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Firms may get to raise prices after transferring GST cuts

Firms may get to raise prices after transferring GST cuts

Companies are free to raise prices of products and services as per their business cycle without fear of getting caught in the anti-profiteering provision in the Goods and Services Tax (GST) law once they have passed on the benefit of tax rate cuts to consumers, said a government official.

The clarification from the official, who has knowledge of how the National Anti-profiteering Authority (NAA) and its investigative arm work, comes at a time when ambiguity in the law and the recent extension of the profiteering watchdog’s tenure as well as an increase in penalty for violation have led to concerns that the pricing liberty of businesses stands curtailed.

Analysts said that due to lack of guidelines on how to implement anti-profiteering provisions in the Central GST Act, companies are not sure how long they are expected to maintain a price after they reduce price to pass on the benefit of a tax cut to consumers. This is also worrisome for companies that have faced charges of profiteering for specific periods in the past. The law is silent on how long companies have to maintain the reduced price after a tax rate cut. This open ended provision, in effect, results in price administration, they said. Under GST law, not passing on the benefits of tax rate reduction or availability of input tax credits to consumers by businesses and merchants amounts to profiteering.

The liberty to increase price as per the business cycle will come as a relief to companies, especially large fast-moving consumer goods (FMCG) manufacturers that have faced ‘profiteering’ charges under GST law.

“Whenever there is a reduction in GST rate, businesses have to pass on the benefit to consumers immediately. Thereafter, companies are free to follow their cycle of price adjustments as they deem fit in line with market forces. There is no lock-in period for maintaining reduced prices,” said the first official cited above, who spoke on condition of anonymity. If a company has increased prices of products in a particular month in the past, that is a valid explanation for a price increase subsequent to reducing prices in line with a tax rate cut. Businesses, however, should be in a position to defend themselves in case of a complaint, said the person.

Experts said it may not be a very easy task for businesses to defend price increases considering the complexities in the overall business environment and pricing. They said past price trends may show movement both ways and may not be sufficient to justify a price increase in case of a profiteering investigation.

“Businesses may at times want to increase margins on a better selling product to offset losses in other products. There is still an ambiguity on whether that increase in margin for some products would be acceptable by the authorities as a justification for a price increase. Separately, industry has also been looking forward to detailed guidelines on calculating the amount of benefit to be passed on and in specific, the duration for which the reduced price is to be continued,” said EY tax partner Abhishek Jain.

The other factor that has got businesses worried is the perpetual nature of the anti-profiteering provision in the CGST Act although the tenure of the NAA is defined. The provision which mandates immediate price reduction of goods and services commensurate with the tax cut, does not specify a sunset clause. A second government official, who also spoke on the condition of anonymity, said that the anti-profiteering provision may be administered by any designated government official or agency in a less elaborate way after NAA’s term ends as the tax system would have stabilised by then. The GST Council extended the term of NAA by two years in June, which enables it to continue to work till end of 2021. The Council had also in June decided to let NAA impose a penalty equivalent to 10% of the profiteered amount on those who pocket the tax benefit meant for consumers.

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Source: LiveMint
Consumer panel fines retail store for charging GST on discounted price

Consumer panel fines retail store for charging GST on discounted price

Clarifying that charging GST on a discounted price of a product is an unfair practice, District Consumer Disputes Redressal Forum has imposed a fine of Rs 4000 on a city based retail store, that had overcharged Rs.3.68 from a customer.
In its detailed order the Forum asked Lifestyle International Private Limited, MBD Neopolis, Ferozepur Road, Rajguru Nagar to pay Rs.2000 as compensation for mental harassment and agony and an equal amount as litigation expenses to the customer Rahul of Modern Housing complex in Manimajra of Chandigarh.

In his complaint to Forum on February 1, 2019, Rahul a resident of Chandigarh said he had purchased a product from the store on July 23, 2017 by paying an amount of Rs.78. The maximum retail price (MRP) of the product inclusive of all taxes was Rs.245. After giving discount of 70% , the discounted price payable was Rs.73.50 but on this price GST at the rate 5% of Rs.3.68 charged. Claiming that charging GST on discounted price was an unfair trade practice, he sought refund of excessively charged GST amount of Rs.3.68 along with compensation of Rs.25,000 on account of mental and physical harassment along with the litigation expenses of Rs 15,000.

The respondent in its reply however pleaded that it was entitled to charge and collect GST after deducting discount from the printed MRP, which was considered as the sales price. “On the advertisement of discount offer, it was clearly mentioned “Tax Extra” and the complainant might have missed to notice this fact, the reply claimed. It added that in case the complainant had objections he could have got cancelled the invoice. But the complainant did not raise any concern in this regard and later filed a complaint with a ‘malafide intention and for unjust enrichment’.

The Forum after going through the arguments and evidence however observed that the practice of charging tax on the discounted price having MRP inclusive of all taxes in this csae certainly was an unfair practice. This practice has been deprecated by National Consumer Disputes Redressal Commission, the Forum comprising President G K Dhir and member Jyotsna held.

The forum in its detailed order directed the retail store to refund the excess received amount of Rs.3.68 with an interest rate of 6% annum from July 23, 2017 till payment. Besides it also issued directions for compensation for mental harassment and litigation expenses to the buyer.

Source: Times of India

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Delhi HC gives relief for companies in anti-profiteering probe

Delhi HC gives relief for companies in anti-profiteering probe

A company is required to give information to the Director-General of Anti-profiteering (DGAP) only about the ‘complained product’ and not about every product it produces, the Delhi High Court has said.

A complained product refers to a product against which complaint of not passing reduction in GST rate or benefit of Input Tax Credit (ITC) is alleged. The complaint can be made by any consumer or even a tax officer can suo motu files a complaint.

“It is directed that, till the next date, it will not be required to furnish information to the DGAP pursuant to the impugned notice other than information pertaining to the Complained Product,” a division Bench of the Delhi High Court ordered in a matter related with profiteering complaint made against Dettol HW Liquid Original 900 ml, produced by Reckitt Benckiser India (petitioner).

The National Anti-profiteering Authority (NAA) ordered an enquiry of profiteering against the said product. However, the company moved to Delhi High Court after the DGAP issued a notice seeking information on all its products (nearly 3,500 in number).

It argued that that as per the provisions under the GST Rules, without a report of the DGAP on the Complained Product followed by an order of NAA, the DGAP cannot suo motu issue a notice requiring the Petitioner to submit information on all its products.

The Bench found force in the submissions of the petitioner. Accordingly it allowed interim relief to the company. The matter has been listed for hearing on August 22.

It is important to note that in the case of Abbott Healthcare Private Ltd it was held that DGAP cannot proceed to investigate into products other than those covered in the notice and stay was granted until further order.

To overcome this, the rule was amended with effect from June 28 providing power to the NAA to direct the DGAP to investigate into goods or services other than those covered in the report submitted by DGAP. Further the investigation of other products shall be deemed to be a fresh proceeding. It is further provided that in order to initiate proceeding for other products, the NAA must have reasons which are to be recorded in writing.

Harpreet Singh, Partner with KPMG, said this ruling would give some belief to the dealers that authorities cannot arbitrarily question the pricing/policies of products “unless they have tangible evidence to substantiate their claim and are working within the framework of GST regulations.

Echoing the same sentiment Anita Rastogi, Partner with PwC, said that investigation of the complained product is right, but “expanding the scope of investigation to other products without following the due process looks unreasonable.”

MS Mani, Partner at Deloitte India, said that the mandate of the anti-profiteering provisions to investigate specific allegations of profiteering should be respected. “Broad level enquiries covering all products/SKUs would entail significant change compliance efforts for businesses and hence should be avoided unless there are compelling grounds for such an enquiry,” he said.

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Source: The-Hindu-Business-Line
Anti-profiteering in GST: Caught in litigation, extension in tenure may not be enough

Anti-profiteering in GST: Caught in litigation, extension in tenure may not be enough

Anti-profiteering provisions have been in force for nearly two years and at the recent GST Council meeting the tenure of the National Anti-Profiteering Authority (NAA) has been extended for two more years, till November 2021. Although the key reason given for this extension was the large pendency of complaints (around 350) which still needs to be investigated, it is fair to say that the presumption is that GST benefits are still not being passed on to consumers. But is the extension of tenure all that is required to ensure compliance with these provisions?

There are also reports that the GST Council, along with the extension of the tenure of the NAA, has approved a new mechanism to check profiteering. Tax officers have been empowered to conduct anti-profiteering checks in their jurisdictions. This clearly signals that complaints and investigations on profiteering will increase and the NAA will be around for much longer than the recent two-year extension. A new penalty may also may be imposed if the profiteered amount is not surrendered within a prescribed time limit.

Given that anti-profiteering related investigations will increase and impose heavier fiscal penalties there is an urgent need to address three key issues:

Introduce an appellate mechanism, within the GST law, for appealing the orders of the NAA;
Broaden the membership of the NAA to include a judicial member; and
Define methodologies/frameworks for compliance.

This will ensure that the core objective of ensuring that benefit of GST is passed on to consumers, is achieved in an efficient and timely manner.

It is worth noting that when NAA was originally constituted in November 2017 for a period of two years, it was set up primarily as a deterrent to big businesses and hence envisioned that its actions would be restricted. This is far from reality and the actions of the NAA have been far more widespread and have impacted almost all sectors and all sizes of businesses.

Considering that there is no appellate mechanism prescribed under the GST laws against an order of the NAA, can it be assumed that the government had not expected challenges on such orders? Whatever may have been the thinking on this aspect, the legal view adopted is that the law does not provide a statutory mandate to appeal orders of the NAA before the Tribunal, High Court or the Supreme Court. Hence, the only recourse for taxpayers is to file a writ petition in the High Court.

Almost all orders of the NAA where profiteering has been alleged, are being challenged in various High Courts. In most cases the courts have stayed the orders and the litigation is in progress. With most NAA orders being embroiled in litigation, the key purpose of the existence of the NAA, which is to ensure that the GST benefit is passed on to the consumer, is yet to be achieved. An alternative form of recourse is required which should assist in the faster resolution of cases.

Some of the writ petitions have challenged the constitutional validity of anti-profiteering provisions. While this challenge is being deliberated by the courts, the government may be able to address some of the other concerns/issues that have been raised.

In the absence of a statutory appellate process, the decision of the High Courts on anti-profiteering matters, will very likely be sent back to the NAA for implementation. This may create a conflict, as the authority that has passed the original order will have to review the orders based on directions of the High Court and then pass a revised order. This is likely to give rise to further litigation. One option to address could be to induct a judicial member on the NAA to ensure that a legal view is also taken into consideration while deliberating on High Court orders. Another option may be to create a body within the NAA to review and implement the orders of the High Court. There may be other options as well and the government should explore all possible alternatives to address this issue. In all such cases, the focus of the NAA should be to resolve the matter, pass on the benefit to the consumer and not litigate further.

As it is likely that anti-profiteering related investigations will increase going forward, there is also an urgent need to introduce an appellate mechanism, within the GST law, for challenging the orders of the NAA. This will ensure that going forward, writ jurisdiction is not the only option for challenging orders of the NAA and may also result in faster resolution of cases.

One key and outstanding demand of tax payers is for a specific mechanism/methodology to calculate profiteering. This may minimise the subjectivity in the investigation process and therefore litigation. The NAA’s position has been, and remains, that a standard methodology cannot be prescribed for all sectors and hence none is being prescribed. This position needs to be revisited urgently, more so as the NAA now has the benefit of experience from over a hundred investigations. The contradictory positions being adopted in some orders has also added to the complexity of complying with the provisions. One option could be to reconstitute sector-specific committees, set up during GST implementation, which were headed by senior tax officers. These committees can provide guidance on prescribing methodology for compliance with the anti-profiteering provisions.

With the focus once again on initiatives for improving Ease of Doing Business in India, anti-profiteering related concerns of taxpayers do need to be addressed on a priority. The trust deficit between the business and tax administration on this subject needs to be reduced to ensure that the key purpose of the consumer benefiting by GST implementation, is served.

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Source: Economic-Times.
Advance Ruling Authority under GST: Does it really solve the taxpayer’s issues?

Advance Ruling Authority under GST: Does it really solve the taxpayer’s issues?

Since the advent of GST Laws, trade and industry have faced multifarious issues relating to uploading of returns, availing legacy Cenvat credit under TRAN-1 form, various confusions regarding the generation of e-way bills and many other such small issues.

When the Government introduced the Advance Ruling Authority under GST, it sought to provide a much wider coverage as compared to the earlier Excise and Service Tax Regime, in order to provide an early resolution of the potential tax dispute coming from the trade and industry. For the first time in any Tax Legislation, an appeal mechanism was provided against the orders passed by the Advance Ruling Authority which was absent under the earlier laws and also under the existing Income Tax Act.

This welcome step by the Govt was met with overwhelming support from the trade and industry and as a result, thousands of applications were filed before the Advance Ruling Authority seeking clarification on a variety of tax issues. Surprisingly, the Advance Ruling Authorities of various states had not only come up with contradictory rulings on the same subject but also most of the rulings were decided in favour of the revenue only. Further, the applicants rarely got any relief before the Appellate Authority of Advance Ruling as well.

Probably, the constitution of this forum, which consists only of revenue officers and not having an independent judicial member is one of the biggest reasons for this outcome. Hence, instead of getting relief, the trade and industry started facing this unique challenge.

This situation was further worsened by the recent order passed by the Bombay High Court in the case of JSW Energy Limited wherein it has been held that no appeal can be filed against an order of the Appellate Authority of Advance Rulings on “merits” since no appeal has been provided under the GST Act. Without going into the merit of this judgment, which seems to have ignored the well-settled proposition of law that a writ petition is indeed maintainable before the High Court, the order of the High Court has certainly created chaos in the Industry.

Seeing this trend, strong perception in the Trade and Industry is getting build as to why one should even approach the Advance Ruling Authority who is likely to decide the matter against the assessee and when practically there is no appeal mechanism against the said order. Whereas if the assessee opts the route of the adjudication, the doors of the tribunal as well as the courts would always be open to seek relief. Given this, it appears that the whole objective of creating this forum to provide speedy resolution of issues, instead of going through the long-drawn litigation route, is getting defeated.

Hence, it was a genuine wish and demand of the industry that the Government should bring some reform in the structure and give life to this forum. Appreciating the need of the industry, the newly elected government in this Budget tried to address this issue by introducing the National Appellate Tribunal for Advance Ruling (NATAR) under Section 101A of the CGST Act, 2017. The proposed NATAR will be presided upon by a retired Judge of the Supreme Court or any High Court and would be accompanied by two technical members representing both the central and the state government.

The composition of the NATAR appears to solve the issue of departmental bias, by introducing a judicial member and also introducing an option of appeal against orders of the Appellate Authority which was previously absent under the GST Laws. However, the wording of proposed Section 101B of CGST Act suggests that an appeal before NATAR would lie only in cases where the views taken either by the members of Appellate Authority of Advance Ruling constituted in the same state or in different states are contradictory.

Though this new proposal by the Government seems to provide relief in some aspects i.e. when there are contradictory views from either of the members of the same Bench or amongst the co-ordinate Benches of different states. However, there is no relief provided against the order of the AAAR if the ruling goes against the assessee. Therefore, the NATAR would have a limited utility and this brings the taxpayer back to square one.

As per the trend of the Advance Authority Rulings thus far, it has been seen that two co-ordinate benches of the Appellate Authority rarely differ in their views when it comes to a single issue. Similarly, a situation wherein the members of the same bench of the Appellate Authority (who are both departmental officers) differ in their opinions, is also rare. Therefore, the NATAR will be limited to addressing rare situations wherein conflicting views have been taken by two or more Appellate Authorities (of different states) or two members of the same Appellate Authority Bench. Thus, despite the introduction of NATAR, effectively there is still no appellate forum available to the assessee having an adverse order of the AAAR.

This issue will only be solved if the NATAR is given wider powers to adjudicate on “any” order passed by the Appellate Authority. Hence while passing the Bill, the Government should make suitable changes in the Bill to provide the much-anticipated relief to the Industry.

In summation, the introduction of the NATAR by the government only solves the issue of the assessee on the surface. However, the real issue of having an efficacious appellate remedy against the orders of the AAR still eludes the taxpayers.

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Source: Business-Today.
Nirmala Sitharaman Explains How GST Filing Will Be Simplified

Nirmala Sitharaman Explains How GST Filing Will Be Simplified

Finance Minister Nirmala Sitharaman on Friday said that the Goods and Services Tax (GST) processes were being further simplified while adding that businesses with less than Rs. 5 crore annual turnover will need to file quarterly GST return.
She also announced to increase special additional excise duty and road and infrastructure cess on petrol and diesel by one rupee each, hike in customs duty on gold and precious metals to 12.5 per cent and imposing nominal basic excise duty on tobacco products and crude.

The Union Budget 2019-20 also provides for exempting import of certain defence equipment from basic customs duty, reducing customs duty on certain raw materials and capital goods, and rationalisation of export duty on raw and semi-finished leather.

“The threshold exemption limit for a supplier of goods is proposed to be enhanced from Rs. 20 lakh to an amount exceeding Rs. 40 lakh. Taxpayers having an annual turnover of less than Rs. 5 crore shall file the quarterly return,” she said.

She said that a fully automated GST refund module shall be implemented. “Multiple tax ledgers for a taxpayer shall be replaced by one,” she said. The Budget proposes to move to an electronic invoice system wherein invoice details will be captured in a central system at the time of issuance.

“This will eventually be used to prefill the taxpayers’ returns. There will be no need for a separate e-way bill. To be rolled out from January 2020, the electronic invoice system will significantly reduce the compliance burden,” said Ms Sitharaman.

The Finance Minister said that the landscape of indirect tax has changed significantly with the implementation of GST.

Terming it as a “monumental reform”, Ms Sitharaman said the GST regime has brought together the centre and the states with the result 17 taxes and 13 cesses became one and a multitude of rates instantly became four.

“Almost all commodities saw rate reduction. Tens of returns were replaced by one. Taxpayers’ interface with tax departments got reduced. Border checks got eliminated. Goods started moving freely across states, which saved time and energy. The dream of ‘One Nation, One Tax, One Market’ was realised,” she said.

The Finance Minister said that GST rates have been reduced significantly where relief of about Rs. 92,000 crore per year has been given. “There is a need to unload the baggage and allow the business to move on, as more than Rs. 3.75 lakh crore is blocked in litigations in service tax and excise,” she said.

The budget proposes a dispute resolution-cum-amnesty scheme — Sabka Vishwas Legacy Dispute Resolution Scheme, 2019 — will allow quick closure of these litigations. The relief under the scheme varies from 40 per cent to 70 per cent of the tax dues for cases other than voluntary disclosure cases, depending on the amount of tax dues involved.

Describing ‘Make in India’ as a cherished goal, the Finance Minister proposed an increase in basic customs duty on certain items so as to provide domestic industry a level playing field. These items include PVC, cashew kernels, vinyl flooring, tiles, metal fittings, mountings for furniture, auto parts, certain kinds of synthetic rubbers, marble slabs, optical fibre cable, CCTV camera, IP camera, digital and network video recorders.

She also proposed to withdraw exemption from customs duty on certain electronic items which are now being manufactured in India.

To encourage domestic publishing and printing industry, 5 per cent customs duty will be imposed on imported books. To further promote domestic manufacturing, the budget proposes customs duty reductions on certain raw materials and capital goods.

These include certain inputs of CRGO sheets, amorphous alloy ribbon, ethylene dichloride, propylene oxide, cobalt matte, and naphtha, wool fibres, and input for manufacture of artificial kidney and disposable sterilised dialyzer, and fuels for nuclear power plants.

The Union Budget proposes to increase special additional excise duty and road and Infrastructure cess each by one rupee a litre on petrol and diesel.

“Crude prices have softened from their highs. This gives me a room to review excise duty and cess on petrol,” she said.

Nirmala Sitharaman also announced an increase in customs duty on gold and other precious metals from 10 per cent to 12.5 per cent. The Budget also proposes rationalisation of export duty on raw and semi-finished leather to provide relief to the sector.

Ms Sitharaman said that tobacco products and crude attract National Calamity and Contingent duty which in certain cases is being contested on the ground that there is no basic excise duty on these items. To address this issue, the Budget proposes to impose a nominal basic excise duty on tobacco products and crude.

The Finance Minister proposed a few amendments to the >Customs Act. She said: “Recent trends reveal that certain bogus entities are resorting to unfair practices to avail undue concessions and export incentives.”

She announced that misuse of duty-free scrip and drawback facility involving more than Rs. 50 lakh rupees will be a cognizable and non-bailable offence.

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Source: NDTV.
Why the GST Council should issue proper guidelines on anti-profiteering

Why the GST Council should issue proper guidelines on anti-profiteering

Fears that the goods and services tax (GST) would aggravate India’s litigation problem seem to be coming true as far as anti-profiteering goes. The GST Council extended the term of the National Anti-profiteering Authority (NAA) by two years recently.

Considering the number of pending cases and increasing tussle between NAA and numerous companies, this move was largely anticipated. A slew of firms have been accused of failing to pass on the rate-reduction benefits commensurately to end consumers. These include blue-chips such as Hindustan Unilever Ltd, and Procter and Gamble India.

But as experienced in the past with GST, while the intent is good, implementation of related rules has been messy. Tax experts point out that only an extension of NAA’s term, without proper guidelines, doesn’t serve much purpose. What we need is a proper framework to estimate the profiteering amount so that litigation can be avoided.

“Businesses have been looking forward to explicit clarifications on the methodology of computing the profiteering benefits to be passed on, and also on the duration of the anti-profiteering clause, including the sunset of this clause,” said Abhishek Jain, tax partner at EY India.

There are several factors that determine movement in prices including the cost of raw materials and the level of competition. Companies may find it difficult to cut prices on the basis of GST rate cut alone, without accounting for the impact of other factors. Also, one cannot ignore the amount of time and money companies may have to employ to deal with cases of price investigations, which are complex especially for service providers. So, some tax experts are of the view that companies cannot be expected to operate in an environment of controlled pricing forever and that there should be a specific duration for this clause.

But expecting the clause to be done away with completely may be too much. “The duration of the anti-profiteering authority was originally envisaged for two years. However, considering that there have been multiple rate changes after July 2017, it was but obvious that the period would be extended. In a scenario where more rate reductions are expected in future, the possibility of a sunset of this clause may not be feasible,” says Anita Rastogi, indirect tax partner at PwC India.

“So far since the GST has been implemented in July 2017, more than 65 orders have been issued by the NAA. Considering that so many rulings have already been passed, it would be ideal if key takeaways arising from such orders are published in a manner which will facilitate the businesses in future,” she adds.

In short, there is long a way to go as far as fine-tuning of anti-profiteering rules are concerned. But at a time when GST revenues continue to fall short of expectations, user-friendly laws would not only lower litigation but also boost compliance and aid revenue collections.

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Source: Live-Mint.
GST Council may give 1-year extension to anti-profiteering authority

GST Council may give 1-year extension to anti-profiteering authority

The GST Council is likely to extend till November 30, 2020 the tenure of the National Anti-profiteering Authority (NAA), which deals with customer complaints regarding not receiving tax cut benefits, at its next meeting on June 21, an official said.

The Council at its 35th meeting, the first under new Finance Minister Nirmala Sitharaman, is also likely to consider a proposal to set up one appellate tribunal for north-eastern states, and another one for all Union Territories.

Besides, the Council would discuss a proposal to levy Goods and Services Tax (GST) on extra-neutral alcohol (ENA), which is used for manufacturing alcoholic liquor for human consumption, the official added.

The Finance Ministry is of the view that NAA should be given an extension of one year till November 30, 2020 as the authority continues to receive complaints of profiteering by companies, the official told PTI.

The NAA is keen for a two-year extension, the official said, adding that the final call will be taken by the GST Council in its meeting on June 21 which had earlier been scheduled for June 20.

Soon after the GST was rolled out from July 1, 2017, the government had approved setting up of the NAA for two years to deal with complaints by consumers against companies for not passing on GST rate cut benefits.

The NAA came into existence on November 30, 2017, after its Chairman B N Sharma assumed charge. So far, the NAA has passed 67 orders in various cases.

The GST law provides for setting up of benches of appellate tribunal in all states. Although 18 states have got the approval to set up appellate benches, none of these states have operationalised them.

The GST Council in its June 21 meeting is likely to approve the proposals of Delhi, Odisha and Telangana to set up appellate tribunal benches.

The Council will also take a call on setting up a combined bench for all north-eastern states as well as one bench to deal with appeal cases in six Union Territories — Chandigarh, Puducherry, Lakshadweep, Daman and Diu, Dadra and Nagar Haveli, and Andaman and Nicobar Islands, the official said.

With regard to bringing ENA under GST, states have divergent views on levying GST. Larger states like West Bengal, Rajasthan, Haryana, Tamil Nadu, Karnataka, Andhra Pradesh and Maharashtra have been of the view that ENA should be out of GST.

States levy Value Added Tax (VAT) and Central Sales Tax (CST) on ENA. They will have to forgo the right to tax the product if it is brought under GST.

The GST Council had earlier sought the opinion of the Attorney General on legality of imposing GST on ENA. The AG had then opined that since ENA is not consumed directly by people, GST can be imposed on it.

Currently, potable alcohol is out of the ambit of GST and states are free to levy taxes on them.

Among other things, the GST Council will also consider issuance of e-invoice by entities with turnover of over Rs 50 crore for business-to-business (B2B) sales in a bid to curb GST evasion.

Source: The-Hindu.

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Benefits from lower GST rate must be passed on to home buyers: NAA

Benefits from lower GST rate must be passed on to home buyers: NAA

In a ruling that will have far reaching consequences for real estate developers, the National Anti-Profiteering Agency (NAA) has held that excuses like the challenges and uncertainties associated with the GST regime cannot be used deny home buyers from benefits of a lower tax rate. Very simply, if a developer has benefitted from the introduction of GST in terms of lower rate of tax, the benefits need to be passed on to the consumer.

The history of the case can be traced to a period when GST had not come into force and a buyer had purchased a flat in the ‘East Crest, Bengaluru’ project launched by Salarpuria Real Estate Pvt. Ltd. The matter came before the National Anti-Profiteering Agency (NAA) was basis the report furnished by the Director General of Anti-Profiteering (DGAP) who was also the Co-Applicant in the matter.

The DGAP in its report highlighted the following key aspects:

  • The developer had accepted the fact that he has profiteered post GST, however, due to non-availability of the calculations, the benefit could not be passed on;
  • The ITC pertaining to the unsold units was outside the scope of the investigation and hence, the respondent is required to recalibrate the selling price as such;
  • The argument that the ITC details were not available is not acceptable because the entire amount was available to the respondent;
  • Profiteering, if any, has to be established at a given point of time in terms of Rule 129(6) of the CGST Rules, 2017;
  • The report had determined a profiteering of 1.45% on the transaction value;
  • The benefit accrued was calculated on the 51 units sold out of a total of 263 units, however, it was supposed to be passed onto the remaining 50 buyers, not being a party of the ruling.

Salarpuria Real Estate, however, argued that the project did not fall under affordable housing project and hence, is a residential project, the normal rate of GST applicable on the same was 12%. The developer added that it was not able to ascertain the exact impact of GST and hence, had suo moto sent out communication stating the same in this regard. Moreover, it passed on a benefit to the extent of Rs. 25 per sq. the buyers already, with a communication that the balance of the benefit would be passed on, once the exact numbers are ascertained.

According to the developer, the prudent exercise, in this case, would be to declare the ITC benefit once the project was complete and that the cost of construction of the flat is irrelevant to determine profiteering since the project, once wholly put, is valued basis its surroundings, landscaping, standards, facilities etc.

The developer also argued that a major chunk of the work is undertaken by sub-contractors; hence the complete details of ITC were not available with it.

The NAA after considering the legal provisions and facts of the case, held that the contention of the developer that computation of the benefit/ loss could not be done before completion of the project is not tenable. In its ruling the NAA held that the respondent has regularly availed the benefit of additional ITC and hence he cannot be allowed to enrich himself at the cost of the buyers and keep them waiting till the project was completed.

“This is the second Ruling in quick succession, earlier being in the case of Puri Construction, wherein authorities have not given any heed to submissions by Respondents on their inability to pass on credit and have held that GST has endowed benefits in terms of ITC accumulation, which needs to be passed on to buyers in all cases,” said Harpreet Singh, Partner in KPMG.

NAA also said that the contention of the developer that he had involved sub-contractors who had not passed on the benefit of ITC is also completely against the anti-profiteering provisions as every registered person is required to pass on the benefit of additional ITC. “The Respondent can always claim the benefit from his suppliers if he thinks that it is due to him by following the legal options but cannot offer this as an excuse,” said the NAA.

“Citing reasons for an inability to do the profit computation, is clearly unacceptable to the authorities. Simply put, if the profit has accrued, it needs to be passed on to the consumer. Period,” adds Singh.

Accordingly, the NAA agreed with the findings of the DGAP directed Salarpuria Real Estate to pass on the benefit to the Applicant and other buyers to the extent reported in the findings. As regards imposition of penalty is concerned, since the developer had not released the benefit for a long period and tried to avoid its release on various grounds, the NAA said this makes the firm liable for penalty.

Source: Economic-Times.

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GST Council may meet next week; NAA extension likely to be on agenda

GST Council may meet next week; NAA extension likely to be on agenda

The next meeting of the GST (goods and services tax) Council could take place as early as next week after approval from the new finance minister. The focus will be on tackling the unfinished agenda requiring immediate attention like tax structure for solar projects, uniform tax rate on state-organised and state-authorised lotteries, taxing non-potable alcohol besides certain changes in the law, extension for the National Anti-profiteering Authority (NAA) and rate rationalisation.

“The next meeting is now expected anytime in early June. Though items that need urgent attention will be taken up first, issues like inclusion of natural gas along with other petroleum products and merging of the 12 per cent and 18 per cent slabs will be discussed in subsequent meetings as they are high up on this government’s agenda,” said an official.

The Delhi High Court had last month directed the government to review the tax structure for solar power projects. The government had provided a deemed valuation provision that entailed taxing 70 per cent of contract value as goods, taxable at 5 per cent, and balance 30 per cent as services, taxable at 18 per cent. However, the industry argued that the ad-hoc valuation did not provide a fair estimate of the actual split of goods and services. Typically, the said ratio in the solar sector is 90:10, the industry argues.

Besides, the divergent rulings by the Advance Ruling Authorities added to the confusion and a writ was filed by the Solar Power Development Association. “We are doing consultations with the Central Board of Indirect Taxes and Customs (CBIC) and the ministry of new and renewable energy,” said another government official.

The Council may also take up the case for extension of the NAA’s tenure, which is coming to an end in November. The NAA Chairman B N Sharma has informally asked for an extension due to pending cases. The Council has asked the NAA for data on the number of orders passed and the status of pending cases to come to a decision on extension. “There are two views. One is that the NAA should get a finite extension with a fixed timeline to clear cases, as was the objective initially. The other view is that the NAA may be needed for a longer time as certain items like petroleum and alcohol are yet to be brought under the GST ambit,” said a government official.

According to the anti-profiteering rules under GST, “benefits of input-tax credit should have been passed on to recipients by way of commensurate reduction in prices”. The authority is still catering to complaints related to the rate reductions made in July last year on a number of consumer durables and on 178 items in November 2017.

With GST shortfall in 2018-19, the Council would also discuss ways to improve revenue by preventing leakages. In April, the collections crossed ~1 trillion for the third time in four months.

“The next GST Council meeting could chart out agenda for the next year or so. Aspects like e-invoicing and other measures to plug tax leakages, timelines for new compliance mechanism to be implemented, further rate rationalisation, and industry-specific issues such as those pertaining to solar industry may be discussed, along with few legislative changes,” said Pratik Jain, partner, PwC India.

The Council will also take up the report by the group of ministers led by Maharashtra Finance Minister Sudhir Mungantiwar, which has favoured a uniform GST rate of 18 per cent or 28 per cent on state-sponsored and state-authorised lotteries. The SGST rate on state-organised lottery could be retained to either 18 per cent or 28 per cent. While the GST rate on state-authorised lottery would be retained at 28 per cent or brought down to 18 per cent. “Kerala is not in favour of reducing rate on sate-authorised lotteries, while Maharashtra, Punjab and Assam are keen,” said a government official.

Besides, the Council may consider levying GST on extra neutral alcohol (ENA), which is a key ingredient of alcoholic beverages and medicines. The proposal is to levy an 18 per cent GST on ENA as the pharma industry is unable to avail input-tax credit on the same. Alcohol for consumption and potable alcohol is constitutionally out of GST, whereas its input — ENA — had been a grey area. Industrial alcohol is within GST. The Centre has taken a view of additional solicitor general, who has pointed out that ENA is liable to GST as it is not potable alcohol.

Abhishek Jain, tax partner, EY, said that the Council is also expected to deliberate and decide on inclusion of excluded sectors like oil & gas, real estate (constructed properties), electricity, etc, and rate rationalisation on cement.

Source: Business-Standard.

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