ADVANCE RULING

Name of the Applicant : E-DP Marketing Pvt. Ltd., Case No. 01/2019, Order No. 05/2019, Dated: 02/05/2019                     

Questions sought by applicant:

Whether the applicant/importer is again required to pay IGST on the component of ocean freight under RCM mechanism on deemed amount which will amount double taxation of IGST on the deemed component of ocean freight of the imported goods?

Brief Facts Of The Case:

  • That the applicant is engaged in the trading of various edible oils are falling under chapter 15 of the GST Tariff.
  • That the applicant intend to import crude soyabeen oil on CIF basis ( Cost, Insurance, Freight) which includes the component of ocean freight in the price of imported goods.
  • The applicants are required to authorize the seller who is a person located in non-taxable territory for transporting the goods by a vessel from supplier’s place up to the place in Indian Custom Territory. Ocean Freight will not be paid by the applicant because, the seller is supposed collect the ocean freight while deciding the price of the goods payable by the applicant. The payment of ocean freight would be made by the seller located India.
  • As per corrigendum issued on 30/06/2017 to the  Notification No. 8/2017—Integrated Tax (Rate) dated 28th June, 2017, the importer of the goods is required to pay IGST on reverse charge Mechanism on the amount of deemed ocean freight equal to 10% of the value of goods imported.

GST

 Submission of the Applicant:

  • It is submitted that at the time of import of said goods into india the applicant is required to pay aggregate customs duties on CNF/CIF value of the imported goods which is considered as assessable value for the purpose of levying the imports duties on such goods and which includes IGST components also. Since the CNF/CIF Value of the imported goods includes the component of ocean freight therefore, the applicant is required to pay IGST on this ocean freight component also along with other duties of customs. This is first incidence of payment of IGST on the component of ocean freight by the applicant.
  • The Applicant stated that as per aforesaid Notification, the applicant/importer is again required to pay IGST on the component of ocean freight incurred by them under RCM mechanism. If this is paid by the applicant / importer, it will amount to double taxation of IGST on the same component of ocean freight of the imported goods which apparently illegal and against the basic principles GST Law.

Concerned Officer – Facts & Findings:

  • We find from the application that the applicant has pleaded that the authority to levy and collect IGST on imports of goods from outside India vests under the Customs Act only hence on deemed value of ocean freight the levy of RCM is without jurisdiction. As we could construe, the applicant has broadly challenged the validity of levy of IGST on ocean freight under RCM. We observe that any question relating to constitutional validity of the notification issued is not within the ambit of the jurisdiction of this authority. Nevertheless, it is pertinent to mention here that the Notification are issued on the basis of the recommendation of the GST Council, and the GST Council in turns is empowered by the provisions of Article 279A(4) of the constitution of india inserted vide the Constitution(101st Amendment Act, 2016, to make recommendations to the Union and States.

Ruling:

  • The Applicant shall be liable to pay IGST on ocean freight paid on imported goods under reverse charge mechanism in terms of Notification No.10/2017-IT(R) & Notification No.8/2017-IT(R) irrespective of the ocean freight component having been a part of the CIF value of imported goods.

 Name of the Applicant : M/s Karnataka Food & Civil Supplies Corp.

Case Dated : 18/06/2019

Order No. KAR ADRG 112/2019, Dated :30/09/2019 

Questions sought by applicant:

“The Applicant is hiring a Godown of Central Warehousing Corporation, Belgium and paying storage charges for the agreed space for storage. Is it liable to pay GST on total storage charges as is it liable to pay GST on taxable storage food commodities like Palm Oil, etc. Whether GST is payable on the storage charges”

Submission of the Applicant :

  • The applicant states that they are into the business of distributing Rice, Wheat , Palm Oil, Toor dal and salt etc. under the Public Distribution System allocated by the Government of Karnataka.
  • The applicant refers to the Notification No.12/2017 — Central Tax (Rate) dated 28.06.2017 wherein the services by way of storage or warehousing of rice is exempt under entry 24, Further the applicant states that Services relating to agriculture produce by way of storage or warehousing of agricultural produce is also exempt under entry no. 54 of the said notification.

Concerned Officer – Facts & Findings:

  • The applicant will utilize the storage space of 488 sqr mtr for a period of five years and the rate of storage charges shall be Rs.126/Sq. mtr. Or part thereof on gross area basis.
  • The applicant is required to take all clearances/permission for storing the goods from the concerned authorities.
  • Separate sub-meter is to be installed by the applicant at their own cost and the electricity charges to be paid on actual basis.
  • The applicant is liable to bear the Taxes including GST.
  • The applicant is forbidden to sub-let the premises to any third party.
  • All the above terms & condition of the agreement point out to the fact that the services provided by the Central Warehousing Corporation to the applicant is actually a renting of an immovable property and not storage service of goods. The said service is covered under SAC 997212 & is liable to a CGST of 9% under entry no. 16 of Notification No.11/2017- Central Tax (Rate) dated 28.06.2017.

Ruling:

The services provided by the CWC to the applicant are covered under renting of commercial space in immovable property and not storage of goods, The said services is covered under SAC 997212 & is liable to a CGST & SGST @ 9% under entry No. 16 of Notification No.11/2017- Central Tax (Rate) dated 28.06.2017. 

Name of the Applicant: M/s Clay Craft India Pvt.Ltd. Order No. RAJ/AAR/2019-20/33 Order dated: 20/02/2020 

Questions sought by applicant:

“Determination of the liability to pay tax on any goods or services or both”

“Remuneration to the directors paid by the applicant, the services provided by the director to the company are not covered under clause (1) of the schedule III to the CGST Act, 2017. “Whether this supply of services is Liable to tax under reverse charge mechanism”

Submission of the applicant:

  • Directors are performing all the duties and responsibilities as required under the laws. However along with that these all directors are also working in the company at different level of management in the company and each one of them is holding charge of procurement of raw material, production, quality checks, dispatch, accounting etc. In other words, they are also working as an employee of the company for which they are being compensated by the company by way of regular salary and other allowances as per the company policy and as per their employment contract. In fact these Directors are treated at par with any other employee of the company as far as their employment is concerned. deducting TDS on their salary and PF laws are also applicable to their service. Therefore, in all practical purposes these directors are the employee of the company and are working as such besides being Director of the company
  • The first one which has come to the knowledge of the applicant is the decision by the Hon’ble Authority of Advance Ruling Karnataka (Bangaluru given in the case of M/s Alcon Consulting Engineers India) Pt. Ltd. Bangaluru (AR No. KAR ADRO 8/2019) dated 25.09.2019
  • Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 states that “on categories of supply of services mentioned in column (2) of the Table below, supplied by a person specified in column(3) of the said Table, the whole of central tax leviable under section 9 the said Central Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient of the such services”. The notification is under Section 9(3) of the CGST Act, 2017 Entry 6 of the said Notification reads as under: 
Sl. No. Category of Supply of Services Supplier of Services Recipient of Services
1 2 3 4
6 Services supplied by a Director of a company or a body corporate to the said company or the body corporate A director of a company or a body corporate. The company or a body corporate located in the taxable territory
  • That we at M/s Clay craft (p) Ltd. are already paying GST under reverse charge mechanism on the any commission paid to our Director as such amount pertain to the service provided by them in the capacity of a Director.
  • That we further submit that the salary being paid to our director is being booked under “Income from Salary” by the Director in their personal Income Tax Return.
  • That in such circumstances a doubt has arisen about applicability of Reverse Charge Mechanism on the salary paid to the directors of our company who are also working as Director as employee and having been treated as an employee at par with other employees and company is deducting the EPF from their salaries and all other policies and benefits to them are given as per the policy decided by the company for their employees;
  • That further entry No 1 of Schedüle III to the CGST Act, 2017 states as under:

Series by employee to the employer in the course of or in relation to his employment.

  • From the provisions of CGST. Act, 2017 It is clear that an employee who is rendering his   son to this employer in or in relation to his employee would not constitute service or supply and thus the payment received by him for this purpose would not be taxable under the CGST Act, 2017 provisions,

The applicant submits that the term “employee” has not been defined under either CGST Act, 2017 or SGST Act, 2017. Therefore, to understand as to who is an employee we would have seek understanding from other sources,

As per Cambridge Dictionary an employee is:

 “someone who is paid to work for someone else”

In the case of applicant, the director is un individual (someone) who is working for the company (someone else) thus from this point of view our directors are nothing but an employee as long as they are working as an individual in the company;

  • That further we would like to submit the definition of employee under various Indian laws which malicious to make our submissions
  • That Section 2(94) of the companies act reads as under;

  Section 2(94) : “Director” includes a director in the employment of the company.

  • Applicant submits that “Director” has been defined to include a director in the employment of the company. The definition of “director” is an inclusive definition. A director refers to director who has been in employment of the company on a full-time basis and is also entitled to receive remuneration.

That director is a director rendering services on whole time basis to the company. Further, a employee, when appointed as a director of the company, will be occupying the position as the director. This position is clarified by DCA vide letter no. 2/19/63. PR dated 29.06.1964 (copy enclosed) which provided that employee of a company also appointed as a director of the company is in the position of director. Therefore, conversely any director working as whole-time director would be legally at par with an employee;

  • Applicant further submit that section 2(24) (copy enclosed) of the Companies Act, 1956 makes it clear and read as under

Section 2(24) “Manager” means an individual (not being the manging agent) who, subject to the superintendence control and direction of the Board of directors, has the management of the whole, or substantially the whole, of the affairs of a company and includes a director or any other person occupying the position of a manager, by whatever name called, and whether under a contract of service or not;

  • Section 2(26) “managing director” means a director who by virtue of agreement with the company or of a resolution passed by the company in general meeting or by its board of directors, or by way of its memorandum or articles of association, is entrusted with any power of management which would not otherwise be exercisable by him, and includes a director occupying the position managing director, by whatever called;
  • Further applicant would like to cite the definition of an employee under Employees Provident Fund and Miscellaneous Provisions Act, 1952 which reads as under

“Any person who is employed for wages in any kind of work. manual or otherwise, in or in connection with the work of on establishment, and who get his usage directly or indirectly from the employer, and includes any person- i) employed by or through a contractor in or in connection with the work of the establishment ii) engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961, or under the standing order of the establishment.

  • The applicant submits that the whole time Directors of our company are appointed by the Board of Director in the company and are given various responsibilities thereby bringing them under the definition of an employee;

Findings and conclusions – As per concerned Officer:

  • While going through the detailed submission by the applicant we observe that presently there are six Directors in the company and all of them working at different level of management and each one of them is holding charge of procurement of raw material, production. quality checks, dispatch, accounting etc
  • We further observe that Consideration in form of salary and commission paid to the Directors by the company is against the services provided by them to the company and the company is recipient of such service and Directors are the supplier.
  • The applicant is already paying GST by way of reverse charge mechanism on the commission paid to the Directors treating as such amount pertain to the service provided by them in the capacity of Director
  • In the instant case question before us is whether the consideration paid to the Directors for providing services to the company is liable for GST under reverse charge mechanism vide Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017.
  • The term “consideration” in relation to the supply of goods or services or both is defined in clause (31) of Section 2 of CGST Act, 2017 as under:

(31) “consideration” in relation to the supply of goods or services or both includes (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall   not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply”

  • We further observe that consideration paid to the Directors is against the supply of services provided by them to the applicant company and are not covered under clause (1) of the Schedule III to the COST Act, 2017 as the Directors are not the employee of the Company. In the instant case Director is the supplier of services and the applicant company is the recipient of the services. So, it is very clear that the services rendered by the Director to the company for which consideration is paid to them in any head is liable to pay GST under RCM
  • We also observe that the applicant company is located in the taxable territory and the Director’s consideration is paid for the supply of services by the Directors to the applicant: company- and hence the same is liable to GST by way of reverse charge basis as provided under Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 issued under Section 9(3) the Central Goods and Services Tax Act, 2017
  • Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 has given the distinct identity to the services provided by the Director and specifically included in the category of service on which GST will be payable under RCM The case laws cited by the applicant are not relevant in the present case in as much as that the liability to pay GST under RCM in this case is required to be decided on the basis of the existing provisions of CGST law as being discussed briefly in this order

Ruling

 The consideration paid to the Directors by the applicant company will attract GST under reverse charge mechanism as it is covered under entry No. 6 of Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 issued under Section 9(3) of the CGST Act, 2017

Name of the Applicant: M/s Sanjay Kumar Jain

Order No. RAJ/AAR/2019-20/13 Order  dated: 02/07/2019 

Questions sought by applicant:

“ Whether the applicant is liable to pay tax on the basis of reverse charge mechanism on the freight paid by the applicant on transportation of cotton seed oil cake having HSN code 2306 ?

Submission of the Applicant:

  • The Applicant is engaged in business of cotton seed oil cake popularly called as “Khali” in business language having HSN Code 2306. As per applicant this good is exempted under GST. The applicant pays freight on transportation of such goods. 

Findings and conclusions – As per concerned Officer: 

Table 

Sl. No. Category of supply of services Supplier of Service Recipient of Service
1 Supply of Services by a goods transport agency (GTA) in respect of transportation of goods by road to- (a) any factory registered under or governed by the Factories Act, 1948(63 of 1948);or (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or (c) any co-operative society established by or under any law; or (d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or (e) any body corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person. Goods Transport Agency (GTA) (a) Any factory registered under or governed by the Factories Act, 1948(63 of 1948); or (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or (c) any co-operative society established by or under any law; or (d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or (e) any body corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person; located in the taxable territory.

The applicant uses services of GTA for transportation purpose, hence the applicant is recipient of service and concerned GTA is service provider. Being recipient of services, the applicant is liable to pay GST as per the provisions mentioned in the above said Notification.

Further during the personal hearing the applicant submitted that since the transportation of food grains, milk and agricultural products are exempted from GST similarly cattle feed and other articles of animal consumption might also be exempt. The contention of the applicant is purely hypothetical as GST liability is decided on the basis of factual position determined as per prevailing GST law. The various products of human consumption like milk and food grains are exempted from GST as goods as well as their transportation. The same is notified through Notification No. 12/2017 dated 28.06.2017.

Table

Sl. No. Category of supply of services Supplier of Service Rate(Per. Cent.) Condition
Heading 9965 or 9967 a) agricultural produce;

(b) goods, where consideration charged for the transportation of goods on a consignment transported in a single carriage does not exceed one thousand five hundred rupees;

 (c) goods, where consideration charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred and fifty;

(d) milk, salt and food grain including flour, pulses and rice;

(e) organic manure;

(f ) newspaper or magazines registered with the Registrar of Newspapers;

(g) relief materials meant for victims of natural or manmade disasters, calamities, accidents or mishap; or

(h) defense or military equipments.

Goods Transport Agency (GTA) Nil Nil

The cotton seed oil cake is not exempted under the GST Act in general and is also not covered under Notification No. 12/2017 dated 28.06.2017.( as amende from time to time). Thus being recipient of GTA services the applicant is liable to pay tax under Reverse Charge Mechanism.

Ruling

The applicant is liable to pay GST under Reverse Charge Mechanism being recipient of GTA services. 

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