RECENT DEVELOPMENTS IN GST

Changes in Rate of Tax

II. CIRCULARS

Clarification in respect of applicability of Dynamic Quick Response (QR) Code on B2C invoices and compliances of Notification 14/2020-Central Tax dated 21st March, 2020-Circular No. 165/21/2021-GST dated 17th November, 2021
The CBEC has issued Circular No. 156/20/2021 dated 21st June, 2021 clarifying various aspects relating to QR Code requirements. One of the issues clarified was about QR code on the invoices by supplier who receives payments from the recipient located outside India through RBI-approved modes of payment, but not in foreign exchange (para 4). There were further queries, too. Therefore, with the present Circular it is clarified that no Dynamic QR code is required on such invoices as such dynamic QR code cannot be used by the recipient located outside India for making payment to the supplier.

Clarification in respect of refund related issues – Circular No. 166/22/2021-GST dated 17th November, 2021
By the above Circular, clarifications regarding difficulties faced by the taxpayers in relation to getting refunds on excess balance in electronic cash ledger are given. The main issues clarified are:

III. ADVANCE RULINGS

(A) Place of Supply – Immovable Property
M/s Sri Avantika Contracts (I) Ltd. (Order No. A.R. Com/18/2018 dated 5th August, 2021 and TSAAR Order No. 05 /2021)(Telangana)
In this application, an issue about place of supply in relation to construction of immovable property was involved.

The applicant secured a contract from the National Buildings Construction Corporation Limited (NBCCL), Delhi for constructing a building at Addu City, Maldives. It is the understanding of the applicant that the recipient of construction service is the Government of Maldives, as the institute building is being constructed as part of assistance from the Government of India to the Government of Maldives. It was submitted by the applicant that the supply of services is taxable only within the territory of India and since the supply of his services will be outside India, it will not constitute taxable supply.

Given the above facts, the following questions were raised before the AAR:
‘1. Whether the construction of the Institute of Security and Law Enforcement Studies at Addu City in Maldives, constructed for the Government of Maldives under a Memorandum of Understanding between India and Maldives falls within the GST net?
2. Who is the recipient of service in the instant case?
3. What is the place of supply in respect of the works contract for setting up of the Institute of Security and Law Enforcement Studies at Addu City in Maldives?’

In the personal hearing, the position was reiterated that the activity of the applicant is works contract and hence service. It was further argued that though the contract has been awarded by NBCCL, as per the MOU the Institute is being constructed on behalf of the Government of India as part of assistance to the Government of Maldives towards the social and economic development of Maldives. Therefore, it was canvassed that the recipient of service in this case is the Government of Maldives and NBCCL is the executing body which has sub-contracted the subject work to the applicant.

Therefore, the contention was that the supply is rendered by the applicant in respect of immovable property located in Maldives to the Maldives Government and not liable to tax under GST in India.

The learned AAR considered the submissions and observed that the Government of the Republic of India and the Government of Maldives entered into an MOU for construction of a Police Academy. As per this MOU, the Government of India awarded the work relating to planning, designing and execution of the project to NBCCL, New Delhi. The applicant was in turn awarded the sub-contract to construct the said building by NBCCL.

Therefore, the AAR observed that the applicant has not entered into any contract with the Government of Maldives for carrying out the said construction, nor do they have any privity with respect to the MOU between the Governments of India and of Maldives. Accordingly, it held that the applicant does not have any mutual or successive relationship with the Government of Maldives and therefore the Government of Maldives is not the recipient of any service from the applicant.

In simple terms, the applicant is a provider of services to NBCCL which is the recipient of the service.

The AAR held that since both the applicant, who is the supplier of service, and NBCCL, which is the recipient of service, are located in India, the place of supply is to be determined u/s 12 of the IGST Act. The proviso to sub-section (3) of section 12 of the IGST Act clearly mentions that if the location of immovable property is intended to be outside India, the place of supply shall be the location of the recipient.

In view of above, the issues raised are answered as under:

(B) Scope of Advance Ruling, Government Entity
M/s National Institute of Technology, Tiruchirappalli (Order No. 22/AAR/2021 dated 18th June, 2021)(Tamil Nadu)
The applicant was started as a joint co-operative venture of the Government of India and the Government of Tamil Nadu in 1964. Subsequently, it came to be covered by the National Institution of Technology Act, 2017.

The applicant procured services like pure labour and composite services and it framed the following questions before the AAR:

‘1. Whether National Institute of Technology, Tiruchirappalli (NITT) is a Government Entity under GST Law?
2.    If the answer to the question is in the affirmative, whether
    a. The applicant is liable to deduct tax at source (TDS) u/s 51 of the CGST Act, 2017?
    b. Whether the applicant is required to discharge liability on reverse charge basis on supply of services as per section 9(3) and 9(4) of the CGST Act, 2017?
3.     Whether the entry provided under
    A. Sl. No. 3, 3A of Notification 12/2017 is applicable to them,
    B. Composite supply of works contract provided to the applicant is covered by Sl. No. 3(vi) of Notification 11/2017 dated 28th June, 2017’

The AAR referred to the scope of the Advance Ruling provisions and observed that the recipient cannot seek ruling about exemption available to the supplier. However, to the extent whether the recipient is liable to RCM, the ruling can be sought.

The AAR justified above maintaining of AR in relation to RCM on the premises that the recipient liable to RCM is deemed to be in the capacity of supplier and hence the ruling can be sought as supplier. Further, the scope will be whether RCM liability falls on applicant as per section 9(3). Therefore, questions at 3 (A&B) held non-maintainable.

Regarding the other questions, the AAR considered the position on merits. In respect of the question as to whether the applicant is a Government Entity, the AAR referred to the background of the existence of the applicant. He also referred to the AR of Uttarakhand in the case of IT Development Agency (2018-VIL-79-AAR) in which a similar issue is considered.

The AAR noted that the applicant has sought a ruling whether NITT is a Government Entity under the GST law. It had submitted that they are a Government Entity inasmuch as the NITT was started as a joint and co-operative venture of the Government of India and the Government of Tamil Nadu in 1964 with a view to cater to the needs of manpower in technology for the country; they were subsequently covered under the Schedule of the National Institute of Technology Act, 2007 and it was declared as an Institution of National Importance; that NITT is under the direct supervision and control of the Ministry of Human Resources Development of India and the Board of Governors is constituted by the HRD Ministry; that the corpus fund of the Institute (akin to share capital in case of a body corporate) was initially provided by the Government of India by way of grants and it is stipulated in the Act that every institute shall maintain a fund to which shall be credited all moneys provided by the Central Government; that their accounts be audited by the Comptroller & Auditor-General of India. The applicant also submitted a copy of Gazette No. 34 dated 6th June, 2007 publishing the National Institute of Technology Act, 2007. It was also noted that the term Government Entity has been defined in Notification No. 32/2017-Central Tax (Rate) dated 13th October, 2017 as follows:

‘[(zfa) “Government Entity” means an authority or a board or any other body including a society, trust, corporation, (i) set up by an Act of Parliament or State Legislature; or (ii) established by any Government, with 90 per cent 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.’

From the submissions of the applicant, it noted that the applicant institute was originally established in 1964 as a society registered with the Registrar of Societies, Tamil Nadu. Subsequently, it was covered under the NIT Act, 2007. It was also found that various authorities in NITT are from the Government, including Ministers.

It is also found that it fulfils the requirement of more than 90% financial participation from the Central or State Government. Accordingly, the applicant is held as a Government Entity by the AAR.

Regarding liability of RCM, the AAR referred to section 9(3) which reads as under:

‘9(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both?  

Since the applicant is a registered person, the AAR held that the provision of section 9(3) applies to it. He also referred to Notification No. 13/2017 dated 28th June, 2017 by which the class of persons liable to RCM is notified.

Serial No. 14 is particularly reproduced in the AR which is as under:

On the facts, the AAR found that the security service is obtained from a body corporate, hence it held that the applicant is not liable to RCM in respect of such receipt of services.

In respect of legal services, by referring to Sl. No. 2 in the above Notification 13/2017, the AAR held that on the fees paid to the Advocate, the RCM liability accrues.

There is also online import of educational journals. Regarding RCM on such imports, the AAR held that if such import is of educational nature, no RCM would apply in view of Notification No. 2/2018-Integrated Tax (Rate) dated 25th January, 2018. However, if the nature of import is non-educational, then RCM will apply, the AAR held.

(C) Classification – Electronically-Operated Vehicles
M/s Anjali Enterprises (Order No. 01/Odisha-AAR/2021-2022 dated 15th April, 2021)
The applicant is a dealer in battery-powered electric two-wheelers. It purchases vehicles from M/s Omjay Eeve Ltd., Badchana under the brand name ‘EEVE’. During transportation, the batteries are not fitted with the vehicle though they are transported together.

It also manufactures a similar battery-powered electric vehicle. When the vehicles are sold to dealers, batteries are not fitted in the vehicles but given separately. Only when the dealer sells to the ultimate customer is the battery fitted and delivered to the customer. The applicant wants to know whether its sale without the battery fitted in vehicles will still be considered as sale of electrically-operated vehicle to get the benefit of the lower rate.

Electrically-operated vehicles, including two- and three-wheeled electric vehicles falling under Chapter 87, are taxable @ 5% as per Sl. No. 242A of Notification No. 1/2017-Central Tax (Rate) dated 30th June, 2017 as amended from time to time. The entry defines electrically-operated vehicles as ‘vehicles which are run solely on electrical energy derived from an external source or from one or more electrical batteries fitted to such road vehicles and shall include E-bicycles’.

It was strongly submitted that the vehicles were fulfilling all criteria and hence were duly covered by the above entry.

It was explained that though a sale of a vehicle running on fuel is done with an empty tank, it does not change the nature of the goods supplied and it remains a vehicle. If the vehicle in the case of the applicant is supplied without battery (i.e., without fuel), the nature of the goods is still ‘vehicle’. It was added that for vehicles to be classified as electrically-operated vehicles these must be such that they run solely on electrical energy derived from one or more electrical batteries, as and when put to use. The applicant argued that fitting of battery in the vehicle, at or before the time of supply, is not a precondition for the same to be classified as an electrically-operated vehicle.

The applicant relied upon the judgment of Reva Electric Car Company Pvt. Ltd. [2012 (275) ELT 488 (G.O.I.)]. The Revenue relied upon the AR in the case of Hooghly Motors (P) Ltd. (2020-VIL-235-AAR)(WB).

The AAR referred to the question posed, i.e., ‘Whether fitting of battery is mandatory in two- and three-wheeled battery-powered electric vehicles while selling the same to the dealers for getting the benefit of 5% GST rate applicable for electrically-operated vehicles?’

Though contrary judgments were cited, the AAR observed as under:

‘Before taking a final opinion, we need to go through the definition of “electrically-operated vehicle”. The Explanation to Entry No. 242A of Schedule 1 to Notification No. 01/2017-Central Tax (Rate), dated 28th June, 2017 as amended from time to time defines the term “electrically-operated vehicle” to mean “vehicles which run solely on electrical energy derived from an external source or from one or more electrical batteries fitted to such road vehicles and shall include e-bicycles’. This means it is a type of electric vehicle (EV) that exclusively uses chemical energy stored in rechargeable battery packs, with no secondary source of propulsion (e.g., hydrogen fuel cell, internal combustion engine, etc.). An electric vehicle with battery pack uses electric motors and motor controllers instead of internal combustion engines (ICEs) for propulsion. It derives all power from battery packs and thus has no internal combustion engine, etc. Electrically-operated vehicles are designed to run only on electrical energy. As such, they will run on battery as and when put to use. Hence, for vehicles to be classified as electrically-operated vehicles they must be such that they would run solely on electrical energy derived from one or more electrical batteries, as and when put to use.’

Further, relying on Reva Electric Car Company Pvt. Ltd. reported in [2012 (275) ELT 488 (GOI)] 2011-VIL-01-Misc, which holds that if electrical-battery operated cars are exported, though not fitted with batteries at the time of export, the same are still classifiable as ‘battery-powered road vehicles’ and would run on battery when put to use. Accordingly, the AAR held that fitting of battery in the vehicle, at or before the time of supply, is not a precondition for the same to be classified as electrically-operated vehicle. Accordingly, the AAR decided the AR in favour of the applicant.

(D) Works Contract – ‘Original work’
M/s Bindu Projects & Co. (AR Order No. KAR ADRG 40/2021 dated 30th July, 2021)
The applicant is a registered person and engaged in executing works contract services to South Western Railways. It has sought advance ruling in respect of the following question:

‘i. Applicability of GST rates for works contract services doing original works with South Western Railways.’

The applicant is a contractor with the South Western Railway, Bangalore and has been awarded the contract of ‘KSR Bengaluru City Railway Station and Service Buildings at Bengaluru such as C&W Office, Loco Trip Shed, DRM Office, Supervisory Training Centre, ORHCM SRH, Railway Hospital, RPF Barricade, GRP Barricade, etc.’ as per Zone-S vide LOA No. Bangalore Division ENGG/12SBC190F11-4-19 ITEM 12/00841250002528 dated 25th June, 2019. The said work is a Zonal Agreement, plus…
(a) It is a lump sum contract based on Unified Schedule of Rates, 2011 of South Western Railways.
(b) It includes New Works, Repair Works, additions and alterations to existing structures.
(c) The work is carried out through Work Orders each restricted to a maximum of Rs. 5 lakhs, where each work order is an individual tax invoice.
(d) The work is executed in service buildings like stations, PWI offices, RPF Barricades, etc., and in welfare buildings like Railway Hospitals, Colonies, etc.

The applicant has submitted that as per the Notification No. 11/2017-Central Tax (Rate) – Serial No. 3(v), the GST rate applicable is 12% if ‘composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017 is supplied by way of construction, erection, commissioning of original works pertaining to Railways (including monorail and metro).’

The applicant also brought to the notice of the AAR, Rule 2A of the Service Tax Rules 2006 wherein ‘Original Works’ has been defined as
(a) all new constructions,
(b) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable, and
(c) Erection, commissioning or installation of plant, machinery or equipment or structures whether prefabricated or otherwise.

In the light of the above, the applicant claimed that it is executing original works of Works Contract Services and hence eligible to 12% tax.

The AAR analysed the transactions and found that the applicant is executing two types of works wherein in one set the applicant is executing works contract for construction of new buildings and in the second it is executing works contracts not involving new construction. It was noticed that a majority of the works were like provision of compound wall to Railway properties, laying of tiles for buildings, plumbing with new pipelines, provision of new GLR and OHT, staff recreation like parks, new rainwater-harvesting structures, painting, renovation of old structures, etc.

The AAR reproduced Entry 3(v) of Notification No. 11/2017 dated 28th June, 2017 and the definition of ‘Original Works’ as given in clause (zs) of para 2 of Notification No. 20/2017-Central Tax Rate dated 22nd August, 2017 as under:

‘Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, Commissioning, or installation of original works pertaining to, –
    (a) Railways, ….
    (b)….’

    ‘Original Works’ in clause (zs) of para 2 of Notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017 is described as under:

‘(zs) “original works” means – all new constructions;
(i) All types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;
(ii) Erection, commissioning or installation of plant, machinery or equipment or structures, whether prefabricated or otherwise;’

Although the definition is given in relation to Notification No. 12/2017, it can be adopted for the present entry also. Only ‘additions or alterations made to abandoned or damaged structures on land that are made to make them workable’ are treated as original works and not all repairs and maintenance services.

In view of the above, the AAR observed that so far as construction of new structure is concerned, it is covered by the above entry attracting tax @ 12%.

However, in the case of constructions which are made where the structures already exist, the same can be classified as under:
(a) where the additions and alterations are made to the abandoned structures on land or damaged structures on land to make them workable,
(b) repairs of already existing structures which are in working condition, and
(c) construction services on structures not on land.

It was further observed that only those works contract services covered under (a) above are to be treated as ‘original works’ and not those covered under (b) and (c). The AAR also considered the meaning of the words ‘structures on land’ by reference to the dictionary meaning.

According to the Cambridge Dictionary, ‘structure’ means ‘something that has been made or built from parts, especially a large building’ or ‘something built, such as a building or a bridge’. Considering all this, the AAR observed that the scope of the above entry will cover the structures which are directly on land. If these structures are damaged to the extent that the same cannot be used and by the activity of works contract services these unusable structures are made reusable, then such services would be covered under the above entry for reduced rate of tax.

The repair works are held to be not ‘Original Works’.

For services provided in relation to the residential accommodation of staff, the AAR examined the position separately. He referred to Entry 3(vi) which reads as under:

‘(vi) Services provided to the Central Government, State Government, Union Territory, a local authority, a Governmental Authority or a Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of,
(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;
(b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; or
(c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017, provided that where the services are supplied to a Government Entity, they should have been procured by the said Entity in relation to a work entrusted to it by the Central Government, State Government, Union Territory or local authority, as the case may be.’

The AAR observed that the Railway Department is a Central Government Department and therefore for services provided to it for a purpose other than for business, the same would be covered by above Entry 3(vi). The services of repairs, maintenance, renovation and alterations of residential complex meant for use of the Railway employees are therefore held as covered under Entry 3(vi) of the Notification and accordingly eligible for tax at 12% CGST.

The AAR also made observations about the application of the rate of tax. In a single contract given by the Railways, multiple works are mentioned. The issue examined is whether such multiple events are one composite supply transaction or mixed supply transaction or each one is separate. The AAR held that since there is no principal supply, it is not composite supply. Also, considering that each work is valued separately, it was held that it is also not a mixed supply. Therefore, each work in the contract is held as a separate transaction and accordingly the AAR ruled to apply the rates as discussed above.

(E) Co-operative Housing Society – Chargeability to GST
M/s Forest County Co-operative Housing Society Ltd. (Order No. GST-ARA-65/2019-20/B-42 dated 4th August, 2021)
The applicant society has a billing as under:

‘Total bill raised by a housing co-operative society if, for example, Rs. 6,500 per month per member, the break-up of Rs. 6,500 is as below:
1) Repair and maintenance fund: – Rs. 1,500
2) Sinking Fund: – Rs. 1,500
3) Other Maintenance charges: – Rs. 3,500
Total Maintenance Bill (1+2+3) – Rs. 6,500
Is the society liable to collect any GST in the above scenario? Or since the total maintenance bill is less than Rs. 7,500, no GST is required to be charged and collected by the housing co-operative society?’

The legality about the levy was not challenged. However, the society’s total receipts were more than Rs. 20 lakhs in a year and it has obtained registration under GST. The argument of the applicant was that though it has obtained registration, since the charges do not exceed Rs. 7,500 per member per month, it is actually not liable to pay any tax.

The applicant wanted a ruling on the above view. It cited Circular No. 109/28/2019-GST dated 22nd July, 2019.

The AAR noted that as per the provisions of the GST laws, ‘Repair and maintenance fund and sinking fund’ are covered under ‘services’ as per the provisions of the GST Act. Hence, it is observed that such services provided by the applicant to its members are liable to tax subject to crossing the threshold turnover limit and as per the provisions of Notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017. As per Sl. No. 77(c) of Notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017, charges up to Rs. 7,500 are not taxable. The AAR held that since in this case the charges are not exceeding Rs. 7,500 per member, per month, no tax is actually payable. He ruled accordingly.

(F) Valuation – DG Set and reimbursement of diesel cost
M/s Goodwill Autos (AR Order No. KAR-ADRG-44/2021 dated 30th July, 2021)
The applicant is a partnership firm registered under the Goods and Services Tax Act, 2017 and engaged in the business of leasing of DG Sets to customers like LIC of India, Syndicate Bank and SBI in various districts of Karnataka.

It has entered into an agreement with the Life Insurance Corporation of India (LIC), Branch Office at Koppa, Udupi to install a DG on hire basis for a rent of Rs. 10,520 per month along with reimbursement of diesel cost at Rs. 305 per hour on usage of the DG Set.

The applicant is discharging tax @ 18% (CGST @ 9% and KGST @ 9%) on DG Set hiring charges and also discharging tax @ 18% (CGST @ 9% and KGST @ 9%) on reimbursement of diesel cost incurred for running the DG Set.

However, LIC was of the opinion that the taxes collected by the applicant pertaining to the reimbursement of diesel charges for running the DG Set was erroneous because diesel did not come under the purview of GST. As diesel is non-GST goods as per section 9 of the CGST / KGST Act, 2017, LIC has requested the applicant to reimburse the wrongly-collected taxes.

Given the above facts, the applicant has filed the AR to know the correct position of law. It was contended that since there is no specific provision for inclusion of diesel cost in DG Set service charges, the same should be held as not liable to GST.

The judgment under Service Tax in the case of Intercontinental Consultants and Technocrats Private Limited vs. Union of India, 2012-VIL-106-Del-ST, was cited where the Court has taken a view that the reimbursement will not be liable to service tax in the absence of specific provision for valuation u/s 67 of the Service Tax Act. It was urged to apply the same position here.

The AAR considered the legal position by reference to section 15(1) which is reproduced as under:

‘the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.’

The AAR also considered the definition of ‘consideration’ in section 2(31) which reads as under:

‘(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;
(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:
Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;’

After considering the above definitions, the AAR observed as under:

‘The contract entered into between the applicant and the recipient is for the hiring of DG Set and is a comprehensive contract with the consideration having a fixed component and a variable component. The fixed component is the monthly fixed rent charged in the invoice for the DG Set and the variable charge is the charge for the diesel used. Both are part of the same consideration and for the contract of supplying the DG Set on hire. Though it appears that the applicant is receiving the reimbursement of diesel cost, the recipient is not paying for the diesel but for the services of DG Set, which is an integral part of the supply of DG Set rental service. There is no separate contract for supply of diesel and the invoice issued for the reimbursement of diesel cost is nothing but a supplementary invoice issued for the supply of rental service of DG Set. Hence, consideration for reimbursement of expenses as cost of the diesel for running of the DG Set is nothing but the additional consideration for the renting of the DG Set and attracts CGST @ 9% and KGST @ 9%.’

Accordingly, the AAR upheld the levy of tax on receipts towards reimbursement of diesel cost.