Introduction:

Ever since the introduction of negative based taxation effective from 01.07.2012 under the pre-GST era, the cross-border services by way of scientific research, technical testing or analysis services have undergone huge litigation as to whether these services are to be considered as exported services or not. The issue remained status quo even under the GST regime. Amid this ambiguity, certain scientific research, testing, and analysis services related to Pharma Sector got relief with specific notification notifying their place of supply as that of the location of the recipient of the supply. In this backdrop, let us do a deep dive into this issue by analyzing the position under Service Tax and GST laws.

Read more: A Deep Dive into the Place of Supply of Scientific Research, Testing and Analysis Services

Introduction:

Whether interest is payable or not on the amount of tax credit that was wrongly availed but reversed without utilising the same is always a bone of contention between taxpayer and Revenue under Indirect Tax laws. Under the erstwhile CENVAT Credit Rules, 2004, Rule 14 as prevailing prior to 01.04.2012 provided for recovery of CENVAT Credit that has been taken or utilized wrongly or has been erroneously refunded. The said issue was originated from the use of the phrase “CENVAT Credit has been taken or utilized wrongly” in Rule 14.

The said Rule 14 was amended with effect from 01.04.2012 to provide for recovery of CENVAT Credit that has been wrongly taken and utilised or has been erroneously refunded. The above-mentioned phrase has been suitably amended as “CENVAT Credit has been wrongly taken and utilized” to put an end to this controversy. However, the amendment was not expressly notified to be retrospective. This has made the issue wide open and the litigation is continuing for more than a decade with respect to interest demanded for the periods prior to 01.04.2012. The matter is now pending before the Supreme Court under the second round of litigation.

Coming to Good & Service Tax (GST) regime, Sections 73(1) and 74(1)[1] of the Central Goods & Services Tax Act, 2017 (CGST Act) provides for recovery of input tax credit that was wrongly availed or utilised. The use of the phrase ‘wrongly availed or utilised’ marks invocation of same issue and litigation under GST regime as well. Notices are also issued by the Department to recover interest amounts in cases where credit was wrongly availed but reversed before utilisation. With the above backdrop, we will now analyse the issue based on jurisprudence evolved as on date under the erstwhile CENVAT Credit Rules, 2004 and under GST laws as well.

Read more: Interest on Credit ‘availed’ but ‘not utilised’ - Resurrection of Conflict – ‘Or’ vs ‘And’

As all of you are aware, under the taxation statues, mainly direct taxation, ‘residence’ of a person plays an important and significant role. Many of the direct taxation laws across the globe, stipulate that a person resident in their jurisdiction has to offer all the global income to tax. Being resident of a jurisdiction brings to tax all their income which would have not been subjected to tax if he was not a resident in the first place. Hence, the concept of ‘residence’ is of utmost importance since it has direct bearing on the taxes.

In the Indian scenario, Section 6 of Income Tax Act, 1961 (for brevity ‘ITA’) deals with ‘Residence in India’. The said section deals with residence of all type of persons namely individual, Hindu Undivided Family, firm, association of persons and company. Of all the lot, we will be dealing with ‘individual’ in the current article. The said article is written in the context of changes to Section 6 brought vide Finance Act, 2020.

Read more: Residence in India - A New Colour by Finance Act, 2020

MLI has come into effect in India from April 2020. MLI provides solutions to the contracting jurisdictions to plug in lacunas and loopholes in international tax treaties by superimposing the provisions into bilateral tax treaties. 

MLI allows the contracting jurisdictions to implement agreed minimum standards so that all the countries should find it easy to adopt and amend their bilateral treaties by reserving from applicability of certain articles and choosing the options from set of options, to counter treaty abuse, and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies. 

In this book, we have made a sincere effort to put in to one place the convention, and the explanatory statement to the convention, appropriately stated, crisply and precisely explained with the help of appropriate illustrations for the understanding of the reader.  

Read more: Decoding MLI