Analysis of Clarifications issued by the C.B.E. & C.

[CASanjay Kumawat]

Introduction

Due to various recommendations received by the C.B.E. & C from the various sectors of the economy, the C.B.E. & C. has clarified the following issues, are as follows:

1. Supply of goods on approval basis within the State or in another State

2. Taxability of Printing contracts (Issue related to Composite Supply)

3. GST applicability on the Superior Kerosene Oil (SKO) retained for the manufacturer of Linear Alkyl Benzene (LAB)

4. Classification of unstitched Salwar Suits

Accordingly, a discussion on the above matters has been done, as follows:

1. Supply of goods on approval basis within the State or in another State

Background

The suppliers of jewellery etc. who are registered in one State but may have to visit other States (other than their State of registration) and need to carry the goods (such as jewellery) along for approval. In such cases if jewellery etc. is approved by the buyer, then the supplier issues a tax invoice only at the time of supply.

Issue:

The suppliers are not able to ascertain their actual supplies beforehand and while ascertainment of tax liability in advance is a mandatory requirement for registration as a casual taxable person, the supplier is not able to register as a casual taxable person.

Clarifications:

1. As per Rule 55(1)(c) of the CGST Rules, 2017, the supplier shall issue a delivery challan for the initial transportation of goods where such transportation is for reasons other than by way of supply. Further, sub-rule (3) of the said rule also provides that the said delivery challan shall be declared as specified in Rule 138 of the said Rules. It is, further, provided that sub-rule (4) of Rule 55 of the said Rules provides that “Where the goods being transported are for the purpose of supply to the recipient but the tax invoice could not be issued at the time of removal of goods for the purpose of supply, the supplier shall issue a tax invoice after delivery of goods”.

2. A combined reading of the above provisions indicates that the goods which are taken for supply on approval basis can be moved from the place of business of the registered supplier to another place within the same State or to a place outside the State on a delivery challan along with the e-way bill wherever applicable and the invoice may be issued at the time of delivery of goods.

3. The person carrying the goods for such supply can carry the invoice book with him so that he can issue the invoice once the supply is fructified.

4. All such supplies, where the supplier carries goods from one State to another and supplies them in a different State, will be inter-state supplies and attract IGST in terms of Section 5 of the Integrated Goods and Services Tax Act, 2017. .

5. It is also clarified that this clarification would be applicable to all goods supplied under similar situations.

[ C. B. E. & C Circular No. 10/10/2017-GST, dated 18.10.2017]

 

2. Taxability of Printing contracts (Issue related to Composite Supply)

Background:

For the purpose of printing, supply of books, pamphlets, brochures, envelopes, annual reports, leaflets, cartons, boxes etc., printed with design, logo, name, address or other contents supplied by the recipient of such supplies.

Issues:

Whether such supplies would constitute supply of-

1. goods falling under Chapter 48 or 49 of the First Schedule to the Customs Tariff Act, 1975 (51of 1975) or ,  or
2. supply of services falling under heading 9989 of the scheme of classification of services annexed to Notification No. 11/2017-CT(R).?

Clarifications:

Supply of printed material with identity of recipient is composite supply

1. Supply of books, pamphlets, brochures, envelopes, annual reports, leaflets, cartons, boxes etc. printed with logo, design, name, address or other contents supplied by the recipient of such printed goods, are composite supplies and the question, whether such supplies constitute supply of goods or services would be determined on the basis of what constitutes the principal supply.

Meaning of Principal Supply

2. Principal supply has been defined in Section 2(90) of the CGST Act, 2017 as supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary.

Supply of services classified under heading 9989

3. In the case of printing of books, pamphlets, brochures, annual reports, and the like, where only content is supplied by the publisher or the person who owns the usage rights to the intangible inputs while the physical inputs including paper used for printing belong to the printer, supply of printing [of the content supplied by the recipient of supply] is the principal supply and therefore such supplies would constitute supply of service falling under heading 9989 of the scheme of classification of services.

Supply of goods classified in Chapter 48 or 49, of the Customs Tariff

4. In case of supply of printed envelopes, letter cards, printed boxes, tissues, napkins, wall paper etc. falling under Chapter 48 or 49, , printed with design, logo etc. supplied by the recipient of goods but made using physical inputs including paper belonging to the printer, predominant supply is that of goods and the supply of printing of the content [supplied by the recipient of supply] is ancillary to the principal supply of goods and, therefore, such supplies would constitute supply of goods falling under respective headings of Chapter 48 or 49, of the Customs Tariff.

Author’s Note: Classification of supply of goods or supply of services can be understood through examples: Supply of service: M/s. JK Private Limited (referred as “JKPL”) has entered into contract with M/s Yuvance Printings Private Limited for printing of its annual reports for the Financial Year 2017-18. Content for the printing of annual report will be supplied by the JKPL In this case, after printing, supply of printed annual reports by M/s. Yuvance Printings Private Limited to JKPL shall be considered as ‘supply of services’ falling under heading 9989 of the scheme of classification of services. As the supply of printing of the content (i.e., annual report) supplied by the recipient of supply (i.e., JKPL) is the principal supply. Supply of Goods: M/s. Arvind Associates has entered into contract with M/s Yuvance Printings Private Limited for supply of letter heads and envelops with logo of Arvind Associates. Design and Logo details will be supplied by the Arvind Associates. In this case, after printing, supply of letter head and envelope by M/s. Yuvance Printings Private Limited to Arvind Associates shall be considered as ‘supply of goods’ under respective headings of Chapter 48 or 49, of the Customs Tariff. As the supply of printing of the content (i.e., logo) supplied by the recipient of supply(i.e., Arvind Associates) is ancillary to the principal supply of goods (i.e., supply of letter head and envelops).

[ C. B. E. & C Circular No. 11/11/2017-GST, dated 20.10.2017]

3. GST applicability on the Superior Kerosene Oil (SKO) retained for the manufacturer of Linear Alkyl Benzene (LAB)

Background:

LAB manufacturers receive superior Kerosene oil (SKO) from, a refinery, say, Indian Oil Corporation (IOC). They extract n-Paraffin (C9-C13 hydrocarbons) from SKO and return back the remaining of SKO to the refinery.

LAB manufacturers generally receive superior kerosene oil [SKO] from a refinery through a dedicated pipeline; on an average about 15 to 17% of the total quantity of SKO received from refinery is retained and balance quantity ranging from 83%-85% is returned back to refinery.

The retained SKO is towards extraction of Normal Paraffin, which is used in the manufacturing of LAB. In this transaction consideration is paid by LAB manufactures only on the quantity of retained SKO (n-paraffin).

Issues:

1. Whether in this transaction GST would be levied on SKO sent by IOC for extracting n-paraffin or only on the n-paraffin quantity extracted by the LAB manufactures ?

2. Whether the return of remaining Kerosene by LAB manufactures would separately attract GST in such transaction ?

Clarifications:

1. GST will be payable by the refinery (IOC, in our case) on the value of net quantity of superior kerosene oil (SKO) retained (i.e., 15% to 17%) for the manufacture of Linear Alkyl Benzene (LAB).

2. The refinery (IOC) would be liable to pay GST on such returned quantity of SKO, when the same is supplied by it to any other person.

3. The clarification issued in the context of Goods & Service Tax (GST) law only and past issues, if any, will be dealt in accordance with the law prevailing at the material time.

[ C. B. E. & C Circular No. 12/12/2017-GST, dated 26.10.2017]

4. Classification of unstitched Salwar Suits

Background:

Before becoming readymade articles or an apparel, the fabric is cut from bundles or thans and sold in that unstitched state. The consumers buy these sets or pieces and get it stitched to their shape and size.

Issue:

Whether fabrics are classifiable under chapters 50 to 55 of the First Schedule to the Customs Tariff Act, 1975 ?

Clarifications:

1. Fabrics are classifiable under chapters 50 to 55 of the First Schedule to the Customs Tariff Act, 1975 on the basis of their constituent materials and attract a uniform GST rate of 5% with no refund of the unutilized input tax credit.

2. Mere cutting and packing of fabrics into pieces of different lengths from bundles or thans, will not change the nature of these goods and such pieces of fabrics would continue to be classifiable under the respective heading as the fabric and attract the 5% GST rate.

[ C. B. E. & C Circular No. 13/13/2017-GST, dated 27.10.2017]

The author is a practicing CA based in Jaipur, Rajasthan and is a Diploma holder in IFRS, ACCA, UK. He can be reached at s[email protected].