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A leading Kerala-based tax professional has expressed the fear that the Kerala Flood Cess , which has been deferred by a month to July 1, could amount to imposition of a 'tax on tax.'
"Goods and Services Tax (GST) was introduced with the objective of reducing the cascading effect of taxes," says Sherry Oommen, Head-Tax and Corporate Laws, of Kochi-based Nash Capital Partners.
APPLICABLE CESS
"There is a strong case to argue that the flood cess should not be reckoned for the purpose of computing the taxable value under the Central GST/ Kerala GST Act," Oommen told BusinessLine .
Provisions of Section 15(2) of the CGST/KGST Act, 2017, provides that any taxes, duties, cesses, fees and charges levied under any statute other than GST, would need to be reckoned for determining the taxable value.
To illustrate, assuming that the rate of GST is 18 per cent and the value before taxes is Rs 100, the applicable flood cess would be one per cent, Oommen said.
Hence, one could contend that GST would be applicable on Rs 101, which would result in imposing a tax on tax. GST would need to be paid on Rs 101, amounting to Rs 18.18 (Rs 9.09 each towards SGST and CGST).
Article 279A of the Constitution states that the GST Council shall make recommendations to the state on 'any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster.' Hence, the power conferred is solely with respect to imposition of an additional 'rate' of tax and not a new tax/ cess, Oommen explained.
ADDITIONAL TAX
Section 14 of the Kerala Finance Act, 2019, which is the charging Section, draws reference to Section 9 of the KGST Act. Hence, in substance, the new 'cess' is principally an additional rate of tax.
Rule 3(5) of the Kerala Flood Cess Rules, 2019 provides that the details of outward supplies of goods or services or both specified under sub-rule (4) shall match the corresponding details of outward supply of goods or services or both as per the GSTR 1.
In the event of a conflict, the Supreme Court had held in the case of Karimtharuvi Tea Estates Ltd Vs State of Kerala [1968] 48 ITR 85 that if two provisions are in conflict, they must be interpreted in a harmonious manner.
The Supreme Court followed it up in the case of Trans Asian Shipping Services [2016] 287 CTR 113 by placing significant emphasis on the interpretation of the provisions of tonnage tax.
"It would augur well if a clarification is issued reckoning the value for GST as the value exclusive of the flood cess," Oommen said.
"One hopes that the cess, introduced to help in reconstruction, rehabilitation and compensation, would not result in a deluge of disputes, and defeat the very purpose of levy."
NO REFUND ON CESS
While a refund of GST is permissible in the case of a sales return, there would be no refund in the case of the Kerala Flood cess. This could invite judicial scrutiny, says Oommen of Nash Capital Partners.
The cess needs to be accounted for separately and shown as such in the invoice. As supplies between business-to-consumer are only subject to cess, the question of input tax credit does not arise.
NO NIL RETURN
"Based on the Bill, only a person liable to pay cess is required to file the related return. Therefore, in my view, a nil return need not be filed," Oommen told BusinessLine .
The 'Kerala Flood Cess' is applicable on all intra-state supply of goods or services or both made by a taxable person, subject to certain exceptions.
The cess has been introduced on all intra-state supplies of goods or services or both within the state at a rate not exceeding one per cent for a period of two years.
The state government introduced the Kerala Flood Cess Rules, 2019 on May 25, pursuant to which the cess would be applicable for a period of two years effective from June 1 (now deferred to July 1).
ELECTRONIC FILING
The cess would not be applicable on (i) supplies by a taxable person who opts for a composition levy (ii) supplies of goods or services or both exempted from tax (iii) supplies of goods or services or both made by a registered person to another registered person.
Every taxable person likely to pay the cess is required to file a monthly return in Form No KFC-A on or before the due date fixed for filing of the monthly return in Form GSTR-3B.
The return is required to be filed electronically through the official portal www.keralataxes.gov.in and e-payment would need to be made along with the return.
In order to e-file the return and the payment of cess, a one-time user ID and password would be generated from the portal. The rules provide that there would be no refund of the cess paid along with the return.
Also read: Kerala chamber raises concern on flood cess
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