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Subway India gets a breather; will get time to share data to GST authorities claiming tax evasion

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In Subway's case, the issue is with respect to the taxability of intellectual property rights at the rate of either 12 percent or 18 percent.

Subway India gets a breather; will get time to share data to GST authorities claiming tax evasion
A day after CNBC-TV18 reported that Goods and Services Tax (GST) authorities have summoned fast-food chain Subway over its franchisee model in India, Punjab and Haryana High Court has issued a final order, ruling in favour of the fast-food chain, enabling them to file a reply and make submissions both on law and merits.
The case came to the fore when GST authorities summoned Subway India wanting to levy a GST of 18 percent on the income or royalty that the company receives via franchisee services. Whereas, Subway had paid 12 percent GST on these services. Post receiving the summons, the fast-food chain has approached the Punjab and Haryana High Court, challenging them.
The company in its plea had sought submitted that they have sought clarity from the GST Advance Ruling Authority on the applicability of the exact rate of GST on these services and thus want appropriate time to respond to the notices.
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It has been noted of late, numerous summons are being issued to the top management seeking payments as clearance of tax dues even before issuance of any show-cause notice or order.
In Subway's case, the issue is with respect to the taxability of intellectual property rights at the rate of either 12 percent or 18 percent. While Subway has filed an application with the advance ruling authority and the application is pending for disposal, the GST authorities went ahead and issued various summons to Subway India seeking the company to submit huge data and information, along with partial recovery of tax without the issuance of show cause notice.
The writ petition filed by Subway India before Punjab and Harayana High Court was with a specific prayer that no coercive action must be taken and that any recovery must be made only subsequent to the passing of an appropriate order after following due process of law.
The Punjab and Haryana High Court has held that appropriate time must be given to present the case and hence, the petitioner has been asked to submit all facts on record, subsequent to which the authorities will pass a speaking order to decide on the issue.
As a corollary, the consequential effect is that there will not be any recovery till the matter is adjudicated and the petitioner will have the right to file an appeal against this order in case the petitioner is aggrieved by this order.
"Our submission is that the investigation cannot proceed when the advance ruling application is pending. Secondly, multiple summonses must not be issued to traumatise the petitioner and the petitioner must be given adequate breathing time to file submissions appropriately. Further, while the power to issue summons have been raised, the moot point remains that there must not be any recovery without following the process of law," said Abhishek A Rastogi, the partner at Khaitan & Co, argued the matter for Subway India.
"Investigation cannot be initiated when there is no case of tax evasion and that no recovery of demand can be done without the issuance of show cause notice and the speaking order," Rastogi added.
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