Indirect Tax News

published on 30 January 2025 I reading time approx. 14 minutes

IDT Developments and Associated Procedures

1. Highlights in 55th GST Council Meeting

The 55th GST council meeting was held on 21 December 2024 in Jaisalmer, Rajasthan. The major recommendations/clarifications/amendments discussed in the said meeting are, as follows:

a. Various changes/clarifications in HSN applicability, GST rates, RCM purview as well as exemption benefit on various goods and services such as:

Increase in GST rate from 12 per cent to 18 per cent on sale of all old and used vehicles, including EVs other than those specified, by registered persons – It is further clarified that GST is to be computed on the margin of the supplier, representing the difference between the Purchase price and Selling price (depreciated value if depreciation is claimed) and not on the value of the vehicle.
Reduction in rate of compensation cess to 0.1 per cent on supplies to merchant exporters at par with GST rate on such supplies.
Exemption of GST on gene therapy.
Extension of exemption of IGST on specified goods including systems, sub-systems, equipment, parts, software etc. meant for assembly/manufacture of long range surface to air missile system (LRSAM); and on imports of all equipment and consumable samples by the Inspection Team of the International Atomic Energy Agency (IAEA) subject to specified conditions.
No GST payable on penal charges levied and collected by banks and Non-Banking Financial Companies (NBFCs) from borrowers for non-compliance with loan terms.
GST to be levied on the supply of the sponsorship services provided by the body corporates to be under forward charge mechanism.

b. New trade facilitation measures were recommended for implementation of Invoice Management System (IMS), insertion of new provision for tracking evasion prone commodities, clarification regarding recording of correct details of name of the State of the un-registered recipient as well as correct declaration of place of supply in respect of supply of 'Online Services’.

c. Various amendment to GST Regulations are also recommended and the important recommendations are as under:

Insert new sub-clause (aa) in Para 8 of Schedule 3 of the CGST Act, 2017 with retrospective effect from 01 July 2017 to include supply of goods from Special Economic Zone (SEZ) or Free Trade Warehousing Zone (FTWZ) before clearance of such goods for export or home consumption to bring the transactions relating to supply of goods warehoused in SEZ/FTWZ at par with the existing provision in GST for transactions in Customs bonded warehouse.
Omit Section 12(4) and 13(4) from the CGST Act, 2017 along with Rule 32(6) from CGST Rules to resolve ambiguities in the treatment of vouchers.
Amend Section 17(5)(d) of the CGST Act, 2017 with retrospective effect from 1 July 2017 to replace phrase “plant or machinery” with “plant and machinery”.
Amend Section 107 and 112 of the CGST Act, 2017 to provide for payment of pre-deposit for filing an appeal in respect of an order passed which involves only penalty amount.
Amend Section 38 of the CGST Act, 2017 and Rule 60 of CGST Rules to provide a legal framework for generation of GSTR-2B based on action taken by taxpayer on the IMS.
Amend Section 34 of the CGST Act, 2017 to specifically provide for requirement of reversal of input tax credit as is attributable to a credit note, by the recipient.

2.The Supreme Court upheld constitutional validity of Section 17(5)(c), 17(5)(d) and 16(4) of the CGST Act, 2017

In case of Safari Retreats Pvt. Ltd. [TS-350-HC(ORI)-2019-NT], the Hon’ble Orissa High Court had read down the restriction provided under Section 17(5)(d) of CGST Act, 2017 and held that if the Taxpayer is required to pay output GST on the rental income from the mall, it is entitled to claim ITC of GST paid on construction of mall. Aggrieved by the above, the Tax Authorities filed an appeal before the Supreme Court.

In this case reported at TS-622-SC-2024-GST, the Hon’ble Apex Court has confirmed the applicability of the functionality test to determine the eligibility of input tax credit under Section 17(5)(d) of the CGST Act, 2017. The expression ‘plant or machinery’ used in Section 17(5)(d) cannot be given the same meaning as the term ‘plant and machinery’ defined in Explanation to Section 17 of the CGST Act, 2017. Whether a mall, warehouse or any other building (other than a hotel or a cinema theatre) can be classified as a plant is a factual question which has to be determined by applying the functionality test on a case-to-case basis. If the construction of the building was essential in supplying services, such as renting or giving on lease or other transactions which are covered by clauses (2) and (5) of Schedule II of the CGST Act, the building can be held to be a plant.

Thus, functionality test is important to determine the eligibility of ITC claimed under Section 17(5)(d) of the CGST Act. However, the said ruling of the Hon’ble Apex Court is already proposed to be overturned by way of amendment to Section 17(5)(d) of the CGST Act, 2017 with retrospective effect from 01 July 2017 during the 55th GST Council meeting referred above.

3. Kerala High Court addressed issued relating to misclassification of Input Tax Credit availed by the taxpayer

The Kerala High Court recently adjudicated a case concerning the misclassification of GST Input Tax Credit (ITC) in the matter of Rejimon Padickapparambil Alex [TS-781-HC(KER)-2024-GST]. The case revolved around procedural discrepancies in reporting ITC under different tax categories in the GST system, with significant implications for tax compliance and administrative processes. The petitioner had made various intra-state and inter-state purchases and mis-reported the claim of ITC in respect of IGST paid by suppliers as CGST and SGST while filing FORM GSTR-3B. The hon’ble High Court acknowledged the technical nature of the petitioner’s error. It noted that the petitioner had not gained any undue financial advantage, as the IGST credit was split into CGST and SGST components rather than being reported separately. The court emphasized that GST compliance mechanisms should focus on substance over form, especially when no revenue loss or malfeasance is evident and thus, demand notice issued by the revenue department should be reexamined.

Important GST Notifications and Circulars issued during the quarter

1. Various amendments in CGST Rules, 2017:

Insertion of Rule 47A to notify that self-invoice is required to be issued within 30 days from the date of receipt of goods/services in case of reverse charge supplies.
Omission of Rules 89(4A), 89(4B) and 96(10) which restricted refunds in relation to exports where benefit/exemption was availed on inward supplies under specified notifications.
Rule 164 has been inserted to provide the procedure and conditions of the GST Amnesty scheme i.e. Section 128A of the CGST Act, 2017 for waiver of interest or penalty or both relating to demands under Section 73 of CGST Act, 2017 for FY 2017-18 to FY 2019-20.

2. Clarifications regarding Amnesty Scheme i.e. Section 128A of CGST Act, 2017:

Vide Notification No. 21/2024- Central Tax dated 8 October 2024, the CBIC has prescribed the due dates of payment in case where the application is filed under Section 128A of the CGST Act, 2017.
Vide Circular 238/32/2024 - GST dated 15 October 2024, the CBIC has addressed the various issues regarding doubts related to implementation of Section 128A of the CGST Act, 2017 i.e. Amnesty Scheme such as filing of application, payment of tax, processing of the application, etc. under the Scheme.

3. Various clarifications regarding availment of ITC which was barred under Section 16(4) but the same is available under Section 16(5) and 16(6) of the CGST Act, 2017 which were inserted vide Finance Act (No. 2), 2024:

Vide Notification No. 22/2024- Central Tax dated 8 October 2024, CBIC has clarified a special procedure is prescribed for persons against whom a demand order has been issued confirming demand for wrong availment of ITC on account of contravention of provisions of Section 16 (4) of the CGST Act, 2017 but where such input tax credit is now available as per Section 16 (5) and Section 16 (6) of the CGST Act, 2017 and where no appeal has been filed, in respect of extension of time limit for availing ITC for FY 2017-18 to FY 2020-21. Such person is required to file an application for rectification of order, within six months of date of issue of notification i.e. by 7 March 2025. The proper officer shall issue rectified order within three months from the date of application.
Further, Circular 237/31/2024 - GST dated 15 October 2024 has also been issued to provide further clarification in this regard.

4. Clarifications issued by way of Circulars/Instructions:

Vide Circular No. 234/28/2024-GST - GST dated 11 October, 2024, the CBIC has provided clarifications regarding applicability of GST on certain supplies, such as affiliation services provided by universities to colleges, or those provided by Central and State educational boards or Councils, or other similar bodies to schools; flying training courses approved by the Directorate General of Civil Aviation; analysis of multiple services provided by GTAs, and regularization of payments related to passenger transportation via helicopter; support services provided by an electricity transmission or distribution utility, import of services by foreign airlines from related parties without consideration, services by film distributors etc.
Vide Circular 235/29/2024 - GST dated 11 October 2024, the CBIC has provide clarification regarding GST rates on and goods classification for certain goods based on the recommendations of the GST Council in its 54th meeting held on 9th September 2024 such as clarification regarding GST rate on Car and Motorcycle seats, etc.
Vide Circular 236/30/2024 - GST dated 11 October 2024, the CBIC In the context of GST has clarified the scope of the expression “as is/as is, where is basis" mentioned in the GST Circulars issued on the basis of recommendation of the GST Council in its meetings. In the context of GST the phrase 'regularized on as is where is' basis is interpreted as, in a case where there are two competing rates and where GST is paid by the suppliers at lower of the two rates, the payment made at lower rate or exemption claimed by the taxpayer shall be accepted and no refund shall be made if tax has been paid at the higher rate.
Vide Circular 239/33/2024 - GST dated 31 December 2024, the CBIC has amended the earlier issued Circular No. 31/05/2018-GST, dated 9 February 2018 on clarification of the meaning of 'Proper officer under sections 73 and 74 of the CGST Act, 2017 and respective provisions of the IGST Act, 2017.
Vide Circular 240/34/2024 - GST dated 31 December 2024, the CBIC has provided clarification in respect of ITC availed by electronic commerce operators where services specified under Section 9(5) of CGST Act, 2017 are not required to reverse proportionate input tax credit under Section 17(1) or 17(2) of the CGST Act, 2017. Further it is also clarified that the full tax liability on account of supplies made under Section 9(5) of the CGST Act, 2017 will paid only through electronic cash ledger and the credit availed by him in relation to the inputs and input services used to facilitate such supplies cannot be used for discharge of such tax liability.
Vide Circular 241/35/2024 - GST dated 31 December 2024, the CBIC has clarified that s per Explanation to clause (b) of sub-section (2) of section 16 of CGST Act, 2017 the registered person can be considered to have “received" the said goods at the time of such handing over of the goods by the supplier to the transporter, at his factory gate, for their onward transmission to the said registered person which is used or intended to be used in the course or furtherance of business subject to fulfilment of other conditions of Section 16 and 17 of the CGST Act, 2017.
Vide Circular 242/36/2024 - GST dated 31 December 2024, the CBIC has issued clarification regarding the online services supplied to unregistered recipients. It is clarified that every online/ digital services, OIDAR services and online money gaming to unregistered recipients, the suppliers are mandatorily required to record the name of the State of the recipient on the tax invoice, irrespective of the value of supply of such services, and to declare place of supply of the said services as the location of the recipient. The supplier who fails to issue invoice by not recording correct mandatory particulars, including recording of name of State of unregistered recipient in respect of such supplies, may be liable to penal action.
Vide Circular 243/37/2024 - GST dated 31 December 2024, the CBIC has issued clarification on various issues pertaining to GST treatment of vouchers. It has been clarified that distribution of vouchers on principal-to-principal basis shall not be subject to GST unless any commission/fee or any other amount is charged by the agent for such distribution. Additional services such as advertisement, co-branding, marketing and promotion, customization and technology support, customer support etc. related to vouchers would be leviable to GST on said fees or other amount for supply of such additional services to the voucher issuer as per the terms of contract/agreement. Further, un-redeemed vouchers would not be taxable under GST.

Customs and Foreign trade policy related developments

1.Enabling Voluntary Payment electronically on ICEGATE e-Payment Platform

The CBIC vide Circular No. 27/2024-Customs dated 23 December 2024 has informed enabling of ICEGATE e-Payment Platform with electronic collection of Voluntary Self-Initiated Payments (SIP). This new functionality will replace the existing TR-6 manual payments. This functionality shall enable the users to generate a self-initiated challan for voluntary payments and then make payments through the ICEGATE e-payment platform without any further approval by officers of Customs.

2. Restriction on manufacturing processes and operations in the customs bonded warehouse in relation to Solar power generation projects

The CBIC vide Notification No. 86/2024-Customs (N.T.) dated 16 December 2024 has specified that manufacturing processes and operations in relation to imported goods for solar power generation which result in the generation of electricity will not be permitted in a warehouse, under Section 65 of the Customs Act, 1962. This restriction is intended to apply to solar power generation projects involving electricity supply and will come into force from 17 December 2024

3. Guidelines for conduct of personal hearings under CGST Act, 2017, IGST Act, 2017, Customs Act, 1962, Central Excise Act, 1944 and Chapter V of Finance Act, 1994

The CBIC vide Instruction dated 5 November 2024 has made it mandatory for all departmental quasi-judicial/appellate authorities to conduct personal hearing for proceedings under the specified Acts through Video Conferencing (VC), i.e., in the Virtual Mode.

4. Various clarifications on the IGCR Rules, 2022

Vide Circular No. 25/2024-Customs dated 21 November 2024, the representation regarding difficulties in filing on return on IGCR portal is considered and the importers are permitted to file their IGCR-3 return manually before the jurisdictional officers till 31 January 2025 in excel utility which will be made available by 15 December 2024. The monthly statements from February 2025 be filed electronically.
The CBIC vide Circular No. 26/2024-Customs dated 21 November 2024 has clarified that the MOOWR units can avail both IGCR exemption and duty deferment under the MOOWR scheme simultaneously, as long as the importer complies with the additional conditions prescribed in the Concessional Notification and IGCR Rules.

5. Other Miscellaneous Updates in FTP and SEZ:

Alignment of RoDTEP Schedule with the First Schedule of Customs Tariff Act w.e.f. 1 October 2024.

TheDGFT vide Notification No. 39/2024-25 dated 28 October 2024 has amended RoDTEP Schedule to align it with the First Schedule of the Customs Tariff Act to ensure that the exporters continue to receive the correct refunds.

Syncing of ITC (HS), 2022- Schedule-1 (Import Policy) with Finance Act, 2024

The DGFT vide Notification No. 39/2024-25 dated 26 October 2024 has amended the Import Policy to synchronize with the provisions of the Finance Act, 2024.

Amendment in Import Policy condition for import of goods under HSN 85423100, 85423900, 85423200, 85429000 and 85423300 (Electronic Integrated Circuits) w.e.f. 29 November 2024

The DGFT vide Notification No. 41/2024-25 dated 29 November 2024 has removed the condition of compulsory registration under Chip Imports Monitoring System (CHIMS) for import of Electronic Integrated Circuits.

Amendment to include more items under the purview of Global Authorization for Intra-Company Transfer (GAICT) of SCOMET items/software/technology w.e.f. 7 October 2024

The DGFT vide Public Notice No. 26/2024-25 dated 7 October 2024 has amended Annexure-10M in the Handbook of Procedures (HBP) 2023 to add new items under the liberalized policy (GAICT) which facilitates Intra Company Transfer of SCOMET items.

Filing of Annual RODTEP Return

The DGFT vide Public Notice No. 27/2024-25 dated 23 October 2024 has notified procedure for filing of Annual RoDTEP Return (ARR) for exporters who have availed the benefit of INR 10 million in a financial year. The time limit for filing the ARR of FY 2023-24 would be until 31 March 2025. Further, the delayed filing until 30 June 2025 would be allowed subject to a composition fees of INR 10,000. However, non-reporting of ARR would result in denial of the benefit after the grace period i.e. after 30 June 2025.

Ministry of Heavy Industries added in the list of Ministries/ Department under Appendix 2Y of FTP 2023 w.e.f. 5 November 2024

The DGFT vide Public Notice No. 31/2024-25 dated 5 November 2024 has added the Ministry of Heavy Industries in the list of Ministries/Departments whose notifications on mandatory Quality Control Orders (QCOs) are exempted by the DGFT for the goods to be utilized/consumed in manufacture of export products.

Applicability of amendment in third party exports under the EPCG scheme

The DGFT vide the Policy Circular No. 10/2024-25 dated 13 December 2024 has clarified that the amendment to Para 5.10(c) of the HBP 2015-20 which introduced changes to the treatment of third-party exports under EPCG Authorizations is applicable prospectively meaning thereby that it will apply only to EPCG Authorizations issued on or after 5 December 2017

Clarification on Registration-Cum-Membership Certificate (RCMC) Requirements for Post-Export Remission-Based Schemes under FTP 2023

The DGFT vide Trade Notice No. 19/2024-25 dated 4 October 2024 has clarified that RCMC is not required to be obtained for schemes such as Duty Drawback, Rebate of State and Central Taxes and Levies (RoSCTL), and Remission of Duties and Taxes on Export Products (RoDTEP) which fall under the category of remission- based schemes. The DGFT further clarified that RCMC is mandatory for exporters applying for an authorization to import/ export under the FTP or applying for any other benefit or concession under FTP.

Clarification on Import/ Re-import of "Exhibits and Sample"

The DGFT vide Trade Notice No. 20/2024-25 dated 7 October 2024 has clarified that import / re-import of "Exhibits and Samples" for demo, display, exhibition and participation in fairs or participation of the same in India or abroad are not subjected to requirement of import authorization or registration under Import Monitoring Systems subject to conditions and on submission of a bond/security to Customs or ATA Carnet".

Electronic Submission of Appendix 4H Certificates (Register For Accounting the Consumption And Stocks of Duty Free Imported Or Domestically Procured Raw Materials, Components etc. Allowed Under Advance Authorization/DFIA)

The DGFT vide Trade Notice No. 21/2024-25 dated 17 October 2024 has informed launch of an online facility for Certifying Authorities to facilitate the digital signing and submission of certificates. With this, the Appendix 4H Certificate, which tracks and certifies the consumption and stock of materials used under the Advance Authorization and DFIA (Duty-Free Import Authorization) schemes, has now been fully digitized.

Launch of Revamped Preferential Certificate of Origin (eCoO) 2.0 System

The DGFT vide Trade Notice No. 23/2024-25 dated 6 December 2024 read with Trade Notice No. 24/2024-25 dated 20 December 2024 has announced the launch of the enhanced version of the Preferential Certificate of Origin (eCoO) system – eCoO 2.0 from 17 January 2025. The eCoO 2.0 system is expected to streamline the certification process and introduce several new features to make the process smoother and more user-friendly.

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