RECENT DEVELOPMENTS IN GST

NOTIFICATIONS

(1) Registration of IRP / RP – Notification No. 39/2020-Central Tax,
dated 5^th May, 2020

Special procedure
for registration of IRP / RP as distinct person in case of corporate debtors is
provided by the above Notification, which amends the original Notification
dated 21^st March, 2020.

(2) Nil return
by SMS – Notification No. 44/2020-Central Tax, dated 8^th June, 2020

The government has
provided facility of filing Nil returns in form 3B by SMS, for which Rule 67 is
amended by the above Notification. The facility is now effective. This is a
welcome facility for taxpayers.

(3) Merger of Union Territories – Notification No. 45/2020-Central
Tax, dated 9^th June, 2020

Vide Notification No. 10/2020 dated 21^st March, 2020 the
procedure to be followed on account of merger of the Union territories of Daman
and Diu and Dadra-Nagar Haveli till 31^st May, 2020 was prescribed.
By the above Notification, the said procedure is extended till 31^st July,
2020.

(4) Rejection of
refund applications – Notification No. 46/2020-Central Tax, dated 9^th
June, 2020

Section 54(7) of
the CGST Act provides for passing of orders for rejection of refund
applications in part or full. There is a time limit for rejection of such
applications. By the above Notification, it is provided that if the time limit
for rejection, as mentioned in section 54(7), falls between 20^th March,
2020 and 29^th June, 2020, it shall be deemed to be extended to 15
days from the date of receipt of reply to notice or 30^th June, 2020,
whichever is later. This is to overcome the lockdown effect.

(5) Validity of E-way bill – Notification No. 47/2020-Central Tax,
dated 9^th June, 2020

By the above
Notification, the earlier Notification No. 35/2020 dated 5^th May,
2020 is amended. The validity period of E-way bills generated on or before 24^th
March, 2020 (whose validity expired on or after 20^th March, 2020),
is extended till 30^th June, 2020.

CIRCULARS

(i) Registration of IRP / CIRP
– Circular No. 138/08/2020-GST, dated 6^th May, 2020

By the above
Circular, more clarifications and explanations are given about the registration
of IRP / CIRP in case of corporate debtors. The Circular is basically to bring
uniformity and remove difficulties.

(ii) ITC for the purpose of
refund – Circular No. 139/09/2020-GST, dated 10^th June, 2020

The above Circular
is issued to clarify about ITC entitlement in respect of grant of refund. By a previous
Circular, No. 125/44/2019 dated 18^th November, 2019, wide benefit
was given, in the sense that in addition to invoices reflected in Form 2A,
refund was also granted for non-reflected invoices if copies of non-reflected
invoices were uploaded with the application. Thus, the applicant could get full
refund, including non-reflected invoices. However, this new Circular restricts
the ITC entitlement for refund to the extent of the invoices reflected in 2A.
Thus, there is curtailment in refund. This is said to be done in view of Rule
36(4).

(iii) Director’s salary vis-à-vis RCM – Circular No.
140/10/2020-GST, dated 12^th June, 2020

This is one of the
beneficial circulars. Due to advance rulings in different cases, it was
emerging that even in respect of salary paid to a director (who was also an
employee of the company), RCM liability was attracted. By the above Circular,
it is now clarified that no RCM liability is attracted in respect of salary
paid to a director. However, such salary should be accounted as ‘Salaries’ in
the books and which is covered by section 192 of the Income-tax Act for the
purpose of TDS. If any other amounts are paid, such as professional fees, etc.,
the RCM liability will remain. The effect of the adverse AR, particularly of
the Rajasthan AR in the case of Clay Crafts India Pvt. Ltd. (Raj
AAR/2019-20/33; date of order: 20^th February, 2020) gets
nullified.

ADVANCE RULINGS

(A) Rate of tax on ‘Gift vouchers / Gift cards’

Kalyan Jewellers India Limited (Order No. 52/ARA/2019; dated 25^th
November, 2019)

The issue regarding
rate of tax on the above cards was before the learned AAR, Tamil Nadu. There
were different cards and the nature of the cards is described in the AR as
under.

Features of
three different pre-paid instruments

The levy of Central
Excise and service tax did not apply on PPIs. The levy of octroi on ‘Sodexo
Meal Vouchers’ was not sustained by the Hon’ble Supreme Court in the case of Sodexo
vs. Maharashtra.

The party submitted
a copy of a sample gift voucher which had the brand name of the applicant
‘Kalyan’, ‘Gift Voucher’ with the value of the money equivalent. In the terms
and conditions, it states the date of validity of the voucher. The voucher
cannot be exchanged for cash and no refunds will be given. It has to be
produced in original at the store. No duplicate will be issued in case of loss.
It is not a legal tender.

The applicant also
explained accounting entries regarding the vouchers. When a gift voucher is
sold, it is shown on the liability side in ‘Gift voucher liability account’.
When the gift voucher is redeemed, the ‘Gift voucher liability account’ is
debited and ‘sale’ account is credited. The main argument of the applicant was
that the above cards are actionable claim or equivalent to money, being
governed by the Payment and Settlement Systems Act, 2007.

Thus, the argument
of the applicant was that the above cards are excluded from GST vide
Entry 6 in Schedule III to the CGST Act. Citing judgments, including in the
case of Sodexo India Private Limited, it was argued that they are
not goods. Further, citing the judgment in the case of the Delhi Chit
Fund Associations (43 GST 524 SC) it was also contended that it is not
a service.

The learned AAR
considered the above arguments. In relation to the argument that the cards are
actionable claim, he observed as under:

‘In this case, the gift voucher / gift card is an instrument squarely
covered under the definition of “payment instrument” under Payment and
Settlement Systems Act, 2007. It is not a claim to a debt nor does it give a
beneficial interest in any movable property to the bearer of the instrument. In
fact, if the holder of the gift card / voucher loses or misplaces it and is
unable to produce it before the applicant’s stores before the time limit
specified on the card / voucher, the instrument itself becomes invalid. Then
the customer cannot use it to pay for any goods. Thus, it is not an actionable
claim as defined under Transfer of Property Act. It is only an instrument
accepted as consideration / part consideration while purchasing the goods from
the issuer and the identity of the supplier is established in the PPI.’

Thus, the
contention about actionable claim is rejected. The AAR also made reference to
the minutes of the GST Council wherein this issue was discussed. The AAR
observed that the cards are movable property and therefore they are goods. He
held that the applicant is supplying the cards to customers directly or through
a distribution channel, against consideration.

Accordingly, the
AAR held that the cards are liable to GST. About the time of supply, he
observed that the cards are not against identifiable goods; therefore, the time
of supply will be the date of redemption of the card.

Regarding the rate
of tax, the AAR held that the cards are made from either paper or plastic and
can be read electronically. It is held that paper voucher is printed material
and covered by CTH 4911 9990 liable to tax at 12% under item at Sr. No. 132 of
Schedule II of Notification No. 1/2017 CT-Rate dated 28^th June,
2017. In case of plastic cards readable electronically, the AAR held that they
are covered by CTH 8533 and liable to tax at 18% under item at Sr. No. 382 of
Schedule III of Notification No. 1/2017 CT-Rate dated 28^th June,
2017.

Complier’s
note

In the above AR,
the rate of tax is decided as per the media on which the card is supplied, such
as plastic or paper, etc. However, the card itself has no importance. It has
intrinsic value, i.e., it confers the right to the customer to avail goods
against the cards. So the cards can be said to be intangible goods, as they are
conferring rights. Under such circumstances, only one rate should apply to both
types of cards. This aspect has not come up in the above AR and remains open
for future.

(B) Inclusion / exclusion from turnover

Anil Kumar Agrawal (AR No. KAR ADRG 30/2020; dated 4^th
May, 2020)

This application
before the Karnataka AAR was filed by the applicant who was not registered. He
was interested in knowing as to which of the items were part of turnover and
which were not part of turnover. The items presented for determination were as
under:

‘a) Partner’s
salary as partner from my partnership firm

b) Salary as
director from private limited company

c) Interest
income on partner’s fixed capital credited to partner’s capital account

d) Interest
income on partner’s variable capital credited to partner’s capital account

e)  Interest
received on loan given

f)   Interest
received on advance given

g)  Interest
accumulated along with deposit / fixed deposit

h)  Interest
income received on deposit / fixed deposit

i)   Interest
received on debentures

j)   Interest
accumulated on debentures

k)  Interest
on Post Office deposits

l)   Interest income on National Savings
Certificates (NSCs)

m) Interest
income credited in PF account

n)  Accumulated
interest (along with principal) received       on
closure of PF account

o)  Interest
income on PPF

p)  Interest
income on National Pension Scheme (NPS)

q)  Receipt of
maturity proceeds of life insurance policies

r)   Dividend
on shares

s)  Rent on
commercial property

t)   Residential
rent

u)  Capital
gain / loss on sale of shares’

The applicant
submitted his list, saying that income received towards salary as partner of
firm and salary as director are not includible in turnover. It was also
submitted that the rent towards residential property is part of aggregate
turnover for registration.

The AAR referred to
the definition of ‘aggregate turnover’ in the CGST Act and also the meaning of
‘Supply’ as given in section 7 of the said Act. Applying defined criteria, the
AAR held as under in respect of the above items.

In respect of
interest income from different sources mentioned in (c), (d), (e), (f), (g),
(h), (i), (j), (k), (l), (m), (n), (o), (p) in the list given above, the AAR
held that the said income is out of deposits and loans extended by the
applicant. He held that giving loans, etc. is service against consideration in
the form of interest. Such interest is exempt under Entry 27(a) of the
Notification No. 12/2017-Central Tax (Rate) dated 28^th June, 2017.
The AAR also held that the actual amount of loans, deposits, etc. is the value
of service and this is includible in the aggregate turnover for registration.

In respect of
amounts received from the firm, the AAR observed that all documents are not
provided. However, it held that if it is in the form of salary, then it will be
outside the scope of the CGST Act. Further, the share of profit from the firm
is also not includible as it is application of money.

The issue about
salary as director was not decided for want of documents. However, it is
observed that if the income is as a non-Executive Director, then it is part of
aggregate turnover. If the salary is as Executive Director, then it will not be
includible in the turnover. (In this respect the readers can refer to Circular
No. 140/10/2020-GST dated 12^th June, 2020.)

In respect of
rental income for commercial property, the AAR held that it is taxable supply
and part of aggregate turnover. Regarding rental income from residential
property, though it is exempt, it is to be added for deciding the aggregate
turnover.

As for the income
out of dividend on shares and capital gain / loss on shares, the AAR observed
that they are related to securities and since securities are outside the
purview of GST, the above will also be outside GST. In respect of receipt of
money on maturity of insurance policies, it is return of money and there is no
element of service between the policy holder and the insurance company. Thus,
the above items were held to be not includible in the aggregate turnover.

Complier’s
note

In relation to
interest income on loans, deposits, etc., the AAR has held that the actual
value of deposit, loan, etc. will be the value of service. However, the
interest is the consideration for supply and hence such interest should be
value of supply. The above issue requires reconsideration.

(C) Classification of whole wheat parota and Malabar parota

ID Fresh Food (India) Pvt. Ltd. (AAR No. KAR ADRG 38/2020; dated 22^nd
May, 2020)

The applicant was
involved in the preparation and supply of the above items. As per the
applicant, the above products fall in the category of ‘khakhra, plain chapatti
or roti’ covered by Entry No. 99A of Schedule I to the Notification No.
1/2017-Central Tax(Rate) dated 28^th June, 2017 as amended vide
Notification No. 34/2017-Central Tax(Rate) dated 13^th October, 2017
and hence liable to tax at 5%.

The nature of the product is described as under: ‘The product consists
(of) the ingredients of refined wheat flour (maida), RO purified water,
edible vegetable oil, edible vegetable fat and edible vegetable salt. After
adding all the ingredients, the product will be subjected to heat treatment on
a pan or tawa for making it available for consumption.’

The applicant
referred to classification under Custom Tariff Act, 1975 and suggested that the
above products fall under Chapter 1905.

However, the Karnataka AAR held that the
products will not fall in Chapter 1905 but in Chapter 2106. He also held that
Entry 99A cannot cover the above products as they do not fall within the
description given in the said Entry, i.e., ‘khakhra, plain chapatti or roti’.
The AAR held that the products are described as parota and hence they
are neither ‘khakhra, plain chapatti or roti’. The products are further
distinguished on the ground that ‘khakhra, plain chapatti or roti’ are ready
for consumption, whereas the impugned products require further processing
before consumption. Therefore, the learned AAR held that the products do not
fall in Entry 99A of Schedule I.