Recently the Central Government issued Circular No. 76/50/2018-GST dated 31st December, 2018 clarifying, Applicability of GST on TCS collected under Income Tax Act: –

Sr. No. Issue Clarification
5 What is 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.

As per above circular, Tax collected at source will form part of taxable value for the purpose of computation of GST. In this article, an attempt has been made to analyse whether the above circular lays down the correct position of law.

Section 15 of CGST Act 2017 deals with valuation provisions under GST. Relevant statutory text of section 15 of CGST Act, 2017 is reproduced as follows: –

15. (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

(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;

(b) ……………

(c) ………………

……………………………………………..

It is evident from the above section that value of supply of goods and/or services shall be transaction value which is price actually paid or payable for the said supply of goods and/or services provided the following conditions are satisfied: –

(i) Supplier and recipient of the supply are not related and

(ii) Price is the sole consideration for the supply

Section 15(2) of CGST Act 2017 further provides that value of supply shall include any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than CGST, SGST/UTGST, GST (Compensation to States) Act if charged separately by the supplier.

Now the question arises whether it can be said that Tax Collected at Source (TCS) would constitute any taxes levied under any law for the time being in force.

The term ‘Levy’ is not defined in the CGST Act 2017. ‘Levy’ means imposition of tax. Reliance is placed upon the judgment in the case of NATIONAL TOBACCO CO. OF INDIA LTD. 1978 (2) E.L.T. (J 416) (S.C.) where it has been held that the term ‘levy’ includes both imposition of tax as well as assessment. However, it does not include ‘collection’.

TCS is governed by chapter BB which covers section 206C of Income Tax Act 1961. Statutory text of section 206C(1) of Income Tax Act 1961 is reproduced as follows: –

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

Section 206C(4) of Income Tax Act 1961 provides that amount collected as Income Tax under section 206C 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. The statutory text of the same is reproduced as follows: –

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 rules as may be prescribed by the Board from time to time.

It is evident from the section 206C that tax collected at source is merely an advance collection of Income Tax at the time of selling of certain types of goods. The buyer of goods is entitled to claim credit of the same at the time of Final computation of Income Tax.

Thus, tax collected at source is not a new levy at the time of selling of goods but it is a merely a mode of collection of Income tax at an advanced stage. Hence, it does not fall within ambit of section 15(2) of CGST Act 2017 which include only ‘levy of taxes, duties, cesses, fees under any law for the time being in force’ within its ambit. Thus, in view of author, Circular No. 76/50/2018-GST dated 31st December, 2018 does not explain the correct position of law, hence need reconsideration.

It is further submitted that Hon’ble Kerala High Court in the case of PSN Automobiles Private Limited (WP(C) No.680/2019 dated 17 January 2019) has stayed the operation of para 5 of said circular.

In view of the above legal provisions, it is expected that government will reconsider the ratio laid down vide para 5 of Circular No. 76/50/2018-GST dated 31st December, 2018 in respect of includability of TCS for computation of value of Taxable Supply.

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One Comment

  1. Vinit says:

    We are coal traders on which TCS is applicable. Till date we are collecting TCS on the total amount that is receivable from the seller. So after this circular what should we do. Should we change our billing system to incorporate this or should we continue the old practice.

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