GBCA & Associates LLP Chartered Accountants

March 2022

Newsletter - March 2022

For most of us across the world, Covid seems to have largely abated. As we looked at getting back to our normal, the Russian attack on Ukraine has taken centre stage in the global geopolitical arena. Wars wreak havoc on the lives of people it impacts - as our intellect evolves, we should be able discuss our differences and come to solutions without war. We have a long way to go till we reach that point it seems. The loss of lives is wrong, but as with all things human, there are just a lot of complex angles to the current war. Thankfully, Russia seems to be now finally at a point of retreating its influence from some key areas in Ukraine and there is a hope that negotiations may bear fruit soon.

We have had an uncharacteristic peaceful world for the last few decades where we had a 'cold war'. This was an aberration as the history of humanity is filled with varying degrees of wars and battles being played out for resources and power in different parts of the world. The peace spurred global supply chain lines and led to increased productivity across the world and in turn the interdependence of countries for goods and services, became a reason to avoid any large scale wars.

Covid showed us the fragility of the global just in time system for goods. Supply constraints lead to early inflation for some products which was later exacerbated by the large scale money printing and return of demand. The Russia Ukraine war has gone one step further in making businesses rethink their supply strategies. A war with this degree of military engagement was least expected by the world and going forward the disruptions caused by Covid and the War shall remain key risks that most business strategies will be forced to incorporate. This could mean that the spectre of higher productivity and lower costs that came with globalization may be behind us.

The quote by Russian leader Lenin is most appropriate right now. “There are decades where nothing happens; and there are weeks where decades happen.” The events of the past few weeks may have a lasting impact on how countries and businesses interact with each other. It is important to be attuned to these changes and grasp opportunities that they may yield. We pray that the conflicts stop and the cost and difficulties faced by people in this war end immediately.

INDIRECT TAX (GST)

SHOW CAUSE NOTICE IS INVALID WITHOUT STATING THE CONTRAVENTIONS COMMITTED

Show cause notice (SCN) has great significance in adjudication proceeding for mandatory compliance of principal of natural justice. SCN is mandatory requirement for raising any demand under GST Act except payment of Interest under section 50 and assessment of non-filers of return under section 62 of CGST Act. The Jharkhand High court has allowed the writ petition filed by the M/s Nkas Service Private Limited being petitioner who has received SCN being vague and not disclosing the offence or contravention and denies the petitioner of any opportunity to properly defend itself. It is therefore clearly in violation of principles of natural justice. The brief analysis of said case law is enclosed herewith.

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REVERSAL OF GST CREDIT IN CASE OF SALE/DISPOSAL/WRITE OFF OF CAPITAL GOODS

One of the important features of GST is seamless flow of input tax credit across the country. When you purchase anything, you are required to pay GST on it at the applicable rate for that product or service. Later, you can claim input tax credit (ITC) on the GST paid on your purchases. Similarly, when you are purchasing any Capital asset for your business, you will pay the GST at applicable rate. If you claim depreciation on the GST paid while purchasing the capital asset, you cannot claim ITC. This GST paid can be claimed as credit in the same way as inputs. However, if your sale or dispose of the capital goods before the end of 5 years from the date of purchase then you have to reverse the proportionate ITC on the same. The enclosed article provides brief explanation on treatment of ITC on capital goods at the time of sale/ disposal or write off in Books.

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DIRECT TAX

NOTE ON TAXATION OF RIGHT OF ENTITLEMENT TO EQUITY SHARES

Renouncement of rights of listed equity shares are taxable under the head Income from Capital Gains as a short term capital gain. The benefit of gains taxable at 15% u/s 111A may not be available as renouncement of rights is outside the purview of section 111A.

To know about the rate of tax, please click here.