I. HIGH COURT
15. [2020] 117 taxmann.com 46 (Mad.) MIOT Hospitals Ltd. vs. State of Tamil Nadu Date of order: 28th May, 2020
The medical
/ health care services that involve fitting out or implanting of prosthetics
into the physiology or the body of the patient for the alleviation of pain or
improvement of the life of the patient in the course of medical / surgical
procedure can be construed as ‘works contract’. At the same time, dispensing of
medicines to such patients while they undergo treatment as inpatients in the
hospital cannot come within the purview of the definition of ‘works contract’
FACTS
In this
writ petition, the issue before the High Court was whether private hospitals
are liable to pay VAT on the stents, valves, medicines, X-rays and other goods
used while treating the inhouse patients. The petitioner did not charge any
amount separately towards the cost of these items and charged a consolidated
amount to the patients towards the cost of medical treatments. The VAT
Department argued that purported deemed sale of stents, valves, hip replacement
and knee replacement, etc., in the course of the provision of medical services
by the petitioners is ‘works contract’ within the meaning of section 2(43) of
the Tamil Nadu Value Added Tax Act, 2006.
HELD
The High Court referred to
the 61st Law Commission Report and the decision of the Hon’ble
Supreme Court in the case of Larsen & Toubro Ltd. vs. State of
Karnataka and Ors. [2013] 65 VST 1 (SC) to observe that the concept of
‘works contract’ contained in Article 366(29A)(b) takes within its fold all
genre of works contract and is not restricted to one species of contract to
provide for labour and service alone. Referring to the illustration in
paragraph 44 of the BSNL case, the Court held that although the
Supreme Court has held that sub-clauses of Article 366(29A) do not cover
hospital services, there is no legal basis to follow the said conclusion any
longer in the light of the subsequent decisions of the Apex Court. It further
held that a simple treatment with medicines cannot be equated with complicated
medical procedures undertaken by the petitioners involving skill and use of expensive
prosthetics and the use of laboratory testing equipment. Even if the dominant
intention of the contract was not to transfer the property in goods and rather
rendering of service, or the ultimate transaction was a transfer of movable
property, it is open to the states to levy sales tax on the materials used in
such contract if such contract otherwise has elements of a ‘works contract’.
In constitutional terms, it
is a transfer either in goods or in some other form. The Court distinguished
the decision in the case of the Tata Main Hospital case stating
the reason that the decision pertains to the period prior to the 46th
Constitutional Amendment and ‘dominant test’ does not survive thereafter in
respect of works contracts. The decision rendered by the full bench of the
Kerala High Court in the case of Aswini Hospital Pvt. Ltd. and Ors.
and the Allahabad High Court in the case of M/s International Hospital
Pvt. Ltd. were disagreed with on the ground that there is no discussion
as to how the conclusions therein were arrived at when indeed the very purpose
expanding the scope of the expression ‘tax on the sale or purchase of goods’ in
Article 366(29A) by the 46th Amendment to the Constitution and the
corresponding statutory amendments to the definitions in the respective tax
enactments of the States, were to include a transaction which involves not only
sale but also deemed sale which was traditionally not considered as ‘sale’.
The Hon’ble Single Judge also
disagreed with the reasoning given in the decision of the Punjab & Haryana
High Court in M/s Fortis Healthcare Ltd. vs. State of Punjab on
the ground that it runs not only contrary to the express language in Article
366(29A) of the Constitution of India, but also to the ratio of the
Hon’ble Supreme Court in BSNL vs. Union of India (2003) 6 SCC 1
itself. It further held that an example / illustration in paragraphs 44 and 45
of the BSNL decision which appears to be the basis of the relief
in the four mentioned cases cannot be applied to the kind of hospital / medical
service provided by the petitioners. The Hon’ble Court also expressed a view
that in all the four judgments, these Courts have not examined the point of
view of ‘works contract’.
The Court accordingly held
that fitting out or implanting of prosthetics into the physiology or the body
of the patient for the alleviation of pain or improvement of the life of the
patient in the course of medical / surgical procedure can be construed as
‘works contract’. However, the Court also held that dispensing of medicines to
such patients while they undergo treatment as inpatients in the hospital cannot
come within the purview of the definition of ‘works contract’. Consequently, no
tax can be demanded on the value of such medicine.
Note:
At paragraph 149 of the Order, the Hon’ble Court has indicated that various
decisions relied upon by the petitioners dealing with taxability of single
economic supply, although not relevant in VAT regime due to the Constitutional
mandate of Article 366(29A), may become relevant in the GST regime. Therefore,
this decision may be distinguished while deciding the applicability of GST on
similar service.
II. TRIBUNAL
16. [2020-TIOL-870-CESTAT-Chd.] M/s DLF Project Ltd. vs. Commissioner of Central Excise and Service Tax Date of order: 21st October, 2019
In absence
of consideration, no service tax is leviable on corporate guarantee given to
banks / financial institutions on behalf of holding company / associate
enterprises
FACTS
During the course of audit it
was found that the appellant has provided corporate guarantee to various banks
/ financial institutions on behalf of their holding companies / associate
enterprises / joint venture and other loan facilities. The Revenue alleges that
such activity is taxable under Banking and Finance Institution Services.
Further, the appellant has also collected certain charges on account of prime
location of the flats and other relevant charges from the flat owners but did
not pay service tax thereon. On pointing out by the Revenue, the entire amount
was paid with interest. Later, a show cause notice (SCN) was issued demanding
service tax on corporate guarantee and to impose penalty on account of
non-payment of service tax on preferential location charges. The demand was
confirmed and therefore the present appeal is filed.
HELD
The Tribunal primarily noted
that no consideration is received either from the financial institutions or
from their associates for providing corporate guarantee. It was also noted that
the demand raised in the SCN is on the basis of assumption and presumption,
presuming that their associates have received the loan facilities from the
financial institution at lower rate; therefore, the differential amount of
interest is consideration, but there is no such evidence produced by the
Revenue on service tax before or after 1st July, 2012. Further, with
reference to preferential location charges, since the tax and interest is paid
before the issuance of the SCN, section 73(3) of the Finance Act, 1994 is
applicable and the penalty is set aside.
17. [2020-TIOL-858-CESTAT-Bang.] Hotel Moti Mahal vs. Commissioner of Central Excise and Service
Tax Date of order: 29th May, 2020
Service tax
can only be levied when there is a service provider, service receiver and
consideration. It cannot be assumed that consideration is inbuilt merely on the
basis of assumptions and presumptions
FACTS
The appellants are a
restaurant having banquet halls. They sometimes charge only for the food served
and do not charge any rentals for the banquet halls. The argument of the
Department is that any prudent man can understand that without any function no
person can stay in the hotel for the entire day and have mid-morning tea with
biscuit, buffet lunch, evening tea with biscuit and dinner. Further, though no
separate rent was collected for the function hall, charges were recovered for
use of LCD projector, laptop, white board, mike system, podium, etc., and
service charge on the same was paid. The Revenue alleges that the organisation
of functions is evident by the usage of LCD projector, etc., and the rent for
the function hall is inbuilt in the value of the food served in the function;
and therefore service tax is liable to be paid on such rent.
HELD
The Tribunal primarily noted
that the demand is based on surmises and conjectures. The two major surmises
were that with the usage of LCD display, etc., it is evident that the banquet
halls were let out temporarily for a day and that the charges for the same are
inbuilt into the bill raised towards the food charges and this inbuilt value
needs to be treated as consideration towards the ‘Mandap Keeper’ services provided.
But the Tribunal held that it
is not open to the Revenue to decide the taxability of a new entry merely on
the basis of imagination. For any service to be held to be taxable there should
be a service provider, service recipient and consideration for the service. It
cannot be imagined that such consideration was inbuilt. It is incumbent upon
Revenue to show such consideration in quantifiable terms in order to levy
service tax, though on a discounted value. It was noted that they have
discharged VAT on the food supplied and have also discharged service tax on the
items like LCD projector, etc., allowed to be used. Revenue could not place any
proof in the form of a bill, etc., to substantiate the allegation that the
banquet halls were rented out for a consideration. Therefore, since the
Department’s stand is not substantiated, the appeal is allowed.
18. [2020-TIOL-824-CESTAT-Del.] Man Trucks India Pvt. Ltd. vs. CCE, C and ST Date of order: 24th February, 2020
Discount
extended against sales made for not providing after sales service is not a
service liable for service tax
FACTS
The assessee is engaged in
manufacturing heavy commercial vehicles falling under Chapter 87. It entered
into an agreement with a foreign company for supply of heavy commercial
vehicles. The transaction involved sale of heavy commercial vehicles by the
appellant to a company in Germany and thereafter by the latter to its buyers.
The agreement clearly provides that no after sales service would be provided.
Since the after sales service is to be provided by the foreign company itself,
they extended a price reduction to the foreign company on the sale of each
heavy commercial vehicle. A show cause notice was issued to the assessee,
proposing duty demand on the discounts allowed by the assessee for the relevant
period. The demand had been raised under reverse charge and on account of being
a declared service for agreeing to refrain from providing warranty services. On
adjudication, the demands were partly dropped. Hence the present appeal.
HELD
The Tribunal noted that the
assessee’s role is limited to the sale of trucks and spare parts thereof. The
agreement clearly provides that they would not be responsible for rendering any
after-sale services. The agreement provides that the assessee will provide a
discount in respect of any truck sold to the foreign company, it does not
entail that the foreign company is rendering after sales service on behalf of
the assessee. The after-sale service is agreed to be provided by the foreign
company on its own account. The discount offered is simply an adjustment in the
price of the goods sold and is not provision of any service. Thus the service
provided cannot be classified as business auxiliary service. The discount was
offered only because they were not providing warranty and after sales service.
Hence the demand cannot be sustained.
19. [2020-TIOL-807-CESTAT-Del.] M/s Shivani Textiles Ltd. vs. Commissioner of Central TaxDate of order: 13th March, 2020
VCES
application cannot be rejected merely on the ground of clerical errors
FACTS
The assessee made a clerical
error in filing the VCES application. As per the gross taxable receipts, the
gross tax payable including cess was calculated at Rs. 27,05,933. However, due
to an error, it failed to adjust or reduce the gross amount of tax payable with
the amount of tax already paid of Rs. 5,68,859 paid during the period 18th
October, 2012 to 29th March, 2013. Thus, the actual tax dues to be
reflected in Form VCES-1 should have been Rs. 27,05,933 (-) Rs. 5,68,859, or
Rs. 21,37,074. However, the appellant wrongly reflected Rs. 27,05,933.
Admittedly, it deposited Rs. 14,28,439 on or before 31st December,
2013 which is a little more than the amount of Rs. 13,52,967 required to be
deposited as per Form VCES-2, and an amount of Rs. 12,77,497 during the period
1st January, 2014 to 30th June, 2014, which is also in
compliance with the deposit of full tax as required to be paid before 30th
June, 2014. Accordingly, against the amount payable of Rs. 27,05,933, it has
deposited Rs. 27,32,038.
HELD
The
Tribunal noted that the benefit of VCES 2013 has been denied by Revenue for the
simple clerical error in filling Form VCES-1. The assessee has admittedly
deposited the declared amount of tax dues and it cannot be asked to deposit
more tax which will be against the provisions of service tax law, as well as
Article 265 of the Constitution of India. Accordingly, the impugned order is
set aside and the benefit of the scheme is allowed to the assessee.
20. [2020] 117 taxmann.com 69 (CESTAT-Bang.) Karnataka Industrial Areas Development Board vs. CCT Date of order: 9th June, 2020
Karnataka
Industrial Areas Development Board is a statutory body discharging the
statutory function as per the KIAD Act, 1966 and hence is not liable to pay
service tax
FACTS
The appellant, M/s Karnataka
Industrial Areas Development Board (KIADB) is established by the Karnataka
Industrial Areas Development Act, 1966 (KIAD Act, 1966). They were engaged in
providing various services such as renting of immovable property services,
construction of commercial and residential complexes, business support
services, management, maintenance or repair services, manpower recruitment and
supply services, works contract services, etc., to various clients. It appeared
that they did not obtain any registration under service tax for the said
services. The appellant contended that they are performing sovereign functions
and hence are not liable to pay service tax.
HELD
The Hon’ble Tribunal examined
various provisions contained in the KIAD Act, including the Preamble, the
provisions dealing with the establishment and incorporation, constitution,
functions, powers of the board, directions of the state government, board’s
fund and application of the board’s assets, accounts and audit, etc. On
examination of the said provisions, the Tribunal held that the appellant is a
state undertaking and the creature of a statute to exercise the power of ’eminent
domain’. The appellant is engaged in discharging statutory functions under an
act of the Legislature, viz., the KIAD Act, 1966. It is a statutory body
performing statutory functions and exercising statutory powers. Since it is
carrying out the objectives of the Act, it cannot be treated as a service
provider under the Finance Act, 1994. The appellant has undertaken various
activities and functions in the state of Karnataka as per the directions of the
State Government given from time to time under the provisions of the Act and
hence its activities cannot be considered as a taxable service and no service
tax can be levied for these activities.
The Tribunal relied upon the
decision of the Bombay High Court in the case of CCE, Nashik vs.
Maharashtra Industrial Development Corporation [2018 (9) GSTL 372 (Bom.)]
and the Delhi Tribunal’s decision in the case of Employee Provident Fund
Organisation vs. CST [2017 (4) GSTL 294 (Tri.)(Del.)] to hold that
statutory authorities performing statutory functions are not liable to pay
service tax. It observed that the functions of the MIDC under the MID Act, 1961
are more or less identical with the functions of the appellant KIADB under the
KIAD Act, 1966. Hence, relying on MIDC’s case, the Tribunal held that when the
maintenance of an industrial area itself is held to be a statutory function,
then the main function of acquisition of land, development of such land into
industrial area and allotment of such land on lease-cum-sale basis by the
appellant would certainly be a statutory function and does not attract levy of
service tax. By the same analogy, other functions being incidental cannot be
brought into the tax net.
The Tribunal did not follow
the decision of the Allahabad High Court in the case of the Greater Noida
Industrial Development Authority on the ground that it has been stayed
by the Hon’ble Supreme Court as reported in 2015 (40) STR J231 (SC).
The Allahabad High Court had held that if the sovereign / public authority
provides a service, which is not in the nature of the statutory activity and
the same is undertaken for consideration (not statutory fee), then in such
cases, service tax would be leviable as long as the activity undertaken falls
within the scope of taxable service as defined in the Finance Act, 1994. It
also relied upon the decision in the case of KIADB and Anr. vs. Prakash
Dal Mill and others [(2011) 6 SCC 714] wherein the Court observed that
the amount of fees and deposits collected by the KIADB is based on principles
of rationality and reasonableness. It cannot fix prices arbitrarily. The
fixation of price by the Board is always under the authority of law.
Lastly, referring to the
decisions in the case of Balmer Lawrie & Co. Ltd. vs. Partha Sarathi
Sen Roy [2013 (8) SCC 345]; MD, HSIDC vs. Hari Om Enterprises [AIR 2009 SC 218];
and Jilubhainanbhai Khachar vs. State of Gujarat [1995 Supp (1) SCC 596],
the Hon’ble Tribunal held that the ratio of the said decisions
considering the scope of ’eminent domain’ and sovereign function are applied to
the facts of the present case, and hence the appellant is a creature of the
statute to exercise the power of ’eminent domain’ and the eminent domain is a
sovereign function not attracting service tax.
21. [2020-TIOL-882-CESTAT-Chd.] Wave Beverages Pvt. Ltd. vs. Commissioner of Central Excise and
Service Tax Date of order: 26th February, 2020
The act of
promotion of beverage leads to incidental promotion of concentrate; however,
such promotion cannot be made liable to tax under business auxiliary service
FACTS
The appellants are engaged in
the distribution and sale of non-alcoholic beverages under the brand name The
Coca Cola Company. As per the agreement, they are required to take steps for
advertising, marketing and promoting the sale of beverages. Show cause notices
were issued alleging that while undertaking the sales promotion programme for
the beverages, the concentrate owned by The Coca Cola Company was also getting
marketed as the same was linked to the promotion of the brand name and thus the
remuneration received from them is taxable as business auxiliary services (BAS)
of ‘promotion or marketing of goods produced or provided by or belonging to the
client’ chargeable to service tax.
HELD
The Tribunal noted that in
every sales promotion activity undertaken by the manufacturer of finished
products, it will amount to sales promotion of the raw material as well. This
is neither the intention nor the rationale of ‘Business Auxiliary Service’. By
stating that the goods, namely concentrate, was transferred for use by M/s Coca
Cola India Pvt. Ltd. to the appellant for consideration, a fact not in dispute,
the sale of the goods in terms of the Central Excise Act, 1944 has occurred.
Accordingly, the demand is set aside.
22. [2020-TIOL-881-CESTAT-Chd.] M/s Interglobe Aviation Limited vs. CST Service Tax Date of order: 22nd October, 2019
Charges
recovered for excess baggage is an integral part of passenger transportation
service; cannot be taxable under transportation of goods by air service. CENVAT
credit is allowable on activities of setting up prior to 1st April,
2011. Reimbursement of expenses is not liable to service tax in view of the
decision of the Apex Court in the case of Intercontinental Consultants and
Technocrats Private Limited
FACTS
The issue relates to charges
levied for excess baggage carried by passengers in regular flights. The Revenue
has demanded service tax under the head transportation by air service. The
second issue relates to CENVAT credit in respect of services availed prior to
the start of their actual business operations. The last issue deals with the
service of manpower recruitment and supply agency service, where the service is
received from a foreign agency and tax is paid under reverse charge. The issue
is whether reimbursement of insurance charges for pilots is includible in
value.
HELD
The Tribunal, relying on the
case of Kingfisher Airlines Limited [2015-TIOL-2329-CESTAT-Mum.]
held that the charges for excess baggage is an integral part of transportation
of passengers by air and therefore cannot be taxable under the category of
transportation of goods service. In the second issue, the Tribunal, relying on
the decision in Vamona Developers Pvt. Ltd. [2015-TIOL-2705-CESTAT-Mum.],
allowed the CENVAT credit. Lastly, relying on the decision in Intercontinental
Consultants and Technocrats Pvt. Ltd. [2013 (29) STR 9 (Del)], the
demand on reimbursement of expenses is set aside.
