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HC set-aside order passed by AO stating that reply to SCN wasn’t properly filed without any justification?

Future Generali India Insurance Co. Ltd. v. Goods and Service Tax Officer (GSTO) - [2024] 163 taxmann.com 258 (Delhi)

The petitioner received a show cause notice (SCN) proposing a demand of Rs.7,02,71,577.00. It submitted detailed replies but the proper officer passed the order stating that the replies were not properly filed despite of sufficient opportunities provided. It filed writ petition against the order and contended that the order was passed without considering merits of the case.??

The Honorable High Court noted that the department enclosed the findings of the Special Audit in Form GST ADT-04 and no further reasons were given in the said SCN. The Special Audit Report gave findings under separate headings and to the said SCN, detailed replies were furnished by the petitioner giving response under each of the heads with supporting documents.??

However, the impugned order recorded the narration that the reply uploaded by the taxpayer was not properly replied/filed. The Court noted that the observation in the impugned order was not sustainable for the reasons that the replies filed by the petitioner were detailed replies with supporting documents. Therefore, it was held that the impugned order was liable to be set aside and SCN was remitted for re-adjudication.?

GST implications in Joint Development Agreements

Introduction

• Joint Development Agreements (JDAs) have become a popular arrangement in the Indian real estate sector, where property owners and developers collaborate to develop land. In a typical JDA, the landowner transfers the possession of the property to the developer, who then develops the land at their own cost and expertise. In return, the landowner receives a share of the developed property, either in the form of monetary consideration or a percentage of the built-up area.
• The taxation of JDAs has been a subject of much debate and controversy, with various legislative amendments and judicial precedents attempting to provide clarity.
• This document analyzes the taxability of transactions involved between the landowner and the developer in relation to the transfer of development rights and the construction of apartments/plots.

Understanding Joint Development Agreements

• JDA is a type of arrangement between a developer and a landowner where the landowner transfers the development rights of the land to the developer while the developer undertakes the responsibility of developing the property. Thus, the transaction involved in a JDA can be broadly categorized into two main components:

(a)?Transfer of Development Rights by landowner to developer

(b)?Supply of Construction Services by developer to landowner

• Notably, under JDA, the consideration for the landowner usually comes in the form of a share in the developed property or a portion of the revenue from the sale of the developed units. JDAs can be broadly classified into two types:

(a)?Area-sharing basis: Under this arrangement, the developer hands over a portion of the developed units to the landowner as consideration for the transfer of development rights.

(b)?Revenue-sharing basis: Under this arrangement, the developer sells the developed units and shares a predetermined portion of the revenue with the landowner.

Taxability of JDAs under GST

• Under the GST law, tax is levied [1] on the supply of goods or services or both. Hence, the subject matter of taxation under GST is the 'supply' of goods or services. Therefore, in order to fall within the ambit of GST, the supply should either be of goods or services or both. Thus, a transaction cannot be subject to GST where there is no supply of goods or services.
• The term 'goods' has been defined [2] as every kind of movable property. The generic meaning of the term 'movable' means something that has the ability to move and it does not include immovable property. Whereas, the immovable property includes [3] land, benefits to arise out of the land, and things attached to the earth or permanently fastened to anything attached to the earth. Therefore, the activities undertaken in respect of JDA for construction of immoveable property and sale of immoveable property cannot be considered as supply of goods under the GST law.
• Schedule II of the CGST Act classifies a list of activities either as supply of goods or supply of services. In terms of Entry 5 of the said Schedule, the construction activities are treated as supply of services:?(b) Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.
• Further, Schedule III of the CGST Act provides few transactions which are neither treated as the supply of goods nor supply of services under GST. Entry No. 5 of the said schedule provides the following:?Sale of land and sale of building, subject to clause (b) of paragraph 5 of Schedule II
• For the ease of reference, the expression "the date of issuance of completion certificate, or first occupation of the project, whichever is earlier" is referred to as 'relevant date' in this article.

Sale of completed property and sale of land is not exigible to GST

• As per Schedule III, GST is not leviable on the sale of land. In case of sale of building, where the entire consideration has been received after relevant date, GST will not be leviable.

Sale of under-construction property is considered as supply of services

• The conjoint reading of Schedule II and Schedule III suggests that the sale of under-construction property is considered as supply of services under GST.

Transfer of Development rights is supply of service

• The Development rights transferred by the landowner to developer are also considered as supply of services under GST. In this regard, the Telangana High Court has held [4] that transfer of development rights is a supply of service under GST law which is offered by the landowner to the developer for a consideration and it is not a sale of an immovable property as transferring the development rights does not result in transfer of ownership rights. Notably, in this cases, a Special Leave Petition has been filed before the Hon'ble Supreme Court and the Supreme Court had not stayed operation of impugned judgment.

GST on Transfer of Development Rights

Exemption on Transfer of Development Rights pertaining to residential apartments

• Effective from April 1, 2019, services by way of transfer of development rights for construction of 'residential' apartments by a promoter in a project has been exempted [5] from GST. Notably, such exemption is only applicable in respect of the construction of residential apartments and booked apartments before the relevant date.
• Thus, the said exemption does not apply to the construction of 'commercial apartments' and to the residential apartments remaining'un-booked' on the relevant date.
• In this regard, the law also provides [6] the manner of computing the exempt amount:?[GST payable on TDR for construction of the project] × (Carpet area of residential apartments in the project ÷ Total carpet area of residential and commercial apartments in the project)
• The above exemption is subject to the following conditions summarized below:

Applicability of Reverse charge on Transfer of Development Rights

• Effective from April 1, 2019, the developer is liable [9] to pay GST on reverse charge basis on the services supplied by any person by way of transfer of development rights for construction of a project.

Value of Transfer of Development Rights

• The Rate notification specifically provides [10] that where a person transfers development right to a promoter against consideration in the form of construction of apartments (whether wholly or partly), the value of supply of service shall be deemed to be the Total Amount charged for similar apartments in the project from the independent buyers nearest to the date on which such development right is transferred to the promoter.
• This amount would be further reduced by the value of transfer of land. Notably, value of land shall be deemed to be one-third [11] of the total amount charged.

Time of Supply of Transfer of Development Rights

• The Time of Supply in case of supply of Transfer of Development Rights are as follows:

GST on Construction services

GST applicability on different Real Estate projects

• GST on supply of construction services by Developer is liable to paid at the applicable effective rate provided under the rate notification, which depends on the nature of the project and apartment.
• Notably, with effect from 01-04-2019, the Government introduced significant amendments in the rate notifications to change the GST rate structure on the construction services. The GST rates on construction services are lowered based on the type of project and the type of apartments. However, ITC cannot be claimed by the supplier of construction services on the revised concessional rates. The GST rate on construction services for different projects and different types of apartments are discussed below:

• Construction services of Commercial apartments in other REP projects [20] and the projects other than the specified above [21] are taxable at the rate of 18% with no restriction on availing ITC.
• Notably, the above rates would be applicable on the respective projects strictly and the supplier cannot opt [22] for the higher rate with the eligibility of ITC.

Valuation of Construction Services

• Where the supply of construction services involves transfer of land or undivided share of land, the value of such supply is computed [23] in the following manner:

• Notably, the deeming value of land to be one-third of the total value is to be mandatorily adopted in all the construction services under different projects. This provision has been challenged [24] before the Gujarat High Court wherein the High Court read down the given provision and held that the deeming fiction of 1/3rd will not be mandatory in nature and it will only be available at the option of the taxable person in cases where the actual value of land or undivided share in land is not ascertainable.

Mandatory Conditions attached to the new rates with effect from 01-04-2019

• However, the above specified conditions are not applicable for the construction of Commercial apartments in other REP projects and the projects other than the specified [26].

Time of supply of supply of Construction Services

• Time of Supply in case of supply of Construction Services as follows:

RCM on inward supply of input, input services and capital goods by Developer

• As per the rate notifications, the Developer is also liable to pay GST on reverse charge basis on certain inward supplies relating to the construction services. These are summarized in the below table:

Key Highlights of Central Excise Bill, 2024?

Taxmann Advisory and Research Team (Indirect Tax) - [2024] 163 taxmann.com 289 (Article)

Introduction

The Central Excise Bill, of 2024 ('Central Excise Bill'), represents a landmark reform in the taxation landscape of India's manufacturing sector. Designed to address contemporary economic challenges and streamline the existing framework, this bill aims to simplify the excise duty structure, enhance compliance through digital solutions, and foster a business-friendly environment. By strengthening adjudication processes, and promoting sustainable manufacturing practices, the Central Excise Bill 2024, seeks to optimize the excise duty regime.

The article provides a comprehensive overview of the key highlights of the proposed Central Excise Bill. Below is a detailed commentary on the significant amendments and policy shifts introduced by the bill.

Levy of Excise duty on Special Economic Zone Units

The Central Excise Act of 1944 ('Central Excise Act'), excluded the goods produced or manufactured in Special Economic Zone Units ('SEZ') from the levy of Excise Duty under Section 3 of the Central Excise Act. However, the proposed Central Excise Bill does not provide any such exclusion for manufacturing activity carried out in an SEZ unit from the levy provision. As a consequence, goods produced or manufactured in an SEZ unit will be subject to excise duty as per the proposed bill. It would be interesting to see whether the special incentive and tax benefits (including exemption from levy of excise duty) granted to SEZs will continue through a separate notification or not.

Eligibility of Central Excise Duty Credit

The proposed Central Excise Bill introduces Section 17, which outlines the eligibility for Central Excise Duty Credit. It provides that a manufacturer or producer of final products will be entitled to take credit of central excise duty and such other duties of excise, as prescribed. The availment of credit would be subject to the prescribed conditions and restrictions.

The credit would be referred to as the Central Excise Duty Credit. The bill also provides that the credit on motor spirit, commonly called petrol, and high-speed diesel would not be available even if these items are received for use in or in relation to the manufacture of the final product.

The Central Excise Duty Credit can be utilized for the payment of any duty of excise on any final product, or such other amount payable under the rules made thereunder, subject to the prescribed limitations, restrictions, and conditions.

Further, it is provided that the government may restrict the utilization of credit lying unutilized with the manufacturer of specified excisable goods, and the credit may lapse on such date as the Central Government may, by notification, specify in such a manner as may be prescribed.

Extension of time limit for recovery of duties

The proposed Central Excise Bill, vide Section 32(2), provides that the Central Excise Officer can serve the notice up to 3 years from the relevant date in case the duty has not been levied or paid, or short levied or short paid, or where the refund has erroneously granted, or the Central Excise Duty Credit has been wrongly availed or utilized. The time limit for the same under the Central Excise Act is 2 years.

Notably, the proposed Central Excise Bill does not differentiate the adjudication proceedings based on malafide (fraud or wilful misstatement etc) and bonafide reasons.

Transition of Credit from repealed Excise Act to the new Act

As the introduction of the new Central Excise Act would require a transition from the old law to the new law, the transitional provisions have been given in the bill in respect of the credit lying unutilized under the Central Excise Act, 1944 allowing the use of such credit under the new proposed Excise Act. Such utilization would be subject to the provisions of this Act and the rules made thereunder.

It has also been provided that credit of central excise duty and such other duties of excise prescribed under Section 17(1) would be available in respect of any inputs other than motor spirit, commonly known as petrol, and high-speed diesel, that are received within 30 days of the date of commencement of this Act but the duty in respect of which has been paid under the repealed Act i.e. Central Excise Act 1944.

The said time limit of 30 days may be further extended by 30 days by the Principal Commissioner of Central Excise or the Commissioner of Central Excise in case of sufficient cause.

Rectification of error apparent on the face of records

The proposed Central Excise Bill contains Section 100 which deals with the rectification of errors apparent on the face of records. This section is similar to section 161 of the Central Goods and Service Tax Act, 2017 ('CGST Act').

Earlier, the time limit prescribed for rectification of mistakes under the Excise law was 2 years. Now the same has been restricted to six months. Also, there is no time limit for rectification of errors that are purely clerical or arithmetic in nature.

Change in rate of interest under various provisions

The interest rates have been proposed to change under various provisions in the Central Excise bill. These have been provided in the below table:

Power to fix different tariff values with the Central Government

The proposed Central Excise Bill empowers Central Government to fix different tariff values under the valuation provisions for the below:

(a)?Different classes or descriptions of the same excisable goods

(b)?Excisable goods of the same class or description which are

• Produced or manufactured by different classes of products or manufactures; or
• Sold to different classes of buyers

It has also been provided that in fixing different tariff values in respect of excisable goods of the same class and description, as given above, the Government should consider the sale prices charged by the different classes of producers or manufacturers or, the normal practice of the wholesale trade in such goods.

It may be noted that similar provision is contained in the provision of levy of tax i.e. Section 3 in the Central Excise Act.

Reduction in rate of Duty for certain Tobacco products

The applicable rates of Excise duty on certain tobacco products are proposed to be reduced. The details of the products along with the proposed reduced duty are as under:

Other changes in the provisions

• The definition of 'related person' contained in the proposed excise bill is simplified to align it with the definition as per the GST law.
• Appointment of officers under the Central Excise Bill is proposed to be done on similar lines as provided under the GST law.
• The provisions relating to filing of annual return are proposed in line with the provisions contained under the GST law.
• The specific provision for phased implementation of the new Excise Act has been proposed vide Section 1 of the Central Excise Bill.

Conclusion

The proposed Central Excise Bill has been introduced to repeal the 80-years-old Central Excise Act, 1944. This is a welcome step in the direction of ease of doing business and simplified taxation structure. Post the implementation of nation-wide GST in the year 2017, the applicability of excise duty remains on a limited number of products, hence the repeal of the Act and implementation of new excise law will bring large scale efficiency and pave the way to a phased transition of exiseable products under the GST regime.

[1] Section 9 of the CGST Act, 2017

[2] Section 2(52) of the CGST Act, 2017

[3] As defined under Section 2(26) of the General Clauses Act

[4] Prahitha Contruction (P.) Ltd. [2024] 159 taxmann.com 437 (Telangana)

[5] Sl. No. 41A inserted vide Notification No. 4/2019-Central Tax (Rate) , Dated 29-03-2019

[6] Sl. No. 41A inserted vide Notification No. 4/2019-Central Tax (Rate), Dated 29-03-2019

[7] First Proviso to Sl. No. 41A inserted vide Notification No. 4/2019-Central Tax (Rate), Dated 29-03-2019

[8] Second Proviso to Sl. No. 41A inserted vide Notification No. 4/2019-Central Tax (Rate), Dated 29-03-2019

[9] SI No. 5B inserted vide Notification No. 5/2019-Central Tax (Rate), Dated 29-03-2019

[10] Para 2A inserted by of Notification No. 3/2019-Central Tax (Rate), Dated 29-03-2019

[11] Para 2 inserted by of Notification No. 3/2019-Central Tax (Rate), Dated 29-03-2019

[12] Para 1(a) of Notification No. 06/2019-Central Tax (Rate), dated 29-03-2019

[13] Para 1(b) of Notification No. 06/2019-Central Tax (Rate), dated 29-03-2019

[14] Notification No. 06/2019-Central Tax (Rate), dated 29-03-2019 and Notification No. 03/2021-Central Tax (Rate), dated 02-06-2021

[15] Sl. No. 3(i) of Notification No. 3/2019-Central Tax (Rate), dated 29-03-2019

[16] Sl. No. 3(ic) of Notification No. 3/2019-Central Tax (Rate), dated 29-03-2019

[17] Sl. No. 3(ia) of Notification No. 3/2019-Central Tax (Rate), dated 29-03-2019

[18] Sl. No. 3(id) of Notification No. 3/2019-Central Tax (Rate), dated 29-03-2019

[19] Sl. No. 3(ic) of Notification No. 3/2019-Central Tax (Rate), dated 29-03-2019

[20] Sl. No. 3(if) of Notification No. 3/2019-Central Tax (Rate), dated 29-03-2019

[21] Sl. No. 3(xii) of Notification No. 11/2017-Central Tax (Rate), dated 28-06-2017

[22] Refer Explanations to Sl. No. 3(if) of Notification No. 3/2019-Central Tax (Rate), dated 29-03-2019

[23] Para 2 of Notification No. 11/2017-Central Tax (Rate), dated 28-06-2017

[24] Munjaal Manishbhai Bhatt v. Union of India [2022] 138 taxmann.com 117 (Gujarat)

[25] Refer conditions to Sl. No. 3(i) to (id) of Notification No. 3/2019-Central Tax (Rate), dated 29-03-2019

[26] Sl. No. 3(i) to 3(id) of Notification No. 03/2019-Central Tax (Rate), dated 29-03-2019

[27]? Para 1(d) of Notification No. 06/2019-Central Tax (Rate), dated 29-03-2019

[28] Notification No. 06/2019-Central Tax (Rate), dated 29-03-2019 and Notification No. 03/2021-Central Tax (Rate), dated 02-06-2021

[29] Condition for para (i) to (id) of Notification No. 03/2019-Central Tax (Rate), dated 29-03-2019

[30] Sl. No. 1 of Notification No. 07/2019-Central Tax (Rate), dated 29-03-2019

[31] Explanation of Condition of para (i) to (id) of Notification No. 03/2019-Central Tax (Rate), dated 29-03-2019

[32] Sl. No. 2 of Notification No. 07/2019-Central Tax (Rate), dated 29-03-2019

[33] Condition for para (i) to (id) of Notification No. 03/2019-Central Tax (Rate), dated 29-03-2019

[34] Sl. No. 3 of Notification No. 07/2019-Central Tax (Rate), dated 29-03-2019

[35] Explanation of Condition of para (i) to (id) of Notification No. 03/2019-Central Tax (Rate), dated 29-03-2019

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