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Category: GST Recent News

  • Dept imposes penalty of over Rs 2 crore in GST related violations

    The enforcement wing Samba of the State Taxes Department has imposed penalty of more than Rs 2 crore in GST related violations during the Financial Year 2023-24.

    Deputy Commissioner, State Taxes Enforcement (Samba), Jammu, Sanjay Gupta informed that the enforcement wing, Jammu south having jurisdiction in districts of Samba, Rajouri and Poonch witnessed an increase of 53.65% in penalty recovered from tax offenders over the last FY in 254 cases of different violations intercepted under the GST Act/Rules. Further, number of e-way bills verified by the enforcement wing also stood at 2,84,433 in FY 23-24 which was 47.2% more than the previous year.

    He stated that enforcement teams have increased their probity in scrutinizing the documents required to be carried during movement of goods in transit under section 68 and rule 138 of the GST Act/Rules. Gupta further informed that the enforcement teams are conducting round the clock surveillance and patrolling of highways and major points. He said J&K has witnessed a substantial growth in GST collections in FY 2023-24 surpassing the national average reflecting the impact of our enforcement activities.

    “In a bid to increase the tax base, Enforcement drives and inspections of businesses were also carried out in Samba, Rajouri and Poonch to identify taxpayers who had crossed threshold for obtaining compulsory registration required under the GST Act. Several business entities were identified and notices were served upon them as per relevant provisions of the GST Act,” he added.

    He informed that since January 2024, the enforcement has also been actively undertaking field enforcement and surveillance activities with a focus on intercepting violations in view of the upcoming general elections to Lok Sabha. “The department is actively conducting enforcement drives round the clock in this regard and penalty to the tune of Rs 22,42,340 has been recovered from seized goods valuing Rs 62,24,722 since January 2024,” he added.

    Source from: https://gulistannewstv.com/deptt-imposes-penalty-of-over-rs-2-crore-in-gst-related-violations/

  • Next government must urgently fix ‘unnecessarily complex’, counter-productive GST: 13th Finance Commission chair

    A key architect of India’s tax reforms and the chairman of the Thirteenth Finance Commission Vijay Kelkar has called upon the country’s next government to undertake urgent reforms in the “unnecessarily complex” Goods and Services Tax (GST) regime, such as switching to a single tax rate of 12% and sharing revenues with local governments and municipal corporations.

    Mr. Kelkar has also mooted the creation of an independent secretariat for the GST Council, the apex-decision making body for the indirect tax rolled out in July 2017, as the current arrangement of the Union Government driving the secretariat may be considered problematic by States.

    He termed the simplification of the GST structure, which has a “plethora of rates” and a compensation cess on some goods, as a “critically important fiscal reform” to take the GST regime to its most natural destination. Setting the tax rates “largely with the objective to maintain revenue neutrality”, as done by India, is “counter-productive”, Mr. Kelkar argued.

    Single GST rate needed

    “The genesis of the current GST frauds lies in the very structure of the GST rates, as high rates of GST make it lucrative for the fraudsters to evade taxes,” he stressed after receiving the TIOL Fiscal Award late Saturday. Instead, he suggested that a single GST rate of 12%, with revenues shared equally with all the tiers of the government and Union Territories, be introduced at the earliest.

    “In most of the developed and emerging market economies as well, there is a policy of single GST or VAT [Value Added Tax] rate on goods and services. The countries having a single rate and simple GST or VAT laws have been successful in optimising tax revenue and minimising tax disputes,” the former Finance Secretary noted. Of countries with GST or VAT systems, 80% have opted for a single tax rate, including Singapore, New Zealand, the United Arab Emirates, and Japan.

    Stating that a single GST rate is “an unmet goal” in India, he recalled that a single rate of 12% had been recommended by the 13th Finance Commission “very early on in the GST debate”. It would simplify the structure, quell almost all classification issues, and help promote manufacturing and exports, he said.

    “The age-old tax policy of having a differential tax rate for ‘must have’ and ‘nice to have’ goods and services should be done away with. The revolutionary reform of introduction of a single GST rate, with additional non-VAT-able taxes such as carbon taxes on a few demerit goods like hydrocarbons, is now essential,” Mr. Kelkar asserted.

    ‘Share GST with local bodies’

    While the Union Finance Ministry providing support to the GST Council during its formative decade is “understandable”, Mr. Kelkar cautioned that it is possible that State Governments, who are also members of the GST Council with equal rights, may not always feel that the present administrative arrangement is neutral and unbiased in terms of its support or the advice it offers to the GST Council.

    The veteran economist also pleaded for GST revenues to be shared with the third tier of the government created by the 73rd and 74th Amendments to the Constitution.

    “Unfortunately, our urban local bodies are woefully short of the needed fiscal base to undertake investments for vital infrastructure and for the supplies of needed high quality public goods. Equitable sharing of the GST with the third tier will go a long way in strengthening the fiscal base of our urban governments and also to deepen democracy and governance at the grass root level,” Mr. Kelkar said, noting that this is prevalent in vibrant democracies across the world.

    “To enable this, we will require a Constitutional amendment, firstly to create the consolidated fund for the third tier of government; and secondly, GST reforms, where GST will be shared equitably by the Centre, State, and the local governments such as municipal corporations. This is only fair and appropriate, as GST is a consumption tax and taxpayers should see direct benefits accruing from their payment of the taxes,” he underlined. Such an arrangement, he noted, would also bolster the quality of governance provided by local governments as citizens’ demand for quality public goods will grow louder.

    Source from: https://www.thehindu.com/news/national/next-government-must-urgently-fix-unnecessarily-complex-counter-productive-gst-13th-finance-commission-chair/article68039736.ece

  • GST Council to meet before mid-November; GoM reports on appellate tribunal, tax casinos on agenda

    The GST Council is likely to meet in the first half of November to discuss the reports of the panel of ministers on setting up GST appellate tribunal and levy of tax casinos and online gaming, an official said.

    In addition, the status on the much awaited full report of the committee tasked with rationalisation of GST rates may also come up for discussion at the 48th Council meeting in Madurai.

    Even if the report, which is to look at merger in GST slab that may result in prices of some goods and services going up, is presented, it is unlikely to be acted upon by the GST Council in view of high inflation.

    The GoM on rate rationalisation set up on September 24, 2021 was originally due to submit its report within two months or November 2021. The panel has got subsequent extensions since then. The Council, in its last meeting in June, had given the GoM time till September to submit a full report.

    The official said that the GoM on GST appellate tribunal has already submitted its report, while the differences with respect to GST on casinos and online gaming are still being ironed out. “The Council will meet next month, before mid-November,” the official told PTI.

    In its last meeting on June 28-29, the Council had decided to remove tax exemptions on a host of goods and services and also corrected inverted duty structure.

    The 47th GST Council meeting in June, held in Chandigarh, had approved the interim report of the GoM on rate rationalisation, headed by Karnataka Chief Minister Basavaraj Bommai. The Council had then given a 3-month extension to the panel for submitting a full report on rate rationalisation and potential tax slab merger under the GST.

    With regard to setting up GST Appellate Tribunal (GSTAT), the Haryana deputy chief minister Dushyant Chautala led GoM have submitted its report to finance minister Nirmala Sitharaman.

    The report, a source said, has recommended one technical members and one judicial member in the GSTAT. The GSTAT would hear appeals against the orders passed by the GST Appellate Authority, which consist of tax officers.

    The official further said the GoM on applicable GST rate on casinos, horse racing and online gaming is yet to arrive at a consensus and a final decision is expected soon.

    The GoM, headed by Meghalaya chief minister Conrad Sangma, had originally suggested levying 28 per cent GST on online gaming, casinos and horse racing.

    However, the Council, in June, referred back the report of the panel for further discussion after Goa finance minister Mauvin Godinho highlighted that there was a need for greater detailing and greater understanding on why casinos require a different treatment in taxation compared to horse racing and online gaming.

    Source from: https://www.moneycontrol.com/news/economy-2/gst-council-to-meet-before-mid-november-gom-reports-on-appellate-tribunal-tax-casinos-on-agenda-9359201.html

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  • Reimbursement of Expenses not subject to Service Tax

    An important  analysis of judgment  of  Hon’ble  Delhi High Court in the W.P. (C) 6370/2008 of Intercontinental Consultants and Technocrats Pvt. Ltd. Vs. Union of India & ANR (2012-TIOL-966-HC-DEL-ST) on the following issue:-

    Issue:

    • Whether reimbursement of expenses includible in gross consideration for the chargeability of Service Tax?
    • Whether Rule 5(1) of Service Tax (Determination of Value) Rules is ultra vires Sections 66 and 67 of Finance Act, 1994?

    Facts:

    The Petitioner Company is engaged in providing consulting engineer services and receives payments not only for its service but also for reimbursed expenses incurred by it such as air travel, hotel stay, etc. It was paying service tax in respect of amounts received by it for services rendered to its clients. It was not paying any service tax in respect of the expenses incurred by it, which was reimbursed by the clients. Department issued Show Cause Notice demanding service tax on the expenses reimbursed by invoking the provisions of Rule 5(1) of the Service Tax (Determination of value) Rules 2006. The Petitioner Company has challenged Rule 5(1) in a Writ Petition.

    The Service Tax (Determination of Value) Rules, 2006, (hereinafter referred to as “Rules”), was brought into effect from 01.06.2007. Rule 5 provided for “inclusion in or exclusion from value of certain expenditure or costs”. Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, reads as:-

    “(1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.”

    Illustration 3 to this Rule reads as: –

    “Illustration 3: A contracts with B, an architect for building a house. During the course of providing the taxable service, B incurs expenses such as telephone charges, air travel tickets, hotel accommodation, etc., to enable him to effectively perform the provision of services to A. In such a case, in whatever form B recovers such expenditure from A, whether as a separately itemised expense or as part of an inclusive overall fee, service tax is payable on the total amount charged by B. Value of the taxable service for charging service tax is what A pays to B.” 

    Rule 5(2) of Rules state that Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the specified conditions are satisfied.

    The contention of the Department was that as per the provisions of sub-rule (1) of Rule 5 of Rules, service tax was to be charged on the gross value including reimbursable and out of pocket expenses such as travelling, boarding and lodging, transportation, office rent, office supplies and utilities, testing charges, etc. which, were “essential expenses for providing the taxable service of consulting engineers”.

    Held:

    It was held that Section 67 authorises the determination of the value of the taxable service for the purpose of charging service tax under Section 66 as the gross amount charged by the service provider for such service provided or to be provided by him, in a case where the consideration for the service is money. It is only the value of such service which is that of a consulting engineer, that can be brought to charge and nothing more. The quantification of the value of the service can therefore never exceed the gross amount charged by the service provider for the service provided by him.

    The contention of the petitioner that Rule 5(1) of the Rules, in as much as it provides that all expenditure or costs incurred by the service provider in the course of providing the taxable service shall be treated as consideration for the taxable service and shall be included in the value for the purpose of charging service tax goes beyond the mandate of Section 67 merits acceptance. Section 67 as it stood both before 01.05.2006 and thereafter. This section quantifies the charge of service tax provided in Section 66 (Replaced by Section 66B w.e.f 1-7-2012), which is the charging section. Section 67, both before and after 01.05.2006 authorises the determination of the value of the taxable service for the purpose of charging service tax under Section 66 as the gross amount charged by the service provider for such service provided or to be provided by him, in a case where the consideration for the service is money.

    The underlined words i.e. “for such service” are important in the setting of Section 66 and 67. The charge of service tax under Section 66 is on the value of taxable services. The taxable services are listed in Section 65(105). The service provided by the petitioner falls under clause (g). It is only the value of such service that is to say, the value of the service rendered by the petitioner to NHAI, which is that of a consulting engineer, that can be brought to charge and nothing more. The quantification of the value of the service can therefore never exceed the gross amount charged by the service provider for the service provided by him. Even if the rule has been made under Section 94 of the Finance Act, which provides for delegated legislation and authorises the Central Government to make rules by notification in the official gazette, such rules can only be made “for carrying out the provisions of this Chapter” i.e. Chapter V of the Act which provides for the levy, quantification and collection of the service tax. The power to make rules can never exceed or go beyond the section which provides for the charge or collection of the service tax.

    Rule 5(1) of Rules, which provides for inclusion of the expenditure or costs incurred by the service provider in the course of providing the taxable service in the value for the purpose of charging service tax is ultra vires Section 66 and 67 and travels much beyond the scope of those sections. The expenditure or costs incurred by the service provider in the course of providing the taxable service can never be considered as the gross amount charged by the service provider “for such service” provided by him.

    Further, it was held that Section 66 levies service tax at a particular rate on the value of taxable services. Section 67(1) makes the provisions of the section subject to the provisions of Chapter V, which includes Section 66. This clarifies that the value of taxable services for charging service tax has to be in consonance with Section 66 which levies a tax only on the taxable service and nothing else. There is thus in built mechanism to ensure that only the taxable service shall be evaluated under the provisions of Section 67.

    Furthermore, if the expenses such as on air travel tickets are already subject to service tax and is included in the bill, to charge service tax again on the expense would amount to double taxation.

    Therefore, Hon’ble Delhi High Court, while allowing the petition, observed, “We have no hesitation in ruling that Rule 5 (1) which provides for inclusion of the expenditure or costs incurred by the service provider in the course of providing the taxable service in the value for the purpose of charging service tax is ultra vires Section 66 and 67 and travels much beyond the scope of those sections. To that extent it has to be struck down as bad in law. The expenditure or costs incurred by the service provider in the course of providing the taxable service can never be considered as the gross amount charged by the service provider “for such service” provided by him.”

    Food for Thought:

    This judgement will open up new debate & litigation across the Country on following points:-

    • Whether application of this judgement can travel beyond territorial jurisdiction of the High Court
    • Whether the Govt. is going to accept this judgment in right spirit to extend benefits to the Trade and Commerce
    • Retrospective Amendment: The Government would be tempted to retrospectively validate an invalid levy – Rule 5 (1) of the Rules runs counter and is repugnant to Sections 66 (Replaced by Section 66B w.e.f 1-7-2012) and 67 of the Finance Act and to that extent it is ultra vires – So many instances under the Direct Tax & Indirect Tax e.g. – Renting of immovable Properties, etc.

  • Works Contract viz-a-viz Commercial or Industrial Construction Services – Valuation & Abatement Issues

    Recently Service Tax (Determination of Valuation Rules), 2012 vide Notification No. 11/2012 –S.T dated 17.03.2012 amended the Service Tax (Determination of Value) Rules, 2006 which were to come into force from the date on which the new Section 66B (the new charging Section) comes into effect i.e. 1st July 2012 but the said Rules got superseded before coming into force vide Notification no. 24/2012-ST dated 06.06.2012 (the Notification no. 24/2012-ST).

    We would like to discuss open issues even after the issuance of this new Notification no. 24/2012-ST along with new abatement Notification no. 13/2012-ST dated 17-03-2012 (the Notification no. 13/2012-ST), which will rescind old abatement Notification no. 01/2006-ST dated 01-03-2006. The Following issues are discussed for easy understanding and inviting views from Netizens, who may join in with their views in taking the discussion to next level:-

    1. Whether any abatement on account of material usage will be available under the Notification no. 13/2012-ST for Commercial or Industrial Construction, Construction of Residential Complex, Erection, installation & commissioning services in the new service tax regime effective from 1st July, 2012.

    2. If no abatement available for Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority as per Section 66E (b) of the Finance Act (coming into force from 1st July, 2012) then whether the said services can be considered at par with the works contract services as per Section 66E (h) of the Finance Act so as to avail benefit of composition method envisaged in the Notification no. 24/2012-ST.

    To answer the first point, it is clearly mentioned in the Notification no. 13/2012-ST that NO abatement would be available for Commercial or Industrial Construction, Construction of Residential Complex, Erection, installation & commissioning services in the new service tax regime effective from 1st July, 2012.

    Now question comes, the method of valuation as prescribed for the works contract services of Section 66E (h) of the Finance Act in the Notification no. 24/2012-ST would also be applicable for Commercial or Industrial Construction, Construction of Residential Complex, Erection, installation & commissioning services.

    There is no definition provided for Commercial or industrial Construction services, etc., as envisaged under Section 66E (b) of the Finance Act but as per Section 65B (51) of the Finance Act “works contract” is defined and means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.

    Further, it is also clarified vide Para 6.4 of the Circular no. 334/1/2007-TRU dated 28-2-2007 that the following services are covered under the Works Contract services wherein transfer of property in goods involved in the execution of such works contract is leviable to VAT/ Sales tax.
    – Works contract for carrying our erection, commissioning or installation

    – Works contract for commercial or industrial construction

    – Works contract for construction of complex

    – Works contract for Turnkey project including EPC Projects

    With this clarification, it looks like Commercial or Industrial Construction, Construction of Residential Complex, Erection, installation & commissioning services are covered within the definition of Works contract Services and valuation methods as suggested for Works contract services in terms of Notification no. 24/2012-ST would be applicable for above stated services as well but it is advisable that the Board should clarify this issue to avoid confusion & future litigation and their intention why Commercial or industrial Construction services, etc., as envisaged under Section 66E(b) of the Finance Act is excluded in the substituted Rule 2A of the Determination of Valuation Rules as per Notification no. 24/2012-ST.

    Various Methods of Determination of Valuation Rules Vide Notification no. 24/2012 ST:-

    Option 1: Actual Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract

    – Less the value of property in goods transferred in the execution of the said works contract

    – Less value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract

    – Add Value of works contract service shall include, –
    (i) labour charges for execution of the works;

    (ii) amount paid to a sub-contractor for labour and services;

    (iii) charges for planning, designing and architect’s fees;

    (iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

    (v) cost of consumables such as water, electricity, fuel used in the execution of the works contract;

    (vi) cost of establishment of the contractor relatable to supply of labour and services;

    (vii) other similar expenses relatable to supply of labour and services; and

    (viii) profit earned by the service provider relatable to supply of labour and services;

    Further, where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract.
    Option 2: To pay service tax at composite rate:

    – Pay Service Tax on 40% value of original works

    – Pay Service Tax on 70% value of maintenance or repair or reconditioning or restoration or servicing of any goods e.g. AMC contract falling under Repair & Maintenance service

    – Pay Service Tax on 60% value of all other works contract i.e. maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property

    Explanation 1. for this Rule-

    (a)”original works” means-

    (i) all new constructions;

    (ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;

    (iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;

    (b) “total amount” means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting-

    (i) the amount charged for such goods or services, if any; and

    (ii) the value added tax or sales tax, if any, levied thereon:
    Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles
    It means that any goods or services provided by Contractee to Contractor either on Free of Costs basis or chargeable basis would be included in the gross consideration charged by Contractor on formula prescribed i.e. FMV less Amount charged by Contractee + VAT/ Sales tax, if any levied thereon.

    Explanation 2. For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004.
    Open Issues:-

    – The CBEC should clarify to avoid confusion & future litigation and their intention why Commercial or industrial Construction services, etc., as envisaged under Section 66E(b) of the Finance Act is excluded in the substituted Rule 2A of the Determination of Valuation Rules as per Notification no. 24/2012-ST.

    – Notification no. 24/2012-ST – Withdraws composition rate where the gross amount charged includes the value of the land, wherein service tax is payable presently on twenty five per cent of the total gross amount.

    – Basis of FMV calculation of goods & services provided by Contractee to Contractor as per generally accepted accounting principle may be another matter of divergent interpretations and thereby leading to litigation.