RECENT DEVELOPMENTS IN GST

NOTIFICATIONS

(a)   Waiver of penalty – Notification No.
89/2020-Central Tax dated 29^th November, 2020

The Government
has granted immunity from levy of penalty u/s 125 in relation to non-compliance
of requirement as per Notification No. 14/2020 dated 21^st March,
2020. The Notification No.14/2020 is about QR code on invoices. As per the
above Notification dated 29^th November, 2020, the penalty is waived
for non-compliance during the period from 1^st December, 2020 to 31^st
March, 2021 with a further condition that there should be compliance from 1^st
April, 2021.

(b) 8-Digit HSN
code – Notification No. 90/2020-Central Tax dated 1^st December, 2020

By the above
Notification the Government has specified a list of certain items (chemicals,
etc.) and also specified 8-digit HSN code against the said items. It is further
provided that in respect of specified commodities the 8-digit HSN code should
be mentioned on tax invoices.

CIRCULARS

Waiver from recording of UIN on the invoices – Circular No.
144/14/2020-GST dated 15^th December, 2020

Vide the above Circular it is informed that there is a decision to give
waiver from recording of UIN on the invoices issued by the retailers / suppliers
pertaining to the refund claims from April, 2020 to March, 2021, subject to the
condition that the copies of such invoices are attested by the authorised
representative of the UIN entity and the same are submitted to the
jurisdictional officer.

ADVANCE RULINGS

Classification
– ‘made up’ from fabrics

M/s Shivalika
Enterprises (Order No. HP-AAR-10/2020 Dated 20^th October, 2020) (HP)

In the above
advance ruling the issue before the learned AAR was about Classification of the
following products under GST:

a) Non-woven
fabrics,

b) Products
made of non-woven fabrics, viz.:

Non-woven
fabric bag

3-ply mask

Surgical cap

Surgical gown

Surgical shoe
cover

The raw
materials and the process of making non-woven fabric are narrated in the AR as
under: ‘The primary raw materials for non-woven fabrics are polypropylene
granules, colour master batches and filter compounds. These raw materials are
sucked through vacuum, heated, passed through an extruder and melted. The
material thus obtained is filtered and passed through the spinning unit to
obtain a continuous single filament which is called polypropylene filament. The
filaments are lapped on each other on a lapper and then subjected to thermal
bonding to form the polypropylene spun-bonded non-woven fabric.’

The applicant
has sought Classification about the product non-woven fabric. It has also
sought further Classification of products made from the non-woven fabric.

For the above
purpose the AAR made reference to Chapter 63 of the Customs Tariff which covers
textile made-up articles. He also made reference to the meaning of ‘made up’ as
given in Section Note 7 of Section XI of the Customs Tariff.

Based on the above meaning, the AAR observed that non-woven bag is made
up of textile articles. The AAR further observed that the sacks and bags made
up of textile material, including those made of man-made textile materials such
as polypropylene strips, are covered by Chapter Heading 6305, specifically in
Tariff Item 6305 3300.

As for the
other items, the AAR referred to different chapter heads and observed that the
disposable gowns made of non-woven fabric designed for use in hospitals, etc.,
would fall in Chapter Heading 6210. Disposable surgical caps were held as
covered by Chapter Heading 6505. And surgical masks and shoe covers were held
as covered by Chapter Heading 6307.

The applicant
also wanted to know whether the Classification will change if the non-woven
fabric itself is also manufactured in same unit. The AAR held that the Classification
of product depends upon the raw materials used in the manufacturing process and
the final product formed. Whether the raw material is manufactured in the same
unit or a different one does not have any effect on the Classification.

Accordingly,
the learned AAR classified the products as under:

Non-woven
fabric, which is made using PP granules: Chapter Heading: 5603.

Classification
of products made of non-woven fabric:

Classification
– OIDAR Services

M/s Principal
Commissioner of Central Tax, Bangalore West (Order No. Kar/ADRG-37/2020 Dated
22^nd May, 2020) (Kar.) (AAAR)

This was an
appeal against the Advance Ruling order passed by the learned ARA, Karnataka.
The appeal was filed by the respondents and the original applicant is the
respondent in this appeal.

The facts in
brief are as follows: The original applicant, M/s NCS Pearson Inc. is engaged
in the provision of computer-based tests (also referred to as ‘exams’)
administration solutions to its clients (test sponsors) like education
institutes, etc.

There are three
types of services:

Type 1 service is
self-administrated by the candidates (test-takers) and is wholly digital in
nature. This service was held as ‘Online Information and Database Retrieval’
services (OIDAR) and the Revenue has no dispute about it.

In Type 2
service, the tests are similar to Type 1.

However, the
difference is that the test taker has to go to the test centre where the
identity will be verified by the administrator and the validation of test
registration and appointment of test taker will be seen by the administrator.
There will be monitoring by an invigilator. The results are given immediately
on completion of the test.

Type 2 service is also classified as OIDAR by AAR and there is no dispute
about this part of the ruling also.

Type 3 service was decided to be not OIDAR service by the learned AAR. The
Revenue was aggrieved by this (the above) part of the ruling and hence this
appeal was filed before the Karnataka Appellate Authority for Advance Ruling
(AAAR).

Before the AAAR
the Revenue highlighted the facts leading to hold the service as OIDAR, whereas
the original applicant highlighted how the AR is correct.

The AAAR first
referred to the meaning of OIDAR as given in section 2(17) of the IGST Act,
2017. After an analysis of the definition, the AAAR observed that the following
essential ingredients are required to be fulfilled for a service to qualify as
OIDAR:

a)         The service is to be delivered over the
internet or an electronic network,

b)         The supply of the service is essentially
automated,

c)         The service involves minimal human
intervention, and

d)         The delivery of the service is
impossible in the absence of information technology.

The AAAR
referred to the nature of the Type 3 service and noted as under:

‘The candidate
registers for the test online and remits the registration fees also online. The
test is taken by the candidate at designated test centres in India where the
candidate is assigned a computer workstation and the entire duration of the
test is administered and supervised by a physical invigilator as well as an
online proctor. The candidate accesses the test electronically via the internet
at the test centre. The format of a Type 3 test involves a mixture of
multiple choice questions and analytical writing assessment questions, i.e.,
essay-based questions. On completion of the test, the Quantitative and Verbal
elements of the test (multiple choice questions) are scored based on a computer
algorithm and the candidate is immediately given an indicative score report
which provides the score only for the multiple choice questions of the test.
The score of the essay-based questions involving Integrated Reasoning and
Analytical Writing elements do not form part of the indicative score. The essay
responses are sent by the respondent to their scoring entity in the United
States of America where the evaluation of the essays is done independently by a
professional human scorer as well as a computer programme known as an Automated
Essay Scoring system (AES)…

Once the
scorers (human as well as the AES) have completed scoring the essay, then the
final score is an average of the human score and the AES score if the scores
are within a one-point difference. For example, if the human scorer returns a
score of 5 and the AES rates the essay at 4, then the final score will be 4.5.
If the difference between the human scorer and the AES is more than one point,
then the essay is always routed to an expert human scorer and the expert
scorer’s decision becomes the final score that is returned to the test taker.’

After examining
the nature of the Type 3 service, the AAAR further examined the extent
of human intervention. If such intervention is minimal, it will still be an
OIDAR. However, if such intervention is not minimal, then the service will not
be an OIDAR.

The learned
AAAR observed as under:

‘There is no
dispute on the fact that there is an element of human intervention involved in
the process of scoring the essay responses in the Type 3 test. What
needs to be decided is whether the extent of human intervention is “minimum” or
not. Since there are no guidelines in Indian laws regarding the concept of
minimum human intervention in electronically provided services, we refer to the
European Commission VAT Committee Working Paper No. 896 wherein the notion of
“minimal human intervention” was discussed in the context of determining
whether or not a service can be said to fall within the definition of
electronically supplied services. The European VAT Committee had agreed that
for the assessment of the notion of “minimal human intervention’, it is the
involvement on the side of the supplier which is relevant and not that on the
side of the customer. We have already detailed the entire process involved in
conducting the Type 3 test and it is seen that scoring by a human scorer
is just one of the processes involved in a computer-based test.

One of the
major benefits of a computer-based test is the facility of obtaining immediate
grading. While grading of multiple choice questions is done instantaneously
using an algorithm, grading of essays involves the use of AES (Automated Essay
Scoring) which is a specialised computer programme to assign grades to essays.
The respondent has an entity in the United States which has developed an AES
for reliable scoring of essay responses in a computer-based test. How does one
know that the automatic scoring system works well enough to give scores
consistent with consensus scores from human scorers? Any method of assessment
must be judged on validity, fairness and reliability. An AES would be
considered valid if it measures the trait that it purports to measure and it
would be considered reliable if its outcome is repeatable. Before computers
entered the picture, essays were typically given scores by two trained human raters.
If the scores differed by more than one point, a more experienced third rater
would settle the disagreement. In this system, reliability was measured by the
degree of agreement among the human raters. The same principle applies to
measuring a computer programme’s performance in scoring essays.

An essay is
given to a human scorer as well as to the AES programme. If the AES score
agrees with the score given by the human scorer, the AES programme is
considered reliable. A machine-human score correlation serves as a good
indicator whether the AES is returning a stable consensus score of the essay.
Therefore, the role of the human scorer is in effect a means to ensure the
reliability of the AES programme. We do not discredit the importance of a human
scorer in the process of assessment of essay responses. However, the focus here
is on a computer-based test where the intent is to also assess the performance
of the candidate using an automated system. The reliability of the AES is
validated by the near agreement to the score given by the human scorer. For
this reason, we hold that the involvement of the human element in the
assessment of essay responses is well within the realm of “minimum human
intervention”’.

Observing as above, the learned AAAR reversed the ruling of the AAR on
the above issue and held that the Type 3 service is also an OIDAR. The
taxation under GST is required to be seen accordingly. In case of import of
OIDAR, the tax is payable on RCM basis with certain exemptions.

Indian journalism developed no reporting tradition; it
often reported on
India as on a foreign country
— 
V.S. Naipaul, India: A Wounded Civilization