I. HIGH COURT
39. [(2020)-TIOL-1273-HC-AHM-GST] VKC Footsteps India Pvt. Ltd vs. Union of India Date of order: 24th July, 2020
Rule 89(5) of the Central
Goods and Services Tax Rules, 2017 providing that for the purpose of refund on
account of Inverted Duty Structure, credit of input services is not allowable
is held ultra vires to section 54(3) of the Act which provides for
refund of ‘any’ unutilised input tax credit
FACTS
The petitioner is engaged
in the business of manufacture and supply of footwear which attracts GST @5%
and the majority of the inputs and input services procured by them attract GST
@12% or 18%. In spite of utilisation of credit for payment of GST on outward
supply, there is an accumulation of unutilised credit in the electronic credit
ledger. The respondents are allowing refund of accumulated credit of tax paid
on inputs such as synthetic leather, PU polyol, etc., but refund of accumulated
credit of tax paid on procurement of ‘input services’ such as job work service,
goods transport agency service, etc., is being denied. The petitioners have,
therefore, challenged the validity of amended Rule 89(5) of the CGST Rules,
2017 to the extent that it denies refund of input tax credit (ITC) relatable to
input services.
HELD
The Court noted that Rule
89(5) of the Rules, and more particularly the Explanation (a) thereof, provides
that Net ITC shall mean ?input tax credit’ availed on ‘inputs’ during the
relevant period other than the ‘input tax credit’ availed for which refund is
claimed under sub-rule (4A) or (4B), or both. Therefore, ‘input tax credit’ on
‘input services’ is not eligible for calculation of the amount of refund by
applying Rule 89(5). This results in violation of provisions of sub-section 3
of section 54 of the CGST Act, 2017 which entitles any registered person to
claim refund of ‘any’ unutilised ITC. Section 7 of the Act provides that ‘scope
of supply’ includes all forms of supply of goods or services, therefore, for
the purpose of calculation of refund of accumulated ‘input tax credit’ of
‘input services’ and ‘capital goods’ arising on account of inverted duty
structure is not included in ‘inputs’ which is explained by the Circular
79/53/2018-GST dated 31st December, 2018 wherein it is stated that
the intent of law is not to allow refund of tax paid on ‘input services’ as
part of unutilised ‘input tax credit’.
The Court in this
reference noted the decision of the Delhi High Court in the case of Intercontinental
Consultants & Technocrats P. Ltd., 2012-TIOL-966-HC-DEL-ST which
holds that the rule which goes beyond the statute is ultra vires and
thus liable to be struck down. From the conjoint reading of the provisions of
the Act and the Rules, it appears that by prescribing the formula in sub-rule 5
of Rule 89 of the CGST Rules, 2017, to exclude refund of tax paid on ‘input
services’ as part of the refund of unutilised ITC is contrary to the provisions
of sub-section 3 of section 54 of the Act which provides for claim of refund of
‘any unutilised input tax credit’. The word ‘input tax credit’ is defined in
section 2(63) of the Act, meaning the credit of input tax and the word ‘input
tax’ is defined in section 2(62) as the central tax, state tax, integrated tax
or union territory tax charged on any supply of goods or services, or both made
to a registered person, whereas the word ‘input’ defined in section 2(59) means
any goods other than capital goods and ‘input service’ as per section 2(60)
means any service used or intended to be used by a supplier. Thus ‘input’ and
‘input service’ are both part of the ‘input tax’ and ‘input tax credit’.
Therefore, as per the
provisions of sub-section 3 of section 54 of the Act, 2017, the Legislature has
provided that registered person may claim refund of ‘any unutilised input tax’;
therefore, by way of Rule 89(5) of the Rules, such claim of the refund cannot
be restricted only to ‘input’ excluding the ‘input services’ from the purview
of ‘input tax credit’. Explanation (a) to Rule 89(5) which denies refund of
‘unutilised input tax’ paid on ‘input services’ as part of the ‘input tax
credit’ accumulated on account of inverted duty structure is ultra vires
the provisions of section 54(3) of the Act. Net ITC should mean ‘input tax
credit’ availed on ‘inputs’ and ‘input services’ as defined under the Act.
The respondents are
directed to allow the claim of the refund made by the petitioners considering
the unutilised ITC of ‘input services’ as part of the ‘net input tax credit’
for the purpose of calculation of the refund of the claim as per Rule 89(5) of
the Rules for claiming refund under sub-section 3 of section 54 of the Act.
40. [(2020) 7 TMI 611 (Delhi High Court)] Jian International vs. Commissioner of DGST W.P.(C) 4205/2020 Date of order: 22nd July, 2020
Refund application is
presumed to be complete in case deficiency memo not issued within 15 days’
limit
FACTS
The petitioner’s refund
application was not processed nor was any acknowledgment or any deficiency memo
issued within the timeline of 15 days. The petition is filed seeking a
direction to grant refund along with interest. It was stated that the refund
application would be presumed to be complete in all respects in accordance with
the rules as the period of 15 days for issuing deficiency memo had lapsed. The
respondent wanted to issue a deficiency memo as certain documents had not been
uploaded with the refund application.
HELD
The Court held that the
respondent had lost the right to point out any deficiency in the refund
application at this belated stage and directed it to pay refund along with
interest within two weeks. The Court was of the view that allowing issuance of
deficiency memo beyond the timeline would delay the petitioner’s right to seek
refund and also impair the right to claim interest from the date of filing of
the initial application.
41. [(2020) 7 TMI 24 (Gujarat High Court)] Mahavir Enterprise vs. ACST Special Civil Application No. 7613 of 2020 Date of order: 22nd June, 2020
Rule 142(1)(a) of the CGST
Rules, sections 122(1) and 164 of the CGST Act are valid and in no manner in
conflict with any of the provisions of the Act
FACTS
A show cause notice was
issued to the applicant u/s 122(1) of the Act for bogus billing transactions
without any physical movement of goods. The applicant submitted that section
122 of the Act does not contemplate issue of any show cause notice. However,
under Rule 142(1)(a) summary notice needs to be issued electronically along
with the notice issued u/s 122. Thus, the rule travelled beyond the provisions
of the Act, and being in excessive delegation, stands ultra vires.
According to the applicant, section 74 contemplates show cause notice for the
purpose of determination of the tax liability.
HELD
The Hon’ble Court held
that section 164 of the Act confers power on the Central Government to frame
the rules. Under the said section, the Central Government has the power to make
rules generally to carry out all or any of the purposes of the Act. Thus, Rule
142(1)(a) stands valid and is in no manner in conflict with any of the
provisions of the Act.
42. [(2020) 8 TMI 11 (Gujarat High Court)] Material Recycling Association of India vs. UOI 13238 of 2018 Date of order: 24th July, 2020
Service provided by an
intermediary in India cannot be treated as ‘export of services’ u/s 13(8) of
the Integrated Goods and Services Tax Act, 2017
FACTS
The petitioner was an
association of the recycling industry engaged in manufacture of metals and
casting, etc. for various upstream industries in India. It acted as an agent
for scrap and recycling companies based outside India, engaged in providing
business promotion and marketing services for principals located outside India.
The members also facilitated sale of recycled scrap goods for their foreign
principals in India and other countries. They received commission upon receipt
of sale proceeds in convertible foreign exchange. They raised invoices upon
their foreign clients for such commission received by them. Thus, according to
them, the transactions entered into were export of service from India. The
constitutional validity of section 13(8)(b) of the Integrated Goods and
Services Tax Act, 2017 was challenged under Articles 14, 19, 265 and 286 of the
Constitution of India.
HELD
The Court, after analysing
the statutory provisions of place of supply, intermediary and export of
service, held that the provision of section 13(8)(b) was not ultra vires
and unconstitutional. The basic logic or inception of section 13(8)(b)
considering the location of the intermediary as the place of supply was in
order to levy CGST and SGST and such intermediary service, therefore, would be
out of the purview of the IGST. There was no distinction between the
intermediary services provided by a person in India or outside India. The said
service would not qualify as export of service only because the invoice was
raised on the person outside India and foreign exchange was received. A similar
situation was present in the service tax regime and as such the situation
continued in the GST regime also.
43. [(2020) 118 taxmann.com 53 (Kerala)] State of Kerala vs. Metso Minerals India (P) Ltd. Date of order: 19th June, 2020
If under a contract to
perform a works contract, the material required in the execution of works is
sourced from outside the state and was taxed in the state from which the
purchase was made, the state in which the works contract is executed would not
have authority to tax the same and it would amount to an interstate works
contract
FACTS
The assessee entered into
a contract with an entity for delivery and erection of a three-stage
Nordwheeler plant. The materials for the plant were sourced from Singapore and
Calcutta (i.e., from outside Kerala), which were brought into the state in a
knocked-down condition and erected at the site of the client. The Department
held that the transfer of goods having occurred at the time of the accretion of
the goods in the works, is a works contract to be taxable within the state of
Kerala. Such transfer has occurred within the state on the accretion of the
goods in the works and it was found to be taxable within the state of Kerala.
The first appellate authority rejected the appeal filed by the assessee. The
Tribunal reversed the orders of the lower authority, finding the same to be an
interstate works contract.
HELD
The Hon’ble High Court
noted that the goods were all sourced from outside the state and suffered tax
on interstate movement, where the purchases were made from Calcutta; and for
those materials imported from Singapore, the movement after it was cleared from
the port is exempted from tax. It, therefore, held that the works contract
executed by the assessee is an interstate works contract and the state of
Kerala cannot levy a tax on the transfer of goods in the form of goods or in
any other form by accretion of such goods in the works, merely for the reason
that the plant was erected within the state. The Court relied upon the decision
in the case of Siemens Ltd. vs. State of Kerala and another [(2001) 122
STC 1] in which the Court, referring to the authoritative
pronouncements of the Hon’ble Supreme Court, read down the provision in the
Kerala General Sales Tax Act, 1963 which made the transfer of goods as goods or
in any other form involved in the execution of a works contract taking place
within the state taxable. If the goods are within the state at the time of such
transfer, irrespective of the place where the agreement was executed or the
contract being prior or subsequent to such transfer, the Court in that case
held that the situs of the goods just prior to its accretion in the
works, has absolutely no relevance in deciding the taxability when the goods
used in the works contract were sourced from outside the state or imported into
the country.
Note: This case is
relevant under VAT/CST regime.
44. [(2020) 118 taxmann.com 59 (ECJ)] Vodafone Portugal – Comunicações Pessoais SA vs. Autoridade Tributária e Aduaneira
The amounts received by an
economic operator in the event of early termination for reasons specific to the
customer of a services contract requiring compliance with a tie-in period in
exchange for granting that customer advantageous commercial conditions, must be
considered to constitute the remuneration for supply of services for consideration
within the meaning of Article 2(1)(c) of the VAT Directive
FACTS
Vodafone (the assessee)
concludes with its customers services contracts, some of which include special
promotions subject to conditions that tie those customers in for a
predetermined minimum period (the tie-in period). Under those terms and
conditions, customers commit to maintaining a contractual relationship with
Vodafone and to using the goods and services supplied by that company for the
tie-in period, in exchange for benefiting from advantageous commercial
conditions, usually related to the price payable for the contracted services.
The tie-in period may vary according to those services and its purpose is to
enable them to recover some of the investment on equipment and infrastructure
and on other costs, such as the costs related to service activation and the
award of special benefits to customers. Failure by customers to comply with the
tie-in period for reasons attributable to themselves results in them paying the
amounts provided for in the contracts. Those amounts seek to deter such
customers from failing to comply with the tie-in period. The issue involved
before the Court was whether the charges collected for early termination of the
contract would be regarded as consideration for service so as to attract VAT
when the operator no longer supplies services to the customer.
HELD
A supply of services is
carried out ‘for consideration’ only if there is a legal relationship between
the provider of the service and the recipient pursuant to which there is
reciprocal performance and the remuneration received by the provider of the
service constituting the actual consideration for an identifiable service
supplied to the recipient. That is the case if there is a direct link between
the service supplied and the consideration received. It was noted that in this
case the amounts at issue are calculated according to a contractually defined
formula, in compliance with the conditions laid down under national law
according to which those amounts cannot exceed the costs incurred by the
service provider in the context of the operation of those services (e.g.
investment linked to its global infrastructure networks, equipment and
installations), the acquisition of customers (commercial and marketing
campaigns and the payment of commission to associated undertakings), the
activation of the contracted service, the award of benefits by way of discounts
or free services and costs necessary to the installation and purchase of
equipment, etc., and it must be proportionate to the benefit granted to the
customer, that benefit having been identified and quantified as such in the contract
concluded with that provider.
In that context, those
amounts reflect the recovery of some of the costs associated with the supply of
the services which that operator has provided to those customers and which the
latter committed to reimbursing in the event of such a termination. The Court,
therefore, held that those amounts must be considered to represent part of the
cost of the service which the provider committed to supplying to its customers,
that part having been reabsorbed within the monthly instalments, where the
tie-in period is completed and recovered separately where the tie-in period is
not complied with by those customers. Therefore, from the perspective of
economic reality, which constitutes a fundamental criterion for the application
of the common system of VAT, the amount due upon the early termination of the
contract seeks to guarantee the operator a minimum contractual remuneration for
the service provided. The Court, therefore, held that when an operator
determines the price for its service and monthly instalments having regard to
the costs of that service and the minimum contractual commitment period, the
amount payable in the event of early termination must be considered an integral
part of the price which the customer committed to paying for the provider to
fulfil its contractual obligations and liable to VAT.
Note: Readers may note
that although this case is not under the Goods and Services Tax Act, the
principles discussed in this case are relevant in determining the tax
implications on payments recovered by the service provider in early termination
of the contract
II. AUTHORITY FOR ADVANCE RULING
45. [2020-TIOL-210-AAR-GST] M/s Navneeth Kumar Talla Date of order: 29th June, 2020
A contractor supplying
food to hospital not being a clinical establishment is not considered as health
care services and therefore is taxable
FACTS
The applicant is engaged
in supplying food and beverages at the canteen of his customers. The applicant
himself does not get paid by the consumers for the food and beverages. The
recipients of the services are hospitals who enter into a contract with the
applicant. The charges are accordingly received from the hospitals. The
question before the Authority is whether food supplied to hospitals is liable to
GST and, if yes, what is the rate of tax.
HELD
The Authority noted that
exemption is allowed only on supply of food by a clinical establishment to the
in-patients, being a part of health care services. The exemption is not
available when such supply is made by a person other than a clinical
establishment. Therefore, GST is payable on supply of the services by the
applicant to hospitals and no exemption is provided in respect of the same.
Supply of food to hospitals by the applicant depends on the time period (during
which it is supplied) and will be subjected to tax as per the provisions of
Notification No. 11/2017-Central Tax/State Tax (Rate) [Entry No. (ii) of S. No.
7] – For the period from 1st July, 2017 to 26th July,
2018 – 18% (CGST 9% + SGST 9%) and for the period from 27th July,
2018 onwards – 5% (CGST 2.5% + SGST 5%) provided that credit of input tax
charged on goods and services used in supplying the service has not been taken.
46. [2020-TIOL-209-AAR-GST] Prasa Infocom and Power Solutions Pvt. Ltd. Date of order: 18th March, 2020
Where the value of goods
and services is separately identified, the value of civil work is insignificant
and some items sold are easily replaceable, the contract cannot be termed as a
works contract
FACTS
M/s Cray Inc. has entered
into a contract with Indian Institute of Tropical Meteorology for supply of
high performance computing solutions (including its maintenance) and
preparation and maintenance of a data centre. M/s Cray has sub-contracted the
portion related to preparation of the data centre (including its maintenance)
to the applicant vide a contract. The applicant is engaged in the
business of providing data centre construction and contracting services, which
includes civil and mechanical work, supply and installation of other ancillary
equipment necessary in a civil structure, namely, UPS and batteries, fire alarm
system, chillers, air conditioners, surveillance systems, etc. The activities
are undertaken to set up the data centre as a whole which cannot be shifted to
another location without first dismantling and then re-erecting it at any other
site. The question before the Authority is whether the said supply of goods and
services qualifies as ‘works contract’ as defined u/s 2(119) of the Act.
HELD
The Authority noted that
from the contract it is seen that the costing of goods and services are shown
separately and the major value of the contract exceeding 85% of the total cost
of the project is pertaining to supply of goods. These goods are sold to the
client by the applicant and they receive separate payment for such goods sold.
Without these goods, the services cannot be supplied and, therefore, the goods
and services are supplied as a combination and in conjunction with and in the
course of their business where the principal supply is supply of goods. There
is a composite supply in the instant case but there is no building,
construction, fabrication, completion, erection, installation, fitting out,
improvement, modification, repair, maintenance, renovation, alteration or
commissioning of any ‘immovable property’ wherein transfer of property in goods
is involved in the execution of the contract; therefore, there is no works
contract involved in the subject case.
The data centre appears to
be a space / room where the equipment / machinery / various other apparatuses
are installed. The value of civil construction shown is insignificant as
compared to the value of goods / services. On perusal of the copy of the
agreement / document submitted it reveals that the value of goods / equipment
is clearly distinct and separate from the value of services; therefore, their
project / work is not classifiable under a works contract. Further, from the
list of goods and services, it is seen that some items are in the nature of
machine / instruments / equipment and are all replaceable and hence cannot be
said to be ‘immovable’ in nature. Therefore, the contract cannot be classified
as a works contract.
47. [(2020) 7 TMI 140 (AAR, West Bengal)] IZ Kartex 04/WBAAR/2020-21 Date of order: 29th June, 2020
Supply of service by a
local branch of a foreign entity is not import of service. Reverse charge not
applicable
FACTS
The applicant was a local
branch of a foreign business entity. They were involved in supply of maintenance
and repair service to Indian customers for machinery and equipment supplied by
the foreign entity. They submitted that the foreign entity provides the
maintenance and repair services under a specific maintenance and repair
contract to customers in India and they were providing the said service on
behalf of the foreign entity. The Indian customers were importing the service
from the foreign entity and thus should be liable for tax under reverse charge.
HELD
The Authority looked at
the specific clauses in the contract and stated that to perform the services as
specified it was important to train the employees of the Indian customers for
which it may have to depute staff at the premises of the Indian customer. It is
also important to ensure that timely delivery of spares, etc., was being made
at the premises of the Indian customers. The applicant, being the registered
branch of the foreign entity, should be treated as a fixed establishment as per
section 2(7) of the Integrated Goods and Services Tax Act, 2017. Therefore, the
location of the supplier was in India. Hence, the transaction is not an import
of service but a supply of service by the applicant and accordingly tax is
payable under forward charge.
48. [(2020) 7 TMI 353 (AAR, Rajasthan)] Hazari Bagh Builders Pvt. Ltd. RAJ/AAR/2020-21/05
Date of order: 30th June, 2020
Amount paid which is
refundable in case of breach of conditions to such contract shall not be
considered as security deposit and shall be taxable under GST
FACTS
A lease agreement was
entered into between the applicant company, i.e., the lessee, and the Rail Land
Development Authority (RLDA) for a period of 99 years. The applicant had paid a
certain amount after the bid was confirmed but before the execution of the
lease contract. As per the agreement, the contract would stand terminated on
breach of conditions and the bid security paid by the company would stand
forfeited and the amount otherwise paid was fully refundable. The applicant
stated that the amount which was paid without even executing the agreement
could not be construed to be a premium paid for such lease agreement. The
amount so paid was only to secure and confirm the execution of the contract.
Thus such amount shall not be chargeable under GST as it was in the form of
security and not advance or lease premium. Further, relying upon Notification
No. 12/2017-Central Tax (Rate) dated 28th June, 2017 and No.
04/2019-Central Tax (Rate) dated 29th March, 2019, the impugned
amount paid was exempted under GST.
HELD
The Authority rejected the
applicant’s contention on the ground that every agreement is de novo in
itself and conditions may vary from each other, except the conceptual facts and
principles. It stated that security of the contract was ensured when the letter
of acceptance was signed. It was also observed that the RLDA being the
statutory authority of the Government of India is providing services by way of
renting of immovable property to a registered person and renting of immovable
property includes leasing. Thus, the applicant was liable to pay GST under
reverse charge mechanism. The Authority held that exemption under Notification
No. 12/2017 was available only on industrial plots provided by the State
Government undertakings and the Notification No. 04/2019 was applicable for the
upfront amount payable on or after 1st April, 2019. The said case
was of sale of plot over which residential structure was to be built and the
amounts were paid before 1st April, 2019. Therefore, the transaction
is a taxable supply liable to GST. 
My definition of wisdom is knowing the long-term
consequences of your actions.
— Naval Ravikant
