RECENT DEVELOPMENTS IN GST

(b) Amendments effected by Finance Act, 2021 (Act No. 13 of 2021) dated 28th March, 2021
The Finance Act, 2021 (Act No. 13 of 2021) has received assent of the President on 28th March, 2021 and it is also published for general information. Sections 108 to 123 are in relation to amendments in the CGST Act / IGST Act. The said sections shall come into force on such date as the Central Government may appoint by Notification in the official Gazette. The proposed amendments by the Finance Act, 2021 have been discussed in the March, 2021 issue of the BCAJ.

(c) Clarification on reporting 4-digit / 6-digit HSNs dated 12th April, 2021
The CBIC has issued the above clarification in view of the fact that certain 6-digit HSN codes are not available in the HSN Master / nor accepted on the e-invoice / e-way bill portal. The CBIC has given modalities for resolving the issue and also given guidelines for reporting the continuing issues on the GST self-service portal.

ADVANCE RULINGS
1. Concessional rate vis-à-vis second sub-contractor
M/s Hadi Power Systems (Advance Ruling No. KAR-ADRG-18/2021 dated 6th April, 2021)
The issue before the Authority for Advance Ruling (AAR), Karnataka was related to eligibility to concessional rate as a sub-contractor.

The applicant sought advance ruling in respect of the following question: ‘Whether concessional rate of GST shall apply to the sub-contractor who is sub-contracted from a sub-contractor of the main contractor, the main contractor being provider of works contract to a Government Entity?’

The applicant states that M/s Ocean Constructions (India) Pvt. Ltd. (the ‘main contractor’) has been awarded a contract by M/s Karnataka Neeravari Nigam Ltd. for civil, electrical and mechanical works. The work delegated to the main contractor is for the construction of the Channabasaveshwara Lift Irrigation Scheme which includes preparation of plans and drawings, construction of intake canal, jackwell-cum-pumphouse, rising main, electrical sub-station, erection of vehicle turbine pumps, including commissioning of entire project, including maintenance for five-year period on turnkey basis.

The applicant has also stated that the main contractor has sub-contracted certain electrical works to M/s Shaaz Electricals (the ‘first sub-contractor’). Further, this first sub-contractor has in turn entered into a sub-contract agreement with the applicant for providing electrical works.

The applicant is of the opinion that the services provided by him fall under clause (ix) to serial number 3 of Notification 11/2017-Central Tax (Rate) dated 28th June, 2017, as amended by Notification No. 01/2018-Centra1 Tax (Rate) dated 25th January, 2018 and the concessional rate of tax @ 12% shall apply to him. The relevant clause is as under:

The applicant contended that the activity of the electrical sub-contracted works and infrastructure works carried out by him is on the immovable property of M/s Karnataka Neeravari Nigam Ltd. which is a Government Entity and the same is awarded by the first sub-contractor M/s Shaaz Electricals who, in turn, is awarded the said work by the main contractor M/s Ocean Construction (India) Pvt. Ltd. Hence, according to the applicant, the work is liable to tax at the rate of 12% as per Notification (tax rate) 01/2018 dated 25th January, 2018.

The AAR observed that in the instant case there is no privity of contract between the applicant and M/s Karnataka Neeravari Nigam Ltd. The original contract is awarded to M/s Ocean Constructions (India) Private Limited. Hence, as per the Notification, any sub-contractor providing services to the main contractor by executing the works mentioned in serial number 3 of clause (iii) and clause (vi) which is exclusively covered under the clause (ix) of serial No. 3 of Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017 (as amended from time to time) will be exempted from payment of GST subject to M/s Karnataka Neeravari Nigam Limited being qualified to be called a Government Entity. In the present case, it is M/s Shaaz Electricals who is the sub-contractor who is covered under the said Entry. As there is no privity of contract between the applicant and M/s Ocean Constructions (India) Private Limited and the contract is between the applicant and M/s Shaaz Electricals, the AAR held that the services provided by the applicant are not covered under the said Entry. The concessional rate is therefore denied to the applicant.

2. Composition Scheme, E-commerce
M/s Kou-chan Technologies Pvt. Ltd. (Advance Ruling No. KAR-ADRG-22/2021 dated 7th April, 2021)
The applicant is a taxi aggregator on a pan-India basis under the trade name ‘Dyut Rides’.

The applicant’s mode of operation is summarised by the Karnataka AAR as under:

‘5.3. The applicant, private limited company, submitted that they propose to operate mobile-based taxi aggregation service on a pan-India basis; they are responsible for linking the driver to the passenger; they neither own any vehicle nor employ the drivers; the drivers are registered with them; they utilise the services of an “Associate Partner”, one or more in a district, who is responsible for the well-being of the passengers and of the drivers, viz., accidents, etc. In the revenue break-up provided by the applicant, it is seen that they are charging GST from passenger on the basic fare paid to the driver, collecting pick-up cost from the passenger, service charge, associate partner’s charge and payment gateway charge. Besides, the applicant also collects toll charges, luggage charges, waiting charges, cancellation, insurance, etc., which may be shared with drivers. Further, there is “Goodwill Bonus” which is purely a voluntary amount paid by passengers to drivers at the time of rating the services which is credited to the drivers. Lastly, there is a participation fee which is a payment made by drivers to the applicant when they bid for passengers offering different fares.’

The AAR has also reproduced the break-up chart of various charges collected by the applicant as under:

Based on the above, the applicant has posed certain questions before the AAR. The AAR has dealt with them one by one and ruled on them as under:

1. Do the various supplies (of the applicant, the vehicle owner, the driver and the associate partner together) mentioned above qualify as ‘Composite Supply’?
In relation to this question, the AAR referred to the definition of ‘composite supply’ in section 2(30) of the CGST Act and observed that as per the chart, the applicant is an intermediary for certain services and also a provider for certain services.

The AAR observed that the applicant is providing two services, viz., an online platform and insurance coverage to the passenger. The insurance is optional on the part of the passenger. Hence, the AAR held that the online platform service and insurance services are not composite supply.

2. Do the pick-up charges paid to the owner / driver fall under the GST rate of 5%?
In this respect, the AAR observed that section 9(5) stipulates services on which tax is payable by the e-commerce operator. The pick-up service is incidental to the main service of transport of passengers by the drivers.

By the Notification No. 17/2017 Central Tax (Rate) dated 28th June, 2017 tax @ 5% is provided in relation to electronic commerce operator for services by way of transportation of passengers by a radio taxi. Therefore, the AAR confirmed the rate @ 5% on pick-up charges also, being incidental to the main passenger transportation service.

3. The associate partner renders services to the passengers and to the drivers / vehicle owners directly, and in that case does any supply of service exist between the applicant / aggregator and the associate partner, and if yes, what is the rate at which GST has to be collected and remitted?
The AAR observed that the associate partner helps in boarding and scaling up of the business of the applicant. Hence, the associate partner is providing support services to the applicant and it is the associate partner who should pay tax on the charges passed on to it. The said services, not being part of passenger service covered by section 9(5) of the CGST Act, the AAR held that it will be liable to tax @ 18% in the hands of the associate partners.

4. Does the amount received from drivers / owners towards bidding get covered in the 5% GST or should it be separately charged at 18%?
The AAR observed that bidding charges received from drivers / owners cannot be covered in the 5% rate as they are not falling in the category of support services. Therefore, they are held liable @ 18%.

5. Does the goodwill bonus being paid by the passenger to the driver and on which the applicant collects the service charges, attract GST, and if so at what rate?
Such payment is a voluntary payment made by the passengers when they are happy with the services provided by the drivers. The bonus itself is not liable to GST. However, the applicant has charged service charges for facilitating the payment of goodwill amount to drivers and such charges are liable to GST at 18%.

6. Do the charges for cancelling the trip for any reason attract GST liability?
In respect of cancellation charges, the learned AAR held that they are for tolerating the cancellation by the applicant for consideration and hence it is supply of service as per clause (e) of Paragraph 5 of Schedule II of the CGST Act, liable to tax @ 18%.

7. Do the charges for insurance come under composite supply?
In view of the answer to question (1) above, it is held that the insurance charge is not composite supply.

8. If the principal supplier / applicant collects GST, say at 5% along with fare from passengers (as mentioned in the table submitted by the applicant), does it amount to compliance of the GST Rules?
The AAR observed that liability be considered as per discussion in relation to earlier questions.

3. Interest paid on late payment and RCM
M/s Enpay Transformer Components India Pvt. Ltd. (Advance Ruling No. GUJ-GAAR/R/01/2021 dated 20th January, 2021)
The applicant is an importer of goods. RCM is paid under IGST on the value of the imported goods. However, the issue raised is about inclusion of the following two charges in the taxable import value:
(i) The applicant is importing goods from the holding company located in Turkey, namely, M/s Enpay Endustriyel Pazarlama ve Yatirim A.S. (Enpay, Turkey) for which the payment terms is 120 days from the date of invoice for import of goods, and if the applicant does not pay to M/s Enpay, Turkey on the due date, M/s Enpay, Turkey charges interest on late payment to the applicant – and the issue is whether such interest payment is liable to RCM;
(ii) The applicant has obtained bank credit facility from Citibank based on the corporate guarantee issued by M/s Enpay Endustriyel Pazarlama ve Yatirim A.S. (Enpay, Turkey) and they have paid stamp tax in Turkey as per their land rules and they have raised reimbursement invoice of the said payment to the applicant. The issue is whether RCM is applicable on such reimbursement.

In short, the applicant pays the above two charges to the seller in addition to the value of goods in the invoice. Based on the above facts, the applicant has raised the following issues for an answer by the AAR:
(i) Whether liability to pay GST on reverse charge arises if amount is paid as interest on late payment of invoices of imported goods? If yes, then at what rate?
(ii) Whether liability to pay GST on reverse charge arises if amount is paid for reimbursement of stamp tax paid as a pure agent by M/s Enpay, Turkey on its behalf?

The application was examined by the learned AAR. In respect of the interest paid for late payment, he referred to clause (e) in Paragraph 5 of Schedule II of the CGST Act and also to section 15(2) of the CGST Act. He observed that the interest is for tolerating late payment and hence covered as supply of service as per clause 5(e) in Schedule II. This is covered by section 15(2)(d) also. Therefore, the interest to be paid to the foreign supplier is liable to RCM and it is liable at the same rate as applicable to goods.

In respect of the other issue, the AAR referred to the definition of ‘consideration’ in section 2(31) of the CGST Act and noted that the payment of stamp tax is in direct relation to goods supplied and it is not in the excluded category given in section 15(3) of the CGST Act.

In respect of the claim about pure agent, the AAR referred to the requirements to be fulfilled as per Rule 33(i) to 33(iii) and observed as under:
(i) No documents provided to show that the supplier is authorised by the applicant to act as his agent.
(ii) For reimbursement a separate invoice is raised, whereas the rule requires indication of reimbursement in the invoice made for the supply of goods. Therefore, as per the AAR, this condition is also not fulfilled.
(iii) The reimbursement for stamp tax is not separate from goods supplied by the supplier. For the same reason, it is observed that the conditions mentioned in Rule 33 are not fulfilled. The condition about reimbursement of actual amount is also not fulfilled as the documents produced are in a language other than English and no translated documents are provided to understand the same. The financial records of the supplier to know the real position are also not produced.

Based on above observations, the AAR held that the stamp tax reimbursement is also part of import value and liable to RCM.

4. ITC vis-à-vis cross-utilisation of same
M/s Aristo Bullion Pvt. Ltd. (Advance Ruling No. GUJ-GAAR/R/15/2021 dated 27th January, 2021)
A unique issue came up for consideration before the Gujarat AAR. The facts of the case are as under:
1. The applicant deals in gold products. Gold dore / silver dore and other raw materials are inputs for the same on which the applicant is entitled for ITC.
2. The applicant also wants to deal in castor oil seeds. No ITC is available on inward supply of castor oil seeds as they are purchased from unregistered agriculturists. However, on outward supply of castor oil seeds the applicant is liable to pay GST.
3. There will be excess ITC in the credit ledger in relation to inward of inputs for gold products. The excess / accumulated ITC arises due to various factors like sale at lesser value than purchase, stock-in-hand, etc.
4. The applicant intends to use the excess ITC towards discharge of liability on the supply of castor oil seeds.

Against this background, the applicant raised the following question before the Gujarat AAR: ‘Can the applicant use Input Tax Credit balance available in the electronic credit ledger legitimately earned on the inputs / raw materials / inward supplies (meant for outward supply of bullion) towards the GST liability on ‘castor oil seeds’ which were procured from agriculturists and subsequently meant for onward supply?’
After referring to the facts as stated above, the AAR referred to section 16(1) of the CGST Act relating to eligibility of ITC and section 17(5) blocking ITC. He then observed that section 17(5) does not block ITC available to the applicant in respect of gold dores.

However, in respect of the validity of the use of ITC of gold business towards the castor business, the AAR observed that it is not possible in view of section 16(1) of the CGST Act. His observations are as under:

‘11. On going through the provisions of section 17(5) as mentioned hereinabove, we find that the inputs, i.e., gold dores and silver dores on which the applicant intends to avail input credit, are not covered under the excluded provisions of the said section. Further, on going through the provisions of the section 16 as mentioned above, we find that sub-section (1) specifically mentions that the registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. This means that, for the applicant to be eligible to take input tax credit on any supply of goods or services, the same has to be used or should be intended to be used in the course or furtherance of his business, i.e., the nexus / connection between the inputs and the final products manufactured from these inputs is required to be proved. For example, inputs such as dores of gold, silver, etc., procured by the applicant are used in the manufacture of their final product, i.e., gold (including gold plated with platinum), unwrought or in semi-manufactured forms, or in powder form, based metal clad with silver, not further worked than semi-manufactured, coin, etc. It can, therefore, be derived from the above that the aforementioned inputs are used in the course or furtherance of their business, i.e., supply of gold, gold-plated with platinum, etc. In this context, even a layman can make out that dores of gold and silver are indeed used as inputs in the manufacture of the aforementioned final products (made up of gold) and are therefore used or intended to be used in the course or furtherance of the business of supply of gold and we certainly do not need the services of an expert to know that.’

Based on the above interpretation, the AAR further observed that the applicant has not produced any documents suggesting any nexus between the gold business and the castor seed business. Though the applicant has cited section 49(4), the application of the said section was not analysed by the AAR.

Observing as above, since in the present case the nexus between inputs on which ITC is availed and outward liability on supply of castor oil seeds is not established, the AAR held that accumulated ITC cannot be used for adjusting liability on such unrelated outward supply. The reply was in the negative.