In this part of Article, we would discuss the nature of contract in case of mobilisation advance. It is generally observed that mobilisation advance is generally prevalent in case of contractors wherein mobilisation advance is generally given by the awarders to the contractors.

Mere fact that that amount is given by the awarder to the contractor is not sufficient enough to hold the mobilisation advance as “advance”

The moot question is whether the mere fact that the amount is given by the awarder to the contractor would be sufficient enough to categorize the said amount as advance. It should not be because supposedly take an example of the situation wherein festival loan is given by the employer to the employee and is deductible from the salary of the employee. However, the fact that such amount is given by the employer to the employee and is recoverable from the salary is not sufficient enough for holding the loan as an advance salary and liable to Income Tax. The amount given as festival loan is to be categorized as a loan or advance only by the intent of the parties and real purport of the document entered into by the parties.

General conditions and drafting of the agreement associated with Mobilisation Advance- Referred in the case of Thermax Instrumentation Ltd. Versus Commissioner of Central Excise, Pune-I-2015 (12) TMI 1222 – CESTAT MUMBAI.

The relevant conditions which are generally prevalent in case of a Mobilisation Advance were reproduced in the case Thermax Instrumentation Ltd. Versus Commissioner of Central Excise, Pune-I-2015 (12) TMI 1222 – CESTAT MUMBAI. The various Terms and Conditions as generally referred as follows:

A) Condition relating to Advance Payment and Security towards the Advance Amount

11.1.1 The Contractor shall deliver to the Owner a payment security in the form of a bank guarantee for 10% i.e. Rs 80.50 Lakh (Rupees Eighty Lacs Fifty Thousand Only) of the Contract price valid until the completion of Scope of Work (“payment security”). Upon receipt of the payment security, the Owner shall pay to the Contractor 10% of the Contract Price as an advance payment (Initial Advance”) amount to Rs 80.50 Lacs (Rupees Eighty Lacs Fifty Thousand Only).

B) Mode of Payment of the Amount Received

11.1.2 The value of the Payment Security shall be reduced on a quarterly basis in proportion to the amount of advance adjusted in the invoices of the Contractor.

11.1.3 The payment Security will be reduced by the Bank Guarantee issuing Bank of such payment Security based on a letter that shall be issued by the Owner to Such Bank Guarantee issuing Bank authorizing the reduction of the value of the payment Security.

C) Balance Payment-The agreement referred to by CESTAT provided that balance payment would be released to the contractor as follows:-

11.2 MILE STONE PAYMENTS FOR PROGRESS WORK:

Upon mobilization of Site by one of the Mechanical Erection Sub-Contractor of the main contractor, the owner shall pay to the contractor a Mile Stone Payment of Rs 80.50 Lacs (Rupees Eighty Lacs Fifty Thousand only). (Ten percent) of the Contract Price [“Mile Stone Payment”].

11.2.1 Payment of the Mile Stone Payment shall be effected directly within three days from the date of submission of following documents.

11.3 BALANCE PAYMENT

11.3.1 The balance payment of 80% (Eighty Percent) of the Contract Price including all taxes, shall be paid on a pro rata basis as set out in a mutually agreed upon billing break up, through an irrevocable, inland, without recourse letter of credit payable on demand in Pune to be opened by the owner in favour of the Contractor (“Balance Payment Letter of Credit”).

General Modus Operandi in case of a Mobilisation AdvanceThe Mobilization advance is generally given in order to enable to deploy machinery and manpower in sufficient quantity.

A) That interest is generally charged on advance amount given by the awarder to the contractor.

B) The contractor gives bank guarantee to the customer of equal amount of advance being given to him.

C) Contract contains condition of how the amount paid as mobilisation amount is to be repaid back. The mode of repayment followed generally is deduction from the bills submitted in respect of work executed.

D) The awarder can invoke bank guarantee anytime during the contract in case cancellation of work or non-execution of contract, delay in execution of a contract, etc.

E) The appellant does not have complete dominion over the amount as he has given a security of equal amount and the same can be recovered at any time by invoking the bank guarantee.

Key Observation about the general modus operandi of the mobilisation advance vis-a-vis the characteristics of Loans or deposit

It can be observed from the fact that the payment is guaranteed against the security and the conditions about the repayment are provided in the agreement and generally such amount given as mobilisation advance carries interest liability along with the same.

The fact that there are specific conditions associated for re-payment and mobilisation advance is secured by bank guarantee highlights the fact that ‘mobilization advance’ is adjusted against the payment not on account of being linked to the work but as a pledge of the contract between the contractor and the awarder. The connection to the execution of the contract is only limited to deduction from the payment to be released to the contractor and the deduction from the bill amount is more or less akin to the situation wherein rather than deducting from the bill amount, the awarder would pay the entire amount towards the bill to the contractor and the contractor would then pay the amount towards mobilisation advance separately. The deduction is nothing but an option opted by the awarder for an advance deduction from the bill amount rather than waiting for subsequent payment.

It is also subject to furnishing of prescribed ‘bank guarantee’ thus there seems to be less a connection with the performance of the contract. The payment of ‘mobilization advance’ is more like a separate financial transaction within the contract for providing of service. Thus, the nature of the mobilisation advance is more like a separate credit facility being extended by the awarder himself rather than the awarder taking from any third person.

Therefore, the mere fact that the amount is being received from the awarder by the contractor is not sufficient to hold the mobilisation advance as “advance”. There is more to it which needs to be analysed.

In the next series of article, we would discuss the various decisions from the pre and the post GST Regime as well as from direct taxes to ascertain what have the various courts held regarding the nature of mobilisation advance.

Case-1-[2019] 106 taxmann.com 292  (AAR – MAHARASHTRA) Aarel Import Export (P.) Ltd-Location of Supplier in case of Import of Goods

With respect to the Question No.1, it is found considering the facts of the case that as per the provisions of Section 7(2) of the IGST Act, 2017, supply of goods imported into India shall be treated as supply of goods in the course of inter-state trade or commerce and as per Section 5(1) of the Act, liable to IGST at the point when duties of Customs are levied on the said goods under Section 12 of the Customs Act, 1962. In respect of goods imported into India, as per provisions of Section 11(a) of the IGST Act, 2017, the place of supply shall be the location of the importer. In the present case since the importer is registered in Mumbai, the place of supply will be Mumbai, Maharashtra. The Sections 22 to 30 of Chapter VI deal with registration under GST. Section 22 speaks of persons who are liable for registration and as per Section 22 (1) — “Every supplier shall be liable to be registered under this Act in the State of Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if ………………………………..”

We find that in the present case as mentioned above, the place of supply is the location of the importer who is situated in the State of Maharashtra and hence the applicant will be clearing the goods by paying IGST using GSTIN issued to them in Mumbai, Maharashtra. Since the applicant has no establishment or place of operation or any godown or GSTIN in the State of Odisha, Paradip Port i.e. at the port of import, we are of the opinion that the place of supply shall be the place from where the applicant makes a taxable supply of goods which, in this case is the Mumbai Head Office, we find that the applicant can clear the goods on the basis of invoices issued by the Mumbai Head Office and therefore they need not take separate registration in the State of Odisha.

Now coming to the second question raised by the applicant, mentioned above, in view of the discussions made in respect of question No. 1, we find that, since, as an importer the place of supply for the applicant in this case will be Mumbai, Maharashtra and the goods also will be cleared on the name of the Mumbai registered address while paying IGST at the time of Customs Clearance, it would follow that they can do the further transaction mentioning the GSTIN of their Mumbai office. As a corollary, they can do the transaction on Mumbai Head Office GSTIN and can mention the GSTIN of Mumbai Head Office in the E-way Bill and dispatch place, as Customs Warehouse, Odisha, Paradip Port.

The applicant has invited our attention to the decision of this Authority issued in Sonkamal Enterprises (P.) Ltd. (supra). We find that the facts of the present case are identical and similar to the facts in the said case already decided by this authority.

Case-2-Kardex India Storage Solution (P.) Ltd [2020] 116 taxmann.com 865 (AAR – KARNATAKA)-Location of Supplier in case of Import of goods

The place of supply in case of import of goods, is the location of the importer in terms of section 11(a) of the IGST Act, 2017 and in the case of applicant the location of the importer is the state of Karnataka where the applicant has obtain the GST registration. Therefore, the applicant though import the goods to the port nearest to the location of the recipient, said imported goods are deemed to have been supplied to the location of the importer i.e., Karnataka and then further supplied to customer. Hence imported goods supplied directly from the port of import to the customer located in other states or Union territories other than state of Karnataka, such transaction shall be treated as a supply of goods in the course of inter-State trade or commerce in terms of section 7(1) of the IGST Act, 2017 and is liable to issue IGST tax invoice in terms of section 20 of the IGST Act, 2017 read with section 31 of the CGST Act, 2017. Further, if the applicant supplies the goods to the customers within the state of Karnataka, such transaction shall be treated as intra-State supply in terms of section 8(1) of the IGST Act, 2017 and liable to issue the CGST and SGST tax invoice as per section 31 of the CGST Act, 2017.

16. Further, with regard to obtain the registration under GST Act, by the applicant in the place where the port of import is located, it is observed that applicant is the registered dealer in the state of Karnataka having GSTIN: 29AADCK5377L1ZW and uses this GSTIN in the bill of entry for import of goods and also for the a payment of IGST on imported goods. Since the applicant already registered under GST Act, no provisions under the CGST or SGST or IGST, Act, 2017 mandates any person to obtain the registration again in the place of port where applicant obtain the custom clearance for further supply of goods. Hence, there is no need for the applicant to obtain the separate registration in the state where port of clearance located, if he does not have an establishment in that State and effecting supplies from that location.

Case-3-Gandhar Oil Refinery (India) Ltd.[2019] 106 taxmann.com 291 (AAR – MAHARASHTRA)-Location of Supplier in case of Person having godown in other states

In the present case as mentioned above the place of supply is the location of the importer who is situated in the State of Maharashtra and hence the applicant will be clearing the goods by paying IGST from their GSTIN issued in Mumbai, Maharashtra. Since the applicant will be storing the goods, after import, in various states for further sales, whether that would be inter-State or intra-State supply would depend upon the place of supply of goods as per Section 10 and Section 11 of the IGST Act, 2017. Hence we are of the opinion that the place from where the applicant makes a taxable Supply of Goods shall be his location, in this case, the Mumbai Head Office/Registered Office at Mumbai and even if the applicant has godowns in different states, we feel that the applicant can clear the goods on the basis of invoices issued by the Mumbai Head Office/Registered Office at Mumbai on payment of IGST in the State of Maharashtra and therefore they need not take separate registration in other states.

Observation-This might be a view which may have a difference of opinion and the other view might be possible wherein having godown in other state can be held to be the location of Supplier

Case-4-[2018] 100 taxmann.com 213  (AAR – MAHARASHTRA) Sonkamal Enterprises (P.) Ltd.-Location of Supplier in case of Import of Goods

First and foremost, since the applicant will be importing the goods into India as per Section 7(2) of the IGST Act, 2017, such supply of goods imported into India shall be treated as supply of goods in the course of Inter State Trade or commerce.

Secondly in respect of goods imported into India, as per Section 11(a) of the IGST Act, 2017, the place of supply shall be the location of the importer and in the present case since the importer is registered in Mumbai, the place of supply shall be Mumbai, Maharashtra,

Chapter VI of the CGST Act, 2017, consisting of Sections 22 to 30 deals with registration under GST Section 22 speaks of persons who are liable for registration and as per Section 22 (1) — “Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where we makes a taxable supply of goods or services or both, if …………………………..”

In the present case as mentioned above the place of supply is the location of the importer who is situated in the State of Maharashtra and hence the applicant will be clearing the goods by paying IGST from their GSTIN issued in Mumbai, Maharashtra. Since the applicant has no establishment or place of operation or any godown or GSTIN in the State of West Bengal i.e. the port of import, therefore, after exbonding of imported goods from the Customs warehouse at Kolkata and for further sales after exbonding, whether that would be interstate or intrastate supply would depend upon the place of supply of goods as per Section 10 and Section 11 of the IGST Act, 2017. Hence we are of the opinion that the place from where the applicant makes a taxable Supply of Goods shall be his location, in this case, the Mumbai Head Office and since the applicant does not have any godown in the state of West Bengal and we feel that the applicant can clear the goods on the basis of invoices issued by the Mumbai Head Office and therefore they need not take separate registration in the State of West Bengal. This would answer their first question mentioned above.

Now we deal with the second question raised by the applicant, which is mentioned above. In view of the discussions made in respect of question no.1, we find that, since as an importer the place of supply for the applicant in this case will be Mumbai, and the goods also will be cleared on the name of the Mumbai registered address while paying IGST at the time of Customs Clearance, it would follow that they can do the further transaction mentioning the GST1N of their Mumbai office. Hence we are of the opinion that they can do the transaction on Mumbai Head Office GSTIN and can mention the GSTIN of Mumbai Head Office in the E-way Bill and dispatch place as Customs Warehouse, Kolkata.

Case-5-Shewratan Company (P.) Ltd. [2019] 110 taxmann.com 408 (AAR-WEST BENGAL)-Supply of stores to foreign going vessels

The Applicant does not claim that its supplies of stores to the foreign going vessels are restricted to warehoused goods. In any case, at the time of supply, both the supplier (the Applicant) and the recipient (the foreign going vessel) are located in India. The supply of stores imported or otherwise, to foreign going vessels cannot, therefore, be construed as export unless it is marked specifically for a location outside India. It is not a zero-rated supply. The Applicant is, therefore, liable to pay tax under the GST Act or the IGST Act, as the case may be.

Case-6-Dolphine Die Cast (P.) Ltd. [2020] 116 taxmann.com 746 (AAR – KARNATAKA)-Supply of Goods within the country at the instruction of the person located outside the country and payment being received in foreign currency

In the case of manufacture of Die by the applicant and invoiced to the recipient, without moving the goods, the applicant has to raise the tax invoice addressed to the foreign buyer. Since it is an intra-State supply, he has to collect the CGST and SGST and discharge the liability. The applicant is not eligible to claim said payment as input tax credit on the invoice raised by him as he is not the recipient. Further if the said steel die is scrapped at applicant’s end as per the instruction of the overseas customer without moving out of the country, while supplying the die scrap to the third party, the applicant has to issue intra/inter-State tax invoice depending upon the nature of the transaction and collect and pay the applicable tax as per the provisions of the GST Acts.

 Further ,it is rightly admitted by the applicant that the tax invoice is raised after the manufacture of the Die in the name of the foreign customer in foreign currency for receipt of payment. The date of issue of tax invoice by the applicant is the time of supply of Die to the foreign customer as per section 12 of the CGST Act, 2017. Further, on date of issue of tax invoice the die is with the applicant and it is not moved either by the applicant or by the foreign customer. Hence the place of supply of goods, other than supply of goods imported into, or exported from India, shall be the location of such goods at the time of the delivery to the recipient as per clause (c) of sub-section (1) of section 10 of the IGST Act 2017. Therefore, the place of the applicant.

Case-1-Penna Cement Industries Ltd. [2020] 116 taxmann.com 876 (AAR- TELANGANA)-Place of Supply in case of Ex-Factory Sales-Section 10(1)(a) of IGST Act, 2017

Held-In case of ex-factory inter-State sales affected by applicant, goods are made available by the supplier to the recipient at the factory gate, but this is not the point where movement terminates since the recipient subsequently assumes the charge for transportation of the goods up to the destination in another state. Thus, termination of the movement of goods evidently takes place at the location (in a different state) to which the goods are consigned/destined and such movement is effected by the recipient or by any other person such as transporter authorized by the recipient.

Applying the inference made by us in the preceding para to the facts of the case on hand, the place (in the other state) where the goods are destined turns out to be the ‘place of supply’ in terms of section 10(1)(a) ibid. Consequently, the ‘location of supplier’ and the ‘place of supply’ fall under different states and the supply qualifies as inter State supply. Accordingly, it was held that, supplier in the stated instance is liable to charge IGST in respect of ex-factory inter-State supplies made by them.

Case-2-Deputy Conservator of Forests [2019] 109 taxmann.com 365 (AAR – KARNATAKA)-Place of Supply in case of Ex-Factory Sales- Section 10(1)(a) of IGST Act, 2017

Held-Also, as per of sub-section (1) of section 10, the stress is on the words “supply” and “movement of goods”. If the movement of goods is involved within the supply contract then it, then clause (a) is attracted and the place of supply would be the place where the movement of goods terminates for delivery to the recipient. The words clearly say that the there must be termination of movement and delivery to the recipient is a subsequent action. In the pertinent case, it is seen that the goods are delivered to the buyer and the supply transaction is completed. The contract is over the moment the invoice is raised and the payment is made and there is no condition of the movement of goods being an ingredient in the supply contract. The buyer then after clearing the goods and taking possession of goods applies for permit and takes the goods to whichever place he wants. The delivery of the goods happens when the possession of goods is handed over to the supplier and the movement of goods is not a precondition for supply, they both being independent events. There is no breach of contract of supply, if the purchaser, being from outside the state does not actually take the goods to his place outside the state. Hence as per clause (c), the place of supply would be the place of the location of such goods at the time of the delivery to the recipient and hence Karnataka.

In the pertinent type of transaction, since the location of the supplier, [Department of Forests, Government of Karnataka is within the State of Karnataka], is Karnataka and the place of supply (as per the conclusion arrived in the preceding paragraphs), is also Karnataka, as per section 8(1) of the IGST Act, 2017, the nature of supply would be an “intra-State supply” within Karnataka State and hence CGST and SGST would be applicable on the transaction and not IGST.

Comment-Contrary to Penna Cement Industries Ltd. [2020] 116 taxmann.com 876 (AAR- TELANGANA) as referred above in Case-1

Case-3- Agenda 7(iii) of GST Council Meeting was Issues pertaining to interpretation of Section 10(1)(a) of the IGST Act, 2017- Reference to Ex-Factory or OTC Sales

The agenda stated that

An issue was raised by Commissioner of State Tax (Punjab) vide letter dated 28.05.19 seeking clarification on the issue related to place of supply in case where Goods are purchased over the counter (on OTC basis) in one State and thereafter transported to another State by the recipient. States like Punjab & Himachal Pradesh have noticed that in case of OTC supply to recipient outside the State, some suppliers are levying CGST and SGST instead of IGST. Further, one of the Tax authorities has issued direction to do the same i.e. in case of OTC supply, the supplier has been directed to charge CGST and SGST instead of IGST even in case of inter-State supply.

Accordingly, the agenda was placed before the GST Council for further deliberation and approval of the draft circular. The draft circular stated that

It has been informed that even though the goods are supplied on OTC basis but the supply involves further movement of goods which is arranged by the recipient, the expression “movement of goods terminates” would mean the place where the movement of goods terminates when the goods reach the place of registration of the recipient or to the address that has been declared in the tax invoice, as the case may be. It is, accordingly, clarified that the place of supply in case of such supplies, i.e. where the recipient is registered or the address declared in the tax invoice (in case such recipient is not registered) in a State other than the State in which the supplier is located, shall be determined in accordance with the provisions contained in clause (a) of sub-section (1) of section 10 of the IGST Act. Accordingly, such supplies would be treated as inter State supplies in accordance with the provisions contained in sub-section (1) of section 7 of the IGST Act. It is further clarified that the supplier would be liable to pay integrated tax in such cases.

2.4 However, where the supply is to an unregistered person and where the recipient’s address is not available on record, the place of supply would be determined in accordance with the provisions contained in clause (c) of sub-section (1) of section 10 of the IGST Act. The place of supply in such cases would be the location of goods at the time of delivery to the recipient. Accordingly, such supplies would be treated as intra-State supplies in accordance with the provisions contained in subsection (1) of section 8 of the IGST Act. It is further clarified that the supplier would be liable to pay Central tax and State tax / Union territory tax in such cases.

However, when the Draft Circular was put up before the GST Council there were varied responses to the circular.

a) Views of Punjab and Himachal- The draft Circular was in accordance with the views of States like Punjab and Himachal Pradesh i.e. such OTC supplies may be treated as the intra-State supplies where the supply was made to an unregistered person and the recipient’s address was not available on record and inter-State supplies where the address of recipient is available.

b) View of Haryana-Shri Amit Kumar Agarwal, Commissioner, E & T, Haryana stated that they were opposed to the proposal as they felt that the proposal went beyond Section 10(1)(a) of the IGST Act and that the proposed Circular would affect the revenue flowing to his State in the form of GST revenue.

c) Views of Delhi-The Hon’ ble Deputy Chief Minister of Delhi also supported the views expressed by Haryana. Hon’ble Deputy Chief Minister of Delhi further felt that the law was being grossly misinterpreted. ln his view, the destination principle meant where the supply chain terminated and not necessarily the address of the buyer.

d) Views of Kerala-The Hon’ble Minister from Kerala suggested to follow the destination principle and agreed with the views expressed by State of Punjab.

e) Views of Gujarat-The Hon’ble Minister from Gujarat stated that it appeared that if any person belonging to one State purchased goods in any other State and got the address of his/her residing State recorded in the invoice then the revenue would flow to the native State and not to the State where bill was actually issued. In his view, this would be a big change and it was not clear as to how would one verify the address of the buyer and what would be the mechanism of the revenue flow to the States etc.

The Minutes of the Meeting concluding the issue and referring the issue back to Law Committee to be considered afresh after obtaining opinion of the States in writing along with reasons thereof are being reproduced herewith-

The Hon’ble Chairperson felt that the issue should be looked into afresh by the Law Committee as the destination principle was being questioned and the entire edifice of GST was based on it. She requested the States to give their opinion in writing along with reasons thereof for consideration of the issue afresh in the Law Committee.

21. For Agenda item 7(iii), the Council recommended to refer the agenda back to the Law Committee for considering the issue afresh after obtaining opinion of the States in writing along with reasons thereof.

Case-4-Ms. Umax Packaging (GST AAR Rajasthan)-2nd November 2018-Place of Supply in Bill to Ship to Transaction- Section 10(1)(b) of IGST Act, 2017

Held-IGST in this case is applicable on both the transactions i.e. Supply by M/s Uma Polymers Ltd., Guwahati (Supplier) to Ms. Umax Packaging, Jodhpur (Third Party) and Ms. Umax Packaging, Jodhpur (Third Party) to M/s Pratap Snacks Ltd., Guwahati (Recipient).

Thus, M/s Uma Polymers Ltd., Guwahati can charge IGST from the applicant, against which the applicant ie. M/s Umax Packaging, Jodhpur are eligible to claim full input tax credit as per the relevant provisions of Section 16 and 17 of Chapter V of CGST Act, 2017.

Case-5-Sanjog Steels (P.) Ltd-[2018] 100 taxmann.com 405 (AAR- RAJASTHAN)-Place of Supply in Bill to Ship to Transaction with Four Parties involved-Section 10(1)(b) of IGST Act, 2017

Facts-

Stage-1- The Applicant sells manufactured goods under the Brand name Rathi Powertech to M/s. RSE.

Stage-2-M/s. RSE would be selling the said goods after adding its margin of about Rs. 50 per metric tonne to M/s. Goyal Alloys Pvt. Ltd., E- 231, Phase-II, Bagru Industrial Area, Bagru, Jaipur, Rajasthan-303007 (hereinafter referred to as “M/s Goyal”).

Stage-3-M/s. Goyal will be selling the said products to various customers (hereinafter referred to as “M/s X”) as per the demand of market.

The manufactured goods are directly dispatched by M/S SSPL to M/s X and E-Way Bill is prepared on a “Bill to Ship to” model as per the provisions of Section 10(1)(b) of the IGST Act, 2017. Applicant is an associate company of M/s. Goyal.

Held-

Query 1: Supply from M/s. SSPL to M/s. X on a “Bill to Ship to” mode as per provisions of Section 10(1) (b) of IGST Act, 2017 is permissible.

Query 2: Applicant can issue an e-way bill in which the ‘bill to’ will be mentioned in the name of M/s RSE whereas ‘ship to’ would be in the name of final customer i.e. M/s X.

Case-6-High Tech Refrigeration & Air Conditioning Industries-[2020] 117 taxmann.com 819 (AAR – GOA)-Place of Supply ion case of Bill to Ship to Transaction-Section 10(1)(b) of IGST Act, 2017

Only one issue could be dealt by this authority for issuing Ruling and that is whether supply made by applicant from Goa on behalf of third person who is not in the taxable territory of Goa to a place in Goa is to be taxed as Inter-State Supply or Intra-State Supply.

For classification of any supply as Inter-State Supply or Intra-State Supply, two ingredients are relied upon and these are location of the supplier and place of supply. In the instant case, as said by the applicant, location of the supplier is Goa, place of supply will be outside Goa as per section 10(1)(b) of the IGST Act since, goods are supplied on behalf of a registered person outside Goa to a place in Goa.

Section 10(1)(b) of IGST Act is reproduced as “where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person.”

Case-7-IAC Electricals (P.) Ltd. [2018] 93 taxmann.com 476 (AAR-WEST BENGAL)-Place of Supply in case of assembly and installation of Goods- Section 10(1)(d) of IGST Act, 2017 

Held-As the goods to be supplied under the First Contract involve movement and/or installation at the site, the place of supply shall be the location of the goods at the time when movement of the goods terminates for delivery to the recipient, or moved to the site for assembly or installation [refer to Section 10(1)(a) & (d) of the IGST Act, 2017].

Case-1-Habufa Meubelen B.V. [2018] 95 taxmann.com 120 (AAR- RAJASTHAN)- Taxability of reimbursement of expenses and salary paid by M/s. Habufa Meubelen B.V to the liaison office

6.1. As submitted by the applicant, they are working as the Indian Office of M/s. Habufa Meubelen B.V. which is established as a Liaison Office with the prior permission of RBI. Except proposed liaison work, this office in India would not undertake any activity of trading, commercial or industrial nature nor would they enter into any business contracts in its own name without RBIs prior permission. There is no commission/fees being charged or any other remuneration being received/income being earned by the office in India for the liaison activities/services rendered by it.

6.2 The HO, Netherlands reimburses the expenses incurred by the applicant for their operations in India which are in the nature of salary, rent, security, electricity, travelling etc. The applicant does not have any other source of income and it is solely dependent on the HO for all the expenses incurred by the applicant, which are subsequently reimbursed by the HO. Therefore the HO and Liaison Office cannot be treated as separate persons. Since, HO and Liaison Office cannot be treated as separate persons, there cannot be any flow of services between them as one cannot provide service to self and therefore, the reimbursement of expenses made by the HO cannot be treated as a consideration towards any service.

6.3 The amount received from HO are the funds for payment of salary, reimbursement of expenses like rent, security, electricity, travelling, etc. No consideration is being charged by the applicant from the HO for such services.

6.4 Further the liaison office is strictly prohibited to undertake any activity of trading, commercial or industrial nature or entering into any business contracts in its own name. Also the reimbursement claimed by them from their HO is also falling out of the purview of supply of service. As there are no taxable supplies made by the Liaison office, they are not required to get registered.

6.5 In view of the submissions made by the applicant and as discussed in above paras, when the applicant/liaison office is working as per the terms and conditions as mentioned under paras 1.1 to 1.5 above, the reimbursement of expenses and salary paid by M/s. Habufa Meubelen B.V to the liaison office, is not liable to GST, as no consideration for any services is being charged by the liaison office. Further, the kind of reimbursement claimed by them from their HO is also falling out of the purview of supply of service and as there are no such taxable supplies made by the Liaison office, they are not required to get themselves registered under GST.

Case-2- Para 5.3.5 of the CBEC Educational Guide issued in June 2012 throws light on what would be the ordinary course of business:

“It may be noted that the service provider is not required to make any extraordinary efforts to trace the address of the service receiver. The address should be available in the ordinary course of business.”

Thus, the address available with the supplier normally would be treated as the ordinary course of business. Supposedly, a person goes to shopping mall and purchases goods in cash and normally wherein the goods are purchased in cash, person who bills the goods does not ask for the name and address of the person. In such case, the person would not be required to make extraordinary efforts for obtaining the address of the customer of the business.

However, if any law in the country brings the provision that address of the customer has to be mandatorily captured in the transaction, then address of the business has to be on record. Normal course of business would be deemed to be the fact that business should possess addresses in each and every case of supply made by them.

Case-3- Jaimin Engineering (P.) Ltd. [2018] 97 taxmann.com 195 (AAR- RAJASTHAN)-Location of Supplier of Services

While supplying services if the supplier of services (i.e. applicant who in the given case is a Works Contractor and is registered in State of Gujarat) has any place of business/office in the State of Rajasthan i.e. has a fixed establishment for operation in State of Rajasthan (place where the services are to be provided) then he is required to get himself registered in State of Rajasthan.

Case-4- T & D Electricals (AAR-KARNATAKA)-Location of Supplier of Services

In the instant case, the applicant intends to supply goods or services or both from their principle place of business, which is located in Rajasthan. The applicant has only one principle place of business, for which registration has been obtained and does not have any other fixed establishment other than the principle place of business, as admitted by the applicant. Therefore the location of the supplier is nothing but the principle place of business which is in Rajasthan. Thus there is no requirement for a separate registration in Karnataka for execution of the contract referred supra.

Case-5- Swapna Printing Works (P.) Ltd. [2020] 115 taxmann.com 130 (AAR-WEST BENGAL)-Who is a Recipient

Facts- The Applicant, stated to be engaged primarily in the business of printing, seeks a ruling on whether the activities undertaken by procuring orders from a foreign buyer to print texts and thereafter deliver them to various places in India is a taxable transaction.

Held- The Applicant, while developing the above line of argument, fails to appreciate the true meaning of the terms ‘recipient’, as defined under section 2(93) of the GST Act. It is an exhaustive definition, implying it can neither be expanded or reduced. In the context of a supply involving payment of consideration, a ‘recipient’ of supply of goods or services means the person who is liable to pay the consideration and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied. The ‘recipient’ is, therefore, so defined as to make separation impossible between the person to whom the supply is made and the one liable to pay the consideration. Of course, when no consideration is involved, as under clause (c) of the above section, the recipient can only be the person to whom the service is rendered. The person who receives the supply in India should, therefore, be considered as the recipient, being inseparable from the foreign buyer as far as the Applicant’s supply is concerned.

3.6 It follows from the above discussion that the Applicant supplies the composite printing service to the recipient located in India. Such supplies are not, therefore, export of services within the meaning of section 2(6) of the IGST Act, 2017. It is taxable under SI No. 27(i) of Notification No. 11/2017 – CT (Rate) dated 28-06-2017 (corresponding State Notification No. 1135 – FT dated 28-06-2017) or Sl No. 27 of Notification No. 8/2017 – IT (Rate) dated 28/06/2017, as the case may be.

Case-6- Maninder Singh [2020] 120 taxmann.com 341 (AAR-WEST BENGAL)-Who is a recipient

Facts- Government of India and The Government of Bangladesh have signed a Memorandum of Understanding for construction of an oil pipeline from Siliguri in India to the depot of the Bangladesh Petroleum Corporation (hereinafter BPC) at Parbatipur in Bangladesh. The work will be monitored by Ministry of External Affairs (hereinafter called “MEA”), Government of India, which has engaged M/s Numaligarh Refinery Ltd (hereinafter called “NRL”) as the implementation agency. NRL has awarded the applicant the contract for the installation of the pipeline by HDD method.

Held-NRL has awarded the contract to the applicant for construction of the pipeline in Bangladesh and pays the consideration. NRL is, therefore, the recipient in terms of section 2(93)(a) of the GST Act. A strip of land extending over more than a hundred kilometre is not a fixed establishment in terms of section 2(7) of the IGST Act. Location of the recipient in the present context cannot, therefore, be determined by applying the provisions under section 2(14) (b) or (c) of the IGST Act. NRL being registered and resident of India, the location of the recipient of the service shall be in India in terms of section 2(14)(d) of the IGST Act. The place of supply of the service should, therefore, be determined in terms of proviso to section 12(3)(a) of the IGST Act for carrying out the construction work of immovable property. It shall be in India, being the location of the recipient. The applicant’s service will not, therefore, be the export of service within the meaning of section 2(6) of the IGST Act.

Case-1-Sanjay Kumar Jain [2019] 108 taxmann.com 514 (AAR- RAJASTHAN)

The cotton seed oil cake is not exempted under the GST Act in general and is also not covered under Notification No. 12/2017 (as amended from time to time). Thus, being recipient of GTA services the applicant is liable to pay tax under Reverse Charge Mechanism.

Case-2-Balasubramanyam Saravana Perumal [2019] 111 taxmann.com 507 (AAR – ANDHRA PRADESH)

In view of the legal provisions governing the taxability of GTA services, the documents furnished by the applicant are examined and found that;

-The applicant is registered with GST as a service provider;

-The applicant is issuing lorry receipts (LR in brief) under the name & style M/s Chitra Transport, containing details of GST registration, truck number, date of issue of LR, consigner name and consignee name with address, nature of the goods for transport, invoice issued by the consigner, weight, freight charges and also mentions who has to discharge service tax. Therefore, it is clear that the applicant is issuing consignment note and is providing transport service and is the “Goods Transport Agency” within the definition of clause (ze) of notification no.l2/2017-Central Tax (Rate) dated 28.06.2017;

-Tax on the Transport of Goods by Road services (GTA service) rendered by the applicant to any customers registered under GST and located in the taxable territory, unless exempted under the notification no. 12/2017 CT (Rate) dated 28.06.2017, is payable by the recipient/s of the service under reverse charge mechanism (RCM) prescribed under notification no. 13/2017-CT (Rate) dated 28.06.2017 as amended by notification no. 22/2017 -CT (Rate) dated 22.08.2017;

-The rate of tax on the GTA services is 5% ( 2.5% CGST + 2.5% SGST) subject to satisfying the conditions as prescribed under notification no. 11/2017 – CT (Rate) dated 28.06.2017 as amended by notification no. 20/2017-CT ( Rate) dated 22.08.2017, as detailed in para 6.4 above;

-In case, the said conditions are not satisfied, the rate of GST is 12% ( 6% CGST +6% SGST) and the applicant being the provider of Goods Transport Agency service has to pay the said tax;

-In the case of supporting services in transport other than those mentioned in sl. no. 11 (i) (Heading 9967) & in sl. no. 9(i) to 9(vi) of notification no. 11/2017 CT (Rate) dated 28.06.2017 would attract GST @ 18% (9% CGST + 9% SGST) and GST rate is 18% (9% CGST + 9% SGST).

-Where GST is payable under reverse charge or payable under forward charge, the profit i.e. commission earned by procuring/ obtaining trucks from the owners is not taxable in the hands of GTA (Goods Transport Agency).

Case-3-K.M. Trans Logistics (P.) Ltd [2020] 117 taxmann.com 609 (AAAR-RAJASTHAN)

Format of E-Way Bill, in whatever manner designed or amended, is not relevant for deciding the classification of the activity carried out by them. The nature of activity carried out by them is independent of format of E-Way Bill rather E-Way Bill format has no connection whatsoever, with the nature of activities undertaken. In any case, mere non-requirement of mentioning of any detail in E-Way Bill does not affect liability of payment of GST on any service unless the service has been exempted through an exemption Notification issued by the Government.

Observation-The observation of AAAR regarding taxability of GTA Services was in line with the E-Flyer issued in respect of GTA Services and judgement in the matter of Balasubramanyam Saravana Perumal [2019] 111 taxmann.com 507 (AAR – ANDHRA PRADESH).

Case-4-E-Flyer issued in respect of GTA Services-

“If a consignment note is issued, it indicates that the lien on the goods has been transferred (to the transporter) and the transporter becomes responsible for the goods till its safe delivery to the consignee. It is only the services of such GTA, who assumes agency functions, that is being brought into the GST net. Individual truck/tempo operators who do not issue any consignment note are not covered within the meaning of the term GTA. As a corollary, the services provided by such individual transporters who do not issue a consignment note will be covered by the entry at s.no.18 of notification no.12/2017-Central Tax (Rate), which is exempt from GST.”

Case-5-Uttarakhand Forest Development Corporation [2020] 117 taxmann.com 949 (AAR- UTTARAKHAND)-

7.4 In the instant case we find that the applicant itself fills Form 2.1 for transportation of goods from one place to another. The said form carries details of material, vehicle No., name of driver & signature & other details. Thereafter the goods are handed over to transporter with signed Form 2.1. The transporter has liability to transport goods safely to the destination sales depot of applicant. The truck transporter after delivering the goods receives Form 3.3 from depot officer of applicant which proves that he has delivered the goods. Thereafter depot officer verifies the goods as per Form 2.1 and return the same to Logging officer who dispatched the goods to sale depots. After receiving verified Form 2.1, the Logging officer makes final payment to the transporter.

7.5 We find that in this case it can be treated that the applicant has made an arrangement in place of consignment note by issuing Form 2.1 in the style of bilty which they handover to the transporters and after delivery of the goods, the transporters receives Form 3.3 from depot officer which proves that he has delivered the goods. After verification of the goods as per Form 2.1, the payment is released to the transporters.

7.6 We also find that Form 2.1 issued by the applicant contains the name of the consignor and consignee, registration number of the goods carriage in which the goods are transported, details of the goods transported, etc. Thus, we observe that the said Form is a consignment note in terms of Explanation to the Rule 4B of the Rules. Further the transporter is liable for safe delivery of goods to the destination.

7.7 We further observe that the purpose of issuing consignment note indicates that the lien on the goods has been transferred to the transporter and the transporter becomes responsible for the goods till its safe delivery to the consignee. In the present case also, by issuing Form 2.1 by the applicant, the goods are handed over to the transporter and transporter becomes responsible for the goods till its safe delivery to the destination. For the sake of argument that for being treated as goods transport agency issuance of consignment note is must. If such argument is accepted than there will be no need to pay GST by a person providing service of goods transport merely on a ground that he is not issuing consignment note. And this will open an avenue for evasion by the service providers. This must not have been the intention of the legislature to not tax the service providers who were not issuing consignment notes.

7.8 In view of the above discussion & findings, we hold that Form 2.1 may be treated as consignment note, thus the condition of GTA is fulfilled and thus the services procured from unregistered person for transportation of goods fall under the definition of GTA and the applicant is liable to pay GST on the same under RCM.

Case-6-Liberty Translines, [2020] 117 taxmann.com 570 (AAR – MAHARASHTRA)

Thus, effectively it appears that, the contract to undertake transportation of goods is given by the consignee/consignor, to POSCO and not to the applicant. The consignee/consignor may not be aware that the transportation will be done by the applicant. It is also possible that such sub-contract may/can also be given to some other party by POSCO. We find that, because POSCO deals with the consignee/consignor directly, they also issue E-way bills and also consignment notes. The role of the applicant is to just provide their vehicles to POSCO as and when called for and to this extent we are of the opinion that the applicant is giving only vehicles to POSCO and thus it is POSCO which has the transportation contract with the consignee/consignor. Thus we find that the transaction in this case would be one of hiring of vehicles and not that of a Goods Transport Operator.

5.3.3 Applicant has submitted that, legally there can never be a situation where a transporter does not issue a consignment note in view of the Carriage By Road Act, which requires a common carrier to compulsorily issue a Goods Receipt which is the same thing as a consignment note. We find that in the subject situation, it is POSCO who are transporters and in view of the fact that they do not have enough vehicles, at certain times vehicles are procured from the applicant. The fact in this matter clearly reveals that the applicant is just required to provide the vehicles to POSCO. The details of the consigner and consignee will be shared by POSCO with the applicant to enable the lifting of goods from the consignor and delivery to the consignee. It does not appear that there is an intention by the consignee/consignor to award the transportation contract to the applicant. The situation would have been different if the contract for transportation of goods was received by the applicant from the consignee/consignor.

5.3.4 Applicant has submitted that there is no requirement under GST law that there cannot be more than one consignment notes. A perusal of the GST Laws also do not reveal that there can be more than one consignment note in one particular transaction. In any transaction of transportation, generally it is the transporter having a contract with the consignor/consignee who has to issue consignment notes as is being done in the subject case by POSCO.

5.3.7 As per Notification No. 11/2017-C.T. (Rate), dated 28-6-2017, “goods transport agency” or GTA means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called. This means, while others might also hire out vehicles for goods transportation, only those issuing a consignment note are considered as a GTA. Thus, a consignment note is an essential condition to be considered as a GTA. In the subject case, it is POSCO which has a contract for transportation of goods from the consignee/consignor. It will therefore be POSCO which is responsible for the safe delivery of goods to the consignee. POSCO has an arrangement with the applicant whereby the applicant supplies vehicles for POSCO to perform the act of transportation as per the contracts.

5.3.8 What we see is that there is a difference between a GTA and a person who owns truck commonly known as transporter who may give transportation service either by himself or through a transport agent i.e. GTA. We have already mentioned above that a consignment note is a necessary qualification to be considered as a GTA as per the explanation in Notification No. 11/2017 C.T. (Rate), dated 28-6-2017 and the provision of Service shall be ‘transport of goods by road’.

5.3.9 In the transportation industry, as in the subject case, there are situations where one transporter (in this case, POSCO) takes the help of another transporter (in this case, the applicant) by way of sub-contracting the work. The other person (in this case, the applicant) bills the first transporter (in this case, POSCO) for sub-contracting service and the main transporter is the actual service receiver. It is generally seen that sub-contractor person is actually providing transportation service on behalf of the first transporter. As per the definition of GTA in the GST Laws, as stated above it is very clear that person who issues consignment note will be treated as goods transport agency. In the subject case, POSCO issues consignment note, which is further stamped by its consignee, on delivery of the goods and is therefore a GTA for this transaction. Any services by way of transportation of Goods by road other than through GTA would be exempt supply as per the entry of notification as quoted in the above paragraph. In the subject case Applicant is providing the transportation service but not as GTA but only as a truck owner to POSCO. Further, a consignment note is proof of the custody of goods during the movement and transportation of goods. For a single transaction and the same movement of goods, there cannot be multiple consignment notes. Hence there will be one consignment note for movement of goods to a place, to be issued by POSCO.

Case-7-Saravana Perumal [2020] 113 taxmann.com 288 (AAR – KARNATAKA)- RCM on GTA Services

The services of providing vehicles on hire basis to another GTA is covered under entry No. 22 of Notification No. 12/2017 – Central Tax (Rate), dated 28.06.2017 and this entry exempts the services by way of giving on hire a means of transportation of goods to a goods transport agency.

Therefore, the services provided as a GTA are different from the services provided by way of giving vehicles on hire basis to another GTA & hence are independent of each other so far as tax treatment is concerned. Further there is no provision in the law barring person being a GTA from renting the vehicle to another GTA. However, the tax treatment of these transactions would be as explained earlier.

Case-8-Posco India Steel Distribution Center (P.) Ltd. [2020] 117 taxmann.com 754 (AAR – MAHARASHTRA)

It has been submitted that Applicant, either provides transportation services on its own account, or engages a third-party transporter. In the former case, applicant engages its own fleet of vehicles and in the latter situation, the Applicant enters into a back to back arrangement for transportation of goods with Transport Vengors/Transport Agencies (third party). In both the situations, it is the applicant who are issuing the Consignment Notes, which are stamped by the receiver of the transported goods. The applicant has also submitted that the third party transporters also issue Consignment Notes which are filed in their respective offices and which are not stamped by the Consignee of the said goods. It has also been submitted that the Applicant has been acting as a Goods Transport Agency (GTA) issuing valid consignment notes in respect of the goods transported and delivered and charging GST @ 12% on such transportation under forward charge mechanism.

As per the Explanatory Notes to the scheme of Classification of Services, the service code Heading 996791 includes; freight brokerage services; freight for warding services (primarily transport organization or arrangement services on behalf of the consignor or consignee); freight consolidation and break-bulk services.

Service code Heading 996799 includes; type rating services (aircraft-specific permits for flying a particular type of plane); liquefaction and regasification of natural gas for transportation; radio navigational aid locating services, such as GPS (global positioning system) provision.

From the submissions made by the applicant we find that applicant is a ‘GTA’ providing Goods Transport Agency Services’ and the services provided by them are transport of goods by road. In the subject case, they have a contract/agreement with POSCO group companies to provide transportation services wherein they undertake dispatch of consignments by road for POSCO group companies. We find that they are rendering Goods Transport Services to POSCO group of Companies directly.

In view of the discussions made above, in our opinion these services supplied by them would be covered under Heading 9965 which covers ‘Goods Transport Services’, Sub-Heading 99651 which covers ‘Land Transport services of Goods’ and further under SAC 996511.

Case-1-Sanjay Kumar Jain [2019] 108 taxmann.com 514 (AAR- RAJASTHAN)-RCM On Cotton seed oil cake

Held-The cotton seed oil cake is not exempted under the GST Act in general and is also not covered under Notification No. 12/2017 (as amended from time to time). Thus, being recipient of GTA services the applicant is liable to pay tax under Reverse Charge Mechanism.

Case-2-Famous Studios Ltd. [2019] 104 taxmann.com 122 (AAR – MAHARASHTRA)-Exemption of Rs 5000/- per day

Held-Applying the Golden rule of construction and the principles laid down by the Apex Court as above to the facts of the present case we find no difficulty in arriving at the conclusion that there is nothing to show that the amendment Notification No.38/2017 would have retrospective effect and therefore we find that the provisions of RCM u/s.9(4) of the CGST Act are applicable, irrespective of any threshold limit, right from 01.07.2017. Thus the benefit of exemption from payment of tax on RCM as provided u/s. 9(4) of the GST Act is not applicable from 01.07.2017 as claimed by the applicant.

Case-3-Hemchand Yadav Vishwavidyalaya [2020] 114 taxmann.com 308 (AAR – CHHATTISGARH)-RCM on person registered as Tax Deductor

Held- Thus from the facts and circumstances of the issue in hand we come to the considered conclusion that the applicant being only registered as a Tax deductor under section 51 of the CGST and CGGST Act holding GSTIN- 22AAAJH0647Q1DD till 24-6-2019 and having no other GSTIN as supplier of goods or services, would not be liable for GST under reverse charge, in view of the exclusions as stipulated under proviso to Notification No. 29/2013-Central Tax (Rate), dated 31-12-2018. The liability to GST in such case would be with the service provider viz. the security agency under Forward charge. However with effect from 25-6-2019. the applicant having been registered as a regular dealer and normal taxpayer, holding another GSTIN-22AAAJH0647Q1Z4, would be liable to GST under Reverse charge being the recipient of supply of Goods or Services or both under sub-section (3) or sub-section (4) of Section 9, or under sub-section (3) or sub-section (4) of Section 5 of the Integrated Goods and Services Tax Act. It is also noteworthy to mention here that the applicant is not engaged in providing services by way of pre-school education and education up to higher secondary school or equivalent.

Case-4-Clay Craft India (P.) Ltd [2020] 116 taxmann.com 114 (AAR- RAJASTHAN)-RCM on Director Services

Held- We further observe that consideration paid to the Directors is against the supply of services provided by them to the applicant company and are not covered under clause (1) of the Schedule III to the CGST Act, 2017 as the Directors are not the employee of the Company. In the instant case Director is the supplier of services and the applicant company is the recipient of the services. So it is very clear that the services rendered by the Director to the company for which consideration is paid to them in any head is liable to pay GST under RCM.

5.9 Notification No. 13 /2017- Central Tax (Rate) dated 28.06.2017 has given the distinct identity to the services provided by the Director and specifically included in the category of service on which GST will be payable under RCM. The case laws citied by the applicant are not relevant in the present case in as much as that the liability to pay GST under RCM in this case is required to be decided on the basis of the existing provisions of CGST law as being discussed briefly in this order.

Note-Similar decision was given in Alcon Consulting Engineers (India) (P.) Ltd. [2019] 110 taxmann.com 357 (AAR – KARNATAKA)

Case-5-Circular No. 140/2020- Dated 10^th June 2020- Clarification on Director Services

4.2. Therefore, in respect of such directors who are not the employees of the said company, the services provided by them to the Company, in lieu of remuneration as the consideration for the said services, are clearly outside the scope of Schedule III of the CGST Act and are therefore taxable. In terms of entry at Sl. No. 6 of the Table annexed to notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis.

4.3 Accordingly, it is hereby clarified that the remuneration paid to such independent directors, or those directors, by whatever name called, who are not employees of the said company, is taxable in hands of the company, on reverse charge basis.

5.1. Once, it has been ascertained whether a director, irrespective of name and designation, is an employee, it would be pertinent to examine whether all the activities performed by the director are in the course of employer-employee relation (i.e. a “contract of service”) or is there any element of “contract for service”. The issue has been deliberated by various courts and it has been held that a director who has also taken an employment in the company may be functioning in dual capacities, namely, one as a director of the company and the other on the basis of the contractual relationship of master and servant with the company, i.e. under a contract of service (employment) entered into with the company.

5.2 It is also pertinent to note that similar identification (to that in Para 5.1 above) and treatment of the Director‟s remuneration is also present in the Income Tax Act, 1961 wherein the salaries paid to directors are subject to Tax Deducted at Source (‘TDS’) under Section 192 of the Income Tax Act, 1961 (‘IT Act’). However, in cases where the remuneration is in the nature of professional fees and not salary, the same is liable for deduction under Section 194J of the IT Act.

5.3. Accordingly, it is clarified that the part of Director‟s remuneration which are declared as „Salaries‟ in the books of a company and subjected to TDS under Section 192 of the IT Act, are not taxable being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule III of the CGST Act, 2017.

5.4 It is further clarified that the part of employee Director‟s remuneration which is declared separately other than “salaries‟ in the Company‟s accounts and subjected to TDS under Section 194J of the IT Act as Fees for professional or Technical Services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is therefore, taxable. Further, in terms of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis.

Case-6-Circular No. 130/2019- Dated 31^st December 2019-RCM on Renting of Motor Vehicle

Though a supplier providing the service to a body corporate under RCM may still be paying GST @ 5% on the services supplied to other non body corporate clients, to bring in greater clarity, serial No. 15 of the notification No. 13/2017-CT (R) dated 28.6.17 has been amended vide notification No. 29/2019-CT (R) dated 31.12.19 to state that RCM shall be applicable on the service by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient only if the supplier fulfils all the following conditions:– (a) is other than a body-corporate; (b) does not issue an invoice charging GST @12% from the service recipient; and (c) supplies the service to a body corporate.

Case7-Deccan Tobacco Company [2020] 117 taxmann.com 843 (AAR – ANDHRA PRADESH)-RCM On Tobacco Leaves

Held-As seen from the different stages of commodity i.e., from the leaves stage to the final product (manufactured tobacco), the green leaf plucked from the plant undergoes different types of curing to reduce the level of moisture to the maximum extent for sustainability and to continue as leaf for further process. The tobacco leaf will be entitled as a commercial commodity only drying (Curing) and normally put to trade in form of bundles. The same will be traded between the farmer and the trader and trader to trader/manufacturer and so on. As envisaged from the entries under GST, there are four different entries for tobacco, one under Schedule I. Liable @ 5% (COST 2.5% and SGST 2.5%) and the remaining heads are in Schedule IV liable 28% (CGST-14% and SGST 14%).

It is to note that though there are different entries with respect to tobacco there is a specific entry in Schedule I of Notification 1/2017 (CGST Rate) as Tobacco leaves, and for the same the liability was brought under reverse charge mechanism. Hence it is clear that the commodity ‘tobacco leaves’ is distinct from the other entries in this aspect.

As observed from the facts, i.e process of tobacco, from the field to final product, the green leaves undergo curing process, and become eligible commercial commodity, for which the transaction takes place in between the farmer and the trader on the auction platform. Further, as per the clarification issued by The Department TRU(Tax Research Unit)vide circular F.No.322/2/2017/Dec.2017, “Tobacco Leaves” means, leaves of tobacco as such or “broken leaves” or “Tobacco Leaves stems”. It clearly expresses that the leaves as long as they do not loose their basic character as ‘leaves’, shall be considered as tobacco leaves only.

Case-8-DKMS BMST Foundation India [2020] 116 taxmann.com 423 (AAR – KARNATAKA)-RCM on Exempted Services

Held-Entry No. 1 of Notification No. 10/2017 – Integrated Tax (Rate) dated 28-6-2017 specifies that in case of any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient, the whole of integrated tax leviable under section 5 of the said Integrated Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient of the such services. In this case, the tax liability, if any, would have to be paid by the recipient of service, i.e. the applicant. Since the service itself is exempt, the applicant is not liable to pay tax on the services obtained in the form of HLA testing and typing from LSL DE on reverse charge basis

Case-9-M.K. Agro Tech (P.) Ltd [2019] 110 taxmann.com 324 (AAR – KARNATAKA)-RCM on Ocean Freight

Held-The valuation of the supply of goods involved in the imports is inclusive of the value of transportation service. The consideration relating to transportation of goods in case of import of goods is a part of the value of goods as per rule 10(2) of the Customs Valuation (Determination of Value of Import of Goods) Rules, 2007. However, the taxable event is the import of goods into the territory of India and the valuation of the turnover of import of goods on which such tax shall be levied is as per the provisions of the Customs Act. Therefore it is clear from the above that this tax is on the import of goods and not on the services. Hence there is no double taxation involved in the above transactions as these are two distinct taxable transactions, one relating to supply of goods and other relating to supply of services.

Subject to the final decision in the issue by the Hon’ble Court, it is ruled that IGST should be paid by the importer on ocean freight in case of CIF basis contract, under Reverse Charge.

Case-10-Purewal Stone Crusher. [2018] 98 taxmann.com 137 (AAR- UTTARAKHAND)-RCM on Government Services

Held-GST on “Marg Sudharan Shulk” : From the documents submitted by the applicant we find that the said “marg sudharan shulk” is charged and collected by applicant from non-government, private and commercial vehicles engaged in mining work in lieu of use of forest road. Stated purpose of said “marg sudharan shulk” is for maintenance of forest road. Under GST, “the services by way of access to a road or a bridge on payment of toll charges” are included in the list of exempted services. Further, A toll road, also known as a turnpike or tollway, is a public or private road for which a fee (or toll) is assessed for passage. It is a form of road pricing typically implemented to help recoup the cost: of road construction and maintenance In the present case we find that the said “marg sudharan shulk” is nothing but toll charges collected by the applicant from the users for using forest road and the said toll charges are being used for the maintenance of forest road. Therefore we conclude that no GST is leviable as on date on the said “marg sudharan shulk” charged and collected by the applicant.

GST on “Abhivahan Shulk” From the documents submitted by the applicant we find that the said “Abhivahan Shulk” is charged and collected by applicant in respect of forest produce carried out by a person. On going through ‘The Uttarakhand Transit of Timber and Other Forest Produce Rules 2012″, authority observe that a person who desires to obtain forest produce is required to be registered with the forest ^ department after paying applicable fee and the said “Abhivahan Shulk” is charged on the basis of quantum and quality of forest produce and the said forest produce must be accompanied with a transit pass issued by forest authorities in this regard. Authority further observe that charges for carrying forest, produce through road or water are different and determined according to quality and quantity. Therefore said “Abhivahan Shulk” cannot be termed as toll tax and rather is a form of consideration received by the applicant in lieu of services provided to the person for carrying forest produce. Under GST regime under Section 2(102) services means anything other than goods ……. and all services but for list of exempted services as provided under Chapter 99 of GST Tariff, 2017 are liable for GST. Since the services provided by the ‘ applicant do not find mention in the list of exempted services, therefore the applicant, is liable to pay GST @ 18% on the said “Abhivahan Shulk” under Service Code 9997 and to be treated as “other services”.

From the documents submitted by the applicant we find that the ‘Fee for Ambient Air Monitoring’ has to be paid to the Uttarakhand Environment Protection Control Board, Haldwani as a pollution expenses. We also find that the function of the Uttarakhand Environment Protection Control Board, Haldwani is to safeguard the environment as well as general public from the negative impact of working of stone crushers and other pollution generating plants, for which a prescribed amount of fee is levied by the State Board. We also find from the official website of Uttarakhand Environment Protection and Pollution Control Board (herein after referred ‘to as UEPPCB) that it is a statutory Organization constituted under the section 4 of Water (Prevention and Control of Pollution) Act, 1974 to implement Environmental laws and rules within the jurisdiction of Uttarakhand. The said Board has been entrusted with the powers and functions under the Water (Prevention and Control of Pollution) Act 1974. Subsequently the implementation of Water (Prevention and Control of Pollution) Cess Act, 1977; Air (Prevention and Control Of Pollution) Act, 1981; Environment Protection Aci (1986) and the Public Liability Insurance Act, 1991 was also entrusted to the State Board.

In view of the above we find that functions, under article 243W of the Constitution, entrusted to municipality specifically mention “protection of the environment and promotion of ecological aspects”. Thus we observe that providing protection to the environment and promotion of ecological aspects is one of the functions entrusted to the municipality under the said article. It is evident that primary function of UEPPCB is also to safeguard the environment as well as general public from the negative impact of polluting generating plants. Thus both the conditions namely service has to be provided by local authority and activity should falls under Article 243 of the Constitution, has been fulfilled, hence the said activity of UEPPCB is exempted in terms of serial no. 4 of the Notification No. 12/2017-Central Tax (Rate), dated 28th June, 2017. Therefore there is no liability of GST arises on the fee collected by UEPPCB in respect of said activity as the same is exempted service.

Khanij sampada shulk as per document submitted by the applicant is related to ” environmental and mining property fee” which is charged on transportation/release of Natural Sand & Grit and other similar ‘River Bed Material (RBM) from the applicant and credited to the State Government Exchequer on monthly basis. Therefore we observe that the said “Khanij sampada shulk” is a form of consideration received by the State Department in lieu of services provided to the applicant for carrying river produce.

We further find that services which are exempted from GST are notified vide Notification No. 12/201 7-Central Tax (Rate), dated 28th June, 2017. On going through the said notification we find that in totality 81 services are exempted services which includes 12 services’ provided, by government or local authority and we observe that service in question provided by the State Government does not find place in said 12 services. Thus the service in question rendered by State Government is liable for GST. @ 18% under Service Code 9997 and to be treated as “other services”. However the applicant is required to discharge GST liability under reverse charge in terms of serial No. 5 of the Notification No. 13/2017 – Central Tax (Rate), dated 28.06.2017 as discussed in point A above.

Fees Paid to RTO-For functioning of any motor vehicle or any kind of earth moving machinery on road, there is a mandatory registration fee required to be paid as per Regional Transport Office of the State. Thus we observe that the said registration fee is covered Under exempted service (supra) under “Services provided by the Central Government, State Government, Union Territory or local authority by way of- (a) registration required under any law for the time being in force. Accordingly the services of registration rendered by State Transport. Office is an exempted service and no GST is payable on the same.

GST applicability on penalty paid by the applicant on unaccounted stock of River Bed Material (RBM) on the orders of the District Magistrate to the Govt, account under S.No 5 of Reverse Charge Mechanism (RCM) notification.

We find that a service has been stated to mean the ‘tolerating’ of any act among other things. Since a service is any activity for a consideration such tolerating can be a service if it is in exchange of some consideration. According to the definition given by the Act, ‘tolerating’ an act signifies the foregoing of a benefit by the receiver in exchange for a consideration that compensates the act that is being tolerated. For example, when delivery date has been set and the person making the delivery delays it, but the receiver allows such a delay for a certain amount as delivery charges, it is tolerating an act for a certain consideration i.e. the delay charges. Thus, it is the service of tolerating for which the receiver is extracting a certain amount from the other party. Similarly Airlines, Railways and Roadways Services- all deduct cancellation charges from the passengers. These charges are for tolerating the act of not taking the reserved transport by the passenger. Therefore, these charges are liable to GST under this supply of service as the provision of cancellation charges is already informed to the customer and, therefore, it is an agreement to the obligation to tolerate an act or situation. Further penal provisions for non-performance of service or for deficiency in service also imply consideration in lieu of tolerating an act or situation.

In view of the above we observe that the penalty is to be treated as supply of service in terms of Schedule II of the Act and is liable for GST @ 18% under Service Code ‘-99’ and to be treated as “other services”. However the applicant is required to discharge GST liability under reverse charge in terms of serial No. 5 of the Notification No. 13/2017 -Central Tax (Rate), dated 28 06.2017 as discussed in point A above.

Case-1-Thoppil Agencies v. Assistant Commissioner of Commercial Taxes [2020] 120 taxmann.com 18 (Karnataka)

Issue: Several documents relied upon by in the impugned order E were neither brought to the notice of the petitioner nor was he permitted to cross-examine the witnesses with reference to the said documents.

Facts- In addition to making submissions with regard to the various contentions urged by the petitioner in the petition with reference to the documents and the impugned order, petitioner submitted that impugned order was violative of principles of natural justice. It was pointed out that perusal of show-cause notice will indicate that only certain documents have been referred and that the same has been duly replied to by the petitioner. However, without giving any personal hearing to the petitioner and without affording sufficient and reasonable opportunity to the petitioner, respondent proceeded to pass impugned order placing reliance upon several documents which were never brought to notice of petitioner prior to passing of impugned order.

Held- The High Court without going into the legal and factual aspects of the matter, was of the opinion that

1.                   Several documents and circumstances which were neither referred to nor enumerated in the show cause notice at Annexure-B4 have been relied upon by the respondent No. 1 in the impugned order.

2.                   It was also not in dispute that no opportunity of personal hearing was given to the petitioner before passing the impugned order.

3.                   The material on record also indicates that several documents relied upon by the respondent No. 1 in the impugned order at Annexure-E were neither brought to the notice of the petitioner nor was he permitted to cross-examine the witnesses with reference to the said documents.

4.                   Further, no opportunity to produce additional documents was given to the petitioner.

The High Court held that aforesaid facts and circumstances indicate that in the absence of sufficient and reasonable opportunity being granted in favour of the petitioner, the impugned order is clearly in contravention of principles of natural justice and that the same deserves to be set aside on this ground alone and the matter deserves to be remitted back to the respondent No. 1 to consider and dispose off the same afresh in accordance with law after providing sufficient and reasonable opportunity to the petitioner to put forth his contentions and documents and to hear the petitioner before passing suitable orders.

Case-2- M.S. Steel and Pipes v. Assistant State Tax Officer [2020] 119 taxmann.com 211 (Kerala)

Issue-Non-mentioning of Tax on E-Way Bill cannot be a ground for detention of Goods

Facts- The reason for detention was that, while consignment was supported by an invoice which contained details of goods transported as also tax paid in respect of goods, there was no mention of the tax amounts separately in the e-way bill that accompanied the goods. The respondents therefore detained goods on the ground that there was no valid e-way bill, supporting transportation in question.

Held- A reading of the said Rule clearly indicates that the e-way bill has to be in FORM GST EWB-01, and in that format, there is no field wherein the transporter is required to indicate the tax amount payable in respect of the goods transported. If the statutorily prescribed form does not contain a field for entering the details of the tax payable in the e-way bill, then the non-mentioning of the tax amount cannot be seen as an act in contravention of the rules.

In the instant case, it is not in dispute that the transpiration was covered by a valid tax invoice, which clearly showed the tax collected in respect of the goods and an e-way bill in the prescribed format in FORM GST EWB-01. Since there was no contravention by the petitioner of any provision of the Act or Rule for the purposes of Section 129, the detention in the instant case cannot be said to be justified.

Case-3- Devices Distributors v. Assistant State Tax Officer [2020] 118 taxmann.com 136 (Kerala)

Issue-Goods detained as the Invoices accompanying the goods were not of continuous serial number

Facts- The objection of the respondent was essentially with regard to the invoices that accompanied the transportation of the goods. It was found that the tax invoices furnished, although carried serial numbers, they were not consecutive for the three invoices. In particular, it was noticed that while one invoice carried the serial number as 46000152. The other two invoices carried the serial numbers 53000029 and 53000030. The detaining authority, therefore, suspected that the invoices carrying the serial numbers in between the two sets of invoices indicated above might have been used for transportation of other goods that were not brought to the notice of the Department.

Held: In the instant case, e-way bills did accompany the goods. The transportation was covered by tax invoices. The objection of the respondents is only that the invoices did not bear continuous numbers and hence they suspect that the invoices bearing serial numbers that fell between the numbers on the invoices produced at the time of transportation, could have been used for transportation of other goods that had not been brought to the notice of the Department.

THE High Court held that entertainment of such a doubt by the authority cannot be a justification for detaining the goods in question, especially when they were admittedly accompanied by tax invoices as also e-way bills that clearly indicated the particulars that were required by Rule 46 of the GST Rules. It is also relevant to note that the doubt entertained by the respondents were, at any rate, in respect of goods that may have been transported under cover of the invoices that numerically fell between the numbers shown in the invoices that were carried along with the goods, and in that sense, pertained to goods other than those that were actually detained. The detention in the instant case cannot be justified under section 129 of the GST Act.

Case-1- Prodair Air Products India (P.) Ltd. [2018] 98 taxmann.com 440 (AAR – KERALA)

Issue: The customerBPCL would commence the movement of natural gases and other inputs through pipeline on the basis of job work delivery challan under Rule 55(b) of GST Rules to the applicant’s plant on free of cost basis. On receipt of the said inputs, the applicant would be converting these inputs to industrial gases such as Hydrogen, Nitrogen, Oxygen etc. The industrial gases would be sent back to BPCL plant on the basis of the Job work delivery challan under Rule 55(b) of GST Rules. Applicant would be issuing monthly tax invoice charging the conversion charges for processing/conversion of inputs to industrial gases along with applicable GST.

Held: The activity carried out by the applicant of processing natural gas and other inputs received from BPCL on free of cost basis and manufacturing industrial gases shall fall under the scope of ‘job work’ under GST. The services included under the Heading 9988 are manufacturing services performed on physical inputs owned by others. The activity of the applicant is job work as the output is not owned by the applicant providing this service. Hence the activity falls under serial No. (ii) of the HSN 9988 taxable @18% GSTR.

Case-2- Irene Rubbers [2019] 105 taxmann.com 227 (AAR – KERALA)

Issue: M/s. Irene Rubbers is a job worker engaged in production of Rubber backed and rubber edged coir mats and polypropylene mats of various designs and size as required by the principal on the materials provided by the principal- The materials like coir mats and mattings covered under HSN 5702 and tufted carpets covered under HSN 5703 are supplied by the principal for executing job works along with moulds in the required designs. The rubber compound required for the rubber backing and edging is prepared in a mixing mill. The petitioner cut the materials in desired size and mixing the material with molten rubber compound. Accordingly, the molten rubber compound and coir materials are fused/vulcanized perfectly with the aid of hydraulic press. Thereafter, the edges are cut for finishing and the finished product like rubber backend mat of coir, polypropylene of felt will be delivered to the principal.

Held: The materials supplied for execution of job work are falling under Chapter 50 to 63 in the First Schedule to the Customs Tariff Act, 1975. The materials like carpets, coir etc, are supplied by the principal for executing job works along with moulds in the required designs. All the raw materials supplied by the principal are covered under Chapter 50 to 63 of the Customs Tariff Act, 1975, Therefore the job work services applied on such goods squarely come under Sl.No.26(i)(b) of Notification 11/2017 CT (Rate) dated 28.06.2017 and taxable @ 5% GST.

Case-3- Estera Polymers [2019] 104 taxmann.com 40 (AAR – KERALA)

Issue: The materials like textile, carpets, coir, etc. are supplied by the principal for executing job works along with moulds in the required designs. The petitioner cut the materials in desired size and mixing the material with molten rubber compound. Accordingly, the molten rubber compound and textile/coir materials are fused/vulcanized perfectly with the aid of hydraulic press. Thereafter, the edges are cut for finishing and the finished product like rubber backend mat of coir, polypropylene of felt will be delivered to the principal.

Held: The materials supplied for execution of job work are falling under Chapters 50 to 63 in the First Schedule to the Customs Tariff Act, 1975. The materials like textile, carpets, coir, etc. are supplied by the principal for executing job works along with moulds in the required designs. All the raw materials supplied by the principal are covered under Chapters 50 to 63 of the Customs Tariff Act, 1975. Therefore, the job work services applied on such goods are squarely come under SI.No.2G(i)(b) of Notification No. 11/2017 and taxable @ 5% GST.

Case-4- Deputy Conservator of Forests [2019] 109 taxmann.com 365 (AAR – KARNATAKA)

Issue- Karnataka Forest Department, under its sovereign functions, raises “plants” of tree species, plants them in forest, waste & common lands. Over time, with the nurturing and management of the department, these plants grow up to become trees when they are harvested to yield timber, poles, billets, firewood, pulpwood, etc. which are raw material (for say carpentry works), fuel (firewood is burnt as fuel), and fibre (pulpwood is used as fibre for paper and rayon industry). The task of harvest of these trees which grew from “plants” planted by the department is at times given to Government Corporation/Corporations (Applicant). These Corporations —

1.                   Fell the trees that grew from the “plants” – Labour work

2.                   Convert them, into timber, firewood, poles, etc. so that they become marketable for the primary market – Labour work

3.                   Load the marketable timber, firewood, etc. in vehicles – Labour work

4.                   Transport the marketable timber, firewood etc. by vehicles – Non Labour work

5.                   Unload the marketable timber, firewood etc. from vehicles – Labour work

6.                   Stack the marketable timber, firewood etc. in Government timber deports – Labour work.

The applicant submitted that all of these, and some activities related to it (like clearing the roads, fire prevention, etc.) together are termed as an item of work called “logging”. The question arises is that, for this service of “logging” done by the Corporation and received by the Forest Department, what is the GST payable?

Held: Theterm “forest produce”, is defined under Section 2(7) of the Karnataka Forest Act, 1963. Further the terms “timber” and “trees” have been defined under Section 2(20) and 2(21) of the Karnataka Forest Act, 1963 respectively as under:

(20) “timber” includes trees when they have fallen or have been felled, and all wood whether cut up or sawn or fashioned or hollowed out for any purpose or not;

(21) “tree” includes palms, bamboos, stumps, brushwood and canes;

Therefore, it was held by AAR that activity of “Logging” does not yield agricultural produce and hence is not covered under entry number 24 of the Notification No. 11/2017 – Central Tax (Rate), dated 28th June 2017, effective from 01.07.2017.

The activity of “Logging” also does not fall under the support services to forestry. The term “forestry”, in terms of oxford dictionary, means “The science or practice of planting, managing, and caring for forests”. In the instant case the nature of work done by the Corporation i.e. the services received by the applicant are not related to the management of forest i.e. planting, managing, caring, in relation to cultivation of plants, but are of felling of trees and converting them into a marketable timber or firewood. It is an intermediary operation in the conversion of wood to timber and firewood and hence is not covered under the explanation given to the words “Support Services to forestry” and hence is not covered under the entry No. 24 of the Notification No. 11/ 2017 – Central tax (Rate), dated 28.06.2017.

The services received by the applicant are of composite in nature and the principal supply is covered under sub-entry (ii) of entry No.26 of the Notification No.11/2017-Central tax (Rate), dated 28.06.2017 which reads “Manufacturing services on physical inputs (goods) owned by others, other than (i) above” and taxable at 9% under the CGST Act and 9% under SGST Act. Similarly it is taxable at 18% under the IGST Act.

Case-5- Electroplating And Metal Finishers [2020] 115 taxmann.com 98 (AAR – TAMILNADU)

Issue:- The applicants are undertaking the work of electroplating the components of automobiles, etc., provided by the customers as per their specifications made in the diagram. For doing the electroplating, they purchase metals such as Zinc Ingot, Silver Bullion, Nickel, Copper, Chemicals., Hydrochloric and Nitric Acid, SC casting. The customers send the components under Delivery challan with the reason for Transport as ‘Outward-Job-work’ in the E-Way bill to the applicant. After doing Electroplating as per the specifications of the customer, the applicant raises invoice charging applicable GST and return the components stating ‘outward supply’ in the E-way bills. The components are owned by the applicants’ customers and are sent to the applicant for electroplating and return back. The final product is also owned by the applicants’ supplier.

Held-The applicable rate of tax is 9% CGST vide Sl. No. 26 of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 as amended and 9% SGST vide entry No. 26 of Notification No. II(2)/CTR/532(d-14)/2017 vide G.O. (Ms) No. 72 dated 29.06.2017 as amended for the period upto 30.09.2019 irrespective of whether the goods are owned by Registered or Unregistered persons as given in the Table above.

3. For the period from 01.10.2019, in case

a. The goods are belonging to another Registered person, the applicable rate of tax, is 6% CGST vide entry Sl.No. 26(id) of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 as amended and 6% SGST vide No. 26(id) of Notification No. I1(2)/CTR/532(d-14)/2017 vide G.O. (Ms) No. 72 dated 29.06.2017 as amended.

b. The goods are owned by unregistered persons, the applicable rate of tax is 9% CGST vide SI.No. 26(iv) of Notification No. 11/2017- T.(Rate) dated 28.06.2017 as amended and 9% SGST vide Sl.No. 26(iv) of Notification No. II(2)/CTR/532(d-14)/2017 vide G.O. (Ms) No. 72 dated 29.06.2017 as amended.

Case-6- CGR Gold Trading, [2019] 110 taxmann.com 495 (AAR – KERALA)

Issue: The applicant us engaged in activity of Gold maintenance/repair works such as enlargement of gold chains or other gold ornaments or cutting and polishing of gold ornaments or other repairs of gold ornaments, Cutting, shaping, sizing and conversion of gold ornaments into coins/biscuits as per the specific instructions of prospective customers. and Printing name of emblems or embossing/projecting top or side portion of ornaments. The query is about the Tax Rate on the said activity.

Held- The Jewellery Manufacturing Services includes gold maintenance/repair works, which falls under Service Classification Code 998892. As per Section 2(68) of the CGST Act, 2017; Job work is defined as undertaking any treatment or process by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly. The rate of GST applicable for manufacturing services on physical inputs (goods) owned by others is 5%; if undertaken on goods belonging to registered persons as per Sl. No.26 (i) (c) and 18% GST, if job work undertaken on goods belonging to unregistered persons as per Sl. No. 26 (iv) of Notification No.11/2017 Central Tax (Rate), dated 28-06-2017.

Case-7- SLN Tech-Fabs (Bengaluru) (P.) Ltd [2020] 113 taxmann.com 370 (AAR – KARNATAKA)

Issue: The applicant is engaged in providing services in the area of Transport Solutions, in the field of fabrication and truck body building area, with the trademark “SLN DIAMOND”, for transport equipments such as Tippers (200 to 500 cft. capacity on 6 to 10 wheeler vehicles), Trailers (single axle to multi axle trailers of 20 ft. to 40 ft. Low Bed, Fat Bed & skeleton type trailers), Containers (both insulated and non-insulated type containers on various chassis from 8 ft. to 40 ft. containers) and Tankers (6000 ltrs. To 16000 ltrs. Capacity). The applicant had applied for enquiry of tax rate on supply.

Held: The impugned services of the applicant are covered under heading 9988 as manufacturing services on physical inputs (goods) owned by others in terms of Sl.No.26(ii) of the Notification No.11/2017-Central Tax (Rate) dated 28.6.2017 initially and subsequently under Sl.No.26(iii)/(iv) respectively, consequent to amendment of the said entry No.26 of the aforesaid Notification. However, the services by way of job work in relation to bus body building have been carved out of the earlier entry i.e. Sl.No.26(iv) of Notification supra and a separate entry under Sl.No.26(i)(ic) has been incorporated consequent to amendment of the said notification vide Notification No.20/2019-Central Tax (Rate) dated 30.9.2019. The impugned services had been taxed at 18% GST (9% CGST & 9% SGST) right from the appointed date i.e. 1.7.2017. The only difference is in the entry numbers of the Notification that cover the said services.

Case-8-Crown Beers India (P.) Ltd. [2019] 107 taxmann.com 468 (AAAR-MAHARASHTRA)

Issue: whether Job Work of brewing, bottling and supplying Products in relation to beer would be eligible for 5% GST (2.5% CGST +2.5 % SGST) falling within the ambit of “food or food products”

Since beer is classifiable under item 2203 00 00 of the First Schedule to the Customs Tariff Act, 1975, whether Job Work i.e. brewing, bottling and supplying Products in relation to beer  would be liable to 5% GST (2.5% CGST +2.5 % SGST) in accordance with the entry 26(f) bearing Heading 9988 of the Notification 11/2017 dated 28.06.2017.

Observation by AAAR-There is no dispute about classification of Beer under heading 2203 but all the products classifiable under Chapter 1 to 22 do not attract 2.5% CGST under entry no. 26(f) of Notification no. 11/2017-C.T.(Rate) dt. 28.06.2017. Only food and food products of these chapters are eligible for this exemption. There is no definition of food and food products under GST Acts. However, Hon’ble Supreme Court has discussed this issue in detail in the matter of Parle Exports (P.) Ltd. (supra) and decided that non -alcoholic beverages were not eligible to exemption as food products. Everything consumed by human cannot be considered as food or food products for the purpose of exemption from GST. The context, spirit and reason of law need to be examined to extend exemption. Hon’ble Supreme Court in the said judgment had opined that ” it cannot be contended that expensive items like Gold-Spot base, Limca-base or Thums up-base were intended to be given exemption at the cost of public exchequer/’ Similarly, it would have never been the intention of law to exempt expensive item like ‘alcoholic liquor’ under the category of food and food products even though the same is for human consumption. In view of the above two judgments of Hon’ble Apex Court, we conclude that the benefit of exemption under entry no. 26(f) of Notification 11/2017-C.T.(Rate) dt. 28.06.2017 is not available to alcoholic liquor for human consumption.

Case-9- Circular No. 126/45/2019-GST- Clarification on scope of the notification entry at item (id), related to job work, under heading 9988 of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017-reg.

In view of the above, it may be seen that there is a clear demarcation between scope of the entries at item (id) and item (iv) under heading 9988 of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017. Entry at item (id) covers only job work services as defined in section 2 (68) of CGST Act, 2017, that is, services by way of treatment or processing undertaken by a person on goods belonging to another registered person. On the other hand, the entry at item (iv) specifically excludes the services covered by entry at item (id), and therefore, covers only such services which are carried out on physical inputs (goods) which are owned by persons other than those registered under the CGST Act.

Case-1-Prestige Engineering(India) Ltd vs C.C.E on 1 September, 1994 Equivalent citations: 1994 SCC (6) 465, JT 1994 (5) 514 (Pre-GST Regime)

“All that Modipon does is to supply steel pipes. The appellant purchases guide rings and strengthening rings from the market. It fits these rings into those steel pipes by itself or gets them fitted in another unit. Thereafter, adopters are fitted on the sides of the cops and then the plastic sleeves are fitted on the cylinders of the cops. This is not a case where the rings and the adopters and sleeves are supplied by Modipon. It is not suggested that the value of rings, adopters and sleeves is very small vis-a-vis the value of steel pipes. The additions made by the appellant are not minor additions; they are of a substantial nature and of considerable value. Except the pipes, all other items which go into the manufacture of cops are either purchased or procured by the appellant itself and it manufactures the cops out of them. The work done by him cannot be characterised as a job work. If all the requisite rings, adopters and sleeves had also been supplied by Modipon, it could probably have been said that the appellant’s work is in the nature of job work.”

It was further held that

“We must hasten to add that addition or application of minor items by the job worker would not detract from the nature and character of his work. For example, a tailor entrusted with a cloth piece and asked to stitch a shirt, a pant or a suit piece may add his own thread, buttons and lining cloth. Similarly, a factory may be supplied the shoe uppers, soles etc. by the customer and the factory applies its own thread or bonding material and manufactures shoes there from and supplies them back to the customer, charging only for its work; the nature of its work does not cease to be job work. Indeed, this aspect has been stressed in all the decisions of High Courts referred to hereinbefore.”

Case-2- S.B. Reshellers (P.) Ltd [2019] 107 taxmann.com 235 (AAR – MAHARASHTRA)

In this case we find that applicants are receiving old roller, bare shaft, beams from the customer of the applicant under the cover of Rule 55 Challans. The applicant are then fitting the shell manufactured out of their own raw material on the said shaft and then machining the same and further fitting the required accessory thereon and thus bringing into existence a usable sugar mill roller or new sugar mill roller which is no doubt a different commercial commodity as compared to the input involved.

AAR then relied upon the judgement of Hon’ble Apex Court in the matter of Prestige Engineering(India) Ltd vs C.C.E on 1 September, 1994 Equivalent citations: 1994 SCC (6) 465, JT 1994 (5) 514 and held that

From the observations made by the Court we find that additional application of minor items is permissible in job work. Therefore we have to find in the present case the nature of additions made by the applicant. Applicant has categorically stated in the statement containing applicant’s interpretation of law that the activity is clearly a activity of manufacturing a new commodity by using one’s own raw material and skill and labour as well as the material supplied by the customer and the value of the material used/skill and labour applied by them and the value of the shaft/beam supplied by the customer is almost equal.

Case-3-Circular No. 38/12/2018 Dated 26-3-2018 As Amended By Circular No. 88/07/2019-GST

Scope/ambit of job work: Doubts have been raised on the scope of job work and whether any inputs, other than the goods provided by the principal, can be used by the job worker for providing the services of job work. It may be noted that the definition of job work, as contained in clause (68) of section 2 of the CGST Act, entails that the job work is a treatment or process undertaken by a person on goods belonging to another registered person. Thus, the job worker is expected to work on the goods sent by the principal and whether the activity is covered within the scope of job work or not would have to be determined on the basis of facts and circumstances of each case. Further, it is clarified that the job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work.

Case-4- Industrial Engineering Corporation [2019] 110 taxmann.com 497 (AAR – KERALA)

Query before AAR- In case consumables like paints, primers and consumable spares like locking ring are arranged by the job work unit, is there any change on the rate of tax under GST law on such job works provided by the job work unit?

(in this case, the consumables which are estimated at less than 9% of the total cost of raw materials are arranged by the job work unit and the said 9% of the estimated cost of consumables is going to be added to the job works charges).

Held- The job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work.

Case-5-Sanghi Brothers (Indore) (P.) Ltd. [2019] 107 taxmann.com 10 (AAR – MADHYA PRADESH).

As per the ratio of the judgment held in case of Prestige Engineering (India) Ltd. v. CCE Collector of 1994 taxmann.com 232 (SC) addition or application of items by job worker would not detract from the nature and character of his work. Here it would be worthwhile to explain process of body building, being undertaken by the body builders.

6.3 Process of Body Building and mounting the same on chassis is as under:—

For fabrication of bus body, the builder first make the pipe structure and mount the same on the chassis. Outer panelling is done with GP sheets and interior panelling with colour coated G.P. Sheets. Flooring with chequered plywood. After primer painting the final coat of paint is applied. In this case body is not made separately but is fabricated on chassis itself. Body requirement differ from party to party.

It can not be treated as process of manufacturing merely because job worker is using its own inputs.

GST Law does not distinguish between raw materials, finished goods and semi finished goods. It talks about “input” and and capital goods. Even semi-finished goods or intermediates are and in turn input by the principal or job worker.

Therefore, merely because job worker is using its own input it is not job work. This is not according to the provisions of GST Law.

From the above process one can reach to the conclusion that Fabrication and other work is done on chassis itself. It is not the case that any readymade body is fitted on chassis given by the owner.

The ownership of chassis always remains with the applicant company who has given chassis for building and mounting of body on job work. Because it fulfils the main important condition of the definition of job work i.e. process undertaken on goods belonging to another registered persons . The whole process of body building and mounting is performed on the goods (Chassis) belonging to the applicant therefore it is purely job work. Once it is established that it is a job work then it is supply of service. Even if it is composite supply of goods and services. The predominant intention of the principal is to get services. Utilizing and consuming tengible and non-tengible goods is incidental to main/principal supply and therefore as per the provision of Sec. 8(a) in case of composite supply tax is being levied at the rate applicable to principal supply . In this case the principal supply is supply of service. Thus, it should be classified as services and tax is @ 18% under CGST Act.

As per the ratio of the judgment held in case of Prestige Engg. (India) Ltd.  v. CCE 1994 taxmann.com 232 (SC), addition of application of items by job worker would not detract from the nature and character of his work.

10. GST law does not distinguish between raw material, finished goods and semi-finished goods. It talks about input and Capital goods. Even, semi-finished goods or intermediates are goods and in turn ‘Input’ by the principal or the job worker.

11. So, the argument of the applicant that they use their own material, hence, they should not be treated as job worker is not tenable under the provision of law.

It was held by AAR that

The Activity of building and mounting of the body on the chassis provided by the principal under FOC challan will result in supply of services under HSN 9988 and hence, should be taxed @ 18% GST.

(Similar Ratio laid down in Automobile Corporation of Goa Ltd. [2018] 98 taxmann.com 317 (AAR – GOA), Rohan Coach Builders, [2019] 107 taxmann.com 4 (AAR – MADHYA PRADESH))

Case-6- Paras Motor Industries (AAR – MADHYA PRADESH) [2018] 95 taxmann.com 218 (AAR – HARYANA)  (Contrary to Rulings in Case-5)

In the instant case, it is only the chassis which is supplied by the customers of the applicant and in fact no treatment or process is undertaken by the applicant on the chassis itself, except fitment/mounting of bus body on the same. At the same time, bus body building involves use of raw materials/inputs etc., for manufacture/fabrication of bus body and the cost of these inputs, etc., do form the part of value which is being charged by the applicant from its customers.

Thus, it emerges that the customer is providing only chassis. All inputs/materials required for fabrication of bus body, has to be used by the applicant from its own account. Under such situation it is the bus-body which is being fabricated and also being mounted on the chassis provided by the customer. Therefore, it is not merely job-work. Rather it is supply of bus body and an activity of fitting/mounting of bus body on chassis is an ancillary activity to the principal activity of supply of bus-body. Hence, in terms of the clarification issued by the CBEC vide circular No. 34/8/2018-GST, dated 3-3-2018, the impugned activity is a composite supply, with principal supply being supply of bus-body.

Thus, the activity of fabrication and fitting and mounting of bus bodies on the chassis supplied by the other party is a composite supply with supply of goods, i.e., bus-bodies, being principal supply and same is covered under HSN code 8707.

Case-7-AAAR Maharashtra in case of JSW Energy Ltd. (GST AAAR Maharashtra) Appeal Number: Order No. MAH/AAAR/SS-RJ/01A/2019-20 Date of Judgement/Order: 13/01/2020

AAAR Maharashtra revised their earlier judgement dated 2nd July 2018 on account of direction by the Bombay High Court but again referred to the concept of pre-dominance of material in case of Job Work

In this regard, the Appellant has furnished the certificate of the Cost Accountant pertaining to F.Y. 2017-18, wherein it has been testified that coal and other inputs constitutes a major cost i.e. more than 95% of the total cost of materials that are required for generation of power, whereas the cost towards water and air does not exceed 0.5% of the cost of inputs. Referring to this certificate issued by the Cost Accountant, the Appellant have further contended that coal constitutes the major cost for manufacture of power, whereas air and water constitute a very negligible cost. Accordingly, as per the principle laid down in the case of Prestige Engineering (India) Limited (supra) additions of minor materials by the Job Worker (such as air and water) would not alter the nature and character of the underlying transaction. It would still be considered as a job work transaction.

67. Now, in view of the above submissions and the certificates issued by the Cost Accountant, it is opined that the Appellant is squarely satisfying the stipulations laid down by the Apex Court in the case of Prestige Engineering (India) Ltd. (supra). Hence, we are inclined to repeal our earlier observations in this regard. Furthermore, it is reasonably concluded that addition of the air and water by the Appellant to the coal proposed to be supplied by JSL will not detract the proposed transaction from being qualified as Job work.