Source: http://aiftponline.org/2019/01/
Timestamp: 2019-04-23 14:57:21+00:00

Document:
1) Employees’ Provident Fund is set up under the Central Act viz., Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, in the year 1952.
2) It is applicable throughout the country (except Jammu & Kashmir).
3) It is applicable to almost all establishments falling under the industries / class of establishments, wherein 20 persons are employed.
4) In the case of cinema theatres workers it is applicable to such establishments wherein 5 persons are employed.
5) Benefits to an employee are provided through the schemes framed under the Act.
9) A member of Employees’ Provident fund is automatically eligible for pension and Insurance benefits without paying any additional amount of contribution.
iii) Any establishment employing even less than 20 persons can be covered voluntarily u/s. 1(4) of the Act.
iv) Any establishment registered under Co-operative Societies Act, 1912, or any State Act of Co-operative Societies, employing 50 or more employees and working without the aid of power.
v) The Employees’ Provident Fund act is applicable to the cinema theatre employing 5 or more workers.
A. If an establishment consists of different departments / branches, whether located in the same place or in different places, all such departments or branches are treated as part of the same establishment.
B. The Act continues to apply even if the number of employees fall below 20.
1. Any person who is employed for work of an establishment or employed through contractor in or in connection with the work of an establishment where salary is less than ₹ 15,000/-p.m. and optionally covered where salary exceeds ₹ 15,000/- p.m. (w.e.f. 1st Sept., 2014).
2. Any person who is classified as disabled employee under new para 82 of the Employees’ Provident Fund Scheme, 1952 and working in the private sector, with monthly wages up to ₹ 25,000/- p.m. provided they are appointed on or after 1-4-2008.
3. Any person who is classified as International Worker under new para 83 of the Employees’ Provident Fund Scheme, 1952.
2. Dearness Allowances. (Special Allowance in Maharashtra).
The permanent, temporary, full time, part time, casual, time – rated, piece – rated employees, contract employees, persons employed in various departments, head office, branches, sales offices, godowns or any other different places etc. and sales representatives are counted for computing the employment strength. Apprentices engaged under the Apprentices Act, 1961 are not counted for the purpose of applicability.
From employers contribution out of 12% contribution 8.33% is deposited in the Employees’ pension Fund subject to a ceiling that the contribution payable by the employer be limited to the amount payable on his pay of ₹ 15,000/- pm hence maximum contribution under Employee’s Pension Fund will be ₹ 1,250/-. And balance 1.00% includes administrative charges and EDLI Contribution.
Defaults by employer in paying contributions or inspection/administration charges attract imprisonment up to 3 years and fines up to ₹ 10,000/- (S.14).
For any retrospective application, all dues have to be paid by employer with damages up to 100% of arrears. Contribution payment liability upon the employer for both the shares payable, but for restrictive provisions contained in para.32 of the EPF scheme 1952, the employer is RESTRAINED from recovering “EMPLOYEE SHARE” of contribution for the past period.
Did you find yourself eligible for partial withdrawal of EPF? Do you have one of the above reasons? Yes? Still, you may not get the PF money. There is minimum service condition for each cause.
You can take the non-refundable loan from the EPF account. But it does not mean that you should prefer this option. Never try to touch the retirement fund.
You can withdraw the PF money if you leave the job and remain unemployed for 2 months. Even in some circumstances you can get PF money just after leaving the job. But to withdraw amount from EPF during the job, you have to fulfil many conditions.
1. You have to fulfil the minimum service need. The best part is the duration of the service is total. Duration of each job is added to this calculation, given you have transferred your PF account to the new job. Now you can transfer the PF amount easily with the introduction of UAN.
2. There is a limit on the amount you can withdraw. It can be up to 36 times of your wages (basic+DA). The maximum amount for withdrawal depends upon the reason of PF withdrawal.
3. You need to give proof of the reason you have mentioned.
• You can withdraw from the EPF account on the occasion of marriage. The marriage can be of yourself, sister, brother, son or daughter.
• The minimum service period for this advance is 7 years.
• You can withdraw up to 50% of the total employee contribution. You can use this reason 3 times in your life.
• Marriage invitation card along with the application should be submitted through the employer.
• You can withdraw fund for the education of self and children.
• You should have completed a total service of 7 years.
• You can get up to 50% of the employee contribution.
• This option can be used 3 times in a lifetime.
• You should attach bona fide certificate duly indicating the fees payable from the educational institution.
• You can take an advance from PF account for the treatment of self, spouse, children and parents.
• There should be hospitalisation for more than a month. If the claimant is an employee, he should have taken leave from the organization.
• You can avail advance in case of TB, leprosy, paralysis, cancer, mental derangement or heart ailment without the hospitalization.
• You have to give the certificate from the doctor stating the hospitalization need. In case of above mentioned disease you need to give the certificate from specialist doctor.
• You can take 6 times of wages (basic+DA) or total employee share, whichever is less.
• There is no limit on the frequency.
• Buying home or plot is one of the most important decisions of life. We invest most of our savings on this. But do you want to compromise with your retirement years. Think about this before applying for PF withdrawal.
• You can withdraw from PF for the purchase of a home or construction of the house only once.
• You must have completed 5 years in service.
• Property should be registered in the name of self or jointly with spouse.
• There should not be any joint owner of property other than the spouse.
• You can get 36 times of wage (basic+DA) for this purpose.
• You need to give a filled declaration form with the application.
• PF money can be also used for buying a plot.
• You can avail the withdrawal facility for purchase of plot only once.
• There should not be any co-owner of the property other than the spouse.
• You can get 24 times of wages (basic +DA).
• You need to give a copy of the purchase agreement.
• You should give a declaration with the application.
• At least 5 years after the construction of house.
• You can get 12 times of wages.
• Property should be owned by you or jointly with the spouse. Only once in service.
• Alteration proof is required.
• All the conditions are similar to the alteration of house except you have to wait at least 10 years after the construction of house.
• If you are not getting wage for last two months and your company is locked out or closed for at least 15 days, you can take a loan from EPF.
• You can get the amount equal to your unpaid wages.
• There must have a balance in employee contribution.
• You can check your PF balance through various methods.
• Retirement should be after one year.
• You can get up to 90% of the total provident fund balance.
• You need to give a certificate from the employer stating the date of retirement.
• There is no condition of minimum service.
• You have to give certificates of damage from competent authority. You can get up to 50% of the employee share.
To get the partial amount of EPF you have two ways to apply. The first way is the preferred one. In both the method you need to attach a declaration form with the application if you are taking advance for the following purposes.
Now, you have a very easy way to partially withdraw the EPF amount. The EPFO has come with a simple new EPF withdrawal Form 31 (new). This form requires very little information.
facility, you need UAN activated and KYC done.
If you can’t get advance through the first method, you can apply through the employer.
You should use form 31 for the advance through the employer. You can download this form from the EPFO website.
The application submitted through the first method would take less time. You can expect money within a week. But the second method can take up to one month. It depends upon your employer’s promptness. Some regional PF offices take more time.
A Critical Study of Law of Arrest under GST r/w Cr. P.C.
As life on a planet is supposed to evolve gradually as per theory of evolution by Darwin, similarly all factors and forces related thereto get evolved over a period of time and ‘Law’ bears no distinction.
We all have seen n number of notifications, circulars, office orders and trade notices that had been issued by Central Government and State Governments, though mostly out of knee-jerk reaction primarily. However there is a gradual shift that indirect tax law has assumed after the inception of GST in India. One such area of concern and of discussion in this paper is radical shift in the approach of administration of tax as far as displacement of focus from penal provisions to punitive provisions is concerned. When on one hand it is right of Government to collect taxes, on the other hand it is also a prerogative of Government to prevent any leakage thereof by way of evasion (colourable device) and of discouragement to its attempt or abetment hence. The enforcement wings of GST departments have been working in cyclone mode quite lately and such manner of working of authorities do provide that as professionals, we should be well aquantined with provisions so as to enable us, how to deal a possible arrest case both conceptually and realistically. Though people getting arrested and later on being released on bail is an age old law/practice however in this paper we have tried to cover periphery of law of arrest w.r.t. GST r/w Cr.P.C (sections 41 to 60) i.e. why, when, who and how etc., of such punitive provisions.
What technically is an arrest?
Arrest implies “apprehension of a person by legal authority so as to cause deprivation of liberty especially in response to a criminal charge”.
Why does the need for arresting a person arise?
1. Supplies any goods/ services without any invoice or issues a false invoice with a intention to evade tax.
2. Issues any invoice or bill without supply of goods/services in violation of the provisions of GST leading to wrongful availment or utilisation of input credit or refund of tax.
3. Avails input credit on the bills or invoices on which there will no supply of Goods and Services as mentioned in Para–2.
Who is authorised to arrest somebody?
Only Commissioner can authorise an officer to arrest a person in four cases (supra). All the field officers are not automatically empowered to take a decision in the matter of arrest and use the powers since the “arrest” in itself is a very sensitive matter. Here authors are of the concerned view that arrest can be of a natural person only hence if any offence is committed by any corporate or distinct legal entity then the person in charge or control may be implicated under arrest provisions.
Can CGST/SGST officers seek assistance from other departments?
Yes, the GST authorities empowered with the power of arrest may require the assistance and services of other law enforcing and other agencies with respect to completing the task and for this purpose it is provided that all officers of police, railway, custom, land revenue and village officials are required to assist the GST officers in enforcing an arrest proceeding.
How the provisions of arrest are executed?
Firstly, only such cases of offense u/s. 132(1) to 132(4) can be implicated for arrest where amount of tax evaded is INR 2 crore or more however where monetary quantum involved for tax evasion is found to exceed or equal INR 5 crore then difference in treatment of arrest law crops in.
Secondly, offences restricted between tax evasion value of ₹ 2 crore to ₹ 5 crore have been treated to be as non-cognisable offences and any offence carrying monetary value greater than equal to ₹ 5 crore shall be treated as cognisable offence. A person can be arrested for non-cognisable offence only after issue of warrant by competent authority/court but for cognisable offences an arrest could be made even without issuance of warrant.
Thirdly, all non-cognisable offences are bailable however cognisable offences are non-bailable. Now what does the term non-bailable offense indicate? Please be informed that non-bailable offences does not mean that bail cannot be granted rather it imply merely that bail is to be granted by court, not as a matter of right but as a subject of higher degree of discretion.
Fourthly, legal fiction has created fine difference between a notice, a summons and a warrant. The fundamental variance among them lies in the purpose of their usage. While a notice is issued to seek certain information or document from addressee but a summon is issued to enforce personal appearance of the addressee. Still, the warrant is issued for taking somebody under arrest apprehension. The question of handcuffing the person by authorities is also subject to warrant issued by court in this regard specifically.
Lastly, to take someone under custody is different from arrest in so much that in every arrest there is custody but not vice versa.
Are there any rights provided to arrestee?
In law, there is principle of “presumption of innocence till he has proven guilty” it requires a person arrested to be treated with humanity, dignity and respectfully till his guilt is proved in terms of Article 21.
• Right to be informed of the grounds of arrest under sec. 50 of CRPC and Article 22 of Indian Constitution, it’s a fundamental right to be informed.
• A right to see the warrant under Sec. 75 of CRPC. Warrant of arrest should fulfil certain requirements such as it should be in writing, signed by the presiding officer, should have seal of court, Name and address of the accused and offence under which arrest is made. If any of these is missing, warrant is illegal and challengeable.
• Arrested person has a right to inform a family member, relative or friend his arrest u/s. 50 of CRPC.
• Arrested person has right not to be detained for more than 24 hrs., without being presented before magistrate, it is to prevent unlawful and illegal arrests. This right is fundamental right under Article 22 of Indian Constitution and supported under section 57 and 76 of CRPC.
person without will or without his consent.
Goods and Services Tax (GST) has now become reality in our country w.e.f. 1-7-2017. It is the biggest Indirect tax reforms which our country has ever witnessed since Independence. Multiple taxes levied by different States/UT in their own unique way have now become history. Implementation of GST is said to be the game changer for the Indian Economy. Now, more than a year has been passed since the implementation of this law in India. We have seen many ups and downs during the transitional phase of this new law. The GST law in the country is basically governed by its mother Act called Central Goods and Services Tax Act 2017. Apart from it, the Integrated Goods and Services Tax Act, 2017 and State/UT Goods and Services Tax Act, 2017 is also governing the law. Further corresponding rules are also notified by the Government under the respective Acts.
In contrast to GST, Income Tax Law in India is an age old law which is in existence prior to Independence. Presently, it is being governed by the Income-tax Act, 1961 and the corresponding rules made thereunder. After implementation of GST, Direct Tax collection of the country is expected to grow remarkably. The main reasons for such growth are the avoidance of cascading effect of taxes and availability of Input Tax Credit. If a person is a service provider then the income tax liability is going to increase as he can take credit on goods which earlier was a cost to him, resulting in a decrease in cost and increase in profit. Similarly, if a person is trader he can take credit on the services availed for business which earlier was a cost to him, resulting in decrease in cost and increase in profit. Hence income tax will increase. In fact after GST implementation we have seen significant growth in the number of income tax assessees and overall collection of tax.
This article is an attempt made to discuss and analyse the impact of Income tax assessment of Business Income on the GST liability of the assessee and the vice-versa.
Relationship between GST & Income Tax – How it becomes closer now?
No Centralised database available: Different States were having their own VAT laws and online portal for filing of returns etc. which the Income Tax officer either could not access or had limited access. So there was always a problem of matching of data reported between the Income Tax law and the VAT law of the State/UT.
Non-PAN based Registration: Some States/UT even allowed registration under their State/UT taxation laws even without obtaining PAN number of the assessee. As a result it was very difficult to have a complete trail and track of such assessees who were paying indirect tax only.
Lack of Co-ordination: Earlier there seems to be some lack of co-ordination between tax officials at the Centre and the State in respect of exchange of information /database etc., which resulted in escapement of tax liability either side.
Multiple threshold limits: There were multiple threshold limits prevailing for different Indirect tax laws and further the same was also not uniform State wise. The unscrupulous assessees were taking advantage of the same and thereby defrauding revenue.
Reference to other taxation law was minimal: The earlier tax laws were having one more problem wherein the reference to the other Central laws including Income tax law was minimal which sometimes created problem for the tax officials to pull the unscrupulous assessees.
Introduction of GSTN: The Government has launched GST with a dedicated digital system, called GST Network (GSTN), to manage all GST related things online from a single portal. This also makes it simple for businesses to maintain proper tax records and calculate their tax liability correctly. Income tax department can also easily figure out the tax liability of a particular person or business by comparing their returns for the details of total turnover to find out any discrepancy and catch tax evaders.
PAN based registration mandatory: Goods and Services Tax law has made it compulsory to have Permanent Account number for obtaining registration. Even the assessees residing in tax exempted States (like Meghalaya, Nagaland, Manipur etc. etc.) need to have PAN number compulsorily to get GST registration. Now, by having such PAN based registration, value of total turnover reported in all the returns under GST, whether it is CGST or SGST will be reported to Income-tax Department by GSTN.
Proper Co-ordination between Centre and State: The use of complete technology is the key feature of the Goods and Services Tax law. Right from obtaining registration to the filing of annual return, assessment demand and recovery everything is online. Centralised software is prepared for this. So now, there will be no more State control on it which led to allow the tax officials to exchange database freely with proper co-ordination. Moreover, the annual return format under GST in Forms 9 & 9A categorically ask for the details of demand paid under GST. It means the details of such demand and recovery payment under GST will also be now available to the Income-tax dept.
Single or Limited Threshold Limits: Under the earlier tax regime, we have witnessed separate threshold limit for Central Excise, Service tax and VAT law. It was quite confusing. Now, under GST there is a single threshold limit for registration (except for special category States as notified) which is very clear and no ambiguity persists.
“aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number (under Income-tax Act, 1961), to be computed on all India basis but excludes Central tax, State tax, Union territory tax, Integrated tax and cess.
an income tax authority appointed under the provisions of the Income-tax, 1961.
Financial Year 2017-18 is the first year wherein the three quarters starting from 1st July, 2017 and ending on 31st March, 2018 will be covered under the GST regime. Since GST operates on the basis of PAN based registration only so the Income Tax dept. would readily have all the data for these three quarters. However, the data reported under the Income-tax through ITR and Tax audit report would cover figures for all the four quarters i.e., for full financial year including non-GST regime. So in the first year this will pose some mismatch problems and will be subject to reconciliation.
However, from the F.Y. 2018-19 onwards there will be no such problem of mismatch in turnover because the whole period would be under GST net only. So in the coming period who knows the Government may introduce a reconciliation statement of turnover under Income-tax v. GST turnover in the ITR forms as well as TAR forms itself so that unnecessary scrutiny selection may be avoided.
An assessee may not have obtained GST registration due to the fact that its goods or service are either exempted or not liable to GST. But at present there is no reporting mechanism in the Income-tax returns or tax audit report to state or explain the reason for non-obtaining of GST registration. So this may land assessee in trouble whereby the Income-tax officer may refer the matter to GST authorities for further investigation and assessee needs to offer explanation thereto.
There may also be a situation where an assessee is having turnover of goods and services below the threshold limit of registration as specified u/s. 22 of the CGST Act, 2017. But when one calculates the ‘aggregate turnover’ as defined u/s. 2(6) there may arise liability to obtain registration. Under GST often assessee commits mistakes in not considering items like saving bank interest, fixed deposit interest, interest on loans, dividend, debenture Interest etc.(which otherwise are exempt) in the aggregate turnover for calculating the threshold limit. But all these facts and figures will be readily available with the Income-tax officer and the assessee may be liable to pay GST on the turnover which he/she was expecting to be exempted otherwise because of the threshold exemption. The Income-tax authority will exchange all such data with the GST department and defaulters are likely to receive notice for registration under GST.
Section 37 of the Income-tax Act, 1961 puts a bar on claiming expenses of personal nature while calculating profit and gain from business of profession. Nowadays, it is a common phenomenon in Income- tax assessment proceedings where an Income-tax officer tries to disallow certain percentage of genuine business expenses on the ground of being personal in nature. Once expenditure is disallowed on this ground, it will have a far reaching impact on the GST liability of the assessee as well.
Section 16 of the CGST Act, 2017 also puts a bar on claim of ITC on any goods or services which are not related to or for the furtherance of business or are of personal nature. Thus disallowance of business expenses under Income-tax apart from attracting income tax liability will also be subject to tax under GST. Under GST, the assessee needs to reverse ITC claimed earlier and also liable pay interest @24% on such reversal. The matter does not end here. The ITC reversal will also not be consequently allowed as business expenditure under the income-tax law as being personal in nature and will again be subject to income tax. However, interest payment under GST on such reversal of ITC should be allowed in view of our discussion in the later paras hereunder. Thus it will really be a costly affair to the assessee. Common heads of such expenses can be cited as – Tours & Travelling, Mobile Phone bills, Vehicle repairs and Maintenance, Vehicle Insurance, Guest House maintenance etc., etc.
In computation of income under the head Profits and gains of business or profession, some of the expenses are allowed under Income-tax Act 1961 and can be claimed by the assessee only in the year in which the payment is actually made. This section has got overriding effect on the other provisions of the I.T. Act. However, the section shall not apply to any sum which is paid on or before the due date of filing of return of income as stipulated under Section 139(1) of the Act.
Whether merely payment made through challan under GST is sufficient or actual set off of such payment lying in cash ledger with the outstanding liability is necessary?
Whether set off of outstanding liability at the year end with the Input Tax credit available subsequently will be considered as payment made?
In order to answer the above questions it becomes necessary to understand the provision of GST law first. The provisions of section 49 of the CGST Act, 2017 explicitly state that payment of tax means payment made through electronic credit ledger or electronic cash ledger. So it is pertinent to note that GST law considers the payment of liability only when it gets offset with the balance lying in cash ledger or credit ledger. This means that until and unless liability is offset the amount will not be considered to be paid.
But the author is of view that as far as GST payable at the end of the previous year is paid through challan (before the due date of filing return of income u/s. 139(1)) it is all right and deduction can be claimed u/s. 43B based on such payment challan. Once the assessee has paid the amount through challan and money is credited & lying in the cash ledger under GST then there should not be any problem because the assessee has already parted with the money by appropriating it to the exchequer’s account. So the author believes that actual set off of such payment with the GST liability may not be necessary for claiming deduction u/s. 43B because we have to read section 43B with the legislative intent behind introduction of this section. However, since GST is a new law so the matter is yet to be tested judicially.
But the real problem will arise in the situation where outstanding liability is not paid through challan rather it is offset with the available input tax credit of the subsequent period(s). In such a situation whether such set off will be considered as payment made or paid u/s. 43B of the I.T. Act, 1961? Will Income-tax officer allow such expenses in computing Profit from Business and Profession?
Sales tax deferment – If the sales tax (‘ST’) law provides that where deferred ST/ST is deemed to have been converted into loan it is to be treated as actual payment, the same will be treated as paid.
The Hon’ble Kolkata High Court in the case of CIT v. National Standard Duncan Ltd. 260 ITR 97 held that where the Bombay Sales Tax Act, 1959 and the rules there under allows the assessee to set-off sales tax paid on the purchase of raw material used for the finished products, then such assessee would be entitled to set off or adjustment of its liability to pay sales tax payable on the sale of such finished products, availing such set-off by the assessee should be treated as actual payment of sales tax liability for Section 43B purposes.
The Hon’ble Jharkhand High Court held that book adjustments constitute “actual payment” for Section 43B – CIT v. Shakti Spring Industries (P) Ltd. 219 Taxman 124.
So based on the above discussed judicial precedents one can understand that if the outstanding GST liability is being set off with the input tax credit available in the next period then there should not be question of disallowance under section 43B of the I.T. Act. However, GST being a new law in the country so the author believes that the said proposition is yet to be tested by the judiciary in the light of the provisions of the GST law.
The provisions of interest and late fee under GST are operating quite effectively since its inception. Delay in payment of tax and delay in filing tax return under GST attracts interest and late fee. Now, a question arises whether such interest and late fee are allowable expense under the Income-tax law? In the earlier laws also there was the concept of interest and late fee payment. The same was also tested by the judiciary and held that interest being compensatory in nature is an allowable expenditure and late fee was however a vexed issue and was a matter of dispute. So the author opines that the same proposition is going to hold good under the GST regime as well.
The issue of delay in the payment of indirect tax law is directly covered by the judgment of Hon’ble Apex Court in the case of Lachmandas Mathura v. CIT reported in 254 ITR 799 (SC) in favour of assessee on the ground that interest being not penal in nature rather it is compensatory in nature and thus allowable u/s. 37(1).
So far as payment of late fee under Indirect tax law is concerned it is a settled position that only those expenses which are penal in nature and incurred for an offence or which is prohibited by law are not allowed as deduction u/s. 37(1). But late fee payment as the name suggest is not a penalty. It is thus an allowable expense. At the same time one can argue that the late fee is nothing but cost of default made and also not compensatory in nature so it is basically in the nature of penalty only. The Hon’ble Supreme Court in case of Swadeshi Cotton Mills Ltd. v. CIT, (1967) ITR 57 (SC) held that where the amount paid is partly penal and partly compensatory, the amount to the extent that it is compensatory could be allowed as deduction. The author is of the opinion that the late fee is not a penalty and thus it should be allowed deduction as normal business expenditure. In this matter one can also refer section 234E of the Income- tax Act whereby assessees are paying late fee on account of failure to submit TDS statements timely and the same is allowed on the ground not being penal in nature.
Demand paid under GST- Is allowable Business expenditure u/s. 37?
With the introduction of e-Way bill mechanism under GST, the tax dept. is seen pro-active in levy of tax and penalty for any contravention or departure from statutory compliances. Furthermore the provisions of levy of tax and penalty is also being invoked in case of evasion of tax is detected. Under GST law tax paid on account of demand and recovery is also not allowed to be set off with any other liability under the GST. So here comes a question to our mind that whether such tax payment which remains unadjusted would be allowable business expenditure under the Income-tax law?
In this respect it is pertinent to first discuss here the position under the earlier laws. Service tax audit by the departmental officers was a common phenomenon for all the assessees. Often the departmental officers raised service tax demand which the assessee was required to pay in spite of the fact that the same was never collected from the service receiver. After making the demanded payment of service tax, the assessee got immunity from service tax penal proceedings. But this led to one new battle between the assessee and the Income-tax dept. The Income-tax dept. denied the service tax payment claim of the assessee as business expenditure. This situation created litigation between the assessee and the dept. The Hon’ble Gujarat High Court in case of Commissioner of Income Tax-III v. Kaypee Mechanical India (P.) Ltd. [(2014) 45 taxmann.com 363 (Gujarat)] had an occasion to deal one such issue wherein the Court dismissed the Revenue’s appeal and held that where assessee had not collected and deposited service tax but on being pointed out, deposited same, amount being expended by assessee in course of business was allowable as business expenditure.
The revenue on the other hand placed reliance upon the judgment of the Apex Court in case of Haji Aziz & Abdul Shakoor Bros. v. CIT  41 ITR 350. However, the Hon’ble Gujarat High Court took the view that payment of demanded tax cannot be equated with payment of penalty. Thus the decision in case of Haji Aziz & Abdul Shakoor Bros. (supra) was distinguishable.
Now, the instant judgment of Gujarat High Court on eligibility of service tax as a business expenditure u/s. 37(1) of the Income-tax Act, 1961 is going to have a far reaching impact under the GST law as well. Nowadays, assesses are very prompt in making payment of the demanded amount in order to get relief from the mandatory penalties under the GST law. Thus this judgment will certainly encourage assessees to make the payment of legitimate demand raised by the tax dept. because the fear of disallowance under Income-tax law of such payment no more exists now. This will surely minimise litigations.
Methods of Accounting under Income-tax can be either cash or accrual but under GST it is can be accrual only. So it may create mismatch and GST authority can invoke jurisdiction to examine the same.
Related Party transactions and its valuation under Income-tax are done at arm’s length price or FMV but under GST transaction value is allowed. So the difference in valuation mechanism may also sometimes disturb an assessee.
Point of revenue recognition under Income Tax (as per AS/ICDS) v. Time of Supply under GST (Sections 12 & 13) is also an area where difference of opinions is likely to exist. So it may also allow GST authorities to check whether there is revenue leakage at all.
Details of expenses paid to GST registered entities and non-GST registered entities as envisaged under clause 44 of Form-3CD (since deleted) and ITR-6 will also be an eye catcher to the tax dept. The dept. will try to trace such unregistered entities doing voluminous transactions and are therefore liable for registration under GST.
In GST assessment or audit proceedings the input tax credit claim of an assessee will be the core area to be examined by the authorities. The Tax dept. will try to disallow ITC either on the ground of not being in the furtherance of business or personal in nature or due to blocked nature as specified u/s 17 of the CGST Act, 2017. Once an input tax credit is disallowed owing to personal in nature then it may impact the income tax liability of an assessee. The Income-tax dept. will try to examine the eligibility of such expenses on which input was claimed on the touchstone of section 37 of the Income- tax Act, 1961. Though each department is independent and has their independent process of enquiry, assessments etc. but still once the information related to disallowance of ITC of personal nature is shared with the Income-tax dept. then it will give them a grip to examine the matter further. Once the income tax department, after proper findings, comes to a conclusion that such expenses on which GST dept. disallowed input credit are personal in nature then additions under Income Tax law is inevitable. Further question of levy of penalty u/s. 271(1) (c) may also come into play. Thus the assessee may face double burden one under GST by way of reversal of ITC and other under Income tax by way of addition of such expenses to the income of the assessee. So in this way GST assessment may impact IT assessment of an assessee.
Reversal of ITC being personal in nature on capital goods under GST will also not be an allowable expense under section 37 of the I.T. Act.
Depreciation already claimed on the cost of such capital asset will be subject to further scrutiny by the I.T. dept. and if asset found personal in nature then such depreciation will also be disallowed u/s. 32 of the I.T. Act.
u/s. 271(1) (c) under Income-tax Act may also come into play.
Under section 171 of the CGST Act, 2017 specific provisions on Anti-profiteering have been legislated. The anti-profiteering provisions are inherently designed to protect consumers by restricting the companies to benefit unjustly on account of any reduction in GST rates or enhancement in tax credit pool. So once GST officer makes up his mind to pull an assessee under anti-profiteering clause and the charges are framed and confirmed then in such scenario the Income tax dept. will also try to invoke its jurisdiction. The Income-tax dept. would try to find out whether due to such undue profit or gain there has been a commensurate increase in the income tax liability of the assessee at all.
Frequent violation of statutory compliances under the GST law and application of demand and recovery provisions against the assessee will definitely create a doubt in the mind of Income-tax authorities as well. So it will not be a surprise if IT dept. sets some monetary limit or parameters whereby cases having prescribed GST demand payment may be under one of the criteria for Computer assisted scrutiny selection (CASS).
Cases of bogus transactions /fake invoices under GST are coming to the knowledge of the authorities since recent past. The GST dept. has already unearthed huge GST revenue leakage on account of such transactions. So apart from the main culprit all the associated entities are likely to come under the radar of Income-tax dept. as well.
Cases of keeping long pending bogus creditors in the books of account will also be gradually reduced due to the fact that GST law does not allow input tax credit on such transactions which remains unpaid for more than 180 days. Moreover, the provision of disclosure under MSME Act, 2006 is also amended recently to protect the interest of the small and medium entities. So certainly it will put a bar on keeping bogus creditors in the books by unscrupulous assessees.
After implementation of GST law one thing is going to be certain that there will be a huge fall in the tax evasion. It has been noticed at times that businesses report a different value of stock in their annual VAT return as compared to their Income-tax return. This valuation is sometimes inflated to show higher profits to maintain the credit score against the loans taken from the bank, while on the other hand, many entities deflate the value of stock to attract less tax liability.
Under the GST law, every movement of taxable goods having invoice value above ₹ 50,000/- is subject to generation of e-Way bill. Further every sale invoice (B2C) will also get uploaded on the GST portal. These invoices will, in turn, be referred to the buyer. But the return filed under the VAT law or CST laws do not require validation from the buyer. A major implication of this information sharing between I.T. & GST dept. would be that the tax evaders who window dress their books at the year end to lessen their tax liability will find it harder to do so. Such actions or window dressing were possible before as the Income Tax Department did not have any access to the data which is filed under the state VAT laws. However, under the new regime, GSTN will be the single repository to all these transactions and the Income-tax Department will have a clear picture of the total sales and purchases, and eventually the overall profitability, of every business. So it is clear that an upward assessment under one law is going to impact the liability of the assessee under the other law as well.
if such a result is a matter of necessary implication.
(b) the interests of, welfare of, well-being of, or security of inhabitants of India, and Indians?
The answer to the above would be yes. However, Parliament may exercise its legislative powers with respect to extra-territorial aspects or causes – events, things, phenomena (howsoever commonplace they may be), resources, actions or transactions, and the like –that occur, arise or exist or may be expected to do so, naturally or on account of some human agency, in the social, political, economic, cultural, biological, environmental or physical spheres outside the territory of India, and seek to control, modulate, mitigate or transform the effects of such extra-territorial aspects or causes, or in appropriate cases, eliminate or engender such extra-territorial aspects or causes, only when such extra-territorial aspects or causes have, or are expected to have, some impact on, or effect in, or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, well-being of, or security of inhabitants of India, and Indians.
125. It is important for us to state and hold here that the powers of legislation of Parliament with regard to all aspects or causes that are within the purview of its competence, including with respect to extra-territorial aspects or causes as delineated above, and as specified by the Constitution, or implied by its essential role in the constitutional scheme, ought not to be subject to some a priori quantitative tests, such as “sufficiency” or “significance” or in any other manner requiring a predetermined degree of strength. All that would be required would be that the connection to India be real or expected to be real, and not illusory or fanciful.
127. (2) Does Parliament have the powers to legislate “for” any territory, other than the territory of India or any part of it?
GVK Industries upholds the validity of a legislation even if the law is directed towards patently extra-territorial behaviour, as long as the law results in welfare of the Indian people. Now this is a dangerous doctrine, at least as applied to tax law. A tax will always accrue to the Indian Treasury and thus result in welfare of the Indian people. On that basis, effectively no tax law can be challenged at all on the basis of extra-territoriality.
will not interpret a law to have extra-territorial effect.
Article 265 says that no tax shall be levied or collected without the authority of law. The genesis of this article is in the principle that taxes cannot be levied without representation. That is, tax cannot be levied upon a people without their consent expressed through democratic means. The author submits Article 265 imposes an inherent limitation on the levy of tax on extra-territorial transactions. If a transaction is entered into by A and B, both non-citizen taxpayers resident in foreign territory and the transaction itself is not entered into in India, then the Indian legislature is not competent to tax it and recover the taxes from property which may be situate in India. Though the tax is ultimately for benefit of the Indian people, the cherished constitutional principle – no taxation without representation – would render such an enactment unconstitutional. In fact, such behaviour may even result into India becoming a pariah state in international commerce. In an increasingly inter-linked world, the rules of composite international trade and comity within nations requires one country to respect the sovereignty of another. Levying taxes with respect to property, objects and transactions within the sovereign jurisdiction of another nation and with no real nexus to India, or a fanciful nexus in other words, only because there is some means of recovery in India will only make the Indian state an object of distrust in the international community.
Now, the question which arises is: how far can the right to taxation go under the GST Act when it comes to extra-territorial causes and effects. The answer is much more complicated than a bare analysis of Article 245. For one, there is no settled law on the situs of a “supply”, the heart of the charging section. A “supply” can start with an “agreement to supply” and the stipulation of consideration, then the actual performance of a “supply”. It is clear that the GST Act cannot be ordinarily interpreted to tax a supply which takes place in a foreign country and where only consideration is paid in India. It may be constitutional for Parliament to enact such a tax, but the GST Act as enacted today does not levy such a tax. Similarly, merely because negotiations have been performed in India, the tax cannot be levied in India, for negotiations are not a “supply”.
There are some interesting issues which arise in this regard. Suppose A is importing certain goods into India from England. Before the goods cross the customs frontiers of India, A transfers the title of goods through a transfer of documents of title when the goods are on high seas to B, who is resident in Bangladesh and will take delivery there. Clearly the physical supply has happened from England to India. However, can the Revenue tax the transaction by holding that the contractual transfer has taken place in India, in as much the endorsement on the documents of title took place in Indian territory? The GST Amendment Act 2018 addresses this problem, but the Act is yet to be notified.
Such problems will keep on arising and pose challenging questions for the taxation field for quite some time. We can only hope that Parliament is proactive and fair in providing solutions to these problems, and not wait for the Supreme Court to settle these questions after a quarter-century.
Let your preparations be wise, correct and of such kind that will lead to your true welfare, supreme good and lasting satisfaction and happiness. This must engage your active, enthusiastic attention throughout the period of your youth life.

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