Case Law Details
In Chattisgarh Rajya Gramin Bank (GST AAR Chhattisgarh)
The AAR, Chhattisgarh in the matter of M/s Shanti Enggicon Private Limited [Advance Ruling No. STC/AAR/09/2020 dated November 25, 2020] has ruled that Royalty amount is includable while arriving at the transaction value for payment of applicable Goods and Services Tax (“GST”) on the supply of services rendered by the assessee to the main contractor under Section 15 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) and 18% GST is applicable on Royalty amount under the Reverse Charge Mechanism (“RCM”).
Facts:
M/s Shanti Enggicon Private Limited (“the Applicant”) was awarded the mining work on back to back basis by the M/s KCC-MBBL (“Main Contractor”) with all the terms and conditions and specifications mentioned in the tender allotted to the Main Contractor by M/s NTPC Ltd. All the purchases and execution work was done by the Applicant.
The Government of Chhattisgarh Mining Department vide Notification No. F7-29/2012/12 dated March 5, 2018 (“NN. 29”) imposed royalty on soil used in earthwork and also charged the royalty rate structures of certain minerals to be applicable from April 1, 2018.
The Applicant paid the royalty to State Government from his bank account by selecting the tax payer name of Main Contractor. Further, the Applicant paid all the cost of royalty clearance from the Mining office and also the royalty challan from his bank account and accordingly, the Applicant contended that it is Applicant who has received services from the Government and GST should be paid under RCM by them on the royalty charges to be reimbursed by the Main Contractor. Further, the Applicant stated that the royalty on soil is levied under Chhattisgarh Mining Act which will be recovered from the Main Contractor thus, it should be added in the value of supply of service as per Section 15 of the CGST Act and liable for payment of GST.
Issues:
(1) Whether the GST is applicable on the royalty amount paid by the Applicant under RCM?
(2) Whether the royalty amount is includable in the value of supply of service as per Section 15 of the CGST Act and liable for payment of GST?
Held:
The AAR, Chhattisgarh in Advance Ruling No. STC/AAR/09/2020 held as under:
- Noted that, the service received by the Applicant from the State Government is covered under the Service Accounting Code-997337-Licensing Services for the right to use minerals including its exploration and evaluation, as the State Government has been providing the licensing service for the right to use minerals after its exploration and evaluation.
- Observed that, as per Sl. No. 5 of the Notification No. 13/2017- Central Tax (Rate) dated June 28, 2017 (“the Services RCM Notification”), services provided by the Government to a business entity attracts GST under RCM by the recipient of those services.
- Further stated that, the applicability of GST rate for the service is to be based on the classification of service under the sub heading 997337, covered under Entry No. 17 of the Notification No. 11/2017- Central Tax (Rate) dated June 28, 2017 (“the Services Rate Notification”) attracting the same rate as applicable supply of goods involving transfer of title in goods.
- Held that, the business entities availing mining rights including its exploration and evaluation shall be charged to GST at the rate of tax as applicable on supply of like goods being mined i.e. at the rate of 18% under RCM.
- Further held that, the royalty amount paid by the Applicant is includible while arriving at the transaction value for payment of applicable GST on the supply of services rendered by the Applicant to the Main Contractor as stipulated under Section 15 of the CGST Act.
Relevant Provisions:
Section 15 of the CGST Act:
“Value of taxable supply-
(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) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;
(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;
(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and
(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.
Explanation––For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.
(3) The value of the supply shall not include any discount which is given––
(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply has been effected, if–
(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.
(4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.
(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.
Explanation- For the purposes of this Act,––
(a) persons shall be deemed to be “related persons” if––
(i) such persons are officers or directors of one another’s businesses;
(ii) such persons are legally recognised partners in business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family;
(b) the term “person” also includes legal persons;
(c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.”
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, CHHATTISGARH
M/s Chhattisgarh Rajya Grarnin Bank, GSTIN:22AAAJC0849H1ZO, Raipur Chhattisgarh [hereinafter also referred to as the applicant] has filed an application U/s 97 of the Chhattisgarh Goods & Services Tax Act, 2017 seeking advance ruling on GST applicability on salary recovery/STDR forfeiture.
2. Facts of the case:
The applicant is c registered tax payer as artificial judicial person registered under circle-1 Raipur engaged in the banking and financial service provision under HSN 00440173.
Whether GST is payable on any amount recovered/forfeited from employees who are leaving the services without serving notice period/ resigning during probation period.
3. Contentions of the Applicant: – The applicant’s contention is as under :-
3.1. that, one of their ex-employee has filed an RTI recently and the Department of Excise and Custom have replied that service tax/ GST is not payable in case of salary recovered for not serving the notice period. The said departmental view is also supported by the following decided case laws, that Service tax/GST should not be payable on this recovered/forfeited amount as the nature of transaction do not tantamount to supply.
(i) GET & D India Ltd. v/s DCCE Chennai – Madras High court.
(ii) HCL Learning Ltd. V/s Commissioner of CGST Noida – CESTAT ALLAHABAD.
3.2 that :-As per Sec 7(1) , Sec 7 (1)(a)
GST is leviable on supply of goods or services or both. Supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
Comment: The said transaction between employer and employee not fall in any of the above categories, further the transaction are not in the course or furtherance of business, Hence it does not fall under the definition of Supply.
Sec 7(2) (a)
Notwithstanding anything contained in Sec 7(1)
(a) Activities or transactions specified in Schedule III shall be treated neither as a supply of goods nor a supply of services.
Schedule III
Activities or Transactions which shall be treated neither as a Supply of Goods nor a Supply of Services
1) Services by an employee to the employer in the course of or in relation to his employment.
Comment: Above mentioned transaction are in-between employer and employee, Hence it does not fall under the purview of “supply”.
3.3. Supporting materials for reference
01. GET& D India ltd. vs DCCE Chennai Madras High court.
02. HCL Learning Ltd. V/s Commissioner of CGST Noida – CESTAT ALLAHABAD.
03. Reply of an RTI Application in this regards by CBECE dated 13.05.2020.
3.4. Going through the all above justifications supported by various case laws and departmental reply, we have of the firm opinion that GST is not leviable on amount recovered/forfeited from employees vino ore leaving the services during probation period.
4. Personal Hearing:-
Keeping with the established principles of natural justice, personal hearing in the matter was extended to the applicant and accordingly their authorized representative Shri Suresh Agrawal, C.A. attended the personal hearing, before the authority for hearing on 21/10/2020 and reiterated their contention
5. The legal position, Analysis and Discussion:-
5.1 At the very outset, we would like to make it clear that the provisions for implementing the COST Act and the Chhattisgarh GST Act, 2017 [hereinafter referred to as “the CGST Act and the CGST Act”] are similar and thus, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the CGST Act, 2017. Now we sequentially proceed. to discuss. the issues involved in the ruling so sought by the applicant and the law as applicable in the present case.
5.2 The applicant sought advance ruling to the points which could be discussed as under:-
a. Any amount recovered/forfeited from employees who are leaving the services without serving notice period/ resining during probation periods the consideration received when an employee resigns without notice and puts an end to his contract of employment. allowing the company from which he is resigning to recover a part of his salary, ranging from one to a few months, which is adjusted against his final settlement amount rend the net amount payable to the outgoing employee, and is treated as his remuneration for provision of his services and accordingly accounted for in the books of accounts. Any adjustment or deduction on any account arising out of contract of employment is nothing but integral part of salary and wages.
b. The levy undo” the CGST Act, 2017 is on “supply” of goods or services or both. In order to attract the levy under Sec.9 of the COST Act, 2017, the taxable event of “supply” must have token pace. Sector, 7 of the CGST Act, 2017 defines the scope of “supply” i.e. in a given case if there is no “supply” within the meaning of Section 7 of CGST Act, 2017. there is no scope of any levy of GST under Section 9 of CGST Act, 2017.
c . Further, Clause (a) of sub-Section (1) of Section 7 Of the CGST Act, 2017 envisages that the expression “supply” includes all forms of supply of goods or services or both such as sole, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for consideration by a person in the course or furtherance of business. The word “such as” preceding the words sale, transfer, barter, exchange, etc. indicates that the forms of supply shall be those which are enumerated therein or of similar character but not other dissimilar forms of supply. The expression “such as” indicates the character of the transactions.
d. In the impugned case, the amount recovered/forfeited from employees who are leaving the services without serving notice period/ resigning during probation period does not fit into the scope of “supply” under clause (a) of sub-Section (1) of Section 7. Furthermore, the CC-ST (Amendments) Act, 2018 dated 30-08-2018 inserted sub-Section (1 A) to Section 7 of the CGST Act, 2017 with retrospective effect 01-07-2017 in place of clause (d) of sub-Section (1) of Section 7, which seeks to levy tax on certain declared “supply” of goods or services referred to in Schedule II of the CGST Act, 2017. Thus SCHEDULE II specifies the activities or transactions which are to be treated as supply of Goods or supply of services. For ease of reference we would like to reproduce herewith Section 7 of CGST Act, 2017 and activities excluded as specified under Schedule III to Section 7 supra.
Section 7 of CGST Act, 2017 defines Scope of supply as under:-
(1) For the purposes of this Act, the expression —supply includes—
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;[and]
(c) the activities specified in Schedule I, made or agreed to be made without a consideration: [****]
(d) (*****].
[(IA) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II]
(2) Notwithstanding anything contained in sub-section (1),— (a) activities or transactions specified in Schedule III; or
(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by The Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.
SCHEDULE III [See section 7) ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
1. Services by an employee to the employer in the course of or in relation to his employment.
2. Services by any court or Tribunal established under any law for the time being in force. 3.
(a) the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;
(b) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or
(c) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.
4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
6. Actionable claims, other than lottery, betting and gambling.
7. [Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.
8. (a) Supply of warehoused goods to any person before clearance for home consumption; SCHEDULE III 201
(b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the pert or origin located outside India but before clearance for home consumption.]
Explanation [1].– For the purposes of paragraph 2, the term “court” includes District Court, High Court and Supreme Court.
[Explanation 2.—For the purposes of paragraph 8, the expression —warehoused goods’ shall have the same meaning as assigned to it in the Customs Act, 1962.]
e. As the recovery of salary in the instant case does not fall within the ambit of supply i.e. sale, transfer, etc. set out under sub-Section (1) of Section 7, and it being excluded activities or transactions of services by an employee to the employer in the course of or in relation to his employment as stipulated vide clause 1 of Schedule III supra, the conditions of Section 7 of CGST Act, 2017 is not satisfied and accordingly the transaction in question cannot be termed as a “supply” within the meaning of Section 7 and-there are, cannot be subjected to levy of GST. The employee opting to resign by paying amount equivalent to one month’s salary in lieu of notice has acted in accordance with the contract. The employee is free to tender his resignation, make payment of one-month salary and quit. Hence, there is neither any active nor any passive role played by the employer. The same is nothing but transactions pertaining to services by employee to the employer in the course of or in relation to the employment. Thus in view of above discussion, we come lo the considered conclusion that as the activities or transactions in question do not satisfy the test of “supply” under Section 7 of the CGST Act, 2017, levy under Section 9 is not attracted here.
6. Having regard to the facts and circumstances of the case and discussions as above, we pass the following order:-
ORDER
(Under section 98 of the Chhattisgarh Goods and Services Tax Act, 2017)
No. STC/AAR/6/2020
Raipur Dated ……….. ./11/2020
The ruling so sought by the Applicant is accordingly answered as under:
RULING
GST is not payable on any amount recovered/forfeited from employees on account of their leaving the services without serving notice period/ resigning during probation period, it being excluded from the purview of ”supply” as stipulated under Section 7 of CGST Act, 2017 as the some are activities or transactions of services by an employee to the employer in the course of or in relation to his employment as stipulated.
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(Author can be reached at [email protected])
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