JANUARY 30, 2019

By Vijay Kumar

Tax Collected at source to suffer GST?

SECTION 15 of the Goods and Services Tax Act, 2017 stipulates that the value of supply of goods, services, or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

Section 15(2) provides that the value of supply shall include any taxes, duties, cesses, fees and charges levied under any other law in force.

When you buy a car worth more than Rs. 10 lakhs, the seller is required to collect a Tax Collected at Source (TCS). As per Section 206C(1F) of the Income Tax Act,

Every person, being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding ten lakh rupees, shall, at the time of receipt of such amount, collect from the buyer, a sum equal to one per cent of the sale consideration as income-tax.

What happens to this TCS? It is ultimately credited to the account of the buyer and can be used for payment of Income Tax.

Then should the seller pay GST on this Tax Collected at Source (TCS)?

The CBIC in Circular NO. 76/50/2018-GST; dated 31 st December 2018 clarified the issue as:

Recently this question was before the Kerala High Court in writ petition wherein the petitioner prayed that the High Court be pleased to direct the respondents or any officer or official under their jurisdiction from acting upon the Clarification at Sl.No.5 of the above extracted circular, pending disposal of this Writ Petition.

The Petitioner pleaded that the dealer of the motor vehicle, acts only as an agent for the State to collect the income tax under Section 206C(1F). And that amount will eventually go to the vehicle purchaser's credit.

The Court noted that in this context, to conclude either way, it needs further and deeper adjudication. So, the High Court held that the authority will not act on the clarification at Sl.No.5 of the above-mentioned Circular pending the disposal of the writ petition. The Court clarified that this arrangement shall be subject to the outcome of the writ petition and without prejudice to the rights of the Department in collecting the taxes in future if the writ outcome is adverse to the petitioner. - 2019-TIOL-418-HC-KERALA-GST

Now, what will happen if the writ outcome is adverse to the petitioner. He will have to pay the GST with interest and the buyer will not be available anywhere near to pay the GST.

But why should they collect GST on TCS? More than the amount of tax, this is sure to create chaos in accounting,

GST Un-metered:

In these columns on 20.06.2018 GST Metered, I wrote,

In 2010, the Government took a conscious decision that all services relating to transmission and distribution of electricity are exempted from Service Tax. Did they change the policy in 2012 and consciously decide that only transmission and distribution would get exemption and not the incidental and connected services? If so, why? What was the public interest in exempting meter rent in 2010 and not exempting it in 2012. Wasn't it a mistake and the mistake walked into GST in silent glory. All the brilliance of the babus will now be channelized into proving that it was a conscious decision and not a mistake. A couple of days ago, Mr. Arun Jaitley blogged, "The GST after a few weeks of its implementation became problem free and is leading to higher tax collection."

The issue is likely to spread fast to other parts of the country and every assessee in the business of distributing electricity may have to approach their jurisdictional High Courts. Lawyers should be grateful to the Board (Revenue) for providing such lucrative opportunities.

The CBIC had clarified in   Circular No. 34/8/2018-GST dated 01 03 2018 :

4 (1): Issue: Whether the activities carried by DISCOMS against recovery of charges from consumers under State Electricity Act are exempt from GST?

Clarification: Service by way of transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST under notification No. 12/2017- CT (R), Sl. No. 25. The other services such as, -

i. Application fee for releasing connection of electricity;

ii. Rental Charges against metering equipment;

iii. Testing fee for meters/ transformers, capacitors etc.;

iv. Labour charges from customers for shifting of meters or shifting of service lines;

v. charges for duplicate bill;

provided by DISCOMS to consumer are taxable.

In a recent decision - 2019-TIOL-419-HC-AHM-GST, the Gujarat High Court struck down the above clarification. The High Court took this decision at the stage of summons. Not even a Show Cause Notice was issued. The High Court observed,

However, now, taking shelter behind the impugned circular, the impugned summons has been issued seeking documents/details in connection with services provided right from financial year 2012-13 to financial year 2017-18. In the opinion of this court, in view of the fact that the impugned summons is based upon the clarificatory circular, which is subject matter of challenge in the present petition, the contention that the petition challenging the summons is not maintainable does not merit acceptance, inasmuch as, it is not the summons per se which is subject matter of challenge, but the basis thereof, viz. the clarificatory circular dated 1st March, 2018 which is also subject matter of challenge, and the challenge to the impugned summons is only an ancillary relief sought in connection therewith. Besides, the clarificatory circular cannot be challenged before the statutory authorities who are bound by the same, and can be challenged only by way of a writ petition under article 226 of the Constitution of India.

Revenue pleaded for a stay of the order for appealing to the Supreme Court, which was considered and declined.

Will it not be wise for the Government to withdraw the mischievous circular instead of taking the matter to the Supreme Court and several High Courts?

Who will tell the Prime Minister that his Good and Simple Tax has been made chaotically complex?

Until next week…….