Facts of the Case

The Petitioners, namely Rajasree Motors Pvt. Ltd., Manikandan Automobile Pvt. Ltd. and Manikandan Motor Pvt. Ltd., approached the Kerala High Court by filing WP(C) No. 4868 of 2019.

The writ petition raised a specific question concerning the valuation of supply under the GST regime in transactions involving the sale of motor vehicles.

The central controversy was 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 for the purpose of determining GST liability.

The Petitioners contended that TCS collected under the Income-tax Act could not form part of the taxable value for GST purposes.

During the pendency of the writ petition, the issue came to be clarified through:

  • Circular No. 76/50/2018-GST-Central Tax dated 31 December 2018; and
  • the Corrigendum dated 7 March 2019, bearing Corrigendum No. 76/50/2018-GST (F.No. 20/16/04/2018-GST).

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

Issues Involved

The principal issues arising in the writ petition were:

  1. Whether TCS collected under the Income-tax Act, 1961 forms part of the taxable value of supply under the GST regime in the course of sale of motor vehicles.
  2. Whether Section 15(2) of the CGST Act requires inclusion of TCS collected under the Income-tax Act in the value of supply.
  3. Whether GST is payable on the component representing TCS collected in connection with the sale of motor vehicles.
  4. What is the correct valuation methodology for determining GST where TCS is collected under the Income-tax Act, 1961.
  5. Whether the controversy survived for adjudication after issuance of the corrected CBIC clarification.

Petitioner’s Arguments

The Petitioners contended that the amount collected as TCS under the Income-tax Act, 1961 could not form part of the taxable value of supply for GST purposes.

Their case, as recorded by the High Court, was that:

  • TCS collected under the Income-tax Act is distinct from the consideration or taxable value of the motor vehicle supply;
  • such TCS should not be added to the value for computing GST;
  • consequently, GST should not be levied on the TCS component merely because the amount is collected during the transaction involving sale of motor vehicles.

The Petitioners therefore questioned the inclusion of Income-tax TCS in the GST valuation base.

Respondent’s Arguments / Position Before the Court

When the matter came up for consideration on 14 October 2022, it was not disputed before the High Court that the controversy had been clarified by the relevant circular as corrected through the subsequent corrigendum.

The position emerging before the Court was that:

  • the corrected clarification governed the issue;
  • TCS collected under the Income-tax Act would not form part of the taxable value for determining GST payable on the sale of motor vehicles; and
  • therefore, the original controversy no longer required substantive adjudication by the Court.

The judgment does not record any continuing respondent argument insisting that GST must be charged on the TCS component after the corrected clarification.

Court Order / Findings

The Kerala High Court closed the writ petition after recording that the issue had already been clarified.

1. Court Identified the Precise GST Valuation Question

The Court recorded that the writ petition raised the question whether amounts of TCS collected under the Income-tax Act, 1961 could form part of the taxable value of supply under GST during the sale of motor vehicles.

2. Corrected Circular Resolved the Controversy

The Court noted that the issue had been clarified through Circular No. 76/50/2018-GST-Central Tax, as corrected by Corrigendum dated 7 March 2019.

The corrected position was that TCS under the Income-tax Act would not form part of the taxable value for determining GST payable on the sale of motor vehicles.

3. Section 15(2) of CGST Act Considered

As reproduced on page 3 of the judgment, the clarification referred to Section 15(2) of the CGST Act, which addresses inclusion in value of supply of specified taxes, duties, cesses, fees and charges levied under other laws, subject to the statutory wording and conditions.

However, the corrected clarification specifically concluded that, for GST valuation purposes, TCS under the Income-tax Act is not includible.

4. TCS Treated as an Interim Levy

The decisive clarification recorded in the judgment was that:

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

This was the central legal and administrative basis on which the controversy stood resolved.

5. No Further Adjudication Required

In light of the corrected clarification, the High Court held that the issue raised in the writ petition no longer arose for adjudication.

6. Writ Petition Closed

The writ petition was accordingly closed, with the express clarification that the issue would stand governed by:

  • Circular dated 31 December 2018 bearing No. 76/50/2018-GST-Central Tax; as
  • corrected by Corrigendum dated 7 March 2019, bearing Corrigendum No. 76/50/2018-GST (F.No. 20/16/04/2018-GST).

Important Clarification

This judgment should be understood with precision.

1. High Court Did Not Independently Strike Down Section 15(2)

The Kerala High Court did not hold Section 15(2) of the CGST Act unconstitutional or invalid.

2. Court Closed the Petition Because the Issue Had Already Been Clarified

The writ petition was not decided through an extensive independent determination of the full scope of GST valuation law. Instead, the Court found that the controversy no longer required adjudication because the corrected circular had clarified the position.

3. Corrected Position Is Crucial

The original Circular No. 76/50/2018-GST must be read with the subsequent Corrigendum dated 7 March 2019. The judgment specifically proceeds on the corrected position.

4. TCS Is Not Added to GST Taxable Value

For the issue before the Court concerning sale of motor vehicles, the corrected clarification recognised that TCS under the Income-tax Act:

  • is an interim levy;
  • does not have the character of tax for this valuation purpose; and
  • is therefore not includible in the value of supply under GST.

5. Practical Effect

The practical consequence of the ruling is that the issue of GST valuation on the TCS component stands governed by the corrected circular: GST is not to be computed by adding such Income-tax TCS to the taxable value of supply merely on that basis.

Sections / Provisions Involved

Section 15(2) of the Central Goods and Services Tax Act, 2017

The principal GST provision referred to in the judgment concerns inclusions in the value of supply.

The circular extract reproduced by the High Court refers to the statutory principle that the value of supply includes specified:

  • taxes;
  • duties;
  • cesses;
  • fees; and
  • charges

levied under laws for the time being in force, other than the CGST Act, SGST Act, UTGST Act and GST (Compensation to States) Act, where applicable under the statutory conditions.

Income-tax Act, 1961 – TCS Provisions

The judgment concerns amounts collected as Tax Collected at Source under the Income-tax Act, 1961.

Important precision: The judgment itself, in the operative discussion, does not expressly identify a specific section number of the Income-tax Act governing the TCS collection. Therefore, a particular Income-tax section should not be artificially inserted into the case holding merely on assumption.

Articles 226 of the Constitution of India

The proceedings were instituted as a writ petition before the Kerala High Court.

Link to Download the Order-https://mytaxexpert.co.in/uploads/1783491375_1503compressed.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.