JUNE 06, 2018

By Vijay Kumar

THE Government on Monday clarified in an FAQ that

Banks provide various services to customers for a charge. However, at times, account holders/customers are provided services free or at a concessional/differential rate. The free or concessional/differential rate is offered considering factors such as credit rating and stability of the customer, size of relationship, expected future business or the opportunity presented in the market elsewhere etc. As a result, the charges for the same service may differ from customer to customer.

Such services provided to persons who are not related persons will be taxable on the transaction value, that is, the value of the services charged or recovered from the customers or account holders as per section 15 of the CGST Act, 2017. Thus, in case of services provided at a concessional/differential rate to a recipient other than 'related party'/ 'distinct person', there is no requirement for enhancing the value of services by invoking the CGST Rules, 2017.

So, the free ATM, cheque book, DD etc., given to 'priority customers' will not suffer GST. Thanks for small mercies, but from when?

In 1947, Jawaharlal Nehru said, "At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom.” This is actually a "phraseological inexactitude", as at the stroke of midnight for India, the world was not exactly sleeping; it was early evening in some parts of the world and hot noon for some other parts. Nearly seventy years later in a similar midnight meeting, Prime Minister Modi announced, " At the stroke of the midnight hour today, together we shall ensure a pioneering future of the nation ”. And GST came into existence as dramatically as Independence.

Pardon the aside, what I was trying to say was Banks have been providing free services to the Customers much before the second midnight moment took place and are continuing to do so. Only on 4.6.2018, the Government issued a clarification in the FAQ that these free services are not liable to GST. Obviously, this being a clarification should be applicable from the beginning of GST that is 1.7.2017.

But the 'Directorate General of Goods and Services Tax Intelligence' (DGGSTI) was of the opinion that the banks do not really provide free service. To get that free cheque book or Demand Draft, you are required to maintain a minimum balance, a fixed deposit account or some such bankable consideration. And these have some value which has to be converted into cash equivalent to ascertain the value of taxable services. The Directorate believes that the banks were liable to pay service tax on these free services and so went ahead with 'show cause notices' to several banks demanding service tax, interest and equal penalty for the period from 1.7.2012 to 30.6.2017, that is the period ending the midnight when Prime Minister Modi was declaring a pioneering future. The Banks, many of them in the Public Sector, must have been accused of suppression, intent to evade tax etc., to invoke the extended period of limitation of five years.

But why no 'Show Cause Notice' was given for collection of GST from 1.7.2017? That they can think of in 2022. But in the meantime, now it is clarified that there is no GST on these free services. As for Service Tax, that clarification will come in due course. For the present, it is all peace all around.

Location of the Supplier in Banking Services

What is the location of the service provider when you avail a banking service from a branch in Delhi for an account you hold in Mumbai?

The FAQ clarifies:

Banking services emanate from the bank account opened by a customer with the branch of a bank or through a contractual relationship between the branch of a bank and the customer. The branch holding the customer's account is referred to as the 'Account Branch' or the 'Home Branch'. An account would include all types of accounts – viz. interest bearing, non- interest bearing, loan account, deposit account, etc. In the present day of "anywhere banking”, the customer avails banking services through mobile/ internet banking or by visiting any branch of the bank. At times the services are provided through branches / locations other than the 'Account Branch' or the 'Home Branch'. It is clarified that the services provided by the other branches are actually services provided to the 'Home branch' and are ultimately billed to the home branch.

Thus, the location of supplier in such cases is the Home Branch/Account Branch .

Who issues the FAQ and who is it binding on?

Some of the FAQs carry a disclaimer,

This FAQ on GST compiled by NACIN and vetted by the Source Trainers and GST Policy Wing is based on the CGST/SGST/UTGST/IGST Act(s). This FAQ is for training and academic purposes only. The information in this booklet is intended only to provide a general overview and is not intended to be treated as legal advice or opinion. For greater details, you are requested to refer to the respective CGST/SGST/UTGST/IGST Acts.

But strangely not all FAQs carry this disclaimer including the latest one on financial services – maybe what applies to one applies to all. Why can't somebody take responsibility and say this is legal advice binding on the government and its officers? If some of the answers are later found to be wrong, they can graciously admit that and change their opinions prospectively. That is what a good tax administration is all about. Please also see our report on the issue.

AAR - Different Ruling for the same applicant?

Giriraj Renewables Pvt Ltd approached the GST AAR in Maharashtra with the following questions :-

1. Whether supply of turnkey Engineering, Procurement and Construction ('EPC') Contract for construction of a solar power plant wherein both goods and services are supplied can be construed to be a Composite Supply in terms of Section 2(30) of the Central Goods and Services Tax Act, 2017?

2. If yes, whether the Principal Supply in such case can be said to be 'solar power generating system' which is taxable at 5% GST?

3. Whether benefit of concessional rate of 5% of solar power generation system and parts thereof would also be available to sub-contractors?

The same Giriraj Renewables Private Ltd asked the same three questions to the Karnataka AAR and the same authorised representative appeared on behalf of the applicant before both the authorities. The Rulings given by the two AARs are as follows:

Now, the same company holds two rulings in two States. So, is the GST applicable different in these two states? What happened to "One Nation, One Tax”?

In these columns on May 09 2018, I mentioned,

Doesn't this make the AAR an institution that can at best create confusion and chaos? Perhaps, it is time, we wind up this, before it becomes the fountainhead for unlimited litigation. What is the need for an advance ruling at the State Level, when GST was launched with the slogan, "One Nation, One Tax". If at all, we need an Advance Ruling Authority, let there be one at the national level headed by a senior judge and consisting of senior officers. If this Frankenstein is not controlled in the initial stages, it will pose an irreparable danger soon .