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Lack of clarity on GSTN’s service tax liability: Experts

Kumar responded to an e-mail query sent by The Indian Express saying: “GSTN is registered under Service Tax.

Written by Pranav Mukul , Aanchal Magazine | New Delhi |
February 21, 2017 1:24:55 am
GSTN, tax liability, Goods and Services Tax Network Pvt Ltd, indirect tax, service tax department, service tax, indian express news, business news Kumar responded to an e-mail query sent by The Indian Express saying: “GSTN is registered under Service Tax.

The Goods and Services Tax Network Pvt Ltd (GSTN), which is creating the information technology backbone for the new indirect tax regime, has come under scrutiny from the service tax department, but experts suggest there is still lack of clarity over the services for which the entity could be liable to pay service tax.

It is learnt that the Office of the Principal Commissioner of Service Tax, Delhi-I has summoned GSTN’s CEO Prakash Kumar, in a notice dated February 11, asking him, or an authorised representative, to be present on Wednesday to produce documents and records in a case against GSTN that is being investigated by the service tax department. The summons seek Kumar to produce several financial statements such as balance sheets, income tax returns, bank statements, Cenvat credit register between 2012-13 and 2015-16.

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Kumar responded to an e-mail query sent by The Indian Express saying: “GSTN is registered under Service Tax. We have been regularly paying due service tax and filing returns. There is no evasion of service tax by GSTN.” However, when asked if he had received the summons, Kumar did not reply.

“If they (GSTN) provide services for which they charge a certain amount, then the debate would come in whether they are liable to pay service tax or not. Right now whether they are providing any services or are they charged for any service, is not clear. Service tax department may be wanting to understand what kind of arrangement they have with Infosys, or maybe if GSTN plans to charge anything, to get any clarity,” said Bipin Sapra, indirect tax partner, EY.

Sapra also said it was not clear from the summons whether it pertained to the service tax collected by GSTN for the services it is providing, or the tax it has to pay Infosys and other firms for rendering services to GSTN. Infosys refused to comment on the issue.

Another GSTN official said that service tax was being paid on some of the services. “Service tax is being paid on some of the services. Will see the details in the notice and reply accordingly to it. We will pay service tax, where it is liable to be paid,” the official said.

Apart from providing common and shared IT infrastructure and services to the Central and state governments, taxpayers and other stakeholders, other services also come under GSTN’s ambit. It would also be responsible for: providing common registration, return and payment services to the tax payers; collaborating with GST Suvidha Providers to roll out GST Applications for providing simplified services to the stakeholders; providing efficient back-end services to the tax departments of Centre and states on request; developing taxpayer profiling utility for Central and state administrations, among others.

The service tax department has also sought “details regarding receipt of fund from Central government, also the document against/under which funds were released by the Centre” during 2012-13 to 2015-16. It has also sought copy of agreement signed between GSTN and Infosys for designing the system and details of payments made to Infosys.

“The nature of arrangement between the government and GSTN, and the nature of payments — whether it amounts to any consideration — will determine the liability of the service tax to be paid,” said Prashant Deshpande, partner, Deloitte Haskins & Sells. Consideration payment is an investment put in a company against issue of shares to the investor. In GSTN’s case, Centre holds 24.5 per cent stake, while the states, two Union Territories and the empowered committee of state finance ministers collectively hold another 24.5 per cent. The rest is held by LIC Housing Finance (11 per cent), ICICI Bank (10 per cent), HDFC (10 per cent), HDFC Bank (10 per cent), and NSE Strategic Investment Corporation (10 per cent).

Experts have also indicated that the service tax department may have sent a summons seeking details about GSTN’s arrangement with the government to determine the money that is flowing into the company and the service tax payment, which could be lesser than proportion considering it has not started offering the services in light of GST not being rolled out yet.

GSTN was initially funded through a one-time non-recurring grant of Rs 315 crore from the Centre towards expenditure for the initial setting up of the special purpose vehicle for a 3-year period after its incorporation in March 2013. Last year, the firm had also said that it would borrow Rs 250 crore as working capital and another Rs 550 crore as long-term loan from domestic lenders. After rolling out of GST, the revenue model of GSTN would consist of user charge to be paid by those who use the system.

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