The most powerful GST Council has asked six States including Delhi, Madhya Pradesh and Punjab, and the Union Territory of Puducherry to set up appellate authorities to enable aggrieved entities to file appeals against orders of the Authority for Advance Rulings.
This is light of the fact that even after one year of GST Rollout, six states and Puducherry are yet to set up the Appellate Authority for Advance Rulings.
In the absence of an AAAR, it is not possible for aggrieved entities to contest the verdict passed by the AAR. The AARs in different states have so far passed more than 200 orders.
“The Secretariat of the GST Council has shot off letters to Delhi, Punjab, Madhya Pradesh, Arunachal Pradesh, Manipur, Jammu and Kashmir, and Puducherry to fast track setting up of AAARs in their respective states, stating that in absence of such an authority businesses are facing difficulties,” an official told PTI.
The GST Council Secretariat had in May written a similar letter to all states, following which a majority of them had set up AAAR and appointed its members.
The appellate authority has been mandated to pass order within 90 days of the filing of an appeal.
Under the GST law, an aggrieved party can file an appeal against the order of the AAR within a period of 30 days, which may be further extended by a month.
As per the law, all states are required to set up at least one AAR for seeking advance ruling over GST levy and one appellate authority to hear appeals against the AAR order.
The Calcutta High Court, last week granted bail to the GST defaulters who evaded tax by using fake invoices.
The petitioners, Sanjay Kumar Bhuwalka and Neeraj Jain were arrested on 12.05.2018 due to their involvement in the business of generating and selling of fake tax invoices to various entities without supplying the underlying goods or services, thereby facilitating irregular availment and utilization of input tax credit by such entities to whom such fake invoices were issued.
The High Court, in July, granted bail to the petitioners had imposed certain conditions such as furnishing bond of the sum of Rs. 50,00,000/- each on condition to deposit of Rs. 39 crore to the Government Exchequer through the competent authority with direction to appear before the I.O./Authority holding investigation to assist the investigating machinery.
The said order was further modified by order dated July 12, 2018 to the extent that the petitioners be enlarged on bail by furnishing personal recognition bond of Rs. 10 lakh each and on further condition to deposit of the evaded amount respectively.
They are still in custody and they have not been able to be released on bail by furnishing bond with the conditions as imposed by the order dated July 12, 2018.
Justice Shivakant Prasad noted that the GST Authority and their Investigating Officer has failed to submit charge sheet against the petitioners and even no extension of time to complete the investigation has been sought for by them.
“In respectful consideration of the principles laid down in the cited decisions and further in view of latest decision of the Hon’ble Apex Court that the courts cannot extend the investigation period under Section 167 of the Code of Criminal Procedure, this Court is pleased to relax the conditions of bail imposed by this Court’s order dated July 12, 2018 so as to enable their release on bail as they have statutory right to be released and further bearing in mind the principles as to presumption of innocence and the right of liberty guaranteed under Article 21 of the Constitution of India and accordingly the petitioners be released on furnishing personal bond of Rs. 50,00,000/- each to the satisfaction of learned Additional Chief Judicial Magistrate, Sealdah,” the Court said.
Subscribe Taxscan Premium to view the JudgmentThe Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the income from mobile companies for letting out the terrace space for fixing and operating antennas needed for cellular operation is taxable under income from house property.
The assessee in the instant case is a co-operative society filed its return of income by declaring an amount as rental income received from the cellular company as income from house property and the Assessee claimed such rental income from mobile towers for deduction under Section 24(a) of the Income Tax Act.
The Assessing Officer denied the claim for deduction by holding that terrace not comes under house property and the annual letting value of the terrace cannot be calculated and concluded that such income comes under income from other sources.
The Assessee maintained that he let out the roof space for installation of mobile towers and such income should be allowed as deduction.
Aggrieved assessee carried the matter before Commissioner (A) wherein it was held that the assessee was receiving a compensation for providing such facilities and as per the terms of agreement mobile companies denied the right of the tenant or any other type of tenancy. Accordingly, the authority sustained the decision of Assessing Officer.
When the matter brought before the Tribunal by Assessee, the counsel reiterated the submissions made before and also reminded that earlier years the same Assessing Officer never came up with such controversy.
The Assessee also added that as per the rule of consistency the income should be treated as income from house property.
The Single Judicial Member, Saktijit Dey held that “the terrace of the building cannot be considered as distinct and separate but certainly is a part of the house property. Therefore, letting–out space on the terrace of the house property for installation and operation of mobile tower / antenna certainly amounts to letting–out a part of the house property itself.”
Accordingly, the bench allowed the appeal of Assessee and declared that the income received by Assessee from the cellular company for letting out of terrace or roof space for fixing antennas has to be treated as income from house property and also eligible for deduction under section 24(a) of the Act.
Subscribe Taxscan Premium to view the JudgmentThe Authority for Advance Ruling (AAR), Tamil Nadu has held that the liaison offices established with the prior permission of the Reserve Bank of India (RBI) and the activities of the same are strictly in line with condition specified by RBI permission letter do not amount to supply under CGST und SGST Act.
In the instant case, Takko are working as the liaison Office of M/s. Takko Holding GmbH, Germany with the prior permission of RBI. Liaison Activities include acting as communication channel between the parent company and Indian supplier of goods to parent company at Germany in terms of the procurement, order placement, quality checks, and technical support shipping of the Readymade garments. Takko is not receiving any consideration for this from the suppliers. Except this liaison work, this office in India would not undertake any activity of trading, commercial or industrial nature nor would they enter into any business contracts in its own name without RBIs prior permission. There is no commission/ fees being charged or any other remuneration being received/ income being earned by the office in India for the liaison activities/ services rendered by it. The HO, reimburses the expenses incurred by Takko for their operations in India which are in the nature of salary, rent, security, electricity, travelling etc. They do not have any other source of income. Further the liaison office is strictly prohibited to undertake any activity of trading, commercial or industrial nature or entering into any business contracts in its own name.
The authority noted that the applicant/liaison office is working as per the terms and conditions stipulated by RBI and the reimbursement of expenses & salary of employees is paid by Mls Takko Holding GmbH to the liaison office. “No consideration for any activity is being charged by the liaison office and the liaison office does not have any business activities of its own as specified by RBI conditions,” the authority said.
“Further, Schedule I of CGST Act specifies that supply of services between related parties or distinct persons as per Section 25, even without consideration, constitute a supply. Takko is acting as an extension of the German Office in its procurement activities from suppliers in India as has been spelt out in the RBI permission letter. Hence, they are neither related nor distinct persons, but are in fact working as employees of the foreign office. Accordingly, none of the liaison activities of Takko is covered under the definition of supply. Hence, Takko would not be a supplier under CGST /SGST Act and hence is not required to obtain registration under Section 22 of CGST /SGST Act or pay CGST, SGST or IGST as applicable,” it said.
Subscribe Taxscan Premium to view the JudgmentThe Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that if the shares have been held by the assessee for a period more than 12 months, then the income shall be subject to tax under the head ‘Capital Gain’ and not as ‘Business Income.’
The Assessing Officer held that the redemption of mutual funds by the assessee during the year should be treated as ‘business income’. The assessee claimed that the income is Capital Gain.
As per the amended partnership deed, the object of the firm was to carry out money lending business, trading, etc. and making investments in shares and securities. However, the assessee firm has not carried out any business activities as per its objects in the relevant year is the first year and had only undertaken the transaction in 15 mutual funds and 2 portfolio investments.
On the first appeal, the CIT(A) decided the matter in favor of the assessee.
Dismissing the departmental appeal, the Tribunal observed that “AO has treated not only the gain on mutual funds as business income but also gain on profit and sale of shares as also as business income. Now in view of the CBDT Circular dated 29.9.2016, if shares are held for more than 12 months which have been treated as the investment, the same has to be taxed under the head ‘capital gain’ and not as ‘business income’. Accordingly, we hold that Ld. CIT (A) has rightly held that gain on account of sale of shares is to be taxed under the long-term capital gain. Consequently, grounds raised by the revenue are dismissed.”
Subscribe Taxscan Premium to view the JudgmentThe Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that a charitable entity cannot be denied the tax benefits merely because some element of its income is exempt from the Principles of Mutuality.
The objects of the assessee are for promoting and safeguarding rubber industry in India. The Assessee is also registered u/s 12AA of the Act with the Commissioner. For Assessment Year 2012-13, it filed its return of income declaring NIL income, which was subject to scrutiny assessment. The Assessing Officer noted the objects of the assessee and was of the view that it was an association of members existing for its members only and, therefore, it was a mutual association. The Assessing Officer also noted that assessee was carrying out activities in the nature of trade, business or commerce and/or providing services in relation to trade, business or commerce and, therefore, it was hit by the proviso to Sec. 2(15) of the Act which was inserted w.e.f. 01.04.2009.
The Tribunal relied on the Delhi High Court decision wherein it was specifically considered the receipts derived by a Chamber of Commerce and Industry for performing specific services to its members. It was held that such income was found to be entitled to benefits of Sec. 2(15) r.w.s. 11 of the Act provided, of course, there was no profit element in such services
Relying on the above decision, the Tribunal held that “Therefore, so far as the Principle of Mutuality is concerned, the same is with reference to the services vis-a-vis the members and qua the income received by the assessee from non-members, the other provisions of the Act would govern. In any case, an entity cannot be denied charitable character merely because some element of its income is exempt from the Principles of Mutuality. Thus, in this aspect also, we find no reason to uphold the stand of the Revenue.”
Subscribe Taxscan Premium to view the JudgmentThe Central Government today extended the due date for filing return GSTR 3B for the month of September to 25th October.
“In view of the said apprehensions and with a view to giving some more time to the trade and industry, the last date for furnishing form GSTR 3B for the month of September 2018 is being extended up to 25th October 2018,” a statement issued by the Government said.
The Notification in this regard will be issued shortly, it said.
Earlier, in order to remove doubts, the Government had clarified that as per the law, last date for availing ITC in relation to the period from July 2017 to March 2018 is the last date for the filing of return in the FORM GSTR-3B for the month of September 2018.
The extension of the said due date also implies that the last date for availing of ITC for the period July 2017 to March 2018 also get extended up to 25th October. 2018.
It may also be noted that the Government has extended the last date for furnishing of return in FORM GSTR-3B for the month of September 2018 for certain taxpayers who have been recently migrated from erstwhile tax regime to GST regime. For such taxpayers, the extended date Le. 31st December 2018 or the date of Idling of annual return whichever is earlier. be the last date for availing ITC in relation to the said invoice issued by the corresponding suppliers during the period from July 2017 to March 2018.
The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the sale of agricultural land which has been converted into several plots are taxable as Business income.
Assessee sold 6 plots of land during the year and claimed tax exemption by claiming that the said land was agricultural land. These plots of land were held for lease by owner and thereafter sold and profit accruing thereon was claimed as exempt being income from sale of agricultural land. The Assessing Officer held that the intention of the assessee was to earn profit rather than investing in the agricultural land to be used for agricultural purposes. It was also observed that assessee was not at all interested in carrying out any agricultural activity. If it all in case that intention of assessee was to embark on a venture in the nature of trade as distinguished from a capital investment.
The first appellate authority sustained the addition relying upon the decision of the Rajasthan High Court in case of Mahaveer Enterprises and held that assessee alongwith 8 other persons entered into transaction for sale and purchase of land. Intention was not to carry out any agricultural activity as because sale was carried out barely within few months of the acquisition. The CIT(A) also observed that area of land located is being developed for the purpose of Holiday Homes, Farm houses located near to Karjat.
On second appeal, the Tribunal upheld the findings of the lower authorities and held that “the detailed findings so recorded by lower authorities by applying various judicial pronouncements have not been controverted by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the order of lower authorities for treating profit on the sale of a plot of land as business income.”
Subscribe Taxscan Premium to view the JudgmentA New Delhi bench of the ITAT in the case M/s. Sucon India Ltd. Vs. JCIT held that loss suffered by assessee on derivative transaction is not speculative loss and as such eligible to be adjusted against business income.
The sole issue was regarding the addition made by Assessing Officer on account of claim of set off of loss of share business. In the instant case, the Assessee engaged in the business of trading in shares and securities file his return of income declaring a loss.
Since AO made the addition, Assessee carried the matter to CIT (A) where partly allowed the appeal. Further aggrieved Assessee approached this tribunal and pressed the decision of co-ordinate bench of Tribunal in assessee’s own case M/s. Sucon India Ltd. vs. ACIT were decision was in favour of Assessee.
Finally, the bench comprising Judicial Member Kuldip Singh and Accountant Member Prashanth Maharishi allowed the appeal of Assessee by relied on Assessee’s own case and held that loss incurred by Assessee on derivative transaction is not speculative loss and as such eligible to be adjusted against business income and Explanation 73 of the Income Tax Act is not attracted.
Subscribe Taxscan Premium to view the JudgmentThe New Delhi bench of the Income Tax Appellate Tribunal (ITAT), in the case of Pradeep Jain v. Income Tax Officer has allowed the appeal of Assessee and held that notice issued at wrong address and the same was not received by Assessee treated as invalid.
In the instant case, the assessee failed to comply with the notice issued under Section 148 of the Income Tax Act. Accordingly, the Assessing Officer framed assessment on income of 37 lakhs.
Aggrieved, the Assessee carried the matter before CIT (A) where the authority dismissed the plea by observing that there was no response from the side of Assessee, neither the appellant came for appearance or adjournment.
Further aggrieved, the Assessee approached this Tribunal and his counsel submitted that no notice for hearing u/s 148 of the Act was received by the assessee. The counsel also pointed out in the paper book that the said notice was sent at wrong address and also added that the notice under section 142(1) also issued at a wrong address.
The single bench comprising Accountant Member N.K Saini heard the rival contentions and perused the materials available on records. Thereafter bench found that the said two notices were issued at the wrong address which was claimed to be not constructed at that time.
Finally, the bench directed to remand this case back to the file of the AO to this consider the same as fresh and provided an opportunity of being heard to the Assessee.
Subscribe Taxscan Premium to view the JudgmentThe Cochin bench of the Income Tax Appellate Tribunal ( ITAT ) has held that deduction under Section 80P of the Income Tax Act not available to a Co-operative society having an area of operation in more than one Taluk.
In the instant case Assessee is a co-operative society, where deduction under section 80P was dissallowed due to Assessee’s area of operation not confined to one Taluk and also the other reason put forward was assessee was solely engaged in the business of banking and in view of insertion of section 80P(4) of the Act.
Being aggrieved with the decision, Assessee carried the matter to the CIT (A) wherein decided that assessee entitled to the deduction by pressing the judgment of the Hon’ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Ltd. & Ors. v. CIT.
Aggrieved by the decision, the Revenue approached the Tribunal. The counsel for Assessee submitted regarding the area of operation that it is confined to Aluva taluk in Ernakulam District. The changes were carried in the financial year 2011-12 relevant to the AY.
The bench comprising including Judicial Member George George K and Accountant Member Chandra Poojari, held that the section 80P can be granted only to those co-operative societies, whose activities are confined only to one taluk. The findings of AO that the activities are carried in two Taluk has been objected to by Assessee and stated that the bye-laws are amended during the disputed year and the operations were confined to one Taluk.
Finally bench categorically held that “a co-operative society having an area of operation in more than one taluk is not entitled to deduction u/s 80P of the Income Tax Act.”
Subscribe Taxscan Premium to view the JudgmentThe Advance Ruling Authority (AAR), Goa has held that the advance amount received for sale of villas on or after the appointed day prior to issuance of occupancy certificate by the local panchayat is considered as ‘construction services” and GST is applicable on two third of the total amount charged for such supply.
The applicant is a limited Liability Partnership Firm engaged in the business of building villas for sale in Goa. They construct villas for sale when they are ready and after getting the occupancy certificate. During the last year due to financial constrains they borrowed money from Mr. Zubin Dubash amounting to 5,50,00,000/- on 30/03/2017 and during this year they received and advance of Rs. 11,23,74,756/- from said person and the applicant has paid GST accordingly. The applicant submits that they have inadvertently paid the GST on the borrowings.
As per the provision of GST Law construction of a complex, building, civil structure or apart thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation whichever is earlier.
The authority noted that in case of supply of services specified above involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be. Such supply shall be deemed to be one third of the total amount charged for such supply. Here total amount means sum of total consideration charged for aforesaid service and amount charged for transfer of land or undivided share of land as the case may be.
It was further noted that the applicant has failed to produce supporting documents to prove that he has borrowed money from Mr. Zubin Dubash and the amount received by the applicant is accounted in the books of accounts of the applicant as loan and advances.
“In absence of the supporting documents the amount received by the applicant has been considered as advances received towards sale of villa. The applicant has received advance towards sale of villa prior to issuance of completion certificate. Hence, the same is taxable under GST Act @ 12%,” the authority said.
Subscribe Taxscan Premium to view the JudgmentThe Authority for Advance Ruling (AAR), Goa has held that Integrated Goods and Services Tax (IGST) payable on the Event Management support services provided in Goa to a registered person in Maharashtra.
The applicant is a service provider of event management to the clients in film shooting industry and providing the location for shootings as per the requirement of the clients. The services include arranging locations for film shooting, transport and conveyance for clients, restaurant food service, hotel accommodation, manpower requirements, security agency services, plant and machinery, furniture and pendals. All these services are procured from the supplier within the state of Goa in the name of the applicant on payment of CGST and SGST wherever applicable from the company accounts and charged their clients for cost of supply of such Event Management.
Before the AAR, the applicant sought for a clarification on whether such services are subject to IGST?
The authority noted that the applicant has provided services of event management to Gallani Enterprises who is registered in Mumbai and as per the provision of section 12(7)(i) the place of supply of services in case of registered person shall be the location of recipient of such service and IGST is applicable on such transactions.
It was, therefore, held that “The Event Management support services provided in Goa to a registered person in Maharashtra is governed u/s 12(7)(i) of the IGST Act. Hence same should be treated as the interstate supply of services and IGST @ 18% is applicable.”
Subscribe Taxscan Premium to view the JudgmentThe Goods and Services Tax Network ( GSTN ) has issued an advisory on the filing of refund application for multiple tax period.
As per the advisory, the Refund application filing for multiple tax period is available for below grounds of refund:, such as a) Export of Goods & Services-Without payment of Tax, b)Export of services with payment of tax, c) Supplies made to SEZ Unit/SEZ Developer-Without payment of Tax, d) Supplies made to SEZ Unit/SEZ Developer-With payment of Tax, e) ITC accumulated due to inverted tax structure and e) Claim by recipient /supplier of deemed exports.
It was said that the refund application can be filed using refund application Form GST-RFD-01A & selecting the tax period range. However, the multiple tax period application has restrictions such as its selection should be within a single financial year and the application has to be filed chronologically for tax periods and in case refund application is not to be filed for any tax period, a declaration of “No Refund Application” is to be provided.
For claiming the refund, the taxpayer would have to upload invoice details mandatorily in the statement template available in the refund application itself. The statement uploaded by taxpayers will be validated by the system from the invoice data declared/provided by the taxpayer at the time of filing return for that period for which refund is claimed. Only after validating data from the system, the taxpayer would be able to file the refund application.
All the invoice details are to be provided in a single statement. The taxpayer is not required to upload multiple statements for different periods separately, the advisory said.
After filing refund application, the taxpayer would not be able to claim a refund for that invoice again in some other refund application as the system will lock the invoice for which refund is claimed in one application. Also, the taxpayer would not be able to amend invoice details after claiming the refund, it said.
After filing of refund application by the taxpayer, refund application Form GST-RFD-01A along with the statement and documents uploaded shall be available to jurisdictional tax officer for review and processing of the refund.
The Gujarat High Court has stayed a communication to submit Service Tax audit report against the petitioners, M/s OWS Warehouse Services LLP.
Before the High Court, the petitioner has challenged the communication issued by the Comptroller and Auditor General of India calling upon the petitioner to submit Service Tax audit at the hands of the officers of the CAG.
The petitioner submitted that the Union of India has asked for the transfer of such petitions along with other proceedings filed before different High Courts. Our attention was drawn to an order dated 31.08.2018 passed by the Supreme Court, in which, the reference to the said order of this Court is made and the proceedings before the High Court have stayed.
After analyzing Section 173 of the CGST Act, Justice Akil Kureshi and Justice B N Karia noted that “clause of Subsection (2) of Section 174 and other clauses would, prima facie, show that there was no saving of Rule 5A in such manner that fresh proceedings for audit could be initiated in exercise of powers under the said Rule. We, therefore, have serious doubts whether, with the aid of Rule 5A of the Service Tax Rules, 1994, the CAG can carry out compulsory Service Tax audit of private agencies like the petitioner.”
“Under the circumstances, issue Notice, returnable on 28.11.2018. By way of ad interim relief, the impugned order dated 09.10.2018 is stayed. In other words, the CAG shall not carry out any further Service Tax audit of the petitioner. Direct service permitted,” the bench said.
Subscribe Taxscan Premium to view the JudgmentThe State Government of Haryana is all set to set up a State bench of the Goods and Services Tax Appellate Tribunal in Hisar for speedy settlement under the Goods and Services Tax ( GST ) regime.
Excise and Taxation Minister, Capt Abhimanyu on Thursday confirmed that in this regard, the Chief Minister Manohar Lal has accorded his approval to a proposal. Haryana is a very big state in terms of economy and revenue. Under GST, so far, there are 4.25 lakh registered taxpayers in the state, who are contributing tax of over Rs 4,600 crore every month, he said.
Under the old VAT regime, 2.25 lakh dealers were registered under the State and there was a Sales Tax Tribunal for the state which is still working. Thus, the State requires a State bench of Goods and Services Tax Appellate Tribunal, the Minister said.
The State Government would soon send its request to the Central Government for the constitution of State Bench of Goods and Services Tax Appellate Tribunal in Hisar city for the state, he added.
Regarding Area Benches of Tribunal, he said that GST is just a year old system and the workload of Tribunal is likely to go up with the passage of time. The workload of the Tribunal could be better assessed only after passing of some more time, he said.
The Excise and Taxation Minister said that the National Bench and its Regional Benches would have the jurisdiction to hear appeals against the order passed by the Revisional Authority or the Appellate Authority in matters related to the supply site.
The Appeals against all other orders passed by the Revisional Authority or the Appellate Authority would be made to State Bench or its Area Benches. The State Bench of the Appellate Tribunal would have the jurisdiction for exercising the power of Tribunal within the concerned state.
The Centre Government would constitute the required number of Area Benches in the state, on the recommendation of the Council and on the request of the State Government, he added.
The GST Council, in July, had approved the setting up of GST Appellate Tribunal to provide a higher judicial forum for businesses to redress their tax disputes under the newly implemented tax regime. Initially, the Tribunal will be constituted with a national bench in Delhi and three regional benches in Chennai, Kolkata, and Mumbai.
The Trade and Taxes Department, Delhi has filed FIR against a businessman who allegedly used forged documents, incorrectly claimed input tax credit (ITC) under GST regime and passed some of it along to other businesses.
The Department’s Commissioner, H. Rajesh Prasad, on Wednesday, confirmed that the department had filed a complaint with the Economic Offences Wing of the Delhi police in connection with the fraud.
A complaint was lodged against Mr. Pankaj Chawla, proprietor of Kavita Industries, for allegedly defrauding the government by using fake documents, falsely claiming ITC without being eligible and transferring Rs. 15 crores in ITC to other traders. The remaining credit of Rs. 35 crore had been suspended by the department when it learned of the fraud, the commissioner said.
After the GST- rollout on 1st July 2017, the accused a huge amount of input tax credit of Rs. 47.46 crore.
On June 22, when the inspector visited the Wazirpur address given by the accused for signing up for the GST portal, it was found that no such company existed there. The inspector then visited two residential addresses associated with the company and found that both were non-existent.
The department then sent a request to Karnataka Bank, in which the accused had declared an account, to verify the details, but was informed that no such account existed.
When the PAN card details given by the accused was verified, it was revealed that no one by the name of the accused lived or worked there. The department further found that the accused’s company had used the ITC to set off its output tax liability of Rs. 15.8 crore.
To curb tax evasion under the GST regime, the Delhi government on last week launched an extensive drive against tax and return defaulters. The move aims at checking tax evasion and bridge the revenue gap.
To recapitulate, different units of the same entity functioning in different States are treated as “distinct persons” under the GST law and supply of goods or services or both between such “distinct persons”, even if made without consideration are treated as supply, as per Schedule I of the CGST Act.
This deeming fiction was created, so that the Input Tax Credit chain is maintained in tact. One of the major disadvantages of the earlier VAT regime was the restriction of ITC on inter-state supplies, which led to the proliferation of Depots, only to circumvent payment of CST and one of the objectives of such GST is to remove such regional tax barriers. If supply against consideration alone are treated as supplies, goods stock transferred from one unit to another unit (in a different State) would not amount to supply and the input tax chain would be cut off at that stage and that is why even supply of goods from one unit of an entity to another unit of the same entity in a different State or supplies between related persons are also declared as supply, though made without any consideration. This purpose would have been well achieved if only supply of goods without consideration alone are thus deemed to be supplied, but knowingly or unknowingly, the supply of services without consideration are also deemed to be supplies, which has led to insurmountable difficulties to the trade.
One major problem would be the valuation of such supplies. As per the second proviso under Rule 28 of the CGST Rules, 2017, if the recipient is entitled for full Input Tax Credit, then whatever value is declared in the invoice, even a nominal value could be adopted. But many of the recipient units may be involved in making exempt supplies also, in which case, as per Rule 42 of the CGST Rules, 2017, they would be entitled only for proportionate ITC and hence the benefit of the second proviso under Rule 28 cannot be claimed in the matter of valuation. Determination of open market value, value of services of like kind and quality are highly subjective and subject to interpretation / disputes.
The issue can be discussed as under.
Employees of Corporate office / registered office, etc.
Every entity may have a registered office / Corporate office / Head office / Marketing office, etc. (hereainafter referred to commonly as HO) which would cater to all units of the entity, situated in different States. Thus, the employees working in HO are working for all units of the entity. Once the said HO on the one hand and other units of the same entity in different States are deemed as “distinct persons”, the question arises as to whether the HO is supplying the services of its employees to its other units, warranting payment of GST for such deemed supply.
In this connection, it is also relevant to note that as per Schedule III of the CGST Act, “Services by an employee to the employer in the course of or in relation to his employment” is not at all treated as a supply. In this context, the Authority for Advance Ruling (AAR) has held in the case of Columbia Asia Hospitals Pvt Ltd – 2018-TIOL-113-AAR-GST, since the HO and other Units in a different State of an entity are distinct persons, the employees of HO are not employees of the Unit in different States and hence, the transaction is covered by Schedule I of the Act, and GST is payable. Assuming that an entity is having 4 units in 4 different States and a Corporate office. If the employee cost has to be shared among the four units, by raising a GST invoice, in what proportion the employee cost can be shared among the units for the purpose of GST valuation? There are no guidelines in this regard in the statutory provisions.
The legal fiction of treating different units of the same entity situated in different States as distinct persons is contained in Section 25 (4) of the Act. To quote,
Sec. 25 (4) A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.
It may be noted that any legal fiction created by a Statute is for a specific purpose and the above deeming fiction is only “for the purposes of this Act”. Otherwise, the fact remains that different units of an entity situated in different States are part of the same entity and hence constitute a single person only.
In order to decide whether the employees working in HO are also employees of the units of the entity in different States or not, there is no need to refer to any of the provisions of the CGST Act. Employment is a contract between the employer and employee and is governed by the Contract Act as well as by any other special enactments relating to such employment. By all means, the employees of an entity are employees of the entity as a whole as the entity is a single entity. So, when the employees of HO are catering to the works of all units, they do such works only in their capacity as employees of the entity as a whole and the fact that different units of such entity are treated as distinct persons under GST law, cannot alter the fact that they are employees of the same entity.
Hence, in the author’s view, albeit the decision of the AAR, there is no requirement to charge any GST in respect of the employee cost pertaining to HO, though the same may invite litigation.
Other common services received by HO from various service providers.
The HO would be receiving various services from various service providers. For example, when the HO pays rent for its premises, can it be said that in turn that similar service is provided by HO to its units in different States? When HO pays to its statutory auditor, can it be said that HO is providing such services to its units in different States? There is a host of common services received by HO, the benefit of which is attributable to all units. The question now is as to whether the HO is said to be procuring such common services for the benefit of all its Units, which activity by itself can be considered as a supply, by virtue of S.No.2 of Schedule I. If so, HO should avail ITC of GST charged by all such service providers and in turn raise GST invoices on its units in different States.
But it may be noted that a separate mechanism called “input service distributor” is available under the statute, and the term is defined in Section 2 (61) of the Act, as
“Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office.
The manner of distribution of such ITC by the input service distributor is laid down in Section 20 of the Act.
If the deeming fiction of treating activities between distinct persons as per S.No. 2 of Schedule II of the CGST Act, 2017 is applied in respect of all services received by HO, then the concept of input service distributor itself would be rendered redundant. While interpreting the statutory provisions, no part of the statute could be rendered redundant and harmonious construction has to be adopted.
Thus it can be concluded, in respect of various services received by HO, there is no presumption that the HO is in turn supplying similar services to its Units in different states, requiring payment of GST and it is sufficient if proportionate ITC is distributed through input service distributor.
Based on the above, the following two options are available for all assesses to follow.
If option (ii) above is chosen, the following factors have to be kept in mind.
If the receiving unit is entitled to avail full ITC (receiving unit not making any exempt supply and hence Rule 42 of CGST Rules, 2017 is not at all applicable), then valuation of the deemed supply of various services by HO to its units is not at all an issue and a consolidated, nominal value can be assigned for all services provided by HO to its units, as per the second proviso to Rule 28 of the CGST Rules, 2018.
Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services.
But, if the receiving unit is not entitled to full ITC (receiving unit making certain exempt supply and hence Rule 42 of CGST Rules, 2017 is applicable), then valuation has to be done, as per Rule 28, based on open market value or value of services of like kind and quality. But ascertaining such values would be a nightmare. It is better to adopt cost plus 10 % under Rule 30. To put it simply, all cost incurred by HO may be shared among all units based on some objective criteria (turnover or any other relevant criteria) and then the value for GST may be considered as 110 % of such allocated cost.
G Natarajan
G. Natarajan, Advocate, Swamy Associates.
The Institute of Chartered Accountants of India (ICAI), the apex Chartered Accountants body in India, has expressed displeasure with the government for not including it in discussions to frame rules for the new regulator for auditors, National Financial Reporting Authority ( NFRA ).
In a letter to the Ministry of Corporate Affairs, the ICAI had stated that even the appointment of the chairman of the NFRA came to its knowledge from media reports.
The letter, points out the ICAI’s displeasure over the stand taken by the government on setting up of NFRA. The ignorance was despite assurances that it will be included in discussions on NFRA, has been dismissive.
Recently, a former bureaucrat – Rangachari Sridharan – was appointed NFRA chairman. The appointment was made after a search committee rejected all the 200 candidates who were in the fray, sources said.
NFRA can investigate, either suo motu or if there is a reference made to it by the government, according to the rules released by ministry of corporate affairs. In addition, the authority will also have the power to penalise any member or firm of chartered accountants.
A fine up to Rs one lakh can be imposed on individuals, and it can be extended to five times of the fees received. For firms, the penalty amount will be Rs 10 lakhs, which can be extended to ten times of the fees received. According to the rules, the authority can also debar the firm engaging in practice as member of the Institute of Chartered Accountant of India (ICAI).
The inherent regulatory role of ICAI will continue, especially with respect to audits pertaining to private and public unlisted companies’ rules. It will continue with its advisory role on accounting and auditing standards by making its recommendations to NFRA.
The ICAI will also remain an institution that will give away certificates to accounting professionals.
Further, the ICAI will continue to play an advisory role with respect to accounting and auditing standards as well as policies, by making its recommendations to NFRA.
There appears to be misgiving about the last date for taking Input Tax Credit (ITC) in relation to invoices or debit notes relating to such invoices pertaining to period from July, 2017 to March, 2018. Such uncertainty seems to stem from the Government’s decision to extend the last date for furnishing of details of outward supplies in FORM GSTR-1 from time to time.
According to Section 16 (4) of the CGST Act, 2017, a registered person shall not be entitled to take ITC in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under Section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such Debit Note pertains (hereinafter referred to as “the said invoices”) or furnishing of the relevant Annual Return, whichever is earlier.
With taxpayers self-assessing and availing ITC through return in FORM GSTR-3B, the last date for availing ITC in relation to the said invoices issued by the corresponding supplier(s) during the period from July, 2017 to March, 2018 is the last date for the filing of such return for the month of September, 2018 i.e. 20th October, 2018.
It is clarified that the furnishing of outward details in FORM GSTR-1 by the corresponding supplier(s) and the facility to view the same in FORM GSTR-2A by the recipient is in the nature of taxpayer facilitation and does not impact the ability of the taxpayer to avail ITC on self-assessment basis in consonance with the provisions of Section 16 of the Act. The apprehension that ITC can be availed only on the basis of reconciliation between FORM GSTR-2A and FORM GSTR-3B conducted before the due date for filing of return in FORM GSTR-3B for the month of September, 2018 is unfounded as the same exercise can be done thereafter also.
It may, however, be noted that the Government has extended the last date for furnishing of return in FORM GSTR-3B for the month of September, 2018 for certain taxpayers who have been recently migrated from erstwhile tax regime to GST regime vide Notification No. 47/2018- Central Tax dated 10th September, 2018. For such taxpayers, the extended date i.e. 31st December, 2018 or the date of filing of Annual Return whichever is earlier will be the last date for availing ITC in relation to the said invoices issued by the corresponding suppliers during the period from July, 2017 to March, 2018.
A businessman was reortedly arrested here Tuesday by the Karnataka commercial taxes department for allegedly evading GST of Rs 42 crore by raising fake invoices of Rs 245 crore in the name of deceased and fictituous people.
As per the preliminary investigation, the accused, Mangilal obtained four GST registrations in the name of fictitious persons and issued invoices to the tune of Rs 245 crore, evading GST of Rs 42 crore, the commercial tax department in a press release.
In one case, the officials found he was operating a trading company in the name of a woman who passed away in 2016. The registration under GST was opened after her demise. Two current accounts were opened in her name and crores of Rupees withdrawn.
He had issued fake tax invoices in the name of Devi Trading company without supplying goods or services, the release said.
Mangilal was later produced before a special court for economic offences, which remanded him to judicial custody.
