Unreported Decisions – ST – February 2022
By Vinay Kumar Jain & Sachin Mishra, Advocates
1. Whether the order of Hon’ble Supreme Court in Re: Cognizance for Extension of Limitation extending the period of limitation due to Covid Situation is applicable to filing of refund applications as well?
Facts and Pleading: : Saiher Supply Chain Consulting Pvt. Ltd. (hereinafter “Petitioner”) filed the first refund application for the period July 2018 to September 2018 on 21-8-2020 online on the GST portal. The said application however was rejected by the Respondent vide order dated 5-9-2020 on the ground that there were certain deficiencies in the said application. The Petitioner thereafter filed second refund application on 8-9-2020 which was also rejected pointing out deficiency by Order dated 22-9-2020. The Petitioner thereafter filed third refund application on 30-9-2020. The Respondent however rejected the said third refund application by Order dated 26-11-2020 on the ground that the said application was time barred. Therefore, the Petitioner approached the High Court of Bombay, praying for restoration of the third refund application.
The Petitioner submitted that the third refund application was filed between 15-3-2020 and 2-10- 2021. In view of the Orders dated 23-3-2020 and 23- 9-2021 passed by the Hon’ble Supreme Court in Re: Cognizance for Extension of Limitation, the period of limitation falling between 15-3-2020 and 2-10-2021 stood excluded. The Petitioner also relied upon M/s. GNC Infra LLP vs. Assistant Commissioner (Circle), in W.P.No. 18165 & 18168 of 2021, Order dated 23-9-2021, wherein after adverting to the aforesaid judgment of the Hon’ble Supreme Court, the Madras High Court has extended the period of limitation in case of refund application in similar circumstances. It was further submitted by the Petitioner that the said Order was binding within the meaning of Article 141 on all Courts/ Tribunals and Authorities and the Respondent could not have rejected the third application on the ground of limitation.
The Respondent submitted that the third refund application was required to be filed within the period of two years under the Circular dated 18-11-2019 under Section 54(1) of the Central Goods and Services Tax Act, 2017.
Judgment: The Hon’ble High Court observed that the limitation period fell between 15-3-2020 and 2-10- 2021, which period was excluded by the Hon’ble Supreme Court in all such proceedings irrespective of the limitation prescribed under the general law or Special Law whether condonable or not till further Order/s to be passed by the Hon’ble Supreme Court in those proceedings. The Hon’ble High Court held that in view of the aforesaid Orders dated 23-3-2020 and dated 23-9-2021 passed by the Hon’ble Supreme Court, the period of limitation falling between 15-3-2020 and 2-10-2021 stood excluded. Thus, as per Hon’ble High Court, the period of limitation prescribed in the said Circular dated 18-11-2019 under Section 54(1) also stood excluded. Thus, Hon’ble High Court held that the impugned Order passed by the Respondent is contrary to the Order passed by the Hon’ble Supreme Court and thus deserved to be quashed and set-aside.
Saiher Supply Chain Consulting Pvt. Ltd. vs. UOI, High Court of Bombay, decided on 10-01-2022, in Writ Petition (L.) No. 1275 OF 2021.
Saiher Supply Chain Consulting Pvt. Ltd.
2. Whether cross-empowerment of the Central Tax Officers and the State Tax Officers is permitted under the CGST Act and SGST Act? Whether investigations which are initiated by various jurisdictional authorities against different entities can be transferred to the ‘proper officer’ having pan India jurisdiction? Whether all-India jurisdiction can be exercised only by a Central Tax Officer appointed as a ‘proper officer’ under Notification No. 14 of 2017 dated 01-07-2017
Facts and Pleading: M/s. Indo International Tobacco Pvt. Ltd. and M/s. SSM Exports (hereinafter referred to as “Petitioners”) are engaged in the manufacturing and supply of tobacco products. The premises of the Petitioners were searched, and summons were issued by different regional zones of the Directorate General of the Goods & Services Tax Intelligence (hereinafter referred to as the ‘DGGI’) and multiple agencies. Being aggrieved of such multiple search operations and summons being issued, the Petitioners filed the writ petition before the High Court of Delhi.
The Petitioners submitted that issuance of multiple summons to the Petitioners by multiple agencies is violative of Section 6(2)(b) of the CGST Act and the Circular dated 05-10-2018 issued by the CBEC (hereinafter referred to as the “Circular”). The Petitioners argued that it is only the jurisdictional Commissionerate that has the jurisdiction to carry out the entire process of investigation. The Petitioners further submitted that under Section 6(2) CGST Act, if the SGST Officer of the State Government has already initiated proceedings, then the CGST Officers cannot exercise any power on the same subject matter. Accordingly, the Petitioners contended that there would be a prohibition against the GST Intelligence Officers of AZU from carrying out this entire process.
The Respondents submitted that in the present case there appears to be a fake Input Tax Credit scam perpetuated by various entities spread across the country and the same required a thorough investigation by a specialised investigating agency having all-India jurisdiction. Accordingly, in such circumstances, it is only the Central Tax Officers having all-India jurisdiction, in terms of the Notification No. 14 of 2017, who are empowered to carry out the investigation. The Respondents further submitted that, based on the common thread found in these investigations, the same have been transferred to DGGI, Allahabad Zonal Unit (hereinafter referred to as “AZU”) to be brought under one umbrella.
Judgment: The Hon’ble High Court observed that Section 6 of the CGST Act clearly has a limited application, which is of ensuring that there is no overlapping exercise of jurisdiction by the Central and the State Tax Officers. It is to bring harmony between the Centre and the State in the implementation of the GST regime, with the two not jostling for jurisdiction over a taxpayer. It is, however, not intended to answer a situation where due to complexity or vastness of the inquiry or proceedings or involvement of number of taxpayers or otherwise, one authority willingly cedes jurisdiction to the other which also has jurisdiction over such inquiry/proceedings/taxpayers. The Hon’ble High Court held that in the present set of writ petitions, to bring investigation under one umbrella, the DGGI AZU sought transfer of investigations being carried out by different Commissionerate(s) to itself. The Hon’ble High Court held that there is no any prohibition in the CGST Act or the SGST Act to such transfer of investigation. The Hon’ble High Court rejected the submission of the Respondent that all-India jurisdiction can be exercised only by a Central Tax Officer appointed as a ‘proper officer’ under Notification No. 14 of 2017 dated 01.07.2017. The Hon’ble High Court observed that in the course of investigating of a tax entity, a situation may arise where the investigation may have to be carried out from entities which are not within the territorial jurisdiction of the Officer appointed under the Notification dated 19.06.2017 and/or such State Notifications appointing an Officer with the limited territorial jurisdiction. It cannot be said that in every such case, the ‘proper officer’ having limited territorial jurisdiction must transfer the investigation to the ‘proper officer’ having pan India jurisdiction. As per Hon’ble High Court, it would depend on the facts of each case as to whether such transfer is warranted or not. Accordingly, the Hon’ble High Court dismissed the writ petition on the count that even though the investigations were initiated by various jurisdictional authorities against different entities, the same have been transferred to DGGI, AZU to be brought under one umbrella. As per Hon’ble High Court, Section 6(2) (b) of the CGST Act and Circular dated 05-10-2018 have no application to the facts of the present petitions.
M/s. Indo International Tobacco Pvt. Ltd. and M/s. SSM Exports vs. Shri Vivek Prasad, High Court of Delhi, decided on 11-01-2022, in CONT. CAS(C) 751/2021 & CM No. 35806/2021, Civil Writ Petition Nos. 2420/2021 and 4036/2021 & CM 12202/2021.
M/s. Indo International Tobacco Pvt. Ltd.
3. Whether the entitlement towards “Cost Petroleum” and “Profit Petroleum” under the “Production Sharing Contract” can be treated as the “consideration” for rendering “mining services” to the Government of India and consequently be taxable?
Facts and Pleading:
B.G. Exploration and Production India Ltd. (hereinafter referred to as “Appellant”) is primarily engaged in the business of developing, exploring and producing oil and gas from the ‘Panna and Mukta’ and ‘Mid and South Tapti’ fields (hereinafter referred to as “the Contract Areas”). The Government of India on 22.12.1994, had entered into Production Sharing Contracts with the Appellant, Reliance Industries Ltd. (RIL) and Oil and Natural Gas Corporation Ltd. (ONGC) (collectively referred to as “Holders”) for the discovery and exploitation of petroleum resources in the Contract Areas. In the first two phases of the Contract, namely exploration and development the investment was made only by the Holders. For this purpose, joint account was created, and capital contributions were made through ‘Cash Calls’. In case the exploration was successful, the mineral was extracted and was first used by the Holders to recover the expenses incurred i.e. “Cost Petroleum” and then the excess share was the profit, known as “Profit Petroleum” which was shared amongst the parties to the Contract i.e. the Government of India and the Holders. In the event the exploration would be unsuccessful, the costs incurred would have to be borne by the Holders and would not in any manner be reimbursed by the Government. Further, the ability of the Government of India and the Holders to share surplus profits was dependent upon there being a distributable surplus after deduction of the costs incurred by the Holders.
It was submitted by the Appellant that the commercial nature of the transaction under the Production Sharing Contract dated 22.12.1994 between the Government of India, ONGC, RIL and the Appellant is a joint venture and involves no rendition of service. The contractors have undertaken to make available necessary financial and technical resources and technical and industrial competence and experience necessary for proper discharge and/or performance of all obligations required to be performed under this contract. Thus, under the Production Sharing Contract, there is a community of interest between the Government, and the Contractors to discover, produce and share the “Profit Petroleum” and, for this reason, the contract is entered into between the Government of India and the contractors, for carrying out Petroleum Operations on land and resources owned by Government of India. In this connection reliance was placed on the judgment of the Supreme Court in Faqir Chand Gulati vs. Uppal Agencies Pvt Ltd [2008 (12) STR 401 13 – 2008-VIL-79-SC-ST]. The Appellant also submitted that the activities undertaken by the co-venturers within the framework of a “joint venture” cannot be considered as rendition of “service”, liable to service tax. The Appellant has not received any “consideration” under the Production Sharing Contract. Under the Production Sharing Contract, co-venturers act at their own risk. “Cost Petroleum” or “Profit Petroleum” does not flow from the Government of India to the Appellant. The components of “Cost Petroleum” and “Profit Petroleum” are inherent and embedded part of the Production Sharing Contract. Consequently, such components cannot be treated as “consideration” for the “services rendered” by the Appellant. It was also submitted that the Circular dated 12.2.2018 clarifies that the Holders carry out the operations under the Production Sharing Contract on their own account. The Appellant also submitted that the Circular dated 24.9.2014 is inapplicable to the present case;
The Department alleged that the activity of the Appellant of doing mining services for consideration to the Joint Venture, from the common pool, lies within the ambit of service tax applicability, as the same is not an Incorporated Association of persons. It was further submitted by the Department that the Joint Venture Committee is a body of companies and the Appellant is one of the constituent members providing mining services for consideration received from the common pool of fund of the Joint Venture which is ultimately
reimbursed by the beneficiary Government of India as Cost Petroleum to the Joint Venture Companies and, therefore, satisfies the criteria of applicability of service tax. As per department, the activities of the Joint Venture Companies are in the interest of the Government as the three Companies have no field of their own but the fields belong to the Government of India, for which the work has been carried out. The department also relied upon the Supreme Court in State of West Bengal vs. Calcutta Club Limited, 2019 (29) G.S.T.L. 545 (S.C.) to argue that the PMT-JV and the Appellant have to be treated as distinct persons and the Appellant has rendered service for consideration and hence liable for payment of service tax.
Judgment: The Hon’ble CESTAT observed that Cost Petroleum and Profit Petroleum cannot be said to be consideration flowing from the Government of India to the Appellant and that the components of “Cost Petroleum” and “Profit Petroleum” are inherent and embedded part of the Production Sharing Contract. The Hon’ble CESTAT held that such components cannot be treated as consideration for the services rendered by the Appellant. Therefore, it was held that Cost Petroleum is not a consideration for service to Government of India and thus not taxable per se, since contractors carry out the exploration and production of petroleum for themselves and not as a service to the Government of India. The Hon’ble CESTAT also observed that the Circular dated 24-09-2014 is not applicable to the facts of the present case as the said Circular is generically in relation to Joint Ventures. Further, the subsequent Circular dated 12.02.2018 is specifically on the issue involved in the present case, namely taxability of “Cost Petroleum” in relation to a Production Sharing Contract which provides that contractors carry out the exploration and production of petroleum for themselves and not as a service to the Government of India and “Cost Petroleum” is not a consideration for service to Government of India. Accordingly, the impugned orders were set aside and the appeals were allowed.
B.G. Exploration & Production India Ltd vs Commissioner of CGST, CESTAT Mumbai, order dated 04.01.2022, in Service Tax Appeal Nos. 86004 of 2019, 86007 of 2019 and 86312 of 2020.
B.G. Exploration & Production India Ltd
4. Whether recovery of agency processing charges, back dating charges and look-in charges can be added to the value of taxable services provided under the category of life insurance services?
Facts and Pleadings: M/s HDFC Life Standard Life Insurance Company Ltd. (hereinafter referred to as “Appellant”) is registered with Service Tax authorities as a provider of various services namely, Life Insurance Services, Insurance Auxiliary Services, Renting of Immovable Property and Business Auxiliary Services. The Appellant was recovering certain charges namely agency processing charges, back dating interest and look in charges. However, these charges were not included by the Appellant in the taxable value. The Appellant collects training and examination fees from the aspiring applicants and pay the same to concerned institution and authorities known as agency processing charges. In case if a conventional policy is required to be backdated, the Appellant collects back dating interest for the time gap between the date of receipt of proposal and the risk commencement date. In case of Look-in Charges, as per regulation 6(2) of IRDA (Protection of Policy Holders Interest) Regulations 2002 every policy holder is provided a period of 15 days from the date of receipt of policy document to review the terms and conditions of the policy. In case he is not satisfied with the terms and conditions, he can return the policy. The premium, after deducting the amount of risk premium for the period covered is returned. The expenses incurred on medical examination and stamp duty is recovered.
The Department alleged that the Appellant is liable to pay service tax on the aforesaid three charges recovered by them over and above the normal premium, under the taxable service of “Life Insurance Services” as defined under Section 65 (58), 65 (61) and 65 (80) read with Section 65 (105) (zx) of the Chapter V of Finance Act, 1994, in terms of Section 67(1) of the Finance Act, 1994. The Department also alleged that the scope of definition of taxable service as defined by the Section 65 (105) (zx), do not limit the provision of the taxable service under the said category to the policy holder but is applicable to the services provided by the appellant to the applicant for insurance license because of use of phrase “any person”.
The Appellant submitted that no service has been provided in respect of the three charges, which are sought to be included in the taxable value of the Services of Life Insurance. The Appellant contended that the Service Tax under this category is leviable on the risk portion and investment management part of the premium paid by the policy holder. The Appellant relied on Shilpa Colour Labs 2007 (5) STR 423 (Tri) (maintained by Hon. Supreme Court as reported in 2009 (14) STR 163 (SC)) and Bhayana Builders (P) Ltd 2018-VIL-08-SC-ST to argue that the amount received by the service provider shall have nexus to the taxable service rendered in order to consider the said amount as value of taxable service.
Judgement: The Hon’ble CESTAT observed that only the charges which are towards the risk cover and managing investment for the policy holders, are part of the value of such taxable services provided by the Appellant. As per Hon’ble CESTAT, the phrase “any person” under Section 65 (105) (zx) cannot be read in isolation but will have to be read along with the entire definition as per the said section. The expression “any person” was inserted in Section 65 (105) (zx) by the Finance Act, 2006 to levy service tax on re-insurance activities carried by Life Insurance Company. Therefore, will not be applicable in present case. The Hon’ble CESTAT also held that no nexus exists between the impugned charges and the life insurance services provided by the Appellant. Accordingly, the Hon’ble CESTAT held that in absence of any such nexus such charges cannot be added to the value of taxable services provided by the Appellant under the category of life insurance services. Therefore, the appeal was allowed setting aside the impugned order.
M/s HDFC Life Standard Life Insurance Company Ltd vs Commissioner of Service Tax, CESTAT, Mumbai, dated 06.01.2022, in Service Tax Appeal No. 88448 of 2014