Facts of the Case

Popular Motor World Pvt. Ltd., engaged in the business of sale of motor vehicles, approached the Kerala High Court raising the question whether amounts collected as Tax Collected at Source (TCS) under the provisions of the Income-tax Act, 1961 could form part of the taxable value of supply under the GST regime in the course of sale of motor vehicles.

The petitioner contended that the amount of TCS collected under the Income-tax Act could not form part of the taxable value of supply for the purpose of levy and collection of GST.

During consideration of the writ petition, it was not disputed before the Court that the issue had subsequently been clarified through Circular No. 76/50/2018-GST-Central Tax, as corrected by the corrigendum dated 07.03.2019. The clarification provided that TCS collected under the Income-tax Act, 1961 would not form part of the taxable value for determining GST payable on the sale of motor vehicles.

Issues Involved

The principal issue before the Kerala High Court was:

Whether Tax Collected at Source (TCS) under the provisions of the Income-tax Act, 1961 is includible in the taxable value of supply for determining GST liability on the sale of motor vehicles under Section 15(2) of the CGST Act, 2017?

The matter also involved consideration of the scope of Section 15(2) of the CGST Act, which provides for inclusion in the value of supply of certain taxes, duties, cesses, fees and charges levied under laws other than the specified GST enactments, where separately charged by the supplier.

Petitioner’s Arguments

The petitioner contended that:

  1. The amount collected as TCS under the Income-tax Act, 1961 should not form part of the taxable value of supply under GST.
  2. TCS collected during the sale of motor vehicles could not be treated as part of the consideration or taxable value for the purpose of computation of GST.
  3. Accordingly, GST should not be levied on the amount collected as TCS under the Income-tax Act.

Respondent’s Arguments

At the stage when the matter was taken up for consideration, it was not disputed before the Court that the controversy had been clarified by Circular No. 76/50/2018-GST-Central Tax, as corrected by Corrigendum No. 76/50/2018-GST dated 07.03.2019.

The applicable clarification stated that, for determination of the value of supply under GST, TCS under the Income-tax Act, 1961 would not be includible because it is an interim levy not having the character of tax.

Therefore, the issue raised in the writ petition stood governed by the clarification issued by the competent authority.

Court Order / Findings

The Kerala High Court observed that the issue raised in the writ petition had already been clarified through Circular No. 76/50/2018-GST-Central Tax dated 31.12.2018, as corrected by the corrigendum issued on 07.03.2019.

The Court noted the clarification concerning the valuation methodology for determining GST on TCS under the Income-tax Act, 1961. The clarification recognised that:

  • Section 15(2) of the CGST Act specifies that the value of supply shall include specified taxes, duties, cesses, fees and charges levied under laws other than the CGST Act, SGST Act, UTGST Act and GST (Compensation to States) Act, where separately charged by the supplier.
  • However, for determining the value of supply under GST, TCS collected under the Income-tax Act, 1961 is not includible because it is an interim levy not having the character of tax.

In view of this clarification, the Court held that the issue raised in the writ petition no longer required adjudication.

Accordingly, the writ petition was closed, with the express clarification that the issue would stand governed by Circular No. 76/50/2018-GST-Central Tax dated 31.12.2018, as corrected by Corrigendum No. 76/50/2018-GST dated 07.03.2019.

Important Clarification

The significant legal clarification emerging from the order is that:

Tax Collected at Source (TCS) under the Income-tax Act, 1961 does not form part of the taxable value of supply for determining GST liability on the sale of motor vehicles.

The reason recorded in the applicable GST clarification is that such TCS is an interim levy not having the character of tax for the purpose of determination of the value of supply under GST.

Therefore, while Section 15(2) of the CGST Act provides for inclusion of specified taxes, duties, cesses, fees and charges in the value of supply, TCS under the Income-tax Act is not includible in the taxable value for GST valuation on the basis of the applicable circular and corrigendum.

Sections / Legal Provisions Involved

Section 15(2) of the CGST Act, 2017

The provision was relevant because it deals with components required to be included in the value of supply, including certain taxes, duties, cesses, fees and charges levied under laws in force, other than the CGST Act, SGST Act, UTGST Act and GST (Compensation to States) Act, where separately charged by the supplier.

Income-tax Act, 1961 – TCS Provisions

The dispute concerned the treatment of amounts collected as Tax Collected at Source under the Income-tax Act, 1961 during the sale of motor vehicles.

Circular No. 76/50/2018-GST-Central Tax dated 31.12.2018

The Circular addressed, among other matters, the correct valuation methodology for determining GST in relation to TCS under the Income-tax Act, 1961.

Corrigendum No. 76/50/2018-GST dated 07.03.2019

The corrigendum clarified the position that TCS under the Income-tax Act, 1961 would not be includible in the value of supply under GST because it is an interim levy not having the character of tax.

Link to Download the Order-https://mytaxexpert.co.in/uploads/1783490908_1501compressed.pdf

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