India: Indirect Tax Updates: AAR Rulings, GST On Tenancy Rights, Use Of Data Analytics To Plug Leakages

Last Updated: 21 May 2018
Article by SKP  
  • The Authority for Advance Ruling (AAR), Maharashtra has held that whether a particular supply is to be considered as a composite supply or a works contract should depend on the essence of the agreement and not on how the treatment is ascribed to the transaction by the parties involved. Hence, even if separate agreements have been entered into for supply of goods and services, if the contract as a whole is essentially a works contract, then the GST rate of works contract (18%) would be applicable on the entire consideration and the tax treatment of separate taxability of goods (at applicable rate) and services (18%) would not be applicable.
    (2018-VIL-14-AAR - Fermi Solar Farms Private Ltd dated 3 March 2018)
  • AAR, Karnataka has held that the hotel accommodation and restaurant services provided to employees and guests of Special Economic Zone (SEZ) units would not be treated as supply of goods and services to SEZ units since the supply is neither meant for authorized operations of SEZ (combined reading of Section 16(1)(b) of IGST Act, 2017 & Rule 46 of CGST Rules, 2017) nor consumed inside the SEZ. It was held that place of provision of services by way of lodging accommodation by a hotel would be the location of the hotel, i.e. outside the SEZ in this case. Accordingly, the same would be liable to GST.
    (2018-VIL-30-AAR - M/s Gogte Infrastructure Development Corporation Ltd dated 21 March 2018)
  • AAR, Delhi has held that supply of food and beverages as per the defined menu and tariff consumed on board in mail/express trains does not mean that such train can be considered as a restaurant, eating joint, mess, canteen, etc. Consequently, such a supply cannot be covered under entry (i) of S. No. 7 of Notification No. 11/2017-Central Tax (Rate) dated 28 June 2017 (applicable GST rate of 5% without input tax credit). Therefore, GST would be applied to individual items at their respective applicable rates.
    (2018-VIL-29-AAR - M/s Deepak & Co dated 23 March 2018)

Place of provision of services for the development of software and services on software

Under Rule 4 of the Place of Provision of Services Rules, 2012 (POPS) in the erstwhile service tax law, there has always been an ambiguity in determining the place of provision of services in relation to development, design, programming, customization, etc. of information technology software.

In certain cases, benefits were denied to software exporters as the POPS was determined to be within India based on the location of the goods (software) in India.

In view of this, Central Board of Indirect Taxes and Customs (CBIC) vide Circular No. 209/1/2018-Service Tax dated 4 May 2018 has sought to clarify that the place of provision of service in the following cases would be the location of the recipient of the service:

  • In the case of services where data, instructions, etc. are provided so as to develop software, i.e. development, design and programming of information technology software; and
  • In the case of services on software involving testing, debugging, modification, etc., i.e. customization, adaptation, upgradation, enhancement, implementation of information technology software.

Applicability of e-Way Bill

The state governments of Rajasthan, Assam and Maharashtra have notified the date for implementation of e-Way Bill on the intra-state movement of goods. The same has been encapsulated in the table below:

State Notification No. Applicable/
Revised date
Earlier date
Rajasthan Yet to be notified (announced through a press release) 20 May 2018 -
Assam 7/2018-GST dated 7 May 2018 16 May 2018 -
Maharashtra 15D/2018-State Tax dated 7 May 2018 25 May 2018 31 May 2018

GST on tenancy rights

The Ministry of Finance has issued a Circular 44/18/2018-CGST on 2 May 2018 to clarify that the activity of transfer of tenancy right against consideration in the form of tenancy premium is a supply of service under para 2 of schedule II and accordingly, GST would apply on such supply. However, it must be noted that renting of residential dwelling for use as a residence is exempt as per Notification No. 12/2017-Central Tax (Rate). Accordingly, tenancy rights for use as residential dwelling should be exempted.

Waiver of late fees on the delayed filing of GSTR-3B

The government vide Notification No. 22/2018- Central Tax dated 14 May 2018 has waived the late fee payable on delayed filing of GSTR-3B for the months between October 2017 to April 2018 for such class of registered persons whose declaration in GST TRAN-1 was submitted but not filed on the GST common portal on or before 27 December 2017 due to certain errors on the common portal.

However, this waiver of late fees is applicable only in cases where GST TRAN-1 has been filed on or before 10 May 2018 and GSTR-3B for each of the months is filed on or before 31 May 2018.

Use of data analytics to plug leakages

GST officers are using the power of data analytics tools to identify any short payment of GST, excess availment of input tax credit, etc. by the taxpayers. In case of violations, notices have been issued to taxpayers.

SKP's Comments

  • Various AAR's across the nation have started delivering judgments on key issues. Taxpayers should track these judgments closely to gain clarity on various ambiguous issues under the GST law. The ruling by AAR, Maharashtra in relation to taxability of separate agreement for the supply of goods and services as a works contract may result in higher tax rates on similar contracts.
  • " The use of data analytics to examine GSTR-3B and GSTR-1 filed by taxpayers for determining mismatch is a major step towards plugging revenue leakages under GST. Taxpayers should be careful and ensure that their GSTR-3B and GSTR-1 align with each other to avoid any notices by the GST officers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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