Amicus monthly alerts on high court/aar rulings (April- May, 2019)

GST LITIGATION TRACKER

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Advocates & Solicitors
Issue: 1.1 | May, 2019

Amicus monthly alerts on high court/aar rulings (April- May, 2019)

High Court Decisions

18% Interest on late payment of tax shall be paid on ‘gross tax’ which includes ITC

On the issue of whether interest in accordance with section 50 of CGST Act should be paid on  ‘net tax liability’ (after deduction of ITC from the tax amount) or gross tax liability, the Telangana High Court in Megha Engineering & Infrastructures Ltd. answered in negative and held that interest shall be discharged on gross tax amount which includes the ITC. The Court observed that until a return is filed i.e. 20th day of succeeding month, the taxpayer has no entitlement over credit. Hence, delay in filing of return will attract interest on ‘gross tax liability’ (inclusive of ITC). High Court also commented on the recommendations of GST Council to charge interest on net tax liability and held that the recommendations are still on paper and amendment is required in section 50 of CGST Act, in order to enforce it.

Domino’s Pizza challenges constitutionality of National Anti- Profiteering Authority (NAPA) Before Delhi High Court

Delhi High Court inJubilant FoodworksLtd.Case granted stay on demand of NAPA and would now be hearing on the constitutional validity of NAPA. Domino’s stated that there is no judicial member in the commission and no appellant body to review the decision of NAPA.  Domino’s further argued that only NAPA can determine as to what amounts to profiteering, can send notice and adjudicate upon the matter which is contrary to the settled law on quasi- judicial authorities as explained by Supreme Court.

Telangana High Court admits the petition challenging unavailability of mechanism to distribute TRAN-1 credits through ISD Portal

TelanganaHigh Courtin the case of JSW Cement. admits the petition challenging the constitutional validity of point no. 6 of ISD Form as per whichISD is required to distribute the credits both eligible and ineligible to its units in the same tax period in which the inward supplies have been received.  The taxpayer stated that this is clear violation of section 140(7) of CGST act as per which TRAN-1 credits shall be eligible for distribution even if such distribution becomes contrary to the act. Therefore, it was contended that no mechanism for distribution of ITC credits through ISD is violative of law.

[1]Megha Engineering & Infrastructures Ltd. v. Commissioner of Central Tax, [2019] 104 taxmann.com 393 (TELANGANA).

[2]Foodworks Ltd. vs. Union of India, W.P. (C) NO. 2347 & CM APPEAL NOS. 10978, 10979 OF 2019.

[3]JSW Cement Ltd. v. Union of India, W.P. No. 1007 OF 2019.

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GST Department has power to summon and arrest Managing Director when fraudulent ITCs are claimed by the company on the basis of fake invoices

High Court of Rajasthan in Bharat Raj Punj case held that when company claims ITC on the basis of fake invoices which is an offence under section 132 of CGST Act, the department can proceed against the Managing Director, who is responsible for the company’s activities. Accordingly, the argument of MD that he is residing abroad and was not involved in day to day affairs of the company is not acceptable since MD was receiving managerial remuneration from the company.

No Demand for Interest, Penalty and Late Fee can be made when delay was due to  Design Limitation of portal

The taxpayer attempted to revise its return after obtaining credit which was allocated to its units. However, the same did not materialize on account of certain design limitation. Subsequently, through earlier order, High Court permitted the taxpayer to file GSTR-3B manually and revise credit claims. Subsequently, Delhi High Court in Clix Capital Services (P.) Ltd (in taxpayer’s case), clarified that department cannot raise any demand towards penalty, interest or late filing fee on manual filing since system problem arose on account of design limitation.

AAAR/AAR Rulings

ITC can be claimed when consideration is received by way of setting off book debt (Book Adjustment).

AAR, West Bengal in In re Senco Gold Ltd. ruled that 'consideration' as per section 2(31) of CGST Act includes all modes of payment. Hence, if the payee owes payer a debt and accepts a reduction in such a debt liability as a valid form of payment, then that should be regarded as a valid 'consideration' for a supply. In other words, reduction in book debt (an asset in the payer's books of accounts) is a valid 'consideration' and accordingly, recipient can pay the supplier consideration by way of setting off book debt and claim ITC unless and until the same is barred by law.

No GST shall be paid on buying/selling of DFIA which is equivalent to Duty Credit Scrips

Duty Credit Scrips (DCS) and Duty Free Import Authorizations (DFIA) are export incentives under Foreign Trade Policy 2015-20 and are used for payment of Basic Custom Duty and Additional Customs Duty for import of inputs. AAAR Maharashtra in SpaceageSyntex (P.) Ltd. setting aside AAR Ruling, held that no GST shall be applicable on purchase or sale of DFIA as the same is similar to DCS.  DFIA and DCS are instruments to set off basic customs duty on import of goods. Accordingly, as DCS attracts ‘nil rate’ of tax under Sr. 122A of amended notification no. 2/2017 –C.T. (Rate), DFIA would also attract ‘nil rate’ of tax.

Supplier is liable to obtain registration under GST, if the total turnover which is partly exempt exceeds the threshold limit

AAR Tamil Nadu in In re Rajiv Gandhi Centre For Aquaculture, held that if the aggregate turnover of exempt and taxable supplies is above the threshold limit i.e. 20 lakhs, the person becomes liable for registration in accordance with section 22 of CGST Act.

Interest Free Security Deposit received on lease shall not attract GST

AAR, Maharashtra inE-Square Leisure (P.) Ltd.held thatsecurity deposit taken from the lessees on account of security against the damages, if any, caused to the furniture, equipments, fittings supplied along with the premises or any damage done to the properties shall not be liable to GST. The AAR Maharashtra observed that security deposit taken by the applicant is to secure or to act as a guarantee as per the terms of agreement against damages to the properties and will be returned after the completion of lease tenure. Therefore, it does not amount to ‘consideration’ for the supply of services in accordance with section 2(31) of CGST Act.

[1] Bharat Raj Punj v. Commissioner of Central Goods & Service Tax Department, Jaipur, [2019] 104 taxmann.com 174 (Rajasthan)

[2]Clix Capital Services (P.) Ltd vs. Union of India, W.P. (C) NO. 1486 OF 2018.

[3]Senco Gold Ltd., In re, Order No. 02/WBAAR/2019-20.

[4]In re SpaceageSyntex (P.)Ltd., Order No.MAH/AAAR/SS-RJ/23/2018-19.

[5] In re Rajiv Gandhi Centre For Aquaculture, Order No. 9/AAR/2019.

[6]In re E-Square Leisure (P.)Ltd, Order No.GST-ARA-76/2018-19/B-172.

Interest Free Security Deposit received on lease shall not attract GST

AAR, Maharashtra inE-Square Leisure (P.) Ltd.case held thatsecurity deposit taken from the lessees on account of security against the damages, if any, caused to the furniture, equipments, fittings supplied along with the premises or any damage done to the properties shall not be liable to GST. The AAR Maharashtra observed that security deposit taken by the applicant is to secure or to act as a guarantee as per the terms of agreement against damages to the properties and will be returned after the completion of lease tenure. Therefore, it does not amount to ‘consideration’ for the supply of services in accordance with section 2(31) of CGST Act.

About Amicus – Advocates & Solicitors

Amicus is a premier full service legal and tax consulting firm with specific focus on Taxation Advisory and Dispute Resolution.Services include:

  1. Transfer Pricing;
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  4. GST

The Firm has successfully represented several multinational companies before tax authorities in Transfer Pricing/ International Tax audits and advised companies on several complex Transfer Pricing matters. The Firm’s taxation experience encompasses all aspects of Transfer Pricing, GST advisory, GAAR, POEM related planning and compliance and litigation services (including representation at higher appellate levels).

Founding Partner of the Firm, Ashutosh Mohan Rastogi regularly serves as tax counsel on Tax/ Transfer Pricing matters at higher appellate forums including Tax Tribunal and High Court and with a number of important Court Rulings to his credit.

The Firm is currently providing end to end GST advisory services ranging from Training to in-depth planning and impact analysis. Drawing upon a talented team of Lawyers, the Firm assists companies evaluate implications of the new GST law, analysing the legal/financial impact and devise systems, processes and control framework for successful compliance withthe evolving GST Regulations.

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The information contained in this newsletter is solely intended to provide general guidance on matters of interest. Nothing herein constitutes professional or legal advice, nor does any information herein constitute a comprehensive or complete statement of the issues discussed. It is recommended that you seek a professional advice to confirm your understanding on the issues dealt above.