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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.

Unreported Decisions – April 2022

By Ajay R. Singh, Advocate and CA Rohit Shah

1. Section 143(1) r w s 154-Claim disallowed by way of an intimation u/s. 143(1) – two views are possible – Debatable issue :

The assessee filed his return of declaring total income of ` 33,25,433/-. The return of the assessee was processed by CPC and intimation under section 143(1) communicated to the assessee. The CPC while processing the return of income disallowed assessee’s claim of expenditure towards Club membership, entrance fee and subscription fee aggregating to ` 35.00 lacs. The assessee filed rectification petition u/s. 154 of the Act before the CPC. The CPC rejected assessee’ s petition for rectification. Against the order passed by CPC u/s. 154 of the Act, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee holding that the disallowance sought to be rectified u/s. 154 of the Act is a debatable issue, hence, outside the purview of section 154 of the Act.

Hon’ble ITAT held: The Revenue cannot in unilateral proceedings disallow expenditure without affording an opportunity to the assessee. What cannot be done u/s. 154 of the Act on the ground of debatability cannot be done u/s. 143(1) of the Act to the assessee’s claim on which two views are possible A debatable issue cannot be a subject matter of adjustment u/s. 143(1) of the Act. Hon’ble ITAT also relied upon Jurisdictional High Court in the case of Bajaj Auto Finance Ltd. vs. CIT reported as 404 ITR 564(Bom) has held that debatable claim cannot be disallowed by way of an intimation u/s.143(1) of the Act.

Chetas Gulabbhai Desai v. Dy. Commissioner of Income Tax-CPC [ITA No. 1934/Mum/2021 ; dated 4/3/2022 ; Bench : C Mumbai ]

2. S. 11: Applicability of proviso to section 2(15)

The return of income was filed declaring Nil income. The Assessing Officer (AO) observed that there was excess of Income over Expenditure to the tune of ` 1,52,58,353/- (including income from mutual funds and dividends) that was claimed as exempt by the assessee u/s.11. AO observed that the assessee had shown income of ` 33.26 lakh from Cultural hall rent; Other income of ` 88.34 lakh and Interest from fixed deposits in banks and others at ` 1.09 crore. He noticed that the assessee had two halls which were let out by it from time to time on which rental income was earned totaling to ` 1.09 crore. He noted that the assessee had shown certain receipts of ` 93.95 lakh towards Amenity charges, DG set receipts, Electricity charges received etc. Invoking the mandate of the first proviso to section 2(15), the AO held that the assessee-trust was carrying out objects of general public utility and in view of the fact that it generated income from letting out of building and cultural hell etc., which was in the nature of business activity, was hit by the said proviso and hence ceased to have any ‘Charitable purpose’. He, therefore, declined the exemption of ` 1,46,97,602/- u/s.11 of the Act. The ld. CIT(A) confirmed the order of the AO on the denial of exemption on merits as discussed by the AO.

Before Hon’ble ITAT, assessee submitted that if a charitable trust is providing Relief to the poor or Education or providing Medical relief and for funding such activities, it is carrying on activity in the nature of trade, commerce or business etc., for which a cess or fees etc. is charged, the `charitable purpose’ will remain intact and the case will not be hit by the proviso and ex consequenti, the exemption will continue. It is only when the (d) category of section 2(15) as discussed above about advancement of any other object of general public utility is pursued that the disability enshrined in the proviso gets magnetized. Assessee also demonstrated through Object Clause of Trust Deed and Financials that assessee was engaged in providing Medical help, Relief to the poor and Education only and no other object was pursued. Assessee also submitted that even if Trust Deed has the objects of ‘advancement of any other object of general public utility’ in its trust-deed, but none of such objects was actually pursued during the year under consideration. Whereas the objects and activities of the trust are germane at the time of grant of registration u/s 12AA of the Act, what becomes relevant for consideration at the time of assessment is to see which of the objects, having charitable purpose, were actually carried out so as to decide the question of exemption. Assessee actually pursued only the objects as classified in categories (a) to (c). viz., Medical Relief to the poor patients, Education to the deserving students and Relief to the needy sections of the society and hence shied away from taking up any of the objects in category (d), viz., advancement of any other object of general public utility. Once this is the position, it becomes explicitly clear that the proviso to section 2(15), which attracts only when objects of the category (d) above are pursued, did not trigger in the instant case.

Thus the Hon’ble ITAT held that Assessee is entitled to exemption and thus allowed the appeal

Oswal Bandhu Samaj v. ITO Exemptions-1 Pune [ITA No.907/Pun/2017 AY 2010 -11 dated : 7//3/2022 Bench : B Pune]

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).

Unreported Decisions – March 2022

By Ajay R. Singh, Advocate and CA Rohit Shah

1. Section 263- Revision by the PCIT- Concluded that no inquiry has been made by the Assessing Officer with reference to the applicability of section 56(2)(vii)(b) – Held – Pr. CIT proceeded to disturb the assessment on totally irrelevant consideration and without showing any error in the assessment order per se :

The return for AY: 2015-16 was selected under CASS and assessed u/s 143(3) of the Act whereby the total income of the assessee was assessed at ` 11,56,959/- as against return income of ` 9,58,920/. After the completion of assessment, the Revisional Commissioner/Pr. CIT called for the assessment records and opined that the impugned assessment order so passed is erroneous in so far as prejudicial to the interest of the Revenue that no inquiry has been made by the Assessing Officer with reference to the applicability of section 56(2)(vii)(b) of the Act and accordingly set aside the assessment order with a direction to pass fresh assessment order in terms of directions issued in the revisional order.

Assessee preferred appeal before Hon’ble ITAT challenging the revisional order u/s. 263 of the Act. Before Hon’ble ITAT, assessee submitted that the relevant facts pertaining to issues raised in revisional order were fully disclosed in the course of the assessment proceedings and requisite inquiries were made as required in the context and hence the allegation of the Pr. CIT that the assessee order is erroneous. The assessee demonstrated with the help of entries in Paper Book, that the assessee in the instant case has purchased residential property for consideration of ` 1,41,00,000/- for which stamp duty and registration charges to the tune of ` 10,10,100/- was paid during the financial year 2014-15 relevant to assessment year 2015-16 in question. However, the payment of ` 80,00,000/- was made way back in financial year 2011-12 & 2012-13 source of which was sale of residential flat in FY 2011-12. A loan of ` 61,00,000/- was also availed from State Bank of India for this purpose. It was further pointed out that the Assessing Officer in the ‘limited scrutiny’ in the instant case was inter alia concerned about purchases of property and inquiries towards source of payment of purchases have been naturally carried out. The Ld. counsel for the assessee further pointed out that the substantial payments have been made in the financial year 2011-12 in pursuance of letter of intent dated 27.09.2012 and allotment letter dated 28.09.2012 and thus it would not be correct to compare the purchase consideration with the corresponding market value applicable to assessment year 2015-16 in question when the payments have been made in financial year 2011-12 and therefore section 56(2)(vii)(b) is not applicable in the instant case.

Ld. CIT-DR for the Revenue pointed out that the inquiries made by the AO does not show any reference to the provisions of section 56(2)(vii)(b) of the Act and thus no inquiry in this regard has been made by the AO.

The Hon’ble ITAT held that stamp duty value adopted by Pr. CIT with reference to FY 2014-15 (AY 2015-16) for the purposes of applicability of section 56(2)(vii)(b) is wholly incorrect, having regard to the fact that the allotment of the property was made in financial year 2011-12. Thus, the Pr. CIT has proceeded to disturb the assessment on totally irrelevant consideration and without showing any error in the assessment order per se. The assumption of jurisdiction u/s 263 by the Pr. CIT is thus found to be without authority of law and hence bad in law

Parasmal Champalal Bamboli v. Pr. Commissioner of Income Tax-27 [ITA No. 580/Mum/2021 AY 2015-16 dated : 27/1/2022]

2. S. 11: Providing sports facilities to general public – Applicability of proviso to section 2(15)

Assessee-trust claimed exemption under section 11. Main object of the assessee trust was promotion of swimming and other allied sports on no profit basis. AO noticed that assessee had earned income by way of guest fee and learn to swim fee. Accordingly, AO held that assessee’s activity was in the nature of business, trade or commerce and, therefore, AO disallowed exemption in view of proviso to section 2(15).

Held: Providing sports facilities to general public without restriction to any caste, creed, religion or profession squarely fall within the definition of "charitable purpose" as defined under section 2(15). Assessee was running its activities in accordance with its main object and continued to provide services to its members by collecting nominal fee. Further, assessee has deficits from its core activity of promoting swimming for all the years. The assessee s collection from its members was less than the amount spent for its objects. But, for income from investments, assessee was always incurring deficit for all the years. Further, if the object or purpose of an institution is charitable, the fact that institution collects certain charges does not alter the character of the institution. it is not necessary that it should provide something for nothing or for less than it costs or for less than the ordinary price. Accordingly, assessee was not hit by proviso to section 2(15) and, therefore, assessee was entitled for exemption under section 11.

Conclusion: Where main object or purpose of assessee s charitable trust was promotion of sports and swimming, merely because trust collected certain charges from coaching campus, same could not alter its character of being charitable.

ITO v. Pransukhlal Mafatlal Hindu Swimming Bath & Boat Club Trust [ITA No.684/Mum/2019 ; AY 2013-14 ; dated 23/3/2021]

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

Unreported Decisions – February 2022

By Ajay R. Singh, Advocate and CA Rohit Shah

1. Section 68- Receipt of share capital and premium thereon–AO doubted creditworthiness of investors because of low income declared in ROI – no enquiry or investigation was made with regard to worth of investor companies :

Assessee-company received share capital and premium thereon. AO doubted creditworthiness of investors because low income was declared in the return of income by investors and credits were appearing in the bank accounts of investors through banking channel before making investment in assessee-company. Accordingly, AO taxed amount received by assessee as unexplained credit under section 68.

Held: Assessee in respect of investors filed their confirmation, PAN, ITR and bank statements and wherever applicable filed copies of balancesheet of investor companies. AO did not doubt documentary evidences filed by assessee. No investor was asked to appear before AO for recording their statements regarding genuineness of the transaction in the matter. No cash was found to have been deposited in the accounts of investors before making investment in assessee company. AO did not make any investigation or enquiry with regard to worth of the investors, whether they were able to make investment in assessee-company. Merely because low income was declared in the return of income by investors same could not be a ground to reject explanation of assessee and documentary evidences, particularly when no enquiry or investigation was made with regard to worth of investor companies. AO had also not brought any evidence on record that even if share applicants did not have the means to make investments, the investments made by them actually emanated from coffers of assessee so as to enable it to be treated as undisclosed income of assessee. There were sufficient funds available in bank accounts of investors to make investment in assessee-company and investors were assessed to tax and had filed their return of income and all the transactions were carried out through banking channel. Accordingly, assessee had proved creditworthiness of investors and genuineness of transaction in the matter and, therefore, addition made under section 68 could not be upheld.

ACIT v. S.P. Singla Construction (P) Ltd. [ITA No. 5163/Del/2016 ; dt 17/2/2021 AY 2010-11 ; Bench : G Delhi]

2. S. 37(1): Disallowance of tax credit/service tax written off—Allowable expenditure

Assessee was engaged in the business of manufacturing, assembling and trading of parts and accessories for mobile phones. AO noticed that assessee had debited an amount towards Service Tax written off account. Therefore, AO called upon the assessee to explain as to why Service Tax written off should not be disallowed under section 37(1). Assessee submitted that he availed various input services during the financial year relevant to assessment years 2008-09 and 2009-10 and had followed an accounting method, whereby expenses have been debited to profit & loss account, excluding Service Tax. Further, when Service Tax Department had rejected refund claim made by assessee for reasons best known to them, assessee had reversed input tax credit and claimed same as expenditure deductible under section 37(1). AO, however, was not convinced with the explanation furnished by assessee. According to him, Service Tax credit being rejected, cannot impact the profit & loss account.

Held: When input service tax credit was carried forward from earlier financial year to the current financial year, it partakes the nature of taxes paid for the current financial year and hence deductible as and when assessee had debited service tax component paid on input services to the profit & loss account. It is well settled principle of law by decision of various courts and Tribunals that input tax credit/CENVAT is deductible under section 37(1), when such input tax credit was reversed or written off in the books of account.

FIH India (P) Ltd. v. Dy. CIT [ITA No.1184/ Chny/2018; Bench B Chennai ; AY 2010-11 ; dated 8/2/2021]

Unreported Decisions – January 2022

By Ajay R. Singh, Advocate and CA Rohit Shah

1. Section 40(b)–Remuneration paid to partner– Interest incomes earned by assessee firm whether to be excluded for working out book profit so as to ascertain ceiling of partners remuneration

Assessee-firm was engaged in the manufacturing of aromatic chemicals. AO noted that the total income of assessee included dividend income of ₹ 377, interest on deposit of ₹ 4,51,820, interest on income-tax refund of ₹ 28,322 and interest on recurring deposit account of ₹ 42,602, which were covered under the head "Income from other sources". AO noted that these incomes were not directly related to business income of assessee but derived from other sources, therefore these amounts, aggregating to ₹ 5,23,121, were required to be deducted from net profit to compute book profit. Thus, the book profit was to be derived to ₹ 7,89,025 from which admissible remuneration as per under section 40(b)(v) would be at ₹ 3,68,110. However, AO noticed that the remuneration paid to partner was ₹ 5,92,357. So, there was an excess payment of remuneration amounting to ₹ 2,24,247 (₹ 5,92,357/- ₹ 3,68,110). Accordingly, AO made addition.

ITAT Held: It is abundantly clear that for the purpose of section 40(b)(v) read with Explanation, there cannot be separate method of accounting for ascertaining net profit and/or book profit. Therefore, interest income earned by assesseefirm from fixed deposit receipts should not be ignored for the purpose of working-out book profit to ascertain ceiling of partners remuneration. For the purpose of ascertaining such ceiling of the partners remuneration on the basis of book profit, profit would be in the profit and loss account and was not to be classified in different heads of income under section 40. Interest income, therefore, could not be excluded for the purposes of determining allowable deduction of remuneration paid to the partners under section 40B. For purpose of Explanation 3 to section 40(b)(v), assessee took into consideration its net profit as shown in the profit and loss account which included:– (1) Dividend income : (2) Interest on deposits : (3) Interest on Income Tax Refund : (4) Interest on recurring deposit : Although these incomes of assessee under consideration, were shown under different heading but same were classified under the heading as shown appearing in the matter of computation book profit in terms of Explanation 3 of section 40(b)(v) as said Explanation provides for taking the net profit as shown in the profit and loss account, and not the Profits computed under the head profit and gains on business or profession . Hence, these items were not be excluded while computing book profit for the purpose of partners remuneration. As per Explanation 3 of section 40(b), AO did not get jurisdiction to go behind net profit shown by Profit and Loss Account, except to the extent of the adjustments provided in the Explanation 3, nor he was empowered to decide under which head the income was to be taxed. The net profit as shown, was not to be allocated into different components. Accordingly, addition was deleted.

Mac Industries v. ITO [ITA No. 1036/Ahd/2016; dated 19-10-2020; A.Y. 2009-10]

Mac Industries

2. S. 54: Cost of Improvement claimed – Partial amount allowed considering old flat required renovation to make it habitable:

The brief facts of the case are that the assessee has purchased and the expenditure of ₹ 23 lakhs was incurred for the purpose of renovating the house. The A.O asked the assessee to submit bills and vouchers for the above expenditure incurred by him. The assessee did not submit bills and vouchers and submitted that he has purchased an old flat and he renovated the house and incurred the above expenditure and submitted that same may be allowed. The A.O deputed the Inspector of Income Tax to make an enquiry about the house whether the assessee has carried any renovation work or not? Accordingly, Inspector has visited the house and made an enquiry and taken photographs and also, he made enquiry with the neighbors. Neighbors said that they were not aware of the improvements done by the assessee. On the basis of the reports submitted by the Inspector, the A.O came to the conclusion that the assessee has not carried out any improvement at the house purchased by the assessee and accordingly, he disallowed the entire amount.

On appeal, the Ld. CIT(A) held the following: Firstly, the AO appears to have not appreciated the fact that any new buyer of an undisputedly old house will carry out improvements to make the house habitable to his convenience and he should have taken into account this human nature while appreciating the facts to verify for which he should have also been better served to have referred the case to the departmental valuer for a more scientific valuation of the improvement than drawing an adverse inference on the basis of an Inspector’s report who was obviously not an expert in valuation matters. The AO also appears to have come to an arbitrary conclusion by taking pictures of a neighbor’s house and by comparing the same with the house of the assessee and then holding that since both the houses looked alike there had been no improvement at all except the shifting and in an arbitrary manner without any detailed investigation and enquiry and without any cross verification with the assessee / Builder as contended earlier thereby violating the principles of natural justice too and resulting in the addition of ₹ 23,00,000/- to the total income. The AO would therefore have done better to conduct basic enquiries with the Builder as to details of the cost of improvements as claimed in the matter rather than ascertain the same from neighbors / tenants who would have been hardly aware of any such development, much less the intricate details of the said improvement. It is also not in dispute that the improvement expenses incurred for making the house habitable also qualify for deduction under section 54. During the course of appellate proceedings, the appellant was called to furnish the documentation relating to the expenses on the aforesaid works and on a random test check of the same it is seen that the assessee was not in a position to produce satisfactory evidence relating to tile removing and relaying and painting works amounting approximately to 4.95 lakhs. Therefore, the Ld. CIT(A) disallowed an amount of ₹ 5,00,000/- and directed the A.O to allow the improvement cost to the extent of ₹ 18,00,000/-.

On being aggrieved, the Revenue carried the matter before the Tribunal. The Hon’ble ITAT upheld CIT Appeals Order and dismissed Revenue’s Appeal.

The ACIT vs. Shri Sambandam Dorairaj [ITA No.301/Chny/2020; dated 30-9-2021; Bench: C; AY 2013-14]

Shri Sambandam Doraira

Unreported Decisions – ST – January 2022

By Vinay Kumar Jain & Sachin Mishra, Advocates

1. Whether Interchange Fee is consideration for credit card services provided by the issuing bank and consequently, whether service tax is payable on the same?

Facts and Pleading: CITI Bank (hereinafter referred to as “Bank”) is a bank engaged in issuing credit cards & is known as the Issuing Bank. When a customer holding a credit card, swipes it for a transaction with a Merchant Enterprise (“ME”), the transaction goes to an acquiring bank. This acquiring bank makes the payment to the ME and deducts certain amount from the merchant known as Merchant Discount Rate (“MDR”) for providing service to them. The acquiring bank discharges the service tax liability on this amount. The acquiring bank in turn receives the payment from the issuing bank, which retains a part of the MDR before remitting the amount. This amount is known as the Interchange Fee. For example, if a cardholder swipes his credit card for a purchase of ₹ 100 with an ME, then the acquiring bank pays the ME ₹ 94.30 after deducting a pre-determined amount of ₹ 5.70. Here, ₹ 5 is the MDR on which ₹ 0.70 is discharged as service tax to the authorities by the acquiring bank. The issuing bank remits ₹ 98 to the acquiring bank after deducting ₹ 2 as its interchange fee. Hence, the issuing bank gets ₹ 2 out of the MDR of ₹ 5 and the acquiring bank gets the balance of ₹ 3. The matter in dispute in the present case was whether the issuing bank is liable to pay service tax on Interchange Fee received by it.

The revenue argued that Bank was liable to pay service tax on the interchange fee as they were rendering services. They submitted that interchange fee was consideration for their service of verification and facilitation of the transaction as per their contract with the Card association and also for taking the risk of collection from card holder. Further, the revenue submitted that it is not a transaction in money as the interchange fee is for allowing the transaction and only the debited amount is a transaction in money. They also argued that there was no double taxation as there were two independent transactions and separate services were being provided by the issuing and acquiring banks. Further, the revenue pointed out that service tax was not discharged on interchange fee as the fee is paid to the issuing bank prior to the receipt of MDR.

The Bank submitted that it is not performing any service so as to render it exigible to service tax on the interchange service. The interchange fee is in the nature of interest it has earned in the credit card transaction with the customer. The Bank also stated that the service was being provided by both the issuing and the acquiring bank in the transaction and the MDR was the gross amount of consideration, part of which was payable to the issuing bank and another part to the acquiring bank. The Bank also submitted that the acquiring bank was paying service tax on the entire MDR, which included the amount of interchange fee. If the Bank also paid tax on it, then there would be double taxation.

Judgment: There was divergence of opinion among the Hon’ble Judges of the Division Bench and hence the Papers are to be placed before the Hon’ble Chief Justice of India for constituting an appropriate Bench in the matter.

As per Hon’ble Justice K. M. Joseph, the issuing bank as well as the acquiring bank both provide services in the transaction involving a credit card purchase and this service is clearly covered under Section 65(33a) (iii) of the Finance Act, 1994. Hon’ble Justice K. M. Joseph also observed that the interchange fee is the consideration that accrues to the issuing bank for verifying, facilitating and extending the purchase value in line with the contractual agreement the issuing bank; has with the card association and taking the risk for collection of amounts from the Card holder. Hon’ble Justice K. M. Joseph further observed that the activity performed by the issuing bank and the acquiring bank in this transaction is different and therefore, the service provided by the two banks is distinct, which means that both the banks are required to discharge service tax. Hon’ble Justice K. M. Joseph did not accept the argument that Interchange Fee was an interest and not consideration for service. Hon’ble Justice K. M. Joseph also rejected the argument that the credit card transaction was not chargeable to service tax as it was a “transaction in money”. Hon’ble Justice K. M. Joseph explained that the issuing bank not only approves the transaction but also undertakes the risk to recover the credit from the customer and earns Interchange Fee as consideration. The authority seeks to tax this fee and not the money amount made available to customer. Therefore, this cannot be said to be a “transaction in money”.

Whereas, Hon’ble Justice Bhat agreed with Hon’ble Justice Joseph on all matters except on the fact that the issuing and acquiring bank were providing distinct services. Hon’ble Justice Bhat observed that the credit card transaction, involving the settlement of payment, was one “indestructible integrated service”, whose constituent parts were inseparable. Therefore, the issuing bank was not subject to service tax as its service was already incorporated in the service provided by the acquiring bank. The gross consideration received in this case was the MDR, inclusive of the Interchange Fee, on which service tax was discharged by the acquiring bank. For this reason, Hon’ble Justice Bhat did not agree with Hon’ble Justice Joseph that the appeals should be allowed. Accordingly, matter was referred to Larger Bench due to difference of opinion.

Commissioner of GST and Central Excise vs M/s CITI Bank NA, Supreme Court of India, decided on 09.12.21, in Civil Appeal No 8228 of 2019 with Civil Appeal No 89 of 2021.

M/s CITI Bank NA, Supreme Court of India

2. Whether the notification No. 22/2014-15 dated 16.09.2014 to the extent of appointment of officers of Directorate General of Central Excise Intelligence (DGCEI) as ‘Central Excise Officers’ having all India jurisdiction is illegal and ultra vires being violative of the Constitution? Whether officers of DGCEI have jurisdiction to issue and adjudicate show cause notice?

Facts and Pleading:  M/s. Xylem Resources Management Pvt Ltd. (hereinafter “Petitioner”) was engaged in management consultancy services. Senior Intelligence Officer (SIO), DGCEI, Belagavi initiated investigations against the Petitioner for payment of service tax on the reimbursement of expenses. Pursuant to the aforesaid investigation by the SIO, DGCEI, a Show cause notice dated 13.12.2016 was issued by Principal Additional Director General, DGCEI based on the above investigation.

The Petitioner has challenged these proceedings on the ground that the summons were illegal and unconstitutional as the Petitioner is being forced to pay service tax on reimbursement of expenses without taking into consideration the normal assessment procedure. The Petitioner has also challenged the summons due to lack of jurisdiction. The Petitioner claimed that they were under the jurisdiction of Commissionerate of Bangalore, while the DGCEI Officers were located in Belagavi. This led to illegal and duplication of jurisdiction. The Petitioner also questioned the validity of the Notification No.22/2014- 15 dated 16.09.2014 conferring jurisdiction on the ground that it is contrary to the Act as certain officers were being given jurisdiction all over India, in addition to specific jurisdiction.

The Respondents contended that the Officers of DGCEI were conferred jurisdiction PAN India vide the notification dated 16.09.2014. Further, the summons were issued by the SIO to only record the statement of the Petitioner and to transfer the case to jurisdictional Commissionerate. The proceedings were conducted by competent authority in the Commissionerate of Service Tax.

Judgment: The Hon’ble High Court observed that the definition of Central Excise Officer as provided under Section 2(b) of the Central Excise Act, 1944 includes a Principal Commissioner of Central Excise (“PCCE”). Hence, as per Hon’ble High Court, when this definition is read in context with the impugned Notification No.22/2014-15 dated 16.09.2014, it can be concluded that powers of the PCCE can be exercised by the 5 officers specified in the notification, one of whom is the Principal Additional Director General, DGCEI. Therefore, the Principal Additional Director General, DGCEI before whom the Petitioner was directed to appear has jurisdiction to issue the show cause notice. As per Hon’ble High Court, the SIO only issued summons, recorded statements and transferred the matter and records to the proper office. It was also noted by Hon’ble High Court that the SIO did not issue the show cause notice. It was held by Hon’ble High Court that the show cause notice was issued by proper office and though the summons emanated from a different office, the file was transferred to the competent authority. Hence, it was held that the show cause notice cannot be said to be without jurisdiction. Further, the Hon’ble High Court also rejected applicability of Hon’ble Supreme Court decision in Cannon India Private Limited V. Commissioner Of Customs 2021 SCC Online SC 200, on the count that the said case was concerning confiscation of goods and in that context, the Apex Court held that it was not instituted by the proper officer.

M/s. Xylem Resources Management Pvt. Ltd. vs. The Deputy Directorate General of Central Excise Intelligence (DGCEI), Belagavi and Others, The High Court of Karnataka, dated 30.09.2021, in Writ Petition No. 59487 of 2016.

M/s. Xylem Resources Management Pvt. Ltd.

3. Whether derailment of work in a project i.e. taxable output service after payment of consideration along with service tax to vendors i.e. input service, an assessee is entitled to take Cenvat credit on the said input services?

Facts and Pleading:

L&T Hydrocarbon Engineering Ltd (hereinafter referred to as “Appellant”) had entered into an agreement for installation of MNWNF Bridge and Bridge Jacket and Plies. The Appellant hired services of various vendors for work of installation and commissioning of the bridges. During installation of Bridge Jacket and Plies, the tripod tilted and sunk and the project was derailed. However, the Appellant made payment to the vendors involved in installation of the bridges and also paid the applicable service tax. The Appellant availed Cenvat credit on the service tax paid.

Department alleged that due to derailment of the project, the input services utilized by the Appellant did not result in any output service and therefore Cenvat credit cannot be availed on the same. It was further alleged by the department that the Appellant also claimed insurance for the accident but did not pay any service tax on the insurance amount.

The Appellant submitted that as per Rule 2(l) of Cenvat Credit Rules, 2004, “input service” means any service used by a provider of taxable service for providing an output service. The Appellant submitted that though the project was derailed initially, the work was completed later by the Appellants and service tax was also paid on the same. So as per the Cenvat Credit Rules, the Appellants were provider of output services and were entitled to take Cenvat credit on all input services used by them.

Judgment: The Hon’ble CESTAT agreed with the submissions of the Appellant and held that any service received by the Appellant is an input service and they were entitled for Cenvat credit in terms of Rule 3 of Cenvat Credit Rules, 2004. It was clarified that derailment of the project did not mean that no service was provided. During the impugned period, i.e., from April 2009 to March 2010, the work was in progress and it cannot be held that no taxable service was provided as the project was completed later on and service tax was also paid on the same. Therefore, the appeal was allowed with consequential relief.

L&T Hydrocarbon Engineering Ltd vs Commissioner Of Central Excise And Service Tax, The Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad, dated 09.11.21, in Service Tax Appeal No. 11229 of 2015.

L&T Hydrocarbon Engineering Ltd.

4. Whether an assessee is entitled for adjustment of amount deposited under the heads of interest and penalty while quantifying the tax amount payable under the Sabka Vishwas – (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS)?

Facts and Pleadings: Schlumberger Solutions Pvt Ltd (hereinafter “Petitioner”) had filed a declaration under SVLDRS in relation to a show cause notice issued against them with respect to the Petitioner availing cenvat credit on trading of goods. During the course of audit, the petitioner paid an amount of Rs.2,29,61,536/- towards service tax and amounts of Rs.1,16,51,272/- and Rs.24,44,227/- were paid as interest and penalty respectively. However, while filing the declaration the Petitioner had considered the amount paid as interest and penalty at the time of investigation as pre-deposit for the purposes of Section 124 of Finance (No. 2) Act, 2019 and adjusted the same against the amount payable under the scheme. However, the Designated Committee disagreed with the computation of amount payable made by the Petitioner and rejected the declaration on the count the amount paid towards interest and penalty should not be adjusted towards the amount payable towards tax. Simultaneously, the said show cause notice was adjudicated regardless of this SVLDRS declaration. Hence, the Petitioner approached the Punjab and Haryana High Court, challenging the rejection of its computation by the Designated Committee and the order in original.

The Assessee relied on Section 124 of the Finance (No. 2) Act, 2019 and submitted that the amount deposited by it prior to the issuance of the show cause notice falls within the ambit of ‘pre-deposit’ and the Assessee is entitled to get deduction of the deposits. However, the respondents submitted that the amount deposited by the Assessee prior to issuance of show cause notice includes interest and penalty. The respondents argued that interest and penalty are different terms under the indirect tax laws and payment made towards it cannot be adjusted against any other head. Hence, they submitted that only amount paid under the head tax can be adjusted during calculation of tax under the SVLDRS scheme.

Judgement: The Hon’ble High Court held that Section 124 (2) provides that any amount paid during proceedings, enquiry, investigation or audit has to be deducted while calculating the amount payable by the declarant. As per Hon’ble High Court, the use of words “any amount paid” indicate that there is no distinction between amounts paid under different heads. Therefore, amount paid under the heads interest and penalty can be used for deduction. Hon’ble High Court further observed that had the Petitioner remitted the entire amount paid by him towards tax, then they would have been allowed credit of the entire amount and their interest liability would also have been waived off. The Petitioner cannot be punished for depositing amount under different heads. Therefore, the Hon’ble High Court allowed the petition and directed the Designated Committee to reconsider the claim.

Schlumberger Solutions Pvt Ltd vs Commissioner Central GST and Others, High Court of Punjab and Haryana at Chandigarh, decided on 30.11.21, in Civil Writ Petition No. 6845 of 2020.

Unreported Decisions – ST – December 2021

By Vinay Kumar Jain & Sachin Mishra, Advocates

1. Whether “outdoor catering” services received by the Petitioners would be eligible CENVAT Credit in accordance with Rule 2(l) of the CENVAT Credit Rules, 2004 and as per Section 37(2)(xviaa) of the Central Excise Act, 1944 read with Section 94(2) of the Finance Act, 1994?

Facts and Pleading: M/s. Toyota Kirloskar Motor Private Limited (hereinafter referred to as the “Petitioners”) are engaged in the manufacture of motor vehicles, parts and accessories thereof. The Petitioners have established a factory under the Factories Act, 1948, and are having a canteen facility within their establishment to provide food, refreshment and beverages to their workers, employees and staff. As per the Factories Act, 1948, the Petitioner is under the obligation to establish a canteen in the premises of the factory. Similarly, as per the Mysore Factory Rules, the Petitioner is mandatorily required to maintain and supply food in the canteen. The Petitioners had therefore, engaged the services of outdoor catering viz. Sodexo Food Solutions Pvt. Ltd. Further, the Petitioners were also availing the Cenvat Credit on the said services, supposing the same to be an eligible ‘input service’, in terms of Rule 2(l) of the Cenvat Credit Rules, 2004 from September 2004 till September 2011. However, the Department issued a show cause notice for the period April 2011 to September 2011 alleging that the ‘outdoor catering’ services were not eligible input services being excluded vide Rule 2(l)(c). The same was later confirmed by the Adjudicating Authority along with interest and penalty. Thereafter, both the Commissioner (Appeals) and the CESTAT Larger Bench held against the Petitioners. Thus, the Petitioners preferred an appeal before the High Court, however, the same was again dismissed. Aggrieved by the said judgment, the Petitioners have preferred the Special Leave Petition before the Hon’ble Supreme Court.

The Petitioners placed reliance upon plethora of judgements and argued that there is a duty casted upon them to establish a canteen under the Factories Act, 1948 and by no stretch of imagination the amendment to CCR, 2004 which includes certain exceptionary services will disentitle the Petitioner from Cenvat Credit.

Judgment:  The Hon’ble Supreme Court observed that the statutory provision i.e., Rule 2(l) defining “input service” post 01-04-2011, is very clear and outdoor catering services when such services are used primarily for personal use or consumption of any employee is held to be excluded from the definition of ‘input service’. The Apex Court held itself in complete agreement with the view taken by the High Court, and thus dismissed the Special Leave Petition filed by the Petitioners.

Toyota Kirloskar Motor Pvt. Ltd. vs. Commissioner of Central Tax, Supreme Court of India, in Petition(s) for Special Leave to Appeal (C) No(s). 17903-17904/2021, decided on 18-11-2021.

Toyota Kirloskar Motor Pvt. Ltd.

2. Whether refund of amount wrongly paid by the Petitioners as CGST & SGST in excess of the tax due be denied under Section 77 of the CGST Ac, 2017?

Facts and Pleading:  SBI Cards & Payment Services Ltd. (Petitioners) are engaged in the business of issuing credit cards to its customers. The Petitioners during the initial stage of GST regime, due to the non-availability of the break-up of individual transactions, for the period between April 2018 to December 2018, paid CGST and SGST of about INR 108 crores approximately, considering the transactions to be intra-states sales. However, it later transpired that those transactions were actually inter-state transactions. It was under those circumstances that the Petitioners applied for refund of the amount wrongly paid. However, the Department (“Respondents”) stated that the prayer for refund would be considered only after the Petitioners made the payment under the right head i.e., IGST. Hence, the Petitioner deposited another amount of INR 108 crores approximately, as tax which was due on the inter-state transactions. However, the plea for refund was subsequently rejected by the Assistant Commissioner (Appeals). Hence, the present petition.

The Petitioner submitted that in view of the Circular F. No. CBIC-20001/8.2021-GST dated 25-09-2021, the term “subsequently held” under section 77 of CGST Act or under Section 19 of IGST Act, covers both the cases where the inter-state or intra-state supply made by the taxpayer, are subsequently found/held either by himself or by the respective tax officer in any proceedings as intra-state or inter-state supply. Therefore, the Petitioners submitted that at least one amount of INR 108 crores approximately, has to be refunded to the Petitioners along with the applicable interest.

The Respondents argued that the phrase ‘subsequently held’ in section 77 of the CGST Act, could apply only in a case where an adjudicating authority had actually held a transaction to be an inter-state or intra-state supply. They further argued that the said Circular relied upon by the Petitioners, lays down the condition that the refund would be available only if the Petitioners have paid the required amount of tax under the correct head, and thus, the matter should be remanded back to the adjudicating authority to re-decide the issue in view of the said Circular.

Judgment: The Hon’ble High Court of Punjab and Haryana primarily observed that there exists no dispute about the amount of tax paid by the Petitioners and no claim that any tax is due from the Petitioners. The Court observed that rather it was on the requirement of the Respondents that the Petitioners paid an additional amount of INR 108 crores approximately, therefore the submission of the Respondents about the condition laid down in the Circular is not applicable in the present case, since additional tax has already been paid under the correct head by the Petitioners. Thus, the Hon’ble High Court held that once the Petitioner have paid an additional amount on the direction of the Respondents under IGST, the liability of the Respondents to refund an amount of INR 108 crore wrongly deposited under CGST and SGST cannot be disputed, and that interest ought to be paid, since the money has now lain for past two and a half years with the Respondents. Thus, the Hon’ble High Court allowed the petition and directed the Respondents to refund the entire amount to the Petitioners along with interest.

SBI Cards & Payment Services Ltd. vs. Union of India & Ors., High Court of Punjab & Haryana, decided on 08-10-2021, in CWP–8108– 2021 (O&M).

SBI Cards & Payment Services Ltd.

3. Whether in case of derailment of a project Cenvat Credit is available to an assessee for the input services used for providing such EPC output services?

Facts and Pleading:

L&T Hydrocarbon Engineering Ltd. (hereinafter “the Appellant”) had entered into a Turnkey contract for rendition of Engineering, Procurement and Construction Services for erection of bridge, Jacket and Piles. The Appellants hired services of M/s. Global Industries Asia Pacific Pte Ltd. (“Global Industries”), entrusted with the work of installation and commissioning of Bridge. Till 07-05-2009 the fabrication of Bridge, Jacket and Piles was completed, however, during installation, the tripod tilted and sunk, due to which the project was derailed. The Appellants made payments along with service tax to Global Industries for their services and took the Cenvat Credit of the service tax paid. Further, the Appellants also availed Cenvat Credit on services provided by various foreign vendors in relation to installation and commissioning of bridge. However, subsequently, the design and drawing were changed, and the project was completed. However, the Department issued a show cause notice disallowing the Cenvat Credit on such input services. The same was later confirmed by the adjudicating authority. Hence, the present appeal.

The Appellants submitted that Rule 2(l) of Cenvat Credit Rules, 2004 defines "input service" as any service used by a provider of taxable service for providing an output service. The Appellants argued that although, initially the project was derailed, however, later on, further design and drawing was changed, and work was executed by the Appellant on which the service tax was paid. Therefore, it was submitted that in terms of Rule 2(l) of CCR, 2004, being a provider of output service, for any service used by the Appellants, the Appellants are entitled to take the Cenvat credit of the same.

The Respondents submitted that as the project was derailed, the input services utilized by the Appellant have not resulted in providing any output service, and therefore, the Cenvat Credit on such input services cannot be allowed. It was further submitted that the Appellants had also not paid service tax on the insurance amount of ` 46.26 crores claimed by them, for the accident occurred during installation. Therefore, the Respondents argued that since, the input services availed have not resulted in providing the output service, the Appellants are not entitled to take Cenvat credit of ` 5,57,25,547/- for the period April-2009 to March-2010.

Judgment: The Hon’ble CESTAT, Ahmedabad observed that ‘input service’ as per Rule 2(l) of CCR, 2004 means any service used for providing an output service. Therefore, the Tribunal observed that since it is not in dispute that the Appellants have provided the output service and paid service tax thereon, any service received by the Appellants is an input service and thus, they are entitled for Cenvat Credit in terms of Rule 3 of CCR, 2004. The Tribunal observed that the adjudicating authority fell in error by holding that as the project was derailed, no service has been provided by the Appellant. The Tribunal stated that during the impugned period i.e. April-2009 to March-2010, the project was work in process and therefore, it cannot be held that no taxable service has been provided by the Appellant. Therefore, the Tribunal observed that the Appellant is entitled to take Cenvat Credit of the service received, and hence no demand is sustainable against the Appellant, consequently, no penalty is imposable on the Appellant.

L&T Hydrocarbon Engineering Ltd. vs. C.C.E. & S.T. Vadodara – I, CESTAT, West Zonal Bench, Ahmedabad, decided on 09-11-21, in Service Tax Appeal No. 11229 of 2015.

L&T Hydrocarbon Engineering Ltd.

4. Whether the activities carried out by the Appellant in India would constitute a supply of "Intermediary Service" classifiable under Heading 9961/9962 or any other classification of services as specified under GST laws?

Facts and Pleadings: M/s. Airbus Group India Pvt. Ltd. (hereinafter “the Appellant”) are operating as a subsidiary of Airbus Invest SAS, France. The Airbus Group generally procures parts, components or services from both domestic and international markets which are required for manufacturing and assembly of aerospace products like aircrafts, helicopters, etc. Therefore, Airbus France has entered into an "Intra-Group Services Agreement" with the Appellant, wherein the Appellant is required to perform Procurement Operations and Procurement Transformation & Central Services functions, against which they are remunerated with a service fee on a ‘cost plus mark-up’ basis. As per the Agreement, the Appellants are specifically restricted to decide or select any supplier and agree upon the terms and conditions of supply. Further, the Appellants are also not responsible for issuance of purchase order or payment for the supply made by the vendor. In order to obtain a ruling on classification of the service provided by them, the Appellants approached the AAR. The AAR classified the said services rendered by the Appellants as ‘intermediary services’ and not export of services. Aggrieved by the said order, the Appellants have approached the AAAR.

The Appellants submitted that the activities undertaken by the Appellants are only in the nature of identification, information gathering, providing technical expertise, advisory support and operation assistance concerning important areas of procurement to Airbus France, which is an independent service and does not involve any transaction relating to supply of goods. The Appellants further submitted that, the definition of the term ‘intermediary’ implies that it should be a ‘tripartite transaction’, which is not the present case. The Appellants while placing reliance upon a plethora of judgments also argued that they are neither an ‘agent’ nor a ‘broker’ nor are they covered under the phrase ‘any other person’ since they are not undertaking the supply of services on behalf of another, instead they are providing the services on a principal-to-principal basis. The Appellants also drew attention to the Circular dated 4-9- 2018 issued in the GST regime wherein the scope of principal-agent relationship was clarified and submitted that the activities of the Appellant are not undertaken on behalf of Airbus France. The Appellants stressed on the fact that there is no supply of goods by Airbus France to any person in India, rather the supply of goods is by the Indian supplier to Airbus France, wherein the Appellant is not an intermediary for the Indian supplier as no contract has been entered into with the Indian supplier. Lastly, the Appellants submitted that the services are correctly classifiable as ‘export of service’, since all the conditions as provided under S.2(6) of the IGST Act are fulfilled.

Judgement: The Hon’ble AAAR, Karnataka observed that the services provided by the Appellants are correctly classifiable as ‘intermediary services’. The AAAR observed that the terms ‘broker’ and ‘agent’ are fundamentally different and are not substitutes for each other. The AAAR stated that it would not be proper to use the terms Broker or Agent or Intermediary, interchangeably, as these terms have completely different essence and characteristics. In common parlance there may seem to be similarity in the terms Broker, Agent and Intermediary, however, they do not form any category or class, nor do they constitute a genus under the legal provisions of the GST Act. The AAAR stated that the principle of ‘ejusdem generic’ cannot be applied for interpreting the phrase ‘any other person, by whatever name called’, and that it cannot draw its color from the preceding words which are altogether different. It observed that the said phrase is to be interpreted so as to include persons who are not necessarily similar to ‘broker’ or ‘agent’. The AAAR further stated that an intermediary is a person between the supplier and the recipient who arranges or facilitates such supply and is given a consideration for this activity, and that the entire gamut of the activities carried out by the Appellant with the ultimate aim of assisting their principal i.e., Airbus France to procure a supply of goods from Indian vendors is nothing but arranging or facilitating a supply between two persons i.e., between the Indian supplier and Airbus France. The AAAR observed that the Appellant renders a service to Airbus France in arranging for the main supply between two principals i.e. the Indian supplier and Airbus France, to take place, and therefore, the activity of the Appellant is nothing but an intermediary service. The AAAR placed reliance upon the Board Circular No 159/15/2021 GST dated 20- 09-2021, observing that the said Circular clearly states that the concept of intermediary requires a minimum of three parties, two of them transacting in the supply of goods or services or securities and one arranging or facilitating the said main supply, and since the Appellant is not supplying such goods on its own account, the Appellant does not fall within the ambit of the exclusion contained in the definition of ‘intermediary’. Therefore, the AAAR upheld the order passed by the Advance Ruling Authority and dismissed the appeal filed by the Appellant.

M/s. Airbus Group India Pvt. Ltd, AAAR, Karnataka, decided on 09-11-2021, in Order No. KAR/AAAR/09/2021-22. 

Unreported Decisions – December 2021

By Ajay R. Singh, Advocate and CA Rohit Shah

1. Depreciation on Asset forming Part of Block of Assets but not utilized during the relevant Assessment Year

The assessee claimed the depreciation of ` 57,60,034/- on Westland Helicopters which are the part of block of assets. These assets had been acquired in 1986-87, however, the same were not used during the relevant assessment year. The AO alleged that the depreciation claimed by the assessee is not allowable since the asset was not used in the current year. The ld. CIT (A) confirmed the disallowance.

It was submitted before ITAT that, the helicopters were acquired in 1986-87 and the assessee has been claiming the depreciation since then has not been in dispute. The AO has allowed the depreciation on helicopters in the earlier assessment years. This fact is also not disputed by the AO as well as CIT(A). Further, the assessee is following the concept of block of assets which were also not in qualm by the revenue.

‘Block of Assets’ as defined by section 2(11) means, group of assets falling within a class of assets, comprising—

(a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade-marks, licenses, franchises or any other business or commercial rights of similar nature, [not being goodwill of a business or profession, in respect of which the same percentage of depreciation is prescribed.

Thus, once an asset is part of the block of assets and depreciation is granted on that block, it cannot be denied in its subsequent year on the ground that one of the assets is not used by the assessee in some of the years. The concept "user" of assets has to apply upon block as a whole instead of an individual asset. Hon’ble ITAT allowed the appeal and relied on the Hon’ble Jurisdictional High Court in the case of Sony India (P.) Ltd. v. CIT [2017] 88 taxmann.com 580 (Delhi) held that the assessee would be entitled to depreciation in respect of assets which were part of block of assets even if said assets had not been put to use during relevant assessment year and had been sold prior to end of accounting year.

Pawan Hans Helicopters Ltd. vs. DCIT Special Range-20, New Delhi [ITA No. 319/ DEL/2001 A.Y. 1995-96]

Pawan Hans Helicopters Ltd.

2. S. 12A: Taxability of Income of a Trust During Pendency of 12A Application

Assessee, a trust, engaged in social and religious activities filed its return of income for the A.Y. 2008-09 declaring NIL income. The return was processed under section 143(1). Subsequently, the assessment was reopened under section 147. The AO during the reassessment noted that assessee-trust is registered with Registrar Sub-Divisional, Bhatpara (CG) vide registration No. 2/001, dated 9-10-2001, however, the assessee has no registration under section 12A. The AO in absence of registration under section 12A treated the receipt of building fund of ` 321,351/- as income of the assessee.

On appeal before CIT(A), the action of the AO was upheld. During the pendency of appeal before ld CIT(A), the assessee applied for registration under section 12AA and the assessee was granted registration vide order dated 9-5-2016 with effect from 1-4-2015. Before, ld CIT(A) the assessee pleaded that the assessee as per the Proviso to section 12AA (2), when the application of the trust is pending registration, the registration will apply to the pending assessment. The plea of the assessee was not accepted by the ld CIT(A) by taking view that before granting the registration under section 12AA, the assessment for AY 2008-09 was completed on 31-3-2015 and for AY 2011-12 assessment completed on 27-3-2015. Before Hon’ble ITAT, it was submitted that initially Assessee submitted the application us 12AA on 31-03-2004 and outcome of the application of assessee us 12AA was never communicated to the assessee. It was also submitted that the assessee’s case is covered under "deemed registration" as per the decision of Hon’ble Supreme Court in case of Promotion of Education Adventure Sport & Conservation of Environment dated 16-2-2016. The learned AR for the assessee further submitted the assessee is granted registration during the pendency before CIT(A), therefore the assessee is entitled for the benefit of first Proviso to section 12A (2). It is admitted position under the

law that the appeal is continuation of original proceedings. Even otherwise the ld CIT(A) has co-terminus power with that of the assessing officer. In view of the above and going by the principle of purposive interpretation of statues, an assessment proceeding which is pending in appeal before the appellate authority should be deemed to be ‘assessment proceedings pending before the assessing officer’ within the meaning of that term as envisaged under the proviso. It follows there-from that the assessee who obtained registration under section 12AA of the Act during the pendency of appeal was entitled for exemption claimed under section 11 of the Act. Hon’ble ITAT allowed the appeal and held that it is an established position in law that a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole and accordingly the said insertion of first proviso to section 12A(2) of the Act with effect from 1-10-2014 should be read as retrospective in operation with effect from the date when the condition of eligibility for exemption under sections 11 & 12 as mentioned in section 12A provided for registration u/s. 12AA as a pre-condition for applicability of section 12A."

Prem Prakash Mandal Seva Trust vs. ITO, Exemption, Raipur [ITA No.262/Raipur/2016]

Prem Prakash Mandal Seva Trust