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₹1,40,885 crore gross GST Revenue collection for May 2022; increase of 44% year-on-year

₹1,40,885 crore gross GST Revenue collection for May 2022; increase of 44% year-on-year

GST collection crosses ₹1.40 lakh crore mark 4th time since inception of GST; 3rd month at a stretch since March 2022

The gross GST revenue collected in the month of May 2022 is ₹1,40,885 crore of which CGST is ₹25,036 crore, SGST is ₹32,001 crore, IGST is ₹73,345 crore (including ₹ 37469 crore collected on import of goods) and cess is ₹10,502 crore (including ₹931 crore collected on import of goods).

The government has settled ₹27,924 crore to CGST and ₹23,123 crore to SGST from IGST. The total revenue of Centre and the States in the month of May 2022 after regular settlement is ₹52,960 crore for CGST and ₹55,124 crore for the SGST. In addition, Centre has also released GST compensation of ₹86912 crores to States and UTs on 31.05.2022.

The revenues for the month of May 2022 are 44% higher than the GST revenues in the same month last year of ₹97,821 crore. During the month, revenues from import of goods was 43% higher and the revenues from domestic transaction (including import of services) are 44% higher than the revenues from these sources during the same month last year.

This is only the fourth time the monthly GST collection crossed ₹1.40 lakh crore mark since inception of GST and third month at a stretch since March 2022. The collection in the month of May, which pertains to the returns for April, the first month of the financial year, has always been lesser than that in April, which pertains to the returns for March, the closing of the financial year. However, it is encouraging to see that even in the month of May 2022, the gross GST revenues have crossed the ₹1.40 lakh crore mark. Total number of e-way bills generated in the month of April 2022 was 7.4 crore, which is 4% lesser than 7.7 crore e-way bills generated in the month of March 2022.

The chart below shows trends in monthly gross GST revenues during the current year. The table shows the state-wise figures of GST collected in each State during the month of May 2022 as compared to May 2021.

State-wise growth of GST Revenues during May 2022

StateMay-21May-22Growth
Jammu and Kashmir23237260%
Himachal Pradesh54074137%
Punjab1,2661,83345%
Chandigarh13016729%
Uttarakhand8931,30946%
Haryana4,6636,66343%
Delhi2,7714,11348%
Rajasthan2,4643,78954%
Uttar Pradesh4,7106,67042%
Bihar8491,17839%
Sikkim25027912%
Arunachal Pradesh3682124%
Nagaland294967%
Manipur2247120%
Mizoram152570%
Tripura396567%
Meghalaya12417440%
Assam7701,06238%
West Bengal3,5904,89636%
Jharkhand2,0132,46823%
Odisha3,1973,95624%
Chattisgarh2,0262,62730%
Madhya Pradesh1,9282,74642%
Gujarat6,3829,32146%
Daman and Diu00153%
Dadra and Nagar Haveli22830031%
Maharashtra13,56520,31350%
Karnataka5,7549,23260%
Goa229461101%
Lakshadweep01148%
Kerala1,1472,06480%
Tamil Nadu5,5927,91041%
Puducherry12318147%
Andaman and Nicobar Islands4824-50%
Telangana2,9843,98233%
Andhra Pradesh2,0743,04747%
Ladakh512134%
Other Territory12118552%
Center Jurisdiction1411400%
Grand Total70,9511,02,48544%

[1]Does not include GST on import of goods

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The cancellation of a GST registration and the denial of a revocation application without a hearing are not acceptable

The cancellation of a GST registration and the denial of a revocation application without a hearing are not acceptable

Facts and issues of the case

The writ applicant is a registered company incorporated under the Companies Act, 1956 and is engaged in the trading of various agriculture products such as Castor Seeds, Jeera, Chana, Coriander, R.M. Seeds, Turmeric, Cotton  Oil  Cake (Kapas Khali) etc. and is also engaged in trading of Bullion derivatives on multi stock commodity exchange. The writ applicant claims to have requisite registration number under the relevant provisions of the different Acts.  On implementation of the Goods and Services Tax Act, 2017, the writ applicant had applied for migrating its registration issued under the GVAT Act to CGST Act vide application dated 21.03.2017. Necessary documents along with the said application were furnished before the respondent authorities.

Initially, the writ applicant was granted provisional registration certificate on 25.06.2017 under the CGST, 2017. The final registration certificate bearing GSTN registration No.24AAICA0476H1ZU was granted with effect from 01.07.2017. Photo copy of the said certificate of the final registration is placed on record. The writ applicant claims to have regularly filed its return as required under the GST Act since July, 2017 and claims to have discharge all its liability under the law.

Inspite of the aforesaid fact, the writ applicant  was served with show cause notice dated 07.03.2021 in Form GST REG-17/31 in exercise of power conferred under Section 29(2)(e) of the CGST Act, 2017 read with Rule 21 of the Central Goods and Service Rules, 2017 (for short ‘the CGST Rules, 2017’). Even the registration of the writ applicant was suspended with effect from 07.03.2021.

The writ applicant had submitted its reply on 12.03.2021 thereby drawing attention of the respondent No.2 that the Notice does not spell out any reasons or basis, on the strength of which the Proper Officer had reason to believe that the registration was liable for cancellation. The writ applicant submitted that such action of suspension of registration of the writ applicant has completely halted the business activities and thereby prayed to revoke the suspension and  withdraw  the show cause notice.

However, the respondent authority without  considering the aforesaid reply dated 12.03.2021, proceeded to pass the order for cancellation of registration on 17.03. Being aggrieved by the aforesaid  action  of  the respondent authority cancelling the registration of the writ applicant company, an application for revocation  of cancellation of registration came to be filed by the writ applicant on 05.04.2021. The writ applicant company submitted various documents more particularly, with regard to the new addresses as approved by the department in  the original registration certificate. The writ applicant company drew attention of the respondent authority that in fact the request was made for personal hearing through virtual mode in view of the prevailing pandemic situation in the month  of March, 2021. However, without accepting such request, the respondent No.2 has proceeded to  cancel  the  GSTN registration which is in violation of the basic principles of natural justice. The attention of the authority was also drawn to the instructions issued by the Central Board  of  Indirect Taxes and Customs vide instruction F.No.390/Misc/3/2019-JC, dated 21.08.2020 and thereby submitted that such instructions being binding upon the respondent No.2, the action of the respondent No.2 is required to be reconsidered.

In view of the aforesaid grounds being highlighted before the respondent No.3, a show cause notice dated 08.04.2021 came to be issued by the respondent No.3 calling upon the writ applicant to furnish the reply to the notice and further directed to appear for hearing on 16.04.2021.The writ applicant submitted its reply on 12.04.2021. The respondent No.3 without appreciating the reply of the writ applicant company, proceeded to pass the order of rejection of application seeking revocation of cancellation of GSTN registration.

Being aggrieved and dissatisfied with the aforesaid order of the respondent authority refusing revocation of cancellation of GSTN registration and its restoration, the writ applicant was constrained to approach the Office of Commissioner (Appeals), Ahmedabad, under Section 107 of the CGST Act, 2017. The said appeal preferred by the writ applicant was submitted on 07.05.2021. The writ applicant had once again raised specific contention that except reproducing the language of Section 29(2)(e) of the CGST Act, no worth reasons can be said to have been assigned in the show cause notice dated 07.03.2021 seeking cancellation of GSTN registration. It was further submitted that the Superintendent has relied upon the instructions received from the Preventive  Section, Headquarter, Gandhinagar.

However, the said  instructions were never shared with the writ applicant company and no opportunity was granted to controvert such instructions by referring to the order passed by the Assistant Commissioner. It was submitted that the order is passed on the basis  of surmises and conjectures without any documentary evidence or any material whatsoever being produced or referred to  by the Assistant Commissioner. It was therefore specifically contended that both the orders passed by the Assistant Commissioner and the Superintendent cancelling  the registration is in complete violation of basic principles  of natural justice. Upon hearing the learned counsel appearing for the respective parties as well as upon perusal of the record, the Additional Commissioner (Appeals) vide order dated 02.03.2022 proceeded to reject the appeal thereby confirming the order of rejection of application for revocation. Thus, the writ applicants have approached this Court seeking relief as prayed for.

Observation of the court

Court had heard Mr. Prakash Shah, the learned Senior Counsel assisted by Mr. Dhaval Shah, the learned advocate appearing for the writ applicants and Mr. Nikunt Raval, the learned Standing Counsel appearing for the respondent authorities.The only question that falls for our consideration is whether the order of cancellation of registration and the order passed by the appellate authority in exercise of powers conferred under Section 107 of the CGST Act, 2017 are valid and sustainable in the eye of law?

Court had heard the learned counsels appearing for the respective parties and have carefully considered their submissions. We have carefully examine the record of each of these matters. Having examined the show  cause  notices  as well as the orders impugned in this batch of writ applications, we notice that the show cause notice issued by the respondent authority is bereft of any material particulars. Not only that, no sufficient opportunity has been provided by the respondent authority while adjudicating such show cause notice. We could not overlook the fact that all the show cause notices seeking cancellation of registration in this batch of writ applications are issued during the surge of Covid-19 pandemic i.e. in the month of March, 2021. The reply was placed on record by the writ applicant specifically requesting for personal hearing through video conferencing. In fact in the reply, the attention of the respondent authorities has been drawn to the fact that no reason or details have been furnished to respond to such show cause notice. Even the order impugned lacks the reasons. Even otherwise, the reason assigned by the respondent authority is without any basis being found in the show cause notice. Even in the show cause notice, seeking revocation of cancellation of registration, the authorities have choose to proceed on the ground other than the reason given in the original show cause notice seeking cancellation of registration. At the stage of rejection of application for revocation, the respondent authorities have failed to adhere to the basic principles of natural justice. We could further notice that the appellate authority has recorded the reasons and the findings in mechanical manner as in almost all these matters the reasons assigned and findings recorded are same, the appellate authority has failed to address to the issue of various grounds raised by the writ applicants more particularly, as regards the opportunity of personal hearing and the instructions issued by the CBIT being not adhere to more particularly, during the period of pandemic. We could further notice that the core reason considered by the respondent appellate authority while rejecting the appeal is the aspect of fake Input Tax Credit availed by the writ applicants. It appears from the reasons and findings recorded by the appellate authority that reliance is placed on the report dated 22.12.2021 submitted by the Joint Commissioner, CGST, Gandhinagar, having informed that the said tax payers did not hold any ground for revocation of cancellation of registration.

At this stage, it would be appropriate to refer to the decision rendered by this Court in the case  of  Aggarwal Dyeing  and  Printing  Works  Vs.  State  of  Gujarat  and Ors., Special Civil Application No.18860 of 2021 and allied matters, decided on 24.02.2022. In the aforesaid batch of writ applications, the show cause notices seeking cancellation of registration of dealers so issued lack material particulars and this Court further found that final orders of cancellation of registration so passed were bereft of any reasons. This Court allowed the aforesaid writ applications solely on the ground of violation of principles of natural justice and had further quashed and set aside the  consequential  final  orders cancelling the registration with a liberty to the respondent authority to issue fresh Notice with particulars of reasons incorporated with details and thereafter to provide reasonable opportunity of hearing and to pass speaking orders on merits. This Court had also directed the respondent authorities to cure the technical glitches and to issue a show cause notice in physical form containing all material particulars and information in order to enable the dealer to effectively respond to such show cause notice.  The Court also permitted dispatch of show cause notice as well as final order in physical form by way of RPAD.

In light of the observations made by this Court in the case of Aggarwal Dyeing and  Printing  Works  (Supra),  the present writ applications succeed. The impugned show cause notices as well as the consequential orders cancelling registration and further order rejecting the revocation application seeking restoration of GSTN registration are hereby quashed and set aside.In light of the aforesaid reasons recorded in paragraph 10, we hereby quashed and set aside the order passed by the Additional Commissioner (Appeals). We further grant liberty to the respondent authority to issue fresh show cause notice with all material particulars as well as to furnish any particular piece of evidence, which the authority desires to rely  upon to the writ applicant to enable the writ applicants to respond effectively to such show cause notice. We also direct the respondent authority to grant opportunity to  the  writ applicants to submit their reply and other supporting documents as well as to provide sufficient opportunity for personal hearing and thereafter, to  pass  speaking  order dealing with all submissions and contentions, which may be raised by the writ applicants in the form of reply, which may be tendered before the respondent authority.It is needless to mention that we have otherwise not gone into the merits of each case. At the same time, we expect the respondent authority to follow the observations made by this Court in the case of Aggarwal Dyeing and Printing Works (Supra).

Conclusion

All the writ applications of the assessee were allowed by the court in the aforesaid terms.

Pantone-Enterprises-Private-Limited-Vs-Union-of-India-Gujarat-High-Court

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Sales of secondhand or used paintings are subject to GST

Sales of secondhand or used paintings are subject to GST

Fact and Issue of the case

The fact of the case are the applicant purchases and sells second hand or used Painting . No ITC is being availed on the  purchase of such Paintings. Therefore Rule 32(5) of CGST & MSGST Rule, 2017 is applicable to sale of such paintings and tax shall be paid by the applicant on the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.

According to applicant, Schedule II Entry No. 236 Chapter heading 9701 covers “Paintings’ drawings and pastels, executed entirely by hand, other than drawings of heading 4906 and other than hand-painted or hand-decorated manufactured articles, collages and similar decorative plaques”. Therefore, the second hand or used ‘Paintings) sold by the applicant will attract tax at the rate specified by Schedule II-Entry No. 236 Chapter Heading 9701.

Observation of the court

The court has gone through the facts of the matter , documents on record and submission made by the applicant.The applicant has submitted that they purchase and sell second hand or used ‘Painting’ and do not avail ITC on the purchases of such ‘Paintings’. Therefore, according to the applicant, the provisions of CGST & MSGST Rule, 2017 are applicable to sale of such ‘Paintings’ and tax shall be difference between the selling price and the purchase price and where the value of such supply is negative , it shall be ignored.

In an earlier case decided by this Authority on an application filed by Ws Astaguru Auction House private limited , this office vide Order No. GST-ARA.40/2020-21/B-27 dated 08.03.2022 has held that paintings are  classifiable under Heading 9701 and the applicant was liable to pay CST of 12%. In the said case also, as in the present case, the applicant was dealing amongst other goods, in second hand paintings and it was also held that t!ie provisions of Rule 32 (5) of the CGST Rules were applicable to the applicant in respect of second hand goods.

Court has no reason to deviate from the said ruling since in the instant case also the applicant is dealing only in second hard paintings i.e. applicant is buying second hand paintings and selling the same on their website to the highest bidder .:,nd no input tax credit is being availed on the purchases of such ‘Paintings’, therefore the Provisions of Rule 32(5) of CGST Rules will be applicable in the instant case also.

Conclusion

Question 1:- Classification of second hand or used Paintings’ [Section 97(2) (a)]

Answer :- The Paintings are classifiable under Heading 9701 of the G5T Tariff.

Question 2:-   Whether for determination of the liability to pay tax on the sale of second hand or used paintings , the applicant can apply Rule 32(5) of CGST& IVIGST Rules , 2017?

Answer :- Answered in the affirmative. The provisions of Rule 32(5) of CGST Rules will be  applicable to applicant in respect of second hand .

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Recommendation of GST Council is not binding on States

Recommendation of GST Council is not binding on States

BIG NEWS: In a judgment of significant import, the Supreme Court has ruled that the Central government and States have simultaneous powers to legislate on Goods and Service Tax (GST).
Hence, the GST council must work in harmonious manner to achieve workable solution between Centre and States, the Court said.
Pertinently, the Court ruled that the recommendation of GST Council is not binding on States but has only persuasive value.
“States and Centre can equally legislate on matters of GST. All recommendations of GST council is not binding on State legislature,” the Court held.

According to Article 246A, both parliament and State legislature have equal power to legislate on matters of taxation, the Court added.
“Article 246A treats State and Centre as equal. Article 279 says state and centre cannot act independent of each other. This also points towards competitive federalism,” the judgment said.
Interestingly, the Court also made important observations on co-operative federalism.

The Court said that while the Indian Constitution necessarily federal provides Union government higher share of power to avoid chaos but relation between two constitutional units may not always be collaborative.
“Indian federalism is a dialogue between cooperative and non-cooperative federalism. Indian federalism is a dialogue in which States and Centre always engages in a dialogue,” the Court said.

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Fake input tax credit racket of over Rs 15 crore exposed by CGST officials

Fake input tax credit racket of over Rs 15 crore exposed by CGST officials

The CGST Commissionerate, Mumbai West Zone, exposes a Rs. 15.23 crore bogus GST Input Tax Credit. The Mumbai West Zone of the Central Goods and Services Tax (CGST) Commissionerate has busted a fraudulent GST Input Tax Credit (ITC) racket and arrested the owner of a Malad-based enterprise. In violation of the provisions of the CGST Act, 2017, the firm was involved in the fraudulent availment and passing of Input Tax Credit (ITC) of Rs 15.23 Crore without receiving or supplying products. An investigation was launched against M/s Pacific Pharma, which specialises in chemical trafficking, on a tip from the Central Intelligence Unit of the CGST Mumbai Zone. For this tax scam, the CGST Mumbai Zone discovered that phoney bills totaling roughly Rs. 105 crore were produced.

On the 28th of April 2022, the firm’s owner was arrested under Section 69 of the CGST Act, 2017 for violating Section 132 of the CGST Act, 2017 and appeared before the Additional Chief Metropolitan Magistrate, Esplanade. He has been remanded in judicial custody for 14 days by the Magistrate. More research is being carried out. This action is part of the CGST Mumbai Zone’s efforts to combat bogus ITC networks and tax evaders who have been infringing on the rights of honest taxpayers and robbing the government. As a result of these efforts, the CGST, Mumbai West Commissionerate has found false ITC worth Rs.465.75 crore, recovered Rs. 35.57 crore, and arrested five people in the last six months. Data analysis and network analysis are used by CGST officers. During this fiscal year, the Department will step up its efforts to catch tax evaders.

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Restriction to avail Input Tax Credit under Section 16(2)(aa) of CGST

Restriction to avail Input Tax Credit under Section 16(2)(aa) of CGST

Introduction to Input Tax Credit

Input Tax Credit means taxpayers can claim tax if he has already paid tax on purchase of goods or services. The Mechanism of Input Tax Credit is the backbone of GST and is one of the most important reasons for the introduction of GST. It also includes tax paid on reverse charge basis and integrated tax goods and services tax charged on import of goods. It does not include tax paid under composition levy.

Eligibility and Conditions for availing Input Tax Credit

As per section 16 of CGST, Act provides that every  registered person shall, subject to such conditions and restrictions as may be prescribed be entitled to take input tax credit and charged on any supply of goods or services or both  which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Section 16(2) of CGST Act, 2017 provides that no registered person shall be entitled to input tax credit in respect of any supply of goods or services or both to him unless –

  • He is in possession of a valid tax invoice , debit note or other prescribed documents issued by registered supplier.
  • He received the goods or services. If the product is being received in instalments, then the credit can be claimed against the tax invoice for the last instalment.
  • The tax charged in respect of such supply has been paid to government either in cash or by claiming input tax credit.
  • He has filed the GST returns. The most unique change GST brings to this entire tax setup is that he has allowed to claim input tax credit on purchases only if supplier is GST compliant and has paid the tax they had collected.
  • Availing ITC for invoices and debit notes apply only in cases where details of these invoices / debit notes are provided in Form GSTR-1 / IFF and communicated to the registered person in Form GSTR-2B.
  • Where a recipient fails to pay to the supplier of goods or services or both  other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, If the buyer fails to do so, the amount of credit they would have availed, will be added to their output tax liability.

Documents required for availing Input Tax Credit

  • Invoice issued by the supplier.
  • Debit note issued by the supplier (if any)
  • Bill of Entry or similar documents issued by the Customs Department
  • Bill of Supply issued by the supplier
  • Invoice or credit note issued by ISD

Time limits for claiming Input Tax Credit

Input Tax Credit can be claimed only for tax invoices and debit notes which are less than a year old . In any other case, the last date to claim ITC is the earlier of the following:

  • Before filing GST returns for month of September following the end of the financial year applicable to that invoice.
  • Before filing a relevant annual return.
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GST collection record of 1.41 Lakh Cr

GST collection record of 1.41 Lakh Cr

  • Rs 1,38,394 crore Gross GST Revenue collected for January 2022
  • GST collection crossed Rs 1.30 lakh crore mark for the 4th time
  • Revenues for the month of January 2022 15% higher than GST revenues in the same month last year and 25% higher than the GST revenues in January 2020

The gross GST revenue collected in the month of January 2022 till 3PM on 31.01.2022 is Rs 1,38,394 crore of which CGST is Rs 24,674 crore, SGST is Rs 32,016 crore, IGST is Rs 72,030 crore (including Rs 35,181 crore collected on import of goods) and cess is Rs 9,674 crore (including Rs 517 crore collected on import of goods). The highest monthly GST collection has been Rs 1,39,708 crore in the month of April 2021. Total number of GSTR-3B returns filed upto 30th January 2022 is 1.05 crore that includes 36 lakh quarterly returns.

The government has settled Rs 29,726 crore to CGST and Rs 24,180 crore to SGST from IGST as regular settlement. In addition, Centre has also settled Rs. 35,000 crore of IGST on ad-hoc basis in the ratio of 50:50 between Centre and States/UTs in this month. The total revenue of Centre and the States in the month of January 2022 after regular and ad-hoc settlements is Rs 71,900 crore for CGST and Rs 73,696 crore for the SGST. Centre also released GST compensation Rs 18,000 crore in January’2022 to States/UTs.

The revenues for the month of January 2022 are 15% higher than the GST revenues in the same month last year and 25% higher than the GST revenues in January 2020. During the month, revenues from import of goods was 26% higher and the revenues from domestic transaction (including import of services) are 12% higher than the revenues from these sources during the same month last year.

This is for the fourth time GST collection has crossed Rs 1.30 lakh crore mark. 6.7 crore e-way bills were generated in the month of December 2021 which is 14% higher than 5.8 crore e-way bills generated in the month of November 2021. Coupled with economic recovery, anti-evasion activities, especially action against fake billers have been contributing to the enhanced GST. The improvement in revenue has also been due to various rate rationalization measures undertaken by the Council to correct inverted duty structure. It is expected that the positive trend in the revenues will continue in the coming months as well.

GST collection record of 1.41 Lakh Cr

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Unannounced GST Amendment in Budget Speech 2022 mentioned in Finance Bill

Unannounced GST Amendment in Budget Speech 2022 mentioned in Finance Bill

Introduction

The Finance Minister unveiled the Budget 2022 on the 1st of February 2022 at 11.00 AM. Creation of job opportunities, Development in infrastructure, Digital currency, domestic solar power companies, Aatmanirbhar Defense, financing investments, capital expenditure, direct and indirect tax, customs, transport and education sector were some topics for budget 2022.

It will interest you to know that the January GST collection surpasses 1.4 lakh crore the highest GST collection ever. In this article we will know about the amendments in the indirect taxes pertaining to GST. The GST amendments are running from clause 99 to clause 123 of the Finance Bill 2022. These amendments will be effective from a date to be notified or otherwise specified in accordance to section 1 (2) (b) of Finance Bill 2022. Whereas, amendment pertaining section 50 will have retrospective effect as discussed in the article below.

Highlights on Changes in GST – Budget 2022

  1. Clause 99 of Finance Bill- Extension of time limit for 2 months from 30th September to 30th November for availing ITC U/s 16(4).
  2.  Clause 99 of Finance Bill- Further in accordance to section 16(2) additional condition has been implied for availing ITC i.e., ITC can now be availed only if the same is not restricted in GSTR2B. A new clause (ba) to section 16 (2) has been inserted for the same.
  3. Clause 100 of Finance Bill – Clause (b) and (c) of sub section (2) of Section 29 of CGST Act are being amendment Cancellation on suo-moto basis for defaulting taxpayers registered under composition scheme for non- filing of GSTR4 return beyond a period of 3 months from due date.
  4. Clause 101 of Finance Bill- Amendment in sub – section (2) of section 34-Further extension is granted on similar lines as that of ITC availment to issuance of credit note. Credit notes for supply can now be issued upto 30th November of next financial year instead of 30th September.
  5. Clause 102 and Clause 111 of Finance Bill – Section 37 of CGST Act Amendment- Extension from 30th September to 30th November of next financial year also implies to any rectification of error in GSTR1/ GSTR3B.
  6. Clause 102 and Clause 103 of Finance Bill- Section 37 and section 38 of CGST Act Amendment – Two- way communication process in filing GST returns is now a history as the same is scrapped.
  7. Clause 104 of Finance Bill- Section 39 of CGST Act Amendment- For non- resident taxable persons, the due date for filing return is 13th day of the following month.
  8. Clause 105 of Finance Bill- Section 41 of CGST Act Amendment In order to do away with the concept of claim of ITC on a provisional basis section 41 of CGST Act is being substituted.
  9. Clause 106 of Finance Bill- Omission of section 42,43 and 43 A of CGST Act to do away with the two-way communication process in return filing
  10. Clause 107 of Finance Bill – To provide for levy of late fee for delayed filing of TCS returns section 47 of CGST Act stands amended.
  11. Clause 108 of Finance Bill – so as to remove reference to section 38 of CGST Act section 48 of CGST Act stands amended.
  12. Clause 109 of Finance Bill – There are 3 amendments pertaining to section 49 of CGST Act. a) To provide restriction for utilizing the amount available in electronic credit ledger amendment of section 49 of CGST Act is being proposed. b) This section is also amended so as to allow transfer amount available in E- cash ledger of a registered person to the E-cash ledger of a distinct person. c) Further, to provide for prescribing the maximum proportion of output tax liability which may be discharged through the electronic credit ledger section 49 is being amended.
  13. Clause 110 of Finance Bill- Interest will not be levied if ITC is not utilized as section 50(3) of CGST Act is being substituted retrospectively with effect from 1st July 2017, so as to levy interest on input tax credit wrongly availed and utilized.
  14. Clause 112 of Finance Bill – For any balance in electronic cash ledger the refund claims will now be made available.
  15. Clause 112 of Finance Bill -Amendment in sub section (2) of section 168 of CGST Act to remove reference to section 38 of CGST Act.
  16. Clause 115, Clause 118 and Clause 121 of Finance Bill – The rate of interest u/s 50 (3) is prescribed as 18% in all cases i.e., CGST, SGST, IGST & UTGST
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Guidelines for disallowing debit of electronic credit ledger under Rule 86A

Guidelines for disallowing debit of electronic credit ledger under Rule 86A

CBEC-20/16/05/2021-GST/1552

Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs
GST Policy Wing
New Delhi.

dated 2nd November, 2021

To,
The Principal Chief Commissioners / Chief Commissioners / Principal Commissioners / Commissioners of Central Tax (All)
The Principal Directors General / Directors General (All)

Madam/Sir,

Subject: Guidelines for disallowing debit of electronic credit ledger under Rule 86A of the CGST Rules, 2017 –Reg.

Rule 86A of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as “the Rules”) provides that in certain circumstances, Commissioner or an officer authorised by him, on the basis of reasonable belief that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible, may not allow debit of an amount equivalent to such credit in electronic credit ledger.

2. Doubts have been raised by the field formations on various issues pertaining to disallowing debit of input tax credit from electronic credit ledger, under rule 86A of the Rules. Further, Hon’ble High Courts in some cases have emphasized the need for laying down guidelines for the purpose of invoking rule 86A. In view of the above, the following guidelines are hereby issued with respect to exercise of power under rule 86A of the Rules:

3.1 Grounds for disallowing debit of an amount from electronic credit ledger:

3.1.1 Rule 86A of the Rules is reproduced hereunder for reference:

“86A. Conditions of use of amount available in electronic credit ledger.-

(1) The Commissioner or an officer authorised by him in this behalf not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as‑

a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36-

i. issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or

ii. without receipt of goods or services or both; or

b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or

c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or

d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36, may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger .for discharge of any liability under section 49 or for claim of any refund of any unutilised amount.

(2) The Commissioner, or the officer authorised by him under sub-rule (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit.

(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.”

3.1.2 Perusal of the rule makes it clear that the Commissioner, or an officer authorised by him, not below the rank of Assistant Commissioner, must have ”reasons to believe” that credit of input tax available in the electronic credit ledger is either ineligible or has been fraudulently availed by the registered person, before disallowing the debit of amount from electronic credit ledger of the said registered person under rule 86A. The reasons for such belief must be based only on one or more of the following grounds:

a) The credit is availed by the registered person on the invoices or debit notes issued by a supplier, who is found to be non-existent or is found not to be conducting any business from the place declared in registration.

b) The credit is availed by the registered person on invoices or debit notes, without actually receiving any goods or services or both.

c) The credit is availed by the registered person on invoices or debit notes, the tax in respect of which has not been paid to the government.

d) The registered person claiming the credit is found to be non-existent or is found not to be conducting, any business from the place declared in registration.

e) The credit is availed by the registered person without having any invoice or debit note or any other valid document for it.

3.1.3 The Commissioner, or an officer authorised by him, not below the rank of Assistant Commissioner. must form an opinion for disallowing debit of an amount from electronic credit ledger in respect of a registered person, only after proper application of mind considering all the facts of the case. including the nature of prima facie fraudulently availed or ineligible input tax credit and whether the same is covered under the grounds mentioned in sub-rule (1) of rule 86A, as discussed in para 3.1.2 above; the amount of input tax credit involved: and whether disallowing such debit of electronic credit ledger of a person is necessary for restricting him from utilizing/ passing on fraudulently availed or ineligible input tax credit to protect the interests of revenue.

3.1.4 It is reiterated that the power of disallowing debit of amount from electronic credit ledger must not be exercised in a mechanical manner and careful examination of all the facts of the case is important to determine case(s) fit for exercising power under rule 86A.The remedy of disallowing debit of amount from electronic credit ledger being, by its very nature, extraordinary, has to be resorted to with utmost circumspection and with maximum care and caution. It contemplates an objective determination based on intelligent care and evaluation as distinguished from a purely subjective consideration of suspicion. The reasons are to be on the basis of material evidence available or gathered in relation to fraudulent availment of input tax credit or ineligible input tax credit availed as per the conditions/ grounds under sub-rule (I) of rule 86A.

3.2 Proper authority for the purpose of Rule 86A:

3.2.1 The Commissioner (including Principal Commissioner) is the proper officer for the purpose of exercising powers for disallowing the debit of amount from electronic credit ledger of a registered person under rule 86A. However, Commissioner/ Principal Commissioner can also authorize any officer subordinate to him, not below the rank of Assistant Commissioner, to be the proper officer for exercising such power under rule 86A. It is advised that Commissioner/Principal Commissioner may authorize exercise of powers under rule 86A based on the following monetary limits as mentioned below:

Total amount of ineligible or fraudulently availed input tax creditOfficer to disallow debit of amount from electronic credit ledger under rule 86A
Not exceeding Rupees 1 croreDeputy Commissioner/ Assistant Commissioner
Above Rupees 1 crore but not exceeding Rs 5 croreAdditional Commissioner/ Joint Commissioner
Above Rs 5 crorePrincipal Commissioner/ Commissioner

3.2.2 The Additional Director General /Principal Additional Director General of DGGI can also exercise the powers assigned to the Commissioner under rule 86A. The monetary limits for authorization for exercise of powers under rule 86A to the officers of the rank of Assistant Director and above of DGGI by the Additional Director General /Principal Additional Director General may be same as mentioned for equivalent rank of officers in the table in para 3.2.1 above.

3.2.3 Where during the course of Audit under section 65 or 66 of CGST Act, 2017 it is noticed that any input tax credit has been fraudulently availed or is ineligible as per the grounds mentioned in sub-rule (1) of rule 86A, which may require disallowing debit of electronic credit ledger under rule 86A, the concerned Commissioner/ Principal Commissioner of CGST Audit Commissionerate may refer the same to the jurisdictional CGST Commissioner for examination of the matter for exercise of power under rule 86A.

3.3 Procedure for disallowing debit of electronic credit ledger/blocking credit under Rule 86(A):

3.3.1 The amount of fraudulently availed or ineligible input tax credit availed by the registered person, as per the grounds mentioned in sub-rule (1) of rule 86A, shall be prima facie ascertained based on material evidence available or gathered on record. It is advised that the powers under rule 86A to disallow debit of the amount from electronic credit ledger of the registered person may be exercised by the Commissioner or the officer authorized by him, as per the monetary limits detailed in Para 3.2.1 above. The officer should apply his mind as to whether there are reasons to believe that the input tax credit availed by the registered person has either been fraudulently availed or is ineligible, as per conditions/ grounds mentioned in sub-rule (1) of rule 86A and whether disallowing such debit of electronic credit ledger of the said person is necessary for restricting him from utilizing/ passing on fraudulently availed or ineligible input tax credit to protect the interests of revenue. Such “Reasons to believe” shall be duly recorded by the concerned officer in writing on file, before he proceeds to disallow debit of amount from electronic credit ledger of the said person.

3.3.2 The amount disallowed for debit from electronic credit ledger should not be more than the amount of input tax credit which is believed to have been fraudulently availed or is ineligible, as per the conditions/ grounds mentioned in sub-rule (1) of rule 86A.

3.3.3 The action by the Commissioner or the authorized officer, as the case may be, to disallow debit from electronic credit ledger of a registered person, is informed on the portal to the concerned registered person, along with the details of the officer who has disallowed such debit.

3.4 Allowing debit of disallowed/restricted credit under sub–rule (2) of Rule 86A:

3.4.1 The Commissioner or the authorized officer, as the case may be, either on his own or based on the submissions made by the taxpayer with material evidence thereof, may examine the matter afresh and on being satisfied that the input tax credit, initially considered to be fraudulently availed or ineligible as per conditions of sub-rule (1) of rule 86A, is no more ineligible or wrongly availed, either partially or fully, may allow the use of the credit, so disallowed/restricted. up to the extent of eligibility, as per powers granted under sub-rule (2) of rule 86A. Reasons for allowing the debit of electronic credit ledger, which had been earlier disallowed, shall be duly recorded on file in writing, before allowing such debit of electronic credit ledger.

3.4.2 The restriction imposed as per sub-rule (1) of rule 86,A shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction. In other words. upon expiry of one year from the date of restriction, the registered person would be able to debit input tax credit so disallowed, subject to any other action that may be taken against the registered person.

3.4.3 As the restriction on debit of electronic credit ledger under sub-rule (I) of rule 86A is resorted to protect the interests of the revenue and the said action also has bearing on the working capital of the registered person, it should be endeavored that in all such cases. the investigation and adjudication are completed at the earliest, well within the period of restriction, so that the due liability arising out of the same can be recovered from the said taxable person and the purpose of disallowing debit from electronic credit ledger is achieved.

4. Difficulty, if any, in implementation of the above guidelines may please be brought to the notice of the Board. Hindi version would follow.

(Sanjay Mangal)

Principal Commissioner (GST)

Copy to:

1. The Joint Secretary, GST Council Secretariat, New Delhi. He may consider circulating the same to all states for information and necessary action at their end.

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Applicability of GST on land after erecting a building, civil structure or a complex, AAR Telangana

Applicability of GST on land after erecting a building, civil structure or a complex, AAR Telangana

Introduction

In a very interesting case, of M/s. TIF Integrated Industrial Parks PVT Ltd (AAR TELANGANA) question on the applicability of GST on land after erecting or construction of building or complex or civil structure was raised. In this article we will understand about the ambiguity due to which such question was raised and the provisions under the GST law which were brought to light. 

Facts of the Case:

  1. TIF Integrated Industrial Parks Pvt. Ltd is the applicant who in the said case has stated that it is a company formed by industrialists as required by the Telangana State Industrial Infrastructure Corporation Limited (TSIIC) as a special purpose vehicle (SPV) representing the member industrialists with an objective of providing industrial infrastructure by development of land acquired by TSIIC.
  2. A sale agreement was executed between applicant and TSIIC and It is informed by the applicant that a sale deed will be executed with TSIIC upon completion of development of internal infrastructure. Similarly, the applicant is authorized in turn to sell to individual industrialists after each of his allottee commences commercial operation by executing individual sale deeds. It is informed by the applicant that TSIIC issued final allotment letter conforming allotment of 377 acres of land for a cost of Rs.55.11 Cr. on Vijayawada Highway to setup an Industrial Corridor. A sale agreement was executed between applicant and TSIIC.
  3. It is informed by the applicant that a sale deed will be executed with TSIIC upon completion of development of internal infrastructure. Similarly, the applicant is authorized in turn to sell to individual industrialists after each of his allottee commences commercial operation by executing individual sale deeds.
  4. M/s. TIF Integrated Industrial Parks PVT Ltd have filed an application in FORM GST ARA-01 under Section 97(1) of TGST Act, 2017 read with Rule 104 of CGST/TGST Rules, seeking Advance Ruling seeking clarification

Questions Raised:

  1. Whether by the above-mentioned facts the activity of disposal of developed plots of land to allottee members of the applicant from and out of the land received from the TSIIC for specified purpose of industrial development is outside the purview of GST by virtue of the said activity failing under Entry 5 of Schedule III of Central Goods & Service Tax Act, 2017 and corresponding provisions under Telangana Goods & Service Tax Act, 2017 as amended (hereinafter referred to as GST Act).
  2. Whether in the facts and circumstances the activity of infrastructure development (ID) of land received from the TSIIC for specified purpose of industrial development and undertaken on behalf of allottee members does not qualify as a “supply” under Section 7 of the Central Goods & Service Tax Act, 2017 & corresponding provision under Telangana Goods & Service Tax Act, 2017 as amended and hence will remain outside the purview of the GST Act?

The Applicant has declared that the questions raised in the application have neither been decided by nor are pending before any authority under any provisions of the GST Act. The application is therefore, admitted.

Sections and Applicable Provisions:

  1. Section 7, sub section 2, creates a deeming fiction to exclude certain activities from taxation even though they are goods or services as per the definition in the CGST/SGST Acts. Accordingly, activities or transactions relating to any goods or services finding a mention in schedule III to the CGST act are treated as neither supply of goods nor supply of services.
  2. The paragraph 5 of Schedule III includes the sale of land as exempt from levy of GST subject to clause (b) of paragraph 5 of schedule II. Paragraph 5 of Schedule II deals with levy of tax on immovable property involving the construction of a complex or a building or any civil structure intended for sale. Therefore, the exclusive sale of land is exempt from GST except when sold along with a constructed complex or a building or a civil structure.
  3. The Clause b of Paragraph 6 of Schedule II deems the composite supply of works contract as supply of services. The service of works contract is defined in Clause (119) of Section 2 of CGST Act as follows: “Works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in execution of such contract.
  4. Further, according to Sec 15 of the CGST Act, 2017, the value of such supply of service i.e., the transaction value which is paid or payable should be discernible and where the supply of service is for a consideration not wholly in money it shall be determined as per chapter IV of the CGST Rules, 2017.

Thus, from the above conditions the activity undertaken by the applicant for construction of the immovable property would qualify to be a “works contract” if,

(a) It is executed in pursuance of a contract or agreement; and

(b)  There is a transfer of property in goods in execution of works contract from the contractor to the contractee; and

(c) There is a consideration paid by the contractee to the contractor.

Discussion & Findings

The applicant has evidence in form of sale agreement between itself as buyer and TSIIC as seller and then between itself as seller and an industrialist as buyer. The contention of the applicant regarding the nature of their business is as follows

  1. TSIIC transfers the possession of the acquired land by way of a sale agreement to the applicant for development of the land in order to allot it to various industrialists under the condition that the sale deed would be executed only after such development is completed.
  2. The applicant would develop the land according to the requirement and directions of the TSIIC and enter into agreement with the individual industrialists for sale of land on his part. The sale deed by the applicant will be executed in favour of the individual industrialists on construction of factory shed and implementation of the project.

Thereby it is seen that there will exist two sale deeds one between TSIIC and the applicant and the second between the applicant and the individual industrialist. The TSIIC ltd executes an agreement for sale of land with the applicant and collects the full consideration for the cost of land but sets condition to execute the sale deed to transfer the title only after the applicant completes infrastructure development in the land. Similarly, the applicant executes an agreement for sale of land with the individual industrialists by collecting the consideration for cost of plot but sets conditions to execute the sale deed for transfer of title only if such industry commences construction of factory within (6) months of handing over possession and complete the implementation of industry (project) i.e., construction of factory and erection of machinery within (2) years from date of transfer of possession. There is no agreement with the individual industrialist for development of infrastructure in the land.

Further, the perusal of the contract entered by the applicant with the TSIIC ltd clearly indicates that the property in land will be transferred to the applicant only when the applicant completes the development of infrastructure of schedule land. However, this clause in the agreement appears to have been made to meet the larger objective enumerated in industrial policy of the State. Though there is a contract for development of the land the other (2) conditions enumerated above are not fulfilled i.e., transfer of property in goods from the applicant to the TSIIC ltd and payment of consideration by TSIIC ltd to the applicant.

The examination of the agreement between the applicant and one individual allottee reveals that the applicant has taken up development of infrastructure as per the conditions of allotment set by TSIIC. Also, the allottee will get the title of the land only on commencement of industrial production. There is no clause in the agreement by which the applicant is obliged to develop the land for the allottee industrialist. This obligation is only with TSIIC ltd. Thus, even in the contract with individual industrialist the 3 conditions mentioned in the applicable sections of works contract above for making such a supply as supply of works contract are not fulfilled.

Further the applicant also indicates that it may take up certain infrastructure development after the title to land is transferred to allottee by way of sale deed. It is also indicated that consideration will be recovered for executing such works. Such development works executed after the sale deed is registered will necessarily amounts to works contract and the consideration received for the same will be liable to tax under CGST Act, 2017.

Ruling & Order:

  1. If the applicant sells the land after developing by way of erecting a civil structure or a building or a complex then such supply is liable to tax under CGST/SGST Acts. However, if land is sold without any development involving any civil structure or building or complex such supply falls under paragraph 5 of schedule III to Section 7(2) of CGST Act, 2017 and hence is exempt from tax.
  2. If the applicant executes works contracts involving transfer of property in goods for a consideration under an agreement of contract such consideration will be liable to tax. However if these elements are missing in execution of a construction it shall not be liable to tax.   
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