APRIL 18, 2018

By Vijay Kumar

GSTEA in Canteen for Employees.

The Government said, "let there be GST" and there is calamity, but good news for lawyers - there is abundant scope for litigation and it is coming from the most unexpected sources. With every publisher hungry for news on GST, every minute happening related to GST gets humungous coverage in our 'National' press - whether they know their GST or not is of little relevance.

The Authority for Advance Ruling (AAR) is the new goose that lays golden eggs for the lawyers. Already several AARs have given their sanctimonious rulings, which are strictly between the parties and have no precedential value, but are being discussed as if they are Supreme Court Rulings, binding on everybody.

A very famous and respected publication reported a couple of days ago:

The decisions by the Authority of Advance Rulings are not binding on the GST Council. Both are independent of each other. The AAR works under finance ministry and has a lot to do with the Income Tax department while the GST is dealt with by a separate GST Council.

The Authority for Advance Ruling consists of two junior officers of the rank of Joint Commissioner and the GST Council is a super parliament consisting of the Finance Ministers of all the States and the Nation and even Parliament can pass GST laws only on the recommendations of the GST Council. It is blasphemy to say that the decisions by the Authority of Advance Rulings are not binding on the GST Council. The article says that AAR has a lot to do with the Income Tax department - pray, what? Maybe the writer was confused with the AAR under the Income Tax Act, which is headed by a retired judge of the Supreme Court, while our GST AAR as stated earlier, consists of two Joint Commissioners.

An almost insignificant body like the GST AAR has now become hot news and is bound to create ripples in legal circles. Already we have covered seven decisions of the GST AAR and we must have not stumbled upon many.

"Advance Ruling" means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in sub-section (2) of section 97 or subsection (1) of section 100 of the CGST Act, 2017, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.

The question on which the advance ruling can be sought are:-

(a) classification of any goods or services or both;

(b) applicability of a notification issued under the provisions of this Act;

(c) determination of time and value of supply of goods or services or both;

(d) admissibility of input tax credit of tax paid or deemed to have been paid;

(e) determination of the liability to pay tax on any goods or services or both;

(f) whether applicant is required to be registered;

(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.

The advance ruling pronounced by the Authority or the Appellate Authority shall be binding only-

1- on the applicant who had sought it in respect of any matter referred to in sub-section (2) of section 97 for advance ruling;

2. on the concerned officer or the jurisdictional officer in respect of the applicant..

If you are aggrieved by the orders of the AAR, you can appeal to the AAAR (Appellate Authority for Advance Ruling). Many States are yet to constitute the AAAR, though the AAR exists in all States. All those who got orders from the AARs are going around to find out where the Triple A R (AAAR) is located, if and when it is a reality. Strangely, both the Authority for Advance Ruling (AAR) & the Appellate Authority for Advance Ruling (AAAR) are constituted under the respective State/Union Territory Act and not the Central Act. This would mean that the ruling given by the AAR & AAAR will be applicable only within the jurisdiction of the State or union territory. And it seems it logically follows that questions on determination of place of supply cannot be raised with the AAR or AAAR.

Alright, if you are aggrieved with the double A R (AAR), you go to the triple A R (AAAR), but what happens if you are aggrieved by the orders of the AAAR? The law is terribly silent. Is the AAAR equal to the Supreme Court? Well, all authorities are subject to the writ jurisdiction of the High Courts and so there is an option to challenge the decision of the AAAR in the High Court. That is why the lawyers have good times ahead.

A peep into a couple of AAR decisions would be revealing:

The Kerala State GST AAR recently in the case of Caltech Polymers Pvt. Ltd . - 2018-TIOL-01-AAR-GST, ruled:

It is hereby clarified that recovery of food expenses from the employees for the canteen services provided by company would come under the definition of 'outward supply' as defined in Section 2(83) of the Act, 2017, and therefore, taxable as a supply of service under GST.

It is not known who asked them to clarify . As per Section 98(4) of the CGST Act, the AAR is supposed to pronounce its advance ruling on the question specified in the application and not to give clarifications. The question raised by the applicant for advance ruling was, "Whether reimbursement of food expenses from employees for the canteen provided by company comes under the definition of outward supplies as taxable under GST Act." And the AAR went on to clarify instead of pronouncing a ruling. The AAR also mentioned in several places "GST Act, 2017". There is no Act called the GST Act, 2017. It should be either the Central Goods and Services Tax Act, 2017 or the State GST Act.

Now, this order is binding only on the party and the 'concerned officer' (not the officer concerned'). We have to find out which officer is concerned about this order. Anyway, this has raised a storm in the teacups of all the canteens all over the country. Experts have rushed in to comment inter alia that:

1. GST Council has to immediately address this problem;

2. Canteens in offices and industries may be closed down (Factories Act, willing of course):

3. Canteens may not charge employees;

4. Employees' salaries may be reduced.

A clarification given by two Joint Commissioners in distant Kerala is going to affect the tea in canteens for employees right across the country.

All establishments having canteens for employees should immediately start a mega GST wing for their canteens. It is alright to say that the canteen food is subject to GST, but calculating the GST amount would require Einsteinian brilliance.

Value is relative:

As per the Explanation (a) (iii) in Section 15 of the CGST Act, persons shall be deemed to be "related persons" if such persons are employer and employee.

As per S.No. 2 of Schedule I of the Act, supply of goods or services between related persons, would be treated as supply, even without consideration. Because the parties are related, valuation would be as per Rule 28 of the CGST Rules, 2017, based on "open market value" or "the value of supply of goods or services of like kind and quality" or the value as determined by the application of rule 30 or rule 31 (costing or residual).

The AAR in the above order had come to a patently wrong conclusion - "Since the applicant recovers the cost of food from its employees, there is consideration as defined in Section 2(31) of the GST Act, 2017." Maybe they were not made aware of the above provisions, by which a supply between related persons will be a supply even without consideration.

So, even if the management decides to give food to the employees free in the canteen, they cannot escape the burden of GST as consideration is not a criterion in this case because the employee and the employer by law are related persons. Suppose, they charge a nominal amount, can they pay the GST on that amount? No way Sir. They will have to find the open market value for the food, which is impossible - I mean the value, not the food. Then they will have to find the value of food of like kind and quality , which may also be impossible. Will the department agree to the costing method, which should include a ten percent notional profit or should there be a periodical review of the value, like when the cost of LPG goes up or when the canteen manager is given a bonus?

Can free food in the canteen be considered as gift? - gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both . (Proviso to S.No. 2 of Schedule I of the Act)

Running that canteen may be more difficult than running your business, but you can't simply close down the canteen - The Factories Act will not allow that.

Please also see Advance Ruling on Canteens - The Pandora's (tiff in)box

In another interesting case - Global Reach Education Services Pvt Ltd - 2018-TIOL-06-AAR-GST, the applicant provides Overseas Education Advisory whereby it promotes the courses of foreign universities among prospective students and wanted a ruling on whether the service provided to the Universities abroad is to be considered "export" and, therefore, a zero-rated supply under the CGST / WBGST Act 2017. The concerned officer objected to admission of the application on the ground that determination of the place of supply is beyond the jurisdiction of the Advance Ruling Authority. The AAR was not impressed and ruled that the services of the applicant are not "Export of Service" and are taxable under the GST Act .

Two Joint Commissioners seem to have the power of writing and rewriting the LAW. And though it is not nationally applicable, experience shows that no Revenue Officer anywhere in the country will take a different view. And what happens if there are two contradictory orders of the AARs for the same assessee in two different States?

In the meantime, there is a writ pending in the Gujarat High Court where the provisions of Advance Ruling in the GST have been challenged as ultravires to the Articles 14 and 50 of the Constitution of India as the same are void, defective and unconstitutional, being violative of doctrines of separation of powers and independence of judiciary which are parts of the basic structure of the Constitution.

The Petitioner submits that he has preferred this litigation against tribunalisation of justice, bureaucratisation of justice and its impact on judicial independence and separation of powers.

E-way, how to stop a lorry? Complicated - for the officers

After having a free ride on the highways of India with the magical e-waybill, which has seamlessly integrated into the GST journey, there is some news for the truck drivers and GST officers. The free ride is over - your truck can be stopped. How? The CBIC has issued a 31-page instruction on the Procedure for interception of conveyances for inspection of goods in movement, and detention, release and confiscation of such goods and conveyances. Nearly a dozen forms are prescribed and detailed instructions are given on searching conveyances, detention, seizure, confiscation and release of the goods and conveyance. Section 129 of the CGST Act provides for detention, seizure and release of goods and conveyances in transit. And the Board has instructed its officers on how to go about doing these. (CBIC Circular No. 41/15/2018-GST) But what is the difference between detention and seizure? Neither the Law nor the Board explains that. Any officer who reads these instructions would religiously avoid detaining a lorry as that would amount to virtually hanging that lorry around his neck. Normally, with exceptions accepted, the officers don't go about detaining lorries and also don't go about reading the laws.

Don't lose hope - these problems are not unfixable.

The ray of hope comes from the former Governor of Reserve Bank. Addressing a meeting of the Institute of Politics at Harvard Kennedy School, last week, Dr. Raghuram Rajan said,

On the Goods and Services Tax, we will figure it out eventually. It will be nice if we could implement much better than we do. But it's not an unfixable problem. We can work on it. I wouldn't give up hope at this point on that.