2024 (1) TMI 1050 - HC - GST

Performance-linked incentives to directors require examining service nature, not just TDS deduction for GST assessment

M/s. Global Calcium Private Limited, (Represented by its Deputy General Manager, V. Sreenivasa Reddy) Versus Assistant Commissioner (ST), Hosur (North) -1, Hosur

Madras HC quashed GST assessment orders concerning performance-linked incentives paid to whole-time directors and suppression of purchases through ... Levy of GST - payment of performance linked incentives to two persons who held office as whole time directors of the company - discrepancies relating to E-way bills - Suppression of purchases by not availing of available Input Tax Credit (ITC) - HELD THAT:- The expenditure incurred by the petitioner towards remuneration and performance based incentives would have been reflected in the profit and loss account of the petitioner for the relevant financial years. The petitioner asserts that TDS was deducted under Section 192 and not Section 194-J of the Income Tax Act. The deduction of tax under Section 192 is a material fact, but is not conclusive. Ultimately, the test is whether such remuneration was paid towards services provided as an employee of the company or whether services were provided under a contract for service for fees or other consideration. Suppression of purchases by not availing of available Input Tax Credit (ITC) - Held That: - the petitioner contended that ITC was not claimed on account of ineligibility. By referring to discrepancies as between the different returns, the proposed liability was partly confirmed and partly dropped. The orders impugned herein were not issued after taking the relevant aspects into consideration. It is also possible that the petitioner did not place on record all relevant documents. In these circumstances, the impugned orders are not sustainable and are hereby quashed. These matters are remanded for reconsideration by the assessing officer. The petitioner is granted leave to place on record any additional documents with regard to all issues dealt with in the impugned orders - Petition disposed off. Issues involved:The judgment involves challenging three separate assessment orders for financial years 2017-2018, 2018-2019, and 2019-2020 regarding the supply of Bulk Drugs and Pharmaceutical Intermediaries, suppression of purchases, payment of performance linked incentives to directors, and discrepancies relating to E-way bills.Challenged Assessment Orders:The petitioner, a registered person under GST laws, faced discrepancies after an audit of records, leading to challenges against assessment orders. The defects in the orders related to suppression of purchases, payment of performance linked incentives to directors, and discrepancies in E-way bills.Defects in Assessment Orders:The first defect concerned the suppression of purchases resulting in unclaimed Input Tax Credit (ITC). The principal issue was the liability of performance linked incentives paid to directors under GST. The third issue involved discrepancies in E-way bills.Petitioner's Arguments:The petitioner claimed that ITC was not availed due to ineligibility as per Section 17(5) of the TNGST Act. Regarding performance linked incentives to directors, it was argued that such payments were part of the contract of service and not liable to tax under GST, supported by Circular No.140/10/2020-GST.Respondent's Counterarguments:The respondent argued that the petitioner needed to provide all relevant documents to prove exemption from tax, as the demarcation of salary and incentives in certificates was not conclusive. The onus was on the petitioner to substantiate their claims.Judicial Analysis:The assessing officer considered balance sheets, Form-16, and Form-26AS to determine the tax liability on performance incentives paid to directors. The deduction of tax under Section 192 of the Income Tax Act was not conclusive, and the nature of services provided by the directors needed clarification.Quashing of Orders:The court found that relevant aspects were not considered in the impugned orders, and the petitioner might not have submitted all necessary documents. Consequently, the orders were quashed, and the matters were remanded for reconsideration by the assessing officer.Remand and Directions:The petitioner was granted the opportunity to submit additional documents within ten days for reassessment. The assessing officer was directed to consider all materials, provide a reasonable opportunity to the petitioner, and complete reassessment within four weeks.Disposition:The writ petitions were disposed of without costs, and connected Miscellaneous Petitions were closed, awaiting reassessment based on the additional documents to be submitted by the petitioner.