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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 TAX UNDER RCM ON OCEAN FREIGHT 102/2020-21

GST UPDATE ON TAX UNDER RCM ON OCEAN FREIGHT 102/2020-21
The shipping industry is a very important part in the case of Imports and Exports and transportation of goods through oceans covers more than 90% of the trade as it is affordable and efficient. Ministry of Finance had imposed service tax on a reverse charge basis on ocean freight incurred by an importer. This tax was payable even if the importer did not directly pay the ocean freight charges to the shipping company/freight forwarder. This proposition has been continued into the GST regime as well. In this update we shall discuss the recent ruling pronounced by Andhra Pradesh AAR in case of M/s Indian Potash ltd.

The applicant seeks ruling on the following questions, a few out of which are being eagerly awaited by the industry

1. Whether the said transaction does qualify as import of service or not?

2. Whether their transaction will qualify as inter-state supply or not?

3. Whether the applicant can be deemed as the recipient of the service or the person liable to pay tax or not?

4. Whether the applicant is liable to pay tax under reverse charge mechanism or not?

5. Levy of IGST on ocean freight as a service, while levying Customs duties by including fright charges also in the value of imported goods, amounts to double taxation or not?

6. Exclusion of value of subsidy and levy of IGST on ocean freight are leading to accumulation of credit or not? and is it not against the spirit of GST law which is intended for eliminating the cascading effect?

Before we proceed further, we shall sneak a quick look at the conditions required to be satisfied so that GST is to be paid under RCM by importer (as per Notification no. 13/2017-Central tax (Rate) dated 28.06.2017).

1.     Such transportation of goods is from a place outside up to customs station of clearance in India.

2.     Supplier of services is the person located in non-taxable territory

3.     ‘Recipient’ is the importer.

Coming to answering the questions by the authorities we shall be doing it question wise.

Ø  Whether the transaction is import of service or not and it is inter-state supply or not

In order to determine whether a transaction is inter-state supply or not Section 7(4) is to be referred which reads as ‘supply of services imported into India shall be treated as Inter-state supply’. Further Section 7(5)(c) was being stated by the authority which says that ‘supply of goods or services or both in the taxable territory, not being an intra-State supply and not covered elsewhere in this section shall be inter-state supply’. Therefore, it was held by AAR that such transaction qualifies as import of service and it is inter-state supply.

Ø  Whether the applicant can be deemed as the recipient of the service or not

Referring to the definition of ‘Recipient’ as specified in section 2(93) of CGST Act 2017, it was told that applicant has paid consideration for both supply of goods and also for service that is transport of the vessel. Therefore, the applicant is the recipient of both goods and services.

Ø  Whether the applicant is liable to pay tax on the transaction referred under reverse charge mechanism or not

Referring to Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017 and notification No. 8/2017-integrated Tax (Rate) dated 28.06.2017 it was held that no exemption is available from payment of IGST on ocean freight under RCM.

Moving on to the last two questions it has been answered by AAR that it is outside the scope of AAR.

It is worth mentioning that similar rulings were passed by Madhya Pradesh AAR in the case of M/s. EDP Marketing Pvt. Ltd. vide Order No. 05/2019 dated 02.05.2019 and Karnataka AAR in the case of M/s M. K. Agro Tech Pvt. Ltd. have consistently held that IGST is payable on the ocean freight by the importer under reverse charge mechanism under reverse charge mechanism and there is no double taxation. The rulings passed by AAR have been pronounced in favour of department as they are revenue neutral. But a moot question that arises here is whether these can override the decision passed by Hon’ble High Court of Gujarat in the case of MOHIT MINERALS PVT. LTD. VS UNION OF INDIA, wherein it has been held that the above mentioned notifications are ultra vires the provisions contained in IGST Act, 2017.

Now, it is settled position that the decision of High Court is binding on lower formation including AAR. Next question is whether the decision of one High Court is binding on other state? When there are contradictory decisions of various High Courts then the decision of jurisdictional High Court will prevail. But if there is only one decision of High Court although it is not of jurisdictional High Court and there is no other decision of any other High Court then it is binding all over India. But the Authority of Advance Ruling is taking decision against the verdict of High Court is not legally sustainable.

We have seen pro-revenue approach of Advance Rulings. So there is a quick need for the constitution of National Appellate Authority for Advance Ruling, representation for which has already being given to the council. Secondly, the judicial members should also be included in the AAR so that creditability of these authorities is not questioned time and again. Even there is view prevailing among advocates and Chartered Accountants dealing in GST that one should not approach AAR for clarification on already settled issues. They will also unsettle settled issues.

This is solely for educational purpose.

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