Unreported Decisions – ST – April 2022

By Vinay Kumar Jain & Sachin Mishra, Advocates

1. Whether amount can be recovered involuntarily during investigation? Whether amount paid during investigation due to fear of arrest could be considered as “amount paid under coercion”? Whether the said amount so deposited liable to be refunded to assessee?

Facts and Pleading: : M/s Bundl Technologies Private Limited (hereafter referred to as “Company”) operates an e-commerce platform under the name ‘Swiggy’. During holidays and festive season owing to spike in food orders Company 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 Company to third party service providers is availed as Input Tax Credit by the Company.

An investigation was initiated by the Director General of Goods and Services Tax Intelligence, Hyderabad (‘DGGI’) against the Company alleging non-payment of proper taxes by the third-party service providers and Input Tax Credit (‘ITC’) availed by the Company was denied. Further it was alleged that the third-party service provider was non-existent entity and no services were availed by the company. During investigation and recording of statements of directors, the GST investigation authority, under threat of arrest and coercion, recovered the disputed amount. Total amount paid by the company during the investigation was INR 27.5 crore.

The company filed a Writ Petition before the High Court of Karnataka against the manner in which the GST investigation was conducted and sought directions to the Department to refund the amount deposited by the company. The Single Member Bench of the High Court vide the Order dated 14.9.2021 held that the amount paid by the Petitioner was involuntary. The High Court directed the Department to consider the refund application of the company. It also held that the statutory remedy of refund would not displace the petitioner from approaching the High Court. The Court further held that the right of refund would be independent of the process of investigation and the two cannot be linked. The High Court also directed for video recording of investigation process. The Revenue Department had filed the appeal before the Division Bench of the High Court of Karnataka.

Judgment: The Hon’ble Division Bench of the High Court has held that the amount deposited by the Company during investigation was involuntary and under coercion. The Hon’ble High Court has observed that the statutory powers must be exercised in consonance with the spirit and letter of the law and not in a manner to instil fear in the mind of a bona fide taxpayer. The amount deposited by the company was not a voluntary payment under Section 74(5) of the CGST Act. The Hon’ble High Court further observed that in terms of Article 265 of the Constitution of India, no tax can be collected without the authority of law otherwise it will amount to depriving a person of his property. In the instant case, since the deposit was not made under Section 74(5) of the CGST Act under own ascertainment of the company, it was evident that the same was collected by the Department in violation of Constitutional safeguards. The Hon’ble High Court relied up on the past jurisprudence to hold that the amount collected during investigation proceedings without any adjudication was liable to be refunded. The Hon’ble High Court observed that Section 54 of the CGST Act provides a period of two years from the date of deposit to file an application for refund. Hence, there existed no delay or laches in filing the Writ Petition. Accordingly, the Court has held that the amount recovered from the company was in violation of Article 265 and Article 300A of the Constitution. Therefore, the Department was liable to refund the amount to the company.

Union of India & Ors. v. Bundl Technologies Private Limited & Ors., Karnataka High Court, dated 3.3.2022 in Writ Appeal No. 1274 of 2021.

2. Whether excise duty already paid by predecessor can be demanded from the demerged entity from the appointed date?

Facts and Pleading: Larsen & Toubro Ltd. proposed to demerge its Hydrocarbon Division as a separate legal entity under Section 394 of the Companies Act, 1956. The Scheme was approved by the Bombay High Court vide Order dated 20.12.2013. The appointed date as per the Scheme was fixed as 1.4.2013 and the eff¬ective date was 16.1.2014. During the pendency of the amalgamation proceedings before the High Court of Bombay, the excise duty for the goods cleared from the Hydrocarbon Division was paid by Larsen & Toubro under the central excise registration held by it for that factory. A Show Cause Notice was issued to L&T Hydrocarbons Eng. Ltd. (hereinafter referred to as the ‘Petitioner’), raising a demand of excise duty for the period of 2013-2014 on the ground that the demerged company was liable to pay duty from the appointed date. Further, it was alleged that the scheme of arrangement had contravened various provisions of the Central Excise Act, 1944 and the Rules made thereunder. The Petitioner has challenged the said show cause notice before the Hon’ble High Court

The Petitioner submitted that taxable event for levy of excise duty is manufacture. In that sense, it is not even a tax on goods. Demanding excise duty once again on the same taxable event, (even on the ground that excise duty is liability ought to discharge only by the transferee and name else), is a clear case of double taxation. The discharge of central excise duty by the Larsen and Toubro Limited is full, correct and in absolute compliance of the provisions of the Central Excise laws. The scheme of merger having been approved by the Bombay High Court, the payment of tax raising of invoice and filing of return by the Larsen and Toubro Limited and not by the petitioner herein is in absolute compliance of the Central Excise laws. There is no procedural breach in this regard by the Larsen and Toubro Limited and/or the writ applicant. The Petitioner also submitted that writ jurisdiction of Hon’ble High Court under Article 226 of the Constitution of India is invokable in present case. As per Petitioner, if in a given case, ex-facie, the ingredients for invoking extended period of limitation are not attracted based on the very averments in a show cause notice, the notice would be ex-facie barred by limitation. It is now well settled that the question of limitation is a question of jurisdiction. Further, the Petitioner also argued that absence of mandatory pre-show cause notice consultation is fatal to the present show cause

Judgment: On merits, the Hon’ble High Court held that the demand of excise duty was unsustainable. It was held that amalgamation scheme was duly sanctioned by the company court and the transfer of assets takes place by operation of law. The Central Government was a party to the scheme through the Office of the Regional Director, Ministry of Corporate A-ffairs, Western Region Mumbai. Thus, it was not open for the show cause notice issuing authority to question the scheme of amalgamation. In terms of the scheme, all compliances with respect to indirect taxes done by the transferor company was be treated as compliances done by the Transferee company. The demand of excise duty from the successor entity was on the very same goods and of the same amount as stood paid by the predecessor. Therefore, as per the Hon’ble High Court, the demand was unsustainable as this would amount to double taxation on the same goods. The Hon’ble High Court held that the writ petition was maintainable in the present case. The Hon’ble High Court specifically noted that limitation was a question of jurisdiction and that the Show Cause Notice lacked inherent jurisdiction as the extended period of limitation was not invocable. The Hon’ble High Court further held that it had to decide only pure questions of law based on the averments made in the Show Cause Notice and that facts were not in dispute. On the issue of requirement of a pre-Show Cause Notice consultation, the Hon’ble High Court rejected Department’s contention that a consultation was not required in the present case as it originated from investigation by the ADG, DGGI. The Court relied on the Circular issued by the CBIC (Circular No. F. No. 116/13/2020-CX-3 dated 11.11.2021) wherein it was clarified that merely because the case originated on account of investigation of the DGGI, it will not be a sufficient ground for not following the mandatory procedure of consultation. The Hon’ble High Court also held that the extended period of limitation was not invokable as the central excise department were aware about the demerger. They had granted new registration to the demerged company and allowed them to transfer Cenvat credit.

L&T Hydrocarbon Engineering Ltd. v. Union of India, Gujarat High Court, dated 3.2.2022 in R/ Special Civil Application No. 11308 of 2019.

3. Whether assessee is eligible for transitional credit/ refund of payment made towards service tax for the period prior to 30.06.2017, post 01.07.2017 and after the cutoff date for making TRAN-1 application?

Facts and Pleading: M/s. Ganges International Private Limited (hereinafter referred to as ‘The petitioner’) is engaged in providing various construction services to Government/Private parties. An investigation was initiated against the Petitioner wherein it was pointed out that, the petitioner is liable to pay service tax under reverse charge on the said activity. Subsequently, the petitioner paid appropriate service tax along with interest on the said royalty. Since, it was an input service and the petitioner was a service recipient and had paid the service tax, the Petitioner was entitled for credit of service tax paid under reverse charge. Since the said service tax payment was made after the cutoff date for making TRAN-1 application under Section 140(1) of the CGST Act, 2017, petitioner could not make any application under GST TRAN-1. Accordingly, petitioner filed a refund claim which was rejected by the department on the count that the petitioner is eligible for taking Cenvat credit of the amount so paid under Service Tax Rules, since there was no provision in the new regime to allow as input tax credit. Hence, the present writ petition.

As per Petitioner, under the Cenvat Credit Rules, 2004, if the petitioners are eligible to claim credit, the petitioners would be eligible to make an application for refund under sub-section (3) of Section 142. The Petitioner also submitted that as per sub-section (3) of Section 142, if the refund claim is made either before the GST regime or on the date when the GST regime came into effect or after which, for refund of any amount of CENVAT credit, duty, tax etc., such refund claim application shall be disposed of only in accordance with the provisions of the existing law.

The department submitted that even though the petitioners are eligible for taking Cenvat credit, since there is no provision in the new regime to allow such refund. Further, it was stated that claim should have been made by way of application in GST TRAN-1 on or before the extended period i.e., 27.12.2017, which has not been done in the present case. It was further submitted that what was the eligibility of a person under Central Excise Act, 1944 to seek for a refund claim, such kind of refund claim alone should be made under sub-section (3) of Section 142 and therefore, the application submitted by the petitioners to take a credit and to transfer the same, cannot be treated as a refund application within the meaning of Section 142(3) of the Act.

Judgment: The Hon’ble High Court held that application under Section 140(1) cannot be made in these cases as only the eligible credit available in the account as on 30.06.2017 alone should be carried forward under Section 140(1) transitional provision. As per Hon’ble High Court, merely because the transitional provision has come into effect from 01.07.2017 and under Section 140(1) of the CGST Act the petitioners can make a claim only in respect of the credit which is already accrued as on 30.06.2017. As per Hon’ble High Court, in these kinds of special situations, if not provision of Section 142(3), no other eligible provision is available. As per Hon’ble High Court, though normally the “Doctrine of Necessity” would only be invoked for want of forum. Hon’ble High Court held that if Section 142(3) is not permitted to be invoked in meeting situations like this, that situation would render that taxpayer remediless, hence, in this case also the “Doctrine of Necessity” can be invoked. As per Hon’ble High Court, the petitioner’s application atleast could have been considered by the respondents under Section 142(3) of the Act for the purpose of taking the credit and such credit could have been considered and allowed for carrying forward in the electronic credit ledger of the GST regime which is nothing but a different route than Section 140 and that is the only possibility for dealing with these kind of applications. Accordingly, the impugned orders were set aside and matters have been remitted back to the respondents for reconsideration.

M/s. Ganges International Private Limited v. The AC, GST, Madras High Court, dated 22.2.2022 in W.P.Nos.528, 1092 & 1160 of 2019.

4. Whether service tax can be demanded under the category of Declared Service under Section 66E(e) of the Finance Act, 1994 on amount collected by the appellant by encashment of Bank Guarantee for the shortfall of the quantity as against the Minimum Guarantee Tonnage?

Facts and Pleadings:  M/s. Paradip Port Trust (hereinafter referred to as ‘The Appellant’) is engaged in providing various construction services to Government/Private parties. The Appellant has devised a scheme, known as Berth Reservation Scheme, to accord priority berthing of specified users in the Port. In terms of the said scheme as laid down in Office Order dated 07.01.2012 issued by the Traffic Department of Paradip Port Trust, a Minimum Guarantee Tonnage (MGT) has to be confirmed by the user failing which the user shall be penalised by way of encashment of Bank Guarantee (BG) for the equivalent wharfage in respect of the shortfall quantity of the MGT.

Department alleged that in case of shortfall in the MGFT quantity, the Notice could encash the BG for the equivalent wharfage of the shortfall and thus the MGT providers had to tolerate the lopsided situation. As per the conditions of the Agreement / Order, the MGT providers had to also refrain from an act by agreeing not to file any suit, application against the Noticee, stipulated vide clause 15 of the Agreement / Order, which states that ‘in case of any dispute, the interpretation of Chairman, PPT will be final and binding on all parties, if the amount of Bank Guarantee is forfeited. Thus, the activity falls within the purview of Section 66E(e) of the Finance Act, 1994.

The Appellant relied on various decisions of the Tribunal including the following decisions to submit that the amount charged in the nature of penalty for non-fulfilment of the contractual obligations by the other party cannot be said towards provision of declared service under Section 66E(e) of the Finance Act, 1994.

Judgement: The Hon’ble CESTAT relied on the case of South Eastern Coalfields Limited, 2020-TIOL1711-CESTAT-DEL wherein the provisions of Declared Service under Section 66E(e) of the Finance Act, 1994, which was introduced in the Negative List based regime effective from 01.07.2012 was examined in detail. In the said decision, Hon’ble CESTAT concluded that by collecting the penal amount, it is not the intention of the assessee to tolerate the non-performance of the obligation rather it was the intention of the assessee that the other party should comply with the contractual obligations and the penal amount was charged only to deter the other party from violating the contractual terms. Accordingly, the Hon’ble CESTAT has held that the amount collected by the appellant by encashment of Bank Guarantee for the shortfall of the quantity as against the Minimum Guarantee Tonnage as per the scheme cannot be said towards tolerating any act or a situation on the part of the appellant and thus, there is no rendition of Declared Service under Section 66E(e) by the appellant

M/s. Paradip Port Trust v. Commissioner, CESTAT, Kolkata, dated 22.2.2022 in Service Tax Appeal No. 79135 of 2018.