CA Rajesh Bhauwala

CA Rajesh Bhauwala1. Controversy due to circular No. 76: 

The CBIC (Central Board of Indirect Taxes and Customs)  has issued Circular No. 76/50/2018-GST dated 31-12-2018 in which in point no. 5 it has clarified that GST will be applicable on TCS ( under Income Tax) amount collected by Seller under Income Tax Act.

The relevant portion of the circular:-

Sl. 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 the 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. What section 15 of CGST states: (Value of Taxable Supply)

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;

3. What section 206C of Income Tax Act states:

206C. (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 amount89 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:

Sl. No. Nature of goods Percentage
(1) (2) (3)
(i) Alcoholic Liquor for human consumption One per cent
(ii) Tendu leaves Five per cent
(iii) Timber obtained under a forest lease Two and one-half per cent
(iv) Timber obtained by any mode other than under a forest lease Two and one-half per cent
(v) Any other forest produce not being timber or tendu leaves Two and one-half per cent
(vi) Scrap One per cent]
  [(vii) Minerals, being coal or lignite or iron ore One per cent:]

4. Decision of Supreme Court :

In case of  Union of India v. A. Sanyasi Rao* While upholding the constitutional validity of section 206C the Apex court said that :

“ The counsel for the revenue, Dr. Gaurishankar, vehemently con tended before us that section 44AC read with section 206C are only machinery provisions and not charging sections. We see force in this plea. The charge for the levy of the income that accrued or arose is laid by the charging sections, viz., sections 5 to 9 and not by virtue of section 44AC or section 206C. The fact that the income is levied at a flat rate or at an earlier stage will not in any way alter the nature or character of the levy since such matters are completely in the realm of legislative wisdom. We hold that what is brought to tax, though levied with reference to the purchase price and at an earlier point is nonetheless income liable to be taxed under the Act. We repel the plea by the assessees to the contrary.”

 So as per this judgement ,TCS is not a tax levied upon but simply a tax collection method at earlier point of time.

Important Points for consideration:

  1. TCS is not collected by every seller . If Individual /HUf are not Audited assessee in Previous financial year then such assessee are not required to collect TCS.
  1. Even some class of buyers who are using the Goods in their manufacturing process and issuing Form 27C then there is no issue to collect TCS from them. So it varies upon status of Seller, Buyer and Usage of goods.
  1. Even  Assessing officer of Buyer can give certificate for lower collection of TCS.
  1. The seller collects the TCS not as the supplier but under a legal obligation to deposit it with the government within specified period as per Income Tax Act.
  1. The TCS is not final levy of tax . The entire amount of TCS may be refunded by Income Tax department upon filling of Income Tax return if there is no Income Tax Liability on the buyer.
  1. TCS do not affect the transaction value. Because TCS is not part of transaction value. If applicable on both side then only the TCS will be collected. In some cases seller may not need to collect TCS and in some cases buyer not liable for TCS.

Conclusion:

Though circular is binding on the departmental officers but not binding on court and if challenged in the courts will fail the judicial test . But if the registered person does not charge GST on TCS then the department may issue notice for short deposit of GST as officers will follow the circular. So if there is no issue of credit to the buyers and amount is not big then it is advisable to follow the circular and wait that some big tax payer approaches the court for this ill conceived circular.

Note: The Author is a practicing Chartered Accountant since 1997 and has delivered in many seminars and conferences and also regular writer in Tax magazines and websites. He may be contacted at rbcknowledge@gmail.com

The views expressed are personal views of author.

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7 Comments

  1. Snowy says:

    Better to strip CBIC of its powers to issue Circular’s and a Depdt under GST Council with staff from all members states and centre be constituted to act as Board under GST Act

  2. Raghunath Gadre says:

    Seems slowly mess is created in GST, these are un-warranted provision, there is absolutely no feel of One Nation One Tax…. GOD save us

  3. KT says:

    Kerala High Court has put on hold, the operation of Circular No. 76/2018 as regard to computation of GST on TCS amount till disposal of the petition. WPC – 680/2019 – GST – KERALA HC

  4. KT says:

    Kerala High Court has put on hold, the operation of Circular No. 76/2018 as regard to computation of GST on TCS amount till disposal of the petition. – Refer WPC 680/2019 – KERALA HC

  5. Raghava says:

    Dear,

    This circular is bad because of Not only that TCS is an advance tax but also due to:-
    Both income tax Act and GST act insist for charging both TCS and GST on total invoice value.
    How it was possible to workout?

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