Tuesday, 7 July 2020

GST on ROC Filing Fee paid by companies/LLPs



 

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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