Covid Resource for Second Wave

Initial part of this blog has resources useful for all of India. Later part is dedicated to resources for Mumbai city.

Hapless Co-operative Housing Society members slapped with 18% GST and Complex Paperwork

Recent implementation of GST Act in India has not only slapped massive 18% GST on Co-operative Housing Society (CHS) member contributions but also burdened them with very complex paperwork.

If one understands the basic tenet of CHS and its working one would immediately understand the absurdity of this idea of levying financial as well as administrative burden. Here is my argument for not levying GST on CHS:

Why GST should not be levied on CHS?

I. CHS works on no-profit, no-loss co-operative model. Here services are received by members from the elected members of the society. People don't have any alternative but to live in a CHS. When CHS is formed by members, they do it out of necessity; and NOT for entertainment or for profit. Housing is a basic necessity of people.

Slapping 18% GST on member contributions is simply a bad idea emanating from a bureaucratic machinery having no experience of CHS movement. There is no basis to levy any GST on CHS.

II. CHS has a very minimum administrative structure. Its Managing Committee members work without any salary or compensation, while engaging in full time Job or Business. Most of CHS are unable to get qualified staff on salary because government has failed miserably in creation of proper training facilities. Although recent amendment of 2013 provides for training but so far hardly anything exists in reality.

CHS of any size are just not equipped to handle calculation of GST on member collections, calculation of GST on Services rendered to them by unregistered service provider under Reverse Charge Mechanism and filing of 37 GST returns.

III. Service Tax sought to be levied on CHS was set aside by a tribunal in a February 2015 order.

Here is a excerpt from the full report: In a recent landmark decision in the case of Matunga Gymkhana, Tahnee Heights CHS Ltd (reported in STO 2014 CESTAT 792) the Mumbai Tribunal has held that Services to members of club/co-operative housing society is not a service by one to another and therefore it is not chargeable to service tax.

Here is small re-cap on relevant GST provisions on CHS.

SAC 9995 : Service by an unincorporated body or a nonprofit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution – (a) as a trade union; (b) for the provision of carrying out any activity which is exempt from the levy of Goods and service Tax; or (c) up to an amount of 5000 rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex. GST: Nil

SAC 999599: Services Provided By Other Membership Organizations N.e.c. GST: 18%

CHS is required to pay 18% GST under above Service Accounting Code viz., 999599.

Issues troubling CHS with introduction of GST: 

1. CHS collects and pays Municipal tax, Water Charges and Sinking Fund from members. Though there is no GST on this heads, will they be added to the total member contribution to check the 20 lakh threshold per year?

2. This limit of 5,000/- pm for housing society is too low for buildings of Mumbai that have come up in last 15-20 years with lifts and requirement of security guards. If at all government wants to levy GST the limit should be at least 15,000/- pm for 'A' class city like Mumbai, Delhi, Chennai, Bangalore etc.

3. Housing society's management is not capable to comply with filing of 37 Returns and meeting the provisions of Reverse Charge Mechanism of GST. Day to day working of CHS depends on service provided by Un-registered Service Providers (below 20 lakh/year threshold) like  Sweepers, Cleaner of drainage pipes, water tank cleaners, plumbers, electricians etc. RCM provisions should not be applicable to Cooperative Housing Society.

-oOo-

More Reading:
* 5 reasons why living in housing society will be expensive under GST - Economic Times
* Society maintenance bill over Rs 5,000? Pay 18% GST - DNA
* Tax hawks fail to understand CHS yet
* Goods & Service Tax (GST): Background & Declared Rates for Housing Societies - Apartment Adda
* How to avoid GST levy on housing societies - India Infoline
* GST Applicability to Cooperative Housing Societies - Moneylife

New Passport Seva Kendra at Andheri, Mumbai

Today visited PSK (Passport Seva Kendra) at Andheri, Mumbai. We're almost forced to do this i.e., apply for re-issue of a passport that was valid till January 2020.

What happened? It seems people with an Indian passport - which were issued before 1-1-2001 or a passport with 20 year's validity - are not eligible for a Schengen visa! If one is planning to visit one or more than one of 25 countries in Europe then passport should have been issued by Govt of India after 1-1-2001. Why? It seems that prior to this date details on passport were hand-written i.e., they were not printed in a machine readable format.

So, how does one apply for re-issue of a passport that is still valid till 2020? I could not find any reason I could tick. But, in our case, one reason came to our rescue. If that reason was not there, I wonder how does one apply for re-issue just to satisfy Visa requirement of European countries. (Note: Later on I noticed that for re-issue there an option - change of personal particulars - where change of appearance / signature is an acceptable reason. Also, there is an option 'None of above'. So, there is no problem!)

Anyway, quickly applied online (after fumbling and wasting precious few hours at old passport website) and got appointment for Tatkal re-issuance after 1 day.

One side note. There is enough confusion among travel agents about issuance of Tatkal passports. I was told it has stopped. But that's not true. Truth, as I discovered is that with new system developed by TCS (Tata Consultancy Services) it may not be necessary to apply in Tatkal because regular passports will be issued in about 15 days. So, people are discouraged or asked questions as to necessity of applying in Tatkal. If you insist (with good reasons) there is no problem. Tatkal applicants can expect passport in 7 days (or even earlier). Let's see what happens in our case. I will keep you posted.

One more thing. It seems to me that role of Authorised Agents for Passport is done away with - with introduction of new system. So, your good, friendly neighbourhood agent may not have any role, except if you decide not to read official website and want helping hand of an agent (who is not authorised now, btw). So, I did not find counter for Agents at Passport Seva Kendra.

Here are my suggestions to Passport Authorities regarding new passport issuance process. I gave following suggestions on passport website. Those in bracket are additions in this blog.

1. PSK's address is not properly given. It should be Great Oasis Bldg, Plot D-13, Road no.21 (Near Akruti Softech Park), MIDC, Andheri (E), Mumbai 400069. (Website says PASSPORT SEVA KENDRA, THE GREAT OASIS ENTERPRISES PVT. LTD., D-13, THE GREAT OASIS 21, MIDC MAROL, ANDHERI (EAST) MUMBAI - 400069).

2. PSK's location should be shown on google map. (Currently it is not possible to locate it on Google Map, even if know the correct address.)

Following will help you to find direction while coming from Andheri (Chakala Junction) or Marol Naka or Jogeshwari-Vikhroli Link Road.

Note: Car Parking is difficult here because I noticed almost 10-12 buses parked in the small - close ended street. Of course, there is a place for about 10-12 cars and equal number of bikes. Car parking is not allowed inside the building for visitors. One can take Buses starting from Andheri Station (East) and going to Seepz (MIDC). One can get down at Seepz and walk for about 5-7 min to reach PSK. If you get down at Tunga bus stop take Road 13,  turn right on Road 16 and dirty short-cut path beyond Food Express to reach PSK.

3. Your website should say clearly 'no photographs required for online applications'.  It will be taken at PSK along with finger prints.

4. Website should say 'Appointment will be given at 7.30 pm. onwards'. So, applicants should first login with username/password, fill in all details online or upload e-Form and submit application for appointment at 7.30 pm. (I was told this on their toll free number 1800-258-1800. Also, it seems that now the time has changed to 3.00 pm)

5. It should redirect applicants from earlier site https://www.passport.gov.in/ to this site (lot of people waste time because they don't know about this new site https://www.passportindia.gov.in/).

6. List of documents required should clearly say 'If PAN no and Election card number is given in the application, copy of same should be submitted'.

7. If earlier (old) passports are required/not-required for reissue/renewal - it should be explicitly stated.

8. It should be clearly stated that no person other than applicant will be allowed entry except parent with young children, senior citizens or persons with medical condition.

9. At PSK there should be some arrangement for relatives to hang around till applicant comes back e.g., water, toilet etc. (There is one hotel 'Food Express' on parallel Road - no.16 - a 2 min walk because of a short cut (dirty) path to this joint. Short-cut path is located just opposite the PSK building. One toilet in the compound is used by all and sundry and it is dirty.)

10. PSK should have few food items on sale - as it takes any where from 1 hours to 4-5 hours for each applicant. For example today we went in at 9.45 and came out at 2.45 i.e. 5 hours! (I heard that this PSK has opened just one month back and staff is learning. Most staff seems to be TCS employees. PSK starts at 9 am and works till 6 pm. Lunch time 1.30 pm to 2.00 pm. )

11. There should be separate queue for people with young children, senior citizen, people with disabilities/medical condition.

12. There should be inquiry counter outside PSK (currently security guards are answering all types of questions!)

Note:
a. Contrary to what impression you may get at the Passport website, one is not allowed to simply walk-in to PSK and apply. One needs ARN (Application Receipt No - which is given upon successful submission of application form) and Valid Appointment for the day.

b. If you have received an Email from Passport office then take Email printout clearly showing your ARN no. I saw many people being turned away for Email printout and ARN no./Appointment. Security people don't agree to view Email on laptop/mobile phone. One has to walk to MIDC main road (10 min) to locate Internet Cafe to take Email's printout.

c. Please ensure you don't take your laptop or camera. It is not allowed in, and there is no provision to keep it in a safe deposit anywhere. I saw lot of people getting in to trouble with this.

d. Currently PSK does not have any public telephone inside. Of course, there is a designated place but phone is not there yet. So, ensure that you carry mobile phone along with you.

e. PSK has one Photocopy Counter. They charge Rs.1 per page.


13. For address proof - when Electric or Tele bill is given one is required to give current bill as well as last year's bill. But 'upload' does not allow more than 1 electric/tele bill. This needs correction.
 
Here is a photograph of board displayed at PSK. It is useful and some information given here is not there on Passport website.
 

Do you have any comments or suggestions? Do write back.

Why pay Service Tax on Packaged Software - to be on the safer side?

In India, the taxation and legal system is very complicated, extremely slow and quite expensive in terms of money and time.

So, whenever there is an ambiguity on the applicability of a particular tax or law - usual advise given by Tax Consultants is - "we feel this - this and this ... - but to be on safer side pay tax" i.e., collect from the customer and pay to the government. After all - it's the poor customer who pays!!!

And bigger the company seeking the advice - bigger is the consultant i.e., all MNC's seek advice from one of the big four management consultants. Never mind what their track record is. We have seen fate of number of global consulting organizations and their customers in the last 7-8 years. Not only consultancy organizations but even their top notch MNC customers have gone out of businesses. So, much about the big consultants and their advice!!

So, it's time that we start using our brain and innate wisdom to understand the tax/legal issues on hand and devise ways to tackle the issues. Times are tough and going forward - it's going to be tougher. So, it's time that we get out of our cosy comforts and forget about being safe and start learning to take stand, devise a strategy to fight the outcome of the stand and fight out - when required.

Take the issue of double taxation that has shaken the entire Software Industry in India. It has applied a 'brake' and changed the 'gear' from 5th to the 1st gear - without pressing the clutch. Any one who knows how to drive a four wheeler would understand what's fate of such an action.

Some people think that Indian Government has done this intentionally. It's done with a intention of milking docile IT customers and IT Software Houses of their hard earned money. And Government is not in a mood to offer quick corrective action. They want as much money as possible in the government coffers - so that they can pay the farmers and arrears to government employees as per 6th Pay Commission recommendation. And you know very well why all this is done - of course, to get votes in the next election and stay in power for another five years. All this in the name of democracy. It's a shame on us that we take all this lying down.

Consider this case a little deeper to examine - what's implication of both taxes applied simultaneously on the sale of a packaged software product?

It leads a question - whether 'Service tax' and 'VAT' is to be paid on 'basic price' simultaneously or one after another. If applied simultaneously - we are thrown back by 25 years to age old system of manual book keeping because modern Accounting Packages can not handle it. If you are using modern ERP packages then you will need to hire services of costly and time-consuming ERP consultants to modify your billing system. And they will take couple of months to carry out the necessary changes to your billing and accounting system.

If you apply it one after after then question arises - which comes first? VAT or Service tax. Fortunately, there is a consensus among tax authorities that Service tax comes first because it's a Central Government tax (like Excise) and VAT comes next. So, you pay Service tax @ 12.36% on basic price and then charge VAT on the total of basic price and service tax.

So far so good. But, bigger issue to be discussed and settled is whether Service Tax is applicable on the sale of packaged software or not. This is because as per Finance Minister's budget speech and a letter written by the Service Tax Commissioner - Service Tax is applicable on tailor made software and Excise/CVD is payable on the packaged software.

So, it is time to decide whether software resellers are selling tailor-made software or packaged software. Once they are clear about this point they will be able to convince all parties viz., government, distributors and vendors - that Service tax is NOT payable on the packaged software.

In this context, if any one is having any doubt, please read clarification given by Tax Research Unit (TRU) vide D.O. F. No.334/1/2008-TRU dt.29-2-2008:

..
4.1.5 Software and upgrades of software are also supplied electronically, known as digital delivery. Taxation is to be neutral and should not depend on forms of delivery. Such supply of IT software electronically shall be covered within the scope of the proposed service.….
..
4.1.7 Following consequential amendments in other taxable services are also being made: To clarify as removal of doubts that ‘Management, maintenance or repair of properties’ includes Management, maintenance or repair of IT software [section 65(105)(zzg)]. Maintenance of packaged software (being goods) is also leviable to service tax under the said service.

Notice "taxation is to be neutral and should not depend on forms of delivery" and "packaged software (being goods)". So, when we sell packaged software supplied vide different forms of delivery viz. Shrink-wrap, OEM, Paper license or Internet download, it's all same viz. packaged software. Packaged software (being goods) - attract VAT. So, there is no Service tax.

Once we all (dealers, distributors and vendors) are clear and are all united on this issue we could take a stand as an industry and we all should collectively refuse to pay Service tax to government. If government wants Service tax then let them demand it.

Currently we all are assuming that government wants Service tax on packaged software and we are paying it. But indication is otherwise i.e., government's original intention was to levy Service tax on the Tailor-made or Customised software only. Same thing was said in the Finance Minister's speech also.

While presenting the Finance Bill 2008 he said: “I propose to increase the excise duty on packaged software from 8 per cent to 12 per cent to bring it on par with customized software which will attract a Service tax of 12 per cent.”

I've learnt from a customer that he had some verbal discussion with the Commissioner of Service tax. In that Service Tax Commissioner confirmed that Service tax is payable only on the tailor made software. He even said that his field staff does not have mandate for the collection of service tax on packaged software products.

BUT WE ALL ARE PAYING SERVICE TAX ON PACKAGED SOFTWARE - RATHER FOOLISHLY - TO BE ON SAFER SIDE.

WHOSE FAULT IS IT? It is time we start thinking like Legal Experts and Court Judges viz., what is the intention of government in bringing IT Software Services in Service tax net? And whether it is correct to charge two taxes on same item viz., Packaged IT Software .

Believe me, in case of doubts, even our constitution rules in favour of the tax payer and not government.

“Service tax is imposed under entry 97 of List I (in Constitution of India) which is a residual entry. Thus, if a transaction is covered in list II, it cannot get covered in entry 97 of List I. Since sales tax is covered in list II, it is doubtful if service tax can be imposed on a transaction which is entirely getting covered under List II.” - V S Datey - Tax consultant.

Then - it's time that we take a stand as a IT Software Industry and decide not to pay Service tax on packaged software.