Unreported Decisions – ST – July 2020
By Vinay Jain & Sachin Mishra, Advocates
1. Whether after the Finance (Amendment) Act, 2020 under Section 140 of the CGST Act, 2017, mistake committed by the assessee at the time of filing of GST TRAN-1 can be rectified subsequently? Whether the decision in Brand Equity Treaties Ltd. And Ors. v. Union of India, [2020] 116 taxmann.com 415 (Delhi) stands valid after the aforesaid amendment which inserted the words “within such time” in Section 140 of the CGST Act, 2017, inter-alia empowering the Central Government to prescribe the time limit for filing TRAN-1, retrospectively?
Facts and Pleading: M/s SKH Sheet Metals Components Private Limited (hereinafter referred to as ‘The Petitioner’), is inter-alia engaged in manufacture of final products and sale to OEMs. In order to avail the credit in the electronic credit ledger under the GST laws, the Petitioner filed ‘GST TRAN-1’ on 27.08.2017. However, on submission of the said Form, Petitioner realized that as against the total credit of Rs. 6,52,58,081/-, only Rs. 1,01,24,382/- was reflected on the common GST portal. The CENVAT credit of Rs.5,51,33,6991/- was not displayed in the electronic credit ledger. Petitioner filed a revised declaration in the nature of Form GST TRAN-I on 27.12.2017 and reflected the correct figures under column 5(a) of the Form, however, the amount was still not transferred to the electronic credit register and was shown as “blocked credit”. The Petitioner made several efforts before numerous authorities to rectify the aforesaid mistake, however, all such authorities rejected the plea of the Petitioner.
The Department argued that the case of the Petitioner fell in the category “the taxpayer has successfully filed TRAN-I, but no technical error has been found” as the Petitioner did not encounter any technical glitch on the portal, his request to file a revised TRAN-1 form beyond the limitation period was not accepted. The department also argued that the decision in Brand Equity Treaties Ltd. And Ors. v. Union of India, [2020] 116 taxmann.com 415 (Delhi) is no more valid in view of the Finance (Amendment) Act, 2020 under Section 140 of the CGST Act, 2017. According to department, with the insertion of the words “within such time” in Section 140 (1) retrospectively, the Central Government has been granted the power to prescribe the time limit for filing TRAN-1 and hence the finding of this Court in Brand Equity Treaties Case (supra) that the limitation period under Rule 117 for filing TRAN-1 is merely directory and not mandatory is no longer valid.
The Appellant relied upon several decisions of the Hon’ble High Court including Brand Equity Treaties Case (supra) to argue that the several Courts have permitted the similarly situated taxpayers to file the Form GST TRAN-1 beyond stipulated period of time even to those taxpayers, who may not have faced “technical glitch on the portal” but were otherwise prevented in filing the TRAN-1 form on account of certain human errors or factors and reasons which were beyond their control. The Petitioner further submitted that irrespective of the said decisions, since admittedly the TRAN-1 form in the case of the Petitioner was filed well before the specified date, notwithstanding the benefit granted by the Court in the said judgment, the Petitioner is entitled to transition the credit.
Judgment: The Hon’ble High Court held that the presumption of department that the Finance (Amendment) Act, 2020 under Section 140 of the CGST Act, 2017 renders the decision of this court in Brand Equity Treaties Case (supra) no longer valid is incorrect. As per the Hon’ble High Court, the relief granted to the taxpayers in Brand Equity Treaties Case (supra) was not entirely resting on the fact that CGST Act, 2017 did not prescribe for any time limit for availing the transition of the input tax credit, rather the relief was granted on several counts. Hence, Hon’ble High Court held that the decision in Brand Equity Treaties Case (supra) still holds good. The Hon’ble High Court also relied upon the GST Council 32nd Meeting wherein it was recognized that there could be errors apparent on the face of the record that could be non-technical in nature and merit leniency. In line with the spirit of the decision of the GST Council and the blurring thin line between technical and non-technical difficulty, keeping in view that entire filing is electronic, the Hon’ble High Court held that the restrictive applicability of Rule 117 (1A) to be arbitrary. The Hon’ble High Court further held that transitional provisions and the language of Section 140 of the Act in particular, even after amendment, manifests the intention behind the said provision is to save the accrued and vested ITC under the existing law. The Hon’ble High Court further held that both the Act and Rules do not provide any specific consequence on failure to adhere to the timelines. Since the consequences for non-compliance are not indicated, the provision has to be seen as directory. The Hon’ble High Court further held in the present case, the mistake was clerical in nature. Therefore, the revision cannot be treated as a fresh filing. According, Petitioner was permitted to revise TRAN-1 Form on or before 30.06.2020 and transition the entire ITC, subject to verification by the Respondents.
M/s SKH Sheet Metals Components Private Limited vs. U.O.I, High Court of Delhi decided in W.P.(C) 13151/2019 dated 16.06.2020.
M/s SKH Sheet Metals Components Private Limited
2. Whether the banks can avail credit of service tax paid by the banks for the service provided by the Deposit Insurance and Credit Guarantee Corporation (“DICGC”) in relation to insuring banks deposits with DICGC?
Facts and Pleading: The Appellants herein are all banking companies that are inter-alia engaged in the banking business. The Appellants are mandatorily required to insure their deposits with Deposit Insurance and Credit Guarantee Corporation (“DICGC”), a subsidiary of the Reserve Bank of India (“RBI”). DICGC protects small depositors in the event of Appellants’ failure by insuring the deposits up to Rs.1,00,000 per depositor (now amended to Rs.5,00,000). The banks availed Cenvat credit of the service tax charged by DICGC on the insurance premium paid.
The department has denied the said Cenvat credit on the count that as no consideration was charged by the Appellants in relation to acceptance of deposits, it was only a transaction in money and therefore, was outside the scope of service tax under Section 66D(n) of the Finance Act, 1994. The Department also alleged that for any service to be qualified as input service, it should be consumed or used for providing taxable output services. The input service should have direct nexus with the output service. DICGC Insurance is aimed at protecting the interest of the depositors against the failure of the bank i.e. the Appellants and does not provide any protection to the Appellants. Hence, as per department the service provided by DICGC would not qualify as a direct input service for the output services performed by a bank on which service tax is paid.
The Appellants argued that DICGC insurance service was covered under main part of the definition of ‘input service’ and was also mentioned in the ‘inclusive portion’. The Appellants further argued that the activity of accepting deposits was integrally connected to the lending activities of the Appellants under which service tax was discharged under the category of ‘Banking and Other Financial Services’ on various incomes. As per the Banking Regulation Act, 1949 and Deposit Insurance and Credit Guarantee Corporation Act, 1961, the Appellants are statutorily required to insure the deposits. Therefore, it is a statutorily obligation without which the Appellant cannot function at all. The Appellants are engaged in “accepting” deposits and not “extending” deposits and so Section 66D(n) of the Finance Act, 1994 would not be applicable. The Appellants also argued that even if it is assumed that some part of the deposit was not used for provision of output services, Cenvat credit cannot be denied as 50% of the total Cenvat credit was already reversed in view of Rule 6(3B) of the Cenvat Credit Rules, 2004.
Judgment: The Hon’ble Larger Bench of CESTAT held that it is mandatory for all banks to register themselves with the DICGC and failure to pay the premium amount to DICGC may lead to cancellation of its licence with RBI. The Hon’ble Larger Bench of CESTAT the insurance service received by the banks from the DICGC is not only mandatory but was also commercially expedient. The service rendered by the DICGC to the banks would fall in the main part of the definition of ‘input service’ and such Cenvat credit would be eligible. The Hon’ble Larger Bench of CESTAT also held that as per Section 66D(n), the activity of services by way of extending deposits, loans or advances is under negative list and will not include the activity of accepting deposits from the customers for which the banks pay interest to the customers. The Hon’ble Larger Bench of CESTAT further held that when reversal under Rule 6(3B) of the Cenvat Credit Rules, 2004 was done by the Appellants, they were entitled for credit of the entire amount of service tax paid on input service having nexus with the provision of output service.
M/s. South India Bank vs. CC,CE & ST, Calicut, Larger Bench of CESTAT, Bangalore decided in Interim Order Nos. 13 – 31 / 2020 dated 20.03.2020
3. Whether the services provided by a reinsurance broker to reinsuring company located abroad and insurance company located in India should be considered as export of service or otherwise when the ‘Reinsurance Brokerage’ is received in INR?
Facts and Pleading: M/s. Bharat Reinsurance Brokers Pvt. Ltd. (hereinafter referred to as “the Appellant”) acts as reinsurance broker and arranges for reinsurance of Indian insurance companies with overseas reinsurers. The appellant identifies appropriate reinsurers located abroad for the Indian Insurance companies and negotiates terms of contracts with them. For this service, the Appellant gets a commission called ‘Reinsurance Brokerage’ by deducting his brokerage from the premium received from the insuring company and passing the balance to the reinsuring company.
The department argued that the Appellant provides services to the Indian Insurance companies for which remuneration is received in Indian Rupees from foreign insurance companies and hence, the same does not qualify for export of service. In this regard, the Department also relied upon Suprasesh General Insurance Services & Brokers Pvt. Ltd. [2009(13)S.T.R 641 (Tri.-Chen.)] wherein it was held that reinsurance brokerage received in Indian rupees does not amount to export of services because the amount has not been received in convertible foreign exchange and confirmed the service tax on such amounts.
The Appellant submitted that the aforesaid allegation of the department is not sustainable on the count that the Hon’ble High Court of Madras in the case of Suprasesh General Insurance Services & Brokers Pvt. Ltd. vs. CST, Chennai [2016(41)S.T.R 34 (Mad.)] had reversed the aforesaid decision of Hon’ble CESTAT in Suprasesh General Insurance Services & Brokers Pvt. Ltd. [2009(13)S.T.R 641 (Tri.-Chen.)] and hence, the same is not correct position of law.
Judgment: The Hon’ble CESTAT relied upon the decision of Hon’ble High Court of Madras in the case of Suprasesh General Insurance Services & Brokers Pvt. Ltd. vs. CST, Chennai [2016(41)S.T.R 34 (Mad.)] to held that in the present case, the Appellant is rendering services to foreign reinsurance company rather than the Indian insurance companies. The Hon’ble CESTAT further held that even though the Appellant gets ‘Reinsurance Brokerage’ by deducting his brokerage from the premium received from the insuring company, the same is paid by foreign reinsurer to the Appellant, thus the consideration for such service also flows from foreign reinsurer and not from the Indian insurance companies. Further, the Hon’ble CESTAT also held that such cases amount to export of service and that the ‘Reinsurance Brokerage’ retained as brokerage in Indian Rupees by deducting instead of remitting the entire amount abroad and receiving back foreign currency should be treated as receipts for export in foreign currency.
Bharat Reinsurance Brokers Pvt. Ltd. vs. CCE, CESTAT, Hyderabad, decided in Final Order No. A/30877/2020 dated 10.06.2020.
4. Whether the service provided by M/s. Karnataka Industrial Areas Development Board under the provisions of Karnataka Industrial Areas Development Act, 1966 shall be considered as statutory functions and hence, not leviable to service tax under the Finance Act, 1994?
Facts and Pleading: M/s. Karnataka Industrial Areas Development Board (KIADB, for short) is established under Karnataka Industrial Areas Development Act, 1966 (“KIAD Act, 1966”). The Appellant performs various statutory/ sovereign functions assigned to it under provisions of KIAD Act. Accordingly, the Appellant has provided various taxable 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.
The case of the department is that Service Tax is leviable on the said taxable services and payable by the Appellant as per provisions of law, the Appellant did not discharge any service Tax liability thereon. The department alleged that a conjoint reading of the provisions of the KIAD Act clearly indicate that Appellant has its own identity as distinct from the State Government and is a body corporate with perpetual succession and a common seal, and may sue and be sued in its corporate name. The receipts of the appellant are credited to its own fund and do not go to the Consolidated Fund of the State. If that be so, the activities undertaken by it cannot be construed as functions of the State. The department also alleged that leasing of land by the appellant on its own account to private individuals on commercial consideration cannot be said to be a sovereign function at all as normally understood. The department further alleged that the Appellant being an instrumentality of the State is not entitled to claim immunity from payment of service tax. The department also alleged that the appellant does not have the power to acquire the land by itself and hence the appellant is not empowered to exercise the power of ‘eminent domain’ and hence it cannot be regarded as sovereign authority.
The Appellant mainly contended that the appellant is a Government undertaking and being a ‘State’ as defined in Article 12 of the Constitution of India are not liable to pay service tax. The Appellant also 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.)] wherein the Bombay High Court has held that no service tax could be demanded on the charges collected by Maharashtra Industrial Development Corporation in terms of the Maharashtra Industrial Development Act, 1961 towards maintenance of the industrial areas, as the same is in the nature of statutory functions performed in terms of the statute. The Appellant also submitted that all other functions rendered by the appellant being incidental, cannot be brought to tax. Further, the Appellant also stated that it is not carrying out commercial activities for a consideration and the amount of deposit collected by the Appellant is based on principles of rationality and reasonableness.
Judgment: The Hon’ble CESTAT held that a careful reading of the aforesaid provisions of KIAD Act and KIADB Regulations would clearly go to show that the appellant is a State undertaking and creature of a statute to exercise the power of ‘eminent domain’. The appellant is engaged in discharging statutory functions under an act of Legislature viz. KIAD Act, 1966. It is a statutory body performing statutory functions and exercising statutory powers. Once carrying out the objectives of the Act, then it cannot be treated as a service provider under the Finance Act, 1994. Further, Hon’ble CESTAT held that there is no service provider-client relationship so as to warrant the levy of service tax under the provisions of Finance Act, 1994. 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 their activities cannot be considered as taxable service and no service tax can be levied for these activities. Hon’ble CESTAT held that in view of the decision of the Bombay High Court in the case of CCE, Nashik Vs. Maharashtra Industrial Development Corporation [2018(9) GSTL 372 (Bom.)] when the maintenance of industrial area itself is held to be statutory function, then the main function of acquisition of law, 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. On the same analogy, Hon’ble CESTAT held that other functions being incidental cannot be brought into tax net.
M/s. Karnataka Industrial Areas Development Board vs. CCT, CESTAT Bangalore, decided in Final Order No. 20357/2020 dated 09.06.2020.
5. Whether the preparation of Whole Wheat parota and Malabar parota be classified under Chapter heading 1905, attracting GST at the rate of 5%?
Facts and Pleading: The Applicant is a food products company involved in preparation & supply of wide range of ready to cook, fresh foods including whole wheat parota and Malabar parota. The aforesaid products whole wheat parota and Malabar (refined flour) parota, are made up of whole wheat flour and refined flour (maida), respectively. The other common ingredients are RO purified water, edible vegetable oil or refined oil, edible common salt and edible vegetable fat. The products are not readily consumable (ready to eat), but need to be heated before consumption. The instant application pertains to classification of whole-wheat parota & Malabar parotta.
The Applicant contended that the product merits classification under Chapter heading 1905, under the product description of ‘Khakhra, plain chapatti or roti” and therefore are taxable at 5% GST, in terms of entry No.99A of Schedule I to the Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017. The Applicant relied on the ruling passed by the Advance Ruling Authority, Maharashtra, in the case of M/s Signature International Foods India Private Ltd., wherein it was held that paratha & paratha wraps are covered by the scope of entry 99A of Notification 34/2017-Central Tax (Rate) dated 13.10.2017.
AAR Observations: The AAR observed that the present products having description “parota” cannot be classified under the heading 1905 the products covered under heading 1905 are already prepared or completely cooked products and no further process is required to be done on them for consumption and hence they are ready to use food preparations whereas in the instant case, the impugned products are admittedly not ready for consumption, but need to be heated before consumption. The AAR further observed that the present products having description “parota” is best classifiable under heading 2106 90 which covers Preparations for use, either directly or after processing (such as cooking, dissolving or boiling in water, milk, etc.), for human consumption, provided that they are not covered by any other heading of the Nomenclature. In the instant case, the impugned goods i.e. ‘parota’ are not covered under any other heading and also need to be processed for human consumption. Therefore, the impugned goods are rightly classifiable, more specifically, under heading 2106 90. Further, the AAR also observed that as the present products having description “parota” are neither khakhra, plain chaptatti nor roti, hence, the benefit of 5% GST, in terms of entry No.99A of Schedule I to the Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017 is not applicable.
Judgment: The Hon’ble Larger Bench of CESTAT held that it is mandatory for all banks to register themselves with the DICGC and failure to pay the premium amount to DICGC may lead to cancellation of its licence with RBI. The Hon’ble Larger Bench of CESTAT the insurance service received by the banks from the DICGC is not only mandatory but was also commercially expedient. The service rendered by the DICGC to the banks would fall in the main part of the definition of ‘input service’ and such Cenvat credit would be eligible. The Hon’ble Larger Bench of CESTAT also held that as per Section 66D(n), the activity of services by way of extending deposits, loans or advances is under negative list and will not include the activity of accepting deposits from the customers for which the banks pay interest to the customers. The Hon’ble Larger Bench of CESTAT further held that when reversal under Rule 6(3B) of the Cenvat Credit Rules, 2004 was done by the Appellants, they were entitled for credit of the entire amount of service tax paid on input service having nexus with the provision of output service.
M/s. ID Fresh Food (India) Pvt Ltd, The Authority for Advance Ruling in Karnataka, GST decided in Advance Ruling No. KAR ADRG 38/2020 Dated: 22.05.2020.