TDS or TCS on purchase or sale of transferable import licence or import entitelement is advisable with a view to play safe and avoid litigation.
Import license or import entitlement -general aspects:
Import license or import entitlement (by whatever name known or called) is a benefit or privilege granted in terms of policy of government to exporter of goods and also in some other situations to promote industrilisation which require capital intensive goods like plant and machinery. Import against such licenses or entitlement eable the hodler of the same to import goods at concessional rate of duties.
Transferability - such entitlements can be for own use which will not be transferable. Other type of entitlement can be transferable or non transferable. In case of transferable entitlements or licenses the same can be transferred to other persons. An importere of eligible goods who can import goods by using of such entitlements usually buy it from seller. He gains benefit on import duty.
When benefit of import duty is more than the value asked for entitlement or license, there is demand for such license or entitlement. This can happen in some situations relating to volatility in price of foreign currencies, volatility in market price of goods to be imported, urgency to import which can be expedited on used of import license.
In general sense, it is a commercial decision for the holder of licence or entitlement to sell and for buyer to purchse license or entitlement for importing goods and gaining out of bargains for entitlements.
Transfer - therefore there is transferor and transferee of import licence/ entitlement when one person transfer his entitlement to other as per applicable law and procedure.
Part of cost of goods - value of import license purchased is considered as part of goods imported. In proper accounting the cost is added in cost of items imported and then it is charged to revenue on occasion of consumption or sale of imported goods.
Therefore, import license is an asset of movable nature, used in course of business. In fact cost of import license is cost of imported goods. Accounting treatment will depend on nature of goods imported and there use in business. In case of import of capital goods the amount will be added to cost of asset for which license or entitlement is used.
In view of the same it is in nature of goods or movable property.
Indirect tax on import etitlements sold or purchased will depend on relevant policy of taxation.
Whether import license or entitlement which is transferable should be treated goods or not will depend on relevant provisions. Therefore, unless there is specific exclusion of license from general meaning of goods, it should be considered as goods with a view to play safe and avoid additional costs and litigation.
Particularly when a burden or cost is temporary and is reversed by way of credit or refund ,in due course it is better approach to play safe and have tax deduced or collected as the case may be or as is found more beneficial , if an option is avaialable.
In case of goods , there is option to deduct tax at source by buyer of goods or alternatively to have tax collected by seller of goods. This can be mutually decided and one can take responsibility to either do deduction of tax by buyer of goods or collection of tax by seller of goods.
From sales of Goods Act:
2. Definitions.-In this Act, unless there is anything repugnant in the subject or context,-
(1) “buyer” means a person who buys or agrees to buy goods;
(2) “delivery” means voluntary transfer of possession from one person to another;
(3) goods are said to be in a “deliverable state” when they are in such state that the buyer would under the contract be bound to take delivery of them;
(4) “document of title to goods” includes a bill of lading, dock warrant, warehouse keeper’s certificate, wharfingers’ certificate, railway receipt, multimodal transport document, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented;
(5) “fault” means wrongful act or default;
(6) “future goods” means goods to be manufactured or produced or acquired by the seller after the making of the contract of sale;
(7) “goods” means every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale
From above meaning of “goods” and realted words and phrases, it can be said that import license and entitlement, which is transferable is within meaning of “goods”.
Some provisions in which word ‘goods’ have been used in Income Tax Act:
In the Income-tax Act, 1961 the word “goods” have been used at 158 places in context of various provisions relating to computation of income and incentives and disallowances etc. However, in relation to the subject matter of this article use of word ‘goods’ in the following provisions is relevant
From S.194H relating to TDS on Commission or brokerage
Explanation.-For the purposes of this section,-
(i) "commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;
In the above provision relating to TDS on commission we find that only securities are excluded and any other license or entitlement is not excluded. Therefore, if one availa services of agent for buying or selling import license, and pays commission then the provisions of S.194H may be applicable if other conditions are met.
Similarly in S.43.5 relating to speculative transactions we find that expression commodities, merchandise, scrips and securities are covered for different purpsoes and situations. Expression goods has been used in respect of goods required for manufacture of goods.
Therefore, these provisions also suggest that expression ‘goods’ is such that in context of provisions of TDS and TCS import license or entitlements is covered within general meaning of goods.
Relevant provisions relating to TDS and TCS on purchase or sale of goods.
Deduction of tax at source on payment of certain sum for purchase of goods vide section
194Q. this section was Inserted vide Finance Act, 2020 dated 27-03-2020 w.e.f. 01-10-2020 the section is reprodueced below with highlights:
Income-tax Act, 1961
1[Deduction of tax at source on payment of certain sum for purchase of goods.
194Q. (1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent. of such sum exceeding fifty lakh rupees as income-tax.
Explanation.––For the purposes of this sub-section, “buyer” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax.
(5) The provisions of this section shall not apply to a transaction on which––
(a) tax is deductible under any of the provisions of this Act; and
(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.]
Relevant portion of provision for TCS S. 206C:
Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.
206C - sale of goods have been covered in this provision.
vide Finance Act, 2020 dated 27-03-2020 w.e.f. 01-10-2020 by which the following relevant clauses were inserted for TCS on sale of goods:
(1H) Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent. of the sale consideration exceeding fifty lakh rupees as income-tax:
Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent.”, the words “one per cent.” had been substituted:
Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.
Explanation.––For the purposes of this sub-section,––
(a) “buyer” means a person who purchases any goods, but does not include,––
(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or
(B) a local authority as defined in the Explanation to clause (20) of section 10; or
(C) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein;
(b) “seller” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.’;
in view of above provisions and discussions author consider that in case provisions of TDS /TCS on purchase / sales of goods, are applicable to any assessee tax should be deducted or collected in case value of goods purchased or sold , inclusive of value of import licence/ entitlement, to or from any party exceeds prescribed limit and TDS/ TCS provision become applicable in realtion to any sellr / buyer of goods.
As per mutual convenience and commercial expediency seller / buyer can decide that either TDS be made by buyer or TCS be made by seller. There is clear option which can be exercised carefully with commitment to make necessary compliances timely.