RECENT DEVELOPMENTS IN GST

(b) Extension of due date of filing of Form 9/9C – Notification No. 04/2021-Central Tax dated 28th February, 2021
Through this Notification, the due date of filing annual return in Form 9 and audit report in Form 9C is extended from 28th February, 2021 to 31st March, 2021.

(c) E-Invoicing – Notification No. 05/2021-Central Tax dated 8th March, 2021
By the above Notification the turnover limit for complying with E-invoicing is brought down to Rs. 50 crores from Rs. 100 crores. The change is effective from 1st April, 2021.

CIRCULARS
(i) 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. 146/02/2021-GST dated 23rd February, 2021
CBEC has issued a Circular clarifying various aspects relating to QR Code requirements. The issues clarified are about requirement of QR code on export invoices, details required to be captured in the QR code, payment mode by customers vis-à-vis the QR code, etc.

(ii) Clarification on refund-related issues – Circular No. 147/03/2021-GST dated 12th March, 2021
In the above Circular, clarifications regarding difficulties faced by the taxpayers in relation to getting refunds are given. The main issues covered are about the refund claim by recipients of Deemed Export supply, wrong declaration in Table 3.1(a), the manner of calculation of Adjusted Total Turnover under Sub-rule (4) of Rule 89 of the CGST Rules, etc.

(iii) Guidelines for provisional attachment – CBEC-20/16/05/2021-GST/359 dated 23rd February, 2021
The CBEC has issued an instruction communication giving guidelines for provisional attachment of property u/s 83 of the CGST Act.

ADVANCE RULINGS
ITC vis-à-vis goods distributed on FOC basis
M/s BMW India Pvt. Ltd. (Advance Ruling No. 49/2018-19 dated 10th April, 2019)
The issue in this Advance Ruling was about the availability of ITC on certain items distributed at promotional events.

The applicant is engaged in the business of manufacturing and sale of motor cars. It organises various events through the year for the purposes of marketing and sales promotion of its products. Such events are organised all over the country with an intention to increase the brand loyalty of its customers. In short, these are referred to as sales promotion events. For organising such events various expenses are incurred such as booking of space, hiring of consultants and other such expenses.

At such events, amongst other things, the applicant distributes BMW branded lifestyle accessories like duffle bags, T-shirts, golf balls, caps, keychains, etc. These items are given on free of cost (FOC) basis to the attendees at such events.

The applicant company filed this Advance Ruling application before the Haryana AAR to know the eligibility of ITC on the purchase of the above items. The main contentions of the applicant were as under:

•  The applicant’s activity is in the course of business and further it is certainly in furtherance of business being sales promotion activity.

•  Section 16 of the CGST Act allows credit on inward supplies, which are in course or furtherance of business.

•  Section 17(5)(h) also does not affect its claim of ITC.

•  The distribution of the above items is not as a gift but on FOC principle.

• The meaning of gift as per Gift Tax Act was cited.

•  The accessories supplied are embossed with the company’s logo for the purpose of enhancing brand loyalty in existing customers and attracting potential customers.

•  A gift was distinguished from FOC on the ground that a gift is voluntary without consideration whereas FOC distribution is in exchange for a hidden consideration in the form of future customers.

The AAR considered the above arguments vis-à-vis the provisions of the GST Act. Section 17(5)(h) is also reproduced in the order as under:

‘Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following:
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.’

Based on the above analysis, the AAR observed as under:

The applicant has contended that the goods supplied by it in the marketing events are intended to earn consideration in the form of reciprocity from customers and increase in sales and brand value of the company. It has further maintained that the customers invited at such events are existing and potential customers. It is true that the existing BMW customers must have paid some consideration at the time of purchasing BMW motor cars / motor bikes but this consideration was in respect of the supply of motor cars or motor bikes. This consideration had not the remotest of connection with the goods supplied on free of cost basis at the promotional events.

As far as the supply of goods to the potential customers is concerned, the issue of consideration does not arise because the potential customers may not be actual customers / buyers of the applicant company’s motor cars and motor bikes. The company has itself maintained that these free of cost supplies are made with an intention to earn consideration. This statement itself reflects that there is no consideration involved at the time of making of these free of cost supplies. It is also important to refer to the proviso to the definition of consideration as provided under the CGST Act. It contains 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. It is not the case of the applicant that any part of the amount received or to be received from the existing customers or the potential customers, as the case may be, at the time of supply of taxable products by the applicant company is applied to the goods provided on free of cost basis at these promotional events.

Reversal of ITC on finished goods destroyed
M/s Jay Chemical Industries Ltd. (Advance Ruling No. GUJ/GAAR/R/101/2020 dated 14th October, 2020)
The issue in this Advance Ruling was about reversal of ITC on the facts given by the applicant. The applicant is engaged in the business of manufacturing and marketing of dyes and dye intermediates.

The applicant company manufactures Vinyl Sulphone, H Acid, M.P.D.S.A, C.P.C., etc. (collectively known as ‘dye intermediates’) which are finished and marketable products. There was a fire in the warehouse of the applicant and the above materials got destroyed.

The applicant company filed this Advance Ruling application before the Gujarat AAR to know whether reversal of ITC on the inputs consumed in the above destroyed dye intermediates is necessary. The main contention of the applicant was that, as per sections 2(59), 2(62) and 2(63), the definition of Input Tax is very wide. A registered person is entitled to take Input Tax Credit on inputs, input services and capital goods, if the same are used by him in course or furtherance of his business or if such input, input service or capital goods are intended for use in course or furtherance of business.

In respect of the restriction in section 17(5)(h), which prohibits ITC in relation to goods destroyed, it was submitted that the restriction is ‘in respect of goods destroyed’. The judgment in the case of Swastik Tobacco Factory (AIR-1966-SC-1000) was cited to explain that raw goods and finished goods are different. Therefore, it was submitted that ITC cannot be allowed in respect of input destroyed. Once the inputs are utilised in manufacturing of finished goods, inputs have been said to be consumed and have lost their identity and have been said to be used in course or furtherance of business. Therefore, once the finished goods are manufactured and subsequently get destroyed then it cannot be said that input got destroyed. What is destroyed is finished goods and not the inputs. It was further argued that the section nowhere states that ITC, in respect of input utilised for manufacture of finished goods, should be reversed if such goods get destroyed.

Accordingly, it was submitted that once the ITC was availed legitimately, the applicant cannot be asked to reverse the ITC without any specific provision in this regard.

The AAR went through the provisions. He reproduced section 17(5)(h) in the AR:

‘Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following:
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.’

Based on this analysis, the. AAR observed as under:

‘In view of the above, we find that since the said inputs and capital goods have been used in manufacturing of finished goods that have been destroyed, the same are not used in course or furtherance of business. We therefore hold that the ITC taken on the inputs used in the manufacture or production of goods, i.e., intermediate dye, and the ITC taken on input service used in or in relation to the manufacture or production of said goods, shall be reversed’.

Thus, the learned AAR has given a ruling for reversal of ITC in the above situation.

CLASSIFICATION – ‘ODOMOS’
M/s. Dabur India Ltd. [Advance Ruling No. 25 dated 20th February, 2019 (Uttar Pradesh)]
The issue in this AR order was about the classification of ‘Odomos’. The applicant has given facts about the nature of the product. It is a cream meant for application on the skin and it is said to be providing 100% protection against mosquitoes which cause life-threatening diseases like dengue, malaria, etc. It is also submitted that the active compound in it is NNDB. It is the substance that prevents mosquitoes from biting humans. It was further submitted that NNDB is a drug under the Indian Pharmacopoeia. It was also submitted that ‘Odomos’ is manufactured and sold under Drug License. In support of the above submission, further material was also submitted such as the judgment in the case of ICPA Health Products Ltd. vs. CCE, Vadodara 2004 (4) SCC 481 in which the meaning of ‘prophylactic’ is considered to mean medicament, intended to prevent disease, a preventive medicine or course of action.

Therefore, it was submitted that the item is covered by Chapter heading 3004 of Custom Tariff Act (Sl. No. 63 of Schedule II in the GST Act). Accordingly, the prayer was that it should be considered as drugs under GST and liable to tax @ 12%.

The learned AAR referred to the entry in Schedule II, which is reproduced below:

According to the Learned AAR, ‘Odomos’ is not intended to prevent any disease and has no therapeutic properties to be classified under Chapter 30.03 or 30.04. He referred to Chapter 38.08 of the Custom Tariff Act which covers products other than medicaments and used to destroy insects (mosquitoes). It was also observed that ‘Odomos’ performs the above effect by way of odour.

Therefore, the AR held that the correct classification of the product is under Chapter heading 38.08 and not 30.03 or 30.04. Therefore, the item cannot get benefit of lower rate of tax.