Based on the recent Advance Ruling by Rajasthan AAR in M/s Clay Craft India Pvt. Ltd., GST Authorities in some States have sent notices to corporates seeking information on remuneration paid to directors and GST paid thereon. Before relying on this Ruling, it is worthwhile to note that the said Ruling is based on remarkably unusual facts where applicant-company has admitted to paying GST on reverse charge basis on commission paid to Directors although their recurring salary was excluded from RCM tax.
On the contrary, Karnataka AAR in case of M/s Anil Kumar Agrawal observed that GST is not payable if the director is an employee of the Company.
Just to give a legal background, services provided by an employee to the employer are outside the purview of GST. However, services provided by director to the Company in his professional capacity are subjected to GST, and under reverse charge mechanism, the Company is required to pay GST on remuneration/fees paid to the director. The question whether director is an employee of the Company or not is a question of fact which needs to be decided on a case-to-case basis and the stand taken under the other laws such as Income Tax law, Labour laws etc. would play a pivotal role in examining the implications under GST law.
While a timely clarification from the Government on this issue would be indeed welcome, the companies are advised not to form opinion merely on the basis of Clay Craft Ruling.
Recently Delhi High Court delivered a landmark judgement in the case of Brand Equity Treaties Limited allowing the Petitioner as well as all other taxpayers to file Form GST TRAN-1 by June 30, 2020 to claim transitional credits. The other category of taxpayers include those who either (i) could not file Form TRAN-1 due to technical glitches on GSTN portal or (ii) who missed to file the form within with the stipulated deadline, or (iii) who filed the same but made bona fide errors. Delhi High Court in this judgement held that time limit prescribed under the CGST Rules to file form TRAN-1 is only directory in nature and input tax credit which by its very nature is a vested right of a taxpayer cannot be taken away by a delegated legislation.
Interestingly, Delhi High Court is not the first one and earlier Punjab and Haryana High Court and Gujarat High Court had also allowed taxpayers to file TRAN-1 beyond prescribed timeline by holding that vested right cannot be curtailed by a subordinate legislation.
To overcome the above High Court Rulings, the Government in Budget 2020 had proposed retrospective amendment in Section 140 of the CGST Act to provide for time limit for claiming transitional credits. Very recently after the aforesaid Delhi High Court Ruling, the Government has made effective this retrospective amendment in Section 140. Further, we learn[i] that a special leave petition is also filed by the Government against the decision of Delhi High Court. Thus, the Government seems very firm on its stand that transitional credits cannot be claimed beyond stipulated deadline.
Considering that Delhi High Court has relied upon residual provisions of the Limitation Act to allow taxpayers to claim transitional credits till June 30, 2020 and that the matter is still sub judice, taxpayers would need to tread this path cautiously. While the outcome of SLP may not come before 30th June, the Government is also not likely to reopen GSTN portal to allow taxpayers to file TRAN-1 before this date. Thus, the corporates who desire to claim transitional credits not claimed earlier may consider filing Form GST TRAN-1 manually with tax authorities before 30th June so that they don’t miss out on this opportunity later in case of a favourable ruling from Apex Court. However, it would be advisable not to claim such transitional credits in Electronic Credit Ledger until formally approved by the tax officer.
President of Customs Excise and Service Tax Appellate Tribunal (CESTAT) has notified various amendments in CESTAT Rules to enable conduct of personal hearings through video conferencing mode. CESTAT is an appellate tribunal constituted for deciding tax disputes under the Customs, Central Excise and Customs laws. While amendments under GST law in this behalf are yet to be introduced, we understand that, GST authorities in some cities have already started conducting personal hearings through WhatsApp video call. This measure is introduced with an objective of completing the ongoing work of appeals and hearings in a timely and efficient manner and also maintaining the requisite social distancing norms necessitated by the ongoing coronavirus pandemic. It will be interesting to see if just like ‘Work from Home’, this is also going to be a new norm or just a temporary measure in this time of pandemic.