Some issues related to TCS Provisions W.E.F. 01st June 2016

Introduction: From 01^st June, 2016 TCS is to be collected by seller from the buyer in respect of :

(i) sale of motor vehicle of the value exceeding Rs. 10 lakhs (on receipt of sale consideration through any mode ) and also in respect of ;

(ii) sale of goods and providing of any service for consideration exceeding Rs. 2 lakhs (on receipt of sale consideration in cash) (The provisions effective from 01^st June, 2016 are only in respect of goods other than bullion and jewellery, as in respect of bullion and jewellery almost similar TCS provisions are already there from 01/07/2012).

There are various practical issues which requires consideration and clarifications. These have been discussed in the succeeding paras.

ISSUE NO. 1 : Whether TCS is to be collected in respect of sale of motor vehicle of value of Rs. 10 lakhs or less but exceeding Rs. 2 lakhs when sale consideration or any part thereof is received in cash (as per Sec 206C clause (iii) of sub section (1D) ?

Analysis : (i) As per sub section (1F) of section 206C, the TCS is to be collected in respect of only those motor vehicles whose value exceeds Rs. 10 lakhs (whether sale consideration is received in cash or through any other mode).

(ii) As per sub section (1D) of section 206C, the TCS liability is in respect of sale of bullion, jewellery and all other type of goods and all type of services if sale consideration exceeds Rs. 2 lakh (only when sale consideration or any part thereof is received in cash).

(iiI) The definition of “goods” as given in The Sale of Goods Act, 1930 is that : “goods” means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Thus, as per this definition, the motor vehicles are also goods.

(iv) Since the motor vehicles are also goods, the motor vehicles which are having value below Rs. 10 lakhs but over Rs. 2 lakhs (i.e., other than as covered under sub section (1F) may fall within the category “all other type of goods” as mentioned in sub section (1D) and as such there may be liability for TCS in respect of such low value motor vehicle also (only on receipt of sale consideration or part thereof in cash).

(iv) One can say that while giving definition of “buyer” in Explanation (aa) of section 206C, the goods of the nature specified in sub section (1D) and (1F) have been separately recognized. Therefore, motor vehicles should be considered as covered under sub section (1F) and all other goods except motor vehicles should be considered as covered under sub section (1D). On this analogy, the motor vehicles of lower value should not be considered as covered in sub section (1D). But this cannot be a decisive factor for deciding this issue because in the definition of the “seller” as given in Explanation (c) to section 206C there is no such separate mention of goods of the nature specified in sub section (1F) i.e., motor vehicle. Therefore, this factor has got nullified for decision of this issue. However, this factor may be useful in deciding other issues.

Comment : Since as per budget speech, the Hon’ble FM’s intention was to cover only luxury cars but as per the language of section 206C the low value vehicles are also falling in ambit of TCS, therefore, clarification of CBDT on this issue is required.

ISSUE NO. 2 : Whether an individual or HUF is liable to collect TCS in respect of sale of motor vehicle of the value exceeding Rs. 10 lakhs.

Analysis : (1) As per sub section (1F) of section 206C, only seller is liable to collect TCS. In clause (c) of the Explanation to section 206C, the definition of “seller” is given. As per this definition, the seller “includes an individual or a Hindu undivided family whose total sales, gross receipt or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1D) are sold”. Here, sub section (1F) which is for motor vehicles has not been mentioned.

(ii) Thus, as per plain reading of the above definition of the seller, a view is emerging that in many cases an individual or HUF may not be liable for TCS in respect of sale of motor vehicles exceeding value of Rs. 10 lakhs. For example (a) if in F.Y. 2015-16 the individual / HUF has sold merely motor vehicles then this turnover may not be counted for computing limit for TCS liability on sale in F.Y. 2016-17. Thus, there will not be any TCS liability on sale of motor vehicles exceeding value Rs. 10 lakhs in F.Y. 2016-17. (b) if in F.Y. 2015-16, the individual / HUF has sold motor vehicles and / or other goods etc. (as mentioned in sub section (1D) and turnover of only such other goods etc. (section (1D) is below prescribed limit then also there will be no liability for TCS on sale of motor vehicles exceeding value Rs. 10 lakhs in F.Y. 2016-17.

(iii) This view is further strengthen by the fact that while giving definition of “buyer” in clause (aa) of the Explanation, there is separate mention of goods of the nature specified in sub section (1F) which is for motor vehicles. But there is no such separate mention of goods of the nature of specified under sub section (1F) while giving definition of “seller”.

(vi) However, the answer of the above issue will further get affected by clarification on the matter mentioned under ISSUE NO. 1 above i.e., whether motor vehicles (lower value) are also covered in sub section (1D). Then in such cases turnover of the motor vehicle in preceding financial year will be counted for prescribed limit for liability for TCS in the subsequent year.

Comment : Thus, in such a situation clarification on this issue is also required from CBDT.

WHAT TO DO IN SUCH SITUATION : In such a situation, till matter is not clarified, as a matter of abundant caution :

(a) TCS may be collected and deposited in respect of sale of motor vehicles having value of Rs. 10 lakhs or below (consideration / any part thereof received in cash) also, considering the same as covered under sub section (1D).

(b) TCS may be collected and deposited by individuals and HUFs also by considering turnover etc. of immediately preceding year, both in respect of motor vehicles as well as other goods etc.

ISSUE NO. 3 : Whether TCS is to be collected on sale to Central Government, State Governments etc. ?

Analysis : (i) the definition of “buyer” as given in clause (aa) of the Explanation to section 206C is : “buyer” with respect to – (ii) sub-section (1D) or sub-section (1F) means a person who obtains in any sale, goods of the nature specified in the said sub-section; “.

(ii) Whereas for the purpose of sub-section (1) which is in respect of Tendu Leaves, Scrap etc., vide sub clause (i) (A) of clause (aa) of Explanation to section 206C, the following were excluded from the definition of “buyer” i.e., a public sector company, Central Government, State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation, of a foreign State and a club. However, these have not been excluded for the purpose of TCS in respect of above sale of bullion, jewellery, any other goods and services exceeding Rs. 2 lakhs(cash consideration) and of sale of motor vehicles of value exceeding Rs. 10 lakhs. Therefore, TCS liability is there in respect of sale of above items to these persons also.

Comment : For purpose of TCS, PAN etc. of buyers are required. In cases of such type of buyers it will be very difficult to collect TCS as well as to make procedural formalities. Appropriate measures are required to be adopted in this regard.

ISSUE NO. 4 : Whether TCS is to be made in respect of motor vehicles, goods, services etc. which have been purchased / acquired by the buyer for his own personal consumption ?

Analysis : (i) for the purpose of TCS in respect of Tendu Leaves, Scrap etc. covered under sub section (1), “a buyer in the retail sale of such goods purchased by him for personal consumption” was excluded from the definition of the “buyer” vide sub clause (i)(B) of clause (aa) of Explanation to section 206C. However, for the purpose of TCS on above items of jewellery, motor vehicles, any other goods, services etc. no such exclusion has been made. Therefore, even if the above items are purchased for personal consumption, liability for TCS is there.

Comment : The TCS is applicable on various important services etc. e.g., hospital services etc. The patients may get disturbed as the PAN of the patient (for TCS) may be insisted by the Hospital Management before treatment / operations etc. which he / she may or may not have instantly. The same problem may arise in respect of other life necessities etc. Some relaxation is required to be given by resorting to the provisions of sub section (1E).