Goods and Services Tax Alert
Summons not to be issued to Managing Director, CEO, CFOs of companies routinely
By the recent Guidelines for issuance of summons under Section 70 of the CGST Act – Instruction 03/2022-23 [GST-Investigation], indiscriminate issuance of summons has been discouraged, and officers have been advised to issue summons judiciously. Other methods such as a letter for requisition of information instead of summons for obtaining information or collecting evidence have been encouraged. Summons are to be issued only after obtaining prior written approval from an officer not below the rank of Deputy/ Assistant Commissioner, with reasons recorded on the Summons. An understanding is to be given to the recipient of summon, whether he is an accused, co-accused or a witness. To rule out any harassment to taxpayers, it is advised that issuance of summons may be avoided for statutory documents, which are digitally available on the GST portal. Issuance of summons to Senior management officials such as CMD/MD/CEO/CFO is discouraged, except if there are clear indications of their involvement in the decision making process which led to loss of revenue.
In cases, where the summons is avoided or not complied with, a complaint may be filed with the jurisdictional magistrate under Section 172 and 174 of the Indian Penal Code Act, 1962.
These instructions have come as a huge relief to the taxpayers, as GST Officials were routinely issuing summons to top management, only to exert pressure for making so called 'voluntary' tax deposits.
No GST applicable on damages, compen-sation or penalty – Circular No. 178/10/ 2022-GST dated August 3, 2022
'Agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an act' is a service under Entry 5(e) of Schedule II of the CGST Act, 2017. This service has been a bone of contention between the GST Department and the taxpayers since long. It has been the Department's position that liquidated damages, compensation and penalties arising out of breach of contracts or other laws are taxable under this entry.
The Board has finally clarified that for the above activity to constitute a taxable supply, there must be two parties, where one of the parties is under a contractual obligation to either (a) refrain from an act, (b) to tolerate an act or (c) to do an act. Further, some consideration must flow from the opposite party with an express or implied agreement for refraining, tolerating or doing such act.
Payments such as liquidated damages recovered for a breach of contract or recovery of notice pay or employment bond are not in the nature of amounts recovered for tolerating an act but rather an amount recovered for not tolerating an act. The object and intention of putting such clauses is to deter the breach, non-performance and are thus mere 'events' in contract. Additionally, payments made are also not 'consideration' because there can never be any contract for such absurd object i.e. (a) for breach of contract, (b) for leaving the company earlier than minimum period etc. Specific Clarifications are given below:
