charge of gst (cont…) webinar... · exchange, license, rental , lease, disposal for consideration...

Webinar by EIRC - Issues in 'Supply' including Composite Supply

15/04/2020

JHA Legal @Jatin_Harjai 1

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Issues in Supply Compiled by:

Team JHA

Webinar by EIRC of ICAIon 15.04.2020

15.04.2020 @JATIN_HARJAI JHA

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@JATIN_HARJAI JHA 22

Charge of GST (Cont…)

15.04.2020

SUPPLYDictionary - Cambridge:- To provide something that is wanted or needed.

Merriam Webster:- to make (something) available to be used- to provide someone or something with (something that is needed or wanted)

Investopedia:- The concept of supply in economics is complex with many mathematical

formulas, practical applications and contributing factors. While supply can referto anything in demand that is sold in a competitive marketplace, supply is mostused to refer to goods, services or labor.

Wikipedia:In economics, supply is the amount of something that firms, consumers, laborers, providers of financial assets, or other economic agents are willing to provide to the market place.

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Scope of Supply

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Supp

ly (7

)

For Consideration & For Business

Sale, transfer, barter, exchange, license, rental ,

lease, disposal

For Consideration Import of Services

Supply Without Consideration Schedule I

Deemed Supply Schedule II

Power to Notify transaction to be: - Supply of Goods and not a supply of services - Supply of Services and not a supply of goods

Schedule III & Notified Govt. Supplies

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Schedule – II

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ACTIVITIES OR TRANSACTIONS TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES

1. Transfer

(a) any transfer of the title in goods is a supply of goods;

(b) any transfer of right in goods or of undivided share in goods without the transfer of title thereof,

is a supply of services;

(c) any transfer of title in goods under an agreement which stipulates that property in goods shall

pass at a future date upon payment of full consideration as agreed, is a supply of goods.

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Supp

ly –

7(1) For Consideration

& For BusinessSale, transfer, barter,

exchange, license, rental , lease, disposal

For Consideration Import of Services

Supply Without Consideration Schedule I

Power to Notify transaction to be: - Supply of Goods and not a supply of services - Supply of Services and not a supply of goods


Deemed Category of Supply

Schedule II

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Schedule – II

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4. Transfer of business assets

(a) where goods forming part of the assets of a businessare transferred or disposed of by or under thedirections of the person carrying on the business so asno longer to form part of those assets, whether or notfor a consideration, such transfer or disposal is a supplyof goods by the person;

(b) where, by or under the direction of a person carryingon a business, goods held or used for the purposes ofthe business are put to any private use or are used, ormade available to any person for use, for any purposeother than a purpose of the business, whether or notfor a consideration, the usage or making available ofsuch goods is a supply of services;

Renting ?

Tolerance ?

Schedule II is now only and only to identify whether supply is of Goods or Services. Whether anyactivity or transaction is supply or not for GST purposes has to be checked from Sec. 7(1)(c).

Whether term ‘Whether or not for a consideration’ has any role to play after

amendment ?

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Liquidated Damages – Whether Separate Supply ?

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Schedule III

Comm. of Customs & CE Vs. Victory Electricals Ltd. … we answer the reference by holding that wherever the assessee, as per the terms

of the contract and on account of delay in delivery of manufactured goods is liable to

pay a lesser amount than the generically agreed price as a result of a clause (in the

agreement), stipulating variation in the price, on account of liability to “liquidated

damages”, irrespective of whether the clause is titled “penalty” or “liquidated

damages”, the resultant price would be the “transaction value”; and such value shall

be liable to levy of excise duty, at the applicable rate.

Australian GST Act 1999 – GSTR 2003/11

…If clause relating to early termination has been specified in the original contract of lease

and early termination has been in accordance with the said contract then payment will be

considered as charge of consideration of earlier supply.

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Schedule III

Joint/ Combined Supplies

2(30) Composite Supply means a supply made by a taxableperson to a recipient consisting of two or more taxablesupplies of goods or services or both, or any combinationthereof, which are naturally bundled and supplied inconjunction with each other in the ordinary course ofbusiness, one of which is a principal supply.

2(74) Mixed Supply means two or more individual supplies ofgoods or services, or any combination thereof, made inconjunction with each other by a taxable person for a singleprice where such supply doesn’t constitute a compositesupply.

Taxability (Sec. 8)

As that of PrincipalSupply.

As that of supplywhich attractshighest rate of tax.

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Schedule III

Sec. 2(90) “principal supply” means the supply of goods or services which constitutes thepredominant element of a composite supply and to which any other supply forming part ofthat composite supply is ancillary;

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Service of Car – Composite Supply ?

15.04.2020

Schedule III

Ø Lump Sum INR 10K (which includes consumable)

Ø Lump Sum INR 100K Accidental Repair

Ø (Involving Goods – 95K Lakh, Service 5K)

Ø Service separately identified:

Ø Goods – 5K

Ø Service – 5K

CBIC Circular No. 47/1/2018 Dt. 08.06.2018Q2. How is servicing of cars involving both supply of goods (spare parts) and services(labour), where the value of goods and services are shown separately, to be treatedunder GST?

2.1 The taxability of supply would have to be determined on a case to case basislooking at the facts and circumstances of each case.2.2 Where a supply involves supply of both goods and services and the value of suchgoods and services supplied are shown separately, the goods and services would beliable to tax at the rates as applicable to such goods and services separately.

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Electricity with Renting of IM Property – Composite Supply ?

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Schedule III

Constitution of India – State List:53. Taxes on consumption or sale of electricity

Electricity is Goods or Service ?• Comm. Of Sales Tax Vs. Madhya Pradesh

Electricity Board• State of A. P. Vs. NTPC (SC

Electricity ActNo person shall (a) transmit electricity; or (b) distribute electricity; or (c) undertake trading inelectricity, unless he is authorised to do so by a licence issued under section 14, or is exempt undersection 13.

Can it be a Composite Supply ?• Kolkata HC !!!

Can Service tax be charged on Electricity chargesrecovery ?• ‘ICC Reality India Pvt. Ltd. Vs. CCE’

‘European Court of Justice’ in the case of ‘Minister Finasow Vs. Wojskowa Agencja Mieszkaniowa wWarszawie (2015):“Thus, it is important to ascertain in the context of each letting whether, with respect toutilities, the tenant may determine his level of consumption. The existence of individualmeters and billing according to the amount used is important, which suggests that theutilities should be regarded as separate supplies from the letting.”

Can circular No. 47/2019 apply ?

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Directors Remuneration – RCM or not ?

@JATIN_HARJAI JHA

Sec. 7(2) r/w Entry 1 of Sch. III:Services by an employee to the employer in the course of or inrelation to his employment.

Underlying question:Whether director is employee of the company or not ?

Type of Directors (common nomenclature):Managing/ Whole Time/ Executive DirectorsIndependent/ Professional/ Nominee Directors

What is Employment: - Supervisory control- Hiring & Firing Control - Remuneration

ESIC Vs. Apex Engineering (SC) – 06.11.1997DB of Bom HC hold that MD is not an employee ratherprinciple employer. Hon’ble SC reversed the judgment andhold MD to be employee of the company.

Companies Act & allied corporate laws179: Powers of BOD I authorisation to run Co. 2(34): Director: Person appointed by the BOD2(94): WTD includes Director in whole time employment.2(78): Remuneration: money or equivalent given for services rendered and includes perquisites.

Circulars -CBEC 115/9/2019 – 31,07.2009:MD/ WTD/ ED: Remuneration Even if termed as commission,then also it is not commission and not taxableMCA, GOI – 24/2012 Dt. 09.08.2012Non-WTD’s – not covered under exempted list – Sitting Fee/Commission – ST Payable

CESTAT RulingsØ PCM Cement – (2018) – 9 GSTL (TRI-Kol)Ø Maithan Alloys Ltd. vs. CCE and ST, Bolpur (02.11.2018 -

CESTAT - Kolkata)Ø Brahm Alloy Ltd. – Tri. – Kolkata : Hiring & Firing policy of

Engagement

ESIC Vs. Victory Tile Works (Ker-HC) – 18.12.1990ESIC Act is intended to cover all wage earners whether theyare manager, supervisors, clerks, workmen or any other classof employees provided they fall within the definition ofemployee u/s 2(9) of the Act. … There is no reason why if aperson falls within the definition of principal employer hecannot in certain cases be also an employee.

Ram Prasad Vs. CITGenerally it is possible to say that the greater theamount of direct control over the person employed, thestronger the conclusion in favour of his being a servant.Appointment by AOA – Terms – Remuneration – Rightsand Duties –held Salary.

Conclusion: Don’t go by nomenclature, rather by termsof contract.

Clay Craft – Raj AAR:

Worthdiscussing ?

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Mining Royalty – Is it Tax ?

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Schedule III

India Cement Ltd. Vs. State of Tamilnadu – (SC 7 Judges) – 25.01.1989In the aforesaid view of the matter, we are of the opinion that royalty is a tax, and as such a cess onroyalty being a tax on royalty, is beyond the competence of the State Legislature because s. 9 of theCentral Act covers the field and the State Legislature is denuded of its competence under entry 23 of listII. In any event, we are of the opinion that cess on royalty cannot be sustained under entry 49 of list II asbeing a tax on land. Royalty on mineral rights is not a tax on land but a payment for the user of land.

State of West Bengal Vs. Kesoram Industreis Ltd. - (SC – 5 Judges) – 15.01.2004We have clearly pointed out the said error, as we are fully convinced in that regard and feel ourselvesobliged constitutionally, legally and morally to do so, lest the said error should cause any further harm tothe trend of jurisprudential thought centering around the meaning of 'royalty'. We hold that royalty is nottax. Royalty is paid to the owner of land who may be a private person and may not necessarily be State. Aprivate person owning the land is entitled to charge royalty but not tax. The lessor receives royalty as hisincome and for the lessee the royalty paid is an expenditure incurred. Royalty cannot be tax. We declarethat even in India Cement it was not the finding of the Court that royalty is a tax. A statement caused byan apparent typographical or inadvertent error in a judgment of the Court should not be misunderstoodas declaration of such law by the Court. We also record, our express dissent with that part of thejudgment in Mahalaxmi Fabric Mills Ltd. and Ors. which says (vide para 12 of SSC report) that there wasno 'typographical error' in India Cement and that the said conclusion that royalty is a tax logically flewfrom the earlier paragraphs of the judgment.

Udaipur Chamber of Commerce and Industry Vs. UOI – (Raj. HC) – 24.10.2017Transfer of property by Renting !!!

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GST World ®One Nation One Tax One Market

Gurgaon(HA)

NewDelhiVaranasi(UP)

Jaipur/Kota/Btp.(RJ)

Rajkot(GJ)

Ahmedabad(GJ)

Mumbai(MH)

Panjim (GA)

Bangalore(KA)Chennai(TN)

Hyderabad(AP/TE)

Indore(MP)

Kolkata(WB)

Jatin Harjai FCAAdvocate

+91 97994 [email protected]

@Jatin_Harjai

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