The Court noted Articles 246A and 269A of the Constitution of India. While Article 246A deals with special provisions with respect to GST, Article 269A provides for levy and collection of GST in the course of inter-state trade or commerce. From a careful and conjoint reading of the two Articles, it is quite evident that the Constitution has only empowered Parliament to frame laws for the levy and collection of GST in the course of inter-state trade or commerce, besides laying down principles for determining place of supply and when such supply of goods or services, or both, takes place in the course of inter-state trade or commerce. Thus, the Constitution does not empower imposition of tax on export of services out of the territory of India by treating the same as a local supply. There is an express bar under clause (1) of Article 286 that no law of a state shall impose or authorise imposition of a tax on the supply of goods or services, or both, where such supply takes place in the course of import into or export out of the territory of India.
In the present case, the Court accepts the fact that the recipient of the service is the overseas customer and therefore it is an export of service as defined u/s 2(6) of the IGST Act read with section 13(2) thereof. However, section 13(8)(b) of the IGST Act read with section 8(2) has created a fiction deeming export of service by an intermediary to be a local supply, i.e., an inter-state supply. This is definitely an artificial device created to overcome a constitutional embargo. The Court categorically mentioned that it is unable to accept the view of the Gujarat High Court in the case of Material Recycling Association of India (2020-TIOL-1274-HC-Ahm-GST) where section 13(8)(b) of the IGST Act is held to be constitutional. Accordingly, it was held that section 13(8)(b) of the IGST Act, 2017 is ultra vires the said Act, besides being unconstitutional. However, there was a difference of opinion in the decision of the judges and the dissenting judge is yet to pronounce his judgment.
14 M/s Aryan Tradelink vs. Union of India [2021-TIOL-1283-HC-Kar-GST] Date of order: 21st April, 2021
The blockage of credit in the electronic credit ledger beyond a period of one year is impermissible in law
FACTS
The petitioner challenges the act of blocking of the credit ledger and its continuance beyond one year. It is submitted that in light of the mandate under Rule 86-A(3) of the CGST Rules, 2017, blocking of the electronic credit ledger shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.
HELD
Without entering into the merits of the order blocking the electronic credit ledger, in light of Rule 86-A(3), restriction in blocking of the electronic credit ledger cannot be extended beyond the period of one year from the date of imposing such restriction and, accordingly, in light of the blocking having been done on 21st January, 2020, its continuance in the present instance is impermissible in law. It is therefore declared that the action of the respondents in continuing the blocking of the electronic credit ledger is set aside.
15 Suman Kumar vs. The State of Bihar and Ors. [2021(47) GSTL 449 (Patna)] Date of order: 3rd March, 2021
Best judgement assessment order cannot be passed without granting an opportunity of being heard or without assigning any reason
FACTS
An ex parte order was issued on the basis of best judgement assessment in Form ASMT-13. The petition was filed praying to recall the best judgement assessment made u/s 62(1) of the CGST Act, 2017 and to consider GSTR3B filed by the petitioner for the assessment.
HELD
The order was passed in violation of the principles of natural justice since neither adequate opportunity of being heard was granted, nor any reason assigned for passing such order which would entail civil consequences seriously prejudicing the petitioner. Therefore, the order was quashed without expressing any opinion on the merits of the case with the direction that the proceedings may be conducted digitally considering the current pandemic if required, but the authority shall decide the case on merits preferably by 31st March, 2021, at least within two months from the date of this order.
II. ADVANCE RULING
16 Gujarat Narmada Valley Fertilizers & Chemicals Ltd. [2021 (48) GSTL 172 (AAR-Gujarat)] Date of order: 17th September, 2020
Section 15 of CGST Act and Rule 33 of CGST Rules – Electricity charges collected by landlord at actuals as per agreement would be a case of pure agent and would not form part of value of supply
FACTS
The applicant has entered into a lease agreement with the President of India on behalf of the Commissioner of Central Excise, Audit-I, Ahmedabad (the lessee) to provide a building on rent along with interior infrastructure on 1st December, 2015. The applicant charges rent along with electricity charges and in view of the terms of the agreement, the lessee was liable to pay all charges in respect of electric power, air-conditioning charges, light and water along with applicable taxes. The applicant receives the electricity bill in its name, charges proportionate electricity charges from different tenants and collects GST on such electricity charges from other tenants.
The applicant sought Advance Ruling on whether when the landlord charges electricity or incidental charges in addition to rent as per the lease agreement, was the landlord liable to pay and recover GST from the tenant on such electricity or incidental charges? Can electricity charges paid by the landlord to Torrent Power Ltd. (the supplier of electricity) for the electricity connection in the name of the landlord and recovered based on sub-meters from different tenants be considered as amount recovered as pure agent of the tenant when the legal liability to pay the electricity bill was that of the landlord?
HELD
The question relating to ‘recovery’ of GST from the tenant on electricity or incidental charges was outside the scheme of advance ruling. Such a question being a civil matter, shall be decided in terms of the agreement entered into between both the parties. In view of the terms of the agreement, it was inferred that the applicant was charging a fixed sum as rent and there were no other incidental expenses or charges. The charges in respect of electric power were to be paid on actual basis. One of the clauses of the agreement stipulated that the Government shall pay all charges in respect of electric power, light, etc., along with the applicable taxes thereon. However, the words ‘to whom’ the payment was to be made were missing in the agreement. By applying linguistic principles, it was observed that the lessee was required to pay the charges directly to the electricity company in respect of electric power used by it. The clauses relating to rent and charges for electric power were independent of each other. Thus, electricity charges would not form part of the value of supply.
In respect of the second question, the applicant had not obtained separate meters from the electricity company but had installed sub-meters. Therefore, although the lessee had to pay electricity charges directly to the company as per actual usage in terms of the agreement, in the absence of infrastructure, i.e., separate electric meter, there was a silent agreement that the applicant shall collect electricity charges on actual basis and pay the same to the company. Since this arrangement has been going on for a long time, there was a mutual understanding which can be called as an ‘agreement’ in view of the Indian Contract Act, 1982. Thus, it was held to be a case of pure agent.
17 Manoj Mittal [MANU/AR/0035/2021 (AAR-WB)] Date of order: 22nd March, 2021
If there are two separate sections, one for takeaways and another as restaurant, and if separate books of accounts, records, etc., are maintained, both such sections shall be treated as independent sections – Section for only takeaways can be considered as supply of goods
FACTS
The applicant has a place of business with two sections. One section has a sweets parlour to sell sweetmeats, namkeens and bakery items off the counter in the form of takeaways. In the other section, fast food snacks and beverage items were prepared and served which could either be consumed at the premises or allowed as takeaways. Catering services were also provided to an educational institution which provides education up to secondary level. The two sections were separated through separate billing counters, registers and books of accounts. Based on these facts, the applicant sought advance ruling in respect of classification of supply either as supply of service or of goods, the rate of tax to be applied, exemption to catering services provided to the educational institution, availment of ITC and reversal of common ITC.
HELD
Since there was no direct or indirect nexus between the sweetmeats parlour and the restaurant, it was held that goods supplied from the sweetmeats parlour as takeaways without any element of supply of services shall be treated as supply of goods. Input tax credit shall be available in respect of such supply of goods.
The supply of food and beverage items in the restaurant or as takeaway from the restaurant counter has an element of supply of service. This being composite supply and principal supply being restaurant services, GST shall be levied @ 5% subject to non-availment of input tax credit. Based on the agreement entered into for supply of catering services to the educational institution (i.e., its students and staff) and auditor, guests / parents on programme days, supply only to the extent of catering services provided to the educational institute would be exempt. The supply of food and beverages to the auditor, guests / parents on programme days shall be treated as ‘outdoor catering’ liable to GST @ 5% subject to non-availment of input tax credit. For common input tax credit, sections 17(1) and (2) of the CGST Act read with Rule 42 and 43 of the CGST / WBGST Rules, 2017 shall be followed.
