By Vinay Kumar Jain & Jay Chheda, Advocates
1. Whether the telecommunication services offered by Indian Telecom Service Provider to inbound international subscriber of a Foreign Telecom Operators qualifies as Export of Service and thus Zero Rated Supply?Facts and pleadings: Vodafone Idea Limited (‘VIL’), registered under the Maharashtra Goods and Services Act, 2017 has entered into contract with Foreign Telecom Operators (‘FTOs’) wherein VIL has agreed to provide international long distance call and roaming telecom services to overseas subscriber coming to India. The overseas subscriber is the subscriber of FTO and for continuity of services within India, the subscriber requires International roaming services. Since the FTO doesn’t have a telecom license within India, the FTO has entered into contract with VIL to allow the subscriber to use the network of VIL in India. Depending upon the usages of the subscriber, VIL would raise an invoice on FTO and in turn FTO would charge from its respective subscriber.The consideration received by VIL is in convertible foreign exchange and accordingly VIL filed for refund of Integrated Goods and Services Tax (IGST) paid on the export of services to FTO. However, the Adjudicating Authority rejected the refund of IGST on the ground that the place of supply of services provided by VIL is in Maharashtra since the subscriber of FTO is in Maharashtra, hence not an export of service. VIL challenged the order before Appellate Authority and Appellate Authority set aside the order and allowed the refund claim filed by VIL.
The department filed a Writ Petition before Bombay High Court and contended that the services provided by VIL were supplied to the subscriber of FTO in India as per Section 13(3)(b) of IGST Act. The Department argued that since the subscriber of FTO makes calls within the territory of Maharashtra, the place of supply of service is within Maharashtra and not outside India. Therefore, roaming services provided by VIL to subscribers of foreign entities are actually consumed in India only. Hence, services are not exported.
VIL argued that all telecom service provides have an agreement with the other telecom service providers in different countries to provide telecom services to their subscribers when traveling to other country and vice versa. According to the agreement, VIL is contractually obligated only to the FTOs for the services under the agreement for which the consideration is payable in convertible foreign exchange. VIL raises invoices on FTOs for allowing FTOs to make/receive calls while roaming.
Bombay High Court Judgement: The High Court observed that as per Section 2(93) of the CGST Act which defines “recipient of supply of service” is a person who is liable to pay the consideration for supply of goods or service. For the services rendered by VIL the consideration is payable by FTOs in convertible foreign exchange. Further, the subscribers do not engage with VIL in case of any telecommunication service difficulties and nor do the subscribers make any payment to VIL. The overseas FTO’s are liable for deficiency of service to the subscriber. Further, Section 13 of the IGST Act, further clarifies that Section 13(3)(b) is applicable when services are supplied to an individual. In the present case, FTOs are not individuals and services are supplied to FTOs. The FTOs further supply such services to their subscribers. The High Court acknowledged the concept of customer’s customer cannot be your customer and relied on several cases upholding the principle. Therefore, subscribers of FTOs cannot be VIL’s customers as per Section 13(3)(b) of IGST Act.
Further, the High Court observed that as per Section 13(2) of the IGST Act, the place of supply of services, except the services specified in sub-sections (3) to (13), shall be the location of the recipient of services. Since the recipient of services is the FTO whose services do not fall under subsections (3) to (13), location of the recipient of service, i.e., of FTOs, is outside India and services qualify as export of service.
Vodafone Idea Limited v. The Union of India – Judgement dated 4th July 2022 in Bombay High Court
2. Supreme Court directs opening of GSTN portal for two months to claim transitional credit by all taxpayers.
The Hon’ble Supreme Court vide Order dated 22.7.2022 disposed off an array of Petitions by common order seeking to avail transitional credit. The Hon’ble Supreme Court directed the Goods and Service Network (GSTN) to open the portal for filing and processing the concerned forms for availing the transitional credit via Form TRAN-1 and TRAN-2 for two months, w.e.f, 01.09.2022 and 31.10.2022. Further, the Hon’ble Supreme Court added that any aggrieved assessee can via the aforementioned forms file or revise the already filed forms irrespective of having filed a Writ Petition before the High Court or in situations wherein the case has been decided by the Information Technology Grievance Redressal Committee (ITGRC). After the successful claims of the transitional credit, the Hon’ble Court has directed to reflect such amount in the Electronic Credit Ledger of the assessee.
Appositely, the Hon’ble Court directed the GSTN to ensure non-occurrence of any technical glitches during the period, i.e., 01.09.2022 and 31.10.2022. Further, the concerned officers of the department are directed to decide upon the veracity of the claim for such transitional credit and pass appropriate orders thereon after granting reasonable opportunity of being heard.
3. Whether Circular issued by CBIC clarifying annuity received by contractors towards construction of roads is not exempted under Notification No. 32/2017-CT Rate legally correct?
Facts and Pleadings: M/s DPJ Bidar – Chincholi Road Project Private Limited (hereinafter referred to as ‘Petitioner’) was entrusted with the construction of road by the Karnataka Road Development Corporation Ltd. (KRDC)
As a consideration for construction and maintenance of the roads, the Petitioner was paid certain amounts termed as ‘annuity’ by KRDC. In certain contracts where construction and maintenance of the roads was outsourced to private entities, consideration was paid by permitting the contractors to collect tolls from the vehicles plying on the road.
Exemption was granted under GST towards collection of toll charges under Notification No. 12/2017 dated 28.06.2017. Subsequently, it was proposed that annuity, which was being paid by the highway authorities as a consideration instead of permitting them to collect toll charges be also exempted from GST. Thereafter, the GST Council through its 22nd Council meeting issued Notification No. 32/2017-CT Rate dated 13.10.2017 through which exemption to service by way of access to a road or a bridge on payment of annuity was granted.
Thereafter, the CBIC issued Circular No. No. 150/06/2021-GST dated 17.6.2021 and clarified that service by way of access to a road or a bridge on payment of annuity is exempted and the activity of receipt of annuity towards construction and maintenance of highway is not exempted. The Petitioner was aggrieved by the said Circular and filed the Writ petition and pleaded that the aforementioned Circular is contrary to the Exemption Notification.
Karnataka High Court judgement: The Court observed that though what was exempted is mentioned as service by way of access to a road or a bridge on payment of toll charges, the said toll charges is collected as consideration by the contractors towards construction and maintenance of the road only. Accordingly, the entire consideration received by contractors for construction and maintenance of the road which is collected as toll charges is exempt from GST. Annuity is paid to the contractors in lieu of toll charges. The GST Council, in its 22nd meeting held on 06.10.2017 took note of the same and as entire toll charges were being exempted from GST, the Council decided to recommend exemption for annuity also.
The High Court held that the Notification clearly exempted the entire annuity towards construction and maintenance of roads and one cannot possibly infer that annuity towards construction of roads is not included as well. The Circular has the effect of overriding the said Notification and therefore is bad in law.