Tax Vista Your weekly tax recap Edn. 79 - 20th December 2021 By Dr. G. Gokul Kishore

Payment of dues in instalments - High Court rescues taxpayer

GST authorities are reluctant to use benevolent provisions like Section 80 of CGST Act which empowers Commissioner to permit payment of tax and other dues in instalments. The factory was closed due to financial / business difficulties and the taxpayer requested for payment in instalments but the Commissioner rejected such request. The taxpayer had no option but to turn to the High Court. The High Court accepted the taxpayer's request and directed them to pay the dues in ten instalments. The order is brief but belongs to the category where our Constitutional Courts do not hesitate to render justice to the needy. It takes note of reopening the factory, paying future dues, bringing employees back to work, etc. [2021-VIL-874-AP].

Adjudicating authorities generally favour revenue because of adverse reaction by higher-ups and the CBIC. However, provisions like Section 80 can be used in a greater number of cases as it helps the exchequer also. Prudence lies in avoiding of pushing a doubtful debt to non-recoverable bad debt only to be eventually written off if other recovery modes are not successful. Exercising such power will serve the interest of public revenue while refusal will harm both revenue interest and the taxpayer's business.

Payment of Rs. 60 crores during investigation - High Court rejects bail plea

Sometimes, payment of huge amounts as deposit during investigation helps the taxpayers in getting bail but not in all the cases. In the exceptional category, recently, Rajasthan High Court has rejected bail application on the ground that if tax payment had not been evaded, then an amount of Rs. 60 crores would not have been deposited. The taxpayer had paid such amount under protest during investigation. The department has alleged evasion of tax of Rs. 869 crores whereas the taxpayers contended that tax evaded was Rs. 8.65 lakhs. All the figures are mind-boggling - Rs. 869 crores is the alleged tax not paid, Rs. 60 crores is deposited even before notice and Rs. 8 lakhs is stated as tax payable [2021-VIL-873-RAJ].

GSTR-3B is a valid return - Issue attains finality

Mistakes happen and if they are committed by the government, they are retrospectively rectified. This is the order of the day as far as tax laws are concerned. GSTR-3B return was held as not the return contemplated under Section 39 of CGST Act and press release reckoning last date for availing ITC based on date of filing such return was held as not sustainable by Gujarat High Court as reported in AAP & Co. v. UOI [2019-VIL-314-GUJ]. Subsequent retrospective amendments neutralized the effect of this judgment. Recently, the Supreme Court in the judgment of UOI v. Bharti Airtel Ltd. [2021-VIL-87-SC] expressed disapproval of this judgment. Now the appeal filed by the government against the Gujarat HC judgment has been allowed by the Supreme Court after holding that in the above said case, it had already expressly overruled the Gujarat HC judgment. The issue that GSTR-3B is not a valid return is finally laid to rest [2021-VIL-93-SC].

No GST on transportation facility provided to employees by company

Maharashtra AAR has held that GST is not liable to be paid on transportation facility provided to employees as the same is not a supply as per GST law. As per the ruling, the applicant is a software developer and provision of transport facility to employees is a welfare / security measure and "not at all connected" to the functioning of their business and it will not take their business forward. The applicant has been held as not in the business of providing transport service and therefore, it is not an output service. It has relied on Tata Motors ruling [2020-VIL-257-AAR], wherein it was held that GST would not be applicable on nominal amounts recovered from employees for bus transportation. Considering the definition of business, it has further held that such transportation is not incidental or ancillary to software development. It says -"..nor can it be called an activity done in the course or furtherance of development of software as it is not integrally connected to the business in such a way that without this the business will not function." [2021-VIL-472-AAR].

In this case, the applicant has been effecting partial recovery and GST was being paid on the same but input tax credit was not availed. Though questions on valuation and ITC admissibility were raised, the same were not answered in view of the ruling on the activity not being a supply. The AAR's ruling comes in spite of department's view that GST is payable on the same value as is paid on inward supply received from cab operators. Ambiguous provisions, conservative department, reluctant CBIC, pro-active taxpayers, conflicting rulings - the stage is set for big litigation as noted in this column before.

Electricity & water charges received from tenant liable to GST

In another order on the usual lines, Authority for Advance Rulings (AAR) has held that electricity and water charges which are reimbursed by the licensor (landlord) on actuals will be liable for inclusion in taxable value and GST would be payable on the same. According to AAR, charges towards such amenities are for effective enjoyment of the rented premises without which the premises cannot be occupied and such provision of essential services is mandatory for landlord as per applicable law and it is not mere facilitation of payment of such charges. It further notes that the applicant themselves have considered such charges as monthly license fee. Therefore, such charges are 'consideration' received for renting of immovable property and being incidental in nature, are liable to be included in transaction value. Pure agent argument has been discarded holding that electricity is not received as per instructions of tenant and even if the premises is vacant, the connection will be in the name of the applicant (licensor). Such supplies are made on own account and applicant is not paying such charges on behalf of the tenants [2021-VIL-473-AAR]

Taxpayers who can satisfy the GST authorities including AAR on pure agent condition should be identified first and awarded a coveted medal. If the agreement used by such taxpayers can provide guidance to others, Rule 33 on pure agent can be brought back to life. Otherwise, this rule will remain a dead letter. There may be taxpayers who are excluding expenditure considering the same as covered under pure agent but whether the same is blessed by the GST authorities or not is a question with the obvious answer.

Rice is not an agricultural produce - GST payable by commission agent

When law provides a definition, it is with specific purpose and hence, it will appear to defy common sense if common understanding is adopted. Services relating to agricultural produce are exempted under Notification No. 12/2017 - Central Tax (Rate) which includes services provided by commission agent. In a recent ruling, the AAR has held that such exemption would not be available to commission agent dealing with rice and receiving commission from rice millers and traders on the ground that rice cannot be treated as agricultural produce as per the definition in the notification. Rice is a product of milling process of paddy which changes the essential character and further, applicant is not assisting cultivators but millers and traders and the services are not directly linked to cultivation, as per the ruling. It further rejected reliance placed on another law as the term has been specifically defined in the notification itself [2021-VIL-467-AAR].

One may not be able to find fault with the ruling considering the definition of agricultural produce but the definition appears to be faulty when rice is treated differently. If the intention is not to grant exemption when certain processes resulting in value addition are undertaken which will change the character, then the same can be justified.

Goods destroyed in fire before sale - GST not payable

Facts of this case are very specific but the ratio is noteworthy. The applicant was the successful bidder in the auction for Tendupatta (beedi leaves) which was stored in a godown of the cooperative federation and delivery was given based on amounts paid in instalments. Some quantity of the goods was destroyed in fire and the federation sought payment of balance instalments after adjusting deposit and insurance amount. While seeking to recover such amount, GST was also demanded treating the goods destroyed in fire as supplied as per GST law. The applicant argued that the goods were stored under joint lock and key (joint custody) in the godown and till the last instalment was paid, delivery was not to be given and therefore, when goods were destroyed before such payment and not delivered, sale had not taken place and this means, supply did not arise.

The AAR posed the question - whether mere acceptance of joint custody without rights and privileges of ownership amounts to supply. The AAR held that this is a case of agreement to sell which could not be completed as the goods were destroyed. Referring to Sale of Goods Act, it has been held that in the present case of sale of future goods, storage in joint custody would not amount to delivery of goods as instalments were not paid and goods had not been appropriated to the contract unless full amount was paid. Insurance being in the name of the federation and risk lying with such federation was also taken note of. As per the ruling, neither risk nor property in goods passed to the applicant till the date of fire. Absence of subject matter of supply has also been considered to conclude that the present case is not one of supply. Though the ruling is lengthy, the same is worth reading for the research undertaken [2021-VIL-459-AAR].

Upfront land premium - GST exemption not available when paid in instalments

Upfront lease premium paid towards leasing of industrial plots by government / government bodies for 30 years or more is exempted from GST under Notification No. 12/2017-Central Tax (Rate). Advance ruling was sought on the question whether such exemption would be admissible if lease premium is paid in instalments. The AAR has answered the same in the negative. The reasoning is that the applicant had admitted that "upfront" means "before hand" or "before the actual event" and the premium paid in instalment after allotment cannot be considered as "upfront payment" [2021-VIL-460-AAR].

The term "upfront" has not been defined in the notification. The exemption has been granted so as to incentivize industrial activity when new units are set up with long term commitment. Manner of payment as allowed by one authority should not bar a person from availing tax exemption as both are intended to serve the same purpose. CBIC may revisit this entry to either delete "upfront" and use only premium or include instalment payment also under this exemption.

E-commerce operators supplying restaurant service - CBIC clarifies on new dispensation

Notification No. 17/2021 - Central Tax (Rate) was issued on 18-11-2021 to specify restaurant service under Section 9(5) of CGST Act so as to make e-commerce operators (ECOs) liable to pay GST on such service. CBIC has issued Circular No. 167/23/2021 - GST on 17-12-2021 to clarify certain issues on this new dispensation to be implemented from 1st January, 2022. ECOs shall pay GST by cash and not by utilizing ITC is a major point clarified which will be subject to interpretation and prayers for amendments. The other clarifications include - ECOs will not be liable to comply with Tax Collection at Source (TCS) provisions in respect of such service, separate registration is not required only for this purpose, ECOs will be liable to pay tax on such supplies made through them by unregistered persons also and invoice for such restaurant service shall be issued by ECOs. The general perception about popular food delivery apps is that they are hugely successful in a short period. But tax authorities are certain to ensure that such success is restrained and comes at a cost.

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal. Two books authored by him have been published - Cross-border Transactions under Tax Laws & FEMA (July 2021) and GST - Investigation, Demands, Appeals & Prosecution (August 2021))