You will not have to pay more for buying car worth ₹10 lakh or more as the Kerala High Court has stayed inclusion of Tax Collected at Source (TCS) in the value of supply for GST (Goods & Services Tax) purposes until final disposal of a writ petition.

The issue arose after a circular was issued by the Finance Ministry on December 31, 2018, prescribing the valuation methodology in case of TCS under the Income Tax Act and defining owner of goods related to the GST.

Section 15(2) of the CGST Act specifies that the value of supply shall include any taxes, duties cesses, fees and charges levied under any law for the time being in force other than this Act — the SGST Act, the UTGST Act and the GST (Compensation to States) Act — if charged separately by the supplier;the taxable value for the purposes of the GST shall include the TCS amount collected under the provisions of the Income Tax Act.

This is because the value to be paid to the supplier by the buyer is inclusive of the said TCS.

This means two things: buyers will have to pay more for a car priced over ₹10 lakh and car dealers may have to deposit additional tax due with effect from July 1, 2017.

‘Dealer only an agent’

Pan Automobiles, a Kochi-based dealer, had approached the Kerala High Court for a relief in the matter. The court, in its order, observed that Section 15 of the GST Act speaks of the value of goods and services, besides defining how the value of the supply of shall be reckoned. One of the provisions of the Section mandates that the value of supply shall include any taxes, duties, cesses, fees and charges levied under any other law in force.

The Bench observed that the “the amount of one per cent that the dealer collects from the purchaser of a car worth more than ₹10 lakh under Section 206C (1F) of the Income Tax Act cannot be treated as an integral part of the value of the goods and services supplied by the petitioner.” It also said that the petitioner, as the dealer of the motor vehicle, acts only as an agent for the State to collect the income tax and that amount will eventually go to the purchaser’s credit. It held that the authority will not act on the clarification (inclusion of TCS in the value of supply for GST) pending the disposal of the writ petition.

Abhishek Jain, Tax Partner, EY, said that the court’s direction to stay any actions by the government on inclusion of TCS for the purpose of GST brings a gleam of hope for various industry players, in specific, the automotive industry.

“This issue gained importance after an explicit clarification was issued by the government for inclusion of TCS in the value of supply, with most industry players having adopted a position otherwise,” he said.

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