Unreported Decisions – ST – April 2021

By Vinay Kumar Jain & Sachin Mishra, Advocates

1. Whether the target incentives/Performance Linked Bonus (‘PLB’) received by air travel agents from airlines and commission received from Central Reservation System (‘CRS’) companies taxable under the category Business Auxiliary Service? Whether the incentive is consideration for any Service? Under what provision of law CESTAT can accept intervention application? Whether there will be merger of the order of the CESTAT with Supreme Court order when Supreme court merely disposes the Civil appeal without going in to the merits?

Facts and Pleading: Kafila Hospitality & Travels Pvt. Ltd. (hereinafter “Appellant”) is an approved agent of International Air Ticketing Association and is engaged in providing air tickets. For sale of tickets, apart from the general commission, the airlines also incentivize agents by paying target-based incentives known as ‘PLB Commission’. Further, the Computer Reservation System (CRS) companies provide online information database access retrieval services to airlines for which the airlines pay consideration to the CRS companies. Further, the CRS companies allow air travel agents to subscribe to their portals for booking tickets for the passengers. In order to increase the flow of business, the CRS companies pay part of their consideration to the air travel agents when the agents achieve a minimum quantum of bookings through the concerned CRS portal. This incentive is normally termed as ‘CRS commission’.

The department sought to levy service tax on PLB Commission and CRS Commission under the category Business Auxiliary Services (“BAS”) on the ground that the Air Travel Agents are promoting the business of Airline/CRS company. As there was contrary view on the aforesaid issue by two different benches of CESTAT, the New Delhi Bench of CESTAT in the case of Kafila Hospitality and Travels Pvt. Ltd. referred the matter to the Larger Bench. Further, several parties approached before the Large Bench via intervention applications. However, the department objected to the Intervention Applications filed by various intervenors on the ground that there is no procedure prescribed for intervention before a Larger Bench of the Tribunal. The department also raised objection regarding the admissibility of the reference to the Larger Bench. It contended that the Supreme Court has disposed the Civil Appeal filed against the decision in D. Pauls Consumer Benefit Ltd. [2017 (52) S.T.R. 429 (Tri. – Del.)] and therefore the said decision of the Tribunal has attained finality.

The Appellant relied upon the decision of the Madras High Court in Airlines Agents Association v Union of India to argue that the air travel agent was promoting its own business and not the business of the airlines. The Appellant also argued that the air travel agent was not promoting the business of the CRS companies as the CRS portal used by the agents is immaterial to the passengers. The Appellant further submitted that the services rendered by air travel agents are more specifically classifiable under the category ‘Air travel Agents’ services in view of Section 65A of the Finance Act, 1994. The Appellant also relied upon Intercontinental Consultants and Technocrats Pvt. Ltd. and the decision of Federal Court of Australia in AP Group Limited to submit that the incentives paid for achieving targets are not taxable.

Judgment: The Hon’ble Larger Bench of CESTAT has decided in favour of the Appellant and held that the target incentive and the CRS Commission cannot be subject to service tax under the category of BAS. The Hon’ble Larger Bench relied upon the Madras High Court decision in Airline Agents Association, to opine that the air travel agent was not promoting or marketing the business of airlines and that the commission paid to air travel agents by the airlines has direct nexus to ‘Air Travel Agent’ services. Further, the Larger Bench observed that the passenger is not aware of the CRS company being utilised by the travel agent for booking the air ticket. For tax to be levied under ‘Business Auxiliary Service’, promotional activity should be undertaken, and the passenger should be able to directly use the service of CRS company. The Hon’ble Larger Bench observed that the Department had failed to point out any activity undertaken by air travel agent that promotes the business of CRS company. The Hon’ble Bench stated that incentives are based on general performance of the service provider and not related to any particular transaction of service. Further, reliance was placed upon the decision of the Federal Court of Australia in AP Group Limited, where it was held that to levy tax, a payment must be attributable to a particular supply and not just be attributable to supplies in general. The Hon’ble Larger Bench observed that Section 67 provides for levy of service tax on the gross amount charged for providing ‘such’ taxable service, reliance placed upon Intercontinental Consultancy and Technocats (Supreme Court), therefore, a direct correlation should be established between consideration and the activity undertaken. Incentives paid for achieving targets cannot be termed as consideration and therefore not liable to service tax under section 67 of the Finance Act 1994. Further, the Hon’ble Larger Bench dismissed objection of department on intervention application and held that any decision taken by the Larger Bench on the issues referred to it would bind the Division Bench as well and therefore in the interest of justice such intervention applications are allowed. Rule 41 of CESTAT Procedure Rules, 1982 confer power on the Tribunal to make such orders as may be necessary to secure the ends of justice. Further, the Hon’ble Larger Bench dismissed objection of department on doctrine of merger and held that doctrine of merger will apply only when the appeal is dismissed on merits. Thus, when appeal is dismissed without going into merits of the case the doctrine of merger will not apply. In the case of D Pauls, the appeal filed by D Pauls was remanded by Supreme Court to Appellate Tribunal for reconsideration of the order with regard to invocation of extended period of limitation. The Supreme Court had not disposed the appeal on merits.

Kafila Hospitality & Travels Pvt. Ltd. v. Commissioner, Service Tax, New Delhi decided on 18/03/2021 in Interim Order No. 4 /2021.

2. Whether the Petitioner is entitled to seek rectification of Form GSTR-3B for the month of May 2019 on the count of wrongly uploading the entries of M/s. Deepak Process instead of M/s. Deepak Print?

Facts and Pleading: M/s. Deepak Print (hereinafter referred to as ‘the Petitioner’) is a proprietary concern and is engaged in the business of printing of dress materials etc. The Petitioner had submitted the return of his business in the month of May 2019 through the Online process, i.e, the GST Online Portal. However, inadvertently, in the course of making entries in the GSTR-3B for the month of May 2019, the Petitioner wrongly uploaded the entries of M/s. Deepak Process instead of M/s. Deepak Print. Thereafter, the Petitioner preferred a representation in writing addressed to the Nodal Officer, SGST Office, Rajkot as there was no option available with the Petitioner to rectify Form GSTR-3B. As no response was received from the Nodal Office, the Petitioner approached before the Hon’ble High Court.

Judgment: The Hon’ble High Court relied on Bharti Airtel Limited vs. Union of India & Ors., Writ Petition (Civil) No.6345 of 2018, decided on 05.05.2020 wherein it was held that the rectification of the return for that very month to which it relates is imperative and, accordingly, para 4 of the Circular No. 26/26/2017-GST dated 29.12.2017 was read down to the extent that it restricted the rectification of Form GSTR-3B in respect of the period in which the error has occurred. In view of the above, the Hon’ble High Court has held that the Petitioner should be permitted to rectify the Form-GSTR-3B in respect of relevant period.

M/s. Deepak Print vs. UOI, High Court of Gujarat, Ahmedabad, decided on 9.3.2021 in R/ Special Civil Application No.18157 of 2019.

3. Whether the Petitioner is entitled to rectify GSTR-1 return, wherein it has, instead of the GST number of the purchaser in Andhra Pradesh, mentioned the GST number of the purchaser in Uttar Pradesh?

Facts and Pleading: M/s Pantacle Plant Machineries Pvt. Ltd. (hereinafter referred to as the ‘Petitioner’) is engaged in the manufacture of Construction Equipment, is registered with State GST Authority/R2 and files returns in terms of the provisions of the Central Goods and Services Tax Act, 2017. The Petitioner had mistakenly filed GSTR- 1 return, wherein it has, instead of the GST number of the purchaser in Andhra Pradesh, mentioned the GST number of the purchaser in Uttar Pradesh. The Petitioner came to know about the mismatch only when the revenue denied the credit claimed on the basis of accompanying invoices solely on account of the mismatch in GSTR number and the recipient sought amendment of the return and threatened legal action against the Petitioner. Accordingly, the Petitioner approached before Hon’ble High Court to allow it to rectify GSTR-1.

Judgment: The Hon’ble High Court observed that had the requisite statutory Forms been notified, this error would have been captured in the GSTR-2 return, wherein the details of transactions contained in the GSTR-3 return would be auto-populated and any mismatch noted. Likewise, had the GSTR- 1A return been notified, the mismatch might have been noticed at the end of the purchaser/recipient. However, neither Form GSTR-2 nor Form GSTR- 1A have been notified till date. Further, the Hon’ble High Court held that the revenue has neither disputed the fact that Forms GSTR-2 and 1A are yet to be notified nor that goods have reached the intended recipient. However, the credit claimed on the basis of accompanying invoices has been denied solely on account of the mismatch in GSTR number. The Hon’ble High Court relied on Sun Dye Chem Vs. The Assistant Commissioner (ST) [2020 VIL 524 (Mad)] to held that since Forms GSTR-1A and GSTR-2 are yet to be notified, the petitioner should not be mulcted with any liability on account of the bonafide, human error and the petitioner must be permitted to correct the same.

M/s. Pantacle Plant Machineries Pvt. Ltd. vs. CCE, The High Court of Madras, decided on 23.2.2021 in WP No.1022 of 2020.

4. Whether initiation of enquiry after 30.06.2019 fatal for filing declaration under voluntary disclosure category under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019?

Judgment: The Hon’ble Bombay High Court has held that an enquiry or investigation or audit initiated post 30.06.2019 would not act as a bar to filing of declaration under the voluntary disclosure category of Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. The Hon’ble High Court is of the view that if clauses (e) and (f) of Section 125 of the Finance (No.2) Act, 2019 are to be read in a harmonious manner then logically it follows that the enquiry or investigation or audit referred to in clause (f) (i) would necessarily have to be initiated on or before 30.06.2019, i.e. before the cut-off date of the scheme. The Hon’ble High Court also relied on Question No. 39 and the answer thereto in the FAQs released by the CBIC was also relied for this purpose. The department had earlier rejected the declaration under the Scheme as the same was filed after the enquiry was initiated against the assessee in December 2019.

New India Civil Erectors Pvt. Ltd. v. Union of India, High Court of Bombay, Bombay, decided on 12.03.2021 in Writ Petition (L) No.989 of 2020.

5. Whether the phrase ‘Quantification’ under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 shall include unilateral quantification in writing by the petitioner to the department?

Judgment: In a case where the Petitioner was issued summons by the Anti- Evasion, Central Excise & Service Tax, the Hon’ble Delhi High Court has held that unilateral quantification by writing the petitioner by the letter/communication to the department cannot render the assessee eligible for Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 under the tax dues that are linked to an enquiry, investigation or audit against the declarant. The letter/communication to the department cannot render the assessee eligible for Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. The Hon’ble High Court was of the view that such admission in itself would not rendered the petitioner eligible under the Scheme. The Hon’ble High Court observed that in the category of cases where investigation or audit was continuing as on the introduction of SVLDRS, the benefit of the scheme would be available to only such cases, Where, during investigation, the department quantifies the amount and not vice versa. According to the Hon’ble High Court, the quantification of the amount in question can only mean to be a duty liability which has determined by the department.

Karan Singh v. Designated Committee, High Court of Delhi, Delhi, decided on 22.02.2021 in W.P.(C) 2408/2021.