The levy of GST vide section 9(1) of the CGST Act is on all intra-State supply of goods or services or both. The word/expression "goods" and "services” is defined in section 2(52) and section 2(102) respectively. Both the definitions of "goods" and services specifically exclude securities. Thus, 'securities' are neither goods nor services and the transaction in 'securities' do not attract levy of GST.
The word ,securities' is defined in section 2(101) which
is in-turn has the meaning as assigned to it in section 2(h) of the Securities
Contracts (Regulation) Act, 1956. As per the definition in the latter enactment mutual funds- and tax-free bonds are included in the
definition of 'securities' in section 2(h) of the SCRA, 1956. Therefore, Sasken is not liable for payment of-GST in respect of
transactions in securities. That is to say any transaction involving purchase, sale,
income or revenue or the converse thereof would not attract GST levy.
That is not to say that services in relation
to securities rendered by a person to the Company would not attract tax. If a
broker, agent or other person facilitates or arranges transactions in securities for a
consideration, that transaction attracts GST due to the mandate of the
Explanation occurring under section 2(102), which gives the definition of service.
This provisions is somewhat analogous to
erstwhile rule 6 of the Cenvat Credit Rules, 2004 which was in force prior to
July 2017. The manner of attributing the credit referred to in section 17(2) is
found in rules 42 and 43 of the CGST Rules, 2017. Further, section 17(3) provides that the value of exempt supply under
subsection (2) shall be such as may be prescribed, and shall include supplies-on
which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of
land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
Before applying/invoking the provisions of
sections 17(1) to (2), the moot question would rest on the definitions of "exempt
supply" and "business". The expression "exempt supply" is defined in section 2(47) of
the CGST Act to mean supply of any goods
or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under
section 6 of the IGST Act, 2017 and
includes non-taxable supply. The
expression "non-taxable supply" is defined in section 2(78) of the
Act to mean a supply of goods or services or both which is not leviable to
tax under this Act or under the /GST Act, 2017. As discussed in the foregoing paragraphs, the definition of "goods" and
"services" in section 2(52) and section 2(102) respectively specifically excludes securities. Thus, securities
are neither goods nor service under GST law. The question of applying the GST law to securities would just not arise and the enactment cannot be invoked in
regard to transactions in securities. Hence
going by the principle of literal interpretation (i.e. where the words employed
in a statute are clear and
unambiguous then one should merely go by the wordings so employed), apart from the celebrated axiom that
there is no intendment in a taxing
statute and one is to adhere to the language therein- as held by the apex court
in a series of cases including Hemraj
Gordhandas v. HH Dave, 1978 (2) ELT 350 (SC). It is Company’s considered opinion that transactions in securities
undertaken by the Company would
neither fit into the definition of "exempt supply" nor
"non-taxable supply". In other
words, since the activity of transactions in securities is neither exempt
supply nor non-taxable supply, the
question of applying the provisions of section 17(2) of the CGST Act does not arise in law.
Further, in terms of section 17(1) of the CGST
Act, where any goods or services or both
are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of
credit shall be restricted to so much of the input tax as is attributable to the purposes of his
business. The word "business" is defined in section 2(17) of the Act in a wide manner and
is inclusive. Going by the said definition, the activities of transactions in
securities undertaken by the Company would
fall within the definition of "business”. Transactions in securities
relate to trade in securities and
commercial activities. They are also in nature of adventure in the nature of trade in stocks, bonds and
securities. Hence in our view, the negative provisions of section 17(1) would have no application.
That is also because the amount
of credit eligible would cover all input taxes attributable for the purposes of
business. It is unrelated to taxable supplies
and exempted supplies of output services.
The question of writing off the amount of ITC cannot arise in this case since the restrictions in section 17(1)
or section 17(2) would fail in respect of transactions in securities undertaken by the Company.
Another reason to justify the above view as
to why the provisions of sections 17(1) and 17(2) are inapplicable in respect of transactions in
securities is because of lack of valuation
mechanism for the same. Section 17(3) provides that the value of exempt supply under sub-section (2) shall be such as may
be prescribed and shall include inter alia transactions in securities. Thus,
the value of exempt supply including transactions
in securities shall be such as may be
prescribed by the Central Government. Assuming
without admitting that the transactions in securities would fall within the definition
of "exempt supply", the question which follows is what would the
value of such exempt supply. This
value should be "as prescribed by the Government". However, if one
examines the provisions of rule 42 and rule 43 of the CGST Rules, there is no mode adumbrated therein for
determining either the "value of
exempt supply" or "aggregate of value of exempt supplies" except
for the Explanation below rule 43 which provides that - For the purposes of
rule 42 and this rule, it is hereby
clarified that the aggregate value of exempt supplies shall exclude.... If one were to compare the provisions that
existed in rule 6 of the Cenvat Credit Rules, 2004 prior to July 2017, in terms
of which the Central Government had specifically defined "value" in
Explanation I (d) below rule. 6(3), which read thus - in the case of trading of securities, the value shall be the difference between the sale
price and the purchase price of the securities trade or one per cent of the
purchase price of the securities traded, whichever is more it becomes stark evident that such a mode of
determining the value of exempt supply
in the case of transactions in securities is not provided/prescribed in the CGST Rules, which is the mandate as per
section 17(3). Hence, it is Company’s view that presently in the absence of any prescription/manner of determining
value as-mandated by section 17(3),
one ought to proceed on the basis that the Government has not prescribed the express mode of
ascertainment of value for the purposes contemplated in the rules, despite the power having been vested. Also as
of now the valuation mechanism not
having been postulated in the rules the question of determination of value of exempt supply fails.
Thus, as is no machinery to determine the
value of exempt supply even if one were to assume that transactions in
securities would fall under the
definition of "exempt supply", the issue ought to be concluded on the basis that there is no requirement of
attribution in the absence of any rule. The apex court has held in the
cases of Elphinstone Spinning Mills and B.C. Srinivasa Setty, supra, that when the machinery/valuation fails no
levy can be fastened. Thus, in Company’s view, the provisions of section 17(1) and section 17(2) of the Act
vis-à-vis transactions in securities
would fail for this reason as well. This is an additional reason without prejudice to what we have earlier
on stated.
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