Lakshmikumaran & Sridharan

1. Lakshmikumaran & Sridharan exceeding expectations Integrity | Knowledge | Passion Mr. V Lakshmikumaran

2. Table of Contents

3. Classification under GST

4. ONE NATION, ONE TAX, ONE RATE? TAX % Why shouldn’t I just charge what my competitor is charging?

5. A brief background

6. Under GST Explanation to GST Tariff Notification: The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of Notification 1/2017-CTR and 2/2017-CTR

7. Reliance on HSN • Wood Craft Products Ltd. (1995 (77) E.L.T. 23 (S.C.)) • When Tariff entry is patterned on HSN, explanatory notes to HSN preferable to ISI Glossary in case of a conflict, unless a different intention is indicated in Tariff itself • Followed in more than 200 countries. India is following since 1971. • 0 Digit of HSN mandatory for Turnover upto 1.5 cr • 2 Digit of HSN mandatory for Turnover more than 1.5 cr but upto 5 cr • 4 Digits of HSN mandatory for Turnover more than 5 cr • Import Export = 8 digits

8. Rules of interpretation Rule 5 Specific provisions for containers Rule 6 Sub-heading level

9. Rule 2(a): What the law says Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled Rule 2(a): How the courts interpret? Lets find out

10. Rule 2(a): Sony India

11. Rule 2(a): Salora International - Is this decision correct? Parts of TV receiver Disassembled after testing Assembled as receiver for testing Assembled at sister unit Sister unit

12. Rule 2(a): Phoenix International

13. Rule 3(a): 3(a): The heading which provides the most specific description shall be preferred to headings providing a more general description. Rule 3(a): Examples E.g. shavers and hair clippers, with self-contained electric motor, are classified in heading 8510 and not in heading 8467 as tools for working in the hand with self-contained electric motor or in heading 8509 as electro-mechanical domestic appliances with self-contained electric motor.

14. Rule 3(b): Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3 (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. Rule 3(b): Factor determining essential character Value, weight, bulk, quantity, nature, or by the role of constituent material in relation to the use of the goods.

15. Nokia Judgement: Composite goods SC JUDGEMENT Whether the charger was a part of cell phone and thus classifiable along with cellphone?

16. Shampoo or Medicament? Pharmasia 47 ELT 658 “Whether shampoo (Mediker) consisting of D-Phenothrin and other ingredients and use for treatment of lice by paralyzing lice is shampoo or medicament?”

17. Shampoo or Insecticide? Sujanil Chemicals 81 ELT 206 (SC) A Licel which cures the infection or infestation of lice in human hair is a “Medicament” covered under Note 2 of Chapter 30 and thus, excluded from Chapter 38.

18. Oil or Medicament? • Dabur 182 ELT 290 (SC) • Oil - Lal tail - Medicament - All ingredients in product mentioned in Ayurvedic Text Books, not sufficient to classify the product as medicament. • Drug Controller’s licence for the product available • Evidence by way of prescriptions of Ayurvedic Doctors for treatment of rickets. • Whether oil or medicament?

19. Food supplement or Medicament? • Dabur 337 ELT 80 • Chyawanprash - Whether 30.03 as ‘Ayurvedic medicaments’ or under Heading 21.07/21.08 as food supplement/tonic? • Manufactured from Ayurvedic, ingredients under a Drug Control Licence • Primarily having prophylactic or therapeutic use

20. Sensor or Switch? • Peperly + Futch 325 ELT 212 (SC) • Proximity Sensors, Float Switches, Digital input switches • Goods designed to sense and then switch on or switch off particular machine to which these installed • Primarily a switching device, sensor being only a means to achieve it.

21. Hybrid vehicles 8703 40/8703 50 - Other vehicles, with both spark-ignition internal combustion and electric motor as motors for propulsion, other than those capable of being charged by plugging to external source of power [Comp cess- NIL & 15%] Electrically operated vehicles, including two and three wheeled electric motor vehicle - [GST rate – 12%] Whether all types of hybrid motor vehicles –covered in the above entries ?

22. Common parlance: Pappu sweets • Whether 'toffee' is 'sweetmeat' or a commodity of a like nature and therefore the appellant's industrial units making toffees, though newly set up, were not entitled to the benefit of exemption from payment of sales tax? • A toffee is a sweetmeat, as understood by the people where toffee originated. • The test of popular parlance should be applied by finding out how toffee is understood in the country and more particularly in the State of U.P.

23. Common parlance: Hotel Connaught • Whether ‘soft serve’ served at the restaurants/outlets commonly and popularly known as McDonalds, is classifiable under heading 21.05 (“ as ice-cream”) or under heading 04.04 or 2108.91 (as claimed by the assessee)? • Person would enter the outlet with the intention of simply having an “ice-cream” or a ‘softy ice-cream’, oblivious of its technical composition. • ‘Soft serve’ marketed by the assessee, during the relevant period, is to be classified under tariff sub-heading 2105.00 as “ice-cream”.

24. Common parlance: Canada • Exchequer Court of Canada in The King Vs. Planter Nut and Chocolate Company Ltd. • Whether salted peanuts and cashew nuts could be considered to be "fruit" or "vegetable" within the meaning of the Excise Tax Act? • Would a householder when asked to bring home fruit or vegetables for the evening meal bring home salted peanuts, cashew or nuts of any sort? • Applying the test, the Court held that the words “fruit” and “vegetable” are to be construed according to their popular sense.

25. Section Notes relevance: GS Auto Nuts, Bolts, etc. General or Specific? Under Chapter 73 or 87? Notes 2(b) and (3) of Section XVII read as follows: "2. The expressions 'parts' and 'parts and accessories' do not apply to Parts of general use, as defined in Note 2 to Section XV, of base metal (Section XV), or similar goods of plastics (Chapter 39);" "3. References in Chapters 86 to 88 to 'parts' or 'accessories' do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters.

26. Section Notes relevance: GS Auto • Judgement: • The goods in question cannot but be regarded as parts of automobiles, since they are suitable for use primarily with motor vehicles. • It follows that the goods in question cannot be treated as falling under Chapter Heading No. 73.18.

27. Section Notes relevance: Secure Meters Classification of LCD of electric supply meters? Under as LCD Or as parts of energy meters? Note 2 to Chapter 90, which is material for the purposes of this appeal, is reproduced below: (a) Parts and accessories which are goods included in any of the headings of this Chapter or of Chapter 84, 85 or 91 (other than heading No.84, 85, 85.48 or 90.33) are in all cases to be classified in their respective headings; (b) other parts and accessories, if suitable for use solely or principally with a particular kind of machine, …………………………….

28. Section Notes relevance: Secure Meters • Judgement: • Clause (b) would only apply if the items in question were not specifically classifiable under their respective headings. • One cannot therefore directly jump over to Section Note 2(b) without exhausting the possibility of Section Note 2(a).” 

29. IGST and Import

30. IGST: Service transactions involving physical import of goods • Taxable as goods or services or both? • Import of goods under lease • Import of goods post their repair

31. I. Import of goods on lease • Import of goods (e.g. any machine) into India under a lease transaction • Levy of IGST on import of machine under Customs Tariff Act • Levy of IGST on lease rentals as import of service under Section 5(1) of IGST Act • ISSUE: A service transaction as per Schedule II – • Whether taxable as import of goods or supply of services or both

32. II. Import of goods after repairs • Import of goods after repair undertaken abroad • Levy of IGST on import of goods u/s 3(7) of Customs Tariff Act • Levy of IGST on repair charges as service under Section 5(1) of IGST Act – not leviable since place of supply is outside India • ISSUE: Double taxation?

33. Composite vs mixed supply

34. Composite vs. Mixed Supply 34 Composite Supply Any supply comprising of two or more taxable supplies which are naturally bundled and are supplied in conjunction with each other, one of which is a principal supply, shall be treated as a supply of such principal supply.

35. Composite vs. Mixed Supply 35 Principal Supply The 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

36. Composite vs. Mixed Supply 36 Mixed Supply Any supply comprising of two or more individual supplies made in conjunction with each other for a single price, not being a composite supply. It shall be treated as supply of that particular supply which attracts the highest rate of tax

37. Composite and Mixed Supply Issues

38. Case 1 Taxable Supply Taxable Supply Supply of taxable battery along with UPS Principal Supply is that of UPS? As per WB AAR, contract divisible, mixed supply 38

39. Solar System: Goods vs Services Single contract of goods and services Solar system Section 2(119): “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract

40. Solar power generating system Bio-gas plant Solar power based devices Solar power generating system Wind mills, Wind Operated Electricity Generator (WOEG) Waste to energy plants / devices Solar lantern / solar lamp Ocean waves/tidal waves energy devices/plants Photo voltaic cells, whether or not assembled in modules or made up into panels 5% =

41. SCOMET-Export Control Policy, Laws and Regulations in India-Implications

42. Legal Framework- International commitments "Para 2.74 (I)(f) HBP: Applicability of provisions of relevant bilateral or multilateral Agreements and Arrangements, to which India is a party, or adherent, including but not limited to the guidelines and control lists of the Nuclear Suppliers Group, Missile Technology Control Regime, Australia Group and Wassenaar Arrangement (and its Sensitive List and Very Sensitive List) as updated from time to time. - India’s commitments under the bilateral and multilateral agreements to drive export control regime

43. Legal Framework Laws Other Instruments UNSCR 1540 (2004) is the Founding International Legal provision. • Foreign Trade Policy (FTP) / Handbook of Procedures (HBP) / Indian Trade Classification (Harmonised System) [ITC(HS)] – SCOMET • DGFT Guidelines • Standard Operating Procedure of Department of Defense Production (DoDP SOP) • Other rules, schedules, documents / guidelines under Atomic Energy Act • Foreign Trade (Development and Regulation) Act, 1992 • Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 • Atomic Energy Act, 1962 • Customs Act, 1962

44. Legal Framework-Contd.., FTDRA • Sec. 3 (2) of the FTDR Act- General power to control imports and exports. • FTDRA borrows the provisions of WMD Act 2005 to apply to export, transfer, re-transfer, brought in transit, transhipment, of and brokering in specified goods, (read SCOMET goods), technology or services. FTP • Export of dual use items and technologies, under India’s Foreign Trade Policy is either prohibited or restricted [Para 2.09] • Items listed in Appendix 3 to Schedule 2 of ITC (HS)

45. SCOMET ITEMS-Appendix 3 to Schedule 2 of ITC (HS)

46. Penalty – FTDR Act & WMD Act • Incorporates WMD Act penalty provisions by reference • Penalty for substantive violations • INR 10K to 5 times value (whichever is more) • Penalty for forgery • INR 10K to 5 times value (whichever is more) • Suspension of IEC • Violation of FTDR Act • Failure to pay penalty WMD Act • Section 8 / 10 - 5 years to life imprisonment + fine • Unauthorized export – • INR 300K to INR 2 mil for first offence • Six months to five years imprisonment for each subsequent offence

47. Valuation

48. Valuation principle – “Transaction Value” • Section 15: Value of taxable supply • Transaction Value • Price actually paid or payable • Supplier and recipient of the supply are not related • Price is the sole consideration for the supply • Inclusions • Interest or late fee or penalty for delayed payment of any consideration

49. Moulds /Dies • Section 15(2)(b): Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both. Moulds/Dies (in scope of supplier) Output Contract manufacturer (supplier) Customer • Issues • Whether value of moulds/dies is to be included? • Whether credit available to customer? • Whether provision of moulds is a supply by customer to supplier?

50. Moulds/dies: Circular 47/21/2018-GST • Moulds and dies owned by OEM provided to component manufacturer on FOC basis not constitute a supply. Dies are provided on FOC basis by OEM to component manufacturer in the course or furtherance of his business, thus no credit reversal on dies. • Value of the supply made by the component manufacturer, the value of moulds and dies provided by the OEM to the component manufacturer on FOC basis not to be added because the cost of moulds/dies not to be incurred by the component manufacturer and thus, no inclusion in the value of supply in terms of Section 15(2)(b). • However, if the contract between OEM and component manufacturer was for supply of components made by using the moulds/dies belonging to the component manufacturer, but the same have been supplied by the OEM to the component manufacturer on FOC basis, the amortised cost of such moulds/dies shall be added to the value of the components. In such cases, the OEM will be required to reverse the credit availed on such moulds/ dies, as the same will not be considered to be provided by OEM to the component manufacturer in the course or furtherance of the former’s business