Introduction
The
law relating to companies is laid down in Companies
Act, 2013 and the rules made thereunder and the compliance required
under the Corporate Law is under the jurisdiction of Registrar of Companies
(ROC) under the Ministry of Corporate Affairs (MCA). After the initial
registration, there are various other statutory compliances that are required
to be complied by the companies such as filing
of Annual Returns
and AGM, appointment and resignation of Directors, appointment and resignation of Auditors, change in Registered Office, change in Authorized Share Capital and so
on. While filing
said the returns
and documents in the MCA portal, the companies have to remit a prescribed fee.
Right from the Service Tax regime, levy of tax on the ROC filing fee has been a contentious issue. Even under the GST regime, the Department is issuing show cause notices to corporate taxpayers across the country demanding GST on ROC filing fee on reverse charge basis. Many companies have not paid GST on ROC filing fee and soon the issue will come up for judicial scrutiny. An attempt has been made in this article to understand the nuances in this issue in legal as well as judicial backdrop.
Legal
Aspects
According to section 2(75) of
Companies Act, 2013, the term “Registrar” means a Registrar, an Additional
Registrar, a Joint Registrar, a Deputy Registrar or an Assistant Registrar,
having the duty of registering companies and discharging various functions
under this Act;
Section 396 of Companies Act governs the appointment of
ROC, which reads as follows:
“396. (1) For the purposes of exercising such powers and discharging such functions as are
conferred on the Central Government by or under this Act or under the rules
made thereunder and for the purposes of registration of companies under this
Act, the Central Government shall, by notification, establish such number of
offices at such places as it thinks fit, specifying their jurisdiction.
(2) The Central Government may
appoint such Registrars, Additional, Joint, Deputy and Assistant Registrars as
it considers necessary for the registration of companies and discharge of
various functions under this Act, and the powers and duties that may be
exercisable by such officers shall be such as may be prescribed.
(3) The terms and conditions of
service, including the salaries payable to persons appointed under sub-section
(2), shall be such as may be prescribed.
(4) The Central Government may
direct a seal or seals to be prepared for the authentication of documents
required for, or connected with, the registration of companies.”
Registrar of Companies primarily have
the duty of registering companies incorporated in the respective States and the
Union Territories. However, in addition to registration, there are the number
of other responsibilities that the ROCs are conferred with. The Central
Government exercises administrative control
over these offices
through the respective Regional Directors (RD) who
are in-charge of the respective regions, each region comprising a number of States and Union
Territories.
The functions of Registrar of Companies include:
·
Section 77(2) – Issue certificate of registration of charge
without which the charge cannot be taken into account by liquidators or creditors
·
Section 78 – The Registrar gives a notice to the company in
order to enable it to inform whether the company has itself created a charge
and if it has not, then inform about the reason for the same
·
Section 81 – Registrar is required to keep the register of
charges in respect of every company
·
Section
93 – Return is to be filed with Registrar in case promoters’ stake changes
·
Section
137 – Copy of Financial Statement to be filed with the Registrar
·
Section
157 – Company to inform the Registrar of the Identification Number
·
Section 208 – After inspection and inquiry, the Registrar is
required to submit a report in writing to the Central Government
Similarly, Registrar of Companies have the following
powers:
·
Section
7 – Registration of a company is obtained by filing an application with the ROC
·
Section 83 – Power to make entries of satisfaction and
release without intimation from company
·
Section
206 – Power to call for information, inspect books and conduct inquiries
·
Section
209 – Power of search and seizure
·
Section
248 – Power to remove the name from the register of companies
From a Constitutional standpoint,
Entry 43 of Union list confers power upon the Central Government to make laws
for incorporation, regulation and winding up of trading Corporations, including
banking, insurance and financial corporations but not including Co-operative
Societies. The Companies Act, 2013 has been enacted for the purpose of
regulating the affairs of the Companies in India. Since Registrar of Companies
is constituted under the provisions of Companies Act by the Central Government
for the purpose of registering companies and discharging various functions under the Act, it
is a statutory authority under the provisions of law.
Sovereign
functions
Modern Democratic Governments undertake
various welfare and commercial activities apart from the regal or sovereign functions. Sovereign functions
of the State are not clearly demarcated in the Constitution. Broadly speaking, sovereign
functions are those actions of the State for which it is not answerable before the Court of Law.
Sovereign functions can only be discharged by the State and not by a private
person.
A seven-judges Constitution Bench of the Hon’ble
Supreme Court in Bangalore
Water Supply and Sewerage Board v. A. Rajappa, [1978] 2
SCC 213 had an occasion to examine as to what can be considered as a
“sovereign function” in connection with a dispute under the Industrial Disputes
Act, 1947. The Court, by a majority
decision, gave the term ‘sovereign or regal function’ of State a restricted
meaning to only the primary and
inalienable functions.
Consequently, in Synthetics
& Chemicals Ltd. Etc v. State Of U.P. 1990 AIR 1927, a seven-Judges Bench of Supreme Court noted
as follows:
“But we must recognize the exercise of sovereign power which
gives the State sufficient authority to enact any law subject to the
limitations of the Constitution to discharge its functions. Hence,
the Indian Constitution as a sovereign State has power
to legislate on all
branches except to the limitation as to the division of powers between the
Centre and the States and also subject to the fundamental rights guaranteed
under the Constitution. The Indian State, between
the Centre and the States,
has sovereign power.
The sovereign power is plenary and inherent in every
sovereign State to do all things which promote the health, peace, morals,
education and good order of the people. Sovereignty is difficult to define.
This power of sovereignty is, however, subject to Constitutional limitations.
This power, according to some constitutional authorities, is to the public what
necessity is to the individual ”
Supreme Court
in Chief Conservator of Forests Vs. J.M.
Khondare [1996 2 SCC 293] observed that one of the tests to determine
whether the executive function is sovereign in nature is to find out whether
the state is answerable for such action in Courts of law.
In APMC, Karnataka Vs. Ashok Harikuni
[2000 8 SCC 61 75-76 the Supreme
Court has observed that what is approved to be
‘sovereign’ is defence of the country, raising armed forces, making peace or
war, foreign affairs, power to acquire and retain territory. Other functions of
the state including welfare activity cannot be construed as ‘sovereign exercise
of power’. Hence, every governmental function of state need not be sovereign.
In State Of U.P v. Jai Bir Singh Appeal (civil)
No. 897 of 2002, a five-Judge Constitution Bench of the Supreme Court
revisited the Bangalore Water Supply and Sewerage Board decision and noted as
follows:
“We also wish
to enter a caveat on confining ‘sovereign functions’ to the traditional so
described as ‘inalienable functions’ comparable to those performed by a
monarch, a ruler or a non-democratic government. The learned judges in the
Bangalore Water Supply and Sewerage Board case seem to have confined only such
sovereign functions outside the purview of ‘industry’ which can be termed
strictly as constitutional functions of the three wings of the State i.e. executive,
legislature and judiciary. The concept of sovereignty in a constitutional democracy is different from the traditional
concept of sovereignty which is confined to ‘law and order’, ‘defence’, ‘law
making’ and ‘justice dispensation’. In a democracy governed by the Constitution
the sovereignty vests in the people and the State is obliged to discharge its
constitutional obligations contained in the Directive Principles of the State
Policy in Part -IV of the
Constitution of India. From that point of view, wherever the government
undertakes public welfare activities in discharge of its constitutional obligations, as provided in part-IV of the Constitution, such activities should be treated as activities in
discharge of sovereign functions falling outside the purview of ‘industry’…….”
The
matter has been now referred
to a nine-judge bench by the Hon’ble
Chief Justice and the final decision is still pending. The
point to be considered here is that sovereign functions performed by the
Government cannot be regarded as a service
and hence subjected
to tax. In this aspect,
various Benches of CESTAT and High Court have held following bodies of
the Government to be performing sovereign functions:
In Dy. Director of Mines & Geological
Department vs. CCE & C, Belgaum 2007 (7) STR 285 (Tri.-Bang.), the
Tribunal held that Department of Mines and Geology was performing their
sovereign functions in terms of the powers granted in constitution of India and Service Tax cannot
be levied.
In Electrical Inspectorate, Govt. of Karnataka
v. Commissioner, Service Tax 2008 (9) STR 494 (Tri-Bang.), the Tribunal
held that is a State Government Department carrying on sovereign activity of
inspection and certification of electrical installations in terms of special
legislations.
In CCE, Nashik v. Maharashtra Industrial
Development Corporation, Hon’ble Bombay High Court held that MIDC is a statutory Corporation which is virtually a wing of the State
Government maintenance of industrial area is a sovereign functions and
hence, cannot be brought to tax.
In Karnataka Industrial Areas Development Board
v. Commissioner of Central Tax, Bangalore 2020 (6) TMI 227, Tribunal held
that maintenance of industrial area by KIADB is a statutory function and not
leviable to Service Tax.
From the above discussion, it can be
seen that the jurisprudence has evolved so as to extend the meaning of
‘sovereign functions’ to include even the public welfare activities of
Government in discharge of its Constitutional duties. This view has been
accepted by Tribunals in the context of Service Tax can be as seen from above
decisions.
The duties and function performed by
Registrar of Companies is mandated under the Companies Act, 2015 and cannot be
substituted by any private person. The author is the opinion that the functions
performed by ROC is a ‘sovereign function’ and hence outside the preview of
taxation. However this view will have to be tested by Courts.
Concept
of ‘Public Authorities’
The scope of
the term ‘public authorities’ came up before the CESTAT in Employee Provident Fund Org. v CST, Delhi 2017 (4) TMI 902. The New
Delhi Bench of CESTAT held Employee Provident Fund Org to be a ‘public
authority’, observing as follows:
“11. Now, we
can examine the activities of the appellant to determine whether they are
coming under the scope of mandatory, statutory
functions discharged by a public
authority in terms of law. The term ‘public authority’ has to be
examined and understood. ‘Public’ includes a section of the public (Shri Venkataraman Devaru vs. State of Mysore – 1958
S.C.R. 895). The word ‘public’
is ordinarily used with reference
to a joint body of citizens.
The term ‘authority’ is defined as “a public administrative agency or
corporation having quasi-governmental powers and authorized to administer a
revenue producing public enterprise”, (Webseter’s Third New International
Dictionary); authority is a body having jurisdiction in certain matters
of “public nature”.
Therefore, the “ability” conferred upon a person
by the law to alter,
by his own will directed
to that end, the rights,
duties, liabilities or other
legal relations either of himself or of other persons must be present ab-extra
to make a person “authority”. (Som
Prakash Rekky vs. Union of India – 1981 (1) SCC 449). When the person is an
agent or instrument of function of the state, the power is ‘public’. The true
test is functional. Not how the legal person is born, but why it is created.
There are various factors which will suggest a body could be “a public
authority” these are (a) it is linked to the Government or its function could
be described as governmental (b) it provides
a public service
(c) the state regulates, supervises and controls its performance (d) it is subject to judicial review or
is publicly accountable for its action (e) performs charitable objectives (f)
vested with statutory powers, with powers to enforce its order by punitive
consequences, (g) the legislature specifically intended by an Act to cover its
functions and responsibilities. In general,
without any possible
dispute, it can be stated
that a public authority is one which has a legal mandate to govern, or
administer a part some aspect of public life.”
The Hon’ble
Supreme Court in Balmer Lawrie & Co.
Ltd. vs. Partha Sarathi Sen Roy (2013) 8 SCC 345 examined the scope of
terms “State” or “other authorities” under Article 12 of the Constitution. The
observations of the Apex Court are:
“21. A public authority is a body which has public or statutory duties
to perform, and which
performs such duties and carries out its transactions for the benefit of the
public, and not for private profit. Article 298 of the Constitution provides
that the executive power of the Union and the State extends
to the carrying on of any business
or trade. A public authority is not restricted to the
Government and the legislature alone, and it includes within its ambit, various
other instrumentalities of State action. The law may bestow upon such
organisation the power of eminent domain. The State in this context, may be
granted tax exemption, or given monopolistic status
for certain purposes. The “State” being an abstract entity, can only act through an instrumentality or an agency
of natural or juridical persons. The concept of an
instrumentality or agency of the Government is not limited to a corporation
created by a statute, but is equally applicable to a company, or to a society.
In a given case, the court must decide, whether such a company or society is an
instrumentality or agency of the Government, so as to determine whether the
same falls within the meaning of the expression “authority”, as mentioned in
Article 12 of the Constitution, upon consideration of all relevant factors.…………………..
24. When we discuss
“pervasive control”, the term “control” is taken to mean check, restraint or
influence. Control is intended to regulate, and to hold in check, or to
restrain from action. The word “regulate”, would mean to control or to adjust
by rule, or to subject to governing principles.”
On perusal of the above judicial
precedents, it can be safely concluded that functions performed by ROC for which fee is charged from companies is nothing but statutory functions undertaken by the
Central Government in which it is engaged as public authorities.
Nature
of ROC Filing Fees
Now let us proceed to examine the
nature of fee charged by ROC from Companies/LLPs. It is a well-established principle that a levy in the nature of ‘tax’ is not a consideration for any particular service and hence, cannot
be subjected to Service tax/GST.
However, if any amount is in the nature
of a ‘fee’ for rendering a particular service, it is leviable to tax.
More often, the term ‘fee’ and ‘tax’
are used interchangeably and therefore, it becomes pertinent to understand the
true nature of a levy. The Hon’ble Supreme Court, in the case of State of Rajasthan v. Sajjan Lal, 1975 AIR
706, laid down the law regarding the difference between a tax and fee as
follows:
“…................ The
mere fact that the amount was paid into the consolidated fund is by itself
not sufficient
to hold that the levy under s. 17(3) of the Act is a tax. It was held in the
Commissioner of H.R.E. Madras v. Sri Lakshmindra Tirtha Swamiar of Shri Shirur
Mutt 1954 AIR 282 that the essence of
taxation is compulsion and imposition made for public purpose without reference
to any special benefit to be conferred on the payer of the tax, that is to say,
that the levy of tax is for the purposes of general revenue which, when
collected, forms part of the public revenues
of the State. A fee on the other hand is payment for a special benefit or privilege
which the individual receives. It is regarded as a sort of return or
consideration for services rendered and should be correlated to the expenses
incurred by Government in rendering the services. In the Secretary, Government
of Madras, Home Department v. Zenith Lamp & Electrical Ltd. 1973 AIR 724, it was reiterated that the fact
that the collections went to the Consolidated Fund was not in itself conclusive
though not much stress could be laid on this point because Art. 266 requires
that all revenues raised by the State shall form part of the Consolidated Fund.”
The principles were reiterated in Kishan Lal vs. State of Haryana 1993 Supp.
(4) SCC 461
as follows:
“It is trite to reiterate the law laid down by this Court of the distinction between
the tax and the fee and its demarcating line vis-a-vis the power of the
legislation to make law for imposition of fee in that behalf. Suffice to
reiterate the ratio laid in Sreenivasa
General Traders and Ors. v. State of A.P. and Ors. 1983 AIR 1246, that the
traditional view that there must be actual quid
pro quo for a fee has undergone a sea change. The distinction between a tax
and a fee lies primarily in the fact that a tax is levied as part of a common
burden, while a fee is for payment of a specific benefit or privilege although
the special advantage is secondary to the primary purpose of regulation in
public interest, if the element of revenue for general purpose of the State
predominates the levy becomes a tax. In regard to fee, there is, and must always
be, correlation between
the fee collected and the service intended to be rendered. In
determining whether a levy is a fee, the true test must be whether its primary
and essential purpose is to render specific services to a specified area or
class; it may be of no consequence that the State may ultimately and indirectly
be benefited by it. The power of any legislature to levy a fee is conditioned
by the fact that it must be “by and large” a quid pro quo for the services rendered. However, co-relationship between the levy and the services
rendered/expected is one of general
character and not of
mathematical exactitude. All that is necessary is that there should be a
“reasonable relationship” between the levy of the fee and the services
rendered. There is no generic difference between a tax and a fee. Both are
compulsory exactions of money by public authorities. Compulsion lies in the fact that payment
is enforceable by law against
a person in spite of his unwillingness or want of consent. A levy in the nature
of a fee does not cease
to be of that character merely because there is an element of compulsion or
coerciveness present in it, nor is it a postulate of a fee that it must have direct relation
to the actual service
rendered by the authority to each individual nor that each should obtain the
benefit of the service.”
Further, in the case of P. Kannadsan etc. vs. State
of Tamilnadu & other etc. 1983 AIR 1246, it has
been observed that:
“Even in the
matter of fees, it is not necessary that element of quid pro quo should be
established in each and every cases for it is well-settled that fees can be
both regulatory and compensatory and that in the case of regulatory fees the element
of quid pro quo is totally irrelevant.”
The Hon’ble
Supreme Court in Calcutta Municipal
Corporation vs. Shrey Mercantile (P) Ltd. (2005) 4 SCC 245 examined the
meaning and scope of terms “Fee” and “tax”. It was held that:-
“14. According
to Words and Phrases, Permanent Edn., Vol. 41, p. 230, a charge or fee, if
levied for the purpose of raising revenue under the taxing power is a “tax”.
Similarly, imposition of fees for the primary purpose
of “regulation and control” may be classified as fees as it is in the exercise of “police power”, but if
revenue is the primary purpose and regulation is merely incidental, then the
imposition is a “tax”. A tax is an enforced contribution expected pursuant to a legislative authority for the purpose of raising revenue to be used for public or
governmental purposes and not as payment for a special privilege or service
rendered by a public officer, in which case it is a “fee”. Generally speaking,
“taxes” are burdens of a pecuniary nature imposed for defraying the cost of
governmental functions, whereas charges are “fees” where they are imposed upon
a person to defray the cost of particular services rendered to his account”.
On perusal of the above judicial precedents, following
propositions are evident:
1.
Both fees and tax are compulsory levy. Taxation is an
imposition made for public purpose
without reference to any special benefit to be conferred on the tax payer.
2.
Unlike
taxation, an element of quid pro quo is
present in case of a fee.
3.
Only a ‘reasonable relationship’ is required
between the service
rendered and the fees; and mathematical accuracy is not important.
4.
In case
of regulatory fee, the element of quid pro quo is not relevant.
5.
If revenue is the primary purpose and regulation is merely
incidental, then the imposition is in the nature of tax.
The fee charged by ROC are from the
companies/LLPs are fixed by the law with no discretion or option vested with
companies/LLPs. It is levied for enabling the Companies/LLP to file returns and documents in MCA portal and hence,
a reasonable relationship exists between the fee charged and services rendered.
Service
tax regime
Before the negative-list era, the
scope of taxable services provided by the Central or State Government or Local
Authority to business entities was restricted to only “support services”
(Section 66D (a) of FA, 1994). Scope
of “support services”
was clarified vide para no. 4.1.7 of the
Service Tax Education Guide as under:
“Support
services have been defined in section 65B of the Act as ‘infrastructural,
operational, administrative, logistic
marketing or any other support
of any kind comprising
functions that entities
carry out in ordinary course of operations themselves but may obtain
as services by outsourcing from others for any reason whatsoever and shall
include advertisement and promotion, construction or works contract, renting of
movable or immovable property, security, testing and analysis.
Thus services which are provided by government in terms
of their sovereign right to business entities, and which are not substitutable
in any manner by any private entity, are not
support services e.g.
grant of mining
or licensing rights
or audit of government entities established by a special law,
which are required to be audited by CAG under section 18 of the Comptroller and Auditor-General’s (Duties, Powers and
Conditions of Service) Act, 1971 (such services are performed by CAG under the
statue and cannot be performed by the business entity themselves and thus do
not constitute support services).”
Board also issued Circular No.
89/7/2006-ST dated 18.12.2006 clarifying the applicability of service tax on
fee collected by Public Authorities while performing statutory functions
/duties under the provisions of a law.
The circular clarified that the
activities performed by the sovereign/public authorities under the provision of
law such as are in the nature of statutory obligations which are to be
fulfilled in accordance with law. The fee collected by them for performing such
activities is in the nature of compulsory levy as per the provisions of the
relevant statute, and it is deposited into the Government treasury. Such
activity is purely in public interest and it is undertaken as mandatory and
statutory function. These are not in the nature of service to any particular
individual for any consideration. Therefore, such an activity performed by a
sovereign/public authority under the provisions of law does not constitute
provision of taxable service to a person and, therefore, no service tax is
leviable on such activities.
The circular enlisted certain
illustrations such as the Regional Reference Standards Laboratories (RRSL)
undertake verification, approval and calibration of weighing and measuring
instruments; the Regional Transport Officer (RTO) issues fitness certificate to
the vehicles; the Directorate of Boilers inspects and issues certificate for
boilers; or Explosive Department inspects and issues certificate for petroleum
storage tank, LPG/CNG tank in terms of provisions of the relevant laws as being
not leviable to service tax.
The Circular further stated that if
such authority performs a service, which is not in the nature of statutory
activity and the same is undertaken for a consideration not in the nature of statutory
fee/levy, then in such cases, service tax would be leviable, if the activity
undertaken falls within the ambit of a taxable service.
On a careful analysis of the above
circular and various judicial decisions on the same, the exemption under
Service tax was given activity undertaken was ‘statutory function’ and the
consideration was in the nature of ‘statutory fee’.
Circular No. 96/7/2007-ST dated
23.08.2007 sought to clarify the technical issues relating to taxation of
services under the Finance Act, 1994. The Ref code. 999.01 clarifies as
follows:
“Activities
assigned to and performed by the sovereign / public authorities under the
provisions of any law are statutory duties.
The fee or amount collected as per the provisions
of the relevant statute for performing such functions is in the nature of a
compulsory levy and are deposited into the Government account.
Such activities
are purely in public interest and are undertaken as mandatory and statutory
functions. These are not to be treated as services provided for a
consideration. Therefore, such activities assigned to and performed by a
sovereign / public authority under the provisions of any law, do not constitute
taxable services. Any amount / fee collected in such cases are not to be
treated as consideration for the purpose of levy of service tax.
However, if a
sovereign / public authority provides a service, which is not in the nature of
statutory activity and the same is undertaken for a consideration (not a
statutory fee), then in such cases, service tax would be leviable as long as
the activity undertaken falls within the scope of a taxable service as
defined.”
Consequently, the term “support
services” in Section
66D(a)(iv) was omitted
and replaced by “any
service” vide the Finance Act, 2015 and corresponding rule 2(1)(d)(i)(E) of the Service
Tax Rules, 1994 and Clause
(I)(A)(iv)(C) and S. No. 6 of Table of Notification No. 30/2012 – S.T. dated
June 20, 2012 were also amended. Both the amendments were brought into force from 01.04.2016
through Notification No. 17/2016 – S.T. and Notification No. 16/2016 – S.T
dated 01.03.2016 respectively.
The impact of the aforesaid amendment
has been that all the services provided by the Central or State Government or local authority
are taxable w.e.f.
01.04.2016 unless and otherwise specifically exempted. Serial No. 5 of
Circular No. 192/02/2016- ST dated 13.04.2016 further clarified the
applicability of Service Tax on Services provided in lieu of fee charged by
Government or a local authority.
It was clarified that any activity
undertaken by Government or a local authority against a consideration
constitutes a service and the amount charged for performing such activities is
liable to Service Tax. It is immaterial whether such
activities are undertaken as a statutory or mandatory
requirement under the law and irrespective of whether the amount charged for
such service is laid down in a
statute or not. As long as the payment is made (or fee charged) for getting a
service in return (i.e., as a quid pro
quo for the service received), it has to be regarded as a consideration for
that service and taxable irrespective of by what name such payment is called. It is also clarified that Service Tax is
leviable on any payment, in lieu of any permission or license granted by the
Government or a local authority.
However, services provided by the Government or a local
authority by way of:
(i)
registration
required under the law;
(ii)
testing, , calibration, safety check or certification
relating to protection or safety of workers, consumers or public at large,
required under the law,
Was exempted vide Entry 58 of
Notification No. 25/2012 - ST dated 20.6.2012 as amended by Notification No.
22/2016 -ST dated 13.4.2016.
Further, services provided by Government or a local authority where
the gross amount
charged for such service
does not exceed
₹ 5000/- were exempted vide Entry 56 of Notification No. 25/2012 - ST dated 20.6.2012 as amended by
Notification No. 22/2016 -ST dated 13.4.2016. However, the said exemption does
not cover services specified in sub-clauses (i), (ii) and (iii) of clause (a)
of section 66D of the Finance Act, 1994. Further, in case of continuous
service, the exemption shall be applicable where the gross amount charged for
such service does not exceed ₹ 5000/-in a financial year.
It was also clarified that Circular
No. 89/7/2006-Service Tax dated 18-12-2006 issued in the pre- negative list regime
was no longer applicable.
Supply
under GST
Under the GST regime, ‘supply’ is the
touchstone for charging tax and section 7(1)(a) lays down the scope of supply
which reads as follows:
7. (1) For the purposes of this Act, the expression
“supply” includes––
(a) all forms of supply of goods or services or both such as sale, transfer, barter,
exchange, license, rental, lease or disposal
made or agreed to be made for a consideration by a person in the course or furtherance of business;
The scope of supply as laid down in
Section 7(1) is wide and covers any
supply of goods and service made or agreed to be made for a consideration.
Further, section 2 (102) defines “service” as:
“services”
means anything other than goods, money and securities but includes activities
relating to the use of money or its conversion by cash or by any other mode, from one form,
currency or denomination, to another
form, currency or denomination for which a separate
consideration is charged;
The definition of ‘services’ is all
encompassing and includes everything other than goods and activities in money
as set out in the definition. Even the statutory functions performed by
Government falls within the ambit of ‘service’.
Section 2(17) of the CGST Act, 2017 defines ‘business’
to include:
(a)
any trade, commerce, manufacture, profession, vocation,
adventure, wager or any other similar activity, whether or not it is for a
pecuniary benefit;
(b)
any
activity or transaction in connection with or incidental or ancillary to
sub-clause (a);
(c)
any activity or transaction in the nature of sub-clause (a),
whether or not there is volume, frequency, continuity or regularity of such transaction;
(d)
supply or acquisition of goods including capital goods and
services in connection with commencement or closure of business;
(e)
provision by a club, association, society, or any such body
(for a subscription or any other
consideration) of the facilities or benefits to its members;
(f)
admission,
for a consideration, of persons to any premises;
(g)
services supplied by a person
as the holder of an office which has been accepted by him in the course or furtherance of his trade,
profession or vocation;
(h)
services provided by a race club by way of totalisator or a
licence to book maker in such club; and
(i)
any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;
Thus,
according to clause
(i) of section 2(17), any activity or transaction undertaken by the Central or State Government or any local
authority, in which they are engaged as public authorities, is a business. According to the author,
legislature ought not to have inserted clause (i) in section 2(17) as it bring within the ambit of
definition of “business”, those activities or transactions which are performed
by the Central or State Government or local authorities in which they are
engaged as public authorities.
On perusal of the above provisions, it
is safe to conclude that statutory/sovereign functions undertaken by Central or
State Government or any local authority in which they are engaged as public
authorities are exigible to GST.
Now, let us examine the activities and
transactions which are outside the scope of supply. Section 7(2) provides for activities or transactions which
shall be neither treated as a supply of goods nor as supply of services.
Section 7(2) reads as follows:
(2)
Notwithstanding
anything contained in sub-section (1),––
(a)
activities
or transactions specified in Schedule III; or
(b)
such activities or transactions undertaken by the Central
Government, a State Government or any local authority
in which they are engaged
as public authorities, as may be notified by the
Government on the recommendations of the Council,
shall be treated neither as a supply of goods nor a
supply of services.
Sub-section (2) of section 7 opens
with a non-obstante clause and states that activities or transactions
undertaken by the Central or State Government or any local authority in which
they are engaged as public authorities, as may be notified by the Government on
the recommendations of the Council, shall be treated neither as a supply of
goods nor a supply of services.
In Builders Association of Navi Mumbai,
Neelsidhi Realties v. Union of India in Writ petition No. 12194 of 2017, the
Bombay High Court held that in the absence of notification any activity of a
Government or Government company cannot be considered as exempt from the levy
of GST.
On perusal of the above, it appears
that the default position is that all activities or transactions undertaken by
the Central Government, a State Government or any local authority are taxable
under GST and it is only by way of a specific exemption notification that their
activities or transactions can claim immunity from GST.
In Re:
Divisional Forest Officer, Dehradun, the Authority for Advance Ruling,
Uttarakhand held that “Abhivahan Shulk”, charged and collected by applicant in
respect of forest produce carried out by a person is a form of consideration received by the applicant in lieu of services provided
to the person for carrying forest produce and hence taxable at 18%. On
appeal by the applicant, the order of AAR was upheld by the Appellate authority
after noting that “Abhivahan Shulk” is not specified in Schedule III of Section
7 and also not covered by any notification for exception in terms of Section 7(2)(b).
Reverse
Charge on Government Services
According to Serial No. 5 of
Notification No. 13/2017 – Central Tax (Rate) dated 28th June, 2017
issued u/s 9 (3) of CGST Act, 2017, where services are supplied by the Central
Government, State Government,
Union territory or local authority to any business
entity excluding, -
(1)
renting
of immovable property, and
(2)
services
specified below-
(i)
services by the Department of Posts by way of speed post,
express parcel post, life insurance, and agency services provided to a person
other than Central Government, State Government or Union territory or local authority;
(ii)
services in relation to an aircraft or a vessel, inside or
outside the precincts of a port or
an airport;
(iii)
transport
of goods or passengers.
Then the business entity located in
the taxable territory shall be liable to pay GST on such service u/s 9(3) of CGST Act.
Therefore, as per Section
9 (3) of CGST Act read with Notification ibid, the company
will be liable to pay GST on the ROC filing fee paid to Ministry of
Corporate Affairs.
Exemption on Government Services
Notification No. 12/2017- Central Tax
(Rate) dated 28th June, 2017 provides exemption for inter alia service provided by Central Government,
State Government, Union territory or a local authority
Serial No. 6 of the Notification
provides exemption to services supplied by the Central Government, State
Government, Union territory or local authority excluding the following
services—
(a)
services by the Department of Posts by way of speed post,
express parcel post, life insurance, and agency services provided to a person
other than the Central Government, State Government, Union territory;
(b)
services in relation to an aircraft or a vessel, inside or
outside the precincts of a port or an airport;
(c)
transport
of goods or passengers; or
(d)
any service, other than services
covered under entries
(a) to (c) above, provided
to business entities.
According to clause 2(n) of the
notification, “business entity” means any person carrying out business. Therefore, if a company
is carrying on any business, the above exemption shall not apply.
Serial No. 7 of the Notification
provides exemption to services provided by the Central Government, State
Government, Union territory or local authority to a business entity with an
aggregate turnover of up to Rs. 20 lakhs (Rs. 10 lakhs in case of a special
category state) in the preceding financial year.
Explanation to Serial No. 7 provides that exemption
shall not be available to-
(a)
services,-
(i)
by the Department of Posts by way of speed post,
express parcel post, life insurance, and agency services provided to a person other than
the Central Government, State Government, Union territory;
(ii)
in relation to an aircraft or a vessel, inside or outside the
precincts of a port or an airport;
(iii)
of
transport of goods or passengers; and
(b)
services
by way of renting of immovable property.
Therefore, if the turnover of the
company exceeds Rs. 20 lakhs (Rs. 10 lakhs in case of a special category state)
in the preceding financial year, then the exemption as per Serial No. 7 shall
not be available.
According to Serial No. 9 of the
notification, services provided by Central Government, State Government, Union
territory or a local authority where the consideration for such services does
not Rs. 5,000/- is exempt.
Further, the service provided
by Central Government, State Government, Union territory or a local authority by way of registration required
under any law for the time being in force
is exempt under Serial No. 47 of the aforesaid notification.
Conclusion
On perusal of the above provisions, it is clear
that any fee paid by a company
or LLP on registration will be exempt as it is for the registration under
the respective enactments. However, any fees paid
by these entities for their annual filing with the ROC will not be exempt as
such fees will not be for the purpose of registration. Where any fee paid by a
Company to file such forms in the MCA portal does not exceed Rs.5,000/-, it
shall be exempt from tax. However, if these charges exceed Rs. 5,000/-, they
will not fall within the exemption entry as given above.
It is ironical that in a democratic
country like ours, where government is of the people, GST is levied on statutory functions
performed by Government to its people.
It is almost three
years since the inception of
GST and still Notification u/s 7(2)(b) exempting activities or transactions
performed by Centre or State Government or local
authorities in which
they are engaged
as public authorities has not
been issued. Until such Notification is issued, it will be wise to pay tax
under Reverse Charge and avail ITC.
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