Category: GST News

Uber and various other app-based ride-hailing services have sought clarification from the Union Finance Ministry, the Goods and Services Tax (GST) Council, and the Authority for Advance Rulings (AAR) regarding their tax liabilities. This move, as reported by The Economic Times (ET), follows a ruling by the Karnataka AAR exempting the Namma Yatri app from GST.

In the case of Justpay Technologies, which operates Namma Yatri, the Karnataka AAR interpreted the term “through” to mean that merely linking service providers with customers via a digital platform does not constitute a taxable supply or service. Thus, Namma Yatri was not required to pay GST, as its function is limited to connecting auto drivers with passengers and ends once this connection is made.

However, this ruling has caused confusion among stakeholders due to contradictory decisions from the same AAR in other cases. For instance, the Karnataka-based Opta Cabs received a different ruling, and in another instance, the Tamil Nadu AAR ruled that connecting small business owners with customers qualifies as a service, obligating Balat Enterprises to pay GST.

In response to these inconsistent rulings, several app-based mobility providers are seeking clear guidance on their GST obligations. Uber has taken proactive steps by submitting an application for an advance ruling in Karnataka to clarify the GST laws applicable to its operations. The company has also appealed to the Union Finance Ministry and Karnataka GST authorities for definitive guidance on the taxation of their services.

Since January 1, 2022, the GST rate on cab services stands at 5 percent. Service providers, however, have the option to pay GST at 12 percent and avail of the full input tax credit.

This situation underscores the pressing need for uniform and clear tax regulations for app-based services to ensure compliance and avoid any legal ambiguities.

In a significant development, Nazara Technologies has announced that two of its subsidiaries, Openplay Technologies and Halaplay Technologies, have been served with show cause notices from the Director General of GST Intelligence, Kolkata. These notices collectively impose a GST liability of nearly Rs 1,120 crore for the period from 2017-18 to 2022-23.

Openplay Technologies has been slapped with a proposed liability of Rs 845.72 crore, while Halaplay Technologies faces a tax demand of Rs 274.21 crore under the CGST Act, 2017. The crux of the issue lies in the calculation of GST based on the sums pooled by players rather than the gross gaming revenues.

These subsidiaries are currently consulting with legal counsels and tax advisors to chart their future course of action. Despite the substantial tax claims, it is noteworthy that for the quarter ending March 2024, these subsidiaries contributed less than 2% to Nazara’s revenues and less than 1% to its profit.

The GST Council had clarified in August that a 28% Goods and Services Tax (GST) would be levied on the full value of bets placed on online gaming platforms. This clarification has led to a surge in GST claims against online gaming companies. Last year alone, GST officers issued around 71 show cause notices for alleged GST evasion totaling over Rs 1.12 lakh crore during the financial years 2022-23 and 2023-24. Many of these cases are currently pending in court as the companies challenge the notices.

Nazara Technologies, in its filing with the BSE, reiterated its commitment to resolving the matter in consultation with legal and tax experts, aiming to ensure compliance while protecting its business interests.

The impact of these GST claims on the online gaming industry underscores the need for clarity and consistency in tax regulations, as companies navigate the complexities of compliance in a rapidly evolving digital landscape.

In a significant development, the Supreme Court has deferred the hearing on a group of 27 petitions challenging the imposition of retrospective goods and services tax (GST) on real-money gaming companies. The next hearing is scheduled for July 31.

Earlier this year, the apex court consolidated all pending petitions from nine High Courts regarding notices issued by tax authorities, recognizing the need for an “authoritative pronouncement.”

Chief Justice of India (CJI) DY Chandrachud has stated that the cases will be listed on July 31 for further directions, with a potential hearing on a subsequent date. The court also mandated that all parties submit written submissions prior to the next hearing.

In its landmark 50th meeting in July 2023, the GST Council decided to impose a 28 percent tax on the full face value of online gaming, equating it with casinos and horse racing. This new tax regime, effective from October 1, 2023, replaced the previous 18 percent GST on online gaming, abolishing distinctions between ‘games of skill’ and ‘games of chance.

Following this decision, tax authorities issued notices demanding a staggering GST of Rs 1.12 trillion for the fiscal year 2022-23 and the first seven months of 2023-24, excluding interest and penalties. This prompted 30 petitions from real-money gaming companies, 27 of which have been transferred to the Supreme Court from various high courts. The initial petitioners included Head Digital Works, Games24x7, and Baazi Games, with the GST department also appealing a Karnataka High Court verdict.

In a notable instance last September, the Supreme Court stayed the Karnataka High Court’s judgment that quashed a GST notice against Gameskraft Technology for alleged tax evasion amounting to Rs 21,000 crore. By October 2023, central GST officers had detected total evasion of Rs 1.51 trillion.

CJI Chandrachud emphasized that having multiple High Courts address the same issue could lead to conflicting judgments, thus the Supreme Court’s intervention ensures a unified, authoritative ruling. The Centre had also advocated for transferring the petitions to the Supreme Court, underscoring the necessity for a centralized decision.

GST Levy Impact on E-Gaming Industry

The imposition of a 28 percent GST on online gaming marks a critical juncture for the industry. Previously taxed at 18 percent, the new regime brings online gaming on par with gambling activities such as casinos and horse racing. This substantial increase in tax burden is poised to have far-reaching implications on the sector, potentially impacting its financial viability and operational dynamics.

High Court Transfers and Centralization

The consolidation of petitions by the Supreme Court from various High Courts reflects a strategic move to streamline the legal process and avoid disparate rulings. This centralization underscores the complexity and significance of the case, highlighting the need for a singular, authoritative interpretation of the law.

Tax Authority Notices and Industry Response

The issuance of GST notices demanding Rs 1.12 trillion has been a catalyst for widespread legal challenges from the e-gaming sector. The industry’s response, through multiple petitions, indicates the high stakes involved and the potential financial repercussions of the retrospective tax imposition.

Judicial Precedence and Future Implications

The Supreme Court’s stay on the Karnataka High Court’s judgment against Gameskraft Technology is a pivotal moment in this legal saga. This decision not only sets a judicial precedent but also signals the court’s approach to handling similar cases in the future.

Central Government’s Role

The Centre’s request to transfer petitions from the High Courts to the Supreme Court underscores its interest in a centralized resolution. This move aims to ensure consistency and clarity in the judicial process, reflecting the government’s stance on the retrospective GST imposition.

The outcome of this case will be closely watched, as it holds significant implications for the future of the e-gaming industry and the broader interpretation of GST laws. The next hearing on July 31 will be a critical step in this ongoing legal battle.

In the complex process of winding up a company, the Tribunal mandates the establishment of an Advisory Committee. This committee’s primary role is to guide the liquidator through the winding-up proceedings and report to the Tribunal on directed matters.

This committee comprises a maximum of 12 members, including creditors and contributories of the company, or other individuals as deemed appropriate by the Tribunal, considering the company’s circumstances. The formation of this committee involves a meeting where creditors and contributories recommend its members. The liquidator subsequently files a report in Form No. WIN 23 to the Tribunal detailing the meeting and the recommended members. In cases of disagreement, the liquidator can seek the Tribunal’s intervention regarding the committee’s composition. The Tribunal will schedule a hearing, and the liquidator must issue a notice to non-consenting contributories in Form WIN 24 at least seven days before the hearing. During the hearing, the Tribunal decides on the committee’s membership or issues relevant directions.

The Advisory Committee is empowered to inspect the company’s books of accounts, documents, assets, and properties at reasonable times. Meetings of the committee are presided over by the Company Liquidator.

Addressing Vacancies within the Advisory Committee

If a member becomes insolvent, arranges with creditors, or misses five consecutive meetings without permission, their position becomes vacant. Members can be removed by an ordinary resolution at a creditors’ or contributories’ meeting, with a seven-day notice specifying the meeting’s purpose. To fill a vacancy, the liquidator convenes a meeting of contributories or creditors to pass a resolution. The Advisory Committee must always have at least two members. If filling the vacancy is deemed unnecessary, the liquidator can seek the Tribunal’s directive. Should the creditors or contributories fail to fill the vacancy, the liquidator must report this to the Tribunal, which may then appoint a member.

Regulations on Advisory Committee Members (Rule 39)

Members, including the liquidator, must not purchase any part of the company’s assets during their tenure without the Tribunal’s leave. Any unauthorized purchases can be nullified by the Tribunal upon the liquidator’s, creditor’s, or contributory’s application. The Tribunal may also issue an order regarding the associated costs.

Prohibition on Profiting (Rule 40)

Members are prohibited from profiting from transactions related to the winding-up process or receiving payments for services rendered without the Tribunal’s order. Unauthorized payments or profits are subject to recovery during the liquidator’s accounts audit or otherwise.

Payment for Services

If a Tribunal orders payment to a committee member for special services related to the company’s asset administration, the order must specify the service nature. Generally, no remuneration is allowed for duties performed as a committee member without the Tribunal’s explicit order.

Committee Meetings

Meetings can be convened by the liquidator or by one-third of the committee members. A quorum requires either one-third of the total committee members or a minimum of two members, whichever is higher. Decisions are made by the majority of members present.

Resignation and Cost of Orders

A committee member may resign by submitting a written notice to the liquidator. Costs associated with obtaining Tribunal orders under rules 39 or 40 are borne by the interested party and not from the company’s assets.

Introduction

In the complex realm of taxation, disputes between taxpayers and tax authorities frequently arise over the interpretation of tax provisions. A landmark case that brings clarity to the treatment of commissions paid to working partners in a partnership firm is THE ACIT, CIR-SHILLONG, MEGHALAYA VERSUS M/S. DHAR CONSTRUCTION COMPANY – 2023 (1) TMI 166 – ITAT GAUHATI.

Background

Dhar Construction Company, a partnership firm engaged in construction, had several partners, including those actively involved in daily operations. These working partners received commissions for their services.

Issue

The core issue was whether the commission paid to the working partners should be deductible under the Income Tax Act, 1961.

Legal Provisions Involved

Section 40(b) of the Income Tax Act addresses the admissibility of remuneration, interest, etc., paid to partners. It specifies the conditions under which these payments can be claimed as deductions.

Section 194H mandates tax deduction at source on any commission or brokerage paid to a resident, with a 5% tax rate applicable if the total exceeds ₹15,000 in a financial year.

Arguments by the Revenue (ACIT)

The ACIT argued that the commission to working partners did not qualify as a deductible expense under Section 40(b).

Arguments by the Assessee

Dhar Construction Company contended that the commission constituted remuneration for services rendered. They argued such payments were essential for business efficiency and should be deductible under Section 37(1) of the Act.

Tribunal’s Analysis and Decision

The Gauhati Tribunal meticulously examined the arguments and legal provisions. Their analysis included several key points:

Definition of “Remuneration”

Section 40(b)(i) considers salary, bonus, commission, and remuneration collectively as “remuneration.” If the total remuneration falls within the limits set by Section 40(b)(v), no disallowance should be made.

Applicability of Section 194H

Section 194H requires TDS on commission or brokerage to a resident individual. The AO argued this should apply to partnership firms paying commissions to partners.

Applicability of Section 192

Section 192 mandates income tax deduction at source on salary payments. However, Explanation 2 to Section 15 clarifies that partner payments are not considered “salary” for tax purposes, and thus Section 192 does not apply.

Compliance with Section 40(b)(v)

Partnership firms must adhere to Section 40(b)(v) provisions to avoid disallowances when determining partner remuneration.

Conclusion

The Tribunal ruled in favor of Dhar Construction Company, concluding that the commission paid to working partners was indeed remuneration for their services and not subject to TDS under Section 194H. This ruling emphasizes the importance of understanding payment nature and compliance with legal provisions when claiming deductions.

Implications

This case holds significant implications for partnership firms and tax practitioners.

Clarity on Deductibility

It clarifies that commissions paid to working partners can be deductible if they qualify as remuneration under relevant provisions.

Compliance with Section 40(b)

Firms must ensure that partner remuneration stays within Section 40(b) limits and is authorized by the partnership deed to qualify for deductions.

Interpretation of Tax Laws

The case underscores the need for a purposive interpretation of tax laws, considering the specific circumstances rather than adopting a rigid approach.

In essence, the ACIT v. Dhar Construction Company case is a pivotal reference for understanding the deductibility of commissions paid to working partners in a partnership firm under the Income Tax Act.

The government is poised to restructure the Micro, Small and Medium Enterprises Facilitation Councils (MSEFCs) to address the perennial issue of delayed payments. This significant reform will be enacted through an amendment to the Micro, Small and Medium Enterprises Development Act, 2006, as revealed by sources familiar with the development.

The restructuring will endow these councils with enhanced powers, strengthening their capacity to resolve payment disputes. MSEFCs, constituted at the state level under the MSMED Act, serve as arbitrators or conciliators in disputes between suppliers within their jurisdiction and buyers across India. Upon reviewing a case, these councils direct buyers to settle dues with interest, calculated at three times the bank rate, within 45 days of accepting services.

The current system, however, is overburdened and inefficient, prompting the need for an overhaul. The revamped MSEFCs will be fortified to enforce their orders more effectively, addressing the backlog and ensuring swift resolution of disputes. According to the ‘MSME Samadhan’ portal, out of 198,453 applications filed, only 38,037 cases have been resolved, with a substantial number still pending or rejected.

One proposal under consideration is the mandatory inclusion of legal professionals in these councils to mitigate the loopholes often exploited in higher courts. Vinod Kumar, President of the India SME Forum, underscores the necessity of clearly defining the roles of these councils to encompass reconciliation and mediation, and transforming the MSME-Samadhan system into a comprehensive online dispute resolution platform.

Anil Bhardwaj, Secretary General of the Federation of Indian Micro and Small & Medium Enterprises (FISME), highlights the protracted execution of arbitral awards, which significantly hampers the financial stability of MSMEs. He emphasizes the need for a more expedient process to ensure timely benefits from arbitral awards.

Krunal Modi, founding member and manager of Presolv360, advocates for delegating disputes to specialized institutions to enhance efficiency. He points out the lack of guidelines from state governments that currently hampers this delegation, despite the provisions under the MSMED Act.

In a bid to amend the law, the MSME ministry is collaborating with various stakeholders, including the ministry of law and justice and National Law Universities, to refine the Act’s provisions to better serve MSMEs. The MSME Development Act mandates payment within 45 days for transactions backed by a written agreement and within 15 days otherwise.

Furthermore, the Finance Act of 2023 introduced a clause in section 43 B of the Income Tax Act, allowing the deduction of payments to micro and small enterprises as an expenditure only in the year of actual payment if delayed beyond the stipulated time. This provision aims to ensure timely payments but is under review to prevent unintended consequences, such as larger businesses avoiding smaller firms to circumvent stringent tax treatments.

The government’s initiative to restructure MSEFCs and amend related laws is a decisive step towards creating a more robust framework for resolving delayed payments, thus fostering a more conducive environment for the growth and stability of MSMEs.

The Central Board of Indirect Taxes and Customs (CBIC) has issued a game-changing notification effective from July 15, 2024. This exemption applies to services provided by Special Purpose Vehicles (SPVs) to the Indian Railways. India’s Dedicated Freight Corridor Corporation of India Ltd (DFCCIL), a vital SPV of the Indian Railways, is poised to benefit significantly from this exemption, boosting its financial model.

India’s Dedicated Freight Corridor Corporation of India Ltd (DFCCIL), an SPV under the Indian Railways, will be exempt from the 18% Goods and Services Tax. This strategic move is expected to eliminate the need for a revised revenue model or alterations in freight rates.

This exemption specifically targets the tax obligations on track access charges – payments made for accessing the rail network. These charges represent a fixed cost for the DFCCIL, which had previously amounted to an estimated ₹5,000 crore and was projected to increase with the corridor’s expansion.

On July 12, the CBIC officially notified the GST exemption for services rendered by the Indian Railways to the public and by SPVs to the Railways. This exemption takes effect from July 15, 2024.

According to the notification, services provided by SPVs to the Indian Railways—such as allowing the Railways to utilize infrastructure built and owned by the SPVs during the concession period in exchange for consideration—are now exempt from GST. Additionally, maintenance services supplied by the Indian Railways to SPVs concerning this infrastructure are also exempt.

A straightforward interpretation of this notification indicates that track access charges, which are remittances from the Railways, are now exempt from GST. Consequently, there is no need to reclassify such charges under a different accounting category or increase freight rates for corridor users.

The GST Challenge

Typically, remittances between government entities or departments are GST-exempt. However, as an SPV, DFCCIL operates as a separate entity providing track services, unlike other zones categorized by the Railways. Revenue generated by DFCCIL is credited to the Railways and subsequently remitted, encompassing fixed and variable costs including operations, maintenance, interest, land lease, employee expenses, and other overheads.

DFCCIL functions on a reimbursement model, primarily compensated by the Indian Railways through track access charges. Interestingly, DFCCIL has received support in the form of loans from multilateral agencies such as the Japan International Cooperation Agency (JICA).

This exemption is expected to streamline financial operations, reduce costs, and enhance the efficiency of the Dedicated Freight Corridor, positioning it as a cornerstone in India’s rail infrastructure growth.

In an effort to streamline the export process and address long-standing issues, the Commerce Department has committed to addressing the GST-related problems plaguing exporters. This proactive move aims to tackle compliance hurdles, expedite refunds, and simplify audits, ensuring exporters can focus on their primary business objectives.

Exporters have raised alarms over a spate of show-cause notices from GST authorities. These notices, often triggered either suo moto or based on audit objections, demand GST payments on overseas bank charges. This situation persists despite a prior consensus by the GST Council that such charges should be borne by Indian banks.

Red Tape and Red Sea: A Dual Crisis

Compounding these issues, the Red Sea crisis has disrupted shipments, causing delays that further complicate the 90-day deadline for EGM filing when exporters procure goods at a 0.1% concessional GST rate. Exporters are now urging for an extension beyond this 90-day period to accommodate the shipping delays.

A source revealed, “The Commerce Department has solicited feedback from various export bodies regarding their GST challenges. This feedback will be analyzed and presented to the GST Council and Finance Ministry for swift resolution.”

The Federation of Indian Export Organisations (FIEO) has independently approached Finance Minister Nirmala Sitharaman, highlighting the myriad problems under the GST regime and requesting solutions.

Clarification on Bank Charges

The issue of GST on overseas bank charges has been a point of contention. In a GST Council meeting in June 2022, it was decided that Indian banks, as the service recipients, should discharge the IGST, allowing them to utilize input tax credit (ITC) to offset the tax liability. This was echoed by the Fitment Committee, which clarified that domestic banks could avail ITC on tax paid via reverse charge.

The FIEO has urged the Finance Minister to instruct the Central Board of Indirect Taxes and Customs (CBIC) to clarify this to the GST authorities, to halt the issuance of unwarranted show-cause notices.

Extension for EGM Filing

Exporters, particularly affected by the shipping delays due to the Red Sea crisis, are struggling to adhere to the 90-day timeframe for export and EGM filing. They have requested an extension of an additional 60-90 days, on a case-by-case basis, to facilitate compliance despite logistical challenges.

In summary, the Commerce Department’s initiative to engage with the GST Council and Finance Ministry marks a significant step towards alleviating the burdens faced by exporters. By addressing compliance issues, facilitating refunds, and simplifying audits, the department aims to create a more conducive environment for exporters to thrive amidst global challenges.

A strategic Aadhaar-based biometric authentication initiative in Gujarat has led to a significant reduction in fraudulent GST registrations, decreasing by 24.3%.

Approximately 6,600 suspected applicants have refrained from visiting the GST Seva Kendras, fearing detection. This initiative focuses on identifying suspicious applications and requiring applicants to undergo in-person verification.

Following the launch of a pilot project for Aadhaar-based biometric authentication for new GST registrations in Gujarat, the state government announced on Monday that it has successfully curtailed fake GST registrations within the state.

Officials from the State Goods and Services Tax (SGST) department reported a 24.3% decline in GSTIN applications since the commencement of the pilot project in November 2023. The number of applications dropped from 202,000 between November 2022 and June 2023 to 152,000 during the same period in the following year.

An SGST official noted that the fear of detection has deterred over 6,600 suspected applicants from visiting the GST Seva Kendras, effectively reducing the number of fraudulent applications. Suspicious applications are flagged, and the applicants are required to present themselves at the GST Seva Kendras for verification.

On November 7, 2023, Union Finance Minister Nirmala Sitharaman inaugurated 12 GST Seva Kendras in Vapi, Gujarat, which conduct Aadhaar-based biometric authentication. These centers are staffed by both Central and State GST officials.

During a visit to a GST Seva Kendra in Ahmedabad on Monday, State Finance Minister Kanu Mehta reviewed the operations and emphasized the decision made at the 53rd GST Council meeting to implement GST Seva Kendras nationwide.

Table: Comparative GSTIN Applications in Gujarat

Period	Number of Applications
November 2022 – June 2023	202,000
November 2023 – June 2024	152,000

This initiative marks a significant step towards enhancing the integrity of the GST registration process, ensuring that only legitimate businesses are registered, and deterring fraudulent activities through robust verification mechanisms.

The GST Council has unveiled a groundbreaking initiative to ease the financial burden on exporters who encounter upward price revisions after exporting their goods. This strategic move will allow for the processing of refund applications for the additional Integrated Goods and Services Tax (IGST) paid under such circumstances. The formalization of this process has been marked by the issuance of Notification No. 12/2024-Central Tax, dated July 10, 2024.

Innovative Refund Application Development

The GST Network (GSTN) is in the process of crafting a new refund application category specifically tailored for claims related to additional IGST paid due to post-export price adjustments. This advancement will be incorporated into FORM GST RFD-01, designed to streamline and expedite the filing process, ensuring efficient handling of these claims.

Provisional Filing Procedure for Refund Claims

In the interim, exporters who need to claim a refund for the additional IGST paid can proceed using the existing system. They are required to file their claims under FORM GST RFD-01, selecting the “Any other” category, and clearly stating in the remarks: “Refund of additional IGST paid on account of increase in price subsequent to export of goods.”

Alongside the application, exporters must submit Statements 9A and 9B as specified in Notification No. 12/2024-Central Tax, along with all necessary documents outlined in Circular 226/20/2024-GST dated July 11, 2024.

Rigorous Processing of Refund Applications

Designated tax officers will meticulously process the refund applications filed under this interim category. These officers will scrutinize the claims based on the provided documentary evidence. Exporters are urged to ensure comprehensive documentation accompanies their applications, as detailed in Paragraph 6 of Circular 226/20/2024-GST.

Resolving Filing Issues and Grievances

Taxpayers encountering difficulties during the refund application process can report their issues via the Grievance Redressal Portal at https://selfservice.gstsystem.in. This portal serves as a dedicated platform to assist taxpayers in navigating and resolving any challenges faced during the application submission.

Anticipated Impact of the New GST Refund System

This forward-thinking initiative by the GST Council, supported by subsequent notifications, represents a significant step in aiding exporters who bear increased costs due to post-export price revisions. The creation of a specialized refund application category within the GST system is expected to further streamline the process, allowing exporters to efficiently secure refunds and sustain their financial health.

By adopting these measures, the GST Council demonstrates a robust commitment to supporting exporters, fostering an environment where international trade can flourish despite the challenges of price fluctuations.