In the case of VServ Global Private Limited ( [2018] 99 taxmann.com 253 (AAR - MAHARASHTRA), the AAR has ruled that back office services provided by an Indian Company to its foreign parent would be exigible to GST. The AAR felt that VServ Global was acting as an intermediary.
Unless challenged till the Supreme Court, this AAR decision is bound to create new headaches for MNC's operating in India.
In Premier Vigilance & Security (P.) Ltd., 2018 99 taxmann.com 79 (AAR -West Bengal ) the AAR has ruled that toll charges has to be included in the value charged by the tax payer to banks since the tax payer is not acting as a pure agent.
Issue
The issue is not whether toll charges should be taxed or not. The issue is the flawed concept of pure agent- a term coined in the erstwhile Service Tax era and has been needlessly copied into GST laws. Realistically speaking, for all back-to-back reimbursements received, the tax payer is acting as a pure agent.
It should also be borne in mind that GST is not charged on toll charges due to Nil rating through Entry 23 of Notification No 12/2017 Central Tax ( Rate) dated 28th June 2017. Could this have been on the mind of the AAR while giving the ruling? Would the ruling have been different had toll charges been subject to GST?
There are no ready answers to the above questions. But GST appears to be heading the Service tax way in terms of unclear laws subject to multiple interpretations.
Recently, the Appellate Authority for Advance Rulings in Maharastra ruled that supply of food to employees working in a SEZ unit is not exempt from GST. The caterer supplying these services cannot be classified as providing " restaurant services" and hence applicable tax rate is not 5%.
Click on the link below to read the ruling.
On 14th November 2017, a
customer went to a franchisee of Subway in Karelibaug, Vadodara called N P
Foods and ordered 6 Hara Bhara Subs. He was aware that GST had been reduced
from 18% to 5%. He was surprised that despite the reduction in the rate of GST,
the price of Hara Bhara Kababs had increased from Rs 130/- to Rs 145/-. The
customer immediately thought of Section 171 of the CGST Act and referred a case
of anti-profiteering to the National Anti-profiteering Authority. N P Foods
argued that though the price of GST was reduced from 18% to 5%, input tax
credit was denied and hence he had to increase the price of Hara Bhara Kababs
to maintain his margins.
The National Anti-profiteering Authority ruled that there was no case of anti-profiteering.
Reference
2018
(9) TMI 1763 - NATIONAL ANTI-PROFITEERING AUTHORITY
IN
RE: M/S. N.P. FOODS (FRANCHISEE M/S SUBWAY INDIA) ,
As per
the latest Press Release dated October 21, 2018 by the Ministry of Finance, the
due date for furnishing GSTR-3B for the month of September, 2018 has been
extended to 25th October, 2018.
The said
extension has been made on account of apprehensions by trade and industry
relating to the last date for availment of ITC for the period July 2017 to
March 2018 and further with a view to afford more time for filing of the same. However, the fact remains that the portal was disrupted
for the last few days.
While
the said press release is welcomed by a number of taxpayers who have failed to
or could not file their GSTR-3B by the due date ie, October 20, 2018 , it would
have been meaningful if the same were to be made before the actual due date,
since majority of the taxpayers have already filed their returns (after a
long wait to login to the portal yesterday as only 1,50,000 taxpayers can login
to the portal at once), including a few who filed with incorrect/incomplete
data since the data already uploaded was not being displayed in the portal
Can we say, those who defaulted are rewarded and those who complied are deprived?
Anil Kumar Jain and Sons and Kunj Lub Marketing Pvt Ltd are retailers and wholesalers respectively for products of Nestle. The former purchased 35 gms Maggi Noodles packets from the latter on 6th November 2017 and 28th November 2017. The MRP of these packets was Rs 5 and the price to the retailer was Rs 4.67 ( Base Price of Rs 3.67 and GST @ 18%). Notification No 41/2017 ( Central Tax) Rate reduced the GST on Maggi Noodles from 18% to 12%. In the invoice dated 28th November, the wholesaler charged the reduced GST of 12%. However, he increased the base price to Rs 4.17 thereby retaining his price to the retailer at Rs 4.67. The retailer filed a case of anti-profiteering against the wholesaler claiming that the latter had profited from GST. The wholesaler responded by stating that it would be extremely difficult and impractical for him to pass on the benefit of a 6% reduction in tax rates on a product that has an MRP of Rs 5/- since the benefit is only 0.25 paise and it would be a challenge to change the grammage on the packets. He further stated that he has passed on the benefit of the reduction in the rate of GST in the 70 gms packets of Maggi Noodles as it was more convenient. At some point in time, the retailer withdrew the case of anti-profiteering as he stated he was now aware of how GST works but the National Anti-Profiteering Authority disregarded the withdrawal since they felt this was an important case for anti-profiteering. They ruled that the wholesaler was guilty of anti-profiteering and calculated the total profiteering at Rs 90,778/-. They also ruled that interest would have to paid and penalty may also be levied.
Section 171 of the CGST Act is very clear that any
reduction in rate of tax on any supply of goods or services or the benefit of
input tax credit shall be passed on to the recipient by way of commensurate
reduction in prices. In the instant case, Kunj Lub Marketing would have to pass
on the benefit of the reduction in the rate of GST to Anil Kumar Jain and sons
who in turn would have to pass it on the final consumers. Both the wholesaler
and the retailer would probably fall back on Nestle to change their pricing
since no one in the entire supply chain should profit from a reduction in the
rate of GST.
When the GST law was enacted, it was indicated that
the anti-profiteering provisions would have a useful life of two years. Though
there is a Section 171 in the Act and Rules
122-137 in the Rules, the actual mechanism of what constitutes
anti-profiteering has not been drafted leaving this to the judgement of the players
in the market and the regulators. One of the main questions that remains
unanswered in the anti-profiteering provisions is whether a supplier can change
pricing for reasons other than GST during the period when there is a reduction
or increase in rates. Suppliers may be facing increasing input costs ( not GST
related) leading to reduction in margins and hence may want to raise prices. As
on date, it would probably be a good idea for them to desist from changing
prices when there is a possibility of a change in GST rates. The
Anti-profiteering authority should come out with clear guidelines on the
mechanism of anti-profiteering much before its initial term expires in December
2019.
Pyramid
Infrastructure- a real estate company- has dragged the government to court over the
constitutional validity of the antiprofiteering mechanism under GST. Their claim is that the anti-profiteering mechanism lacks clarity
and violates the fundamental rights of citizens such as freedom of speech.
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