GST on ROC Filing Fee paid by companies/LLPs

[kollengode venkitaraman]

Introduction

The law relating to companies is laid down in Companies Act, 2013 and the rules made thereunder and the compliance required under the Corporate Law is under the jurisdiction of Registrar of Companies (ROC) under the Ministry of Corporate Affairs (MCA).  After the initial registration, there are various other statutory compliances that are required to be complied by the companies such as filing of Annual Returns and AGM, appointment and resignation of Directors, appointment and resignation of Auditors, change in Registered Office, change in Authorized Share Capital and so on. While filing said the returns and documents in the MCA portal, the companies have to remit a prescribed fee.

Levy of tax on the ROC filing fee has been a contentious issue. The GST authorities are issuing show cause notices to corporate taxpayers across the country demanding GST on ROC filing fee on reverse charge basis. Many companies have not paid GST on ROC filing fee till now and soon the matter will come up for judicial scrutiny. An attempt has been made in this article to understand the nuances in this issue.

Legal Aspects

According to section 2(75) of Companies Act, 2013, the term “Registrar” means a Registrar, an Additional Registrar, a Joint Registrar, a Deputy Registrar or an Assistant Registrar, having the duty of registering companies and discharging various functions under this Act. Section 396 of Companies Act governs the appointment of ROC, which reads as follows:

“396. (1) For the purposes of exercising such powers and discharging such functions as are conferred on the Central Government by or under this Act or under the rules made thereunder and for the purposes of registration of companies under this Act, the Central Government shall, by notification, establish such number of offices at such places as it thinks fit, specifying their jurisdiction.

     (2) The Central Government may appoint such Registrars, Additional, Joint, Deputy and Assistant Registrars as it considers necessary for the registration of companies and discharge of various functions under this Act, and the powers and duties that may be exercisable by such officers shall be such as may be prescribed.

     (3) The terms and conditions of service, including the salaries payable to persons appointed under sub-section (2), shall be such as may be prescribed.

     (4) The Central Government may direct a seal or seals to be prepared for the authentication of documents required for, or connected with, the registration of companies.”

Registrar of Companies primarily have the duty of registering companies incorporated in the respective States and the Union Territories. However, in addition to registration, there are the number of other responsibilities that the ROCs are conferred with. The Central Government exercises administrative control over these offices through the respective Regional Directors (RD) who are in-charge of the respective regions, each region comprising a number of States and Union Territories. The functions of Registrar of Companies include:

• Section 77(2) – Issue certificate of registration of charge without which the charge cannot be taken into account by liquidators or creditors
• Section 78 – The Registrar gives a notice to the company in order to enable it to inform whether the company has itself created a charge and if it has not, then inform about the reason for the same
• Section 81 – Registrar is required to keep the register of charges in respect of every company
• Section 93 – Return is to be filed with Registrar in case promoters’ stake changes
• Section 137 – Copy of Financial Statement to be filed with the Registrar
• Section 157 – Company to inform the Registrar of the Identification Number
• Section 208 – After inspection and inquiry, the Registrar is required to submit a report in writing to the Central Government

Similarly, Registrar of Companies have the following powers:

• Section 7 – Registration of a company is obtained by filing an application with the ROC
• Section 83 – Power to make entries of satisfaction and release without intimation from company
• Section 206 – Power to call for information, inspect books and conduct inquiries
• Section 209 – Power of search and seizure
• Section 248 – Power to remove the name from the register of companies

Since Registrar of Companies is specifically constituted under the Companies Act for the purpose of registering companies and discharging various functions under the Act, it is a statutory authority under the provisions of law.

Sovereign functions

Modern Democratic Governments undertake various welfare and commercial activities apart from the regal or sovereign functions. Sovereign functions of the State are not clearly demarcated in the Constitution. Broadly speaking, sovereign functions are those actions of the State for which it is not answerable before the Court of Law [CHIEF CONSERVATOR OF FORESTS& ANOTHER, ETC. VERSUS JAGANNATH M 1995 (12) TMI 341 - SUPREME COURT]. Sovereign functions can only be discharged by the State and not by a private person.

A seven-judges Constitution Bench of the Hon’ble Supreme Court in BANGALORE WATER SUPPLY & SEWERAGE BOARD VERSUS A. RAJAPPA 1978 (2) TMI 204 - SUPREME COURT, in the context of Industrial Disputes Act, 1947, gave the term ‘sovereign or regal function’ of State a restricted meaning to only the primary and inalienable functions.

Consequently, in SYNTHETICS & CHEMICALS LTD., ETC. VERSUS STATE OF UP. 1989 (10) TMI 214 - SUPREME COURT, a Seven-Judges Bench of Supreme Court noted that:

“……….. The Indian State, between the Centre and the States, has sovereign power. The sovereign power is plenary and inherent in every sovereign State to do all things which promote the health, peace, morals, education and good order of the people. Sovereignty is difficult to define. This power of sovereignty is, however, subject to Constitutional limitations. This power, according to some constitutional authorities, is to the public what necessity is to the individual.………….”

In AGRICULTURAL PRODUCE MARKET COMMITTEE VERSUS ASHOK HARIKUNI 2000 (9) TMI 930 - SUPREME COURT the Supreme Court has observed that what is approved to be ‘sovereign’ is defence of the country, raising armed forces, making peace or war, foreign affairs, power to acquire and retain territory. Other functions of the state including welfare activity cannot be construed as ‘sovereign exercise of power’. Hence, every governmental function of state need not be sovereign.

In STATE OF UP. VERSUS JAI BIR SINGH 2005 (5) TMI 612 - SUPREME COURT, a five-Judge Constitution Bench of the Supreme Court revisited the Bangalore Water Supply and Sewerage Board decision and noted as follows:

“We also wish to enter a caveat on confining ‘sovereign functions’ to the traditional so described as ‘inalienable functions’ comparable to those performed by a monarch, a ruler or a non-democratic government. The learned judges in the Bangalore Water Supply and Sewerage Board case seem to have confined only such sovereign functions outside the purview of ‘industry’ which can be termed strictly as constitutional functions of the three wings of the State i.e. executive, legislature and judiciary. The concept of sovereignty in a constitutional democracy is different from the traditional concept of sovereignty which is confined to ‘law and order’, ‘defence’, ‘law making’ and ‘justice dispensation’. In a democracy governed by the Constitution the sovereignty vests in the people and the State is obliged to discharge its constitutional obligations contained in the Directive Principles of the State Policy in Part -IV of the Constitution of India. From that point of view, wherever the government undertakes public welfare activities in discharge of its constitutional obligations, as provided in part-IV of the Constitution, such activities should be treated as activities in discharge of sovereign functions falling outside the purview of ‘industry’…….”

The matter has been now referred to a nine-judge bench by the Hon’ble Chief Justice and the final decision is still pending.

The point to be noted here is that sovereign functions performed by the Government cannot be regarded as a service and hence subjected to tax. In this context, various Tribunals and High Courts have held the following bodies of Government to be performing sovereign functions and hence not exigible to Service Tax:

In DY. DIRECTOR OF MINES & GEOLOGICAL DEPARTMENT VERSUS CCE & C, BELGAUM 2007 (1) TMI 55 - CESTAT,BANGALORE, the Tribunal held that Department of Mines and Geology was performing their sovereign functions in terms of the powers granted in constitution of India and Service Tax cannot be levied.

In ELECTRICAL INSPECTORATE, GOVT. OF KARNATAKA VERSUS C. ST 2007 (10) TMI 137 - CESTAT, BANGALORE, the Tribunal held that is a State Government Department carrying on sovereign activity of inspection and certification of electrical installations in terms of special legislations.

In CCE, Nashik v. Maharashtra Industrial Development Corporation, Hon’ble Bombay High Court held that MIDC is a statutory Corporation which is virtually a wing of the State Government maintenance of industrial area is a sovereign functions and hence, cannot be brought to tax.

In KARNATAKA INDUSTRIAL AREAS DEVELOPMENT BOARD VERSUS COMMISSIONER OF CENTRAL TAX, BANGALORE NORTH 2020 (6) TMI 227 - CESTAT, BANGALORE, Tribunal held that maintenance of industrial area by KIADB is a statutory function and not leviable to Service Tax.

Concept of ‘Public Authorities’

The scope of the term ‘public authorities’ came up before the CESTAT in M/S EMPLOYEE PROVIDENT FUND ORGANIZATION VERSUS CST, DELHI 2017 (4) TMI 902 - CESTAT NEW DELHI. The New Delhi Bench of CESTAT held Employee Provident Fund Org to be a ‘public authority’, observing as follows:

“…….. ‘Public’ includes a section of the public (SRI VENKATARAMANA DEVARU Versus STATE OF MYSORE - 1957 (11) TMI 21 - Supreme Court). The word ‘public’ is ordinarily used with reference to a joint body of citizens. The term ‘authority’ is defined as “a public administrative agency or corporation having quasi-governmental powers and authorized to administer a revenue producing public enterprise”, (Webseter’s Third New International Dictionary); authority is a body having jurisdiction in certain matters of “public nature”. Therefore, the “ability” conferred upon a person by the law to alter, by his own will directed to that end, the rights, duties, liabilities or other legal relations either of himself or of other persons must be present ab-extra to make a person “authority”. (Som Prakash Rekhi Versus Union of India - 1980 (11) TMI 113 - Supreme Court). When the person is an agent or instrument of function of the state, the power is ‘public’. The true test is functional. Not how the legal person is born, but why it is created. There are various factors which will suggest a body could be “a public authority” these are (a) it is linked to the Government or its function could be described as governmental (b) it provides a public service (c) the state regulates, supervises and controls its performance (d) it is subject to judicial review or is publicly accountable for its action (e) performs charitable objectives (f) vested with statutory powers, with powers to enforce its order by punitive consequences, (g) the legislature specifically intended by an Act to cover its functions and responsibilities. In general, without any possible dispute, it can be stated that a public authority is one which has a legal mandate to govern, or administer a part some aspect of public life.”

The Hon’ble Supreme Court in BALMER LAWRIE & CO. LTD. AND OTHERS VERSUS PARTHA SARATHI SEN ROY & ORS. 2013 (4) TMI 132 - SUPREME COURT examined the scope of terms “State” or “other authorities” under Article 12 of the Constitution. The observations of the Apex Court are:

“21. A public authority is a body which has public or statutory duties to perform, and which performs such duties and carries out its transactions for the benefit of the public, and not for private profit. Article 298 of the Constitution provides that the executive power of the Union and the State extends to the carrying on of any business or trade. A public authority is not restricted to the Government and the legislature alone, and it includes within its ambit, various other instrumentalities of State action. The law may bestow upon such organisation the power of eminent domain. The State in this context, may be granted tax exemption, or given monopolistic status for certain purposes. The “State” being an abstract entity, can only act through an instrumentality or an agency of natural or juridical persons. The concept of an instrumentality or agency of the Government is not limited to a corporation created by a statute, but is equally applicable to a company, or to a society. In a given case, the court must decide, whether such a company or society is an instrumentality or agency of the Government, so as to determine whether the same falls within the meaning of the expression “authority”, as mentioned in Article 12 of the Constitution, upon consideration of all relevant factors.…………………..”

From above decisions, it is clear that functions performed by Registrar of Companies for which fee is charged from companies/LLPs are nothing but statutory functions undertaken by the Central Government in which it is engaged as public authorities.

Taxability under GST regime

Under the GST regime, ‘supply’ is the touchstone for charging tax and section 7(1)(a) lays down the scope of supply which reads as follows:

7. (1) For the purposes of this Act, the expression “supply” includes––

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

The definition of ‘services’ is also all encompassing and includes everything other than goods, money and securities. Therefore, activities/functions performed by Government falls within the ambit of ‘service’. In this context, it is interesting to note the definition of ‘business’ under GST law. Section 2(17) of the CGST Act defines ‘business’ to include:

1. any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
2. any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
3. any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
4. supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
5. provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;
6. admission, for a consideration, of persons to any premises;
7. services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
8. services provided by a race club by way of totalisator or a licence to book maker in such club; and
1. any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;

Thus, according to clause (i), any activity or transaction undertaken by the Central or State Government or any local authority, in which they are engaged as public authorities, is a business. According to the author, legislature ought not to have inserted clause (i) in section 2(17) as it bring within the ambit of definition of “business”, those activities or transactions which are performed by the Central or State Government or local authorities in which they are engaged as public authorities. As a consequence of clause (i) above, even the statutory/sovereign functions undertaken by Central or State Government or any local authority in which they are engaged as public authorities are exigible to GST.

Now, let us examine the activities and transactions which are outside the scope of supply. Section 7(2) provides for activities or transactions which shall be neither treated as a supply of goods nor as supply of services. Section 7(2) reads as follows:

(2) Notwithstanding anything contained in sub-section (1),––

(a) activities or transactions specified in Schedule III; or

(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council,

shall be treated neither as a supply of goods nor a supply of services.

Sub-section (2) of section 7 opens with a non-obstante clause and states that activities or transactions undertaken by the Central or State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.

In Builders Association of Navi Mumbai, Neelsidhi Realties v. Union of India in 2018 (4) TMI 461 - BOMBAY HIGH COURT, the Bombay High Court held that in the absence of notification any activity of a Government or Government company cannot be considered as exempt from the levy of GST.

Thus, it appears that the default position is that all activities or transactions undertaken by the Central Government, a State Government or any local authority are taxable under GST and it is only by way of a specific exemption notification that their activities or transactions can claim immunity from GST.

IN RE : DIVISIONAL FOREST OFFICER, DEHRADUN, 2018 (9) TMI 1647 - APPELLATE AUTHORITY FOR ADVANCE RULING, UTTARAKHAND the Authority for Advance Ruling, Uttarakhand held that “Abhivahan Shulk”, charged and collected by applicant in respect of forest produce carried out by a person is a form of consideration received by the applicant in lieu of services provided to the person for carrying forest produce and hence taxable at 18%. On appeal by the applicant, the order of AAR was upheld by the Appellate authority after noting that “Abhivahan Shulk” is not specified in Schedule III of Section 7 and also not covered by any notification for exception in terms of Section 7(2)(b).

Exemption on Government Services under GST

Although the statutory functions performed by Central/State Government or Local Authorities in which they are engaged as public authorities qualify as taxable supply, Section 11 of CGST Act empowers Government, on recommendation of GST council, to exempt whole or any part of tax leviable on such supplies by way of notification.

Accordingly, Notification No. 12/2017- Central Tax (Rate) dated 28^th June, 2017 provides exemption for inter alia service provided by Central Government, State Government, Union territory or a local authority. Serial No. 6 of the Notification provides exemption to services supplied by the Central Government, State Government, Union territory or local authority excluding the following services-

1. services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than the Central Government, State Government, Union territory;
2. services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;
3. transport of goods or passengers; or
4. any service, other than services covered under entries (a) to (c) above, provided to business entities.

According to clause 2(n) of the Notification, “business entity” means any person carrying out business. Therefore, a view can be taken that any fee paid to ROC by Section 8 companies which do not carrying on any business, shall be exempt vide S. No.6 ibid.

Serial No. 7 of the Notification provides exemption to services provided by the Central Government, State Government, Union territory or local authority to a business entity with an aggregate turnover of up to ₹ 20 lakhs (₹ 10 lakhs in case of a special category state) in the preceding financial year.

Therefore, where the turnover of a company or LLP does not exceeds ₹ 20 lakhs (₹ 10 lakhs in case of a special category state) in the preceding financial year, then any fee paid to ROC shall be exempt vide S. No. 7 ibid.

Serial No. 9 of the notification provides exemption to services provided by Central Government, State Government, Union territory or a local authority where the consideration for such services does not ₹ 5,000/-. Therefore, where ROC filing fee paid by company/LLP is less than ₹ 5,000/- the same shall be exempt.

Further, the service provided by Central Government, State Government, Union territory or a local authority by way of registration required under any law for the time being in force is exempt under Serial No. 47 of the aforesaid notification. Any fee paid by a company or LLP on registration will be exempt as per S.No. 47 since the fee is for the registration under the respective enactments.

Any fees paid to ROC by companies/LLPs for any filing other than those specifically exempted vide notification (supra), shall be taxable under RCM u/s 9(3).

Conclusion

It is ironical that in a democratic country like ours, where government is of the people, tax is being levied on statutory/sovereign functions performed by Government to its people. It is three years since the inception of GST and Notification u/s 7(2)(b) exempting activities or transactions performed by Centre or State Government or local authorities in which they are engaged as public authorities is yet to be issued.

The duties and function performed by Registrar of Companies is mandated under the Companies Act, 2015 and cannot be substituted by any private person, it is a statutory/sovereign function of the Government. The author is the opinion that the functions performed by ROC, being sovereign function of the Government, should not be subjected to GST at all. However this contentions will have to be tested before the Courts.

Until the Government or the Court steps in, it will be practical for the companies to pay GST under Reverse Charge and avail the ITC.