I. HIGH COURT
23 Jagat Janani Services vs. GST Council [2021 (54) GSTL 283 (Odi)] Date of order: 21st September, 2021
Refund of excess Service Tax paid shall be granted to the Operational Creditor when the amount receivable is reduced pursuant to the Resolution Plan
FACTS
The petitioner was entitled to receive Rs. 18.14 crores against various invoices issued on Essar Steel India Limited (service recipient) for the period January to December, 2017. Due to the Corporate Insolvency Resolution Process (CIRP) of Essar Steel India Limited as finalised by the Supreme Court’s order dated 15th November, 2019, the petitioner’s claim, inter alia, was settled at 20.5% of Rs. 18.14 crores which worked out to Rs. 3.71 crores. The petitioner had already paid service tax of Rs. 1.41 crores and GST of Rs. 1.93 crores for the said period of January to December, 2017. Since the petitioner is entitled to get only Rs. 3.71 crores, pro rata reduction in tax liability working out to approximately Rs. 45 lakhs was sought. It was also clarified that Essar Steel India Limited had reversed the credit taken on the Service Tax amount of Rs. 1.41 crores. The petitioner accordingly calculated excess at Rs. 2.16 crores and claimed refund thereof.
HELD
The High Court allowed the petition with a direction that the excess service tax paid by the petitioner is liable to be refunded in accordance with extant rules, by acknowledging that the petitioner’s claim was reduced to 20.5% of the admitted claim.
II. AUTHORITY FOR ADVANCE RULING
24 M/s Lucknow Producers Co-operative Milk Union Ltd. [2021-TIOL-284-AAR-GST] Date of order: 16th April, 2021
Reimbursements of statutory liability not received as pure agent – GST liable @ 18%
FACTS
The applicant is in the business of milk processing and manufacturing milk products and avails the services of manpower supply agencies under an agreement. The terms provide for consideration against services and discharge of statutory liabilities such as EPF, ESI, workmen’s compensation Act, etc. A ruling was sought for GST applicability on reimbursements for statutory liabilities. As per the applicant, the agreement provides for two separate elements of payment and that the statutory liabilities as per the Act rest with the factories or the work place. However, it is shifted to service providers to minimise their work burden and hence they subsequently reimburse them. Further, Rule 33 of the GST Rules provides that the cost incurred by the supplier as pure agent is excluded from the value of supply. Also, AAR Karnataka [reported in 2020 (32) GSTL 49 (AAR-GST-Kar)] had ruled that Group Insurance and Workmen’s’ Compensation schemes benefit workers and are not taxable under GST. Further, bills raised for reimbursement fulfil the condition of being a pure agent and hence should not be subjected to GST.
HELD
After examining section 2(13) of the CGST Act, 2017 for definition of consideration and section 15 of the said Act for determination of value of taxable supply, it was held that the entire payment received by the manpower, including statutory payment supplies from the application, would attract GST. It was found that labour contractors are not pure agents as they do not outsource services from third parties. Also, a contractual agreement with the contractor does not fulfil the obligation of being a pure agent. Therefore, GST is liable to be paid on reimbursement at 18% as they form value of supply as per section 15 of the CGST Act, 2017.
25 M/s Rotary Club of Bombay Queen’s City [2021-TIOL-273-AAR-GST] Date of order: 22nd November, 2021
Members and AOP / Club separate entities post amendment of section 7(1) – Contribution by members is consideration for supply
FACTS
The applicants Rotary Club and Rotary Districts are associations of persons joined together to carry out social activities. The contribution collected is spent on meetings and administration expenditure. Hence a ruling was sought to determine whether their activity of collecting contributions and spending it on meetings and administration is considered business as envisaged u/s 2(17) of the CGST Act, 2017 and whether contributions from their members results in supply under the CGST Act, 2017. The applicants pleaded that they maintain separate bank accounts, one for administration expenses and the other for donations or charity. Donations received are strictly used for charitable purposes and not for administration. Further, they also pleaded that they function on the concept of mutuality and hence the said doctrine applies as per their belief. They relied on and referred to CIT vs. Bankimpur Club Ltd. 2002-TIOL-834-SC-IT and the recent Larger Bench judgment of the Supreme Court in State of West Bengal vs. Calcutta Club Ltd. 2019-TIOL-449-SC-ST-LB under service tax law. The applicant also relied on the order of the AAR, Maharashtra in the case of Rotary Club of Mumbai Nariman Point and that in Rotary Club of Mumbai Queen’s Necklace wherein it was observed that these clubs did not provide any specific facility or benefit to their members against membership subscription and hence it is not ‘business’. Further, the applicant submitted that insertion of new clause (aa) in sub-section (1) of section 7 of the CGST Act, retrospectively, does not alter the case of the Rotary Club on account of ‘Agency Principle’ and reasoning of the AAAR in the said cases of the two Rotary Clubs.
HELD
After examining the definitions of supply in section 7 of the CGST Act, 2017 and consideration as per section 2(31) of the said Act, the AAR observed that contribution received is used for obtaining goods and services of third parties and provide benefit of such goods and services to the members. Further, the definition of person in the GST law includes both individuals as well as association of persons or body of individuals whether incorporated or not. Hence, individual members are beneficiaries of contribution made by them to be considered consideration and the members and the Club are two distinct persons. Hence, activities and transactions between them amount to ‘supply’ in terms of the GST law. Also, it was found that reliance on AAAR in the case of Rotary Clubs is not proper as it was done prior to the amendment to section 7 of the Act. The other point cited was that the cases do not provide any guidance or the legal situation particularly after the amendment. The fees / subscription by whatever name called is consideration received by the applicant for such supply and is covered within the scope of ‘business’.
26 M/s Portescap India Pvt. Ltd. [2021-TIOL-293-AAR-GST] Date of order: 10th December, 2021 [AAR Maharashtra]
SEZ GST not included yet in section 26 of SEZ Act
FACTS
The applicant, an SEZ, sought a ruling to know whether there is exemption on GST payable by it under Reverse Charge Mechanism (RCM) on obtaining immovable property (on rent) service from the SEEPZ SEZ authority (local authority) in terms of Notification No. 13/2017-CT dated 28th June, 2017 read with Notification No. 03/2018-CT (Rate) dated 28th January, 2018. Its business is manufacture of customised motors in India and their export. According to the applicant, Entry 5A of Notification No. 13/2017-CT (Rate) dated 28th June, 2017 notifies renting service supplied by Central and State Governments, Union Territory or local authority to any registered person. Hence, the need to seek AAR. Section 7 of the SEZ Act, 2005 exempts goods and services obtained from Domestic Tariff Area (DTA) or foreign supplies specified in the first schedule. Also, section 51 of the said Act has an overriding effect on provisions of other Acts, including taxation laws. Section 26 of the said SEZ Act deals with exemption of tax on services provided to SEZ or its developer to carry out authorised operations. In terms of section 16 of the IGST Act, 2017, supply to SEZ is an inter-state supply.
The default list of services approved for authorised operation includes renting of immovable property service in its ambit and hence the service supplied to it would be considered zero-rated. Also, Notification No. 18/2017-ST (Rate) exempts services imported by unit / developer into an SEZ-authorised operation as exempt from IGST. According to them, services obtained from India also being in the nature of inter-state supply, the Notification covers the same and hence it would be exempt. In support they relied on the judgment of the Telangana and Andhra Pradesh High Court in GMR Aerospace Engineering Ltd. & another vs. U.O.I. & Ors. 2018-TIOL-3127-HC-TELANGANA-ST which held that when the services are used for authorised operation of an SEZ unit, the same should be exempted from the levy of service tax.
HELD
As contended by the AAR and also after considering various rebuttals of the contentions of the jurisdiction officer, the AAR held as follows:
• Since the applicant is registered under the CGST Act, 2017 and satisfies all conditions of the amended Notification No. 10/2017-ITR (Rate) dated 28th June, 2017, the applicant is liable to pay tax under rent in terms of section 5(3) of the IGST Act, 2017.
• Question No. 41 of the FAQ dated 15th December, 2018 issued by the CBIC states that SEZ has to pay GST as a recipient of service under RCM.
• The applicant’s contention that service obtained from Indian territory was the same as imported service was not accepted citing definition of import of services in section 2(11) of the IGST Act and the definition of ‘India’ as per section 2(56) of the CGST Act, 2017. Hence, the applicant was regarded as one situated in India as the SEZ is in India.
• As for zero-rated supplies, it was observed that section 16(3) of the IGST Act applies to registered persons making a zero-rated supply. However, the applicant is a recipient thereof and hence is not covered by section 16(3). A harmonious reading of section 5(3) of the IGST Act, 2017 along with relevant Notifications and section 16 of the IGST Act stipulates that the applicant is liable to pay tax under RCM.
• Section 26 of the SEZ Act dealing with exemptions is not yet aligned with the CGST and / or IGST Acts and as such the list contained thereunder does not include GST.
• The cases cited by the applicant pertain to service and hence they do not apply in the subject case.
