CBDT Issued Various Guidelines Under Section 194-O, 194Q and 206C

To remove the difficulties of taxpayers and to ease compliance the Central Board of Direct Taxes (CBDT) issued various guidelines under section 194-O, 194Q and 206C.

The CBDT has received various representations from the various stakeholders involved in the business to issue guidelines under Sub-section (4) of section 194-O, sub-section (3) of section 194Q, and sub-section ( I-I) of section 206C of the Act.

So in order to remove the difficulties of taxpayers and to ease compliance, the CBDT issued various guidelines under Sub-section (4) of section 194-O, sub-section (3) of section 194Q, and sub-section ( I-I) of section 206C of the Income Tax Act 1961 with the approval of the central government.

Guidelines

E-auction services carried out through electronic portal

Representations have been received from various stakeholders involved in the business of carrying out e-auction services through an electronic portal owned, operated or maintained by them (hereinafter referred as ‘E-auctioneer). It has been stated that in an e-auction, the e-auctioneer involved in conducting the e-auction through its portal is responsible only for the price discovery for the sa le/purchase of goods or services and the result of the auction report is submitted to the client. The client could be the buyer or the seller. Participants in the auctions are sellers (if client is buyer) or buyers (if the client is seller). The transaction of sale/ purchase is being carried out directly between the buyer and the se ll er which are not done through the electronic portal of the e-auctioneer. Further, the price so discovered can be further negotiated between the parties without the knowledge of the e-auctioneer. In such a scenario, it has been represented that provisions of section 194-O of the Act do not apply as the transaction of sale/purchase itself is not taking place through the electronic portal.

In order to remove the difficulty, it is clarified that the provisions of section 194-O of the Act shall do not apply in relation to e-auction activities carried out bye-auctioneers if all the facts are listed at (a) to (f) of para 5.1.2 of the Circular are satisfied. This clarification shall not apply if any of these facts are not satisfied. Further, it is clarified that the buyer and seller would still be liable to deduct/ collect tax as per the provisions of Section 194Q and 206C (I H) of the Act, as the case may be.

Adjustment of various state levies and taxes other than GST

In Para 4.3.2 of circular no. 13 of 2021 dated 30.06.2021, it has been provided that in case the GST component has been indicated separately in the invoice and tax is deducted at the time of credit of the amount in the account of the seller, then the tax is to be deducted under section 194Q of the Act on the amount credited without including such GST. It has been further provided that in case the tax is deducted on a payment basis ‘as the payment is earlier than the credit, the tax is to be deducted on the whole amount as it is not possible to identify that payment with GST component of the amount to be invoiced in future. Further, adjustment of tax deducted in case of purchase return has also been provided.

It has been represented that in case of goods which are not within the purview of GST, such as petroleum products, various levies like VAT, Excise duty, sales tax etc. are charged. While the treatment of GST component has been clarified in the circular no. 13 of 2021, the same is silent on other non-GST levies whi ch have otherwise been subsumed and replaced by GST.

In this regard, it is hereby clarified that in case of purchase of goods which are not covered within the purview of GST, when tax is deducted at the time of credit of amount in the account of the seller and in terms of the agreement or contract between the buyer and the seller, the component of VAT/Sales tax/Excise duty/CST, as the case may be, has been indicated separately in the invoice, then the tax is to be deducted under section 194Q of the Act on the amount credited without including such VAT/Excise duty/Sales tax/CST, as the case may be. However, if the tax is deducted on a payment basis, if it is earlier than the credit, the tax is to be deducted on the whole amount as it will not be possible to identify the payment with VAT/Excise duty/Sales tax/CST component to be invoiced in the future. Furthermore, in case of purchase returns, the clarification as provided in Para 4.3.3 of circular no. 13 of 2021 shall also apply to purchase returns relating to non-GST products liable to VAT/excise duty/sales tax/ CST etc.

Applicability of section 194Q of the Act in cases where exemption has been provided under section 206C (1A) of the Act

Sub-section (1A) of section 206C of the Act provides that notwithstanding anything contained in sub-section (I) of the said section, no tax is to be collected in case of a buyer, who is a resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration to the effect that the goods (as referred to in sub-section (I)) are to be utilized for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation of power and not for trading purposes.

As per the provisions of sub-section (1H) of section 206C of the Act, tax is to be collected in respect of sale of goods other than the goods which have not been covered under sub-section (1) or subsection (1F) or sub-section (1G). It has been represented that in case of goods which are covered under the provisions of sub-section (1) of the said section but exempted under sub-section (1A), tax will not be collectible under either sub-section (1) or sub-section (1H) of section 206C as the provisions of subsection (1H) categorically exclude the goods which are covered under sub-section (1) of section 206C. It has been requested to clarify if the provisions of section 194Q of the Act will be applicable in such cases.

The issue has been examined. It is seen that the provisions of section 194Q of the Act does not apply in respect to those transactions where tax is collectible under section 206C [except sub-section (1H) thereof ] of the Act. Since by virtue of sub-section ( IA) of section 206C of the Act, the tax is not required to be collected for goods covered under sub-section ( I) of the said sec ti on, it is hereby clarified that in such cases, the provisions of section 194Q of the Act will apply and the buyer shall be liable to deduct tax under the said section if the conditions specified therein are fulfilled.

Applicability of the provisions of section 194Q in case of department of Government not being a public sector undertaking or corporation

There have been representations from department of the Government (both Central Government and State Government), to enquire if such department is required to deduct tax under the provisions of section 194Q of the Act.

As per the provisions of section 194Q, tax is to be deducted by a person, being a buyer, whose total sales, gross receipts or turnover from business carried on by that person exceed ten crore rupees during the financial year immediately preceding the financial year in which the goods are purchased by such person. Thus, for a person to be considered as a buyer for the purposes of section 194Q of the Act, following conditions are required to be fulfilled:

(a) Such person shall be carrying out a business/ commercial activity;
(b) The total sales, gross receipts or turnover from such business/ commercial activity shall be more than Rs. 10 crore during the financial year immediately preceding the financial year in which goods are being purchased by such person.

In case of any Department of the Government, which is not carrying out any business or commercial activity, the primary requirement for being considered as a ‘buyer’ will not be fulfilled. Accordingly, such an organization will not be considered as ‘buyer’ for the purposes of section 194Q of the Act and will not be liable to deduct tax on the goods so purchased by them. However, if the said department is carrying on a business/commercial activity, the provision of section 194Q of the Act shall apply subject to the fulfillment of other conditions.

Issue has been raised in case where any department of the Government will be considered as a ‘sell er’ for the purposes of deduction of tax under section 194Q of the Act. In this regard, it is hereby clarified that for the purposes of section 194Q, Central Government or State Government shall not be considered as ‘sell er’ and no tax is to be deducted by the buyer, in cases where any Department of Central or State Government are se ll er of goods.

In connection with above, it is further clarified that any other person, such as a Public sector Undertaking or corporation established under Central or Stale Act or any other such body, authority or entity, shall be required to comply with the provisions of section 194Q and tax shall be deducted accordingly.

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