Recovery against non - issuance of Form - C

[Kaustubh Karandikar]

Amount recovered from the customers in the financial year 19 - 20 towards non – issuance of Form – C (relating to VAT regime). Whether GST is required to be paid on it?

[KASTURI SETHI]

Dear Sir,

Pl. go through Issue ID 118670 dated 1.8.23.

[Kaustubh Karandikar]

Respected Kasturi ji, thanks for your advice. However, under the ID mentioned by you, there is no mention about whether GST is payable on the amount recovered from the customer in the year 2019 - 20 relating to amount recovered against non - issue of C Form-C which was prior to GST regime

[KASTURI SETHI]

Dear Sir,

O.K. Will you please elaborate your query ? Nature of amount recovered ? In the absence of Form-C, the seller had to pay higher rate of CST (without availing the benefit of concessional rate). Is it so ? or some other amount ? Pl. confirm.

[Kaustubh Karandikar]

yes sir, you are right. Since the customer had not issued the Form - C, the supplier was asked to pay CST by VAT authorities. The CST so paid was recovered by supplier from the customer in the year 2019 - 20. whether supplier is required to pay GST on such recovery?

[KASTURI SETHI]

Dear Sir,

(1) Whether it is CST Act /VAT Act or Central Excise Act or Service Tax law or GST Acts, the seller/manufacturer/service provider/service supplier/ goods supplier is required to collect tax from the buyer/service receiver and deposit the same into Govt.

(2) In the instant case, the seller was to collect Form-C from the buyer and the buyer failed to issue Form-C. Resultantly, the seller paid CST at higher rate to the Govt. and later on recovered the differential amount of CST from the buyer.

(3) If my postulation at serial no.2 is correct, such transaction will fall under the category of 'pure agent' and GST is not payable.

Pl. note that I have never dealt with CST and VAT. CST/VAT is not my cup of tea. Therefore, the views of other experts must be sought for arriving at correct and concrete

 

[Sadanand Bulbule]

Dear querist

I fully agree with the expanded clarification given by Sri. Sethi Sir. GST has nothing to do with the levy and recovery of CST @ 2% covered by declaration in FORM -C or higher rate of tax not covered by FORM-C for interstate sale of taxable goods. I do not know whether it is your hypothetical query or else raised by the department. But in any situation, as regards to the interstate sale of taxable goods, it is enough to pay differential tax with applicable interest thereon either voluntarily or during assessment, if FORM -C is not furnished by the buyer.OK.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, I treat your esteemed views a stamp of approval.

Thanks & regards.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, I am deviating from the main issue but it is somewhat relevant to express what is brewing in my mind. You have mentioned that you do not know whether it is 'a hypothetical question' or not.

(i) A hypothetical question is a plus point.

(ii) Any hypothetical question reflects the querist's creativity.

(iii) Such question generates an innovative idea.

(iv) Such question enables an assessee to prepare in advance to face problems in future, if arises. It is pro-active step.

(v) The whole search/research depends on hypothesis in any field of life.

It is worthwhile to go through the following :-

Einstein's famous quote, "If we know what we are doing, there will be no search".

Your comments are solicited.

[Kaustubh Karandikar]

Thanks all experts for your valuable advice. This is not a hypothetical but a live example which if noticed, objection from the authorities is possible since the amount is recieved in GST regime.

[Sadanand Bulbule]

Respected Sri. Sethi Sirji

While admiring your anlysis of the query followed by multiple replies, here I make it clear that, I assume that the authorities should not raise such questions. So what made Sri. Karanadikar Sirji to anticipate such doubt is quite interesting. He is the highly acclaimed contributor to TMI discussion forum.

Innovation and creativity has no limits. I welcome any query which makes me to learn, re-learn and unlearn.

Thank you so much to both of you Sirs for expanding your sportive comments and giving me a chance to express my doubt too.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, Absolutely right. Such unsustainable objections should not be raised. Such objections waste precious time of both. Your thoughts, feelings, opinions etc. are always source of inspiration for me. Your expressions are always full of substance. I actually learn from you.

Regarding insightful and thought-provoking queries being raised by Sh.Kaustubh Karandikar, Sir, I have read in a book, "A question is more important than an answer'. So the whole emphasis should be laid on subject and drafting of a query. I also learn from the issue and drafting of his query.

[Shilpi Jain]

Collecting money without any supply - no GST liable.

[Ganeshan Kalyani]

May be the querist want to know the applicability of 'tolerating an act' of the customer by not issuing Form C on time on the amount collected from customer. Tolerating an act is a taxable supply under GST. To clarify the applicability CBIC has issued a Circular No. 178/10/2022-GST. It says that the contract made between both the parties for agreeing to tolerating an act and there is consideration for the same then that will be taxable. But only because of one party suffering due to other's non-action then any amount collect to compensate the loss will not amount to supply of service and GST will not be applicable on the same. In this case also there is no contract for recovery of amount equal to CST at higher rate in case notice is issued. Also the party wont enter into a contract only to pay liquidated damage. GST is not applicable on the amount recovered from the customer.

AI Summary

Recovery for non-issuance of Form C treated as reimbursement, not GSTable unless separate consideration for toleration exists.
Recovery from a buyer of additional CST paid because Form C was not furnished is characterised as a reimbursement or pure agent collection rather than consideration for a supply, and therefore not subject to GST. Administrative guidance on "toleration of act" makes such amounts taxable only if there is an express contract and separate consideration to tolerate the buyer's default; mere compensation to discharge a statutory tax outgo does not create a taxable supply.