RECENT DEVELOPMENTS IN GST

NOTIFICATIONS

(a) Extension of filing GSTR9/9C – Notification No. 80/2020-Central
Tax dated 28^th October, 2020

By the above
Notification the due dates for filing GSTR9/9C for the year 2018-2019 have been
extended till 31^st December, 2020.

(b) Implementation of amendment – Notification No. 81/2020-Central
Tax dated 10^th November, 2020

The Finance (No. 2)
Act, 2019 has made changes in section 39 of the CGST Act which relate to prescribing
of requirements about filing returns. The changes are made by section 97(2)(b)
of the Finance (No. 2) Act, 2019 and the said section provided for prescribing
the date for activating amendments. By the above Notification the amendments
effected by section 97 of the Finance (No. 2) Act, 2019 are brought in
operation from 10^th November, 2020.

(c) New Rules for inward / outward supplies and returns –
Notification No. 82/2020-Central Tax dated 10^th November, 2020, read
with corrigendum dated 13^th November, 2020

The GST Department
now wants to implement certain new provisions / requirements for return filing,
particularly for persons having aggregate turnover up to Rs. 5 crores. The
overall scheme is that registered persons having turnover up to Rs. 5 crores
can file quarterly returns in Form GSTR3B, with invoice furnishing facility.
However, they will be required to pay tax for the first two months of the
quarter as per the scheme of payment. This is known as the QRMP scheme. The
amendments in Rules by the above Notification are mainly to accommodate the
requirements of the above scheme, with other general amendments. By this
Notification, new Rules are inserted / changes in existing Rules are effected.
An indicative gist of changes in Rules can be noted as under:

(i) Rule 59 – An invoice furnishing facility (IFF) is introduced
for the persons liable to file quarterly returns under the QRMP scheme. Now
such quarterly return filers can file selective invoice-wise outward supply to
registered persons on monthly basis for the first two months of a quarter. The
said details can be filed for cumulative portal up to Rs. 50 lakhs in each
month and it can be filed till the 13^th of the respective succeeding
month. The supplies included in IFF should not again be included in the
quarterly GSTR1. The details uploaded by IFF should include invoice-wise
interstate and intra-state supplies made to registered persons and debit or
credit notes issued during the relevant month for invoices issued previously.
The above changes are effective from 1^st January, 2021.

(ii) Rule 60 is substituted. The Rule now provides the manner of
ascertaining inward supplies by recipients. Accordingly, the details of outward
supplies furnished by the suppliers in Form GSTR1 or using IFF, etc., will be
made available to recipients in respective Part A of GSTR2A, Form GSTR4A or
GSTR6A, as the case may be. Sub-Rules are also provided for submitting details
by various categories of suppliers or tax deducted at source or tax collected
at source.

After input as
above from various sources, an auto-drafted statement containing details of ITC
eligible to recipients will be generated in Form GSTR2B. GSTR2B is newly
inserted by this amendment and it is in the form of a statement. The whole
mechanism will apply from 1^st January, 2021.

(iii)  Sub-Rule (6) has
been inserted in Rule 61. Normally, registered persons are liable to file
returns within 20 days from the end of return period; however, relaxation is
provided in case of persons having aggregate turnover up to Rs. 5 crores in the
previous financial year and whose principal place of business is in the state
of Chhattisgarh, Madhya Pradesh, Gujarat, Maharashtra, Karnataka, Goa, Kerala,
Tamil Nadu, Telangana, Andhra Pradesh, the Union Territories of Daman and Diu
and Dadra and Nagar Haveli, Pondicherry, Andaman and Nicobar islands or
Lakshadweep. Such persons can file returns in Form GSTR3B for the period from
October, 2020 to March, 2021 within 22 days from the end of the respective
month.

Similarly, persons
having aggregate turnover up to Rs. 5 crores in previous year but whose
principal place of business is situated in the states of Himachal Pradesh,
Punjab, Uttarakhand, Haryana, Rajasthan, Uttar Pradesh, Bihar, Sikkim,
Arunachal Pradesh, Nagaland, Manipur, Mizoram, Tripura, Meghalaya, Assam, West
Bengal, Jharkhand or Odisha, or the Union Territories of Jammu and Kashmir,
Ladakh, Chandigarh and Delhi, can file such returns in Form GSTR3B for the
period from October, 2020 to March, 2021 within 24 days from the end of the
respective month.

The above splitting
appears to be with the intention of avoiding of load on the last date on the
GST Network.

(iv)  From 1^st January,
2021, Rule 61 is substituted. The return in Form GSTR3B is required to be filed
within 20 days from the end of the respective month. However, for quarterly
filers it can be filed within 22 days or 24 days as per the state in which the
principal place of business is situated. The Table of such segregation
is as under:

The registered
person filing Form 3B on monthly basis or quarterly basis should also discharge
tax liability in such return within such time as applicable to filing of
return.

However, as
mentioned above, there will now be a QRMP scheme for persons having aggregate
turnover up to Rs. 5 crores wherein for first two months’ payment of amounts stated in section 39(7) of the CGST Act will be
required to be made within 25 days of the respective month. The payments are
required to be made in PMT-06.

Any claim of refund
will be considered only after the return in Form GSTR3B of the respective
quarter is filed.

(v)   New Rule
61A is inserted. As per
proviso to section 39(1), persons opting for QRMP should indicate their
preference electronically on common portal within the first day of the second
month of the previous quarter and the last day of the first month of the
current quarter concerned. The option so conveyed should continue till he
becomes ineligible under the scheme or opts to file monthly returns. The
registered person will be eligible to file his option of quarterly return only
if he has filed last due monthly return on date of furnishing the option. The
option can also be exercised quarter–wise.

The person crossing
the turnover of Rs. 5 crores in the current year will be out of the scheme and
such person should start filing monthly returns from the first month of the
quarter succeeding the quarter in which the turnover so exceeds.

Though the stated
object of providing the new QRMP scheme is to simplify the return filing for
small dealers having aggregate turnover up to Rs. 5 crores, but the scheme
appears to be much more complex and complicated. The full details of the scheme
are explained in Circular 143/2020 referred below.

(d)   Due date for filing GSTR1
– Notification No. 83/2020-Central Tax dated 10^th November, 2020

The due date for
filing GSTR1 by a person filing quarterly return will be the 13^th
day from the end of the respective tax period. The above amended position will
apply from 1^st January, 2021.

(e)   Deeming periodicity –
Notification No. 84/2020-Central Tax dated 10^th November, 2020

This Notification provides that registered person/s having aggregate
turnover up to Rs. 5 crores and who have opted for the QRMP scheme shall file
quarterly return in Form GSTR3B from the quarter starting January, 2021.

It is again
reiterated that once the limit of aggregate turnover of Rs. 5 crores is
exceeded, such person would not be eligible to file quarterly returns from the
first month of the succeeding quarter.

Under this Rule the
following periodicity will be auto-decided.

The person referred
to in column (2) above may change the above default option electronically
during the period from 5^th December, 2020 to 31^st
January, 2021. If no change is made, then the above periodicity will be final.

(f)    Manner of payment for
first two months – Notification No. 85/2020-Central Tax dated 10^th November,
2020

By the above Notification,
the Authority seeks to provide the manner of payment in case of registered
persons who opt for the QRMP scheme. In such a case the payment of tax can be
by any of the two methods as under:

(a)   (i) For the first month of the quarter, 35%
of tax liability paid by debiting electronic cash ledger in the return for
previous quarter where quarterly return is furnished. Similarly, 35% for the
second month of the quarter.

       (ii) Tax liability paid by debiting
electronic cash ledger for the last month immediately preceding the quarter
where the return is furnished monthly.

(b)   The other option is of self-assessment
payment. In such a case no payment required in the first month of the quarter
if tax liability of the said month is below the credit available in the
electronic cash / credit ledger or the liability is Nil and in the second month
also if the balance in cash / credit is adequate to cover cumulative tax
liability of the first two months or liability is Nil. The above provisions are
applicable from 1^st January, 2021.

(g)   Rescinding of
Notification No. 76/2020 – Notification No. 86/2020-Central Tax dated 10^th
November, 2020 read with corrigendum dated 13^th November, 2020

By this
Notification, the earlier Notification No. 76/2020-Central Tax dated 15^th
October, 2020 is rescinded. The Notification No. 76/2020 was regarding
extension of due date for persons situated in different states. Since the said
issue is now covered by Rule 61(6) above, the Notification No. 76/2020 is
rescinded.

(h)   Extension of due date for
GSTR04 – Notification No. 87/2020-Central Tax dated 10^th November,
2020

By the above
Notification the due date for filing GSTR04 about job work for the quarter
July, 2020 to September, 2020 is extended till 30^th November, 2020.

(i)    Reduction in monetary
limit for E-invoicing – Notification No. 88/2020-Central Tax dated 10^th November,
2020

By this
Notification the monetary limit for following E-invoicing is reduced from Rs.
500 crores to Rs. 100 crores from 1^st January, 2021. Thus, the
E-invoicing scheme is now applicable, with effect from 1^st January,
2021, to persons having aggregate annual turnover of Rs. 100 crores.

CIRCULARS

Clarification about QRMP scheme – Circular No. 143/13/2020-GST dated
10^th November, 2020

The CBIC has issued
the above Circular in which detailed clarifications about the provisions
related to the quarterly return monthly payment scheme (QRMP) are explained.

ADVANCE RULINGS

Co-operative Housing Society – Liability under GST

M/s Apsara Co-operative Housing Society (MAH/GST/AAAR/RS-SK/28/2020-21
Dated 5^th November, 2020) (Mah.)

This was an appeal
from an advance ruling order dated 17^th March, 2020. The above
society was administrating the property and for this it collected contributions
from the members. The society filed an advance ruling application before the
AAR contesting that it is not in business and that the contribution collected
is not consideration in response to any supply, hence it is not liable under
the GST provisions. It was contended that the society is run on the common
principle of mutuality. There are no two entities to constitute supply. Recent
judgments were also cited. However, rejecting all arguments, the AAR held that
the society is liable to GST.

The society had
also presented a sample invoice regarding collecting contributions and further
posed a question about the correctness of charging GST in the invoice. The
learned AAR had refrained from giving a ruling on the said question on the
ground that it was not within the scope of section 97(2) of the CGST Act.

In its appeal before the AAAR, the society made the following
arguments:

•    That the AAR has failed to
  consider the effect of the judgment of the Supreme Court in the case of State
  of West Bengal vs. Calcutta Club Limited Civil Appeal No. 4189 of 2009 dated 3^rd
  October, 2019, though it was cited before the AAR.

•     That the AAR has based its
  ruling merely on the Circulars and Notifications issued by the CBIC and wrongly
  arrived at the conclusion that the Government intends to levy tax on societies.
  There is no independent finding and correct determination.

•     The contention that the
  society is not covered within the definition of ‘business’ and ‘consideration’
  was reiterated. It was again emphasised that there are no two distinct persons
  to constitute supply.

•     Citing the AAR in the case
  of M/s Lions Club of Poona Kothrud and M/s Rotary Club of
  Mumbai Western Elite, it was contended that the contribution collected
  from members is for meeting administrative expenses and hence, as held in the
  above ruling, the society is also not liable under GST.

•     Various judgments were
  cited to further support the contention of applicability of the principle of
  mutuality in the case of the society.

•     An attempt was made to
  distinguish between commercial and housing societies. Since charges in case of
  a housing society are not optional, it was contended that such society cannot
  be covered under GST.

•     In respect of non-deciding
  of the question about correctness of liability in the sample invoice, it was
  contended that the said question is covered by section 97(2) of the CGST Act.
  The said section provides about deciding liability under GST and hence the
  question posed is well covered within the scope of the said section.

Submission by
respondents:

•    On behalf of the Revenue it
  was submitted that the judgment of the Supreme Court in Calcutta Club Ltd.
  is not applicable as the facts and the provisions are different.

•     It was further submitted
  that all forms of supply are covered in the definition of ‘supply’ and hence
  the scope is wide.

•     Revenue submitted that the
  society charges are towards providing different facilities as given in the
  objects and bye-laws and hence there is supply as well as consideration.

•     The members of the society
  and the society itself are two distinct entities and the contention put forth
  by the appellant society that it is one entity is fallacious.

•     Similarly, the
  applicability of other rulings cited by the appellant society were disputed.

•     It was also submitted that
  profit motive or pecuniary benefits are immaterial for deciding the issue.

•     The ruling of the AAR about
  non-deciding of liability was also defended on the ground that the AR is not
  supposed to compute the liability.

Observations of
the AAAR:

The AAAR considered
the above cross-submission. The main issue about mutuality has been rejected by
the AAAR with the following observations:

‘20. The
appellant has filed a rejoinder and in it has again referred to the Calcutta Club judgment (Supra). We
have already in detail distinguished the judgment. The appellant has referred
to the Supreme Court judgment in the case of Laghu
Udyog Bharti [1999-6-SCC (418)(SC)] to
drive home the point that Notifications and Circulars cannot go beyond the
charging provision. It has already been discussed in this order as to how the
definition of “business” covers supply by a club to its members. The definition
of “supply” under the CGST Act section 7(1) refers to the words “supply by a
person” and the definition of “person” under the CGST Act includes at 9(f) “an
association of persons or a body of individuals, whether incorporated or not,
in India or outside India”. Thus, as said earlier, the provisions are adequate
enough to say that the supply by clubs / society is taxable. The appellant has
further attempted to distinguish between a commercial society and a
co-operative society and has argued that the appellant society is not charging
any charges to its members for allowing the use of any of the facilities and
the payment of the charges is not optional but obligatory. We do not see how
this argument can be of any help to the appellant. The society takes
maintenance from its members as it provides a service. The fact that the
payment is obligatory does not change the nature of the consideration. The
society maintains the premises, looks after the day-to-day maintenance of –
lifts, stairwell, security, car parking, manages the staff / property in order
to ensure the smooth functioning and charges for it. It cannot be therefore
said that no services are provided.’

Further, for the
reference made to the intention of the Legislature, the following observation
is made:

‘22. We would
also like to explore the intention of the Legislature on this aspect as to
whether the society charges are liable to GST or not. For this purpose, we
would refer to the clause (c) of SI. 77 of the Notification No. 12/2017-CT
(Rate) dated 28^th June, 2017 as amended by the Notification No.
2/2018-CT (Rate) dated 25^th January, 2018, which stipulates that the
service by an unincorporated body or a non-profit entity registered under any
law for the time being in force, to its own members by way of reimbursement of
charges or share of contribution up to an amount of Rs. 7,500 per month per
member for sourcing of goods or services from a third party for the common use
of its members in a housing society or a residential complex is exempt from the
levy of GST. Thus, it can clearly be inferred from the provisions of the
aforesaid Notification that any amount, exceeding Rs. 7,500 per month per
member, charged by the housing society from its members for the supply of goods
or services for the common use of its members, would be subject to GST provided
that the aggregate turnover of such society in a financial year exceeds Rs. 20
lakhs. It is noteworthy that the said exemption limit of Rs. 7,500 would not
include the statutory dues / taxes, such as property tax, water tax,
electricity charges, collected by the society from its members on behalf of the
statutory authorities.’

The AAAR rejected
the other contentions based on specific provisions about ‘society’ in the CGST
Act, including for ‘business’, ‘consideration’, ‘supply’ and ‘person’.

Accordingly, the
AAAR confirmed the order of the AAR on the above issue.

The other question
about non-deciding liability as per the sample invoice is also approved by the
AAAR observing that the scope u/s 97(2) of CGST Act is to decide the liability
to GST but not computation thereof.

Thus, the AAAR
confirmed the order of the AAR in toto and rejected the appeal.

Penal
interest – liability under GST

Bajaj Finance Ltd. (Order No. MAH/AAAR/SS-RJ/24A/2018-19 dated 12^th December, 2019.

The issue in the
above Rectification order passed by the AAAR was from the original AAAR order
dated 24^th March, 2019. The appeal before the Maharashtra AAAR arose
from the Advance Ruling order passed by the Maharashtra AAR dated 6^th
August, 2018.

The facts of the case are as follows: The appellant company is engaged in
the finance business. Finance is provided by way of an agreement and it is
recovered from customers by monthly equated instalments or EMIs. The EMI
consists of principal loan amount and interest. The agreement also provides for
levy of interest for late payment of EMIs. This is referred to as penal
interest.

The question posed
before the AAR was whether such penal interest is liable to tax under GST. The
argument was that such penal interest is additional interest and of the same
nature as original interest. In view of this, it was contended before the AAR
that it is exempt vide entry at Serial No. 27 in Notification No.
12/2017-CT (Rate) dated 28^th June, 2017. However, the learned AAR
held that penal interest is for tolerating an act and covered as a separate
service under entry 5(e) of Schedule II of the CGST Act and as such liable to
GST.

The matter was
taken to the AAAR which in its original order dated 24^th March, 2019
upheld that order of the AAR dated 6^th August, 2018.

Thereafter, the
appellant company M/s Bajaj Finance Ltd. filed a Rectification application
bearing number as quoted above. The main plank of argument for Rectification of
appeal order was that subsequent to the above appeal order dated 24^th
March, 2019, the CBIC has issued Circular bearing No. CBEC-102-21/2019-GST
dated 28^th June, 2019.

In the said
Circular, issues about taxability of interest in different situations had been
clarified. The contents of the Circular are reproduced in the Rectification
order which are also reproduced below for ready reference.

‘Various
representations have been received from the trade and industry regarding
applicability of GST on delayed payment charges in case of late payment of Equated
Monthly Instalments (EMI). An EMI is a fixed amount paid by a borrower to a
lender at a specified date every calendar month. EMIs are used to pay off both
interest and principal every month, so that over a specified period the loan is
fully paid off along with interest. In cases where the EMI is not paid at the
scheduled time, there is a levy of additional / penal interest on account of
delay in payment of EMI.

2.    Doubts have been raised regarding the
applicability of GST on additional / penal interest on the overdue loan, i.e.,
whether it would be exempt from GST in terms of Sl. No. 27 of Notification No.
12/2017-Central Tax (Rate) dated 28^th June, 2017 or such penal
interest would be treated as consideration for liquidated damages [amounting to
a separate taxable supply of services under GST covered under entry 5(e) of
Schedule II of the Central Goods and Services Tax Act, 2017 (hereinafter
referred to as the CGST Act), i.e., “agreeing to the obligation to refrain from
an act, or to tolerate an act or a situation, or to do an act”]. In order to ensure uniformity in the implementation of the
provisions of the law, the Board, in exercise of its powers conferred by
section 168(1) of the CGST Act, hereby issues the following clarification.

3.    Generally, the following
two transaction options involving EMI are prevalent in the trade:

Case – 1: X sells a mobile phone to Y. The cost of
the mobile phone is Rs. 40,000. However, X gives Y an option to pay in
instalments, Rs. 11,000 every month before the 10th day of the following month,
over the next four months (Rs. 11,000 *4 = Rs. 44,000). Further, as per the
contract, if there is any delay in payment by Y beyond the scheduled date, Y
would be liable to pay additional / penal interest amounting to Rs. 500 per
month for the delay. In some instances, X is charging Y Rs. 40,000 for the
mobile and is separately issuing another invoice for providing the service of
extending loan to Y, the consideration for which is the interest of 2.5% per
month and an additional / penal interest amounting to Rs. 500 per month for
each delay in payment.

Case – 2: X
sells a mobile phone to Y. The cost of the mobile phone is Rs. 40,000. Y has
the option to avail a loan at an interest of 2.5% per month for purchasing the
mobile from M/s ABC Ltd. The terms of the loan from M/s ABC Ltd. allow Y a
period of four months to repay the loan and an additional / penal interest @
1.25% per month for any delay in payment.

4.    As per the provisions of sub-clause (d) of
sub-section (2) of section 15 of the CGST Act, the value of supply shall
include “interest or late fee or penalty for delayed payment of any
consideration for any supply”. Further, in terms of Sl. No. 27 of Notification
No. 12/2017-Central Tax (Rate) dated 28^th June, 2017 “services by
way of (a) extending deposits, loans or advances insofar as the consideration
is represented by way of interest or discount (other than interest involved in
credit card services)” is exempted. Further, as per clause 2(zk) of the
Notification No. 12/2017-Central Tax (Rate) dated 28^th June, 2017,
“‘interest’ means interest payable in any manner in respect of any moneys
borrowed or debt incurred (including a deposit, claim or other similar right or
obligation) but does not include any service fee or other charge in respect of
the moneys borrowed or debt incurred or in respect of any credit facility which
has not been utilised;”

5.    Accordingly,
based on the above provisions, the applicability of GST in both cases listed in
paragraph 3 above would be as follows:

Case 1: As per the provisions of sub-clause (d) of
sub-section (2) of section 15 of the CGST Act, the amount of penal interest is
to be included in the value of supply. The transaction between X and Y is for
supply of taxable goods, i.e., a mobile phone. Accordingly, the penal interest
would be taxable as it would be included in the value of the mobile,
irrespective of the manner of invoicing.

Case 2: The additional / penal interest is charged
for a transaction between Y and M/s ABC Ltd. and the same is getting covered
under Sl. No. 27 of Notification No. 12/2017-Central Tax (Rate) dated 28^th
June, 2017. Accordingly, in this case the “penal interest” charged thereon on a
transaction between Y and M/s ABC Ltd. would not be subject to GST as the same
would not be covered under Notification No. 12/2017-Central Tax (Rate) dated 28^th
June, 2017. The value of supply of the mobile by X to Y would be Rs. 40,000 for
the purpose of levy of GST.

6.    It is
further clarified that the transaction of levy of additional / penal interest
does not fall within the ambit of entry 5(e) of Schedule II of the CGST Act,
i.e., “agreeing to the obligation to refrain from an act, or to tolerate an act
or a situation, or to do an act”, as this levy of additional / penal interest
satisfies the definition of “interest” as contained in Notification No.
12/2017-Central Tax (Rate) dated 28^th June, 2017. It is further
clarified that any service fee / charge or any other charges that are levied by
M/s ABC Ltd. in respect of the transaction related to extending deposits, loans
or advances does not qualify to be interest as defined in Notification No.
12/2017-Central Tax (Rate) dated 28^th June, 2017 and accordingly
will not be exempt.

7.    It is requested that suitable trade
notices may be issued to publicise the contents of this Circular.’

Thus, it was argued
that the Case 2 above covers the case of the appellant. It was further argued
that the above Circular is clarificatory and being beneficial applies
retrospectively. For the said purpose various judgments including in the case
of Suchitra Components Ltd. (208) ELT-321 (SC) were cited before
the AAAR.

The learned AAAR
considered the above facts and legal position cited by the appellant and
concurred that the Circular is clarificatory and applies retrospectively. In
light of the clarification given in the above Circular, the AAAR observed that
such penal interest is not intended to be covered by entry 5(e) of Schedule II,
i.e., in the nature of tolerating an act but it is additional interest of the
same nature as original interest.

The AAAR modified the appeal order and declared that the penal
interest is not liable to tax under GST.