1. Vide Sr. No. 5 of Circular No. 76/50/2018-GST dated 31.12.2018, Government has clarified as under with respect to the correct valuation methodology for ascertainment of GST on Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961:
“1. Section 15(2) of CGST Act specifies that the value of supply shall include “any taxes, duties cesses, fees and charges levied under any law for the time being in force other than this Act, the SGST Act, the UTGST Act and the GST (Compensation to States) Act, if charged separately by the supplier.”
2. It is clarified that as per the above provisions, taxable value for the purposes of GST shall include the TCS amount collected under the provisions of the Income Tax Act since the value to be paid to the supplier by the buyer is inclusive of the said TCS.”
2. In our opinion the above clarification runs contrary to the provisions of the law due to the following reasons:
3. Sec. 15(2)(a) of the CGST Act, 2017 under which the TCS is sought to be added is reproduced below for ready reference:
“(2) The value of supply shall include —
(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier”
4. A close perusal of the above provision will lead to an inescapable conclusion that only taxes, duties, fees and charges which are “levied” under any law shall be added to the transaction value. The word “levied” denotes the tax which has been imposed on the supplier who is making the supply. Hence it covers all kinds of taxes imposed on the supplier but charged separately on the invoice and thus has to be added to the transaction value. With this background, can TCS be regarded as tax “levied” on the supplier ? Relevant portion of Sec. 206C of the Income Tax Act, 1961 which contains provisions for TCS is reproduced below:
“(1) Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax:
(4) Any amount collected in accordance with the provisions of this section and paid to the credit of the Central Government shall be deemed to be a payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to such person for the amount so collected in a particular assessment year in accordance with the rules82 as may be prescribed by the Board from time to time.”
5. Above provisions clearly shows that TCS is merely collected from the buyer. Further TCS deposited is considered as the amount paid by the seller on behalf of the buyer. Sec. 206(6A) further provides that the TCS is not required to be deposited in certain circumstances (where buyer has already declared income and paid tax thereon).The levy of income tax is thus on the buyer only. Hence TCS cannot be construed as a tax which is “levied” under any law on the supplier.
6. Close perusal of Sec. 15(2)(a) will also show that such taxes are to be added if the same is charged separately by the supplier. Hence a clear intent emerges to only include such taxes which are levied on the supplier but charged separately on the invoice. If such taxes which are levied on the supplier and forms part of the basic price is already part of the value of supply. Hence TCS cannot be regarded as a tax which can be included in the basic price which is to be added only when charged separately.
7. Reliance is also place on the decision of Supreme Court in the case of Joint Commercial Tax Officer v. Spencer & Co. (Civil Appeal Nos. 2005 to 2016 of 1970). In this case the issue before the Apex Court was whether the sales tax “collected” by the assessees under Section 21-A of the Madras Prohibition Act, 1937 can be treated as part of their total turnover ? Relevant portion of Sec. 21A is reproduced below for ready reference:
““Every person or institution which sells foreign liquor—
(a)-(b) * * *
shall collect from the purchaser and pay over to the Government at such intervals and in such manner as may be prescribed, a sales tax calculated at the rate of eight annas in the rupee, or at such other rate as may be notified by the Government from time to time, on the price of the liquor so sold.”
Turnover was defined u/s 2(r) of the Madras General Sales Tax Act, 1959 as under:
““‘Turnover’ means the aggregate amount for which goods are bought or sold, or supplied or distributed, by a dealer, either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration,….”
8. The Court held as under:
“It is clear from Section 21-A of the Madras Prohibition Act, 1937 that the sales tax which the section requires the seller of foreign liquor to collect from the purchaser is a tax on the purchaser and not on the seller. This is what makes the authorities on which counsel for the appellants relied inapplicable to the cases before us. Under Section 21-A the tax payable is on the price of the liquor and that tax is to be paid by the purchaser, the seller is required to collect the tax from the purchaser which he has to pay over to the Government. Section 21-A makes the seller a collector of tax for the Government and the amount collected by him as tax under this section cannot therefore be a part of his turnover. Under the Madras General Sales Tax Act, 1959 the dealer has no statutory duty to collect the sales tax payable by him from his customer, and when the dealer passes on to the customer the amount of tax which the former is liable to pay, the said amount does not cease to be the price for the goods although “the price is expressed as X plus purchase tax”4. But the amounts collected by the assessees concerned in these appeals under a statutory obligation cannot be a part of their taxable turnover under the Madras General Sales Tax Act, 1959.”
9. It is on account of above cited reasons that we are of the view that GST cannot be imposed on the TCS amount. One must also factor the fact that the calculation of the GST amount shall become tedious if the TCS amount is to be included in the value of supply. This is because TCS is payable on the “amount payable by the buyer” which shall include the GST.
(views are strictly personal)
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The Tax dept is burdening people will illegal taxes. They Claim they are refunding or one can deduct from the income tax, so there is no point in charging gst on tcs while for the whole year they car enjoying the money without paying interest.
Evidently, the clarification issued in Circular is misplaced and needs to be addressed again. The fact remain that this is not levy but collection mandated under Income tax law.
But the clarification given by the council itself clashing with the Income tax proviso. Hence it would be more appropriate to follow the circular even though they were clashing.
Yes. Exactly. This is totally wrong clarification given by the GST council. TCS is nothing but an advance tax paid for the buyer. How can they charge GST on Advance tax paid? And both TCS under income tax and GST under GST act to be calculated on total bill, how to calculate the same?