Phase of GST amendments and adjustments continues

By L Badri Narayanan and Tushar Aggarwal, Lakshmikumaran & Sridharan

Goods and services tax has been a massive change for the Indian economy. Since its rollout on 1 July 2017, GST has seen both legal and technical amendments to minimize the challenges faced by taxpayers, give a boost to various struggling sectors and industries, check tax evasion and increase the ease of doing business in India.

L Badri NarayananPartnerLakshmikumaran & Sridharan
L Badri Narayanan
Lakshmikumaran & Sridharan

To track the movement of goods and check tax evasion after the removal of check-posts on state borders, the GST Council decided to implement the e-way bill system throughout the country from 1 February 2018. However, technological glitches led to disruption in trade and e-waybill implementation was postponed after one day. No timeline has been prescribed yet for the reintroduction of e-waybills.

Another major step is the rationalization of rates for real estate. The GST Council cut the GST rate from 12% to 8% per cent for homes purchased using the credit-linked subsidy scheme under the Pradhan Mantri Awas Yojna, as well as low-cost homes up to a carpet area of 60 square metres. This will give a boost to the real estate market, promote the government goal of housing of all by 2022 and grant relief to first-time home buyers.

In another welcome step the states of Assam and Jammu & Kashmir will reimburse state GST (SGST) after utilization of the input tax credit of available SGST and integrated GST (IGST). The Assam government has extended the benefits to new and expanding units, which will put additional pressure on other states to offer similar benefits.

Circulars and FAQs have been issued time and again to create public awareness and shed light on various difficulties. In respect of taxation of the sale of goods from a customs bonded warehouse (in-bond transfer), a controversial circular states that in-bond transfer would attract IGST at the time of transfer as well basic customs duty and IGST at the time of removal of such goods from the warehouse. This contradicts the clarification issued in respect of high-sea sales. As in-bond transfer of imported goods is akin to a high-sea sales transaction, they should be treated similarly.

Tushar AggarwalJoint partnerLakshmikumaran & Sridharan
Tushar Aggarwal
Joint partner
Lakshmikumaran & Sridharan

It seems that the intent behind the above circular is to tax the margin between the import price and the sale price. With the latest amendment to the Customs Tariff Act in the 2018-19 budget, the above margin has come under the ambit of customs valuation. After this amendment, the fate of the circular is unclear.

The government has also issued a notification on when to pay GST in respect of area-sharing agreements in the real estate industry to put an end to the prolonged controversy. Liability to pay tax on (a) supply of development rights by a landowner to a developer, and (b) supply of construction services by a developer to a landowner has been deferred until the developer transfers possession or the right in the constructed complex, building or civil structure to the person supplying the development rights by entering into a conveyance deed or similar instrument (e.g. allotment letter).

This notification also signals the government’s intent to tax the transfer of development rights. Courts have held that development rights are immovable property and the government’s power to levy GST on their transfer is yet to be tested in a court.

Any law is incomplete without accompanying judicial decisions. The recent judgment of Allahabad High Court in M/s Continental India Pvt Ltd and Another v Union of India provided relief to a petitioner unable to file GST form Tran-1 due to technical hitches. The high court directed the government to reopen the portal within two weeks or receive the form manually.

After this judgment, it was expected that the 2018-19 budget would include an amendment in GST law to allow acceptance and revision of the Tran-1 form. However, no relief was granted and now taxpayers have no recourse but to approach the courts.

Still, the budget has given a boost to the Make in India project, which is one of the government’s key policy initiatives. To encourage domestic value addition, the government in the budget has increased customs duties on mobile phones, TV, watches, oils of crude and edible grade, fruit juices, perfumes and toiletries, footwear, etc. This will benefit domestic manufacturers.

Industry and taxpayers must prepare for more amendments and modifications going forward. Representations are being received and discussions conducted on a plethora of issues that have emerged during GST implementation. The final decision on the revised return filing model is to be taken at the next GST Council meeting.

L Badri Narayanan is a partner and Tushar Aggarwal is a joint partner at Lakshmikumaran & Sridharan.

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