Indirect Tax and GST Updates November 2024

GST Calendar –Compliances for the month of November ’2024

Nature of Compliances	Due Date
GSTR-7 (Tax Deducted at Source ‘TDS’)	December 10,2024
GSTR-8 (Tax Collected at Source ‘TCS’)	December 10,2024
GSTR-1	December 11,2024
IFF- Invoice furnishing facility (Availing QRMP)	December 13,2024
GSTR-6 Input Service Distributor	December 13,2024
GSTR-2B (Auto Generated Statement)	December 14,2024
GSTR-3B	December 20,2024
GSTR-5 (Non-Resident Taxable Person)	December 20,2024
GSTR-5A (OIDAR Service Provider)	December 20,2024
PMT-06 (who have opted for QRMP scheme)	December 25,2024

Mobilisation Advance is not an interest-free loan; GST is applicable, and Input Tax Credit (ITC) is allowed.

Background: 

Larsen & Toubro Ltd. (L&T) and IHI Infrastructure Systems Co. Ltd., Japan (IHI) collaborated as an unincorporated consortium (referred to as the Taxpayer) to execute the Mumbai Trans Harbour Link Project.

According to the agreement between the Mumbai Metropolitan Region Development Authority (MMRDA) and the Taxpayer, MMRDA provided an advance payment described as an “interest-free loan” to facilitate project mobilization and design. This advance was to be recovered through proportional deductions from subsequent interim payments made to the Taxpayer.

The Taxpayer received the advance, including the applicable GST, from MMRDA. The advance was then distributed among the consortium members, and L&T issued a “Receipt Voucher,” charging the appropriate GST.

Issue:

• Validity of Sections under the CGST Act:

• Whether Sections 7, 12, 13, and 54 of the CGST Act contravene Section 9 of the CGST Act or the Constitution of India, specifically Articles 246A (special provision for GST) read with Article 366(12A) (definition of GST), as well as Articles 14 (equality before law), 19(1)(g) (freedom to practice any profession or trade), 265 (taxation only by authority of law), and 300A (protection of property rights).
• Whether GST can be lawfully levied on the advance amount received by the Taxpayer.

• Entitlement to Input Tax Credit (ITC):

• Whether the Taxpayer is eligible to claim ITC on the GST paid by L&T in relation to the Receipt Voucher issued for the advance received.

Ruling:

• Although the agreement describes the amounts received by the Taxpayer as an “interest-free loan,” the Taxpayer neither requested the advance as such nor treated it as a loan when remitting the amounts along with GST to its constituent entities. The amounts were instead treated as mobilization advances, to be adjusted against future payments.
• The Taxpayer initially accepted GST liability on the advances but now seeks to re-characterize them as loans to avoid GST liability.
• Based on the definition of “consideration” under the CGST Act, the payments received as advances qualify as consideration for the supply of works contract services.

• Validity of Sections 7, 12, 13, and 54 of the CGST Act

Section 7:

• The phrase “in the course or furtherance of business” in Section 7(1)(a) of the CGST Act has been judicially interpreted to include supplies integral to or connected with business activities.
• Advances received under a contractual agreement fall within this scope as they are part of the overall supply of goods or services, making them subject to GST.
• Thus, advance payments qualify as supply-attracting GST, irrespective of whether the supply is immediate or deferred. The nature of the contract supports this interpretation.
• Consequently, Section 7 is not ultra vires Articles 246A, 366(12A), 14, 19(1)(g), or 300A of the Constitution, as it lawfully includes goods or services agreed to be supplied under its ambit.

Section 9 of the CGST Act

• The advance received by the Taxpayer pertains to activities requiring monetary transactions, either in cash or other forms, directly linked to the contract.
• The contract involves an intra-state supply of goods or services, thereby falling within the taxable scope under Section 9 of the CGST Act.
• A cumulative reading of Sections 7 and 9 clearly establishes that the advance payment constitutes “consideration” for a supply and is subject to GST.

Sections 12 and 13 of the CGST Act

• Similar to the reasoning applied for Section 7, the Taxpayer’s receipt of the advance, classified as “mobilization advance,” qualifies as consideration under Section 2(31).
• The provisions of Sections 12 and 13, dealing with the time of supply, require the Taxpayer to pay GST on the advance upon receipt, as this triggers the tax liability.
• Since the Taxpayer had voluntarily treated the advance as taxable and issued a Receipt Voucher, the liability arose in accordance with the statutory framework.

Constitutional Validity of Sections 7, 12, and 13

• Sections 7, 12, and 13 align with Section 9, ensuring that advances related to agreed supplies fall under GST’s purview.
• These provisions do not contravene Articles 246A (special provision for GST), 366(12A) (definition of GST), 14 (equality before law), 19(1)(g) (freedom of trade), or 300A (protection of property rights).
• The statutory scheme consistently treats mobilization advances as taxable supplies, eliminating any conflict with constitutional principles.

Entitlement to ITC under Section 16

• Compliance with GST Principles:
  • ITC eligibility cannot be denied merely on the basis of non-receipt of goods or services under Section 16(2)(b). This condition must be interpreted in light of Section 16(1), which permits credit for goods or services “used” or “intended to be used” in the course or furtherance of business.
  • The term “intended to be used” includes scenarios where the receipt of goods or services is deferred but remains linked to business activities. Denial of ITC in such cases leads to an absurd outcome inconsistent with the legislative intent.
• Nature of the Taxpayer’s Transactions:
  • The Taxpayer deposited GST with the government and fulfilled its output tax obligations in respect of its constituent. The mobilisation advance clearly pertains to ongoing or deferred supply and is integral to the business contract.
  • The Receipt Voucher issued by the Taxpayer aligns with Section 31(3)(d) and Rule 39 of the CGST Rules, evidencing tax payment. This satisfies the statutory requirements necessary to claim ITC.

Harmonious Interpretation of Sections 13 and 16

• A purposive and harmonious reading of Section 13 (time of supply) with Section 16(2)(b) supports ITC entitlement for goods or services intended for business use, even when their receipt is deferred.
• The legislative intent behind Section 16(1) must be upheld, ensuring the seamless availability of ITC for transactions in the course of or furtherance of business. A rigid application of Section 16(2)(b) would create inconsistencies and undermine the functioning of the GST regime.

Receipt Voucher and Documentary Compliance

• The Receipt Voucher issued in accordance with Section 31 and Rule 39 satisfies the documentary requirements for ITC eligibility.
• Rule 36, which provides procedural guidelines, cannot override Section 31 as a substantive provision. Procedural non-compliance alone does not justify ITC denial if substantive requirements are met.

The value of supply related to salaries paid to seconded employees will be considered ‘Nil’ in the absence of an issued invoice.

Metal One Corporation India Pvt. Ltd. vs. Union of India.

Issue

• Whether GST is applicable to salaries paid to expatriates seconded by a foreign related entity, when no invoice is issued for the supply of such services?

Ratio

• Circular Clarification:
  • According to Para 3.7 of Circular No. 210/4/2024-GST (dated 26 June 2024), if full Input Tax Credit (ITC) is available to the taxpayer and no invoice is raised for services rendered by a foreign affiliate, the value of such services is deemed to be ‘Nil’. This is considered the market value for the purpose of the second proviso to Rule 28 of the CGST Rules, 2017.
• Case Application:
  • In the present case, even though payments were made, no invoices were raised for the services provided by the foreign-related entity. As per the Circular, the value of services must be treated as ‘Nil,’ implying no GST liability. Consequently, the Show Cause Notices (SCNs) issued based on this scenario were deemed redundant, and their continuation was deemed futile. Therefore, the SCNs were set aside.
• Impact on Penalty and Interest:
  • In a related petition before the Delhi High Court, the petitioner had already discharged GST liability and claimed ITC. However, the tax authorities issued an Order-in-Original to recover interest and penalty. Once the Central Board of Indirect Taxes and Customs (CBIC) clarified the position for all taxpayers, the continuation of penalty proceedings and imposition of interest were not upheld. The petitioner was absolved from all tax liabilities and consequences under the CGST Act.

 

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