Tax Vista Your weekly tax recap Edn. 42 - 5 April 2021 By Dr. G. Gokul Kishore

Provisional attachment by Joint Commissioner not valid

Training in GST law for GST officers is repeatedly stressed in this column. Lack of such training results in wrong application of provisions and harassment of the taxpayers. Section 83 of Maharashtra GST Act / CGST Act empowers the Commissioner to order provisional attachment of property including bank account to safeguard government revenue. In Mumbai, a Joint Commissioner of State Tax has issued such provisional attachment order. The Bombay High Court has held that Joint Commissioner has no jurisdiction to issue order on provisional attachment. There was no authorization by the Commissioner also in this case. Taking note of the same, the Court said that Section 83 does not provide for delegation of such power or authorization by Commissioner. Opinion of Commissioner is necessary before passing such order and the same was absent in this case. It held that attachment of property even if provisional is a serious intrusion into the private space of a person and therefore, Section 83 has to be strictly interpreted. The petitioner had submitted reply under Rule 159(5) of the MGST / CGST Rules against the provisional attachment order and for this the High Court said that such reply could not have been considered by the Joint Commissioner as it is the Commissioner who is required to give a hearing.

In this case, the facts indicate that the premises of petitioner or other entities present in leased premises of the petitioner was visited by officers in January, 2020. Returns were not filed due to Covid-19 and later Nil return was submitted in June, 2020. The High Court further observed that proceedings were not pending under Section 67 or any other specified provision against the petitioner as the proceeding initiated was against lessee-entities which were alleged as related parties by the department. It appears, at least in certain cases, more than tax evasion, it is ignorance of the officers that is posing a threat to government revenue [2021-VIL-246-BOM].

E-way bill not updated - High Court declines to interfere

Rule 138(5) of CGST Rules deals with updating details of conveyance in the e-way bill when goods are transferred from one conveyance to another. Proviso to this sub-rule states that where the goods are transported for a distance of upto 50 kilometres within the State from the place of business of the transporter finally to the place of business of the consignee, details of conveyance need not be updated. In a case before Kerala High Court, goods were transported inter-State and within Kerala, goods were shifted from one vehicle to another and e-way bill expired in this process. The department had initiated detention proceedings and notice under Section 129(3) of CGST Act was issued and the same was pending. The petitioner relied on the above-mentioned proviso to Rule 138(5) to argue that e-way bill need not be updated. The High Court did not agree and rejected the writ petition.

The proviso is applicable only when the goods are transported from the place of transporter to consignee's place. It is not clear whether this was precisely the fact as otherwise the distance between Ernakulam and Cherthala is less than 50 kms and the benefit of this proviso might have been available [2021-VIL-242-KER].

Summons cannot be treated as notice relating to provisional attachment

A recent Madras High Court order contains lot of contentions, facts, allegations and counter-allegations but one proposition of the Court deserves to be highlighted. It appears the petitioner had challenged summons issued by Central GST officers (DGGI) to them through writ petition. It also appears that provisional attachment proceedings were initiated and the petitioner had filed reply under Rule 159(5) of CGST Rules. The State GST officers have also issued notice. The High Court held that the summons issued under Section 70 of the CGST Act is in connection with investigations and it cannot be construed as a notice affording an opportunity of hearing under Rule 159(5). It has directed grant of hearing, appearance by the petitioner and also passing of orders on the request to lift provisional attachment [2021-VIL-241-MAD].

Gift cards being vouchers taxable as per time of supply provisions

The practice of business establishments giving gift vouchers to customers is not new. When new tax is in force, tax issues become new. Gift card enables the recipient to redeem the same against the goods or service as covered by such card. It is just a card or voucher providing an entitlement and it may or may not be used at all. Voucher has been defined in Section 2(118) of CGST Act as an instrument where there is an obligation to accept it as consideration for supply of goods or services. Section 12(4) and Section 13(4) of CGST Act, respectively, reckons time of supply of goods or services, in case of vouchers. If the supply is identifiable on the date of issue of voucher, then time of supply will be such date. In other cases, date of redemption will be the time of supply triggering liability to pay tax.

All the above have been reiterated by the Appellate AAR in a recent ruling involving supply of gold jewellery by holding that time of supply of the gift vouchers / gift cards by the appellant to the customers shall be the date of issue of such vouchers and the rate of GST on such goods will be applicable. As per the ruling, since voucher is an instrument of consideration and not goods or services, the same is not classifiable separately but only the supply associated with the voucher is classifiable according to the nature of the goods or services supplied in exchange of the voucher earlier issued. The ruling hastens to rule out double taxation by stating - "Therefore, it is our view that the gold voucher (representing the underlying future supply of gold jewellery) would be taxable at the time of issue of the voucher. It must be emphasised that this interpretation does not result in double taxation as transfer of gold subsequently will not be subject to tax at the time of redeeming the voucher for gold, as the supply is deemed to have been done at the time of issue of voucher itself [Section 12(4)]."

The appellate ruling corrects the ruling of AAR holding issuance of pre-paid instruments (vouchers) by the applicant would be treated as supply of goods. It also rectifies classification. The AAAR has expressed the view that there is no need to deal with the issue as to whether vouchers are treatable as actionable claim. The issue of taxing vouchers is almost similar to taxing lottery which has seen landmark judgments. Though time of supply provision appears to be clear, the issue of taxing transactions involving vouchers is not as simple as it seems to be [2021-VIL-20-AAAR].

Accommodation or "rooming" service v. residential renting

Anything related to immovable property is bound to be complex. The applicant before Karnataka AAR sought advance ruling on questions like applicability of exemption when residential units are rented out for use as residential dwelling or in the alternative, whether exemption would be applicable when the per day charges for accommodation are less than Rs. 1000. The AAR has held that though the applicant takes residential apartment on lease, the same is let out on per bedroom basis and the kitchen is shared by all the occupants. Therefore, this will be not covered under the exemption entry "Services by way of renting of residential dwelling for use as residence" in Notification No. 12/2017-Central Tax (Rate). The AAR has further held that the property leased or rented is not a residential dwelling, but the service would be provision of accommodation as "Rooming House". It also defines what this expression means though no source has been cited. As housekeeping and security services are also naturally bundled, the same would be a composite service.

The exemption to accommodation service if the per day charge is less than Rs. 1000 would be admissible to the applicant, as per the ruling. However, the AAR has held that in cases where the applicant is providing such services to companies, it will not be covered under exemption but only the transaction of sub-letting by the company to its employees will be covered [2021-VIL-188-AAR].

Sinking fund collected by RWA liable to GST at the time of receipt

Sinking fund is in the nature of corpus fund aggregated through deposits made by members of apartment complex / residential welfare association. Such fund is intended to meet unforeseen expenditure like replacement or repair of generator or lift or other equipment or facility. According to Karnataka Authority for Advance Rulings, such sinking fund cannot be considered as deposit since the bye-laws of the applicant were silent on the nature of such fund and the amounts which are not returnable are to be considered as advances. It held that the amounts collected towards such fund will be treatable as advances for future supply of services to members. Since receipt of amount is the earliest event, time of supply will be such date of receipt and the applicant will be liable to pay GST @ 18% on such amount at the time of receipt.

Till the time an amount is not appropriated towards consideration for any supply and till the time the amount remains unutilized, to that extent, it will be only deposit. Absence of specific clause from GST point of view in bye-laws cannot be turned against the applicant. If appeal is filed, the appellate authority may take a different view on this issue [2021-VIL-182-AAR].

Supervision charges by warehousing corporation liable to 18% GST

The applicant is State Warehousing Corporation and advance ruling has been sought on applicability of GST and tax rate on supervision charges collected by it from organisations like Food Corporation of India. The applicant engages handling and transportation contractors who undertake loading, unloading, stacking, transporting, etc. The applicant collects the actual amount charged by such contractor plus 8% of such amount towards supervision charges. Such supervision charges have been held by AAR as taxable @ 18% GST under SAC 9997 99 as "Other services nowhere else classified". The ruling is understandable as far as this issue is concerned.

There is a brief discussion in this advance ruling to hold that the applicant is acting as pure agent of FCI. The ruling has been sought only on supervision charges which are recovered from FCI by the applicant and three parties are not involved as far as such supervisory service is concerned. It appears that in respect of handling and transportation, the applicant has been held to be pure agent. This was not the question posed for ruling [2021-VIL-190-AAR].

Waste water plant - Erection, installation and maintenance is composite supply

Erection, installation and commissioning of waste water treatment plant or zero liquid discharge plant (ZLD) is a works contract as the ZLD after such erection becomes immovable. Further, when maintenance services are also provided after such installation, the same would be treated part of composite supply along with the principal supply of ZLD. Materials used during maintenance would be part of composite supply along with such O&M service but such O&M service will be taxable at the rate of 12% along with ZLD. The rate applicability is because the composite supply is provided to government entity - the State Power Corporation, as per Notification No. 11/2017-Central Tax (Rate). This is the crux of a ruling of Karnataka AAR. In this case, both the supply and installation of the plant as well as maintenance have been treated as composite supply to government entity and therefore, became entitled to 12% rate. In most of the rulings, elaborate arguments are marshalled but the ruling comes as a surprise taking mostly pro-revenue position. This ruling has been different [2021-VIL-189-AAR].

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal)