Facts of the Case

EVM Autokraft India Pvt. Ltd., engaged in the sale of motor vehicles, approached the High Court of Kerala by filing a writ petition raising the issue of 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 TCS collected under the Income-tax Act could not form part of the taxable value of supply for the purpose of determining and collecting GST.

During the pendency of the writ petition, the issue was clarified through Circular No. 76/50/2018-GST-Central Tax, as corrected by the Corrigendum dated 7 March 2019. The clarification specifically provided that TCS collected under the Income-tax Act, 1961 would not be includible in the value of supply for GST purposes because it is an interim levy not having the character of tax.

Issues Involved

The principal issue before the High Court was:

Whether the amount of TCS collected under the provisions of the Income-tax Act, 1961 forms part of the taxable value of supply for the purpose of determining GST payable 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 such amounts are charged separately by the supplier.

Petitioner’s Arguments

The petitioner 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.

The petitioner’s case was that TCS collected during the sale of motor vehicles should not be added to the value on which GST is calculated and collected.

Accordingly, the petitioner challenged the inclusion of TCS in the taxable value of supply under the GST regime.

Respondents’ Arguments / Position

When the matter came up for consideration before the High Court, it was not disputed that the issue had subsequently 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 applicable clarification provided that, for determination of the value of supply under GST, TCS collected under the provisions of the Income-tax Act, 1961 would not be includible because it is an interim levy not having the character of tax.

Thus, at the stage of final consideration of the writ petition, the controversy regarding inclusion of TCS in taxable value stood clarified by the corrected circular.

Court Order / Findings

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

The Court took note of the clarification that:

  1. Section 15(2) of the CGST Act specifies that the value of supply shall include taxes, duties, cesses, fees and charges levied under any law for the time being in force, other than the CGST Act, SGST Act, UTGST Act and GST (Compensation to States) Act, where charged separately by the supplier.
  2. However, for determination of the value of supply under GST, TCS collected under the provisions of 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 High Court held that the issue raised in the writ petition no longer survived for adjudication.

Accordingly, the writ petition was closed with a clear direction that the issue would stand governed by Circular No. 76/50/2018-GST-Central Tax dated 31 December 2018, as corrected by Corrigendum No. 76/50/2018-GST (F. No. 20/16/04/2018-GST) dated 7 March 2019.

Important Clarification

The most significant clarification arising from the judgment is that:

TCS collected under the Income-tax Act, 1961 does not form part of the taxable value of supply for determining GST payable on the sale of motor vehicles.

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

Therefore, GST is not to be computed by adding the TCS amount collected under the Income-tax Act to the taxable value of the motor vehicle supply.

It is also important to note that the High Court did not undertake a separate adjudication of the controversy on merits after the corrected clarification had resolved the issue. Instead, the writ petition was closed by expressly making the matter governed by the corrected GST Circular.

Sections and Legal Provisions Involved

Section 15(2) of the CGST Act, 2017

Section 15(2) concerns amounts required to be included in the value of supply. The controversy arose because the provision refers to inclusion of taxes, duties, cesses, fees and charges levied under laws other than the specified GST enactments, subject to the statutory conditions.

The corrected GST clarification established that TCS under the Income-tax Act is not includible in the value of supply because it is an interim levy not having the character of tax for this valuation purpose.

Income-tax Act, 1961 – TCS Provisions

The case concerned amounts collected as Tax Collected at Source under the Income-tax Act, 1961 in the course of sale of motor vehicles.

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

The Circular dealt with, among other issues, the correct valuation methodology for ascertainment of GST on TCS collected under the Income-tax Act, 1961.

Corrigendum Dated 7 March 2019

The corrigendum corrected the relevant clarification and established that TCS under the Income-tax Act would not be includible in the value of supply under GST because it is an interim levy not having the character of tax.

Related Case Law and Connected Proceedings

The judgment record refers to earlier proceedings produced by the petitioner as:

  • Order dated 17 January 2019 in W.P.(C) No. 680 of 2019, filed as Exhibit P2.
  • Order dated 18 February 2019 in W.P.(C) No. 4868 of 2019, filed as Exhibit P3.

However, the judgment does not disclose the party names, detailed factual background, ratio decidendi, or final legal findings of those proceedings. Therefore, no independent proposition or detailed case-law ratio should be attributed to those orders solely on the basis of the present judgment.

The present decision is principally governed by the corrected clarification contained in Circular No. 76/50/2018-GST-Central Tax and the Corrigendum dated 7 March 2019.

Link to Download the Order-https://mytaxexpert.co.in/uploads/1783491918_1505compressed.pdf

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