India: Indirect Tax Updates: Clarification On Refund Related Issues, New Functionalities On GSTN Portal, New MVAT Audit Report

Last Updated: 14 June 2018
Article by SKP  

Important rulings by the Authority for Advance Ruling (AAR)

  • Whether the sale of an independent unit of an entity along with its assets and liabilities would amount to supply of goods or supply of services or both? Furthermore, whether such transaction would be exempt in accordance with entry at Sr. No. 2 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017?

    AAR, Karnataka has held that since the unit being sold is functional and is desired to be transferred as a whole, it amounts to a transfer of a going concern. The transfer of a going concern, either as a whole or an independent part thereof, for a lump sum consideration, does not constitute an activity taking place in the course of business or for furtherance of business. However, since the definition of 'supply' under Section 7(1) of the CGST Act, 2017 used the word 'includes' the scope of 'supply' goes beyond the meaning of the expression 'in the course or furtherance of business.' Therefore, transfer of a going concern even if does not constitute an activity carried out in the course of regular business or for furtherance of business, the activity may still qualify to be termed as a supply. Furthermore, such supply shall be classified as supply of services and not supply of goods in accordance with Notification No. 12/2017- Central Tax (Rate) dated 28 June 2017. The notification further provides 'Nil' rate of tax on 'Services by way of transfer of a going concern.' [2018 (5) TMI 1651 - M/s Rajashri Foods Private Limited]
  • Whether supply of turnkey Engineering, Procurement and Construction (EPC) contract for construction of solar power plant wherein both goods and services are supplied can be construed to be a composite supply?

    The applicant intended to seek clarity whether a turnkey EPC contract can be construed as a composite supply, the principal supply being a supply of 'Solar Power Generating System,' and thereby taxable to GST at 5%. AAR, Karnataka has held that supply of turnkey EPC contract for construction of solar power plant would not be termed as a composite supply if equipment (i.e., PV modules) is directly transferred to the owner by way of high sea sale. Since the bill of entry is filed by the end customer and not by the supplier, the customer becomes the title owner. The draft contract demonstrates that in such projects the owner can procure the major equipment's on his own also, and the contractor may carry out supply of services. Thus, the concept of natural bundling does not apply to the present supply. Therefore, construction service and supply of equipment would not be clubbed as a composite supply. [2018-VIL-36-AAR - M/s Giriraj Renewables Private Limited]
  • Whether non-trading goods like office stationery, office equipment, etc. supplied to branches at zero value, can be valued at cost price under Second Proviso to Rule 28 of CGST Rules, 2017, which allows valuation at the invoice value, instead of the First Proviso which requires valuation to be done at 90% of MRP?

    AAR, West Bengal has ruled that supply made to distinct or related party can be valued as per Second Proviso to Rule 28 instead of First Proviso. The Second Proviso deems the invoice value to be the open market value and allows the same to be adopted if the recipient is eligible for full input tax credit. The Second Proviso, unlike the First Proviso, does not mention "where goods are supplied to a recipient for further supply as such." Thus, the Second Proviso is deemed to apply to goods used in the course of furtherance of business. Accordingly, the applicant has the option to value the goods in terms of the Second Proviso. [2018-VIL-49-AAR - GKB Lens Private Limited]
  • What will be the rate of GST applicable in a case where the applicant enters into two separate contracts, one for the supply of materials at ex-factory price, and the other for supply of allied services like transportation, insurance, loading, etc. for delivery of material?

    AAR, West Bengal had observed that both the contracts are linked by a cross fall breach clause which specified that breach of one contract would be deemed to be a breach of the other contract. The two promises, i.e., supply of goods and their transportation, are not separately enforceable in the present context. Accordingly, the supply is to be considered as naturally bundled and categorized as a composite supply with supply of goods being the principal supply, and the rate of GST to be applied accordingly. [2018-VIL-41-AAR - IAC Electricals Private Limited]

Clarification on refund related issues
The government vide Circular No. 45/19/2018-GST dated 30 May 2018 has provided following clarifications on issues related to refund claims:


Clarification issued

Para 2 of Circular No. 24/24/2017-GST dated 21 December 2017 mandates that a refund claim can be filed only after filing GSTR-1 (for the relevant tax period) and GSTR-3B (for the last tax period).
However, Input Service Distributor (ISD), composition dealers and non-resident taxable person are not required to file GSTR-1 and GSTR-3B. Can they still file refund claim?

The said taxpayers are not required to file GSTR-1 and GSTR-3B to claim a refund. They can claim a refund of balance in the electronic cash ledger on the filing of GSTR-6 (by ISD), GSTR-4 (by composition taxpayer) and GSTR-5 (by non-resident taxable person).

Certain taxpayers, while filing GSTR-3B committed errors in declaring the export of services on payment of IGST or zero-rated supplies made to an SEZ developer or an SEZ unit on payment of IGST by disclosing such supplies under 3.1(a) instead of 3.1(b) of GSTR-3B. Such transactions were disclosed correctly in GSTR-1.

Such taxpayers are unable to file refund application for refund of IGST due to an inbuilt validation check in the system which restricts the refund amount claimed to the amount of IGST/cess disclosed under 3.1(b).

It has been clarified that for tax periods from 1 July 2017 to 31 March 2018, taxpayers who have committed such errors would be allowed to file a refund application on the common portal through Form GST RFD-01A subject to the condition that the amount of refund of integrated tax/cess claimed should not be more than the aggregate amount of integrated tax/cess mentioned under 3.1(a), 3.1(b) and 3.1(c) of GSTR-3B filed for the corresponding tax period.

Whether bond or Letter of Undertaking (LuT) is required in case of zero-rated supply of exempted or non-GST goods and whether a refund can be claimed by the exporter of such goods?

It has been clarified that in respect of refund claims on account of export of non-GST and exempted goods without payment of IGST, LuT/bond is not required. Such exporters of non-GST goods should comply with the requirements prescribed under other laws, i.e., Central Excise Act, 1944, VAT law of the respective states, or the Customs Act, 1962 if any. Furthermore, the exporter would be eligible for a refund of unutilized input tax credit.

New functionalities on GSTN portal
Following key functionalities have been added to the GST common portal:

  • Option in relation to 'Application Revocation of Cancelled Registration' has been activated, wherein the cancellation is done suo moto by the officer. Such application for revocation can be made only after filing pending returns and payment of tax if any.
  • Data in relation to export of goods is validated by the GST common portal, and post validation, it is transmitted to the ICEGATE portal for processing of refund by the customs authorities. A functionality is now available on the GST Portal to track the status of such transmitted data.
  • Export ledger can be accessed via GST common portal by following the given procedure: Login to GST Portal - Services - Refunds - Track status of invoice data to be shared with ICEGATE.

Camps for quick disposal of EODC applications
The Directorate General of Foreign Trade vide Trade Notice No. 17/2018 dated 7 June 2018 with a view of quick disposal of applications for Export Obligation Discharge Certificate (EODC) and Advance Authorizations has announced the arrangement of camps from 11 June 2018 to 22 June 2018.

New MVAT audit report
In view of the implementation of GST, the Maharashtra government vide Notification No. VAT/AMD-2018/1B/ADM-8 dated 5 June 2018 has amended the VAT audit report in Form-704 under the Maharashtra Value Added Tax Act, 2002.

SKP's Comments

  • The ruling by AAR, West Bengal in the case of GKB Lens Private Limited will ease the burden on the working capital of entities undertaking similar transactions by allowing them the option to value such supplies at a lower price, thereby reducing the GST payable on such supplies.
  • Allowing exporters who have made errors in their GSTR-3B to file refund claims comes as a huge relief in view of such being committed by a large number of exporters. However, since such refund processes will not be subjected to system validation check, there is a possibility that the jurisdictional officers will issue notices to verify the authenticity of such refund claims. Exporters should ensure that they maintain proper documentation to avoid any penal action at a later stage.

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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