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Re: M/s Rashmi Hospitality Services Ltd (2019, Karnataka AAR)

RE: M/S RASHMI HOSPITALITY SERVICES LTD (2019, KARNATAKA AAR)

Re: M/s Rashmi Hospitality Services Ltd (2019, Karnataka AAR)

ISSUE:

  • Whether the subsidy received from the state government would form part of consideration under section 2(31) of the Central Goods and Services Tax Act, 2017 (CGST Act)?

RULE:

  • Subsidies are not part of consideration in the ordinary and commercial sense. A subsidy is financial assistance provided by the government to promote the public good. It is not payment made by a customer for goods or services.

FACTS:

  • M/s Rashmi Hospitality Services Ltd (the applicant) is a company that provides catering services.
  • The applicant entered into a contract with the Government of Karnataka to supply food and beverages in the premises of “Indira Canteen” in various districts in the state of Karnataka.
  • The applicant received a subsidy from the state government for the services provided.
  • The applicant sought an advance ruling from the Authority for Advance Ruling (AAR) in Karnataka on whether or not the subsidy received from the state government would form part of consideration under Section 2(31) of the CGST Act.

HELD:

  • The subsidy received from the state government to promote the public good does not form part of consideration under section 2(31) of the Central Goods and Services Tax Act, 2017 (CGST Act).
  • The word "subsidy" in section 2(31) of the CGST Act should be interpreted in its ordinary and commercial sense, which means financial assistance provided by the government to promote the public good.
  • The subsidy received by the applicant was not part of the consideration received for the services provided, as the applicant would have provided the services even if the subsidy was not provided by the government.
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Re: M/s Hical Technologies Pvt Ltd (Karn AAR, 2019)

RE: M/S HICAL TECHNOLOGIES PVT LTD (KARN AAR, 2019)

Re: M/s Hical Technologies Pvt Ltd (Karn AAR, 2019)

ISSUE:

  • Whether or not the value of free of cost supplies by the principal is included in the value of supply by the job worker under the Goods and Services Tax (GST) regime?

RULE:

  • Free of cost supplies are not part of the consideration received by the job worker for the services provided. Consideration is the price paid by the customer for the goods or services supplied. Since the principal supplies the components free of cost, the value of these components is not part of the consideration received by the job worker.

FACTS:

  • M/s Hical Technologies Pvt Ltd (the applicant) is a job worker that manufactures printed circuit boards (PCBs) for its principal, M/s ABC Ltd.
  • The principal supplies certain components to the applicant, free of cost, to be used in the manufacturing of the PCBs.
  • The applicant then supplies the finished PCBs to the principal.
  • The applicant sought an advance ruling from the Authority for Advance Ruling (AAR) in Karnataka on whether or not the value of the free of cost supplies by the principal is included in the value of supply by the job worker.

HELD:

  • The Authority for Advance Ruling held that the value of free of cost supplies by the principal is not included in the value of supply by the job worker under the Goods and Services Tax (GST) regime.
  • The free of cost supplies are not part of the consideration received by the job worker for the services provided.
  • The free of cost supplies are not essential for the job worker to provide the services.
  • The free of cost supplies are not part of the business arrangement between the job worker and the principal.
  • This ruling is significant for job workers as it clarifies that the value of free of cost supplies by the principal is not included in the value of supply by the job worker and therefore not subject to GST.
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Re: M/s CMC Vellore Association (2019, TN AAR)

RE: M/S CMC VELLORE ASSOCIATION, 2019

Re: M/s CMC Vellore Association (2019, TN AAR)

ISSUE:

  • Whether the medicines, drugs, stents, consumables, and implants used in the course of providing health care services to in-patients admitted to the hospital for diagnosis, or medical treatment or procedures would be considered as a “Composite Supply” of health care services under GST and consequently can exemption under Notification No.I2/2OI7 read with. Section B(a) of GST be claimed?

RULE:

  • The supply of medicines, drugs, stents, consumables, and implants used in the course of providing health care services to in-patients admitted to the hospital for diagnosis, or medical treatment or procedures is a composite supply of health care services and is exempt from GST under Notification No.12/2017-CTR dated 28.06.2017.

FACTS:

  • M/s CMC Vellore Association is a multi-specialty tertiary care hospital that provides health care services.
  • The hospital has two categories of patients: out-patients and in patients.
  • Out-patients are those who visit the hospital for routine check ups or clinical visits.
  • In-patients are those who are admitted to the hospital for diagnosis, medical treatment, or procedures.
  • The hospital provides medicines, drugs, stents, consumables, and implants to in-patients as part of their treatment plan.
  • The hospital applied to the Authority for Advance Ruling (AAR) in Tamil Nadu for a ruling on whether the supply of medicines, drugs, stents, consumables, and implants to in-patients is exempt from GST under Notification No.12/2017-CTR dated 28.06.2017.

HELD:

  • The Authority for Advance Ruling (AAR) in Tamil Nadu held in the case of M/s CMC Vellore Association, 2019 that the supply of medicines, drugs, stents, consumables, and implants used in the course of providing health care services to in-patients admitted to the hospital for diagnosis, or medical treatment or procedures is a composite supply of health care services and is exempt from GST under Notification No.12/2017-CTR dated 28.06.2017.
  • The AAR reasoned that the supply of medicines is incidental to the provision of health care services and is not a separate supply.
  • The medicines are provided to in-patients as part of the overall treatment plan and are essential for their recovery.
  • Therefore, the supply of medicines to in-patients is exempt from GST under Notification No.12/2017-CTR dated 28.06.2017.
  • The AAR’s decision was considered to be significant for hospitals and other healthcare providers, as it clarified that the supply of medicines to in-patients is exempt from GST.
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Re: Bharatiyar University, Tamil Nadu AAR, Order Date 19.11.2020

BHARATIYAR UNIVERSITY, TAMIL NADU AAR

Bharatiyar University, Tamil Nadu AAR, Order Date 19.11.2020:

ISSUE:

  • Whether the services provided by the University to its constituent colleges (viz) self-financing and management colleges relating to admission to, or conduct of examination by such institution by way of affiliation fee, registration fee such as Application form fees, Inspection fees (each course/section) are exempted from GST under Notification No.12/2017-CTR dated 28.06.2017?

RULE:

  • The services provided by a university to its constituent colleges relating to admission to, or conduct of examination by such institution by way of affiliation fee, registration fee are not exempted from GST.

FACTS:

  • Bharatiyar University is a public university established by the Government of Tamil Nadu.
  • The university provides a variety of services to its constituent colleges, including affiliation, examination, and inspection.
  • The university charges fees for these services.
  • The university applied to the Authority for Advance Ruling (AAR) in Tamil Nadu for a ruling on whether the fees collected for affiliation, examination, and inspection are exempted from GST under Notification No.12/2017-CTR dated 28.06.2017.
  • The AAR held that the fees collected for affiliation, examination, and inspection are not exempted from GST.

HELD:

  • In the case of Bharatiyar University, Tamil Nadu AAR, the Authority for Advance Ruling (AAR) held that the fees collected by the university for affiliation, examination, and inspection are not exempted from GST.
  • The AAR reasoned that the services provided by the university are not related to the education provided by the colleges.
  • The fees collected by the university are for the purpose of affiliation and examination, which are distinct services from the education provided by the colleges.
  • Therefore, the services provided by the university are not covered by the exemption under Notification No.12/2017-CTR dated 28.06.2017.
  • The fees collected for affiliation are for the purpose of granting permission to the colleges to offer courses and admissions.
  • The fees collected for examination are for the purpose of conducting examinations for the students of the colleges.
  • The fees collected for inspection are for the purpose of ensuring that the colleges are complying with the requirements of the university.
  • The AAR held that these fees are not related to the education provided by the colleges.
  • They are distinct services that are provided by the university to its constituent colleges. Therefore, the fees collected for these services are not exempted from GST.
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Re: Bajaj Finance Ltd (2019, Maharashtra AAAR)

RE: BAJAJ FINANCE LTD.

Re: Bajaj Finance Ltd (2019, Maharashtra AAAR)

ISSUE:

  • Whether the company is liable to pay Goods and Services Tax (GST) on the penal Charges that it recovers from its borrowers for late payment of EMIs?

RULE:

  • The rule in Re: Bajaj Finance Ltd., 2019 is still being determined by the Supreme Court of India. However, there have been conflicting rulings from different courts and tribunals on the issue of whether GST is payable on penal charges recovered from borrowers for late payment of EMIs.

FACTS:

  • Bajaj Finance Ltd. (BFL) is a non-banking financial company (NBFC) that provides a variety of loan products to its customers.
  • BFL charges its borrowers penal charges for late payment of EMIs.
  • The question of whether BFL is liable to pay Goods and Services Tax (GST) on the penal charges it recovers from its borrowers is a complex one.
  • There is no clear consensus on this issue, and there have been conflicting rulings from different courts and tribunals.
  • Some courts and tribunals have held that the penal charges are not subject to GST because they are not a consideration for the supply of any goods or services.
  • Rather, they are a penalty imposed by the company on its borrowers for breach of contract.
  • Other courts and tribunals have held that the penal charges are subject to GST because they are a part of the overall consideration that the borrowers pay to the company for the loan products that they avail.

HELD:

  • The Supreme Court of India has not yet ruled on the issue of whether or not GST is payable on penal charges recovered from borrowers for late payment of EMIs.
  • Therefore, the current state of the law is unclear.
  • The Bombay High Court and the Karnataka High Court have given conflicting rulings on this issue.
  • The Bombay High Court held that the penal charges are not subject to GST, while the Karnataka High Court held that they are subject to GST.
  • The Supreme Court is expected to rule on this issue in the coming months.
  • It is likely that the Supreme Court’s ruling will have important implications for all NBFCs that charge penal charges for late payment of EMIs.
  • In the meantime, it is advisable for NBFCs to consult with a tax expert to determine their GST liability on penal charges recovered from borrowers for late payment of EMIs.
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Union of India & Anr v. Mohit Minerals Pvt. Ltd. [2022 (61) GSTL 257 (SC)]:

UNION OF INDIA & ANR V. MOHIT MINERALS PVT. LTD

Union of India & Anr v. Mohit Minerals Pvt. Ltd. [2022 (61) GSTL 257 (SC)]:

ISSUE:

  • Whether the Central Goods and Services Tax (CGST) Act, 2017 and the Integrated Goods and Services Tax (IGST) Act, 2017 apply to ocean freight under the reverse charge mechanism (RCM) for cost, insurance, and freight (CIF) imports?

RULE:

  • The Central Goods and Services Tax (CGST) Act, 2017 and the Integrated Goods and Services Tax (IGST) Act, 2017 do not apply to ocean freight under the reverse charge mechanism (RCM) for cost, insurance, freight (CIF) imports.

FACTS:

  • Mohit Minerals Pvt. Ltd. (the respondent) imports coal into India under CIF terms, meaning that the cost of ocean freight is included in the price of the coal.
  • The respondent is liable to pay customs duty and IGST on the value of the imported coal, including the cost of ocean freight.
  • However, the respondent is not liable to pay GST on the ocean freight under the RCM, because the shipping line is not registered for GST in India.
  • The Indian government issued notifications in 2017 imposing GST on ocean freight under the RCM for CIF imports.
  • The respondent challenged these notifications before the Gujarat High Court, which held that they were unconstitutional and ultra vires the CGST Act and the IGST Act.
  • The Indian government appealed the Gujarat High Court's decision to the Supreme Court,
    which upheld the Gujarat High Court's decision and held that the CGST Act and the IGST Act do not apply to ocean freight under the RCM for CIF imports.

HELD:

  • The reverse charge mechanism (RCM) under the Goods and Services Tax (GST) is only applicable to services that are provided in India.
  • Ocean freight is not part of the value of imported goods, but rather a separate service that is provided by the shipping line
  • Therefore, the Central Goods and Services Tax (CGST) Act, 2017 and the Integrated Goods and Services Tax (IGST) Act, 2017 do not apply to ocean freight under the RCM for cost, insurance, freight (CIF) imports.
  • The Supreme Court held that the government notifications imposing GST on ocean freight under the RCM for CIF imports were unconstitutional and ultra vires the CGST Act and the IGST Act.
  • The Supreme Court’s decision is a significant victory for importers, as it means that they are no longer liable to pay GST on ocean freight under the RCM for CIF imports.
  • This can lead to a significant reduction in the cost of imports for businesses that import goods under CIF terms.
  • The Supreme Court’s decision is only applicable to CIF imports. For imports under other terms, such as free on board (FOB), the importer may still be liable to pay GST on the ocean freight under the RCM.