Clarifications must clarify:
Clarification, as name suggests must play role of clarification and should not create more confusions and ambiguities. However, it seems that in name of clarifications more confusions are created. Sometimes clarifications goes beyond provision and object of provision. This is reason that many of clarifications issued by highest authorities in many matter under direct and indirect tax laws have been matter of litigation. In past we have seen many circulars/ instructions being declared void for several reasons including beyond power, not as per law, not as per object and spirit of applicable provision etc.
It is also experienced that Circulars / orders/ instructions have many times created more ambiguities and doubts.
This article is on general aspects with reference to a latest Circular under CGST. However, what is stated herein is applicable to any kind of similar circulars.
GST:
In case of GST also the problem seems to be compounding due to large numbers of such circulars etc. being issued under separate laws by authorities.
Circular dated 01.03.18 No. 34/8/2018-GST, F. No. 354/17/2018-TRU
For example, the Circular is discussed below by reproducing the same with highlights added to make easy analysis and understanding and by adding a column for observations:
CGST - Circulars / Ordes - Goods and Services Tax
Circular No. 34/8/2018-GST
F. No. 354/17/2018-TRU
Government of India
Ministry of Finance
Department of Revenue
Tax research Unit
****
Room No. 146G, North Block,
New Delhi, 1st March 2018
To,
The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/ Commissioner of Central Tax (All) / The Principal Director Generals/ Director Generals (All)
Madam/Sir,
Subject: Clarifications regarding GST in respect of certain services
I am directed to issue clarification with regard to the following issues as approved by the Fitment Committee to the GST Council in its meeting held on 9th, 10th and 13th January 2018:-
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S. No.
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Issue
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Clarification
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Observations:
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1.
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Whether activity of bus body building, is a supply of goods or services?
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In the case of bus body building there is supply of goods and services. Thus, classification of this composite supply, as goods or service would depend on which supply is the principal supply which may be determined on the basis of facts and circumstances of each case.
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There is really no clarification. Matter is to be decided depending on facts.
Better there should be separate contract for supply of goods and services.
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2.
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Whether retreading of tyres is a supply of goods or services?
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In retreading of tyres, which is a composite supply, the pre-dominant element is the process of retreading which is a supply of service. Rubber used for retreading is an ancillary supply. Which part of a composite supply is the principal supply, must be determined keeping in view the nature of the supply involved. Value may be one of the guiding factors in this determination, but not the sole factor. The primary question that should be asked is what is the essential nature of the composite supply and which element of the supply imparts that essential nature to the composite supply.
Supply of retreaded tyres, where the old tyres belong to the supplier of retreaded tyres, is a supply of goods (retreaded tyres under heading 4012 of the Customs Tariff attracting GST @ 28%)
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There is really no clarification. Matter is to be decided depending on facts.
Rubber price fluctuate value of rubber may be low or high.
In case of Supply of retreaded tyres, where the old tyres belong to the supplier of retreaded tyres –
In this case there was no need of any clarification. The old tyre belong to supplier who has retreaed and is now selling is undoubtadely a case of sale of goods.
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3.
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Whether Priority Sector Lending Certificates (PSLCs) are outside the purview of GST and therefore not taxable?
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In Reserve Bank of India FAQ on PSLC, it has been mentioned that PSLC may be construed to be in the nature of goods, dealing in which has been notified as a permissible activity under section 6(1) of the Banking Regulation Act, 1949 vide Government of India notification dated 4th February, 2016. PSLC are not securities. PSLC are akin to freely tradeable duty scrips, Renewable Energy Certificates, REP license or replenishment license, which attracted VAT.
In GST there is no exemption to trading in PSLCs. Thus, PSLCs are taxable as goods at standard rate of 18% under the residuary S. No. 453 of Schedule III of notification No. 1/2017-Central Tax(Rate). GST payable on the certificates would be available as ITC to the bank buying the certificates.
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It seems wrong to say that PSLCs are goods. In fact these are privileges one having, because he has achieved more in priority sector lending, which he allow to be used by other by way of adjustments of his obligations not fully discharged.
Carbon credit is also not goods they are also only privileges one have as he saved more energy or reduced pollutions of certain type and in certain manner.
Deeming provisions should be restricted so as to ensure that natural meanings are not destroyed.
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4.
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(1) Whether the activities carried by DISCOMS against recovery of charges from consumers under State Electricity Act are exempt from GST?
(2) Whether the guarantee provided by State Government to state owned companies against guarantee commission, is taxable under GST?
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(1) Service by way of transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST under notification No. 12/2017- CT (R), Sl. No. 25. The other services such as, -
i. Application fee for releasing connection of electricity;
ii. Rental Charges against metering equipment;
iii. Testing fee for meters/ transformers, capacitors etc.;
iv. Labour charges from customers for shifting of meters or shifting of service lines;
v. charges for duplicate bill;
provided by DISCOMS to consumer are taxable.
(2) The service provided by Central Government/State Government to any business entity including PSUs by way of guaranteeing the loans taken by them from financial institutions against consideration in any form including Guarantee Commission is taxable.
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Service by way of transmission or distribution of electricity is main activity. When it is exempt, then there should also be exemption for incidental matter like application approval, granting connections.
Meter is installed to measure consumption, merely because a charge is levied by electricity company, it does not become an independent service. Similar are cases of other incidental services, these should also be exempt.
Guarantee by government is provided in public interest to promote particular activity carried by business. The purpose is not earning guarantee commission. Considering the same there should not be service tax on charges. Levies like guarantee commission.
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2. Difficulty if any, in the implementation of this circular may be brought to the notice of the Board.
Yours Faithfully,
Harsh Singh
Technical Officer (TRU)
Email: harshsingh.irs@gov.in
Tel: 011-23095543
Some more observations:
Besides observations made by way of highlights author make following observations:
In the beginning of the Circular it is stated as follows:
“I am directed to issue clarification with regard to the following issues as approved by the Fitment Committee to the GST Council in its meeting held on 9th, 10th and 13th January 2018:-
It appears that there is no mention about circumstances under which circular is issued, whether it was really necessary to issue clarification, whether it is in interest of public purpose. Or it is just that some work is to be shown to issue clarification, where in fact no clarification is required.
There is no mention of provisions under which such clarifications are issued. Purpose of clarification is also not stated.
Furthermore, as noted in observations column, clarifications are not in clear terms, these are likely to make more confusions.
