Facts of the Case

The Petitioner, EVM Premium Cars India Pvt. Ltd., approached the Kerala High Court by filing WP(C) No. 6711 of 2019.

The writ petition raised a specific question concerning the determination of taxable value of supply under the GST regime in the course of sale of motor vehicles.

The 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 computing GST.

The Petitioner’s case was that the amount of TCS collected under the Income-tax Act could not form part of the taxable value for the purpose of collection of GST.

During consideration of the writ petition, it was brought before the Court that the issue had already been clarified through Circular No. 76/50/2018-GST-Central Tax, as corrected by Corrigendum No. 76/50/2018-GST (F.No. 20/16/04/2018-GST) dated 7 March 2019.

The corrected clarification provided 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.

The appendix to the judgment on page 4 also records that the Petitioner had produced, among other documents:

  • Circular No. 76/50/2018-GST dated 31 December 2018;
  • an order dated 17 January 2019 in WP(C) No. 680 of 2019; and
  • an order dated 18 February 2019 in WP(C) No. 4868 of 2019.

Issues Involved

The principal issues arising from the writ petition were:

  1. Whether TCS collected under the Income-tax Act, 1961 can form part of the taxable value of supply under the GST regime during the sale of motor vehicles.
  2. Whether GST can be computed on an amount representing TCS collected under the Income-tax Act.
  3. Whether Section 15(2) of the CGST Act requires inclusion of Income-tax TCS in the value of supply.
  4. What is the correct valuation methodology for determining GST where TCS is collected under the Income-tax Act, 1961.
  5. Whether the controversy continued to require judicial adjudication after issuance of the corrected clarification dated 7 March 2019.

Petitioner’s Arguments

The Petitioner contended that the amount of TCS collected under the Income-tax Act, 1961 cannot form part of the taxable value for the purpose of collection of GST.

The substance of the Petitioner’s position, as recorded in the judgment, was that:

  • TCS collected under the Income-tax Act should not be included in the GST valuation base;
  • the amount representing TCS should not increase the taxable value of the motor vehicle supply for GST purposes; and
  • consequently, GST should not be determined by treating the TCS amount as part of the taxable value.

The Petitioner therefore challenged the proposition that TCS collected under the Income-tax Act could be added to the value of supply for GST computation.

Respondent’s Arguments / Position Before the Court

When the matter was taken up for consideration on 14 October 2022, it was not disputed before the High Court that the issue had been clarified through the relevant GST circular as corrected by the corrigendum dated 7 March 2019.

The position before the Court was that:

  • the corrected clarification governed the valuation 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
  • in view of this clarification, the original issue no longer required adjudication.

Important accuracy point: The judgment does not record any detailed continuing argument by the Respondents asserting, after the corrigendum, that TCS must nevertheless be included in the GST taxable value. Therefore, no such argument should be attributed to the Respondents.

Court Order / Findings

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

1. Court Identified the Exact Valuation Dispute

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 the GST regime during sale of motor vehicles.

2. Corrected Circular Governed the Issue

The Court noted that the matter 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 collected under the Income-tax Act would not form part of the taxable value for determining GST payable on sale of motor vehicles.

3. Section 15(2) of CGST Act Was Specifically Referred To

As reproduced on page 3 of the judgment, the clarification referred to Section 15(2) of the CGST Act.

The circular extract noted that Section 15(2) specifies inclusion in the value of supply of certain taxes, duties, cesses, fees and charges levied under laws for the time being in force, other than the GST enactments specified in that provision, subject to the statutory terms.

4. TCS Is Not Includible in Value of Supply

The decisive clarification reproduced by the High Court was 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.

This constituted the central basis for resolution of the controversy.

5. Issue No Longer Survived for Adjudication

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 Court accordingly closed the writ petition, expressly making it clear that the issue would stand governed by:

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

Important Clarification

1. The Court Did Not Strike Down Section 15(2) of the CGST Act

The Kerala High Court did not declare Section 15(2) unconstitutional, invalid or inapplicable generally.

The matter was resolved on the basis of the corrected administrative clarification governing the specific TCS valuation controversy.

2. The Court Did Not Undertake an Independent Final Adjudication Beyond the Corrected Circular

The High Court expressly held that the issue no longer arose for adjudication because it had already been clarified.

Therefore, the judgment is best understood as recognising and applying the corrected clarification rather than laying down a separate, expansive valuation doctrine beyond it.

3. The Corrigendum Dated 7 March 2019 Is Critical

The Circular dated 31 December 2018 must be read together with the Corrigendum dated 7 March 2019.

The corrected position is decisive:

  • TCS under the Income-tax Act is an interim levy;
  • for this GST valuation issue, it does not have the character of tax; and
  • it is therefore not includible in the value of supply.

4. Practical Effect on Motor Vehicle Transactions

For the issue considered in the writ petition, the practical effect is that the TCS component collected under the Income-tax Act is not to be added to the taxable value merely for computing GST on sale of motor vehicles.

5. The Judgment Does Not Specify the Particular Income-tax TCS Section

The judgment refers generally to TCS collected under the Income-tax Act, 1961 but does not expressly identify a particular section number in its operative reasoning.

Accordingly, a specific Income-tax Act provision should not be inserted into the ratio of the judgment unless independently verified from the underlying transaction and statutory context.

Sections / Provisions Involved

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

This is the principal GST valuation provision expressly referred to in the judgment through the reproduced circular clarification.

The provision concerns specified amounts to be included in the value of supply, including certain taxes, duties, cesses, fees and charges levied under laws other than the specified GST enactments, subject to statutory conditions.

Income-tax Act, 1961 – TCS Provisions

The dispute concerns Tax Collected at Source under the Income-tax Act, 1961.

However, the judgment does not expressly identify a specific Income-tax Act section in the operative discussion.

Article 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/1783491596_1504compressed.pdf

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