Case 1 : GST on general power of attorney holder's service

In the tax matter of Nagabhushana Narayana (at GST AAR Karnataka), the Authority for Advance Rulings, Karnataka (AAR) on 13th April 2023 held that a general power of attorney (GPA) holder is a service provider and hence liable to pay service tax on the activity of providing rental services.

Narayana is a resident of California, USA, and is therefore a non-resident in India. Generally, when services are imported from a person residing abroad, GST is payable by the recipient of the service under the reverse charge mechanism. But the AAR set aside this argument finding that Narayana’s mother was his GPA and a resident of Bangalore. She thus was his agent and offered the services of renting on his behalf. She was vicariously liable to be assessed as a representative assessee.

In the light of this advance ruling, GPA can be viewed as a double-edged weapon. While it empowers a close relative to safeguard the interests of and act for her kith and kin, it imposes a GST burden. However, it wouldn't have been levied had the foreign-based principal directly dealt with his Indian tenant of a commercial property.

Also Read: 8 things to remember when you give power of attorney to a person

Of course, under the Income tax Act, the rental income is taxable being an Indian income emanating from a source located in India. But now there is a double whammy. The ruling could trigger a rethink among NRIs on the desirability of courting trouble for themselves and their aged parents by resorting to GPA. It is for the government to ponder whether it should put a shovel into GPAs granted to kith and kin unmotivated by profit motives. There are professional lawyers who are ready to act as GPAs for fees. While there is every justification to bring such professionals into the GST net, it is harsh to target family necessities and compulsions at par with the former.

Case 2: Free treatment commitment by hospitals in lieu of custom duty exemption

In the matter of Apollo Hospitals Enterprises VS Union of India, the Madras High Court on 26th April 2023 read the riot act to hospitals who give free treatment commitment to the government to wangle duty and tax waivers but fail to adhere to their commitments. The petitioners/hospitals imported various medical equipment between the years 1985 and 1993 under Customs Notification No. 64/88 dated March 1, 1988, and claimed exemption from payment of duty.

The Court found that the petitioner hospital has failed to establish that they have treated 40 percent of their outdoor patients in the hospital, where the imported medical equipment is installed. The petitioner hospital has also failed to establish that 10 percent of all the hospital beds were reserved for free treatment of poor where the imported medical equipment was installed. The Court had no hesitation in sustaining the cancellation of certificate entitling duty free import of medical and hospital equipments.

It remains to be seen whether the Customs department would slap a demand notice on the hospital to pay up the custom duty foregone by the government on the understanding that the conditions would be complied with.

Free on concessional land to hospitals and educational institutions is common across states in India so as to give leg up to investment in these most noble pursuits---health and education. But such magnanimity from the governments come with conditions---the fruits of such investments in these noble activities should percolate to the poor. Customs exemption to hospitals and income tax exemptions to hospitals and educational institutions constituted on trust lines also are premised on the same understanding and commitment.

While the Madras High Court has done well to read the riot act under the custom law, it is common knowledge that the income tax exemption is often abused with trustees and authors of trusts often using trust properties constituted for such laudable purposes as their personal fiefdoms and fleecing the patients and students with unconscionable fees and charges.

—This column, Legal Digest, interprets various case verdicts or procedures and their implications in the current social and business scenario. The author, S Murlidharan, is a CA by qualification, and writes on economic issues, fiscal and commercial laws. The views expressed are personal.

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(Edited by : C H Unnikrishnan)

First Published:May 16, 2023 11:30 AM IST