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Indirect Tax Developments and Associated Procedures

1. Key Decisions made in the 47th GST Council Meeting held on 28th and 29th June 2022

Coinciding with the fifth anniversary of GST regulations, the 47th GST Council Meeting was held on 28 and 29 June 2022 wherein the major discussions of the council were focused on the GST rate rationalization, fixation of GST rate on online gaming, and on IT reforms and introduce trade facilitation measures.

The Council agreed on rationalization of GST rates by increasing tariffs on a various of goods and services (such as LED lamps, solar water heater, leather, works contract services for specified works) for rationalization of issue of inverted duty structure which was resulting in accumulation of input tax credit. Various exemptions on goods and services have also been withdrawn. Further, measures have also been taken to ease trade by waiving requirement of mandatory GST registration for supply of goods through

e-commerce platforms by a person having turnover below prescribed threshold limit.

Some of the other important trade facilitation measures include:

Refund under inverted duty structure proposed to be allowed for accumulated ITC on input services which will reduce the accumulation of credit.
No requirement of reversal of ITC for exempted supply of Duty Credit Scrips by the exporters.
Period from 1 March 2020 to 28 February 2022 proposed to be excluded from limitation period for filing refund applications or issuance of demand/order (by proper officer) in respect of erroneous refunds. Extension of the limitation period in case of refunds is likely to reduce pending litigations on account of rejection of refunds being time barred and augment taxpayers in their working capital requirements.

It was also proposed by the council to clarify various issues pertaining to interpretation of provisions related to restriction on availment of ITC, perquisites provided by an employer to employee, etc.

Further, in order to reduce the burden on the various high courts in India, the Council has also deliberated on the subject of setting up a Tribunal. The Council has recommended to set up a ministerial panel to make recommendations for appropriate amendments to the CGST Act.

2. The Hon’ble Supreme Court upholds secondment of employees between group companies is a taxable service [2022 TIOL 48 SC ST LB]

In case of Northern Operating Systems Private Limited, the Hon’ble Supreme Court held that the secondment of employees between group companies is a taxable service. The issue relates to the levy of service tax on secondment of employees by the foreign group company to the Indian entity wherein the salary is disbursed by the foreign company and the same is later reimbursed by the Indian entity at actuals. While deciding whether an arrangement is a contract “of” service or a contract “for” service, the SC has consistently applied one test substance over form, requiring a close look at the terms of the contract or the agreements.

The agreements entered into by the Assesses and the Foreign Company clearly shows the fact that the foreign company has a pool of highly skilled employees, who are entitled to a certain salary structure as well as social security benefits. These employees, having regard to their expertise and specialization, are seconded (deputed) to the Indian entity for use of their skills. While the seconded employee, for the duration of secondment, is under the control of the Indian entity and works under its direction, the fact remains that they are on the payrolls of their foreign employer. The secondment is a part of the global policy of the overseas employer loaning their services on a temporary basis. On the cessation of the secondment period, they must be repatriated in accordance with a global policy.

Accordingly, SC held that the Indian entity was the service recipient of the foreign company, which can be said to have provided manpower supply service or a taxable service.

3. The Hon’ble Supreme Court upholds non applicability of Integrated Tax under reverse Charge Mechanism basis on the Ocean Freight [TS-246-SC-2022-GST]

The Hon’ble Supreme Court had dismissed Revenue’s SLP challenging Gujarat HC decision in case of Mohit Minerals which struck down levy of IGST on ‘Ocean Freight’ on transportation of goods by vessel from a place outside India to a place in India in case of CIF contracts for supply of goods.

The Apex Court held that since Indian importer is liable to pay IGST on the composite supply comprising of supply of goods and supply of services of transportation, insurance, etc. in CIF contract, a separate levy on the Indian Importer for the supply of shipping services by shipping line would be in violation of Section 8 of the CGST Act, 2017. Thus, no IGST is payable under RCM basis on the Ocean Freight in case of CIF contracts.

4. The Hon’ble Supreme Court consider the petition challenging retrospective amendment which was introduced vide clause 97 of the Finance Act, 2022

[TS-206-SC-2022-CUST]

Vide clause 97 of the Finance Act, 2022, the legislature has retrospectively amended the Customs Act, 1962 to validate certain actions of DRI officers including issuing SCN under the Customs Act, 1962.

In case of Aspam Petrochecm Pvt. Ltd. (and batch of petitions), SC has decided to admit the petition challenging the retrospective amendment introduced by the legislature which has effectively overturned the 3-judge bench of SC in its landmark decision in Canon India [TS-75-SC-2021-CUST] which struck the power of DRI officer to issue SCNs as ‘proper officer’ u/s 28 of Customs Act. Please note that review petition against said judgment is also pending before Hon’ble Supreme Court (Larger Bench) [TS-58-SC-2022-CUST]. Similar case challenging the retrospective amendment is also admitted by Hon’ble Delhi High Court.

5. Maharashtra Appellate Authority for Advance Ruling (‘AAAR’): Activities performed by Liaison Office at behest of Overseas HO, liable to IGST [TS-326-AAAR(MAH)-2022-GST]:

Maharashtra AAAR modifies the ruling of the Maharashtra Authority for Advance Ruling (‘AAR’) in case of Dubai Chamber of Commerce and Industry (DCCI/Appellant) and holds that host of activities performed by in its capacity as Liaison-Office (LO), Representative, Business facilitator, and Event Organizer for its Dubai Head Office (HO) will come under the ambit of ‘supply’ under Section 7 of CGST Act. Thus, Appellant is required to discharge IGST on amount received from HO after taking GST registration.

Further, while deciding this case, the erstwhile ruling of Karnataka AAAR in case of Fraunhofer- Gessellschaft Zur Forderung which was favor of taxpayer was considered and distinguished.

Important GST Notifications and Circulars issued during the quarter

1. Clarification on voluntary deposit of tax during search, inspection or investigation:

Instruction No 01/2022-23 dated 25 May 2022: Section 73 and 74 of the CGST Act contains the procedure for recovery of tax not paid or short paid or erroneously refunded or ITC wrongly availed. Voluntary payment of tax before issuance of SCN under Section 73(5) or under 74(5) is permissible and the same can be deposited by submitting DRC-03. No recovery can be made unless amount becomes payable in pursuance of an order under provisions of GST law and rules. There may not arise any situation where recovery of tax dues must be made by officer during the course of search, inspection or investigation on account of any issue detected.In case of wrongdoing on part of any tax officer, department instructed to take strict disciplinary action.

2. Instructions directing proper officers to ensure that the refund applications are decided within the prescribed limits

Vide Instruction No. 3/2022- GST dated 14 June 2022, procedure relating to sanction, post-audit and review of refund claims has been explained in detail and the proper officers are directed to ensure the timelines to process the refund claims and post audit and review.

Customs and Foreign trade policy related developments

1. Continuation of the exemption from Integrated Tax and Compensation Cess on goods imported under AA/EPCG/EOU Schemes

Vide Notification No. 37/2022 Customs dated 30 June 2022, the practice of periodical extension of exemption from payment of Integrated Tax and Compensation Cess on goods imported under AA/EPCG/EOU Schemes has been perpetually extended. This amendment is in line with the corresponding amendment in the Foreign Trade Policy 2015-20 in the concerned paras vide Notification No 16/2015-20 dated 1 July 2022.

2. Tariff Updates

Increase/Levy of Export Duty on certain products:

a. Steel Products:
In order to improve availability of steel in domestic market, export duty has been levied on steel intermediaries and key steel products. Vide Notification No 28/2022- Customs dated 21 May 2022. Export duty of 15 per cent (from nil earlier) has been levied on major steel products (including stainless steel). Key items on which export duty of 15 per cent has been levied includes pig iron, flat-rolled products of iron or non-alloyed steel, bars and rods and various flat-rolled products of stainless steel, etc. In case of iron ore and concentrates, the duty has been raised to 50 per cent on all categories, up from 30 per cent.

b. Petroleum Products:

In order to improve the local supply of refined fuel, export duty is also levied on refined petroleum products temporarily. Vide Notification No 4/2022-Central Excise dated 30 June 2022, the Government has imposed a Rs 6 per litre Special Additional Excise Duty (SAED) on export of petrol and ATF and Rs 13 per litre tax on export of diesel.

Additionally, it levied a INR 23,250 per tonne additional tax on crude oil and INR 6 per litre on ATF produced domestically vide Notification No 5/2022- Central Excise dared 30 June 2022.

c. Increase in import duty of Gold:

In order to curb the trade deficit, the government Vide Notification No. 33/2022- Customs dared 30 June 2022, has increased the rate Basic Customs Duty (BCD) on gold from 6.9 per cent / 7.5 per cent to 11.85 per cent /12.5 per cent (different increment for different tariff codes).

3. Notifications issued to give effect to first tranche of India UAE Comprehensive Economic Partnership Agreement (‘CEPA’):

The DGFT vide Public Notice No. 06/2015-2020 dated 1 May 2022 revises Para 2.107 of Handbook of Procedure 2015-2020 and Appendix 2A of FTP, 2015-20 to incorporate the items mentioned under Tariff Rate Quota (TRQ) under India – UAE CEPA), besides laying down the procedure for import of the items under TRQ as Annexure IV of Appendix 2A in accordance with Notification No. 22/2022-Customs dated 30th April 2022.

The Notification No. 22/2022-Customs dated 30 April 2022 provides for the corresponding exemptions, concessional rate of duty for import of goods (around 10800 HSN), rules prescribed to govern the agreement (Origin Criteria rules, rules for non-originating materials, exchange of electronic data within 2 years, etc.). Further, the rules for determination of country of origin are also notified in this regard vide Notification No. 39/2022-Customs (NT) dated 30 April 2022.

4. Amendments in various Customs Tariff Notifications:

Vide Notification 23/2022 and 24/2022- Customs dated 30 April 2022, various Customs Tariff Notifications were amended to align the same with Finance Act 2022 w.e.f 1 May 2022. The updated Customs Tariff as on 1 May 2022 is now available on CBIC website.

5. Implementation of Electronic Cash Ledger

As per Section 51A of the Customs Act, 1962, all payment of duty, interest, penalty, etc. was expected to be paid only via an Electronic Cash Ledger maintained by the importer. However, implementation of such Electronic Cash Ledger is exempted to deposits pertaining to all classes of persons and all categories of goods until 29 November 2022 as per Notification No. 47/2022-Custom (NT) dated 31 May 2022.

6. Instruction notifying the restriction on import of products made from plastic

Pursuant to the changes by Ministry of Environment, Forest & Climate Change (MoEFCC) under Plastic Waste Management (Amendment) Rules, 2022, which were notified vide notification dated 16 February 2022, an instruction is issued to the customs authorities to ensure that the importers have obtained prescribed registration as per the amendment rules which has created extended the producer responsibility and obligation on importers.

7. Introduction of the procedure for Global Authorization for Intra-Company Transfer (GAICT) of SCOMET items:

Vide Public Notice 14/2015-2020 dated 13 June 2022, an amendment in paragraph 2.79F in the Handbook of Procedures of Foreign Trade Policy 2015-20 has been done to amend the procedure for issue of GAICT of SCOMET items including software and technology.

Henceforth, GAICT policy would be applicable only for export/re-export of items under SCOMET Category 8 and only to the countries listed in Table 1 of the public notice.

8. Reduction in compliance burden under the scheme of Export Promotion Capital Goods:

With the view to enhance the ease of doing business and reduce the burden, the DGFT vide Public Notice 3/2015-2020 dated 13 April 2022 has amended Chapter 5 of the Handbook of procedures 2015-20 in the paras of Block Wise fulfilment of EO, monitoring of export obligation, extension in obligation period, redemption, etc.

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