GST law: much still needs to be clarified

The first year of GST was besieged with so many technical issues that no one had the time to analyse the content of the GST laws. As we enter the second year of GST, the technical issues have been minimised but not completely eliminated. Since the process of GST audits and assessments are yet to be formalised, taxpayers have raised many issues before the Authority for Advance Rulings (AAR) seeking clarifications on the content of GST laws. Some of these decisions suggest that clarity is needed on the manner in which the law has been framed.

Columbia Asia Hospitals

A decision that surprised many was that of the AAR, Karnataka [2018], on a clarification sought by Columbia Asia Hospitals (CAH). CAH has an India Management Office (IMO) where employees in accounting, administration and other IT systems perform their jobs for CAH as a whole, including for units registered in other states and not only for their India Management Office. As per their internal accounting policy, the IMO invoiced their units in other states their share of expenses incurred by the IMO in proportion to their turnover.

The question raised before AAR, Karnataka, was whether the activities performed by the employees at the corporate office in the course of, or in relation to, employment such as accounting, other administrative and IT system maintenance for the units located in the other states as well (distinct persons as per Section 25(4) of the Central Goods and Services Tax Act, 2017 (CGST Act)) shall be treated as supply as per Entry 2 of Schedule I of the CGST Act (supply of goods or services between distinct persons, in which case it would be taxable)? Or, shall it be treated as supply of services as per Entry 1 of Schedule III of the CGST Act (supply of services by an employee to an employer, in which case it would be exempt)?

Paying particular attention to Section 15a of the CGST Act (persons who will be deemed to be related persons), the AAR ruled that any supply of goods and services from the India Management Office to the separately registered units would amount to supply of goods and services, even if made without consideration. The AAR considered the fact that there is an employee-employer nexus in the transaction but felt that the specific provisions of the CGST Act on related parties would prevail over a general exemption.

While the decision of the AAR surprised many, a fact that needs to be considered while analysing the decision is that CAH had an internal policy to cross-charge units located in other states their share of expenses. This policy may have guided the AAR to ask CAH to attribute a value to the services provided by their accounting, administration and IT employees. In case an entity does not have an internal cross-charge policy, it would probably be logical to conclude that there would not be a deemed supply of goods or services, since the employee-employer nexus would prevail.

CMS Info Systems Ltd

The main business of CMS Info Systems Limited is to transport cash to the various ATMs of banks in cash-carry vans. These cash-carry vans are designed only for the purposes of carrying cash. Invariably, CMS Info Systems purchases these vans, uses them for as long as they can, and later disposes of them as scrap. They requested the AAR for a decision on whether they can claim input tax credit (ITC) on the purchase of these vans.

As there was a difference of opinion amongst the members of AAR, the case ended up before the Appellate Authority for Advance Rulings (A-AAR). The argument of CMS Info Systems was that though they are transporting money, it is ‘goods’ for them and there is a specific exclusion from denial of ITC in Section 17(5) to the CGST Act.

The argument of the department was that as per definition, ‘goods’ does not include money, and since CMS Info Systems is transporting money, it is not transporting ‘goods’. The A-AAR also took into consideration the proposed amendment to the effect that ITC will not be denied in respect of motor vehicles if they are used for transportation of money for or by a banking company or a financial institution. Taking all the above facts into consideration, the A-AAR denied credit on the purchase of the cash-carrying vans. CMS would be justified in being unhappy with the decision.

Regional Forest Officer, Dehradun

The Regional Forest Officer, Dehradun, raises a Marg Sudharan Shulk (MSS) and a Abhivahan Shulk (ABS) on mining companies operating in the forest region. The MSS is for maintenance of roads while the ABS is for carrying the forest produce. The AAR ruled that MSS would be out of GST as it is for maintenance of a toll road, but GST would be levied for the transport of the produce.

An all-encompassing law such as GST cannot possibly visualise every type of supply and whether they are taxable or not. The various decisions of the AAR provide inputs for the Central Board of Indirect Laws and Customs (CBIC) to refine the content in GST laws and clarify matters on a regular basis, in particular when two benches of the AAR provide different rulings on the same issue.

Instead of using the already over-burdened Notifications/Circulars/Orders route, CBIC should amend the GST Act at least once in a quarter (as is being done for the Rules) and issue FAQs on different types of supply, such as employer-employee, related parties, transactions with job workers, exempt supplies and input tax credit. This would pre-empt many cases that have been decided by the AAR/A-AAR. More importantly, this should be before the number of cases, which are a trickle now, become a deluge.

(The writer is a Bengaluru-based tax expert)