Kerala HC Stays GST Levy On TCS Amount Collected By Vehicle Dealers [Read Order]

In a temporary relief to motor vehicle dealers, the High Court of Kerala has stayed the levy of Goods and Services Tax(GST) on the amount collected by them as Tax Collected at Source(TCS) from vehicle purchasers.

As per Section 206C(1F) of the Income Tax Act, 1961, dealers have to collect 1% amount of the value of the vehicle as TCS from  purchasers of vehicles valued above Rs.10 lakhs. The issue arose when the GST department required the dealers to charge GST on the TCS amount in addition to the sale price, by treating TCS as part of sale price.

A clarification issued by the Central Board of Indirect Taxes and Customs (CBIC) on December 31,2018 clarified this aspect. To query listed as item number 5 in the clarification, the CBIC said : "It is clarified that as per the above provisions(Section 15,CGST Act), taxable value for the purposes of GST shall include the TCS amount collected under the provisions of the Income Tax Act since the value to be paid to the supplier by the buyer is inclusive of the said TCS".

This left many dealers exposed to recovery and penalty proceedings under the GST laws, as they had charged GST only on the sale price, excluding TCS, in several past transactions.

In this backdrop, PSN Automobiles Ltd, a Kochi-based dealer, approached the High Court. It contended that as per Section 15 of CGST Act, taxable value of goods or services is the value paid or payable by the consumer for the transaction. The TCS amount of 1% cannot be treated as an integral part of sale price, since the dealer is collecting the amount as an agent of Income Tax Department, as mandated by law.

The department contended that Section 15(2) was widely worded, and included "any taxes, duties, cesses, fees and charges levied under any other law in force" in the value of goods or services. Hence it took the stand that  TCS amount is also brought under GST's sweep, though it may not be part of transaction value in the ordinary sense.

Justice Dama Seshadri Naidu, who considered the petition for admission, said that the matter needed "further and deeper adjudication". The judge also noted that any ambiguity in taxing provisions should be interpreted in favour of the state, as held by SC constitution bench July last year.

The Court passed an interim order restraining the tax authorities from acting on the clarification at Serial No.5 in the notification issued by CBIC on December 31, during the pendency of the writ petition. 

Read Order

(Image sourced from here)