Author name: CBCL

[By Syed Alwaz Asif] The author is a student of Dr. Ram Manohar Lohiya National Law University, Lucknow. Introduction The post-pandemic world has changed rapidly. Digital platforms, which were a privilege for a few, have become necessary to upgrade workers’ skills[i]. It has provided an opportunity for workers to ensure flexibility in the work that they seek to do. It has become a significant source of employment. As a result, governments are constructing digital infrastructure to give their employees newer digital capabilities. Numerous social groups, including women, people with disabilities, and younger generations, who do not frequently participate in the conventional labour market, have access to income-generating opportunities. They also gave marginalized groups in conventional labour markets, such as refugees and migratory labourers, options to explore. Along with the benefits, these platforms have opened up a pandora’s box of challenges for the regulators. Long-standing taxation economies utilized in employment and tax law are under increasing pressure, which is why the law needs to adapt. The labour market is divided into specified categories due to legal control in these sectors, and rights and duties are associated with each category. The tests used to determine which group a person fits under are murky and too simple to evade lawful taxation for digital platforms. The relationship between the various groups under tax and labour law is particularly unclear. These developments have significantly impacted the taxation aspect for this category of workers. This category of independent contractors is, therefore, exempt from laws governing the minimum pay, working hours, terminations, and, to some extent, employment discrimination. Thus, by structuring one’s workforce as a group of micro-entrepreneurs, one can cut indirect expenses for employers while still abiding by labour laws. Similar economic activity can be classified into several legal forms underneath the current tax and employment law systems, creating substantial financial and regulatory incentives to choose one legal form over another. The taxation regulation provides several incentives to treat persons providing services to the engager’s business as self-employed contractors, which can help engagers avoid regulatory obligations and costs. The tax structure gives the person providing the services additional incentives to incorporate. Being recognized as a ‘gig worker‘ or offering services through a firm will allow the employee to improve his current take-home income. Under Indian Tax Laws, any income gained from an individual’s intellectual abilities is considered earnings from a profession under section 2 clause 24 of the Income Tax Act, 1961. Even if the income from digital works is less than Rs. 2,50,000, no direct tax is charged for this bracket. The income from gig work is subject to taxation under section 28 of the Income Tax Act, 1961 under the heading ‘Profits and Gains from Business or Profession’[ii]. Independent contractors are eligible in law to claim various tax deductions such as rental expenses, repair expenditures, and Depreciation for technological assets used for work and travel expenses. A GST registration is required for independent contractors with a revenue of more than 20 lakhs and who provide services outside of their state. The amount of GST an independent contractor, must pay varies according to their services. He is accountable for 18% GST if there is no rate mentioned. In UK taxonomies, tax disadvantage to an employee compared to a self-employed worker is more prominent[iii]. Under specific assumptions, employees and their employers pay about 70% more tax on such a sum than an equivalent owner-manager of a business and 35% more than an identical self-employed person. Significant incentives are created due to organizing activity in ways except through contract terms. Because of these disparities in tax rates, the tendency to work independently or via a personal digital services firm is detrimental to overall tax receipts[iv]. The rise of individuals working for their businesses and the consequent rise in the new form of working have tax-linked implications. Employees’ income across major jurisdictions is taxed more than self-employed. This is because employees are subject to social security insurance funds in India as well as the UK, but there is no such kind of regulation for self-employed. Many analysts justify the tax deduction that self-employed people receive on the pretext that they do not have active social security benefits. Differential tax treatment means individuals in similar places may have grossly different tax burdens. This lacks equity and fairness and creates economic inefficiency in the tax systems. A vital component of any competent regulatory taxation system is neutrality. Since similar activities are treated equally in a neutral system, people have no incentive to switch from highly taxed or regulated activities to those that are not. As shown above, the tax rates that apply to the same productive work vary greatly depending on whether someone provided their work through formal employment or self-employment. Complexities Involved The workers who are employed in Gig work have many sources of income. It creates practical complexities in filing the tax form. This leads to many individuals either skipping tax payments by mistake or failing to take benefit of tax rebates that come with their work mode. It exposes many workers to potential tax enquiry by the respective department. To buttress this, the workers have to take help from lawyers and accountants, which increases the costs that these workers have to pay to accomplish this task. The demanding challenges are not just limited to those who pay taxes but also to Income tax authorities as far as compliance is concerned. Existing Tax infrastructure needed to be designed keeping the burgeoning Gig Economy in mind. The Income Tax authorities across multiple jurisdictions face communications issues. They had to contact just one employer or platform for tax regulation. They must contact multiple independent contractors to inform them about their tax obligations. They may also have to inform them whether they are underreporting or not reporting their tax obligations. The state of applying different tax brackets to employees and self-employed provides explicit opportunities for tax evasion and avoidance. This puts a strain on Tax-collecting authority, leading to inefficient tax-collection systems. For Tax avoidance, individuals leverage the more significant

[By Ujjawal Badani & Tejas Geetey] The authors are students of  the National Law University Odisha. INTRODUCTION Business Corporations often operate through multiple locations in the form of Head Office (HO) and Branch Offices (BO). Division of Offices into HO and BOs has not been defined either under the GST law or the allied laws, however, generally, it means the principal office of a business corporation, established for policymaking and governance. HO as the primary body has multiple functions including accounting, finance, and management services which are performed for the governance of other branch offices. For instance, strategy-making and communications are generally conducted at HO and then applied to its BOs which function across the states. Under the GST, each branch office of the same organisation is regarded as a “distinct person” and is required to obtain GST registration and also to comply with procedural requirements for each respective state. Further,  if there is any supply of goods and services between two distinct persons, then such has to be invoiced as per GST. This concept is referred as cross-charging. The question raised by coming of the cross-charging under GST is that whether services by HO to its BOs/other units can be regarded as ‘supply’ under the GST? Further, another important subset arising from this is the cost of allocation of services provided by the employees of HO to it branch offices. In this piece, the authors have tried to analyse the above issues in respect of conflicting views surrounding cross-charging. SERVICES WITHIN ORGANIZATION To determine whether the activity performed by HO is supply, it needs to qualify as supply u/s 7 of the CGST Act, which is an inclusive definition (including activities such as transfer and barter) for a consideration when made for furtherance of business. The definition of supply alludes to Schedule I of the CGST Act, wherein activities are considered as supply also in cases if they are with no consideration. The respective office/branch of the same organization is regarded as a distinct person for GST registration. It is very clear that stock transfer of goods between distinct person is chargeable to tax. However, the issue which lies is “whether activities carried out by HO for other units would be construed as supply and leviable to GST or not”. The AAAR of Karnataka in ruling of M/s Columbia Asia Hospitals Private Ltd shed some light on similar issue   which was filed by the applicant to know “whether the activities performed by the employees at the corporate office in the course of employment such as accounting, other administrative and IT system maintenance for the units located in the other states shall be treated as supply or not?” The ruling was passed on the finding that employees employed at HO are providing services at HO. Thus, there is employer-employee relationship only at HO and not BO. Based on Schedule I of the CGST Act, it was determined that such transaction, even if there is no consideration involved, is chargeable to GST. However, the Karnataka High Court has granted stay on the AAAR’s order. There is a lot of ambiguity revolving around this issue. The decision of Karnataka High Court is much awaited, and only suitable clarity could beat the heat. Recently, this issue was also dealt in case of M/s Tupperware India Private Limited (‘applicant’). In case of applicant, the HO provides various business support services to its other units. The authorities in this matter as well passed adverse ruling and concluded that GST is chargeable on services supplied by HO to its other units/offices by way of performing activities as it benefits another distinct person. SERVICES PROVIDED BY EMPLOYEES OF HO TO BO Now coming to the second part of this piece. Schedule III of the CGST Act clearly mentions that “services by an employee to the employer in course of employment” shall not be considered as supply and therefore tax cannot be levied on the same[i]. Though the act clearly excludes the services of employees from taxation, the same interpretation is not considered by the Courts. In the case of Columbia Asia, the Authority held that employees providing their services in other branch offices were not considered as a part of employer-employee relations. The Appellate Authority had ruled that the employer-employee relation mentioned in Schedule III has to be restricted under the GST Act. As distinct persons can be taxed, therefore, the relationship mentioned in the Schedule has to be restricted to one office. Therefore, the service of employees shall be considered as supply. But, the CGST Act provides that tax invoices will be charged on “distinct persons”, i.e., in this case, the HOs and BOs which and, therefore, it cannot cover an employer within its ambit. Further, there are problems present in the valuation of such supplies as it is done without any consideration. It will be difficult to determine at what cost the services given by employees are allocated to the other offices.[ii] ~Current Stance Though the decision in the advance ruling is only applicable to the particular parties to the dispute, the same did not happen in relation to the disputed matter of employees’ services. The advance ruling in the case of Columbia Asia gave chance to the other states to start following the lead. In the recent advance ruling of Cummins India, the issue dealt was whether the input tax credit (ITC) received by the HOs for providing common input supplies to other BOs will be considered as supply under the CGST Act? The Authority held that transactions performed by the HOs for the other BOs will be considered as supply. Further, the salary of employees of the HO should also be allocated and charged. The above ruling stretched the conflict further by considering input-service distribution (allocation of ITC on input services) and cross-charging under one ambit. Moreover, it is contended that the transaction that happened in the above case cannot be taxed as it is a “pass-through mechanism” and therefore not a