RECENT DEVELOPMENTS IN GST

CIRCULARS
Clarification in respect of applicability of Dynamic Quick Response (QR) Code on B2C invoices and compliances of Notification No. 14/2020-Central Tax dated 21st March, 2020 – Circular No. 156/12/2021-GST dated 21st June, 2021

The CBIC has issued the above Circular clarifying various aspects relating to QR code requirements. The issues clarified are about the requirement of QR code on invoices issued to a UIN holder, inclusion of bank details in QR code, QR code in respect of services provided to parties located outside India but place of supply is considered in India, QR code for sales over the counter, QR code in respect of payments received by voucher, etc.

Clarification regarding extension of limitation under GST law in terms of Supreme Court’s order dated 27th April, 2021 – Circular No. 157/13/2021-GST dated 20th July, 2021

This Circular clarifies certain issues regarding cognizance for extension of limitation in terms of the Supreme Court order dated 27th April, 2021 in Miscellaneous Application No. 665/2021 in SMW(C) No. 3/2020 under the GST law. In its detailed Circular, the CBIC has divided various actions / compliances under GST into three broad categories and stated that the extension of timelines granted by the Supreme Court is applicable in respect of any appeal which is required to be filed before the Joint / Additional Commissioner (Appeals), Commissioner (Appeals), Appellate Authority for Advance Ruling, Tribunal and various courts against any quasi-judicial order or where proceedings for revision or rectification of any order are required to be undertaken, and is not applicable to any other proceedings under GST Laws.

ADVANCE RULINGS
1. Classification – ‘Track Assembly’ for ‘Automotive Seating System’
M/s Daebu Automotive Seat India Ltd. (GST ARA-01, Application No. 5/2021/ARA dated 1st March, 2021 (TN AAR)

The issue involved in this Advance Ruling application (AR) was about classification of Track Assembly. The applicant is engaged in the business of manufacture of seat components / accessories which are used in the manufacture of four-wheelers.

The applicant has given particulars of the product, i.e., track assembly, with their views regarding classification. The same are reproduced in the AR as under:

‘3.3 On the write-up of the functions of the product, they have stated that:
(i) This track assembly is fitted on to the floor of the car. Essentially, it enables the movement forward and backward of the seat. When seats are fixed on this track assembly, they can slide back and forth with the operation of a lever for varying the positions of the seats, which is basically intended to improve the comfort and efficiency of the persons sitting thereon. This mechanism enables the passengers and drivers of the automobile to adjust seat positions for their comfort and convenience. Thus, the track assembly manufactured and supplied by them is an adjunct to the car seat.
(ii) They do not qualify to become parts of the seats as enunciated in the decision cited, viz., AAR Ruling GUJ/GAARJR/42/2020 dated 30th July, 2020 – 2021-VIL-15-AAR and the decision of the Supreme Court in the case of Commissioner C. Ex., Delhi vs. Insulation Electrical (P) Ltd. reported in 2008 (224) ELT 0512 (SC).
(iii) Car seats would be complete themselves without these mechanisms. Hence, track assembly mechanisms independently could not be called as parts of seats falling under HSN 94019000, whereas, they could at best be identified as accessories to the seats and hence would appropriately be classifiable under the heading 87089900.’

In light of the above facts, the applicant placed the following two questions for determination by AAR:
(a) What is the correct classification of goods manufactured by the applicant, viz., ‘Automotive Seating System’?
(b) Will the goods manufactured fall under CH 87089900 attracting GST @ 28% or under CH 940199990 attracting GST @ 18%?

The CGST authority have contended that HSN 94019900 covers parts of seats, i.e., those constituting specified parts such as backs, bottoms, armrests, etc., and cannot cover items like that of the applicant which is basically tied under a seat on the floor of the vehicle.

Noting the function of the track assembly, the AAR noted that when the seat is fixed on the track assembly, it can slide back and forth with the operation of a lever for varying the position of the seats. This is basically intended to improve the comfort and efficiency of the person sitting thereon. It is convenient for drivers / passengers to adjust the seat for comfort and convenience. It is a product adjacent to the car seat. The seat can be complete without such assembly.

There were two competing headings to be seen in this case, viz., 9401 and 8708. The AAR also referred to the section notes under HSN 8708 and sub-classification under 8708. Similarly, detailed reference was made to HSN 9401. He then concluded that HSN 9401 covers parts of seats of motor vehicles, whereas HSN 8708 covers parts and accessories of motor vehicles.

The meanings of ‘parts’ and ‘accessories’ in the Oxford English Lexicon were also reproduced as under:
‘8.6     CTH 8708 covers “Parts and accessories of Motor Vehicles” and CTH 9401 covers “Parts of seats of Motor vehicles”. Now it is essential to find out the definitions of “parts” and “accessories”. As per the Oxford English Lexicon, parts and accessories would be defined as under:
Parts: An amount or section which, when combined with others, makes up the whole of something.
Accessories: A thing which can be added to something else in order to make it more useful, versatile or attractive.

Based on the above, the AAR held that ‘part’ is one which is an essential component of a whole, without which the whole cannot be complete or cannot function. In contrast, accessories are not an essential component to complete the whole or to make it function but something to improve the utility, efficiency or appearance of the whole thing.

The seat is complete before fitting it on the track assembly which is useful for forward / backward movement of the seat. Hence, seats and track assembly are two independent products fixed together for comfort.

Therefore, the Learned AAR held that the track assembly is an accessory to the motor vehicle covered by heading 8708 and cannot be covered by heading 9401.

Accordingly, he held that GST rate of 28% will apply and not the lower rate.

2. EPC Contract vis-à-vis sub-contractor and Government entity
M/s URC Construction Pvt. Ltd. (Order No. 07/Odisha-AAR/2020-21/dated 9th March, 2021)
The Steel Authority of India Ltd. (SAIL) intended to get Ispat Post-Graduate Medical Institute and Super Specialty Hospital (referred to as ‘Hospital’) constructed at Rourkela Steel Plant on design, Engineering, Procurement and Construction (EPC) basis. It appointed NBCC India Ltd. (‘NBCC’), an executive agency, for getting the above work done. An MOU was entered into between SAIL and NBCC. NBCC awarded a contract to the applicant, M/s URC Construction Pvt. Ltd. (‘URC’) who is a national-level contractor.

The basic question in the AR was whether the contract to be executed by URC will be covered by Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017 as amended by Notifications 24/2017, 31/2017 dated 13th October, 2017, 46/2017 dated 14th November, 2017 and 17/2018 dated 26th July. 2018. The relevant part of the Notification is reproduced in the AR as under:

If it is so covered then the rate will be 12%, else there will be a higher rate. The submission was that the work is executed for SAIL, a Government entity, and that the work is predominantly for clinical establishment. It is also work covered within the definition of Works Contract as defined u/s 2(119) of the CGST Act.

It was further submitted that though services are provided to NBCC, for the purpose of exemption the constitution of the ultimate service recipient (SAIL) is required to be seen and not NBCC, which is merely an executive agency. For the above purpose, reliance was placed on Shapoorji Pallonji & Co. Pvt. Ltd. vs. C.C.C. Excise & S.T., Patna [2016 (42) STR 681 (Pat)].

It was stated that SAIL is a Government entity as defined in paragraph 4 of Notification No. 11/2017-Central Tax dated 28th June, 2017. The said definition of Government entity referred to in paragraph 3.8 is as under:

‘3.8 M/s SAIL would fall within the ambit of “Government Entity”. The term “Government Entity” is defined in Explanation (x) in paragraph 4 of the Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017 as “an authority or a board or any other body including a society, trust, corporation, (i) set up by an Act of Parliament or a State Legislature; or (ii) established by any Government with 90% or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a Local authority.’

SAIL is established by way of an Act passed by Parliament, viz., Public Sector Iron and Steel Companies (Restructuring) and Miscellaneous Provision Act, 1978.

Reliance was also placed on the AAR, Uttarakhand in the case of NHPC Ltd. [(2018)(19) GSTR 34 (AAR-GST)] in which it observed that in a number of Government entities, though initially the holding by Government is 90% or more, after establishment it is diluted for various reasons whereby it may go below 90%.

Based on the above it was submitted that there is no requirement of continuous holding of 90% and once 90% was already held, it would continue to be a Government entity.

And based on this submission, the applicant, URC, canvassed to hold its contract as covered by the above Notification attracting tax @ 12%.

The AAR referred to the history of the establishment of SAIL and observed that it had been established with the approval of Parliament. Hence it was held as a Government entity. The contract awarded is a composite contract involving pre-engineered building structure and RCC frame structure for a specialty hospital. It is works contract as per section 2(119) of the CGST Act.

It was further observed that the EPC contract gets classified in sub-entry (b) as Construction of structure predominantly meant for use as a clinical establishment. For meaning of ‘Clinical establishment’ reference was made to the meaning of the said term under Service Tax and found that since the given work contract fulfils the meaning of clinical establishment, it duly qualifies under the above entry.

Regarding the status of NBCC, the AAR observed that it is a separate limited company and not a Government company. Therefore, the AAR did not agree with the applicant that the supply to NBCC amounts to supply to ultimate recipient SAIL, which is a Government entity. However, the AAR held that the applicant is a sub-contractor and the benefit of lower rate applicable as per entry at Sl. No. 3(ix) of Notification No. 11/2017 as amended by 1/2018 can apply to it.

The contract is given by SAIL which is a Government entity. Therefore, NBCC is the main contractor and as a sub-contractor, the applicant is entitled to a concessional rate.

It was also observed by the AAR that the construction is at the initiative of the Central Government as supported by budget proposal and other documents.

In view of the above, the Learned AAR held that the rate of tax on the above contract of the applicant will be 12%.