Development of Enterprise and Service Hubs (DESH) & Special economic zones (SEZ)

The government could junk the proposed Development of Enterprise and Service Hubs (DESH) bill as it evaluates the need for a new legislation to overhaul the country’s special economic zones (SEZ).

Officials said discussions are on to amend the existing SEZ Act instead of putting in place a new legislation. “We are still evaluating and everything is on the table. Whether it will be DESH bill or amending the SEZ Act or some new format, the modalities are being discussed,” said an official.

The ministries of finance and commerce & industry have been in discussions on the DESH bill for more than a year. Some of the sticky issues between two ministers are Partial de-notification of zones, sales to DTA, concessional corporate tax for them and removal of net foreign exchange earning requirement.

The amendment to the SEZ Act would address the concerns and long-standing demand for SEZs to be allowed to sell in the domestic market and that all duties foregone on raw materials should be paid back and must also be accommodated.

“There is a thinking that the DESH bill should be scrapped and the SEZ Act should be amended,” said a person familiar with the deliberations.

The existing SEZ Act was implemented in 2006 with an aim to create export hubs and boost manufacturing in the country. However, these enclaves started losing their sheen after imposition of minimum alternate tax and introduction of sunset clause for the withdrawal of tax incentives.

(Source: Economic Times)

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LEGAL UPDATES

Advisory for Online Compliance Pertaining to ITC mismatch -GST DRC-01C

The GSTN has issued Important Advisory No. 614 dated November 14, 2023 for Online Compliance Pertaining to ITC mismatch – GST DRC-01C. The Advisory reads as follows.

1. It is informed that GSTN has developed a functionality to generate automated intimation in Form GST DRC-01C which enables the taxpayer to explain the difference in Input tax credit available in GSTR-2B statement & ITC claimed in GSTR-3B return online as directed by the GST Council. This feature is now live on the GST portal.

2. This functionality compares the ITC declared in GSTR-3B/3BQ with the ITC available in GSTR-2B/2BQ for each return period. If the claimed ITC in GSTR 3B exceeds the available ITC in GSTR-2B by a predefined limit or the percentage difference exceeds the configurable threshold, taxpayer will receive an intimation in the form of DRC-01C.

3. Upon receiving an intimation, the taxpayer must file a response using Form DRC-01C Part B. The taxpayer has the option to either provide details of the payment made to settle the difference using Form DRC-03, or provide an explanation for the difference, or even choose a combination of both options.

4. In case, no response is filed by the impacted taxpayers in Form DRC-01C Part B, such taxpayers will not be able to file their subsequent period GSTR-1/IFF.

(Source: Advisory No. 614 Dated 14.11.2023 issued by CBIC)

ASMT-10 Notice (Automated Return Scrutiny Module)

CBIC introduced an automated return scrutiny module for GST Returns through ACES-GST backend application for central tax officers. This enables officers to scrutinize the GST Returns of the registered taxpayers. Based on data analytics and risk parameters. Return scrutiny module would automatically sends alerts to officers in case of non-compliance. Its objective is to enhance the tax compliance and reduce manual intervention. It streamlines communication and action between tax officers and taxpayers and creates a more efficient and transparent system.

Automated return scrutiny module has already been rolled out, beginning with the scrutiny of GST Returns for the Financial Year 2019-20.

Any discrepancies due to risks associated with a GST return will be flagged and an automated scrutiny notice will be sent out to the taxpayer in Form ASMT-10. These discrepancies are also displayed to the tax officers, who are then provided with a workflow to interact with the taxpayer through the GST common portal. Previously, Form ASMT-10 used to be sent out on the GST portal after tax officers manually picked up GST returns for scrutiny. Now, the GST portal will automatically send out Form ASMT-10 to non-compliant taxpayers detected by the system and then send out alerts to the GST officers.

Once intimated in Form ASMT-10, taxpayers may reply using Form ASMT-11 on the GST portal. If the tax officer finds the action taken and response by the taxpayer to be satisfactory, the officer will acknowledge the same in Form ASMT-12. If not, the officer will issue a show cause notice or initiate an audit or investigation.

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CASE LAW

Personal Guarantee of the Director liable to RCM

Telangana High Court has upheld the liability of a director’s personal guarantee to Reverse Charge Mechanism (RCM) under the Goods and Services Tax (GST). The petitioner contested the requirement to pay GST on the personal guarantee and security provided by the Managing Director to a bank.

[Source: BST Steels Pvt. Ltd vs. Superintendent of Central Tax, (Telangana High Court)]

Inverted duty structure - Refund of accumulated ITC cannot be denied because of Incorrect classification by the supplier

Recently the Delhi High Court has held that denial of refund claim of accumulated Input Tax Credit (ITC) due to inverted duty structure merely because of incorrect classification of goods by the supplier is unjustified and unsustainable in law.

(Source: Simran Chandwani Vs Principal Commissioner of CGST, Delhi North and Ors. (Delhi High Court)]

GST order passed without opportunity of personal hearing: HC directs fresh order

In this case the petitioner contended that:

- The impugned actions are contrary to section 6A of the CGST Act, 2017;

- There is clear duplication of demand;

- Show cause notice was not served and personal hearing was not granted before passing the impugned order.

Having regard to the factual position, the Hon’ble High Court of Punjab and Haryana, has set aside the impugned order and allowed the petition

[Source: Daman Textiles Vs. Union of India (Punjab and Haryana High Court)]

GST & ITC on recovery from employees against canteen / transportation facility

In recent ruling by the Telangana Authority for Advance Ruling has deliberated on GST implications and eligibility for Input Tax Credit in cases where employers provide canteen and transportation facilities to their employees. In this case, the applicant company is engaged in the manufacture and supply of pre-engineered buildings and storage racking systems.

Canteen Services:

GST Implications: The Factories Act, 1948, specifies that factories with more than 250 workers are mandated to provide and maintain a canteen. The applicant contended that the canteen services, as provided to employees, should be considered a perquisite and, therefore, not subject to GST.

The AAR examined the statutory provisions of the Factories Act and referenced Circular No. 172/04/2022, which clarifies that prerequisites provided by employers to employees under contractual agreements are not subject to GST. The AAR agreed with the applicant, stating that canteen services provided as a perquisite are exempt from GST. However, it emphasized that if the canteen services are charged for business purposes, they would be subject to GST at prescribed rates.

Input Tax Credit - The AAR, held that input tax credit on canteen services would be available when it is mandatory for the employer to provide these facilities under the Factories Act, 1948.

Transportation Services:

GST Implications: Kirby Building Systems also provided transportation facilities to its employees and recovered nominal amounts without any commercial objective. The applicant contended that such transportation services, provided as a perquisite, should be exempt from GST. The AAR agreed that if transportation services are provided as a perquisite, they are exempt from GST. However, if charged for business

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purposes, they would be subject to GST at prescribed rates.

Input Tax Credit: The applicant is not under any statutory obligation to provide these services to his employees and the services provided comes under category of personal consumption which makes the applicant ineligible to avail input tax credit on the invoices issued to him by the transporter for transportation of employees as per Section 2(60) of CGST/TGST Act’2017 read with Section 17(5)(g) of CGST/TGST Act 2017.

[Source: Kirby Building Systems & Structures India Private Limited (GST AAR Telangana)]

Diesel supplied free of cost to GTA addible to taxable value.

The Chhattisgarh High Court has held that diesel even though being provided free of cost by the service recipient to GTA service provider has to be added to the value for the purpose of GST.

[Source: Shree Jeet Transport Vs. Union of India (Chhattisgarh High Court)]

Non consideration of the reply violated natural justice – HC grants opportunity for hearing

In a recent judgment, the Gujarat High Court addressed a critical issue involving natural justice principles in the context of a Goods and Services Tax (GST) matter. The Judgment highlights the importance of granting an opportunity of hearing before passing an order.

[Source: Daksh Enterprise Vs Commissioner of State Tax (Gujarat High Court)]

Denial of ITC for difference in GSTR-2A and GSTR-3B for tax period 2017-2018 unsustainable

The Kerala High Court has held that denial of input tax credit merely on the ground of difference between Form GSTR -2A and Form GSTR-3B for tax period 2017-2018 unsustainable. The matter is remanded back to the Assessing Authority to reconsider claim of ITC irrespective of Form GSTR 2A

[Source: Raju Joseph Vs. State Tax Officer (Kerala High Court)] KNOWLEDGE KATTA Overview of GST Rate Structure including Nil-rated and Exempted Supplies

Introduction:

For levy of Goods and Services Tax (GST) taxable event is supply of goods or services or both. Accordingly, following activities would attract GST levy –

- Supply of goods

- Supply of Services

- Supply of both goods and services

- Activities / Transactions as listed in Schedule I appended to the CGST Act (Activities to be treated as “supply” even if made without consideration)

- Activities / Transactions as listed in Schedule II appended to the CGST Act (Activities or Transactions to be treated as “supply of goods” or “supply of services”)

GST at the applicate rate, is payable on all class of goods and services, expect for -

- nil-rated supplies,

- exempted supplies,

- non-taxable supplies,

- zero-rated supplies such as supplies made to SEZ Unit / SEZ Developer for their authorized operations, exports, deemed exports.

- Activities / Transactions as listed in Schedule III appended to the CGST Act (Activities or Transactions which are treated neither as a supply of goods nor as a supply of services)

- non-GST supplies viz supply of Petroleum Crude, High Speed Diesel, Motor Spirit (Petrol), Aviation Turbine Fuel (ATF), Natural Gas and Alcoholic Liquor for human consumption. [For the time being, non-GST supplies have been kept outside the purview of GST Legislation)

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Levy of dual GST

India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. India has adopted the dual GST model keeping in view the Constitutional requirement of fiscal federalism. While the Central GST (CGST) and the State GST (SGST) would be levied concurrently on intra-State supplies, inter-State transactions would be subject to Integrated GST (IGST).

GST rate structure

Most of countries in which GST has been implemented, have preferred to levy GST at one uniform rate. However, in India GST is levied at varying rates such as 0%, 0.01%, 0.25%, 3%, 5%, 12%, 18% and 28%. In addition to GST, Compensation Cess is payable on some sin goods like tobacco products, motor vehicles, aerated waters, coal etc.

No GST is payable on essential goods / services of daily use and / or which are required by layman. [Please refer Notification No.2/2017 C.T. (Rate) dated 28.06.2017 for list of exempted / non-taxable goods under GST].

Classification of goods

Broadly speaking, Customs Tariff has been adopted for descriptive classification of the goods under GST. Under GST, goods have to be classified on the basis of HSN. Rate of GST payable has been linked with classification of the goods and the corresponding HSN.

Classification of Services

Scheme of classification of services and the rate of CGST has been notified by the Government as an Annexure to Notification No. 11/2017 -CT (Rate) dated 28.06.2017. Chapter 99 of the GST Tariff is the ready reckoner for GST rate on services with Service Accounting Code (SAC).

Nil-rated supplies / Exempted supplies

No GST is payable on the class of goods or the services or both which are nil-rated or exempted. In this regard, it would be important to note that in certain cases the benefit of exemption from GST is subject to specified conditions and restrictions.

Further, it would be pertinent to note that the taxpayer making nil-rated and / or exempted outward supplies is not eligible to avail input tax credit (ITC) on the related inputs, input services and capital goods. However, the taxpayer is eligible to proportionate ITC where the inputs, input services or capital goods where the goods and / or service are partly used for effecting taxable supplies including zero-rated supplies. The eligible amount of ITC would be as is attributable to taxable supplies including zero-rated supplies. In case full ITC has been claimed, taxpayer is bound to reverse excess ITC availed in terms of section 17(6) of the CGST Act.

Zero-rated supply

Zero-rated supply means a supply of any goods or services or both in terms of Section 16 of the IGST Act. Section 16 of the IGST Act reads as follows.

Zero rated supply means any of the following supplies of goods or services or both, namely

(a) export of goods or services or both or

(b) supply of goods or services or both for authorized operations to a SEZ Developer or a SEZ Unit.

In respect of zero-rated supplies, the taxpayer is eligible for input tax credit (ITC), even though no tax is payable on outward supplies. This is to ensure that the goods or the services are exported and not the taxes paid on inputs.

Recap of Important points

- The benefit of no GST is subject to specified conditions and restrictions

- of GST payable is linked with the HSN of the goods / SAC of the services

- No ITC can be claimed where no GST is payable on outward supplies, except for Zero Rated supplies

- Pro-rata ITC can be availed if inputs, input services and capital goods are partly used for making taxable outward supplies. Excess ITC availed, if any, on common services or goods has to be reversed.

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Statutory Compliance Calendar - December 2023 Indirect Tax Laws and SEZ, EOU, STP, Non-STP, SHTP Units etc. Legislation Cut Off Date Frequency Particulars (Returns / Form) GST 11 Monthly Outward Supply Return in Form GSTR- 1 GST 20 Monthly Summary Return in Form GSTR-3B GST 10 Monthly Statement of TCS in Form GSTR-8 GST 31st December Annual Annual Return in Form GSTR-9 GST 31st December Annual Reconciliation Statement in Form GSTR-9C SEZ 10 Monthly Service Export Reporting Form (SERF) SEZ 15 Monthly Monthly Performance Report (MPR) SEZ Within 30 days from the last date of the export invoice Monthly SOFTEX SEZ 10 Monthly BLUT Reconciliation and Bond Register submission (physical copy) SEZ 10 Monthly DTA Service Procurement Form (DSPF) STPI 10 Monthly Service Export Reporting Form (SERF) STPI 10 Monthly Monthly Performance Report (MPR) STPI Within 30 days from the last date of the export invoice Monthly SOFTEX Non-STP 10 Monthly Service Export Reporting Form (SERF) Non-STP 10 Monthly Monthly Performance Report (MPR) Non-STP Within 30 days from the last date of the export invoice Monthly SOFTEX Customs 10 Monthly Form A LEI 31st December Annual LEI Number Renewal Notes: Refund of ITC - Application in FORM GST-RFD-01 to be filed within 2 years from the date of Export Reply to the notices issued by the Department - Reply to be filed within the time period as specified in the notice

Disclaimer:

The contents of this newsletter are meant for updating our clients on legal developments and enhancing their knowledge on important issues relating indirect taxation including GST, Customs, SEZ, NON STPI Units, matters administered by DGFT, Customs SVB etc.

The contents of this newsletter should not be considered as our opinion on the subject. Should you need our opinion on any of the matters covered in this newsletter, we would be happy to provide our opinion on receipt of your reference.