The outbreak of the COVID-19 is a challenging time for everyone. No sector has been left untouched and unaffected by the pandemic. To substantially reduce the spread of the virus, lockdown was the only possible solution. The governments across the world have been asking people to practise social distancing and stay at home. The government is doing everything possible to help people from the challenges posed by the epidemic. The government also asked to convert hotels to isolation wards. Supply of hotel accommodation is chargeable under GST. However, whether GST will be leviable on hotels turned into isolation wards is something that is being pondered upon? Here is an excerpt from the very interesting conversation of Sudhir Halakhandi and GST Expert CA Arpit Halda which throws light on it:
Query 1: Hotels are taken over by the government for developing isolation wards for COVID patients, they will not get any consideration. Will it be considered as a supply and is GST payable?
CA (DR.) ARPIT HALDIA: This a Tricky one and will try to answer the same to the limited extent I can arrive at the conclusion due to paucity of time.
Supply and Tax thereof-The hotel has been acquired by the Government under Disaster Management Act 2005. The assessee has no other option but to give it to the government. Since Provisions of Schedule I of CGST Act, 2017 are not applicable and no consideration is being received, said transaction would not be leviable to tax and no tax would be leviable on the given transaction.
Further regarding the claim of Input Tax Credit, Hon’ble Gujarat High Court in the matter of Commissioner Of Income-Tax ... vs Navsari Cotton & Silk Mills Ltd. on March 81 Equivalent citations: 82 1 ITR 546 Guj has laid down the criteria for falling within the clause of “in the course or furtherance of business.
If the expenditure incurred :- a) with a view to bring profits or monetary advantage either today or tomorrow. b) to render the assessee immune from impending or reasonably apprehended litigation. c) in order to save losses in the foreseeable future d) for effecting the economy in working which may pay dividends to-day or to- morrow. e) for increasing efficiency in working f) for removing inefficiency in the working. g) where the expenditure incurred in such as a (i) wise (ii) prudent (iii) pragmatic (iv) ethical man of the world of business would conscientiously incur with an eye on promoting his business prospects subject to the expenditure being genuine and within reasonable limits. h)where it is incurred solely by way of a civil duty owed by the assessee.
Therefore in my view the hotel has been acquired by the government and the assessee has no option but to give it to the government and cannot deny the same. Therefore looking to the above clauses my view is that the act is in the course or furtherance of business and therefore, eligible to claim ITC on the inputs and input services received during this period in accordance with provisions of Section 16 and subject to provisions of Section 17 and other applicable restrictions specifically applicable, if any.
Further can the ITC be denied on account Provisions of Section 17(5)(h).If we closely look at Section 17(5)(h) of CGST Act, it says about “goods lost stolen destroyed written off or disposed of by way of gift or free samples”. The above act does not in any way fall in any of the above scenario.Providing hotel in this pandemic as a premises is under compulsory acquisition wherein charging consideration is not in the hands of the taxpayer.
Therefore, the question of providing premises free or as a gift does not arise and thus provisions of Section 17(5)(h) are not applicable. And as a matter of academic discussion Section 17(5)(h) is applicable on goods and not services provided free of cost.
Therefore, in my view output tax would be nil and Input Tax Credit would be available even though no consideration has been received. The case does not fall within Section 17(5)(h) of CGST Act, 2017 as discussed above and is in the course or furtherance of business.
Query 2: An assessee provides exempted services whether advance received for providing such service is also exempt. Advances not settled during the year will have some effect.
CA (DR.) ARPIT HALDIA: Yes Advance would also be exempt from levy of Tax. Since Advance is exempt from levy of tax settlement or non-settlement is not an issue.
Query 3: Mr.X is a registered entity in Jaipur providing engineering consulting services to Singapore based company Y in relation to highways roads in Bangalore India. What is the nature of above supply (inter or intra) or supply is zero rated supply.
CA (DR.) ARPIT HALDIA: It would be having Place of Supply according to Section 12(3) of IGST Act as Bangalore as it is directly in relation to immovable property. Assuming that the location of supplier is Jaipur and no Fixed Establishment for provision of such service is therein Bangalore nor they have taken registration in Bangalore Nature of Supply would be IGST.
Query 4: Ineligible ITC Taken in GSTR-3B but not utilized due to already excess of credit. Now after one year it is reversed. Department is asking for Interest. What is the legal provision?
CA (DR.) ARPIT HALDIA: In My View No Interest is Payable. Refer Commercial Steel Engineering Corporation Vs. State of Bihar (Patna HC). To the extent there is always an excess balance of the wrong credit taken.
Query 5: RCM on royalty is a very lesser known subject. In our state First it was collected by the Contractors appointed by the Government and they were charging the GST. Now they stopped Charging the GST and it is now under RCM. What is the actual provision regarding the RCM on royalty paid to the Government?
CA (DR.) ARPIT HALDIA: Tax Payment on Royalty was always under reverse charge and the contractors were incorrectly charging GST. The above anomaly was corrected somewhere in the year 2018. Therefore, charging of Tax by them, legally speaking does not absolves registered person from charging GST. Registered person has to deposit tax under RCM. Tax rate upto 31st December 2018 was equivalent to the tax rate on goods and from 1st January 2019, it is 18%.
Now whether charging GST by the contractor absolves taxpayer from GST? If Tax under RCM has not been deposited by the recipient, saving argument would solely be based upon revenue neutrality, no double tax on same transaction and order given by the State Government to the contractors for collecting tax which led the people in believing that tax is payable on forward charge.
Query 6: ITC on import (From outside India) of Capital goods in FY - i.e. GST not claimed by extended due date i.e. March. Even not claimed in Audited Books. It has been claimed in FY - and effect taken in - books in view of HC decisions regarding the due date of GSTR3B. Subsequently, law amended. Whether still be a good case to claim input credit on Capital Goods imported. Kindly enlighten.
CA (DR.) ARPIT HALDIA: First of All the claim is hit by Section 16(3) of CGST Act which provides that where registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act 61 the input tax credit on the said tax component shall not be allowed. Since Tax has already been added to the part of cost and depreciation has been claimed therefore the claim would be denied.
Just taking the view hypothetically an alternate view can be taken that ITC to the extent depreciation has been claimed in - has not been proportionately claimed and rest has been claimed in GSTR-3B. Further regarding the time limit in my view Import of Goods is not covered by the Restriction of Section 16(4) as it restricts credit available through bill and debit note pertaining to invoice and claim of ITC on import of goods is taken on the basis of bill of entry (subject to Litigation).
And last but not the least, further Section 16(4) as it is subject to litigation and judicial scrutiny by Courts.
SUDHIR HALAKHANDI: Great Time with you Dr. Arpit Haldia. Thanks.
CA (DR.) ARPIT HALDIA: Thank You Sir for the opportunity.