At the outset, would like to state that this post is specifically restricted to analyse (without going into the judgements on this subject) levy of tax on reverse charge on services of renting of immovable property provided by director to the company vis-à-vis relevant entry in notification and also surrounding entries in notification to see if any help can be sought for understanding, one of the most controversial aspects in GST. This article is intended to give a different perspective to the relevant entry relating to services provided by director to the company.
a) Provision should be construed in context of other clauses to make consistent reading of the entire enactment
Referring to judgement of Hon’ble Apex Court in the matter of Padmausundara Rao (Dead) &Ors vs State Of T.N. & Ors on 13 March, 2002 which emphasised that provision should be construed together and in context of statute and other clauses to make consistent reading of entire enactment. Relevant extract of judgement is as follows:
“for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute.”
Therefore, this article is an attempt to understand the relevant entry of Service Supplied by Director vis-à-vis other similar entries in the notification to have a consistent reading of the notification.
b) Relevant Entry in the Notification
c) Whether entry “services supplied by a director” covers only services provided by virtue of being a director or all service provided since he is a director
The entry starts with the phrase “services supplied by a director…”. The question is
1. Whether entry is relating to service being supplied by a person which can only be supplied as director or
2. Any service provided by a person which can also be supplied without being a director but since he is a director, whether all services would be covered.
d) Reference to Similar Entries in Notification No. 13/2017-Central Tax Dated 28th June 2017 (as amended from time to time)
e) Inference which can be taken from a combined reading of above entries
All the above entries refer not to the “person” i.e. an individual/government/firm/company, but to the capacity in which services sought from such person by the recipient could only be provided i.e. “Director”, “Insurance Agent”, “Recovery Agent” and “Direct Selling Agent”.
Now for entries standing on same footing, if we treat that all services provided by a person as director would be covered under Entry No. 6 since he is a director to the company therefore, on a corollary and same footing whether services of renting of immovable property provided by Direct Selling Agent to a Bank or NBFC carrying on insurance business would also be covered under Reverse Charge for which being a DSA is not necessary and can be provided by any person whether or not he is a DSA.
It is never interpreted in such a way and nor its the intention of the legislature while incorporating the entry in the notification. The intention of the legislature is not so in case of DSA is evident from the Agenda to 28th GST Council Meeting which is as follows:
“DSAs, who are mainly from the small and medium enterprise segments, operate on very thin margin and find it challenging to cope with the requirements of the GST compliance provisions. These DSAs consisting of several thousands in numbers are spread across the country. The commissions are paid to large majority of DSAs by the banking and financial companies (including non-banking financial companies) which are large corporations having robust teams to ensure compliances with the GST provisions. RCM would ensure that”
1. The Government receives the tax amount on such services provided by DSAs on a timely basis;
Recommendation of the Fitment Committee
3. By bringing in tax payment of DSAs under RCM, Banks / NBFCs will be required to pay the GST. There will be less defaults and evasion in payment of GST as commission / compensation payable to DSAs will be paid post adjustment of GST and will be like payment of TDS by these companies. DSAs, who are mostly small and medium enterprises, will be freed from the compliance burden of GST relating to payment, return filing and record keeping for ITC etc. and will increase their ease of doing business.
Thus, as can be seen from the above that intention of the entry “Services supplied by a DSA” covers only scope of services provided as “DSA” and payment made as commission to them. If the intention of bring entry of DSA under RCM is limited only to the extent of commission payable to them for services rendered in the capacity of DSA then all similar entries referring to the services provided in a particular capacity should be restricted to services provided as such in that capacity and not to all services provided for which being a director or insurance agent or recovery agent or DSA was not at all necessary.
Conclusion-From a bare reading of the notification and the relevant entry and surrounding similar entries to the entry for services provided by director, it can be concluded that when intention for other similar entries in the notification is that only those services provided by the person for which it was necessary to be in that capacity are covered and not all services provided by such person which can also be supplied without being in that capacity, then the same principle should also be applied for the entry relating to the services provided by Director. Thus, services provided by way of renting of immovable property for which being a director is not necessary should not be covered under the scope of RCM.