DECEMBER 30, 2019

By S Narayanan, Advocate

A. Availment of ITC credit - restrictions on Recipient - Section 16 of CGST Act, 2017

1. The conditions for availing ITC u/s 16 (2) of CGST Act, 2017 by the recipient of goods or services are as under:

a. He is in possession of tax invoice

b. He has physically received the inputs; that the services have been rendered to him

c. Tax charged has been paid in respect of such supply

d. Supplier has furnished the returns

As per proviso, the value with tax has to be paid to the supplier within 180 days from the date of invoice.

2. It would be appreciated that first two conditions and also payment of value and tax to be paid to supplier can only be fulfilled by Recipient of goods or services, which are within his reach.

3. The other conditions of section 16(2)(c) and (d) above, which are not within the reach and control of the recipient of goods or services or both, should not be insisted upon, as law puts unreasonable restrictions on recipient of what is not in his reach.

4. The pathetic situation is that despite "bonafide act of recipient of goods or services", having already paid the value and tax to the suppliers for such supplies ( may be out of borrowed funds), yet the recipient is punished by denying ITC credit, only due to malafide act of "such supplier", in not having paid the tax collected and not having filed the returns on time .

5. Needless to mention, the Government also cannot sit perennially not taking any action on such defaulting suppliers and once the tax dues are collected with interest later, the only sufferer would be "such poor recipient", who would have run out of time to claim ITC credit lost.

Suggestion

The provisions of Section 16 (2) (c) and (d) of CGST act, 2017, needs to be omitted .

This would save the honest registered person (i.e Recipient of goods or services), from financial loss for no fault from his side and it is suggested that deterrent action should be taken against such defaulters.

A suitable provision may also be made in SECTION 79(1)(c) which deals with recovery of tax from "any other person from whom money is due or may become due to such person or who holds or may subsequently hold money for or on account of such person", by adding a proviso to said Section 79 (1)(c) mentioning that

"If such tax dues are met with by such any other person (who happens to be recipient of goods or services), then to the extent of such tax dues paid or remitted directly to the account of such defaulter supplier's GST registration, ( in respect of such supplies made to such any other person), the said recipient of goods or services, is entitled to avail ITC credit, provided such payment is made on or before 31 st of March of subsequent Financial year and not later, notwithstanding anything contained in any of the provisions of CGST Act, 2017."

B. Classification of product "flavoured milk "

1. Milk and cream concentrated or containing added sugar or other sweetening matter are covered by HS code 0402. But unlike "flavoured milk" which figured in specific classification under 04.01.11 attracting NIL tax, as it existed in Central Excise Tariff (6 digit classification ) prior to CETA, 1985, in the 8 digit classification of CE Tariff or in the present Customs Tariff, the word "flavoured milk", does not appear separately in the tariff.

2. And as milk itself is regarded as "beverage" and so would also be "flavoured milk". There is no definition of "flavoured milk" or "beverage", appearing in the Customs Tariff read with section or chapter note nor in the GST law, which adopts Customs Classification.

3. As per FSSAI Regulations, 2011 (section 2.1.3) ''Flavoured Milk" means the product prepared from milk and other products derived from milk, or both, and edible flavourings with or without addition of sugar, nutritive sweeteners, other non-diary ingredients including, stabilisers and food colours. Flavoured milk shall be subjected to heat treatment as provided in sub-regulation 2.1. 1 (general standards for milk and milk products). Where flavoured milk is dried or concentrated, the dried or concentrated product on addition of prescribed amount of water shall give a product conforming to the requirements of flavoured milk.

4. As per FOOD SAFETY AND STANDARDS (FOOD PRODUCTS STANDARDS AND FOOD ADDITIVES) REGULATIONS, 2011 (clause 5) Flavoured Milk, by whatever name called, may contain nuts (whole, fragmented or ground) chocolate, coffee or any other edible flavour, edible food colours and cane sugar. Flavoured milk shall be pasteurised, sterilised or boiled. The type of milk shall be mentioned on the label.

5. In Food Categorization Code given as per FSSAI - 01 code at 01.1.2 in Dairy-based drinks - it covers "flavoured milk and/or fermented" and at 01.2 - "it covers Fermented and renneted milk products (plain), excluding food category 01.1.2 (dairy-based drinks), fermented milk products, yoghurt, flavoured yoghurt, dahi, flavoured dahi, mishti dahi and Food Categorization Code 14 separately covers as - "Beverages, excluding dairy products".

6. The flavoured milk does not contain any alcohol and Note 3 of Chapter 22 of the Customs tariff states- "For the purposes of heading 2202, the term "non-alcoholic beverages" means beverages of an alcoholic strength by volume not exceeding 0.5 % vol. ".

7. The flavoured milk is not a "non-alcoholic beverage" and being "dairy product" will not be covered by 2202 99 30, when FSSAI Act covers "flavoured milk" as "milk and milk products including flavoured milk as dairy products". Hence, flavoured milk is appropriately be classifiable under HSN 0402 99 90.

8. The Advance Ruling Authority in Karnataka Goods and Services tax - Bengaluru in the case of M/s Karnataka Co-operative Milk Producers Federation Ltd. (Formerly known as KMF), in the order bearing No - "Advance Ruling No. KAR ADRG 88/ 2019 dated 26-09-2019 - 2019-TIOL-385-AAR-GST", has held that the commodity "Flavoured Milk" is classifiable under the Tariff heading 0402 9990, which is based on Apex Court and High Court decisions.

Suggestion

To have uniformity all over India, a clarification may be provided by CBIC that "flavoured milk" is classifiable under Tariff heading 0402 9990, so as to avoid any distorted interpretation and also to eliminate any confusion in the trade and in the minds of executive authorities, which will avoid unwarranted litigation.

C Job work - 5 % tax - Notification No. 31/2017- CT (Rate) dated 13th October 2017

1. Parent Notification No. 11/2017- CT (Rate) dated 28.6.2017 was amended by Notification No. 31/2017- CT (Rate) dated 13th October 2017 and Serial No. 26 (i) (f) which prescribes 2.5 % CGST ( 2.5 + 2.5 = 5 % ) is worded as  -

(i) Services by way of job work in relation to -  "(f) all food and food products falling under Chapters 1 to 22 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975 )"

2. There is a confusion, which prevails in the trade, as to what constitutes "all food and food products" and since there is no definition of "food and food product" either in GST law or in the Customs Tariff, CBIC is requested to issue clarification.

Suggestion

If intent of law is not to accord benefit of 5 % to "all products" falling under Chapters 1 to 22 in the First Schedule to the Customs Tariff Act, 1975 (51of 197 5), then the scope of "all food and food products" be given, by qualifying as to which are the items covered by Chapter 1 to 22 that fall within the ambit of "all food and food products", under the said Notification No. 11/2017- CT (Rate) dated 28.6.2017

OR

If the Government would like to rely on the definition and scope under any other Act (like FSSAI Act), then the words can be added accordingly to cover food and food products as covered by FSSAI Act, as given below.

(i) Services by way of job work in relation to -  "(f) all food and food products falling under Chapters 1 to 22 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975)" (all food and food products as covered by FSSAI Act)

(The views expressed are strictly personal.)