GST: Here is an analysis of what judicial orders mean for businesses

Since the roll-out of the GST regime in July last year, for businesses the transition to the new indirect tax regime has been a roller coaster ride. Recent pronouncements by the Authority for Advance Rulings (AAR), constituted in various states, have given some guidance on a few vexed issues. Here is an analysis of what these judicial orders mean for businesses 

Issue

Classification of skin care preparation as medicament under heading 3004 of the Customs Tariff Act, 1975 

[West Bengal-AAR(GST)]

Ruling

• Merely manufacturing a skin care preparation using an ayurvedic authoritative text book does not imply that the product is a medicament.
• Its curative and therapeutic use are also to be considered.
• In the given case, the skin care preparation products were classified as medicaments or cosmetic products post consideration of various factors.

Implications

With the multiple rate structure under GST, classification disputes are set to rise. This ruling shows that in order to verify the classification of any product, it is necessary to consider the raw materials used, the output derived, the end use of the output, etc.

Issue 

Whether canteen services provided by the employer to employee qualify as supply of service under GST 

[Kerala AAR (GST)] 

(Canteen services inside the factory premises - Mandatory requirement under the Factories Act, 1948)

Ruling

• AAR has referred to Schedule II of the CGST Act, 2017, which describes the activities to be treated as a supply of goods or supply of services. In accordance with the said schedule, the supply of food shall be treated as a supply of service.
• Furthermore, the recovery of cost from the employees is a consideration for the supply.

Therefore, it was held that irrespective of whether the activity is undertaken for profit or not, the canteen services is a supply of service, and chargeable under GST.

Implications

The AAR has opened many doors of interpretations under GST perspective. 

Various services are provided by the company to its employees, such as, house rent/boarding and lodging and travelling. 

This verdict would impact such transactions between employee and employer and the extent to which the tax net would cover such transactions. 

Also, since employee and employer are related parties, the valuation of such services would lead to further disputes.

Issue 

GST implication on high sea sales 

[Kerala AAR (GST)]

Ruling
 

• The definition of import of goods means bringing goods into India from a place outside India. Furthermore, IGST is levied on import of goods into India.
• In case of the applicant, the goods were never imported into India at any stage. Thus, IGST would not be applicable.

Implications

It clarifies that IGST would levied only when the goods are imported in India and IGST would be payable at the time of importation. There­fore, the transaction of high sea sale when the goods are not physic­a­lly impor­ted in India would not be taxable.

Issue 

GST on one-time lease premium 

(Writ Petition – Bombay High Court)

Ruling

• One-time lease premium consideration on any lease or letting out building, including commercial, industrial or residential complex for business, either wholly or partly, would qualify as supply under  Section 7 of the CGST Act, 2017. In accordance with the same, the one-time lease payment would attract GST.

Implications

The argument of the petitioner was that one-time lease payment is similar to sale of immovable property as the owner loses the right to use the property for a long period of time. 

However,  the revenue held that the lease transaction qualifies as a supply and therefore falls under the ambit of GST.  This could have an impact on similar agreements routinely entered bydevelopers.

(It may be noted that an advance ruling is specific to an applicant and is not applicable to other taxpayers facing similar issues) 

Source: GST Trends – April 2018; SKP