casc bulletin, june 2020 bulletin june 2020.pdf · 3 casc bulletin, june 2020 dear colleagues, all...

3CASC BULLETIN, JUNE 2020

Dear Colleagues,

All of us would love to call June 2020 as"post-covid-19", but alas, we still have along way to go.

What we had taken for granted as"normal" is now under threat of erosion.

Our foundation of "normal life" has beenshaken.

We are struggling to keep some sense ofcontrol over our existence.

We need to prepare for a "new normal".

We have all been anxiously waiting forthe pandemic to get over and get back to"normal" life, rather the "new normal"!

In these stressful and testing times, itcannot be denied that all of us have beentrying to stay active in this digital worldwhich offers lots of opportunities to learnand entertain. Zoom vs Google Meet vsMicrosoft Team vs Webex Meetings vsBlueJeans.… video conferencingplatforms, wonderful discoveries, thathelped connect men and mind across theglobe thereby retaining our sanity bykeeping our Grey Matter active!

If we have not come out of this lock downwith A New Skill, More Knowledge,Better Health & Fitness

EDITORIAL

We never lacked time, We lackeddiscipline!

The social and economic challenges facedare unprecedented. It is the hope anddesire of all of us that we come out of thispandemic with as minimum damage aspossible.

All of us should focus on running ourprofessional firms in the most economicalmanner. Our professional firms need theunderstanding and cooperation of everyemployee. We Professionals need to think"Out of the Box", individually &collectively. Our clients need our moraland professional support now, more thanever. We need to turn them around at theearliest. All of us should be ready forsome personal sacrifices, till timesimprove.

Sincere apologies for having skipped theApril & May 2020 issues of CASC Bulletin.

Stay Safe and Stay Healthy.

Life is 1% what happens and 99% howyou respond!

Best Regards

P.Ramasamy


DISCLAIMERThe contents of this Monthly Bulletin are solely for informational purpose. Itneither constitutes professional advice nor a formal recommendation. Whiledue care has been taken in assimilating the write-ups of all the authors. Neitherthe respective authors nor the Chartered Accountants Study Circle acceptsany liabilities for any loss or damage of any kind. No part of this MonthlyBulletin should be distributed or copied (except for personal, non-commercialuse) without express written permission of Chartered Accountants Study Circle.

COPYRIG4HT NOTICEAll information and material printed in this Bulletin (including but not flowchartsor graphs), are subject to copyrights of Chartered Accountants Study Circleand its contributors. Any reproduction, retransmission, republication, or otheruse of all or part of this document is expressly prohibited, unless prior permissionhas been granted by Chartered Accountants Study Circle. All other rightsreserved.

ANNOUNCEMENTS

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The soft copy of this bulletin will be hosted on the website shortly.

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RECENT JUDGMENTS IN VAT CST GST

Purchase tax: Planting subsidy, transportsubsidy and transport charges paid tothird party lorry owners are to beincluded to the purchase price of sugarcaneand purchase tax is due and payable onthe value which includes Planting subsidy,transport subsidy and transport charges.Tvl.Sakthi Sugars Limited, CoimbatoreVs. The Deputy Commissioner (CT)Coimbatore. Tax Case No.5 of 2020DATED: 29.01.2020

Stock transfer : Relying on the ratioof rulings in the case of in the caseof M/s. Advance Paints (P) Ltd. v. C.T.O.Chennai (W.P.No.14193 of 2001, dated9.12.2019) and in the case of The DeputyCommissioner (Court) Chennai (North)Division vs. Tvl.P.M.P. Iron and Steel IndiaLtd., (2012-13 (18) TNCTJ 76) the WritPetition filed by the Revenue is dismissedin respect of a matter in which theAppellate Tribunal allowed the Petitionfiled by the Assessee and held theturnover in question to be Stock Transfer/Branch Transfer made by the Assesseeduring the relevant period and the samedoes not amount to inter-State Sales.The Deputy Commissioner (CT) Chennai(East) Division, Chennai. Vs Tvl.AbyEngineers and Consultants (P) Ltd.,Chennai-14. WP.36978/2002 Dated21/01/20

CA. V.V. SAMPATHKUMAR

Non-speaking order: The impugnedorder has not discussed as to how thepenalty in the form of interest has beenlevied even though the said provisionseems to indicate that there is someamount of discretion vested with theofficer while imposing penalty under thesaid provision. It appears that no noticewas also issued to the petitioner before theimpugned order was passed. Further, theimpugned order is also non-speaking.Hence, the impugned order is set asideand the case is remitted back to therespondent to pass a fresh order within aperiod of three months from the date ofreceipt of a copy of this order inaccordance with law. Fisherman’s Cove,vs The Assistant Commissioner (CT)Chengalpattu Assessment Circle,W.P.No.25768 of 2012 DATED: 13.01.2020

Objections filed: As the impugned ordershave been passed without consideringthese objections of the petitioner thoughthey were filed by the petitioner, this


Court is of the view the impugned ordersare liable to be quashed and remitted backthe cases to the respondent to passspeaking orders within a period of 30days from date of receipt of a copy of thisorder. M/s. Alfab Products, vs. TheAssistant Commissioner (CT),Vadapalani Assessment Circle,W.P.Nos.16428 to 16431 of 2014 DATED:09.01.2020

Input Tax Credit Capital goods at 12.5%:The dealer who sold the capital goods tothe petitioner charged VAT at 12.5% andpassed on the incidence of such tax to thepetitioner. The petitioner therefore availedthe tax paid and reflected in the invoiceat 12.5%.Since the capital goods wereliable to VAT only at 4%, the petitionerwas liable to reverse input tax credit (ITC)in excess of 4% and accordingly thepetitioner was required to reverse creditavailed equivalent to 8.5% VAT paid inexcess by the registered dealer who soldthe capital goods to the petitioner. A showcause notice was issued to the petitioner.By the impugned order, the respondenthas directed the petitioner to reverse theexcess credit of 8.5% Following thedecision rendered in Sara Leathers’ casereported in (2010) 30 VST 581 (Mad), thedecision of this court in petitioner’s owncase in W.P.No.12459 of 2014 in orderdated 29.08.2016, which allowed relief tothe petitioner after referring to thedecision rendered in TVL TataRefractories Ltd Vs. The Commercial Tax

Officer in W.P.Nos.5614 and 5615 of 2008in order dated 17.11.2014 and in the viewof the decision contained herein thepetitioner is entitled succeed and the ITCcan be claimed full of 12.5%. VisteonAutomotive Systems Pvt. Ltd., vs TheDeputy Commissioner (CT) IV (FAC),Large Taxpayers Unit, ChennaiW.P.No.32655 of 2015 DATED: 13.01.2020

Purchase tax: Purchase tax payable underSection 12(1) of the Act has to be paid incash. Such purchase tax can be adjusted onthe output tax in terms of section 3(3) ofthe Act. The purpose of allowing ITC isto reduce the cascading effect of the taxesborne on the inputs and to allowseamlessly ITC at each stage of sale andpurchase. Section 12(2) of the Act ismerely a trade facilitation to reduce thecascading effect of the tax. It does notcontemplate discharge of purchase taxunder Section 12(1) Tamil Nadu ValueAdded Tax Act, 2006 from and out ofInput Tax Credit. There is no scope fordischarging purchase tax liability from andout of Input Tax Credit (ITC). Tvl TCSTextiles Private Limited, Tiruppur. VsThe Assistant Commissioner (CT), NorthCircle, Tiruppur. W.P.No.31767 of 2014Dated 06.01.2020.

Stock variation: Both the appellateauthorities below have concurrently heldin favour of the Assessee that on accountof the minor stock variations foundduring the course of survey, the Assessing


Authority could not have assessedseparate turnover at the hands of theAssessee. The stock variations are foundin the Refrigerator and Washing Machine.Learned Advocate for argued that afterthe change in the name of the companyand merger of 3 subsidiary companies,there is bound to be mingling of stocks.Washing Machines and Refrigerators arereceived from other States and they havegot distinct numbers for identification andthey are subjected to excise duty. TheDepartment is not having any evidenceapart from the stock variation that thedealer is indulging in suppressing aturnover of a greater extent. There is noevidence with the Department for makingfurther addition except the stock variationfound at the time of inspection. Havingheard both parties the Court held thatthere no question of law arises in thepresent tax case filed by the Revenue. Thefindings arrived at by the authoritiesbelow are justified and based on relevantand cogent materials and stating so, thetax case is devoid of merits and the sameis dismissed. The Deputy Commissioner(CT), Chennai (Fast) Division, Chennai6 vs. Tvl. Whirlpool of India Ltd., No.304/305, Anna Salai, Chennai 18.Tax CaseNo.4 of 2020 DATED: 29.01.2020

Penalty u/s 10A CST : Following the ratioof rulings in 109 STC 392(Mad)Coronation Arts Crafts vs. State of TamilNadu, 148 STC 256 (Mad) State of TamilNadu vs. Nu-Thread Tyres (2007) 3 SCC

124(SC ) CTO v. Rajasthan Taxchem Ltd..this Court held that the learned AppellateTribunal was justified in holding that theAssessee was entitled to purchase the saidfuel viz., diesel, for its generator set andeven though the same was not separatelyincluded in the Registration Certificate ofthe Assessee, no mens rea can beattributed to the Assessee for purchase ofthe same at concessional rate against “C”Form and therefore, the question ofimposition of penalty under Section 10(b)of the Act read with Section 10A of theAct does not arise The DeputyCommissioner (CT) Coimbatore DivisionVs Tvl. Chola Textiles Ltd, TiruppurWP.46181/2002 Dated: 27/01/20

Trade Discount: There is no dispute thatthe Petitioner is a dealer in motor cars andhad received trade discount from themanufacturer from whom it hadpurchased the cars for retail sales at itsshow rooms. The trade discount whichhas been offered by the dealer is anincentive given by the manufacturer basedon the performance of the Petitioner in theretail market. The trade discount offeredby the manufacturer to the Petitionerdoes not in any manner enhance thetaxable value of the motor cars sold by thePetitioner to the retail buyer at its showrooms. Therefore there is no basis onwhich the amount of Rs.3,48,08,441/- canbe taxed as taxable turnover of thePetitioner. There are two independenttransactions. One transaction is between


the manufacturer who is also a dealer whohad passed on incentives to the Petitionerand the second transaction between thePetitioner and its buyers of its retail showroom to whom the Petitioner has sold thecars. As these two are independenttransactions there is no basis on which thetrade discount passed to it by themanufacturer (dealer) to the Petitioner canbe added in to the taxable turnover of thePetitioner for the purpose of assessmentunder the TNVAT Act, 2006. Stating so,the writ petition stands allowed eventhough the Petitioner has an alternateremedy by way of appeal. Theseobservations is being made as there are nodisputed question of fact involved in thepresent writ petitions. KUN MotorCompany Pvt. Ltd., Vs The AssistantCommissioner (CT), NandambakkamAssessment Circle, ChennaiW.P.No.37775 of 2015 DATED:20.01.2020

Writ Petition: Where writ petition wasfiled under Article 226 of the Constitutionof India seeking for a Writ of Certiorarito call for the records of the 2 nd

Respondent pertaining to the order dated17.2.2003 in T.A.No.1202 of 2002 andquash the same as illegal, the Court heldthat in view of the litigation policy, sincethe Revenue’s stake is less than theprescribed limit mentioned in G.O. (Ms)No.105, Commercial Taxes andRegistration (D1) Department, dated25.07.2019. the learned Government

Advocate (Taxes) appearing for the WritPetitioner / Revenue does not press theWrit Petition on merits and thoughNobody appears for the Respondent/Assessee to oppose the said request, theWrit Petition is dismissed in view of theaforesaid submission. The DeputyCommissioner (CT), Chennai (North)Division, Chennai. Vs. Tvl.Jain Impex,Chennai 79 and 2.The Secretary,TNSTAT (AB), Chennai W.P.1053/2005Dated: 28/01/20 DATED: 28.01.2020

Classification, Industrial Cables: TheHon’ble Division Bench of the Delhi HighCourt in the case of Anchor Electrical (P)Ltd. Vs. Commissioner, Sales Tax [2014] 71VST 427,after taking into consideration ofthe definition of “cable” as defined underSection 2(g) of the Industrial ElectricityRules: “Voltage” in Section 2(av) of theIndian Industrial Electricity Rules, heldthat when statutory determination underthe relevant law itself having classified1100 volts cable as high voltage cables,there cannot be any difficulty in acceptingthe dealer’s contention that the subjectgoods are industrial cables and taxableat 5% M/s. Classic Associates, Vs. TheCommercial Tax Officer, PurasawakkamAssessment Circle, Chennai.W.P.Nos.35025 to 35027 of 2015 DATED:06.01.2020

The Author is a Chennai Based CharteredAccountant in practice. He can be reached [email protected])


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CASE LAWS - GST / SERVICE TAX

1. SERVICE TAX – SUBSIDYRECEIVED FROM TATA TELESERVICES ON SALE OF MOBILEHANDSETS PURCHASED FROMINDEPENDENT VENDORS – NOTCOVERED UNDER BUSINESSAUXILIARY SERVICES

In Balaji Enterprises v. CCE &, Jaipur2020(33) GSTL97 (Tri.-Del.) theappellant is a distributor appointed byTata Tele Services for marketing theirtelecom service products in terms ofthe distributorship agreement and alsoholds registration under the taxablecategory of “Business AuxiliaryServices” (BAS). Tata Tele Servicespays commission to the Appellant forthe services provided under thedistributorship agreement and theAppellant charges service tax on thecommission received. In addition, theappellant decided to engage in thebusiness of selling mobile handsets andfor this it paid VAT on such sales forwhich separate agreements wereentered into with third partymanufacturers/vendors for supply ofhandsets sold by the Appellant to thecustomers. The invoices were raised bythe vendors in the name of theappellant who was responsible formaking payments to such vendors andTata Tele Services was in no wayconnected with the payment to the

CA. VIJAY ANAND

vendors from whom the Appellantpurchased the handsets. However,such handsets purchased from othervendors were sold at a price fixed byTata Tele Services, which price waslower than the purchase price of thehandsets and Tata Tele Services paidthe different amount to the Appellantby way of subsidy. The adjudicatingauthority confirmed the demand underBAS on such subsidy. On appeal, theTribunal observed as under:-

1. The issue that arises for considerationis whether the subsidy received by theappellant from Tata Tele Services onthe sale of mobile handsets purchasedby the appellant from independentvendors can be said to be an amountreceived for providing BAS to TataTele Services and, therefore, chargeableto service tax.

2. A perusal of the agreement shows thatTata Tele Services for the purpose ofmarketing the telecom services desired


to appoint distributors and theAppellant was appointed as aDistributor to market and sell serviceprovided by Tata Tele Services.“Service” has been defined to meanone or more of the “telecom service”provided by Tata Tele Services whichwould include distribution of prepaidcards, smart cards and all otherservices within the purview of thelicense in relation to the telecomservice.

3. The appointment of the appellant as adistributor was subject to the termsand conditions set forth in theagreement. It is not in dispute that theappellant has paid the service tax onthe commission received by theappellant for marketing/selling of thetelecom services provided by Tata TeleServices. The dispute is with regard tothe subsidy received by the appellantfrom Tata Tele Services on the sale ofmobile handsets from third partyvendor. The case of the appellant isthat these handsets are sold at a pricefixed by Tata Tele Services, which priceis lower than the purchase price of thehandsets and Tata Tele Servicesreimburses the differential amount byway of subsidy.

4. However, the SCN proceeds on thefooting that the appellant has beenappointed as a distributor of Tata TeleServices for selling/marketing their

CDMA handsets with connections. Thispremise is not in accordance with theterms of the agreement which alsomentions that the appellant has beenappointed as a distributor formarketing/selling/reselling ofservices, goods and any otherproduct/commodities provided byTata Tele Services. Tata Tele Serviceshas not provided any handsets to theappellant which has been purchasedfrom third parties specified by TataTele Services. There is no agreementbetween the appellant and Tata TeleServices for selling mobile handsets ata lower rate. The mobile handsets areindependently purchased by theappellant and VAT is discharged onthe sale of mobile handsets to thecustomers. However, while selling thehandsets the appellant sells them at aprice lower than the purchase priceand Tata Tele Services pays thedifferential amount as subsidy to theappellant.

5. In Commissioner of Customs andCentral Excise, Goa V. SwapnilAsnodkar, it was observed thatwithout specifying the activity and thenature of service of the Respondent hecannot be taxed. Further out of theseven clauses under Section 65 (19) noclause has been pointed out underwhich the Respondent is liable forservice tax.


6. In United Telecoms Ltd., service taxwas proposed to be demanded in theSCN for an activity under BAS andBSS. Under BSS also several activitiesare listed as exigible under that head.It was held that in the absence ofproposal in the SCN as to the liabilityof the assessee under the preciseprovision in the Act, the demandcannot sustain.

7. The aforesaid decisions clearly holdthat it is imperative for theDepartment to specify which specificservice contained in the seven clausesof section 65(19) of the Act is beingprovided and in the absence of anyspecific service pointed out in showcause notice, the demand cannot beconfirmed as the noticee will not beaware as to which precise servicecontained in the sub-clause has beenrendered by him.

8. In the present case, the SCN even afterreproducing the seven clauses ofsection 65(19), does not specify whichparticular clause was attracted and itonly mentions that “the assessee is anauthorized distributor appointed byM/s TTSL for selling CDMA handsetsalong with connection to thecustomers. The expenditure incurredby the distributor is reimbursed byM/s TTSL in the guise of subsidy andthe same appears to be covered underthe definition of “Business Auxiliary

Service” and chargeable to Service Taxsince, the amount received by theassessee was in respect of providingBusiness Auxiliary Service to M/sTTSL.

9. In the present case, the appellant isengaged in the marketing oftelecommunication services of TataTele Services for which it is receivinga consideration and the Appellant isdischarging service tax on the saidamount of consideration. The amountof subsidy that the Appellant isreceiving on account of sale ofhandsets at a lower price does nothave any nexus with the promotion ormarketing of the services provided byTata Tele Services. It needs to benoted that Tata Tele Services isreimbursing only that amount to theAppellant which the Appellant wouldhave otherwise received from thecustomer buying the handsets. Noservice is being provided. The amountof subsidy is merely a compensationand this amounts the Appellant wouldhave received from the customer. Infact, it can be said that thearrangement between the Appellantand Tata Tele Service for selling thehandset at a lower price only aids thebusiness of the Appellant because itwill be able to sell more handsets.

Hence, the appeal was held and impugnedorder set aside.


2. SERVICE TAX – PAYMENT OF TAXALONG WITH INTEREST BEFORESCN – SECTION 73(3) NOT TOAPPLY WHEN THERE ISSUPRESSION OF FACTS – NOREASON TO DENY THEIMPOSITION OF PENALTIES

In Meroform (India) Pvt. Ltd. v.Commissioner of Service Tax, Noida2020 (33) G.S.T.L 200 (Tri. – All.), theappellants were duly registered withService Tax Department under thecategory of ‘Business ExhibitionService’, ‘Erection, Commissioning &Installation Service’ and ‘WorksContract Service’ and providedservices to Delhi DevelopmentAuthority in connection with thepreparation for the CommonwealthGames. Enquiry proceedings wereinitiated when the department noticedthat the appellants were not payingdue service tax for the period fromApril, 2010 to November, 2010consequent to which the assessee paidthe tax along with interest and has alsofiled the returns. Thereafter theadjudicating authority confirmed theimposition of penalties u/s 78 & 77 ofFinance Act, 1994.

On appeal, the Tribunal observed asunder:

1. The appellant had not filed ST-3returns for the impugned period till20/01/2012 nor paid service tax and

the said short payment was detectedthrough an enquiry by Revenue.

2. Therefore, sub-section 3 of Section 73of Finance Act, 1994 which empowersconclusion of proceedings of paymentof service tax along with interestbefore issuance of show cause noticeare not applicable in the present case.

3. The case laws relied upon by thelearned counsel for the appellantreported at 2009-TIOL-161-CESTAT-MAD is not applicable in the presentcase because in the said case servicetax was paid voluntarily along withinterest whereas in the present caseservice tax was paid after initiation ofenquiry.

4. Further the ruling of Hon’bleKarnataka High Court in the case ofCommissioner of Service Tax,Bangalore vs. Prasad Bidappa reportedat 2011 (09) LCX0148 relied upon bylearned counsel for the appellant is notapplicable in the present case becausein the said case suppression was notalleged.

5. Final Order of this Tribunal reportedat 2008-TIOL-2286-CESTAT-BANG isalso not applicable in the present casesince there is no reference to Sub-section (4) which has debarred Sub-section (3) of Section 73 in case thereis suppression. In view of the above


findings, we do not find any infirmitywith the impugned order andtherefore, we do not interfere with theimpugned order.

Hence the appeal was rejected.

3. SERVICE TAX – REMUNERATION/SALARY TO WHOLE-TIMEDIRECTOR – NO LIABILITY UNDERRCM

In Maithan Alloys Ltd. v.Commissioner of C.E & S.T., Bolpur2020 (33) G.S.T.L. 228 (Tri.-Kolkata),the appellant assessee is amanufacturer of ferro alloys on whichcentral excise duty is being paid. Inthe course of business, the assesseecompany pays remuneration to itswhole time directors which has fixedas well as variable components. Thesaid variable component comprised ofcommission payable on the basis ofpercentage of profit in conformity withthe provisions of the Companies Act.The adjudicating authority confirmedthe demand of service tax underreverse charge mechanism on theremuneration paid to the whole timedirectors holding that the saidremuneration paid to the directorswould constitute ‘service’. On appeal,the Tribunal observed as under :

1. The only dispute herein is for paymentof remuneration to whole timedirectors, which is a fact on record.

The provisions of Companies Act, 2013,contained in section 2(94), dulydefines ‘whole time director’ toinclude a director in the whole-timeemployment of the company. A whole-time director refers to a director whohas been in employment of thecompany on a fulltime basis and isalso entitled to receive remuneration.

2. The position of a whole-time directoris a position of significance under theCompanies Act. Moreover, a whole-time director is considered andrecognized as a ‘key managerialpersonnel’ under Section 2(51) of theCompanies Act. Further, he is anofficer in default as defined in clause(60) of section 2 for any violation ornon-compliance of the provisions ofCompanies Act.

3. Thus, the whole time director isessentially an employee of theCompany and accordingly, whateverremuneration is being paid inconformity with the provisions of theCompanies Act, is pursuant toemployer – employee relationship andthe mere fact that the whole timedirector is compensated by way ofvariable pay will not in any manneralter or dilute the position of employer– employee status between thecompany assessee and the whole timedirector.


4. The very provisions of the CompaniesAct makes whole time director (as alsoincapacity of key managerialpersonnel) responsible for any default/offences, it leads to the conclusionthat those directors are employees ofthe assessee company.

5. Further, the appellant has dulydeducted tax under section 192 of theIncome Tax which is the applicableprovisions for TDS on payments toemployees. This factual and legalposition also fortifies the submissionthat the whole time directors who areentitled to variable pay in the form ofcommission are ‘employees’ andpayments actually made to them are inthe nature of salaries. This factualposition cannot be faulted in absenceof any evidence to the contrary.

Hence, the appeal filed by the appellantwas allowed with consequential relief.

4. SERVICE TAX – SALE OF SPACEON SHIPS BY FREIGHTFORWARDER TO EXPORTERS –NO TAX ON THE MARGINSRETAINED

In Marinetrans India Pvt. Ltd. v. CST,Hyderabad-ST 2020 (33) G.S.T.L. 241(Tri.-Hyd.) the appellant is a freightforwarder and has been registered asservice provider under the category of“business support services”. Theadjudicating authority confirmed thedemand on the margin retained

between purchasing space from theshipping lines and selling it to theexporters for profit. On appeal, thetribunal observed as under:

1. It is not in dispute that the appellantherein is purchasing the space from theshipping lines and then is selling thesame to exporters. It is the case of therevenue that this amounts to acting asan intermediary for helping thebusiness of the shipping lines andtherefore they are liable to pay servicetax on business auxiliary services onthe profit which they receive.

2. It is the case of the appellant that thisis a deal on principal to principal basisbetween them and the shipping linesand again between the exporters andthem. They are not acting as an agent.They could purchase the space for alower price and sell it at a higher priceand thereby earn profit. On the otherhand, if they failed to sell the space toexporters, after purchasing from theshipping lines, they may incur a loss.They are not receiving anycommission whatsoever from theshipping line or from the exporters.

3. Para 2.1-3 of the Circular of the CBECNo. 197/7/2016-S.T., dated 12-08-2016clearly states that service tax ispayable when one acts as anintermediary and not as a traderdealing on principal to principal basison their own account which isundisputedly the case here.


4. In an identicalcase, in the case ofPhoenix International Freight ServicePvt Ltd. (2017 (47) S.T.R. 129 (Tri. –Mum) the Tribunal held that buyingand selling space on ships does notamount to rendering a service and anyprofit or income earned through suchtransactions is not leviable to servicetax. There is no reason to deviate fromthis view taken by the Tribunal whichview is also supported by the C.B.E.& C circular cited above.

Hence, the appeal was allowed withconsequential relief.

5. GST – IMPORT OF GOODS ONPAYMENT OF CUSTOMS DUTY ONCIF BASIS – INCLUSION OF THEOCEAN FREIGHT UNDER RCM –NOT SUSTAINABLE

In Mohit Minerals Pvt. Ltd. v. Union OfIndia 2020 (33) G.S.T.L 321 (Guj.), thepetitioner is engaged in importing non-cooking coal from Indonesia, SouthAfrica and U.S.A. and supplying it tovarious domestic industries includingpower, steel, etc. It has business basedat various parts of the country,however, the main business place is inGujarat and most of the imported coalcomes at the port located at Gujarat.The petitioner discharges the customsduty on the imported products at thetime of each import and such valueincludes the value of freight on whichcustoms duty is demanded and paid.

The petitioner is liable to payintegrated tax in terms of provisionsof the Integrated Goods and ServicesTax Act, 201 (IGST/Integrated TaxAct) and accordingly they are payingIGST at the time of import itself,which also includes value of OceanFreight involved in imported coal.

A writ-application was filed prayingfor the following reliefs :

a. To quash Notification No.8/2017-Integrated Tax (Rate), dated 28.6.2017and Entry 10 of the NotificationNo.10/2017-Integrated Tax (Rate),dated 28.6.2017 by declaring that samelack legislative competency, ultra viresto the Integrated Goods and ServicesTax Act, 2017 and henceunconstitutional;

b. To declare that no tax is leviable underthe IGST Act on Ocean Freight forservices supplied by a person locatedin non-taxable territory by way oftransportation of goods by a vesselfrom a place outside India upto thecustoms station of clearance in Indiaand levy and collection of tax on suchOcean Freight under the impugnedNotifications is not permissible underthe law;

c. Direction to the second Respondent toplace before the Court the records ofthe recommendation given and alldecision taken in respect of impugnedNotifications;


d. Pending the hearing and final disposalof the petition,

i. To stay the operation of impugnedNotifications;

ii. To stay the levy and collection of IGSTon Ocean Freight on transport ofgoods in a vessel from a place outsideIndia upto the customs station ofclearance in India by a person locatedin non-taxable territory; and/or;

iii. To restrain the first respondent No.1and all its officers, agents to take anycoercive measure against the petitionerand its officers during the pendency ofwrit petition; and/or;

iv. To issue such other writ/order/direction and further orders as thecourt may deem just and proper in thefacts and circumstances of the case.

The High Court observed as under:

1. Section 5 of the IGST Act provides forlevy and collection of integrated tax oninter-state supply of goods or servicesor both. The proviso to sub-section (1)of Section 5 provides that theintegrated tax on goods imported intoIndia shall be levied and collected inaccordance with the provisions ofSection 3 of the Customs Tariff Act,1975, on the value as determinedunder the said Act at the point whenthe duties of customs are levied on thesaid goods under Section 12 of theCustoms Act, 1962.

2. It is a fundamental principle ofconstruction of tax statutes that if thewords of the Act on one constructionresults into double taxation of thesame transaction, that result will beavoided by adopting anotherconstruction which may reasonably beopen. Further, double taxation, by wayof delegated legislation, when thestatute does not expressly provide, isnot permissible.

3. In the case of United Shippers Ltd. v.CCE, 2015 (37) S.T.R 1043 (Tribunal),the Tribunal held that there can be nolevy of service tax on barge chargesand the handling charges which is partof the import transaction into Indiaand form an integral part of thetransaction value on which thecustoms duty is leviable. Thejudgment of the Tribunal has beenaffirmed by the Supreme Court in thecase of CCE v. United Shippers, 2015(39) S.T.R J369 (SC).

4. Thus, having paid the IGST on theamount of freight which is included inthe value of the imported goods, theimpugned notifications levying taxagain as a supply of service, withoutany express sanction by the statute, areillegal and liable to be struck down.

5. Prior to 01.06.2016, the services oftransportation of goods in a vesselfrom a place outside India up to thecustoms station of clearance in India


were exempted from service tax. As aresult, the Indian Shipping Lines wereunable to avail the input tax credit oftax paid on the goods and services andsuch tax formed part of theirtransportation cost. To provide themthe level playing field, service tax wasimposed on the service of inwardtransportation of goods to enable theIndian Shipping Lines to avail theinput tax credit. Further, the servicesof the outward transportation ofgoods were treated as export ofservice and thus the credit of theexcise and service tax was available. Itis further stated that subsequently,many FOB contracts were beingconverted into CIF contracts. In orderthat the tax is suffered by both, theforeign shipping line and the Indianshipping line, the services of theinward transportation of goodsprovided by a person in a non-taxableterritory to a person in a non-taxableterritory were made liable to servicetax.

6. Even international, the service ofinternational transportation bothrelating to imports and exports is GST-free (i.e. no tax is payable on theoutward supply and the tax paid onthe inward supplies can be claimed asrefund). The tax is collected from theimporter of goods by including it inthe value of imported goods.

7. In the United Kingdom, the ValueAdded Tax Act, 1994 provides that theservices of transportation relating tothe import and export is zero-rated(i.e. no tax is payable on the outwardsupply and the tax paid on the inwardsupplies can be claimed as refund).

8. Thus, the services of transportationrelating to export and import aregoverned by the internationalconsiderations and all countries treatthe same as zero-rated or GST-free.

9. Vide Finance Act, 2016, the sub-clause(ii) of clause (p) of Section 66D of theFinance Act, 1994, which provided thatthe service of transportation of goodsfrom a place outside India upto thecustoms station of clearance is notleviable to service tax, was omittedand Notification No.9/2016-ST dated1.3.2016 effective from 1.4.2016 wasissued, which inserted entry no.53 inthe Mega Exemption NotificationNo.25/2012-ST dated 20.6.2012.

10. The effect of the above amendmentwas that the service of transportationof goods in a vessel from a placeoutside India upto customs station ofclearance in India became taxablewhereas the same services by anaircraft were made exempted frompayment of tax. The amendments weremade with the objective that the IndianShipping Lines which were hithertonot eligible to avail credit of taxes paid


on the input side as the servicesprovided by them were not leviable toservice, became eligible to avail thecredit and pass on the same to theconsumer.

11. However, by such an amendment, theIndian Shipping Lines were placed ata disadvantageous position than theForeign Shipping Lines who wereexempted from paying the service taxvide entry no.34 of the NotificationNo.25/2012-ST dated 20.6.2012 and, asthe above-mentioned person wouldnot be able to pass on the credit, theimporter of the goods was made theperson liable to pay tax videNotification No.15/2017-ST and 16/2017-ST both dated 13.4.2017 w.e.f.23.4.2017.

12. Further, vide Notification No.14/2017-ST dated 13.4.2017, the point oftaxation was provided and videNotification No.16/2017-ST dated13.4.2017, an alternative mechanism forpaying the service tax at the rate of1.4% of the CIF (Cost, Insurance andFreight) value of the goods.

13. Further, vide Notification No.10/2017-C.E. (N.T.) dated 13.4.2017 effectivefrom 23.4.2017, the importer of thegoods has been allowed to avail theCenvat Credit on the basis of thechallan of payment of service tax bythe said importer.

14. Under the erstwhile service taxregime, Section 66B of the Finance Act,1994 was the charging section whichlevied the tax on the value of all theservices, other than those specified inthe negative list, provided or agreedto be provided in the taxable territoryby one person to another. Section 68provided for collection of tax. Sub-section (1) of Section 68 provided thatevery person providing taxable serviceshall pay the service tax. Further, sub-section (2) of Section 68 provided that,in respect of such taxable services asmay be notified by the CentralGovernment, the service tax shall bepayable by such person and in suchmanner as may be prescribed.

15. Further, as per Section 5(3) of the IGSTAct, the Government is onlyauthorized to specify the categories ofsupply on which the tax is to paid bythe recipient of the supply under thereverse charge basis. The Governmentcannot further specify the person liableto pay tax as other than the recipientof the supply.

16. There is no doubt that in the taxinglegislation, the legislature deserves thegreater latitude and the greater playin joints. This principle, however,cannot be extended so as to validatea levy by a subordinate legislationwhich has no sanction of law,however, laudable may have been theobject to introduce it.


17. The legislature, while enacting theIGST Act, was aware of the wideprovisions under the Finance Act, 1994,which provide the Government thepower to collect tax under the reversecharge basis only from the recipient ofthe service but from any other personas may be prescribed. However, whileenacting the IGST Act, the legislatureconsciously curtailed the power of theGovernment to collect tax under thereverse charge basis from any personand restricted it only to the recipientof the supply.

18. If the intention of the Government wasto allow the credit of the taxes paidon the goods and services used forproviding the supply of the inwardtransportation, the same could havebeen made a zero-rated supply. Azero-rated supply is provided u/s 16of the IGST Act, wherein it isprovided that zero-rated supply can bemade either without the payment oftax or with payment of tax along withan option to claim refund of tax later.Further, the person making the zero-rated supply will be eligible to availthe input tax credit and claim refundif the same remains unutilized. Thesame approach has been adopted eveninternationally.

19. Alternatively, such services could havebeen exempted from payment of taxand simultaneously excluded from the

value of exempt supply for the purposeof determining reversal of the inputtax credit. The said mechanism hasbeen provided in the case of servicesby way of transportation of goods bya vessel from the customs station ofclearance in India to a place outsideIndia (exempted from payment of taxtill 30.09.2019 vide Notification No.9/2017 - Integrated Tax (Rate) dated28.06.2017).

20. Simultaneously, the said service hasbeen excluded from the aggregatevalue of exempt supply for the purposeof reversal of input tax credit underRule 42 and 43 of the Central Goodsand Services Tax Rules, 2017 (CGSTRules) via Explanation to Rule 43(2) ofthe CGST Rules.

21. In Gujarat Ambuja Cements Limitedand another v. Union of India andanother, (2005) 4 SCC 214, theconstitutional validity of Sections 116and 117 respectively of the FinanceAct, 2000 was challenged on theground that it encroached upon thepower of the State Legislature underEntry 56 of List II of the 7th Scheduleto the Constitution and also on theground that the levy of the service taxon the customers of goods transportoperators and clearing & forwardingagents was discriminatory as the other


recipients were not subjected to suchimposition. The Supreme Court, whilerejecting both the contentions, heldthat the legislature has the competenceto collect tax from the recipients ofservices. The ratio of Gujarat AmbujaCements Ltd. (supra) is in no wayhelpful to the respondents for thepurpose of defending the notifications.

22. In the case on hand, there is nochallenge to the competence of thelegislature in enacting Section 5(3) ofthe IGST Act which empowers theGovernment to notify the goods orservices upon which tax is liable to bepaid by the recipients. The issue in thepresent case is, when the statutoryprovision empowers collection of taxfrom the recipient of goods or services,then whether the delegated legislationby way of notification can stipulateimposition of tax on a person who isneither the supplier nor the recipientof service.

23. In Phulchand Exports Limited v.O.O.O. Patriot, (2011) 10 SCC 300, theSupreme Court has referred to andrelied upon the decision in the case ofJohnson v. Taylor Brothers andCompany Limited, 1920 AC 144 (HL)in the context of determination ofrights of the sellers and buyers underthe Indian Contract Act, 1872 and held

that in a CIF contract, the seller isobliged to procure a contract ofaffreightment under which the goodswould be delivered at theirdestination. This supports the case ofthe writ-applicants that in a case ofCIF contract, the contract fortransportation is entered into by theseller, i.e. the foreign exporter, andnot the buyer, i.e. the importer, andthe importer is not the recipient of theservice of transportation of the goods.

24. Consequently, no tax is leviable underthe IGST Act, 2007, on the oceanfreight for the services provided by aperson located in a non-taxableterritory by way of transportation ofgoods by a vessel from a place outsideIndia upto the customs station ofclearance in India and the levy andcollection of tax of such ocean freightunder the impugned Notifications isnot permissible in law.

Hence, the writ-application along with allother connected writ-applications wereallowed and the impugned NotificationNo.8/2017 - Integrated Tax (Rate) dated28th June 2017 and the Entry 10 of theNotification No.10/2017 - Integrated Tax(Rate) dated 28th June 2017 are declaredas ultra vires the IGST Act, 2017, as theylack legislative competency. Both theNotifications are hereby declared to beunconstitutional.


6. SERVICE TAX – ADJUDICATION –DELAY IN CULMINATION –BEYOND ONE YEAR FROM THECONCLUSION OF ARGUMENTS –DEMAND LIABLE TO BEQUESTIONED

In Sunder System Pvt. Ltd. V UOI2020 (33) G.S.T.L. 621 (Del.), thepetitioner was issued a show causenotice on 25.11.2011 and the hearingswere concluded on 03.02.2015. Furtherhearing notice was issued on09.08.2017 as well as the subsequentcorrigendum dated 20.09.2017primarily on the ground that theadjudication proceeding had becomebarred by limitation in view of thelimitation period of one year foradjudication from the date of theshow-cause notice prescribed underClause (b) of sub-section (4B) ofSection 73 of the Finance Act, 1994.The petitioner also seeks refund of anamount of Rs.1,13,56,468/- along withinterest from the date of deposit.

On writ petition high court observedas under:

1. The short question that arises forconsideration is the interpretation ofSection 73 (4B) (a) & (b) of the FinanceAct, 1994.

2. In National Building Construction Co.Ltd. Vs. Union of India; 2019 (20)G.S.T.L. 515 (Del.), it was held that

even if no time period for limitation isprescribed, the statutory authoritymust exercise its jurisdiction within areasonable period and if it is not sodone, it will vitiate the proceedings.Keeping in view the aforesaidmandate of law as well as sub-section(4B) of Section 73 of the Finance Act,1994, this Court is of the view that astatutory authority has to decide theshow-cause notice within the timeprescribed wherever it is possible todo so.

3. In the present case, it is apparent thatit was certainly possible for theadjudicating authority to adjudicateupon the show-cause notice issued tothe petitioner within a period of oneyear at least from the conclusion ofarguments on 03.02.2015, if not earlier.

4. Since that has not been done, thepresent writ petition is liable to beallowed on the short ground oflimitation alone.

Hence, the writ petition was allowed andshow-cause notice dated 25th November,2011 was quashed. Furthermore, therespondents were directed to refund theamount to the petitioner within fourweeks.

(The Author is a Chennai Based CharteredAccountant in practice. He can be reached [email protected])


MANUFACTURE AND OTHER OPERATIONSIN WAREHOUSE REGULATIONS 2019

CA. DEBASIS NAYAK

The provision of warehousing of importedgoods without payment of customs dutiesin Customs Bonded Warehouses isprovided under various sections of theCustoms Act, 1962. In a common parlance,there are only private and publicwarehouses concept wherein the importercan store the goods without payment ofcustoms duties otherwise leviable onimport. However, Finance Act, 2016introduced a new concept of Specialwarehousing to store sensitive goods.Finance Act, 2016 have also simplifiedwarehousing provisions as to move fromphysical control to record based controland inserted a concept of Specialwarehouse. Moving from storing of goodsto Manufacture in bonded warehouse,Section 65 permits manufacturing also inbonded warehouse. We have capturedvarious types of warehousing below forease understanding:

Types of Warehousing under Customsregulations

• Public Bonded Warehouse (Section 57)– This is regulated by PublicWarehouse Licensing Regulations,2016. Under this regulation, anyperson can store the goods in thiswarehouse. It is used for the purposeof trading.

• Private Bonded Warehouse (Section58) – This is regulated by PrivateWarehouse Licensing Regulations,2016. Only the Licensed goods can bestored in Private warehouse. It is usedfor the purpose of trading.

• Special Warehouse (Section 58A) – Theconcept of special warehouse isinserted by Finance Act, 2016 toprovide for a new class of warehouseswhich require continued physicalcontrol and will be licensed for storingrevenue sensitive goods. The boardmay specify the goods to be depositedin this warehouse. This is regulated bySpecial Warehouse LicensingRegulations, 2016.

• Manufacturing and Other Operationsin Warehouse (Section 65) - Explainedbelow

Section 65 of the Customs Act, 1962(hereinafter referred to as, “the Customs


Act”) provides for manufacturing as wellas carrying out other operations in abonded warehouse. Earlier, Under section65, the Board has prescribed “Manufactureand Other Operations in WarehouseRegulations, 1966” (MOOWR, 1966).Hence, the concept of manufacturing andother operations is not newlyimplemented. However, it has notattracted the attention of the investors dueto difficult procedures and licensingrequirements. Under MOOWR, 1966, toconvert a new or existing facility into abonded manufacturing premises, it ismandatory to seek license under section58 (that converts a premise to bondedwarehouse) along with a license undersection 65 (that permits manufacturing orother operations). To overcome such duallicensing requirement to the manufacturer,the board has issued a Circular No. 34/2018-Customs dated October 18, 2018prescribing the form of application forseeking grant of license as a privatebonded warehouse as well as permissionto carry out manufacturing or otheroperations into a single form.

With the Government’s continuous effortsto promote India as the manufacturing hubglobally and the commitment towardsease of doing business, the Board hasissued Manufacture and Other Operationsin Warehouse Regulations 2019(“MOOWR, 2019) in supersession of theMOOWR, 1966 to streamline the

procedure, documentation andcompliances to be followed under Section65 of the Customs Act vide notificationno. 44/2019-Customs (N.T) dated June 19,2019.

The Board has further received variousrepresentations from the trade andpotential investors seeking clarificationson various issues. Considering this andwith a view to provide clarity andpredictability and to facilitate investments,the Board has issued revised Manufactureand Other Operations in WarehouseRegulations 2019 (no. 2 regulations)(MOOWR, 2019) vide Notification No.69/2019-Customs (N.T.) dated 01.10.2019 insupersession of earlier Notification No.44/2019- Customs (NT) and a revisedCircular 38/2018-Customs in aconsolidated and integrated manner withearlier Circular 34/2018 to covers thefollowing in detail:

• procedures and documentation forunits operating under Section 65 in acomprehensive manner,

• application for seeking permissionunder section 65,

• provision of execution of the bond bythe licensee,

• receipt, storage and removal of goods,

• maintenance of accounts and conductof audit


The said circular and regulation are self-contained and accordingly the provisionsof Warehouse (Custody and Handling ofGoods) Regulations, 2016, and theWarehoused Goods (Removal)Regulations, 2016, which provides forprocedure for custody and handling ofgoods in and removal of goods frompublic and private bonded warehouses, isnot applicable for warehouses operatingunder section 65.

Eligible Person for Operating underMOOWR, 2019

The following persons shall be eligible toapply for license under these regulations,-

(i) a person who has been granted alicence for a warehouse under section58 of the Act

(ii) a person who applies for a licence fora warehouse under section 58 of theAct, along with permission forundertaking manufacturing or otheroperations in the warehouse undersection 65 of the Act synchronously

Advantage of MOOWR Scheme, 2019

• Unlimited period of duty defermenton import of raw materials and capitalgoods until clearance to domesticmarket – positive working capital

• No export obligation and limit ofclearance to domestic market

• Seamless transfer of goods from onewarehouse to another withoutpayment of duty

• No Geographical limit; newmanufacturing facility can be set up oran existing facility can be convertedinto a bonded manufacturing facilityirrespective of its location in India.

• Single point of jurisdiction forapproval

• Ease compliance and maintenance ofdigital accounts for receipt, removaland storage of goods in a singleformat;

• No limit on warehousing – importercan store the goods for unlimitedperiod

Procedure for opting MOOWR Scheme

STEP -1 – Filing of Online Form byApplicant

An online application for operating underthese regulations shall be made to thePrincipal Commissioner of Customs or theCommissioner of Customs, as the casemay be https://www.investindia.gov.in/bonded-manufacturing/application-form(Annexure-A of the Circular No. 34/2019-Customs) along with the details includingbusiness details, proposed facility (natureof manufacturing, particulars of imported


goods, final product, intermediateproduct, waste and scraps etc.).

Mandatory documents required such asCertificate of Incorporation, Memorandumand Articles, Documents supportingproperty-holding rights, such as rentagreement, lease deed, Copy ofwarehouse license, if issued earlier,Ground plan of the site with details, Firesafety audit certificate, Work ExperienceCertificate Of Warehouse Keeper, ITR andBalance Sheet etc.

STEP -2 – Verification by Customs officer

After filing the online application as perspecified form, the following process shallbe executed:

• Customs officer (Bond Officer) shallvisit the premise of the applicant forverification in respect to security, fireprotection, IT enabled inventorymanagement system, type ofconstruction, area available forexamination of goods, if required etc.

• DRI / DGGI shall verify thedeclarations provided such asinsolvent or bankrupt, conviction foran offence, penal action etc. in serialno.11 of Part -II of Annexure-A onlineform.

• Customs officer shall provide examinethe premise of the applicant;

STEP -3 – Execution of Bond and otherdetails

The following details shall be obtainedfrom the applicant such as Insurance Policy,undertaking under section 73A of the Act,Indemnity undertaking, Bond as perAnnexure C to the Circular No. 34/2019-Customs, Details of Warehouse keeper etc.

STEP -4 – Grant of License

After due verification of the applicationmade, the Principal Commissioner ofCustoms or Commissioner of Customs, asthe case may be, shall grant permission tooperate under the provisions of theseregulations and it shall remain valid unlessit is cancelled or surrendered.

STEP -5 – Start Manufacturing

After grant of license, applicant shall startthe manufacturing. Pursuant to that,Customs officer will vist the premise tocertify commencement of manufacture orother operations in the Warehouse andexamine the records maintained byapplicant.

Bonded Premises requirements

Regulation 8 of MOOWR 2019 requires thelicensee to provide at the warehouse

• signage that prominently indicatesthat the site or building is a customsbonded warehouse;


• a computerized system for accountingof receipt, storage, operations andremoval of goods (Annexure -B) and;

• such facilities, equipment andpersonnel as are sufficient to controlaccess to the warehouse, providesecure storage of the goods andensure compliance to the regulations.

Further, the regulations do not mandatethat a structure fully closed from all sidesis a pre-requisite for grant of license. Whatis important is that the site or building issuitable for secure storage of goods anddischarge of compliances, such as properboundary walls, gate(s) with access controland personnel to safeguard the premises.

Therefore, Principal Commissioner/Commissioners should take intoconsideration the facilities, equipment andpersonnel put in place for secure storageof goods, while considering grant oflicense.

How does MOOWR Scheme, 2019 works?

1. Duty Deferment on import of rawmaterials and capital goods

Customs duties or Integrated GST isnot payable or deferred at the time ofimport of raw materials and capitalgoods into the bonded warehouse.Duties on imported raw materials andcapital goods used in manufacturing orother operations are deferred until

clearance of finished goods. If suchmanufactured goods are exported,deferred duty is waived.

2. Domestic Procurement of raw materials andcapital Goods and Services

There is no restriction on procurementof raw materials, capital goods andservices from DTA Market. However,it has to be procured with payment ofapplicable GST and there is noexemption.

3. Export of manufactured goods

Duty on raw material is waived in casefinished goods are exported. Further,capital goods can also be sold toforeign manufacturer after utilizationwithout payment of duty.

4. Domestic clearance

On clearance of the finished goods tothe domestic market, importer has topay of customs duty, cess on the valueof the raw material imported and GSTon the value of the finished goods.Further, for clearance of capital goods,importer has to pay customs duties,cess and GST on depreciated value (asper depreciation schedule in IncomeTax Act). If the raw materials andcapital goods are cleared as such theninterest is levied on duty deferredbeyond 90 days.


Maintenance of Records and Filing ofReturn

1. A licensee shall maintain the followingdocuments -

• maintain detailed records of thereceipt, handling, storing, and removalof any goods into or from thewarehouse as per Annexure-B digitallyand produce the same to the bondofficer, as and when required;

• keep a record of each activity,operation or action taken in relation tothe warehoused goods;

• keep a record of drawal of samplesfrom the warehoused goods under theAct or any other law for the time beingin force; and

• keep copies of the bills of entry,transport documents, Forms fortransfer of goods from a warehouse,shipping bills or bills of export or anyother documents evidencing thereceipt or removal

2. The above records shall be preservedfor the period of minimum five yearsfrom the date of removal of the goodsfrom the warehouse

3. A licensee shall file with the bondofficer a monthly return of the receipt,storage, operations and removal of the

goods in the warehouse, within tendays after the close of the month towhich such return relates.

Receipt and Removal of Goods frombonded warehouse

Prior permission of the proper officer isnot an essential condition for removal ofthe warehoused goods considering therequirement and nature of the product toclear expeditiously. However, a licenseeshall require to file the due documentation(such as the Form for transfer of goodsfrom a warehouse, bill of entry andshipping bill, respectively) and pay theduties due.

Audit and Penalty

• The proper officer may conduct auditof a licensee in accordance with theprovisions of the Customs Act and therules made thereunder

• If a person contravenes any of theprovisions of these regulations, orabets such contravention or fails tocomply with any of the provision ofthese regulations, he shall be liable toa penalty in accordance with theprovisions of the Act.

(The author is Chennai based CharteredAccountant. He can be reached [email protected])


INTEREST ON LATE TAX PAYMENT UNDER GST

CA. HARINI SRIDHARAN

What makes interest so interesting!

Daniel Dennett once said, “The wayevolution always discovers reasons is byretroactive endorsement.” This philosophyholds no relevance with our sproutingGoods and Services Tax (‘GST’)legislation, since there is no past to bankon.

It is a principle that, Businesses will haveto shelter itself from various exposuresthat will lead to its fall. But if one pierceshis eyes beneath the great beetlingbusinesses brow, what glitters as the‘worry line’ is the levy of Interest underGST.

The parent section governing the levy ofInterest under GST is Section 50 of CentralGST Act, 2017 (‘CGST Act’), the relevantexcerpts of Section 50, i.e. sub-section 1 ofCGST Act is reproduced below forreference.

50. (1) Every person who is liable to pay taxin accordance with the provisions of this Act,or the rules made thereunder, but fails to paythe tax or any part thereof to the Governmentwithin the period prescribed, shall for the periodfor which the tax or any part thereof remainsunpaid, pay, on his own, interest at such rate,not exceeding eighteen percent, as may benotified by the Government on therecommendations of the council.

Takeaways from plain reading of theSection are as follows:

1. Every person who is liable to pay tax,but fails to pay, is liable for interest.

2. Interest is levied on the part of the taxremaining unpaid.

3. Interest is levied for the periodbetween the due date and the actualdate of payment of tax.

4. Interest liability is automatic – since thephrase employed in the Section is ‘payon his own’.

5. Rate of interest shall be such rate asrecommended by the council, with anupper cap of 18%.

Levy of interest – automatic?

It is palpable that Interest liability isautomatic, and it is the obligation on thepart of the taxpayer to pay interestimmediately on defaulting the payment oftax on due date.

But if there are certain objections raisedby the taxpayer on the quantification ofinterest – it cannot be unilaterally decided


by the department, especially when theobjection is with regard to the period orquantum of tax remaining unpaid. Thearithmetic exercise of quantification willhave to be done after considering theobjections of the taxpayer. This has beensupported by the Madras High Courtdecision in case of Daejung MopartsPrivate Limited (Writ Appeal Nos. 2127and 2151 of 2019).

Law vs. GST portal:

Though Section 50 of CGST Act imposesinterest only on the portion of the taxremaining unpaid, it is an irrefutable factthat GST portal is designed in such amanner that unless the entire tax liabilityis paid by the taxpayer, the system will notaccept the return in GSTR-3B form.

So, even if the taxpayer has Input tax creditto the extent of 95% of the total liability,he cannot file the return unless theremaining 5% is also paid. Hence thoughsuch a restriction is not imposed by thelegislation, it is a realistic datum that everytaxpayer has to face.

Gross or net:

The legislation effective 1st July 2017 didnot provide the needed clarity of whetherthe levy of interest is on gross liability orthe net liability remaining after setting offthe Input tax credit.

In the 31st GST Council meeting held atNew Delhi on 22nd December 2018, in-principle approvals were obtained for

certain amendments – one suchamendment relates to Interest provisions.The relevant excerpts of Press release ofMinistry of Finance in this regard read asfollows:

“Amendment of Section 50 of the CGST Actto provide that interest should be charged onlyon the net tax liability of the taxpayer, aftertaking into account the admissible input taxcredit, i.e. interest would be leviable only on theamount payable through the electronic cashledger

The above recommendation of the Council willbe made effective only after the necessaryamendment in the GST Acts are carried out”

To our utter dismay, the Amendment wasnot carried out in the Act and were stillon paper till it was inserted throughFinance Act, 2019 enacted on 1st August2019, but reserved to be notified on a laterdate.

Gujarat High Court in case of MeghaEngineering & Infrastructure Limited(Writ Petition No. 44517 of 2018) deliveredon 18th April 2019 was the first everdecision in this regard. Writ against levyon Interest on gross tax liability wasdismissed by stating that no claim to Inputtax credit can be made unless the returnsare filed. Relevant excerpts from thejudgements are given below for reference:

“until a return is filed as self-assessed, noentitlement to credit and no actual entry ofcredit in the electronic credit ledger takes place.


As a consequence, no payment can be madefrom out of such a credit entry. It is true thatthe tax paid on the inputs charged on anysupply of goods and / or services, is alwaysavailable. But, it is available in the air or cloud.Just as information is available in the serverand it gets displayed on the screens of ourcomputers only after connectivity is established,the tax already paid on the inputs, is availablein the cloud. Such tax becomes an input taxcredit only when a claim is made in the returnsfiled as self-assessed.”

The Honorable Gujarat High Court deniedinterpreting Section 50 of CGST Act, 2017in the light of the proposed amendmentin the 31st GST council meeting, since itwas still on paper.

Amendment to Section 50 of CGSTAct, 2017:

Finally, the approval obtained in the 31stGST Council meeting was enacted on 1stAugust 2019 by way of amendment toSection 50 of CGST Act, 2017, but with adate yet to be notified.

Proviso was inserted to Section 50 ofCGST Act, 2017 which is as follows:

“Provided that the interest on tax payable inrespect of supplies made during a tax period anddeclared in the return for the said periodfurnished after the due date in accordance withthe provisions of Section 39, except where suchreturn is furnished after commencement of anyproceedings under Section 73 or Section 74 inrespect of the said period, shall be levied on thatportion of the tax that is paid by debiting theelectronic cash ledger”

The proviso seeks to note that the interestliability arises only on the amount due tobe paid but not paid in cash. The onlyexception provided is filing of returnsupon determining the tax not paid / shortpaid / erroneously refund / ITC wronglyavailed or utilized by a proper officer ofthe department.

When the taxpayers were about to havea sigh of relief, by concluding that nointerest would get attracted on amountavailable in electronic credit ledger incase of delayed filing of self-assessedreturns, there came in a question as towhether this amendment is prospectiveor retrospective or even effective?

Retrospective or Prospective or noteffective – Revenue’s viewpoint?

When things were chaotic, an Intra-departmental communication dated 10thFebruary 2020 which was meant only forthe Revenue Officers consumption, warilygot publicized.

In the said communication, Section 50without any reference to the Proviso andSection 75(12) (relating to the recoveryprovisions relating to self-assessedreturns) was quoted and the field officerswere directed to initiate recoveryproceedings of interest on gross taxliability from taxpayers.

It is to be noted that this internalcommunication was issued after 6 monthsof enacting the amended Act.


A target collection of Rs 46000 crorestowards interest liability was given on thestrength that the Proviso to of Section 50of CGST Act, 2017 is YET TO BENOTIFIED.

This intentionally publicized internalcommunication came like a caution to thosewho were contemplating whether theapplicability of the Proviso to Section 50of CGST Act can be retrospective !

Approach of the Courts – Proviso toSection 50:

Though Department had made itsapproach clear on its take, the judges ofthe courts did not fail to rule by exercisingtheir judicial temperament.

Temporary solutions have been offered bythe Delhi High Court in case of M/s.Landmark Lifestyle (Civil Writ PetitionNo. 6055 of 2019 and Civil MiscellaneousNo. 26114 of 2019) and Gujarat High Courtin case of Amar Cars Private Limited(Special Civil Application No. 4025 of2020) by granting stay on recovery ofinterest on gross tax liability until furtherorders.

But the wizardry came from the MadrasHigh Court in case of Refex IndustriesLimited (Writ Petition No. 23360 and 23361of 2019 & Writ Miscellaneous PetitionNos. 23106 and 23108 of 2019). TheHonorable Dr. Justice Anita Sumanthconclusively pronounced that Interest isapplicable only on net cash liabilityretrospectively and held as follows:

i. proper application of Section 50 is onewhere interest is levied on a belatedcash payment. Interest is not to belevied on ITC available all the whilewith the Department to the credit ofthe assessee. The ITC available withthe Department is, neither belated nordelayed.

ii. Credit will be valid till such time it isinvalidated by recourse to themechanisms provided under theStatute and Rules

iii. Proviso inserted to Section 50(1) seeksto correct an anomaly in the provisionas it existed prior to such insertion.Hence such Proviso is to be read asclarificatory and operativeretrospectively.

Reaffirmed by GST Council meeting:

Without any recourse, the GST councilhad finally accepted the standpoints of thecourts and held that Interest is applicableonly on Net cash liability retrospectivelyin the 39th GST Council meeting held on14th March 2020 in New Delhi.

As “Happy endings come after a storywith lots of ups and downs” – story ofInterest has concluded with a happyending that Interest is applicable only onNet liability from the date of introductionof GST.


The entire world is taking its best effortsto fight the six-letter demon which ischallenging the survival of the humanecosystem- ‘CORONA (aka COVID-19)’The impact of the Virus has certainly setthe alarm bells ringing in the entireworld’s clock. This battle requires supportin all forms possible.

In India, while all efforts are in place bythe Government to overcome thissituation, many noble corporates havecome forward and committed to provideassistance to help fight this battle out bothfinancially and by offering assistancethrough essential goods and services.

To encourage such contributions, theMinistry of Corporate Affairs (MCA) videGeneral Circular No. 10/2020 dated23.03.2020 had clarified that spendingfunds for COVID-19 would be regardedas an eligible CSR activity. Thoughcorporates are providing assistance inthese distress times without anyconcomitant expectations to provide suchassistance, the authors in this Articlewould try and deal with the benefitsunder GST which may arise from suchassistance.

Before dwelling further, let us understandthe basic nitty-gritties of CSR. CSR, as aconcept, is based on the idea that a

CA RAHUL JAIN & CA. V. BARATWAJ

COVID-19 CONTRIBUTIONS BY CORPORATES -THE GOVERNMENT MUST RETURN THE FAVOUR

business entity is responsible not only toits shareholders and other stakeholdersbut also for the society as a whole. It ison the premise that when the society isallowing businesses to exist and grow, thebusiness must also contribute to thesociety’s well-being. Keeping in view therole companies can play in upbringing thesociety, the Companies Act 2013, videSection 135 has made it mandatory forcertain categories of companies to spendsome percentage of its profits in specifiedactivities mentioned in Schedule VII everyyear. The activities mentioned in ScheduleVII are aimed at improving the welfare ofthe society as a whole.

In this background, considering that manycorporates are not only opting for cashcontributions but are also procuring goodsand services for the benefit of the society,an interesting question which may arise iswhether such expenditure on providinggoods and services which is part of the


CSR activities as per the MCA Circularwould be eligible to be claimed as InputTax Credit (ITC) under Goods andServices Tax (GST) Law?

Basic eligibility for ITC under GST

For a business to claim ITC under GST,there are two basic tests to be fulfilled:

• Such item must be an input or inputservice and

• Such item must be used in course orfurtherance of business

The terms inputs and input services aredefined under the GST law in a very widemanner. While input means any goodswhich are not capitalized in books ofaccounts, input service encompasses allservices other than those excluded. TheCSR expenditure incurred by corporatesmay be in the form of providing food,equipment, kits, facilities for transport,daycare and shelter and any other kind ofsupport for the affected persons.

Considering that the CSR expenditure inthe form of goods is debited in theStatement of Profit & Loss and not carriedforward as ‘Assets’ and the servicesoffered by corporates are not covered inthe exclusions from input services, the CSRexpenditure by corporates can beregarded as ‘inputs’ and ‘input services’.

The second test for an item to be eligiblefor ITC is that the expenditure must be incourse or furtherance of business of thecorporates. This is where the real point ofdiscussion arises. In this regard, it isimportant to understand as to whatconstitutes ‘business’ for the corporatesfor the purpose of GST Law.

The term ‘business’ is defined under theGST law in a very wide manner toinclude trade, commerce, manufacture,and also activities which are incidental orancillary to such activities. The term‘incidental or ancillary’ is very wide andincludes activities which are integral andinextricably linked to the business1.

Considering that corporates areresponsible to society as a whole, CSR andbusiness cannot be separated. Further, nobusiness entity can be completely absolvedof its responsibility without taking care ofthe social needs. For the existence ofbusiness, CSR becomes an importantaspect. Hence, it could be argued that CSRactivities are ‘incidental or ancillary’ to thebusiness of corporates.

Judicial precedents on the aspect ofwhether credit would be eligible inCENVAT

While there are no judicial precedents inthe context of GST on whether CSRexpenditure would be regarded as

1 Keshaodeo Shivprasad vs Union of India [1992 (61) ELT 404 (MP)]


incidental and ancillary to business andeligible for credit, there are certainprecedents in the CENVAT credit regimewhere credit has been allowed on CSRactivities.

In Northern Coalfields Ltd. vsCommissioner 2, it was held thatexpenditure on Corporate SocialResponsibility is a statutory requirementunder the Companies Act and when it isclearly in relation to the activity ofmanufacture, CENVAT credit would beeligible.

In Essel Propack Ltd vs Commissioner ofCGST3, it was held that CSR is not charitysince it has a direct bearing onmanufacturing activity of company that islargely dependent on smooth supply ofraw materials. Further, CSR also augmentscredit rating of company as well as itsstanding in corporate world. Hence, thecredit was held to be eligible.

It shall be noted that both the abovedecisions were rendered in the context of‘manufacture’ whereby the credit washeld to be eligible since the CSR activityhad close connection with ‘manufacture’.In our view, the term ‘business’ is a much

wider term in comparison to‘manufacture’. In fact, the definition of‘business’ includes ‘manufacture’. Hence,once it has been held that CSRexpenditure can be availed as credit in thecontext of ‘manufacture’, credit should beeligible in the context of ‘business’ too.

Resort to provisions of connectedlegislation

In this context, provisions of Income TaxAct, 1961 could also be looked at. Section37 allows deduction from business profitsin respect of any expenditure, not coveredin any other provisions, which are whollyand exclusively incurred for the purposeof business or profession. Explanation 2 ofthe said section, inserted w.e.f AY 2015-16 states that expenditure incurred byassessee on CSR activities underCompanies Act, 2013 shall not be deemedto be expenditure for the purpose ofbusiness or profession.

It has been held in various decisions4 inIncome Tax that Explanation 2 is onlyprospective in nature. Prior to AY 15-16,companies would be eligible to claim CSRexpenditure as deduction under Section 37since such expenditure is in relation to

2 2020(2) TMI 1004- CESTAT New Delhi3 2018 (362) ELT 833 (Tri.-Mum)4 a. National Small Industries Corpn. Ltd vs DCIT [2019 103 taxmann.com 288 (Delhi-Trib.)],b. ACIT vs Jindal Power Ltd. [2016 70 taxmann.com 389 (Raipur-Trib.)]c. Bengal NRI Complex Ltd. vs DCIT (ITAT Kolkatta) ITA No. 2231/Kol/2017


business. Post AY 15-16, in view of theExplanation, companies would not beeligible to claim CSR expenditure which isincurred under the Companies Act, 2013as deduction, even though suchexpenditure is in relation to business.

From the above, it can be seen that, butfor the explanation, CSR expenditurewould have been deductible underIncome Tax as incurred for the purpose ofbusiness. It shall be noted that there is nosuch restriction under GST law like in caseof Income Tax.

Thus, in the GST regime where thedefinition of ‘business’ is wide and in theabsence of a specific exclusion as in caseof Income Tax, ITC seems to be availablein respect of CSR expenditure.

Is there any provision in GST law whichcould be invoked to state that suchcontributions are ineligible to be claimedas ITC?

While there are certain basic conditions forclaiming ITC under GST law, there arecertain other provisions which state thatthough the basic tests for claiming ITC aresatisfied, ITC is still ineligible. One suchprovision is Section 17(5) of the CentralGoods and Services Tax (CGST) Act, 2017.The relevant clause in Section 17(5) isclause (h) which states that goodsdisposed of by way of gift is not eligiblefor ITC.

A question arises as to whether theequipment, kits, etc. which are providedby the corporates free of cost would beregarded as a ‘gift’ and hence not eligibleas ITC. There is a need to understand asto what is a ‘gift’.

According to Merriam WebsterDictionary, the meaning of gift is,“something voluntarily transferred byone person to another withoutcompensation; the act, right, or power ofgiving.”

Black Law Dictionary inter alia states thatgift is “a voluntary conveyance of land, ortransfer of goods, from one person toanother, made gratuitously, and not uponany consideration of blood or money.”

Further, Australian GSTR 2001/ 6 inter aliastates that, ‘for a supply to be a gift, itmust be transferred to the recipientvoluntarily. It must not be subject to anycontractual obligation and the donorcannot receive an advantage of a materialcharacter for giving away of the gift.

From the various meanings of ‘gift’discussed above, the characteristics of giftscan be deduced as follows-

a) it is made voluntarily;

b) without consideration; and

c) no material benefit should be derivedto donor.


While conditions b) and c) seem to besatisfied in the present case, questionsmay arise with regard to condition a).

There is a possibility to argue that CSR isa statutory requirement and thereforethere is no discretion on part of theCompanies. Thus, expenditure on CSRcannot be termed as made ‘voluntarily’.However, considering that corporateshave themselves come forward andprovided assistance for COVID-19, and noconsideration has flown from thebeneficiaries to the Corporates, theDepartment could take a stand that thesuch expenditure is incurred as a gift‘voluntarily’ and hence, credit is notavailable.

To support such stand of the department,the Hon’ble Authority for AdvanceRulings, Kerala in the case of PolycabWires Private Limited5 had held that freedistribution of electrical items to floodaffected people under CSR activity is to beregarded as ‘gift’ and hence ITC is noteligible.

Considering the above, this aspect ofwhether spending by companies onproviding equipment, kits, etc. would beeligible for ITC, could end up in litigations

where companies would need to provethat the assistance provided is not whollyvoluntary and hence not covered by theaforesaid ineligibility.

Another interesting aspect to beconsidered is that the above ineligibilityis only in respect of gift of ‘goods’.Therefore, when companies offer facilitiessuch as medical facilities, transportation,space for essential purposes, etc., for careand support of affected people, theineligibility is not attracted.

Embargo under the Companies Act

It is important to note that as per Rule 4of the Companies (Corporate SocialResponsibility) Rules, 2014, activitiescarried on in normal course of businesscannot be regarded as CSR Activities. Theterm ‘business’ is accompanied by thewords ‘normal course’ which in simpleterms means in the ordinary or usualcourse. The phrase ‘Normal course’has been defined by some dictionaries6

as ‘As things typically unfold, take place, or happen’. Ordinarilythe COVID-19 Pandemic being witnessedby us and the resultant contributionstowards the same can by no stretch ofimagination be said to be something in the

5 2019(24) GSTL 103 (AAR-GST)6Macmillans Dictionary and www.lawinsider.com


normal course of business and hence,would qualify as CSR. The lingeringquestion which still remains open is thatthough these are not made in the normalcourse of business, can these otherwise besaid to be as incidental or ancillary to themain business. In other words,contribution to COVID-19 being a one-time expenditure, a question arises as towhether it can still be treated as incidentalor ancillary.

In this regard, in Income Tax context, theHon’ble Supreme Court in Sri VenkataSatyanarayana Rice Mill Contractors Co.vs CIT7 has held that donations made toChief Minister’s Drought Relief Fund orDistrict Welfare Fund for the benefit ofpublic and for the purpose of assessee’sbusiness shall be allowed as deductionwhether such donations are madevoluntarily or at the instance of authoritiesconcerned.

Accordingly, it can be seen that even one-time payments could be availed asdeduction under Income Tax when it canbe established that such payments arerelated to assessee’s business. From theabove, considering the fact that CSR hasan important connect with business of acompany, even contributions for COVID-19, though one-time payments, could beregarded as incidental or ancillary tobusiness of the assessee.

Conclusion

To conclude, the authors feel that theassistance by corporates towards COVID-19 may be regarded as incurred in courseor furtherance of business under GST.Further, in the absence of a specificprovision in GST Law as in case of IncomeTax Law, a stand could be taken that suchcontributions by corporates are eligible forITC under GST.

However, applying the ineligibilityprovision under Section 17(5)(h), theDepartment could contend that theexpenditure on ‘goods’ is in nature of giftand not eligible for ITC, which may endup in litigations.

Considering that the Corporates are beingbenevolent in opening up their purses forthe greater good of the society, theGovernment must extend the reciprocityby allowing ITC as well as deductionunder Income Tax in respect of assistancetowards fighting COVID-19. In thisregard, a suitable clarification may beissued by the Government. Such act ofmutual support would increase thebonhomie between the Government andCorporates which is the need of the hour.

[Rahul Jain is Joint Partner and V.Baratwaj is Associate in Lakshmikumaran& Sridharan, Chennai. Views expressedare strictly personal]

7 1996 (6) SCC 611


NCLAT BENCH CHENNAI - SOME FAQ'S

Mr. ANANT MERATHIA -Advocate, Chennai1

The Ministry of Corporate Affairs (MCA)in a very relevant measure has announcedthe setting up of a Bench of the Hon’bleNational Company Law AppellateTribunal (NCLAT) Bench at Chennai a fewdays ago. This was done by the Ministry’snotification dated 13 th March 2020,notifying this constitution of a NCLATBench at Chennai vide its notification withRef No. MCA N/No/S.O. 1060(E). Thefirst NCLAT Bench is situated at Delhiand has been functional for about threeyears. This move has been by and largeappreciated by stakeholders and thisarticle we will evaluate some fundamentalaspects and very frequently askedquestions on this subject.

The Chennai Bench is to hear appeals fromthe National Company Law Tribunal(NCLT) Benches situated in states (1)Karnataka, (2) Tamil Nadu, (3) Kerala, (4)Andhra Pradesh, (5) Telangana, (6)Lakshadweep and (7) Puducherry. ThisBench will be in addition to the PrincipalBench of the NCLAT at New Delhi whichshall continue to hear appeals other thanthose in the jurisdiction of Chennai Benchof the NCLAT.

While the Circular has been sharedamongst various Social Media and SharingApps, ensuring awareness, there aremultiple queries raised by stakeholdersnamely the parties in the litigation,

lawyers and other professionals includingInsolvency Professionals. Some of themost immediate questions have beenaddressed in this Article.

What types of cases will be heard in thisNCLAT, Chennai Bench?

The NCLT’s across the nation havejurisdiction to hear cases primarily relatingto the subjects of:

a) Disputes under Oppression andmismanagement under Companies Act

b) Disputes relating to transfer of sharesunder Companies Act

c) Schemes of merger, demerger, capitalreduction, etc. under Companies Act

d) Cases under Insolvency andBankruptcy Code, 2016

e) Restoration of companies underCompanies Act

Up until the date of notification, allmatters pertaining to the above mentionedsubject matters were appealed to the

1 Refer : NCLAT notice dated 24.03.2020 on preventive measures to contain Covid-19


NCLAT Bench at Delhi. However, withthe constitution of the latest NCLATBench at Chennai, matters appealed fromNCLT Benches at Chennai, Bangalore,Kochi, Hyderabad and Amravati will beheard and decided at the Chennai Bench.This is basically pertaining to mattersrelating to the Companies havingregistered office in these states.

Is it not limited to cases under IBC,2016?

It is essential to step a few years back intime, to understand this concept better.The Company Law Board was establishedin 1991 which heard matters primarilyrelated to Oppression andMismanagement and Disputes on Transferof Shares. A few years later a regionalBench was set up at Shastri Bhavan,Haddows Road, Chennai. The regionalBench at Chennai heard matters relatingto Companies having registered office atthe four southern states (Andhra Pradesh,Karnataka, Kerala and Tamil Nadu) &Pondicherry. The jurisdiction of matterspertaining to Schemes of Companies andwinding up vested in the High Courts ofthe respective States. In 2016-17, TheNCLTs were established, and thejurisdiction of both these fora was shiftedto the respective NCLTs.

This circular more or less takes us back tothe same jurisdictional purview of the CLB,of course with the inclusion of the newstate, Telangana. Hence matters

pertaining to NCLTs in the Southerndemarcation shall be heard and not onlyIBC matters.

How does the appeal system work?

The Code provides for matters in theNCLT to be appealed in the NCLAT andthere are certain legal provisionsindicating that Civil Courts would notinterfere in matters especially relating toIBC, 2016. However it has been a matterof debate as some issues have beenconsidered under appeal/writ jurisdictionin the Hon’ble High Courts. Given thatIBC is an evolving law it might take acouple more years for this issue to beestablished. But as a by and large rules,appeals from the NCLTs across the nationare made to the NCLAT and subsequentlyto the Hon’ble Supreme Court.

Impact on cases or litigants?

It is anticipated that the new NCLATBench at Chennai will be a helpful movein the interest of cases and appeals as thesole NCLAT Bench is gettingoverburdened at the Principal Bench atDelhi. Setting up a dedicated regionalbench for cases from the southern part ofthe country will also facilitate litigants topursue their appeals at Chennai itselfwhich could be relatively more accessibleand convenient. There would certainly bereduction in time and costs involved infiling & handling of such appeals for thelitigants making it more user-friendlytowards the interest of speedier justice.


When will the NCLAT, Chennai beginfunctioning & what is the status ofpending cases in Delhi?

Given that the infrastructure is yet to becompleted and still being set up, theNCLAT Bench at Chennai might take afew weeks or a few months to get fullyfunctional and operational, also given thecurrent situation. Given the way thingshave worked in the past it is mostprobable that the NCLAT Registry atDelhi could start shifting of files ofpending status to the Chennai Bench andthis logistics process would take the timeas mentioned above.

Given that the time period to make anappeal is a very limited at the appeal level,it would be expected that the Benches atDelhi might still entertain urgent reliefmatters from the states until the ChennaiBench is fully operational as litigantscannot be left in a vacuum. Moreover thepresent coronavirus pandemic is likely todelay matters for some time. There havebeen a spate of notifications1 issued byvarious Ministries & NCLAT in wake ofthe pandemic and lockdown; whereby theprincipal bench is also closed and anyurgent matters can only be filed by emailto the registry. Further there was anothercircular indicating that the Chennai Benchis likely to be functional only by June20202 and later notified to state that theDelhi Bench will hear appeals pertainingto the Jurisdiction of Chennai3, which also

at this point appears to be uncertain giventhe overall scenario.

All that can be said is that once things getback to normal; the Bench would startfunctioning but with some delay.

Would the cases be heard afreshwhich are at appeal level? Have theappointments of members been made?While it would be difficult to answer thisat this stage, again from past experienceswhen a new Bench is constituted to hearcases; usually the same starts afresh whichat times mean starting all over again. Butthis aspect will have to be seen on apractical level.

With respect to appointments; certainappointments of members were made awhile ago and it is expected that somefrom them would take charge and presideover the cases at Chennai Bench. Anotification dated 17.03.2020has beenissued by Hon’ble NCLAT mentioning ajudicial and a technical member likely totake charge in Chennai.

Any likelihood of similar regional appealbenches and other places?There could be a possibility of setting upsimilar appellate Benches in Mumbai &Kolkata for cases emanating out of therespective western and eastern regions ofthe country. But this is again a matter ofdiscussion for the future and nothingconcrete can be stated unless there is anofficial circular from the Government.

2 NCLAT Notice on Chennai Bench issued on 16.03.20203 NCLAT Notice on Chennai Bench issued on 17.03.2020


A DISCUSSION PAPER ON CHAPTER III- DIRECT TAXES OFFINANCE ACT, 2020 - FEBRUARY & MARCH, 2020

CA. VIVEK RAJAN V

Introduction - Thanking everyone for our Discussion Papers of2016, 2017, 2018 & 2019 (Interim and Final)

The Finance Bill, 2020 (Bill No. 26 of 2020) was presented in LokSabha on 01st February 2020 by Ms. Nirmala Sitharaman, UnionFinance Minister. In Chapter III of Finance Bill, 2020, there hasbeen 104 amendments to the Income-tax Act, 1961. The FinanceBill, 2020 got the assent of the President of India on 27th March2020 and thereby becoming THE FINANCE ACT, 2020[ACT NO 12. OF 2020]

Scope of the Discussion Paper

This discussion paper attempts to cover all sections of the Finance Act, 2020 relatingonly to Direct Taxation. This discussion paper attempts to cover all the aspects about theamendments broadly and not in detail. Further unless otherwise specifically mentioned,sections discussed in this paper, relates to Income-tax Act, 1961 and the Finance Act, 2020.Please refer to Finance Act, 2020 and the relevant pronouncements before taking anydecision. The readers are requested to contact the author, in case of errors (which areunintentional) and also in case of divergent views with the author's note.

We thank the readers for giving their support for the 100% coverage attempted for thefirst time for the Budget 2019. Similarly, we are attempting to extend the coverage ofthe discussion paper to all the sections of the Finance Act, 2020 and also to coin FAQ'sto the best extent possible. Giving due consideration to the volume of the discussionpaper and the challenges involved in publishing, we intend to present this in a phasedmanner (April 2020 and May 2020). The sections which are not covered in this month'sbulletin, would be covered in the subsequent months. We sincerely hope that this effortis of value addition to the readers.


Acronym and Description

1. Two regimes for personal tax – Insertion of Section 115BAC

With effect from 01st April 2021 and applies from AY 2021-22 and subsequent AY’s

Present scenario

There is no change in the rates of taxes for individuals, HUF’s, AOP’s and BOI, whencompared to the previous year. The existing slab rates are as under and the tax payerwas entitled to certain allowances and deductions before getting taxed under theserates

FA Finance Act

CG Capital Gains

IFHP Income from House Property

LTCG Long Term Capital Gain

The Act Income Tax Act, 1961

PY Previous Year

AY Assessment Year

PCIT Principal Commissioner of Income-tax

CIT Commissioner of Income-tax

NRI Non- resident Indian

RBI Reserve Bank of India

NCLT National Company Law Tribunal

FMV Fair Market Value

TDS Tax Deducted at Source

TCS Tax Collected at Source


a. For individuals up to the age of 60 years, HUF's, BOI's, AOP etc

b. For individuals with age between 60 years and up to the age of 80 years

c. For individuals above 80 years of age

Income Slab Tax Rates Up to Rs. 2,50,000 Nil From 2,50,001 up to Rs. 5,00,000 5% From 5,00,001 up to Rs. 10,00,000 20% Above Rs. 10,00,000 30%

Income Slab Tax Rates Up to Rs. 3,00,000 Nil From 3,00,001 up to Rs. 5,00,000 5% From 5,00,001 up to Rs. 10,00,000 20% Above Rs. 10,00,000 30%

Income Slab Tax Rates Up to Rs. 5,00,000 0% From 5,00,001 up to Rs. 10,00,000 20% Above Rs. 10,00,000 30%

Amendment

The amended slab rates for all categories of tax payers are as under and there are nospecial provisions for tax payers above the age of 60 years or 80 years

Income Slabs Tax Rates

Up to Rs. 2,50,000 Nil

From Rs.2,50,001 to Rs. 5,00,000 5% (Rebate u/s 87A available)

From Rs. 5,00,001 to Rs .7,50,000 10%

From Rs. 7,50,001 to Rs. 10,00,000 15%

From Rs. 10,00,001 to Rs. 12,50,000 20%

From Rs. 12,50,001 to Rs. 15,00,000 25%

Above Rs. 15,00,000 30%


List of exemptions and deductions that tax payer has to give up

The following is the list of exemptions and deductions that the tax payer has to give upin order to avail the new rates of taxation.

S.No Section Name of the exemption/ deduction/ section

1 Section 10(5) Travel concession or travel assistance received from employer

2 Section 10(13A) House rent allowance (HRA)

3 Section 10(14) Special allowance (not a perquisite) granted to meet expenses incurred for official purposes and dearness allowance

4 Section 10(17) Income by way of daily allowance / allowance/ constituency allowance received by MP/MLA/ any other person having membership of state legislature

5 Section 10(32) Exemption for minor child in case of clubbing of income

6 Section 10AA Special provisions in respect of newly established Units in Special Economic Zones

7 Section 16 Deductions from Salaries

8 Section 24(b) in respect of property u/s 23(2)

Interest payable on borrowed capital – Income from house property

9 Section 32(1)(iia) Additional depreciation

10 Section 32AD Investment in new plant or machinery in notified backward areas in certain States

11 Section 33AB Tea development account, coffee development account and rubber development account

12 Section 33ABA Site Restoration Fund

13 Section 35(1)(ii) Expenditure on scientific research- deduction of 150%


14 Section 35 (1)(iia) Expenditure on scientific research -Any sum paid to a company to be used by it for scientific research

15 Section 35 (1)(iii) Expenditure on scientific research- Any sum paid to research association for undertaking research in social science or statistical research

16 Section 35 (2AA) Expenditure on scientific research – Any sum paid to a National Laboratory or a University or an Indian Institute of Technology or a specified person with a specific direction that the said sum shall be used for scientific research- deduction of 150%

17 Section 35 AD Deduction in respect of expenditure on specified business

18 Section 35 CCC Expenditure on agricultural extension project

19 Section 57(iia) Deduction for family pension

20 Any provisions of Chapter VIA other than section 80CCD(2) or Section 80JJAA

Deductions to be made in computing total income except Section 80CCD (2)-Maximum 10% deduction in case of pension Section 80JJAA- Deduction in respect of employment of new employees

Tax payer to forego

a. Loss carried forward or depreciation from any early AY, to the extentattributable to the list of exemptions/ deductions given in the above table.

b. Loss under the head “Income from house property” with any other head ofincome.

c. The loss and depreciation shall be deemed to have been given full effect to and nofurther deduction shall be allowed.

d. The WDV of block of assets have to be computed again for AY 2021-2022.

e. Tax credit u/s 115JD shall not be available for those tax payers opting for newrates.


Entry/ Exit

Having income from business or profession

Entry

The option has to be exercised within the time limit u/s 139(1) and such option onceexercised shall apply to subsequent AY’s .

Exit

The option can be withdrawn only once for a PY and thereafter the person shall neverbe eligible to exercise option, except where such person ceases to have any incomefrom business or profession.

Not having income from business or profession

Entry

The option has to be exercised within the time limit u/s 139(1).

Exit

The option can be withdrawn at the time of filing of return of income within timelimit u/s 139(1)

Author's note

Example of the tax rates under the new regime

Particulars Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Gross Total Income (Deductions under Chapter VI-A not considered)

2,50,000 5,00,000 6,00,000 8,00,000 11,00,000 13,00,000 15,00,000 18,00,000

Tax Amount

Nil 12,500 22,500 45,000 95,000 1,37,500 1,87,500 2,77,500

Less: Rebate u/s 87A

Nil

12,500 Nil Nil Nil Nil Nil Nil

Add: HEC @4%

Nil

Nil

900 1,800 3,800 5,500 7,500 11,100

Total Tax Payable

Nil

Nil

23,400 46,800 98,800 1,43,000 1,95,000 2,88,600


Example of the tax rates under the old regime for individuals less than 60 years of age

Particulars Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Gross Total Income

2,50,000 5,00,000 6,00,000 8,00,000 11,00,000 13,00,000 15,00,000 18,00,000

Less: Deductions under Chapter VIA

50,000 1,00,000 1,50,000 2,00,000 2,00,000 2,00,000 2,00,000 2,00,000

Taxable Income

2,00,000 4,00,000 4,50,000 6,00,000 9,00,000 11,00,000 13,00,000 16,00,000

Tax Amount

Nil 7,500 10,000 32,500 92,500 1,42,500 2,02,500 2,92,500


Nil

7,500 10,000 Nil Nil Nil Nil Nil

Add: HEC @4%

Nil

Nil

Nil

1,300 3,700 5,700 8,100 11,700

Total Tax Payable

Nil

Nil

Nil

33,800 96,200 1,48,200 2,10,600 3,04,200

Example of the tax rates under the old regime for individuals between 60 years and upto the age of 80 years


2,50,000 5,00,000 6,00,000 8,00,000 11,00,000 13,00,000 15,00,000 18,00,000


50,000 1,00,000 1,50,000 2,00,000 2,00,000 2,00,000 2,00,000 2,00,000

Taxable Income

2,00,000 4,00,000 4,50,000 6,00,000 9,00,000 11,00,000 13,00,000 16,00,000

Tax Amount

Nil 5,000 7,500 30,000 90,000 1,40,000 2,00,000 2,90,000


Nil

5,000 7,500 Nil Nil Nil Nil Nil

Add: HEC @4%

Nil

Nil

Nil

1,200 3,600 5,600 8,000 11,600

Total Tax Payable

Nil

Nil

Nil

31,200 93,600 1,45,600 2,08,000 3,01,600


Example of the tax rates under the old regime for individuals above 80 years of age


2,50,000 5,00,000 6,00,000 8,00,000 11,00,000 13,00,000 15,00,000 18,00,000


50,000 1,00,000 1,50,000 2,00,000 2,00,000 2,00,000 2,00,000 2,00,000

Taxable Income

2,00,000 4,00,000 4,50,000 6,00,000 9,00,000 11,00,000 13,00,000 16,00,000

Tax Amount

Nil Nil Nil 20,000 80,000 1,30,000 1,90,000 2,80,000


Nil

Nil Nil Nil Nil Nil Nil Nil

Add: HEC @4%

Nil

Nil

Nil

800 3,200 5,200 7,600 11,200

Total Tax Payable

Nil

Nil

Nil

20,800 83,200 1,35,200 1,97,600 2,91,200

FAQ’s

1. I am less than 60 years of age. Whether shall I opt for the new rates of tax or continuewith the existing rates of tax.

As can be inferred from the tables above, for a person who is less than 60 years ofage, both the rates are beneficial so much so that up to a Gross Total Income of Rs.11,00,000, the existing rates of tax coupled with availing of deductions under ChapterVI-A would be beneficial.

For persons having Gross Total Income exceeding Rs. 11,00,000, the new rates wouldbe beneficial if tax outflow alone is kept in mind.

2. I am more than 60 years of age but less than 80 years of age. Whether shall I opt forthe new rates of tax or continue with the existing rates of tax.

Similar to the assessee’s whose age is less than 60 years of age, the old rates arebeneficial up to Gross Total Income of Rs. 11,00,000. For persons whose Gross Total


Income is more than Rs. 11,00,000, the new rates are beneficial if tax outflow alone iskept in mind.

3. I am more than 80 years of age. Whether shall I opt for the new rates of tax orcontinue with the existing rates of tax.

In this scenario, the old rates are beneficial up to Gross Total Income of Rs. 13,00,000and thereafter the new rates are beneficial, if tax outflow alone is kept in mind.

4. Now that there are rates of tax that operates without giving effect to erstwhile taxsaving deductions, has there been a consequential amendment to those sections thattax the inflow on account of these deductions.

For example, the maturity proceeds out of a life insurance policy is taxable undersome scenarios and also the withdrawal from Provident fund. If the deduction withrespect to these is not claimed at the time of investment, as a corollary and as aconsequence, the withdrawal / maturity of the same also shall not be taxed.

No, at present there is no consequential amendment in view of the above question.

To conclude, the tax payer either has to work out in detail as to which scheme would bebetter or has to seek professional advice before taking the final call.

Further, the TDS on salary for FY 2020-2021 has already kicked in and the quarterly TDSreturn for Q1 of FY 2020-2021 would be due for filing shortly and if the CBDT can makenecessary changes in the Form 24Q in the meanwhile, it would ensure that irrespectiveof the choice of the tax payer, we have a robust information capturing system in placethat will ensure smooth and hassle free deduction of TDS on salary for FY 2020-2021 asa whole.

(The author is a Chennai based Chartered Accountant in Practice. He can be reached [email protected])