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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 on binding nature of circular on applicant of adverse ruling 62/2020-21

GST Update on binding nature of circular on applicant of adverse ruling 62/2020-21
The leviability of GST on the remuneration paid to the directors is the most debatable topic after pronouncement of the advance ruling by Rajasthan AAR in the case of Clay Crafts India Pvt. Ltd. It appears that the dispute would come at rest as the CBIC has issued Circular No. 140/10/2020-GST dated 10.06.2020 clarifying the applicability of tax on Director’s Remuneration under Reverse Charge Mechanism. Let us discuss the key points of the clarification-
  1. Where remuneration is paid to Independent Directors or those Directors who are not employee of the company: Tax under RCM is applicable.

  1. Where remuneration is paid to directors who are employees of the company (depending on the contract of service and where TDS under Income Tax Act is deducted under Section 192): Tax under RCM is not applicable as the transaction is that of employer and employee which is neither supply of goods nor supply of services under Schedule III of the CGST Act, 2017.
    This clarification is contradictory to the advance rulings pronounced in the following cases

  1. M/s Craft Clay India Pvt. Ltd. (Rajasthan AAR)

  1. M/s Alcon Consulting Engineers (I) Pvt. Ltd. (Karnataka AAR)
    The clarification is no doubt beneficial to all the taxpayers but the moot question is that whether the benefit of this clarification can be availed by the above mentioned assessees who have got adverse ruling pronounced by AAR? Whether the beneficial clarification which is applicable for all assessees would not apply to the above mentioned assessees who sought advance ruling on this issue which is contrary to the clarification issued by CBIC?
    In order to find answer to the above questions, reference is to be made to provisions contained in section 103 of the CGST Act, 2017 which states that the advance ruling pronounced by AAR and AAAR are binding on the applicant and on the concerned officer or jurisdictional officer in respect of the applicant. Furthermore, the advance ruling shall be binding unless the law, facts or circumstances supporting the original advance ruling have been changed. After pursuing the provisions, the following questions are raised in the minds of assessee:-

  1. Whether the decision of AAR is binding on jurisdictional officer only with respect to the applicant or for all the assessees of his jurisdiction? Whether jurisdictional officer can raise demand on other assessees on the basis of adverse ruling pronounced with respect to one applicant? If answer to this question is Yes, then if a subsequent clarification is issued in favour of assessee, will the jurisdictional officer follow the clarification for all assessees including the assessee who sought adverse advance ruling?

  1. Whether the clarification issued by CBIC can be considered as change in law so as to nullify the binding nature of the advance ruling on the applicant and jurisdictional officer both?  If answer to this question is No, then whether clarification issued can be considered as change in facts or circumstances as when the original advance ruling was pronounced, the said circular was not in force? Whether change in facts or circumstances indicate change in factual case of the applicant and not change in facts on part of government?
    The above questions remain unanswered and it is high time for the government to realise this practical anomalies and issue clarification on this aspect in clear terms in the interest of assessees who have sought adverse advance rulings on issues which have subsequently been clarified in favour of the assessees. This is not the first time and in the past, we have witnessed issuance of clarifications post contrary rulings by the AAR, one such example being regarding admissibility of exemption to IIMs. At that time also, we have put forward this issue extensively in series of our update titled as “GST Update on Binding Nature of Advance Rulings-Part 1, 2& 3” which can be accessed on our website www.capradeepjain.com.
     
    Before parting, we submit that clarity is needed as to whether the above mentioned applicant (M/s Clay Craft India Pvt. Ltd.) is required to challenge the adverse ruling before AAAR in order to avail benefit of clarification issued by CBIC or not. Also, what is the remedy available to the applicant if the time period for filing appeal before AAAR has expired? Another issue that may be a huge concern for M/s Clay Craft India Pvt. Ltd. is admissibility of input tax credit on the tax paid on director’s remuneration as it may very well be contended by the department that when there is no liability to pay GST on such transactions, input tax credit is also not admissible. This will lead to “Win Win” situation for department and would adversely impact the applicant.  
     
    This is solely for educational purpose.
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PRADEEP JAIN, F.C.A.

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