Tax Vista Your weekly tax recap Edn. 18 - 19 October, 2020 By Dr. G. Gokul Kishore

Education Cesses credit not eligible for transition to GST - Madras HC

Education Cess and Secondary and Higher Education Cess were discontinued in 2015 but taxpayers in pre-GST regime had Cenvat credit of such balance lying in their books. Due to drafting ambiguities in Section 140 of CGST Act providing for transitioning of credits from pre-GST laws to GST regime, the general perception was that such credit balance of cesses (including Krishi Kalyan Cess) was also eligible for transition. The department did not accept such view and fortified its position by amending the provisions. Instead of directly excluding education cesses, by way of explanation, taxpayers were told that cesses not included in the list of eligible duties and taxes are not eligible for transition. Credit amounts, retrospective amendments, explanation, ambiguity - the stage was set for a grand court-room battle.

A Single Judge Bench of Madras High Court (2019-VIL-536-MAD) had earlier held that there was no lapsing provision for such cesses, such credit was a vested right and therefore, transition to GST regime as input tax credit (ITC) was permissible. The department appealed to Division Bench and the DB has allowed the appeal. The DB has held that such cesses were abolished / not levied from 2015 and therefore, whatever was lying in books became dead claim and such dead claim could not be revived much later in 2017 when GST was introduced. It laid emphasis on the statutory restriction on cross-utilisation of cess credit for payment of basic excise duty or service tax. It also expressed the view that Cenvat credit or input tax credit under GST is a concession and a facility and not a vested right and even if it is considered as statutory right, the same can be curtailed and regulated and carry forward or set off cannot be claimed by any implied intention or vested right. One of the interesting reasons for such conclusion is that transition of credit was allowed only in respect of taxes subsumed in GST and Education Cess, SHE Cess and Krishi Kalyan Cess were not subsumed in GST [Assistant Commissioner v. Sutherland Global Services - 2020-VIL-500-MAD].

This judgment may lead to the proposition that if a particular tax levy is discontinued, then credit of such tax taken already also gets extinguished and there is an implied lapsing of such credit. The understanding before this judgment was that unless a specific lapsing provision is introduced, credit or similar statutory right remains unaffected though utilisation might have come to a dead end. This judgment has accepted department's argument (citing Eicher case - 1999-VIL-04-SC-CE) that the right accrued continues till the facility gets worked out and adjustment or "working out" did not happen because there was no such cess liability on output even before 2017. Interpretation of such expression "facility gets worked out" and implied lapse of credit need to wait for judgment from the Supreme Court.

Pandemic pains - Court permits tax payment in instalments

Lockdown to contain spread of Covid-19 has resulted in the inevitable outcome of business coming to standstill for a few months. Though Section 80 of CGST Act empowers the Commissioner to permit a taxpayer to pay tax in instalments, it appears, the same is applicable only in respect of amounts other than the one self-assessed in returns. Therefore, the taxpayer had to approach the High Court to allow it to pay tax in instalments in respect of self-assessed tax dues. The High Court taking into account the financial difficulties in these trying times permitted payment of tax (along with interest and late fee) in instalments spread over nine months. It allowed filing of return (GSTR-3B) from February to April, 2020 without payment of admitted tax liability. In this column, the need to use Section 80 in more number of cases by way of appropriate instruction by CBIC was highlighted (Tax Vista dated 27th July, 2020). However, from the facts of this case, it seems the department may not be able to permit such deferred payment for self-assessed liabilities and therefore, an amendment may also be required [Malayalam Motors Pvt. Ltd. v. Assistant State Tax Officer - 2020-VIL-714-KER].

No detention of goods on allegation of misclassification

With the same regularity as goods are transported, they are detained also, particularly in Kerala. Most of the detention and seizure are based on doubts entertained by the officer on the highway intercepting the vehicle. In one such case, the officer suspected misclassification of goods in transit and therefore detained the same. The High Court upheld that petitioner's contention that Section 129 of CGST Act on detention of goods cannot be invoked in cases of misclassification and ordered release of the goods. The Court held that if such doubt arises (as to misclassification), then the department should prepare a report based on physical verification and after recording objections of the taxpayer, forward the same to assessing officer who can consider the same at the time of finalising assessment.

Section 129 empowers the department to detain goods in transit in contravention of the provisions (of both CGST Act and CGST Rules) and the department may be of the view that misclassification gets covered under "contravention of provisions". It is not clear whether in this case the goods were classified under a heading attracting nil rate of tax or classification adopted provided lower rate of tax. But, the officer intercepting the vehicle cannot enter into detailed investigation required to substantiate the charge of wrong classification and therefore, the Court had to advise on the procedure to be adopted in such cases [Asharaf Ali K.H. v. Assistant State Tax Officer - 2020-VIL-495-KER].

Notifications on due dates for GSTR-1 & GSTR-3B and amendments to CGST Rules

CBIC has issued several notifications on 15-10-2020. Notification No. 74/2020 - Central Tax dated 15-10-2020 provides the due date for filing GSTR-1 return required to be filed by taxpayers having turnover upto Rs. 1.5 crores. For October to December, 2020, the last date will be 13-1-2021. For the quarter January to March, 2020, the last date will be 13-4-2021. Notification No. 75/2020 - Central Tax dated 15-10-2020 provides (extends) the due date for filing GSTR-1 return by taxpayers having turnover more than Rs. 1.5 crores. For the months of October, 2020 to March, 2021, the last date will be 11th of the following month.

Notification No. 76/2020 - Central Tax dated 15-10-2020 provides the due date for filing the monthly GSTR-3B returns for the months of October to March as 20th of the following month. For smaller taxpayers having turnover less than Rs. 5 crores, based on their location, due date is different. By Notification No. 77/2020 - Central Tax dated 15-10-2020, filing of Annual Return in GSTR-9 has been made optional for small taxpayers having turnover less than Rs. 2 crores. This relaxation was provided for FY 2017-18 and 2018-19 earlier. Now, it has been extended to FY 2019-20 also.

At present, mentioning of 4 digits of HSN code in tax invoice is mandatory for taxpayers with turnover more than Rs. 5 crores. This is being amended from 1-4-2021 and from this date, mentioning of 6 digits of HSN code will be required as per Notification No. 78/2020 - Central Tax dated 15-10-2020. Taxpayers with turnover less than Rs. 5 crores shall mention 4 digit HSN code in tax invoices. This notification speaks about HSN code and not SAC code applicable to services. GST Council had recommended mentioning of 6 digit SAC code also for suppliers of services. As per the relevant rule (Rule 46), HSN code has been commonly used along with goods and services. It would have been better to use SAC along with HSN in such notification but for such changes, one may have to wait for GST Tariff Act providing such 6 digits or 8 digits for goods and services.

CGST Rules have been amended by Notification No. 79/2020 - Central Tax dated 15-10-2020. As per the amendments, government has been empowered to specify requirement of number of digits of HSN code to be mentioned in tax invoices and also exempt certain persons from such requirement. Also, Rule 138E on blocking of e-way bills facility for those who did not file returns will not be applicable in certain cases. Certain amendments have also been in GSTR-2A (auto-generated return of purchases - inward supplies). Similarly, a few amendments have been made in GSTR-9 (Annual Return), GSTR-9C (Reconciliation Statement), DRC-01, etc. DRC-01A is the intimation containing the tax liability sent by the department before show cause notice is issued. The relevant rule has been amended to make it optional (by substituting 'shall' with 'may' in Rule 142) for the department to send DRC-01A.

Cross-border pipeline construction is not export

The advance ruling discussed in this portion is peculiar. Indian and Bangladesh Governments have an MOU for construction of oil pipeline from India to Bangladesh. The task has been assigned to a PSU refinery which in turn has contracted the work to the applicant. The applicant sought advance ruling as to whether their activity would amount to export of service. The AAR replied in the negative on the ground that it is the Indian PSU which pays the consideration for construction of pipeline in Bangladesh and therefore, it is the recipient of service and not the Bangladesh company. Further, strip of land extending over 100 kilometres is not a fixed establishment, as per the ruling. Though the ruling states that location of recipient cannot be determined based on relevant provisions of IGST Act, it appears to flow from the initial conclusion of recipient being Indian PSU located in India. For place of supply, the AAR has relied on proviso to Section 12(3)(a) of IGST Act as per which if immovable property is intended to be located outside India, then place of supply will be location of the recipient. It also noted that the present transaction being one of supply of service, deemed export facility is not available as it is applicable to supply of goods only. To add further burden, the ruling holds that the PSU is not covered under 'government entity' as per the relevant notification and the applicant would be liable to pay tax at 18% as works contract service [Maninder Singh (Mideast Pipeline Products) - 2020-VIL-282-AAR].

Interpretation of entries in IGST Act and possible gap in statute to address such peculiar fact-situation can be areas of deeper analysis and may contribute to growth of jurisprudence in future.

Milk fortified with turmeric, pepper and vitamins - Exemption available

Almost every household in India swears by having milk mixed with turmeric powder, pepper and other such ingredients in a bid to ward off Covid-19 by boosting immunity. Industry is coming out with similar products. The applicant sought advance ruling on whether such milk fortified with vitamins A and D, turmeric powder and black pepper extracts would be classifiable under HSN 0401 and entitled to exemption under Notification No. 2/2017-Central Tax (Rate). Though the entry in the notification does not directly cover such product, the applicant placed reliance on explanatory notes to Chapter 4 which covers milk with small quantities of stabilising agents, anti-oxidants and vitamins and turmeric contains curcumin having anti-oxidising potential. While nutritional value changes, the product remains milk. Accepting such reliance and taking note of CBIC's circular (No. 52) clarifying milk fortified with vitamins A and D as classifiable under Heading 0401, the Authority for Advance Rulings (AAR - West Bengal) has held that the product is classifiable under Heading 0401 and exemption would be available [ITC Ltd. - 2020-VIL-283-AAR].

(The author is an Advocate practising independently. The views expressed are personal)