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Corporate News *  Service tax penalty can’t survive when assessee acted on dept.’s own view of non-taxability: Delhi High Court. *  GST section 74 extended limitation questionable when form 26AS mismatch was already known: Karnataka High Court grants interim relief. *  CGST demand prima facie impermissible after state GST settlement under section 128A: Bombay High Court. *  Supreme Court asks GSTAT to sympathetically consider delay as taxpayers pursued remedy before wrong forum. *  Supreme Court stays Tripura High Court ruling protecting genuine buyers from ITC denial over supplier’s GST default. *  Diary entries alone can’t prove clandestine removal of goods: CESTAT quashes excise penalty on steel trader. *  Customs could investigate preferential tariff claims even before sec. 28DA: Delhi High Court. *  Customs dept. relied on fake AI generated case laws: supreme court quashes Rs. 425.28 crore penalty. *  No GST exemption in affiliation and annual registration charges for admission or conduct Of examinations: GSTAT. *  Mere invoices, cheque payments insufficient to establish genuine movement of goods: GSTAT restores Rs. 43.44 lakh ITC demand. *  Consolidated GST show cause notice covering multiple financial years is not without jurisdiction: Delhi High Court. *  Construction of independent houses on separate plots not taxable as ‘Residential Complex’ without common facilities: CESTAT. *  GST penalty exceeding statutory maximum unsustainable; Allahabad High Court quashes ? 50,000/- penalty after taxpayer filed return and paid late fee. *  GST order against standard chartered bank passed without hearing set aside by Bombay High Court. *  Retracted statements can’t be relied upon without cross-examination: CESTAT quashes gold confiscation. *  Burden to prove misclassification lies on customs department: CESTAT. *  CESTAT quashes Rs. 98 lakh excise demand on clearance of used refractory brick scrap. *  Service tax demand on irrigation works quashed: Karnataka High Court rules sale of goods component not taxable as service. *  GSTAT restores tax and penalty for transporting iron scrap without E-way bill citing intent to evade tax. *  Madras High Court stays GST recovery from directors without opportunity to show cause under section 89. *  Madras high court stays GST recovery notice against directors; finds prima facie case on applicability of section 79(1)(c). *  Procedural lapses can’t justify harsh punishment without serious customs breach: CESTAT quashes customs broker licence revocation. *  Service tax payable on land leasing and sports complex charges: CESTAT. *  Settled customs dispute can’t be reopened through Article 226 challenge to interest liability: Delhi High Court. *  Mere facilitation of customs clearance can’t establish knowledge of smuggling: Madras High Court. *  GST registration cancellation stayed: Allahabad High Court questions 99% ITC utilisation cap under rule 86B. *  Composition scheme lapses automatically on crossing Rs. 1.5 crore turnover: GSTAT. *  Gujarat High Court quashes GST cancellation orders after officer relied on non-existent AI-generated case laws. *  Importers liable for customs duty benefits availed through manipulated scrips: Delhi High Court. *  Procedural E-way bill lapse alone can’t justify penalty where genuine transaction and absence of tax evasion are established: GSTAT.
Subject News *  Documentary evidence dominates probe, further custody unwarranted: mumbai court grants bail in Rs. 22.44 crore customs duty evasion case. *  Business premises can’t remain sealed for non-participation in GST search: Allahabad High Court. *  GST pre-deposit must be refunded proportionately when taxpayer partly succeeds in appeal: Bombay High Court. *  Supreme Court grants 30 days to file GST appeal; keeps pre-deposit issue open due to deposit in parallel CGST proceedings. *  GST demand can’t exceed amount proposed in SCN: Allahabad High Court quashes Rs. 20.47 Crore order. *  Hundreds-of-crores GST demand and heavy 10% pre-deposit no ground to bypass statutory appeal: Punjab & Haryana High Court. *  Delhi High Court refuses to entertain challenge to gold confiscation due to statutory appeal remedy and unexplained delay. *  Procedural error in customs broker licence inquiry can be rectified through remand: Delhi High Court. *  GSTR-2A mismatch alone can’t justify ITC denial without invoice-wise verification; personal hearing mandatory: GSTAT. *  GST order passed without uploading personal hearing notices violates sec. 75(4): Allahabad High Court. *  TAX EVASION - Sec. 74 GST SCN quashed for not spelling out fraud, wilful misstatement or suppression: Allahabad High Court. *  STPI’s SOFTEX certification and NoC charges taxable as business support services: CESTAT. *  Suspicion can’t replace proof: CESTAT quashes penalty in alleged gold-smuggling operation. *   Limitation runs from communication of order: Madras High Court upholds rejection of delayed GST Appeals. *  Rajasthan High Court quashes GST demand over unsigned show cause notice. *  ITC recovery upheld where supplier failed to deposit GST: Rajasthan High Court. *  Customs commissioner’s empowered to make port trust liable for duty on pilfered goods: Supreme Court. *  Rectification proceedings can’t be used to challenge an uncontested GST assessment through a writ petition: Andhra Pradesh HC. *  GST proceedings against deceased proprietor unsustainable without notice to legal heir: GSTAT. *  Mere availment of ineligible self-assessed ITC doesn’t amount to suppression without evidence of fraud or wilful misstatement: GSTAT. *  Disposal of mining overburden by entity authorised by mining lease holder constitutes taxable service: CESTAT. *  Toll plaza data not mandatory for ITC refund: GSTAT. *  Disputed GST fraud allegations require investigation: Punjab and Haryana High Court makes interim bail absolute in alleged fraud and GST fraud case. *  Non-manufacturer contractor liable to deposit excess excise duty collected from buyer: CESTAT. *  GST order can’t reject taxpayer’s reply as “not satisfactory” without reasons: Madhya Pradesh High Court. *  Uncorroborated statements can’t establish alleged diversion of duty-free goods: CESTAT. *  Erection services were not liable to service tax prior to 10th september 2004: CESTAT. *  Sec. 74 GST notice must spell out statutory ingredients for invoking extended tax demand proceedings: Allahabad High Court. *  No jurisdictional bar under section 6(2)(b) in parallel CGST SGST proceedings: Delhi High Court refuses to bypass GST appeal remedy. *  Madras High Court remits GST demand for fresh adjudication after taxpayer claims it was unaware of SCN following business closure.  

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GST UPDATE No 302 ON NON-EXTENSION OF EXEMPTION ON FREIGHT PAID ON EXPORT:-

GST UPDATE No 302 ON NON-EXTENSION OF EXEMPTION ON FREIGHT PAID ON EXPORT:-
 
The expiry of the exemption available to ocean freight and air freight paid on export of goods as on 30.09.2022 has been the talk of the town. Notification no. 02/2018-Integrated Tax (Rate) dated 25.01.2018 prescribed the exemptions till 30th September, 2018 in relation to service by way of transportation of goods by aircraft or by a vessel from India to a place outside India. This exemption was further extended upto 30.09.2022 vide Notification No. 07/2021-Integrated Tax (Rate) dated 30.09.2021. However, the exemption has not been extended further so the trade and industry is concerned about the levy of GST on the said services. The analysis of the provisions in this regard is the subject matter of discussion of our present update.
 
The consequences of not extending the exemption to the freight paid on exports are that the taxpayers will have to pay IGST on the said transactions in view of the following provisions contained in CGST Act and IGST Act, 2017. In cases of exports, the service provider (shipping agency) and the service recipient (exporter) are located in India. As regards determination of place of supply is concerned, it is submitted that the provision contained in the proviso to section 12(8)(b) of the IGST Act, 2017 is relevant which reads as follows:-
 
(8) The place of supply of services by way of transportation of goods, including by mail or courier to, –
(a) a registered person, shall be the location of such person;
(b) a person other than a registered person, shall be the location at which such goods are handed over for their transportation.
Provided that where the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods.
 
It is further worth mentioning that the provisions contained in section 7(5) of the IGST Act, 2017 are also relevant for the purpose of determination of tax liability on freight paid on export of goods.
(5) Supply of goods or services or both,––
(a) when the supplier is located in India and the place of supply is outside India;
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section,
shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.
 
After analysing the above provisions, it is found that the service provider is located in India and the place of supply as stated above is outside India so the transaction is to be considered as inter-state supply of services. However, in the present case, the service recipient is also located in India. Now, the question that arises is that whether the above provision in section 7(5)(a) of the IGST Act, 2017 indicates export transactions or is also applicable for transactions where supplier and recipient both are located in India? As per section 16 of the IGST Act, 2017, meaning of zero-rated supply has been given which includes export of services as defined in section 2(6) of the IGST Act, 2017. It is submitted that when export of services are separately defined and are treated under zero rated supply, the provision contained in section 7(5)(a) of the IGST Act, 2017 cannot be considered to have been intended to indicate reference to export of goods or services. Therefore, the scope of the provision contained in section 7(5)(a) of the IGST Act, 2017 is very wide and it covers within its ambit the transactions where the service provider and service recipient are located in India with place of supply outside India. Hence, GST will be leviable on the ocean freight paid on exports @ 5% and also on the air freight @18% w.e.f. 01.10.2022.
 
It is worth mentioning that such transactions in negative list regime of service tax were not liable to service tax on the premise that when place of supply is outside India, the transaction is undertaken outside the taxable territory. There was no such concept of inter-state supplies but the provisions of GST law differ in this respect. Although, the GST law is applicable to whole of India and also defines the term “taxable territory” under section 2(109) of the CGST Act, 2017 as territory to which the

provisions of this Act apply. However, as detailed above that in view of the provision contained in section 7(5)(a) of the IGST Act, 2017, the transaction of freight paid on export is considered as inter state supply and there is no specific exemption prevailing after 01.10.2022, the said transaction would be liable to IGST. The contention that GST should not be levied as place of supply is outside India, being in non-taxable territory would not be feasible.

 

Now, another issue that arises is the admissibility of ITC to the service recipient, being the exporter. It is to be noted that the shipping agencies mention the place of supply as “Non Taxable Territory” in the invoice issued by them. Consequently, it is probable that the transaction reflected in GSTR-2B of the recipient will tag it under “ineligible ITC”. Although, in our opinion, the ITC of the IGST so paid on export freight should be available to the exporter as the intention of the government has always been to incentivize exports but often the admissibility of ITC is disputed by the revenue authorities on such grounds. The leading shipping agencies such as DHL Logistics Pvt. Ltd. have already issued advisory regarding levy of IGST on the export freight charged by them. The intention to tax such transactions is also fortified from the news being reported that the said exemption was being granted in the initial years due to difficulties faced by the exporters in claiming refunds from the government but as the refund mechanism has been streamlined, the government has not extended the exemption on export freight. It is hoped that the government issues a clear cut clarification on this issue in the interests of exporters. 

provisions of this Act apply. However, as detailed above that in view of the provision contained in section 7(5)(a) of the IGST Act, 2017, the transaction of freight paid on export is considered as inter state supply and there is no specific exemption prevailing after 01.10.2022, the said transaction would be liable to IGST. The contention that GST should not be levied as place of supply is outside India, being in non-taxable territory would not be feasible.

 

Now, another issue that arises is the admissibility of ITC to the service recipient, being the exporter. It is to be noted that the shipping agencies mention the place of supply as “Non Taxable Territory” in the invoice issued by them. Consequently, it is probable that the transaction reflected in GSTR-2B of the recipient will tag it under “ineligible ITC”. Although, in our opinion, the ITC of the IGST so paid on export freight should be available to the exporter as the intention of the government has always been to incentivize exports but often the admissibility of ITC is disputed by the revenue authorities on such grounds. The leading shipping agencies such as DHL Logistics Pvt. Ltd. have already issued advisory regarding levy of IGST on the export freight charged by them. The intention to tax such transactions is also fortified from the news being reported that the said exemption was being granted in the initial years due to difficulties faced by the exporters in claiming refunds from the government but as the refund mechanism has been streamlined, the government has not extended the exemption on export freight. It is hoped that the government issues a clear cut clarification on this issue in the interests of exporters. 

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