As you are aware, for several years now, the Chamber Voice has been serving as a medium for our monthly “talks” and a means to share the Chamber news with you all. From January 2020 onwards, we propose to commence a new printed, bi monthly version of the Chamber Voice. With this publication, we hope to give readers an inside access to what we have been researching, designing, building and thinking. We hope that you like the new design and format and new ways of sharing our news with you. Your comments/suggestions in this regard are most welcome.

On the 16th of December, I had the privilege of representing the Chamber at the Pre-Budget Discussion 2020-21 of Industry, Services and Trade chaired by the Hon’ble Finance Minister Ms. Nirmala Seetharaman and to present the Pre-Budget Memorandum, prepared by the Research Wing of the Chamber. It was a proud moment for us all and I appreciate and thank the Government of India and Finance Ministry for this opportunity.

The Pre-Budget Memorandum is an effort to assist the Ministry of Finance in the preparation of Budget for the financial year of 2020-21. We have listed 28 reforms categorized under different chapters relating to investment, trade, services, industrial production, and logistics. Each Chapter explains the status quo and suggests interventions with the help of relevant resources and best practices.

Our memorandum emphasizes the need for a new industrial policy, formalization of the informal economy, improving women labour participation, up-gradation of industrial competitiveness, Insolvency and GST reforms, promotion of participatory governance, etc. among other things. We have tried to provide relevant examples in every intervention that we have suggested with a hope to assist, in some small way, the Government of India in making its dream of India becoming a 5 Trillion Dollar Economy true.

I am also happy to inform you that the CEO Forum Breakfast Meetings of the Chamber is entering its Fifth year. The last meeting of the fourth edition of the CEO Forum Breakfast Meeting was conducted on the 6th of December 2019. The Speaker for the meeting was Dr. Jacob Varghese, Head of Orthopaedic Department, VPS Lakeshore who spoke on “Joint Health & Safety: Maintenance and Preservation.” In his presentation Dr. Varghese outlined the need for joint preservation, its merits, and its techniques.

From small beginnings in the year 2015, we now have regular monthly meetings which we understand has become accepted in the Business Circles of Cochin. We have witnessed a consistent increase in the participation at these monthly meetings and we thank you all for the same.

The Fifth Edition of the Breakfast Meetings will commence from 10th January 2020 and the registrations for the same are open. The brochure outlining the forum’s agenda and the meetings held during 2019 is attached with this issue of the newsletter for your perusal. I hope you will avail of this opportunity to become a member of the Chamber’s CEO Forum. The Speaker at the Inaugural Session of the fifth edition of the CEO Forum Breakfast Meetings will be Dr. Venu V, IAS, Revenue Secretary, Government of Kerala, who will speak on the ‘Rebuild Kerala’ efforts of the Government.

On the 18th of December, Mr. Nitin Verma, Vice-Consul & Trade Commissioner, Consulate General of Canada, Bengaluru, had visited the Chamber to discuss  business and trade opportunities between India and Canada. The purpose of Mr. Verma’s visit was to provide an overview of the India-Canada agriculture and agri-food trade relationship, potential areas for trade and business opportunities with Canada.

The Deputy High Commissioner of Sri Lanka in Chennai, Mr. Vadivel Krishnamoorthy visited the Cochin Chamber of Commerce and Industry on Friday the 20^th of December 2019. He was accompanied by Mr. Yasantha De Silva Yaddehi, Minister (Commercial).

On the occasion of this visit the Chamber organized a session on “Doing Business with Sri Lanka” in the Chamber Conference Hall.

The meeting aimed at giving a broad outlook on the trade and investment opportunities in India and Sri Lanka. The meeting was attended by 30 participants from various organizations.

As one of the largest business membership organizations in Kerala, the Chamber is committed to being the voice of its members in the State. We continue to work with organizations and elected officials at the regional and state levels to promote a business-friendly environment that will assist continued growth and prosperity. In 2020, we will continue to promote, inform, educate and advocate our members and help grow their businesses and in turn grow our regional economy.

Wish you all a very Happy New Year!!!

V Venugopal

The Cochin Chamber of Commerce & Industry thanks all its members and well wishers for making 2019 a successful one.

We look forward to your continued support in the New Year.

We wish all of you a very Happy & Prosperous New Year!!

The President of the Cochin Chamber, Mr. V. Venugopal was invited by the Ministry of Finance, India, to participate in a closed room pre-budget meeting with the Honorable Finance Minister of India, Smt. Nirmala Sitharaman on the 17th of December 2019. The Chamber had also put together a memorandum for this meeting, from the Industry perspective and have submitted the same to the Honorable Finance Minister.

The Official Press Release from the Ministry of Finance is given below. A few pictures from the meeting are also attached.

PRESS RELEASE:

The Union Minister of Finance & Corporate Affairs, Smt. Nirmala Sitharaman, held the third Pre-Budget Consultation with stakeholder groups from Industry, Trade and Services Sectors in connection with the forthcoming General Budget 2020-21.

The main areas of discussion during the aforesaid meeting included regulatory environment impacting private investment, measures for promotion of exports amidst rising protectionist tendencies, Industrial production, logistics, Media & Entertainment services & IT & IT enabled services among others.

Along with the Finance Minister, the meeting was attended by Shri Anurag Thakur, Minister of State for Finance and Corporate Affairs, Finance Secretary, Shri Rajeev Kumar, Shri Atanu Chakraborty, Secretary, Economic Affairs, Shri Ajay Bhushan Pandey, Revenue Secretary, Shri Yogendra Tripathi, Secretary, Ministry of Tourism, Shri Guruprasad Mohapatra, Secretary, Department for Promotion of Industry and Internal Trade (DPIIT), Shri Anup Wadhanwan, Secretary Department of Commerce, Shri Pramod Chandra Mody, Chairman, CBDT, Shri P.K. Das, Chairman, CBIC, Dr K.V. Subramanian, CEA and other senior officials of Ministry of Finance.

With a view to give a boost to Indian economy, the representatives of Industry, Services and Trade Sectors submitted several suggestions concerning the ease of doing business by reduction of compliance burden , reduction of tax litigation , allowing self-certification in low risk industry , decriminalisation of Tax and Company Laws , reduction of cost of equity capital , simplification and rationalisation with regards to duties and labour laws , adoption of international standards of Alternative Dispute Resolution , Export Development funds for helping MSME exporters , ease of investment flow into manufacturing sector etc.

Representatives of Industry, Services and trade Sectors included Shri Vikram Kirloskar, President, CIL, Shri Sandip Somany, President, Federation of Indian Chambers of Commerce and Industry, Shri Deepak Sood, Secretary General ASSOCHAM , Shri Ashish Vaid President, IMC Chamber of Commerce and Industry, Shri DK Aggarwal , President , PHD Chamber of Commerce and Industry, Shri Animesh Saxena, President, Federation of Indian Micro and Small & Medium Enterprises, Shri Ajay Sahai, DG & CEO, FIEO, Shri C Veeramani, IGIDR, Shri Pramod Kumar Agrawal, chairman, GJEPC, Shri Rajeev Singh, Director General, ICC, Shri C.R. Janardhana, President, FKCCI, Shri Panaruna Aqeel Ahmed, Chairman, Council for Leather Exports, Shri V. Venugopal, President, Cochin Chamber of Commerce & Industry, Shri Padmanabh Sinha, Chairman, IVCA, Ms. Rajni Aggrawal, President, Federation of Indian Women Entrepreneurs (FIWE), Shri Sachin Taparia, Chairman & CEO, Local Circles India Pvt. Ltd, Shri Aswani Mahajan, Swadeshi Jagaran Manch, Shri Govind Lale, Laghu Udyog Bharathi, Shri Jitendra Gupta, Laghu Udyog Bharathi.

By logic therefore, prior to the amendment, it was assumed by Courts through plethora of judgements, that an application under Section 34, challenging an Arbitral award implies, stay of the award. The Supreme Court (‘SC’) in National Aluminium Co. Ltd v Pressteel Fabrications (P) Ltd held that an automatic stay on the enforcement of awards led to a situation where the Courts had no discretion to enforce such awards until a final order dismissing the application has been passed. This led to major delays since an application under Section 34 would be pending for years before Courts, despite the outcome in an Arbitral proceeding. The whole purpose of an Arbitration is therefore defeated in such a situation.

The 2015 Amendment, by altering Section 36 of the Act, removed this discrepancy and acted in furtherance of the purpose and intent of the Act. Section 26 of the 2015 Amendment also stipulated that the provision will not apply to Arbitral proceedings that commenced prior to 23^rd October 2015, unless the parties consented to this provision. However, one major inconsistency that prevailed was with respect to Section 26 of the 2015 Amendment’s applicability to Court proceedings, i.e., whether the 2015 Amendment was applicable to Court proceedings pending as on or commenced post 23^rd October 2015, for which Arbitral proceedings had commenced prior to 23^rd October 2015.

The SC in Board of Control for Cricket in India vs. Kochi Cricket Pvt. Ltd. and Ors (‘BCCI’) settled this issue and held that Section 36 of the Act (as it stood pursuant to the 2015 Amendment) would be applicable to Court proceedings pending as on and initiated after 23^rd October, 2015, even if the Arbitral proceedings had commenced prior to the date. This judgement acted in furtherance of the purpose and intent of the Act.

The legislature in India is known for notoriously enacting validating laws to overcome or supersede effects of Supreme Court judgements. One such enactment was the 2019 Act. Section 15 of the 2019 Amendment repealed the aforesaid provision and introduced Section 87 that stated that the 2015 Amendment Act would not apply to Arbitral and Court proceedings that had commenced prior to 23^rd October 2015, unless the parties’ consent to it. The provision also specified that it will not apply to Court proceedings initiated on or after 23^rd October 2019 if the Arbitral proceedings had commenced prior to that date, without the consent of parties. A direct consequence of this would be that there would be an inconsistency in the provision’s applicability and this in turn will lead to increased delay and pendency in courts. This provision clearly acts as a deterrent to the intent and purpose of the Act.

This article strives to look at the SC’s judgement in Hindustan Construction Company Limited and Ors v. Union of India (‘HCCL’), wherein Section 87 of the Act, inserted vide Section 13 of the 2019 Amendment, along with the repeal of Section 26 of the 2015 Amendment, was struck down as being illegal and ultra-vires, since it was a deterrent to the purpose sought to be achieved by the 2015 Amendment Act.

arbitration as per the agreement. The Arbitral award was passed in favour of the Petitioner. The same was challenged by the Respondents. The Petitioner challenged Section 87 of the Act, inserted vide the 2019 Amendment which provided that the amendments made to the Act by the 2015 Amendment shall not apply to Arbitral proceedings that had commenced before the introduction of 2015 Amendment i.e., 23^rd October 2015, and also to Court proceedings relating to the aforementioned Arbitral proceedings, whether such court proceeding commenced prior or after the 2015 Amendment, unless the parties otherwise agree.

Questions of Law and Analysis:

 The SC formulated the following substantial questions of law which among others included: (a) Whether Section 87 of the Act falls within the purview of manifest arbitrariness? (b) Is the repeal of Section 26 of the 2015 Amendment, vide the 2019 Amendment valid?

The SC, in order to analyse the substantial questions of law above, looked through the history of the Act and the introduction of Section 87.

Section 87 of the Act was enacted primarily on the recommendation of the Sri Krishna Committee, a ‘High-Level Committee’ which was instituted to review the ‘Institutionalisation of Arbitration Mechanism in India’. The SC in BCCI opined that the enactment of Section 87 of the Act would be in direct conflict with the purpose of the 2015 Amendment. The Court therein held that Section 87 of the Act would put all the important amendments made by the 2015 Amendment on a ‘backburner.’

In the Sri Krishna committee report, an observation was made that where a Section 34 application was filed after 23^rd October 2015, for cases wherein Arbitral proceedings were initiated prior to 23^rd October 2015, the old law would continue to apply to such applications. This results in delay of disposal of arbitration proceedings due to increased interference of courts, which ultimately defeats the object of the Act itself.

In lieu of the above observation, the SC in BCCI opined that “the provision was manifestly arbitrary, having been enacted unreasonably, without adequately determining principle, and contrary to the public interest sought to be subserved by the Act and the 2015 Amendment.”

The SC thereafter also traced the history of the 2015 Amendment and 2019 Amendment to understand the reasons for their enactments in the first place:

Conclusion

 Section 87 of the Act clearly falls within the purview of manifest arbitrariness and is hit by Article 14 of the Constitution. There is no reasonable nexus behind the classification of proceedings prior and post the 2015 Amendment, despite the Court’s observation in BCCI. The provision on the other hand, causes great harm to those involved in proceedings that had commenced prior to 2015 as they have no limitation period within which the award must be passed. Hence, there are cases where one major delay has affected and still affects parties. The Court’s decision to strike it down is only in furtherance of the purpose of enacting the 2015 Amendment and that of the principal legislation and this must be appreciated. This results in speedy disposal of cases and is a way forward to the development of Arbitration in India.

The author wishes to acknowledge the efforts of Ms. Vibhaa S, a third year B.COM., LLB student, from SASTRA Deemed to be University, Tamil Nadu. The contents and comments of this document do not necessarily reflect the views/position of Shivadass and Shivadass (Law Chambers) but remain solely of the author(s). For any further queries or follow up, please contact [email protected].

(Ordinance), is in line with the Ordinance. However, considering the representations received from various stakeholders and to provide certainty, certain additional amendments have been proposed to the Income tax Act, 1961 (Act) and the Finance Act, 2019. A comparative bird’s eye view of the key major changes introduced in the Bill, 2019, vis-à-vis the Ordinance is as follows:

Introduction of section 115BAA – Providing an option to certain domestic companies of a reduced corporate tax rate of 22% (excluding surcharge and cess), subject to fulfilment of the conditions specified in the section

Introduction of section 115BAB – Providing an option to new manufacturing domestic companies of a reduced corporate tax rate of15% (excluding surcharge and cess) subject to the fulfilment of conditions specified in the section.

Tribunal allows depreciation on goodwill arising on amalgamation in a subsequent year, where such claim not challenged in year of amalgamation; on merits, observes claim is not otherwise allowable

Recently, the Ahmedabad bench of the Income-tax Appellate Tribunal (Tribunal), while dealing with the depreciation claim on goodwill arising on amalgamation, allowed it in the second year on the “principle of consistency”, as the claim was not disallowed in the first year of claim. However, the Tribunal, on merit, observed that the intent of the Legislature is to make the amalgamation schemes tax neutral for companies as well as shareholders. The Tribunal further noted that the depreciation claimed on goodwill arising upon amalgamation impacts such tax neutrality, and hence is unwanted under the provisions of law.

PwC Comments: Amidst all the talk about depreciation on goodwill arising on amalgamation being closely monitored by the tax authorities, the observation made by the Tribunal about non-allowability of the depreciation in case of amalgamation would become relevant.

Tribunal holds that valuation of shares under section 56(2)(viib) of the Act, based on the fair value of assets, cannot be rejected

The Delhi bench of the Income-tax Appellate Tribunal (Tribunal) held that where the taxpayer has demonstrated with evidence that the fair market value (FMV) of an asset is much more than the book value, the tax officer (TO) cannot use the book value of the asset, ignoring its FMV, for valuation of shares under clause (ii) of Explanation (a) to section 56(2)(vii)(b) of the Income-tax Act, 1961 (Act). The Tribunal further ruled that shares should be valued based on various relevant factors and not merely based on financials.

PwC Comments: The judgement dispels the cloud of uncertainty surrounding the valuation of assets for computing FMV of the shares of a company under Explanation (a)(ii) to section 56(2)(viib) of the Act.  It comes as a relief to taxpayers by principally upholding that the issue of shares at a price based on fair value, of underlying assets, demonstrated with evidence by the taxpayer should not face the wrath of section 56(2)(viib) of the Act.

Mumbai bench of Tribunal holds that section 56(2)(viia) not applicable to receipt of shares of a foreign company before amendment to Rule 11U with effect from 1 April 2019

The Mumbai bench of the Income-tax Appellate Tribunal (Tribunal) in the case of the taxpayer held that provisions of section 56(2)(viia) of the Income-tax Act, 1961 (Act) do not apply to purchase of shares of a foreign company by an Indian company. In addition, the Tribunal also held the provisions of this section do not apply because Rules 11U and 11UA of the Income-tax Rules, 1962 (Rules), prior to the amendment made in Rule 11U of the Rules with effect from 1 April 2019, did not provide for the computation mechanism of the fair market value (FMV) of the shares of the foreign company.

PwC Comments: The Tribunal has held that the provisions of section 56(2)(viia) of the Act are not applicable on acquisition of shares of foreign companies prior to 1 April 2019 as otherwise, it will make the amendment to Rule 11U of the Rules redundant. The Tribunal has held that the computation mechanism, as provided in Rule 11U read with Rule 11UA of the Rules fails in case of foreign company shares and therefore the same cannot be liable to tax under section 56(2)(viia) of the Act.

Non-compete fees received by a non-resident, not taxable in the absence of a PE in India

The Mumbai bench of the Income-tax Appellate Tribunal (Tribunal) held that non-compete fees received by a non-resident individual taxpayer shall not be taxable in India unless such non-resident has a permanent establishment (PE) in India. Mere holding of shares in an Indian company cannot be construed to constitute a PE in India

PwC Comments: This ruling reiterates that business income in the hands of non-resident will not be taxable in the absence of a business connection/ PE in India, and that business connection is not established merely on account of being a shareholder/ promoter in an Indian company.

A) Processing of refund application

• Grant of refund would be sanctioned on the basis of provisionally accepted input tax credit (ITC), i.e., basis credit claimed in return filed in Form GSTR 3B, as the online functionality of Forms GSTR 2 and GSTR 3 remains unimplemented.
• Refunds may be filed for a single tax period or by clubbing successive tax periods but cannot spread across different financial years.
• On issuance of a deficiency memo by the refund officer, a fresh application for refund would be required to be filed. Such rectified application would be required to be submitted within the time limit of two years, as prescribed under the CGST Act, 2017 (CGST Act) for filing of refund application.
• The process to recover the refund amount paid provisionally, but subsequently found to be inadmissible, along with interest and penalty under sections 73 and 74 of the CGST Act, has been clarified.
• Refund applications under all heads (i.e. CGST, SGST, IGST, Compensation Cess), which was previously being disbursed by separate authorities shall be disbursed by a single tax officer.
• Disbursal of refunds to be done through a Public Financial Management System (PFMS).
• The time period of 60 days beyond which interest is payable at 6% in case of delay in the disbursement of refund, as provided under section 56 of the CGST Act, to be counted from the date generation of Application Reference Number until the date of credit of the refund amount in the bank account of the applicant.
• Comprehensive and exhaustive list of all documents to be provided along with the refund application has been prescribed.

B) Refund of unutilised ITC

• Requirement to upload a copy of Form GSTR 2A, for the relevant period in which invoices have been auto-populated along with the refund clarified.
• Restrictions on availment of ITC up to 20% of the eligible credit available, where details of the relevant invoice/ debit note have not been uploaded by the supplier in Form GSTR 1 as prescribed in Rule 36(4) of the CGST Rules, 2017 (CGST Rules), would also be applicable in case of refund of unutilised ITC. Self-certified copies of such invoices not uploaded by the supplier required to be submitted along with refund application.
• Order for utilisation of ITC balance for claiming refund under various heads (i.e. CGST, SGST, IGST) prescribed. However, it is not mandatory for the applicant to adhere to this order and the authorities would take no adverse view for noncompliance.
• If a supplier avails drawback of duties rebated under the erstwhile law, the supplier shall be eligible for refund of unutilised ITC of CGST/ SGST/ UGST/ IGST/ Compensation Cess

C) Refund for zero rated supply

• Relaxation provided to applicant for refund of ITC for zero-rated supplies made before obtaining Letter of Undertaking (LUT). Field formations are advised to condone delay in filing LUT to and ex post facto facility for export under LUT be allowed so that substantive benefit of zero rating not to be denied where it is established that exports in terms of the relevant provisions have been made. Similar relaxation also provided for payment of tax to be made in case of failure to export goods within three months of issue of export invoice.
• No LUT/ bond required in case of refund claims on account of export of non-GST and exempted goods without payment of tax.
• Where the value of export declared in the tax invoice is different from the export value declared in the corresponding shipping bill uploaded on ICEGAT, the lower of the two values to be taken into account to calculate eligible amount of refund, and outright rejection of refund is not permitted.

D) Refund of transitional credit

• Seeks to make refund of unutilised transitional credit inadmissible, as it has not been availed during the “relevant period” and cannot be treated as a part of “Net ITC” under Rule 89 of the CGST Rules.

E) Refund for inverted duty structure

• Clarifies that refund of tax paid on input services and capital goods is barred for refund of ITC on inputs in case of an inverted duty structure.
• Refund for inverted duty structure would be available where ITC remains unutilised after setting-off available ITC for payment of output liability, irrespective of the individual rate at which the inputs are taxed.

F) Refund of TDS and TCS

• Tax deducted/ collected (TDS/ TCS) and deposited under incorrect heads leading to excess balance in the account of deductor/ collector may be claimed as refund of excess balance in electronic cash ledger by the deductor/ collector. Such excess tax deducted/ deposited can be adjusted for discharging output liability or can be claimed as refund by the deductee.

G) Other issues

• Exporter receiving capital goods under the EPCG Scheme is not covered under the exclusion prescribed under Rule 96(10) of the CGST Rules, and such exporters shall continue to be eligible to claim refund of integrated tax paid on exports.
• Regarding the supply of taxable goods by registered person to another registered person for export, at a concessional rate the following prescriptions have been made: (a) the merchant exporter would mandatorily be required to subsequently export under a LUT/ bond, and (b) merchant exporter cannot exercise the option of payment of tax to claim rebate.

PwC Comments: The circular clarifies on new aspects of the procedures to be followed for online applications for refund, process of scrutiny to be followed by refund officers, and disbursal of refund. Simultaneously, the circular places an onerous restriction of filing corrected refund application after issuance of deficiency memo, within the limitation of period of two years provided under the CGST Act. This restriction would need to be closely monitored. This master circular also consolidates the instructions issued vide previous circulars on the issue of refund, notably refund of unutilised ITC, claim of refund of Compensation Cess, disallowance of refund of transitional credit, calculation of refund amount for claims of refund of accumulated ITC on account of inverted tax structure, debit of electronic credit ledger using FORM GST DRC-03 etc. Overall, this development indicates the Government’s objectives of transitioning GST related processes to an online platform.

Supreme Court disposes multiple pending petitions holding that interim orders passed by High Court are contrary to statutory provisions of CGST Act on seizure of goods and need not be given effect

Issue

Two appeals were filed before the Supreme Court. The first appeal was filed by the State of Uttar Pradesh, questioning an interim order passed by the High Court directing the release of seized goods on the deposit of security, other than cash or bank guarantee or indemnity bond. Additionally, the High Court would dispose of the writ petition, as it became infructuous after the release of goods.

The second appeal was filed by the assessee to quash the seizure order passed under section 67(2) of the Central Goods and Services Tax Act, 2017 (CGST Act), declaring such search and seizure proceedings to be void, and restraining the authorities to take any action against the assessee. Consequently, the Supreme Court decided to address the appeals on both such orders passed by the High Court.

Supreme Court’s decision

• When a complete mechanism is envisaged in the CGST Act and the Central Goods and Services Tax Rules, 2017 (CGST Rules) for release and disposal of the seized goods, the High Court should not have entertained writ petitions questioning the seizure of goods and issued directions for its release.
• Indulgence on part of the High Court by leniency towards the assessee, being the owner of the seized goods, does not merit interference under a writ jurisdiction.
• The High Court should have directed the assessee to the appropriate statutory authority for complying with the procedure prescribed in section 67 of the CGST Act read with CGST Rules as applicable for release (including provisional release) of seized goods.
• Assessee should be directed to take recourse to the relief mechanism provided under the CGST Act and the CGST Rules for release, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner as may be prescribed.
• The High Court has erroneously insisted on cash payment of tax by assessee, which is contrary to section 67(2) of the CGST Act. Consequently, the authorities should not give effect to the orders passed by the High Court, which are contrary to the provisions of the CGST Act. Instead, the Revenue Authorities were instructed to process the claims of the assessee afresh, as per the provisions in section 67 of the CGST Act read with the relevant CGST Rules.
• A common order to cover all cases of seizure during the relevant period was passed to avoid inconsistency in application of law, and to dispose all multiple appeals filed by Union/ State officers/ assessee against the erroneous orders passed by the High Court.

PwC Comments: The Supreme Court has opined that no writ petitions should be entertained by the High Courts against order of seizure of goods by the tax department and expressed displeasure on such interim orders passed. This may result in various High Courts refusing to exercise jurisdiction under Article 226 of the Constitution of India to provide relief to assessees prejudiced by untimely seizure of goods. It remains to be seen if the protocols adopted by the tax department while seizing goods are business friendly

Madras High Court allows accumulated credit of cesses from CENVAT regime to be transitioned to GST

Issue

• The issue involved whether unutilised and accumulated CENVAT credit of the cesses (Education Cess, Senior and Higher Education Cess and Krishi Kalyan Cess, collectively referred to as “cesses”) can be transitioned and subsequently utilized for paying GST.
• The claim for transition was rejected on the ground that the Explanations to section 140 of the CGST Act, 2017 (CGST Act) do not include cesses as “duties and taxes” eligible to be carried forward to GST.
• The taxpayer approached the Madras High Court via a writ, with a prayer to quash the order of rejection and for direction towards carry forward of cesses.

High Court’s decision

The Madras High Court, upon examining a plethora of judgements and while referring mainly to the Supreme Court and Delhi High Court’s decisions in Eicher Motors and Cellular Operators Association of India, respectively, held that the credit of the cesses could be transitioned and utilized for payment under the GST. The High Court decided in favour of the taxpayer, challenging the denial of carry forward of credit of cesses for the following reasons:

• The intention of the Government, while introducing GST, was to provide a seamless model for transitioning all CENVAT credits hitherto availed by a taxpayer under the erstwhile law by subsuming historical taxes.
• Credits continue to be available until such time that they are expressly stated to have lapsed by the statute. Additionally, the Revenue was not able to provide any mention of a policy document by Central Board of Indirect Taxes and Customs indicating the complete lapse of such cess credit.
• Availment of credit and its utilization thereof is a substantive right of the taxpayer and should be denied only in the event of an express legal prohibition to this effect.
• Sections 140(1) and 140(8) of the CGST Act allow the transition of credit carried forward in a return furnished under the erstwhile law, subject to fulfilment of certain conditions. The credit of cesses reflected in the return cannot be denied in the event that the taxpayer satisfies all such conditions.
• Section 140(1) of the CGST Act, was amended to contextualize the phrase “CENVAT credit” with the term “eligible duties.” “Eligible duties” is in turn defined in Explanations 1 and 3 to section 140(1) of the CGST Act.
• However, section 140(8) of the CGST Act, governing the transition of CENVAT credit by service providers operating under a centralised registration, was not similarly amended. Accordingly, any person having a centralised registration under the erstwhile regime becomes entitled to claim transitional credit of cesses under section 140(8) of the CGST Act.

PwC Comments: This decision of the Madras High Court is based on the principles of vested rights accruing to a taxpayer to avail credit and the seamless flow of credit, as envisaged under GST, in the absence of specific provisions providing for lapse of credit. In addition, since the amendment to section 140(1) of the CGST Act did not extend to section 140(8), an exception has been drawn for service providers with a centralised registration. This effectively creates an imbalance quo other category of taxpayers. In addition, as this ruling takes a different approach from a circular issued by the Revenue, the Revenue could continue to deny the transition of credit of the cesses and further litigate on this issue. Please note post the release of the original order by the Madras High Court in the above case, a revised order was issued. The above update has been made basis the revised order.

The Rebuild Kerala Initiative has launched a portal http://pcp.rebuild.kerala.gov.in/index.php/Login/index  to crowdsource inputs on :

a) Land Management

b) Water Management

c) Local Community and Resilience

d) Forest Management

e) Transport, Communications and Technology

Users can register and suggest ideas to support the Government’s “Nammal Namukkāyi” people’s campaign programme for the rebuilding the State.

The CEO Forum Breakfast Meetings of the Cochin Chamber of Commerce & Industry has now completed its 4^th Edition. The 5th Edition will commence on 10th January 2020.  We trust that you enjoyed being part of this initative of ours.

To renew or to start your membership of the Forum for the year 2020 please click on the link below.

Register

The solidarity defining the community and the sense of belonging were the qualities that dominated the Forum in 2019. We do hope that you all will like to be a part of this initiative of the Chamber and look forward to having you as a member of the CEO Forum this year too.

Do register at the earliest.

Statistical Reports on Exports and Imports through the Cochin Port.

The Cochin Chamber of Commerce and Industry publishes statistical reports on Exports and Imports through the Cochin Port on a monthly basis followed by a Consolidated Annual Report at the end of each calendar year. The reports on exports are classified as commodity wise and pertain to the following commodities:

• Coffee
• Tea
• Spices
• Cashews
• Cotton Goods
• Seafood and
• Coir and coir products

Details on all other commodities that do not fall under the above-mentioned heads are carried as the ‘Miscellaneous Report’. Customized reports will also be available according to customers requirement.

We have several members in the export/import fraternity subscribing to these reports on a monthly basis and from the feedback received they are immensely benefited by the same.

We are confident that our reports will be of help to your Company in staying one step ahead of your competitors in business. A sample of the report is attached herewith for your reference. Also attached is the ‘Subscription Form’ to enable you to subscribe to the report should you want to do so.

Should you have any queries please feel free to contact Ms. Archana (7025738447).

For more details, visit Export-Import Statistics