Collection Of Taxes And Non payment Of The Same
Ultimate consumer buying supplies from an un-registered supplier / supplier registered as composite supplier.
(1) A is travelling on a highway between Agra and Jaipur. Halfway he stops at a Dhabha or a shop owned by B and buys water bottle, biscuits and some other similar products. B is not a registered supplier. Both of them are not aware of the provisions of the GST Act. B charges A the price which is equal to MRP and A discharges the same after verifying the MRP and date of expiry. No receipt or bill has been issued by B either on demand or on su moto. B has collected tax which is part of MRP and will not pay the same as he is not registered and or his turnover is below the threshold limit OR as he is not aware of the GST Provisions.
(2) A has come to Madurai with his family to visit holy shrines and had a good darshan of Meenakshi Ammaal. He goes to a shop near the temple which is owned by B and buys water bottle, biscuits and some other similar products. B is not registered under the act. A and B both of them are aware of the GST Act. B charges A at MRP and refuses to give a bill / invoice / cash paid receipt. A refuses to pay tax and tries to argue with B. A does not understands Tamil and B does not understands any other language other than Tamil. A’s children are shouting and crying and screaming on the road and his wife becomes impatient. Ultimately A discharges the MRP.
B is not registered under the act and collects the tax and retains the same.
(3) A visits his neighborhood kirana shop owned by B. B wishes him good morning and A starts narrating the items which he needs them for his monthly consumption. Certain products are packed and printed with MRP like biscuits, hair oils, shampoos and so on. Some of the products are weighed and packed in covers made of newspapers and on being asked by A, the shop keeper tells him the rate per kilo. Some of the products are packed in polythene covers, products have been purchased in bulk and repacked by the shop keeper in different quantities and a yellow sticker is pasted on such polythene covers depicting the price of that packet which is handwritten. All the items have been delivered at A’s residence along with a piece of paper which depicts the name of the product and the price charged. A in the evening pays some advance and agrees to clear the balance at the month end. B makes an entry in a register and A signs in the respective folio. B is not registered. A does not argues with B because he is enjoying credit facility, shop is close to his residence, supplies are of good quality, he does not have to carry the load as home delivery system exists and the shop keeper is trust worthy. Taxes collected by the shop keeper are retained by him.
(4) A, a Chartered Accountant from Hospet visits Vijayawada with his team on official work and prefers to have his lunch in an air conditioned hotel since the weather in Vijayawada is very hot and the vegetarian hotel is close to his clients place. A orders South Indian Meals and water bottles. Air conditioning unit / air conditioners are not working and on enquiry he is informed that the same is / are under repair and the technician has to come from Chennai and is expected any moment. Couple of old pedestal fans were placed in the dining hall which were making more noise than blowing air and fan blades were moving in slow motion. A and his team completes their lunch and ask for the bill. Water bottle is billed over and above the MRP. CSGT and SGST is collected on the entire bill including the cost of water bottles at enhanced price. A tries to tell the staff that the bill is not correct and the cost of the water bottle billed is more than the MRP and he shows the MRP printed on the water bottle to the Manager and the Supervisor and also tells them that air condition is not working. The hotel team does not budge and they argue that they have instructions from hotel owners . On further arguments by A, the hotel team shouts at A and abuses him in vernacular language. Crest fallen, disappointed, disgusted and dejected, A pays the bill. ( The Supreme Court has allowed hotels and restaurants to sell bottled water and other packaged products at above the maximum retail price, saying they also render a service and cannot be governed by the Legal Metrology Act.
In a Judgement passed on a special leave petition filed by the Federation of Hotel and Restaurant Associations of India against the Union of India, the apex court said when hotels and restaurants sell food and drinks, they also render a service, making it a composite transaction with composite billing and MRP rates cannot be insisted upon for such entities. The Supreme Court has allowed hotels and restaurants to sell bottled water and other packaged products at above the maximum retail price, saying they also render a service and cannot be governed by the Legal Metrology Act. )
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In a Judgement passed on a special leave petition filed by the Federation of Hotel and Restaurant Associations of India against the Union of India, the apex court said when hotels and restaurants sell food and drinks, they also render a service, making it a composite transaction with composite billing and MRP rates cannot be insisted upon for such entities. ( December 2017)
Preamble Of Legal Metrology Act
An Act to establish and enforce standards of weights and measures, regulate trade and commerce in weights, measures and other goods which are sold or distributed by weight, measure or number and for matters connected therewith or incidental thereto.( Source- Blog – Help Line Law)
Maximum Retail Price
Let us also try to understand the provisions Consumer Goods ( Mandatory Printing Of Cost of Production And Maximum Retail Price ) Act 2006. (a) Section 2 (f) of the said act states that “maximum retail price” means such price at which the consumer goods shall be sold in retail and such price shall include all taxes levied on the goods. (b) Section 2(e) of the said act states that “printing”means printing of cost of production and retail price at a visible place in Hindi and English and the local language of the place it is sold.
Consumer Goods ( Mandatory Printing Of Cost of Production And Maximum Retail Price ) Act 2006 prohibits selling of consumer goods over and above the maximum retail price.
Collection And Payment Of Taxes
Section 32 of the CGST Act 2017 prohibits collection of tax. (a) It states that a person who is not a registered person shall not collect tax in respect of any supply of goods or services or both any amount of by way of tax under this Act ( Section 32 (1)). (b) It further states that no registered person shall collect tax except in accordace with the provisions of this act or the rules made thereunder ( Section 32 (2)).
Section 49 of the CGST Act 2017 states that every deposit made by a person shall be credited to the electronic cash ledger of such person. The said section also states the manner in which input tax credit available in electronic credit ledger shall be utilized for making the payment of output tax.
It is evident that taxes can be collected and be paid only by a registered person . Now, Can we conclude and or construe and state that a dealer who is not registered or is not liable to be registered and who is selling the products at Maximum Retail Price ( MRP ) and collecting tax (under the act) which is part of MRP and retains the said taxes with them. If this is true, then is The State Governments not loosing or foregoing its revenue which is being collected legally by the un registered dealers and not remitting it to the Governments.
Collection Of Taxes By Unregiste0red Dealer / Supplier ( Traders )
It is presumed that sale effected or turnover of the unregistered dealer is inclusive of taxes since the products are sold at maximum retail price. It is presumed that the turnover of the unregistered dealer is Rs.20,50,000/-
(a) on a presumption that the unregistered dealers total turnover includes sale of goods which attracts or is taxable at the rate of 5% then the tax collected would be Rs.97,619/- ( Rs.20,50,000/- x 5 / 105 )
(b) on a presumption that the unregistered dealers total turnover includes sale of goods which attracts or is taxable at the rate of12% then the tax collected would be Rs.2,19,643/ ( Rs.20,50,000/- x 12 / 112 )
(c) on a presumption that the unregistered dealers 50% of total turnover includes sale of goods which attracts or is taxable at the rate of 5% and the balance at 12% then the tax collected would be Rs.1,58,630/-. ( Rs.10,25,000/- x 5 / 105 + Rs.10,25,000/- x 12 / 112 ).
This is amount which is collected by each unregistered dealer. If these amounts – Rs.97,169/-, Rs.2,19,643/- and Rs.1,58,630/- is / are multiplied with number of unregistered dealers in India, it could be couple of crores of rupees.
On a presumption that the benefit of input tax credit is extended to unregistered dealers and that they are given the option to file their returns on half yearly basis ( since their turnover is below Rs,20,00,000/-) and further it is presumed that gross profit margins are twenty percent of the sales then the output tax payable would be as under:
|G P Margin at 20%||Tax payable @ 5%||Tax payable @ 12%||Tax payable @ 5% and 12%|
|20% of Rs. 19,52,381/- = Rs. 390,476/-||Rs. 19,523/-||Nil||Nil|
|20% of Rs. 18,30,357/- = Rs.366,071/-||Nil||Rs. 43,928/-||Nil|
|20% of Rs. 18,91,370/-= Rs. 378,274/-||Rs. 9,456/-||Rs 22,696/-||Rs. 32,152/-|
The amounts depicted in the above table are the taxes that one unregistered dealer will have to pay to Government, after taking the benefit of input tax credit, If registered under the GST Act.
Collection Of Taxes By Composite Dealer / Supplier ( Traders ).
Following table depicts tax collected by the Composite Dealer and GST tax paid by them and tax not being remitted to the Government :: ( It is presumed that the Composite Dealers are also selling at MRP and collecting the taxes)
|Turnovers at MRP||Tax collected @ 5%||Tax Collected @ 12%||Tax on turnover (1%)||Difference of tax not remitted to the government|
|(a)||(b)||( c )||( d )( d ) =(a) – (c )
(d) = (b) – (c )
(d) = (a) + ( b) –( c)
|Rs. 10000000||Rs. 476190( Rs. 10000000 x 5 / 105 )||—||Rs. 100000||Rs. 3,76,190||Presumed that entire turnover represents goods attracting 5% tax|
|Rs. 10000000||—||Rs. 1071428( Rs. 10000000 x12/112)||Rs. 100000||9,70,478||Presumed that entire turnover represents goods attracting 12% tax|
|Rs. 10000000||Rs. 238095( Rs. 5000000 x 5 / 105 )||Rs. 535174( Rs. 5000000 x 12 / 112 )||Rs. 100000||Rs.6,73,269/-||Presumed that 50% of the turnover attracts %5 and the balance 12%|
Column “d” depicts the tax collected and retained by the composite dealer
On a presumption that the benefit of input tax credit is also extended to Composition Scheme dealers and further it is presumed that gross profit margins are twenty percent of the sales then the output tax payable would be as under:
|G P Margin at 20% on Rs.1,00,00,000/- at MRP||Tax payable @ 5% on GP Margin||Tax payable @ 12%on GP Margin||Presumption|
|20% of Rs.95,23,810/- = Rs.19,04,762/-||Rs.95,238/-||Nil||Entire turnover is at 5%|
|20% of Rs.89,28,572/- = Rs.17,85,714/-||Nil||Rs.2,14,285/-||Entire turnover is at 12%|
|These are the taxes composite dealer will have to pay after availing Input Tax Credit.|
Constitution of India
Article 246 (3) of Constitution Of India states that subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule ( in this Constitution referred to as the State List). Entry Number 26 of the said list includes Trade And Commerce within the State subject to the provisions of entry 33 of List III. Entry Number 27 of the said list includes Production supply and distribution of goods subject to the provisions of entry 33 of List III.
By virtue of the said Article of Constitution Of India the State has power to make laws to regulate Trade And Commerce within the State and Production supply and distribution of goods. Would it be correct to say that the State has power to exempt certain classes of dealers from getting themselves registered under the State laws. At the same time can the State exempt such dealers from remitting the taxes collected on sales to the Government. If such dealers who are not registered or liable to be registered and or Composition Scheme dealers who sell and collect sales tax and are not remitting it to the Government, then is it not a loss to Government.
Reverse Charge Mechanism
Normally, the supplier of goods and or services will be liable to discharge tax on the supplies effected. However, under the reverse charge mechanism the recipient of goods and or services will be liable to discharge the tax provided the goods and or supplies are sourced from unregistered dealers. Hypothetically, if an unregistered dealer is selling at MRP and is collecting the taxes and if the recipient also is asked to pay tax on the inward supplies for sourcing goods and or supplies from unregistered supplier, then will it not tantamount to double payment of tax.
Having discussed as above, In my opinion, the provisions of Consumer Goods ( Mandatory Printing Of Cost of Production And Maximum Retail Price ) Act 2006 should be amended and different MRPs should be allowed to be printed OR different packing’s should be devised in respect of the following persons / suppliers and for the benefit of the end consumers :: (a) for registered suppliers – since they can collect tax and pay tax and issue tax invoice. (b) for un-registered supplier – since they cannot collect tax and cannot issue tax invoice. ( c ) for suppliers registered as composite supplier – since they cannot collect tax and has to pay tax at specified percentage and can issue bill of supply.
Most of us knowingly or unknowingly or might be out of fear of being abused in public by the traders end up paying the MRP. From the point of view of small traders, as to how many of them are aware of the GST Act and the rate schedules and the calculations for working out the non tax price.
Every businessman / business house / shop, irrespective of the organization type and size and turnover, should be allowed to be registered under GST Act and should be allowed to file returns on monthly basis, quarterly basis, half yearly basis or annual basis depending upon the dealers turnover and should be allowed to pay output tax after availing credit for input tax credit. All dealers should be directed to file annual returns.