DECEMBER 26, 2018

By Vijay Kumar

Some Good News for the Good and Simple Tax

THE recent meeting of the GST Council has blessed the taxpayers with a heavy basket of goodies. There is a saying, "god delivers, but pujari blocks". The Council only blesses, the delivery has to be done by the pujaris. GST rates have been reduced on several items, including cinema tickets. Past experience has been that a mere reduction in rates will not be beneficial to the concerned. It can, of course, generate a few anti-profiteering disputes. Some interesting prasad, not all sweet.

++ Parliament and State legislatures shall be extended the same tax treatment with regard to payment of tax under RCM (reverse charge mechanism) as available to Central and State Governments.

++ Security services (supply of security personnel) provided to a registered person, except Government Departments which have taken registration for TDS and entities registered under composition scheme, shall be put under RCM. ( This is a great decision. Nearly nine years ago, I wrote in TIOL-DDT 1308 -

The plight of the Security agencies is really pathetic. Many of these agencies are run by upright retired military officers who do not know the vile of civil society and almost all of them have service tax cases against them, because they do not know how to treat the tax officials. These agencies are providing a great service to the nation by providing employment to a large number of poor ex-service men. And they provide trained disciplined security personnel for the trade and industry. But at the end of the day, these brigadiers and captains who commanded battalions are now standing for hours together outside the offices of Central Excise officers who have summoned them to record their statements for having intentionally evaded service tax. These soldiers who were ready to die for the country, are now scared of Service tax officers. And at the end of the day they end up making losses in their business as all ex-servicemen do.

++ IIMs to be officially exempted. Due to different AAR Rulings, IIM Calcutta got an exemption while those in Indore and Bangalore were to suffer. (Please see GST on IIM in these columns). Now it doesn't matter which IIM gives you the degree - your degree is free of GST.

++ Canteens in Schools - tax depends on who owns the canteen: GST is exempt on supply of food and drinks by an educational institution when provided by the institution itself to its students, faculty and staff and is leviable to GST of 5% when provided by any other person based on a contractual arrangement with such institutions. Does it matter to the student whether his lunch is supplied by the school or a private canteen? Should schools be now taught to make chapa this to be supplied to students?

++ It is to be clarified that a banking company is liable to pay GST on the entire value of service charge or fee charged to customers whether or not received via business facilitator or the business correspondent.

++ There would be a single cash ledger for each tax head. The modalities for implementation would be finalised in consultation with GSTN and the Accounting authorities. This is real simplification.

++ The new return filing system shall be introduced on a trial basis from 01.04.2019 and on mandatory basis from 01.07.2019. What if the trial fails? The date can always be extended.

++ The due date for furnishing the annual returns in FORM GSTR-9, FORM GSTR-9A and reconciliation statement in FORM GSTR-9C for the Financial Year 2017 - 2018 shall be further extended till 30.06.2019. These returns are causing immense fear and will perhaps be further extended under a new Government.

++ ITC cannot be availed through FORM GSTR-9 & FORM GSTR-9C - Amen!

++ Creation of a Centralised Appellate Authority for Advance Ruling (AAAR) to deal with cases of conflicting decisions by two or more State Appellate Advance Ruling Authorities on the same issue.

We mentioned in our latest CobWeb - "it is getting late for the Council to take a call on the National Authority for Advance Rulings. ARA rulings have stopped doing any good to the larger cause of the GST. A Centralised body is required to be set up within three months so that some sort of sanity could be injected in the decisions before they are implemented ."

It would be far better to abolish this nonsensical Advance Ruling Mechanism. Maybe this move will create some more posts for the officers at the highest levels.

++ Amendment of section 50 of the CGST Act to provide that interest should be charged only on the net tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e. interest would be leviable only on the amount payable through the electronic cash ledger.

This was a hot topic for discussion among many professionals, as some wise guys entertained an opinion that interest is payable on the gross amount payable without deducting the available credit and many departmental officers gladly agreed with this view. It is really gracious on the part of the government to issue this clarification, before it turned into a tsunami of litigation. But the government proposes to do this by amending Section 50 of the GST Act and that has to be done by Parliament. Can't this be done by a clarification as the concerned stakeholders are really worried.

++ Incentives paid by RBI to Banks under "Currency Distribution and Exchange Scheme" (CDES) are taxable:

The Currency Distribution & Exchange Scheme (CDES) for bank branches including currency chests has been formulated by RBI in order to ensure that all bank branches provide better customer service to members of public with regard to exchange of notes and coins, in keeping with the objectives of Clean Note Policy.As per the scheme, banks are eligible for financial incentives for providing facilities for exchange of notes and coins.

In 1944, they brought in a new Central Excises and Salt Act to simplify the administration of this branch of taxation. Since then, we are in a continued mission of simplifying taxation, which has resulted in creation of a huge mountain of tax literature consisting of the Constitution, several Acts, Rules, Notifications, instructions, orders, FAQs, Public Notices, PIB releases, Twitter handles, Facebook posts, WhatsApp messages, YouTube videos, articles, books, word of mouth analyses - all for that little mouse now called GST. In two years, we have achieved more than what we could in seventy years in terms of agglomeration of confusion. If the amount of time, talent, money, bandwidth, paper and sheer patience could be spent in any other activity, the Nation would have prospered to unimaginable levels. All these simplification exercises prove that GST was never a good and simple tax. The English language has also added to our misery as unfortunately, our laws are written in English and over the years, we have mastered in making our standard of English so low as to make the 'taxpayer concerned' a 'concerned taxpayer'.

But the very fact that the government is responsive and willing to correct (before elections or otherwise) is the light at the end of the tunnel. Now it doesn't matter who comes to power - we have caused so much damage that nobody can redeem it in the near future. Maybe after seventy years when this conglomeration of confusion will become totally meaningless, we can think of another law, another tax...

"When the people fear the government, there is tyranny. When the government fears the people, there is liberty."

Huge Pressure of work - no excuse : In an order passed on 13.12.2018, the Calcutta High Court observed,

"Huge pressure of work" cannot be an excuse. If the concerned A.C.O. is unable to handle "huge pressure of work", then he should simply quit. On the other hand, if he is thoroughly incapable, even then, he should quit. The concerned A.C.O., however, cannot give a reason that "due to huge pressure of work" he has not been able to perform his duty.

In such circumstances, we direct the concerned Registrar (Administration) to bring the entire matter to the notice of the Registrar General so that a general warning can be issued to all officers in the Registry that if they are unable to perform their duties citing "huge pressure of work" as a reason, it may be construed that they are either unwilling to perform their duties or are simply incapable of performing their duties for which they are receiving salary from the State exchequer. Those employees, who cite "huge pressure of work" as a reason for not being able to perform their duties up to the expectation of the Court, shall be given an option to voluntarily retire from service if the same is permissible in accordance with the extant rules governing their services.

Bail cancelled in a GST case : The accused was arrested in August 2018 with the allegations that he was involved in generation of fake invoices by floating dummy companies / firms and of passing on the input tax credit (in short, 'ITC') to unscrupulous persons / firms/ companies without actual supply of goods. This was done with the malafide intent to pass on the undue advantage of ITC to various companies / firms for utilizing the bogus GST ITC so generated. In return, accused and the co-accused were taking commissions at various rates. This activity of the accused/ respondent and of the co-accused was found involving fictitious sales of the value of Rs. 201 crores and of the amount of tax evasion of more than Rs. 27 crores.

The accused was granted bail by the Magistrate on 1.8.2018. The Commissioner, GST took the matter to the Additional Sessions Judge, New Delhi who cancelled the bail on 22.12.2018 even though he observed that in respect of cancellation of bail, the law is well settled that very cogent and overwhelming circumstances are necessary for an order directing the cancellation of the bail, already granted .

Duty Free Shops are in India - supplies liable to GST : In a judgement delivered on 17.12.2018 [2018-TIOL-2931-HC-MP-GST], the Madhya Pradesh High Court observed,

The petitioner is supplying goods to Duty Free Shops and as per Section 2(5) of IGST Act, 2017 export of goods takes place only when goods are taken out to a place outside India. India is defined under Section 2(27) of Customs Act,1962 as "India includes territorial waters of India". Similarly, under the CGST Act, 2017 under Section 2(56) "India" means the territory of India including its territorial waters and the air-space above its territory and territorial waters and therefore, the goods can be said to be exported only when they cross territorial waters of India and the goods cannot be called to be exported merely on crossing customs frontier of India.

The petitioner's contention is that no GST is payable on such supply taking place beyond the customs frontiers of India as the same should be considered as export of goods under Section 2(5) of the IGST Act, 2017 and should be zero rated supply under Section 2(23) read with Section 15(1) of the IGST Act, 2017 is misconceived. The term "Export of Goods" has been defined under Section 2(5) of the IGST Act, 2017 as taking goods out of India to a place outside India.

Undisputedly, in light of the definition as contained under the IGST Act, 2017 a Duty Free Shop situated at the airport cannot be treated as territory out of India. The petitioner is not exporting the goods out of India. He is selling to a supplier, who is within India and the point of sale is also at Indore as the petitioner is receiving price of goods at Indore.

The petitioner cannot escape the liability to pay GST. He is manufacturing certain goods and supplying to a person, who is having a Duty Free Shop. It is true that we cannot export our taxes but the facts remains that it is not the petitioner, who is exporting the goods or taking goods out of India. He is selling to a person, who is having Duty Free Shop (to a Duty Free Operator), which is located in India as per the definition clause as contained under the GST Act.

A Principal Commissioner as a Revision Authority recently held, "The transactions effected at the Duty Free Shops at the arrival or departure of the International Airports in India, might have taken place within the geographic territory of India, but for the purposes of levy of Customs Duties or any other taxes, the area of Duty Free Shops shall be deemed to be the area beyond the customs frontiers of India ."

The same Government vehemently contested the same issue before the High Court. All the settled issues will come back with rejuvenated strength in the GST regime.