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Circular No 27/01/2018-GST, 4 th January 2018

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In a Circular No 27/01/2018-GST dated 4th January 2018, the Ministry of Finance has attempted to clarify certain issues on the levy of GST for specified services.

 

 

  1. Accommodation Services

 

 

The Circular clarifies that GST would be levied on the tariff published anywhere. In case the actual amount charged differs from the published tariff, GST would be charged on the actual amount charged. If tariff changes between booking and actual usage, GST would be charged on the published tariff at the time of supply (which, one should assume, would be the time of booking).

 

Somewhere else in the Circular, it has been stated that Price/ declared tariff does not include taxes and that Room rent in hospitals is exempt.  Any service by way of serving of food or drinks including by a bakery qualifies under section 10 (1) (b) of CGST Act and hence GST rate of composition levy for the same would be 5%.

 

A final clarification on accommodation services states that homestays with a turnover below the threshold of Rs 20 lakhs who provide accommodation services through electronic commerce operators, need not take out a GST registration.

 

  1. Casinos and Gambling

 

The Circular clarifies that GST would be charged @ 28% on the value of admission fees and the total bet value.

 

  1. Race Clubs

 

In the Circular, the Tax Research Unit clarifies that GST would be leviable on the entire bet value i.e. total of face value of any or all bets paid into the totalisator or placed with licensed book makers, as the case may be. As an Illustration, they clarify that if the entire bet value is Rs. 100, GST leviable will be Rs. 28/-.

 

A critique by GST Garage

 

The value on which casinos and race clubs have to charge tax has always been unclear. This can be attributed to the needless attempt to frame valuation rules for services way back in 2004. Prior to this, service tax laws had the concept of “ Gross Amount Charged” which should ideally be what GST should be paid on. Casinos and race clubs charge only the entry fee while they collect the other betting money on behalf of the customers. Soon, both these issues are going to land up in the courts.  The GST Council would do well to prevent long-winded litigation by removing the valuation requirement for services and going back to the concept of “gross amount charged for services rendered”.

 

 

 

 

 

  1. 4. Publishing/Printing/Selling of books

 

A lot of questions were asked on whether the following activities were supply of goods or a supply of services:

 

  1. The books are printed/ published/ sold on procuring copyright from the author or his legal heir
  2. The books are printed/ published/ sold against a specific brand name
  3. The books are printed/ published/ sold on paying copyright fees to a foreign publisher for publishing Indian edition (same language) of foreign books

 

  1. The books are printed/ published/ sold on paying copyright fees to a foreign publisher for publishing Indian language edition (translated).

 

To all the above questions, the Circular has only one answer:

 

The supply of books shall be treated as supply of goods as long as the supplier

owns the books and has the legal rights to sell those books on his own account.

 

A critique by GST Garage

A very simple response to lots of questions! However, the response does not clarify who is the supplier. For instance, who would be the supplier if an author decides to self-publish a book through a publisher?

 

  1. Legal Services:

 

The Circular ends by stating that in case of legal services including representational services provided by an advocate including a senior advocate to a business entity, GST is required to be paid by the recipient of the service under reverse charge mechanism, i.e. the business entity.

OPINIONS ON GST

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If you ask 3 Indians for their opinion on GST, you will get 5 views. These opinions would basically on the law overall and whether it has been good or bad for the country. We are not talking about these opinions.

Readers would be aware that the major parts of the GST law are from the existing VAT, Central Excise and Service tax laws. Still, there are a number of issues that could be interpreted differently by different people. For example, claiming credits for GST paid on reverse charge paid as per Section 9(4) (which has been deferred till 31st March 2018) of the CGST Act- whether the credit can be taken this month or the next month. Opinion is divided on this issue ( gstgarage.com is of the opinion that it should be taken in the subsequent month). There are innumerable such issues that could arise in interpreting GST laws.

Here are our ten commandments for a good opinion:

1. The opinion should clarify the issues, not compound it.
2. It should be structured properly and the contents should flow sequentially.
3. The contents should be worded well- not in a language that even a judge cannot understand.
4. Decided cases in VAT/Central Excise/Service Tax should be used to justify the stand being taken.
5. References to opinions of other consultants should not be made.
6. Interpreting the provisions in GST should be done as per the law as on date.
7. Disclaimers are fine but the extent of disclaimers should not vitiate the opinion given.
8. Don’t blame the law- your job is to interpret it.
9. Don’t contradict your opinion in the same opinion- take a stand and stick to it.
10. Don’t take a stand based on the fees that the client pays you ( we are assuming he will).

In case you do want to issue an opinion to your client on a GST issue, all you have to do is to send a mail to info@gstgarage.com or log on to www.gstgarage.com

A specific exemption was notified under service tax for services rendered by an employee to an employer. Employees all over the country should be relieved that the same exemption has been continued as the opening entry in Schedule III of the Central Goods and Services Tax (CGST) Act — services by an employee to the employer in the course of or in relation to his employment shall never be treated as supply of either goods or services.

As far as the employer is concerned, Schedule I of the CGST Act states that gifts not exceeding Rs 50,000 in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. There was some confusion in interpreting this clause. The Ministry of Finance has issued a clarification through a press note that reads as follows:

“It is being reported that gifts and perquisites supplied by companies to their employees will be taxed under GST. Gifts up to a value of Rs 50,000 per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than Rs 50,000 made without consideration are subject to GST, when made in the course or furtherance of business.”

The question arises as to what constitutes a gift. Gift has not been defined in the GST law. In common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift. Another issue is the taxation of perquisites.

It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows there from that the supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST.

Further, the Input Tax Credit (ITC) Scheme under GST does not allow ITC of membership of a club, health or fitness centre [section 17 (5) (b) (ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer, then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer.

The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C).

At a time when the government is issuing a plethora of notifications and circulars under GST, the reason for issuing a press note to clarify this issue is not clear. Taxpayers would prefer to have a notification or a circular that they can refer to and quote when necessary.

Yet, the press note does not resolve the issue completely. The HR departments of companies are going to maintain they every payment received by an employee from an employer arises from the employer-employee relationship.

The press note mentions that providing membership of a club, health and fitness centre free of cost or providing free housing would not be taxable. These supplies would not be taxable in any case since the inclusive definition of supply uses the word for a consideration.

An issue that arose during the last stages of the erstwhile service tax regime was that the tax department was under the impression that buyout of the notice period was a service that was rendered by the employer to the employee.

The reasoning they gave for this was the strangely worded “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act”.
No definitive conclusion was reached on this during the service tax era. This sentence has been repeated in Schedule II to the CGST Act as a supply of services – this would mean that this issue may arise again under GST.

The press note clarifies that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST.

A stand can be taken here that even a buyout of a notice period is as per the terms of a contractual agreement between the employer and the employee and hence would not be eligible for GST.
Since the advent of GST, the government has gone on an advertisement blitzkrieg propagating the positive aspects of the law. A number of questions are also being answered through the notifications, circulars, press notes, advertisements, twitter feeds and public announcements.

It would appear that there is an overdose of information through various channels. Some of the responses given on Twitter are being questioned as being incorrect. Since the issues under GST are not going to vanish overnight,

 

the Central Board of Excise and Customs (CBEC) would do well to stick to the notification/circular route to clarify various issues.

The CBEC should come out with a master circular that clarifies the taxability or otherwise of all possible transactions that could take place between an employee and an employer. The press note does not help one to understand what could be considered to be a gift.

Employees who have car leases from their employers are already having to take a hit in their take-home pay due to the increase in the rate of taxes on car leases. The HR departments would do well to take a relook at their employment contracts.

They may want to include all payouts and benefits to employees under the umbrella of cost-to-company in order that no transaction takes the colour of a gift in excess of Rs 50,000. They would need to balance between incentivising employees through innovative means and ensuring that the transaction does not meet the definition of supply.

The most discussed topic under GST is probably the reverse charge mechanism. In particular, Section 9(4) which reads as follows:

 

(4) The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

 

In essence, any registered person getting supplies from an unregistered person would need to pay the tax applicable on the good or service on reverse charge.

 

In order to provide some relief, the Government issued a Notification providing some relief for supplies aggregating below Rs 5000/- per day. The Notification is reproduced below;-

 

Notification No.8/2017-Central Tax (Rate)

New Delhi, the 28th June, 2017

G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts intra-State supplies of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the central tax leviable thereon under sub-section (4) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017):

Provided that the said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day.

 

  1. This notification shall come into force with effect from the 1st day of July, 2017.

 

Issues

 

The Notification provides an exemption for supplies of goods and services from unregistered suppliers aggregating less than Rs 5000/- per day. One of the first questions that arises is whether an entity needs to monitor this every day. In many entities supplies from unregistered vendors may not be made every day. Some supplies could be on a continuous basis  (supply of coffee/tea by unregistered vendors). Monitoring this every day could be an extremely cumbersome task. This leads one to the next question- can we aggregate this Rs 5000/- per day and pay tax on reverse charge only if supplies from unregistered dealers exceed Rs 150,000 per month ( 5000*30).

 

The answer would appear to be Yes considering the spirit of the Notification.

 

Would it matter if in this aggregation of Rs 150,000/- supplies from one unregistered vendor exceeds Rs 5000/- on one particular day?

In the opinion of the author, it should not matter being an one-off transaction. However, it is advisable for the Notification to be amended by providing some Illustrative Examples as to how this limit is to be calculated.

As too many things are happening on GST at the same time, everyone is finding it difficult to absorb the heaps of information being cast upon them at regular intervals. To add to the confusion, the CBEC has commenced the activity of issuing Notifications. One can expect a flood of Notifications soon.

 

One of the biggest disappointments is that the CBEC has not thought of simplyfing the Notifications. Every Notification has the following :

 

  1. In exercise of the powers conferred by…….
  2. on being satisfied that it is necessary in the public interest so to do,
  3. intra-State supplies of goods or services

 

 

Notification No.9/2017-Central Tax (Rate)

 

In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017) (hereinafter referred to as the said Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts intra-State supplies of goods or services or both received by a deductor under section 51 of the said Act, from any supplier, who is not registered, from the whole of the central tax leviable thereon under sub-section (4) of section 9 of the said Act, subject to the condition that the deductor is not liable to be registered otherwise than under sub-clause (vi) of section 24 of the said Act.

 

Main Section Impacted

Section 51 of the CGST Act states that the Government may mandate,–

(a ) a department or establishment of the Central Government or State

Government;

or

(b ) local authority;

or

(c ) Governmental agencies;

or

(d ) such persons or category of persons as may be notified by the Government

on the recommendations of the Council

 

to deduct tax at the rate of 1% on some supplies.

 

Summary

 

This Notification states that tax deduction is not required for all intra-state supplies provided the deductor is liable to be registered only because of the TDS Clause. No limit has been prescribed.

 

One can expect many more such Notifications in the years to come. Notifying times lie ahead!