UNION BUDGET 2022-23: EXPECTATIONS

Finance Minister Nirmala Sitharaman is set to unveil Union Budget for the fiscal year 2022-23 on February 1, 2022. This is the second Budget to be announced while India and the World struggle to put an end to the Covid-19 pandemic. Many tax experts have called for Government's intervention in the current system to aid who have suffered economically over the past two years due to frequent shutdowns and curfews.

Tax collection target for fiscal 2021-22 ending March 31 was set at INR 22.2 lakh crores. The official data shows the tax collected to date (both direct and indirect taxes) stands at nearly INR 19 lakh crores. With three months still remaining for the tax revenues to be collected in the current financial year, the tax revenue collection is likely to exceed the target by a wide margin. With the burgeoning tax collection, the Union Budget 2022- 2023 may continue to focus on widening the tax base, improving compliance and hopefully reducing litigation.

There is less likelihood of GST rate rationalization owing to political reasons. We have seen the deferment of rates increase for textile industry which could have ended the inverted rate structure for the Industry. Further, inclusion of petroleum products under the GST is likely to be opposed by the States given their revenue situation during the pandemic.

On the Customs front, it is likely that the rate of raw materials and intermediate products may be rationalized, and the rate of finished product may be increased to provide a protection to promote domestic manufacturing to promote Atmanirbhar Bharat.

Further, considering the success of amnesty schemes for excise and service tax amnesty scheme under Customs could also be announced. This should help clear pending litigation and help to mop up revenue for the Government.

Compliance under GST have been a major challenge for the Government as well as the Industry. Frequent changes in law, new implementations, and challenges with respect to the GST Portal have been key issues with needs to be addressed. With focus on ease of doing business, challenges with respect to the GST infrastructure needs to be looked into.

Overall, the Budget is likely to spell policies and measures that target growth in the economy and give impetus to Atmanirbhar Bharat.

IMPORTANT CASE LAWS

Goods and Services Tax

  1. The Petitioner filed writ petition (WP) challenging constitutional validity of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017 (the CGST Act) wherein the Petitioner was refused to avail Input Tax Credit (ITC) on account of non-deposit of tax by supplier to Government which has been collected from the Petitioner.

    The Hon'ble Calcutta High Court observed that all purchases and transactions in question of the Petitioner are genuine and supported by valid documents. Further, such transactions in question were made before the cancellation of registration of specified suppliers and thus, the Petitioner to be given benefit of ITC in question. Accordingly, matter has been remanded back to the department for consideration of the case afresh on the issue of entitlement of benefit of ITC in question by considering the documents of Petitioner and also, consideration as to whether payments on purchases in question along with GST were actually paid or not to the suppliers.

    Further, department is required to consider as to whether the transactions and purchases were made before or after the cancellation of registration of the suppliers and also consider as to compliance of statutory obligation by the Petitioner in verification of identity of the suppliers. Also, the High Court directed the department to dispose of the case of in accordance with law by passing a reasoned and speaking order after giving opportunity of hearing to the Petitioner.

    Takeaway: ITC cannot be denied in case transactions/purchases are genuine

    [M/s LGW Industries Ltd & Others Vs UOI, WPA No. 8289 of 2021, Order dated December 13, 2021 (High Court, Calcutta)]

  2. The Applicant is group of people carrying out various charitable causes and activities from donations received from members, amount collected through various other channels and accruals of corpus fund. The Applicant recovers fees from all members for paying the same for the weekly and other meetings and other administrative expenses incurred including expenses for the location and refreshments.

    The Authority of Advance Ruling (AAR) held that the member and the club are two distinct persons and hence, any activity and transaction between them to be considered as 'supply' as in case of separate/distinct persons. There remains no doubt that the activities involved in present case is 'supply' after the retrospective amendment made under definition of 'supply'. Thus, amount collected as membership subscription and admission fees from members is liable to GST as supply of services. The principle of mutuality has no application after amendment. Therefore, collecting contributions and pending towards meeting and administrative expenditures by the Applicant from its members is subject to GST.

    Takeaway: Club and its members are distinct persons and separate entities

    [M/s Rotary Club of Mumbai Elegant, Order No. GST-ARA-26/020-21/B-108 dated December 9, 2021 (AAR, Maharashtra)]

  3. The Petitioner filed WP before the Hon'ble High Court to unblock ITC amounting to INR 1.17 crores lying in its electronic ITC ledger.

    The Petitioner argued that ITC was blocked on January 26,2020 and since more than 20 months already lapsed, by operation of law, the electronic credit ledger is required to be unblocked. The department contended that the electronic credit ledger of the Petitioner will get unblocked after completion of verification.

    The Hon'ble High Court held that ITC ledger was required to be unblocked immediately after expiry of one year from date of restriction in terms Rule 86A(3) of the Central Goods and Services Tax Rules, 2017 (the CGST Rules) and therefore, the electronic credit ledger should be be unblocked and accordingly, the Petitioner is eligible to claim ITC. In case the department was of the view that the Petitioner has not co-operated, the department ought to have proceeded against it in a manner contemplated under GST laws. Thus, the High Court held that such unnecessary restriction of blocking ITC is clearly illegal and therefore, the department is directed to unblock ITC amounting to INR 1.17 crores. WP filed by the Petitioner accordingly was allowed.

    Takeaway: Blocking ITC after expiry of one year from date of restriction is illegal

    [Advent India Pe Advisors Private Limited Vs UOI & Others, W.P. No. 2320 of 2021, Order dated December 3, 2021 (High Court, Bombay)]
  1. The Petitioner failed to upload statement 5B along with refund applications online. The Petitioner applied manually for FY 2018-19 and 2019-2020, however, the department rejected on ground that refund application can only be filed online on GST portal in terms of Circular No. 125/44/2019-GST dated November 18, 2019 (Circular dated November 18, 2019).

    The Petitioner filed WP before the High Court seeking direction to the department to accept refund application filed manually in terms of Rule 97A of the CGST Rules.

    The Hon'ble High Court held that there cannot be any dispute that the department is under obligation to follow the terms of the Circular dated November 18, 2019. However, it is self-evident that the department is also equally bound under the CGST Rules. Since Rule 97A of the CGST Rules contains a non-obstante clause, it is intended to override other provisions under the CGST Rules and thus, any reference to electronic filing of refund application on the GST portal would also include manual filing of refund application. In case no application in any form other than online can be received and processed is accepted, Rule 97A of the CGST Rules would be a dead letter and rendered redundant and cannot be construed in a manner so as to defeat the purpose of legislation. Further it has been held that Circular dated November 18, 2019 is applicable only to applications filed electronically on GST portal and would have no applicability to an application for refund which is filed manually. Thus, WP filed by the Petitioner was allowed.

    Takeaway: Manual filing of refund application is allowed under GST laws

    [M/s Laxmi Organic Industries Limited Vs UOI & Others, Writ Petition No. 7861 of 2021, Order dated November 30, 2021 (High Court, Mumbai)]

  2. The Applicant is engaged in providing services of Commission agent for rice millers and traders. The Applicant sought advance ruling whether GST is leviable on commission earned through selling of rice?

    The Hon'ble AAR held that the rice is a product of milling process involving de-husking, steaming, de-browning, polishing, sorting etc. of paddy which is produce out of cultivation of plants. However, both rice and paddy are not same as rice is outcome of milling process of paddy. While rice is readily consumable, paddy when subjected to milling processes yield rice, husk and rice barn. Milling process is not normally done by paddy producer or cultivator but is undertaken by millers. Milling process also changes essential characteristics of produce from paddy to rice, which both are distinctly identifiable and separately marketable commodities. Further, it has been held that the Applicant is assisting manufacturers/traders of rice millers and not assisting cultivators of paddy. Therefore, rice cannot be treated as 'agricultural produce' and hence, exemption from payment of GST is not applicable on commission agent services for sale or purchase of rice. Thus, the Applicant is providing marketing service for Rice Millers and traders by supplying both branded and unbranded rice on commission basis. Hence, the Applicant is required to pay GST @18%.

    Takeaway: GST leviable on commission earned in relation to selling of branded and unbranded rice

    [M/s Hindustan Agencies, Order No. KAR ADRG 73/2021, Order dated December 6, 2021 (AAR, Karnataka)]

CENTRAL EXCISE

  1. Refund of Education Cess and Secondary and Higher Education Cess was sanctioned to the appellant in the past period by Commissioner (Appeals) relying upon a decision rendered by the Apex Court.

    Subsequently, based on a contrary ruling by the Apex Court, show cause notice was issued to the appellant by the adjudicating authorities directing him to repay the refund so granted earlier as the same was erroneous and contrary to the ruling so passed.

    The appellant filed a Writ petition before the Hon'ble High Court of Gujarat challenging the show cause notice issued by adjudicating authorities, stating that the same is without jurisdiction and disregards the binding orders passed by a superior authority.

    The Hon'ble High Court quashed the show cause notices issued by the adjudicating authorities. It was held that show cause notice sought to raise an issue which had already attained finality without any challenge by the department. The adjudicating authorities are bound to follow the mandate of superior authority, even though such authority is a quasi-judicial body. A subsequent decision by the Apex Court cannot be a ground to wreck an issue which has already attained finality. The same amounts to interference with the settled principles of law.

    Accordingly, the writ petitions were allowed and show cause notice was quashed.

    Takeaway: Where an issue has already attained finality without any further challenge by tax authorities, issuance of show cause notices relying on a subsequent contrary ruling amounts to lack of judicial discipline and interference with the settled principles of law.

    [Ajanta Manufacturing Pvt Ltd Versus Union of India, in the High Court of Ahmedabad, Special Civil Application No. 3320 of 2021 dated October 14, 2021]

SERVICE TAX

  1. The appellant is a bank providing credit card services to its customers. In a typical credit card transaction, there are five parties to a transaction- the issuing bank, the acquirer bank, the card holder, merchant establishment and the card network. Show cause notices were issued to the appellant alleging service tax demand on interchange fees which is paid by the acquirer bank to the issuer bank. It is noteworthy to mention that service tax is already discharged by the acquirer bank on the interchange fees paid to the issuing bank.

    The appellant, the issuing bank holds that no services are performed by the issuing bank in the credit card transaction. The amount received by the issuing bank is in the nature of interest, thus not taxable and credit card transaction is a transaction in money which is excluded from the definition of 'service'.

    On the aforesaid issue, there was divergence in the views of the bench.

    Justice K.M. Joseph held that the activities performed by the issuing bank squarely fall under the definition of service since the issuing bank is providing the service of approving the transaction which is a crucial step in the completion of a credit card transaction. The Hon'ble member further held that interchange fees is not in the nature of interest since there is no creditor-debtor relationship. There is no scope for applying equity as the basis for the interchange fee as interchange fee is payable under the contract and towards service rendered by the respondent. Regarding the contention that credit card transaction is a transaction in money, it was held that what was sought to be taxed was the interchange fee and not the amount which is made available to the credit card holders. On these grounds, it was held that the issuing bank is a service provider and thus it was liable to pay taxes. However, the matter was remanded back to the Tribunal to verify whether or not tax had already been discharged by the acquirer bank on the interchange fee in order to ensure that there is no double taxation.

    Justice S Ravindra Bhat was in agreement with the views held by Justice K.M. Joseph that the issuing bank was providing services in lieu of the interchange fee and that the amount was not in the nature of interest. However, in his view the activities performed by the issuing bank was a part of single unified service of settling transaction provided by both acquirer bank and the issuing bank. The service element provided by the issuing bank is well incorporated in the services by the acquiring bank and included in the gross consideration received by the acquiring bank. Therefore, interchange fee cannot be subjected to tax separately and therefore, the appellant as an issuing bank is not required to file his returns. Therefore, the question to remand back the matter to the Tribunal does not arise since service tax was already discharged by the acquirer bank on the gross consideration charged.

    In view of divergent views of the members, papers were placed before the Chief Justice of India to constitute an appropriate bench in the matter.

    Takeaway: Levy of service tax on interchange fee in a credit card transaction referred to larger bench of the Hon'ble Supreme Court.

    Commissioner of GST and Central Excise Versus M/S Citi Bank NA, in the Supreme Court of India Civil Appeal No(s) 8228 of 2019 With Civil Appeal No 89 of 2021 dated December 9, 2021]

CUSTOMS

  1. The Assessee is engaged in the manufacture and exporting of brass articles under Chapter 74 of the Customs Tariff Act, 1975. At the time of filing shipping bills, the Assessee inadvertently mentioned incorrect drawback serial number 741802B. As per the appellant's view, the correct drawback serial No. should be 741901A (Brass Artwares/ Handicrafts) and the right rate of drawback applicable is 12% as against 2.2% under drawback serial No. 741802B. Accordingly, the appellant wrote to Customs authorities for amendment in shipping bills and to pass supplementary drawback claims. The department rejected the amendment in the shipping bills on the ground that the amendment sought by the Assessee is not based on existing documents and the documents are not in possession of proper officer.

    The Hon'ble CESTAT held that the invoices and the packing list is basic documents and these documents are very much in the possession of officer who is supposed to check the same at the time filing the shipping bills. Accordingly, the amendment sought by the appellant is as per the documents existing at the time of export of the goods and such documents are very much in possession of the proper officer.

    The Hon'ble CESTAT held that the appellant is entitled for amendment in the shipping bills and consequent differential drawback as per Section 149 of the Customs Act,1962.

    Takeaway: Amendment in shipping bill is allowed in case the amendment sought by the Assessee is as per the documents existing at the time of export of goods.

    [Bhavin Export Pvt Ltd. Vs Commissioner of Customs, CUSTOMS Appeal No. 10881 of 2016, CESTAT Ahmedabad]

  2. The Assessee is engaged in the business of manufacture and export of leather products and accessories. They have been making exports which was handled by a merchandiser specifically recruited for handling these exports. The merchandiser was not aware of the eligibility of drawback for the said exports and thus, the shipping bills filed were not declared for availing drawback benefits. Later, on realizing the mistake, the Assessee vide a letter requested for conversion of the free shipping bills to drawback shipping bills.

    The Adjudicating Authority rejected the request for conversion of the shipping bills on the ground that the reason given by the Assessee that they did not have knowledge about the drawback benefit is not convincing.

    The Hon'ble CESTAT observed that the Board Circular No. 36/2010-Cus dated 23.09.2010 also allows conversion of free shipping bills into drawback shipping bills if the Commissioner is satisfied that the exporter failed to comply with the provisions of Rule 13 of the Drawback Rules, 2017 (filing drawback shipping bill) for reasons beyond his control.

    The Assessee in the present case has been able to sufficiently establish that they did not file the drawback shipping bill at the time of export for the reason that the merchandiser who was handling the exports did not have knowledge about the benefit that could be claimed. Accordingly, The Hon'ble CESTAT allowed the request for conversion of free shipping bills to drawback shipping bills. However, since the application for conversion is filed on 23.11.2017 in regard to the shipping bills for the period 2013-14 to 2016-17, the shipping bills beyond the period of three years will not be eligible for conversion.

    Takeaway: Amendment in shipping bill is allowed in case the Assessee is able to prove the non-compliance is beyond his control.

    [Contemporary Leather Private Limited Vs The Commissioner of Customs, CUSTOMS Appeal No. 40246 of 2021, CESTAT Chennai]

INDIA REGULATORY & TRADE HIGHLIGHTS

Foreign Trade

  1. Standard Input Output Norms (SIONs) for export product Sodium Salicylate and Methyl Cobalamin JP (Mecobalamin) under Chemical & Allied Product Group notified [Public Notice No. 40/2015-20 dated December 2, 2021].

  2. Powerloom Development & Export Promotion Council (PDEXCIL) and Vadodara Chamber of Commerce and Industry (VCCI) are two new agencies which are enlisted for issuing certificate of origin (non-Preferential). [Public Notice No. 42/2015-2020 dated December 8, 2021]

  3. Import of Refined bleached deodorized palm oil and refined bleached deodorizedpalmolein to be 'free' till December 31, 2022. However, import of such items are not permitted through any port in Kerala. [Notification No. 46/2015-2020 dated December 20, 2021]

  4. Appendix 3 (SCOMET items) to Schedule-2 of ITC (HS) Classification of Export and Import items, 2018 notified w.e.f. from January 19, 2022. [Notification No. 47/2015-2020 dated December 20, 2021]

The Directorate General of Trade Remedies, Ministry of Commerce & Industry

  1. Final Findings in Anti-Dumping investigation on import of:

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Ministry of Finance

  1. Anti-Dumping Duty

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India Custom Highlights

  1. Guidelines for sale of seized/ confiscated gold issued. [Instruction No.- 27/2021-Customs dated December 3, 2021]

India Goods And Services Tax (Gst) Highlights

  1. Amendments made in the CGST Rules

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    Further Form GST DRC-10 (Notice for Auction for the purpose of recovery of GST or selling/disposing goods/conveyance), Form GST DRC-11 (Notice to successful bidder), Form GST DRC-12 (Sale Certificate), Form GST DRC-22 (Order regarding provisional attachment of property), Form GST DRC-23 (Restoration of provisionally attached property/bank account), Form APL-01 (Appeal to Appellate Authority) and Form GST DRC-03 [Intimation or payment made voluntarily or made against the show cause notice (SCN) or statement or intimation of GST ascertained through Form GST DRC-01A] has been amended and Form GST DRC-22A (Application for filing objection against provisional attachment of property) inserted.

    [Notification No. 37/2021 & 40/2021-CT dated December 29, 2021]

  2. Mandatory requirement to undergo Aadhar Authentication w.e.f. January 1, 2022

    Registered persons required to undergo Aadhar authentication for the following cases:

    • Filing of application for revocation of cancellation of registration in Form GST REG-21.
    • Filing of refund application in Form RFD-01 under Rule 89 of the CGST Rules.
    • iii.Refund of the integrated goods and services tax (IGST) paid on goods and services exported out of India under Rule 96 of the CGST Rules.

    [Notification No. 38/2021-CT dated December 21, 2021]

  3. Specified provisions of the Finance Act, 2021 effective from January 1, 2022

    • Registered person to avail ITC with respect to details of invoices/debit notes which has been furnished by supplier in its Form GSTR-1 and subsequent to which such supplies are reflected in Form GSTR 2B of recipient.
    • Services supplied by registered persons to its members is considered as 'supply' with retrospective effect from July 1, 2017.
    • Scope of Self-assessed tax widened to include details of outward supplies furnished in Form GSTR-1/Invoice Furnishing Facility (IFF) and not included in Form GSTR-3B.
    • Appeal required to be filed with pre-deposit equivalent to 25% of penalty in cases of penalty imposed by proper officer on account of detention, seizure of goods.
    • Scope of provisional attachment has been widened including proceedings initiated in case of assessments, inspection, search, seizure, arrest, demand and recovery.
    • Proceedings under Section 129 (Detention, seizure of goods and conveyances in transit) and Section 130 (Confiscation of goods or conveyances in transit) of the CGST Act not deemed to be concluded even in case proceedings against the taxpayer are concluded under Section 73 and Section 74 of the CGST Act in relation to determination of tax not paid or short paid or erroneously refunded or ITC wrongly availed or utilized for any reason of fraud/other than fraud or any wilful misstatement or suppression of facts.
    • Penalty equivalent to 200% of tax to be payable on release the vehicle in case of seizure and detention.
    • Proper Officer to issue notice within seven days of detention and subsequently, order to be passed within 7 days from date of issuance of notice.
    • Commissioner or authorized persons can issue order to collect information.
    • Information obtained from various persons cannot be used for the purpose of proceeding under the CGST Act without providing an opportunity of hearing.

    Notification No. 39/2021-CT dated December 21, 2021]

  4. Change in description of specified goods in order to align with new Harmonized System of Nomenclature (HSN) w.e.f. January 1, 2022. [Notification No. 18/2021-CT(R), IT(R) & UT(R) dated December 28, 2021]

  5. Exemption from payment of GST in relation to the specified goods in order to align with new HSN w.e.f. January 1, 2022. [Notification No. 19/2021-CT(R), IT(R) & UT(R) dated December 28, 2021]

  6. Concessional rate of GST applicable on specified goods aligned with new HSN w.e.f. January 1, 2022. [Notification No. 20/2021-CT(R), IT(R) & UT(R) dated December 28, 2021]

  7. Compensation Cess applicable on specified goods aligned with new HSN w.e.f. January 1, 2022. [Notification No. 2/2021-Compensation Cess (R) dated December 28, 2021]

  8. Rate of GST on supply of textile related goods to continue to be levied @ 5% instead on 12% w.e.f. January 1, 2022. However, rate of GST increased from 5% to 12% on supply of footwear of sale value not exceeding INR 1000 per pair w.e.f. January 1, 2022. [Notification No. 21/2021-CT(R), IT(R) & UT(R) dated December 31, 2021]

  9. Rate of GST on supply of job work services related to dyeing or printing of the textile related products to continue to be levied @ 5% w.e.f. January 1, 2022. However, concessional rate of GST @12% on supply of services to 'government authority' or 'government entity' withdrawn in specified cases w.e.f. January 1, 2022.

    [Notification No. 22/2021-CT(R), IT(R) & UT(R) dated December 31, 2021]

  10. Clarification in relation to services provided by restaurants through electronic commerce operators (ECO)

    • ECO not required to pay Tax Collection at Source (TCS) and file Form GSTR-8 in respect of restaurant services supplied by ECO. However, ECO is required to pay TCS in respect of supplies other than restaurant services.
    • ECO not required to take mandatory separate registration for payment of GST on restaurant services.
    • ECO liable to pay GST on any restaurant service supplied by an unregistered person.
    • Aggregate turnover of person supplying restaurant service through ECO to include aggregate value of supplies made by restaurant through ECO.
    • ECO not to be considered as recipient of service supplied by restaurant. Since such services are not input services to ECO, such services are not to be considered as inward supply (liable to reverse charge).
    • ECO required to pay entire liability of GST in cash. No Input Tax Credit (ITC) could be utilised for payment of GST on restaurant service supplied through ECO.
    • GST to be billed, collected and deposited in same manner which is being done at present for supplies made in respect other than restaurant services made through ECO.
    • ECO required to issue invoice in respect of restaurant service supplied through ECO.
    • ECO can opt to issue separate bill in relation to 'restaurant service' and 'goods/services supplied by restaurant other than restaurant service' in case ECO provides other supplies to a customer under the same order.
    • Registered persons supplying restaurant services through ECO to report such supplies of restaurant services made through ECO in Table 8 [Nil rated, exempted and non-GST outward supplies] of Form GSTR-1 and Table 3.1 (c) [(Other outward supplies (Nil rated, exempted)] of Form GSTR-3B for time being. Further, ECO required to report supplies related to restaurant services in Table 4A [Taxable outward supplies to registered person] of Form GSTR-1 or Table 7A [Taxable outward supplies to unregistered person] and report as outward taxable supplies in Form GSTR-3B for time being.

    [Circular No. 167/23/2021-GST dated December 17, 2021]

  11. Clarification issued in relation to procedure prescribed for filing refund claim by taxpayers registered in erstwhile Union Territory of Daman & Diu for period prior to merger with Union Territory of Dadra & Nagar Haveli.

    [Circular No. 168/24/2021-GST dated December 30, 2021]

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.