard.

3.

GOODS TRANSPORTATION INDUSTRY (AVIATION, SHIPPING & ROAD)

3.1. Extension of exemption on transportation services by Air/Vessel for export cargo (Effective from Oct 01, 2021) X

Existing exemption5 of transportation of goods by air/ vessel for export cargo has further been extended by one more year till September 30, 2022.

5

TAXMANN’s Comments: The place of supply of services of transportation of goods from India to outside India by a vessel or aircraft to the registered person is location of recipient of services6 (i.e. India). In order to avoid taxation on transportation services suffered by the goods exported outside India, the existing exemption7 has further been extended till September 30, 2022.

In order to align with the practice of no taxes on exportation, a permanent solution can be introduced by the Government for Shipping / Aviation Sector by changing the place of supply of the impugned services to the location where goods destined (i.e. outside India). Alternatively, the rate of GST on the said services can be declared Nil.

3.2. Exemption on payments made for obtaining National Permit (Effective from Oct 01, 2021) X

Exemption would be granted on services by way of grant of National Permit to goods carriage on payment of fee

TAXMANN’s Comments: Regional Transport Authority grants the national permit to the owner of the goods carriage and charges fees for the same. Currently, these services are subject to GST under reverse charge. After the amendment, the owner of vehicle paying permit fees would not be required to pay GST.

3.3. Overloading charges are akin to toll charges X

Clarification would be issued to provide that overloading charges at toll plaza are akin to toll and same is exempt from GST

TAXMANN’s Comments: The laws relating to Motor Vehicle8 are the legal instruments for the conduct of road traffic in India. The penalties for overloading the vehicles are levied under the said laws. There were confusions on whether such charges can be referred as tolerating an act, etc. and, therefore, subject to GST or not. Clarification would be issued by the Government to provide such charges are exempt from GST. The GST Implications under different scenarios would be as under: Scenarios

Implications

Company owned Trucks

No GST Implications as overloading penalties are exempt.

Services of Goods Transport Agency

No Implications in the hands of GTA. Further, the amount cross charged from the consignor/consignee, in general, would form part of value of supply of transportation services and accordingly GST would be required to be paid (except where the transporter qualifies as pure agent)

3.4. Clarification that renting is akin to hire X

6

Clarification would be issued to provide that renting of vehicle by State Transport undertakings and Local authorities is covered by expression ‘giving on hire’ for the purpose of exemption

TAXMANN’s Comments: Motor vehicle or electrically operated vehicle, both meant to carry more than 12 passengers, given on hire to state transport undertaking, or to a local authority, respectively are exempt9 from GST. Contractors providing stage carriage services to State transport undertaking, etc. procures the buses, etc. as per the specification of State Authorities. These contractors run the buses as per the guidelines of State transport undertakings. In other words, the effective control and possession of such vehicle lies with the State Undertakings only.

In a recent ruling, the Maharashtra AAR held10 that the above services amount to ‘renting’ of motor vehicle, it does not qualify as ‘hiring’ and therefore, GST exemption would not be available.

It seems that from the above, that a clarification would be issued to provide that renting of motor vehicles is covered by expression ‘giving on hire’ for the purposes of GST exemption.

4.

E-COMMERCE INDUSTRY

4.1. GST on Motor Vehicle Aggregators (Effective from Jan 01, 2022) X

Amendment would be introduced in GST laws to provide GST levy on E-Commerce operators’ for transportation of passengers by any type of motor vehicle through it

TAXMANN’s Comments: Currently, in respect of transportation of passenger by a radio-taxi, motorcab, maxicab and motor cycle, currently, GST is paid by the E-commerce operators’.

GST on the transportation of passengers by other vehicles such as bus, auto, E-Rickshaws, etc. would be liable to be paid by the E-commerce operators’ once the given amendment is notified.

4.2. GST on Food Delivery Aggregators (Effective from Jan 01, 2022) X

Ambit of levying GST on supply made through E-commerce Operator would be increased to include Food Delivery aggregators within its scope. The Council has provided that restaurant services provided through ECOs with some exceptions would be covered in above scope

TAXMANN’s Comments: Although, the exception relating to restaurant services is not been clarified by the Council, it would probably cover those restaurants which are not registered under the GST laws. Levying GST on food delivery aggregators may slightly increase the prices of food ordered online, and it would also add some revenue in the Government’s kitty.

7

5.

MEDIA, ENTERTAINMENT & LEISURE INDUSTRY

5.1. GST rate increase on Printing/Reproduction services of recorded media (Effective from Oct 01, 2021) X

In order to bring ‘printing and reproduction services of recorded media where content is supplied by publisher’ in line with ‘color printing of images from film or digital media’, the GST rate has been increased from 12% to 18%

TAXMANN’s comments: In its earlier clarification11, the CBIC clarified that the printing of pictures would be classified under heading 998386 (photographic and videographic processing services) which attracts GST at the rate of 18% and not under 998912 (printing and reproduction services of recoded media on a fee or contract basis) which attracts GST rate of 12%.

The different classifications were adopted by the suppliers in the impugned Industry.

In order to bring parity, it seems that the GST Council recommended increase in the GST rate of printing and reproduction services of recorded media on a fee or contract basis from 12% to 18%. This would avoid any further disputes between taxpayers and authorities on the classification issue of the impugned services.

5.2. GST increase on licensing services to broadcast films/recordings, etc.

(Effective from Oct 01, 2021) X

To bring parity between distribution and licensing services, the GST rates on licensing services/the right to broadcast and show original films, sound recordings, Radio and Television programmes would be increased to 18%

5.3. GST rate on amusement parks having rides X

6.

Clarification would be issued to provide that admission to amusement parks having rides etc. attracts GST rate of 18%. The GST rate of 28% applies only to admission to such facilities that have casinos etc.

FOOD PROCESSING AND FMCG

6.1. Clarification to be issued for GST on fresh, dried fruits and nuts X

Clarification would be issued to provide the distinction between fresh and dried fruits and nuts for application of GST rate of ‘nil’ and 5%/12% respectively

6.2. Tamarind seeds are exempt from GST with some exceptions X

8

Clarification would be issued to provide that tamarind seeds fall under heading 1209, and attracted nil rate irrespective of use. Notably it with effect from October 01, 2021 it attracts 5% GST rate for use other than sowing. Seeds for sowing will continue at nil rate.

6.3. Clarification on Carbonated fruit beverages of fruit drink etc.

X

Clarification would be issued to provide that ‘Carbonated Fruit Beverages of Fruit Drink’ and ‘Carbonated Beverages with Fruit Juice’ attract GST rate of 28% and Cess of 12%

6.4. Scented sweet supari and flavored and coated illachi attract 18% GST X

Clarification would be issued to provide that Scented sweet supari and flavored and coated illachi falling under heading 2106 attract GST at the rate of 18%

6.5. Clarification on Brewers’ Spent Grain and Dried Distillers’ Grains with Soluble X

7.

Clarification would be issued to provide that Brewers’ Spent Grain (BSG), Dried Distillers’ Grains with Soluble [DDGS] and other such residues, falling under HS code 2303 attract GST at the rate of 5%

RESTURANT INDUSTRY

7.1. Cloud kitchens are restaurants and subject to GST at the rate of 5% without ITC X

Clarification would be issued to provide that cloud kitchens/central kitchens are covered under the ambit of ‘restaurant services’ and GST rate of 5% (without ITC) would be applicable on them. In other words, GST rate of 18% with ITC cannot be claimed by them

7.2. Ice cream parlors are not restaurants and subject to GST at the rate of 18% X

Clarification would be issued to provide that ice cream parlor sells already manufactured ice-cream. Such supply of ice cream by parlors would attract GST at the rate of 18%

TAXMANN’s Comments: The clarification that ice parlor would be liable to pay GST at the rate of 18% would create chaos in the impugned Industry. As most of the Ice cream parlors are currently classifying themselves as restaurant and paying GST at the rate of 5% without ITC.

7.3. Change in GST rate of fortified kernels for schemes like ICDS (Effective from Oct 01, 2021) X

8.

GST rate on fortified rice kernels for scheme like ICDS, etc. has been reduced from 18% to 5%

ALCOHOL INDUSTRY

8.1. Job work for alcohol attracts GST at the rate of 18% X

Clarification would be issued to provide that alcoholic liquor for human consumption is not food and food products for the purpose of the entry prescribing 5% GST rate on job work services in relation to food and food products

9

TAXMANN’s Comments: Services of job work in relation to all food and food products falling under Chapter 1 to 22 in the First schedule of Customs Tariff Act are subject to GST at the rate of 5%.

The clarification that alcohol is not a food/food product can be said as a setback for the job workers providing services in respect of alcoholic liquor and paying GST at the rate of 5% instead of 18%.

9.

EDUCATION INDUSTRY

9.1. Training services exempt where Government bears 75% or more expenditure (Effective from Oct 01, 2021) X

Exemption would be notified for institutes providing skill training for which Government bears 75% or more expenditure

TAXMANN’s Comments: The skill training institutes providing training program for which total expenditure is borne by the Government is currently exempt12 from GST. The given recommendation increases the scope of exemption to cover all those cases where 75% or more expense is borne by the Government.

9.2. Coaching services under Central Sector scheme are exempt X

Clarification would be issued to provide that Coaching services to students provided by coaching institutions and NGOs under the central sector scheme of ‘Scholarships for students with Disabilities’ is exempt from GST

10. OIL & GAS INDUSTRY 10.1. Inclusion of Petroleum products under GST X

In a petition13 filed before the Hon’ble Kerala High Court for inclusion of petroleum products under the ambit of GST, the High Court recently directed the GST Council to take an appropriate decision on the issue in this regard. Based on these directions, the Council discussed the impugned issue and it was decided that bringing these petroleum products cannot be included under the scope of GST at this point of time

10.2. Reduction of GST rate on Bio-diesel (Effective from Oct 01, 2021) X

GST rate on Biodiesel supplied to OMCs for blending with Diesel reduced from 12% to 5%

10

11. PHARMA INDUSTRY 11.1. Goods falling under heading 3006 attract 12% GST X

Clarification would be issued to provide that pharmaceutical goods falling under heading 3006 attract GST at the rate of 12% not 18%

11.2. Laboratory reagents attract 5% GST X

Clarification would be issued to provide that all laboratory reagents and other goods falling under heading 3822 attract GST at the rate of 12%

11.3. Pure Heena powder and paste without addictive attracts 5% GST X

Clarification would be issued to provide that pure heena powder, having no addictives, attract GST rate of 5% under chapter 14

11.4. Rate reduced on Medicine Keytruda for treatment of cancer (Effective from Oct 01, 2021) X

GST rate on medicine Keytruda for treatment of cancer has been reduced to 5%

11.5. Exemption of IGST on import of specified medicines for personal use (Effective from Oct 01, 2021) Description

From

To

Zolgensmafor Spinal MuscularAtroph

12%

Nil

Viltepso for Duchenne Muscular Dystrophy Other medicines used in treatment of muscular atrophy recommended

by Ministry of Health and Family Welfare and Department of Pharmaceuticals

11.6. Concessional GST rates on Covid 19 medicines upto Dec 31, 2021 X

The GST Council has recommended for extension of concessional rates on specified Covid-19 treatment medicines till Dec. 31, 2021 (which is currently available till Sept.

30, 2021)

SL. No.

Medicine Description

Concessional rate

1

Amphotericin B

Nil

2

Tocilizumab

Nil

3

Remdesivir

5%

4

Anti-coagulants like Heparin

5%

11.7. Reduction of GST Rates on Covid-19 medicines upto Dec 31, 2021 (Effective from – Not provided)

11

SL. No.

Medicine Description

Concessional rate

1

Itolizumab

5%

2

Posaconazole

5%

3

Infliximab

5%

4

Favipiravir

5%

5

Casirivimab & Imdevimab

5%

6

2-Deoxy-D-Glucose

5%

7

Bamlanivimab & Etesevimab

5%

12. AVIATION SECTOR 12.1. Conditions relaxed for IGST exemption relating to import of goods on lease (Effective from Oct 01, 2021) X

Certain relaxations to be notified relating to IGST exemption for import of goods on lease, where IGST is paid on the lease amount so as to allow exemption even if

(a) Such goods are transferred to a new lessee in India upon expiry or termination of lease; and

(b) Lessor located in SEZ pays GST under forward charge

TAXMANN’s comments: The IGST on import of aircrafts and its parts, etc. on lease is exempted under the Customs laws14. The exemption is subject to few specified conditions such as goods are required to be re-exported within 3 months from the expiry of lease contract, etc.

The relaxation in conditions would enable the foreign leasing companies to further lease such goods to new lessee without payment of tax by lessee in India. Suppliers located in SEZ can also supply goods to another lessee provided GST is paid by them under forward charge mechanism.

The exemption would also be available in respect of other specified goods imported in India on lease.

13. RECOMMENDATIONS RELATING TO OTHER SECTORS/SUPPLIES 13.1. Brick Kilns Sector (Effective from Apr 01, 2022) X

Special Composition scheme would be introduced for brick kilns with threshold of Rs. 20 lakhs from next financial year

X

Bricks would attract GST at the rate of 6% without ITC and 12% with ITC would apply otherwise

12

13.2. Footwear and Textile Sector (Effective from Jan 01, 2022) X

GST rate changes for this sector in order to correct inverted duty structure is further deferred. It has been provided that rate changes will be implemented with effect from January 01, 2022

13.3. Changes in GST rates for Packing and Printing Industry (Effective from Oct 01, 2021) X

GST rate on Cartons, boxes, bags, packing containers of paper, etc. has been increased to 18%

X

GST rate on miscellaneous goods of paper like cards, catalogue, printed material (Chapter 49 of tariff) has been increased to 18%

13.4. Mining Sector X

Clarification would be issued to provide that grant of mineral exploration and mining rights attracted GST rate of 18% with effect from July 01, 2017

13.5. Sport Industry (Effective from Oct 01, 2021) X

India is hosting the coming ‘Asian Football Confederation Women’s Asia Cup 2022’ and in respect of same it has been provided that services related to above would be exempt from GST.

13.6. Leasing services of rolling stocks provided by IRFC to Indian Railways (Effective from Oct 01, 2021) X

Currently, the services by way of leasing of assets (rolling stock assets including wagons, coaches, locos) by the IRFC to IR are exempted15 from GST. The GST Council has recommended withdrawal of exemption in respect of leasing of rolling stock.

13.7. Goods supplied at Indo-Bangladesh Border Haats (Effective from Oct 01, 2021) X

Exemption would be notified to provide that IGST would not be applicable on goods supplied at Indo-Bangladesh Border haats

13.8. GST rate changes for other products (Effective from Oct 01, 2021 unless provided otherwise) Sl. No.

Description

From

To

1.

Ores and Concentrates of metals such as iron, copper, aluminum, zinc and few others

5%

18%

2.

Specified Renewable Energy Devices and Parts

5%

12%

3.

Waste and scrap of polyurethanes and other plastics

5%

18%

4.

All kinds of pens

12%/18%

18%

13

5.

Unintended waste generated during the production of fish meal except for fish oil

Nil (for the period 01.07.2017 to 30.09.2019)

6.

Railways parts, locomotives & other goods in Chapter 86

12%

18%

13.9. Other recommendations X

Clarification to be issued to provide that external batteries sold along with UPS Systems/ Inverter attract GST rate applicable to batteries [ 28% for batteries other than lithium-ionbattery] while UPS/inverter would attract 18%

X

Clarification would be issued to provide that GST on specified Renewable Energy Projects can be paid in terms of the 70:30 ratio for goods and services, respectively, during the period from July 01, 2017 to December 31, 2018, in the same manner as has been prescribed for the period on or after January 01, 2019

X

Due to ambiguity in the applicable rate of GST on Fibre Drums, the supplies made at 12% GST in the past have been regularised. Henceforth, a uniform GST rate of 18% would apply to all paper and paper board containers, whether corrugated or noncorrugated

X

Clarification would be issued to provide that Essentiality certificate issued by Directorate General of Hydrocarbonson imports would suffice; no need for taking a certificate every time on inter-state stock transfer

14

PART B – CHANGES RELATING TO LAWS AND OTHER RECOMMENDATIONS 15

14. RECOMMENDATIONS RELATING TO REVERSE CHARGE ON GOODS 14.1. Reverse charge on Mentha oil (Effective date – Not provided) X

Amendment would be made in the reverse charge notification relating to goods to provide that Mentha oil purchased from an unregistered person would be subject to GST under reverse charge mechanism

15. RECOMMENDATIONS RELATING TO INPUT TAX CREDIT 15.1. ITC availability would be based on Form GSTR 2B (Effective date – not provided) X

Amendment would be made under Rule 36(4) of the CGST Rules, 2017 once Section 16(2)(aa) of the CGST Act, 2017 which is inserted by Finance Act, 2021 is notified

TAXMANN’s comments: Through Finance Act, 2021, a new condition16 has been inserted for the purpose of availing the ITC. It has been provided that the ITC on invoice or debit note can be availed only when its details are furnished by the supplier in the statement of outward supplies i.e. Form GSTR 1 and the same is communicated to the recipient in the manner specified in Section 37 of the CGST Act. The given amendment has not been notified yet.

Once it is notified, the registered person would be eligible to claim the ITC only in respect of invoices invoices/debit notes which are uploaded by their vendors in Form GSTR 1 and the same is reflected in Form GSTR 2B. Consequential amendments would also be made in Rule 36(4).

15.2. Clarification on time limit to avail ITC on Debit notes X Clarification

would be issued to provide that w.e.f. January 01, 2021, the date of issuance of debit note (and not the date of underlying invoice) shall determine the relevant financial year for the purpose of section 16(4) of CGST Act, 2017

TAXMANN’s comments: Section 16(4) providing time limit for claiming ITC on invoices and debit notes was amended to de-link the debit notes from invoices. After this amendment, the taxpayer is required to compute the time limit for availing the ITC from the date of debit note (instead of date of invoice to which debit note pertains). The said amendment was made effective17 with effect from January 01, 2021.

The Gujarat AAR in a case18 held that debit note is not an independent document. It is connected to the invoice since it is issued in pursuance to change in value of the invoice. It was held that the financial year to which a debit note pertains is invariably the financial year in which the original invoice (related to said debit note) was issued.

ClarificatioWn would be issued to provide that the date of issuance of debit note (and not the date of underlying invoice) shall determine the relevant financial year for the purpose of Section 16(4) of CGST Act, 2017.

16

16. RECOMMENDATIONS RELATING TO EXPORTS 16.1. Export of Mentha Oil under LUT/Bond (Effective date – Not provided) X

Export of Mentha Oil would only be allowed under LUT or Bond. In other words, benefit of export with payment of tax would not be available. The exporter can take the refund of ITC accumulated19 in such case

TAXMANN’s comments: Suppliers in Pharma, FMCG sectors, etc. could currently liquidate their accumulated ITC through export with payment of tax. With introduction of this restriction, exports can only be made under LUT/bond.

The ITC accumulated can be utilized against output GST liability of domestic supplies or export of other goods. This recommendation indirectly bars these suppliers to claim refund.

16.2. Clarification on distinct persons for the purpose of export of services X

Clarification would be issued to provide that the person incorporated under the laws of any other country are to be treated as separate legal entities and would not be barred by the condition (v) of the section 2(6) of the IGST Act, 2017 for considering a supply of service as export of services

TAXMANN’s comments: There exists an ample jurisprudence20 under the erstwhile regime of service tax wherein it was categorically provided that when an Indian company provides services to its parent company registered in their respective country laws, both the persons are to be treated as separate legal entities. These persons would ‘not’ be governed by the provisions of distinct persons and therefore, benefits of export of services could not be denied to Indian Company.

The clarification would be a welcome step as it would avoid disallowance of refund by the authorities on the impugned ground.

17. RECOMMENDATIONS RELATING TO REFUNDS 17.1. Clarification on the meaning of expression ‘actually subjected to export duty’ X

Clarification would be issued to provide that those goods which are actually subject to export duty, i.e. on which some export duty has to be paid at the time of export, will be covered under the restriction imposed under section 54(3) of the CGST Act, 2017 from availment of refund of accumulated ITC

TAXMANN’s Comments: One of the conditions for claiming the refund of unutilized ITC is that goods exported out of India are not ‘subjected to export duty’.

17

The export of iron ore pellets is subject to Nil Rate of Duty under the Customs law21 and it is covered under the Second Schedule of the Export Tariff. In an Advance Ruling, the Goa AAR held22 that ‘Nil’ rate is also a rate of tax and thus, these goods would be considered as subjected to export duty. It was held that refund of unutilized ITC would not be available as the exclusion clause provided under Section 54(3)(ii) is applicable.

It seems that the clarification would provide that only those goods on which some export duty has to be paid will be covered under the impugned condition. Such clarification would explain the intention of the legislature and hence, is a welcome step.

17.2. Granting refund to PAN linked bank account (Effective date – not provided) X

Amendment would be introduced to provide that refund would be disbursed in the bank account, which is linked with the same PAN on which registration has been obtained under GST

17.3. Removal of ambiguity for refund of tax paid under wrong head (Effective date – Not provided) X

Amendment would be made in the CGST Rules, 2017 for removing ambiguity regarding the procedure and time limit for filing refund of tax which is wrongfully paid as specified in Section 77(1) of the CGST/SGST Act and Section 19(1) of the IGST Act

17.4. GoM to be formed to check inverted duty issues X

Apart from Textile and Footwear sector rate rationalization from January 01, 2021, the Council decided to set up a Group of Ministers to examine the issue of correction of inverted duty structure for major sectors

18. RECOMMENDATIONS RELATING TO LEVY OF INTEREST 18.1. Interest chargeable where Ineligible Input Tax credit is availed and utilized (Effective Date – July 01, 2017) X

Amendment would be introduced under Section 50(3) with retrospective effect from July 01, 2017 to provide that interest would be levied on ineligible ITC availed and utilized

TAXMANN’s Comments: The Hon’ble Madras High Court23 in a recent case held that interest on ineligible ITC would not be applicable unless the same is utilized (i.e. it has an impact on the cash liability of the taxpayer). The recommendation of the GST Council is in same line and a welcome decision.

Notably, in cases where the taxpayers have taken a position that there exists no provision for levy of interest in respect of availment of ineligible ITC under the GST

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law, this recommendation may be a set-back for them and would surely invite a litigation.

19. RECOMMENDATIONS RELATING TO GST COMPENSATION CESS X

Discussions were held on compensation cess relating using of revenue collections from Compensation Cess in the period beyond June 2022 till April 2026 for repayment of borrowings and debt servicing made to bridge the gap in 2020-21 and 2021-22

TAXMANN’s Comments: The extension of levy of GST Compensation Cess beyond June 2022 can be said as constitutionally valid provided the collection made merely used to compensate the losses arises in first five years. Levy of compensation cess beyond such loss would be unconstitutional. This is because the Constitution allows compensation to the States arising on account of Implementation of GST for first five years.

20. OTHER RECOMMENDATIONS 20.1. Tax invoice not to be carried in respect of E-Invoices during transportation X

Clarification would be issued to provide that physical copy of tax invoice is not required in cases where invoice has been generated by the supplier in the manner prescribed under rule 48(4) of the CGST Rules, 2017

20.2. Transfer of Cash Balance in Electronic Cash ledger between distinct persons (Effective date – not provided) X

Unutilized balance in CGST and IGST cash ledger may be allowed to be transferred between distinct persons (entities having same PAN but registered in different states), without going through the refund procedure, subject to certain safeguards

TAXMANN’s Comments: Various instances lead to accumulation of cash in Electronic Cash ledger balance, such as, when supplies are subject to TDS under GST, supplies subject to TCS when made through ECO, etc. In these cases, this facility could be a savior and hence is welcome move.

The recommendation provides that such transfer can be made between the distinct persons registered in different states. Whether such benefit is available between two distinct persons registered within same state or between SEZ units, would be clear once the law is notified in this regard.

20.3. Relaxation on filing of Job work return (Effective date – not provided) X

Currently, CGST Rules requires filing of Form GST ITC -04 by the principal on quarterly basis. In order to ease the compliance the said form would be required to be filed in the following manner:

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Aggregate turnover in preceding financial year

Periodicity of filing Form GST ITC-04

Above Rs. 5 crores

Half yearly basis

Up to Rs. 5 Crores

Annually

20.4. Setting up Group of Ministers for various purposes X

It is decided to set up GoM to rationalize the rates and review exemptions under GST from the point of view of Revenue’s augmentation

X

Another GoM will be set up to discuss ways and means of using technology to further improve compliance including monitoring through improved e-way bill systems, e-invoices, FASTag data and strengthening the institutional mechanism for sharing of intelligence and coordinated enforcement actions by the Centre and the States

20.5. Other recommendations (Effective date – not provided) X

Aadhaar authentication of registration to be made mandatory for being eligible for filing refund claim and application for revocation of cancellation of registration

X

Rule 59(6) of the CGST Rules to be amended with effect from 01.01.2022 to provide that a registered person shall not be allowed to furnish FORM GSTR-1, if he has not furnished the return in FORM GSTR-3B for the preceding month

X

Late fee for delayed filing of Form GSTR 1 to be auto populated and collected in next open return in Form GSTR 3B

X

Few other amendments are recommended in the CGST Act and Rules

1

SaiMotors, In re,[2020] 116 taxmann.com 853 (AAR - KARNATAKA)

2

Genpact India (P.) Ltd. [2021] 130 taxmann.com 145 (Punjab & Haryana)

3

Circular No. 107/26/2019 – GST [CBEC-20/06/03/2019-GST], dated 18-7-2019

4

Circular No. 127/46/2019 – GST [f. no. CBEC – 20/06/03/2019 – GST], dated 4-12-2019

5

Serial No. 19A and 19B of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 and Serial No. 20A and 20B of Notification No. 09/2017-Integrated Tax (Rate), dated 28-06-2017

6

Section 12(8) of the IGST Act, 2017

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Serial No. 19A and 19B of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 and Serial No. 20A and 20B of Notification No. 09/2017-Integrated Tax (Rate), dated 28-06-2017

8

Motor Vehicle Act (MVA) 1988, Central Motor Vehicle Rules, 1989 and State Motor Vehicle Rules

9

Sl. No. 22 of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 and Sl. No. 23 of Notification No. 09/2017-Integrated Tax (Rate) dated 28-06-2017

10

MP Enterprises & Associates Ltd., In re [2021] 127 taxmann.com 739 (AAR - MAHARASHTRA

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11

Circular No. 84/03/2019 - GST, dated 1-1-2019

12

Sl. No. 72 of Notification No. 12/2017-Central Tax (Rate) dated 28-6-2017 and Sl. No. 75 of Notification No. 09/2017-Integrated Tax (Rate) dated 28-06-2017

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Kerala Pradesh Gandhi Darshanvedhi v. Union of India [2021] 128 taxmann.com 42 (Kerala)W

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Sl No. 547A of Notification No 50/2017- Dated June 30, 2017

15

Sl. No. 43 of Notification No. 12/2017-Central Tax (Rate) dated 28-6-2017 and Sl. No. 45 of Notification No. 09/2017-Integrated Tax (Rate) dated 28-06-2017

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Section 16(2)(aa) of the CGST Act

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Notification No. 92/2020-Central Tax dated December 22, 2020

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I-tech Plast India (P.) Ltd., In re [2021] 127 taxmann.com 45 (AAR - GUJARAT)

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Section 16(3) of the IGST Act, 2017

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Zumen Technologies (P.) Ltd., In re [2021] 126 taxmann.com 15 (Commissioner CGST Appeals – Chennai)

21

Notification No. 27/2011-Customs Dated March 01, 2011

22

Chowgule & Co (P.) Ltd., In re [2019] 107 taxmann.com 294 (AAR - GOA)

23

F1Auto Components (P.) Ltd. [2021] 128 taxmann.com 342 (Madras)

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