No GST on salary remitted by HO to liaison office in India for normal functioning of liaison office: AAR

Habufa Meubelen B.V., In re - [2018] 95 taxmann.com 120 (AAR- Rajasthan) 

The assessee is the Indian liaison office of a company incorporated at Netherlands. It shall not undertake any activity of a trading, commercial or industrial nature, except activities required for normal functioning of office. The salaries of the employees are remitted by HO to liaison office. The HO also reimburses the other expenses incurred by liaison office for their operation. 

The assessee filed an application for Advance Ruling on the issue ‘whether the reimbursement of expenses and salary is liable to GST and whether it is required to get registered under the GST? 

The Authority for Advance Ruling held that the liaison office in India does not render any consultancy or other services directly or indirectly. Therefore, the reimbursement of expenses and salary paid by head office to liaison office is not liable to GST. Further, no taxable supplies are made by the liaison office. Therefore, they are not required to get registered under GST.

CBDT issues Circular on amendment of Tax Audit Report

Section 44AB of the Income-tax Act, 1961 (‘the Act’) read with Rule 6G of the Income-tax Rules, 1962 (‘the Rules’) requires prescribed persons to furnish the Tax Audit Report along with the prescribed particulars in Form No. 3CD. The existing Form No. 3CD was amended vide Notification No. GSR 666(E) dated 20th July, 2018 with effect from 20th August, 2018.

Representations have been received by the Central Board of Direct Taxes (CBDT) that the implementation of reporting requirements under the proposed Clause 30C (pertaining to General Anti-Avoidance Rules (GAAR)) and proposed Clause 44 (pertaining to Goods and Services Tax (GST) compliance) of the Form No. 3CD may be deferred. 

On consideration of the matter, the CBDT has decided, vide Circular No. 6/2018 dated 17th August, 2018, that the reporting under the proposed Clause 30C and proposed Clause 44 of the Tax Audit Report shall be kept in abeyance till 31st March, 2019. The Circular has been uploaded on the Departmental websitewww.incometaxindia.gov.in

Income Tax Notices

Income Tax Notices have been issued by the Income Tax Department and the Enforcement Directorate. In respect of Income Tax Department, assesses including, non-resident assesses are served notices/summons consequent to the initiation of various proceedings under the Income-Tax Act, 1961, including, for assessment of income, collection, recovery and taxes, whenever required. Where information is received indicating holding of assets by NRIs, necessary enquiry is made to examine whether the assets have been disclosed in any returns of income and whether the assets would have been acquired from income chargeable to tax in India.

No such incidence has come to the notice of Enforcement Directorate (ED) and Ministry of External Affairs whereby to escape this harassment, NRIs are changing their addresses in their passports to their current addresses in countries where they reside thereby establishing their tax residency status abroad. In respect of Income Tax department, the persons are liable for taxation on income/transaction originated/attributed to India irrespective of their addresses. Giving-up of Indian addresses may not result in escaping scrutiny by the Department. Specific cases of NRIs giving-up Indian addresses solely for this purpose have not been noticed.

Under the Exchange of Information (EOI) Article present in Indian tax treaties, Indian Tax authorities can make requests for banking information. In cases where a request is made, the concerned authorities in the requested jurisdiction are able to gather banking information from the relevant banks which is then exchanged with India. In cases where the treaty does not contain a provision to exchange banking information, such exchange may not be possible.

The information for assistance in Criminal matters under Prevention of Money Laundering Act (PMLA), 2002 is sought under Mutual Legal Assistance Treaty (MLAT) or Assurance of Reciprocity. The Central authorities of the requested jurisdictions arrange banking information according to their domestic laws and share with Indian authorities.

Filings of GST Returns

The Goods and Services Tax Council has simplified the return filing process for small businesses. The GST Council, in its 28th meeting held on 21st July, 2018 in New Delhi, in principle approved the new return formats and associated changes in law for small businesses. Taxpayers who have a turnover upto Rs. 5 crores in the previous financial year shall have facility to file quarterly return with monthly payment of taxes on self-declaration basis. For such taxpayers, simplified returns have been designed called Sahaj and Sugam. Those taxpayers who have no purchases, no output tax liability and no input tax credit to avail in any quarter of the financial year shall file one NIL return for the entire quarter. NIL return filers shall have the facility to file return by sending SMS.

The Goods and Services Tax Network (GSTN) will focus on development of new return filing system, improving the user interface and business intelligence and analytics. It is working to improve the “Offline Tool” for returns under GST and is focusing on improving the user interface constantly. The user interface of FORM GSTR-3B has been made simpler and user friendly. Taxpayers have been given the facility to file NIL return by simply pressing one button. Further, GSTN is working on business intelligence and analytics such as predictive analysis, statistical scoring, 360 degree view of taxpayers etc.

Comparison of data in FORM GSTR-1 and FORM GSTR-3B is being done by GSTN for tax liability analysis. Reports based on such analysis are being shared with tax authorities for taking necessary action.

GST COUNCIL RECOMMENDS GST RATES REDUCTION ON SEVERAL GOODS & for specified handicraft items

The GST Council in its 28th meeting held under the Chairmanship of Shri Piyush Goyal , Union Minister for Railways , Coal , Finance & Corporate Affairs took following decisions on GST Rate on Goods .

• GST rates reduction on 28% items:
• 28% to 18%
• Paints and varnishes (including enamels and lacquers)
• Glaziers’ putty, grafting putty, resin cements
• Refrigerators, freezers and other refrigerating or freezing equipment including water cooler, milk coolers, refrigerating equipment for leather industry, ice cream freezer etc.
• Washing machines.
• Lithium-ion batteries
• Vacuum cleaners
• Domestic electrical appliances such as food grinders and mixers & food or vegetable juice extractor, shaver, hair clippers etc
• Storage water heaters and immersion heaters, hair dryers, hand dryers, electric smoothing irons etc
• Televisions upto the size of 68 cm
• Special purpose motor vehicles. e.g., crane lorries, fire fighting vehicle, concrete mixer lorries, spraying lorries
• Works trucks [self-propelled, not fitted with lifting or handling equipment] of the type used in factories, warehouses, dock areas or airports for short transport of goods.
• Trailers and semi-trailers.
• Miscellaneous articles such as scent sprays and similar toilet sprays, powder-puffs and pads for the application of cosmetics or toilet preparations.

• 28% to 12%
• Fuel Cell Vehicle. Further, Compensation cess shall also be exempted on fuel cell vehicle.

• Refund of accumulated credit on account of inverted duty structure to fabric manufacturers:Fabrics attract GST at the rate of 5% subject to the condition that refund of accumulated ITC on account of inversion will not be allowed. However, considering the difficulty faced by the Fabric sector on account of this condition, the GST Council has recommended for allowing refund to fabrics on account of inverted duty structure. The refund of accumulated ITC shall be allowed only with the prospective effect on the purchases made after the notification is issued.

• GST rates have been recommended to be brought down from:
• 18%12%/5% to Nil:
• Stone/Marble/Wood Deities
• Rakhi [other than that of precious or semi-precious material of chapter 71]
• Sanitary Napkins,
• Coir pith compost
• Sal Leaves siali leaves and their products and Sabai Rope
• PhoolBhariJhadoo [Raw material for Jhadoo]
• Khali dona.
• Circulation and commemorative coins, sold by Security Printing and Minting Corporation of India Ltd [SPMCIL] to Ministry of Finance.
• 12% to 5%:
• Chenille fabrics and other fabrics under heading 5801
• Handloom dari
• Phosphoric acid (fertilizer grade only).
• Knitted cap/topi having retail sale value not exceeding Rs 1000
• 18% to 12%:
• Bamboo flooring
• Brass Kerosene Pressure Stove.
• Hand Operated Rubber Roller
• Zip and Slide Fasteners
• 18% to 5%:
• Ethanol for sale to Oil Marketing Companies for blending with fuel
• Solid bio fuel pellets

• Rate change made in respect of footwear
• 5% GST is being extended to footwear having a retail sale price up to Rs. 1000 per pair
• Footwear having a retail sale price exceeding Rs. 1000 per pair will continue to attract 18%

• GST rates have been recommended to be brought down for specified handicraft items [as per the definition of handicraft, as approved by the GST council] from:
• 18% to 12%:
• Handbags including pouches and purses; jewellery box
• Wooden frames for painting, photographs, mirrors etc
• Art ware of cork [including articles of sholapith]
• Stone art ware, stone inlay work
• Ornamental framed mirrors
• Glass statues [other than those of crystal]
• Glass art ware [ incl. pots, jars, votive, cask, cake cover, tulip bottle, vase]
• Art ware of iron
• Art ware of brass, copper/ copper alloys, electro plated with nickel/silver
• Aluminium art ware
• Handcrafted lamps (including panchloga lamp)
• Worked vegetable or mineral carving, articles thereof, articles of wax, of stearin, of natural gums or natural resins or of modelling pastes etc, (including articles of lac, shellac)
• Ganjifa card

• 12% to 5%:
• Handmade carpets and other handmade textile floor coverings (including namda/gabba)
• Handmade lace
• Hand-woven tapestries
• Hand-made braids and ornamental trimming in the piece
• Toran

• Miscellaneous Change relating to valuation of a supply:
• IGST @5% on Pool Issue Price (PIP) of Urea imported on Govt. account for direct agriculture use, instead of assessable value plus custom duty.
• Exemption from Compensation cess to Coal rejects from washery [arising out of cess paid coal on which ITC has not been taken]. 

• Clarifications/amendments as regards applicability of GST rate in respect of certain goods recommended by GST Council which inter-alia includes:
• Milk enriched with vitamins or minerals salt (fortified milk) is classifiable under HS code 0401 as milk and exempt from GST.
• 5% GST on both treated (modified) tamarind kernel powder and plain (unmodified) tamarind kernel powder.
• Beet and cane sugar, including refined beet and cane sugar, (falling under heading 1701) attracts 5% GST rate.
• Water supplied for public purposes (other than in sealed containers) does not attract GST.
• Marine engine (falling under sub-heading 8408 10 93) attracts 5% GST rate.
• Kota stone and similar stones [ other than marble and granite] other than polished will attracts 5% GST, while ready to use polished Kota stoneand similar stones will attracts 18%.
• Certain other miscellaneous clarification as regards classification/rate have been recommended

[This note presents the decision of the GST Council in simple language for ease of understanding which would be given effect to through Gazette notifications/circulars which shall have force of law.]

GST rate on Services

The GST Council in its 28th meeting held under the Chairmanship of Shri Piyush Goyal , Union Minister for Railways , Coal , Finance & Corporate Affairs took following decisions relating to exemptions / changes in GST rates / ITC eligibility criteria, rationalization of rates / exemptions and clarification on levy of GST on services. The decisions of the GST Council enclosed as annexure has been presented in simple language for ease of understanding which would be given effect to through Gazette notifications/ circulars which shall have force of law.

It would be noted that multiple reliefs from GST taxation have been provided to following categories of services –

(i) Agriculture, farming and food processing industry,

(ii) Education, training and skill development,

(iii) Pension, social security and old age support.

Hotel industry has been given major relief by providing that the rate of tax on accommodation service shall be based on transaction value instead of declared tariff.

Services provided in sectors like banking, IT have been provided relief by exempting services supplied by an establishment of a person in India to any establishment of that person outside India [related party].

As a green initiative, GST on supply of e-books has been reduced from 18 to 5%. 

For details of major decisions on services, annexure to this press note may be referred.

It is proposed to issue notifications giving effect to these recommendations of the Council with effect from 27th July , 2018.

ANNEXURE - EXEMPTIONS / CHANGES IN GST RATES AND SERVICES

Sector –Farmers/ Agriculture/ Food Processing

• Exempt services by way of artificial insemination of livestock (other than horses).
• Exempt warehousing of minor forest produce in line with exemptions provided to the agricultural produce.
• Exempt the works of installation and commissioning undertaken by DISCOMS/ electricity distribution companies for extending electricity distribution network upto the tube well of the farmer/ agriculturalist for agricultural use.
• Exempt services provided by FSSAI to food business operators.

Education/ Training/ Skill Development

• Reduce rate of GST from 18% to 5% on supply only of e-books for which print version exist.

Social Security/ Pension Security/ Senior Citizens

• Exempt services provided by Coal Mines Provident Fund Organisation to the PF subscribers from the applicability of GST on the lines of EPFO.
• Exempt supply of services by an old age home run by State / Central Government or by a body registered under 12AA of Income Tax Act) to its residents (aged 60 years or more) against consideration upto Rupees Twenty Five Thousand per month per member provided consideration is inclusive of charges for boarding, lodging and maintenance.
• Exempt GST on the administrative fee collected by National Pension System Trust.
• Exempt services provided by an unincorporated body or a non-profit entity registered under any law for the time being in force, engaged in activities relating to the welfare of industrial or agricultural labour or farmer; or for the promotion of trade, commerce, industry, agriculture, art, science, literature, culture, sports, education, social welfare, charitable activities and protection of environment, to own members against consideration in the form of membership fee up to an amount of one thousand rupees per member per year.

Banking/ Finance/ Insurance

• Exempt Reinsurance Services provided to specified Insurance Schemes such as Pradhan Mantri Rashtriya Swasthya Suraksha Mission (PMRSSM) (Ayushman Bharat), funded by Government.

Government Services

• Exempt services provided by Government to ERCC by way of assigning the right to collect royalty, DMFT etc. from the mining lease holders.
• Exempt the guarantees given by Central/State Government/UT administration to their undertakings/PSUs.

Miscellaneous

• Exempt GST on import of services by Foreign Diplomatic Missions/ UN & other International Organizations based on reciprocity.
• Exempt services supplied by an establishment of a person in India to any establishment of that person outside India, which are treated as establishments of distinct persons in accordance with Explanation I in section 8 of the IGST Act provided the place of supply is outside the taxable territory of India in accordance with section 13 of IGST Act
• Prescribe GST rate slabs on accommodation service based on transaction value instead of declared tariff which is likely to provide major relief to the hotel industry.
• Prescribe GST rate of 12% with full ITC under forward charge for composite supply of multimodal transportation.
• Rationalize thenotificationentry prescribing reduced GST rate on composite supply of works contract received by the Government or a local authority in the course of their sovereign functions.
• Rationalize entry relating to composite supply of food and drinks in restaurant, mess, canteen, eating joints and such supplies to institutions (educational, office, factory, hospital) on contractual basis at GST rate of 5%; and making it clear that the scope of outdoor catering under 7(v) is restricted to supplies in case of outdoor/indoor functions that are event based and occasional in nature.

Clarifications

• Supply of services provided by State and Central educational boards to students for conduct of examination will be clarified to be exempt.
• To clarify that the courses run by private ITIs for designated trades are exempt under GST whereas non-designated courses are taxable.
• To clarify that GST on premium paid by the Governments for implementing Pradhan Mantri Rashtriya Swasthya Suraksha Mission (PMRSSM) (Ayushman Bharat) is exempt from GST.
• To provide clarification on applicability of Service Tax / GST on services rendered by an Indian Architect- Consultant in relation to immovable property located outside India to Indian Diplomatic Missions/Posts abroad.
• To clarify to Auroville foundation that‘maintenance’ paid by it to Aurovilians is not liable to GST.
• To insert an explanation in notification No. 13/2017-Central Tax(Rate) to define the term renting of immovable property.
• To clarify that certain services such as “deposit works(expenses for providing electric line/plant)” related to distribution of electricity provided by DISCOM, attract GST.

Export / other trade facilitation measures

• Extend the exemption granted on outward transportation of all goods by air and sea by another one year i.e. upto 30th September, 2019 as relief to the exporter of goods.
• Place liability to pay GST on services provided by individual DSAs to banks/NBFCs under reverse charge on the buying banks/NBFCs. However, services by non-individual NBFCs (corporate, partnership firms) to banks/NBFCs would continue under forward charge, as at present.

GST council approves Simplified GST Return

The GST Council in its 28th meeting held under the Chairmanship of Shri Piyush Goyal , Union Minister for Railways , Coal , Finance & Corporate Affairs has approved the new return formats and associated changes in law. It may be recalled that in the 27th meeting held on 4th of May, 2018 the Council had approved the basic principles of GST return design and directed the law committee to finalize the return formats and changes in law. The formats and business process approved today were in line with the basic principles with one major change i.e the option of filing quarterly return with monthly payment of tax in a simplified return format by the small tax payers.

All taxpayers excluding small taxpayers and a few exceptions like ISD etc. shall file one monthly return. The return is simple with two main tables. One for reporting outward supplies and one for availing input tax credit based on invoices uploaded by the supplier. Invoices can be uploaded continuously by the seller and can be continuously viewed and locked by the buyer for availing input tax credit. This process would ensure that very large part of the return is automatically filled based on the invoices uploaded by the buyer and the seller. Simply put, the process would be “UPLOAD – LOCK – PAY” for most tax payers.

Taxpayers would have facility to create his profile based on nature of supplies made and received. The fields of information which a taxpayer would be shown and would be required to fill in the return would depend on his profile. 

NIL return filers (no purchase and no sale) shall be given facility to file return by sending SMS. 

The Council approved quarterly filing of return for the small taxpayers having turnover below Rs. 5 Cr as an optional facility. Quarterly return shall be similar to main return with monthly payment facility but for two kinds of registered persons – small traders making only B2C supply or making B2B + B2C supply. For such taxpayers, simplified returns have been designed called Sahaj and Sugam. In these returns details of information required to be filled is lesser than that in the regular return. 

The new return design provides facility for amendment of invoice and also other details filed in the return. Amendment shall be carried out by filing of a return called amendment return. Payment would be allowed to be made through the amendment return as it will help save interest liability for the taxpayers.

93% of the taxpayers have a turnover of less than Rs 5 Cr and these taxpayers would benefit substantially from the simplification measures proposed improving their ease of doing business. Even the large taxpayers would find the design of new return quite user friendly.