CBIC examining issue regarding applicability of GST on cross charges: Johri
The Central Board of Indirect Taxes & Custom (CBIC) has said that the new anti-profiteering mechanism will not be different from the existing one, except for change in the institution. In an interview, CBIC Chairman Vivek Johri said the Competition Commission of India (CCI) is expected to take over anti-profiteering matters from the year-end. He also said that BPOs and KPOs, by concept, cannot be called intermediaries. Excerpts:
As the Supreme Court has ruled that assessees are liable to pay service tax on secondment of employee from overseas group companies, there is a thinking that companies will have to review their existing arrangement and secondment contracts under the GST regime. What do you have to say?
There was a SC judgment in the Northern Operating system case, where an appeal was filed against CESTAT order. It pertained to the service tax era. The issue was that if you have an expat working for a subsidiary of an MNC abroad and the salary was paid to him, is that taxable under service tax or not? The Court held that it is taxable. But, as I said, this is a service tax judgment. The issue sustains even under GST.
Under GST, there is no problem like there was no problem under service tax. It is treated as supply of service on which tax is to be paid on Reverse Charge Basis. Under GST, you are entitled to take ITC of whatever tax you pay. The problem is with service tax for which the court has acknowledged the liability. Now, it will not be possible for those taxpayers to get ITC of that service tax because the transitional period is over and they are required to pay tax because demands stand confirmed by the Supreme Court. So, the problem of ITC under GST does not continue. Under the GST law, there is no problem, but for past liability of service tax, if the taxpayers want to take credit now, that will not be admissible.
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Can these assessees take benefit of the two-month window to be opened for transitional credit claim?
They won’t be able to apply because that window is meant for credit which was in the book of accounts as on June 30, 2017. But for some reason, they were prevented from either filing the claim on time or they could not file because of technical glitches. Even if the assessee has to pay the service tax, it will not be covered by the SC judgment on transitional credit.
There are many rulings by High Court and AARs on applicability of GST on cross-charges. These ruling are giving confusing signals. Is the CBIC working on issuing any clarification?
The issue is whether it is taxable or not, because under the GST law, if any payment is made under an employer-employee relationship, then it is not chargeable to GST, as it is not treated as supply of service for the purpose of GST because of employment contract. So, that part is clear. The issue here also happens to be that the CEO, CXO or CFO is employed by the main entity and not by a particular GST-registered entity located in various locations. So, the main entity may have registration across several States, and the problem is the attribution of that liability across different registrations. This issue needs clarification and we are examining it.
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Will there be any change in profiteering formula once anti-profiteering mechanism is handed over to the Competition Commission of India (CC)?
There is no change. Even anti-profiteering mechanism is being transferred to the CCI from NAA (National Anti-Profiteering Authority). Legal provision has been defined under section 171 of CGST Act, and it prescribes the situation of profiteering. Those definitions will not change. It is just the institutional arrangement for determining whether there is profiteering or not, and now it will be done by the CCI as against the National Anti-Profiteering Authority.
Any date fixed for handing over anti profiteering arrangement to CCI?
The current plan was is to transit in December, but dates have not been firmed up. There are some complaints regarding higher increase in the prices of some products post-July 18, when the GST for pre-packaged and pre-labelled food and dairy products. came into effect. For example, GST at the rate of 5 per cent was imposed on some items, but the retail prices went up much higher. These have not been reported to us as yet. Price revision is a commercial decision, but if companies say price hike is because of GST and it is more than rate hike, the issue needs to be examined. We need to examine the prices after mode of charging GST changed on July 18, and even there is an increase, it may not be that high.
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The CBIC came out with a circular on defining intermediary last September, still there are questions whether BPO and KPO should be called intermediary or not. What do you have to say?
Our circular was quite detailed on intermediary. We have deliberately mentioned that, eventually, each case will have to be determined on the basis of facts. If I were to generalise the way BPOs and KPOs are conceptualised, in my view, they may not be treated as intermediary. There are some illustrations also to that effect in the circular, but it is not possible to straight-jacketed and say that no situation under which an entity providing services be treated as intermediary. We will have to examine each case. The feedback we have got from the industry is that they are generally alluded to problems they are facing at one or two locations, but they were not specific about how that circular has not been interpreted correctly by the field formation. We are waiting for them to share those details and then we can examine.
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