RECENT ADVANCE RULINGS IN GST (PART-17)

[Dr. Sanjiv Agarwal]

Advance rulings are important in any tax law as it provides a forum for clarification and possible interpretation of statutory provisions. Moreover, it conveys the legislative intention from the revenue’s view point. Provisions of advance ruling are contained in section 95 to 106 of CGST Act, 2017 and State / UT GST enactment. Rules 103 to 107 of also provide for forms, manner, certification etc.

The Authority for Advance Rulings (AAR) have been set up in all the states and we have now around 500 advance rulings on different issues already pronounced by various State Authorities. The appellate mechanism for filing appeals against AAR rulings is also in place and we have about thirty five such appellate orders confirming or modifying the AAR orders. One major issue presently being faced is about multiple authorities (equal to number of States), each pronouncing a ruling of its own even if the matter is covered by some other State AAR’s rulings.  Even the orders from Appellate Authority for Advance Ruling have also started pouring in and we have over two dozen Appellate Orders from AAAR. There are situations where we may have different rulings on same question(s) by different AARs. GST Council / Cabinet has approved (on 23.01.2019)  to have a Centralized Appellate Authority for Advance Ruling under GST that would decide on cases where there are divergent orders at the State level. The same has been provided for in the Finance Bill 2019. Once enacted, the said authority will be setup.

The summary of few more recent advance rulings pronounced by State Advance Ruling Authorities are discussed hereunder but these needs to be read in the background of the question involved:

Advance ruling on Tax Deduction at Source (TDS)      

In the instant case, applicant was joint venture Company of West Bengal Industrial Development Corporation (WBIPC) and Andrew Yale & Co Ltd. (Central PSU). An advance ruling was sought on whether tax deduction at source (TDS) u/s 51 of the CGST Act, 2017 would be applicable on the applicant company was being controlled by Central and State Government.

Section 51(1) of the GST Act empowers the Government to mandate:

1. a department or establishment of the Central Government or State Government; or
2. local authority; or
3. Governmental agencies; or
4. such persons or category of persons as may be notified by the Government on recommendations of the Council

to deduct tax at the rate of 1% from the payment made or credited to the supplier of taxable goods or services, where total value of such supply under a contract exceeds 2,50,000/-.

The Notification of deduction of TDS shall come into force w.e.f. 01.10.2018 to aforementioned category of persons and the following entities:

1. An authority or a board or any other body –

             (i)        set up by an Act of Parliament or a State Legislature; or

             (ii)       established by any Government,

                        with 51% or more participation by way of equity or control, to carry out any function

2. Society established by the Central Govt or the State Govt or a local authority under the Societies Registration Act, 1860;
3. Public sector undertakings.

The Notification shall not apply to the authorities under the Ministry of Defence, other than the authorities specified in the Annexure-A of Notification No. 57/2018 – CT dated 23/10/2018. Furthermore, the Notification shall not apply to supplies from a public sector undertaking to another public sector undertaking.

In the instant case, the Applicant was incorporated as a limited company on 25/03/1988 after reconstitution of the erstwhile West Bengal Filaments and Lamp Ltd. From the available materials it appears that neither the Central Government nor the State Government has any direct equity participation. But the "Government Companies", as defined under section 2(45) of the Companies Act, 2013, together hold 62.29% of the paid up share capital and majority of the directors in the Board. WBIDC alone holds 49.46% of the shares, and enjoys four votes (including the casting vote of the Chairman) in a nine member Board. The Central and the State Governments, therefore, acting through the government companies, are in a position to indirectly control the management or policy decisions of the Applicant. The Central and the State Governments, therefore, "control" the Applicant within the meaning of section 2(27) of the Companies Act, 2013.

The AAR observed that as the GST Act does not define "Control", it should be construed as defined under the Companies Act, 2013. Section 2(27) of the Companies Act, 2013 defines "Control". It includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

Thus, the AAR ruled that the Applicant, if established by government notification, is liable to deduct tax at source under section 51(1) read with Notification No. 1344-FT dated 13/09/2018, being a company controlled by the Central and the State Governments. [In Re: Webfil Ltd. 2019 (1) TMI 486 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL].

Advance ruling on Agricultural produce and tax deduction at source       

In the instant case, the applicant is a co-operative society registered under the Rajasthan Co-operative Societies Act, 1953, (Now 2001). The applicant deals in trading in various items and providing services as commission agent to other registered Taxable persons. The applicant carries its business activity of providing services to agriculturist for buying their agriculture produce and selling those produces in the open market. The applicant also helps to the National Agriculture Co-operative Marketing Federation of India Ltd., (NAFED) for procuring agriculture produce from farmers and supply them as per their instructions i.e. NAFED for implementation of Government policies of purchases on Minimum Support Price (MSP) and purchase support Schemes of items as prescribed by the Central as well as the State Governments. The applicant has been allowed for commission @ 2% by the NAFED for procurement of oilseeds and pulses. The applicant has been dealing as an "agent" of NAFED in the whole transaction and make payment on procurement of goods whatever it maybe either by itself or through Kray Vikray Sahakari Samiti to the farmers. That, on procurement/purchases of gunny bags by NAFED under instruction of the applicant, the applicant make payment to the NAFED and the final payment is made by the NAFED to the sellers. The Government of India as well as the State Government of Rajasthan both of them have notified through their Notification Numbers 50/2018 - Central Tax , dated, 13 September, 2018, and F.12(46)FD/Tax/2017-Pt.-113, dated 13/09/2018 respectively about to deduct tax at source (TDS) on payments or credit on supply of goods as well as service or both on contract to contractors according to section 51.

It sought advance ruling on the following issues :

1. Whether the applicant is liable for charging Goods and Service Tax under the RGST Act, 2017 and CGST Act, 2017 on providing service for procurement of agricultural produce i.e. oilseeds and pulses from farmers either itself or through Kray Vikray Sahakari Samiti on behalf of its principal i.e. National Agriculture Co-operative Marketing federation of India Ltd. (NAFED).
2. Whether the applicant is liable for charging RGST/CGST or IGST as the case maybe on its outward supplies of goods as well as services after having procured through Kray Vikray, Sahakari Samiti according to the purchase order of the NAFED.
3. Whether the applicant being a Co-operative society registered under the Rajasthan State Co-operative Society Act, 1953 now consolidated in the Rajasthan Co-Operative Societies Act, 2001 is liable to deduct Tax at Source (TDS) from payment to or credit of Kray Vikray, Sahakari Samiti/RAJFED under Notification No. 50/2018-central tax, dated 13.09.2018 for their services of procurement of oilseeds and pulses for the applicant to be supplied by the applicant to its principal NAFED.
4. Whether the applicant being a Co-operative society registered under the Rajasthan State Co-operative Society Act, 1953 now consolidated in the Rajasthan Co-operative Societies Act, 2001 is liable to deduct Tax at Source (TDS) from payment to or credit of RAJFED under Notification No. 50/2018-Central Tax dated 13.09.2018 for their services of procurement of gunny bags, transportation, insurance and services of surveyors for the applicant to be supplied by the applicant to its principal NAFED itself.

The AAR observed that  the applicant is a co-operative society established under Rajasthan Co-operative Societies Act, 1953 (Now 2001). The applicant is not a department, not a local authority, not a governmental agency and the co-operative society Act is also different thus do not fall under any category of Section 51 of the CGST / RGST Act, 2017 and is not eligible to become a TDS deductor. Therefore provisions of TDS are not applicable in accordance with Section 51 of the CGST / RGST Act, 2017.

The AAR , thus provided the following advance ruling for the queries raised :

1. The applicant is not liable for charging goods and service tax under the RGST Act, 2017 and CGST Act, 2017 on providing service for procurement of agricultural produce i.e. oilseeds and pulses from farmers either itself or through Kray Vikray Sahakari Samiti on behalf of its principal i.e. NAFED as the same is exempted for a Commission Agent of agricultural produce under Serial No. 54 of Notification No. 12/2017-Central Tax (rate), dated 28.06.2017.
2. (i) The applicant is not liable for charging RGST/CGST or IGST on outward supply of pulses(other than branded) through Kray Vikray, Sahakari Samiti according to the purchase order of the NAFED as the same is exempted under Notification No. 02/2017-Central Tax (rate), dated 28.06.2017.

(ii) The applicant is liable for charging RGST/CGST or IGST on outward supply of Oilseeds (other than seed quality) through Kray Vikray, Sahakari Samiti according to the purchase order of the NAFED and attracts GST @ 5% (SGST @ 2.5% + CGST @ 2.5%) in accordance with Notification No. 01/2017-Central Tax (Rate), dated 28.06.2017.

3. As the applicant is not covered under Notification No. 50/2018- central tax, dated 13.09.2018 read with Section 51 of CGST Act, 2017 and is therefore not liable to deduct Tax at Source (TDS) from payment to or credit of Kray Vikray, Sahakari Samiti/RAJFED.
4. As the applicant is not covered under Notification No. 50/2018- Central Tax (rate), dated 13.09.2018 read with Section 51 of CGST Act, 2017 and is therefore not liable to deduct Tax at Source (TDS) from payment to or credit of Kray Vikray, Sahakari Samiti/RAJFED for their services of procurement of gunny bags, transportation, insurance and services of surveyors for the applicant to be supplied by the applicant to its principal NAFED itself.

[In Re: Rajasthan Rajya Sahakari Kriya Vikraya Sangh Ltd. 2019 (4) TMI 1497 - AUTHORITY FOR ADVANCE RULING, RAJASTHAN].

Maintainability of  application for advance ruling – refund of tax paid in pre-GST period in GST regime

At the time of booking of flat by the customer, the applicable Service Tax and Maharashtra VAT (MVAT) was deposited. Given this, the Service Tax and MVAT burden borne by the individual customer on flat booked in pre-GST regime ranged from 4.50%- 5.50%. However, due to certain reasons, the flats booked by the customer in the pre-GST regime, are cancelled by the customer on or after 1st July 2017 (i.e. after implementation of GST). In pre-GST regime, Developer was entitled to avail service tax credit in case of cancellation flat as per Rule 6(3) of Service Tax Rules, 1944. Hence, the customer who cancelled flat was not required to bear indirect tax cost as the CENVAT credit for the same was available to the Developer.

The applicant being a real estate developer, sought advance ruling on the following issue :

‘What is the legal procedure for cancellation of flat which is booked in pre-GST Regime and cancelled in post-GST Regime. Also, GST liability in cases where some small amount is retained, for cancellation (after discussion with customer)’.

The specific queries before the AAR were-

1. Clarification about the legal procedure for availment of Service Tax and VAT paid on cancellation of flat which is booked in pre-GST Regime and cancelled in post-GST Regime.

2. Whether cancellation of flat can be equated with the downward revision of price where the credit note can be raised with GST as per Section 142 (2) of the CGST Act.

3. Whether cancellation of flat can be equated with the downward revision of price and hence service Tax/VAT paid earlier can be claimed as credit or allowed as refund to property buyer as per Rule 6(3) of Service Tax Rules, 1944 along with applicability of time of limitation for refund as specified under section 11B of Central Excise Act.

4. Whether GST input tax credit of Service Tax and State VAT paid while booking of flat is available to the Developer, if cancelled in GST regime? What will be the methodology to avail Input Tax Credit on the said taxes paid?

5. What is the legal procedure for cancellation of flat which is booked in pre-GST Regime and cancelled in post-GST Regime?

6. Also, GST liability in cases where some small amount is retained, for cancellation (after discussion with customer).

The AAR observed that in the instant case, questions were not about the following :

1. the classification of any goods or services or both.

2. the applicability of a notification issued under the provisions of the GST Act.

3. the determination of time and value of supply of goods or services or both.

4. the admissibility of input tax credit of tax paid or deemed to have been paid.

5. the determination of the liability to pay tax on any goods or services or both.

6. Whether the applicant is required to be registered.

7. 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.

The refund of tax sought was not in respect of input tax credit of tax paid on demand to have paid under the GST law.

AAR concluded that the questions posed before it were not the questions in respect of which an Advance Ruling can be sought under the GST Act. The application was not maintainable and thus, no proceedings of advance ruling are applicable. [In Re: Kolte Patil Developers Ltd. 2018 (12) TMI 1355 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA]

(Some more to follow …..)