GST UPDATE No 172 ON COMPLICATED RE-STRUCTURING OF RATES FOR FLY ASH BRICKS

Recently, a couple of notifications have been issued with respect to change in GST rate of fly ash bricks along with change in composition scheme notification which has led to confusion as regards the alternatives available to the suppliers of fly ash bricks. It is being reported that the GST rate of 6% without input tax credit facility is under special composition scheme but in-depth analysis of the notifications reveals an entirely different picture. The interpretation of the amendments made for change in rate of fly ash bricks is the point of discussion of our present update. Before proceeding to the analytical portion, the relevant notifications are briefly summarised as follows:- NOTIFICATION NUMBER DATE SUBJECT MATTER 04/2022- Central Tax 31.03.2022 This notification seeks to amend notification no. 14/2019-Central Tax dated 07.03.2019 wherein the threshold limit for availing composition scheme benefit under section 10 of the CGST Act, 2017 was extended to Rs. 1.5 Crores. This notification debars the manufacturers of fly ash bricks from availing the benefit of composition scheme thereby meaning that only traders can opt for composition scheme. It is worth mentioning here that the principal notification no. 14/2019-Central Tax dated 07.03.2019 prescribes that tax shall be payable as stated in Rule 7 of the CGST Rules, 2017 which is 1% of the turnover of CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??4 taxable supplies of goods and services in the State or Union Territory. 03/2022- Central Tax 31.03.2022 This notification seeks to amend notification no. 10/2019-Central Tax dated 07.03.2019 wherein exemption has been granted to any person engaged in exclusive supply of goods and whose aggregate turnover in the financial year does not exceeds Rs. 40 Lakhs. This notification provides exception wherein the enhanced threshold of Rs. 40 Lakhs will not be applicable for goods such as fly ash bricks. Hence, it indicates that the general threshold exemption of Rs. 20 Lakhs would be applicable for the suppliers of fly ash bricks. 01/2022- Central Tax (Rate) and 01/2022- Integrated Tax (Rate) 31.03.2022 This notification seeks to delete the entries of fly ash bricks from Schedule-I prescribing CGST rate of 2.5% and insert the said entries in Schedule-II prescribing CGST rate of 6%. The above rates have been prescribed taking into account the fact that input tax credit would be admissible to the supplier and recipient of such goods. 02/2022- Central Tax (Rate) and 02/2022- Integrated Tax (Rate) 31.03.2022 This notification seeks to prescribe the CGST rate of 3% with the condition that credit of input tax charged on goods or services used exclusively in supplying such goods has not been taken. Moreover, such goods are to be considered as exempt supply attracting the provisions of credit reversal as contained in section 17(2) of the CGST Act, 2017. The key points of analysis of the above notifications are as follows:- CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??5 1. Whether supplier of goods has the option to avail either of the rate notification? It is submitted that the notification no. 01/2022-Central Tax (Rate) dated 31.03.2022 seeks to amend the rate notification prescribing various Schedules of GST rates. Furthermore, notification no. 02/2022-Central Tax (Rate) dated 31.03.2022 is an exemption notification prescribing concessional GST rate of 6% with the condition of non-availment of ITC. In our opinion, the supplier has option to avail either of the notifications and there is no compulsion as regards applicability of particular notification. Furthermore, it is reiterated that the notification no. 02/2022-Central Tax (Rate) dated 31.03.2022 is not a notification issued under the special composition scheme. This is for the reason that one of the major conditions for availing the benefit of composition scheme is that the supplier cannot make inter state supply of goods whereas it is worth noting that the notification prescribing GST rate of 6% without input tax credit facility has also been issued in Integrated Tax (Rate) section which proves that the notification is not for special composition scheme. Apart from above, it is submitted that composition scheme prescribes the rate of GST as a percentage of turnover whereas the notification no. 02/2022- Central Tax (Rate) dated 31.03.2022 does not prescribe the GST rate as a percentage of turnover thereby meaning that it is not composition scheme notification. It is further submitted that although the notification is issued under section 11(1) of the CGST Act, 2017, it is not mandatory for the supplier to compulsorily opt for the exemption benefit because as per the explanation contained in section 11(3) of the CGST Act, 2017, where an exemption in respect of any goods or services or both from the whole or part of the tax leviable thereon has been granted absolutely, the registered person supplying such goods or services or both shall not collect the tax, in excess of the effective rate, on such supply of goods or services or both. It is worth mentioning that the notification no. 02/2022-Central Tax (Rate) dated 31.03.2022 grants conditional exemption subject to fulfillment of the condition of non-availment of input tax credit. Consequently, the supplier has option to avail either of the rate notifications. CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??6 2. Whether notification no. 02/2022-Central Tax (Rate) dated 31.03.2022 is to be considered as special composition scheme or not? As per the analysis detailed in point no. 1, notification no. 02/2022-Central Tax (Rate) dated 31.03.2022 is an exemption notification prescribing concessional GST rate of 6% subject to fulfillment of condition of non-availment of input tax credit. Therefore, it is not to be treated as notification issued under special composition scheme. 3. Whether accumulated input tax credit can be utilised by the supplier opting for GST rate of 3% without ITC facility? It is submitted that the notification no. 02/2022-Central Tax (Rate) dated 31.03.2022 prescribes that the benefit of 6% GST would be available only when the credit of input tax charged on goods or services used exclusively in supplying such goods has not been taken thereby meaning that there is no embargo in utilising the accumulated balance of input tax credit in discharging output tax liability by the supplier of goods. In this respect, reliance may be placed on judicial pronouncements rendered in erstwhile regime that have held that credit legitimately earned by the assessee cannot be lapsed. The decisions along with their citations are referred as follows:- • EICHER MOTORS LTD. VERSUS UNION OF INDIA [1999 (106) E.L.T. 3 (S.C.)] • SHANKESHWAR FABRICS (P) LTD. VERSUS UNION OF INDIA [2009 (248) E.L.T. 106 (RAJ.)]- It was held that even after opting under the compounded levy scheme, the petitioner is entitled to utilise credit on goods manufactured prior to 10.12.1998 under notification no. 36/1998-CE as right recognised cannot be extinguished. • SHABNAM PETROFILS PVT. LTD. VERSUS UNION OF INDIA [2019 (29) G.S.T.L. 225 (GUJ.)]- It was held that notification no. 20/2018-Central Tax (Rate) dated 26.07.2018 stating that accumulated input tax credit on specified fabrics lying unutilised in balance after payment of tax for and upto the month of July, 2018 shall lapse is ultra vires and beyond the scope of section 54(3)(ii) of the CGST Act, 2017. CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??7 Hence, in view of the above cited decisions, there is no restriction in utilizing the unutilised balance of input tax credit by the suppliers opting for GST rate of 6% with the condition of non-availment of ITC. Aggregate Turnover (in Rs.) Exemption from taking GST registration Composition Scheme Whether GST can be charged from recipient? Rate of Tax Whether ITC available to the supplier? Whether ITC available to the recipient? Trader/Manu facturer having turnover Upto Rs. 20 Lakhs Yes __ __ __ __ __ Trader having turnover as 20 Lakhs to 1.5 Crores No Yes No CGST = 0.5% SGST= 0.5% No No Trader having turnover above Rs. 1.5 Crores No No If rate of CGST is opted as 3%-Yes. If rate of CGST is opted as CGST =3% SGST= 3% CGST =6% SGST= No Yes Yes, subject to provisions contained in section 17(5) of the CGST Act, 2017. CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??8 4. What difference does it make if the notification no. 02/2022-Central Tax (Rate) dated 31.03.2022 is considered as exemption notification and not notification for composition scheme? It is submitted that if the notification no. 02/2022-Central Tax (Rate) dated 31.03.2022 is considered as exemption notification, the difference will be that GST can be charged from the recipient of goods but when benefit of composition scheme is availed, no GST can be charged from the recipient of goods. The only probable reason for treating the said notification as special composition scheme by the department can be to deny the benefit of inverted duty structure. However, it is worth mentioning that the question of claiming refund of accumulated input tax credit on account of inverted duty structure does not arise when GST rate of 6% without ITC is opted for. Moreover, if the supplier opts for GST rate of 12% with ITC facility, refund of accumulated input tax credit can be claimed by them as cement used with fly ash bricks attracts GST rate of 28%. Hence, the myth to consider the notification as issued under special composition scheme is not understandable. 5. Total alternatives available to the supplier of such goods:- We hereby summarise the total alternatives available to the supplier of fly ash bricks in view of the amendments made as stated above:- The above analysis clearly reveals the complexity in interpreting the amendment made with respect to change in rate of fly ash brick. It is hoped that the government resorts to easy amendment policies so that the motive of simple and easy tax reform is accomplished.

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GST UPDATE No 172 ON COMPLICATED RE-STRUCTURING OF RATES FOR FLY ASH BRICKS

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