2021 (4) TMI 558 - AAR - GST

Classification of goods - rate of GST - Plastic Toys - entitlement to Input Tax Credit in relation to CGST-SGST separately - debit notes issued by the supplier in current financial year i.e. 2020-21, towards the transactions for the period 2018-19 - HELD THAT - The said toys are made of plastic meant for children and are not electronic toys, and therefore conclude that the plastic toys manufactured and supplied by the applicant are correctly classifiable under Heading 95030030 of Chapter 95 of the First Schedule to the Customs Tariff Act, 1975(51 of 1975). Tax liability on the product - HELD THAT - The Toys of plastic manufactured and supplied by the applicant fall under Sr.No.228 of Schedule-II of N/N. 01/2017-Central Tax(Rate) dated 28.06.2017 and the GST applicable on the said product is 12%. Whether the applicant can claim input tax credit of CGST-SGST charged separately in debit notes issued by the supplier in current financial year of 2020-21 towards transactions for the period 2018-19? - HELD THAT - From a combined reading of the definition of debit note , sub-section (3) of Section 34 of the CGST Act, 2017 and the particulars to be provided in a debit note issued under GST, it is amply clear that the debit note is not an independent document or an invoice in itself and is connected to an invoice as it is issued in pursuance to change in value of an invoice. It, therefore, follows that the financial year to which a debit note pertains, is invariably the financial year in which the original invoice (related to the said debit note) was issued - in light of the provisions of amended sub-section(4) of Section 16 of the CGST Act, 2017(amended w.e.f. 01.01.2021), it is concluded that the applicant shall be entitled to claim the input tax credit only in respect of debit notes issued by the supplier towards the transactions entered into and goods supplied to the applicant during the financial year 2018-19, on or before the due date of furnishing of the return under section 39 for the month of September following the end of the said financial year 2018-19 or furnishing of the relevant annual return, whichever is earlier.

Summary

Issues Involved:
1. Classification and applicable GST rate for plastic toys.
2. Eligibility for claiming Input Tax Credit (ITC) on debit notes issued in the financial year 2020-21 for transactions of the financial year 2018-19.

Issue-wise Detailed Analysis:

1. Classification and Applicable GST Rate for Plastic Toys:
The applicant, engaged in manufacturing and supplying plastic toys, sought clarification on the appropriate classification and GST rate for their products. They argued that their plastic toys should be classified under Chapter Heading 9503 of the Customs Tariff Act, 1975, specifically under Tariff Item No. 9503 00 30, which pertains to toys made of plastics.

The relevant provisions and jurisprudence were examined, including the Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017, which outlines the GST rates for various goods. According to the notification, toys other than electronic toys fall under Entry No. 228 of Schedule II, attracting a GST rate of 12% (6% CGST + 6% SGST).

After reviewing the Chapter Notes and the product samples provided by the applicant, it was concluded that the plastic toys manufactured and supplied by the applicant are correctly classifiable under Heading 9503 00 30. Consequently, these toys attract a GST rate of 12% (6% CGST + 6% SGST).

2. Eligibility for Claiming Input Tax Credit on Debit Notes:
The applicant also sought clarification on whether they could claim ITC for CGST-SGST charged separately in debit notes issued by the supplier in the financial year 2020-21 for transactions that occurred in the financial year 2018-19. The applicant referenced an amendment in sub-section (4) of Section 16 of the CGST Act, 2017, which they believed simplified the process by removing the condition of invoice-to-debit note correlation.

The amendment, introduced by the Finance Act, 2020, and effective from 01.01.2021, omitted the words "invoice relating to such" from sub-section (4) of Section 16. However, it was clarified that this change did not sever the connection between debit notes and their corresponding invoices. A debit note remains linked to the original invoice, and the financial year to which a debit note pertains is the same as the financial year of the original invoice.

Therefore, the applicant can only claim ITC for debit notes issued for transactions in the financial year 2018-19 if the claim is made on or before the due date for furnishing the return under section 39 for the month of September following the end of the financial year 2018-19 or the relevant annual return, whichever is earlier. The applicant's interpretation that the amendment allowed for claiming ITC in the financial year 2020-21 for transactions of 2018-19 was found to be incorrect.

Ruling:
1. Classification and GST Rate: The plastic toys manufactured and supplied by the applicant are classified under Tariff Item 9503 00 30, attracting a GST rate of 12% (6% CGST + 6% SGST).

2. Input Tax Credit: The applicant cannot claim ITC for CGST-SGST charged separately in debit notes issued in the financial year 2020-21 for transactions that occurred in the financial year 2018-19. The claim must adhere to the timelines specified in sub-section (4) of Section 16 of the CGST Act, 2017.