Birbal’s Update
September 2018
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Key Updates

Recent Judgements

Constitution Bench lays out principles for interpretation of exemption notifications to tax statutes including Goods and Services Tax Act in Commissioner of Customs v. Dilip Kumar & Company

A constitution bench of the Hon’ble Supreme Court – comprising five Supreme Court justices – vide its judgment dated 30.07.2018 has ruled on the principles of interpretation of exemption notices and criculars. The Hon’ble Court in the said judgment upon detailing the laws governing interpretation of tax statutes has carved out the following principles:-

(1) Exemption notifications ought to be interpreted strictly.;

(2) The burden of proving applicability of the exemption notification would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.

(3) In case of any ambiguity in the exemption notification, the benefit of such ambiguity cannot be claimed by the assessee and it must be interpreted in favour of the revenue. Interestingly, this principle is exactly opposite to that of the interpretation of the tax statute, whereunder the benefit of ambiguity is extended to the assessee.

(4) Crucially the Hon’ble Supreme Court has set aside the ratio in Sun Export Corporation, Bombay vs. Collector of Cistoms, Bombay (1997)6SCC564 which has been cited by numerous assesses over the years to interpret the ambiguities in various exemptions to their advantage.

Calcutta High Court grants bail to the accused alleged to have evaded GST by fraudulent issuance of invoices.

The Calcutta High Court vide order dated 09.07.2017 granted bail to an accused alleged to have violated Section 132 sub-section (1)(a), (b) and (c) of the Goods and Services Tax Act for having evaded payment of tax in excess of rupees five hundred lakh – which is an offence punishable with imprisonment for a term which may be extended to five years and with fine. Based on reasonable belief, the Additional Director General directed the officers concerned to arrest the accused in terms of the provisions stipulated under Section 69 of the GST Act(Power of Arrest), resulting in the arrests on 12.05.2018.

The High Court in its judgment noted that the GST Act of 2017 is essentially a fiscal legislation and although the “reason to believe” that the accused had evaded GST (as provisioned under Section 67(10) of the Act) had been satisfied; and thereupon although it granted the bail to the accused it conclusively observed that economic offences constitute a class apart and need to be visited with a different approach in the mater of a bail as conspiracy and involving huge loss of public funds needs to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing a serious threat to the financial health of the country.

Policy Updates

Amendment to the Central Goods and Services Tax Act, 2017

The significant amendments to the CGST Act, 2017, which has been notified on 30th August 2018 are summarized below:

• Under Section 2(17) of the, the definition of “business” has been amended so as to include “services provided by a race club by way of totalisator or a licence to book maker in such club”. Also under Section 2(102) the definition of “Services” has been amended so as to include “facilitating or arranging transactions in securities”.

• Section 7 has also been amended to provide further clarity to the scope of supply. The amendment inserts a new sub-section (1A) and provides that all forms of supply of goods or services or both shall be for a consideration and for furtherance of business.

• Section 9(4) has been amended to empower the Central Government to notify classes of registered persons to pay the tax on reverse charge in respect of certain specified categories of goods or services or both from unregistered suppliers.

• Section 10 has been amended so as to increase the limit of composition levy from one crore rupees to one crore and fifty lakh rupees. Therefore, Composition dealers can supply services of value not exceeding 10% of the turnover in the preceding Financial Year in a State/Union territory or up to Rs. 5 lakhs, whichever is higher.

• Section 17 of the Act has been amended to specify the scope of input tax credit in the following manner:

o Under Section 17 (3), no reversal will be required in cases falling under Schedule III, including High seas sales, etc.,

o Availing of Input Tax Credit (ITC) allowed on activities or transactions specified in Schedule III (other than sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building) by excluding it from the ambit of exempt supply on which ITC is blocked.

o Section 17 (5) (a), new (aa) & (b) has been amended to reduce the blocked credit list. ITC allowed in respect of food and beverages or both where the provision of such goods or services or both is obligatory for an employer to provide to its employees under any law for the time being in force.

• Section 22 of the Act is amended to enhance the exemption limit for registration in the special category States from ten lakh rupees to twenty lakh rupees.

• Section 25 has been amended to the effect that a person having multiple places of business in a State or Union Territory may be granted a separate registration for each such places.

• Section 34 has been amended so as to allow a Dealer to issue one Credit Note for multiple Invoices.

• Section 39 has been amended to allow a registered person to make amendment in GST return.

• Sections 49A has been introduced. The Order for availing the set off of ITC has been rationalized. The ITC on account of Central tax, State tax or Union Territory tax can be utilized towards payment of Integrated tax, Central tax, State tax or Union Territory tax, as the case may be, only after the ITC available on account of Integrated Tax has first been utilized fully towards such payment.

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