Poorly drafted, some provisions open to interpretation
Normally, a tax law that is into its fifth year should have stabilised. The issues that usually accompany the law should have been ironed out and changes in the law should be only incremental. GST laws are an exception to the above.
With the GST tribunals not yet completely functional, taxpayers are forced to approach either the High Courts or the Authority for Advance Rulings (AAR) for justice. A majority of the AAR decisions appear to be pro-Revenue while the High Courts can judge only on questions of law.
GST on notice pay
Towards the last stages of the service tax era, an issue that cropped up was whether service tax needs to be collected on notice pay that an employee has forfeited. Initial, it was ruled that this was chargeable to service tax under the logic that this was a service provided by the employer to the employee. Later, it was held to be non-taxable by different appellate authorities.
In QX KPO Services Pvt Ltd, Gujarat State Fertilizers & Chemicals Ltd vs Assistant Commissioner, Central Excise & Customs,Anand Commissionerate, HCL Learning Systems vs CCE, Noida, and Nandinho Rebello vs Deputy Commissioner of Income-Tax, it was held that service tax is not payable on notice pay.
Tax officers under GST have chosen to ignore the logic of the decisions given under service tax on similar transactions though there isn’t too much of a difference between the two laws. This would mean that taxpayers will have to go through the entire chain of litigation once again and wait for a few years for the issue to be decided either by a High Court or the Supreme Court. One cannot fault the taxpayers for thinking that the more things change, the more they remain the same.
Another strange ruling was given by the AAR, Maharashtra, in Jayshankar Gramin vs Adivasi Vikas Sanstha, a registered charitable trust. The trust undertakes supply of services to orphans and homeless children by way of shelter, education, guidance, clothing, food and healthcare.
The trust also renders service to destitute women who are litigating divorce or homeless or the victim of domestic violence. The trust represents them before legal forums, including lodging FIR at police stations against the culprits. The trust also arrange for counselling them through expert counsellors to bring them out of the trauma and help them lead a normal life.
The AAR looked at the exemption entry for charitable trusts in Serial No 1 of Notification No 12/2017 (Central Tax-Rate) to see if the activities being done by Jayshankar Gramin were included and concluded that: “From the information provided by the applicant, it cannot be concluded as to whether the services provided to orphan and homeless children are specifically for advancement of educational programmes or skill development of orphan or homeless, as stated in point (iii) of charitable activities.” Hence, it was subject to GST.
The decision is bound to be appealed because the trust has suffered due to a situation that is not uncommon in tax laws — an inadequately drafted tax provision is interpreted even more inadequately by the tax officers. It is ironical that care or counselling of persons addicted to a dependence-forming substance such as narcotics drugs or alcohol is exempt from GST due to a specific insertion in Notification 12/2017 but the care or counselling done to destitute women is not.
There are many such contrarian tax positions in GST laws. Such situations would not prevail if the tax authorities interpreted a transaction on substance rather than searching for that transaction in GST Notifications. Like many other things in GST, one can only hope that it happens.
The writer is a chartered accountant