JULY 18, 2018

By Vijay Kumar

Does the hotel Bill include GST?

While the greatest tax event was unfolding on 01.07.2017, there was another great event unfolding for the babus, the Government servants and they are quite huge, as many as five million. They were given enhanced travelling allowance as recommended by the 7th pay Commission with effect from 01.07.2017 by the Department of Expenditure, Ministry of Finance, Government of India Office Memorandum No. No.19030/1/2017-E.IV, dated 13.07.2017.

When the bureaucrats travel, if they stay in hotels, they are reimbursed the charges for their boarding and lodging. The babus are divided into five grades to determine how much reimbursement they can be paid.

I unconditionally apologise for any inadvertent error in classifying the grade of officers in the above table, as I know how passionately conscious people are about ranks.

Now, suppose an Additional Commissioner goes on tour, obviously to achieve the larger goal of collecting more GST for the Nation, than for his private pleasure. He stays in a hotel, again absolutely in public interest. He is charged a rent of Rs. 4000 and a GST of Rs. 720 which makes a total of 4720 rupees. His limit for reimbursement of accommodation is 4500 rupees. How much will he be reimbursed? As is the case with all tax questions, there are at least three possibly correct answers:

1. Rs. 4000, as that is the room rent

2. Rs. 4500 as that is his eligibility limit

3. Rs. 4720 as that is what he actually paid and which includes 720 rupees of GST which should not be included in his eligibility limit.

There could be other possible answers depending on the ingenuity of the interpreters, which we all are.

This could be a problem in Lucknow or Mysore, but has to be solved in Delhi. How does it reach Delhi? Our Additional Commissioner submits a Travelling Allowance (TA) Bill claiming Rs. 4720 as accommodation expenditure. The Accounts Officer objects to his claim as it is more than the stipulated maximum. The Additional Commissioner is furious. "How can I be denied reimbursement of GST?, you can do that to an assessee, not to an officer." So, a reference is made to the Principal Chief Controller of Accounts of his Department. But he is not the final authority. The matter goes to the Finance Ministry, but that Ministry has several Departments. Who knows who will clarify? It is the Department of Revenue which manages the GST, but can they clarify on an issue as to whether their own officers are entitled to reimbursement of GST over and above the stipulated entitlement levels? It was the Department of Expenditure which gave the original Office Memorandum prescribing the limits of expenditure for accommodation. That is the right department to clarify the issue and thus it reaches the Department of Expenditure.

It must be noted that our Additional Commissioner was not the only officer travelling, staying in a hotel and paying GST thereby making his bill higher than his entitled limit. Other officers in other Departments were also following suit and they also have Principal Chief Controllers of Accounts and requests for clarifications started pouring in from various departments. This has now become a National Problem.

The Department of Expenditure, Ministry of Finance, Government of India in its Office Memorandum No. 19030/2/2017.E.IV, dated 29.06.2018 has noted, "Various references have been received in this Department seeking clarification regarding admissibility of Taxes/GST on the prescribed entitlement of Hotel accommodation/Guest House as mentioned in Para 2E(i) of the annexure to this Department's OM No. 19030/1/2017-E.lV dated 13.07.2017 " and has clarified that:

1. The matter has been considered in this Department

2. The entitlement prescribed in r/o Hotel accommodation/Guest House as mentioned in Para 2E(i) the OM, is exclusive of all Taxes/GST

3. These Taxes/GST shall be reimbursed to the Govt. employee over and above the prescribed entitlement.

4. Further, reimbursement of GST shall be calculated on the actual charges paid by the Central Govt. employee within his/her prescribed entitlement,

Please note that the clarification states all Taxes/GST . Does it mean that 'all taxes' do not include GST? Isn't GST a tax? Will they issue a further clarification on (4) above after references are received from various departments? This clarification is only about accommodation. What about food? Will it apply mutatis mutandis? Wait for another clarification.

Just imagine the wheels within wheels of the Government machinery that must have moved to get this clarification and this clarification is sent to every government office in the country. We need GST to sustain those wheels.

Chartered Accountants want Simplification of GST Laws : The Institute of Chartered Accountants of India (ICAI) has in a letter to Mr. Piyush Goyal, the Finance minister and Chairman of GST Council offered 121 suggestions for simplification of GST laws – the ICAI looks forward to contributing in the drafting of simple, transparent, & fair GST laws in India . The very first suggestion states, "The GST law is one of the most complex piece of legislations that has been drafted in a way that it is meant only for the large taxpayers, organised sectors and tax experts due to its very complex nature. The indirect tax laws in Malaysia and UAE are much simpler when compared to the GST Laws in India." And suggests that "the GST laws be made much simpler and less complex in a way that it could be understood even by a layman or an unorganised taxpayer without the intervention of a tax expert." It is heartening to note that the ICAI believes that the tax experts (whoever they are) have understood the law. If you go by the debates, discussions and pronouncements of the experts, the only conclusion one can draw is that they (the experts) are as confused (if not more) than the ordinary taxpayers.

A famous writer was asked the meaning of a sentence he wrote. He replied, "when I wrote that passage, only God and I knew what it meant. It is possible that God knows it still, but as for me, I don't know".

As for the simple GST Law of Malaysia, it is far simpler now. Since 01.06.2018, they have no GST. This, their Government has made possible by issuing a notification that the rate of GST with effect from 1 st June 2018 would be zero instead of the uniform six percent they had earlier. They had a single rate of six percent for hawai chappals and Mercedes and everybody complained. And it seems the car sales have zoomed more than that of chappals after GST has become zero. And Samsung has launched a new promo – GST (Great Samsung Treat) to celebrate the zero GST.

Appeals - Pre-deposit from Credit Ledger : The ICAI suggestion No. 119 states, "Under the Excise laws & Service tax laws, if CENVAT credit was available, then the assessee can debit the CENVAT account & attach a copy of the CENVAT account with appeal papers. However, under the GST laws, there is no clarity for giving effect to such adjustments, and hence, the appellant's money may get blocked. The appellant will then face liquidity problems, and this will impact the operations of his business." And suggested, "suitable clarification be provided to allow the registered person preferring an appeal to effect payment of the amounts specified in Section 107(6) of the CGST Act, 2017, either through electronic cash ledger, or electronic credit ledger."

There was no such provision under the Excise or Service Tax Laws, though the appellate authorities have been admitting appeals where the pre-deposits were made from Cenvat Credit Accounts. Very recently, the Gujarat High Court in Cadila Health Care Pvt. Ltd. - 2018-TIOL-1236-HC-AHM-CX ruled that such payments were legal. Please also see DDT-2429 and - 2012-TIOL-505-CESTAT-MUM.

However, in GST, the position seems to be clear. In GST APL-01, the Form for Appeal to Appellate Authority and in GST APL–05, the Form for Appeal to the Appellate Tribunal, under Details of payment of admitted amount and pre-deposit , the appellant is required to give details of payment of deposit from Cash Ledger and Credit Ledger separately. This amply proves that pre-deposit can be made from the Credit Ledger. If further clarifications are asked, there is a danger of somebody clarifying that it is not permissible and we have to re-invent the wheel all over again.

What will happen to the unutilised balance in PLA? The ICAI states, "There may be cases where the balance in PLA has not been fully utilised by the assessee as on 30.06.2017 for which there is no provision in the GST laws for carry forward into the GST regime." And suggests that a remedy for such balance of PLA be provided to the assessee, under GST .

This PLA is a legacy of the 1944 Rules, which neither the accountants nor the Board was able to discard. With the advent of monthly payment of duty, there was no need for any PLA and no prudent businessman would keep balances in his Cenvat account idle and pay cash for duty liability. The cash payment was after making debit entries in the Cenvat account. Even then, certain assessees did maintain the archaic PLA and obviously some of them could not utilise the PLA balance when we marched into the GST era on 1st July 2017.

But isn't this an issue already clarified by the Government? The Government's FAQ on this subject.

Question. 41 What will happen to the balance available in the current account (PLA) under Central Excise, deposited in cash in advance by any assesse?

Balance in PLA will not be under transition to GST since that has not been appropriated to the Government account which will be determined post completion of the pending assessment. The same can be claimed as refund under the Central Excise Law.

So, the PLA balance had to be claimed as refund under Central Excise Law and those who have not done so, should perhaps do so now. It seems some assessees have transferred this amount to their GST Credit Ledger and the Department has already initiated Show Cause Notice action against them.

Whether they would get refund from the department or not, they are sure to get penalty orders apart from recovery of these amounts with interest. And as rightly pointed out by ICAI in another suggestion, if any assessee gets an erroneous refund, he will be liable to a penalty.