Unreported Decisions – ST – November 2021

By Vinay Kumar Jain & Sachin Mishra, Advocates

1. Whether amount paid during investigation due to fear of arrest could be considered as “amount paid under coercion”? Whether such payment can be considered as payment in furtherance of “Self-ascertainment” under Section 74(5) of CGST Act? Whether assessee has a right to seek refund of such amount?

Facts and Pleading: M/s Bundl Technologies Private Limited (hereafter referred to as “Petitioner”) operates an e-commerce platform under the name ‘Swiggy’. During holidays and festive season owing to spike in food orders Petitioner engaged third party service providers for delivery of food. The third-party service providers charge consideration for delivery and supply of food along with GST and the GST paid by the Petitioner to third party service providers is availed as Input Tax Credit by the Petitioner. An investigation was initiated by Directorate General of Goods and Services Tax Intelligence (DGGI) claiming third party service providers, i.e. ‘Greenfinch’ was a non-existent entity and accordingly, the ITC availed by the Petitioner and the GST component paid by it to ‘Greenfinch’ were fraudulent. During investigation, the Petitioner was forced to make payment of Rs.27,51,44,157/- under the threat of arrest of its Directors. As no show cause notice was issued by the Department even after about ten months of initiation of investigation, the Petitioner sought refund of the said amount of Rs.27,51,44,157/-. Department having declined to refund the amount collected illegally, the Petitioner filed a refund application before jurisdictional GST Office. However, the department is of the view that the deposit made by the Petitioner was voluntary and the power of investigation has been exercised legitimately while issuing summons to the Petitioner and its Directors and the allegation of coercion is incorrect. Hence, this writ petition was filed by the Petitioner.

The Petitioner submitted that the aforesaid sum of Rs.27,51,44,157/- was illegally collected from the Petitioner during the investigation proceedings under threat and coercion. The Petitioner also submitted that the said payments were ‘under protest’ as can be gathered from the communication made by the Petitioner to the Department after such payments were made. Further, it was submitted that as no show cause notice under Section 74 of CGST Act has been issued and payments of the Petitioner has remained with the Department, that the investigation is still not concluded and in light of prolonged investigation, the Petitioner has a legitimate right to seek for refund of tax, which would not in any way come in the way of their obligation to honour the demand made after adjudication.

Judgment: The Hon’ble High Court has held that power of the High Court to issue appropriate direction directing refund either where assessment was without jurisdiction or where tax was collected without authority of law is vested in the High Court. The Hon’ble High Court also observed that the question of alternate remedy is of no significance, when the eventual direction in the present writ is only for consideration of the refund application. Further, Hon’ble High Court has held that the manner in which investigation was carried out in late hours of the night and the early hours of the morning with physical closing of the gates during the investigation would reasonably create an apprehension in the mind of any person including the persons of the standing of Directors of the Assessee Company and its officers. The Hon’ble High Court also observed that it must be noted that even under Section 132(1)(b) and (c)(i) to (iii) of the GST Act, 2017, the wrongful availment of I.T.C. is an offence and is punishable with imprisonment. Accordingly, the Hon’ble High Court held that the payment cannot be stated to have been made voluntarily. The Hon’ble High Court also observed that the lapse of time and lack of conclusion of investigation has only exacerbated the situation conferring upon the Petitioners a right to seek for refund of the amount. The Hon’ble High Court also observed that though there is payment of tax and even if it is accepted that payment of tax is also followed by requisite Challan DRC-03, the mere payment of tax cannot be construed to be a payment towards self-ascertainment as contemplated under Section 74 (5) of CGST Act. The Hon’ble High Court has held that that the aforesaid payment during investigation and letter of the Petitioner about payment under protest show that it has been made involuntarily. The Hon’ble High Court also observed that there is no doubt that the power of investigation cannot be interfered with nor can the court direct investigation be made in a particular manner, however, during all such investigation, it cannot be held that the Fundamental Rights including the right of a bona fide tax payer to be treated with appropriate dignity as enshrined under Article 21 of the Constitution of India would be kept in abeyance. Accordingly, the Hon’ble High Court directed the department for consideration of the refund application filed by the Petitioner in light of the observations made by the court

M/s Bundl Technologies Private Limited Vs UOI, High Court of Karnataka at Bengaluru, decided on 14.09.2021, Writ Petition No. 4467/2021 (T-RES).

M/s Bundl Technologies Private Limited.

2. Whether pre-deposit can be equated with ‘output tax’ as defined under Section 2(82) of the CGST Act, 2017 so as to allow payment of pre-deposit through debiting electronic credit ledger?

Facts and Pleading: M/s Jyoti Construction (hereafter referred to as “The Petitioner”) is a partnership firm engaged in the business of execution of works contract including civil, electrical and mechanical. In terms of Section 107 (6) of the OGST Act, the Petitioner was required to make payment equivalent to 10% of the disputed amount of tax arising from the order against which the appeal is filed. The Petitioner deposited the said amount from its electronic credit ledger. However, the said appeals were rejected by the Appellate Authority holding the appeals as defective on the count that this payment was required to be made by the Petitioner by debiting its electronic cash ledger as provided under Section 49(3) read with Rule 85 (4) of the OGST Rules. Hence, the present writ.

The contentions of the Petitioner were that under Section 49 (4) of the OGST Act, the amount available in the electronic credit ledger could be used for making "any payment towards output tax” under the OGST Act or the IGST Act “in such manner and subject to such conditions and within such time as may be prescribed”. The Petitioner contended that since what in effect be the Petitioner was paying was a percentage of the output tax as defined under Section 2(82) of the OGST Act, the amount could well be paid by debiting the electronic credit ledger.

Department submitted that that the pre-deposit cannot be equated to the output tax. The proviso to Section 41 (2) of the OGST Act sets out the purposes for which the input tax credit (ITC) can be utilized. It can be utilized for payment of “self assessed output tax as per the return”. It was pointed out by the department that self-assessment is defined under Section 59 of the OGST Act i.e. when the tax payer files a return under Section 39 of the OGST Act and the Form GSTR-3B, the taxpayer is deemed to be self-assessed. In no other cases, can ITC be utilized to discharge any liability.

Judgment: According to Hon’ble High Court, “Output Tax”, as defined under Section 2(82) of the CGST/OGST Act could not be equated to the pre-deposit required to be made in terms of Section 107(6) of the CGST/OGST Act. Further, the proviso to Section 41(2) of the CGST/OGST Act sets out the purposes for which the input tax credit can be utilized and the electronic credit ledger cannot be debited for making payment of pre-deposit at the time of filing of the appeal in terms of Section 107(6) of the CGST/OGST Act. The Hon’ble High Court also held that it is not possible to accept the Petitioner’s plea that Section 107(6) of the Act is merely a “machinery provision”. Hence, writ petitions were dismissed.

M/s Jyoti Construction Vs DC CT & GST, High Court of Orissa at Cuttack, decided on 07.10.2021, in W.P.(C) Nos.23508, 23511, 23513, 23514 and 23521 of 2021

M/s Jyoti Construction

3. Whether Cenvat credit on inputs and capital goods / services used in fabrication, erection, installation of towers and shelters is admissible to the appellants?

Facts and Pleading: M/s Vodafone Cellular Limited (hereinafter “Appellants”) are providers of cellular mobile telephone services to their subscribers, taxable under category “Telecommunication services”. The disputed credit was mainly pertaining to capital goods and input services used in the fabrication, erection and commissioning of towers and shelters for base units and credit availed on other services.

The issue relating to the admissibility of credit of inputs/capital goods and services used in the fabrication, erection and installation of towers and shelters has been long in dispute. Bombay High Court in Bharti Airtel Ltd. Vs CCE, 2014 (35) STR 865 (Bom,) & Vodafone India Ltd. VS CCE, 2015 (40) STR 422 (Bom.) held that to produce telecommunication service, Cenvat credit on towers, prefabricated shelters and their accessories cannot be availed as the towers are fixed to the earth and became immovable property and ipso facto, non-marketable and non-excisable. Whereas, Delhi High Court in Vodafone Mobile Services Ltd. & others Vs CST, 2018 (11) TMI 713-Delhi High Court have taken a contrary view after examining and distinguishing the judgment of Bombay High Court.

In this case, the department had alleged that the erection of towers and shelters and the services utilized in the erection, commissioning or installation of towers and shelters is not in or in relation to the services rendered by the Appellants.

The Appellants had submitted that the scope of Rule 2(l) is vast especially for the period up until 01.04.2011. As per Appellants, the input service credit was admissible for all ‘activities relating to businesses’ and hence the Appellants are eligible for credit of inputs/capital goods and services used in the fabrication, erection and installation of towers. The Appellants had also relied on Hon’ble Delhi High Court Decision in Vodafone (supra) to submit that this judgement had considered Hon’ble Bombay High Court’s decision in Bharti Airtel (supra) and disagreed with the ratio thereof. The Appellant further submitted that the decision of Larger Bench of Hon’ble Tribunal in Tower Vision India Pvt Ltd Vs CST 2016 (3) TMI 165 – CESTAT New Delhi (LB) must be considered overruled as it had followed the aforesaid decision of the Hon’ble Bombay High Court in Bharti Airtel (supra). The Appellants also relied on decision of Chandigarh Bench of the Hon’ble Tribunal in CCE Vs Bharti Infratel, 2019 (2) TMI 1736 – CESTAT Chandigarh which had considered all the above decisions and held that credit of duty paid on inputs used in towers and shelters is eligible.

Judgment: The Hon’ble Tribunal also referred to the decision of Hon’ble Delhi High Court in Vodafone (supra) and decision of Chandigarh Bench of the Hon’ble Tribunal in CCE Vs Bharti Infratel (supra) to held that credit, of inputs / capital goods and services utilized in fabrication, erection, installation of towers and shelters by the Appellants, is admissible to the Appellants. The Hon’ble Tribunal has also observed that it is required to follow the decision of Hon’ble Delhi High Court as the jurisdictional High Court has not passed any orders on this issue as on date and the decision of the Delhi High Court being subsequent to that of Bombay High Court. 

M/s Vodafone Cellular Limited vs CGST & CE, CESTAT, Chennai decided on 1.10.2021, Service Tax Appeal No. 42404 of 2013.

M/s Vodafone Cellular Limited

4. Whether the entire cost recovered by the Appellant as reimbursement/cost charged to the Joint Account by the Appellant namely, salaries of employees working for the joint venture should be subjected to service tax recoverable from the Appellant with interest and penalty.

Facts and Pleadings: B.G. Exploration & Production India Ltd. (hereinafter referred to as “Appellant”) is primarily engaged in the business of developing, exploring and producing oil and gas from the contracted areas in Mid and South Tapti Fields and Panna & Mukta Fields (Offshore areas of Western India). The Appellant had entered into a Joint Operating Agreement with Reliance Industries Ltd. and ONGC for the discovery and exploitation of petroleum resources in ‘Panna and Mukta’ and ‘Mid and South Tapti’ fields for Government of India. The said agreement defined their respective rights, duties and obligations with respect to their operations under the Contracts. In terms of the Agreement, liabilities incurred by any Holder were required to be borne by all the Holders in accordance with the ratio for performing their obligations. These expenses were required to debited in the joint account and cash calls raised and reimbursement taken from the Joint Account, basis the participating interest of each of the parties to the Contract. There was to be no profit margin on the reimbursement/cost charged to the joint account; in fact, such a profit was strictly prohibited under the Agreement and the same was to be charged on actual.

The department alleged that Appellant, RIL and ONGC jointly i.e. PMT-JV are unincorporated association of persons/joint venture. The department also alleged that the Appellant, RIL and ONGC as an unincorporated association of persons and the Appellant individually are distinct persons, in accordance with Explanation 3(a) of Section 65B (44) of the Finance Act, 1994. The department further alleged that the Appellant is providing its employee i.e. Manpower service to said unincorporated association of persons and are charging salary expenses in relation to those manpower service to their account by way of book adjustment, thus constituting consideration within the meaning of Section 67 for the provision of the said service.

The Appellant submitted that it had not rendered any service to the PMT-JV, nor did it receive any consideration from PMT-JV for the supposed service rendered by it. It was also submitted that Employing manpower for undertaking the operations of PMT-JV was Appellant’s share of capital contribution to the venture. The Appellant also argued that PMT-JV, not being a juridical person, had employed the Appellant and consequently no service was rendered by the Appellant to the unincorporated joint venture. The Appellant was only acting on behalf of the unincorporated joint venture by executing the employment contract. Further, in the absence of any service having been rendered, the said Explanation (3) to the definition of ‘service’ in section 65B (44) of the Finance Act, 1994 has no application.

Judgement: The Hon’ble CESTAT has observed that in the contract in question, the Central Government was to bring in its rights over the resources, while ONGC was to handle contracts and documentation, RIL was to manage financial and commercial requirements and the Appellant was vested with the responsibility of undertaking the technical operations. The Hon’ble CESTAT held that the man power deployed by the Appellant was in furtherance of its own interest as also that of the joint venture and not by way of any service to unincorporated joint venture. Also, the cost incurred by the Appellant for this purpose was its capital contribution to the joint venture and it cannot be said that consideration was received by the Appellant for arranging man power. The Hon’ble CESTAT held that the equity brought in by the co-venturer, in this case by making available man power, cannot be considered as a service rendered to the unincorporated joint venture. It is this capital contribution along with the capital contribution made by others which forms the hotchpotch of the unincorporated joint venture. The Hon’ble CESTAT relied upon Mormugao Port Trust vs. Commissioner of Central Excise [2017 (48) STR 69 (Tri-Mum) in this regard. The Hon’ble CESTAT also held that there is no contractor-contractee or principal-agent relationship between the co-venturer and the joint-venture, which is a pre-requisite for a service to be liable to tax under the Finance Act.

B.G. Exploration & Production India Ltd Vs CCE, CESTAT, Mumbai decided on 06.10.2021 in Service Tax Appeal No. 85028 of 2021.