Category: Recent Developments In GST

A. NOTIFICATIONS

i) Notification No.10/2025-Central Tax dated 13^th March, 2025

Above notification seeks to amend Notification  No. 2/2017-Central Tax dated 19^th June, 2017  which is regarding revision of the Territorial  Jurisdiction of Principal Commissioner/Commissioner of Central Tax, etc.

B. CIRCULARS

(i) Clarification on Rate of tax and Classification of various items under GST – Circular no.247/04/2025-GST dated 14^th February, 2025.

By above circular, the clarifications are given about GST Rates and Classification for various products including SUVs, Popcorn, Raisins, Pepper, and AAC Blocks based on the recommendations of the GST Council in its 55th meeting.

C. ADVISORY

i) Vide GSTN Advisory dated 12^th February, 2025, information is given regarding guidelines on GST registration under Rule 8 of the CGST Rules, 2017.

ii) Vide GSTN Advisory dated 15^th February, 2025, information about introduction of Form ENR-03, allowing unregistered dealers to generate E-Way Bills using unique Enrolment ID, effective 11^th February, 2025, is given.

D. ADVANCE RULINGS

Lease of land vis-à-vis Exemption Anmol Industries Ltd. (AAR Order No. 03/WBAAAR/2024 Dated: 30^th August, 2024 DT. 26^th November, 2024 (WB AAAR)

Earlier there was AR order no.24/WBAAR/2023-24 dated 20^th December, 2023 passed by WBAAR, holding that long-term lease transaction effected by Shyama Prasad Mukherjee Port, Kolkata (SMPK) is not exempted from GST.

The ld. WBAAAR set aside said order and remanded matter back to AAR vide appeal order dated 18^th April, 2024. Thereafter, fresh AR passed by AAR.

This appeal was against fresh AR No. 06/WBAAR/2024-25 dated 29^th July, 2024-2024-VIL-143-AAR. By the said order, the ld. WBAAR ruled that Services by way of grant of long-term lease of land by SMPK to the appellant for the purpose of “setting up commercial office complex’ is not to be covered under entry 41 of Notification No.12/2017 Central Tax (Rate) dated 28^th June, 2017 and, therefore, cannot be treated as an exempt supply.

The facts are that the appellant entered into a leasing agreement with SMPK to take on lease a plot of land at Taratala Road for thirty (30) years for the purposes of setting up a commercial office complex. The appellant was to pay upfront lease premium along with GST @ 18% on consideration of `30,90,11,000/-. The question before AAAR was:

“Whether the upfront premium payable by the appellant towards the services of by way of granting of long-term lease of thirty years, or more of industrial plots or plots for development of infrastructure for financial business by SMPK is exempted under entry 41 of Notification No. 12/2017-CGST (Rate) dated 28^th June, 2017?”

Based on use for infrastructure for financial business, the crux of the contention of the appellant was that the appellant being an industrial unit has fulfilled all the conditions as specified in entry number 41 of Notification No. 12/2017- Central Tax (Rate) dated 28^th June, 2017 from the end of the recipient and hence SMPK should take exemption and should not charge any GST.

The conditions of aforesaid entry 41 are reproduced as under:

“I. The lease period should be of thirty years or more;

II. The property leased should be industrial plots or plots for development of infrastructure for financial business;

III. Service provider must be a State Government Industrial Development Corporations or Undertakings or by any other entity having 20 per cent. or more ownership of Central Government, State Government, Union territory (either directly or through an entity wholly controlled by the Central Government, State Government, Union territory);

IV. Service recipient must be an Industrial Unit.”

The ld. AAAR held that AAR has not discussed the condition mentioned in the first proviso in entry 41 i.e. whether the lease plot is being used for industrial or financial activity in an industrial or financial business area, which is substantial condition for grant of exemption.

The ld. AAAR examined the said issue in detail and found that the appellant is going to set up Commercial Office by setting up such commercial office complex and all the corporate activities including accounting and financial activities will be undertaken there and that such office will be planned to maintain and monitor all the financial records and transactions of the appellant company. The ld. AAAR found that the appellant is contemplating use of plot for financial business based on use of plot for such financial activity. Though finding on above aspect was not there in AR, the ld. AAAR held that under power u/s.101(1), the AAAR can modify AR order and accordingly considered itself as competent to go into above aspect of use for financial business.

In this respect, the ld. AAAR referred to Notice Inviting Tender, NIT No. SMP/KDS/LND/03-2022 dated 15^th March, 2022, in which in para 8.7 the definition of setting up of a Commercial office complex is given as under:

“Setting up of a commercial office complex in a particular plot may be allowed where the listed purposes in the tender include Assembly, Business and Mercantile Buildings and the said land shall be used by the original lessee for own Corporate use and excess vacant space of the said office complex to be let out on lease to other corporate entities who will use the complex for setting up of Business Centre, Business Chambers, Conference Rooms, Office Infrastructure, Cafeteria, Restaurant, Gymnasium, Guest House, hotel accommodation, recreation facilities, pharmacies, diagnostic clinics, retail outlets etc. In other words, the original lessee will be a business integrator where various other stake holders /investors /retailers /service providers will operate under the business integrator (original lessee) as sub-lessees.”

As per clause 8.8 in NIT, it was also found that the plot is not allowable for Industrial building defined as “Any building or structure or part thereof used principally for fabrication, assembly and or processing of goods and materials of different kinds. Such building shall include laboratories, power plants, smoke houses, refineries, gas plants, mills, dairies, factories and workshops”.

Based on above facts, the ld. AAAR observed that when Industrial building itself is not allowed, no stretch of imagination can conclude that industrial activity is allowed under the instant tender. Accordingly, the ld. AAAR held that setting up of commercial office complex has a specific purpose and the same cannot be equated to industrial activity.

Regarding use for “financial activity”, the ld. AAAR observed that “Financial activity” is not defined in the GST Laws and hence meaning to be seen as per common business parlance. The ld. AAAR held that mere maintenance and monitoring of all the required financial records and transactions of a company does not mean financial activity. The ld. AAAR held that every business aims to achieve a profit which occurs because of increase in income and decrease in expenses and for this purpose obviously every business entity undertakes activities which have financial implications. The ld. AAAR held that it is a normal activity for a business and cannot be considered as financial activity implied in NIT. Elaborating this aspect, the ld. AAAR referred to meaning of Financial Service in IBC which indicates financial activity as services like acceptation of deposits and other such independent financial activities. SAC Code 9971 specifying financial services also referred to gather meaning of ‘financial activity’.

Noting above, the ld. AAAR came to the conclusion that the appellant is not providing any of the above Finance Services and hence cannot be considered as carrying out financial activity in a financial business area.

In respect of SMPK being Government Undertaking the ld. AAAR held that though SMPK is audited by the office of the Comptroller and Auditor General of India, it cannot be conclusively regarded as an entity having 20% or more ownership of Central Government.

Accordingly, the ld. AAAR confirmed AR of the AAR and rejected the appeal.

GST on Canteen Facility for Contractual Workers Troikaa Pharmaceuticals Ltd. (AAR (Appeal) Order No. GUJ/GAAAR/APPEAL/2025/07 (in Appl. No. Advance Ruling/SGST & CGST/2022/AR/09) dt.28^th February, 2025)(Guj)

The present appeal was filed against the Advance Ruling No. GUJ/GAAAR/R/2022/38 dated 10^th August, 2022 – 2022-VIL-231-AAR.

The facts are as under:

♦ “the appellant is engaged in the manufacture, sale & distribution of pharma products and is registered with the department;

♦ the appellant has appointed a CSP [Canteen Service Provider];

♦ the appellant provides subsidized canteen facilities to its employees & contractual workers;

♦ the appellant recovers 50% of the amount from the employees;

♦ that as far as security service contract workers is concerned, the canteen service provider raises bill for only 50% of the amount as the rest of the amount is being directly paid by the individual workers to the service provider.”

Based on above facts, the appellant had sought Advance Ruling on the following questions:

1. “ Whether GST shall be applicable on the amount recovered by the company,Troikaa Pharmaceuticals Limited, from employees or contractual workers,when provision of third-party canteen service is obligatory under section 46 of the Factories Act, 1948?
2.  Whether input tax credit of GST paid on food bill of the Canteen Service Provider shall be available, since providing this canteen facility is mandatory as per the Section 46 of the Factories Act, 1948?”

The ld. AAR gave following ruling:

1. “ GST, at the hands of M/s Troikaa, is not leviable on the amount representing the employees portion of canteen charges, which is collected by M/s Troikaa and paid to the Canteen service provider.
2.  GST, at the hands of M/s Troikaa, is leviable on the amount representing the contractual worker portion of canteen charges, which is collected by M/s Troikaa and paid to the Canteen service provider.
3.  ITC on GST paid on canteen facility is admissible to M/s Troikaa under Section 17(5)(b) of CGST Act on the food supplied to employees of the
   company subject to the condition that burden of GST have not been passed on to the employees of the company.
4.  ITC on GST paid on canteen facility is not admissible to M/s Troikaa under Section 17(5)(b) of CGST Act on the food supplied to contractual worker supplied by labour contractor.”

This appeal was filed in respect of denial of ITC on canteen services provided by the appellant to contractual workers and levy of GST on food charges recovered from contractual workers.

To decide the issue, the ld. AAAR referred to provision of Section 17(5) about blocking of ITC and also Circular No.172/04/2022-GST-dated 6^th July, 2022 in which clarifications are given about various issues of section 17(5) of the CGST Act.

Regarding question about levy of GST on receipts for Contractual Workers, the ld. AAAR referred to provisions of Factories Act, 1948 as well as sections 20 and 21 of CTRA,1970.

The appellant was canvassing that statutorily it is the contractor who is required to provide the amenity to the contractual workers in terms of section 16 and the onus shifts on the principal employer i.e. the appellant in case the contractor is not providing the same. The ld. AAAR concurred with above situation that though statutorily it is the contractor on whom the CLRA Act has entrusted the task of providing the amenity and the responsibility shifts on the principal employer i.e. appellant in case the contractor is not providing the same. However, the ld. AAAR observed that section of CLRA provides also that all expenses incurred by the principal employer in providing such amenity may be recovered from the contractor either by deduction from any amount payable under any contract or as a debt payable by the contractor.

From documents submitted the ld. AAAR found that the contractor has been paid the gross amount which includes salary, allowances such as canteen facility, provident fund, etc. The ld. AAAR also did not found averment by the appellant that the contractor has failed to fulfil his statutory obligation so as to shift primary requirement for providing facility on appellant.

The ld. AAAR also noted terms in agreement with Labour Contractor which explicitly states that no relationship of employer-employee is created between the appellant and the workers engaged by the contractor. The ld. AAAR, therefore, held that the clarification at serial no.5, vide circular no. 172/4/2022-GST dated 6^th July, 2022 relied upon by the appellant to aver that no GST amount is leviable on the amount recovered from contractual workers for canteen services is incorrect since the clarification states that GST will not apply when perquisites are provided by the employer to its employees and not in other cases. The ld. AAAR also held that clarification at serial no. 3 of the said circular dated 6^th July, 2022, regarding availment of ITC, would also not be applicable since it is available only in respect of the goods supplied to the employees of the appellant in terms of section 46 of the Factories Act, 1948, which mandates provision of canteen facilities to the employees.

In view of the above, the appeal was rejected, confirming the AR given by AAR.

Classification – Treated Water

Palsana Enviro Protection Ltd. (AAR (Appeal) Order No. GUJ/GAAAR/APPEAL/2025/08 (in Appl. No. Advance Ruling/ SGST & CGST/2023/AR/04) dt.28^th February, 2025)(Guj)

The present appeal was against the Advance Ruling No. GUJ/GAAR/R/2022/47 dated 30^th December, 2022 – 2023-VIL-09-AAR.

The facts are that the appellant, who has been promoted by a cluster of textile processing industries, has set up a CETP [Common Effluent Treatment Plant]. In the said CETP, the appellant recycles & thereafter supplies treated water to its member units for use in their activities. This treated water can be used in non-potable activity. Though the CETP treated water is made free from various impurities, however, even after carrying out the said physical and biological processes the said water is not pure water& cannot be termed as purified water.

The further fact is that CETP treated water is supplied to industries through pipelines. The appellant further claimed that their activity falls within the ambit of Sr. No. 99 of notification No. 2/2017-CT (R), as amended vide notification No. 7/2022-CT (Rate) dtd 13^th July, 2022, as the water obtained from CETP is not ‘purified water’. To substantiate this claim, they have also relied on circulars No. 52/26/2018 dated 9^th August, 2018 & 179/11/2022-GST dated 3^rd August, 2022.

With above background appellant posed following questions before the ld. AAR.

1. “ Whether ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) will be eligible for exemption from GST by virtue of Sl. No. 99 of the Exemption Notification No. 02/2017- Integrated Tax (Rate), dated 28-6-2017 (as amended) as ‘Water (other than aerated, mineral, purified, distilled, medical, ionic, battery, demineralized and water sold in sealed container)’? or
2.  Whether ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) is taxable at 18 per cent b virtue of Sl. No. 24 of Schedule – III of notification No. 01/2017- Integrated Tax (Rate), dated 28-6-2017 (as amended) as ‘Waters, including natural or artificial mineral waters, and aerated waters, not containing added sugar or other sweetening matter nor flavoured (other than Drinking water packed in 20 liters bottles).”

The ld. AAR ruled as under:

1. “ ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) is not eligible for exemption from payment of Tax by virtue of Sl. No. 99 of the exemption notification No. 02/2017-CT (Rate) dated 28^th June, 2017 (as amended) and Sl. No. 99 of the exemption notification No. 02/2017- Integrated Tax (Rate), dated 28^th June, 2017 (as amended).
2.  ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) is taxable at 18% by virtue of Sl. No.24 of schedule – III of notification No.01/2017- CT (Rate) (as amended) and Sl. No. 24 of schedule – III of notification No. 01/2017-Integrated Tax (Rate), dated 28^th June, 2017 (as amended).”

In essence, the AAR held that CETP water as ‘de-mineralized water’, excluded from exemption.

The appeal was against the above ruling.

In appeal, the appellant has reiterated its stand.

The ld. AAAR referred to relevant entries and averment. The appellant has produced laboratory certificate in course of appeal.

Based on sample water of appellant, in certificate it was stated that the water does not meet parameters of demineralized water.

The ld. AAAR declined to accept the said certificate produced by the appellant because, [a] the same was produced at an appellate stage; [b] the certificate nowhere states that the laboratory is an accredited laboratory and [c] there is no mention about the way the sample was drawn.

The appellant had relied upon certain rulings.

The ld. AAAR did not agree with rulings cited before it on ground that rulings by the Authority for Advance Ruling would be binding only on the applicant who sought it, the concerned officer or the jurisdictional officer in respect of the applicant. The ld. AAAR further observed that the Tamilnadu Authority for Advance Ruling has held that treated water obtained from CETP is de-mineralized water and will
therefore not be eligible for the benefit of the notification Nos. No. 2/2017-CT(R) dated 28^th June, 2017 as amended.

In view of above findings, the appeal was rejected confirming the AR passed by GAAR.

Supply of Transportation Service vis-à-vis School Students

Batcha Noorjahan (AAR Order No. 06/ARA/2025 dt.13^th February, 2025)(TN)

The applicant is engaged in the business of plying school buses and providing transportation services to the school students in commuting to their school and back home.

Applicant put up following questions to AAR.

1. “ Whether the services provided by the applicant to the school students by way of transportation of students and staff, shall be considered as the services provided to the school (Educational Institute).
2.  Whether the services provided by the applicant as mentioned above, shall be considered as exempted from GST as per the Serial No. 66 of Notification No. 12/2017 – Central Tax (Rate) dated 28^th June, 2017 or any other applicable provision of the Act.”

The applicant has submitted following aspects of the transaction:

“i) The fees for the transportation of school students are being collected from the students directly as per the agreement with the schools.

ii) There could be a view that since the fees are directly collected from the students, the service recipient is not the school or the Educational Institution.”

As per the provisions of the Act, the services provided to the Educational Institution by way of transportation of students and staff is exempted from GST (Notification No.12/2017). It was further submitted that the applicant is providing services by way of transportation of students and staff though the bus fee is received from the students directly. It was interpretated by applicant that the schools are the service recipients though the consideration is not directly paid by them.

The ld. AAR referred to facts like the applicant has entered into a lease agreement with Alphabet International School vide agreement dated 30.09.2022 for a period of 5 years for the purpose of transporting students and staff of the school only in connection with school activity as provided under clause (8) of Rule 2 of the Tamil Nadu Motor Vehicles Regulations and Control of school buses special rules, 2012.

It was seen from agreement that there was no mention of the consideration part payable by the school to the applicant for providing the vehicle and the services related thereto. There was also no mention in the lease agreement as to how the transportation fees are to be collected, whether by the applicant or by the school.

From the copies of the receipts furnished by the applicant, it was seen that the applicant has directly raised receipt on the student concerned, towards ‘Student Transport Fees’.

The ld. AAR also observed that the applicant is not receiving any payment from the school administration and therefore, no services are rendered to the school by the applicant. The ld. AAR held that the services provided by the applicant to the school students by way of transportation and accordingly, the first question is answered in negative.

Regarding second question the ld. AAR held that the school has outsourced the transport serviceto the applicant and the applicant is directly in receipt of the consideration from the students and accordingly, the service rendered by the applicant to the students is to be considered as ‘Transport of passenger by any motor vehicle’, meriting classification under SAC 9964, attracting GST at 5% without ITC as per Sl.No.8(vi) of Notification No. 11/2017, dated 28^th June, 2017, as amended vide Notification No. 31/2017-Central Tax (Rate) dated 13^th October, 2017.

Since the transportation services are not suppliedto Educational Institutions as provided under Sl. No.66 of Notification No. 12/2017 – Central Tax (Rate) dated 28^th June, 2017, it is not applicable to the applicant. The ld. AAR decided the AR accordingly.

Composite Supply vis-à-vis Mixed Supply

Doms Industries Pvt. Ltd. (AAR (App) Order No. GUJ/GAAAR/APPEAL/ 2025/05 (In Appl. No. Advance Ruling/SGST&CGST/2023/AR/03) dt. 22^nd January, 2025) (Guj)

This appeal was filed against the Advance Ruling No. GUJ/GAAR/R/2022/52 dt.30.12.2022-2023-VIL-03-AAR.

The appellant supplies the goods in a combination with other products viz.

[a] DOMS A1 pencil. This consist of 10 pencils along with a sharpener & eraser.

[b] DOMS Smart Kit. This is a gift pack which consists of a colouring book, two pack of pencils,
one pack of colour pencil, one pack of oil pastels, one pack of plastic crayons, one pack of wax crayons, one eraser, one scale and one sharpener.

[c] DOMS my first pencil kit. It consists of a pencil, eraser, scale and a sharpener.

The applicant held view that he satisfies the four conditions to term the aforesaid supply as ‘composite supply’.

With above background, ruling was sought on following questions:

“(i) Whether the supply of pencils sharpener along with pencils being principal supply will be considered as the composite supply or mixed supply?

(ii) What will be the HSN code to be used by us in the above case.

(iii) Whether supply of sharpener along with the kit having a nominal value will have an impact on rate of tax.

If yes, what will be the rate of tax & HSN code to be used by use.”

The ruling of ld. GAAR dated 18^th October, 2021 held as under:

“(i) the supply of pencils sharpener along with pencils is covered under the category of ‘mixed supply’;

(ii) as discussed in para 21.1 of the impugned ruling.

(iii) yes, the supply of sharpener along with the kit having a nominal value will have an impact on rate of tax. As discussed in para 21.2 and 21.3 of the impugned ruling.”

The appeal was filed against the above ruling.

Appellant made various submission as well as cited case laws.

In appeal, the ld. AAAR observed that the appellant is aggrieved only in respect of their product ‘DOMS A1 pencil’ which consists of 10 pcs of pencil, one eraser and one sharpener and accordingly AAAR restricted scope of appeal to the ruling on above product only.

The ld. AAAR referred to Guidance in Service Tax Education Guide issued by CBIC.

The ld. AAAR also referred to definition of term ‘composite supply’ and ‘mixed supply’ given in Sections 2(30) and 2(74) of CGST Act respectively.

The ld. AAAR concluded its finding in following terms:

“We find that the CGST Act, defines a composite /mixed supply. Additionally, CGST Act, 2017, thereafter, specifies the tax liability in such case wherein a supply falls within the ambit of either a composite /mixed supply. We have already held that the product ‘DOMS A1 pencil’, is a mixed supply, the product not being naturally bundled, not having a principal supply and not supplied in conjunction with each other in the ordinary course of business. Now, for the sake of argument, even if we were to examine the claim of the appellant, we find that the product of the applicant, in question, would not fall either within Rule 3(a) or 3(b) of the GIR, leaving us with the only alternative of resorting to Rule 3(c). The question then which would arise is whether Rule 3(c) of the GRI or Section 8(b), of the CGST Act, 2017, would prevail. It is a trite law that when the section is unambiguous, the averment of the appellant to take the assistance GRI for deciding the nature of supply, classification and rate of tax, is not legally tenable. We therefore, reject this submission of the appellant.”

Accordingly, the ld. AAAR rejected the appeal and confirmed AR given by AAR.

BCAJ Admin

A. NOTIFICATIONS

1. Notification No.06/2024-Central Tax dated 22^nd February, 2024

The above notification seeks to notify “Public Tech Platform for Frictionless Credit” as the system with which information may be shared by the common portal based on consent under sub-section (2) of Section 158A of the Central Goods and Services Tax Act, 2017.

B. ADVISORY / INSTRUCTIONS

a) The GSTN has issued an Advisory dated 21^st February, 2024, giving information about new features of the revamped E-invoice Master Information Portal.

b) The GSTN has issued an Advisory dated 28^th February, 2024 giving information about instances of delay in registration reported by some Taxpayers despite successful Aadhar Authentication in accordance with Rules 8 & 9 CGST Rules, 2017.

c) The GSTN has issued an Advisory dated 8^th March, 2024 giving information about Integration of E-way bill system with New IRP Portals.

d) The GSTIN has issued further Advisory dated 12^th March, 2024 giving information about introduction of new 14A and 15A tables in GSTR-1/IFF.

C. FINANCE ACT, 2024

The Government of India has enacted the Finance Act, 2024 (Act no.8/2024 dated 15^th February, 2024). The Finance Act is with relation to Finance Bill, 2024 (Bill no.14/2024 dated 1^st February, 2024) (reported in the March 2024 issue of BCAJ).

D. ADVANCE RULINGS

57 Hostel vis-à-vis Renting of Residential accommodation
M/s. 2 Win Residency Ladies Hostel (AR Order No. 32/AAR/2023 dated 31^st August, 2023 (TN)

The applicant has submitted that they are providing best hostel facilities to college female students and also to working women as most of the students and working people travel far and wide from their remote villages. The total charges collected for lodging ranges between ₹66 per day to ₹100 per day. Thus, the monthly tariff per student or per inmate ranges between ₹2,000 to ₹3,000 per month per inmate. They provide single-room occupation or double-room sharing or dormitory style of accommodation and rates vary accordingly.

The applicant has raised following questions:

“(1) Whether the hostel and residential is required accommodation extended by the Applicant hostel would be eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-Central Tax (Rate) dated 28^th June, 2017 and under the identical Notification under the TNGST Act, 2017 and also under Entry 13 of Exemption Notification No.9/2017 – Integrated Tax-Rate dated 28th June, 2017 as amended?

(2) Whether the Applicant hostel being eligible for exemption under Sl. No. 12 of Notification-12/2017 (CT-Rate) dated 28^th June, 2017 as amended would at all be required to take registration under the GST Enactments by virtue of the Exemption Notifications as afore-mentioned and also under the provisions of Section 23 of the CGST/TNGST Act, 2017?

(3) Whether any specific tariff entry is applicable to hostels under the Tariff Notification in the event of requirement of registration?

(4) Whether, in the event of the hostel accommodation being an exempt activity, the incidental activity of supply of in-house food to the inmates of the hostel would also be exempt being in the nature of a composite exempt supply?

(5) Whether the judgement of the Division Bench of the Hon’ble Karnataka High Court in the case of Taghar Vasudeva Ambrish – vs- Appellate Authority for Advanced Ruling, Karnataka reported in Manu/KA/0327/2022 — 2022-VIL-110-KAR is applicable to the facts of the applicant?”

The Applicant has interpreted its version on premises, that they have licence to run the residential hostel for boarding and lodging under Section 5 of the Tamilnadu Hostels and Home for women and children (Regulation Act 2014) [hereinafter referred to as the “Hostel Regulation Act”].

Applicant also made reference to definition in Section-2 (e) of the ‘Hostels Regulation Act’ which defines “Hostel” or “Lodging House” to mean “a building in which accommodation is provided for women or children or both either with boarding or not”. Further the term “Home for Women & Children” is defined in section-2 (d) to mean “an institution, by whatever name called, established or maintained or intended to be established or maintained for the reception, care, protection for welfare of women or children or both”: Reference also made to similar provisions in other Acts.

The applicant also referred to Entry No. 12 of Exemption Notification No. 12/2017-Central Tax (Rate) dated 28^th June, 2017 which reads as follows:

Reference is also made to amendment in above notification by Notification under TNGST Act, 2017, Notification 15/2022- Central Tax (Rate) dated 30^th December, 2022 whereby an Explanation is inserted in Column-3 against Entry 12 which reads as follows:

“Explanation — For the purpose of exemption under this entry this entry shall cover services by way of renting of residential dwelling to a registered person where the registration person is Proprietor of a Proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence and to such renting is on his own account and not that of the proprietorship concern.”

Applicant submitted that the occupants or the inmates of the residential hostel are either students or working women who are not registered persons under the GST Enactments and hence the activity of applicant is covered by above exemption notification.

Reference also made to certain judicial pronouncements.

The revenue also gave elaborate reply including that the applicant is rendering services by way of renting of immovable property with a business motive for pecuniary benefit and these services are classified under Heading 9963 (Accommodation, food and beverage services) and hence taxable.

The ld. AAR analyzed the submission of both sides and observed that the term “residential dwelling” has not been defined either under CGST Act or under Notification No. 12/2017.

It was further observed that, generally, renting of residential dwelling involves letting out any building or part of the building by a lessor to a person or family (related persons) against a rent for using rooms which form part of a house as kitchen, bedroom, and living room etc., on the whole as residence. The ld. AAR also observed that a common understanding of the term “residential dwelling” is one where people reside treating it as a home and renting of residential dwelling does not include amenities like food, housekeeping, or laundry etc. In comparison, the ld. AAR observed that a hostel is an establishment which provides living accommodation to a specific category of persons such as students and workers, and it is with intention of providing hotel accommodation which is more akin to sociable accommodation rather than what is typically considered as residential accommodation.

With reference to various licences held by the applicant, the ld. AAR observed that the above provisions are not mandatory or applicable to a typical residential building or “residence dwelling for use as residence”, whereas it is mandatory for a hostel building. In view of above, the ld. AAR observed that the hostel building cannot be considered as residential dwelling but a non-residential complex.

The applicant had strongly placed reliance on the decision of the Hon’ble High Court of Karnataka in the case of Taghar Vasudeva Ambrish vs. Appellate Authority for Advance Ruling, dated 7^th February, 2022 – 2022-VIL-110-KAR, wherein it is held that hostel is a residential dwelling and since it is used for residence, the assessee is eligible for exemption. However, the ld. AAR observed that Special Leave Petition (Civil) No. 29980/2022 has been filed against this order before the Hon’ble Supreme Court of India, and the case is pending for disposal.

Therefore, ld. AAR ruled that exemption is not eligible to the applicant.

Regarding classification the ld. AAR held that the hostel accommodation service will be covered under Tariff heading 9963 and is taxable @ 18 per cent under Sl. No. 7(vi) of the Notification No. 11/2017, Central Tax (Rate), dated 28^th June, 2017, as amended vide Notification No. 20/2019 – Central Tax (Rate) dated 30^th September, 2019.

Regarding question 4, the ld. AAR held that it is not covered by section 97(2) and hence, no ruling is given.

58 Blocked ITC
M/s. VBC Associates (AR Order No. 06/2022/AAAR dated 13^{th<s/sup> October, 2023 (TN)}

Appellant had filed application for AR as under:

“Whether the input tax credit on solar power panels procured and installed is a blocked credit under Section 17(5) (c) and (d) of CGST/ TNGST Act, 2017”.

The ld. AAR vide order No.33/AAR/2022 dated31st August, 2022-2022-VIL-257-AAR has ruled as follows:

“The applicant is not eligible for claim of Input Tax Credit, as per Section 17(2) of the CGST /TNGST Act read with Rule 43(a) of CGST /TNGST Rules 2017, on the Goods/Services used in installation of Solar Power Panels, which are considered as Plant and Machinery.”

The appeal is filed by Tax payer appellant with following grounds:

“> that the original authority exceeded the scope of the question and concluded that Appellant is not eligible to claim ITC under Section 17(2) of CGST Act read with rule 43(a) of CGST Rules 2017;

> that the original authority ignored documents placed (tax invoice etc.,) which evidenced that tax was discharged on the component of electricity recovered from tenants and incorrectly holding that electricity is exempt supply under Notification 2/2017-CT(R);

> that rather than delivering a ruling on the question of blocked credit, the original authority exceeded its jurisdiction in delivering a ruling on apportionment of credit in terms of Section 17(2).”

Based on the above, the appellant had prayed that the AAAR may pass an appropriate order.

The ld. AAAR observed that the Appellant is engagedin the business of maintenance of an immovableproperty in Chennai, have procured, erected and commissioned Solar Power Panels for generation of electricity at their additional place of business at R. Kombai Village, Kujilyambarai Taluka, Dindigul District, Tamil Nadu.

The ld. AAAR also observed that the question raised indicates that the intention of appellant is to claim the ITC on the inputs / input services used in the setting up of Solar Power Plant for generation of electricity at their above additional place of business, in relation to their taxable outward supply viz: maintenance of an immovable property at Chennai.

The ld. AAAR also observed that the main ground of appeal is that the AAR had exceeded its jurisdiction in delivering a ruling on apportionment of credit in terms of Section 17(2) of the CGST Act, 2017, rather than delivering a ruling on the question of blocked credit under section 17(5)(c)/(d).

In this respect, the ld. AAAR observed that section 97(2) of GST Act envisages the specific aspects / subjects in respect of which questions seeking Advance Ruling could be raised before the AAR. The ld. AAAR observed that the subject matter is covered by clause (d) of the Sec. 97(2) of the Act i.e.: “admissibility of input tax credit of the tax paid or deemed to have been paid”. The ld. AAAR, therefore, felt that the said provision does not provide for examination about the inadmissibility of Input Tax Credit under a particular sub-section of the Act relating to Input Tax Credit. The ld. AAAR expressed its view that while a particular sub-section of the Act may or may not allow / disallow the ITC in relation to a specific supply, but may be inadmissible for a given input supply under other provisions of the Act. Since in this case, the ITC is not admissible ab initio, on the goods / services used for erection and commissioning of the Solar Power plant in terms of the Sec. 17(2) of the Act, the ld. AAAR held that the AR given by AAR is correct.

In this relation, the ld. AAAR also made reference to section 17(5)(c) and observed that the said section is not applicable to facts of appellant as the claim is for ITC on solar power panel and not on works contract services.

The ld. AAAR also held that Sec. 17(5) (d) is also not attracted as it applies when ITC is not available on goods or services or both (being inputs) received by a taxable person for construction of immovable property, and in the case of appellant, there is no case of construction of immovable property.

The ld. AAAR held that non-application of section 17(5)(c)/(d) does not mean that the ITC is eligible and it may be hit by other provisions, in this case by section 17(2).

With the above discussion, in respect to the ground that the AAR has exceeded its jurisdiction, the ld. AAAR observed as under:

“8.3 To sum up, as the Appellants are not supplying works contract service for construction of an immovable property and since such their activity does not fall within the ambit of the Section 17(5)(c) or (d) of CGST Act, 2017, the question whether ITC is blocked or otherwise, in terms of the said provisions, does not arise at all and the issue raised before the AAR was totally irrelevant. Moreover, the issue raised is extraneous to provide a ruling, as it is not within the scope of Section 97(2)(d) of the Act i.e. admissibility of input tax credit.”

The ld. AAAR also observed the merits of the admissibility vis-à-vis section 17(2).

The ld. AAAR has referred to facts of transactions. The claim of appellant was that he is supplying Electricity generated by his Solar Panel to tenants as part of maintenance. However, the ld. AAAR noted that the appellant is merely receiving money as reimbursement of upfront payment of the bill paid by it to the Electricity Board. The ld. AAAR observed that so far as electricity generated by appellant is concerned, it is supplied to TN Electricity Board which is exempt supply and hence, ITC on Solar panel is not eligible as per Section 17(2). The appeal is dismissed by ld. AAAR.

59 Classification and applicable rate of tax on ‘Raula Gundi’
M/s. Das and Sons (Order No. 03/ODISHA-AAR/2022-23 dated 22^nd November, 2022 (Odisha)

The facts are that the applicant’s principal place of business is at Mochinda, Salbani, Dist- Keonjhar, Odisha, and he is engaged in manufacturing of “Raula Gundi” (Chewable Gundi, final product) and supplying the same to various betel shops, grocery shops, tea shops etc. under the cover of GST invoices.

Applicant further explained that in preparation of “Raula Gundi”, he purchases different raw materials like tobacco dust, bhajadhania, madhuri, mala zira, mustard oil, epoil, lime etc.

The applicant also explained the manner of production of above product as under:

“a) Tobacco dust is added with lime and Mustard oil and mixed properly.

b) After being mixed, other ingredients like Dhania, Pan madhuri, Mala zira, Epoil Cinnamon & Clove etc. are added to the mixture to prepare the finished product i.e. Raula Gundi.”

The product is sold in the market in 500 gm, 10 gm and 50 gm packets.

he Applicant has requested AAR to consider the product “Raula Gundi” to be classified under HSN Code 24039920, and the applicable GST Rate at 28 per cent (14 per cent CGST & 14 per cent SGST) along with GST Cess @72 per cent.

In hearing, the department representative submitted that the product “Raula Gundi” is classifiable under Tariff Heading 24039910 considering that the predominant ingredient is Tobacco in the making of the Chewable Gundi (Raula Gundi). It was of the opinion that the tax rate of the product “Raula Gundi” which is Chewing Tobacco is 28 per cent (CGST-14 per cent + SGST-14 per cent) and Cess-160 per cent.

The ld. AAR observed about the nature of product as under:

“4.5 We see that the resultant product of the applicant is a combination of various ingredients/raw materials intended for chewing needs and the predominant ingredient is ‘Tobacco dust’ which constitutes about 50 per cent of the product and other ingredients are added to it as per required proportion to make it consumable a. In the process of manufacturing the product, the raw materials used by the Applicant undergo a set of processes and emerge as ‘Chewable Tobacco Gundi’ which is marketable/ consumable. Therefore, the product prepared and sold by the Applicant is a “Manufactured Tobacco product for chewing”. Once it is held that the product is ‘Manufactured Chewing Tobacco’, the classification of the product is under HSN Code 24039910 which specifies ‘Chewing Tobacco’ under the head “2403-Other manufactured tobacco”. The very purpose of consuming this combination is that it has both stimulant and relaxation effects, but regular consumption of the same leads to addiction. It is believed to produce a sense of euphoria in the body which is akin to that of smoking. On this analogy and on common parlance, we would like to consider the product ‘Raula Gundi’ i.e. chewable gundi as ‘Chewing Tobacco’, the principal/ predominant ingredient of which is Tobacco.”

The ld. AAR also referred to Tariff of Chewing Tobacco in HSN and has reproduced the same in AR. With reference to said Tariff also the ld. AAR considered the product as covered by 24039910 as Chewing Tobacco.

In view of above, the ld. AAR held the product as covered by HSN 24039910 liable to GST at 28 per cent plus 160 per cent cess.

60 Classification of service — Agricultural activity or not
M/s. Raj Mohan Seshamani (Trade Name: Sustainable Green Initiative) (App. Case No. 03/WBAAAR/APPEAL/2022
dated 22^nd September, 2022 (WB)

The applicant has entered into agreement with M/s One Tree Planted. As per ‘Project details’ of the said agreement, the aim of the project is “to enhance biodiversity and re-establish ecosystem function to protect the islands and the populace from erosion. While this reforestation activity will offer an immediate economic stimulus, it will also help protect important livelihood functions of local communities while addressing climate adaptation benefits and addressing climate change impact.

In view of the above agreement, the appellant has carried out following activities.

“i) Initially, the land identification is made for the plantation of mangrove seeds & seedlings.

ii) Thereafter, trenches are dug on identified areas fortnight in advance to allow sedimentation for planting of the mangrove seeds, propagules and seedlings.

iii) The seeds are then collected from the mud lands or water bodies nearby. Sometimes, as per requirement of different species of mangroves, survivability is checked in nearby nurseries.

iv) Planting of Seeds & seedlings in the land identified and allotted by State Governments and also by the local people.

v) Local people are engaged for planting activity of these seeds and seedlings into the trenches. Planting activity is done during monsoons and low tide.

vi) Post plantation of seeds and seedlings, local people are engaged to safeguard the fenced areas and mangroves are monitored for 3 to 5 years to ensure survival.

vii) Periodic re-planting is done to make up for plant mortality.”

Based on above, the appellant had posed following questions before ld. AAR.

“What would be SAC Code & GST Rate for the outward supply made by the applicant, in case of mangroves being cultivated and nurtured at coastal communities?”

The appellant was of view that the above-described activity should be covered under Sl. No. 24 of the Notification No. 11/2017- Central Tax (Rate) dated 28^th June, 2017 having SAC 9986 and therefore, shall attract Nil rate of tax.

The ld. AAR had observed that the appellant does not provide such services for food, fibre, fuel, raw material or other similar products or agriculture produce but the sole object of the services is to enhance biodiversity and re-establish ecosystem function to protect the islands and the populace from erosion.

Therefore, the ld. AAR disagreed with appellant and ruled as under:

“Supply of services for plantation of mangrove seeds and seedlings in coastal areas shall be covered under Sl. No. 32 of Notification No. 11/2017- Central Tax (Rate) dated 28/06/2017 having SAC 9994 and therefore shall attract tax @ 18 per cent (CGST @ 9 per cent + WBGST @ 9 per cent or IGST @ 18 per cent).”

This appeal is filed against above AR.

The challenge was made on various grounds, including the meaning of ‘agriculture’ as per Hon. Supreme Court, the overall effect of activity on Society and benefit of it to society.

The ld. department representative submitted that the appellant is doing activity only upon receiving a contract and it does not support services for food, fibre, fuel, raw material or other similar products or agricultural produce.

Based on the above propositions, the ld. AAAR observed that the appellant has entered into contract with foreign organizations for plantation of mangrove seeds and seedlings in coastal areas of the country with the sole purpose of enhancing biodiversity and re-establish ecosystem function to protect the islands and the populace from erosion.

The ld. AAAR concurred with department that ‘support services to agriculture, forestry, fishing, animal husbandry’ is applicable only if it is relating to cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products.’

Since in present case, the appellant is engaged in business of cultivation, planting and nurturing of mangrove seeds and seedlings for the primary purpose of environmental protection by way of enhancing biodiversity and re-establishing the ecosystem functions and such services are not related to cultivation of plants for food, fibre, fuel, raw material or other similar products, the ld. AAAR justified the AR and dismissed the appeal.

61 GST liability on charges exceeding ₹7,500 in case of RWA
M/s. Prinsep Association of Apartment Owners (Case No. WBAAR-21 of 2023
dated 31^st August, 2023 (WB)

The applicant is an Association of Persons (AOP, for short) registered with Association of Apartment Owners under the West Bengal Act XVI of 1972, whose primary functions are to:

(i) raise funds;

(ii) provide for maintenance, repair and replacement of the common areas and facilities of the property and payments thereof;

(iii) provide for proper maintenance of accounts;

(iv) provide for and do any other thing for the administration of the property in accordance with the Act and bye-laws.

The questions raised before AAR are as under:

“(1) Where monthly contribution charged to a member exceeds INR 7500 per month, whether the applicant can avail the benefit of Notification No. 12/2017 dated 28.06.2017 (Sl. No. 77) read with Notification No. 02/2018 dated 25.01.2018 which provide for exempting from tax, the value of supply up to an amount of R7,500 per month per member? In other words, whether tax would be charged over and above INR 7,500 or the total amount collected from members.

(2) Whether applicant is liable to pay CGST/SGST on amounts which it collects from its members for setting up a corpus fund for future contingencies / major CAPEX. Whether such fund from members will come under the definition of supply and liable to be taxed?

(3) Whether the applicant is liable to pay CGST/SGST on collection of common area electricity charges paid by the members and the same is recovered on the actual electricity charges?”

In respect of exemption up to ₹7500, applicant referred to definition of ‘supply’ given in section 7 as also entry 77 in above notification no.12/2017 read with notification no.2/2018. It was submitted that due to above legal position the supply of services by RWA (unincorporated body or a registered non-profit entity) to its own members by way of reimbursement of charges or share of contribution up to an amount of ₹7,500 per month per member is exempt from payment of tax and only amount in excess of ₹7500 is taxable.

The judgement of Hon. Madras High Court in case of Greenwood Owners Association vs Union of India [2021] 128 taxmann.com 182 (Madras) — 2021-VIL-523-MAD cited, wherein the Hon’ble Court has held that exemption up to ₹7,500 is available and only amount in excess of ₹7,500 is liable to GST.

Regarding contribution to corpus fund the applicant referred to definition of ‘goods’ and ‘service’ and sought to argue that where members of Association contribute such money as Corpus Fund (other than monthly/Quarterly maintenance) for future contingencies or development of Society, the same is transaction in money and not liable to GST.

In relation to common electricity charges, it was submitted that the same is recovered on actual basis and hence the same should be kept out of purview of GST. Reliance placed on the advance ruling given by the Telengana Authority for Advance Ruling in the case of Jayabheri Orange County Owners Association – 2022-VIL-158-AAR.

The revenue opposed all above submissions.

The ld. AAR referred to clarification given by the Tax Research Unit, Department of Revenue, Ministry of Finance vide Circular No.109/28/2019-GST dated 22.07.2019 [West Bengal Trade Circular No. 30/2019 dated 31.07.2019] in which the above issue, whether tax is payable only on the amount exceeding ₹7,500 or on the entire amount of maintenance charges, is clarified as under:

“The exemption from GST on maintenance charges charged by a RWA from residents is available only if such charges do not exceed ₹7,500 per month per member. In case the charges exceed ₹7,500 per month per member, the entire amount is taxable. For example, if the maintenance charges are R9,000 per month per member, GST @18 per cent shall be payable on the entire amount of ₹. 9,000 and not on [₹9,000 – ₹7,500] = ₹1,500.”

The ld. AAR also made reference to comments of the Fitment Committee from the Agenda for the 25th GST Council Meeting, where in the proposal is fixed for exemption up to ₹7500 on the basis that the person paying more than above limit can afford payment of GST.

Regarding the judgment of Madras High Court in Greenwood Owners Association, the ld. AAR noted that the matter is before the Division bench in an appeal petition filed by the Department in case of Union of India vs. M/s TVH Lumbini Square Owners Association.

Based on the above findings, the ld. AAR held that the tax is payable on the whole amount.

Regarding the tax on corpus fund (also referred to as sinking fund), the ld. AAR observed that sinking fund is created in order to meet future contingencies, e.g., to meet the expenses for structural repairing, reconstruction work, etc. It is observed that the members contribute to the sinking fund with an agreed condition that the RWA will provide some specific services in future, as and when required out of the said fund.

Accordingly, the ld. AAR held that the amount collected by the applicant from its members towards sinking fund is only meant for meeting expenses for future supply of services and, therefore, they cannot qualify as a deposit. Accordingly, such a collection was held taxable.

Regarding collection of electricity charges, the ld. AAR referred to Circular No. 206/18/2023-GST dated 31^st October, 2023 in which it has been clarified that where the electricity is supplied by the Real Estate Owners, Resident Welfare Associations (RWAs), Real Estate Developers etc., as a pure agent, it will not form part of value of their supply. Further, when they charge for electricity on an actual basis, that is, they charge the same amount for electricity from their lessees or occupants as charged by the State Electricity Boards or DISCOMs from them, they will be deemed to be acting as a pure agent for this supply.

The ld. AAR observed that in the present case, the applicant collects the electricity charges consumed for the common area from its members on a pro-rata basis and the amount collected on account of consumption of electricity has not been shown separately in the said invoice. Accordingly, the ld. AAR held that electricity is supplied bundled with supply of goods and services sourced from a third person for the common use of its members, and it forms a part of composite supply where the principal supply is the supply of common area maintenance services. Accordingly, the ld. AAR held that such collection is liable to GST.

Accordingly, all three questions ruled against the applicant.

BCAJ Admin

(Recent Developments in GST is a new feature
starting this month. It will cover select important proposals, notifications,
amendments, circulars, advance rulings, etc. in the field of Goods and Services
Tax. The column by the same authors titled ‘VAT’ is discontinued)

DECISIONS TAKEN IN 39^TH MEETING OF GST COUNCIL

The GST Council, on 14^th March, 2020, took several
important decisions. Here are some key ones:

®   The E-invoice and QR code requirement deferred
to 1^st October, 2020. [Notification Nos. 13/2020 and 14/2020
dated 21^st March, 2020.]

®   New returns implementation also deferred to 1^st
October, 2020.

®   Date of filing Annual Return in Form GSTR9 and
Audit Reconciliation Statement in GSTR9C for F.Y. 2018-19 extended till 30^th
June, 2020. [Notification No. 15/2020 dated 23^rd March, 2020.]

®   New facility to ‘Know Your Supplier’ to be
introduced on site.

®   Restrictions to be brought in on passing of
ITC in case of new registrations.

®   Time for filing applications for revocation of
cancellation of registrations to be extended till 30^th June, 2020
for all cancellation orders passed on or before 14^th March, 2020.

®   Refund claims allowed across financial years
to facilitate exporters.

®   Extension of present exemptions from IGST and
Cess on the imports made under the AA/EPCG/EOU schemes extended up to 31^st
March, 2021.

®   Special procedure for corporate debtors under
the provisions of the IBC, 2016 who are undergoing the Corporate Insolvency
Resolution Process so as to enable them to comply with the provisions of GST
laws during the CIRP period.

®   Finalisation of e-Wallet scheme up to 31^st
March, 2021.

®   A few changes are also proposed in the GST
rates.

CIRCULARS

(a) Apportionment of ITC in cases of
business reorganisation u/s 18(3) of the CGST Act read with Rule 41(1) of the
CGST Rules.

[Circular No. 133/03/2020 dated
23^rd March, 2020.]

(b) Appeals during non-constitution
of the Appellate Tribunal.

[Circular No. 132/02/2020 dated
18^th March, 2020.]

(c) Special procedure for corporate debtors
under the provisions of the IBC, 2016 undergoing the Corporate Insolvency
Resolution Process.

[Notification No. 11/2020 Central
Tax dated 21^st March, 2020 and Circular No. 134/04/2020 dated 23^rd
March, 2020.]

CGST RULES AMENDMENTS

(i)  Procedure
for reversal of ITC in respect of capital goods partly used for affecting
taxable supplies and partly for exempt supplies under Rule 43(1)(c).

[Sub-Rule amended w.e.f. 1^st
April, 2020. See Notification No. 16/2020 dated 23^rd March,
2020.]

(ii) GSTR9C (furnishing of audited
annual accounts and reconciliation statement) for F.Y. 2018-19 applicable to
only those registered persons whose aggregate turnover during F.Y. 2018-19 has
exceeded Rs. 5 crores.

[Amendment to Rule 80(3) of CGST
Rules, 2017.]

(iii) Ceiling to be fixed for the
value of export supply for the purpose of calculation of refund on zero-rated
supplies.

[Amendment to Rule 89 of CGST
Rules, 2017.]

(iv) To allow for sanction of refund
in both cash and credit in case of excess payment of tax.

[Amendment to Rule 92 of CGST
Rules, 2017.]

(v) To provide for recovery of
refund on export of goods where export proceeds are not realised within the
time prescribed under FEMA.

[New Rule 96B inserted in CGST
Rules, 2017.]

(vi) To operationalise Aadhaar
authentication for new taxpayers.

[Sub-Rule 4A inserted in Rule 8
of the CGST Rules, 2017 w.e.f. 1st April, 2020. Rule 9 and Rule 25 also amended
from the same date.]

RELIEF MEASURES

A press release dated 24^th
March, 2020 announced certain relief measures relating to statutory compliances
in view of COVID-19:

1. Those
having aggregate annual turnover less than Rs. 5 crores can file GSTR3B due in
March, April and May, 2020 by the last week of June, 2020. No interest, late
fee or penalty to be charged.

2. Others
can file returns due in March, April and May, 2020 by the last week of June,
2020 but the same would attract reduced rate of interest @ 9 % per annum from
15 days after due date (current interest rate is 18 % per annum). No late fee
and penalty to be charged if complied before / till 30^th June, 2020.

3. Date
for opting for composition scheme is extended till the last week of June, 2020.
Further, the last date for making payments for the quarter ending 31^st
March, 2020 and filing of return for 2019-20 by the composition dealers will be
extended till the last week of June, 2020.

4. Due
date for issue of notice, notification, approval order, sanction order, filing
of appeal, furnishing of return, statements, applications, reports, any other
documents, the time limit for any compliance under the GST laws where the time
limit is expiring between 20^th March, 2020 and 29^th June,
2020, shall be extended to 30^th June, 2020.

5. Necessary
legal circulars and legislative amendments to give effect to the aforesaid GST
relief shall follow with the approval of the GST Council.

INTEREST ON NET CASH LIABILITY

One of the important decisions taken
at the 39^th meeting of the GST Council is about liability to pay
interest by registered persons. Under the GST laws, interest is levied u/s 50
of the CGST Act. Section 50 reads as under:

‘(1) Every person who is liable
to pay tax in accordance with the provisions of this Act or the rules made
thereunder but fails to pay the tax or any part thereof to the Government
within the period prescribed, shall for the period for which the tax or any
part thereof remains unpaid, pay, on his own, interest at such rate, not
exceeding eighteen per cent., as may be notified by the Government on the
recommendations of the Council.

(2) The interest under
sub-section (1) shall be calculated in such manner as may be prescribed from
the day succeeding the day on which such tax was due to be paid.

(3) A taxable person who makes an
undue or excess claim of input tax credit under sub-section (10) of section 42,
or undue or excess reduction in output tax liability under sub-section (10) of
section 43, shall pay interest on such undue or excess claim, or on such undue
or excess reduction, as the case may be, at such rate not exceeding twenty-four
per cent, as may be notified by the Government on the recommendations of the
Council.’

The issue arose mainly on the
interpretation of section 50(1) which contemplates the levy of interest on
failure to pay tax within the prescribed period. The GST authorities interpreted
the above section to mean that interest is payable on gross outward liability.

Due to adjustment of ITC against
outward liability, the actual cash payment may be nil or less than the outward
liability. However, the authorities (mis)interpreted this to levy interest on
gross outward liability, i.e., without adjustment of ITC, for delayed period.

The matter had gone to different
High Courts. The Telangana High Court in the case of Megha Engineering
& Infrastructures Ltd. (2019-TIOL-893-HC Telangana-GST) upheld the
view of the GST authorities. The Court was of the opinion that ITC becomes due
to the taxable person upon filing return and not before. Therefore, the Court
held that the gross tax remained payable till the filing of return and,
accordingly, upheld interest liability on gross outward liability.

However, the Madras High Court took
a different view in the case of Refex Industries Limited
(2020-TIOL-382-HC-Mad-GST) and, considering the amendment in section
50(1), held that the interest is payable on cash payment and not on the ITC
component.

In the CGST Act an amendment has
been effected in section 50(1) by inserting the following proviso in
2019; it reads as under:

‘Provided that the interest on
tax payable in respect of supplies made during a tax period and declared in the
return for the said period furnished after the due date in accordance with the
provisions of section 39, except where such return is furnished after
commencement of any proceedings under section 73 or section 74 in respect of
the said period, shall be levied on that portion of the tax that is paid by
debiting the electronic cash ledger.’

However, the said section has not
yet been brought into operation. Therefore, confusion prevailed, more
particularly about the period up to implementation of the above proviso
as there is no mention about the date of application of the same. Besides,
although the proviso debars the application of the said proviso
in case of proceedings under sections 73 and 74, it is felt that there should not
be such exclusion in the matter of interest.

In its above meeting, the GST
Council has taken the decision to make interest payable on net cash liability
and also clarified that the said position will apply from 1^st July,
2017.

CONCLUSION

The above decision about interest is
most welcome and has been long awaited. Taxable persons have already started
receiving notices for huge amounts as per interest calculated on gross
liability. However, now the issue has been cleared and will bring much-awaited
respite to taxable persons.

Keeping in view
the intention of charging interest on net cash liability, it is also expected
that the said position will be made applicable even if the proceedings are u/s
73 or 74. We have to wait for the actual provision for clarity. The authorities
should bring in the provision concerned or make necessary changes in the above proviso
at the earliest.

BCAJ Admin