the essay of 9 May 2018 · the untouched capture
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<p align="left"><font color="#663399" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2">MAY 09, 2018 </font></strong></font></p>
<p align="center"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AAR vs CBIC - whose word prevails?</strong></font></p>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u>By Vijay Kumar </u></font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> GST rate on food and beverages supplied in trains and platforms, is not as simple as sipping that tea. (please also see <a href="https://taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=33125" target="_blank"><strong><em>GST on Rail Tea depends on whether you have it inside the train or outside</em></strong></a><em>)</em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In a recent order (<a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTM2Njc3" target="_blank"><strong>2018-TIOL-13-AAR-GST</strong></a>), the Delhi GST Authority for Advance Ruling ruled, </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>23. <u>In the case of supply of food and beverages (cooked/ MRP/ packed), at defined menu and tariff, by the applicant to IRCTC/ passengers on behalf of IRCTC, on board the Rajdhani/ Duronto Express trains:</u>. A train is a mode of transport and hence cannot be called as a restaurant, eating joint, mess or canteen etc. and hence catering services provided on-board a train are not covered under S. No. 7 (i) of the said Notifications as claimed by the applicant. The supply of goods i.e. food, bottled water etc. shall be charged to GST on value of goods (excluding the service charges) at applicable rates as pure supply of goods, as the same have no element of service. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>24. In the case of supply of food and beverages (cooked/ MRP/ packed) on board the Mail/ express trains by the applicant directly to the passengers as per the menu/ rates fixed by IRCTC/ Railways does not have any element of service and hence the same shall be considered as pure supply of goods and GST shall be charged on individual items at their respective applicable rates. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>25. The supply of food and beverages (cooked/ MRP/ packed) by the applicant to the passengers/ general public at the rates fixed by the Indian Railways/ IRCTC at food stalls at Railway platforms does not have any element of service and hence the same shall be considered as pure supply of goods and GST shall be charged on individual items at their respective applicable rates. The mere heating/ cooling of beverages or similar other services are incidental and minimal required to supply of goods and such supply cannot be called composite supply </em>. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This ruling was given on 28th March 2018. Three days later on 31 st March 2018, the Board (CBIC) issued a clarification (<a href="https://taxindiaonline.com/RC2/pdfnoti/gst/gst_circular/2018/order2-2018-cgst.pdf" target="_blank"><strong>F.No. 354/03/2018-TRU, dated 31 st March, 2018</strong></a>) as: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>2. Different GST rates are being applied for mobile and static catering in Indian Railways which is presently leading to a situation whereby the same licensee (selected by Indian Railways/IRCTC) supplying the same food would be subjected to different GST rates depending on whether it is mobile or static catering, as also which variant of mobile catering it is [pre-paid (without option), pre-paid (with option) or post-paid]. The rate difference is resulting in the same food being supplied at two different rates to the railway passengers, which is anomalous. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>3. The passenger is not aware as to the GST rate applicable to the food ordered by him/her. This may also lead to unnecessary litigation and thus further strengthens the need for uniform application of tax rate in respect of food and drinks in/by Railways. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>4. With a view to remove any doubt or uncertainty in the matter and bring uniformity in the rate of GST applicable for all kinds of supply of food and drinks made available in trains, platforms or stations, it is clarified with the approval of GST Implementation Committee, that the GST rate on supply of food and/or drinks by the Indian Railways or Indian Railways Catering and Tourism Corporation Ltd. or their licensees, whether in trains or at platforms (static units), will be 5% without ITC </em>. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The position is, as per the Delhi AAR, the GST chargeable is the applicable rate on the value of goods <em>(excluding the service charges, </em>while the Board says it is flat 5%. While you are travelling from Delhi to Mumbai by train, if you get a samosa in your compartment, as the train leaves the platform, you are being supplied pure goods and you have to pay GST according to the value of samosa. But wait for some time and after you cross the border of Delhi, if you order another samosa, it is GST at a uniform rate of 5% as the Board suggests. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Whose order will prevail? The Board's or the AAR's? The AAR consists of two Joint Commissioner level officers, while the Board consists of six top-most officers of the rank of Special Secretary to the Government. As per Section 103 of the GST Act, the Advance Ruling is binding on the applicant and the <em>concerned </em> officer or the jurisdictional officer in respect of the applicant. A High Court judge used to say that a magistrate has the same powers as the Supreme Court, within his jurisdiction. The Board cannot quash the orders of the AAR and so at least as far as the applicant and his jurisdictional officer are concerned, the AAR ruling is binding and that samosa has to be taxed under two different headings, at two different rates on two different values, as the train moves. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Doesn't this make the AAR an institution that can at best create confusion and chaos? Perhaps, it is time, we wind up this, before it becomes the fountainhead for unlimited litigation. What is the need for an advance ruling at the State Level, when GST was launched with the slogan, "One Nation, One Tax". If at all, we need an Advance Ruling Authority, let there be one at the national level headed by a senior judge and consisting of senior officers. If this Frankenstein is not controlled in the initial stages, it will pose an irreparable danger soon. </font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>India's GST - AModel for Others:</strong></font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Financial Times on Monday carried an article <em>India shows neighbours the way out of tax trap</em>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Narendra Modi's occasionally fumbled attempts at economic reform have achieved one big success: for the first time in its post-independence history, India appears to be building a stable tax base to fund its long-neglected public services. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The article quoted Chief Economic Advisor Arvind Subramanian,<em> "What India has done especially with the complexity and scale of the GST offers a model for other developing countries."</em></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And apparently Arvind Subramanian, is happy – he tweeted, <em>"Nice <a href="https://twitter.com/fteconomics" target="_blank"><strong>@fteconomics</strong> </a> piece on the performance and promise of India's GST."</em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Good Days Ahead - GST Council Move towards Ease of Doing Business: </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The GST Council in its 27th meeting approved principles for filing of new return design based on the recommendations of the Group of Ministers on IT simplification. The key elements of the new return design are as: – </font></p>
<div align="justify">
<blockquote>
<p> - <font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Monthly Return: </strong>All taxpayers excluding a few exceptions like composition dealer to file one monthly return. Return filing dates to be staggered based on the turnover of the registered person to manage load on the IT system. Composition dealers and dealers having nil transaction will have facility to file quarterly return. </font> </p>
<p> - <font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Simple Return design and easy IT interface: </strong>The B2Bdealers will have to fill invoice-wise details of the outward supply made by them, based on which the system will automatically calculate his tax liability. The input tax credit will be calculated automatically by the system based on invoices uploaded by his sellers. Taxpayer shall be also given user friendly IT interface and offline IT tool to upload the invoices. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> - <strong>No automatic reversal of credit </strong>: There will not be any automatic reversal of input tax credit from buyer on non-payment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller. Reversal of credit from buyer will also be an option with the revenue authorities to address exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> - <strong>Due process for recovery and reversal </strong>: Recovery of tax or reversal of input tax credit shall be through a due process of issuing notice and order. The process would be online and automated to reduce the human interface. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> - <strong>Transition: </strong>There will be a three-stage transition to the new system. Stage I will be the present system of filing of return GSTR 3B and GSTR 1. GSTR 2 and GSTR 3 shall continue to remain suspended. Stage I will continue for a period not exceeding 6 months by which time new return software would be ready. In stage 2, the new return will have facility for invoice-wise data upload and also facility for claiming input tax credit on self-declaration basis, as in case of GSTR 3B now. </font></p>
</blockquote>
</div>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Content of the return and implementation: </strong>Return shall be simplified also by reducing the content/information required to be filled in the return. The details of the design of the return form, business process and legal changes would be worked out by the law committee based on these principles. Government is keen to introduce the simplified return design at the earliest to reduce the compliance burden on the trade in keeping with the philosophy of ease of doing business. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the US, the Form 1040, for filing the Income Tax return is a two-page form, but the instructions on filing this return run into 107 pages. </font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GSTN to be Nationalized</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The GSTN website states, <em>"Goods and Services Tax Network (GSTN) is a Section 8 (under new companies Act, not for profit companies are governed under section 8), non-Government, private limited company. It was incorporated on March 28, 2013. The Government of India holds 24.5% equity in GSTN and all States of the Indian Union, including NCT of Delhi and Puducherry, and the Empowered Committee of State Finance Ministers (EC), together hold another 24.5%. Balance 51% equity is with non-Government financial institutions. The Company has been set up primarily to provide IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders for implementation of the Goods and Services Tax (GST). The Authorised Capital of the company is Rs. 10,00,00,000 (Rupees ten crore only)."</em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the recent meeting of the GST Council, it was decided: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Acquisition of entire 51% of equity held by the Non-Governmental Institutions in GSTN amounting to Rs. 5.1 crore, equally by the Centre and the States governments and allow GSTN Board to initiate process for acquisition of equity held by the private Companies; </em> and </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>GSTN Board shall be allowed to continue the existing staff at existing terms and conditions for a period upto five years, and shall have the flexibility of hiring people through contract on the terms and conditions similar to those used by GSTN till now while hiring regular employees. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The existing financial commitments given by Centre and States to GSTN to share the capital and O&M cost of the IT Systems shall continue. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, GSTN is going to be a Government Company soon. The Financial Statement of GSTN for 2016-17, reveals certain interesting facts. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The share capital consists of 1 crore equity shares of Rs. 10 each fully paid up, making a capital base of Rs. 10 Crores. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Empowered Committee of State Finance Ministers holds 80,000 shares of GSTN which is 0.8% of the total shares. It is not known how the empowered Committee owns these shares. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Each of the State Governments (including Delhi and Puducherry) owns 0.79% and thirty of them are listed. This makes 23.7% of the shares. Add to this the 0.8% share held by the Empowered Committee and that makes 24.5%. Another 24.5% is held by the Central Government.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The pattern is like this:</font></p>
<div align="center">
<table width="90%" border="1" align="center" cellpadding="3" cellspacing="0">
<tr>
<td valign="top"> </td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Share holder </font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">No. of shares </font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">percentage </font></strong></p></td>
</tr>
<tr>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1 </font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">President of India </font></p></td>
<td valign="top"><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">24,50,000 </font></p></td>
<td valign="top"><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">24.5 </font></p></td>
</tr>
<tr>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2 </font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">LIC Housing Finance Ltd </font></p></td>
<td valign="top"><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">11,00,000 </font></p></td>
<td valign="top"><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">11 </font></p></td>
</tr>
<tr>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3 </font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Housing Development Finance Corporation Limited, HDFC Bank Ltd, ICICI Bank Ltd., NSE Strategic Investment Corporation Ltd. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Each 10,00,000 shares </font></p></td>
<td valign="top"><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">40,00,000 </font></p></td>
<td valign="top"><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">40 </font></p></td>
</tr>
<tr>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. </font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Empowered Committee of State Finance Ministers </font></p></td>
<td valign="top"><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">80,000 </font></p></td>
<td valign="top"><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">0.8 </font></p></td>
</tr>
<tr>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. </font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">30 States and Territories each holding 79,000 shares each </font></p></td>
<td valign="top"><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">23,70,000 </font></p></td>
<td valign="top"><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">23.7 </font></p></td>
</tr>
<tr>
<td valign="top"> </td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">TOTAL </font></p></td>
<td valign="top"><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1,00,00,000 </font></p></td>
<td valign="top"><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">100 </font></p></td>
</tr>
</table>
</div>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Strangely, the State of Telangana doesn't seem to be a shareholder. At least it does not figure in the list of shareholders as given in the published document of GSTN.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The GSTN had a profit of Rs. 1,53,95,852 in 2016-17 and had reserves of Rs. 3,24,06,682 at the end of last fiscal year. The Company paid an advance rent of Rs 2,42,41,058 in financial year 2014-15 to the vendor which is adjustable in future lease payments over the period of 60 months.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Last month addressing Columbia University, Dr. Subramanian Swamy said, <em>"At the moment, GST is a nightmare."</em>, but he should be happy that GSTN is going to be a fully owned Government Company. He was on a crusade against the shareholding by those financial institutions.</font></p>
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