Cos Told to Pay GST on License Fee for Govt Schemes

The Indirect tax department has started demanding goods and service tax (GST) on license fees paid by companies to the government for availing certain benefits, people aware of the development said.

Companies have to take licenses to avail the benefits to government schemes such as advanced authorization and export promotion for capital goods (EPCG) among others.

In most these cases, the tax department is asking companies and exporters to cough up the GST on the License amount, Industry experts said, many companies claim that these fees are essentially statutory levies and should be outside the gamut of taxation.

The tax department is arguing that these are licenses and hence should be taxable under the GST.

Under advance authorization, a company can import raw materials without paying duties on that if it can demonstrate that these raw materials are to be used in a final product that will eventually be exported. EPCG is a similar scheme, but it has certain different conditions to be fulfilled by the companies.

“There is a clear distinction between supply of service and the sovereign function of the government. When various such payments are made, there is no ‘quid pro quo’ and hence no applicability of GST,” said Abhishek A Rastogi, partner at law firm Khaitan & Co, who is advising some of the companies on the issue.

Legal experts said this could lead to additional litigation.

Directorate of Revenue Intelligence (DRI), the investigative agency for customs law matters, had begun issuing notices to exporters for GST exemptions where exports preceded imports.

Some companies have approached the Gujarat High Court in this regard.

Tax demands on some other licenses and schemes are also under litigation, people in the know said. S-ET

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