1. GST – Contemporary Issues in GST
Integrity | Knowledge | Passion

2. Agenda Classification Valuation Input Tax Credit Anti – Profiteering
Reconciliation
Advance Ruling

3. Classification - Issues

4. Contracts for solar projects (1/5)
Following renewable energy devices and parts for their
manufacture
Bio-gas plant
Solar power based devices
Solar power generating system
Wind mills, Wind Operated Electricity Generator (WOEG)
Waste to energy plants / devices
Solar lantern / solar lamp
Ocean waves/tidal waves energy devices/plants
Photo voltaic cells, whether or not assembled in modules or
made up into panels 5%

5. Contracts for solar projects (2/5)
Giriraj (AAR): Solar power generating system is immovable and hence works contract -18%
Fermi (AAR): Works contract , even if separate contract for goods and services - 18%
Dinesh Agrawal (AAR): Works contract-18% 1 2 3

6. Valuation of contracts for renewable energy devices (3/5)
AMENDMENT:
CGST Rate Notification No. 24/ Dated :
“Explanation: If the goods specified in this entry are supplied, by a supplier, along with supplies of other goods and services, one of which being a taxable service specified in the entry at S. No. 38 of the Table mentioned in the notification No. 11/2017-Central Tax (Rate), dated 28th June, 2017 [G.S.R. 690(E)],
The value of supply of goods for the purposes of this entry shall be deemed as seventy per cent. of the gross consideration charged for all such supplies, and the remaining thirty per cent. of the gross consideration charged shall be deemed as value of the said taxable service.”;

7. Valuation of contracts for renewable energy devices (4/5)
AMENDMENT:
CGST Rate Notification No. 27/ Dated : Entry inserted
Service by way of construction or engineering or installation or other technical services, provided in relation of setting up of following:
Bio-gas plant
Solar power based devices
Solar power generating system
Wind mills, Wind Operated Electricity Generator (WOEG)
Waste to energy plants/devices
Ocean waves/tidal waves energy devices/ plants
18% ?
“Explanation :- This entry shall be read in conjunction with serial number 234 of Schedule I of the notification No. 1/2017-Central Tax (Rate)”

8. Valuation of contracts for solar projects (5/5)
Amendments in Notification, contracts divided by legal fiction:
70% as renewable energy devices and parts – 5%
30% as services – 18%
ISSUE:
Is this valuation method compulsory ?
Applicability on ongoing contracts?

9. Leasing or renting of goods (1/3)
The United Nations Central Product Classification (UNCPC) has three clear buckets for services significantly involving goods:
Heading 73: Leasing or rental services without operator
Dry Lease
Heading 66: Rental services of transport vehicles with operator
Wet Lease
NOTES:
One may say that 9966 is for transport vehicles and 9973 would cover the rest. However, the Notification has placed rate entries for motor vehicles, aircrafts and transport vessels under entry for 9973 as well.
Indian Scheme of Classification is the modified version of explanatory notes of UNCPC
Individual Headings - e.g. 86: support services to mining including operation of equipment on fee/ contract basis
Supply of Service

10. Leasing or renting of goods (2/3)
CGST Rate Notification:
Heading 9966: Rental services of transport vehicles with or without operator
Wet lease & Dry lease
Heading 9973: Leasing or rental services with or without operator
Wet lease & Dry lease
NOTES:
One may say that 9966 is for transport vehicles and 9973 would cover the rest. However, the Notification has placed rate entries for motor vehicles, aircrafts and transport vessels under entry for 9973 as well.
Indian Scheme of Classification is the modified version of explanatory notes of UNCPC
Individual Headings - e.g. 9986: support services to mining including operation of equipment on fee/ contract basis
Supply of service

11. Leasing or renting of goods (2/3)
AMENDMENT:
Sub-entry (viia) inserted in Entry 17 (Heading 9973) of the CGST Rate Notification
“Leasing or renting of goods” – Same rate as applicable to supply of goods
Residuary Entry – “Leasing or rental services, with or without operator, other than [preceding sub-entries]” – 18%
ISSUE:
Scope of the new entry
Scope of the residuary entry post amendment
NOTES:
One may say that 9966 is for transport vehicles and 9973 would cover the rest. However, the Notification has placed rate entries for motor vehicles, aircrafts and transport vessels under entry for 9973 as well.
Indian Scheme of Classification is the modified version of explanatory notes of UNCPC

12. Leasing or renting of goods (3/3)
POSSIBLE SCOPE OF NEW AND AMENDED ENTRY:
New entry applicable to leasing or renting of “goods”.
18% for residuary entry – Other than goods, not
covered elsewhere such as mining rights, royalty
right set c. [held to be covered in 9973 by AAR
ruling in Pioneer Engineers]

13. Parts of Motor Vehicle Entry No. 435A of Schedule III – 18%
9401 (other than ) - Seats (other than those of heading 9402), whether or not convertible into beds, and parts thereof, other than seats of a kind used for aircraft ;
Entry No. 170 of Schedule IV – 28%
8708 – Parts and accessories of the motor vehicles of heading 8701 to 8705 (other than specified parts of tractors)
Seat Adjuster Assembly Component whether part or accessory of motor vehicle or part of seat ?
CCE v. Insulation Electrical Private Limited (SC) held that seats are complete without the adjuster. they are fitted in the motor vehicle merely to improve the efficiency and convenience of the seats, therefore, not classifiable as parts of seats under 9401.

14. Valuation : Issues

15. Valuation principle – “Transaction Value”
Value of taxable supply
Transaction Value
Price actually paid or payable
Supplier and recipient of the supply are not related
Price is the sole consideration for the supply
Moriroku UT India (P) Ltd. v. State of U.P., 2008 (224) E.L.T. 365 (S.C.) – amortised cost of moulds supplied free of cost by the customers to the dealer-cum-manufacturer 
 All India Federation of Tax Practitioners Vs. Union of India reported at 2007 (7) STR 625 (SC) – contract based levy

16. Trade Promotion Scheme
Types of Promotion Scheme
Gifts
Discounts & Marketing Schemes
Moriroku UT India (P) Ltd. v. State of U.P., 2008 (224) E.L.T. 365 (S.C.) – amortised cost of moulds supplied free of cost by the customers to the dealer-cum-manufacturer 
 All India Federation of Tax Practitioners Vs. Union of India reported at 2007 (7) STR 625 (SC) – contract based levy

17. Business Gifts
Schedule I - Activities treated as supply even if made without consideration
Permanent transfer or disposal of business assets where input tax credit has been availed
Section 17(5)(h) – ITC shall not be available in respect of goods disposed by way of gift or free sample
Calendar
Physician samples
Stationery
New products
Display Boards
Whether gift and free samples will qualify as supply without consideration?

18. Discounts – Pre-supply
Discounts allowed on or before supply has been made
Duly recorded in invoice
Cash discounts
Discount quantified on the basis of past performance whereas allowed as reduction in the subsequent invoices
Whether can be treated as discount allowed before supply has been made?

19. Discounts – Post-Supply
Discounts allowed after supply has been made
established as per agreement
known at or before the supply
specifically linked to invoice
Year end discount/ Turnover discount
Rate Difference Discount
Discounts given to T1/ T2 dealers %

20. Inclusions in Transaction Value - Subsidy
Subsidies linked to supply
Grant/Subsidy affect price charged
Sales Tax incentive schemes - Super Syncotex ELT 273 (SC)
Capital Investment incentives?
Subsidy for electric vehicle?
Subsidy given by brand owner to dealers/ retailer?

21. Input Tax Credit : Issues

22. ITC of renting of bus for employees
Credit dependent on
Seating capacity
AC/Non-AC
(Transportation by non AC contract carriage exempted)
(A) Non AC bus – on or after
(a) If recovery from employee: Service exempt: Credit not allowed as service used for exempted output service (b) If no recovery from employee: Credit allowed if seating capacity more than 13, if less than that: Credit not allowed
(B) Non AC bus – before
(a) If recovery from employee: Service exempt: Credit not allowed as service used for exempted output service (b) If no recovery from employee: Input service not used for making output taxable supply of transportation of passenger: Credit not allowed
(C) AC bus – after : Credit barred ONLY if seating capacity less than 13 + no recovery made from employees
(D) AC bus before : Credit availability dependent upon rate of tax on transportation service provided to employee
Recovery from employees

23. ITC of certain other goods/services
Inward supply
Credit allowed: if
Food & beverage
Outdoor Catering
Health services
Leasing of restricted vehicles
Used for making outward taxable supply of same category; or
As an element of taxable composite/mixed supply
Section 17(5)(b) CGST Act
(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection
(1) of section 18, input tax credit shall not be available in respect of the following,
Namely:
(b) the following supply of goods or services or both—
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:
Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
(ii) membership of a club, health and fitness centre; and
(iii) travel benefits extended to employees on vacation such as leave or home travel concession:
Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.”.
Obligatory for employer to provide goods/service to employee under any law

24. ITC of car for employees
Recovery from employees
Credit allowed
Hired
Credit allowed if obligatory
No Recovery
from employees
Recovery from employees
Credit allowed
Purchased
Credit not allowed
even if obligatory
No Recovery
from employees

25. Canteen facility under factories act: ITC issues
Outdoor catering service availed by company for providing canteen facility to employees:
- Credit allowed?
- Provision of food & beverage to employee: Whether statutorily required?
Under Factories Act, canteen facility required for “workers” (Including contract labour).
Under GST: credit allowed if facility required only for “employees” or contract labour also included??
Provision of canteen facility in head office/to admin staff:
Statutorily required? (Worker employed in work incidental to manufacturing process)
Sec. 46 of Factories Act, 1948:
(1) The State Government may make rules requiring that in any specified factory wherein more than two hundred and fifty workers are ordinarily employed, a canteen or canteens shall be provided and maintained by the occupier for the use of the workers;
(2) Without prejudice to the generality of the foregoing power, such rules may provide for-
(c) the foodstuffs to be served therein and the charges which may be made therefor
Rule 98: Canteen Managing Committee.- (The Karnataka Factories Rules, 1969)
(1) The Manager shall appoint a Canteen Managing Committee which shall be consulted from time to time as to--
(a) running of the canteen;
(b) the quality and quantity of foodstuffs to be served in the canteen;
(c) the arrangement of menus;
(d) times of meals in the canteen; and
(e) any other matter as may be directed by the committee
Rule 99: Food-stuffs to be served and prices to be charged.-
(1) While issuing Rules or directions regarding the food-stuffs to be served and the charges to be made therefore, the Chief Inspector shall take into consideration the menu in vogue in the region concerned and exclude rent for the land and building, interest on the amounts spent on the provision and maintenance of furniture and equipment provided for the canteen, depreciation charges, electric charges, water charges and the element of profit. He may also consult the Canteen Managing Committee:
Sec. 2(l) of Factories Act, 1948: “worker" means a person employed, directly or by or through any agency (including a contractor) with or without the knowledge of the principal employer, whether for remuneration or not, in any manufacturing process, or in cleaning any part of the machinery or premises used for a manufacturing process, or in any other kind of work incidental to, or connected with, the manufacturing process, or the subject of the manufacturing process but does not include any member of the armed forces of the Union
Sec. 17(5)(g) CGST Act
(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection
(1) of section 18, input tax credit shall not be available in respect of the following,
namely:—
(g) goods or services or both used for personal consumption;

26. Goods lost, stolen, destroyed: ITC issues

27. Goods lost, stolen or destroyed: ITC on all input services barred?
Input tax credit shall not be available in respect of :
goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
No specific exclusion in respect of any specific input service
Whether reversal required if disposed of ?
Common Advertisement Services

28. Input Service Distribution Vs. Cross Charge

29. ISD Vs. Cross Charge : Concept
Input Service Distributor :
Office of the supplier of goods/ services
Receives tax invoices towards the receipt of input services
Issues a prescribed document for distributing the credit to a supplier of taxable goods/services having same PAN
ISD: Only an office, not providing any service to other registrations
Distribution of credit under tax invoices issued by third parties
Attributable ITC only to be distributed
Cross Charge:
Supplies between distinct persons even without consideration: Deemed supply [Schedule I, Entry 2]
Functions undertaken by Head Office/corporate office of entity: accounting, tax, finance, legal and HR
Support service by Head Office
Reverse situation: E.g: Service by R&D center to manufacturing units
Whether ISD is an alternative to cross charge?

30. ISD Vs. Cross Charge : Issues
Cross charge: Whether applicable to 3rd
party services?
How to identify which 3rd party services to cross charge?
Test to be applied: ISD Vs. Cross Charge
Typical services for which invoices are received at the HO:
Audit service
Advertisement service
IT software service

31. Cross Charge : Issues in valuation (1/3)
How to arrive at value for charging GST on support service?
Salary to be included in value of cross charge?
Impact of advance ruling in Columbia Asia [2018-TIOL-113-AAR-GST] upheld by Appellate authority [2018-TIOL-31-AAAR-GST]
Whether the ruling to the extent of valuation is applicable only where recipient registration is entitled to full ITC?

32. Cross Charge : Issues in valuation (2/3)
2 cases:
Case-1: Recipient registration entitled to full ITC
Case-2: Recipient registration not entitled to full ITC
Eligibility to avail full ITC: How to decide? Qua the support service or at the recipient registration level?
If qua the support service, whether possible to argue that support service does not relate to any particular line of business?
Restriction in ITC : Whether effects entitlement to full ITC? (For e.g: canteen service)
Provision of exempt supply to employees (For e.g: residential accommodation)

33. Cross Charge : Issues in valuation (3/3)
Case-1: Adopt invoice value
Case-2: Valuation when recipient not entitled to ITC
Open market value
Value of like service
Cost based method (110% of cost of provision of service)
Reasonable means consistent with valuation principles
Salary: Part of cost of provision of service?
If salary included, accumulation of ITC at recipient’s end

34. Anti - profiteering : Issues

35. Statutory provisions–section171 of CGST Act, 2017
Terms
Used
Reduction in rate of tax
Benefit of input tax credit
Recipient
Commensurate reduction in prices

36. Statutory framework
Rule 133 of CGST Rules - National Anti-profiteering Authority (NAA) may order
Reduction in prices
Return to recipient amount equivalent to benefit not passed on with interest
Deposit amount in Consumer Welfare Fund
Imposition of penalty
Cancellation of registration

37. NAA order and appellate mechanism
Based on DGAP Report, determine the amount of profiteering
Directing DGAP to investigate for future period
Notice for levy of penalty
Appeal against NAA order?
No appellate mechanism prescribed
Writ petition before High Court – Which High Court has jurisdiction?
High Court dealing with submissions on facts and law in writ proceedings?

38. Commensurate reduction in prices & passing the benefits – Increase in quantity (additional grammage)
NAA’s Order in Sharma Trading (Para 19)
Quantity increased and same MRP charged after rate reduction
HELD: Distributor is not manufacturer and not in a position to enhance quantity
Contention on additional quantity not acceptable
NAA’s Order in HUL (Para 64 & 68)
Section 171 to be purposively construed - Due regard to be given to trade practices
Extra quantity for same price is benefit to consumers and can be a mode of passing the benefit
Deduction (in part) given as anti-profiteering measures incorporated in tax law for first time – In future, price to be reduced whenever tax rate is reduced

39. Passing the benefits – Discounts and distributors’ claims
NAA’s Order in HUL (Para 70)
Claims from distributors settled (credit notes) for differential price
HELD: Benefit to consumer not substantiated
No benefit to consumer till MRP revised on packs and bar codes changed
NAA’s Order Harish Bakers (Para 17)
Distributor extended discount to retailer
HELD: Benefit not passed on to customer
Retailer to pass on benefit whether or not discount given by distributor

40. Passing the benefits – Input tax credit
NAA’s Order in Pyramid Infratech (Para 31 & 32)
ITC available to builders which was not available in pre-GST regime
Computation taking ratio of ITC to taxable turnover instead of cost of construction, correct
Benefit arising out of availability of ITC to be passed on
NAA’s Order in Hardcastle Restaurant (Para 39)
Increase in base price by 12.38% while ratio of ITC loss was 9.11%
Increase exactly equal to tax reduction and effected on same night when tax rate was reduced
Consumer compelled to pay more base price and also extra GST on it

41. Passing the benefits – Increase in production cost
NAA’s Order in Hardcastle Restaurants (Para 34 & 41)
Increase in prices of food articles, electricity, fuel, rent, royalty & commission
No mandate for DGAP to consider such factors
Issues of market conditions, demand and supply, rising input costs not required to be taken into account to determine profiteering
NAA’s Order in Pyramid Infratech (Para 33)
Provision for price escalation based on increase in price of raw material absent in agreement
Cost increase of raw material cannot be considered
[ Recent Notification – Tax rate reduced to 5% without ITC for Residential Construction – Anti-profiteering? ]

42. Passing the benefits – Netting off between SKUs
NAA’s Order in HUL case (Para 67)
Additional benefit given to one recipient cannot be offset with denial of benefit to another recipient
Hardcastle Restaurants (Para 41)
Benefit to be passed on at product level as recipient in each supply different
Kunj Lub Marketing (Maggi) (Para 12)
Benefit given to one set of customers cannot be arbitrarily enhanced and set off against another - No such adjustments permissible under CGST Act
Jubilant Foodworks (Para 57)
Multiple products supplied in single invoice – Netting off of benefits not permissible

43. Price control or price regulation? – Certain questions
NAA Orders directing DGAP investigation till date / future period – How long one needs to pass on?
Whether a company is not entitled to any price increase?
NAA Orders rejecting contention on absence of methodology – Is this sustainable?
Can reduction of losses be held as profiteering?
Can NAA order compliance with Legal Metrology provisions?

44. Reconciliation : Issues

45. Legal provisions & requirement
Section 35(5): Requirement to get accounts and other records audited by a CA/CWA if turnover during a financial year exceeds prescribed limit.
Section 44(2): A reconciliation statement to be furnished along with annual return for the registered person required to get the accounts audited.
Annual Return and Audit Report to be furnished on or before for the FY
Reconciliation
& Audit
Annual
Return
Due
Date
Legal
Provisions
Section 44(1): A registered person is required to furnish an annual return.

46. Reasons for non matching of taxable turnover

47. Reasons for mismatch Reported in GST return but not in financial
Reported in Financial turnover but not in GST
Returns
Commercial Credit note
Miscellaneous incomes like liquidated damages, recovery from employees, etc.
Under reporting in GST returns
GST Credit note – ITC taken instead of adjustments
Cross Charge of services
Stock transfer of goods
Over reporting in GST returns and not adjusted till date
ITC reversal shown as turnover in GSTR 3B
Miscellaneous
Valuation issues – third party consideration
Second hand goods – GST on Margin
Foreign exchange rate fluctuation

48. Auditor’s responsibility
Difference of opinion between registered person
and auditor for:
GST rate on goods or services.(e.g. Solar Power Supplies 5% vs 18%)
RCM applicability.(Purchase of goods from unregistered person till )
Taxability - Notice pay / Liquidated damages

49. Possible actions against assessee
Scrutiny of Return by proper officer (Section 61)
Audit by tax authorities (Section 65 and 66)
Demands and recovery (Section 73 and Section 74)
Penalty (Section 122)
Prosecution (Section 132)
Note: Nodal Officer (GST) can also have access to assesse’s data/information furnished to specified Income Tax Authority

50. Possible actions against auditors
Penalty upto Rs 25,000 for aiding and abetting of offences Section 122(3) of CGST Act)
Prosecution for aiding and abetting of offences (Section 132 of the CGST Act)
Professional Misconduct (CA Act)

51. Prosecution Offences specified
Certain offences made cognizable and non-bailable – 5 crore and above:
Supply goods or services in violation of provisions of Act with intent to evade tax
Issue invoice or bill without supply of goods or services leading to wrongful availment/utilization of credit
Avail input tax credit using invoice referred in (b) above
Collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due
Tax amount involved
lakhs
lakhs
Above 500 lakhs
Imprisonment
Upto 1 year
Upto 3 years
Upto 5 year
Fine
Yes

52. Advance Ruling : Issues

53. Advance Ruling
Meaning: A decision provided by the Authority or the Appellate Authority to an applicant on matters relating to any supply being undertaken or proposed to be undertaken
Applicant: Any registered person, or one desirous of obtaining registration under this Act
Constitution: To be constituted under the SGST and UGST Acts and shall comprise of:
One member each from Officers of Central and State Tax.
Orders of Advance Ruling:
Binding on the Applicant and Concerned / Jurisdictional Officer
Orders Appealable before Appellate Authority within 30 days of receipt (extendable to further 30 days)

54. Advance Ruling Issues eligible for Advance Ruling Classification
Applicability of Notification
Time and value of supply
Admissibility of ITC
Liability to pay tax
Requirement of registration
Qualification as ‘supply’

55. Updates
AARs have been constituted in every state. More than 450 rulings have been issued and reported as on date
Appellate Authority for Advanced Ruling – constituted in 18 states and 66 orders have been passed till date
Proposal for centralized AAR or 4 regional AARs to avoid divergent rulings on identical issues 1 2 3

56. THANK YOU