Tax Collected at source NOT to suffer GST?
MARCH 13, 2019
By Vijay Kumar
Section 15 of the Goods and Services Tax Act 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 31st December 2018 clarified the issue as:
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Sl. No
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Issue
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Clarification
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5.
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What is the correct valuation methodology for ascertainment of GST on Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961?
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1. Section 15(2) of CGST Act specifies that the value of supply shall include "any taxes, duties cesses, fees and charges levied under any law for the time being in force other than this Act, the SGST Act, the UTGST Act and the GST (Compensation to States) Act, if charged separately by the supplier."
2. It is clarified that as per the above provisions, taxable value for the purposes of GST shall include the TCS amount collected under the provisions of the Income Tax Act since the value to be paid to the supplier by the buyer is inclusive of the said TCS.
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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
The Board Circular is patently wrong and even the Board realised this recently. In the light of representations received from the stakeholders, the Board re-examined the issue in consultation with the Central Board of Direct Taxes (CBDT). The CBDT clarified that Tax collection at source (TCS) is not a tax on goods but an interim levy on the possible "income" arising from the sale of goods by the buyer and to be adjusted against the final income- tax liability of the buyer. So, the CBIC, wiser after the clarification from CBDT, graciously changed its clarification and decided that For the purpose of determination of value of supply under GST, Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax.
This clarification was issued by way of a Corrigendum to Circular No. 76/50/2018-GST on 7th March 2019 and the corrigendum is hidden in the 2018 Circulars. Thanks to an overactive media, the corrigendum received the attention it deserved. But why did the Board give that wrong and hasty clarification? Couldn't they consult the CBDT before rushing to give a clarification just to collect a few more rupees? After all the CBDT is in the same building and same floor and a walk across the corridor would have been not only invigorating but also enlightening. But in government, the left hand does not know what the right hand is doing, and it is not expected to know. Any indiscretion in this matter is mercilessly denounced. By the time the CBIC got the clarification from the CBDT on the same floor, notices must have been flying around and we know that the matter is under consideration in at least one High Court. Who has created this litigation? Can GST ever be simple if we have such litigation manufacturing factories? By any stretch of logic, can you ever imagine income tax being a part of sale price? Law is not logic, my dear friend, especially when they are made, interpreted and remade by Revenue officials.
But the Board deserves all praise for admitting its mistake, consulting the CBDT and issuing a corrigendum. It would have been much better if the corrigendum was given a little more publicity. After all, when you correct a mistake, it needs to undo the damages caused by your mistake.
CA Student arrested under GST Scam granted Bail:
"Mr. Prakashsinh Udavat obtained GST number in the name of Om Enterprise in March, 2018 and bogus bills amounting to Rs. 106.40 crores have been issued till July, 2018. As per the statement of Mr. Prakashsinh, only bogus bills have been issued in this entire case. No actual physical transfer of goods or transaction has been carried out. He has stated in the statement u/s 70 that this scam has been committed by Mr. Hitendra Shah and Madhav Shah. Thus, active involvement of Mr. Madhav Shah and Hitendra Shah has been found in this scam. it is found that Mr. Hitendra Shah and Madhav Shah are the masterminds of this entire scam.
Madhav Shah and Hitendra Shah have generated bogus bills for crores of rupees on the same day.
Thus, the loss of Rs.21.12 crores has been caused to the Government treasury by Madhav Shah in the case of Shivay Enterprise in addition to the previously mentioned cases.
In order to commit the scam, Hitendra Shah, Prakashsinh Udavat and present accused namely Madhav Shah in collusion with other persons set up firms in the name of economically backward persons, obtained GST number, misused the said numbers and obtained input credit illegally for invoices of stock worth crores of rupees without actual physical transaction and caused huge loss to government revenues."
This is an extract from an order dated 05.03.2019 of the Gujarat High Court. Madhav Shah has been in judicial custody since 30.12.2018. His advocate submitted that Madhav Shah was a young person pursuing studies in Chartered Accountancy and was employed under the co-accused Hitendra Shah; that he was acting under the instruction of the said Hitendra Shahand has not derived any financial gain.
The high Court granted him bail subject to certain strict conditions. Please see 2019-TIOL-574-HC-AHM-GST.
Revenue Targets: March is a dangerous month to meet Revenue officers and they will all be tense with intensive revenue drives driving all concerned to chaotic madness. This year could be different as elections are announced and the political bosses may not be too much bothered about revenue collections. The officers can let March pass by peacefully and the taxpayers can heave a sigh of relief that elections have at least one positive outcome. Even the CBIC Chairman in his newsletter dated 08.03.2019 only made a mild exhortation:
In this last month of the financial year, I expect all officers to put in their best efforts for revenue augmentation and for achieving the revenue target fixed.
Until next week
