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No GST on Collecting Exam Fee from Students and Remitting same to that Particular University: AAR

No GST on Collecting Exam Fee from Students and Remitting same to that Particular University: AAR

The Authority of Advance Ruling ( AAR ) in Karnataka has ruled that, the activity of collecting exam fee (charged by any university Or institution) from students and remitting the same to that particular university or institution without any value addition to it is a service as a pure agent and hence the value is excluded from the taxable value of the applicant as per Rule 33 of the Central GST Rules / Karnataka GST Rules, hence exempted from Goods and Services Tax ( GST ).

The Applicant provides coaching, learning and training services in relation to under-graduate, graduate and post-graduate degree, diploma and professional courses on a standalone bases to students or for any institution, corporate, company, institutes, universities and colleges in the subject and branches of all types of disciplines such as commerce, hardware, software, computer, science, arts, business management, engineering, medical, industrial, pharmacy, mining, military, dance, acting, sports, journalism and any other ‘field of education and set up of coaching and training classes/ centers in relation to the same.

The AAR observed that, “The applicant is collecting the exact amount payable to institute or college or universities as exam fee from the students (service recipient) and remits the same amount to the respective institute or college or universities (third party) without any profit element or additions, on the authorization of the student. This payment is separately indicated in the invoice issued to the respective students. The applicant providing this kind of services to the student in ‘addition to the services as training and coaching institute. Hence the applicant satisfies all the conditions of the pure agent as narrated in Rule 33 of the COST Rules, 2017. Therefore, amount of the fee collected by the applicant from the student as exam fee which is remitted to the respective institute or college or universities is excluded from the value of supply”.

Source: Taxscan

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GST applicable on Interest / Late Fee / Penalty due to delayed payment of consideration received after its imposition: AAR

GST applicable on Interest / Late Fee / Penalty due to delayed payment of consideration received after its imposition: AAR

The Chennai Bench of Authority of Advance Rulings ( AAR ) in an application filed by M/s Chennai port Trust held that interest, late fee and penalty due to delayed payment of consideration received after imposition of GST liable to GST.

The applicant is engaged in the supply of port services and incidental supply of goods like disposal of discarded assets. They are notified as a major port by the Central Government under the Indian ports Act, 1908. The applicant has collected an amount as interest / late fee/penalty for delayed payment of consideration for the original service. This amount was received after July 1st, 2017 and separate invoices Rent Claim Advance (RCA) Receipt are raised by the applicant.

The issue in the present case is the determination of the applicability of GST on receipt of interest, late fee, a penalty by the applicant.

The applicant has contended inapplication of GST on the ground that the supply is a continuous supply of services rendered before July 2017 i.e. introduction of GST.

The bench constituting of Members Ms M.G. Kata and T.K. Selvaan held that the amounts received on or after 01.07.2017 towards interest, late fee, penalty relating to the services of lease/rent, due to delayed payment of consideration for those services rendered by the applicant before 01.07.2017, are liable to GST. It has been held that there is a payment of a separate consideration for this tolerance of delayed payment of lease/rent. Thus, this tolerance on the part of the applicant for the delayed payment of lease/rent by collecting an interest/late fee/penalty is a separate supply of service as covered by Section 7(1)(a) of the CGST Act.

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Source: TaxScan.
No GST on Reimbursement of Expenses to Employee by Employer: AAR

No GST on Reimbursement of Expenses to Employee by Employer: AAR

The Authority of Advance Ruling ( AAR ) in Karnataka has ruled that, the amounts paid to the employees of the applicant company as reimbursement of expenses incurred by them in the course of employment of the applicant company are not liable to tax under the provisions of the Goods and Services Tax Act, 2017 as the transaction of the services supplied by a supplier to the employee and paid by the employee is liable to tax after 30.09.2019.

The AAR also ruled that, the remuneration paid to the Director of the applicant company is liable to tax under reverse charge mechanism under sub-section (3) of section 9 in the hands of the applicant company as it is covered under entry no. 6 of Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017.

The applicant has been examined and its found that the applicant’s employees incur expenses on behalf of the company in the course of employment and the said amounts are reimbursed by the applicant on a periodical basis. These expenses are incurred by the applicant and are only paid by the employee and later on reimbursed to the employee by the applicant. The issue is whether the amount paid as reimbursement of the expenses paid by the employee amounts to supply liable to tax.

Services by an employee to the employer in the course of or in relation to his employment are covered under Clause 1 of the. Schedule III which relates to the activities or transactions which shall be treated neither as a Supply of Goods nor as a Supply of Services. Hence the services provided by the employees of the applicant to the applicant are not a supply. Further, the expenses incurred by the employees are expenses of the applicant and the consideration is payable by the applicant himself and later on reimbursed by the applicant.

The AAR observed that, “The amount paid by the employee to the supplier of service is covered under the term “consideration” as if it is paid by the applicant himself for the services received by them on behalf of the company. This amount reimbursed by the applicant to the employee later on would not amount to consideration for the supplies received as the services of the employee to his employer in the course of his employment is not a supply of goods or supply of services and hence the same is not liable to tax. However, if any tax is applicable, it is on the services received by the employee on behalf of the applicant in the course of his employment, irrespective of the fact that it is paid by the applicant or the employee and later reimbursed by the applicant”.

Regarding the remuneration to the Directors paid by the applicant, the services provided by the Directors to the Company are not covered under clause (1) of the Schedule III to the Central Goods and Services Tax Act, 2017 as the Director is not the employee of the Company. The consideration paid to the Director is in relation to the services provided by the Director to the Company and the recipient of such service is the Company as per clause (93) of section 2 of the CGST Act and the supplier of such service is the Director.

Source: TaxScan.

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18% GST applicable to Works Contract of Residential Quarters, rules AAR

18% GST applicable to Works Contract of Residential Quarters, rules AAR

The Authority of Advance Ruling ( AAR ) in Madhya Pradesh has ruled that, 18% Goods and Services Tax ( GST ) applicable to Works Contract of Residential Quarters.

The AAR has clarified the rate of GST on contract for Construction of building and structure for colony a village Siveria at 2 x 660 MW Shree Singaji Thermal Power Project Stage – II Khandwa.

The AAR observed that the issue before us is squarely covered under Section 97(2)(a) of the Act and therefore we admit the application for consideration.

The authority vide order dtd.18.10.2018 had ruled that “The works contract service of construction of 599 residential quarters allotted to the applicant (Shreeji Infrastructure P.Ltd.) by MPPGCL will merit classification under SAC 9954 and would attract GST @18% (9%CGST + 9%SGST)”.

Construction of residential quarters, though within the precincts of Power Plant’ cannot by any stretch of argument and imagination be termed as the work entrusted to the applicant.

The AAR also observed that, the GST will be applicable @18% under SAC 9954, in as much as it refers to the construction of residential quarters, which was awarded to M/s.Shreeji Infrastructure P.Ltd., as already ruled vide our order no.15/2018 dtd.18.10.2018.

Source: TaxScan.

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Participation Fees for Conference Organized by Educational Institutions leviable to GST: AAR

Participation Fees for Conference Organized by Educational Institutions leviable to GST: AAR

The Madhya Pradesh Authority of Advance Ruling in an application filed by M/s Emrald Heights international School held that GST shall be leviable on consideration received by the school for participation in a conference organized.

The issue before the Authority is whether the consideration received by the school from the participant school(s) for the participation of their students and staff in the conference would be exempted under Entry No. 66/1/80 of the Notification No. 12/2017-Central Tax (Rate). The second issue is concerning the applicable tax rate if the supply is not exempted.

The bench constituting of Hon’ble Members Shri Rajiv Agrawal and Shri Manoj Kumar Choubey held that the activities of holding Educational conference/ gathering of students, faculty and staff of other Schools are not exempt under relevant clauses of Entry 66/1/8 of the above-mentioned notification for the simple reason that the education conference does not fall under any of the categories so listed. Hence, GST shall be chargeable on the consideration received by the school from the participant school(s) for the participation of their students and staff in the impugned conference.

The Hon’ble Bench further stated that various services provided for organizing an educational conference/gathering of students and staff of other Schools, shall be liable to tax at the rate applicable to the respective services. For example, the catering services shall be liable to tax @ 5% without eligibility for Input Tax Credit.

Source: Taxscan

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No GST if maintenance paid to housing society is less than Rs 7,500 every month

No GST if maintenance paid to housing society is less than Rs 7,500 every month

The GST exemption on maintenance charges paid to a housing society by a member is available only if it doesn’t exceed Rs 7,500 per month, the Authority for Advance Rulings (Tamil Nadu) has ruled. If the charges exceed the sum, the entire amount is taxable.

In its order, the AAR bench provides a numerical illustration. If the maintenance charges are Rs 9,000 per month per member, GST shall be payable on the entire amount of Rs 9,000 at the rate of 18%. It shall not be payable on the differential of Rs 1,500 (Rs 9,000 minus Rs 7,500). The ruling has been recently made public and is in sync with a clarification issued (after the order) by the finance ministry on July 22.

Further, tax experts point out that if the annual collection of a housing society is less than Rs 20 lakh, it does not have to register for GST. Thus, it will not have to collect and pay GST even if the monthly amount of maintenance charges exceeds Rs 7,500 per month per member. It should also be noted that prior to January 25, 2018, the exemption limit was lower at Rs 5,000 per month.

Maintenance charges are collected by a housing society for various purposes like providing security, lift maintenance, maintenance of common areas like a lobby, garden, club house, swimming pool, to name a few instances. These charges are typically a reimbursement for expenses incurred by the housing society against payments made to third parties.

In this case before the AAR, a Chennai housing society – TVH Lumbini Square Owners Association – contended that if individual contributions towards maintenance exceeds Rs 7,500 per month, GST is liable to be paid on the differential, which is only on charges over and above this sum. The AAR ruled otherwise.

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Source: Times-of-India
Advance ruling: A useful tool for achieving tax certainty

Advance ruling: A useful tool for achieving tax certainty

Advance ruling can be obtained in respect of registration requirement, classification, determination of time and value of supply, admissibility of input tax credit and determination of the tax liability. Taxpayers need to exercise this option with caution, compared with other modes of obtaining certainty and dispute resolution, in view of the recent trend of adverse rulings.

India embarked on its journey of ‘One Nation One Tax’ with the introduction of the goods and services tax (GST) in July 2017. The landmark legislation, which has completed two years, is the biggest tax reform in India after independence. The GST Act subsumed erstwhile indirect taxes such as excise duty, value-added tax (VAT), service tax, etc.

In order to ensure uniformity in central and state GST laws, the GST Act promulgated setting up of a GST Council to recommend changes in the law for consistent implementation by the central and the state governments.

Being a new legislation, the GST law posed challenges for both the taxpayers as well as the tax practitioners in the form of interpretation of law, classification of goods and services, admissibility of input tax credit, applicability of exemption notification, etc.

In order to ensure faster disposal of these issues, the GST law borrowed one of the aspects from the erstwhile indirect tax legislation, ie the mechanism of obtaining an advance ruling. An advance ruling helps a taxpayer to obtain the required clarity on taxability of a transaction in advance thereby enabling it to avoid future disputes.

Under the GST law, an advance ruling can be obtained with respect to registration requirement, classification, determination of time and value of supply, admissibility of input tax credit of tax paid and determination of the liability to pay tax on any goods or services or both.

The Authority for Advance Ruling (AAR) has been constituted in each state/Union territory under the GST regime. An applicant seeking an advance ruling is required to file an application before the state/Union territory AAR providing required details such as the facts of the case, issues on which advance ruling is sought along with the contentions in relation thereto. The AAR is required to give its ruling within 90 days of the receipt of the application.

There is also an appellate forum created in each state in the form of Appellate Authority for Advance Ruling (AAAR). Any applicant aggrieved by the AAR’s ruling can appeal before the AAAR. The AAAR is also required to pass its order within a period of 90 days of the filing of the appeal.

The advance ruling process has gained considerable traction under GST with close to 1,000 applications made to the advance ruling authorities by taxpayers. In a short span of two years, the AAR’s have passed rulings on various critical tax issues like tax treatment on transfer of business as a ‘going concern’, provision of back office support services by Indian entity to overseas entity, treatment of interest free security deposits, etc. One should note that while the ruling passed by the AAR and AAAR are binding only on the applicant and the jurisdictional authorities, the same carries persuasive value for others.

Thus, it can be seen that the aim of the advance rulings framework is to provide certainty and clarity to the taxpayer with respect to its obligations under the GST Act in a time-bound manner.

However, this does not mean that advance rulings are free from imperfection. One key limitation of the AAR/AAAR is that there have been numerous instances of divergent rulings being passed by different state AARs on issues such as taxability of cross charges for common administrative and IT support services by employees of one unit to other units, differential tax rates in case of solar energy sector etc. Further, there have been instances where decisions of the authorities are contrary to the position settled under the erstwhile indirect tax regime.

The GST Council, in order to address these limitation, had recommended formation of a centralized appellate authority. The Union cabinet has recently approved the formation of a national bench of the GST Appellate Tribunal (GSTAT) at New Delhi to address tax disputes due to contradictory rulings. However, the procedural guidelines of the GSTAT are yet to be issued. Thus, one may reasonably infer that the government is actively trying to address the current limitation in the existing advance ruling mechanism.

To conclude, a taxpayer should tread the path of obtaining an advance ruling with caution. The taxpayer should not only be well versed with the available jurisprudence under the erstwhile indirect tax regime but also be cognizant of the rulings passed by other AAR/AAAR, if any, on similar fact pattern. Further, it has generally been observed that cases where taxpayers have maintained appropriate documentation to substantiate their claims stand a better chance of obtaining a favourable ruling from the AAR.

While AAR/AAAR is a good mechanism for the tax payers to address their concerns, the recent trend of adverse / different rulings should be kept in mind before a tax payer opts for such a ruling. It is anticipated that once the GSTAT is fully operational, some of these concerns would get addressed. Till then, tax payers should act with caution and take this dispute resolution mechanism with a pinch of salt.

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Source: LiveMint
IT companies challenge government’s plan to brand BPOs as brokers & GST in court 

IT companies challenge government’s plan to brand BPOs as brokers & GST in court 

Are outsourcing units and BPOs merely intermediaries and brokers or are they exporters? About a week after the government released directions that Information Technology (IT) and Information Technology enabled Services (ITES) companies would attract 18 per cent goods and services tax (GST) for several exporters, some intermediaries have challenged the constitutional validity of such a regulation. 

Several back offices of BPOs and KPOs, already fighting the margin pressure, will have to pay 18 per cent GST after a government circular on July 18 said certain services shouldn’t be categorised as exports. As per the earlier tax regime, these companies did not attract any tax and up until 2018, even under GST, these companies would even get refunds for the input tax credits. 

However, following an authority of advance rulings (AAR) directive last December, indirect tax department had started issuing notices to several IT/ITES companies demanding up 18 per cent GST on money received on convertible foreign exchange. 

“The recent circular on intermediaries means that several back end services rendered to foreign service recipients would attract 18 per cent GST due to the place of provision of such services. We have challenged the constitutional validity of the place of provisions for intermediaries on various grounds in Gujarat High Court and the arguments would cover relief for different players including the services mentioned in the circular,” said Abhishek A Rastogi, a partner at Khaitan & Co. 

The government circular goes into length in explaining how GST should be levied on certain IT/ITES services supplied outside India as these are not exports but merely broking services. The indirect tax department had started issuing preliminary notices to captive units of multinationals and Indian companies exporting offshore support services. 

Industry trackers said the question now was whether BPOs are commission agents and brokers. If so, they would not be considered exporters and their revenues would be subject to taxes as only exports are exempted from domestic taxes and receive certain benefits. So, services provided by Indian entities to foreign companies would not be treated as exports and hence taxable in India. 

“Many BPOs and KPOs are already moving to Philippines in last few years and such a hit on the margins is set to push many more there,” said a senior tax official with an Indian IT firm. 

India currently boasts of an outsourcing market of about $50 billion a year. The government stand is set to impact the $13 bn outsourcing industry that is already facing pressure on margins, said a person in the know. 

“While the circular is not binding on the taxpayer, it’s binding on the tax officials; which means that many companies will stop getting refunds,” said a person advising one of the IT companies on the issue. 

Earlier, industry body Assocham and an IT lobby group had raised concerns around the future tax liability due to the government’s stand. Experts said under the earlier indirect tax regime, an intermediary was mainly a broker or a commission agent. However, any company supplying support services to a multinational was not treated as an intermediary. 

In the past, companies and tax experts had reached out to the government on the subject. They wanted the government to look at amending the law to treat any service provided by Indian companies as zero-rated or non-taxable if the customers were based overseas

Source: Economic-Times

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18% GST likely on back-end IT services as they don’t qualify as export

18% GST likely on back-end IT services as they don’t qualify as export

Most facilitation services the IT and ITeS sector offers at the back end, especially with respect to business process outsourcing, may attract an 18 per cent goods and services tax (GST) because the government has said those will not qualify as export.

Clearing the confusion related to exports of IT and ITeS services, the government said the services facilitating the supply of goods or services would not qualify as export and would be recognised as intermediaries, attracting an 18 per cent GST.

The move will have consequences for service providers in back-end services and post-sales support, among others.

Acting as facilitators between overseas parent companies and Indian customers by doing general marketing, answering basic enquiries, or providing post-sales support was, thus far, generally not being intermediaries, said Harpreet Singh, partner in KPMG.

“Unless the scope was substantive and involved concluding contracts, negotiating price, etc., tax was not paid, treating such services as export. This position needs to be re-visited now,” he said.

However, if service is given on one’s own account, it will be considered export.

Export is considered a zero-rated supply under the GST and a refund can be claimed.

The circular, issued by the Central Board of Indirect Taxes and Customs (CBIC), is aimed at putting to rest litigation and disputes related to export-related refunds.

However, experts have other views.

Atul Gupta, senior director, Deloitte India, said the CBIC circular mystified the issues and left open scope for litigation.

“It is going to be a detriment for the export of services because exporters no longer can claim input tax refunds on them,” he said.

Gupta said the circular was faulty and needed another look before it resulted in demand notices from GST field formations on outsourcing services.

Bipin Sapra, partner, EY, said certain grey areas continued but this would bring relief to a large section of IT and ITES exporters facing frivolous demands and denial of export benefits.

“The clarification will help in settling most objections regarding exports of services and the exporters will get refunds.”

The issue is important because strong representations were made by industry bodies such as Nasscom and Amcham for clarity on the subject.

Nasscom said it was studying the impact of the latest development.

The government has examined three broad scenarios, wherein a supplier of ITeS located in India supplies services for and on behalf of a client abroad, to clarify its treatment under the GST.

The Maharashtra Authority of Advance Ruling (AAR) had upheld back-office operations do not qualify as export.

Abhishek Jain, tax partner, EY, said though the circular addressed customary back-office operations, matters that involved back-end and facilitation remained a matter of concern.

In situations where a back end services provider uses his own account as well as arranges or facilitates supplying support services related to pre- or post-delivery on behalf of overseas clients, taxability will be ascertained case by case.

Source: Business-Standard

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No Input Tax Credit for GST paid on expenses incurred on promotional schemes, rules AAR

No Input Tax Credit for GST paid on expenses incurred on promotional schemes, rules AAR

Input Tax Credit (ITC) will not be available on the Goods and Services Tax (GST) paid on expenses incurred towards promotional schemes, an order by the Maharashtra Authority for Advance Ruling (AAR) has said.

Although AAR rulings are applicable for the applicant and the jurisdictional tax officer in a particular matter, the same can be used a persuasive tool in similar matters. Accordingly, tax experts feel that the ruling can be important for automobile or FMCG companies which give gifts as a part of promotional schemes or as brand reminders.

Pharmaceutical company Sanofi India had approached AAR for rulings regarding two issues — whether input tax credit is available on the GST paid on expenses incurred towards promotional schemes of Shubh Labh Loyalty Program and whether input tax credit is available for the GST paid on expenses incurred towards promotional schemes given as brand reminders?

The company launched ‘Shubh Labh Trade Loyalty Program’ under which the distributors/wholesalers get reward points on the basis of goods sold by them. These points later enable them for rewards such as free trip to Singapore, wrist watch etc. Also, the company incurs various marketing and distribution expenses for distributing pens, notepads, key-chains etc. as promotional items/brand reminders to its distributors with its name embossed on such items.

Nature of ‘gift’
During the hearing, the applicant discussed the concept of ‘gift’ in light of the facts of the case and various judicial precedents under various other Statutes wherein it contended that as gift is a gratuity and act of generosity, the distribution of items by Sanofi for promoting the brand cannot be said to be an act of gratuity or generosity wherein the items are given to increase the sales of the company and advance of business. As regards the Shubh Labh Loyalty Program, the applicant submitted that the programme is not a gift but is given under contractual scheme (wherein the distributors are required to accept the terms & conditions on the Website).

However, in its response, the tax authority mentioned that the expenses under discussion incurred by the appellant are in the nature of ‘gift’ as “there is no commercial consideration and therefore input tax credit (‘ITC’) in respect of such expenses is restricted by virtue of GST law.”

The AAR held that since the items are not given by the applicant under any contractual obligation as no contract/agreement has been signed by customers in writing accepting the scheme floated by the applicant. Considering that the items are voluntarily, given on certain conditions achieved by its customers and without consideration in money, these are in the nature of ‘gift’. This means no ITC will be available.

According to Harpreet Singh, Partner at KPMG, in this case it has been held that items were not given by the applicant under any contractual obligation as no contract/agreement was signed by customers in writing accepting the scheme floated by the applicant. Accordingly, they partake the character of a gift. Therefore, “as a corollary, can one say that where scheme of giving promotional items is well documented and is as per a contractual arrangement, the same would be acceptable to authorities as a business expense not requiring any credit reversal,” he said.

Source: The-Hindu-Business-Line

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