GST on back office Services

November 20, 2018

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.

GST on reimbursement of toll charges?

November 06, 2018

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.

Supply of food to employees in SEZ not exempt

November 06, 2018

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.

Read More..

Profiteering from Hara Bhara Kababs?

October 24, 2018

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) ,

GSTR-3B Due Date Extension

October 21, 2018

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?

Click here to read the Press Release.

Profiteering from Maggi Noodles

October 17, 2018

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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October 17, 2018

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