nitya|indirect tax bulletin
TRANSCRIPT
NITYA|Indirect Tax Bulletin AUGUST 2021| Week 3
August 25, 2021
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Index
LEGAL PRECEDENTS .................................................................................................................................................. 3
PART A: WRIT PETITIONS ........................................................................................................................................... 3
1. Challenge to provision linking availability of Input Tax Credit to payment of tax by supplier ............................ 3
2. Recovery of ITC basis demand letter ...................................................................................................... 3
PART B: ADVANCE RULINGS ..................................................................................................................................... 3
1. GST on incentive received from Government ........................................................................................... 3
2. Deduction of subsidy from value of solar system ...................................................................................... 4
3. ITC eligibility on land lease .................................................................................................................... 4
OTHER UPDATES ......................................................................................................................................................... 6
PART A: RECENT NOTIFICATIONS ............................................................................................................................ 6
1. Verification of Preferential Certificates of Origin ........................................................................................ 6
RECENT NEWS ............................................................................................................................................................. 7
1. Auto sector fears higher GST rate on certain parts after Supreme Court ruling ............................................. 7
2. Industry seeks review of tax refund scheme ............................................................................................. 7
3. Government plans relief for defaulting exporters ....................................................................................... 7
4. Companies seek clarity on depreciation on capital goods imported to bonded warehouses ............................ 7
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PART A: WRIT PETITIONS
1. Challenge to provision linking availability of Input Tax Credit to payment of tax by supplier
The Petitioner challenged vires of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017
(‘CGST Act’) which allows Input Tax Credit (‘ITC’) only when supplier has deposited tax on the ground
that it does not have control over seller so as to ensure that seller deposits tax with the Government.
The High Court admitted the petition. The Court also granted interim relief directing the revenue for
removing attachment of Electronic Credit Ledger.
Sahil Enterprises v. UOI, 2021-VIL-583-TRI
2. Recovery of ITC basis demand letter
The Petitioner challenged demand letter seeking reversal of ITC on the ground that supplier failed to
deposit tax with Government.
The High Court noted revenue’s submission that demand letter is only an intimation. The Court held for
taking action for recovery of ITC, revenue must proceed with procedure provided under
Sections 73 and 74 of the CGST Act.
Narula Menthol Industries v. UOI, 2021-VIL-586-UTR
PART B: ADVANCE RULINGS
1. GST on incentive received from Government
The Applicant was a multi-state Schedule Co-operative bank providing loans without securities up to
Rs. 1 lakh to customers at 8% interest rate. Out of 8% interest, 2% interest portion was to be paid by
customer and 6% interest portion was borne by the State Government. Additionally, the Applicant was
entitled for one-time incentive from the State Government depending on total lending done.
The Applicant sought advance ruling from the Authority for Advance Ruling (‘AAR’) on whether one-
time incentive can be considered as supply of service or not. If yes, will incentive qualify to be subsidy
or not.
LEGAL PRECEDENTS
NITYA Comments: Condition of payment of tax in Government account by the supplier for availing
ITC by a bona fide recipient is legally incorrect and vires of this provision already stands challenged
before several High Courts. Further, there is no mechanism in place for the recipient to check whether
supplier deposited tax in Government account or not. Hence, this condition is impossible to perform
as represented by latin maxim ‘Lex Non Cogit Ad Impossibilia’.be referred by taxpayers wherever
applicable.
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The AAR held that incentive provided to the Applicant is for motivation and encouragement to implement
specific Scheme of the State Government and incentive qualifies as consideration. The AAR also
observed that subsidy is granted in public interest related with welfare of public to rationalize cost impact
directly / indirectly on public. In this case, incentive had no bearing on reducing burden of customer but
was to incentivize the Applicant for its performance in Scheme. Basis above, the AAR held that incentive
is liable to GST and this incentive is not subsidy. Hence, incentive does not merit exclusion from
assessable value under Section 15(2)(e) of the CGST Act and is exigible to tax.
Rajkot Nagarik Sahakari Bank Limited, 2021-VIL-329-AAR
2. Deduction of subsidy from value of solar system
The Applicant was supplying Solar Photovoltaic Panels and Solar EPC services in Gujarat under the
Surya Gujarat Yojna. The Applicant was receiving subsidy under the said scheme from the State
Government.
The Applicant sought advance ruling from the AAR on whether subsidy is to be reduced for arriving at
taxable value of Solar system.
The AAR observed that subsidy provided by the Government shall not be included in the value of
supply under Section 15(2)(e) of the CGST Act.
Greenbrilliance Renewable Energy LLP, 2021-VIL-327-AAR
3. ITC eligibility on land lease
The Applicant was engaged in supply of industrial gases and obtained leasehold rights from India
Piston Limited (‘IPL’) for setting up Air Separation Unit (‘ASU’).
The Applicant sought advance ruling from the AAR on whether GST charged by IPL is eligible for ITC.
The AAR observed that Section 17(5)(d) of the CGST Act specifically restricts ITC on goods and
services procured for construction of immovable property with specific exclusion for plant and
machinery. The AAR noted that even if ASU qualifies as plant and machinery, leased 'land' does not
qualify as plant and machinery because of specific exclusion from the meaning of plant and machinery
given in Explanation to Section 17(5). Basis this, the AAR held that Applicant will not be entitled to avail
ITC on lease of land taken for construction of plant and machinery.
Inox Air Products Private Limited, 2021-VIL-315-AAR
NITYA Comments: This ruling is incorrect. Concept of supply is intrinsically linked with presence of
consideration in a transaction. An amount will qualify as consideration for supply if payment is made
'in respect of’', 'in response to' or 'for inducement' of a supply. Thus, there needs to be sufficient nexus
with supply for an amount to qualify as consideration for that supply. In this case, Government did not
receive any service nor any supply was present in this transaction. Further, exclusion of subsidy under
Section 15 is not subject to any conditions as specified by the AAR. Hence, all subsidies merit
exclusion from value under Section 15.
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NITYA Comments: This ruling is incorrect. As per Section 17(5)(d) of the CGST Act, only supplies
having direct nexus with construction activity per-se are ineligible for ITC and not for any related
activities. Such supplies can only be goods and services directly used for carrying out construction
activity like construction materials, labour undertaking construction service etc. Leasing of land is
standalone transaction which does not have any direct nexus with construction activity. Hence, ITC
on leased land should be available.
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PART A: RECENT NOTIFICATIONS
1. Verification of Preferential Certificates of Origin
In compliance of Rule 6(1)(b) of the Customs Administration of Rules of Origin under Trade Agreements
Rules, 2020 (‘CAROTAR’) and Para 4 of Circular No. 38/2020 – Customs dated August 21, 2020, CBIC
has mandated that only representative certificates should be forwarded to CBIC for verification of
Preferential Certificates of Origin. Rule 6(1)(b) of the CAROTAR state that proper officer must clearly
indicate reason to believe why goods are not meeting prescribed origin criteria and also enlist specific
information required to be obtained from Verification Authority. The CBIC acknowledged that bulk of
verification requests received by it are without citing appropriate grounds and mentioning any specific
information to be sought from Verification Authority.
The CBIC clarified that if product of a given manufacturer has already been verified following verification
process, then subsequent consignments need not be considered again for verification unless there is a
change in manufacturing or other origin related conditions.
Instruction No. 18/2021 dated August 17, 2021
.
OTHER UPDATES
NITYA Comments: Importers are facing difficulties in clearing consignments wherein benefit of any
Free Trade Agreement (‘FTA’) is being claimed since department is seeking lot of information in all
cases and also forwarding those cases for verification. The CBIC has rightly pointed out that these
steps should be taken only where there is reason to believe why goods are not meeting prescribed
origin criteria.
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1. Auto sector fears higher GST rate on certain parts after Supreme Court ruling
https://economictimes.indiatimes.com/industry/auto/auto-news/auto-sector-fears-higher-gst-rate-on-
certain-parts-after-supreme-court-ruling/articleshow/85355297.cms?from=mdr
2. Industry seeks review of tax refund scheme
https://timesofindia.indiatimes.com/business/india-business/industry-seeks-review-of-tax-refund-
scheme/articleshow/85441995.cms
3. Government plans relief for defaulting exporters
https://timesofindia.indiatimes.com/business/india-business/govt-plans-relief-for-defaulting-
exporters/articleshow/85475835.cms
4. Companies seek clarity on depreciation on capital goods imported to bonded warehouses
https://economictimes.indiatimes.com/news/economy/policy/companies-seek-clarity-on-depreciation-on-
capital-goods-imported-to-bonded-warehouses/articleshow/85450280.cms?from=mdr
………………….
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