Unreported Decisions – ST – January 2021

By Vinay Kumar Jain & Sachin Mishra, Advocates

1. Whether the inclusion of actionable claim in the definition of goods as given in Section 2(52) of CGST Act, 2017 is contrary to the legal meaning of goods in Sale of Goods Act, 1930? Whether exclusion of lottery, betting and gambling from Item No.6 Schedule III of CGST Act, 2017 is hostile discrimination and violative of Article 14 of the Constitution of India? Whether while determining the face value of the lottery tickets for levy of GST, prize money is to be excluded for purposes of levy of GST? Whether while determining the face value of the lottery tickets for levy of GST, prize money is to be excluded for purposes of levy of GST?

Facts and Pleading: M/s. Skill Lotto Solutions Pvt Ltd (hereinafter referred to as ‘The Petitioner’) is an authorized agent for sale and distribution of lotteries organized by State of Punjab. The Petitioner aggrieved by the provisions of CGST Act, 2017 has filed a writ petition challenging the definition of ‘goods’ under Section 2(52) of CGST Act, 2017 and consequential notifications to the extent it levies tax on lotteries. By the Notification dated 28.06.2017 with regard to lottery run by the State Government, value of supply of lottery was deemed to be 100/112 of the face value of the ticket or the prize whereas with regard to lotteries authorized by the State Government, the value of supply of lottery was deemed to be 100/128.

The Petitioner argued that lottery is not ‘goods’ and GST is levied only on goods under the CGST Act, 2017. Hence levy of GST on lottery is ultra vires to the Constitution of India. The Petitioner further argued that GST is being levied on the face value of the lottery tickets which is impermissible since the face value of the tickets also includes prize money to be reimbursed to the winners of the lottery tickets. Further, the Petitioner argued that taxing actionable claim only is discriminatory since all actionable claims are not being taxed and only lottery is being subjected to GST.

The Respondent argued that actionable claim is a movable property and goods in the wider sense and hence covered under CGST Act, 2017. The Respondent further argued that not levying tax on other actionable claims apart from lottery, betting and gambling is neither discriminatory nor beyond the taxing policy/powers of the State. The Respondent submitted that the Union Parliament has the competence to levy GST on lotteries under article 246A of the Constitution.

Judgment: The Hon’ble Apex court held that by providing an inclusive definition of goods in Article 366(12), the Constitution framers never intended to give any restrictive meaning of goods. Therefore, definition of goods in Article 366(12) is inclusive definition and does not specifically excludes actionable claim from its definition. The Hon’ble Supreme Court relied on Sunrise Associates, (2006) 5 SCC 603 and held that lottery is actionable claim and no exception can be taken to the definition of the goods as occurring in Section 2(52) of CGST Act, 2017. Further, the Hon’ble Court held that there is no violation of Article 14 in Item No. 6 of Schedule III of the CGST Act, 2017 as there must be some rationale to tax lottery, betting and gambling. The Hon’ble Supreme Court further observed that while determining the taxable value of supply the prize money is not to be excluded for the purpose of levy of GST. The reliance was placed on M/s. Gannon Dunkerley, (1959) SCR 329 and on the circular dated 14.02.2007 which provided that the value of taxable service shall be taken into account at the total face value of the ticket sold minus the total cost of the ticket paid by the distributor to the State Government and price money paid by the distributer. Accordingly, the petition filed by the Petitioner was dismissed.

M/s. Skill Lotto Solutions Pvt. Ltd. Vs. Union of India & Ors., Supreme Court of India decided on 03.12.2020 in Writ Petition (Civil) No. 961 of 2018.

2. Whether GST can be levied on the estimated byproducts value, treating such by-products broken rice, bran and husk obtained in the course of milling of the paddy as part of the consideration for milling under the provisions of CGST/APGST Act, 2017?

Facts and Pleading: M/s. Shiridi Sainadh Industries (hereinafter referred to as ‘the Petitioner’) is a Rice Miller and registered dealer under Andhra Pradesh GST Act, 2017. The State Government through the Andhra Pradesh Civil Supplies Corporation (APCSC) procures paddy and gives to the rice mills for milling. As per the agreement, the Rice Millers have to supply rice equivalent to 67% of the paddy given for milling. The actual yield is around 61% to 62% only. The balance of 5% to 6% has to be provided by the Petitioner to the Respondent. APCSC allows the Petitioner to retain the broken rice, bran and husk obtained in the course of milling of the paddy. The Petitioner sells the said broken rice, bran and husk and GST was levied on the same.

The department alleged that as per the terms of the agreement, the taxes payable for the bye products are to be borne by the Petitioner. As per department, the Petitioner i.e. the rice miller is the supplier of the service and as per the tariff under GST, the prescribed rate for this type of service is 5%, relied on clarification issued vide Circular No.19/19/17 dated 20.11.2017. the Department alleged that milling of paddy into rice is not eligible for exemption under S.No.55 of Notification 12/2017- Central Tax (Rate) dated 28.06.2017 and such custom milling which is a job work is liable to GST @ 5% on the processing charge. Further, it was alleged that the milling is done by the Petitioner, the primary responsibility and liability for payment of the GST is with the Petitioner.

The Petitioner argued that the broken rice, bran and husk were given to the Petitioner by the APCSC not as consideration, but in exchange for the own rice given by the Petitioner to make up the shortfall of the rice after milling. The Petitioner has paid tax on the bran whereas the broken rice and husk are exempted from the tax under the GST Act. Therefore, as per the Petitioner, levying tax on the value of the by-products is legally unsustainable. The Petitioner further submitted that the GST liability if any, the same has to borne by APCSC who is the recipient of the services.

Judgment: The Hon’ble High Court held that the Petitioner offers “services” to APCSC within the meaning of Section 2(102) of the CGST Act, 2017. Further, only the custom milling charges of paddy is liable to GST @ 5% on the processing charges and not on the entire value of rice. The Hon’ble High Court observed that the submission of the Petitioner that the by-products are given to the Petitioner towards compensation is logically correct. The Hon’ble High Court relied on Food Corporation of India vs. State of A.P., 1997 SCC Online AP 1143 wherein it was held that terms of an agreement are sacrosanct and cannot be altered and as per the terms of the agreement in the present case, the by-products which are allowed to be retained by the Petitioner are not the part of the consideration. The byproducts form part of compensation but not consideration. Therefore, the Hon’ble Court held that the department erroneously concluded that the miller was allowed to retain the by-products towards consideration, though such import is impermissible from the terms of the agreement. Further the Hon’ble court held that the impugned order to the extent of including the value of by-products to the milling charges and assessing tax is legally unsustainable. Therefore, Writ Petition was allowed and the impugned Assessment Order in so far as it related to the levy of GST on the value of by-products i.e., broken rice, bran and husk treating them as part of the consideration paid to the Petitioner for milling of the paddy, was set aside.

M/s. Shiridi Sainadh Industries Vs. The Deputy Commissioner, High Court of Andhra Pradesh decided on 20.11.2020 in W. P. No. 45971 of 2018.

3. Whether grant of non-exclusive license to use, market and sub-license a ‘software’, ‘third party database’ and ‘third-party software’ amounts to ‘licensing of copyrights’ service or ‘franchisee service’ under the Finance Act, 1994?

Facts and Pleading: M/s. Sap India Pvt Limited (hereinafter referred to as the ‘Appellant’) is inter alia engaged in marketing and licensing of software known as “my SAP” along with other related software products of M/s. SAP Aktiengeselischaft Systems, Germany (hereinafter referred to as ‘SAP AG’). Subject to the terms of the agreement, SAP AG granted to the Appellant a non-exclusive license to use, market, sub-license the software, documentation, third-party database and thirdparty software to end users in the territory. In consideration of above licenses, Appellant was required to make certain payments to SAP AG.

Revenue sought to tax such payments made, under provisions of Section 66A of Finance Act, 1994 (reverse charge mechanism), on the basis that the Appellant was receiving franchisee service from SAP AG, Germany. The Revenue argued that Appellant is marketing the software in India and realizing the consideration from the clients. Out of this consideration realised, a part thereof is remitted to SAP, Germany as ‘Royalty’. This payment is towards the representational right granted by SAP, Germany, to sell the software in India and for doing the process of customization of the software for each customer. Thus, the Appellant is acting as a franchisee of SAP, Germany and, therefore, taxable.

The Appellant contended that the payments made to SAP AG, is towards licensing of the software developed by SAP AG, Germany which amounts to ‘licensing of copyrights’ and it cannot be brought under the definition of ‘franchisee service’. The Appellant further argued it has been paying service tax under ‘Information Technology Software Service’ (ITSS) w.e.f. 16.05.2008. The Appellant submitted that a new entry clearly specifying the activity to be taxable under section 65(105)(zzzze), ITSS, has been incorporated in Finance Act, 1994 w.e.f. 16.05.2008, there is a legal presumption that the said service was not covered by any taxable entry prior to that date. Further, the Appellant also argued that they are not doing any service or process identified with the SAP AG. They are acting only as their agents and not as a franchisee of SAP AG and, therefore, no service tax can be levied under the head of ‘Franchisee services’.

Judgment: The Hon’ble CESTAT held that in terms of the agreement, Appellant made payment to SAP AG for license fees for software developed by SAP AG and third-party databases and thirdparty software which their principal is authorised to license to other end users. Further, services received are squarely covered by definition of Information Technology Software Service as defined under Section 65(105)(zzzze) of the Finance Act, 1994 which was brought on statute w.e.f. 16-5- 2008. CESTAT relied on the case Commissioner of Service Tax vs. Federal Bank Limited, 2016 (42) STR 418 and observed that Appellant is paying service tax under head ‘Information Technology Software Service’ w.e.f. 16-5-2008, which is not disputed by Department. Therefore, service in question is not taxable under head ‘franchisee service’ rather taxable under ‘Information Technology Software Service’.

M/s. Sap India Pvt. Limited vs. CCE, CESTAT, Bangalore decided on 15.12.2020 in Service Tax Appeal No. 564 of 2012.

4. Whether a company is required to be registered under Odisha Goods and Services Act, 2017 and Central Goods and Services Act, 2017 for the consultancy services provided to Odisha Power Transmission Corporation Limited?

Facts and Pleading: M/s. Tokyo Electric Power Company (hereinafter referred to as the ‘Applicant’) is a Japan based company. The Applicant entered into an agreement with an Indian entity Odisha Power Transmission Corporation Limited (OPTCL) to provide consultancy services in relation to the outdoor GIS equipment. The Applicant will provide and transfer the technical knowledge in relation to the outdoor GIS equipment to OPTCL’s engineer and staffs through the actual consulting activities during the design stage and implementation stage of the M/s. Odisha Transmission System Improvement Project (“Project”). The Applicant would carry out/provide consultancy services by the expert belonging. The Applicant filed an application before Authority of Advance Ruling and sought for a ruling as to whether the Applicant is required to be registered under Odisha Goods and Services Act, 2017 and Central Goods and Services Act, 2017 for the consultancy services provided to OPTCL?

The Applicant has argued that it is neither liable to obtain registration as a regular taxpayer nor as a non-resident taxable person for the consultancy services provided to M/s. OPTCL. Further, the Applicant also argued that the project location from where the services are provided cannot be considered to be the “location of the supplier of services” and would fall outside India as it has no fixed establishment in India and the usual place of residence is also not in India. Further, it was also submitted that the services supplied by Applicant to OPTCL would be covered under the ambit of Entry No. 1 of Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017 and OPTCL shall be liable to tax under Reverse Charge Mechanism and therefore, Applicant is exempted from obtaining registration.

Judgment: The Authority held that OPTCL has provided an office to the Applicant and the office operation and maintenance charge etc. also to be borne by OPTCL. Further, after analysing the definition of ‘location of the supplier of services’, it was held by the Authority that the place of supply and the location of supplier are at the project site which is different from the place of business. It was observed by the Authority that the Applicant supplies the service at the sites from fixed establishments as defined under section 2(7) of the IGST Act, 2017. As per the Authority, the location of the supplier should, therefore, be in India in terms of Section 2(15) of the IGST Act, 2017. Therefore, the services supplied to OPTCL would not be covered under the ambit of Entry No. 1 of Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017 and shall not be liable to tax under RCM. As per the Authority, the Engineer/expert belonging to the Applicant should be treated as a supplier located in India, and made liable to pay GST, the place of supply being determined in terms of Section 12(2)(a) of the IGST Act, 2017. Accordingly, the Authority held that the Applicant, being the supplier of service in India, is liable to pay tax and therefore, required to take GST registration under Odisha Goods and Services Act, 2017 and Central Goods and Services Act, 2017 for the consultancy services provided to Odisha Power Transmission Corporation Limited.

M/s. Tokyo Electric Power Company, Odisha Authority of Advance Ruling Goods and Service Tax, decided on 19.11.2020 in AAR Order No. 02/ Odisha-Aar/2020-21.