Himanshu SinhaPartner
Samyak JainSenior Associate
Shreetama GhoshAssociate
Key Developments
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New sub-rule introduced to notionally determine the taxable value of corporate guarantee transactions between related persons
The government has amended Rule 28 of the Central Goods and Services Tax Rules (CGST Rules) by inserting a new sub-rule for notional determination of the taxable value of corporate guarantee transactions between related persons. According to the sub-rule, which became effective from 26 October 2023, the value of supply for such transactions will be deemed to be 1% of the guarantee offered or the actual consideration, whichever is higher. While this amendment settles the position regarding the taxability of corporate guarantee transactions between related persons, questions persist on the point in time at which taxability is triggered. (To read our detailed update on this development, click here.)
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Supreme Court holds that amendments made to Value Added Tax laws post implementation of Goods and Services Tax are invalid
The Supreme Court, in M/s. Tirumala Constructions v State of Telangana, ruled that the amendments to the Value Added Tax (VAT) Acts of Telangana, Gujarat, and Maharashtra after 1 July 2017 were invalid because they violated Section 19 of the Constitution (101st Amendment) Act of 2016, which introduced the Goods and Services Tax (GST) regime. The Court explained that Section 19 of the Constitution (101st Amendment) Act, 2016 allowed the states to amend or repeal existing laws related to taxation of goods and services only until 1 July 2017. The Court upheld the judgments of the Telangana and Gujarat High Courts while reversing the judgment of the Bombay High Court.
This ruling comes as a relief for the taxpayers as it ensures uniformity and certainty in law and also ensures that taxpayers are not subjected to dual taxation, which would be directly contrary to the objectives of the introduction of GST.
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Calcutta High Court holds that the Limitation Act, 1963 is applicable to the Goods and Services Tax laws, unless its application is specifically excluded
The Calcutta High Court, in S.K. Chakraborty & Sons v Union of India, ruled that the limitation period of three months to file an appeal under Section 107 of the West Bengal Goods and Services Tax Act, 2017 (WBGST Act) was not final and could be extended by the appellate authority in light of Section 5 of the Limitation Act, 1963 (Limitation Act), which provides for the prescribed period to be extended in certain cases. The High Court held that Section 107 does not expressly or impliedly exclude the applicability of the Limitation Act, and therefore, it would be improper to read such an exclusion into the WBGST Act.
This ruling may benefit taxpayers who missed the deadline to file an appeal for valid reasons by allowing them to seek leniency from the appellate authority. However, it is important to note that the Kerala High Court rejected a similar request for leniency, arguing that Section 107 already provides a mechanism and implicitly excludes the applicability of the Limitation Act.
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Madras High Court holds that the GST Council cannot determine the classification of goods and services, unless adopted by the government by way of an amendment
The Madras High Court, in M/s. Parle Agro Pvt. Ltd. v Union of India, held that ‘flavoured milk’ is classifiable under Harmonised System of Nomenclature (HSN) Code 0402 while rejecting the classification under HSN Code 2202 determined by the Goods and Services Tax Council (GST Council). The High Court held that determining the classification of goods does not fall under the purview of the GST Council, and such classification must be determined in accordance with the First Schedule to the Customs Tariff Act, 1975.
The GST Council, in its 31st meeting, determined that ‘flavoured milk’ was classifiable under HSN Code 2202 and not HSN Code 0402. Such determination had been relied upon by various authorities for advance ruling (AAR) while holding that supply of flavoured milk was subject to GST at the rate of 12% applicable to HSN Code 2202, and not the 5% applicable to HSN Code 0402.
The Madras High Court held that the recommendations of the GST Council are not binding on the government, unless an amendment is brought to give effect to them. The High Court also held that the determination of classification in a particular case must be made independently by the assessing officer.
Taxpayers will welcome this decision as it reaffirms their right to challenge any adverse determination of classification made by the GST Council and ensures that clarifications by the GST Council stand the test of legality.
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CESTAT Chennai divided on the treatment of Service Tax on direct payments made to seconded employees; issue referred to larger bench
A difference of opinion has arisen between the judicial and technical members of the Customs Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, with respect to the Service Tax implications on salary and allowances to foreign expatriates seconded to an Indian entity by foreign associated/group companies. While the judicial member opined that salaries paid by the Indian entity directly to the employees and not charged by the foreign company do not form part of the consideration for such secondment, the technical member opined that any amount paid with respect to secondment, whether directly or indirectly, represents consideration for the services provided, placing reliance on the Supreme Court judgment in the case of C.C., C.E. & S.T. - Bangalore (Adjudication) v Northern Operating Systems Pvt. Ltd. (To read our update on the Northern Operating System ruling, click here).
The issue has been referred to a larger bench of the CESTAT for final determination.
The issue of taxability of salaries paid to foreign expatriates seconded to Indian entities has seen extensive recent litigation, and taxpayers are hoping for a favourable determination by the larger bench of the Tribunal.
