JUNE 11, 2018

By R K Singh, Member CESTAT (Retd.)

GOVERNMENT has recently issued 91  FAQs on applicability of GST on  financial Services.

In this article, answer to question number 4 of the said FAQs is taken up to demonstrate as to how the same does violence to the law and the basic jurisprudence. The said question number 4 and answer thereto are reproduced below:

2. What has been stated in the answer above is that even if the service was supplied (rendered) before 1st July 2017, it shall be liable to GST if the invoice for the same was issued on or after 1st July 2017 essentially on the ground that under section 13 of the CGST Act, the time of supply in such a case is the date of issue of invoice by the supplier. It is not in dispute (either in the question or in the answer quoted above) that the service had been rendered before 1st July 2017. In other words, the supply (rendition) of service took place prior to the date on which the CGST Act came into effect. As per section 9 ibid, the taxable event is the supply of goods or services and, therefore, if supply had taken place before 1st July 2017, GST cannot be levied as the taxable event took place at a time when the said tax had not even come into operation and has not been given retrospectivity. To cite a parallel on the central excise side, if certain goods were manufactured before the date on which they become excisable, no excise duty can be levied thereon even if their clearance took place after that date. This principle is too well settled to require a parade of familiar judicial pronouncements in support.

3. A scrutiny of the above answer makes it clear that it arises out of the misreading / misinterpretation of section 13 ibid. The answer seems to go by the title of that section which says "Time of supply of services" without carefully going through the actual contents thereof.

Subsection (1) of section 13 states as under:

13(1) The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section.

In other words, once the taxable event (supply) has taken place, the liability to pay tax shall arise, not at the time of the happening of the taxable event, namely, the actual time of supply (rendition) of service but at the time of supply as defined in the remaining part of the said section. To cite a parallel on the central excise side again, although the taxable event is manufacture, the liability to pay duty does not arise at the time of manufacture but at the time of clearance of goods. Thus, the time of supply defined in subsection (2) to subsection (6) of section 13 ibid is not for the purpose of determining the time of the taxable event per se but to determine the time when the GST is liable to be paid . Indeed, that it is so becomes evident if one only carefully reads the said subsections. In the interest of brevity, only two subsections, namely, subsections (4) and (6) are taken up here for this purpose.

Subsection (4) states as under:

(4) in case of supply of vouchers by the supplier, time of supply shall be-

(a) the date of issue a voucher, if the supplies are identifiable at that point; or

(b) the date of redemption of voucher, in all other cases.

Thus, once the supply of vouchers has taken place at a particular time, (taxable event), for the purpose of determining the time when the tax is liable to be paid, the time of supply is to be taken as the time of redemption of voucher if the supplies are not identifiable; indeed, practicality would warrant that the time for the purpose of liability to pay tax be the date of redemption when supplies cannot be identified at the time of issue of voucher while in the case where supplies are identifiable, tax can be quantified even on the date of issue of voucher and, therefore, the liability to pay tax can be the date of issue of voucher. Thus, in a situation where the time of issue of voucher (taxable event) where supplies are identifiable is exactly the same as the time of issue of voucher (taxable event) where the supplies are not identifiable, the time of supply for (only for)the purpose of determining the time of liability to pay GST will be different in these two cases even though the time of taxable event (the actual supply) is the same.

Similarly, subsection (6) of S.13 ibid reads as under:

(6) the time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which the supplier receives such addition in value.

It can be nobody's case that the time actual supply of service (taxable event) will frequently change based on the dates of payments (say, made in installments) of interest, late fee or penalty. Obviously, the time of supply mentioned in subsection (6) is only and only for the purpose of determining the time when the liability to pay GST on such additional payments would arise and not for determining the actual date of supply of service.

5. The sum total of what has been demonstrated above is that if the taxable event, namely, the supply (or rendition) of service happened at a time when GST laws had not come into operation (i.e. before 1st July 1017), no GST thereon can be charged even if the invoice in respect thereof was issued on or after 1st July 2017. Thus, the above quoted answer to question number 4 (reproduced above) of the FAQs applicable to financial services is illegal and wrong.

(The views expressed are strictly personal.)