The GST law is no doubt a new and developing law. It is also a fact that it was a unique experiment merging VAT, Central Excise and Service tax in part and also borrowing a bit from the VAT laws of Europe. It had an additional challenge as it was passed not by majority but by consensus. Therefore, many of the State unreasonable demands were accepted. This is in spite of the VAT laws not being well developed and merely the earlier sales tax law with credit for goods. Matters were settled in unconventional ways!! Now the job of amending the GST Act and Rules easy for business is not found to be easy.
The IMF has also recommended last month that the GST law should become simple. It is said that the safety of the tax payer would only be ensured when the law is certain. However when the law is unclear, the revenue authorities press release, circulars, tweets, FAQs attempt to provide relief. However the fact that they are only guidance is also made clear and cannot be used in a Court of law. Therefore do not really bring certainty where they are later the revenue itself washes its hands off from their own pronouncements. The Supreme Court in Tata Melting Wires opined that circulars not in line with law are non est in law. They did not exist!!
AAR are also supposed to provide direction and they do is many cases. However at times they go far beyond the law and for matters of huge tax impact, are generally revenue biased. This can lead to widespread confusion.
In this background we examine only of the AARs which may require a relook, as the issues and logic appear flawed, some contrary and some are before the Courts seeking relief. They are as under:
Maharashtra State Power Generation Company Limited 2018 (13) G.S.T.L 177 (A.A.R. – GST) Held- Liquidated damages liable to GST: This is understood as a deduction made from the invoice raised by a supplier which could, if permitted, have been deducted in the invoice itself. The value of the supply at the time of supply was required to be adjusted. When dealing with Government/ PSUs, there are rigid rules for non-payment i.e. if not in line with tender/ contract then the contract would force one to follow elaborate complex and unreasonable conditions. These do not happen generally in private contracts.
Shri Sanjeev Sharma 03/DAAR/2018 dated 28.03.2018 Held - The valuation of land in a building should be valued at 1/3 the total value. There maybe a few constitutional challenges in this as land is not liable to GST and excluded in Schedule III. The value of land in metros is several times the cost of construction and it would be absurd and arbitrary to adopt such a valuation. Example a commercial property being sold in Mumbai or Delhi at Rs.60,000/- per sft. The maximum cost of construction would be Rs. 4,000/-. GST would be payable of Rs.7,200, which would be more than 180%.
Switching Avo Electro Power Ltd 2018 (13) G.S.T.L 84 (A.A.R. - GST) held that the fact that the UPS and battery can be separately supplied, leads to conclusion that they are not naturally bundled. Therefore not a composite supply. There could be instances when they are naturally bundled and instances when they are not. Section 2 (30) appears to have been incorrectly understood.
Giriraj Renewable P Ltd- 2018 (12) G.S.T.L 538 (A.A.R. - GST) held that solar power plants enjoy the concessional tax of 5%. Held - The supply, erection and installation- a turnkey contract is classifiable as works contract at the rate of 18% and the need to find out what is the principal supply need not be answered. The central excise rulings on immovable property were used to arrive at the fact that this contract is a works contract. The VAT ruling in Solid and Correct Engineering was understood as not relevant. While the logic seems valid, the fact that the tender, method contracting, billing by the supplier is at the mercy of the customer, is a reality. The tax payable as per customer would be 18% only for the final erection and commissioning, and on the rest at 5%. This would only lead to sharp practices of splitting up the contracts- proving that they are not co-terminus and certainly unending litigation. The solution seems to be for Government to align/ fit the special lower rates for works contracts for such projects.
Similar decisions in Fermi Solar Farms Ltd- Maharastara; Skilltech Engineers & Contractors P Ltd- Karanataka; EMC Ltd- West Bengal
JSW Energy Ltd 2018 (13) G.S.T.L 92 (A.A.R. – GST) Held- Intention of Act is to restrict scope of job work to treatment and not to extend to manufacture. Therefore supply of inputs to produce electricity cannot be job work. The law in the past is clear and in GST appears to forward the past. It appears that there is an incorrect understanding of what is job work as also does not forward the objective of avoiding cascading.
M/s. Habufa Meubelen BV RAJ/AAR/2018-19/05 dated 16.06.2018 held that the liason office in India does not make any supply and thereby any costs reimbursed by the foreign HO is not liable to GST. Missed the aspect that performing any activity would be a supply under GST and the amounts reimbursed, unless being pure agent reimbursements, would be liable to GST. In this case the services provided by the liaison office is that of liasoning with the clients of the foreign HO.
Global Reach Education Services Pvt Ltd 2018 (12) G.S.T.L 387 (A.A.R. - GST) – Held that the services of promotion of the university courses among the prospective students is an intermediary service and the place of supply in that case is in India and thereby not an export of service. It has been missed here that the applicant is providing the services on own account and that there is no facilitation of the services of education to fall under the intermediary definition.
Rod Retail Pvt Ltd 2018 (12) G.S.T.L 206 (A.A.R. - GST) Held that the goods sold to International passengers travelling abroad at duty free shops are liable to GST as they do not satisfy the definition of export.
However, subsequently a circular was issued clarifying that such supplies would not be liable to GST.
Gogte Infrastructure Development Corporation Ltd 2018 (13) G.S.T.L 114 (A.A.R. - GST) – Karnataka – Held that services not rendered in SEZ would not be supplies made to SEZ and would thereby be intra-State supplies.
However, a circular No. 48/22/2018-GST dated 14.06.2018 was issued clarifying that services provided to SEZ would be inter-State supplies.
It is hoped that the Government steps in and ensures NO MORE CONFUSION and looks at how to undo the damage that the AARs are doing. Issuing Circulars to do damage control may lead to more damage. The litigating professionals are however mighty pleased for years of continued work.