2019 (1) TMI 486 - AAR - GST

TDS liability under GST - Specified person u/s 51(1) - supplies from a public sector undertaking to another public sector undertaking - Public Sector Undertaking or not?. - Held that - The Applicant has nowhere disputed that it has been established by the Government. The Application is silent on this issue. Section 51(1) of the GST Act, read with the Notification as amended from time to time, mandates that certain categories of recipients shall deduct tax at source at a percentage while making payments to the suppliers above a threshold. Such recipients include inter alia an authority or a board or any other body set up by an Act of Parliament or a State Legislature or established by any Government with 51% or more participation by way of equity or control to carry out any function - As the GST Act does not define Control , it should be construed as defined under the Companies Act, 2013. Section 2(27) of the Companies Act, 2013 defines Control . It includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner. Neither the Central Government nor the State Government has any direct equity participation. But the Government Companies , as defined under section 2(45) of the Companies Act, 2013, together hold 62.29% of the paid up share capital and majority of the directors in the Board. WBIDC alone holds 49.46% of the shares, and enjoys four votes (including the casting vote of the Chairman) in a nine member Board. The Central and the State Governments, therefore, acting through the government companies, are in a position to indirectly control the management or policy decisions of the Applicant. The Central and the State Governments, therefore, control the Applicant within the meaning of Section 2(27) of the Companies Act, 2013. Clause a (ii) of the Notification is, therefore, applicable for the Applicant if he is established by government notification. Ruling - The Applicant, if established by government notification, is liable to deduct tax at source under section 51(1) read with Notification No. 1344-FT dated 13/09/2018, being a company controlled by the Central and the State Governments.

Summary

Issues:
1. Applicability of Notification No. 1344-FT dated 13/09/2018 under the WBGST Act, 2017 and CGST Act, 2017.
2. Interpretation of Section 51(1) of the GST Act regarding tax deduction at source.
3. Determination of whether the Applicant is controlled by the Central and State Governments as per the Companies Act, 2013.

Analysis:

Issue 1: Applicability of Notification No. 1344-FT dated 13/09/2018
The Applicant sought an advance ruling on the applicability of Notification No. 1344-FT dated 13/09/2018 under the WBGST Act, 2017 and CGST Act, 2017. The Notification mandates tax deduction at source for certain categories of recipients. The Authority admitted the application as the question was not decided by any authority under the GST Act.

Issue 2: Interpretation of Section 51(1) of the GST Act
Section 51(1) of the GST Act empowers the deduction of tax at a specified rate from payments made to suppliers exceeding a certain threshold. The Notification specifies categories of entities to which this provision applies, including government bodies and public sector undertakings. The Notification exempts certain authorities and supplies between public sector undertakings.

Issue 3: Determination of Control by Central and State Governments
The Applicant argued that it is not a public sector undertaking as defined under the Companies Act, 2013, and therefore, the Notification should not apply. However, the Authority found that the Central and State Governments, through government companies, indirectly control the Applicant. As per the Companies Act, 2013, control includes the right to appoint directors or influence management decisions. Consequently, the Applicant is liable to deduct tax at source as it is considered a company controlled by the Central and State Governments.

In conclusion, the Authority ruled that if the Applicant is established by government notification and is controlled by the Central and State Governments, it is obligated to deduct tax at source under Section 51(1) of the GST Act and Notification No. 1344-FT dated 13/09/2018. This ruling remains valid unless declared void under the provisions of the GST Act.