SC ruling on user development fee (UDF) and its implications for GST
The Supreme Court (SC) recently ruled that the user development fee (UDF) collected by the Delhi International Airport Limited (DIAL) is in the nature of a statutory levy and is not liable to service tax. This ruling has important implications for GST and income tax.
GST implications
The GST law specifically provides that statutory levies other than GST collected by the supplier would form part of the value of supply. This means that the UDF collected by DIAL would be included in the value of supply for GST purposes. This would increase the GST liability on goods and services supplied by DIAL.
Income tax implications
The income tax law provides that royalty is taxable as income from other sources. Royalty is defined as any consideration for the use of any right or property, or for the rendering of any service. The SC ruling on UDF could be interpreted to mean that UDF is not consideration for the use of any right or property, or for the rendering of any service. This could lead to a reduction in the income tax liability on UDF payments.
Conclusion
The SC ruling on UDF is a significant development with important implications for GST and income tax. It is important for taxpayers to be aware of the ruling and to seek professional advice to ensure that they are complying with the law.
Experts’ views
Saurabh Agarwal, tax partner at EY, said that the SC ruling “would need to be analysed under the GST legislation”. He added that “the impact of principles laid down in the judgment would need to be considered”.
Agarwal also said that the principles laid down by the SC could be used to determine whether tax is payable on royalty. He said that “these may be useful in determining whether the consideration in the form of fee, royalty, etc collected by the government from business entities would be in the nature of statutory levy or the same would be considered as consideration against any services”.
Another expert, Amit Maheshwari, partner at Ashok Maheshwari & Associates, said that the SC ruling “has created a lot of uncertainty”. He added that “it is not clear whether the ruling would be applicable to all UDFs or only to those collected by DIAL”.
Maheshwari also said that “the ruling could have a significant impact on the GST and income tax liability of businesses”. He added that “it is important for businesses to seek professional advice to ensure that they are complying with the law”.thumb_upthumb_downuploadGoogle itmore_vert