the essay of 18 April 2018 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><span style='color:#663399'>APRIL 18, 2018 </span></strong><o:p></o:p></font></p> <p align=justify style='text-align:center'><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><span style='color:#FF6633'>Advance Ruling - The New Goose</span></strong></font></p> <p align=justify style='text-align:center'><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><u><span style=''>By Vijay Kumar </span></u></strong><o:p></o:p></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><span style='color:#FFCC00;background:blue'>GSTEA in Canteen for Employees.</span></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>The Government said, <em><span style=''>"let there be GST"</span></em> and there is calamity, but good news for lawyers - there is abundant scope for litigation and it is coming from the most unexpected sources. With every publisher hungry for news on GST, every minute happening related to GST gets humungous coverage in our 'National' press - whether they know their GST or not is of little relevance. </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>The Authority for Advance Ruling (AAR) is the new goose that lays golden eggs for the lawyers. Already several AARs have given their sanctimonious rulings, which are strictly between the parties and have no precedential value, but are being discussed as if they are Supreme Court Rulings, binding on everybody. </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>A very famous and respected publication reported a couple of days ago: </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em><span style='background:#F3DBCF'>The decisions by the Authority of Advance Rulings are not binding on the GST Council. Both are independent of each other. The AAR works under finance ministry and has a lot to do with the Income Tax department while the GST is dealt with by a separate GST Council</span></em><span style='background:#F3DBCF'>.</span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>The Authority for Advance Ruling consists of two junior officers of the rank of Joint Commissioner and the GST Council is a super parliament consisting of the Finance Ministers of all the States and the Nation and even Parliament can pass GST laws only on the recommendations of the GST Council. It is blasphemy to say that the <em><span style=''>decisions by the Authority of Advance Rulings are not binding on the GST Council. </span></em>The article says that AAR <em><span style=''>has a lot to do with the Income Tax department - </span></em>pray, what? Maybe the writer was confused with the AAR under the Income Tax Act, which is headed by a retired judge of the Supreme Court, while our GST AAR as stated earlier, consists of two Joint Commissioners. </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>An almost insignificant body like the GST AAR has now become hot news and is bound to create ripples in legal circles. Already we have covered seven <span style='mso-field-code:" HYPERLINK \0022https\:\/\/taxindiaonline\.com\/RC2\/subCatDesc\.php3?subCatDisp_Id=29&filename=notification\/gst\/gst_case\/gst_aar_case_index_2018\.htm\0022 \\t \0022_blank\0022 "'><span class=MsoHyperlink><span style=''>decisions </span></span></span>of the GST AAR and we must have not stumbled upon many.</span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em><span style=''>"Advance Ruling"</span></em><span style=''> means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in sub-section (2) of section 97 or subsection (1) of section 100 of the <strong><span style=''><span style='mso-field-code:" HYPERLINK \0022http\:\/\/taxindiaonline\.com\/RC2\/subCatDesc\.php3?subCatDisp_Id=29&filename=notification\/gst\/cgst_act\/2017\/cgst_act_index_2017\.htm\0022 \\t \0022_blank\0022 "'><span class=MsoHyperlink><span style=''><a href="http://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=29&filename=notification/gst/cgst_act/2017/cgst_act_index_2017.htm" target="_blank">CGST Act, 2017</a></span></span></span></span></strong>, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.</span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>The question on which the advance ruling can be sought are:-</span></font></p> <blockquote style="margin-bottom: 5.0pt"> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>(a) classification of any goods or services or both;</span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>(b) applicability of a notification issued under the provisions of this Act;</span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>(c) determination of time and value of supply of goods or services or both;</span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>(d) admissibility of input tax credit of tax paid or deemed to have been paid;</span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>(e) determination of the liability to pay tax on any goods or services or both;</span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>(f) whether applicant is required to be registered;</span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.</span></font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>The advance ruling pronounced by the Authority or the Appellate Authority shall be binding only-</span></font></p> <blockquote> <p align="justify" style="margin-bottom: 5.0pt"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>1- on the applicant who had sought it in respect of any matter referred to in sub-section (2) of section 97 for advance ruling;</span></font></p> <p align="justify" style="margin-bottom: 5.0pt"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>2. on the <em><b><span style=''>concerned </span></b></em>officer or the jurisdictional officer in respect of the applicant..</span></font></p> </blockquote> <p align="justify" style="margin-bottom: 5.0pt"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>If you are aggrieved by the orders of the AAR, you can appeal to the AAAR (Appellate Authority for Advance Ruling). Many States are yet to constitute the AAAR, though the AAR exists in all States. All those who got orders from the AARs are going around to find out where the Triple A R (AAAR) is located, if and when it is a reality. Strangely, both the Authority for Advance Ruling (AAR) & the Appellate Authority for Advance Ruling (AAAR) are constituted under the respective State/Union Territory Act and not the Central Act. This would mean that the ruling given by the AAR & AAAR will be applicable only within the jurisdiction of the State or union territory. And it seems it logically follows that questions on determination of place of supply cannot be raised with the AAR or AAAR. </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>Alright, if you are aggrieved with the double A R (AAR), you go to the triple A R (AAAR), but what happens if you are aggrieved by the orders of the AAAR? The law is terribly silent. Is the AAAR equal to the Supreme Court? Well, all authorities are subject to the writ jurisdiction of the High Courts and so there is an option to challenge the decision of the AAAR in the High Court. That is why the lawyers have good times ahead. </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>A peep into a couple of AAR decisions would be revealing: </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>The Kerala State GST AAR recently in the case of <em><span style=''>Caltech Polymers Pvt. Ltd </span></em>. - <span style='mso-field-code:" HYPERLINK \0022https\:\/\/taxindiaonline\.com\/RC2\/caseLawDet\.php?QoPmnXyZ=MTM1OTU0\0022 \\t \0022_blank\0022 "'><strong><u><span style='color:blue'><a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTM1OTU0" target="_blank">2018-TIOL-01-AAR-GST</a></span></u></strong></span>, ruled:</span></font></p> <blockquote style="margin-bottom: 5.0pt"> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em><span style=''>It is hereby </span></em><strong><i><span style=''>clarified </span></i></strong><em><span style=''>that recovery of food expenses from the employees for the canteen services provided by company would come under the definition of 'outward supply' as defined in Section 2(83) of the Act, 2017, and therefore, taxable as a supply of service under GST.</span></em></font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>It is not known who asked them to <em><span style=''>clarify </span></em>. As per Section 98(4) of the <strong><span style=''><span style='mso-field-code:" HYPERLINK \0022http\:\/\/taxindiaonline\.com\/RC2\/subCatDesc\.php3?subCatDisp_Id=29&filename=notification\/gst\/cgst_act\/2017\/cgst_act_index_2017\.htm\0022 \\t \0022_blank\0022 "'><span class=MsoHyperlink><span style=''><a href="http://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=29&filename=notification/gst/cgst_act/2017/cgst_act_index_2017.htm" target="_blank">CGST Act</a></span></span></span></span></strong>, the AAR is supposed to <em><b><span style=''>pronounce </span></b><span style=''>its advance ruling on the question specified in the application </span></em>and not to give clarifications. The question raised by the applicant for advance ruling was, <em><span style=''>"Whether reimbursement of food expenses from employees for the canteen provided by company comes under the definition of outward supplies as taxable under GST Act." </span></em>And the AAR went on to clarify instead of pronouncing a ruling. The AAR also mentioned in several places "GST Act, 2017". There is no Act called the GST Act, 2017. It should be either the <strong><i><span style=''><span style='mso-field-code:" HYPERLINK \0022http\:\/\/taxindiaonline\.com\/RC2\/subCatDesc\.php3?subCatDisp_Id=29&filename=notification\/gst\/cgst_act\/2017\/cgst_act_index_2017\.htm\0022 \\t \0022_blank\0022 "'><span class=MsoHyperlink><span style=''><a href="http://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=29&filename=notification/gst/cgst_act/2017/cgst_act_index_2017.htm" target="_blank">Central Goods and Services Tax Act, 2017</a></span></span></span></span></i></strong> or the State GST Act.</span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>Now, this order is binding only on the party and the '<strong><span style=''>concerned </span></strong>officer' (not the officer concerned'). We have to find out which officer is <em><span style=''>concerned </span></em>about this order. Anyway, this has raised a storm in the teacups of all the canteens all over the country. Experts have rushed in to comment <em><span style=''>inter alia </span></em>that:</span></font></p> <blockquote style="margin-bottom: 5.0pt"> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>1. GST Council has to immediately address this problem;</span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>2. Canteens in offices and industries may be closed down (Factories Act, willing of course):</span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>3. Canteens may not charge employees; </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>4. Employees' salaries may be reduced.</span></font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>A clarification given by two Joint Commissioners in distant Kerala is going to affect the tea in canteens for employees right across the country. </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>All establishments having canteens for employees should immediately start a mega GST wing for their canteens. It is alright to say that the canteen food is subject to GST, but calculating the GST amount would require Einsteinian brilliance. </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><span style=''>Value is relative: </span></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>As per the Explanation (a) (iii) in Section 15 of the CGST Act, persons shall be deemed to be "related persons" if such persons are employer and employee. </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>As per S.No. 2 of Schedule I of the Act, supply of goods or services between related persons, would be treated as supply, even without consideration. Because the parties are related, valuation would be as per Rule 28 of the <span style='mso-field-code:" HYPERLINK \0022http\:\/\/taxindiaonline\.com\/RC2\/subCatDesc\.php3?subCatDisp_Id=29&filename=notification\/gst\/cgst-rules\/cgst_rules_2017\.htm\0022 \\t \0022_blank\0022 "'><strong><u><span style='color:blue'><a href="http://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=29&filename=notification/gst/cgst-rules/cgst_rules_2017.htm" target="_blank">CGST Rules, 2017</a></span></u></strong></span>, based on "open market value" or "the value of supply of goods or services of like kind and quality" or the value as determined by the application of rule 30 or rule 31 (costing or residual). </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>The AAR in the above order had come to a patently wrong conclusion - "<em><span style=''>Since the applicant recovers the cost of food from its employees, there is consideration as defined in Section 2(31) of the GST Act, 2017.</span></em>" Maybe they were not made aware of the above provisions, by which a supply between related persons will be a supply even without consideration. </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>So, even if the management decides to give food to the employees free in the canteen, they cannot escape the burden of GST as consideration is not a criterion in this case because the employee and the employer by law are related persons. Suppose, they charge a nominal amount, can they pay the GST on that amount? No way Sir. They will have to find the open market value for the food, which is impossible - I mean the value, not the food. Then they will have to find the value of food of <em><span style=''>like kind and quality </span></em>, which may also be impossible. Will the department agree to the costing method, which should include a ten percent notional profit or should there be a periodical review of the value, like when the cost of LPG goes up or when the canteen manager is given a bonus? </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>Can free food in the canteen be considered as gift? - <em><span style=''>gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both </span></em>. (Proviso to S.No. 2 of Schedule I of the Act) </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>Running that canteen may be more difficult than running your business, but you can't simply close down the canteen - The Factories Act will not allow that. <o:p></o:p></span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''><o:p></o:p></span><span style='color:black;mso-themecolor: text1;mso-bidi-font-style:italic'>Please also see </span><b><span style='mso-fareast-font-family:"Times New Roman"; color:#272727;background:white'><a href="https://taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=33142" target="_blank">Advance Ruling on Canteens - The Pandora's (tiff in)box</a></span></b><span style='mso-fareast-font-family:"Times New Roman"'><o:p></o:p></span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>In another interesting case - <em><span style=''>Global Reach Education Services Pvt Ltd </span></em>- <span style='mso-field-code:" HYPERLINK \0022https\:\/\/taxindiaonline\.com\/RC2\/caseLawDet\.php?QoPmnXyZ=MTM2MTY2\0022 \\t \0022_blank\0022 "'><strong><u><span style='color:blue'><a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTM2MTY2" target="_blank">2018-TIOL-06-AAR-GST</a></span></u></strong></span>, the applicant provides Overseas Education Advisory whereby it promotes the courses of foreign universities among prospective students and wanted a ruling on whether the service provided to the Universities abroad is to be considered "export" and, therefore, a zero-rated supply under the CGST / WBGST Act 2017. The <em><b><span style=''>concerned </span></b></em>officer objected to admission of the application on the ground that determination of the place of supply is beyond the jurisdiction of the Advance Ruling Authority. The AAR was not impressed and ruled that <em><span style=''>the services of the applicant are not "Export of Service" and are taxable under the GST Act </span></em>. </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>Two Joint Commissioners seem to have the power of writing and rewriting the LAW. And though it is not nationally applicable, experience shows that no Revenue Officer anywhere in the country will take a different view. And what happens if there are two contradictory orders of the AARs for the same assessee in two different States? </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>In the meantime, there is a writ pending in the Gujarat High Court where the provisions of Advance Ruling in the GST have been challenged as <em><span style=''>ultravires </span></em>to the Articles 14 and 50 of the Constitution of India as the same are void, defective and unconstitutional, being violative of <span style=''>doctrines of separation of powers and independence of judiciary</span> which are parts of the basic structure of the Constitution. </span></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>The Petitioner submits that he has preferred this <span style=''>litigation against tribunalisation of justice, bureaucratisation of justice and its impact on judicial independence and separation of powers</span>.</span><o:p></o:p><o:p></o:p></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><span style='color:#FFCC00;background:blue'>E-way, how to stop a lorry? Complicated - for the officers </span></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>After having a free ride on the highways of India with the magical e-waybill, which has seamlessly integrated into the GST journey, there is some news for the truck drivers and GST officers. The free ride is over - your truck can be stopped. How? The CBIC has issued a 31-page instruction on the <em><span style=''>Procedure for interception of conveyances for inspection of goods in movement, and detention, release and confiscation of such goods and conveyances</span></em>. Nearly a dozen forms are prescribed and detailed instructions are given on searching conveyances, detention, seizure, confiscation and release of the goods and conveyance. Section 129 of the CGST Act provides for detention, seizure and release of goods and conveyances in transit. And the Board has instructed its officers on how to go about doing these. (<strong><span style=''><span style='mso-field-code:" HYPERLINK \0022https\:\/\/taxindiaonline\.com\/RC2\/notDesc\.php?MpoQSrPnM=MjQyODI=\0022 \\t \0022_blank\0022 "'><span class=MsoHyperlink><span style=''><a href="https://taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MjQyODI=" target="_blank">CBIC Circular No. 41/15/2018-GST</a></span></span></span></span></strong>) But what is the difference between detention and seizure? Neither the Law nor the Board explains that. Any officer who reads these instructions would religiously avoid detaining a lorry as that would amount to virtually hanging that lorry around his neck. Normally, with exceptions accepted, the officers don't go about detaining lorries and also don't go about reading the laws. </span><o:p></o:p></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><span style='color:#FFCC00;background:blue'>Don't lose hope - these problems are not unfixable. </span></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style=''>The ray of hope comes from the former Governor of Reserve Bank. Addressing a meeting of the Institute of Politics at Harvard Kennedy School, last week, Dr. Raghuram Rajan said,</span><o:p></o:p></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><span style='background:#DFF3CB'>On the Goods and Services Tax, we will figure it out eventually. It will be nice if we could implement much better than we do. But it's not an unfixable problem. We can work on it. I wouldn't give up hope at this point on that.</span></font></p> </body> </html>