By Vinay Jain and Jay Chheda, Advocates
1. Whether the Circular No. 183/15/2022-GST dated 27.12.2022 dealing with remedy for mismatch of ITC between GSTR 3B and GSTR 2B during the period FY 2017-18 and 2018-19 is applicable to F.Y. 2019-20 also?
Facts and Pleadings: The Petitioner made supplies to one ABB Global Industries and Services Private Limited. However, the GSTIN Number mentioned in the invoices raised by the Petitioner was that of one ABB India Limited, which is an entirely independent entity. Thereby, the Petitioner had filed the writ petition in the nature of Mandamus to direct the Revenue to allow the Petitioner get access to the GST Portal and rectify the form GSTR-1 uploaded between FY 2017-18 to 2019-20 with respect to the abovementioned invoices. The rectification would enable the recipient of the invoices to take credit of the tax paid by the Petitioner notwithstanding the time limit prescribed under Section 16(4) of the CGST Act.
The Petitioner argued that vide the Circular bearing No.183/15/2022-GST dated 27.12.2022, bonafide and inadvertent mistakes made by a taxpayer at the time of filing of forms and filing the returns have been allowed to be rectified. The procedure for such cases has been prescribed in Paragraph 4 of the Circular. The said circular provides for rectification of errors for Financial Year 2017-18 and 2018-19, however the same shall be applicable for Financial Year 2019-20 as well.
The Revenue argued that the Circular would not apply considering the same is applicable only for Financial Years 2017-18 and 2018-19. Thereby, the Revenue contended that the petition has no merit and is liable to be dismissed.
Judgment passed by the High Court of Karnataka:
The High Court allowed the appeal filed by the Petitioner. The Court observed that Circular dated 27.12.2022 contemplates rectification of the bonafide and inadvertent mistakes committed by persons at the time of filing the forms and submitting the returns under the GST law. With respect to the same, the Court opined that the error committed by the Petitioner, wherein it mentioned the wrong GSTIN Number of the recipient in its invoices, was a bonafide error. The Petitioner had sufficient cause to approach the Court and thereby, the Court held that the aforesaid Circular would be applicable to the facts of the case.
The Court further observed that the procedure to rectify such mistakes has clearly been discussed in Paragraph 4 of the Circular. Thereby, the Court directed the Revenue to follow the procedure as mentioned in paragraph 4 of the aforesaid Circular. The same would be applicable for the Financial Years 2017-18, 2018-19 and 2019-20 despite the fact that the said Circular only applies to the years 2017-18 and 2018-19. The Court adopted a justice-oriented approach and thereby allowed the Petitioner to be entitled to the benefits of the Circular for F.Y. 2019-20 as well since the errors committed by Petitioner were identical in nature for previous years.
2. Whether exporter is required to pay service tax on reverse charge basis on bank charges paid in respect of the foreign currency transaction between their local and foreign banks engaged in facilitating the transfer of foreign exchange?
The Appellant is a manufacturer and exporter of bulk drugs. During the process of realization of export proceeds from buyers outside India, the services of both, the foreign banks and the Indian banks are used for the realization of funds in domestic Indian currency. A commission is paid to the foreign bank in this process by the Indian Bank. The same commission is then reimbursed by the Indian Bank from the Appellant. Revenue demanded service tax on the aforesaid reimbursement of charges made by the Appellant to the Indian Bank for the services provided by the Foreign Bank on reverse charge basis.
The issue was whether the Appellant is required to pay service tax on reverse charge basis for the charges paid by them in respect of the foreign currency transaction between the Indian Bank and the foreign bank engaged in facilitating the transfer of foreign exchange?
The Appellant argued that there was no contract between the Appellant and the foreign bank. Thereby, there was no direct dealing between them. Further, the service charges were paid by the Indian Bank to the foreign bank as per the arrangement that existed between the two banks and there was no involvement of the Appellant in the same. The Appellant argued that in the present case, the service recipient of the service provided by the Foreign Bank is the Indian Bank and therefore, the Appellant is not liable to pay the service tax for the same.
Judgment passed by CESTAT- Ahmedabad:
The Appellant referred to the Circular No. 20/2013-14-ST-I (Commissioner of ST-I, Mumbai T.N.) dated 10.02.2014. The said Circular had examined URC 522 (Uniform Rules for Collection) and UCP 600 (Uniform Customs & Practice for Documentary Credits) and summarized it. The Circular noted that there exists an implied contract between the Indian Bank and the foreign bank, whereby the foreign bank only recognizes the Indian Bank for providing their services and thereby, collecting the charges pursuant to the services provided. The exporter or the importer in India is usually unaware of the charges charged by the foreign bank. Hence, the Indian Bank is the recipient of Service in such cases and hence, is required to pay the service tax under Section 66A of the Finance Act, 1994. They further observed that for a person for a person to be treated as a recipient of service, it would be important that they know who the service provider is and there should be an agreement to provide the service, whether orally or in writing.
Thereby, by considering the facts of the case and the articles of URC 522 and UCP 600, the CESTAT concluded that the services are provided by the foreign bank to the Indian bank.
Dishman Pharmaceuticals and Chemicals Ltd. v. CST Service Tax- Ahmedabad- 2023-VIL-24-CESTAT-AHM-ST