JANUARY 18, 2019

By Rajat Dosi

THE issues in the GST law refuse to die down despite several GST council meetings suggesting plethora of changes in the GST law to make the GST law simpler and free from doubt and confusion. One such issue has been brought to fore by the recently issued CBIC Circular No. 76/50/2018-GST dated 31.12.2018 wherein it was inter alia clarified that GST will be payable on the TCS amount collected from the buyer as per Section 206C of the Income Tax Act, 1961. This article tries to highlight the inconsistency in said issue and suggest a possible solution to the same.

TCS Provisions

2) Tax Collected at Source ("TCS") is to be collected by the seller from the buyer at the time of sale. Post such collection from the buyer, this amount is to be deposited by the seller with the Government for and on behalf of the buyer.

3) Section 206C of the Income Tax Act details the provisions pertaining to TCS. This provision requires seller of specified items to collect from the buyer a certain percentage of amount received from the buyer as TCS. The list of articles inter alia includes the following:

a) Scrap - 1%; and

b) Alcoholic Liquor for human consumption - 1%.

4) When these items are meant for trading by the buyer, the seller of these items is required to collect 1% as TCS of the total amount received from the buyer.

5) The language used in the above provision seems to suggest that on the entire amount paid by the buyer including all the taxes (except the TCS), the seller is required to collect this TCS amount. Infact, the FAQs on the income tax department's website seconds this view in the following words:

"Whether TCS can be collected on amount inclusive of GST? FAQs on Tax Deducted at Source (TDS)

As per section 206C (1) every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer. Hence, amount debited to the account of buyer or payment shall be received by seller inclusive of VAT/excise/GST. TCS to be collected on inclusive of GST."

6) In the erstwhile VAT, excise and service tax regime, all the companies were collecting TCS on the VAT and excise duty portion, wherever applicable. The said practice was never objected to by the VAT, excise or the income tax authorities at the time of audit or assessment.

Accordingly, in the GST regime, this TCS amount is required to be collected on the GST portion as well, and as has been provided above on the income tax department's website.

GST Provisions

7) Goods and Services Tax ("GST") is payable by the supplier on supply of goods in India. The value at which the same is payable has been detailed in Section 15 of the CGST Act. It inter alia provides that the value will include all taxes, duties and cesses levied under any law for the time being in force (except CGST, SGST and IGST).

8) Thus, it is clear that all taxes including TCS (payable under the Income Tax, as discussed above) will be added to the transaction value for computation of GST payable by the supplier. This understanding has been affirmed by the recently issued CBIC Circular dated 76/50/2018-GST dated 31.12.2018.

9) The crux of the above discussion is that TCS is payable on the sale consideration as well as the GST amount received from the buyer. On the other hand, GST is payable on the sale consideration as well as the TCS amount received from the buyer. This has led to a paradoxical situation wherein one requires the addition of the other and the other requires the addition of the one.

10) A similar situation had arisen in the context of computation of customs cess (Edu and SHE cess) and IGST at the time of import of goods into India, when the GST law was newly implemented. We had highlighted this controversy in our earlier article ( Customs Cess on IGST OR IGST on Customs Cess - an anomaly). When this inconsistency was highlighted and brought to the notice of the government, the same was removed forthwith by the government. [Please see Notifications 54/2017-Cus & 55/2017-Cus.] We hope equally that the present inconsistency surrounding applicability of TCS and GST be swiftly removed by the Government.

11) However, till the time this inconsistency is not removed by the government, the companies can choose to pay TCS and GST in the following manner to satisfy the above mandate of the income tax law and the GST law:

Similar calculation has to be made in case the GST rate is 28%, 12% or 5% on any given item.

(The views expressed are strictly personal.)