India Trade And Tax Scan

I.TAX UPDATES

DIRECT TAX - Notifications & Circulars from CBDT

CBDT extends date for filing belated/revised returns to 15.01.2025

CBDT extends due date for filing belated and revised returns of income for resident individuals for Assessment years 2024-25 to 15- 01-2025.

CBDT extends due date for DTVSV scheme payment from 31-12- 2024 to 31-01-2025

CBDT has extended the due date for availing benefits of Vivad Se Vishwas Scheme from 31st December 2024 to 31st January 2025.

[CBDT Circular No. 20 of 30th December 2024]

CBDT launches campaign in cases of income/transaction mismatch

As part of a special campaign, CBDT is sending informational messages via SMS and email to individuals who are likely to have taxable income or who have entered into significant high-value transactions but have not filed their returns of income for the respective years. The campaign is also targeting cases where there is large mismatch between high value transactions entered by the taxpayer and the income disclosed in the return filed by them for the financial years 2023-24 and 2021-22. The initiative is part of e--Verification Scheme, 2021 to persuade individuals who may not have fully disclosed their income in their returns of income to take corrective steps by voluntarily filing 'updated' returns for FY 21-22 by March31, 2025 or revised/ belated returns for FY 2023-24 by December 31, 2024.

[PIB release dated 17th December 2024]

CBDT modifies Vivad se Vishwas Scheme and issues new FAQs

Direct Tax Vivad Se Vishwas Scheme 2024 was introduced to expedite resolution of income-tax disputes pending in appeals as of July 22, 2024. Now, CBDT has issued Guidance Note 2/2024 modifying and clarifying eligibility of various type of disputes pending in appeals which can be resolved under the Scheme. Key clarifications are as follows:

Appeals against Intimation under section 143(1) and cases set aside in appeal will be eligible under the Scheme
The Scheme envisages settling disputes in full and not in part. Therefore, whatever issues are pending in an appeal are to be settled in full.
In cases of transfer pricing adjustments, secondary adjustment under section 92CE provisions will be applicable for assessment years commencing after 1st April 2016.

[CBDT Circular No. 19 of 2024, dated 16-12-2024]

INDIRECT TAX - Notifications and circulars from CBIC

CUSTOMS

Generation of electricity not permitted in a Customs warehouse

The Central Government has prohibited any process or operations in a Customs warehouse which would result in generation / supply of electricity from goods imported for solar power generation projects.

[Notification No. 86/2024-Customs (N.T.) dated December 16, 2024]

Online Challan Facility for ICEGATE portal

The ICEGATE E-payment platform has been enabled to generate a challan for making voluntary payments by the importer through the portal, pursuant to an investigation, pre-deposit against appeals, penalty, interest, etc. However, this facility cannot be used for payment of customs duties for clearance of live consignments.

[CBIC Circular No. 27/2024- Customs dated December 23, 2024]

Out of Charge to be issued for Tier 2 and 3 AEOs on automated basis

Issuance of Out of Charge for Bills of Entry filed by an AEO registered as Tier 2 or Tier 3, will be automated on web-based registration, except for goods selected for examination, those requiring Participating Government Agency (PGA) related NOC, where assessment is not complete, or authentication of Bill of Entry by way of OTP is not complete for duty deferment.

[Circular No. 01/2025 - Customs dated January 01, 2025]

Functionality to be established for Import of LED Chips

Depending on the application, LED chips can be classified under CTH 8535, 8541and 9404. Accordingly, importers are required to upload Catalogue/ Technical Write-up/ End use/ Product Data Sheet/ User manual etc., to classification of LED chips.

[Public Notice No. 20/2024 dated December 21, 2024]

Exemption on Yellow Peas extended till February 28, 2025

Import of Yellow Peas into India is exempted from payment of Basic Customs Duty and AIDC. Bills of lading issued on or before February 28, 2025, will be eligible for exemption.

[Notification No. 49/2024- Customs dated December 26, 2024]

Procedure for routine sampling and testing of all varieties of rice prior to export discontinued

Consequent to withdrawal of export duty, and export of rice other than broken rice is free for export, the practice of drawing samples and testing the consignments for export before issuance of Let Export Order has been discontinued.

[Public Notice No. 24/2024 dated December 04, 2024 – Vishakhapatnam port]

GOODS & SERVICES TAX

Circulars

By Circular No. 243/37/2024-GST dated December 31, 2024, clarity on treatment of vouchers under GST, has been provided.

Transactions in Vouchers: Vouchers may either be recognized as pre-paid instruments (money) or actionable claims. In both cases, transactions in vouchers are not treated as a supply of goods or services, though GST applies to underlying goods/services purchased using vouchers.
Distribution Models: When vouchers are distributed on a principal-to-principal basis, trading margins are not subject to GST. However, commissions/fees earned by agents/distributors on behalf of issuers are taxable as services.
Additional Services: GST is applicable to charges for services like advertising, co-branding, or customer support provided to voucher issuers.
Unredeemed Vouchers (Breakage): Amounts from unredeemed vouchers are not considered a supply and are exempt from GST.

Circular No. 242/36/2024-GST, dated December 31, 2024, provides that suppliers must include the recipient's State name on tax invoices for services such as OIDAR (Online Information and Database Access or Retrieval), online money gaming, and other digital services like OTT platforms and e-magazines. This ensures the place of supply is accurately determined as the recipient's location, facilitating proper tax allocation to the respective State. Failure to record the recipient's State name may result in penalties under Section 122(3)(e) of the CGST Act.

Circular No. 241/35/2024-GST dated December 31, 2024, clarifies that goods are deemed "received" by the dealer for input tax credit (ITC) purposes when handed over to the transporter, as per Section 16(2)(b) of the CGST Act. This provision applies regardless of the physical location of the goods, provided delivery is made under the recipient's direction. In Ex-Works contracts, ITC eligibility arises when ownership transfers at the supplier's location, subject to the condition that goods are used for business purposes and other requirements under Sections 16 and 17 of the CGST Act. Non-compliance, diversion, or loss of goods may disqualify ITC eligibility.

Circular No. 240/34/2024-GST, dated December 31, 2024, clarifies that input tax credit can not be used by electronic commerce operators (ECOs) to pay tax on specified services (e.g., restaurant services) under section 9(5), and tax must be paid entirely through cash ledger. No proportionate reversal is required for these specified services.

GST COUNCIL MEETING UPDATES

The 55th GST Council Meeting was held on December 21, 2024, when following recommendations were made:

Rate reduction for the following goods and services

To support economically weaker sections of society, the GST rate on Fortified Rice Kernels supplied through the Public Distribution System has been proposed to be reduced to 5% from 18%. Additionally, certain food inputs under Chapters 19 to 21, used for preparing meals distributed freely under various government welfare schemes to support EWS have also been extended the concessional GST rate of 5%.
Benefit of IGST exemption on import of defence equipment such as systems, sub-systems, parts, sub-parts, tools, test equipment, software for assembly/manufacture of Long-Range Surface-toAir Missile (LRSAM) Assembly systems which lapsed in July 2024, has been extended for a further period of 5 years- till July 2029.

GST Exemption on following goods and services

Gene therapy is proposed to be made fully exempted from GST, making cancer treatment less expensive.
GST is proposed to be exempted on contributions made by general insurance companies from thirdparty motor vehicles premium, collected by them to Motor Vehicle Accident Fund which is used for providing compensation/ cashless treatment to victims of road accidents.
It has been proposed that taxpayers registered under the composition levy scheme be excluded from scope of Sl. No. 5AB introduced in Notification No. 13/2017-CT, by which renting of immovable property for commercial purposes from unregistered person to registered person was made taxable under reverse charge. The exclusion has been given retrospective effect from October 10, 2024, i.e. the date from which Sl. No. 5AB was made effective.
It has been proposed to clarify that GST is not payable on penal charges levied by banks/ NBFCs on borrowers for non-compliance with loan terms.
It was proposed to clarify that the RBI regulated payment aggregators come within the meaning of an 'acquiring bank' and shall be eligible for GST exemption under Sl. No. 34 of Notification No. 12/2017- CTR dated 28.06.2017. Vide Sl. No. 34, services by an acquiring bank to any person in relation to settlement of an amount upto Rs. 2000 in a single transaction through credit card, debit card, or other payment card is exempt. However, such exemption does not extend to payment gateways and fintech services not involving settlement of funds.

GST rate enhancement on following goods and services

Rate on sale of old and used vehicles, including EVs, has been increased from 12% to 18% on supplier's margin, i.e. the difference between purchase price and selling price, and not on the entire value of vehicle. Further, GST is not applicable if the seller is an unregistered person, so this will mainly impact the profits of businesses dealing in sale of refurbished and used vehicles.
W.e.f April 1, 2025, restaurant services in hotels proposed to be taxed at 18% GST with ITC if the accommodation rate exceeds Rs. 7,500 per unit in preceding FY, otherwise, it will be taxed at 5% without ITC. Further, hotels can avail the option to pay GST on restaurant services at 18% with ITC or at 5% without ITC, by submitting a declaration to that effect before the start of the financial year or upon registration.
Supply of sponsorship services by body corporates which was subject to taxation under reverse charge, is proposed to be taxed according to forward charge mechanism.

Key legislative changes recommended by the Council

It is recommended to amend section 17(5)(d) of the CGST Act to replace the phrase "plant or machinery" retrospectively w.e.f July 1, 2017. This amendment effectively overturns the recent decision of the Supreme Court in Chief Commissioner of Central Goods and Service Tax v. M/s Safari Retreats Private Limited, by which it was held that buildings may qualify as a plant, based on facts and circumstances, and shall be eligible for ITC under Section 17(5)(d) of CGST Act.
The pre-deposit for filing appeals in cases where only penalty is imposed, proposed to be reduced from 25% to 10%. A new Section 112(8) is proposed to be inserted setting a 10% pre-deposit requirement for penalty cases before the Appellate Tribunal.
It is proposed to insert section 148A in the CGST Act to enforce a Track and Trace Mechanism for certain commodities which are prone to tax evasion, by marking the goods with Unique Identification Markings (UIM) on either good themselves or their packaging. This could result in increased compliance for businesses dealing in these specified commodities who might have to implement systems for marking and maintaining UMIs.
A new Rule 16A is also proposed to be inserted in CGST Rules, 2017, vide which tax officers will grant temporary identification numbers to individuals who aren't usually required to register but are engaged in taxable activities.
It is proposed to insert clause (aa) in Entry 8 of Schedule III of CGST Act with retrospective effect from July 1, 2017, to clarify that supply of warehoused goods within the SEZs or Free Trade Warehousing Zones (FTWZs) to a person before exports or clearance to DTA will neither be treated as supply of goods nor services. This entry seeks to bring supply of warehoused goods within SEZ/FTWZ at par with treatment under GST where supply of goods from customs bonded warehouse before clearance for home consumption is neither treated as supply of goods nor supply of services and hence GST is not leviable.

II. SPOTLIGHT ON JUDICIAL PRONOUNCEMENTS

DIRECT TAX - INTERNATIONAL TAX CASES

Switzerland suspends Most Favoured Nation (MFN) treatment for India

The Tax Treaty between India and Switzerland was amended in 2010 to introduce an MFN clause. It provided that any reduction in tax rates on dividends, interest, royalties, or fees for technical services that may be agreed by India under a later treaty between India and an OECD country would also apply to IndiaSwitzerland Treaty. Subsequently, India entered into Tax Treaties with Lithuania and Colombia in 2011. These Treaties provided tax rate of 5% on dividend incomes. Lithuania and Colombia joined the OECD in 2018 and 2020 respectively, whereupon the Swiss authorities applied lower tax rate of 5% under the MFN clause on dividend income arising to Indian companies in Switzerland. However, CBDT vide Circular No. 3 of 3rd February 2022 took a stand that MFN clause would apply only where the subsequent Treaty is between India and a State that was a member of the OECD on the date of signing of the treaty. It further stated that the benefit would be available only after a formal Notification is issued in this regard.

Supreme Court in the case of Nestle SA, upheld the Income tax department's stand that MFN clause required formal notification under section 90 of Income Tax Act. This meant that the benefit of lower tax would not be available to Swiss companies earning dividend income from India.

In consequence Switzerland has now decided to suspend the MFN treatment for Indian residents with effect from January 1, 2025, on the ground of reciprocity. The Indian tax residents will remain eligible for lower tax rate of 5% on dividend incomes for the years 2018 to 2024 under the MFN clause, but from 1st January 2025 onwards the applicable tax rate would be 10%.

Burden on Revenue to prove that AMP expenses constitute international transaction

Supreme Court dismissed Special Leave Petition against an order of Delhi High Court holding that where Revenue is unable to demonstrate by tangible material that there is an 'international transaction' between the Indian subsidiary and its foreign parent involving AMP expenses, it cannot proceed to determine ALP of such expenses by inferring existence of an international transaction.

[Commissioner of Income-tax v. Whirlpool of India Ltd.]

To view the full article click here

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.