Unreported Decisions – ST – March 2022

By Vinay Kumar Jain & Sachin Mishra, Advocates

1. Whether it is open for the authority to block the electronic credit ledger in exercise of powers under Rule 86-A of the Rules, more particularly, when the balance in such ledger is Nil?

Facts and Pleading: : M/s Samay Alloys India Pvt Ltd (hereinafter referred to as “Petitioner”) attempted to file their return for the month of September, 2021, there was no credit balance in the electronic credit ledger. Despite the same, the portal displayed a message that the electronic credit ledger had been blocked by department. It was further noticed that a negative balance had been entered in their electronic ledger by department. In such circumstances and as a result of such negative balance, if the Petitioner would file return for the month of September 2021 by claiming input tax credit, they would be required to pay an additional amount of output tax under the provisions of the GST Act to the extent of negative balance of the input tax credit in the electronic credit ledger. The Petitioner addressed a letter dated 22.10.2021 to the department requesting for reasons to block the input tax credit. However, the department, did not respond. Hence, this Writ Petition.

The department submitted that the rule is very clear and has consciously used ‘equivalent to such credit’ instead of the words ‘equivalent to such ‘available’ credit’ in the second part of the said rule. Department further submitted that the rule in question i.e. Rule-86A has given broad powers to ensure that the debits are not permitted at a stage before the proceedings attain finality and therefore, it cannot be termed as recovery.

Judgment: The Hon’ble High Court held that if no input tax credit was available in the ledger, the blocking of electronic credit ledger under Rule 86-A of the Rules and insertion of negative balance in the ledger would be wholly without jurisdiction and illegal. As per the Hon’ble High Court Rule 86A does not entitle the proper officer to make debit entries in the electronic credit ledger of the registered person, rather it merely allows the proper officer to disallow the registered person debit from the electronic credit ledger for the limited period of time and on a provisional basis. The Hon’ble High Court further held that Rule 86A is not framed to recover the credit fraudulently availed. In case where credit is fraudulently availed and utilised, appropriate proceeding under the provisions of section 73 or section 74, as the case may be, can be initiated. The Hon’ble High Court further held that Rule 86A is not the rule which provides for debarring the registered person from using the facility of making payment through the electronic credit ledger. Accordingly, department was directed to withdraw negative block of the electronic credit ledger at the earliest.

M/s Samay Alloys India Pvt Ltd vs. State of Gujarat, High Court of Gujarat, decided on 03.02.2022 in R/ Special Civil Application No. 18059 of 2021.

M/s Samay Alloys India Pvt Ltd

2. Whether allotment fees/lease amount collected by Krishi Upaj Mandi Samiti (Agricultural Produce Market Committees) for renting out land and shops to traders is liable to service tax under “renting of immovable property services” under Finance Act, 1994?

Facts and Pleading: Krishi Upaj Mandi Samiti (hereinafter referred to as “Appellants”) are inter alia engaged in renting out the land and shops to traders and collecting allotment fee/lease amount for such land/shop under Section 9 of the Rajasthan Agricultural Produce Markets Act, 1961 (hereinafter referred to as "Act, 1961"). The department was of the view that the Appellants are liable to pay the service tax on the services rendered by them by renting/leasing the lands/shops under the category of "renting of immovable property service" for the period upto 30.06.2012. The said view was even concurred by the Tribunal.

The Appellans argued that the activity of rent/lease/ allotment of shop/land/platform/space is a statutory activity and the Market Committees are performing their statutory duties cast upon them under Section 9 of the Act, 1961 and therefore they are exempted from payment of service tax on such activities as per Circular No.89/7/2006 dated 18.12.2006.

The Revenue argued that the activities of allotment/ renting/leasing of the shop/shed/platform/land cannot be said to be a mandatory statutory activity and therefore, the Market Committees are not exempted from service tax as per 2006 circular as claimed by the respective Market Committees. As per Revenue, Section 9 of the Act, 1961 is an enabling provision and there is no mandatory duty cast upon the Market Committees for allotment/ renting/leasing of the shop/land/platform. It is submitted that even under Section 9(2), the words used are "market committee may" and therefore, not mandatory.

Judgment: The Hon’ble Supreme Court observed that wherever the legislature intended that the particular activity is a mandatory statutory duty, the legislature has used the word "shall", thus, when under Section 9 (2) of the Act, 1961, the word used is "may", the activities mentioned in Section 9(2) (xvii) cannot be said to be mandatory statutory duty and/or activity. Thus, as per the Hon’ble Supreme Court, it is not a mandatory statutory duty cast upon the Market Committees to allot/lease/rent the shop/platform/land/space to the traders. The Hon’ble Supreme Court further observed that even the fees which is collected is not deposited into the Government Treasury and such a fee collected cannot have the characteristics of the statutory levy/ statutory fee. The Hon’ble Supreme Court further observed that an exemption notification should not be liberally construed, and beneficiary must fall within the ambit of the exemption and fulfil the conditions thereof. As per the Hon’ble Supreme Court, in case such conditions are not fulfilled, the issue of application of the notification does not arise at all by implication. Accordingly, Hon’ble Supreme Court held that no exemption to pay service tax can be claimed by the Appellants.

Krishi Upaj Mandi Samiti, New Mandi Yard, Alwar vs CCE, Alwar, The Supreme Court of India, decided on 23.02.2022, in Civil Appeal No. 1482 of 2018.

Krishi Upaj Mandi Samiti

3. Whether the Appellant is a job worker within the meaning of the exemption Notification dated 20.6.2012 or is merely a supplier of contract labour for the work of the establishment?

Facts and Pleading: Adiraj Manpower Services Pvt Ltd (hereinafter referred to as ‘the Appellant’) entered into an agreement with Semco Electric Pvt. Ltd. (‘Sigma’) and was required to provide personnel for activities such as felting, material handling, pouring and supply of material to furnace. The Appellant were availing the benefit of job work services exempted under the Notification bearing No.25/2012-Service Tax dated 20.6.2012. The department disputed the said exemption and claimed Appellant is rendering man power supply and hence, not eligible for exemption. The said view was concurred by CESTAT.

It was submitted by the Appellant that the agreements between the Appellant and Sigma are job work agreements. Under the terms of each agreement, the Appellant is required to provide specialized services in respect of felting, material handling, assembly, pouring, supply of machine parts, and painting. The contractor has to determine the persons to be engaged for performing the contract and their service conditions and the Appellant is entrusted with supervision as the contractor. There is no supply of manpower to Sigma, since in that case the control would have shifted to Sigma. However, in this case, it is the Appellant who exercises due supervision. The Appellant further submitted that the invoices were based on the work done on piece rate basis. A service charge was levied on the quantity of work done and not on the quantity of the manpower supplied. Therefore, as per the Appellant, there were correctly availing the benefit of job work services exempted under the Notification bearing No.25/2012- Service Tax dated 20.6.2012

The Department alleged that the agreements which have been executed by the Appellant with Sigma are not for carrying out job work and camouflage the supply of manpower services. as per department, the contracts are pure labour contracts in which there is a conspicuous absence of details or specifications pertaining to the work which is to be performed, the output to be generated, and delivery schedules, among other crucial elements of a genuine contract for job-work. Department also alleged that if the services provided by the Appellant were of the category of "intermediate production process as job work", the Appellant would have declared them under the category of "business auxiliary services" or would have claimed exemption to the extent of the value of services under Notification No. 25/2012-Service Tax dated 20.6.2012. However, the Appellant suppressed the taxable value. They neither amended their service tax registration, nor declared these services in their ST-3 returns as business auxiliary services.

Judgment:  The Hon’ble Supreme Court observed that the agreement between the Appellant and Sigma deals with the regulation of the manpower which is supplied by the Appellant in his capacity as a contractor. As per the Hon’ble Supreme Court, the fact that the Appellant is not a job worker is evident from a conspicuous absence in the agreement of crucial contractual terms which would have been found had it been a true contract for the provision of job work in terms of Para 30(c) of the exemption notification. The Hon’ble Supreme Court observed that on reading the agreement as a whole, it is apparent that the contract is pure and simple a contract for the provision of contract labour. As per the Hon’ble Supreme Court, an attempt has been made to camouflage the contract as a contract for job work to avail of the exemption from the payment of service tax. Accordingly, the Hon’ble Supreme Court has held there is no merit in the appeal and the appeal stand dismissed.

Adiraj Manpower Services Pvt Ltd vs Commissioner of Central Excise, Supreme Court of India, order dated 18.2.2022, in Civil Appeal No. 313 of 2021.

Adiraj Manpower Services Pvt Ltd

4. Whether importer or the Indian Bank is the recipient of services of SWIFT for transmission of foreign monetary transactions through SWIFT system? Whether importer is liable to pay service tax under reverse charge mechanism on ‘SWIFT charges’ collected by SWIFT from Indian Bank which are later on reimbursed by such importer?

Facts and Pleadings: M/S PEC Ltd (hereinafter referred to as the “Appellant”) is a Central Government Public Sector Undertaking (PSU) under the administrative control of Ministry of Commerce. The Appellant is engaged in the business of trading activities including import, export, domestic sales and trade financing, by way of supporting the MSME sector, who are not in a position to undertake foreign trade themselves. The Appellant opens ‘letter of credit’ for import of goods/merchandise through their bankers, in favour of the foreign party/shipper. In such transaction, the Indian banker informs the

banker of the shipper (in foreign country) the fact of opening of the letter of credit in favour of the shipper. This communication by Indian Banker to the foreign banker is through the agency of SWIFT, which is an agency for transmission of foreign monetary transactions, maintaining confidentiality and integrity. SWIFT recovers charges from the sending banks (Indian Bank). After the foreign bank receives the intimation about opening of letter of credit from the Indian Bank, through SWIFT, the foreign bank informs their clients/ shipper, as to the fact of opening of credit in their favour, mentioning the details therein. For such confirmation given by foreign bank to their clients, they collect ‘confirmation charges’ from the Indian bank, which in turn, is debited to the account of the Appellant/assessee in India.

The Department demanded service tax on ‘confirmation charges’ as well as ‘swift charges’ under the category of ‘banking and other financial services’ under reverse charge mechanism.

Judgement: The Hon’ble CESTAT held that the appellant, being initiator of letter of credit, is the receiver of the benefit on such opening of the letter of credit and accordingly, they are liable to pay the confirmation charges and accordingly, they have received the banking services from the foreign bank, through the bank in India. Accordingly, it was held that the Appellant is required to pay service tax on such confirmation charges under ‘Reverse Charge Mechanism’. Further, the Hon’ble CESTAT observed that so far, the SWIFT charges are concerned, the privity of contract is between the Indian Bank and the SWIFT society. Thus, the receiver of the services is the Indian Bank, and not the Appellant. As per Hon’ble CESTAT, the Appellant only have reimbursed such SWIFT charges to the Indian bank. Accordingly, it was held that the Appellant is not the receiver of SWIFT services, hence not liable to pay service tax on the same.

M/s PEC Ltd Vs Commissioner of Service Tax (Adjudication), New Delhi, CESTAT, New Delhi decided on 21.01.2022, in Service Tax Appeal No. 55445 of 2014 (DB).

M/s PEC Ltd Vs Commissioner of Service Tax (Adjudication).