In a recent ruling, the Andhra Pradesh High Court division bench of Justice U. Durga Prasad Rao and Justice V. Gopala Krishna Rao overturned the assessment decision issued by the authorities with the condition that the petitioner deposit 50% of the tax component.
In the writ petition, it was contended that the procedures under Section 74(5) of the Andhra Pradesh Goods and Services Tax Act (APGST Act), 2017, which ordered the petitioner to pay Rs. 56,95,19,461 towards differential tax, interest, and a penalty for evading the required tax, are arbitrary and illegitimate.
The Petitioner is a proprietary concern engaged in outsourcing employees to A.P. State Beverages Corporation (4th respondent) and A.P. Mineral Development Corporation (5th respondent) in various categories.
The petitioner and respondents 4 and 5 entered into an arrangement to outsource certain kinds of employees. The contractee has agreed to pay service fees to the petitioner at 2.17% in addition to salary, Employee Provident Fund (EPF), and Employee State Insurance (ESI).
The bench observed that the petitioner is only an agent of respondents 4 and 5 for outsourcing of manpower for which, as an agent, the petitioner gets service charges at an agreed percentage. Hence the authorities has no legal foundation to impose tax, interest and penalty under section 74(5) of the APGST Act
The contention of the petitioner that the wages provided to the employees and statutory payments of EPF and ESI, etc., will not fall within the ambit of the GST is not correct.
Further, in the context of the APGST Act, the petitioner is the service provider and the recipients are the Government corporations and as such there is no employer and employee relation between the petitioner and respective corporations.
The petitioner’s counsel claimed that it is impossible for the petitioner to allege that the impugned decision is unlawful while simultaneously collecting GST at a rate of 18% on the total invoice value and paying tax on a lower value only to the extent of service costs.
The respondent counsel argued that as per Section 15(2) of APGST Act, the components like wages, statutory taxes etc., shall form part of the value of taxable supply and therefore it is preposterous for the petitioner to contend that only the net amount i.e., service charges paid to the petitioner alone are liable for GST.
In particular, he emphasised that the petitioner is merely providing labour services in exchange for payment. The entire value of the services will therefore be considered a taxable supply.
The bench observed that as the petitioner’s age was 75 years and could not avail the opportunity of personal hearing provided by the authorities due to illness.
It was opined that with regard to the huge tax amount with interest and penalty proposed to be laid and nature of the contention raised by the petitioner, the authorities ought to have extended some more opportunity to the petitioner for personal hearing.
The division bench directed that the authorities must set a date for a personal hearing of the petitioner with regard to her objections to the proposed assessment upon the deposit of 50% of the tax component of Rs. 23,79,26,090 as mentioned in the challenged order within six (6) weeks of the date of receipt of a copy of this order.
After hearing the petitioner, pass an appropriate Assessment Order in accordance with the governing law and rules expeditiously, stated the bench.
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