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  • Internet’s Response to Bengaluru Resident’s Taxation Frustration Explored in Detail – Analyzing the Load on Salaried Individuals

    A post from a Bengaluru resident has caught the attention of the internet. Sanchit, employed as a category manager at Flipkart, took to Twitter to express his frustration. He stated that he’s required to give 30% of his income as tax to the government, leaving him with only a small portion for his own needs.

    Even when he attempted to purchase caffeinated beverages with the money that remained, he encountered an additional 28% tax. This made him realize that he was putting in long hours of work just to contribute more than 50% of his earnings to the government. Sanchit shed light on the burden faced by those who earn a salary.

    In another tweet, Sanchit shed further light on the taxes imposed even on basic necessities like sugar, cream, and a chocolate bar. By breaking down the tax calculations, he pointed out that the government collects around 27.5% of the final cost of a chocolate bar through different taxes, including an 18% GST on sugar, cocoa, condensed milk, and cream.

    Sanchit’s tweets have garnered significant attention online, with Twitter users sharing their own grievances. While some segments of the internet agreed with him, others held differing opinions.

    Several users underscored how taxes impact middle-class salaried individuals, highlighting that a significant portion of their work is dedicated to fulfilling tax obligations.

    Explore a few reactions below:

    Feel free to share your own thoughts in the comments section.

  • Affordable Popcorn and Cola at Cinemas as GST Council Reduces Tax Rates by 13%

    Cinema-goers are in for a pleasant surprise as the Goods and Services Tax (GST) Council has taken a significant step to make the cinema experience more affordable. By reducing the service tax on food and beverages enjoyed within cinema halls from 18% to a mere 5%, the Council, under the leadership of the Union finance minister and representatives from states and UTs, has ensured that relishing popcorn and cold drinks at the movies won’t dent wallets as much.

    This decision carries a substantial positive impact for both movie enthusiasts and the cinema industry itself. Particularly, multiplexes, which derive a substantial 35% of their earnings from this category, stand to benefit significantly from this favorable change. The move comes as a welcome respite, enabling multiplex operators to breathe new life into their businesses after the challenges posed by the pandemic.

    The alignment of food and beverages under the ‘restaurant service’ definition for GST coverage at a flat rate of 5% (without the complexity of input tax credit) is a milestone welcomed by the entire cinema industry. A statement from the news agency PTI quoted industry insiders expressing their contentment with the resolution. It is anticipated that this clarification will usher in a sense of tax predictability, thereby mitigating the potential for disputes or litigation stemming from GST matters. This development, in turn, is poised to play a pivotal role in rejuvenating the theatre business, which has been striving for recovery post the pandemic.

    The cinema exhibition sector encountered significant hardships due to the pandemic’s impact. The enforced closures throughout 2020 and subsequent resumptions under restrictions took a toll. However, the tide shifted in March 2022 as operations resumed at full capacity, and fresh content began to flow, rekindling hope within the industry.

    In a parallel decision, the Council has also agreed to levy a 28% GST on online gaming, horse racing, and casinos, showcasing a diversified approach towards taxation.

  • Noida Registers Case after UP Labourer Receives GST Notice for ‘Rs 1.36 Crore Turnover’

    A stirring incident has come to light involving Devendra Kumar, a 22-year-old laborer hailing from Udaygarhi Bangar in Uttar Pradesh. This tale unfolds with a GST notice unexpectedly landing on his doorstep, asserting that his humble businesses had supposedly yielded a staggering turnover of Rs 1.36 crore during the fiscal year 2022-23. What adds to the intrigue is Devendra’s revelation that the subsequent GST liability he is burdened with amounts to a substantial Rs 25 lakh.

    This puzzling narrative prompted action from the Gautam Buddha Nagar Police, who swiftly launched an investigation following a complaint lodged by a fellow laborer in Bulandshahr. The complainant, whose identity remains veiled, contended that he had been slapped with a GST notice, hinting at an impressive business turnover during the same period. This spurred the investigative machinery into motion, prompting a transfer of the case from Bulandshahr to the Sector 63 police station in Gautam Buddh Nagar.

    The heart of the matter is Devendra’s brief stint as a helper at a private firm located in Noida’s Sector-63 during 2021. His engagement spanned a mere four months, during which his personal details, namely Aadhar and PAN, were recorded for the purpose of salary disbursement. Fast forward to March 13, 2023, when a missive from the state tax office reached Devendra’s hands. To his astonishment, the letter stated that a business under the name “JK Traders,” ostensibly associated with him, had achieved a colossal annual turnover of Rs 1.36 crore in the financial year 2022-23. Accompanying this revelation was a demand for GST payment amounting to a substantial Rs 24.61 lakh.

    Scrutiny of the details presented in the tax notice led Devendra to an unsettling discovery: the GST number provided belonged to a certain Jitendra Sisodia from Ghaziabad. This revelation forms the foundation of Devendra’s assertion in his filed FIR, wherein he accuses the company contractor and Jitendra Sisodia of exploiting his Aadhar and PAN particulars to concoct a new business under his name.

    The wheels of justice are now in motion, with the authorities invoking sections 420 (cheating), 468, 467, and 471 (all associated with fraud) of the IPC. These actions are taking place at the Sector 63 police station in Gautam Buddh Nagar, where a determined investigation into this web of deceit is underway. This saga serves as a stark reminder of the complexities that can arise in a world increasingly reliant on digital documentation and financial mechanisms.

  • GST Fraud Probe Targets Prominent Food Delivery Service and Other Entities

    The Central Board of Indirect Taxes and Customs (CBIC) has taken a proactive stance in its pursuit to eradicate deceptive accounts within the Goods and Services Tax Network (GSTN). The outcomes of this concerted endeavor have unveiled a startling truth – nearly a quarter, roughly 25%, of the identified entities, who have wrongly taken advantage of benefits amounting to approximately ₹15,000 crores, either lack existence or have mysteriously disappeared, as reported by The Times of India (TOI).

    These revelations concerning the suspects’ identification stem from assiduous scrutiny of a vast database that enlists an astonishing 1.4 crore GST contributors.

    Employing advanced artificial intelligence and data analysis techniques, the authorities meticulously combed through a list of around 69,000 suspects. Over the course of an ongoing two-month operation, the investigation has effectively brought to light 17,000 counterfeit accounts that have exploited fabricated input tax credits, as stated by the publication.

    It’s noteworthy that the inquiry extends across the spectrum of entities involved in the supply chain, including prominent players in the business landscape. For instance, it has come to attention that a prominent food delivery service provider has utilized services from non-existent entities. It’s pertinent to mention that previous similar initiatives have also exposed analogous instances of misconduct.

    Insiders from the government, sharing information with TOI, have revealed that Delhi stands out with a commendable success rate, particularly in uncovering a significant number of falsified registrations.

    Expanding on the recent crackdown, CBIC is now devising strategies for regular evaluations aimed at preventing the misuse of benefits. Furthermore, the agency intends to reinforce regulatory measures by rolling back certain flexibilities that were introduced to ease tax payment obligations for suppliers amidst the pandemic.

    Senior officials have confirmed to TOI that decisions pertaining to these matters have already been endorsed by the GST Council, with implementation underway. The overarching goal remains to curtail leakages and bolster the system’s integrity.

    This subject is anticipated to be thoroughly discussed in the upcoming GST Council meeting, during which comprehensive details will be shared with state finance ministers. Nevertheless, officials have categorically dismissed the notion of imposing stricter registration criteria, asserting that the primary emphasis is on streamlining the process for honest taxpayers, rather than burdening them with unwarranted compliance.

  • GSTN Considers Increased Public Disclosure of GST-Related Data

    New Delhi: According to a recent statement by the industry association Assocham, the Goods and Services Tax Network (GSTN), the entity responsible for processing GST returns, is considering the release of additional tax-related data concerning geographical and industrial aspects. The Chief Executive of GSTN, Manish Kumar Sinha, expressed this potential development.

    A dedicated committee is actively discussing the expansion of public data to encompass more dimensions, enhancing insights into geographical and industry-specific nuances through the lens of GST data. Speaking at an event, Sinha highlighted the committee’s endeavors.

    The meticulous information available through GST data can offer valuable insights into the regions that prominently partake in exporting, consuming, and engaging in inter-state trade of diverse goods and services. The application of such insights holds great promise for businesses in fine-tuning their operational and logistical strategies. Furthermore, the academic and policy-making circles could also leverage this data to their advantage.

    During the same event, Shashank Priya, a Member (GST) of the Central Board of Indirect Taxes and Customs (CBIC), indicated that the number of registered taxpayers has surged to approximately 1.40 crore from the initial count of 67.83 lakhs at the inception of GST.

    “The indigenously developed GST law has now attained stability. What once appeared intricate at the outset is now comprehended proficiently by both the trading community and officials,” remarked Priya, underlining the evolution of the GST law.

  • Uncertainty Surrounds Intermediary Services

    The taxation of intermediary services has long been a topic of contention and differing opinions. Traditionally, the point at which these services were subject to taxation rested on the recipient, aligning with the prevalent global practice of place of supply. This approach was maintained until 2014 when the CBEC unexpectedly shifted its stance due to the influence of an overly enthusiastic officer.

    Unfortunately, this change lacked the tax neutrality observed in other countries. The introduction of GST further complicated matters, particularly in relation to the provisions regarding the place of supply. This article delves into the profound implications of the significant Dharmendra M. Jani case ruling in the esteemed Bombay High Court and outlines the potential paths ahead for such service providers.

    Key Provisions under Examination

    • Section 13(8)(b) of the IGST Act: Designates the place of supply as the location of the service provider.
    • Section 7(5)(a) of the IGST Act: Pertains to Inter-State Supply transactions where the supplier is in India, but the place of supply is outside India.
    • Section 8(2) of the IGST Act: Addresses Intra-State Supply transactions, where services are supplied within the same State or Union territory.
    • Section 2(6) – Definition of ‘Export of Service’: Involves scenarios where the supplier is in India, the recipient is outside India, and the place of supply of service also lies outside India.

    Intermediary Services in a State of Uncertainty

    The issue at hand stems from the interpretation of Sections 2(6) and 7 of the IGST Act. By the plain reading of these sections, the transaction could be categorized as an inter-State supply. However, due to the influence of section 13(8)(b), it is classified as an intra-State supply, consequently attracting taxation.

    In 2021, one Judge declared these provisions as ultra vires (beyond the legal power or authority) in nature. However, another Judge took a dissenting stance, leading to the pivotal larger bench decision that ensued.

    Recent High Court Ruling Analysis on Taxation

    The High Court has taken a thoughtful approach to interpreting and aligning the legal provisions to ensure their effective implementation. They recognize the presence of a dual perspective. The underlying purpose of these provisions is not to spark conflicts and legal battles but rather to facilitate a seamless and clear operation within a strong taxation framework. Ultimately, the court deems the transaction in question to fall under the category of inter-State supply.

    The petitioner firmly contends that Section 13(8)(b) of the IGST Act should not be applied to the CGST Act or the State GST Act in a way that indirectly imposes taxation on the export of services. The High Court’s analysis concludes that both Section 13(8)(b) and Section 8(2) of the IGST Act stand in accordance with the Constitution.

    The assertion that the taxation of intermediary services has an extraterritorial character and goes against Article 245(2) of the Indian Constitution is found to be unsupported. This is particularly so, given that Section 13(8)(b) pertains to an inter-State supply.

    Furthermore, the High Court determines that neither Section 13(8)(b) nor 8(2) of the IGST Act infringes upon the provisions of Article 14, 19(1)(g), 245, 246, 246A, 265, 269A, and 286 of the Indian Constitution. It emphasizes that Section 13(8)(b) should be confined solely to the IGST Act and should not be extended to have any implications under the CGST and State GST laws.

    The “Department-Related Parliamentary Standing Committee On Commerce” expressed a viewpoint in its 139th Report on GST that the place of supply for intermediary services should be placed under the residual clause of Section 13(2) of the IGST Act. This adjustment would enable the export of services and create consistency on a global scale. The High Court acknowledges that this perspective should have been taken into consideration by the Parliament.

    Regarding the ruling in the case of Material Recycling Associations of India – Gujarat High Court, where intermediary services were deemed subject to CGST and SGST, the High Court finds that this verdict does not align with the current case and cannot substantiate the Revenue’s stance.

    The Confronting Opinions

    The Honorable High Court judges view the transaction as an export of service, classifying it as a supply during inter-State trade or commerce. This stance diverges from the established export of service guidelines, which stipulate that the place of supply must lie outside India. According to Section 13(8)(b), the place of supply corresponds to the service provider’s location.

    Several nations, including Thailand, Sri Lanka, and the European Union, have successfully implemented destination-based taxation. This approach facilitates service exports and minimizes the risk of double taxation.

    Numerous businesses have relocated their operations beyond India’s borders to evade supplementary taxes. Unfortunately, this maneuver has a ripple effect, negatively influencing both our international competitiveness and overall economic stability.

    Way Forward – Intermediary Services

    The matter of validity is extensively discussed and addressed.

    However, individuals who had been paying taxes according to CGST & SGST are not required to make IGST payments for their previous transactions.

    According to Section 77(1) of the CGST Act, coupled with Section 19(2) of the IGST Act, it is clarified that in cases where CGST & SGST were inadvertently paid for a transaction assumed to be within a single state but was actually an interstate transaction subject to IGST, the incorrect tax payment will be reimbursed once the accurate IGST taxes are settled. No interest will be charged in these situations.

    It can also be inferred that only upon confirmation (via a notice or departmental audit) by the department that the case falls under such circumstances, should the payment and refund processes be initiated.

    Considering that this matter might escalate to the Supreme Court and there are no additional interest expenses, taxpayers are advised to await the final decision before taking any action.

    Those who haven’t yet paid for intermediary services can opt to do so under protest, following a consultation with an expert who can provide precise details.

    Proposed Changes in GST Law (personal viewpoint)

    We should remove section 13(8)(b) and connect it to the general provision, which is section 13(2) of the IGST Act. Furthermore, it’s advisable to issue a notification under section 13(13) of the IGST Act in order to prevent dual taxation. This would ensure that taxation doesn’t occur both in India and in the foreign country, by defining the place of supply as the recipient’s location.

    Services Based on Principal-to-Principal Relationship

    Services provided directly rather than through intermediaries should be considered as services on a principal-to-principal basis. Such services would be categorized as export of services, falling under section 13(2) of the IGST Act, and not under section 13(8)(b).

    The Circular 159/15/2021-GST issued by CBIC on 20th September 2021 further clarifies the distinction between intermediary services and the contrasts between services provided on one’s own account versus subcontracted services.

    Key Legal Precedents for Such Situations:

    1. McDonald’s India Pvt Ltd – Delhi High Court – W.P.(C) 11430/2022
    2. Ernst and Young Ltd – Delhi High Court – W.P.(C) 8600/2022
    3. Universal Services India Pvt Ltd 2016 (42) STR 585
    4. GoDaddy India Web Services Pvt Ltd 2016 (46) STR 806

    Final Thoughts

    The High Court’s ruling seems to have caused some confusion due to the way they reached their conclusion. However, it’s too early to decide on any business actions using this ruling. It would be wise to wait for the Supreme Court’s decision and follow the best practices outlined earlier.

    Moreover, properly categorizing services and aligning contract structures with the actual services provided is crucial. This should be done while considering tax regulations in order to ensure compliance.

  • May 2023: Record-Breaking Rs.1,57,090 Crores Achieved in Gross GST Revenue Collection | Official Announcement

    Press Release: 01/06/2023

    In May 2023, an impressive sum of Rs. 1,57,090 crores has been amassed as Gross GST revenue. The Government has diligently allocated Rs. 35,369 crore to CGST and Rs. 29,769 crore to SGST from IGST. Following the customary settlement, the total revenue for CGST stands at a commendable Rs. 63,780 crores, while the SGST boasts a remarkable Rs. 65,597 crores.

    These revenues mark a substantial 12% increase compared to the GST revenues generated in the corresponding month of the previous year. Notably, revenue from imports of goods experienced a notable 12% surge, while domestic transactions (including import of services) displayed an impressive 11% growth compared to the revenues derived from these sources in the same month last year.

  • The Supreme Court firmly denied anticipatory bail to the accused, who stands accused of orchestrating the issuance of counterfeit invoices.

    Judiciary and Counsel Details

    • Judges M.R. Shah and C.T. Ravikumar preside over the proceedings.
    • Representing the petitioner are Ms. Soma Mullick, Vishwaranjan Kumar, Sebat Kumar Deuria, Anil Rana, Advocates, and Pranab Kumar Mullick, AOR.

    Facts of the Case

    The department apprehended the individual in question on grounds of suspicion that they were engaged in the fraudulent act of generating invoices for fictitious entities, complete with fabricated GST numbers, and subsequently disposing of them. Seeking their release, the individual approached the High Court, vehemently asserting their innocence and claiming to be falsely entangled in multiple First Information Reports (FIRs) filed by various complainants.

    High Court Held

    In the courtroom, the respected High Court carefully noted an important detail during the investigation: the person being accused had produced a fake bill, pretended to have made a purchase through a non-existent company, and unlawfully sold goods in the market. The investigation also showed that this person had frequent contact with the main culprit and played an active role in the crime, deceiving victims and extorting an enormous amount of three crores in rupees. As a result, bail was denied, leading the accused to file a special leave petition (SLP) before the highest court.

    The esteemed Supreme Court took note of the allegations against the accused, stating that they were believed to have collaborated with other suspects in obtaining goods from fictional companies with fake GST numbers and later disposing of them. The Court recognized that investigations were still ongoing and that the need for custodial interrogations might arise. Consequently, the Court concluded that the accused should not be granted anticipatory bail, and the SLP was dismissed.

  • The intertwined harmony of GST Act and the Indian Contract Act, 1872

    1. Relevance to GST

    The cornerstone of GST lies in its direct connection to valid contracts. Every form of supply covered by GST is essentially a contractual agreement. Consequently, any transaction that fails to meet the requirements of a valid contract is automatically excluded from the treatment afforded by GST.

    It would be a disservice to this discourse to overlook the vast array of knowledge available in the field of Contract law, established long before the advent of GST.

    Vinculum juris embodies the binding legal obligations willingly undertaken by contracting parties, and it is not within anyone’s authority, not even a court’s, to deny parties their agreed-upon terms and the protection it provides in case of default. The transactions involving supply all stem from contractual commercial arrangements, with only a few exceptions mandated by law. A comprehensive comprehension of Contract law is imperative for any student wishing to fully grasp the intricacies of GST.

    Delving into the works of no less than five distinct authors on the Indian Contract Act will facilitate the exploration of topics that permeate the entire scope of supply within GST law. Additionally, publications that draw upon English Contract law, particularly the notable works of Anson and Chitty, can be included to enrich the understanding of this subject matter.

    It is crucial to grasp that parties may engage in an agreement, yet the transformation into a bona fide contract solely hinges on its lawful enforceability. Solely only those agreements that abide by the prevailing laws possess the potential for legal enforceability to become a contract.

    2. Capacity to Contract

    2.1 Validity of contract

    The achievement of Parties engaging in trade relations with each other is insignificant if their contract is deemed invalid, rendering their efforts futile. Numerous factors influence the validity of these relations, compelling Parties to exercise great caution. The law unequivocally delineates what undermines the validity of a contract.

    To assess a contract’s validity, one must meticulously scrutinize each validating component outlined in this legislation. Furthermore, when a contract is purportedly enforceable, a presumption arises in favor of its validity, unless an incurable or inseverable flaw, such as a minority or mistake, is discovered. Parties who intended to establish binding legal obligations cannot deny the existence of their contract. The presence of consideration suggests the validity of the contract or the terms constituting a binding agreement.

    It is essential to comprehend that a contract is not merely a formal document but an agreement reached on the object and the expectation of its enforceability in case of breach or threatened breach.

    2.2 Legal or Lawful Authority

    The ability to enter into a contract encompasses the fundamental requirement of having the rightful power to do so. Without legitimate authority, no individual can claim to be engaging in a contractual agreement. Authority extends not only to the person making the contract but also to the person entering into the contract. The precise and explicit definition of ‘Recipient’ in section 2(93) of the Central GST Act allows the terms “Beneficiary” and “Recipient-Contractee” to be used interchangeably.

    Asserting any claim based on factual circumstances necessitates the possession of legal authority to substantiate such claims. Whether it pertains to a medical facility, a charitable organization, an educational institution, or any other relevant entity, the absence of lawful authority renders any further examination of the specific nature of the activities performed unnecessary. A person providing substandard care with lawful authority falls within the definition, whereas someone offering high-quality care without lawful authority does not. The ability to undertake any action presupposes the existence of lawful authority to do so.

  • Interest for excessive refund delay remains applicable, irrespective of the absence of statutory provision: High Court

    Court Details Judges:

    • Vibhu Bakhru & Amit Mahajan
    • Petitioner’s Counsel: Sandeep Chilana, Snehil Sharma, Prem Kandpal & Ms. Anjali Jain
    • Respondent’s Counsel: Neeraj, Rudra Paliwal, Vedansh Anand, R. Ramachandran, Rajeev Aggarwal & Ms. Shilpa Singh

    Case Summary

    In this case, the petitioner has filed a petition seeking interest in a delayed refund. The petitioner argues that while the refund of SGST has been processed, the refund of CGST and IGST has not been processed despite the refund order. Therefore, it is contended that interest should be paid due to the significant delay in disbursing the refund.

    High Court Ruling

    The Honorable High Court acknowledges that the refund of SGST has been processed, but the refund of CGST and IGST was processed after the writ petition was filed. Even in situations where there is no statutory provision for the payment of interest, interest can be payable in case of unreasonable delays in refund disbursement. However, in this particular case, the Statute itself stipulates a 6% rate of interest to be paid by the department in case of refund processing delays. Consequently, the Court has directed the department to expedite the payment of interest at a rate of 6% per annum.