1478

Legal Update

Circulars/Notifications
Given below are the important Circulars and Notifications issued by the CBDT, CBEC and
FEMA besides those related to GST, issued since the publication of the last issue of the journal,
for information and use of members. Readers are requested to use the citation/website or
weblink to access the full text of desired circular/notification. Feedback and suggestions on this
column can be submitted at eboard@icai.in
LLLUDLVHGWR` ODNKV1RWLğFDWLRQ1R
DIRECT (Matter on Direct Taxes has been
contributed by the Direct Taxes GDWHG
TAXES Committee of the ICAI) In exercise of the powers conferred by Section
I. NOTIFICATIONS 10(10)(ii) of the Income tax Act, 1961, the Central
([FHSWLRQQRWLğHGIRUWKHSXUSRVHVRI Government, having regard to the maximum
FODXVHLLRIWKHSURYLVRWR6HFWLRQ amount of gratuity payable to employees, has vide
YLLE LQ VXSHUVHVVLRQ RI 1RWLğFDWLRQ 1R  GDWHG
1RWLğFDWLRQ1RGDWHG for the purposes of the said sub-clause in relation
Where a company, other than a company in which
public are substantially interested, issues shares at
a premium to a person being a resident, Section
56(2)(viib) brings to tax in the hands of such
company, the difference between the aggregate
consideration received for such shares as exceeds
the fair market value of the shares under the head
“Income from Other Sources”.
However, such provision would not be attracted
where the consideration for issue of such shares
this notification specified ` 20 lakhs as the limit
to employees who retire, or become incapacitated
before retirement, or expire on or after 29.03.2018,
or whose employment is terminated on or after
29.03.2018.
The complete text of the above Notifications can
be downloaded from the link below:
http://w w w.income t a xindia .gov.in/Page s/
communications/notifications.aspx
II. PRESS RELEASES / INSTRUCTIONS / OFFICE
MEMORANDUM
is received by a company from a class or classes 2UGHUXQGHUVHFWLRQIRUH[WHQVLRQRIGXHGDWHIRU
of persons as may be notified by the Central ğOLQJRI,75V$XGLW5HSRUWIRUWKH$<LQUHVSHFW
Government in this behalf.
Accordingly, in exercise of such powers conferred
and in supersession of Notification No. 24/2018,
dated 24.05.2018, the Central Government has,
vide this notification, notified that the provisions of
Section 56(2)(viib) shall not apply to consideration
received by a company for issue of shares that
exceeds the face value of such shares, if the said
consideration has been received from a person,
being a resident, by a company which fulfils the
conditions specified in para 4 of the notification
number G.S.R. 127(E), dated 19.02.2019 issued
by the Ministry of Commerce and Industry in
the Department for Promotion of Industry and
Internal Trade and files the declaration referred to
in para 5 of the said notification of the Department
for Promotion of Industry and Internal Trade.
This notification shall be deemed to have come
into effect from 19.02.2019.
 0D[LPXP DPRXQW RI JUDWXLW\ H[HPSW DV SHU 6HFWLRQ
98 THE CHARTERED ACCOUNTANT APRIL 2019
RI.HUDOD5HJLRQŋ2UGHU)1R,7$,,GDWHG

In the aftermath of order of the Hon’ble Kerala
High Court in WP Nos. 35382, 32954, 33135 &
37052, dated 19.12.18, the taxpayers of Kerala
have filed condonation petitions before the CBDT
under section 119(2). In these petitions, it has been
submitted that general extension of one month
for filing returns and audit reports till 31.10.18
requires further relaxation in case of taxpayers
of Kerala since during the devastating floods of
August, 2018 many traders and businessmen had
lost the documents/accounts leading to delay
in finalisation of accounts and consequential
difficulties in filing of income-tax return and tax-
audit report by 31.10.18.
On due consideration of the matter, the CBDT,
to mitigate the genuine difficulties faced by the
taxpayers in Kerala, in exercise of its powers
under section 119(2), has directed that in case of
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taxpayers of Kerala for whom the due date for filing
return of income and report of audit pertaining to
assessment year 2018-19 was 31.10.18, all returns
of income and reports of audit which are filed
till 28.2.19 shall be deemed to have been filed by
31.10. 18.
Further, in partial modification of orders of
the CBDT dated 24.09.18 & 08.10.18 in F.No.
225/358/2018/ITA.II. in accordance with
relaxation in para above, all returns of income filed
between 01.10.18 to 31.10.18 by the taxpayers of
Kerala for whom the due date for filing of return of
income was 31.10.18, shall not be liable to levy of
interest as per provisions of Section 234A.
The returns by taxpayers of Kerala covered in this
order, if not processed till now, shall be processed in
accordance with the directions contained in paras
above. If the return has already been processed,
the same would be rectified by the CIT-CPC,
Bengaluru or the concerned jurisdictional income-
tax authority, as the case may be, in exercise of
statutory powers under section 154 in accordance
with the directions in paras above.
This order is applicable only to those taxpayers
of Kerala who were required to file their income-
tax return and report of audit for assessment year
2018-19 by 31.10.18.
The complete text of the above order can be
downloaded from the link below:
http s ://w w w.incometa xindia .gov.in/L ist s/
Latest%20News/Attachments/300/Order_119_
MiscComm_29_2_19.pdf
2. Task Force for drafting a New Direct Tax
Legislation - Extension of term till 31.05.2019
– Office Order (F. No. 370149/230/2017), dated
28-02-2019
In order to review the existing Income-tax
Act, 1961 and to draft a new direct tax law in
consonance with economic needs of the country,
the Government had constituted a Task Force vide
Office Order of even number dated 22.11.2017.
The Task Force has since been reconstituted under
Shri Akhilesh Ranjan, Member (Legislation),
CBDT vide Office Order of even number dated
26.11.2018, other terms and conditions of the
Office Order dated 22.11.2017 remaining the same
except that the Task Force was authorised to co-
opt any person as Member, if considered necessary.
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1479
Legal Update
Accordingly, Ms. Pragya S. Saksena IRS 87004 has
been co-opted as Member vide office order of even
number dated 21.12.2018.
As per the Order dated 26.11.2018, the Task Force
so reconstituted is required to submit its report to
the Government by February 28, 2019.
The term of the Task Force is extended by three
months, i.e., the Task Force shall now be required
to submit its report by 31.05.2019.
The complete text of the above Order can be
downloaded from the link below:
http s ://w w w.incometa xindia .gov.in/L ist s/
Latest%20News/Attachments/301/Task-Force-
for-drafting-a-New-Direct-Tax-Legislation-
Extension-of-term-28-02-2019.pdf
3. TIEA between India and Brunei signed on
28.02.2019 – Press Release, dated 28-02-2019
The Government of Republic of India and the
Government of His Majesty the Sultan And Yang
Di-Pertuan Of Brunei Darussalam signed an
Agreement for the Exchange of Information and
Assistance in Collection with respect to Taxes
(TIEA) on 28.02.2019 at New Delhi. The Agreement
was signed by Mr. P. C. Mody, Chairman, CBDT
on behalf of India and Dato Paduka Haji Sidek Ali,
High Commissioner of Brunei Darussalam to India
on behalf of Brunei Darussalam.
The Agreement enables exchange of information,
including banking and ownership information
between the two countries for tax purposes.
It is based on international standards of tax
transparency and exchange of information and
enables sharing of information on request as well as
on automatic basis. The Agreement also provides
for mutual assistance in collection of tax revenue
claims between both countries.
The Agreement will enhance mutual co-operation
between India and Brunei Darussalam by providing
an effective framework for exchange of information
in tax matters which will help curb tax evasion and
tax avoidance.
The complete text of the above Press release can
be downloaded from the link below:
http s ://w w w.incometa xindia .gov.in/L ist s/
Press%20Releases/Attachments/747/
PressRelease_TIEA_between_India_
Brunei_28_2_19.pdf
THE CHARTERED ACCOUNTANT APRIL 2019 99
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4. Signing of Bilateral Agreement for Exchange
of CbC reports between India and the USA –
Press Release, dated 15-03-2019
Section 286(4) requires that a constituent entity
of an international group, resident in India, other
than a parent entity or an alternate reporting entity
of an international group, resident in India, shall
furnish the Country-by-Country (CbC) Report
in respect of the said international group for a
reporting accounting year within the period as
may be prescribed, if the parent entity of the said
international group is resident of a country or
territory —
Õ where the parent entity is not obligated to
file the CbC Report;
Õ with which India does not have an
agreement providing for exchange of the
CbC Report; or
Õ where there has been a systemic failure of
the country or territory and the said failure
has been intimated by the prescribed
authority to such constituent entity.
Vide Notification in GSR 1217 (E) dated 18.12.2018
w.e.f. 18.12.2018, amendments to the Income-tax
Rules 1962 have been carried out to provide that
the period for furnishing of the CbC report (local
filing) shall be twelve months from the end of the
reporting accounting year.
Further, vide Circular No. 9/2018, dated 26.12.2018,
CBDT as a one-time measure, in exercise of powers
conferred under section 119, extended the period
for furnishing of the CbC Report (local filing) in
respect of reporting accounting years ending on or
before 28.02.2018 up to 31.03.2019.
The absence of an agreement between India and
USA till now entailed a possibility of local filing
of CbC Reports in India. However, a Bilateral
Competent Authority Arrangement, along with
an underlying Inter-Governmental Agreement,
for exchange of CbC Reports between India and
the USA has now been finalised and will be signed
on or before 31.03.2019. This would enable both
the countries to exchange CbC Reports filed
by the ultimate parent entities of International
Groups in the respective jurisdictions, pertaining
to the financial years commencing on or after
01.01.2016. As a result, Indian constituent entities
of international groups headquartered in USA,
who have already filed CbC Reports in the USA,
100 THE CHARTERED ACCOUNTANT APRIL 2019
would not be required to do local filing of the CbC
Reports of their international groups in India.
The complete text of the above Press release can
be downloaded from the link below:
http s ://w w w.incometa xindia .gov.in/L ist s/
Press%20Releases/Attachments/748/
PressRelease_Signing_Bilateral_Agreement_
India%20_USA_15_3_2019.pdf
(Matter on Indirect Taxes has been contributed
by the GST & Indirect Taxes Committee of ICAI)
INDIRECT 1. GST
TAXES Mentioning details of inter-state
supplies made to unregistered
persons in GST returns
A registered supplier is required
to mention the details of inter
-state supplies made to unregistered persons,
composition taxable persons and UIN holders in
Table 3.2 of FORM GSTR-3B. Further, the details
of all inter-state supplies made to unregistered
persons where the invoice value is up to ` 2.5 lakhs
(rate-wise) are required to be reported in Table 7B
of FORM GSTR-1 but the number of registered
persons has not reported the details of inter-state
supplies made to unregistered persons in Table 3.2
of FORM GSTR-3B. However, the said details have
been mentioned in Table 7B of FORM GSTR-1.
Non-mentioning of the said information results in:
(i) non-apportionment of the due amount of
IGST to the State where such supply takes
place; and
(ii) a mis-match in the quantum of goods
or services or both actually supplied in
a State and the amount of integrated tax
apportioned between the Centre and that
State, and consequent non-compliance
of sub-section (2) of Section 17 of the
Integrated Goods and Services Tax Act,
2017.
The Central Government vide Circular no
89/08/2019-GST dated the 18th Feb, 2019 has
clarified that apportionment of IGST collected
on inter–state supplies place is based on the
information reported in Table 3.2 of FORM
GSTR-3B. Accordingly, persons making inter-State
supplies to unregistered persons shall report the
details of such supplies both in Table 3.2 of FORM
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GSTR-3B and Table 7B of FORM GSTR–1 and
contravention of any of the provisions of the Act
or the rules made there under attracts penal action
under the provisions of Section 125 of the CGST
Act.
Comment: It appears that the consequence of
penalty ought not to be the reason for correctly filing
the returns. Care must be taken to file returns with
correct and complete information.
[Circular no 89/08/2019-GST dated the
18th Feb, 2019]
Compliance of Rule 46(n) of the CGST Rules,
2017 while issuing invoices in case of inter-state
supply
It has been brought to the notice that a number
of registered persons (especially the banking,
insurance and telecom sectors, etc.) are not
mentioning the place of supply along with the
name of the State in case of a supply made in the
course of interstate trade or commerce.
Therefore, in order to ensure uniformity in the
implementation of the provisions of law , the Central
Government vide Circular No. 90/09/2019-GST
dated 18th Feb, 2019 has clarified that all registered
persons making supply of goods or services or both
in the course of inter-State trade or commerce shall
specify the place of supply along with the name of
the State in the tax invoice.
The provisions of Sections 10 and 12 of the
Integrated Goods and Services Tax Act, 2017 may
be referred to in order to determine the place of
supply in case of supply of goods and services
respectively. Contravention of any of the provisions
of the Act or the rules made there under attracts
penal action under the provisions of Sections 122
or 125 of the CGST Act.
Comment: This is a very important information
that industry needs to take care as it affects flow of
revenue to the appropriate State based on the Place
of Supply information.
[Circular No. 90/09/2019-GST dated 18th Feb, 2019]
Clarification regarding tax payment made
for supply of warehoused goods while being
deposited in a customs bonded warehouse
Supply of warehoused goods while deposited in
custom bonded warehouses had the character of
inter-state supply as per the provisions of IGST Act,
2017. But, due to non-availability of the facility on
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1481
Legal Update
the common portal, suppliers have reported such
supplies as intra-state supplies and discharged
central tax and state tax on such supplies instead
of integrated tax.
Therefore, the Central Government vide Circular
no. 91/10/2019-GST dated 18th Feb, 2019 in view
of revenue neutral position of such tax payment
and that facility to correctly report the nature
of transaction in FORM GSTR-1 furnished on
the common portal was not available during the
period July, 2017 to March, 2018, has clarified that
the suppliers who have paid central tax and state
tax on such supplies, during the said period, would
be deemed to have complied with the provisions
of law as far as payment of tax on such supplies
is concerned as long as the amount of tax paid as
central tax and state tax is equal to the due amount
of integrated tax on such supplies.
As per circular 3/1/2018-IGST dated 25 May 2018,
w.e.f. 1st April 2018 the supply of goods before their
clearance from the warehouse would not be subject
to the levy of integrated tax.
Comment: This is a welcome relief to trade and
industry. Similar instances have occurred in the case
of outbound intermediary services where IGST has
been paid. While there is compelling similarity, this
circular expressly applies to warehoused goods only.
Another instance where incorrect taxes have been
paid are cases where debonding of warehoused goods
on which BCD+IGST has been paid whereas circular
50/2018-Customs dated 6 Dec 2018, which states
that ‘duties foregone on import’ only need to be paid
but on depreciated values.
Reference to premise – ‘revenue neutral’ position
of payment of taxes – stated in this circular, is
interesting and may be kept for future reference while
addressing bona fide errors in payment of taxes.
[Circular no. 91/10/2019-GST dated 18th Feb, 2019]
Exemption from obtaining registration w.e.f.
April 1, 2019
The Central Government vide Notification No.
10/2019-Central Tax dated 07th March, 2019
exempted under section 23 of CGST Act, category
of persons who are engaged in exclusive supply
of goods and whose aggregate turnover in the
financial year does not exceed ` 40 lakh, except in
case of -
i. Persons compulsorily required to be
registered under section 24 of the said Act;
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Legal Update
ii. Persons engaged in making supplies of the Comment: Previously, 5/2017 was issued under
following goods: section 23(2) which exempted those who are entirely
supplying exempted goods or services but are liable
S. Tariff item, sub- Description
to registration only due to their liability to tax under
No. heading, heading
9(3). It is to be noted that where aggregate turnover
or Chapter
1. 2105 00 00 Ice cream and includes income by way of interest or discount on
other edible loans and advances the benefit of this exemption
ice, whether or notification CANNOT be taken. ‘Exclusively
not containing engaged in supply of goods’ is a condition of the
cocoa. notification and Section 22 can be invoked if this
2. 2106 90 20 Pan masala condition is violated on any day in the year and tax
from ` 20 lacs upto the date when this condition
3. 24 All goods, i.e.
stands breached may become due without any
Tobacco and
availability of input tax credit.
manufactured
tobacco [Notification No. 10/2019-Central Tax dated
substitutes 07th March, 2019]
iii. Persons engaged in making intra-State Due dates for furnishing FORM GSTR-1 for the
supplies in following 10 States/ Union months of April, May and June, 2019
Territories:- The Central Government vide N No. 11/2019 – CT;
™ Northeastern States: Arunachal N No. 12/2019 – CT; N No. 13/2019 – CT dated
Pradesh, Manipur, Meghalaya, 07th March, 2019 has notified the due dates for
Mizoram, Nagaland, Sikkim, Tripura, furnishing the details of outward supply of goods or
Uttarakhand services or both in FORM GSTR-1 and summary
of inward and outward supply in FORM GSTR-3B
™ Southern States: Telangana
for the period April to June, 2019 as follows:
™ Union Territory: Puducherry
Form Due Date
iv. Persons opting for voluntary registration
under section 25(3) or such registered GSTR 1 (aggregate 31st July, 2019
persons who intend to continue with their turnover of up to 1.5 crore
registration under the said Act. rupees)
However, w.e.f. 1st Feb, 2019 Govt. has made GSTR 1 (aggregate 11th day of the month
the amendment to Section 22 of the CGST Act turnover of more than 1.5 succeeding such
to increase the threshold exemption limit for crore rupees) month
registration from ` 10 lakhs to ` 20 lakhs for certain GSTR 3B 20th day of the month
specified states. succeeding such
month
Present position is as follows:
[Notification No. 11/2019 – Central Tax and
S.No. Threshold State Notification No. 12/2019 – Central Tax dated
1. Upto ` 10 lakhs Manipur; Mizoram; Nagaland; 07th March, 2019]
Tripura.
Extension in the limit of threshold of aggregate
2. Upto ` 20 lakhs Specified States turnover for availing Composition Scheme to
Assam, Arunachal Pradesh, ` 1.5 crores
Himachal Pradesh, Meghalaya, W.e.f. 1st April, 2019, the Central Government vide
Sikkim and Uttarakhand. Notification No. 14/2019 – Central Tax dated 07th
Other than Specified States March, 2019 notified that an eligible registered
/ UT person, whose aggregate turnover in the preceding
Telangana, Puducherry financial year did not exceed ` 1.5 crores, may opt
to pay tax under Composition scheme. However,
3. Upto ` 40 lakhs All States other than 1 & 2 the said aggregate turnover shall be ` 75 lakh in

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 1483

Legal Update
case of persons registered under following States:- S. Tariff item, sub-heading, Description
™ Arunachal Pradesh No. heading or Chapter
1. 2105 00 00 Ice cream and
™ Manipur other edible
™ Meghalaya ice, whether or
not containing
™ Mizoram cocoa.
™ Nagaland 2. 2106 90 20 Pan masala
3. 24 All goods, i.e.
™ Sikkim Tobacco and
™ Tripura manufactured
tobacco
™ Uttarakhand substitutes
Further, the option of composition scheme under Comment: Amendment to Section 10 increasing the
section 10 of the CGST Act shall be restricted in threshold is now implemented.
case of such person who is a manufacturer of the [Notification No. 14/2019 – Central Tax dated
goods, the description of which is specified in the 07th March, 2019]
adjacent table:
New scheme for supplier of services with a tax rate of 6%
W.e.f. April 1, 2019 the Central Government vide Notification No. 2/2019-Central Tax (Rate) dated 07th
March, 2019 notified Composition scheme in case of intra-State supply of goods or services or both, at
the rate along with the conditions specified below:
Description of supply Rate (per Conditions
cent)
First supplies of goods 3 1. Supplies are made by a registered person, -
or services or both up to (i) whose aggregate turnover in the preceding financial year
an aggregate turnover of was ` 50 lakh or below;
` 50 lakhs made on or
after the 1st day of April (ii) who is not eligible to pay tax under sub-section (1) of
in any financial year, by a Section 10;
registered person. (iii) who is not engaged in making any supply which is not
leviable to tax;
(iv) who is not engaged in making any inter-state outward
supply;
(v) who is neither a casual taxable person nor a non-resident
taxable person;
(vi) who is not engaged in making any supply through an
electronic commerce operator who is required to collect
tax at source under section 52; and
(vii) who is not engaged in making supplies of:
a. Ice cream and other edible ice, whether or not
containing cocoa.
b. Pan masala
c. Tobacco and manufactured tobacco substitutes

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Legal Update
2. Where more than one registered persons are having same
PAN, central tax on supplies by all such registered persons is
paid at the given rate.
3. The registered person shall not collect any tax from the
recipient nor shall he be entitled to any credit of input tax.
4. The registered person shall issue, instead of tax invoice, a
bill of supply.
5. The registered person shall mention the following words at
the top of the bill of supply, namely: -
‘Taxable person paying tax in terms of Notification No.
2/2019-Central Tax (Rate) dated 07.03.2019, not eligible to
collect tax on supplies’.
6. Liability to pay central tax at the rate of 3% on all outward
supplies notwithstanding any other notification issued
under section 9 or Section 11 of said Act.
7. Liability to pay central tax on inward supplies on reverse
charge under sub-section (3) or sub-section (4) of Section 9 of
said Act.
Explanation: For the purposes of this notification, the
expression “first supplies of goods or services or both” shall, for
the purposes of determining eligibility of a person to pay tax
under this notification, include the supplies from the first day
of April of a financial year to the date from which he becomes
liable for registration under the said Act but for the purpose of
determination of tax payable under this notification shall not
include the supplies from the first day of April of a financial
year to the date from which he becomes liable for registration
under the Act.
It may be noted that while computing aggregate [Notification No. 2/2019-Central Tax (Rate) dated
turnover in order to determine eligibility of a 07th March, 2019]
registered person to pay central tax at the rate of Clarification related to treatment of sales
3%, value of supply of exempt services by way of promotion scheme under GST
extending deposits, loans or advances in so far as
the consideration is represented by way of interest The Central Government vide Circular No.
or discount, shall not be taken into account. 92/11/2019-GST dated 07th March, 2019 clarified
the following issues raised with respect to tax
Comment: Another welcome relief to Service treatment of sales promotion schemes under GST:-
Providers that is modelled on the SSI-scheme under
Central Excise laws. Exemption runs from April 1. Free samples and gifts
2019 till Turnover reaches ` 50 lakhs. This is an Since the consideration is an important element of
optional facility through a rate notification that is
the definition supply, therefore the samples which
‘notwithstanding’ any other rate notification issued.
That is, this notification overrides 11/2017-CT(R). are supplied free of cost, without any consideration,
As it is optional, registered person should carefully do not qualify as “supply” under GST, except where
consider the conditions before opting for the same. the activity falls within the ambit of Schedule I of
the said Act.
This facility and composition under section 10
operate as mutually exclusive. Thus, traders and Further, clause (h) of sub-section (5) of Section
manufacturers of goods and restaurant service 17 of the said Act clarified that input tax credit
providers who are eligible for composition (even if shall not be available to the supplier on the inputs,
not opted) will not enter this facility. input services and capital goods to the extent they

104 THE CHARTERED ACCOUNTANT APRIL 2019 www.icai.org


are used in relation to the gifts or free samples.
However, where the activity of distribution of gifts
or free samples falls within the scope of “supply” as
per Schedule I of the said Act, the supplier would
be eligible to avail of the ITC.
2. 'Buy one get one free' offer
It may appear at first glance that in case of offers
like “Buy One, Get One Free”, one item is being
“supplied free of cost” without any consideration.
In fact, it is not an individual supply of free goods
but a case of two or more individual supplies
where a single price is being charged for the entire
supply.
Taxability of such supply will be dependent upon
as to whether the supply is a composite supply
or a mixed supply and the rate of tax shall be
determined as per Section 8 of the said Act. And,
ITC shall be available to the supplier in relation to
such supply.
3. Discounts including ‘buy more, save more’
offers
Discounts offered by the suppliers to customers
including staggered discount under buy more, save
more scheme and post supply / volume discounts
established before or at the time of supply shall be
excluded to determine the value of supply provided
they satisfy the parameters laid down in sub-
section (3) of Section 15 of the said Act, including
the reversal of ITC by the recipient of the supply as
is attributable to the discount. Further, the supplier
shall be entitled to avail the ITC for such inputs,
input services and capital goods used in relation to
the supply.
4. Secondary Discounts
Value of supply shall not include any discount
by way of issuance of credit note(s), except
in cases where the provisions contained in
clause (b) of sub-section (3) of Section 15 of
the said Act are satisfied. There is no impact
on availability or otherwise of ITC in the hands
of supplier.
Comment: This is a much needed clarification
that is issued before filing Annual Returns.
Financial / commercial credit notes are now
well understood and permitted except that
output tax adjustment is clearly barred if the
conditions of 15(3) are not satisfied. Although
credit to Supplier is not restricted, there seems to
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1485
Legal Update
be no mention of effect under Rule 37 to Recipient
when such financial / commercial credit notes
are issued.
[Circular No. 92/11/2019-GST dated
07th March, 2019]
TCS would not be includible in the value of
supply under GST
The Central Government vide Corrigendum to
Circular No. 76/50/2018-GST dated 31st December,
2018 has clarified that Tax collection at source
(TCS) is not a tax on goods but an interim levy
on the possible “income” arising from the sale of
goods by the buyer and to be adjusted against the
final income-tax liability of the buyer. Accordingly,
for the purpose of determination of value of supply
under GST, Tax collected at source (TCS) under
the provisions of the Income tax Act, 1961 would
not be includible as it is an interim levy not having
the character of tax.
Comment: It is a welcome relief that Government
has issued this Corrigendum that ‘taxable value’
under section 15 will not include TCS imposed
under Income-tax Act. With TCS having been
introduced on certain new articles like motor cars,
the previous circular had caused lot of distress to
industry.
[Corrigendum to Circular No. 76/50/2018-GST
dated 31st December, 2018]
FEMA (Matter on FEMA has been
contributed by CA. Manoj Shah,
Mumbai and CA. Hinesh Doshi,
Mumbai)
Revised Trade Credit Framework
A.P. (DIR Series) Circular No. 23
dated 13/03/2019
The principal regulations governing ECB and
Trade Credits have been rationalised and notified
on 17th December 2018 through Notification No.
FEMA 3R/2018-RB. The new ECB framework
was issued on January 16, 2019 vide A.P. (DIR
Series) Circular No. 17. The Trade Credit (TC)
framework based on the aforementioned
notification is now issued. TC can be raised
in any freely convertible foreign currency or
Indian Rupee.
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The salient features of Trade Credit (TC) framework are listed herein as follows :
Sr. Parameters FCY denominated TC INR denominated TC
No.
1. Forms of TC Buyers’ Credit and Suppliers’ Credit
2. Eligible Borrower Person resident in India acting as an importer
3. Amount under automatic Up to USD 150 million or equivalent per import transaction for
route oil/gas refining & marketing, airline and shipping companies. For
others up to USD 50 million or equivalent per import transaction.
4. Recognised Lenders a. Suppliers Credit – Supplier of goods located outside India.
b. Buyers Credit – Banks, financial institutions, foreign equity
holders located outside India and financial institutions in IFSC
located in India.
Note: Participation of Indian Banks and NBFC (operating as IFSCs)
shall be subject to prudential norms issued by concerned regulatory
department of RBI. Foreign branches/subsidiaries of Indian Banks
are permitted as recognised lenders only for FCY TC.
5. Period of TC Capital Goods – up to 3 years from date of shipment
Non Capital Goods – up to 1 year or operating cycle whichever is
lower. For shipyards/shipbuilders it will be up to 3 years.
6. All in cost p.a. Benchmark rate plus 250 bps
7. Exchange Rate Change of currency of FCY For conversion to Rupee,
TC into INR TC can be at the exchange rate shall be the
exchange rate prevailing on the rate prevailing on the date of
date of the agreement between settlement.
the parties concerned for
such change or at an exchange
rate, which is less than the
rate prevailing on the date of
agreement, if consented to by
the TC lender.
8. Hedging provision The entities raising TC are The overseas investors are
required to follow the guidelines eligible to hedge their exposure
for hedging, if any, issued by the in Rupee through permitted
concerned sectoral or prudential derivative products with AD
regulator in respect of foreign Category I banks in India.
currency exposure. Such entities The investors can also access
shall have a board approved risk the domestic market through
management policy. branches / subsidiaries of Indian
banks abroad or branches
of foreign banks with Indian
presence on a back to back basis.
9. Change in currency of Change of currency of TC from Change of currency from INR
borrowing one freely convertible foreign to any freely convertible foreign
currency to any other freely currency is not permitted.
convertible foreign currency as
well as to INR is freely permitted.

106 THE CHARTERED ACCOUNTANT APRIL 2019 www.icai.org


Trade Credits in Special Economic Zone
(SEZ)/Free Trade Warehousing Zone (FTWZ)/
Domestic Tariff Area (DTA):
TC can be raised by a unit or a developer in a SEZ
including FTWZ for purchase of non-capital and
capital goods within an SEZ including FTWZ or
from a different SEZ including FTWZ subject to
compliance with parameters given at paragraph
2 above. Further, an entity in DTA is also allowed
to raise TC for purchase of capital / non-capital
goods from a unit or a developer of a SEZ including
FTWZ.
TC transactions in respect of SEZs and DTAs as
permitted above should also be in compliance with
applicable provisions of SEZ Act, 2005 as amended
from time to time. For TC transactions related to
SEZ, date of transfer of ownership of goods will be
treated as TC date. As there will be no bill of entry
for sale transactions within SEZ, the inter unit
receipt generated through NSDL can be treated as
an import document.
Security for TC:
a. Bank guarantees may be given by Ads
on behalf of importer not exceeding the
amount and period of TC.
b. TCs may also be secured by overseas
guarantee issued by foreign banks/
overseas branches of Indian banks.
c. Importer may also offer movable assets
/immovable assets (excluding land in
SEZs)/corporate or personal guarantee.
Reporting requirements: TC transactions are
subject to the following reporting requirements:
Monthly reporting: AD Category I banks are
required to furnish details of TCs like drawal,
utilisation, and repayment of TC approved by all
its branches, in a consolidated statement, during
a month, in Form TC to the Director, Division of
International Trade and Finance, Department
of Economic Policy and Research, RBI, Central
Office, Fort, Mumbai – 400 001 (and in MS-Excel
file through email) so as to reach not later than 10th
day of the following month. Each TC may be given
a unique identification number by the AD bank.
Quarterly reporting: AD Category I banks
are also required to furnish data on issuance of
bank guarantees for TCs by all its branches, in a
consolidated statement, at quarterly intervals on
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1487
Legal Update
the eXtensible Business Reporting Language (XBRL)
platform.
Role of ADs:
a. Prime responsibility of ensuring adherence
to the TC policy lies with the importer.
b. ADs are expected to ensure compliance with
applicable parameters of the TC policy /
provisions of Foreign Exchange Management
Act, 1999 by their constituents.
c. As the Reserve Bank has not prescribed any
format or manner in which TC arrangements
/ loan agreements are to be documented,
ADs may consider any document to
satisfy themselves with the underlying TC
arrangement.
d. ADs should ensure that there is no double
financing on account of these transactions
between a unit or a developer in a SEZ
including FTWZ for purchase of non-capital
and capital goods within an SEZ including
FTWZ or from a different SEZ including
FTWZ. ADs should also ensure that for
import of non-capital goods, the period
of TC, as applicable, is lower of operating
cycle or one year (three years for shipyards /
shipbuilders).
Key Changes in New Trade Credit Framework:
a. Rupee Denominated TC introduced.
b. The limits for TC under approval route have
been increased to USD 50 millions from
erstwhile limit of USD 20 millions.
c. Foreign Equity Holders are covered as
Eligible Lenders under Buyers Credit route.
d. All in cost has been reduced to benchmark
rate plus 250 bps.
e. Period of TC for capital goods has been
reduced to up to 3 years.
f. Change in Currency of TC is also permitted.
The detailed guidelines can be referred to in the said
circular.
Voluntary Retention Route (VRR) for Foreign Portfolio
Investors (FPI) investment in debt
A.P. (DIR Series) Circular No. 21 dated
01/03/2019
A reference is invited to the discussion paper on
‘Voluntary Retention Route’ (VRR) for investments
by Foreign Portfolio Investors (FPIs) released by the
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Reserve Bank on October 05, 2018. The VRR scheme
has been finalised after taking into consideration the
comments and views received. The detailed VRR
scheme can be referred to in the said circular.
Regulation Act, 2010 (FCRA) and we understand
that any misrepresentation made or false
information furnished by us in this behalf would
render the approval granted under the Foreign
Exchange Management (Establishment in India
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India by foreign entities
A.P. (DIR Series) Circular No. 20 dated
27/02/2019
At present any applications received from a Non
Government Organisation, Non Profit Organisation,
Body/Agency/Department of Foreign Government
for opening a BO or LO or PO are to be forwarded to
RBI for prior approval.
This has been reviewed and it has been advised that
if such an entity is engaged, partly or wholly, in any
of the activities covered under Foreign Contribution
(Regulation) Act, 2010 (FCRA), it shall obtain a
certificate of registration under the said act and shall
not seek prior permission of RBI.
Form FNC is also modified and following phrase shall
be added to Declaration in Part II clause (ii) at the end:
“We will not undertake either partly or fully, any
activity that is covered under Foreign Contribution
108 THE CHARTERED ACCOUNTANT APRIL 2019
or any other place of business) Regulations, 2016,
automatically as void ab initio and such approval by
the Reserve Bank shall stand withdrawn without any
further notice”.
Investment by Foreign Portfolio Investors (FPI) in Debt
A.P. (DIR Series) Circular No. 19 dated
15/02/2019
In terms of paragraph 4(f ) (ii) of the AP (DIR Series)
Circular No. 31 dated June 15, 2018 no FPI shall have
an exposure of more than 20% of its corporate bond
portfolio to a single corporate (including exposure to
entities related to the corporate). As announced in
paragraph 10 of the Statement on Developmental and
Regulatory Policies of the Sixth Bi-monthly Monetary
Policy Statement for 2018-19 dated February 07,
2019, in order to encourage a wider spectrum of
investors to access the Indian corporate debt market,
it has been decided to withdraw this provision with
immediate effect.
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