Since its implementation on July 01, 2017, the Goods and Services Tax (GST) regime continues to evolve on various fronts by way of rationalisation of tax rates, availability of exemptions, procedural amendments, etc. While the Government has been relentless in its efforts to iron out every crease, bottlenecks continue to persist. With the benefit of hindsight, here is a critical look at some of the significant triumphs and misses on completion of its first anniversary.
Partner in the Tax Practice at Delhi office of Cyril Amarchand Mangaldas. Mekhla leads the indirect tax practice and specialises in the areas of cross border structuring, turnkey contracts, mergers and acquisitions as well as tax litigation. She can be reached at email@example.com
Parties entering into contractual arrangements usually insist on including a clause for liquidated damages to pre-emptively agree upon the amount of reparation that would be payable by either Party on failure to meet its commitment. Generally, such commitments are in the nature of adhering to timelines, fulfillment of conditions, quality of products, etc.
The levy of an indirect tax on the amount of liquidated damages, has faced a series of challenges under the erstwhile service tax regime. Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act was deemed to be service under the service tax regime . Where liquidated damages were in the nature of accidental damages caused due to unforeseen actions and not relatable to the provision of service, these were not included in the value of the service, and hence not to be taxed .
The industry has been grappling with uncertainty around anti-profiteering provisions since its introduction. While the Goods and Services Tax (GST) legislation and rules were available in the public domain long before the effective date of July 01, 2017, the rules relating to anti-profiteering were made public only on June 28, 2017.
To everyone’s disappointment these rules failed to bring transparency and clarity to the implementation of anti-profiteering provisions; they merely chalked out the administrative hierarchy and framework of the authorities dealing with anti-profiteering complaints.
Subsequently, the Finance Ministry has made various statements promising clear guidelines on the manner of computation of commensurate benefit to be passed on to customers. However, till date nothing has been notified on this front.
Continue Reading Anti-Profiteering Orders – A Right Step Forward?
This is the fourth post in the our new blog series on the Budget 2018. Following our earlier posts (here, here, here and here) on the impact of the Budget on the Direct, Indirect Tax regimes and the Healthcare sector, this piece focuses on the amendments to the advance ruling system under the Customs Act. We hope you enjoy reading this as much as we have enjoyed putting this together.
The Finance Act, 2017 consolidated the Authority for Advance Rulings (AAR) for customs law and direct taxes, to promote the ease of doing business in India. In continuation to that, as well as the introduction of the Goods and Service Tax (GST), the Union Budget 2018 (Budget) proposes various amendments to the Customs Act, 1962 (Customs Act). Such amendments not only include enhancement in the scope of the advance ruling system in India, but also entail revamping of its procedural aspects.
Scope of AAR
The regulatory environment is proposed to be made more conducive by enlarging the ambit of the eligible persons entitled to make an application for advance ruling. Presently, only a joint venture in India, a non-resident person setting up a joint venture in collaboration with a non-resident/ resident, a wholly owned subsidiary of a foreign company, or certain other notified persons (i.e. PSU’s, resident companies and firms, residents importing from Singapore) can apply for an advance ruling.
The amendments proposed in the Budget would allow any person holding a valid Importer-Exporter Code, exporting any goods to India, or having a justifiable cause to the satisfaction of the AAR, to make an application for advance ruling. The said proposal grants wide discretionary powers to the proposed AAR to be constituted under the Customs Act (Customs AAR) to entertain any applicant having a justifiable cause to its satisfaction. This potentially extends the said facility to all persons, including foreign individuals, looking to independently set up business in India or export to India. Additionally, in line with the intent of ensuring the ease of doing of business in India, the proposals include amendments to allow foreign persons intending to export goods to India to be represented by an authorised Indian resident for advance ruling purposes. Interestingly, it is also proposed that the ambit of Customs law be expanded to include persons out of India. This would facilitate the effective regulation of import-export transactions undertaken by foreign suppliers.
This is the second post in the our new blog series on the Budget 2018. Following our two-part post (here and here) on the impact of the Budget on the Direct Tax regime, this piece focuses on the amendments proposed under this Budget in the Indirect Tax space. We hope you enjoy reading this as much as we have enjoyed putting this together.
With the Indian economy recovering from a transitional slump post the implementation of the Goods and Services Tax (GST) of July 01, 2017, the Union Budget 2018 (Budget), tabled in the Lok Sabha on February 01, 2018, reinforces the commitment of Central Government to its “Make in India” and “Digital India” initiatives.
Though the Budget does not propose any significant changes in GST legislation, it recommends changes on the customs front, with a clear intent to vitalise the domestic manufacturing sector, while maintaining investor interest. The key amendments proposed to customs law are detailed below:
Tariff – For the first time in over a decade and a half, the government has increased customs duty rates ostensibly with a view to boost domestic manufacturing in terms of the “Make in India” initiative. The sectors impacted are electronics, automobile, medical devices, packaged food, cosmetics, textile, etc. The duty hike on mobile phones, smart watches, perfumes, fruit juices, television parts such as printed circuit boards and cabinets, cosmetics, silk fabrics, etc. is expected to create a push for suppliers to manufacture or source components in these sectors, locally.
The constitution validity of Entry Tax has faced a series of challenges. It was hoped that once the constitutional bench took control of the matter, the controversy would be resolved once for all. However, even after the constitutionality of the levy of Entry Tax per se was upheld by the majority of a nine judge bench of the Hon’ble Supreme Court (SC) in the case of Jindal Stainless Steel v. State of Haryana, Civil Appeal No. 3453/2002 (Jindal Case), the impending disputes weren’t put to rest.
The SC in the Jindal Case opined that non-discriminatory taxes do not interfere in the free movement of goods across the territory of India and therefore levy of Entry Tax by states does not violate Article 301 of the Constitution of India. The SC also laid down certain touchstones to be considered while analysing whether a levy is discriminatory against goods coming from outside the state vis-a-vis goods produced locally in the said state.
However, it directed the respective benches to adjudicate the question of the constitutional validity of each state’s Entry Tax legislation. Accordingly, the bench left important ancillary issues, which are relevant for deciding the validity of state specific Entry Tax legislation, open for determination, namely: (a) whether states have the right to tax imports from outside India; and (b) whether the entire state can be notified as a ‘local area’.
The Hon’ble Supreme Court of India (SC), in the recent case of Steel Authorities of India Ltd.[i], considered the question of admissibility of an appeal, against an order of the Central Excise and Service Tax Appellate Tribunal (CESTAT), filed before the SC under Section 130E(b) of the Customs Act, 1962 (Customs Act).
The SC analysed the provisions pertaining to the appellate mechanism laid down under the Customs Act juxtaposed with the role of the SC and its appellate powers, as envisaged under the Constitution of India (Constitution). It concluded that the appellate powers of the SC in relation to appeals filed against orders of the CESTAT are no different from the said powers of SC in case of an appeal against a judgment/ order of the High Court (HC).
Interestingly however, the SC laid down a non-exhaustive list of conditions for determining the admissibility of appeals, against an order of the CESTAT filed before it. They were as follows:
In the first concrete step towards implementing the much awaited Goods and Services Tax (“GST”) regime, the Model GST Law was released on June 14, 2016 (“Model”), even as the Government strives to pass the enabling Constitutional Amendments. Under the Model, Central/State GST shall be leviable on all intra-state supplies of goods and/or services and Integrated GST shall be leviable on all inter-state supplies of goods and/or services.
- A new Taxable Event:
As the GST regime is meant to subsume existing indirect taxes, concepts such as manufacture, provision of service, sale of goods, etc. shall be replaced by a single taxable event: supply of goods and/or services. The term “supply” has been defined to include all forms of supply of goods and/or services made or agreed to be made for a consideration by a person in the course or furtherance of business, importation of service, and supplies made or agreed to be made without consideration such as permanent transfer of business assets, etc. Interestingly, the definition also deems the supply of any branded service by an aggregator under a brand name owned by him to be a supply by the aggregator. This all pervasive definition of “supply” has to be complemented by seamless availability of input tax credit, which has been largely addressed by the Model.
However, note that the supply of goods by a registered person to a job-worker shall not be treated as supply of goods. A negative list has also been prescribed for transactions (e.g. transactions by Government, etc.) on which GST shall not apply.